Sportsband Network v. PGA Tour Inc

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 96-11164
SPORTSBAND NETWORK RECOVERY FUND, INC.,
SPORTSBAND NETWORK, INC., AND
SPORTSBAND NETWORK I, LTD.,
Plaintiffs-Appellants,
versus
PGA TOUR, INC.,
Defendant-Appellee.
Appeal from the United States District Court
For the Northern District of Texas
(92-CV-2679)
January 30, 1998
Before KING, DUHÉ, and WIENER, Circuit Judges.
WIENER, Circuit Judge:*
Plaintiffs-Appellants SportsBand Network Recovery Fund, Inc.,
SportsBand Network, Inc., and SportsBand Network I, Ltd.
(collectively, SportsBand) appeal the district court’s grant of a
judgment as a matter of law (j.m.l.) in favor of Defendant-Appellee
PGA Tour, Inc. (PGA), overturning the jury’s verdict for SportsBand
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
on its breach of contract claim. SportsBand also appeals the
district court’s grant of a j.m.l. in favor of PGA on SportsBand’s
fraud claim after SportsBand had presented its case in chief.
Finally, SportsBand claims that the district court erred by
excluding the testimony of its expert witness on the issue of lost
profits and thereafter rejecting its lost profits claim. We find
none of these contentions persuasive and, accordingly, affirm.
I
FACTS AND PROCEEDINGS
A. Facts
The events leading to this litigation stem from a failed
business venture between SportsBand and PGA to promote and market
on-site radio broadcasts to spectators at professional golf
tournaments. PGA is a non-profit corporation serving as a
membership/trade association for golf professionals in the United
States.
In 1986, SportsBand’s eventual founders, Frank Mitchell and
Theis Rice, approached PGA with the idea of conducting commercial,
closed-circuit, on-site radio broadcasts1 at PGA-sponsored events.
1
The concept behind SportsBand was that professional
sportscasters attending golf tournaments would broadcast play-by-
play coverage and other news over an FM transmitter. SportsBand
spectators would listen to the broadcasts —— carried over FCC
licensed radio frequencies —— through lightweight ear pieces that
accompany a small receiver, which would be obtained by spectators
when they entered the tournament. It would allow spectators to
hear stroke-by-stroke coverage of the play at multiple holes.
2
The parties entered into a preliminary agreement to assess the
idea: Mitchell and Rice agreed to submit a plan for developing the
broadcasts, and in return PGA granted them broadcast exclusivity.
Mitchell and Rice submitted a plan addressing key business aspects
and offering a pilot broadcast at no cost to PGA. PGA accepted the
proposal and requested the pilot, which met with positive reviews.
Later that year Mitchell and Rice incorporated and capitalized
SportsBand. Late in 1987, SportsBand and PGA entered into a trial
term agreement under which SportsBand agreed to conduct three
additional pilot broadcasts at its own expense because PGA refused
to enter into a long-term agreement without such additional
broadcasts. These pilots too received positive reviews.
In July 1988, the parties signed a long-term contract (the
Agreement) under which SportsBand was licensed to conduct
broadcasts at PGA events for a five-year term and was granted an
option to renew for an additional five-year term. The Agreement
specified that SportsBand was responsible for all technical
production and operating expenses and that PGA was to “provide
SportsBand with a list of all [PGA] advertising clients and
Sponsors and be responsible for the sale of commercial units,
features and vignettes to these clients and Sponsors.” PGA would
not, however, “guarantee any such sales, and the number actually
sold during any year of the Term [would not] affect SportsBand’s
obligations to pay the guaranteed amounts set forth in Section 3.1
[rights fees].” With respect to other sponsors, PGA agreed to
3
“provide best effort support for SportsBand’s sales efforts with
appropriate assistance by [PGA] personnel, including but not
limited to a letter of introduction and endorsement of SportsBand
from the Commissioner . . . .” As consideration, SportsBand
undertook to pay PGA “rights fees” plus a share of the revenues.
In addition, SportsBand agreed to indemnify PGA and hold it
harmless from all losses, claims, damages and expenses incurred in
connection with the rental, marketing, advertising, operation or
promotion of the program. Finally, the Agreement explicitly stated
that no partnership or joint venture relationship existed between
the parties.
The parties are in agreement that PGA, largely through Art
West —— PGA’s Director of Promotions and SportsBand’s primary PGA
contact —— undertook a marketing campaign to sell sponsorships of
the broadcast program. PGA especially pursued Nabisco, PGA’s
largest corporate client, to purchase a title sponsorship at a cost
of $800,000. Despite early interest, Nabisco informed PGA and
SportsBand in May of 1988 that it would not purchase a title
sponsorship. Nevertheless, the evidence shows, PGA continued to
solicit sponsorship funds from Nabisco and many other potential
sponsors.2
Mitchell and Rice testified that by the end of 1988 they were
becoming hesitant about proceeding with the 1989 broadcast season,
2
PGA was eventually successful in convincing Nabisco to
sponsor SportsBand broadcasts at two tournaments in late 1988.
4
given the lack of confirmed sponsorship funds; in fact, they
proposed pretermitting broadcasts for that season. According to
Mitchell and Rice, however, West convinced them to go forward with
an ambitious twenty-tournament schedule, assuring them that several
substantial sponsorships —— including Bell Systems, Nabisco, and
Liberty Mutual —— were in the “final review” stages. Mitchell and
Rice also claim that West represented to them that PGA would cover
SportsBand’s expenses if they did not generate enough advertising
and sponsorship money to cover such costs. West told them that the
most important thing was for SportsBand to go through with the 1989
season, as PGA had publicized the upcoming broadcasts to clients
and the media. West indicated that postponing the season was
simply not an option. Mitchell and Rice also aver that West
instructed them not to market SportsBand independently, but to
concentrate on producing the broadcasts.
