Fourth District: Legislative Cap On Non-Ecomomic Damages In Personal Injury Cases Violates the Florida Constitution

In North Broward Hospital District et al v. Kalitan (4D11-4806), a panel of the Fourth District Court of Appeal concluded that a 2014 decision of the Florida Supreme Court required it to conclude that the legislative caps on non-economic damages in personal injury cases violates the equal protection clause of the Florida Constitution. The Fourth District's decision began as follows:

In Estate of McCall v. United States, 134 So. 3d 894 (Fla. 2014), the Florida Supreme Court determined that the caps on noneconomic damages awards in wrongful death cases, imposed by section 766.118, Florida Statutes (2005), violated the equal protection clause of the Florida Constitution. Art. I, § 2, Fla. Const. The instant case consolidates three appeals from a single medical malpractice incident with a final judgment finding Appellants, defendants below (“Defendants”), liable for the injuries and damages suffered by Appellee Susan Kalitan (“Plaintiff”). Plaintiff’s jury-awarded damages were limited by the trial court’s application of section 766.118, and Plaintiff’s cross-appeal challenges the constitutionality of those caps.

Accordingly, this appeal presents an issue of first impression in the post-McCall legal environment—whether the opinion (or, more accurately, opinions) of the Florida Supreme Court in McCall dictates our holding that the caps on noneconomic damage awards in personal injury medical malpractice cases are similarly unconstitutional. Although Defendants attempt to distinguish the caps in wrongful death cases from those in personal injury cases, and there are clear distinctions, McCall mandates a finding that the caps in section 766.118 personal injury cases are similarly unconstitutional. To conclude otherwise would be disingenuous. Consequently, we reverse the trial court’s decision below insofar as it reduced the jury’s award of noneconomic damages based on the caps in section 766.118. 

Note that it is the 2014 version of section 766.118 linked throughout the quote above. Section 766.118, Florida Statutes (2005), cited in the quote above, can be viewed HERE. The 2005 version was apparently amended twice. See  s. 204, ch. 2007-230; and s. 28, ch. 2011-135.

Next, the opinion explained the multiple decisions that make up the Florida Supreme Court's decision in McCall, and why the panel determined that the supreme court's plurality opinion in McCall must be followed in this case. The court seems to make it clear that whether or not you agree with the conclusion regarding the constitutionality of the caps is an issue to be taken up with the Florida Supreme Court - and therefore an issue this appellate court need not independently address. In conclusion, the court stated:

CONCLUSION

Per McCall, Plaintiff’s noneconomic damages were improperly limited by the application of the caps in section 766.118 and, accordingly, we reverse the noneconomic damages award in the final judgment. Defendants have asked this court to distinguish single claimant personal injury cases from the multiple claimant wrongful death situation addressed in McCall. However, we have found no basis to do so that would not conflict with the reasoning of the Florida Supreme Court’s plurality and concurring opinions, which strike at the underpinning of the Legislature’s caps on noneconomic damages in general. So long as the caps discriminate between classes of medical malpractice victims, as they do in the personal injury context (where the claimants with little noneconomic damage can be awarded all of their damages, in contrast to those claimants whose noneconomic damages are deemed to exceed the level to which the caps apply), they are rendered unconstitutional by McCall, notwithstanding the Legislature’s intentions.

The trial court is directed to reinstate the total damages award as found by the jury, though these damages may still be limited by the doctrine of sovereign immunity. Also, in the corrected final judgment, the University is not to be held liable for the damages attributable to the Nurse. As no challenge was raised as to liability in any other context, nor was a challenge raised regarding Plaintiff’s economic damages award, those portions of the final judgment are affirmed.

The 14-page opinion was written by Judge Forst, and the opinion was joined by Chief Judge Ciklin and Judge Stevenson. Some of the briefs filed in this appeal are available at the links below:

• Appellee's Answer Brief/Cross-Appellant's Initial Brief (filed July 22, 2013);
• Appellant's Reply Brief/Cross-Appellee's Answer Brief (filed December 2, 2013);
• Appellant's Reply Brief/Cross-Appellee's Answer Brief (filed December 3, 2013);
• Appellant/Cross-Appellee's Supplemental Brief (filed May 12, 2014); and
• Appellee/Cross-Appellant's Supplemental Brief (filed May 23, 2014).

