Interstate Oil and Supply Company and R. J. Yelenich v. Troutman Oil Company
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INTERSTATE OIL AND SUPPLY COMPANY and R.J.
Yelenich v. TROUTMAN OIL COMPANY
97-1414___ S.W.2d ___
Supreme Court of Arkansas
Opinion delivered July 2, 1998
1. Civil procedure -- rules of pleading -- Ark. R. Civ. P. 8(a) and 15(b)
must be read together. -- The purpose of Ark. R. Civ. P. 8(a) is
to prevent a plaintiff from using unliquidated demands to
avoid removal of diversity-of-citizenship cases to federal
court; Rule 8(a), which determines jurisdiction only, must be
read together with Ark. R. Civ. P. 15(b), which provides that,
when issues not raised by the pleadings are tried by the
express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the
pleadings.
2. Civil procedure -- proof of damages -- limitation argument meritless --
appellants failed to seek removal to federal court. -- Where appellee's
response to appellants' first set of interrogatories included
a chart indicating that it was demanding $184,950 in damages,
appellants could have sought removal of appellee's claim to
federal court pursuant to 28 U. S. C. § 1446; because it chose
not to do so, the supreme court held meritless its argument
that the trial court erred in refusing to limit appellee's
proof of damages to $50,000 because neither the complaint nor
the amended complaint contained a demand for an amount in
excess of that required for federal jurisdiction in diversity-of-citizenship cases.
3. Damages -- lost profits -- proof required. -- When a party seeks to
recover anticipated profits under a contract, he must present
a reasonably complete set of figures to the jury and should
not leave the jury to speculate as to whether there could have
been any profits; lost profits must be proven by evidence
showing that it was reasonably certain the profits would have
been made had the other party carried out its contract; this
proof is speculative when based upon such factors as projected
sales when there are too many variables to make an accurate
projection.
4. Damages -- lost profits -- "reasonably certain" requirement. -- The rule
that damages that are uncertain or contingent cannot be
recovered does not apply to uncertainty regarding the value of
the benefits to be derived from performance but to uncertainty
concerning whether any benefit would be derived at all; if it
is reasonably certain that profits would have resulted had the
contract been carried out, then the complaining party is
entitled to recover.
5. Damages -- approximate estimates allowed. -- The fact that a party can
state the amount of damages he suffered only approximately is
not a sufficient reason for disallowing damages if from the
approximate estimates a satisfactory conclusion can be
reached.
6. Damages -- lost profits -- all applicable variable expenses should be
deducted. -- The weight of authority holds that fixed overhead
expenses need not be deducted from gross income to arrive at
the net profit properly recoverable; the rationale behind this
rule is that overhead continues whether or not the contract in
question has been breached; if overhead is deducted, thereby
reducing recoverable damages, the effect is to reduce the
profitability of other contracts by forcing them to bear a
disproportionate share of fixed costs; conversely, all
applicable variable expenses should be deducted when arriving
at lost profits.
7. Damages -- lost profits -- trial court did not err in admitting appellee's
evidence relating to. -- Where appellants neither challenged
appellee's evidence concerning a service-station owner's lost
profits and testimony regarding appellee's fixed costs nor
presented contrary evidence indicating that appellee's
expenses were variable rather than fixed overhead expenses,
the supreme court concluded that, under the circumstances, the
trial court did not err in admitting appellee's evidence
relating to lost profits.
8. Commerce -- unfair methods of competition prohibited by Federal Trade
Commission -- rule-of-reason analysis. -- The Federal Trade
Commission Act prohibits unfair methods of competition incommerce and unfair acts or practices in commerce; the
majority of antitrust claims are analyzed under a "rule of
reason," under which the finder of fact must decide whether
the questioned practice imposes an unreasonable restraint on
competition; this rule-of-reason analysis involves an inquiry
into the market structure and the defendant's market power in
order to assess the actual effect of the restraint.
9. Commerce -- unlawful tying arrangement described. -- An unlawful tying
arrangement involves the sale or lease of one item, the tying
product, on the condition that the buyer or lessee purchase a
second item, the tied product, from the same source.
