Techno-Logic, LLC v. Logical Choice Technologies, Inc.
MEMORANDUM OPINION AND ORDER that Logical Choice's 24 Motion for Default Judgment with respect to damages is DENIED as to Counterclaim II for anticipated profits, and GRANTED as to Counterclaim III for attorney's fees in the amount of $24,015.50, and costs. A separate judgment will be issued. Signed by Honorable William Keith Watkins on 4/18/2011. (br, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
LOGICAL CHOICE TECHNOLOGIES,
CASE NO. 2:09-CV-329-WKW [WO]
MEMORANDUM OPINION AND ORDER
The court previously granted default judgment or, in the alternative, summary
judgment, in favor of Counter-Plaintiff Logical Choice Technologies, Inc. (“Logical
Choice”) on Counterclaims II and III with respect to liability. (Doc. # 54, at 13.) On March
18, 2011, the court held an evidentiary hearing to determine the amount of damages owed
by Counter-Defendant Techno-Logic, LLC (“Techno-Logic”) to Logical Choice on these
Counterclaims. At issue are the amount of damages Techno-Logic’s breach of contract
caused Logical Choice in lost anticipated profits (Counterclaim II) (Doc. # 54, at 11-22; Doc.
# 59, at 5), and costs and attorney’s fees (Counterclaim III). (Doc. # 54, at 12-13; Doc. # 59,
at 7.) For the reasons that follow, Logical Choice is due $24,015.50 in attorney’s fees on
Counterclaim III, and $0.00 in lost profits on Counterclaim II.
Attorney’s Fees in Counterclaim III
At the hearing, Techno-Logic did not object to David Lilenfeld’s affidavit (Doc. # 62)
detailing the attorney’s fees incurred by Logical Choice in this case. The court then
pronounced judgment for Logical Choice on Counterclaim III for the amount of the
attorney’s fees detailed in the affidavit, plus costs. Thus, Logical Choice is due $24,015.50
in attorney’s fees,1 and costs.
Anticipated Profits in Counterclaim II
Because Logical Choice did not seek damages on Counterclaim II for a sum certain,
or for a sum that could be made certain by computation, Fed. R. Civ. P. 55(b)(1), the court
conducted an evidentiary hearing to determine the amount of damages on Counterclaim II.
(Doc. # 54, at 11-13); Fed. R. Civ. P. 55(b)(2)(B); S.E.C. v. Smyth, 420 F.3d 1225, 1231-32
(11th Cir. 2005). As pled in Counterclaim II, Logical Choice sought an unspecified award
of damages for its future lost profits caused by Techno-Logic’s breach of contract and
Promethean’s resulting termination of Logical Choice’s right to sell Promethean’s products
in Techno-Logic’s geographical area. (Logical Choice’s Ans. ¶¶ 81, 82; cf. Doc. # 59, at 35.) For the reasons that follow, Logical Choice is due no damages for the anticipated profits
claimed in Counterclaim II.
A defaulted defendant is deemed to “admit the plaintiff’s well-pleaded allegations
of fact . . . .” Nishimatsu Constr. Co., Ltd. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th
Cir. 1975). The defendant, however, “is not held to admit facts that are not well-pleaded or
Logical Choice’s affidavit does not include a sum for the total amount of attorney’s fees it seeks
from Techno-Logic. The total was calculated by adding together each individual’s billable hours and
fees. [David Lilenfeld (62.2 hours x $275 per hour) + Scott Griffin (33.9 hours x $195 per hour) +
Wendy Howard (2.4 hours x $125 per hour) = $24,015.50] (Doc. # 62, ¶¶ 5 - 7, 10-11.)
to admit conclusions of law.” Id. “In short, . . . a default is not treated as an absolute
confession by the defendant of his liability and of the plaintiff’s right to recover.” Id. Thus,
a defaulted defendant is “‘entitled to contest the sufficiency of the complaint and its
allegations to support the judgment.’” Cotton v. Mass. Mut. Life Ins. Co., 402 F.3d 1267,
1278 (11th Cir. 2005) (quoting Nishimatsu, 515 F.2d at 1206). Moreover, pursuant to Rule
54(c) of the Federal Rules of Civil Procedure, “[a] default judgment must not differ in kind
from, or exceed in amount, what is demanded in the pleadings.” Fed. R. Civ. P. 54(c).
