Unpublished Disposition, 884 F.2d 582 (9th Cir. 1986)

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US Court of Appeals for the Ninth Circuit - 884 F.2d 582 (9th Cir. 1986)

AMERICAN INCOME DEVELOPMENT CORPORATION ("AID"), and;Guaranteed Energy Management Corporation ("GEM"),Plaintiffs-Appellants,v.TRUS JOIST CORPORATION, and T.J. Controls, Inc., Defendant-Appellees.

No. 88-3637.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 27, 1989.Decided Aug. 28, 1989.

Before ALARCON, BRUNETTI and O'SCANNLAIN, Circuit Judges.


American Income Development Corporation (AID) and Guaranteed Energy Management Corporation (GEM) (collectively referred to as AID/GEM) appeal from the orders of the district court granting a directed verdict on the quantum meruit claim and on the question whether AID/GEM had a right to recover commissions for certain energy surveys submitted to Trus Joist Corporation and T.J. Controls, Inc. (hereinafter En-Log). AID/GEM seeks reversal on two grounds:

One. The district court erred in directing a verdict on the contractual claim for lost commissions where no shared-savings agreement was signed with end-users after an energy survey was completed.

Two. The district court erred in concluding that there could be no recovery on quantum meruit where the record shows that there was an oral agreement which set forth the terms of the compensation to be paid for the plaintiffs' services.

* The uncontradicted evidence shows that in March of 1985 AID/GEM and En-Log entered into an oral agreement to market energy management systems. AID/GEM agreed to contact potential customers (referred to as end-users), conduct a survey of their energy use (energy audit), submit the energy audit to En-Log for processing, and obtain the end-user's signature to an agreement for the lease of computerized monitoring and control devices to regulate heating, lighting, and air conditioning in order to minimize energy costs. En-Log agreed to evaluate the energy surveys submitted by AID/GEM to determine whether the building was suitable for the installation of an energy-management system. These energy surveys were to be classified according to the level of anticipated energy savings potential, or rejected for failure to show sufficient energy savings potential. The oral agreement was terminable at will.

Under the oral agreement AID/GEM was to be paid a commission of $900 for each signed energy-savings agreement rated as an "A" or "B" location by En-Log. It was agreed that the commission on "C" locations would be a percentage of the savings which was estimated as approximately $1500 per agreement. Between mid-March and mid-June of 1985 AID/GEM obtained 52 signed shared savings agreements. Pursuant to the oral contract, AID/GEM was entitled to receive a total of $35,065.79 on the date the oral agreement was terminated.

The oral agreement was terminated after En-Log was acquired by Trus Joist because of concerns that the shared energy program violated federal and state securities laws. Trus Joist "had to abandon the business." AID/GEM's documentation was returned. No agreements were entered into with the potential customers identified by AID/GEM. En-Log paid AID/GEM only $19,500 as earned commissions.

AID/GEM filed a complaint on or about October 14, 1986, in the Circuit Court of the State of Oregon for the County of Multnomah for breach of contract and quantum meruit to recover damages for the balance of $15,565.79 owed as commissions for obtaining signed energy savings agreements and for damages to reimburse the plaintiffs for work performed on the remaining energy surveys submitted to En-Log.

En-Log removed the action to the district court on diversity grounds. After both sides rested, the district court granted En-Log's motion for a directed verdict on the quantum meruit claim. The court also instructed the jury that AID/GEM could recover damages in the amount of $15,565.79 for unpaid commissions for the 52 signed energy sharing agreements it had obtained prior to En-Log's termination of the agreement.


We have jurisdiction over this final judgment under 28 U.S.C. § 1291. AID/GEM's appeal was timely filed.

"In determining the propriety of a directed verdict this court has the same role as the district court." Donoghue v. County of Orange, 828 F.2d 1432, 1438 (9th Cir. 1987) (citation omitted). A decision granting a directed verdict is reviewed independently and without deference to the district court findings. Id. "A directed verdict is proper when the evidence permits only one reasonable conclusion as to the verdict." Rachel v. Banana Republic, Inc., 831 F.2d 1503, 1506 (9th Cir. 1987) (quotation omitted). A directed verdict "is inappropriate if there is substantial evidence to support a verdict for the non-moving party." Peterson v. Kennedy, 771 F.2d 1244, 1256 (9th Cir. 1985), cert. denied, 475 U.S. 1122 (1986) (citation omitted). We must consider all the evidence "in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party." Id.

It is well settled that in a diversity case a district court must follow the substantive law of the state in which it sits. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); American Triticale, Inc. v. NYTCO Serv., Inc., 664 F.2d 1136, 1141 (9th Cir. 1982) (citations omitted). Accordingly, we must look to Oregon law in this matter.

AID/GEM contends that the district court erred in instructing the jury that AID/GEM could not receive commissions based on the number of surveys submitted to En-Log which had not yet resulted in a signed contract. AID/GEM argues that the court did not allow the jury to consider an award of compensatory damages for the loss of commissions it would have received if En-Log had not breached the "turn around time" for evaluating and returning the approved energy surveys.

Under Oregon law, a party may recover compensatory damages for lost profits resulting from a breach of contract only if proved to a "reasonable certainty." Welch v. United States Bancorp Realty & Mortgage Trust, 286 Or. 673, 596 P.2d 947, 963 (1979); Buck v. Mueller, 221 Or. 271, 351 P.2d 61, 67 (1960). "The real use of the term reasonable certainty seems to be to screen out an issue from the jury when the court has concluded that the evidence, taken as a whole, is clearly insufficient to establish the fact sought to be proved." Welch, 596 P.2d at 963. The district court "should intervene only when it can say that the evidence is clearly insufficient to establish the claim of lost profits." Id. at 963 (emphasis in original).

