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Mid Continent Lift & Equipment, LLC v. J. Mcneill Pilot Car Service

Court of Appeals of Texas, Third District, Austin

December 15, 2017

Mid Continent Lift & Equipment, LLC, J. McNeill Pilot Car Service, Appellant //Cross-Appellant
v.
J. McNeill Pilot Car Service, Mid Continent Lift & Equipment, LLC, Appellee //Cross-Appellee

         FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250th JUDICIAL DISTRICT NO. D-1-GN-14-001388, HONORABLE TIM SULAK, JUDGE PRESIDING.

          Before Justices Puryear, Pemberton, and Field

          OPINION

          Bob Pemberton, Justice

         This cause presents competing single-issue appeals challenging a final judgment, following a jury trial, that ordered J. McNeill Pilot Car Service to pay property damages, including lost profits, to Mid Continent Lift & Equipment, LLC. McNeill appeals the judgment award of lost profits, urging that sufficient supporting evidence is lacking, while Mid Continent appeals evidentiary and jury-charge rulings that precluded it from recovering on a claim for attorney's fees also. We sustain only McNeill's issue. Accordingly, we will reverse the judgment award of lost profits, render judgment that Mid Continent take nothing on that claim, and affirm the judgment that Mid Continent take nothing on its claim for attorney's fees.

         BACKGROUND

         Mid Continent, the claimant, is an Oklahoma-based business that buys, sells, and rents used forklifts chiefly in Oklahoma, Texas, and surrounding states. Its inventory has typically consisted of forklifts having a lift capacity of less than 20, 000 pounds. However, in April 2009, Mid Continent invested in a forklift of considerably grander scale-a 2002 Australian-made Omega 54D that weighs 137, 000 pounds and has a lift capacity exceeding 110, 000 pounds-which it purchased for $255, 000, the most expensive forklift in its inventory. But ensuing advertisements by Mid Continent did not elicit a buyer, and its attempts to rent the machine-first directly, then through a Texas-based forklift dealer-were impeded by persistent repair and maintenance issues and did not yield it any profit. Ultimately, in 2012, Mid Continent entered into an arrangement with a Texas-based dealer who specializes in large-capacity forklifts-Clinton Wood-to house the Omega at his business's San Antonio-area yard and market it for rental following additional repairs. Wood also hired a trucking company to arrange transport for the Omega to his yard (the machine was then at a location near McGregor), and it was during this shipment that the underlying litigation arose. While headed southward on I-35 through Austin, the truck driver attempted to pass the load under the Stassney overpass despite having insufficient ground clearance. The ensuing collision damaged both the overpass and the forklift.

         Mid Continent subsequently sued the trucking company that Wood had hired, LBJ Fleet Services, Inc., and two entities that had been retained to operate pilot cars in connection with the shipment, cross-appellant McNeill and Gypsy Pilot Car.[1] From the inception of the case, Mid Continent asserted claims for property damages under negligence theories, [2] but eventually added a claim for attorney's fees, under color of Civil Practice and Remedies Code § 38.001(5), [3] as trial approached.

         Mid Continent ultimately settled its claims against LBJ and Gypsy, leaving McNeill as the sole defendant. The case proceeded to trial in February 2016. At trial, McNeill did not contest that its negligence had been a proximate cause of the collision, and the proceedings centered on the respective responsibilities of McNeill versus the two settling defendants and the proper measure and amount of damages. As relevant to the appeals, Mid Continent's claimed damages consisted of reasonable repair costs, plus lost profits that Mid Continent maintains it would have derived from rentals of the Omega through Wood, absent the collision, between the time of the collision (July 2012) and trial (February 2016), a period of approximately 43 months. Upon submission of these issues to the jury, the jury found that the negligence of McNeill, LBJ, and Gypsy had each proximately caused the damage in question, apportioned 22 percent of the responsibility to McNeill, [4]and determined that Mid Continent had incurred $143, 349 in repair costs and $80, 000 in lost profits.

         Mid Continent's claim for attorney's fees did not make it to the jury, however. Prior to and later at trial, McNeill raised evidentiary objections founded on the assertion that Mid Continent had failed to timely designate an expert to testify on attorney's fees or to produce its fee invoices, thereby implicating the automatic exclusion under Rule of Civil Procedure 193.6.[5] The district court excluded Mid Continent's evidence of attorney's fees at trial and ultimately refused Mid Continent's proposed submission of that claim to the jury.