To the astonishment of both parties, radio rentals at the 1989
tournaments fell far short of expectations. The penetration rate3
remained low, even after several promotions in which spectators
were given receivers free of charge. In May 1989, after nine
tournaments, SportsBand, with PGA’s consent, cut short the 1989
broadcast season for lack of funds. Despite this setback,
SportsBand hoped to recapitalize, and PGA continued to market
3
Penetration refers to the ratio of spectators that purchase
or use SportsBand’s product compared with the total number of
spectators who attend the tournament.
5
SportsBand for the 1990 season. The evidence shows that by late
summer of 1989, however, SportsBand had let all its employees go,
and by January 1, 1990, it had closed its offices. Furthermore,
its efforts to recapitalize had been singularly unsuccessful.
SportsBand contends that it attempted to renegotiate certain
provisions of the Agreement pursuant to § 22, which provides that
“in the event the performance by SportsBand of its obligations
. . . prove[s] to be economically disadvantageous to SportsBand
when compared to the financial investment of SportsBand in the
Service, [the parties] will negotiate in good faith for a
readjustment of the percentage distribution of the ‘remaining
revenue’ . . . .” SportsBand maintains that instead of
renegotiating PGA sent SportsBand a letter in June 1990, stating
that SportsBand owed PGA approximately $247,000, comprising the
balance owed on minimum rights fees, various out-of-pocket expenses
incurred by PGA for SportsBand, and the percentage of receiver
revenues to which PGA was entitled. In November, PGA renewed its
request for payment, this time seeking only $227,085.05, the
largest component of which was $125,000 in rebates that PGA had
remitted to the eight sponsors on SportsBand’s behalf because of
its failure to complete the twenty-broadcast schedule. The parties
dispute whether this invoice was proper and whether SportsBand
acknowledged that it owed this amount.
In any event, on February 21, 1990, PGA sent SportsBand a
notice of default, declaring that unless full payment of the
6
balance due was made within ten days, the Agreement would
terminate. Over a month later, on March 26, PGA sent SportsBand a
formal notice of termination.4
B. Proceedings
In December 1992, SportsBand, Mitchell, and Rice filed suit
against PGA. They filed their first amended complaint in October
1993, alleging breach of contract, breach of fiduciary duties,
fraud, and constructive trust. For their breach of contract claim,
they asserted that PGA breached the Agreement by, inter alia,
(1) not fulfilling its obligation to market and raise title and
other sponsorships; (2) failing to purchase all sponsorship time
that PGA was unable to sell; (3) failing to negotiate and agree on
broadcast schedules; (4) failing to renegotiate contract terms;
(5) wrongfully billing for unearned amounts; and (6) wrongfully
terminating the Agreement. Plaintiffs also alleged breach of
fiduciary duties based on the same acts and omissions.
In addition, SportsBand, Mitchell, and Rice contended that PGA
committed fraud by misrepresenting (1) that it would raise funds
for SportsBand —— or if unable to obtain necessary sponsorships,
provide funds —— if SportsBand undertook the extensive 1989
broadcast schedule demanded by PGA; (2) the nature and meaning of
its commitment to and partnership with SportsBand; (3) that it
4
SportsBand alleges that PGA actually terminated the Agreement
at a February 27 meeting of PGA’s Policy Board and that this
termination was wrongful as it failed to afford SportsBand the
applicable cure period pursuant to § 13 of the Agreement.
7
would be a title sponsor; (4) that it would renegotiate the terms
of the Agreement; and (5) that it would acquire SportsBand.
Plaintiffs assert that these misrepresentations induced them to
undertake the 1989 schedule and to perform other detrimental acts.
SportsBand’s constructive trust claim urged that to allow PGA to
benefit from violating the five-year exclusivity provisions of the
Agreement would be unjust. Finally, SportsBand sought pre- and
post-judgment interest, costs and attorney’s fees.
In October 1993, PGA filed its second amended answer and
counterclaim, seeking damages from SportsBand for breach of
contract and unjust enrichment, and from Mitchell and Rice
individually as the alter-egos of SportsBand. PGA asserted that
SportsBand materially breached the Agreement by, inter alia,
failing to complete the 1989 broadcast schedule and wrongfully
refusing to pay sums due PGA pursuant to the Agreement. PGA
alternatively answered that SportsBand was unjustly enriched by
retaining funds rightfully belonging to PGA.
Almost two years later, in August 1995, the district court
entered an amended interlocutory judgment, dismissing with
prejudice the following claims and remedies sought by SportsBand:
(1) breach of alleged promises to provide financial support, to
renegotiate the Agreement and to bring SportsBand in-house;
(2) imposition of a constructive trust; (3) lost profits for 1994-
1998; and (4) lost business opportunity. By separate interlocutory
judgment, the district court dismissed with prejudice the
8
individual claims of Rice (but not those of Mitchell).