Punitive Damage Cap Question Certified To Florida Supreme Court

In Lawnwood Medical Center, Inc. v. Samuel H. Sadow, M.D. (4D08-1968), the Fourth District certified the following question to the Florida Supreme Court as one of great public importance:

Are punitive damages of $5,000,000 arbitrary or excessive under the Federal Constitution where the jury awarded no compensation beyond presumed nominal damages but found that defendant intentionally and maliciously harmed plaintiff by slanders per se?

The facts were described as follows:

A surgeon with staff privileges sued a hospital for breach of contract, and later added a claim for slander per se, seeking compensatory damages for both claims, as well as punitive damages for the slander.  He alleged that the hospital had breached its contract with its medical staff, the Medical Staff Bylaws, by invalidly giving another surgeon exclusive privileges for cardiovascular surgery. The exclusive grant barred him from such surgery even though he had been approved for it by the hospital’s credentialing committee and medical staff leadership. The slander claim involved statements during the litigation by senior executive officers of the hospital that, among others, the doctor was not even “qualified to perform surgery on a dog.”

The jury found the hospital liable on the breach of contract claim and fixed his total damages at $2,817,000, reduced to $1,517,000 because he could have mitigated his losses. In separate proceedings on the slander per se claim, the jury found Lawnwood liable for the slanders; that Lawnwood specifically intended to harm him by its per se slanderous statements; that, in fact, it had actually injured him by the statements; and that he suffered no compensatory damages from the slanders but that he was entitled to punitive damages of $5 million from the hospital. After extensive hearings, the trial court denied Lawnwood’s post trial motions for directed verdict and a new trial or a remittitur of punitive damages to a reduced sum.

In the appeal of the contract claim, Lawnwood repeats its trial court argument of statutory immunity from liability to the surgeon. As to the claim of slander per se, Lawnwood presents no appellate issues regarding liability or entitlement to punitive damages. Instead it appeals solely the amount of punitive damages, confining its argument to the contention that $5,000,000 is excessive under the United States Constitution. Before addressing these two issues, we must first examine the evidence supporting the verdicts.

The court then provided an extensive analysis of punitive damage caps and the application of the specific case at issue.

Order Setting Aside Jury Verdict Reversed - Lost Profits Sufficiently Established

In Premier ATMS, Inc. v. Daisy Fresh, Inc. (4D08-4581), the Fourth District reversed a trial court's order setting aside a jury verdict.  The court stated:

The trial court concluded that Premier failed to prove its lost profits with sufficient certainty. We disagree, however, and conclude that Premier established with reasonable certainty each element of its loss and presented damage proof based on established data, rather than on speculation or conjecture. See Massey Ferguson, Inc. v. Santa Rosa Tractor Co., 415 So. 2d 865 (Fla. 1st DCA 1982) (noting that if profits can be established with reasonable certainty, they will be allowed); Jerrico, Inc. v. Washington Nat’l Ins. Co., 400 So. 2d 1316, 1318 (Fla. 5th DCA 1981) (finding that damages need not be calculated with absolute exactness so long as they are based on a reasonable method of computation).

Rule 1.540 Motion For Fraud On Court Requies Showing Of Prejudice

In Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc. (4D08-4022), the Fourth District affirmed the trial court's denial of a Rule 1.540(b) motion to set aside a final judgment.  The final judgment had been entered pursuant to the Fourth District's mandate in Morgan Stanley & Co., Inc. v. Coleman (Parent) Holdings, Inc., 955 So. 2d 1124 (Fla. 4th DCA 2007).  The basis for the motion was alleged fraud on the court by the defendant.  The defendant allegedly concealed documents in discovery and had already been sanctioned by the entry of a partial default judgment before trial.  The Fourth District, as did the trial court, held the motion was properly denied because the plaintiff had failed to show any prejudice in the entry of the judgment.

