Sunnyland Farms, Inc. v. Central New Mexico Electric Cooperative, Inc.

I attest to the accuracy and
integrity of this document
New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 15:01:22 2013.06.04
IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
Opinion Number: 2013-NMSC-017
Filing Date: April 18, 2013
Docket No. 32,968
SUNNYLAND FARMS, INC.,
Plaintiff-Petitioner,
v.
CENTRAL NEW MEXICO ELECTRIC COOPERATIVE, INC.,
Defendant-Respondent.
ORIGINAL PROCEEDING ON CERTIORARI
John William Pope, District Judge
Freedman Boyd Hollander & Goldberg, P.A.
Joseph Goldberg
Michael Lee Goldberg
Albuquerque, NM
The Walter K. Martinez Law Office
Kevin Martinez
Albuquerque, NM
Walter Kenneth Martinez, Jr.
Grants, NM
for Petitioner
Sparks, Willson, Borges, Brandt & Johnson, P.C.
Gregory V. Pelton
Colorado Springs, CO
Montgomery & Andrews, P.A.
Stephen S. Hamilton
Jaime R. Kennedy
Santa Fe, NM
1
for Respondent
OPINION
CHÁVEZ, Justice.
{1} This case comes before us because of a fire that destroyed a hydroponic tomato
facility belonging to a new business, Sunnyland Farms, Inc. (Sunnyland). The day before
the fire, Sunnyland’s electricity had been shut off by its local utility, the Central New
Mexico Electrical Cooperative (CNMEC), for nonpayment. Sunnyland’s water pumps were
powered by electricity, and without power, Sunnyland’s facility had no water. Sunnyland
sued CNMEC, alleging both that CNMEC had wrongfully suspended service, and if its
electrical service had been in place, firefighters and Sunnyland employees would have been
able to stop the fire from consuming the facility.
{2} After a bench trial, the trial court found CNMEC liable for negligence and breach of
contract. The trial court awarded damages, including lost profits, of over $21 million in
contract and tort, but reduced the tort damages by 80% for Sunnyland’s comparative fault.
It also awarded $100,000 in punitive damages. The parties cross-appealed to the Court of
Appeals, which (1) reversed the contract judgment, (2) vacated the punitive damages, (3)
held that the lost profit damages were not supported by sufficient evidence, (4) affirmed the
trial court’s offset of damages based on CNMEC’s purchase of a subrogation lien, and (5)
affirmed the trial court’s rulings on pre- and post-judgment interest. Sunnyland Farms, Inc.
v. Cent. N.M. Elec. Coop., Inc., 2011-NMCA-049, ¶¶ 2, 101, 119, 149 N.M. 746, 255 P.3d
324.
{3} Sunnyland appealed, and we granted certiorari. Sunnyland Farms v. Cent. N.M.,
2011-NMCERT-005, 150 N.M. 667, 265 P.3d 718. We affirm the Court of Appeals
regarding the contract judgment, punitive damages, and interest, and reverse on the lost
profit damages and the offset. We also take this opportunity to re-examine the standard for
consequential contract damages in New Mexico.
BACKGROUND
{4} Sunnyland purchased its electricity from CNMEC. On September 8, 2003, CNMEC
shut off electrical service to Sunnyland. Prior to disconnecting electricity for nonpayment,
CNMEC ordinarily gives its customers notice that they have fifteen days to pay their
overdue bills before service is suspended. It did not give Sunnyland this fifteen-day notice.
The trial court record indicates a confusing array of possible billing irregularities, but it is
not necessary to address them here because CNMEC does not contest the trial court’s
findings that it was negligent and that it breached its duty to Sunnyland.
{5} On the morning of September 9, 2003, before electrical service was restored, several
Sunnyland employees engaged in arc welding near flammable materials, including cardboard
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boxes. In doing so, they started a fire that ultimately consumed Sunnyland Farms’
packhouse and operations building. When Sunnyland’s employees initially discovered the
fire, they attempted to put it out using ordinary hoses, but without electricity, the Sunnyland
facility had no running water, and the fire grew. Sunnyland does not contest that its
employees were negligent both in starting the fire and in reacting to it, for example, by
failing to use a fire extinguisher.
{6} Someone living on Sunnyland’s property called the fire department. Fire trucks
arrived, but they were unable to access well water for firefighting because there was no
electricity to power the pumps. Sunnyland had also failed to make alternative arrangements
for emergency water in the event that power failed. Firefighters attempted to contact
CNMEC to restore electricity to the water sources, but CNMEC employees expressed
reservations to the emergency dispatcher, and the firefighters interpreted their statements as
a threat that the fire department would have to assume liability. Firefighters attempted to use
reservoir water and to preserve water by using foam and smaller hoses, but the buildings
were nonetheless destroyed.
{7} Sunnyland sued CNMEC in contract and tort, among other causes of action, for
damages resulting from the fire, alleging that if CNMEC had taken adequate care prior to
disconnecting Sunnyland’s electrical service, firefighters and Sunnyland employees would
have had access to water and the fire could have been contained. The trial court found
CNMEC liable both in contract and in tort. It calculated total consequential damages of over
$21 million, of which $13.7 million was the net value of lost crops that the facility would
have been able to grow in the absence of the fire. The trial court reduced the damages in tort
by 80% to account for Sunnyland’s comparative fault; however, in contract, the trial court
awarded the entire almost $21.4 million. The trial court allowed plaintiffs to elect a remedy
in contract or tort after the resolution of their appeals.
{8} The trial court also awarded $100,000 in punitive damages based on CNMEC’s
failure to restore energy when requested to do so by firefighters. The trial court granted
CNMEC an offset of approximately $3.2 million for subrogation rights that it had obtained
in a settlement with Sunnyland’s insurer. Finally, the trial court awarded post-judgment
interest on the contract damages at a rate of 8.75%, awarded post-judgment interest on
damages awarded under tort at 15%, and declined to award any prejudgment interest.
{9} CNMEC and Sunnyland cross-appealed to the Court of Appeals, which affirmed on
all issues raised by Sunnyland and reversed on several issues raised by CNMEC. See
Sunnyland Farms, 2011-NMCA-049, ¶ 119. The Court of Appeals held that in New Mexico,
awards of consequential damages in contract are governed by a “tacit agreement” test, which
the trial court had failed to apply. Id. ¶¶ 28, 54-55, 60, 66. It therefore reversed the award
of damages in contract. Id. ¶ 66. It vacated the trial court’s calculation of future lost profits,
finding that the trial court’s calculations of crop yields lacked sufficient evidence and did not
rise to the level of “reasonable certainty,” id. ¶ 99, and then substituted a calculation that it
found more reasonable. Id. ¶ 100. The Court of Appeals vacated the award of punitive
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damages due to the trial court’s failure to find the facts necessary to establish corporate
liability. Id. ¶ 84. Finally, it affirmed the trial court’s rulings on pre- and post-judgment
interest and on CNMEC’s offset of the damages. Id. ¶¶ 107, 110, 118.
