Koenig v. PurCo Fleet Services, Inc.

2012 CO 56, 285 P.3d 979, 2012 Colo. LEXIS 670, 2012 WL 3900748

• Court: Supreme Court of Colorado
• Decided: September 10, 2012
• Docket: No. 10SC159
• Status: Published

Opinions

Justice EID

delivered the Opinion of the Court.

¶1 The dispute before us arises out of a rental car contract between Petitioner/Cross-Respondent Judith Koenig ("Koe-nig") and BDD Enterprises, LLC d/b/a National Car Rental at the Durango Airport ("National"). Koenig hit a deer while driving a rental vehicle. After the accident, National assigned its damage claim to Respondent/Cross-Petitioner PurCo Fleet Services, Inc. PurCo sued Koenig to collect damages related to the incident, including damages for loss of the vehicle's use during the time it was being repaired. Pur-Co sought to measure loss of use damages by using the reasonable rental value of a substitute vehicle. Koenig filed a motion for summary judgment. In granting Koenig's summary judgment motion, the trial court held that PurCo could prevail on its loss of use damages claim only if it suffered actual lost profits, and that it could not recover in this case because it failed to show National would have rented out Koenig's vehicle had it not been damaged.

12 PurCo appealed and Koenig cross-appealed. The court of appeals reversed the trial court's summary judgment ruling on loss of use damages and remanded the case. It agreed with the trial court's conclusion that, in general, the appropriate measure of loss of use damages in a commercial setting is actual lost profits, but concluded the rental agreement in this case altered the measure of loss of use damages. It interpreted the operative language in the rental agreement-that Koenig was obligated to pay "loss of use [damages] (regardless of fleet utilization)" to relieve PurCo of the obligation to show that National would have rented Koenig's vehicle during the period of repair, as opposed to renting another vehicle in its fleet. Instead, the court of appeals held that PurCo was required to show certain "loss prerequisites," specifically, that on each day the damaged vehicle was being repaired, National made vehicles available to rent and at least one customer wanted to rent a vehicle. PurCo Fleet Services, Inc. v. Koenig, 240 P.3d 435, 442 (Colo.App.2010).

T3 Both PurCo and Koenig filed petitions for certiorari in this court, which we granted. We now affirm the court of appeals on different grounds. Under Denver Building & Construction Trades Council v. Shore, 132 Colo. 187, 287 P.2d 267 (1955), loss of use damages in a commercial setting may be measured either by actual lost profits or by reasonable rental value. We interpret the contractual language at issue in this case-holding Koenig responsible for loss of use damages "regardless of fleet utilization"-to mean that PurCo is entitled to recover loss of use damages regardless of whether National would have rented out the vehicle Koenig damaged or any vehicle in its fleet during the period of repair. Said differently, PurCo is entitled to recover loss of use damages irrespective of its actual lost profits. Thus, the contract language allowing PurCo to recover "loss of use [damages] (regardless of fleet utilization)" entitles it to reasonable rental value of a substitute vehicle.

I.

T 4 Koenig hit a deer while driving a vehicle she rented from National, causing minor damage. The contract between Koenig and National states that Koenig is responsible for:

all damage to or loss of the Vehicle, based on repair cost or estimated repair cost, at [National's] option, diminished value of the Vehicle as determined by [National], plus towing and [National's] loss of use (regardless of fleet utilization) and administrative charges, regardless of who is at fault.

(emphasis added). After the accident, National assigned its damages claim to PurCo. PurCo then billed Koenig for, inter alig, National's loss of use of the vehicle. PurCo calculated its loss of use damages by multiplying the estimated repair time of 6.75 days by the rental rate Koenig paid, $83.89 per day, for a total of $228.76. When Koenig refused to pay the loss of use portion of the bill, PurCo sued Koenig for breach of contract, alleging that she breached the rental contract by failing to pay damages for loss of use of the vehicle.¹ The trial court granted summary judgment in favor of Koenig because it determined PurCo would have to show actual lost profits to recover loss of use damages, and that it could not do so in this case because it had failed to show National would have rented the vehicle to another customer had the vehicle not been damaged. Accordingly, the trial court determined Pur-Co could not prove any loss of use damages.