The Fourth District stated:

Before trial, the trial court entered a partial default against Morgan Stanley as a sanction for discovery misconduct in responding to requests for e-mails about the transaction. Morgan Stanley kept old e-mails on certain backup tapes stored at various locations. The trial court held extensive hearings regarding Morgan Stanley’s non-compliance with discovery orders for e-mail production, as well as misrepresentations by Morgan Stanley’s in-house counsel concerning when they learned that e-mails existed on certain back-up tapes. Ultimately, the court entered a partial default against Morgan Stanley on all elements of CPH’s claim except reliance and damages. It also ordered that portions of CPH’s Amended Complaints be read into evidence and deemed established facts. Thus, CPH needed to prove only that it relied on the established misrepresentations and to prove its damages. The jury awarded CPH nearly $1.5 billion in compensatory and punitive damages.

We reversed the award solely because CPH failed to prove its damages. CPH failed to establish the actual fraud-free value of Sunbeam on the date of purchase, in accordance with settled Florida law. We further held that CPH’s failure to establish actual damage, which is an essential element of fraud, rendered the punitive damage award invalid. Because the law in our district does not allow a “second bite at the apple” to prove damages, we reversed and ordered judgment for the defendant. Morgan Stanley, 955 So. 2d at 1131. The Florida Supreme Court denied review. Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co. Inc., 973 So. 2d 1120 (Fla. Dec. 12, 2007) (Table).

On remand, the plaintiff filed a motion to set aside judgment under Florida Rule of Civil Procedure 1.540(b). 

Essentially, the trial court ruled that the alleged fraud, even if true, did not affect the outcome because it had no bearing upon CPH’s failure to prove damages by the proper legal measure. The court rejected CPH’s argument that it was not required to show prejudice because Morgan Stanley’s in-house lawyers committed a fraud on the court.

***

The trial court, noting a split of authority among the federal circuits, sided with the Seventh Circuit’s reasoning that prejudice is required. See Drobny v. Comm’r of Internal Revenue, 113 F.3d 670, 678 (7th Cir. 1997). There, the court stated:

We are of the opinion that the petitioners were required to demonstrate, not only that the respondent engaged in conduct that was intended to mislead the court, but – of paramount importance – that the actual conduct affected the outcome of their case. … We do not agree with the petitioner’s argument that a final judgment of the Tax Court should be subject to attack (possibly, as in this case, many years later) when the allegedly improper conduct had no effect on the outcome of the decision. The rule of finality lends stability to our legal system, and it is especially important in this litigious era when adversely affected parties seize upon almost any opportunity to prolong litigation.

The Seventh Circuit’s position is more consistent with Florida policy considerations favoring the finality of judgments and with Florida law requiring a prejudicial effect on the outcome of a case. Without doubt, the public interest in the fairness and integrity of the judicial process in an important policy concern. But, as the trial court pointed out in its order, “[a] Rule 1.540(b) motion is not the appropriate vehicle for handling attorney misconduct that does not prejudice the final judgment … Rather, such misconduct is more appropriately vindicated via criminal contempt proceedings and/or grievances filed with the Florida Bar.”

Fourth District Rejects Retroactive Application Of Statute Of Limitation In Pain And Suffering Lawsuit

UPDATE: On November 7, 2011, the Florida Supreme Court released THIS order and declined to review the Fourth District's decision discussed below. The Palm Beach Post published THIS article on November 9, 2011, about the Florida Supreme Court's order. The order stated:

Upon review of the response(s) to this Court's order to show cause dated September 1, 2011, the Court has determined that it should decline to accept jurisdiction in Case Nos. SC09-2153 and SC09-2154. Therefore, the petition for discretionary review is denied and the appeal is dismissed. See American Optical Corp. v. Spiewak, 36 Fla. L. Weekly S435 (Fla. 2011)....

---

In Raphael v. Shecter (4D08-432), the Fourth District reviewed "whether a statute that limits the non-economic damages of a plaintiff can be applied retroactively."  This case was previously discussed in this post.  The lawsuit related to the alleged failure by a doctor to timely administer anti-clotting drugs.

Section 766.118, which placed limits on non-economic damages in medical malpractice cases, was adopted after the incident of malpractice in this case occurred. The notice of intent to initiate litigation was sent and the suit was filed in 2005, nearly two years after this statute became effective on September 15, 2003.

***

Throughout history, courts and legal commentators have generally looked with disapproval and extreme caution at the retroactive application of laws...In Florida, to determine whether a statute may be retroactively applied, “we consider two factors: (1) whether the statute itself expresses an intent that it apply retroactively; and, if so, (2) whether retroactive application is constitutional.”

