18‐1643‐cv Holland Loader Company v. FLSmidth

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 3rd day of May, two thousand nineteen.

PRESENT: BARRINGTON D. PARKER, DENNY CHIN, SUSAN L. CARNEY, Circuit Judges.

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HOLLAND LOADER COMPANY LLC, Plaintiff‐Appellant,

v. 18‐1643‐cv FLSMIDTH A/S, Defendant‐Appellee.

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FOR PLAINTIFF‐APPELLANT: MICHAEL V. RELLA (Daniel S. Alter, Gaurav K. Talwar, on the brief), Murphy & McGonigle, P.C., New York, New York; David K. Isom, Isom Law Firm PLLC, Salt Lake City, Utah. FOR DEFENDANT‐APPELLEE: STEPHEN M. HARNIK, Harnik Law Firm, New York, New York.

Appeal from the United States District Court for the Southern District of

New York (Woods, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.

Plaintiff‐appellant Holland Loader Company LLC (ʺHollandʺ) appeals

from the district courtʹs May 3, 2018 judgment in favor of defendant‐appellee FLSmidth

A/S (ʺFLSʺ). After a four‐day bench trial, the district court issued findings of fact and

conclusions of law, holding that FLS breached its obligation to use commercially

reasonable efforts to promote the sale of Holland products pursuant to its intellectual

property purchase agreement (the ʺAgreementʺ) with Holland. See generally Holland

Loader Co. v. FLSmidth A/S,

(S.D.N.Y. 2018). The district court also

concluded, however, that Holland failed to prove that it suffered damages and,

accordingly, entered judgment in favor of FLS. We assume the partiesʹ familiarity with

the underlying facts, procedural history, and issues on appeal.

On May 25, 2012, FLS and Holland entered into the Agreement, under

which FLS purchased Hollandʹs intellectual property in return for an initial payment of

$350,000, an additional advanced earnout payment of $350,000 to occur on December

15, 2012, and a percentage of future profits from the sale of qualifying products over the

next five years, which would be credited against the December 15, 2012 advanced 2

earnout payment. The Agreement capped earnout payments at $4 million. FLS made

the $350,000 initial payment as well as the $350,000 advanced earnout payment, but

thereafter made no further payments to Holland. Holland argued at trial, and argues

now on appeal, that FLSʹs breach of the Agreement caused it to sustain more than $3.65

million in damages ‐‐ the entire unpaid remainder of the cap of $4 million on earnout

payments ‐‐ and that therefore it is entitled to an award in that amount.

DISCUSSION

The sole issue on appeal is whether the district court erred in ruling that

Holland failed to prove the fact of damages. ʺOn appeal from a judgment after a bench

trial, we review the district courtʹs finding[s] of fact for clear error and its conclusions of

law de novo.ʺ Kreisler v. Second Ave. Diner Corp.,

, 187 n.2 (2d Cir. 2013)

(internal quotation marks omitted).

The parties agree that the lost profits claimed by Holland are general,

rather than consequential, damages. See Tractebel Energy Mktg., Inc. v. AEP Power Mktg.,

Inc.,

(2d Cir. 2007). To prove general damages under New York law,

the plaintiff must show (1) the fact or existence of damages to a ʺreasonable certaintyʺ

and, if the fact or existence of damages is proven, (2) ʺa ʹstable foundation for a

reasonable estimateʹ [of damages] incurred as a result of the breach.ʺ

at 110 (quoting

Contemporary Mission, Inc. v. Famous Music Corp.,

. (2d Cir. 1977)).1 The

1 The Agreement is governed by New York law. 3

first prong concerns causation, while the second prong speaks to the amount of

damages.

at 110‐11. ʺReasonable certaintyʺ requires a showing of damages that is

ʺnot merely speculative, possible, and imaginary, but . . . such only as actually follow or

may follow from the breach of the contract.ʺ

(internal quotation marks omitted); see

also Natʹl Mkt. Share, Inc. v. Sterling Natʹl Bank,

, 525 (2d Cir. 2004)

(ʺCausation is an essential element of damages in a breach of contract action; and, as in

tort, a plaintiff must prove that a defendantʹs breach directly and proximately caused his or

her damages.ʺ). A stable foundation for a reasonable estimation ʺnecessarily requires

some improvisation,ʺ and ʺ[t]he law will make the best appraisal that it can,

summoning to its service whatever aids it can command.ʺ Contemporary Mission, 557

F.2d at 926‐27 (internal quotation marks omitted).