AID/GEM did not present the testimony of any end-users that they were ready, willing, and able to sign an energy savings agreement on or after the date Trus Joist unilaterally terminated the agreement after acquiring En-Log. The record is also silent as to any potential end-user who declined to sign an agreement because of delays in evaluating the energy surveys. Instead, AID/GEM offered the testimony of Charles Jones, the President of AID/GEM, that AID/GEM had obtained signed agreements from 80% or 52 of the 66 end-users whose energy surveys were rated as A, B, or C.

AID/GEM extrapolated from these figures that 80% or 252 of the 315 energy surveys that had not been returned by En-Log for the solicitation of an agreement would have resulted in earned commissions under the breached contract.

The district court concluded that this evidence of alleged lost profits was speculative and instructed the jury that it could only award damages for commissions where energy savings contracts were signed by the end-users. We agree.

The evidence showed that the parties had entered into a new business that operated for approximately three months. In Buck v. Mueller, 221 Or. 271, 351 P.2d 61 (1960), the Oregon Supreme Court stated that a new business must present enough evidence to prevent the jury from speculating as to their lost profits. Id. at 67. "If the business has not operated long enough to establish a reliable record of profits, the jury will not be permitted to speculate upon the probable success of the particular business alleged to have been harmed." Id.

AID/GEM's statistical projection of an 80% success rate in obtaining signed agreements was insufficient to prove lost commissions to a "reasonable certainty" as required by Oregon law. AID/GEM failed to prove a causal connection between the alleged breach, i.e., failure to turn around the energy surveys in the agreed upon time, and the loss of commissions. To award damages on AID/GEM's theory, the jury would have been required to speculate that this new business had not already saturated the market or that future sales efforts would have met with comparable success. Because of the brief life span of the parties' business agreement, there was insufficient time to develop a reliable record of success in obtaining customers upon which to base a jury award. The district court did not err in concluding that AID/GEM failed to present substantial evidence to support its claim for consequential damages.


AID/GEM also contends that the district court erred in granting a directed verdict on the quantum meruit claim. AID/GEM asserts that it is entitled to quantum meruit because AID/GEM's performance was made substantially more difficult and costly by En-Log's actions.

"The purpose of quantum meruit is to prevent unjust enrichment at the expense of another." Hahn v. Oregon Physician's Serv., 786 F.2d 1353, 1355 (9th Cir. 1985) (quoting Schroeder v. Schaefer, 258 Or. 462, 483 P.2d 818, 820 (1971)). "But recovery in quantum meruit is not appropriate where there is a valid contract covering the subject matter of the dispute." Id. (citing Kashmir Corp. v. Patterson, 43 Or.App. 45, 602 P.2d 294, 296 (1979), aff'd 289 Or. 589, 616 P.2d 468, 470 (1980).

In Kashmir Corp. v. Patterson, 289 Or. 589, 594, 616 P.2d 468, 470 (1980), the Oregon Supreme Court held that "where the contract stipulates the rates and prices to be paid for that which has been done under the contract, then the right of such party to recover for part performance is limited and restricted to the rates and prices fixed by the contract." Here, the record does not suggest that the rights of the parties in a case of partial performance were determined by the contract. On the contrary, this appears to be a case where "no price is stipulated in the contract to be paid for anything less than complete performances" entitling the party who has partly performed to recover in quantum meruit. Kashmir, 289 Or. at 594.

Although Kashmir permits quantum meruit recovery for partial performance, however, under Oregon case law in order to recover in quantum meruit a plaintiff must establish that it conferred a real benefit on the defendant. "Because quantum meruit recovery is based on unjust enrichment, where no benefit is conferred, the recipient is not liable for the cost of service provided." Hazelwood Water Dist. v. First Union Management, 78 Or.App. 226, 230, 715 P.2d 498, 501 (1986); see also Hershiser v. U.S. Fidelity, 276 Or. 815, 556 P.2d 663 (1976).

Here, En-Log did not benefit from the surveys for which it failed to enter into agreements with any of the potential customers identified by AID/GEM. As we discussed in the previous section, the benefit conferred by these surveys was purely speculative. Therefore, we find that the mere delivery of the surveys by AID/GEM did not confer sufficient benefit on En-Log to justify quantum meruit recovery.

AID/GEM claims that under City of Portland v. Hoffman Constr. Co., 286 Or. 789, 596 P.2d 1305 (1979) it can recover under quantum meruit because of the burden and added expenses it incurred resulting from En-Log's failure to perform its part of the contract. In Hoffman, a contractor sought damages in an amount greater than would be recoverable for breach of contract because performance had been unfairly obstructed. Id. at 1310. The Oregon Supreme Court held that where a contract is deviated from in material particulars, it can be treated as abandoned, at least to some extent, and a new agreement for the reasonable value of the services can be implied. Id. Quantum meruit recovery is also permitted where the conduct of the defendant makes the plaintiff's performance substantially more onerous. Id. The plaintiff must show, however, that "the defendant imposed substantially burdensome conditions of performance not contemplated by the parties when they entered into the contract." Id. (emphasis added). AID/GEM's reliance on Hoffman is misplaced.

AID/GEM has not demonstrated that it was obstructed in any way in obtaining the signed contracts for which it received commissions. The record does not support AID/GEM's argument that it incurred unanticipated costs as a result of En-Log's processing of the energy surveys prior to the termination of the agreement. The parties contemplated that a condition of performance was that En-Log had to approve a survey before AID/GEM could solicit an agreement from the end-users and earn its commission.

The district court did not err in granting a directed verdict on the quantum meruit claim.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3