         The net effect of the jury's verdict was that Mid Continent was entitled to recover from McNeill twenty-two percent of the repair costs and lost profits found by the jury, $31, 539 and $17, 600 respectively, for a total of $49, 139 in damages. Based on the jury's verdict, and following application of a $14, 500 subrogation right that had been assigned to McNeill, the district court rendered judgment awarding Mid Continent a total of $34, 639 from McNeill, plus interest and court costs, and denying it any further relief. The respective appeals followed.

         LOST PROFITS (McNeill's appeal)

         At trial, the district court submitted, and the jury awarded, "lost profits, if any, that in reasonable probability [Mid Continent] sustained for the period of time that would have been reasonably required to repair the forklift." "Lost profits" were defined as "the net profits-meaning income from a business activity less the expenses associated with the activity-that Mid Continent would have made on the forklift during the period of time reasonably required to repair the forklift." As Mid Continent presented its theory of recovery at trial, the relevant business activity consisted of anticipated rentals of the Omega through Wood that purportedly would have been realized, absent the collision, during the 43-month period between the collision and trial, which Mid Continent viewed as the reasonable period of repair. While not appearing to contest on appeal that the jury could have found this 43-month period to be the reasonable period of repair, McNeill urges that Mid Continent failed to present legally sufficient evidence that it incurred lost profits from forgone rentals during that period. We agree with McNeill.[6]

         We must sustain a challenge to the legal sufficiency of evidence where (1) there is a complete absence of evidence of a vital fact, (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact, (3) the evidence for a vital fact is no more than a mere scintilla, or (4) the evidence conclusively establishes the absence of a vital fact.[7] We indulge every reasonable inference from the evidence in favor of the jury's finding, crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not.[8] And with respect to the sufficiency of evidence supporting an award of lost profits in particular, we are guided by some additional familiar principles.

         Although the loss need not be "susceptible to exact calculation, "[9] "lost profits damages can be recovered only when both the fact and amount of damages is proved with reasonable certainty."[10] "What constitutes reasonably certain evidence of lost profits is a fact intensive determination, " but the "common thread running through [the] cases" applying this standard "is the necessity that the claim of lost profits not be hypothetical or hopeful but substantial in the circumstances."[11] As the Texas Supreme Court has recently summarized the governing jurisprudence:

"[A]nticipated profits cannot be recovered where they are dependent upon uncertain and changing conditions, such as market fluctuations, or the chances of business, or where there is no evidence from which they may be intelligently estimated." Indeed, "[t]he law is wisely skeptical of claims of lost profits from untested ventures or in unpredictable circumstances, which in reality are little more than wishful thinking." Although legally sufficient evidence might otherwise establish a breach of contract or tort permitting an award of lost profits, "profits 'not susceptible of being established by proof to that degree of certainty which the law demands' cannot be recovered as damages." When the evidence supporting a claim for lost profits damages is largely speculative or a mere hope for success, lost profits have not been established with reasonable certainty.[12]

         Similarly, proof of lost profits must be made with "competent evidence" and, "[a]s a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained.[13] And while these principles do not mandate any specific accounting or mathematical methodology for determining lost profits with a reasonable certainty, the determination "must be predicated on one complete calculation."[14] Finally, lost profits, by definition, must be profits-the net of income or revenues from a business activity less the expenses incurred in that activity[15]-as the jury was appropriately instructed.

         Mid Continent's shortfalls in attempting to meet these standards begin with the state of its witness arsenal at trial. Although Mid Continent had designated additional witnesses as supportive experts, successful pretrial challenges by McNeill to the reliability or competence of their opinions relegated Mid Continent to relying on two witnesses in attempting to prove lost profits: (1) Matt Rogers, Mid Continent's president, general manager, and majority owner, [16] who was presented as a lay witness with respect to lost profits; and (2) Clinton Wood, whom Mid Continent presented via video deposition as a "non-retained" expert with knowledge regarding rental of large-capacity forklifts, his business specialty.[17] Further complicating matters for Mid Continent, Wood gave testimony tending to undermine its lost-profits claim.