***

When it adopted section 766.118(4), the Florida Legislature expressly stated the following intent to apply the statute retroactively to incidents that took place prior to its enactment...However, the Legislature’s clear intent to modify and allow new damages retroactively is not necessarily dispositive.

***

In Laforet, the Supreme Court decided that the Legislature, despite its clear intent, could not retroactively modify the definition of damages so as to alter or impair vested or substantive rights of the insurers.  The court reasoned that, generally, “retroactive abolition of substantive vested rights is prohibited by constitutional due process considerations.”

***

Although a substantive statute will not operate retrospectively, the general rule is that a procedural or remedial statute may operate retrospectively...Substantive law prescribes “duties and rights” and procedural law amendments concern “means and methods."...“The establishment or elimination of such a claim is clearly a substantive, rather than procedural, decision of the legislature because such a decision does, in fact, grant or eliminate a right or entitlement.” Id. at 1358. The limitation of non-economic damages in this case is no less a substantive decision than a limitation on punitive damages as demonstrated in Mancusi....In this case, the incident of medical malpractice occurred on April 10, 2003, and the claimant did not file an action for damages until after the new legislation substantively affecting this cause of action became effective, on September 15, 2003. Here, as in Mancusi, the new statute may not be retroactively applied to the cause of action which accrued previously. Id at 28. Section 776.118(4), Florida Statutes, cannot be retroactively enforced to impair the appellant’s vested rights.

***

We find that the retroactive application of section 766.118(4) does not pass the test set out in Chase Federal and Old Port Cove, because it is an impairment of the substantive and vested rights of the appellant for the cause of action which accrued and vested on April 10, 2003.

Disclaimer: George N. Meros and GrayRobinson, P.A. filed an amicus brief in this appeal.

Verdict Against NOVA Upheld -- Prejudgment Interest Reversed

In Nova Southeastern University of the Health Sciences, Inc., d/b/a College of Osteopathic Medicine v. Sharick (3D08-2507), the Third District held that "we agree that the court below correctly refused to award prejudgment interest on the loss of past earnings award because the jury failed to fix a date of that loss," however, "Because no prejudgment interest was appropriate in this case, awarding such interest between the date of the verdict and the date of the judgment was error."

See Argonaut Ins. Co. v. May Plumbing Co., 474 So. 2d 212, 215 (Fla. 1985) (finding that prejudgment interest is awardable based on a mathematical computation “[o]nce a verdict has liquidated the damages as of a date certain”); cf. Herrero v. Pearce, 571 So. 2d 96, 97 (Fla. 1st DCA 1990) (where a monetary judgment was entered against a father requiring him to pay back child support, ordering that prejudgment interest be calculated at the statutory rate “from each monthly date of loss when [the father] should have made each payment”); Metro. Dade County v. Bouterse, Perez & Fabregas Architects Planners, Inc., 463 So. 2d 526, 527 (Fla. 3d DCA 1985) (where a party breached a contract calling for progress payments over a period of time, finding that prejudgment interest should be calculated on each progress payment from the date it would have become due). We also agree that no such interest was proper in this case as to the loss of future earnings. See Mission Square, Inc. v. O’Malley’s, Inc., 783 So. 2d 1151, 1152 (Fla. 1st DCA 2001) (finding that prejudgment interest is not recoverable where a judgment awards the present value of lost future damages, explaining that “[b]ecause present value actually replaces future losses, and takes into account an interest rate, it would be incongruent to tack onto the present value figure an additional interest rate representing a time prior to the time future losses begin to occur”).

Prior appeals in the same underlying disputes can be found at Sharick v. Southeastern University of Health Sciences, Inc., 780 So. 2d 136 (Fla. 3d DCA 2000).  A retrial took place in January 2008 which led to the most recent dispute.  An article in the SunSentinel titled "Appeals court upholds $4.3 million judgment against Nova Southeastern" can be found here.