{10} Sunnyland appealed all of the Court of Appeals’ holdings to this Court. We address
each issue in turn.
DISCUSSION
A. CONTRACT DAMAGES
1. Hadley v. Baxendale and Restatement (Second) of Contracts state the proper
test for consequential damages in New Mexico
{11} This Court has previously stated that in an action for breach of contract, the
breaching party “is justly responsible for all damages flowing naturally from the breach.”
Camino Real Mobile Home Park P’ship v. Wolfe, 119 N.M. 436, 443, 891 P.2d 1190, 1197
(1995). Damages “that arise naturally and necessarily as the result of the breach” are
“general damages,” which give the plaintiff whatever value he or she would have obtained
from the breached contract. Id. In some circumstances, the plaintiff can also recover for
“consequential damages” or “special damages,” which “are not based on the capital or
present value of the promised performance but upon benefits it can produce or losses that
may be caused by its absence.” Id. (quoting 3 Dan B. Dobbs, Dobbs Law of Remedies §
12.2(3), at 41 (2d ed. 1993)) (internal quotation marks omitted).
{12} The classic test for whether a plaintiff may recover consequential damages comes
from Hadley v. Baxendale, 156 Eng. Rep. 145, 9 Ex. 341 (1854). In that case, a mill was
temporarily shut down due to a broken crankshaft. Id. at 147, 9 Ex. at 344. The defendants
were common carriers who were supposed to ship the broken crankshaft to an engineering
company to have a new one built, but the defendants “wholly neglected and refused so to do
for the space of seven days,” and the mill was shut down for five days longer than should
have been necessary. Id. at 146, 9 Ex. at 342-43. The jury awarded the mill damages for the
profits it lost due to the delay. Id. at 147, 9 Ex. at 344-45. The appellate court reversed,
holding that in an action for breach of contract, recovery was permitted for consequential
damages only “such as may reasonably be supposed to have been in the contemplation of
both parties, at the time they made the contract, as the probable result of the breach of it.”
Id. at 151, 9 Ex. at 354.
{13} The Hadley standard has been interpreted as an objective foreseeability test: A
defendant is liable for losses that were foreseeable at the time of contracting, regardless of
whether the defendant actually contemplated or foresaw the loss. Restatement (Second) of
Contracts § 351 cmt. a (1981); see also id. Illustr. 1 (illustrating that the Restatement
standard comes from Hadley). This foreseeability standard is more stringent than
“proximate cause” in tort law; the loss must have been foreseeable as the probable result of
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breach, not merely as a possibility. Hadley, 156 Eng. Rep. at 151, 9 Ex. at 354; Restatement
(Second) of Contracts § 351(1), § 351 cmt. a. The Restatement asks whether there were
“special circumstances, beyond the ordinary course of events, that the party in breach had
reason to know.” Id. § 351(2)(b); see also U.C.C. § 2-715(2)(a) (2010) (allowing buyers
consequential damages for “any loss resulting from general or particular requirements and
needs of which the seller at the time of contracting had reason to know and which could not
reasonably be prevented by cover or otherwise”). In the absence of such circumstances, the
breaching party is liable only for general damages. Restatement (Second) of Contracts § 351
cmt. b (“If loss results other than in the ordinary course of events, there can be no recovery
for it unless it was foreseeable by the party in breach because of special circumstances that
he had reason to know when he made the contract.”).
{14} This Court has cited the Hadley standard approvingly and described it as the
appropriate rule of analysis in New Mexico cases dealing with consequential damages. See
Camino Real, 119 N.M. at 446, 891 P.2d at 1200 (describing consequential damages
standard as “essentially the rule expressed in the seminal case of Hadley v. Baxendale”).
However, we have also stated that “the foreseeability . . . rule anticipates an explicit or tacit
agreement by the defendant” that he or she will assume particular damages if he or she
breaches. Camino Real, 119 N.M. at 446, 891 P.2d at 1200; see also Wall v. Pate, 104 N.M.
1, 2, 715 P.2d 449, 450 (1986) (suggesting that the conditions required for an award of
special damages must include a “tacit agreement” (citing Globe Ref. Co. v. Landa Cotton Oil
Co., 190 U.S. 540, 543-44 (1903))).
{15} Engaging in an exhaustive analysis of Camino Real, Wall, and other cases in his
well-written opinion, Judge Sutin synthesized a “New Mexico rule” of consequential
damages. Sunnyland Farms, 2011-NMCA-049, ¶ 33. This rule is similar to the test in
Restatement (Second) of Contracts, but it incorporates the requirement that “the non-
performing party must explicitly or tacitly agree to respond in damages for the particular
damages understood to be likely in the event of a breach.” Sunnyland Farms, 2011-NMCA-
049, ¶ 33. This makes the “New Mexico rule . . . more limited and restrictive than the notion
of foreseeability in . . . the Restatement or the UCC.” Id. ¶ 34; see also 11 Joseph M. Perillo,
Corbin on Contracts § 56.3, at 90 (rev. ed. 2005) (describing tacit agreement test as “a
stricter rule than that announced in Hadley” (emphasis added)).
{16} We now abandon the “tacit agreement” test. While we suspect that there may not,
in fact, be much space between a “tacit agreement” and the special circumstances required
to render a defendant liable for consequential damages, our previous emphasis on the tacit
agreement test from Globe Refining is confusing and antiquated. We hold that the proper
test for consequential damages in New Mexico is the Hadley standard as interpreted in
Restatement (Second) of Contracts Section 351. In a contract action, a defendant is liable
only for those consequential damages that were objectively foreseeable as a probable result
of his or her breach when the contract was made. To the extent our earlier cases suggest a
different standard, they are overruled.
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2. There were no special circumstances in this case warranting consequential
damages
{17} We review the trial court’s application of the law to the facts de novo. Ponder v.
State Farm Mut. Auto. Ins. Co., 2000-NMSC-033, ¶ 7, 129 N.M. 698, 12 P.3d 960. The trial
court in this case issued very limited conclusions of law regarding the issue of foreseeability
and consequential damages. The trial court made one finding of fact stating that “the
damages suffered by Plaintiff were foreseeable and a proximate cause [sic—should probably
be “result”] of Defendant’s Breach of Contract, negligence and negligence per se.”
However, in its findings, the trial court did not distinguish between the proximate cause
required for tort liability and the more stringent foreseeability required for consequential
damages in contract. See Restatement (Second) of Contracts § 351 cmt. a (“[F]oreseeability
is a more severe limitation of liability than is the requirement of substantial or ‘proximate’
cause in . . . tort.”); 11 Perillo § 56.3 at 91 (“Courts have been willing to include in tort
actions more remote and less easily foreseeable elements of injury than is the case in contract
actions.”). The trial transcript reveals that the trial court did consider the Hadley standard
for special damages in contract:
[T]he case law generally addresses consequential damages is [sic] that it has
to be a contracted damage, generally speaking. It has to be within the
contemplation of the parties, best evidence of that is a contractual agreement.
