Unpublished Disposition, 844 F.2d 791 (9th Cir. 1986)

MEMORANDUM^* 

Concrete Coring Company Equipment Program, Inc. ("Concrete Coring") appeals from the district court's dismissal of its claims arising out of a licensing agreement with defendant-appellee Concrete Cutting Company ("Concrete Cutting") and from judgment in favor of Concrete Cutting on a counterclaim for breach of a settlement agreement. We affirm dismissal of Concrete Coring's underlying claims, but remand on the issues of Concrete Cutting's damages and Concrete Coring's right to setoff.

FACTS AND PROCEEDINGS BELOW

From 1972 to 1985 Concrete Coring sold specialized equipment to Concrete Cutting under a license agreement. When they were unable to negotiate a new agreement, Concrete Coring sued Concrete Cutting in state court seeking injunctive relief and damages for trademark infringement and breach of the expired license agreement. Concrete Cutting removed to the district court and counterclaimed. The district court ordered the parties to engage in mediation pursuant to Local Rule 39.1 for the Western District of Washington. The mediation conference resulted in a settlement agreement which provided that Concrete Cutting would make certain payments to Concrete Coring in settlement of its account balances and license fees due, and that in January, 1986, Concrete Coring would repurchase all "proprietary equipment" as well as up to $50,000 in non-proprietary equipment which Concrete Cutting had purchased under the license agreement. Concrete Coring also agreed to supply parts for the proprietary equipment until shortly before the repurchase was completed.

Concrete Coring subsequently claimed that uncertainties in the contract made performance impossible and moved to reset the matter for trial. Concrete Cutting amended its pleadings to allege breach of the settlement agreement. The district court ruled that the settlement agreement was a binding contract, dismissed Concrete Coring's claims, and awarded Concrete Cutting $254,361.50 in direct damages and $22,830.72 in consequential damages for breach of the settlement agreement. Concrete Cutting was allowed to retain the proprietary equipment, unencumbered by prior restrictions on its sale.

DISCUSSION

Concrete Coring argues that the settlement agreement must fail for lack of mutual assent because it lacked essential terms regarding identification of the proprietary equipment to be repurchased, price, and method of appraisal. Alternatively, Concrete Coring contends that the contract is voidable because it entered into the agreement under a mistaken assumption about the definition of proprietary equipment. Issues of contract formation determined by an objective standard are factual determinations which must be upheld on appeal unless clearly erroneous. Collins v. Thompson, 679 F.2d 168, 170-71 (9th Cir. 1982).

The term "proprietary equipment" as used in Concrete Coring's license agreements was defined by reference to an attached list of equipment. Concrete Coring retained the right to update the list periodically at its sole discretion, and in fact it did frequently update the list. There was conflicting testimony about which version of the list was intended to be used in conjunction with the settlement agreement, but there was sufficient evidence to support the district court's finding that "proprietary equipment," as that term was used in the settlement agreement, referred to equipment on the list known to the parties as the "R-3 List." That finding was not clearly erroneous.

Concrete Coring correctly asserts that there was no agreement on the price at which the equipment would be repurchased; instead, the agreement specified that the price would be determined by appraisal. The appraisal method was spelled out in considerable detail, indicating that the parties did have a meeting of the minds on the method by which the price would be determined. Furthermore, the parties had previously agreed (in the license agreement) to a contingent transfer of equipment without setting a fixed price. Therefore, evidence of prior dealings supported the district court's finding of mutual assent. The district court did not clearly err in finding mutual assent, despite the absence of a specific price term.

The district court made no specific written findings on Concrete Coring's claim of mistaken assumption regarding the definition of proprietary equipment. However, by finding that the R-3 List defined "proprietary equipment," the court implicitly found that Concrete Coring's representatives at the mediation conference intended the R-3 List to be used. Hence, it also implicitly found that there was no mistaken assumption. Again, that finding was not clearly erroneous given the evidence which was presented on the circumstances of the settlement negotiations.

We affirm the district court's finding that there was a valid and enforceable contract.

Concrete Coring objects to the damage award on several grounds. Conceding that a mathematical error of $6,723 was made in the computation of direct damages, Concrete Cutting contends that the damage award was otherwise proper in all respects.

We review an award of damages as a finding of fact, which we overturn only if it is clearly unsupported by the evidence. Bergen v. F/V Patrick, 816 F.2d 1345, 1351 (9th Cir. 1987). However, in order to provide meaningful appellate review, the district court must make findings of fact which satisfy the requirements of Fed.R.Civ.Proc. 52(a). The findings must be sufficiently detailed for us to determine which elements of damage claimed by the parties entered into the overall award and how much was allowed, or setoff, under each element. United Bhd. of Carpenters and Joiners Local 1273 v. Hill, 398 F.2d 360, 363 (9th Cir. 1968). Although we were able to review some aspects of the damage award, the findings have proved insufficient for review of many of the elements as to which Concrete Coring claims there was no support in the record. Consequently, we remand for supplemental findings or other action as described below for each disputed element of the damage award.