First District On Punitive Damage Claims

Today in Wayne Frier Home Center of Pensacola, Inc. v. Cadlerock Joint Venture, LP, et al (1D08-1599), the First District reversed the trial court's denial of a motion to amend to add a claim for punitive damages.  The court stated:

To plead a claim for punitive damages, a party must comply with section 768.72, Florida Statutes...Section 768.72(1) provides that in any civil action no claim for punitive damages shall be permitted “unless there is a reasonable showing by evidence in the record or proffered by the claimant which would provide a reasonable basis for recovery of such damages.” Section 768.72(2) provides that after a claim for punitive damages is made, a defendant may be held liable for those damages only if the trier of fact finds based on clear and convincing evidence that defendant was personally guilty of intentional misconduct or gross negligence. In the case of an employer, a principal, corporation or other legal entity, section 768.72(3) provides that punitive damages may be imposed for the conduct of an employee if the employee was personally guilty of intentional misconduct or gross negligence, and (a) the employer actively and knowingly participated in such conduct; (b) officers, directors or managers of the employer knowingly condoned, ratified or consented to such conduct; or (c) the employer engaged in gross negligence which contributed to the injury suffered by the party making a claim for punitive damages.

***

Here, the Hartleys proffered evidence that the mobile home delivered was not the home which Ms. Hartley agreed to purchase when the purchase contract was signed. The Hartleys never lived in the home that was delivered and contacted Wayne Frier promptly to reject delivery. Ms. Hartley informed Roberson, Wayne Frier’s manager, who met Ms. Hartley after the delivery, that the home delivered was not the home she agreed to purchase. Further, Roberson testified that, as a matter of company practice, in the sale of repossessed mobile homes the homes could be switched and serial numbers changed on the sale documents without the purchaser signing the amended purchase contract. The purchase contract proffered by the Hartleys shows a change in the serial number. Under these proffered facts, when viewed in a light favorable to the Hartleys, there was a showing of a reasonable basis for the recovery of punitive damages. The evidence could support a finding that the management of Wayne Frier participated in the substitution of a mobile home without the consent of the buyer or condoned or consented to such practice. See § 768.72(3)(a) and (b), Fla. Stat.

Fourth District: Lost Profits, Damages and Expert Testimony

In River Bridge Realty Corporation v. American Somax Ventures (4D08-2076), the Fourth District discussed damages and lost profits. After a detailed recitation of the facts, the court stated:

“When a party seeks lost future profits based upon a breach of contract or other wrong, the party must prove that the lost profits were a direct result of the defendant’s actions and that the amount of the lost profits can be established with reasonable certainty.” Forest’s Mens Shop v. Schmidt, 536 So. 2d 334, 336 (Fla. 4th DCA 1988). “Lost profits are generally proven by one of two methods: (1) the ‘before and after theory’ or (2) the ‘yardstick test.’” 4 Corners Ins., Inc. v. Sun Publ’ns. of Fla., Inc., 5 So. 3d 780, 783 (Fla. 2d DCA 2009) (citing G.M. Brod & Co. v. U.S. Home Corp., 759 F.2d 1526, 1538 (11th Cir. 1985)). “The yardstick test is generally used when a business has not been established long enough to compile an earnings record that would sufficiently demonstrate lost profits” and “compares the profits of businesses ‘that are closely comparable to the plaintiff’s.’” Id. However, “[l]ost profits must be established with a reasonable degree of certainty and must be a natural consequence of the wrong,” and “[s]uch an award cannot be based upon speculation or conjecture.” Sostchin v. Doll Enters., Inc., 847 So. 2d 1123, 1128 (Fla. 3d DCA 2003).

***

RBC argues that the testimony was speculative because it was based on “the number of houses built by the other homebuilders” without “even knowing whether they made a dime of profit.” While ASV’s expert explained how he arrived at his 7.32% profit rate as it applied to Pod 1A, we find the proof lacking as it relates to the pods built by the other contractors. ASV could not establish that the subsequent builders were in the same “start-up” position as ASV, could not prove the subsequent builders’ costs, could not prove that those builders actually made a profit on the subsequent pods, and could not prove that if ASV had been given the opportunity to build out the subsequent parcels, it would have been able to finance the build out and reach the same result as the other builders. This is critical, as times and economies had changed. For these reasons, we find the testimony lacks the reasonable certainty necessary to support the yardstick approach to lost profits, rendering the testimony too speculative to sustain the damages claimed for the future pods.