In this case, however, since the contract was with one party being the Co-op
and the other party being a general body and being no written—well, written
agreement but not being any—not being one-to-one and having a third party
PRC, you know, you go back to Baxter v. Hadendale [sic], that’s a
contractual [sic]. And I’m worried about the torts [sic] definition of
consequential damages.
I’ve been toying with this, because, like I said, there is no rule in a
New Mexico case that would be on all fours with this. And it would seem to
me that—and I’m going to rule that the Co-op, in providing electricity and
being the expert party to the contract should have been aware of the
consequential damages of providing electricity and if electricity—failing to
provide electricity if there was a breach of contract, that there would be
consequential damages.
However, despite this sign that the trial court contemplated the appropriate standard, we
cannot say that the trial court actually applied the foreseeability standard correctly. To
support the conclusion that Sunnyland’s damages were foreseeable to CNMEC at the time
of contracting, we would expect the trial court to find “special circumstances, beyond the
ordinary course of events.” Restatement (Second) of Contracts § 351(2)(b). Despite the
voluminous findings of fact by the trial court, there were no findings that special
circumstances of this type existed.
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{18} Sunnyland suggests that it was sufficient that CNMEC knew that Sunnyland was a
for-profit enterprise and it depended on electricity. Both of these factual statements are
supported by the trial court’s findings of fact and by the evidence presented at trial. The trial
court found that “CNMEC [e]mployees . . . testified that it was well known within the
community that [the Sunnyland] facility was a hydroponic tomato facility.” Furthermore,
the trial court found that prior to disconnecting electricity, a CNMEC employee allowed a
Sunnyland employee to open the windows in the greenhouse to allow venting, which
suggests that CNMEC might have known that cutting off electricity could harm Sunnyland’s
tomato crop.
{19} Taking these findings of fact to indicate the presence of special circumstances is
problematic for three reasons. First, although this Court indulges reasonable inferences in
favor of the trial court’s judgment, see Tapia v. Panhandle Steel Erectors Co., 78 N.M. 86,
89, 428 P.2d 625, 628 (1967), this is simply too speculative. This Court does not speculate
about what the fact-finder might have meant to say but did not. See Econ. Gas Co. v.
Bradley, 472 S.W.2d 878, 880 (Mo. Ct. App. 1971) (“[C]onsider[ing] the evidence in the
light most favorable to [the prevailing party] . . . does not require or authorize the court to
supply missing evidence, or to give him [or her] the benefit of forced, speculative or
unreasonable inferences.”).
{20} Second, Sunnyland’s injury was not directly caused by the lack of electricity. The
actual harm was more attenuated: the lack of electricity interrupted Sunnyland’s water
supply, which, in conjunction with Sunnyland’s lack of backup firefighting options, made
it difficult for Sunnyland to respond to the fire its employees negligently started. There were
no findings that CNMEC should have known that Sunnyland was likely to start fires or was
depending on electricity in order to fight any fires that occurred. Even if some damage to
the tomato crop was foreseeable from the disconnection of electricity, the particular damage
that occurred was not, and consequential damages are only permissible if the particular
damage that actually occurred was foreseeable. “The mere circumstance that some loss was
foreseeable, or even that some loss of the same general kind was foreseeable, will not suffice
if the loss that actually occurred was not foreseeable.” Restatement (Second) of Contracts
§ 351 cmt. (a).
{21} Third, even if CNMEC had reason to know that Sunnyland depended on its
electricity to power water in the event of a fire, CNMEC would still not be liable without the
presence of additional special circumstances. Hadley provides a good example of what does
and does not qualify as “special circumstances.” 156 Eng. Rep. at 151, 9 Ex. at 355. In
Hadley, the defendant knew that the crankshaft it was carrying was a broken part of a for-
profit mill. Id. However, the plaintiff never told the defendant exactly what was at stake,
i.e., that there was no backup shaft or other alternative plan to keep the mill running.1 Id. at
1
There is some tension between the opinion of the court and the reporter’s description
of the facts. The Hadley court found that “the only circumstances here communicated by
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151, 9 Ex. at 355-56. Similarly, in this case, CNMEC would have needed to know not only
that Sunnyland depended on its electricity for access to water, but that there was no backup
power source, or that there was a particularized need for uninterrupted water or power.
There is no evidence that CNMEC had reason to know any of this. In particular, CNMEC
could not have been expected to know that Sunnyland did not have a separate power source,
independent of the power for the main building, for the well that was to be used in the event
of a fire. A firefighter’s trial testimony agreed that “if it’s going to be an approved
firefighting source of water, it has to have two separate sources of electricity . . . [a]nd one
of them cannot come through the building that’s being . . . protected by the pump,” and the
trial court found that “Sunnyland Farms was negligent in having only one source of power
which ran through the support building to energize the exterior well pump.” CNMEC cannot
have been expected to anticipate Sunnyland’s negligence in this regard.
{22} Langley v. Pacific Gas & Electric Co., 262 P.2d 846 (Cal. 1953) (in bank), provides
an instructive example of what a utility company would need to know to render it liable for
consequential damages in the event of a power shutoff. The plaintiff ran a trout hatchery that
required electricity to oxygenate the water and keep the trout alive. Id. at 847. If power was
shut off, the fish could survive for only three and a half hours. Id. at 847-48. The plaintiff
purchased electricity from the utility and explained his situation to its employees, asking
whether the utility had 24-hour monitoring and would always be able to tell him before
power was shut off. Id. at 848. The plaintiff told the utility that if it was not able to make
this guarantee, he would put in a backup pump. Id. The utility’s employees assured the
plaintiff that he would be notified any time the power was shut off. Id. Several years later,
power to the fish hatchery was shut off for several hours, and the utility failed to warn or
inform the plaintiff. Id. Nearly all of the plaintiff’s fish died. Id. at 849. The plaintiff sued
the utility for breach of contract, id. at 847, 849, and the California Supreme Court upheld
a jury verdict in his favor, apparently including full consequential damages. Id. at 847; see
id. at 850 (stating that the measure of the damages was identical under tort and breach of
contract theories). The court found that the utility “knew that a continuous supply of electric
current to plaintiff was imperative,” and the utility had an obligation either to provide it or
to give the plaintiff notice so that he could make alternative arrangements. Id. at 850.
the plaintiffs to the defendants at the time the contract was made, were, that the article to be
carried was the broken shaft of a mill, and that the plaintiffs were the millers of that mill.”