Upon remand the district court should correct the error and adjust the award accordingly.

Concrete Coring claims error in the award of $50,000 for proprietary parts. Although we are uncertain about the basis of this element of the award, we think it likely resulted from a provision in the settlement agreement that Concrete Coring would purchase up to $50,000 in non-proprietary equipment in order to avoid leaving Concrete Cutting with equipment and parts which would be of no use once the proprietary equipment was repurchased. Concrete Coring claims this provision was unnecessary once the court allowed Concrete Cutting to keep and/or sell the proprietary equipment. Concrete Cutting answers that Concrete Coring failed to prove that the parts had any remaining value when they were made available for sale in December 1986. However, in an action for breach of contract the burden rests on the plaintiff to prove the fact and amount of damages. Brear v. Klinker Sand & Gravel Co., 60 Wash. 2d 443, 449, 374 P.2d 370, 374 (1962). There was evidence that as late as September, 1986, the non-proprietary parts had a value in excess of $50,000. We found nothing in that portion of the record forwarded to us indicating that the value had declined to zero by December. In the absence of any proof, a damage award is clearly erroneous and must be reversed. United States ex rel. Morgan & Son Earth Moving, Inc. v. Timberland Paving & Constr. Co., 745 F.2d 595, 600 (9th Cir. 1984). Upon remand we request the district court either to make additional findings supporting its award, or, if there is no supporting evidence, to reduce the award accordingly.

C. SETTING $700,000 AS THE VALUE OF THE CONTRACT AT THE TIME OF BREACH

The district court found the value of the proprietary equipment to be $700,000 at the time of breach in January. Evidence pertinent to the value of the equipment at the time of breach included appraisals conducted in April and January, and evidence that the original purchase price of the equipment had been $538,000. The appraisal values for proprietary equipment and parts were as follows (ranked from high to low):

$1,256,300 McCoy's April Appraisal 1,034,216 Page's April Appraisal 526,225 Page's September Appraisal 480,498 Casten's September Appraisal 79,090 Dempsey's September Appraisal

The district court found that Page overvalued the equipment in April because he failed to take adequate account of the age of the equipment, the original purchase price, and the lower market demand which existed in January. Then, without further explanation, the court fixed the value as of January at $700,000. The district court may have arrived at this value by adjusting the April appraisal values downward, or by adjusting the September appraisal values upward, or by considering some other evidence which was not brought to our attention on appeal. We found nothing in the record before us that would support an adjustment of any particular dollar amount, and the district court made no findings regarding an adjustment.

Damages need not be proved to a mathematical certainty, but "sufficient facts must be introduced so that the court can arrive at an intelligent estimate without speculation or conjecture." Bergen, 816 F.2d at 1350, quoting Harmsen v. Smith, 693 F.2d 932, 945 (9th Cir. 1982), cert. denied 464 U.S. 822 (1983). Upon remand the district court should either make factual findings to support the $700,000 value or adjust the value in accordance with such factual findings as it does make. If the $700,000 value is the result of adjusting one or more of the appraisal values, the district court must make factual findings in support of the dollar amount of the adjustment. See Rochez Bros., Inc. v. Rhoades, 527 F.2d 891, 894-95 (3d Cir. 1975), cert. denied, 425 U.S. 993 (1976) (it was error to determine the value of restricted stock by applying a discount factor of twenty-five percent to the value of unrestricted shares of the same stock when there was no evidence pertaining to the appropriate discount factor).

D. FAILURE TO ACCOUNT FOR PROPRIETARY EQUIPMENT SOLD BETWEEN JANUARY AND SEPTEMBER

The district court valued the proprietary equipment in Concrete Cutting's possession as of September, 1986, at $503,361.50, and it used this value in calculating direct damages resulting from the breach. Concrete Cutting concedes that $95,189.40 worth of proprietary equipment was sold prior to September, but the findings do not reflect any deduction of the proceeds of the sales from the damage award. Upon remand the court is directed to make findings concerning the effect of any sales or any other reducing factors on the damage award, and to make any appropriate adjustments in the award.

E. FAILURE TO ALLOW SETOFF FOR BALANCE OF PROMISSORY NOTE, OUTSTANDING LICENSE FEES, AND ACCOUNT BALANCES

Concrete Coring argues that it should have been allowed a setoff of $112,615.26 for the balance of Concrete Cutting's promissory note, its unpaid license fees and balances due on its equipment purchase account. Concrete Cutting does not deny its obligation to make these payments under the terms of the settlement agreement. Rather, it offers three reasons why setoff is inappropriate. None are persuasive. First, the fact that Concrete Coring's repudiation of the contract released Concrete Cutting from future performance does not mean Concrete Coring forfeited its right to a setoff for obligations which Concrete Cutting was relieved from performing. The plaintiff in a contract action is entitled to no more than the net gain he would have received had the contract been performed. Lincor Contractors v. Hyskell, 39 Wash. App. 317, 320-21, 692 P.2d 903, 906-07 (1984). If a setoff were not allowed, Concrete Cutting would be put in a better position than it would have been had there been no breach.