         Mid Continent's evidence of lost profits fell into two basic categories: (1) retrospective evidence regarding the Omega's history and attempts to rent it prior to the collision; and (2) evidence concerning the prospect of future rentals of the Omega from the time of the collision looking forward. Within the former category, Rogers recounted that he had purchased the Omega-which, again, was from the 2002 model year-in April 2009, acquiring it through an agent or middleman who was representing a Houston-area owner. At the time, the Omega had 8, 800 prior operating hours. Rogers acknowledged that he bought the Omega-at $255, 000, the most expensive forklift he had ever purchased-sight unseen and without inquiring into the machine's repair records or maintenance history. (In fact, Rogers also admitted, neither he nor any other Mid Continent employee ultimately ever viewed the Omega in person until after the collision). Instead, Rogers explained, he had relied on the seller's agent to "check the forklift over." While Rogers insisted that he trusted the agent, with whom he had frequently done business, and that his level of purchasing diligence was not unusual, Wood disagreed that these actions were prudent and indicated that he would have performed a personal inspection first.

         Following the purchase, as Rogers further recounted, Mid Continent had advertised the Omega for sale or rent, but found no takers. After roughly a year of such efforts, Mid Continent had hired a Houston-area forklift dealer, Ranger Lift Trucks and Finance LLC, to seek rentals with end users. Ranger succeeded in securing a rental customer, Signal International, a marine construction firm. In the meantime, as Rogers acknowledged, the Omega had remained at the prior owner's facility and without maintenance, and Mid Continent incurred approximately $11, 500 in repairs and servicing deemed necessary before Signal could use the machine, including replacing oil, battery, and the tires. Thereafter, Signal paid Ranger $13, 000 for monthly rentals during May 2010 and $14, 000 during June 2010. However, in July, in the words of Ranger correspondence in evidence, Ranger and Mid Continent "lost the rental when the unit went down, " specifically encountering problems with the Omega's braking system.

         There followed several months of delays as Mid Continent attempted to obtain the necessary parts to repair the Australian-made machine. Eventually, Mid Continent expended just over $16, 000 on parts, and Ranger concluded repairs-minus replacing two high-pressure seals on an axle that Rogers had been unable to obtain, but hoped to complete later-in January 2011, then shipped the Omega to Ranger's Houston-area yard.

         At this juncture, according to Wood, it happened that he had seen the Omega while dropping by Ranger's yard one day (by all accounts, forklift sales and rentals is a niche industry in which participants tend to know each other and their respective dealings). Wood testified that he had noticed the Omega's axle leaking and was advised by Ranger personnel that "the brakes were bad on it."[18] Wood further recalled his perceptions that the Omega was "a piece of junk" and that, upon ascertaining the price Rogers had paid to buy it, Rogers had been "duped."

         No further rentals of the Omega through Ranger ensued until the first half of 2012, when Ranger secured a rental customer in the McGregor area. There was no evidence of the specific terms of this rental, and Rogers denied knowing the events that ensued. Wood, however, testified without objection that he heard from a Ranger employee that the rental had, as with the earlier one, failed because of a mechanical breakdown.

         All told, Rogers admitted, Mid Continent never made any profit from renting the Omega prior to the collision, whether through the two rentals with Ranger or Mid Continent's own efforts. Following the abortive McGregor rental, Rogers had turned to Wood as an alternative to Ranger, which is what led to the Omega's fateful trip through Austin. Wood denied that he had any definitive business "deal" with Mid Continent as of the time of the collision aside from trying to help Rogers-he indicated that he "felt sorry for Matt" for "getting a bad deal" on the Omega-by moving the machine from the McGregor location to his business's yard and marketing it for rental. Rogers, similarly, acknowledged he and Wood "didn't have any written agreement" and were "going to hash out more details" after the Omega arrived at the yard. But Rogers elaborated that the pair had discussed some general parameters of their arrangement over the telephone, including that Mid Continent would pay Wood to make necessary repairs and "get [the Omega] dressed up" with paint and decals and "ready for rental." Although Rogers did not quantify the cost of these anticipated repairs, Wood opined that they would entail work on the Omega's axle and run approximately $30, 000 to $35, 000. Following these repairs, Rogers continued, Wood "was going to be looking for customers to rent the forklift to, " in return for which "we [had] just roughly talked that [Wood] would get around $3, 000 a month for finding a customer and renting out this forklift." Rogers "would get the rest" of the rental revenues, he further claimed, "and I'd have to pay my maintenance costs out of that."