156 Eng. Rep. at 151, 9 Ex. at 355. The court went on to observe that the defendants could
not have been expected to know that a shipping delay would shut down the mill. Id. at 151,
9 Ex. at 355-56. The reporter’s statement of the facts in the same decision says that “[t]he
plaintiffs’ servant told the clerk that the mill was stopped, and that the shaft must be sent
immediately.” Id. at 147, 9 Ex. at 344. We treat the opinion of the court, rather than the
reporter’s summary, as the authoritative statement of the Hadley case. Corbin on Contracts
observes that “if the reporter’s headnote were correct, the decision would have gone the
other way.” 11 Perillo § 56.2 at 84 n.4.
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{23} The facts in Langley are starkly different from the facts in the present case. In
Langley, the plaintiff had an unusual and pressing need for uninterrupted service, and he
took steps to notify the utility of that need. Id. at 848. He also relied on the utility’s
assurances by choosing not to install backup power, and the utility knew of that fact as well.
Id. Unlike in Hadley and the present case, the utility in Langley understood the particular
consequences that would result from a breach, and it accepted the contract anyway.
{24} There were no findings in this case that CNMEC should have known of a particular
vulnerability to fire on Sunnyland’s part, or that Sunnyland had no backup source of power
or water. With neither findings nor evidence of special circumstances, we cannot uphold a
judgment for consequential damages. Accordingly, we affirm the Court of Appeals’ reversal
of the trial court’s award of contract damages to Sunnyland.
B. THE TRIAL COURT’S DETERMINATION OF LOST PROFITS WAS
SUPPORTED BY SUBSTANTIAL EVIDENCE
{25} Sunnyland also appeals the Court of Appeals’ reversal of the trial court’s calculation
of damages. Although contract damages are no longer at issue, the calculations are still
relevant to the tort judgment in favor of Sunnyland. The trial court awarded damages to
compensate Sunnyland for profits that were lost due to the fire. The Court of Appeals held
that lost profits must be proved with “reasonable certainty.” Sunnyland Farms, 2011-
NMCA-049, ¶ 96. The Court concluded that Sunnyland had not met this burden, and as a
result there was insufficient evidence to support the award of lost profits. Id. ¶ 99. The
Court also suggested a crop yield level that it felt had been established with reasonable
certainty. Id. ¶ 100.
{26} The Court of Appeals noted the difficulty involved in proving future lost profits of
a new or unestablished business. Sunnyland Farms, 2011-NMCA-049, ¶ 97. In particular,
it cited an opinion of this Court, C. W. Kettering Mercantile Co. v. Sheppard, 19 N.M. 330,
334, 142 P. 1128, 1129 (1914), which held that “anticipated or expected profits from a
business prior to its establishment is an improper element in the measure of damages,
because it cannot be proved that they would have been realized.” However, this Court
seemingly retired the Kettering per se rule in Deaton, Inc. v. Aeroglide Corp., 99 N.M. 253,
258, 657 P.2d 109, 114 (1982), in which we stated that “[t]here is no established rule in New
Mexico as to whether lost profits [of a new business] may be recovered . . . . The trend
elsewhere is to allow lost profits even when the business is new if the loss can be proved
with reasonable certainty.”
{27} Kettering reflects the traditional “new business rule,” which is a minority approach.
Alphamed Pharm. Corp. v. Arriva Pharm., Inc., 432 F. Supp. 2d 1319, 1339-40 (S.D. Fla.
2006). As economic forecasting models have become more sophisticated, courts have
become more willing to accept predictions that a plaintiff’s new business would have been
successful. 1 Robert L. Dunn, Recovery of Damages for Lost Profits § 4.3, at 391 (6th ed.
2005). The majority of jurisdictions allow unestablished business plaintiffs to collect lost
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profit damages if they can prove with reasonable certainty the fact of lost profits. Id. at 378.
The dollar amount of lost profit damages, however, does not require the same level of proof.
Id. § 1.8 at 25 (“[T]he [reasonable certainty] rule applies only to the fact of damages, not to
the amount of damages.”); id. § 5.1 at 414 (“[L]ess certainty (or none at all) is required to
prove the amount of damages.”); see also Deaton, 99 N.M. at 258, 657 P.2d at 114 (“Lost
profits need not be proved with mathematical certainty.”). To remove any doubt as to
whether the century-old Kettering rule is still good law, we expressly overrule our opinion
in Kettering.
{28} However, the issue in this case is not whether Sunnyland proved with reasonable
certainty the fact that it lost profits. Instead, the issue raised by CNMEC is whether the lost
profits are supported by substantial evidence. Therefore, we address only the matter of
whether there was sufficient evidence to support the calculation of lost profit damages.
{29} New Mexico courts will not “set aside [an award of damages] as excessive unless the
award is not supported by substantial evidence . . . or [the fact-finder] employed an incorrect
measure of damages. . . . A damage award which is reasonably certain, supported by
substantial evidence, and not based on speculation, will be upheld on appeal.” Ranchers
Exploration & Dev. Corp. v. Miles, 102 N.M. 387, 390, 696 P.2d 475, 478 (1985). In this
case, the trial court appears to have based its calculation of lost profits due to crop loss
directly on the testimony of Sunnyland’s expert witness. The Court of Appeals has refused
to find a damage award excessive when the award precisely matched the estimate given by
a testifying expert. Diversey Corp. v. Chem-Source Corp., 1998-NMCA-112, ¶ 35, 125
N.M. 748, 965 P.2d 332. The Court noted that “ ‘[a]n expert’s opinion is not impermissibly
speculative or lacking as to a factual basis where the expert gives a satisfactory explanation
as to how he arrived at his opinion.’ ” Id. ¶ 32 (quoting Sanchez v. Molycorp, Inc., 103 N.M.
148, 152, 703 P.2d 925, 929 (Ct. App. 1985) (alteration in original)). Therefore, we examine
the record to determine whether the expert testimony was impermissibly lacking as to factual
basis.
{30} The crop loss estimate was based on the testimony of Sunnyland’s expert witness,
Dr. William Bauerle. Bauerle testified that he had a doctorate in “vegetable crop physiology,
nutrition, and pathology” from Cornell University and he had previously worked as a
researcher for Ohio State University, although he was retired at the time of his testimony.
He testified that he mostly did work for insurance companies, but he also consulted for one
hydroponic tomato operation in Ontario. He also testified that he had done over one hundred
crop loss estimates.
{31} Prior to testifying, Bauerle had visited the site of Sunnyland’s Estancia facility, and
he estimated Sunnyland’s probable output based on “the characteristics of the greenhouse,
the characteristics of the climate, the archived data[,] . . . what the potential is for the crop,
and what the varieties of . . . the crop are for [the] period.” He testified that the Sunnyland
greenhouse was “state of the art,” with such positive features as (1) “excellent” water
quality, as indicated by good condition of the bedding plants being currently grown, as well
10
as the lack of sediment and sodium chloride; (2) water in sufficient volume to support
hydroponics; (3) a computer-controlled environment; (4) supplemental carbon dioxide; (5)
“excellent light intensit[y]”; and (6) sufficient height to allow for plant growth. Bauerle also
noted that Sunnyland had grafted plants onto improved rootstock to improve their water
intake, and Sunnyland planned to intercrop, which would allow the facility to produce plants
365 days per year.