The case was tried to a jury in February 1996. After
SportsBand completed the presentation of its case in chief, PGA
moved for a j.m.l. The district court granted that motion in part,
ruling that the trial could proceed on SportsBand’s breach of
contract claims as set out in the pretrial order but dismissing
Mitchell’s individual claims as a plaintiff and SportsBand’s claims
for breach of fiduciary duty,5 implied partnership, and fraud. In
dismissing the fraud claim, the court reasoned that:
statements of opinion or belief or prediction of future
events over which it’s known that a person has no control
cannot constitute the basis for a fraud claim. However,
otherwise, statements of fact that proved to be untrue
also cannot be the basis of a fraud claim unless there is
some evidence that the person knew that the
representation was false, should have known that it was
false, or made the statement with reckless disregard of
its truth or falsity.
There is no evidence that Art West in making any
such statements to the plaintiffs, if he did, made the
statement under any of these circumstances.
Early the next month, SportsBand moved for a j.m.l. on its
breach of contract claims and on PGA’s counterclaim. Granting that
motion in part, the court dismissed PGA’s alter ego claims.
At the close of evidence, PGA filed a second motion for a
j.m.l., which the district court denied, thereby allowing
SportsBand’s breach of contract claim to go to the jury. The jury
rendered a verdict in favor of SportsBand, awarding it $979,000 in
5
The district court determined that this claim was barred by
the statute of limitations.
9
damages for breach of the Agreement, consisting of $579,000 for
breach of the marketing provision and $400,000 for breach of the
termination provision. The district court entered final judgment
granting those sums, as well as post-judgment interest.
Additionally, the final judgment confirmed the dismissal with
prejudice of (1) SportsBand’s claims of constructive trust, breach
of fiduciary duties, implied partnership, and fraud; (2) all claims
of Rice and Mitchell; and (3) PGA’s alter ego claims.
PGA filed motions for a new trial and a j.m.l. SportsBand
filed (1) a motion to amend the judgment to include pre-judgment
interest and costs of court, and (2) a motion requesting attorney’s
fees. The court denied these motions. Then, in July 1996, the
court granted PGA’s j.m.l. motion, holding that, even though
SportsBand had presented sufficient evidence to support the jury’s
verdict that the Agreement had been breached, SportsBand had
“failed to present sufficient evidence to establish that they
sustained damages that were proximately caused by any such breach.”
The court commented that no evidence was presented to support a
finding that SportsBand would not have incurred its claimed
operating and start-up expenses absent a breach. The court also
observed that the contract expressly disclaimed any guarantee of
profits, and, as the court had previously ruled, no fiduciary or
partnership relationship existed. Thus, “the damages awarded by
the jury were not based upon sufficient evidence, but rather
conjecture and speculation.” The court entered an amended final
10
judgment denying recovery by any of the parties and dismissing all
claims with prejudice.
After its subsequent motions to set aside the amended judgment
and for a new trial were denied, SportsBand timely appealed.6
II
ANALYSIS
A. Breach of Contract
SportsBand asserts that the district court erred by
overturning the verdict of the jury and granting a j.m.l. in favor
of PGA, dismissing SportsBand’s breach of contract claims. The
parties agree that Texas law applies in this diversity action.
1. Standard of Review
We review de novo rulings on a motion for a j.m.l., applying
the same standard as that used by the trial court.7 We do not
disregard a jury’s verdict lightly, and will uphold its findings
if, “considering all of the evidence and all its reasonable
inferences in the light most favorable to the winning party, . . .
there is substantial evidence ‘of such quality and weight that
reasonable and fair-minded men in the exercise of impartial
judgment might reach different conclusions.’”8 A “mere scintilla”
6
Mitchell is no longer a party to this appeal.
7
Mosley v. Excel Corp, 109 F.3d 1006, 1008 (5th Cir. 1997);
Gutierrez v. Excel Corp., 106 F.3d 683, 686 (5th Cir. 1997).
8
Shipp v. General Motors Corp., 750 F.2d 418, 421 (5th Cir.
1985) (quoting Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir.
11
of evidence, however, is insufficient to sustain a jury verdict.9
2. Marketing Provision
SportsBand contends that PGA breached the marketing provision,
§ 3.3.1, of the Agreement. Even assuming arguendo that there was
a breach of this provision, however, we agree with the district
court that SportsBand failed to prove that the financial losses it
suffered were proximately caused by such breach. It is well-
settled that a plaintiff must present competent evidence of the
damages it claims.10 This proof must consist of two elements:
(1) proof of a causal connection between the injury sued on and the
damages claimed;11 and (2) proof of the amount of damages.12 In this
case, SportsBand failed to establish the first element of this test
—— the causal connection.
Our review of the record indicates that SportsBand did not
1969) (en banc)).
9
Brady v. Houston Indep. Sch. Dist., 113 F.3d 1419, 1422 (5th
Cir. 1997) (citing Boeing, 411 F.2d at 374).
10
See Prunty v. Arkansas Freightways, Inc., 16 F.3d 649, 652
(5th Cir. 1994) (“It is truistic, indeed elementary, that one who
seeks compensatory damages must present evidence of those
damages.”).
11
Morgan v. Compugraphic Corp., 675 S.W.2d 729, 732-33 (Tex.
1984); Texas Indus., Inc. v. Vaughan, 919 S.W.2d 798, 801 (Tex.
App. —— Houston [14th Dist.] 1996, writ denied); Beaumont v.
Excavators & Constructors, Inc., 870 S.W.2d 123, 139 (Tex. App. ——
Beaumont 1993, writ denied).
12
Silor v. Romero, 868 F.2d 1419, 1422 (5th Cir. 1989);
Lakewood Pipe of Texas, Inc. v. Conveying Techniques, Inc., 814
S.W.2d 553, 556 (Tex. App. —— Houston [1st Dist.] 1991, no writ).