T5 On appeal, the court of appeals affirmed in part, reversed in part, and remanded the case with directions. The court of appeals concluded that the trial court erred in granting summary judgment in favor of Koenig. In doing so, it examined loss of use theories at length and decided "a plaintiff must demonstrate an actual, economic loss rather than just an assumed intrinsic loss" to recover for lost use of commercial chattels, reading Denver Building as permitting reasonable rental value only where lost profits could not be shown. PurCo, 240 P.3d at 440. The court of appeals determined the requirement of proving "actual, economic loss" in this case was altered by the contract, under which PurCo was entitled loss of use damages from Koenig "regardless of fleet utilization." It interpreted the operative language in the rental agreement to relieve PurCo of the obligation to show, as the trial court held, that National would have rented out Koenig's vehicle during the period of repair, as opposed to renting out another vehicle in its fleet. Instead, the court of appeals held that PurCo was required to show certain "loss prerequisites," including that, on each day during the period of repair: (1) National made vehicles available to rent and (2) at least one customer desired a rental vehicle. Id. The court of appeals remanded this case for additional evidence regarding whether the "loss prerequisite" test could be satisfied.

T 6 Koenig petitioned for certiorari, PurCo cross-petitioned, and we granted certiorari to two issues.² We now affirm, albeit on different grounds, the court of appeals ruling that the trial court erred in entering summary judgment for Koenig, and vacate its opinion with respect to loss of use damages and loss prerequisites. Because the trial court granted summary judgment in Koenig's favor, it did not reach the question of how reasonable rental value would be calculated in this case. Accordingly, we remand this case for calculation of the reasonable rental value of a substitute vehicle.

IL.

T7 In this case, Koenig deprived National of the use of its chattel (the rental vehicle) for the period of time while it was being repaired-a tort under Colorado law. See Denver Building & Construction Trades Council v. Shore, 132 Colo. 187, 287 P.2d 267 (1955). The rental contract between Koenig and National provides for a remedy if such loss of use were to occur. Specifically, it obligated Koenig to pay National for "all damage to or loss of the Vehicle ... [plus] ... loss of use (regardless of fleet utilization)." (Emphasis added). Thus, in order to determine what damages, if any, Koenig owes National (now PurCo) for loss of use of its vehicle, we must interpret the contractual phrase "loss of use (regardless of fleet utilization)." In order to give context to our interpretation, we begin by examining the appropriate measures of damages to compensate a commercial entity for lost use of a chattel, and then, given that context, we consider the contract language at issue in this case.

A.

18 It is well-established that Colorado law permits recovery of damages when a plaintiff is wrongfully deprived of the ability to use a chattel. See, e.g., Denver Building, 132 Colo. 187, 287 P.2d 267; Francis v. Steve Johnson Pontiac-GMC-Jeep, Inc., 724 P.2d 84 (Colo.App.1986). This case requires us to consider how loss of use damages are to be measured.

19 We last addressed loss of use damages in Denver Building, 132 Colo. at 199, 287 P.2d at 272, where we held that reasonable rental value is a proper measure of damages when a commercial entity is wrongfully deprived of the use of its chattel. In that case, a construction contractor sued to recover loss of use damages for heavy equipment kept idle as a result of a work stoppage. To support the conclusion that reasonable rental value was a proper measure of damages, we relied on the Restatement (First) of Torts § 931 (1939), which provided that damages could be measured by "the amount paid for a substitute.³ We rejected the argument that loss of use damages must be measured by lost profits made on the contracts to which the equipment would have been used, concluding that "many factors" enter into profit realization and presenting evidence of lost profits can involve "guesswork and speculation." Id. at 198-99, 287 P.2d at 272-73. By contrast, we concluded reasonable rental value provided "a yardstick by which [an] accurate determination [of damages] could be made." Id. at 199, 287 P.2d at 278.

{10 The court of appeals concluded, and Koenig argues here, that Denver Building merely set forth an exception to the general rule that loss of use damages are to be measured by lost profits, reasoning that deviation from the general rule was justified in that case only because lost profits were difficult to determine given the facts. PurCo, 240 P.3d at 444. Because lost profits can be "calculated with relative ease and certainty" in this case, the court of appeals explained, reasonable rental value is an inappropriate measure of damages. Id. We disagree with this analysis of Denver Building for several reasons.

