Forklift Systems v. Werner Enterprises

• Court: Court of Appeals of Tennessee
• Decided: May 25, 1999
• Docket: 01A01-9804-CH-00220
• Status: Published

Opinion

IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE

FILED May 25, 1999

FORKLIFT SYSTEMS, INC., ) Cecil Crowson, Jr. ) Appellate Court Clerk Plaintiff/Appellee, ) ) Appeal No. ) 01-A-01-9804-CH-00220 VS. ) ) Davidson Chancery ) No. 96-3369-II WERNER ENTERPRISES, ) ) Defendant/Appellant. )

APPEALED FROM THE CHANCERY COURT OF DAVIDSON COUNTY AT NASHVILLE, TENNESSEE

THE HONORABLE CAROL L. McCOY, CHANCELLOR

DOUGLAS E. JONES Suite 701 501 Union Street Nashville, Tennessee 37219 Attorney for Plaintiff/Appellee

JAMES D. KAY, JR. BRIDGETT A. WOHLPART Suite 340M, Washington Square Two 222 Second Avenue North Nashville, Tennessee 37201

MODIFIED IN PART; REVERSED IN PART; AND REMANDED

BEN H. CANTRELL, PRESIDING JUDGE, M.S.

CONCUR: KOCH, J. CAIN, J. OPINION

In this negligence case, the trial court granted the plaintiff damages for

lost profits. Because we think the method used for calculating those damages was

flawed, we modify the award.

I. The Facts

The facts of this case are straightforward and undisputed. At 6:30 in the

morning on January 3, 1995, the driver of a 45 foot semi-tractor trailer truck owned

and operated by defendant Werner Enterprises attempted to turn into the driveway

of plaintiff Forklift Enterprises. His turn was wide, and he accidentally knocked down

an electrical service pole on Elm Hill Pike. The impact destroyed a transformer that

supplied power to the plaintiff company. The fire department subsequently sealed off

Elm Hill Pike, and ordered that Forklift’s building be vacated, because of potential

danger from dangling electrical lines.

Power was not restored until 11:00 A.M. the following day. During the

period the power was off, the plaintiff was unable to perform any of its normal

business of selling, renting and repairing forklifts and forklift parts. The only other

facility operated by the plaintiff at that time was in Louisville, Kentucky. That facility

also was shut down for the same period, because with the loss of electricity, the

computer connection between the two facilities was severed.

Forklift Systems filed suit for negligence on October 28, 1996. The case

went to trial on March 5, 1998. Werner agreed that it was liable for damages, and the

parties stipulated to damages of $285 for electrical repairs, and $8,065 in wages that

Forklift had to pay to its employees during the day and a half during which they were

prevented from doing productive work. The plaintiff also claimed damages for lost

profits and opportunities.

-2- The trial court relied upon a statement of earnings and retained earnings

submitted by Forklift Systems (the sole exhibit in this case) as the basis for that

portion of its award. The court found that the plaintiff was entitled to $10,342 for lost

profits and lost opportunities. Adding these sums to the $285 and $8,065 stipulated

to by the parties, the Court entered a judgment against Werner Enterprises totaling

$18,692. This appeal followed.

II. Lost Profits

Lost profits may be a legitimate element of damages in cases based

either upon contract or upon tort. However, they are only recoverable when the

amount of damages can be proven with reasonable certainty, and are not remote or

speculative. Morristown Lincoln-Mercury v. Roy N. Lotspeich Publishing Co., 298

S.W.2d 788 (Tenn. App. 1956); McClain v. Kimbrough Construction Co., 806 S.W.2d

194, 200 (Tenn. App. 1990).

When the plaintiff is an established business with a consistent earnings

history, the profit record from the most recent years can usually supply the requisite

degree of certainty. The general rule is that the award must be based upon net profit.

American Bldgs. Co. v. DBH Attachments, Inc., 676 S.W.2d 558 (Tenn. App. 1984);

Cecil Corley Motor Co. v. General Motors, 380 F.Supp 819 (D.C. Tenn. 1974).

However, in this case the trial court based its calculation upon Forklift’s gross profit.

Gross profit, stated in its most basic form, is the difference between the revenue

derived from the sale of goods and the cost to the seller of those goods.

The trial court’s approach excludes from the profit equation the cost of

doing business (overhead). Thus, over $2 million of “selling, general and

administrative expenses” which the defendant incurred each year, and which had a

profound negative impact upon its net profit, became a nullity under the trial court’s

approach.

-3- The argument can be made that insofar as Forklift’s overhead expenses

are fixed, then the gross profit from each additional sale made or missed will translate

into an exactly equivalent increase or decrease in net profit. But there is no proof in

the record as to which of its overhead expenses are fixed (other than salaries) and

which expenses vary with the volume of business. We therefore see no reason to

deviate from the rule that requires us to take overhead into account in calculating lost

profits.

We do believe, however, that there is sufficient reason to exclude from

the equation expenses that are completely unrelated to Forklift’s daily operations,

such as a $125,000 payment for a one-time litigation settlement which Forklift entered

into in 1995. We therefore base our revised award upon Forklift’s operating income,

a figure calculated by subtracting the company’s overhead from its gross profit, before

factoring in the above-mentioned settlement.

Applying the chancellor’s methodology to operating income, we arrive

at the following result: The average annual operating income for 1994 and 1995 was

$169,540. When we divide this by 264 working days per year, we get $642.20 per

business day. Multiplying this by the 1.5 days that Forklift’s operation was affected

results in lost profits of $963.30. To this figure we add the stipulated damages of

$285 for the electrical repairs and $8,065 for employee wages, for a total judgment

of $9,313.30.

III. Lost Opportunities

In addition to the award for lost profits, the trial court also awarded the

plaintiff $4,478 for lost opportunities. We reverse this part of the judgment, because

although the trial court made a good-faith attempt to quantify the purported loss, we

believe the basis for it to be too speculative.

-4- Forklift’s president testified that a major customer was unable to buy a

part from the company during the time in question, and subsequently ceased doing

business with the plaintiff. However, he was unable to state categorically that the loss

of that account was due to the shutdown. The trial court did not cite this testimony in

its judgment, and in fact it based the award upon different considerations.

Forklift’s sales revenues increased between 1994 and 1995 by over $1.1

million. The court concluded that while its doors were closed, the company lost the

opportunity to increase its sales by an amount equal to the average daily increase

between 1994 and 1995, which it calculated to be the above-mentioned $4,478.

Aside from the dubious nature of this proposition, we must note that the cost of goods

sold increased by almost $1.2 million in 1995, resulting in an actual decline in Forklift’s

operating income by about one-third (almost $60,000) despite the increase in sales.

We thus find there to be no rational basis for a lost opportunities damage award.

IV.

The judgment of the trial court is reduced to $9,313.30. Remand this

cause to the Chancery Court of Davidson County for further proceedings consistent

with this opinion. Tax the costs on appeal to the appellee.

_________________________________ BEN H. CANTRELL, PRESIDING JUDGE, M.S.

CONCUR:

_____________________________ WILLIAM C. KOCH, JUDGE

_____________________________ WILLIAM B. CAIN, JUDGE

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