12
produce evidence that its lost revenue was caused by PGA’s alleged
marketing deficiencies or refusal to allow SportsBand to market
independently. For instance, there was no testimony from potential
sponsors who might have been willing to sponsor SportsBand if PGA
or SportsBand had solicited them more or differently. In fact, the
only third party witness offered by SportsBand was a Nabisco
official who testified that PGA had marketed the SportsBand program
aggressively and that the only impediment to Nabisco’s purchasing
a sponsorship was a leveraged buyout. Neither did SportsBand
produce evidence that it suffered damage because PGA provided an
introductory letter from the Deputy Commissioner instead of the
Commissioner, as required by the Agreement. Indeed, Rice testified
that to his knowledge SportsBand never even tried to use the letter
for marketing purposes.
SportsBand attempts to show a proximate cause relationship
between the breaches of the marketing provision and its damages by
claiming that it would not have had to spend over $1 million of its
operating capital if PGA had performed its duties under the
Agreement. SportsBand asserts that it expended substantial
resources in preparing to perform and performing under the
Agreement, including producing the 1989 broadcast season. It
insists that these expenditures were made in reasonable reliance on
the Agreement and PGA’s promise to perform its obligations
thereunder. Citing Mistletoe Express Service of Oklahoma City v.
13
Locke,13 SportsBand argues that once PGA breached the marketing
provision these expenditures were converted to recoverable damages.
In Mistletoe, the court explained that under some
circumstances, such as when a contract requires a capital infusion
by one of the parties to perform, that party may recover its
expenditures reasonably made in preparation for the contract when
the other party breaches.14 The court reasoned that, as the
performing party will not have the entire contract term to recoup
his investment, he must be able to recover these expenditures so as
to be placed in a position no worse than the one he would have been
in had the contract been performed.15 The court noted that these
“reliance” damages are an alternative to normal expectation
damages16: “‘[T]he injured party may, if he chooses, ignore the
element of profit and recover as damages his expenditures in
reliance.’”17
Albeit such “reliance” damages may be appropriate in some
situations,18 they are not available under the facts of this case.
13
762 S.W.2d 637 (Tex. App. —— Texarkana 1988, no writ).
14
Id. at 638.
15
Id.
16
Id. (citing Restatement (Second) of Contracts § 349 (1981)).
17
Id. (quoting Restatement (Second) of Contracts § 349 comment
a (1981)).
18
See, e.g., City of Houston v. United Compost Servs., Inc.,
477 S.W.2d 349, 355 (Tex. Civ. App. —— Houston [1st Dist.] 1972,
writ ref’d n.r.e.).
14
Contrary to its assertions, SportsBand presented no evidence that
it made expenditures in reliance on the Agreement; to the contrary,
Rice and Mitchell repeatedly testified that, although they had no
obligation under the Agreement to broadcast at all, they elected to
fund the 1989 broadcast season based on West’s alleged
representations that sponsorships were pending or that PGA would
underwrite SportsBand’s expenses.19 More importantly, SportsBand
never pleaded the reliance theory of damages,20 and in fact never
asserted this basis for recovery until after its fraud claims were
dismissed during the course of trial. The jury instructions —— to
which SportsBand did not object and has not challenged on appeal21
—— did not give the jury the choice to award reliance damages, but
instead described only traditional “proximate cause” damages.22
19
See infra Part II.B.
20
See Nance v. Resolution Trust Corp., 803 S.W.2d 323, 330
(Tex. App. —— San Antonio 1990, writ denied).
21
Any issues not raised or argued in SportsBand’s brief are
considered waived and will not be entertained on appeal. See
United Paperworkers Int’l Union v. Champion Int’l Corp., 908 F.2d
1252, 1255 (5th Cir. 1990).
22
The jury instructions provided, in pertinent part:
SportsBand contends that it suffered damages which were
proximately caused by [PGA]’s breach of the terms of the
July 13, 1988 Agreement. . . . The “proximate cause” is
that cause which, in a natural and continuous sequence,
produces an event, and without which such event would not
have occurred. To be a proximate cause, the act or
omission complained of must be such that a person using
ordinary care would have foreseen that the event, or some
similar event, might reasonably result from that act or
omission. . . . You may award compensatory damages only
15
SportsBand cannot now be heard to argue that damages should have
been available under a different or additional theory. We thus
conclude that the district court did not err in granting a j.m.l.
in favor of PGA on this issue.
3. Termination Provision
SportsBand also contends that PGA breached § 13.0 (the
termination provision) of the Agreement by (1) invoking the default
provision based on an incorrectly calculated and improperly
demanded invoice, and (2) failing to abide by the cure provisions
set forth in the Agreement. Again, assuming arguendo that
SportsBand established a breach of this provision, doing so
provides no help because, like the district court, we discern no
probative evidence that SportsBand’s damages were proximately
caused by this termination. What the evidence does show is that
SportsBand had let all its employees go by late summer of 1989, and
that by January 1, 1990, it had closed its offices. Furthermore,
by that time SportsBand’s efforts to recapitalize had failed. In
short, SportsBand was defunct for several months before PGA ever
purported to terminate the Agreement. SportsBand has shown no
nexus between the breaches sued on and any damages it incurred.
And, as previously discussed, SportsBand’s contention that it
should be able to recover its operating expenses as “reliance”
damages is ineffectual. Thus, in the absence of evidence that
for injuries that SportsBand proves were proximately
caused by [PGA]’s alleged breach of contract.