{32} Bauerle said that Sunnyland planned to grow Dundee and Geronimo beefsteak
tomatoes. According to the company that sold the tomato seeds, both tomatoes have an
average size of over eight ounces. Bauerle said that each cluster of tomatoes would consist
of roughly four tomatoes and have a total weight of about thirty-two ounces or two pounds,
although he said that clusters could range in weight from two to three-and-a-half pounds.
Bauerle estimated that a cluster would grow to maturity in nine days (he stated that this
estimate was on the high end of the possible range, due to the good light intensity in the
area), and he divided 365 days by 9 to get 40 clusters per plant per year. If each cluster
weighed approximately two pounds, that would be 80 pounds per plant per year. Bauerle
testified that he reduced his estimate to 75 pounds per plant per year to give “a conservative
estimate.”
{33} Bauerle testified that the facility was a 20-acre site with 220,000 plants in it. He also
consulted USDA pricing for tomatoes. Based on Bauerle’s testimony and the testimony of
a forensic accountant, the trial court found a net crop loss value of $13,704,828. The only
dispute seems to be over Bauerle’s estimate of the tomato crop yield that the Sunnyland
facility would have produced. See Sunnyland Farms, 2011-NMCA-049, ¶¶ 85-86, 99
(discussing CNMEC’s claim that Bauerle’s estimates were speculative, and therefore that
the lost profits award was supported by insufficient evidence).
{34} On cross-examination, CNMEC challenged Bauerle’s projections as overly
optimistic. CNMEC’s attorney read Bauerle a quotation from a scientist who stated that
producing the volume of tomatoes in Bauerle’s estimate was “biologically and
technologically impossible,” but this expert did not testify at trial, and the statement did not
qualify as evidence. It is uncontested that Bauerle’s estimates were not based on any actual
history of production in the facility, which Bauerle said could be skewed by a catastrophic
event in any given year. Bauerle admitted that he had never previously testified in the
United States, although apparently he had done so in Canada, and that his work in the
Southwest United States had been very limited.
{35} CNMEC called its own expert witness, Kenneth Gerhart, a tomato grower and
consultant. Much of Gerhart’s testimony was devoted to rebutting Bauerle’s earlier
testimony. He testified that Bauerle had failed to take into account factors such as
“[d]isease, virus, insects, the grower . . . , [problems with] interplanting, [and] equipment
failure.” He testified that there was a learning curve for tomato growers, who rarely
achieved the highest possible yields in their first year of production. Gerhart thought that
light was more of a problem than Bauerle had realized. Gerhart also testified that
11
intercropping was not feasible year-round because of the possibility of disease, and he
testified that the average fruit size published by seed companies is not accurate over the life
of a crop.
{36} Gerhart characterized Bauerle’s estimates as unrealistic. Bauerle’s estimate was
equivalent to 95 kilograms of tomatoes per square meter per year; Gerhart said that the
highest yield he had ever heard of for beefsteak tomatoes was 70 kilograms per square meter
per year. He testified that his “reasonable production projection” for the destroyed facility
was 58 kilograms per square meter per year. Gerhart based this opinion on his own average
yield over eight years in a facility in Las Vegas, Nevada, where his average was 58.5
kilograms per square meter per year. In essence, Gerhart testified that there was no way to
run a profitable greenhouse on the Sunnyland site.
{37} On this record, we cannot say that the damage award was overly speculative or
unsupported by substantial evidence. Bauerle explained his reasoning and calculations,
giving “a satisfactory explanation as to how he arrived at his opinion.” Diversey Corp.,
1998-NMCA-112, ¶ 32 (internal quotation marks and citation omitted). The trial court
evidently credited Bauerle’s estimates over Gerhart’s. “[W]hen there is a conflict in the
testimony, we defer to the trier of fact.” Buckingham v. Ryan, 1998-NMCA-012, ¶ 10, 124
N.M. 498, 953 P.2d 33.
{38} Moreover, it was not wholly irrational for the trial court to credit Bauerle’s
testimony. Bauerle was an academic with a doctoral degree who had previously done more
than one hundred crop loss estimates. Gerhart was an experienced tomato farmer, but he was
not an academic; he testified that he did not have a college degree, and in his testimony he
did not specifically take issue with Bauerle’s model or calculations, instead choosing to
explain the factors that he thought Bauerle had improperly omitted. Gerhart testified that
he had never previously done a crop loss assessment, and his estimate was based solely on
the average yields achieved by his own greenhouse.
{39} It is not error for a trial court to credit one expert’s testimony over another’s. See In
re Yalkut, 2008-NMSC-009, ¶ 18, 143 N.M. 387, 176 P.3d 1119 (“[When the trial court’s]
‘findings of fact are supported by substantial evidence . . . refusal to make contrary findings
is not error.’” (quoting Griffin v. Guadalupe Med. Ctr., Inc., 1997-NMCA-012, ¶ 22, 123
N.M. 60, 933 P.2d 859)). Therefore, we reverse the Court of Appeals on this issue and
reinstate the trial court’s calculation of the negligence damages.
C. THE TRIAL COURT’S AWARD OF PUNITIVE DAMAGES WAS NOT
SUPPORTED BY SUBSTANTIAL EVIDENCE
{40} The trial court awarded Sunnyland $100,000 in punitive damages because CNMEC
“imped[ed] the firefighters with the threat of liability if the electricity was energized.” The
trial court found that
12
the conduct of [CNMEC] was wilful, reckless, wanton and in bad faith . . .
when it threatened [firefighter] Wayne Granger with ‘liability’ twice before
turning on the power to the facility after Wayne Granger requested the
assistance of [CNMEC] to reenergize the facility to allow the firefighters
access to more water to fight the fire.
The Court of Appeals reversed the award of punitive damages, holding, inter alia, that the
trial court had not found any of the factors required to subject a corporation to punitive
damages. Sunnyland Farms, 2011-NMCA-049, ¶¶ 83-84. To find a corporation in New
Mexico liable for punitive damages based on the misconduct of its employees, at least one
of three factors must be present: “(1) corporate employees possessing managerial capacity
engage in conduct warranting punitive damages; (2) the corporation authorizes, ratifies, or
participates in conduct that warrants punitive damages; or (3) under certain circumstances,
the cumulative effects of the conduct of corporate employees demonstrate a culpable mental
state warranting punitive damages.” Chavarria v. Fleetwood Retail Corp., 2006-NMSC-
046, ¶ 21, 140 N.M. 478, 143 P.3d 717. The trial court did not explicitly find any of the
three factors; Sunnyland argues that the trial court was not required to do so and that the
third factor applies.
{41} We review the factual findings underpinning an award of punitive damages for
substantial evidence. Helena Chem. Co. v. Uribe, 2013-NMCA-017, ¶ 35, 293 P.3d 888.
