Martin v. Bimbo Food Bakeries Distribution, Inc.

Filing 144

ORDER denying 107 Motion for Partial Summary Judgment. Signed by Senior Judge W. Earl Britt on 9/21/2016. (Marsh, K)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:14-CV-17-BR
JOHN T. MARTIN,
Plaintiff,
v.
BIMBO FOODS BAKERIES
DISTRIBUTION, INC.; f/k/a
GEORGE WESTON BAKERIES
DISTRIBUTION, INC.,

ORDER

Defendant.

This matter comes before the court on defendant Bimbo Foods Bakeries Distribution,
Inc., f/k/a George Weston Bakeries Distribution, Inc.’s (“defendant”) motion for partial summary
judgment. (DE # 107.) Plaintiff John T. Martin (“plaintiff”) filed a response, (DE # 112), to
which defendant replied, (DE # 121). This matter is ripe for disposition.
This consolidated action concerns defendant’s termination of its distribution agreement
with plaintiff and its subsequent operation and sale of plaintiff’s distribution route. Plaintiff’s
claims for breach of contract and unfair and deceptive trade practices remain. At issue now is
whether plaintiff is barred by the terms of the parties’ agreement from recovering lost profits and
if not, whether such damages are too speculative.
Summary judgment is proper only if “the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). When contract interpretation is involved, as it is here, “[t]he first step for a court . . . is . . .
to determine whether, as a matter of law, the contract is ambiguous or unambiguous on its face.”
Washington Metro. Area Transit Auth. v. Potomac Inv. Properties, Inc., 476 F.3d 231, 235 (4th

Cir. 2007) (citation and quotation marks omitted). “If a court properly determines that the
contract is unambiguous on the dispositive issue, it may then properly interpret the contract as a
matter of law and grant summary judgment because no interpretive facts are in genuine issue.”
Id. (citation and quotation marks omitted).
Under Pennsylvania law,1 “[t]he interpretation of any contract is a question of law[.]”
Stephan v. Waldron Elec. Heating & Cooling LLC, 100 A.3d 660, 665 (Pa. Super. Ct. 2014)
(citation and quotation marks omitted).
In interpreting a contract, the ultimate goal is to ascertain and give effect to the
intent of the parties as reasonably manifested by the language of their written
agreement. When construing agreements involving clear and unambiguous terms,
this Court need only examine the writing itself to give effect to the parties’
understanding. This Court must construe the contract only as written and may not
modify the plain meaning under the guise of interpretation.
Id. (citation and quotation marks omitted).
In this case, plaintiff seeks to recover the profits he lost upon defendant’s termination of
his distribution route. Defendant contends that the limitation of liability provision under the
parties’ Distribution Agreement bars plaintiff’s recovery of any lost profits. That provision
provides “‘in no event shall either party be liable to the other for any consequential, incidental,
indirect or special damages, including lost profits and punitive damages.’” (Def.’s Stmt., DE #
109, ¶ 1 (citation omitted); see also Pl.’s Resp., DE # 113, ¶ 1.) Plaintiff does not dispute the
enforceability of this provision. Rather, he argues that it only bars the recovery of lost profits
deemed consequential (or indirect) damages, which he contends he does not seek.
First, the court considers what damages the limitation of liability provision bars. The
provision’s meaning is plain. It prohibits several categories of damages, namely, consequential,

1

The court has recognized previously that Pennsylvania law applies to plaintiff’s breach of contract claim. (4/23/15
Order, DE # 53, at 4 n.2.)

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incidental, indirect, and special. It then provides lost profits as an example. However, that does
not mean all lost profits are barred. It is the recovery of lost profits which are considered
consequential, incidental, indirect, or special damages that is precluded. As the Tenth Circuit
Court of Appeals has explained with regard to a similar limitation of liability provision,
[t]he parties’ language is not unlike a doctor’s prescription that “You really
should not eat fried foods—and this includes, but is not limited to, meat and
potatoes.” Ordinary usage and common experience does not suggest that the
patient should avoid all meat and potatoes, but only those that are parts or
components of the initial, larger group of fried foods (say, chicken fried steak and
french fries). The dictionary underscores the point. Webster’s defines the term
“to include” as meaning “to place, list, or rate as a part or component of a whole
or of a larger group, class, or aggregate.” Webster’s Third New International
Dictionary 1143 (2002). The more general term informs the subsequently listed
examples, not the other way around, and so lost profits here refer only to those
that are “a part or component” of the larger group or class of consequential
damages.
Penncro Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151, 1156 (10th Cir. 2007).
Next, the court determines the category of damages under which lost profits fall under
Pennsylvania law. Defendant seems to argue that lost profits can only constitute consequential
or indirect damages. However, the cases to which defendant cites do not suggest Pennsylvania
has such a bright-line rule.
For example, in Fish Net, Inc. v. ProfitCenter Software, Inc, No. 09-5466, 2013 WL
5635992, at *9 (E.D. Pa. Oct. 15, 2013), the plaintiff challenged limitation of liability provisions
that excluded lost profits on the ground of enforceability under Pennsylvania’s version of the
Uniform Commercial Code (“UCC”) and unconscionability. It conceded that if the provisions
were enforceable, they precluded recovery of lost profits and other non-direct damages. Id.
Thus, whether lost profits could be considered direct damages was not an issue. Similarly, in
Stanley A. Klopp, Inc. v. John Deere Company, 510 F. Supp. 807 (E.D. Pa. 1981), the court
merely considered whether a contract clause excluding loss of prospective profits was
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unenforceable as unconscionable under the UCC and does not discuss what category of damages
lost profits are within.
In another case cited by defendant, AM/PM Franchise Association v. Atlantic Richfield
Company, 584 A.2d 915 (Pa. 1990), the Pennsylvania Supreme Court considered the types of
lost profits recoverable as consequential damages for breach of warranty under the UCC. The
court did recognize that under Pennsylvania law, prospective profits may be recovered for breach
of contract. Id. at 925-26 n.19. However, nothing in the case leads to the conclusion that lost
profits are always considered a type of consequential damages.
In the absence of definitive guidance from cases construing Pennsylvania law, this court
follows what appears to be the majority position: lost profits can be, depending on the
circumstances, direct (general) damages or indirect (consequential) damages.
[T]he difference between direct and consequential damages
depends on whether the damages represent (1) a loss in value of the other
party's performance, in which case the damages are direct, or (2) collateral
losses following the breach, in which case the damages are consequential.
See, e.g., Restatement (Second) of Contracts § 347 cmt. c (1981). As the
Second Circuit has explained,
Lost profits are consequential damages when, as a result of the
breach, the non-breaching party suffers loss of profits on collateral
business arrangements. In the typical case, the ability of the nonbreaching party to operate his business, and thereby generate
profits on collateral transactions, is contingent on the performance
of the primary contract. When the breaching party does not
perform, the non-breaching party’s business is in some way
hindered, and the profits from potential collateral exchanges are
“lost.” . . .
By contrast, when the non-breaching party seeks only to recover
money that the breaching party agreed to pay under the contract,
the damages sought are general damages. The damages may still
be characterized as lost profits since, had the contract been
performed, the non-breaching party would have profited to the
extent that his cost of performance was less than the total value of
the breaching party’s promised payments. But, in this case, the
lost profits are the direct and probable consequence of the breach.