16
SportsBand suffered injury proximately caused by PGA’s purported
breach of the termination provision of the Agreement, we conclude
that the district court did not err in granting a j.m.l. on that
claim.
B. Fraud
SportsBand next asserts that it advanced an actionable fraud
claim in connection with West’s alleged representations to Mitchell
and Rice in December 1988 and January 1989 that (1) various
sponsorships were in the “final review stages,” and (2) if those
sponsorships did not materialize, PGA would provide funding for the
1989 broadcast season. Consequently, claims SportsBand, the
district court erred when it granted PGA’s motion for a j.m.l. on
SportsBand’s fraud claims at the end of SportsBand’s case in chief,
thereby preventing those claims from going to the jury.
1. Standard of Review
Again, we review de novo rulings on a motion for a j.m.l.23
Just as when we review a motion for a j.m.l. granted after the jury
renders its verdict, when we review such a motion granted at the
close of plaintiffs’ case we must evaluate all the evidence “in the
light and with all reasonable inferences most favorable to” the
nonmovant —— here, SportsBand.24 A motion for a j.m.l. at the close
of a plaintiff’s case should only be granted when “there is no
23
Mosley, 109 F.3d at 1008; Gutierrez, 106 F.3d at 686.
24
Boeing, 411 F.2d at 374.
17
legally sufficient evidentiary basis for a reasonable jury to find
for [the Plaintiff] on that issue . . . .“25
2. Applicable Law
Under Texas law, the elements of actionable fraud are
“(1) that a material representation was made; (2) that it was
false; (3) that, when the speaker made it, he knew it was false or
made it recklessly without any knowledge of its truth and a
positive assertion; (4) that he made it with the intention that it
should be acted upon by the party; (5) that the party acted in
reliance upon it; and (6) that he thereby suffered injury.”26 In
its ruling, the district court noted first that statements of
opinion or predictions of future events over which the declarant
has no control cannot constitute the basis for a fraud claim. Even
assuming that West’s representations were untrue, concluded the
court, there was no probative evidence that West knew or should
have known that his statements were false or that he recklessly
disregarded their falsity. As for West’s alleged promise that PGA
would fund SportsBand’s 1989 broadcast season if sponsorships fell
through, the district court found that there was no evidence that
at the time he is alleged to have made this representation, West
did not intend for that promise to be performed.
We find no error in the district court’s ruling. SportsBand
25
Fed. R. Civ. P. 50(a)(1).
26
Walker v. FDIC, 970 F.2d 114, 122 (5th Cir. 1992)(citing
Trentholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983)).
18
urges that it adduced sufficient evidence to go to a jury on its
fraud claim. SportsBand insists that West’s representations about
the status of negotiations for sponsorships were not offered as
opinions but as statements of fact. SportsBand states repeatedly
that West knew that funding was a major concern for SportsBand and
that it would not have gone forward with the 1989 broadcast season
had it known that PGA had misrepresented the status of funding.
SportsBand contends that the fact that the sponsorships never
materialized evidences West’s intent to defraud SportsBand.
SportsBand’s assertions simply do not satisfy all elements
required to sustain a fraud claim. As the district court noted,
SportsBand has presented no evidence that West knew or should have
known that his statements regarding the potential sponsorships were
false. In his January 10, 1989 letter to Rice which, according to
SportsBand, memorialized West’s representations, West specifically
referred to three potential sponsors, stating that “we still have
title sponsorship proposals in the final review stages by Nabisco
($500,000), Liberty Mutual ($250,000) and the Bell System
($250,000).”27 West never asserted that the money had been or
definitely would be collected, only that negotiations were in the
final review stages. With regard to Nabisco, the evidence shows
that West was indeed involved in ongoing negotiations with Nabisco
and that, as recently as late 1988, Nabisco was still contemplating
27
Trial Exhibit 317.
19
a sponsorship of $500,000; and that it was the unforeseeable
leveraged buyout of Nabisco in early 1989 that scuttled these
plans. Clearly, West had no knowledge that this eventuality was
pending when he allegedly made these representations to SportsBand.
And, even though neither Liberty Mutual nor Bell Systems purchased
sponsorships, Liberty Mutual did purchase advertising with
SportsBand worth $36,000. As was the case with Nabisco, no
evidence in the record suggests that West knew, should have known,
or recklessly disregarded the fact that Liberty Mutual and Bell
Systems were not going to become sponsors.28 Even though we agree
with SportsBand that intent may be proved through circumstantial
evidence,29 this does not aid SportsBand: There is not even
circumstantial evidence that West knew or should have known that
his purported statements were false when made.
Neither does SportsBand’s claim with respect to West’s second
alleged misrepresentation —— that PGA would fund the 1989 season if
sponsorships did not materialize —— satisfy the elements of a valid
28
SportsBand contends that a letter from West to Liberty
Mutual, dated January 11, 1988 and proposing a smaller sponsorship
package to Liberty Mutual than that described in the January 10
letter to Rice, provides circumstantial evidence that West knew
that the deal was not in the “final review stages.” See Trial
Exhibit 1496. Our review of this document reveals, however, that
it was formulated at the request of Liberty Mutual and was copied
to Mitchell. This is not the stuff of a viable fraud claim.
29
See Walker, 970 F.2d at 122; Thornbrough v. Columbus &
Greenville R. Co., 760 F.2d 633, 641 (5th Cir. 1985), overruled on
other grounds, St. Mary’s Honor Center v. Hicks, 509 U.S. 502
(1993).