10. Commerce -- contract did not constitute unlawful tying arrangement --
denial of appellants' motion for new trial affirmed. -- Appellants did
not proffer evidence that they had sufficient market power in
the tying product or service market to restrain competition;
where appellants failed to meet their burden to define the
relevant market, including a product market and a geographic
market, the supreme court could not say, as a matter of law,
that the contract as construed constituted an unlawful tying
arrangement and was illegal as violative of federal antitrust
laws; the court affirmed the trial court's decision to deny
appellants' motion for new trial.
Appeal from Pulaski Circuit Court, First Division; Marion
Humphrey, Judge; affirmed.
Harrill & Sutter, PLLC, by: Raymond Harrill, for appellants.
Cook, Elmore & Associates, by: Larry Cook, for appellees.
W.H. "Dub" Arnold, Chief Justice.
This is a breach-of-contract case. The appellants, Interstate
Oil and Supply Company and its owner, R. J. Yelenich
("Interstate"), appeal from a $187,289.57 judgment entered in favor
of appellee, Troutman Oil Company ("Troutman"), following a jury
trial in the First Division of Pulaski County Circuit Court.
Interstate seeks a new trial, raising the following issues: that
the trial court erred in (1) refusing to limit Troutman's proof of
damages to $50,000.00 under Ark. R. Civ. P. 8(a); (2) failing to
exclude testimony regarding Troutman's claim for lost profits; and
(3) rejecting its argument that Troutman's construction of the
parties' contract was illegal as violative of federal antitrust
laws. Because we conclude that none of Interstate's arguments has
merit, we affirm the trial court's judgment.
This case has its genesis in a 1993 contract entered into
between the parties, which are gasoline and diesel-fuel
distributors that service gas stations and convenience stores in
central Arkansas. According to the contract, Troutman purchased
Interstate's inventory, rolling equipment, and the right to supply
twelve listed service stations that Interstate had been supplying. Interstate, which owned some of the service stations it supplied
but leased them to independent operators, agreed, as part of the
contract, to cooperate and assist Troutman in retaining business of
its former customers. It further agreed not to compete with
Troutman within a thirty-mile radius for a period of ten years.
Troutman agreed to rent Interstate's warehouse and to pay
Interstate a commission for gas sold at the service stations. The
purchase price under the contract was $300,000.00, half of which
Troutman paid Interstate at closing, with the remaining half to be
financed over a ten-year period.
Subsequently, Jerry Butler, the operator of the Baseline and
Chicot Road station listed in the contract at issue, refused to
purchase his gasoline from Troutman. As a result, Troutman sued
Interstate for breach of contract, contending that Interstate was
obligated under the agreement to require Mr. Butler to purchase his
gas from Troutman. Troutman later amended its complaint, stating
that it was unable to supply three additional enumerated gas
stations in the contract. Interstate filed a counterclaim against
Troutman. Following a jury trial, the jury awarded Troutman
$187,289.57 on its claim and Interstate $144,000.00 on its
counterclaim. The trial court entered its judgment accordingly,
providing that Troutman was to recover $43,400.57 from Interstate.
Interstate filed a motion for new trial, which the trial courtdenied. This appeal followed. See footnote 1
I. Ark. R. Civ. P. 8(a)
For its first allegation of error, Interstate contends that
the trial court erred in refusing to limit Troutman's proof of
damages to $50,000.00 because neither the complaint nor amended
complaint contained a demand for an amount in excess than that
required for federal court jurisdiction in diversity-of-citizenship
cases.See footnote 2 This is an issue of first impression for this court and
requires us to interpret our rules of civil procedure. See Ark.
Sup. Ct. R. 1-2(b)(1) and (6). The rule at issue, Ark. R. Civ. P.
8(a), reads in pertinent part:
Claims for Relief. A pleading which sets forth a claim for
relief, whether a complaint, counterclaim, crossclaim, or
third party claim, shall contain (1) a statement in ordinary
and concise language of facts showing that the court has
jurisdiction of the claim and is the proper venue and that the
pleader is entitled to relief, and (2) a demand for the relief
to which the pleader considers himself entitled. In claims for
unliquidated damage, a demand containing no specified amount
of money shall limit recovery to an amount less than required
for federal court jurisdiction in diversity of citizenship
cases, unless language of the demand indicates that the
recovery sought is in excess of such amount. Relief in the
alternative may be demanded. (Emphasis added.)