The district court found that Holland failed to prove, by a preponderance

of the evidence, the existence of damage caused by the breach. First, the district court

concluded, based on its assessment of the trial testimony and other evidence, that the

revenue projections in the deal memorandum lacked any ʺestablishedʺ or ʺreliableʺ

indicators of accuracy and ʺcould not be substantiated or justified.ʺ Holland Loader, 313

F. Supp. 3d at 481‐82. Second, the district court held that evidence of the historical sale

by Holland of one refurbished loader for $500,000, two trailers, and spare parts to

construction customers over the ten‐year period before the May 2010 Agreement did

little to predict the sale of Holland products, after necessary design modifications, to the

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mining industry. Id. at 482. The district court found that the sale of one loader in a ten‐

year period failed to indicate with reasonable certainty that, but for FLSʹs breach, any

sales would have been made during the five‐year earnout period. Id.; see also Wakeman

v. Wheeler & Wilson Mfg. Co.,

(1886) (ʺProfits which would certainly

have been realized but for the defendantʹs default are recoverable.ʺ). Third, the district

court discredited Hollandʹs expert witnessʹs view that the missed sales opportunities

established the fact of damage because the ʺopinion was based on basic math and on

FLSʹs internal forecastʺ that was not ʺprepared as a sales projection.ʺ Holland Loader,

. Finally, the district court held that evidence of sales of similar

products did not permit a valid comparison because the testimony related to sales in the

North American market, not the international market.

. These were factual

determinations, and the district courtʹs findings of fact were not clearly erroneous. See

Bessemer Tr. Co. v. Branin,

(2d Cir. 2010).

Holland argues that the district court improperly denied it recovery by

employing the higher standard for proving consequential, rather than general,

damages. But the proof required to show the existence of damages is the same for

general and consequential damages. The standards differ only with respect to the

calculation of the amount of damages. See Tractebel,

(comparing New

York law for general and consequential damages, and noting that while both standards

require the fact of damage to be ʺreasonably certain,ʺ proof of consequential damages

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involves ʺa higher burdenʺ because ʺ[w]hile certainty of amount is not an element of

general damages in New York, it is an element of consequential damages.ʺ). The

district court here, however, did not reach the question of the amount of damages. It

found that Holland ʺfailed to prove by a preponderance of the evidence that it suffered

damages as a result of [FLS]ʹs breach.ʺ Holland Loader,

(emphasis

added); see also

(ʺPlaintiffʹs evidence of damages is nothing more than

speculative.ʺ). That FLS failed to use commercially reasonable efforts to market and sell

the products at issue does not necessarily mean the breach caused the absence or

diminution of earnout payments. The district court did not conflate the standard for

proving general and consequential damages.

Holland also argues that the district court erred in ignoring the long‐

standing New York rule that ʺ[a] person violating his contract should not be permitted

entirely to escape liability because the amount of the damage which he has caused is

uncertain.ʺ Tractebel,

. But, again, this rule applies only after the

existence or fact ‐‐ as opposed to the amount ‐‐ of damages is determined to be

reasonably certain.

Because the district court held that Holland failed to prove the

fact of damage with reasonable certainty, it never reached the question of the amount of

damages. Thus, it did not err in not invoking the wrongdoer rule.

Finally, Holland argues that the district court improperly applied New

Yorkʹs new business rule in concluding that Hollandʹs evidence was insufficient to

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establish the fact of damages. The new business rule provides that ʺevidence of lost

profits from a new business venture receives greater scrutiny because there is no track

record upon which to base an estimate.ʺ Schonfeld v. Hilliard,

(2d Cir.

2000). It ʺis not a per se rule forbidding the award of lost profits damages to new

businesses, but rather an evidentiary rule that creates a higher ʹlevel of proof needed to

achieve reasonable certainty as to the amount of damages.ʹʺ Intʹl Telepassport Corp. v.

USFI, Inc.,

, 86 (2d Cir. 1996) (quoting Travellers Intʹl, A.G. v. Trans World

Airlines,

(2d Cir. 1994)). Holland notes that the new business rule

applies only to consequential lost profit damages and that, therefore, its use here was

error. FLS cites to Inficon, Inc. v. Verionix, Inc., for the proposition that the new business

rule applies equally to cases involving general lost profit damages.

(S.D.N.Y. 2016).

We need not wade into this unsettled area of New York law. To the extent

the district relied on this rule, rather than merely citing to it generally, there is no error.

Regardless of the application of the new business rule, the district court was entitled to

make credibility determinations, and it was entitled to find that certain evidence was

less probative of the fact of lost profits because the evidence was speculative, unreliable,

or not factually comparable. The district court thoroughly analyzed the evidence of

damages and determined that much of Hollandʹs evidence of damage was unreliable

and speculative. ʺIf the district courtʹs account of the evidence is plausible in light of

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the record viewed in its entirety, the court of appeals may not reverse it even though

convinced that had it been sitting as the trier of fact, it would have weighed the

evidence differently. Where there are two permissible views of the evidence, the

factfinderʹs choice between them cannot be clearly erroneous.ʺ Anderson v. City of

Bessemer City,

, 573‐74 (1985). As discussed above, the district courtʹs

findings were not clearly erroneous.

* * *

We have considered the partiesʹ remaining arguments and find them to be

without merit. For the reasons set forth above, we AFFIRM the district courtʹs

judgment.

FOR THE COURT: Catherine OʹHagan Wolfe, Clerk of Court

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