20
fraud claim. True, under Texas law a party can base a claim of
actionable fraud on a promise of future performance.30 But the
plaintiff must prove that the defendant had a present intent not to
perform in the future.31 As subsequent failure to perform, standing
alone, is not evidence of intent not to perform,32 “‘[s]light
circumstantial evidence of fraud, when considered with the breach
of promise to perform, is sufficient to support a finding of
fraudulent intent.’”33
SportsBand contends that there is a surfeit of circumstantial
evidence that PGA never intended to fund SportsBand. It maintains
that, as West understood that SportsBand was reluctant to proceed
without adequate funding, he knew that the promise of funding would
be a powerful inducement for SportsBand to move forward with the
1989 season. SportsBand concludes that, in combination with PGA’s
subsequent failure to provide funding, there was sufficient
circumstantial evidence of fraudulent intent for this issue to go
to the jury. We disagree. Albeit PGA’s desire for SportsBand to
30
Walker, 970 F.2d at 122.
31
Schindler v. Austwell Farmers Coop., 841 S.W.2d 853, 854
(Tex. 1992).
32
Barbouti v. Munden, 866 S.W.2d 288, 295-96 (Tex. App. ——
Houston [14th Dist.] 1993, writ denied), overruled on other
grounds, Formosa Plastics Corp. USA v. Presidio Engineers and
Contractors, Inc., 1997 WL 378129 (Tex. July 9, 1997).
33
Beijing Metals & Minerals v. American Bus. Ctr., 993 F.2d
1178, 1186 (5th Cir. 1993) (quoting Spoljaric v. Percival Tours,
Inc., 708 S.W.2d 432, 435 (Tex. 1986)).
21
embark on the 1989 season may be circumstantial evidence of its
intent to induce SportsBand to proceed, evidence of that desire
does not prove that West had no intention of performing his promise
at the time that he made it. Without evidence of such contemporary
intention, SportsBand cannot sustain a claim for the breach of a
promise of future performance. We conclude that the district court
did not err in granting PGA’s motion for a j.m.l. on SportsBand’s
fraud claims.
C. Lost Profits
SportsBand contends that the district court erred when it
excluded the testimony of Ted Griffith —— SportsBand’s expert
witness on lost profits —— and then rejected SportsBand’s lost
profits claim altogether.
1. Standard of Review
We review a district court’s evidentiary rulings for abuse of
discretion.34 District courts are granted wide latitude in
determining the admissibility of expert testimony, and “the
discretion of the trial judge and his or her decision will not be
disturbed on appeal unless ‘manifestly erroneous.’”35 The district
court did not cite Rule 50 of the Federal Rules of Civil Procedure
when it excluded SportsBand’s claim for lost profits. But inasmuch
34
General Elec. Co. v. Joiner, 118 S. Ct. 512, 517 (1997).
35
Watkins v. Telsmith, Inc., 121 F.3d 984, 988 (5th Cir. 1997)
(quoting Eiland v. Westinghouse Elec., 58 F.3d 176, 180 (5th Cir.
1995)).
22
as the court did dispose of that claim, we view its ruling as a
grant of a motion for a j.m.l.36 Our review of the ruling is
therefore de novo.37
2. Applicable Law
Rule 702 of the Federal Rules of Evidence provides that “[i]f
scientific, technical, or other specialized knowledge will assist
the trier of fact to understand the evidence or to determine a fact
in issue, a witness qualified as an expert by knowledge, skill,
experience, training, or education, may testify thereto . . . .”38
The Advisory Committee Notes to Rule 702 explain that “[w]hen
opinions are excluded, it is because they are unhelpful and
therefore superfluous and a waste of time.”39
In excluding Griffith’s testimony, the district court stated
that “it is questionable whether this witness has any expertise
that would assist the jury in making any calculation of lost profit
. . . .” The court noted that Griffith, in making his
calculations, “simply at random selected figures . . . in evidence
in the case” and “selected those figures which would support the
36
The district court may “direct the verdict” or grant a
“motion for judgment” sua sponte. See, e.g., Christopher W. v.
Portsmouth Sch. Comm., 877 F.2d 1089, 1092-93 (1st Cir. 1989);
Insigna v. LaBella, 845 F.2d 249, 251 (11th Cir. 1988).
37
Mosley, 109 F.3d at 1008; Gutierrez, 106 F.3d at 686.
38
Fed. R. Evid. 702 (1997).
39
Adv. Comm. Note to Fed. R. Evid. 702 (citing 7 Wigmore
§ 1918).
23
plaintiffs’ claim . . . but without any research into whether the
figures were valid . . . [or] whether any experts in this field
. . . would have used the same figures.” The court noted, for
instance, that Griffith’s sponsorship revenue figures assumed that
SportsBand would operate at twenty tournaments per year; SportsBand
contended throughout the litigation, however, that the twenty-event
figure was merely a goal. Likewise, Griffith acknowledged that
SportsBand would have to change its marketing strategy
substantially to achieve his projected 50 percent penetration
ratio, most likely by including SportsBand receivers in the ticket
package of the event. As the district court pointed out, though,
even Griffith conceded that such a strategy would require the
approval of the individual event organizers, who were not likely to
view the concomitant increase in ticket prices with favor.