In the present case, Troutman's claim for damages in its complaint
and amended complaint was "undetermined but exceed[s] $10,000.00." There was no language in the complaint or amended complaint that
indicated that Troutman sought more than $50,000.00. Because
Troutman's claim was for unliquidated damages, Interstate asserts
that the plain language of Rule 8(a) limited Troutman's recovery to
$50,000.00. Accordingly, Interstate claims, Troutman's proof of
damages should have been limited to this amount.
While we have not previously interpreted the demand
requirement, the Reporter's Notes to Rule 8 state that "[t]he
obvious purpose of this section is to prevent a plaintiff from
using unliquidated demands to avoid removal of diversity of
citizenship cases to federal court." Rule 8(a), which determines
jurisdiction only, must be read together with Ark. R. Civ. P.
15(b), which provides that, when issues not raised by the pleadings
are tried by the express or implied consent of the parties, they
shall be treated in all respects as if they had been raised in the
pleadings. In the present case, Troutman responded to Interstate's
first set of interrogatories on August 23, 1996, and produced a
chart indicating that it was demanding $184,950.00 in damages. At
this point, which was well before the April 10, 1997, trial,
Interstate could have sought removal of Troutman's claim to federal
court pursuant to 28 U. S. C. § 1446. It chose not to do so.
Accordingly, Interstate's argument is meritless.
II. Lost profits
Next, Interstate claims that the trial court should haveexcluded Troutman's evidence of lost profits because Troutman
failed to include the cost of overhead in its calculation. We
reviewed our guidelines in reviewing damage awards that include
lost profits in Little Rock Wastewater Util. v. Larry Moyer
Trkg., 321 Ark. 303, 312, 902 S.W.2d 760 (1995):
When a party seeks to recover anticipated profits under a
contract, he must present a reasonably complete set of
figures to the jury and should not leave the jury to
speculate as to whether there could have been any profits.
American Fidelity Fire Ins. Co. v. Kennedy Bros. Constr.
Co., Inc., 282 Ark. 545, 670 S.W.2d 798 (1984). Lost
profits must be proven by evidence showing that it was
reasonably certain the profits would have been made had the
other party carried out its contract. Id. at 546, 670 S.W.2d at 799; Reed v. Williams, 247 Ark. 314, 775 S.W.2d 90
(1969). Such proof is speculative when based upon such
factors as projected sales when there are too many variables
to make an accurate projection. See Sumlin v. Woodson, 211
Ark. 214, 199 S.W.2d 936 (1947).
We further explained in Jim Halsey Co. v. Bonar, 284 Ark. 461,
683 S.W.2d 898 (1985), the rule that uncertain or contingent
damages cannot be recovered:
The rule that damages which are uncertain or contingent
cannot be recovered does not apply to uncertainty as to the
value of the benefits to be derived from performance, but to
uncertainty as to whether any benefit would be derived at
all. If it is reasonably certain that profits would have
resulted had the contract been carried out, then the
complaining party is entitled to recover.
Jim Halsey Co., 284 Ark. at 467-468; Crow v. Russell, 226 Ark.
121, 289 S.W.2d 195 (1956) (quoting Black v. Hogsett, 145 Ark.
178, 224 S.W. 439 (1920)). The fact that a party can state the
amount of damages he suffered only approximately, we said, is not
a sufficient reason for disallowing damages if from the
approximate estimates a satisfactory conclusion can be reached. Id. at 468.
According to one commentator, the weight of authority holds
that fixed overhead expenses need not be deducted from gross
income to arrive at the net profit properly recoverable. 2
Robert L. Dunn, Recovery of Damages for Lost Profits, § 6.5 at
366 (4th ed. 1992). The rationale behind this rule is that
overhead continues whether or not the contract in question has
been breached. Id. at 373. If overhead is deducted, thereby
reducing recoverable damages, the effect is to reduce the
profitability of other contracts by forcing them to bear a
disproportionate share of fixed costs. Id. Conversely, all
applicable variable expenses should be deducted when arriving at
lost profits. Id. We agree that this is the better rule.