Nor are we persuaded by Concrete Cutting's argument that it is improper to allow setoff because the damage award did not make it whole. If Concrete Cutting believed the damage award was under-compensatory, it should have appealed the judgment, directly challenging the amount of the award. The issue is not properly raised as an equitable argument against an otherwise proper setoff. Finally, Concrete Cutting's attorneys' fees are not relevant to the determination of damages and have no effect on Concrete Coring's right to setoff for unperformed obligations.

Upon remand the district court is directed to determine the amount of setoff Concrete Coring should be allowed for the balance remaining on the promissory note, the unpaid license fees, and the outstanding account balances. It should then enter appropriate findings and adjust the award.

F. CONSEQUENTIAL DAMAGES SUBMITTED BY COMPILATION

Concrete Coring argues that there was no support for the consequential damage award because most of the evidence presented was by compilation and was submitted in violation of Fed.R.Evid. 705. Rule 705 addresses disclosure of facts and data relied on by expert witnesses, not evidence submitted by compilation. Concrete Coring has not articulated the connection between Rule 705 and the compilations which it claims were inadmissible, but we interpret the argument as an objection to the district court's discovery rulings. Rule 705 provides that an expert witness may be required to disclose underlying facts or data on cross-examination. The Notes of the Advisory Committee indicate that advance knowledge necessary for effective cross examination is afforded by the provisions of Fed. R. Civ. P. 26(b) (4) allowing discovery of facts known or opinions held by experts, subject to certain limitations. Concrete Coring complains that despite numerous requests for production and motions to compel, it never had an opportunity to inspect documents underlying the compilations which apparently were testified to by Concrete Cutting's witnesses. This, we believe, is the connection Concrete Coring sees between the compilations and Rule 705.

Concrete Coring moved to compel discovery on October 21, 1986. The district court's docket sheet indicates that the court ruled on that motion on October 30, directing Concrete Cutting to answer interrogatories and produce documents and allowing Concrete Coring to take telephonic depositions of certain persons who participated in calculating Concrete Cutting's damages. It appears the first complaint about non-compliance with this order was raised at the hearing on damages. On at least two occasions during the hearing the district court considered Concrete Coring's objections and questioned counsel for both parties about compliance with the order. The court apparently concluded that there had been substantial compliance and that additional discovery was not warranted at the hearing stage of the proceeding. On appeal, Concrete Coring has not explained why the court's implicit findings concerning compliance was clearly erroneous; it merely refers us to the transcript of the hearing on damages and its motion to compel discovery. We found nothing there, or elsewhere in the record, which left us with a "definite and firm conviction that a mistake [had] been committed," as is required for reversal under the clearly erroneous standard. Garcia v. United States, 826 F.2d 806, 810 (9th Cir. 1987), (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).

Nonetheless, we must remand on the question of consequential damages. The findings on that portion of the award attributable to parts and services expended in preparation for the September appraisal are insufficient. The amount awarded does not correspond to the amounts shown on Concrete Cutting's summary of damages, and we were unable to find other support in the record for an award of $17,000. Upon remand the district court should make additional findings and adjust the award, if necessary, in light of the findings.

F. SETOFF FOR EQUITABLE VALUE OF LICENSES AND DAMAGES FOR SALE OF PROPRIETARY EQUIPMENT PRIOR TO ISSUANCE OF INJUNCTION

Concrete Coring argues that Concrete Cutting benefited from use of the proprietary equipment during the period between breach of the contract and the trial, and that the failure to allow setoff for equitable license fees resulted in a windfall for Concrete Cutting. A defaulting party seeking restitution for part performance under a contract has the burden of showing unjust enrichment. Golob v. George S. May Int'l Co., 2 Wash. App. 499, 508, 468 P.2d 707, 713 (1970). The equitable setoff Concrete Coring seeks is analogous to restitution, so it also must prove unjust enrichment. The district court did not explain its denial of setoff, and it made no findings regarding unjust enrichment. Appropriate findings and adjustments should be entered upon remand.

Concrete Coring also claims that the district court failed to rule on its motion for leave to amend its complaint to add a claim for damages resulting from Concrete Cutting's sale of proprietary equipment, and that the court refused to allow testimony on these damages. The record includes an order lodged on the first day of the hearing on damages granting Concrete Coring's motion to amend. If Concrete Coring's complaint was not amended to include the claim, then the district court did not err by refusing to allow evidence on it. Upon remand, however, Concrete Coring may renew its request to amend.

The judgment dismissing Concrete Coring's claims arising from the license agreement is AFFIRMED. The judgment awarding damages to Concrete Cutting for breach of the settlement agreement is VACATED, and the case is REMANDED for findings and adjustments to the damage award consistent with this memorandum.