Moreover, the court determined that there was no evidence that
Griffith’s methodology had been authoritatively expressed by other
proclaimed experts in the field or that his methodology had been
submitted to peer review. The court concluded that “Griffith’s
model for lost profits is based on assumptions which are so
speculative that his testimony would be irrelevant and would not
materially assist the trier of fact.”
SportsBand nevertheless insists that the district court abused
its discretion in excluding Griffith’s testimony as speculative.
It contends that Griffith’s figures were based on objective data
and that his methodology was of the type reasonably relied on by
24
experts in his field. SportsBand asserts that Griffith’s practical
experience —— including his work with sports-related companies, his
involvement in sponsorship and marketing activities for sporting
events, and his responsibilities as a marketing director for a
sports association —— qualified his as an expert.40 Further,
SportsBand maintains that the district court’s criticism is
directed at the “bases and sources” of Griffith’s opinions, which
SportsBand urges “affect the weight to be assigned [to the] opinion
rather than its admissibility and should be left for the jury’s
consideration.”41 Finally, SportsBand submits that the district
court improperly used its gatekeeper role to replace the adversary
system by supporting its finding with perceived flaws in Griffith’s
testimony; in other words, SportsBand argues that the jury should
have been given the opportunity to consider and weigh the evidence.
In response, PGA asserts first that Griffith lacked the
necessary qualifications to express an expert opinion regarding
SportsBand’s lost profits. PGA notes that Griffith does not
possess a college degree or any sort of business or marketing
certification or degree, and that he has never sold advertising at
any golf tournament in either the United States or Canada, or at
40
See Rogers v. Raymark Ind., 922 F.2d 1426, 1429 (9th Cir.
1991).
41
Christophersen v. Allied-Signal Corp., 939 F.2d 1106, 1109
(5th Cir. 1991), cert. denied, 503 U.S. 912 (1992) (en banc)
(quoting Viterbo v. Dow Chem., 826 F.2d 420, 422 (5th Cir. 1987)),
overruled on other grounds, Daubert v. Merrell Dow Pharmaceuticals,
Inc., 509 U.S. 579, 587 n.5 (1993).
25
any other sporting event in the United States. Griffith’s sole
involvement with SportsBand was one failed attempt to interest a
Canadian company in sponsoring a single SportsBand broadcast in
Canada. More importantly, PGA maintains that the facts on which
Griffith’s opinions were based were merely “optimistic
hypotheticals as to penetration rate, receiver rental income,
sponsorship revenues and number of tournaments.” Finally, PGA
contends that Griffith’s methodology was flawed given that (1) he
neither tied SportsBand’s alleged lost profits to any misconduct on
the part of PGA nor factored in SportsBand’s own role,42 and (2) he
failed to consider two other entities in the same or similar
business as SportsBand.
We do not perceive anything approaching abuse of discretion in
the district court’s evidentiary ruling. After a thorough review
of Griffith’s testimony, the court concluded that “Griffith failed
to conduct adequate research, failed to consider certain historical
data and failed to establish that his methodology was accepted.”
Although we agree with SportsBand that as a general rule any
shortcomings in an expert’s testimony related to the “bases and
sources of his opinions” should affect the weight to be given the
testimony rather than its admissibility,43 we have also noted that
42
See Viterbo, 826 F.2d at 423-24 (holding that testimony that
failed to attribute harm to defendant’s alleged misconduct, and
that acknowledged that plaintiff’s ills might have a number of
causes, was properly excluded).
43
Christophersen, 939 F.2d at 1109.
26
“[i]n some cases . . . , the source upon which an expert’s opinion
relies is of such little weight that the jury should not be
permitted to receive that opinion.”44 We are satisfied that here
the district court did not abuse its considerable discretion when
it determined that Griffith’s testimony was so speculative that it
would not aid the jury in this case.45
Having excluded the testimony of SportsBand’s expert witness
on lost profits, the district court rejected SportsBand’s lost
profits claim altogether. In so doing, the court reasoned that to
recover for lost profits under Texas law, a plaintiff must produce
sufficient evidence to enable the jury to determine the net amount
of lost profits with reasonable certainty.46 It is not necessary
that the lost profits be subject to exact calculation;47 still,
estimates of lost profits must be based on objective facts, figures
or data from which the amount of lost profits can be ascertained
44
Viterbo, 826 F.2d at 422; see also Berry v. Armstrong Rubber
Co., 989 F.2d 822, 824 (5th Cir. 1993), cert. denied, 510 U.S. 1117
(1994) (“If the basis for an expert’s opinion is so unreliable that
no reasonable expert could base an opinion on that data, the
opinion may be excluded....”).
45
In another evidentiary ruling, the district court excluded
SportsBand’s evidence of pre-December 1988 damages. Despite
SportsBand’s urgings, we perceive no abuse of discretion in this
ruling.
46
See White v. Southwestern Bell Tel. Co., 651 S.W.2d 260, 262
(Tex. 1983).
47
Frank Hall & Co. v. Beach, Inc., 733 S.W.2d 251, 258 (Tex.
App. —— Corpus Christi 1987, writ ref’d n.r.e.).
27
with reasonable certainty.48 The district court concluded that
SportsBand’s evidence —— including the testimony of Griffith —— was
too speculative to serve as the basis of a lost profits claim.
This conclusion was bolstered by the fact that the Agreement,
“although setting out a formula for distribution of revenues . . .,
does not guarantee any level of profit to the plaintiffs . . . .”