Troutman offered the following evidence as to lost profits.
Toby Troutman, one of Troutman's owners, testified that he would
have received a profit of $187,289.57 if Interstate had honored
the contract and required Mr. Butler to purchase his gas from
Troutman. This figure was based on the gross profit for the
fourteen months his company supplied the Baseline and Chicot
service station. From this $35,865.24 gross-profit figure, he
deducted the $9,923.50 commission payed to Mr. Butler and the
$1,514.31 commission paid to Interstate. He took this $24,427.73
figure and divided it by fourteen months, equaling $1,744.82,
representing his monthly net profit. He multiplied his monthly
net profit by the remaining 106 months left on the parties'contract, equaling $184,950.92. To this amount, he added
$2,338.65 in branding costs that Fina billed him for the Baseline
and Chicot station. The total equaled $187,289.57.
Mr. Troutman admitted that he had other costs including
drivers' costs, truck and equipment costs, labor costs for
maintaining and servicing pumps, insurance costs, secretarial
salaries, and office rent. However, he described these costs as
fixed costs, contending that he would have had to pay these
expenses whether or not he sold gasoline to the Baseline and
Chicot station. He further stated that the station operators
paid their own utilities. Interstate did not challenge this
testimony, nor did it present contrary evidence indicating that
Troutman's expenses were variable rather than fixed overhead
expenses. Under these circumstances, we cannot say that the
trial court erred in admitting Troutman's evidence relating to
lost profits.
III. Illegality
Finally, Interstate claims that the trial court should have
dismissed Troutman's complaint as a matter of law because "the
result obtained by Troutman's construction of the contract" was
illegal under federal antitrust laws. Troutman responds that
Interstate was required to plead illegality as an affirmative
defense. See Ark. R. Civ. P. 8(c). The abstract reveals that
Interstate did in fact plead this defense in its amended answer.
At trial, Troutman claimed that Interstate was obligated to
require its lessees to buy from Troutman and breached this
obligation. Interstate objected to this construction of the
contract, maintaining that if it were forced to compel its
lessees to buy gas from Troutman, it would be taking part in an
unlawful tying arrangement. The trial court rejected
Interstate's argument, and the jury ultimately returned a verdict
for Troutman on its claim for breach of contract.
The Federal Trade Commission Act prohibits unfair methods of
competition in commerce and unfair acts or practices in commerce.
Atlantic Refining. Co. v. Federal Trade Commission, 381 U.S. 357
(1965); 15 U.S.C. § 45. The majority of antitrust claims are
analyzed under a "rule of reason," under which the finder of fact
must decide whether the questioned practice imposes an
unreasonable restraint on competition. Double D Spotting Service,
Inc. v. Supervalu, 136 F.3d 554 (8th Cir. 1998) (citing State Oil
Co. v. Khan, 118 S. Ct. 275 (1997)). This rule-of-reason analysis
involves an inquiry into the market structure and the defendant's
market power in order to assess the actual effect of the
restraint. Id.(citing Copperweld Corp. v. Independence Tube
Corp., 467 U.S. 752, 768 (1984)). Particularly, an unlawful
tying arrangement involves the sale or lease of one item, the
tying product, on the condition that the buyer or lessee purchase
a second item, the tied product, from the same source. Id.(citing Marts v. Xerox, Inc., 77 F.3d 1109, 1112 (8th Cir. 1996)
and Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483 (8th Cir. 1992),
cert. denied, 506 U.S. 1080 (1993)).
In the present case, Interstate did not proffer evidence
that it had sufficient market power in the tying product or
service market to restrain competition. It was Interstate's
burden to define the relevant market, including a product market
and a geographic market. See Double D, 136 F.3d at 560 (citing
Bathke v. Casey's Gen. Stores, Inc., 64 F.3d 340 (8th Cir.
1995)). This it did not do. Under these circumstances, we cannot
say, as a matter of law, that the contract as construed in the
present case constituted an unlawful tying arrangement and was
illegal as violative of federal antitrust laws. Based on the
foregoing, we affirm the trial court's decision to deny
Interstate's motion for new trial.