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Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 109 (2d
Cir.2007) (citation omitted). A case on which [the plaintiff] relies makes the
same point:
Direct damages refer to those which the party lost from the
contract itself—in other words, the benefit of the bargain—while
consequential damages refer to economic harm beyond the
immediate scope of the contract. Lost profits, under appropriate
circumstances, can be recoverable as a component of either (and
both) direct and consequential damages. Thus, for example, if a
services contract is breached and the plaintiff anticipated a profit
under the contract, those profits would be recoverable as a
component of direct, benefit of the bargain damages. If that same
breach had the knock-on effect of causing the plaintiff to close its
doors, precluding it from performing other work for which it had
contracted and from which it expected to make a profit, those lost
profits might be recovered as “consequential” to the breach.
Penncro[, 499 F.3d at 1156] (footnotes omitted).
Atl. City Assocs., LLC, v. Carter & Burgess Consultants, Inc., 453 F. App'x 174, 179-80 (3d Cir.
2011) (omission in original).
Having concluded that lost profits may be considered either direct or consequential
damages for breach of contract, the court must now determine how plaintiff’s alleged profits
should be categorized. The court looks to the Distribution Agreement and, specifically, what the
parties bargained for. As recognized in the prior summary judgment order, plaintiff’s income
was based on “‘margin.’” (4/23/15 Order, DE # 53, at 1.) Under the Distribution Agreement,
margin is the difference between the price defendant charged plaintiff for the bakery products
(less credit for any returned products) and the amount defendant paid plaintiff for receivables
(i.e., amounts owed by grocery stores for bakery products sold). (See DE # 1-1, Ex. 1, §§ 3.23.5.) Plaintiff had no contracts or independent arrangements with the grocery stores. The profits
plaintiff lost were on the contract itself. Accordingly, they are direct damages and not precluded
by the limitation of liability provision.

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Defendant alternatively contends that plaintiff’s lost profits are too speculative to be
recoverable.
Although mathematical certainty is not typically required, the general rule in
Pennsylvania, as in most jurisdictions, is that if damages are difficult to establish,
an injured party need only prove damages with reasonable certainty. Doubts are
construed against the breaching party.
“Reasonable certainty,” as with most other standards of proof, is a difficult
concept to quantify, but Pennsylvania courts have provided guidance as to what
the term entails for purposes of assessing damages. At a minimum, reasonable
certainty embraces a rough calculation that is not “too speculative, vague or
contingent” upon some unknown factor. Conversely, applying the reasonable
certainty standard does not preclude an award of damages because of “some
uncertainty as to the precise amount of damages incurred.” Pennsylvania
jurisprudence governing the issue is summarized in Aiken Indus., Inc. v. Estate of
Wilson, 477 Pa. 34, 383 A.2d 808 (1978), where the Pennsylvania Supreme Court
ultimately concluded “that compensation for breach of contract cannot be justly
refused because proof of the exact amount of loss is not produced, for there is
judicial recognition of the difficulty or even impossibility of the production of
such proof. What the law does require in cases of this character is that the
evidence shall with a fair degree of probability establish a basis for the assessment
of damages.”
ATACS Corp. v. Trans World Commc'ns, Inc., 155 F.3d 659, 669-70 (3d Cir. 1998) (citations
omitted).
Specifically, defendant complains about plaintiff’s failure to support his “Summary of
John Martin’s Damages” and “Loss of Earnings” with evidence, such as accounting records or
other documents, and about the fact that those projections are inconsistent.2 Plaintiff responds
that his damages forecasts are supported by his deposition testimony, tax returns, and income
reports generated by defendant. At this time, not having heard or seen that evidence, the court is
unable to conclude as a matter of law that plaintiff cannot establish lost profits with reasonable
certainty.

2

Defendant also takes issue with the projections proffered by plaintiff’s expert, Leonard Chalnick. The court has
excluded the expert’s testimony, (9/6/16 Order, DE # 122), and therefore does not consider any argument regarding
his opinions.

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For the foregoing reasons, defendant’s motion for partial summary judgment is DENIED.
This 21 September 2016.

__________________________________
W. Earl Britt
Senior U.S. District Judge

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