Interpreting the trial court’s findings generously, we will assume that the court implicitly
found the presence of the third Chavarria factor when it found that CNMEC’s conduct was
“wilful, reckless, wanton and in bad faith.” The trial court evidently based its finding that
CNMEC employees “threatened [firefighters] with ‘liability’ twice,” on the testimony of
Wayne Granger, the firefighter in charge at the scene. Granger testified that he called the
dispatcher to see if CNMEC would re-connect power so that the firefighters could use the
well:
I asked [the dispatcher] if we could have the Co-op turn on the power to the
well. . . . They called me back and said the Co-op cannot turn the power on
unless you assume the liability. And I asked the dispatcher . . . what is the
liability that I would accept or take responsibility of? She said, I don’t know.
I said, well, find out. What are they telling me that I would assume liability?
So she called me back and she said, they won’t turn it on, but you’d have to
assume the liability. And I said, well, I don’t know what the hell they’re
talking about, so I’m going to go on with my other Plan B, if they can’t turn
on the power and give me water.
Granger’s testimony, taken alone, would tend to support the finding of fact that forms the
basis of the punitive damages award. However, the trial court also heard both the testimony
of CNMEC employees and the tape of CNMEC employees talking to dispatch, and neither
of those sources mentions liability. Paul Chavez, a CNMEC employee, actually said to
dispatch, “[T]here is a heck of a fire and I don’t know what it is going to do when I send
13
these jacks in but I will not be held responsible. . . . I just don’t want to be responsible if
something happens.” Chavez clarified in his testimony that he was concerned that a
firefighter would be hurt or killed if he re-energized the facility.
{42} The evidence presented at trial supports Chavez’s concern. Witnesses were split
about how much danger electricity would have posed to the firefighters. Two firefighters
testified that they could safely fight fires in the presence of electricity, supporting the trial
court’s analysis. However, two other witnesses testified that they were concerned about the
safety ramifications of introducing electricity or they would not have turned the power on
if asked.
{43} Additionally, Wayne Granger seriously qualified his statements during his trial
testimony. During his testimony, Granger stated that he would have wanted to speak with
CNMEC employees and did not want them to re-energize the site without talking to him
first. Granger also testified that he assumed that there was a power source to the well that
could be turned on without energizing the burning building, thereby reducing the risks to the
firefighters on the scene. This was incorrect; Sunnyland had only one power source at the
site, and turning it on would have energized the burning support building as well as the well
pump.
{44} “Substantial evidence is that which a reasonable mind accepts as adequate to support
a conclusion.” Chavarria, 2006-NMSC-046, ¶ 12 (internal quotation marks and citation
omitted). Granger’s testimony was the only evidence presented at trial to support the finding
that CNMEC “threatened [him] with liability,” and the conclusion that there were threats is
directly contradicted by the recording of CNMEC employees’ conversation with dispatch.
Furthermore, the evidence indicates that there was real danger in energizing the
scene—perhaps more than Granger realized at the time, given Sunnyland’s electrical
setup—and CNMEC employees’ caution about re-energizing the scene was warranted.
Given the overwhelming weight of evidence suggesting that CNMEC employees did not, in
fact, threaten firefighters with liability, combined with the evidence strongly suggesting that
CNMEC employees were acting in the interest of the firefighters’ safety, we cannot find that
there was substantial evidence supporting the third Chavarria factor. See Fraser v. State
Sav. Bank, 18 N.M. 340, 352, 137 P. 592, 594 (1913) (“[T]his Court will not review the
evidence further than to determine whether or not the findings are supported by substantial
evidence, in the absence of such an overwhelming weight of evidence against such findings
as would clearly show that the trial Court erred in its conclusions drawn therefrom.”
(emphasis added)). We affirm the Court of Appeals and vacate the award of punitive
damages.
D. THE TRIAL COURT’S OFFSET OF DAMAGES WAS CONTRARY TO NEW
MEXICO’S PUBLIC POLICY
{45} Sunnyland Farms was insured by West American Insurance Co., which paid it
approximately $3.2 million. West American and its parent company, Ohio Casualty
14
Insurance Co., were plaintiffs in this action against CNMEC. However, CNMEC settled
with them prior to the start of trial. Under the terms of the settlement, CNMEC paid West
American $1.3 million and acquired its subrogation lien against Sunnyland. After CNMEC
was found liable, it moved to offset the damages against it based on its purchase of West
American’s subrogation interest. The trial court granted the motion and offset CNMEC’s
liability by the full subrogation lien of just over $3.2 million. The Court of Appeals upheld
this setoff. Sunnyland Farms, 2011-NMCA-049, ¶ 118. Sunnyland appeals the setoff,
arguing that it violates the collateral source rule and the public policy of the State of New
Mexico. We agree with Sunnyland, and we reverse.
{46} “[S]ubrogation is an equitable remedy.” State Farm Mut. Auto. Ins. Co. v. Found.
Reserve Ins. Co., 78 N.M. 359, 363, 431 P.2d 737, 741 (1967). Ordinarily, we review a trial
court’s exercise of its equitable powers for abuse of discretion. United Props. Ltd. Co. v.
Walgreen Props., Inc., 2003-NMCA-140, ¶ 6, 134 N.M. 725, 82 P.3d 535. However, “[t]he
question of whether . . . the district court is permitted to exercise its equitable powers is a
question of law,” id. ¶ 7 (emphasis added), which is reviewed de novo. Id. ¶ 6. In this case,
the question is whether the law permitted the trial court to award an offset to the defendant,
CNMEC. Sunnyland has not argued that if the offset was actually within the trial court’s
discretion, it constituted an abuse of that discretion. Therefore, since the question presented
concerns the bounds of the trial court’s equitable powers rather than their use, we review de
novo whether the trial court was able to grant the offset. Id. ¶¶ 6-7.
{47} This question implicates a number of policy considerations, including New Mexico’s
policy against allowing “double recovery” for plaintiffs. In general, plaintiffs may not
collect more than the damages awarded to them, or, put another way, they may not receive
compensation twice for the same injury. Hale v. Basin Motor Co., 110 N.M. 314, 320, 795
P.2d 1006, 1012 (1990) (“New Mexico does not allow duplication of damages or double
recovery for injuries received.”); see also NMSA 1978, § 41-3-4 (1947) (specifying that if
a plaintiff settles with a tortfeasor, the plaintiff’s claim against any remaining joint
tortfeasors is reduced by the amount of the settlement).
{48} However, the collateral source rule is an exception to the rule against double
recovery. McConal Aviation, Inc. v. Commercial Aviation Ins. Co., 110 N.M. 697, 700, 799
P.2d 133, 136 (1990), limitation of holding on other grounds recognized by Summit Props.,
Inc. v. Pub. Serv. Co. of N.M., 2005-NMCA-010, ¶ 45, 138 N.M. 208, 118 P.3d 716. The
classic statement of the collateral source rule is that “[c]ompensation received from a
collateral source does not operate to reduce damages recoverable from a wrongdoer.”