111 First, the court of appeals' interpretation is inconsistent with this court's holding in Denver Building. This court made clear that "the fair rental value of such equipment during the period of prevention of its use is generally adopted as a proper measure for determination of the extent of damage." Denver Building, 132 Colo. at 198, 287 P.2d at 278(emphasis added) (citing, inter alia, the Restatement (First) of Torts § 981). Moreover, the court of appeals' interpretation is inconsistent with Denver Building's reliance on the Restatement (First) of Torts, which at the time provided, and continues to provide, that loss of use damages can be measured either by lost profits or reasonable rental value. See Restatement (First) of Torts § 981(a) (explaining that loss of use damages may be measured by "the value of the use [of the chattel] during the period of detention," or "the amount paid for a substitute"); Restatement (Second) of Torts § 981(a) (1979) (same). As we suggested in Denver Building, the concepts of lost profits and reasonable rental value both capture the same loss-that is, an owner's loss caused by the deprivation of a chattel-but measure the loss differently. 132 Colo. at 198-99, 287 P.2d at 272-78; see also United Engine Parts, Inc. v. Ried, 283 Or. 421, 584 P.2d 275, 281 (1978) ("Defendant's loss of use of his truck ... would be compensated for by his recovery of either the reasonable rental value of a replacement truck to carry on his business or, if rental were not feasible, by net profits his use of . the truck would have generated during the period in question. He could not recover both, because either makes him whole.").

T 12 The court of appeals recognized that reasonable rental value had been adopted by Denver Building and other courts as an appropriate measure of loss of use damages, but it was "persuaded" by Professor Alan E. Brownstein's argument⁴ that damages should be limited to lost profits in the commercial context,. PurCo, 240 P.3d at 448-45. Otherwise, according to Professor Brown-stein, a commercial entity might be "overcompensate[d] ... for its loss." Id. at 445. That is because, under Professor Brown-stein's reasoning, a commercial entity that would not have actually used the chattel itself or rented it to someone else suffers no loss at all. Id. at 444-45.

1 13 Again, we disagree with this reasoning because it is inconsistent with our governing precedent in Denver Building. As we stated in that case, reasonable rental value is an appropriate measure of damages in a commercial setting even where the chattel owner would have made "no profit at all" on the project in which the chattel was to be used. Denver Building, 132 Colo. at 198, 287 P.2d at 272. This premise is also reflected in the Restatement, which provides that reasonable rental value is an appropriate measure of damages even when the chattel owner "was not using the subject matter at the time or had a substitute that he used without additional expense to him." Restatement (First) of Torts § 981 emt. b; Restatement (Second) of Torts § 981 emt. b. As another division of the court of appeals concluded in the context of eriminal restitution, Denver Building and the Restatement recognize that there is an intrinsic loss from the deprivation of property separate and apart from an out-of-pocket expense. People v. Suttmiller, 240 P.3d 504, 508-09 (Colo.App.2010) (citations omitted) (distinguishing PurCo on the ground that it involved commercial context).

1 14 We join those courts holding that the deprivation of the use of commercial chattel causes harm to the chattel owner because the owner lost the right to use its chattel. As the Second Cireuit explained in the context of the loss of use of an aircraft, "[aln owner has the right to employ the [chattel] in an attempt to make a profit whether he succeeds in making it or not.... For it is the right to use that marks the value." K.L.M. v. United Techs. Corp., 610 F.2d 1052, 1056 (2d Cir.1979); see also Kuwait Airways Corp. v. Ogden Allied Aviation Servs., 726 F.Supp. 1389, 1896-97 (E.D.N.Y.1989) of a [chattel] represents a bundle of valuable opportunities ... [including] holding it in reserve [and all opportunities] are [] temporarily lost when a tortfeasor renders the [chattel] unserviceable for a period of time. That opportunity cost cannot be valueless; it must be worth something."). If the court of appeals and Koenig were correct that a commercial entity must prove a lost opportunity to recover loss of use damages, then anyone could wrongfully take possession of a commercially owned or leased chattel- and eventually return it in a similar condition-without liability unless the owner could prove a lost economic opportunity or lost profits. We find this position untenable.