Affirmed.
Newbern and Imber, JJ., dissent.
Annabelle Clinton Imber, Justice, dissenting. I must
respectfully dissent because I cannot agree with the majority's
holding that Troutman was properly allowed to prove damages in
excess of $50,000.
In its original and amended complaints, Troutman alleged
that its damages were "undetermined" but "exceed[ed] $10,000."
The majority acknowledges that Ark. R. Civ. P. 8(a), a general
rule of pleading that applies to all claims for relief,
determines jurisdiction and provides in relevant part that:
In claims for unliquidated damage, a demand containing
no specified amount of money shall limit recovery to an
amount less than required for federal court
jurisdiction in diversity of citizenship cases, unless
language of the demand indicates that the recovery
sought is in excess of such amount.
(Emphasis added.) By using the word "shall," it is clear that
the rule is mandatory and not discretionary. King v. State, 322
Ark. 51, 907 S.W.2d 127 (1995); Menard v. City of Carlisle, 309
Ark. 522, 834 S.W.2d 632 (1992). Hence, pursuant to the
mandatory language of Rule 8(a), I conclude that Troutman should
have been limited to proving damages less than $50,000, which was
the amount required for federal diversity jurisdiction at the
time of this case.
The majority circumvents this result by holding that Rule
8(a) "must be read together with Ark. R. Civ. P. 15(b)." Rule
15(b) provides that:
When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall
be treated in all respects as if they had been raised
in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment;
but failure so to amend does not affect the result of
the trial of these issues. If evidence is objected to
at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the
pleadings to be amended in its discretion. The court
may grant a continuance to enable the objecting party
to meet such evidence.
I read Rule 15(b) to allow the pleadings to be amended to conform
to the evidence in three instances.
First, the pleadings may be amended upon a motion. Troutman
made no such motion in this case. Second, the pleadings may be
amended by express or implied consent. Interstate did not
expressly or impliedly consent to Troutman amending its complaint
to assert damages in excess of $50,000. In fact, Interstate
expressly objected to such amendment by filing a motion in
limine, renewing the motion at the conclusion of the trial, and
by filing a motion for a new trial. Finally, it appears that
Rule 15(b) allows the pleadings to be amended upon a court ruling
in response to an evidentiary objection. I can only assume that
the majority concludes that the trial court's denial of
Interstate's motion in limine was such a ruling.
The majority reasons that this is an equitable result
because Troutman asserted in its August 12, 1996 answer to
Interstates's first set of interrogatories that it was demanding
$184,950 in damages. I disagree with this conclusion for two
reasons.
First, on September 10, 1996, only one month after it filed
its answers to Interstate's interrogatories, Troutman filed an
amended complaint in which it continued to assert that its
damages were undetermined but in excess of $10,000. I do not see
how such contradictory assertions can sufficiently put a
defendant on notice of the possibility of federal diversity
jurisdiction.
Second, and more importantly, the majority ignores the broad
implications of their holding. In future cases, plaintiffs may
wait until the final stages of discovery or possibly well into
trial before they assert damages sufficient to invoke federal
diversity jurisdiction. At this point in the litigation, it
would be highly improbable that a defendant would be willing to
assert its right to have the case removed to federal court. Such
a result would completely abrogate the policy behind Rule 8(a),
which the majority admits is to "prevent a plaintiff from using
unliquidated demands to avoid removal of diversity of citizenship
cases to federal court."
In sum, the majority's holding that Rule 8(a) "must be read
together with Ark. R. Civ. P. 15(b)" is the death knell of the
requirement in Rule 8(a) that jurisdictional issues involving a
claim for an unspecified amount of unliquidated damages be
promptly determined, i.e., long before trial. Accordingly, I
must respectfully dissent.
Newbern, J.,joins this dissent.
Footnote: 1 Troutman does not cross-appeal the judgment on Interstate's counterclaim.Footnote: 2 The minimum amount required for federal court jurisdiction in diversity-of-citizenship cases has since been raised to $75,000.00. See 28 U.S.C. §1332.
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