Undaunted, SportsBand contends on appeal that it adduced
sufficient evidence for the jury to find that it was entitled to
lost profits. It asserts that, under Texas law, the recovery of
lost profits is not entirely dependent on whether the plaintiff was
a new or established concern at the time of the defendant’s
breach.49 Further, SportsBand maintains that the fact that it had
never earned a profit prior to PGA’s alleged wrongful conduct is
not conclusive;50 instead, when there is no profit history, the
viability of a lost profits claim depends on whether there is
sufficient evidence to prove lost profits with reasonable
48
Id.
49
See, e.g., Pace Corp. v. Jackson, 284 S.W.2d 340, 343, 348
(Tex. 1955) (awarding lost profits to companies that were only
several weeks old at the time of defendant’s breach); Allied Bank
West Loop, N.A. v. C.B.D. & Assocs., 728 S.W.2d 49, 54 (Tex. App.
—— Houston [1st Dist.] 1987, writ ref’d n.r.e.) (holding that
business that was only months old when it was forced to close could
recover lost profits).
50
See Hiller v. Manufacturers Prod. Research Group, 59 F.3d
1514, 1520-21 (5th Cir. 1995); Orchid Software, Inc. v. Prentice-
Hall, Inc., 804 S.W.2d 208, 211 (Tex. App. —— Austin 1991, writ
denied) (“[T]he absence of a history of profits does not, by
itself, preclude a new business from recovering lost future
profits.”).
28
certainty.51 SportsBand insists that its evidence meets this
standard, as (1) SportsBand’s financial projections demonstrated
profits of over $4 million; (2) these projections were based on
objective facts, figures, and data; (3) PGA itself projected
significant revenue from SportsBand; and (4) determining lost
profits would involve a simple calculation based on the revenue and
expense figures. Finally, SportsBand notes that the presence of a
contractual guarantee of profit is not a prerequisite to recovering
for lost profits.
Predictably, PGA counters that the district court properly
excluded SportsBand’s claim for lost profits, as SportsBand’s lost
profits model was based on pure speculation. PGA maintains that
the speculative nature of SportsBand’s figures is evidenced by the
fact that SportsBand generated a cumulative loss of almost
$3 million, in sharp contrast to its projected $4 million in future
profits. According to PGA, SportsBand attracted neither the usage
rates nor the sponsorships desired; its lost profits model was
based on financial projections of what SportsBand —— and PGA for
that matter —— had hoped SportsBand would achieve.
PGA concedes that, in an appropriate case, a claim for lost
profits could be founded on financial projections. In Goldman v.
Alkek,52 for example, the court held that, when a qualified expert
51
Texas Instruments, Inc. v. Teltron Energy Mgt., Inc., 877
S.W.2d 276, 280 (Tex. 1994); Orchid Software, 804 S.W.2d at 210.
52
850 S.W.2d 568 (Tex. App. —— Corpus Christi 1995, no writ).
29
estimated the plaintiff’s lost profits based on his own sales to
the plaintiff, information provided by the plaintiff about his
actual historical sales, and the expert’s nine years experience,
there was “legally sufficient evidence of lost profits based on
objective facts, figures, or data.”53 PGA maintains, however, that
the certainty of SportsBand’s data falls far short of that in
Goldman. Moreover, PGA posits that the fact that it was initially
as optimistic as SportsBand about the opportunity for financial
gain does not convert SportsBand’s projections into the objective
facts required to support an award of lost profits.54 Finally, PGA
insists that the district court did not rely solely on the lack of
a contractual provision guaranteeing profits, but instead viewed it
as but one factor illustrating the speculative nature of
SportsBand’s figures.
We agree with PGA and the district court that SportsBand’s
projections are too speculative to serve as a basis for a lost
profits claim. As the district court pointed out, those Texas
cases holding that new businesses or businesses that have never
earned a profit are not precluded from recouping lost profits55 do
53
Id. at 575.
54
See Texas Instruments, 877 S.W.2d at 280 (“Teletron
strenuously argues that even TI thought its projections were
reasonable. The fact that TI shared Teletron’s hopes adds no
substance to them.”).
55
See, e.g., Pace, 284 S.W.2d at 348; Thedford v. Missouri
Pacific R. Co., 929 S.W.2d 39, 48-9 (Tex. App. —— Corpus Christi
1996, writ denied).
30
not stand for the principle that damages for lost profits should be
allowed as a matter of course for every start-up business involved
in a contract dispute. There must be some objective basis for
calculating lost profits with reasonable certainty. As the Texas
Supreme Court has explained, “[p]rofits which are largely
speculative, as from an activity dependent on uncertain or changing
market conditions, or on chancy business opportunities, or on
promotion of untested products or entry into unknown or unviable
markets, or on the success of a new and unproven enterprise, cannot
be recovered.”56 In our estimation, SportsBand was both a “chancy
business opportunity” and an “unproven enterprise,” and SportsBand
produced insufficient evidence to support a lost profits claim with
reasonable certainty —— especially after the district court
excluded Griffith’s expert testimony. Our de novo review of the
record satisfies us that the district court did not err reversibly
in excluding SportsBand’s claim for lost profits.
D. Interest, Attorney’s Fees, and Costs
Given our conclusion that the district court did not err in
overturning the jury verdict, SportsBand’s claim that the district
court also erred in rejecting SportsBand’s motion for interest,
attorney’s fees, and costs evanesces. Further consideration of
this claim is unnecessary.
III
56
Texas Instruments, 877 S.W.2d at 279.
31
CONCLUSION
For the foregoing reasons, the judgment of the district court
is, in all respects,
AFFIRMED.
32