New Trial on Liability and Damages Appropriate when Additur Necessary

In Westminster Comm. Care Svcs., Inc. v. Mikesell (5D08-1326), the Fifth District held that the trial court erred by refusing to grant a new trial as to liability when it granted a new trial as to damages. The court held:

Westminster is correct that the trial court should have granted its request for a new trial on both liability and damages. A line of decisions rendered by the district courts, including this court, hold that despite the limiting provision in section 768.74(4), when a jury award is inadequate and an additur is necessary to correct the inadequacy, a new trial on the issues of liability and damages is appropriate when the liability issue was hotly contested by the parties. Frasher v. Whitehurst Family, Inc., 948 So. 2d 36, 38 (Fla. 3d DCA 2006); Scott v. Sims, 874 So. 2d 21, 22 (Fla. 1st DCA 2004) (“[B]efore new trial should be allowed on damages alone, a defendant’s liability must be unequivocally established and not substantially disputed at trial; nor can it be the result of the jury’s compromise on the liability issue . . . .”); Food Lion v. Jackson, 712 So. 2d 800, 803 (Fla. 5th DCA 1998) (noting the provision in section 768.74(2) that instructs that the adverse party be given the choice of accepting the amount of additur or a new trial on damages only, and holding that a new trial on the issue of liability should also be ordered if liability was hotly contested); Newalk v. Florida Supermarkets, Inc., 610 So. 2d 528, 529-30 (Fla. 3d DCA 1992) (holding new trial on all issues required where damage award was inadequate and liability was hotly contested); Broward County Sch. Bd. v. Dombrosky, 579 So. 2d 748, 49-50 (Fla. 4th DCA 1991); Watson v. Builders Square, Inc., 563 So. 2d 721, 722 (Fla. 4th DCA 1990) (“[W]hen a damage award is clearly inadequate and the issue of liability is hotly contested, such circumstances give rise to a suggestion that the jury may have compromised its verdict.”). These decisions are premised on the generally accepted notion that in such cases the jury may have returned a compromised verdict that does not reflect a true and just decision based on the evidence and the pertinent law.

Second DCA on the Uniform Contribution Among Tortfeasors Act

In T & S Enterprises Handicap Accessibility, Inc. v. Wink Industrial Maintenance & Repair, Inc. (2D08-78) the Second DCA affirmed the trial court's order dismissing the case. The court stated:

All of these cases, however, were decided before the current version of section 768.81 was enacted. That section now provides that in negligence cases such as this one, the court shall enter judgment against each party liable on the basis of such party's percentage of fault 'and not on the basis of the doctrine of joint and several liability.' § 768.81(3). In order to allocate any fault to a nonparty, a defendant must affirmatively plead this fault and prove it at trial 'by a preponderance of the evidence.' § 768.81(3)(a) & (b).

In this case, very similar procedures are available to T & S, except that Wink would not be a named party. T & S has the opportunity to plead that Wink is partially or completely at fault and the cause of the plaintiffs' injuries. The evidence would presumably be the same whether presented in this case under the provisions of section 768.81(3) or in an action brought under the Uniform Contribution Among Tortfeasors Act. The jury would determine the same issues under section 768.81(3) as it would in a third-party action, and it is unlikely that T & S will be required to pay more than its pro rata share of any common liability. While the cases cited in this opinion may not have been overruled by the enactment of the current version of section 768.81, they appear to have been rendered obsolete, at least in cases like this one. This decision does not determine any rights T & S may have if it elects to settle the plaintiffs' claims in exchange for a general release which includes Wink.

Damages for Breach of Services Contract Determined by Lost Profits

In Marbella Park Homeowners’ Association, Inc. v. My Lawn Service, Inc. (3D07-3278) the Third DCA reversed the circuit court's order granting summary judgment based upon an improper damage calculation.

"Marbella Park asserts that the trial court erred in awarding the full amount of gross payments as damages, without holding an evidentiary hearing." The Third DCA agreed. "The measure of damages for breach of a services contract is the non-breaching party’s lost profits...Lost profits are calculated by subtracting the non-breaching party’s performance costs from the contract price...Further, the burden of proving lost profits is on the non-breaching party. Indian River Colony Club, Inc. v. Schopke Constr. & Eng’g, Inc., 619 So. 2d 6 (Fla. 5th DCA 1993). Generally, proof of performance costs necessitates an evidentiary hearing. See, e.g., Berlant v. Nat’l Bank of Fla., 527 So. 2d 910 (Fla. 3d DCA 1988)."