Here, the parties do not dispute that Georgia law governs the claims. (Doc. # 54, at
5.) Generally, under Georgia law, “[d]amages recoverable for a breach of contract are such
as arise naturally and according to the usual course of things from such breach and such as
the parties contemplated, when the contract was made, as the probable result of its breach.”
O.C.G.A. § 13-6-2. “But remote and consequential damages, such as [a] claim of lost
profits[,] . . . must be ‘traced solely to the breach’ and must be capable of ‘exact
computation.’” Triad Drywall, LLC v. Bldg. Materials Wholesale, Inc., 686 S.E.2d 364, 365
(Ga. Ct. App. 2009) (quoting O.C.G.A. § 13-6-8).
Ordinarily, anticipated profits are too speculative to be recovered, but where
the business has been established, has made profits and there are definite, certain and
reasonable data for their ascertainment, and such profits were in the contemplation of
the parties at the time of the contract, they may be recovered even though they
can[not] be computed with exact mathematical certainty. Nonetheless, to recover lost
profits one must show the probable gain with great specificity as well as expenses
incurred in realizing such profits. In short, the gross amount minus expenses equals
the amount of recovery. Further, the losses must be directly traceable to the acts of
the other party.
Authentic Architectural Millworks, Inc. v. SCM Group USA, Inc., 586 S.E.2d 726, 731 (Ga.
Ct. App. 2003) (internal citations and quotation marks omitted).
Logical Choice’s Counterclaim II and the evidence produced at the damages hearing
are legally insufficient for Logical Choice to recover damages for anticipated profits.2
Logical Choice’s claim for an award of anticipated profits fails because (1) the damages
sought at the evidentiary hearing and in its brief are materially different than the admitted
allegations in Counterclaim II; (2) Counterclaim II and the evidence do not show that the
anticipated damages claimed were contemplated by the parties at the time of the contract; and
(3) Counterclaim II and the evidence do not show that the anticipated profits are solely and
directly traceable to Techno-Logic’s beach of contract.
Logical Choice Advanced a Theory and Requested an Amount of Damages
Beyond Counterclaim II and the Award of Default Judgment on Liability.
At the hearing, Logical Choice advanced a theory of causation and damages that was
not pleaded in Counterclaim II and for which Logical Choice was not awarded default
judgment on liability. The default judgment on Counterclaim II established only those wellpleaded allegations of fact found in Logical Choice’s Counterclaim. Nishimatsu Constr. Co.,
515 F.2d at 1206. Based on Counterclaim II and the default judgment, Techno-Logic
admitted Logical Choice’s allegation that it breached the Reseller Agreement by failing to
achieve an adequate level of sales. (Logical Choice Ans. ¶ 80; Doc. # 54, at 11-12.) Techno2
In Counterclaim I, Logical Choice was awarded $54,367.55 for general breach of contract
damages for Techno-Logic’s breach of contract for failure to pay for products delivered by Logical
Choice. (Doc. # 54, at 10-11.)
Logic also admitted that “as a result of these breaches by [Techno-Logic], Promethean
terminated Logical Choice’s right to sell Promethean products in the sales territory for which
[Techno-Logic] had been responsible.” (Logical Choice’s Ans. ¶ 81.) Logical Choice then
alleged the legal conclusion that “[Techno-Logic] is liable to Logical Choice for the revenue
Logical Choice lost by losing the right to sell Promethean products in the territory which had
been assigned to [Techno-Logic], in an amount to be shown at trial.” (Logical Choice’s Ans.
¶ 82; Doc. # 54, at 11-12.) The court agreed, and entered default judgment(Doc. # 54), in
favor of Logical Choice as to liability on Counterclaim II for some amount of anticipated
profits for some time for the lost sales of Promethean products in Techno-Logic’s nine
county sales territory. (Doc. # 54, at 11-12.) Thus, it was Logical Choice’s burden to
produce evidence at the evidentiary hearing to prove an ascertainable amount of damages for
these anticipated profits.