Trujillo v. Chavez, 76 N.M. 703, 708, 417 P.2d 893, 897 (1966). In other words, if a
plaintiff is compensated for his or her injuries by any source unaffiliated with the defendant,
the defendant must still pay damages, even if this means that the plaintiff recovers twice.
{49} There are several justifications for the collateral source rule. If the plaintiff can
recover his or her full damages from the defendant, the plaintiff has the means to reimburse
the collateral source. See Sw. Steel Coil, Inc. v. Redwood Fire & Cas. Ins. Co., 2006-
15
NMCA-151, ¶ 20, 140 N.M. 720, 148 P.3d 806 (suggesting that the protection of
subrogation rights justifies the collateral source rule). This allows the ultimate burden of
compensating the plaintiff to fall on the defendant, rather than on blameless but generous
parties. “The right of redress for wrong is fundamental. Charity cannot be made a substitute
for such right, nor can benevolence be made a set-off against the acts of a tort-feasor.”
Mobley v. Garcia, 54 N.M. 175, 177, 217 P.2d 256, 257 (1950); see also Martinez v.
Knowlton, 88 N.M. 42, 44, 536 P.2d 1098, 1100 (Ct. App. 1975) (“[A] tort-feasor should not
get the benefit of the contract between the [victim and a third party].”). Additionally,
knowing that they have some likelihood of being reimbursed may make third parties more
likely to help victims during the time before they are able to collect from the defendant.
{50} If the third party or collateral source does not seek compensation, its contribution
could benefit either the defendant, by reducing the damages that the defendant must pay, or
the plaintiff, by allowing the plaintiff to recover twice. In New Mexico, the collateral source
rule dictates that the contribution of a collateral source must operate to benefit the plaintiff
rather than the defendant. “ ‘Whether [the collateral contribution] is a gift or the product of
a contract of employment or of insurance, the purposes of the parties to it are obviously
better served and the interests of society are likely to be better served if the injured person
is benefitted than if the wrongdoer is benefitted.’ ” McConal Aviation, 110 N.M. at 700, 799
P.2d at 136 (quoting Hudson v. Lazarus, 217 F.2d 344, 346 (D.C. Cir. 1954)); see also
McConal Aviation, 110 N.M. at 703, 799 P.2d at 139 (“ ‘If there must be a windfall certainly
it is more just that the injured person shall profit therefrom, rather than the wrongdoer shall
be relieved of his full responsibility for his wrongdoing.’ ”) (Montgomery, J., specially
concurring) (quoting Grayson v. Williams, 256 F.2d 61, 65 (10th Cir. 1958)). Lastly, a
plaintiff’s “double recovery” is likely to be more egregious in theory than in practice; in
reality, plaintiffs rarely receive their full damages, since they must pay attorney fees out of
their damages. McConal Aviation, 110 N.M. at 703, 799 P.2d at 139 (Montgomery, J.,
specially concurring). Allocating the collateral contribution to their benefit, rather than to
the benefit of the defendant, makes it more likely that the plaintiff will be fully compensated.
Id.
{51} In the present case, part of the question is whether a collateral source, i.e.
Sunnyland’s insurer, remains “collateral” to the defendant after settling with it and
transfering its subrogation rights to it. If CNMEC’s settlement payment to West American
transforms the insurance payments into a non-collateral contribution, then CNMEC can
offset the damages it must pay to Sunnyland by the amount of the insurance payments. We
note that in general, New Mexico has a policy of encouraging settlements, id. at 700, 799
P.2d at 136, which would suggest that we should allow such an offset. CNMEC accurately
observes that several other states permit offsets where a defendant has settled with the
plaintiff’s insurer. See, e.g., Ferrellgas, Inc. v. Yeiser, 247 P.3d 1022, 1027 (Colo. 2011) (en
banc) (allowing defendant to offset damages by entire amount paid by the insurer to the
plaintiff); Hayes Sight & Sound, Inc. v. ONEOK, Inc., 136 P.3d 428, 442 (Kan. 2006)
(allowing setoff but limiting it to amount that the defendant paid to the insurer). Sunnyland
counters that allowing this offset would undermine New Mexico’s collateral source rule and
16
allow an insurer to subrogate against its own insured, contrary to State ex rel. Regents of
N.M. State Univ. v. Siplast, Inc., 117 N.M. 738, 741-42, 877 P.2d 38, 41-42 (1994).
{52} We disagree with Sunnyland that allowing the offset would violate the rule stated in
Siplast. In Siplast, we were concerned that allowing an insurer to subrogate against its own
insured would increase litigation and create conflicts of interest. Id. at 742-43, 877 P.2d at
42-43. Neither of those considerations would be implicated by allowing defendants to step
into the shoes of insurers and assume their right of subrogation.
{53} However, we have one concern here that was not at issue in Siplast: subrogation is
not truly a right, but an equitable remedy. “Subrogation, whether created by contract or by
operation of law, is an equitable remedy and equitable principles control its application.”
Farmers Ins. Grp. of Cos. v. Martinez, 107 N.M. 82, 83, 752 P.2d 797, 798 (Ct. App. 1988).
“The remedy is for the benefit of one secondarily liable who has paid the debt of another and
to whom in equity and good conscience should be assigned the rights and remedies of the
original creditor.” Found. Res., 78 N.M. at 363, 431 P.2d at 741 (emphasis added). The
question is whether the principles of equity permit a defendant to assert a right of
subrogation that it acquires from the plaintiff’s insurer.
{54} We hold that they do not. We recognize that “[t]he person asserting the right to
subrogation must be without fault.” Hocker v. N.H. Ins. Co., 922 F.2d 1476, 1486 (10th Cir.
1991). While there was no malice proven on the part of the defendant in this case, CNMEC
does not contest the trial court’s findings that it was negligent and breached its contract with
Sunnyland. We have stated that “the right [of subrogation] flows from principles of justice
and equity.” Fid. & Deposit Co. of Md. v. Atherton, 47 N.M. 443, 449, 144 P.2d 157, 161
(1943). When the party exercising the right is an innocent third party who compensated the
plaintiff, justice and equity dictate that the party should have the right to recover from the
plaintiff, regardless of whether the compensation originated in generosity or contractual
obligation. A defendant is not similarly situated to such a party. A defendant who has been
found liable is ordinarily expected to pay the plaintiff’s full damages, and requiring him or
her to do so does not offend principles of justice or equity. It does not matter that the
defendant has attempted to step into the shoes of the collateral source by contract. Equity
concerns itself with the substance of a matter, not with its form. Skaggs Drug Ctr. v. Gen.
Elec. Co., 63 N.M. 215, 226, 315 P.2d 967, 974 (1957).