         As for the prospect that any such rentals would actually occur, it is undisputed that neither Wood nor Mid Continent had actually secured any rentals or specific rental prospects as of the time of the collision. Likewise, neither Rogers nor Wood attempted to identify or quantify the number, duration, or frequency of future rentals that the Omega would in reasonable probability have obtained during the ensuing 43-month period. On the contrary, Rogers acknowledged that "I really have no way of knowing how long [the Omega] would go out with respect to the consistency" of rentals, although he insisted that "[i]t really just takes one good rental coming along" to bring in "some good money for the company." Similarly, while appearing to acknowledge a likelihood that some rentals would have followed repairs and that the market rate would range between $10, 000 and $18, 000 per month, depending on the duration of the rental, Wood testified that it was "impossible" to estimate how often or long the Omega could be rented, and specifically denied that the Omega could have been rented for the entirety of the 43-month period. Wood elaborated that the Omega's capacity placed it in a "super specialty" market in which "there might be ten people in the country that will rent a machine that size at any given time."[19] Conversely, Wood explained, "there's probably five of us in the country" who rented to this large-forklift market, that these competitors "fight" for the few available rentals, and that it might take several months or even a year before any rental opportunity came along.

         A further impediment to rental prospects was an admitted willingness by Wood to undercut Mid Continent. Wood divulged that if he had secured a "12-to-15 thousand-dollar-a-month [rental] deal for a year" on the Omega, he would, "as soon as I can find one, . . . buy a machine and replace [the Omega], and have my machine rented" instead. When confronted with Wood's testimony, Rogers indicated that he no longer trusted Wood, deeming him "shady, " but declined to "speculate" as to any alternative means through which he could have attempted to rent the Omega in that event.

         As Mid Continent acknowledges, it did not elicit from either Rogers or Wood a definitive calculation, estimate, or opinion as to the amount of net profits it would have obtained from renting the Omega during the relevant 43-month period. Instead, Mid Continent insists that the foregoing evidence supplied the jury with sufficient data or inputs to make a "simple calculation" itself to determine Mid Continent's lost profits-"multiply the monthly rental rate for the forklift (R) times the number of reasonably expected monthly rentals (M), and then subtract any maintenance expenses or other rental costs (E), " or "(R x M) - E = LP." Assuming the validity of Mid Continent's approach, McNeill does not dispute that Mid Continent presented legally sufficient evidence of a monthly rate that the Omega probably would have obtained to the extent it was rented during the relevant time period-Wood opined that the machine would have garnered anywhere between $10, 000 and $18, 000 per month depending on the rental's duration. Further, as Mid Continent emphasizes, the Omega had in fact been rented, through Ranger, for a monthly rate of $13, 000 and $14, 000, respectively, in May and June 2010. While these rentals occurred roughly three to five years before the relevant time period, the rates were nonetheless within Wood's range. But the remaining variables in the equation are more problematic for Mid Continent.

         For Mid Continent's proposed calculation to support the jury's award of lost profits, it is necessary to indulge in the following additional inferences that Mid Continent urges or assumes:

• Despite the Omega's acknowledged history of mechanical breakdowns that had contributed to sporadic and unprofitable prior rental activity, the anticipated repairs to the axle at Wood's facility would put an end to such interruptions.
• Similarly, Mid Continent's expenditures on these repairs and previous ones, such as brakes and tires, would be "one-time" fixes that would not recur.
• Wood would have assisted Mid Continent in marketing the Omega for rental during the entire 43-month period at issue, or for at least some time period sufficient to generate net profits from rentals for that period.
• Although there was no direct proof of the frequency or duration of prospective rentals through Wood and no actual rentals or even prospects had been secured as of the time of the collision, "a rental-for at least some time period-was almost certain" given the acknowledged existence of an established rental market for large-capacity forklifts, however specialized and competitive, and the fact that Mid Continent had previously obtained two rentals through Ranger.
• While Wood testified that he would have undercut any such rentals if the duration had made it cost-effective for him to buy a competing large-capacity forklift, Mid Continent nonetheless "would have received all of the shorter-term rentals and, at the very least on a long-term rental, Mid Continent would have several months of rentals while Wood located and purchased a new forklift."
• Wood's commission would have turned out to be near the $3, 000 per-month amount that Rogers and Wood purportedly had discussed.
• Although neither Rogers nor Wood quantified the additional costs of ongoing routine maintenance for which Mid Continent would be responsible, any such costs would be consistent with Mid Continent's prior expenditures or would not be in any ...

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