A review of Logical Choice’s argument and evidence from the evidentiary hearing
shows that Logical Choice’s anticipated profits claim has grown far beyond the scope
pleaded in the Counterclaim or for which liability was awarded by the court. In its brief on
damages and argument at the evidentiary hearing, Logical Choice did not merely seek some
lost profits from Techno-Logic for its loss of the right to sell Promethean products in TechnoLogic’s nine county territory for some period of time. (Doc. # 54, at 11-12.) Rather, Logical
Choice sought $450,000 in anticipated profits from Logical Choice’s loss of the right to sell
Promethean products in the entire territory of southern Alabama for the years 2008-2010.
(Ev. Hr’g; Doc. # 59, at 3-6.)
At the evidentiary hearing, Logical Choice called Jason M. Burg, director of legal
services for Logical Choice, to testify to the amount of damages suffered by Logical Choice
because of Techno-Logic’s breach of its Reseller Agreement. (Ev. Hr’g; Doc. # 15, Ex. 1.)
Mr. Burg testified that as a result of Techno-Logic’s breach of the Reseller Agreement in its
nine county sales territory, Promethean terminated Logical Choice’s right to sell its products
in all “40 to 50 counties” of the southern Alabama sales territory in late 2007 or early 2008.3
(Ev. Hr’g.) Logical Choice was thereafter barred by Promethean from selling its products
in all of the southern Alabama sales territory for 2008 to 2010. Logical Choice’s theory of
causation is that “had Techno-Logic met its sales quotas” in the Reseller Agreement, Logical
Choice would have kept the right to sell Promethean products in all of the southern Alabama
sales territory for the years 2008-2010. (Doc. # 59, at 4.) This theory was not pleaded in the
Counterclaim and is unsupported by evidence.
To calculate the resulting damages that Logical Choice is owed for Techno-Logic’s
breach, Mr. Burg testified that Logical Choice earned about “$650,000 and change” in gross
sales revenues in southern Alabama sales territory in 2007. This 2007 gross sales level
yielded a profit of “about $150,000 and change” for Logical Choice based on its profit
margin of twenty percent.4 This profit margin calculation was based on Logical Choice’s
Logical Choice has not identified the 40 to 50 counties that it says make up the southern
Alabama sales territory. References to the southern Alabama sales territory are to the 40 to 50 county
region noted by Logical Choice. The court takes judicial notice of the fact that Alabama has 67 counties.
See http://www.archives.alabama.gov/counties.html (last visited March 24, 2011).
The court notes that twenty percent of $650,000 is $130,000, not $150,000, but that math is
inconsequential to this Order.
“prerogative” to direct its profit margin on the sale of Promethean products. Therefore,
Logical Choice claimed that it is due $150,000 per year for 2008-2010, for a total of
$450,000 in anticipated profits. (Ev. Hr’g.) Because this scope of damages is entirely
speculative, was not pled in Counterclaim II, and thus was not admitted by Techno-Logic,
Logical Choice is due no damages for its anticipated profits in the sales territory of southern
Further, Logical Choice produced no evidence by which to ascertain a value of
anticipated profits lost by Logical Choice as a result of Techno-Logic’s breach of contract
in its nine county sales territory. Mr. Burg provided no testimony as to the amount of
anticipated profits that Logical Choice had to forego in Techno-Logic’s sales territory. (Ev.
Hr’g.) In fact, Mr. Burg testified that he did not have any direct information on TechnoLogic’s actual sales in its nine county territory during the pendency of the contract, other
than Techno-Logic did not meet its $250,000 sales quota.5 The court is at a loss on how to
ascertain an amount of anticipated profits that relate to Techno-Logic’s breach in its nine
Logical Choice’s Claimed Anticipated Profits Were Not Within the
Contemplation of the Parties at the Time of the Contract.
Logical Choice failed to produce evidence showing that the anticipated profits now
sought in Counterclaim II were contemplated by the parties at the time of the contract. First,
Mr. Burg also testified that he did not work for Logical Choice during 2007, or even during the
discovery phase of this litigation, but nevertheless he did have personal knowledge of the facts based on a
review of the documents in the case.