{55} Our holding does not prevent a defendant from settling with the plaintiff’s insurance
company, but it does mean that the defendant will not be able to exercise any subrogation
lien that it acquires as part of that settlement. The defendant should settle with the plaintiff’s
insurers with the full knowledge that neither the insurers’ previous payments to the plaintiff,
nor the defendant’s payments to the insurers at the time of settlement, will offset the
damages that the defendant must pay to the plaintiff. This holding also does not limit the
right of insurers to sell or transfer their subrogation liens, so long as they do not transfer the
liens to the defendant.
17
E. THE POST-JUDGMENT INTEREST ON THE TORT JUDGMENT WAS
CORRECTLY CALCULATED, AND THE INTEREST ON THE CONTRACT
JUDGMENT IS NO LONGER AN ISSUE
{56} Ordinarily, interest on judgments is calculated at 8.75% from the date of entry.
NMSA 1978, § 56-8-4(A) (1993). Sunnyland requested post-judgment interest of 15% on
its contract claim, arguing that the judgment was based on CNMEC’s “tortious conduct, bad
faith or intentional or willful acts,” which warrants a higher interest rate under Section 56-8-
4(A)(2). The trial court denied Sunnyland’s motion and awarded interest on the contract
damages at the ordinary rate of 8.75%. The Court of Appeals affirmed the trial court.
Sunnyland Farms, 2011-NMCA-049, ¶ 107.
{57} The litigation regarding post-judgment interest appears to involve only the contract
award. Because we have already determined that the contract award was contrary to New
Mexico law, there is no reason to delve into the interest rate that would have applied to the
now-vacated contract damages.
{58} To avoid confusion, we note briefly that the tort judgment remains intact, and post-
judgment interest on it should be calculated at 15%, as originally determined by the trial
court. This is the appropriate rate for a “judgment [that] is based on tortious conduct.”
Section 56-8-4(A)(2); see also Pub. Serv. Co. of N.M. v. Diamond D Constr. Co., 2001-
NMCA-082, ¶ 55, 131 N.M. 100, 33 P.3d 651 (“When a judgment is based on tortious
conduct, bad faith, or a finding that the defendant acted intentionally or willfully, a court
must award interest at the higher rate of 15 percent.”). “[T]ortious conduct” includes
negligence. Sandoval v. Baker Hughes Oilfield Operations, Inc., 2009-NMCA-095, ¶ 78,
146 N.M. 853, 215 P.3d 791; Diamond D Constr., 2001-NMCA-082, ¶ 58.
F. THE TRIAL COURT’S DENIAL OF PREJUDGMENT INTEREST WAS NOT
AN ABUSE OF DISCRETION
{59} Sunnyland also sought prejudgment interest from the trial court under Section 56-8-
4(B), which states:
[T]he court in its discretion may allow interest of up to ten percent from the
date the complaint is served upon the defendant after considering, among
other things:
(1) if the plaintiff was the cause of unreasonable delay in the
adjudication of the plaintiff’s claims; and
(2) if the defendant had previously made a reasonable and timely
offer of settlement to the plaintiff.
18
The trial court refused to award prejudgment interest. The Court of Appeals affirmed the
denial. Sunnyland Farms, 2011-NMCA-049, ¶ 110. We also affirm.
{60} The decision whether or not to award prejudgment interest is within the discretion
of the trial court, and we review only for abuse of that discretion. See Section 56-8-4(B);
Martinez v. Pojoaque Gaming, Inc., 2011-NMCA-103, ¶ 20, 150 N.M. 629, 264 P.3d 725.
Sunnyland argues that the trial court abused its discretion by failing to award interest, given
that CNMEC rejected Sunnyland’s pre-trial settlement proposals and made a counter-offer
that was allegedly so inadequate as to be “not in good faith.” CNMEC counters that its
settlement offer was reasonable given the difficult legal issues in the case, the high degree
of comparative fault, and the disputed damages calculations.
{61} The trial court is not required to make specific factual findings when denying
prejudgment interest under Section 56-8-4(B). “The court’s reasons for denying
prejudgment interest need only be ascertainable from the record and not contrary to logic and
reason.” Gonzales v. Surgidev Corp., 120 N.M. 133, 150, 899 P.2d 576, 593 (1995). The
trial court may also consider equitable considerations not stated in Section 56-8-4(B) if they
further the statute’s goals of “foster[ing] settlement and prevent[ing] delay.” Gonzales, 120
N.M. at 150, 899 P.2d at 593 (emphasis omitted) (internal quotation marks and citation
omitted).
{62} In this case, it was not an abuse of discretion for the trial court to deny prejudgment
interest. Difficult legal issues can contribute to legitimate delays in settlement, Bird v. State
Farm Mut. Auto. Ins. Co., 2007-NMCA-088, ¶ 35, 142 N.M. 346, 165 P.3d 343, and there
is no denying the complexity of this case, which raised thorny issues of causation,
comparative fault, and estimation of lost profits. In addition, while CNMEC’s pre-trial
settlement offer of just over half a million dollars was far less than the trial court awarded,
the record indicates that Sunnyland’s lowest settlement offer was $12 million, which is much
more than Sunnyland will receive without the damages from the erroneous contract award.
We do not bring up this issue to fault either CNMEC or Sunnyland for their refusal to settle,
but simply to indicate that the parties appear to have had genuine differences of opinion on
the strength of Sunnyland’s case. Such differences in opinion could easily arise from the
complexity of the issues in this case. Therefore, it was not an abuse of discretion for the trial
court to deny prejudgment interest to Sunnyland.
CONCLUSION
{63} We affirm the Court of Appeals’ reversal of the consequential damages in contract
and the punitive damages. We reverse the Court of Appeals’ reversal of lost profit damages
in tort. We also affirm the denial of prejudgment interest. The post-judgment interest is no
longer in dispute. We remand for further proceedings consistent with this opinion.
{64} IT IS SO ORDERED.
19
_________________________________
EDWARD L. CHÁVEZ, Justice
WE CONCUR:
____________________________________
PETRA JIMENEZ MAES, Chief Justice
____________________________________
RICHARD C. BOSSON, Justice
____________________________________
BARBARA J. VIGIL, Justice
____________________________________
CLAY CAMPBELL, Judge
Sitting by designation
Topic Index for Sunnyland Farms, Inc. v. Cent. N.M. Elec. Coop., Inc., No. 32,968;
APPEAL AND ERROR
Standard of Review
Substantial or Sufficient Evidence
CONTRACTS
Breach
Negligent Performance
EVIDENCE
Expert Witness
JUDGMENT
Post Judgment Relief
REMEDIES
Apportionment of Damages
Consequential Damages
Credits and Offsets
Economic Loss
Excessive Damages
Future Damages
Lost Profits
Measure of Damages
Prejudgment Interesat
20
Proof of Damages
Punitive Damages
TORTS
Contribution Among Tortfeasors
Foreseeability
Negligence
21