Proper Way to Determine Damages When Project Terminated Prior to Completion

The Eleventh Circuit released an interesting published opinion on April 20, 2009. The case was Sea Byte Inc. v. Hudson Marine Management Services Inc. (08-14069) and case involved a contract to restore an underwater reef. Miller hired Hudson to restore the reef, however, a series of hurricanes expanded the project scope prior to completion of the project. Miller and Hudson filed suits against each other that were transferred to the Southern District of Florida and consolidated.

The Eleventh Circuit held that the contract expired by its own terms due to a "severe weather" provision when the hurricanes increased the scope of the project. Pursuant to the contract, Miller agreed to pay $5,200,000 to Hudson for the repair work. After the hurricane, Hudson requested an additional $2,100,000, however, an agreement was not reached. This led to Hudson stopping his restoration work and led Miller to stop sending payments.

Due to the "severe weather" provision, the Eleventh Circuit affirmed the district court's holding that the contract was not breached by either party. The Eleventh Circuit disagreed with the district court's conclusion as to damages.

The district court correctly held that quantum meruit was not available because under Florida law quantum meruit is not available when an enforceable contract exists. The Eleventh Circuit stated:

Although we agree with the district court’s rejection of quantum meruit damages, we do not agree with its ultimate approach. The court held it could not reevaluate the $900,000 in payments Miller made to Hudson because they were made pursuant to a valid contract. However, this ignores the fact that the parties’ contract affixed a total value to the restoration project: $5,200,000. In our view, there is only one fair and logical way to give effect to that agreement: to determine what percentage of the project’s value Hudson provided under the contract as of September 2, and multiply that percentage by the contract price of $5,200,000. This will tell us whether, considering the $2,698,000 Miller already remitted, Hudson has been overpaid or underpaid.

The Eleventh Circuit cited to a Michigan appellate court for the proposition that the value of the services provided prior to discharge constitutes the percentage of the services that have been completed pursuant to the contract, multiplied y the contract price. The court stated "We generally agree that the best way to assess damages in such a situation is to multiply the total value of the project (as set by the parties) by the percentage of the project completed."

The general approach does not work, however, when different aspects of the project require different kind of labor, equipments and skills. The end result:

In sum, the district court must make a factual finding as to what percentage of the project’s value Hudson provided under the contract, (See Footnote 11) and multiply this percentage by the total contract price of $5,200,000. Then the court may determine whether, considering all payments Miller made to Hudson for the project, Miller underpaid Hudson (in which case Hudson is entitled to damages from Miller) or Miller overpaid Hudson (in which case Miller is entitled to damages from Hudson). Thus, we reverse the district court’s ruling as to the value of Hudson’s pre-hurricane work, and remand for findings consistent with this opinion.

Footnote 11: In making this determination, the court should assess to what extent Hudson completed the project as originally planned - see Footnote 2. Although Miller now complains that Hudson’s original plan was inefficient, this is the plan for which it agreed to pay $5,200,000 and we cannot save Miller from the bargain now.

Prejudgment Interest Not Available on Lost Profits Claim

Last week in Bosem v. Musa Holdings, Inc. (4D07-3383) the Fourth DCA held (again) that prejudgment interest is not available on claims for lost profits. Prejudgment interest is only available when the amount the defendant refuses to pay "is known from the beginning." The court stated:

Florida case law suggests that on a claim for lost profits or price-erosion damages, prejudgment interest is not warranted because the amount of damages is generally unknown. For example, in Jones v. Sterile Products Corp., 572 So. 2d 519, 520 (Fla. 5th DCA 1990), the court held that lost profit and price erosion damages resulting from a breach of a noncompete agreement were unliquidated and, thus, that prejudgment interest was not warranted.

Moreover, “[t]o date, cases recognizing a right to prejudgment interest have all involved the loss of a vested property right,” and anticipated business profits are not a vested property right. See Scheible v. Joseph L. Morse Geriatric Ctr., Inc., 988 So.2d 1130, 1134 (Fla. 4th DCA 2008).