Logical Choice produced no evidence that when the parties signed the Reseller Agreement
in 2007, they reasonably contemplated Logical Choice making sustained 2007 level profits
for the entire sales territory of southern Alabama from 2008 to 2010. Mizell v. Spires, 246
S.E.2d 385, 387 (Ga. Ct. App. 1978) (Anticipated profits “reasonably must have been in the
contemplation of the parties at the time of the contract.”). Logical Choice provided no
evidentiary basis to impute such clairvoyance to Techno-Logic. Second, the very terms of
the contract show that such profits were not contemplated by the parties. The contract only
included a three month sales quota for Techno-Logic; it only covered nine counties; and it
was terminable at will.
Logical Choice Has Not Proved the Direct and Sole Traceability of Its
Claimed Anticipated Profits.
Finally, Logical Choice produced no evidence that its lost profits were solely and
directly traceable to Techno-Logic’s breach of contract. Techno-Logic admitted that it
breached the Reseller Agreement by failing to achieve an “adequate” level of sales.6
(Logical Choice Ans. ¶ 80.) In defaulting, Techno-Logic did not admit that its breach was
the sole and direct cause of Logical Choice’s loss of anticipated profits for the entire southern
Alabama sales territory. Logical Choice produced no evidence to that effect.
It is interesting, though ultimately inconsequential, that Logical Choice’s own witness testified
that “the contract was not ‘termed’ due to under-performance. The contract was ‘termed’ due to [TechnoLogic’s] inability to pay [its] bill.” (Ev. Hr’g.) Logical Choice’s witness also clarified that his use of
‘termed’ meant terminated.
Logical Choice’s sole piece of evidence is that the parties entered into the Reseller
Agreement in September 2007, calling for Logical Choice to meet its $250,000 sales quota
in its nine county territory by December 31, 2007.7 Sometime immediately thereafter in late
2007 or early 2008, Promethean terminated Logical Choice’s sales rights for the southern
Alabama sales territory for 2008 to 2010. Logical Choice did not show how one individual
reseller’s under-performance in roughly twenty to twenty-five percent of the southern
Alabama sales territory over the span of one to seven months was the direct and sole cause
of Promethean’s decision to terminate Logical Choice’s sales rights in all of southern
Alabama. In fact, Mr. Burg testified that he did not know how much Techno-Logic’s sales
for the nine counties impacted Logical Choice’s performance goals with Promethean. This
was likely because Mr. Burg did not know what Techno-Logic’s sales were for the nine
counties during the pendency of the Reseller Agreement.
Nor did Logical Choice produce evidence of Promethean’s motivation for terminating
Logical Choice’s sales rights in southern Alabama, other than to claim that Techno-Logic
caused it. Logical Choice failed to prove that its anticipated profits are solely and directly
traceable to Techno-Logic’s breach, and thus they are not recoverable.
For the foregoing reasons, Logical Choice failed to allege facts or produce evidence
sufficient to prove an ascertainable award of anticipated profits under Georgia law. Logical
Choice did not ask for nominal damages in the Counterclaim or at the evidentiary hearing.
Exhibit B of the Reseller Agreement attached to Logical Choice’s Answer said the quota was
for December 31, 2007, and Mr. Burg did not have personal knowledge otherwise. (Ev. Hr’g.)
Where a party has failed to prove an ascertainable amount of damages for a breach of
contract, its recovery is restricted to nominal damages. Crawford & Assocs., Inc., v. GrovesKeen, Inc., 194 S.E.2d 499, 501-02 (Ga. Ct. App. 1972); O.C.G.A. § 13-6-6. Because
Logical Choice recovered an ascertainable amount of general damages for Techno-Logic’s
breach of the Reseller Agreement in Counterclaim I, the court declines to award it nominal
damages on Counterclaim II.
Accordingly, it is ORDERED that Logical Choice’s Motion for Default Judgment
(Doc. # 24) with respect to damages is DENIED as to Counterclaim II for anticipated profits,
and GRANTED as to Counterclaim III for attorney’s fees in the amount of $24,015.50, and
costs. A separate judgment will be issued.
DONE this 18th day of April, 2011.
/s/ W. Keith Watkins
UNITED STATES DISTRICT JUDGE
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