{15 Finally, unlike the court of appeals, we do not interpret the Restatement (Second) of Contracts § 348 as adopting a different rule, as it suggests that if a breach of contract delays the use of property, lost profits is an acceptable method of measuring damages, but reasonable rental value may also be used. See Restatement (Second) of Contracts § 348(1) ("If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property."). More importantly, however, PurCo's breach of contract claim in this case is not that Koenig breached the rental agreement in some way and thereby "delay[ed] the use of property," as is required for section 348 of the Restatement of Contracts to apply. In other words, there is no claim here that Koenig's breach of contract caused the loss of use. Instead, the claim is that, given the loss of use of its vehicle caused by Koenig's hitting the deer, National (now PurCo) must be compensated for any "loss of use (regardless of fleet utilization)" and that Koenig breached the contract by failing to do so. Thus, section 348 is simply inapplicable to this case.

116 In sum, we hold that the reasonable rental value of a chattel or, alternatively, net lost profits that could have been earned by using the chattel approximate loss of use damages. Plaintiffs may elect which measure of recovery to pursue, but either makes them whole.

B.

17 Given this context, we now consider the contractual language at issue in this case, which obligated Koenig to pay loss of use damages "regardless of fleet utilization."

¶18 The court of appeals concluded that the "regardless of fleet utilization" language "alters the requirement to prove actual, economic loss, {[but] it does not eliminate it entirely." PurCo, 240 P.3d at 441. It went on to create the "loss prerequisite" test to address the appropriate burden of proof in light of the contract's language. Specifically, to recover loss of use damages, the court of appeals required PurCo to prove that, on the days during the period of repair, (1) National made vehicles available to rent and (2) at least one customer desired a rental vehicle. Id. at 442.

[ 19 We disagree with the court of appeals' interpretation of the contractual language in this case. The contract states PurCo is entitled to recover loss of use damages "regardless" of how National would have "utilized" its fleet of vehicles. Thus, PurCo is entitled to recover loss of use damages whether or not National would have rented any vehicle in its fleet, including the particular vehicle rented by Koenig, during the period of repair. Stated differently, we read the contractual language as entitling PurCo to loss of use damages irrespective of lost profits because lost profits directly correlate to fleet utilization. Any other reading would give no effect to the contract's terms. The court of appeals' "loss prerequisite" test is problematic because it conditions recovery on demonstrating lost profits-that is, demonstrating that National would have rented vehicles during the period of repair. Because the court of appeals' interpretation is incompatible with the contractual language, we decline to adopt it.⁵

120 Instead, consistent with our discussion of loss of use damages, we find that PurCo is contractually entitled to recover from Koenig the reasonable rental value of a substitute vehicle during the period of repair. Accordingly, we affirm the court of appeals' ruling that the trial court erred in entering summary judgment for Koenig, and we vacate the court of appeals opinion with respect to loss of use damages and loss prerequisites. Because the trial court granted summary judgment in Koenig's favor, it did not reach the question of how reasonable rental value would be calculated in this case. Accordingly, we remand this case for calculation of the reasonable rental value of a substitute vehicle.

IIL

121 For the foregoing reasons, we affirm the decision of the court of appeals, albeit on different grounds, and remand the case for further proceedings consistent with this opinion.

Justice RICE dissents and Justice HOBBS joins in the dissent.

1 . PurCo also sought to recover for damage to the vehicle itself and an administrative charge. These damages are not at issue in this appeal.

2 . Specifically, we granted certiorari to the following issues:

1. Whether the court of appeals erred in concluding that the measure of damages for loss of use is net lost profits.

2. Whether the court of appeals erred in interpreting a car rental agreement permitting loss of use damages "regardless of fleet utilization" as providing for such damages by proof of certain "loss prerequisites."

3 . The Restatement (First) of Torts § 931 (1939 & Supp. 2011) states in relevant part:

Where a person is entitled to a judgment for the detention of, or for preventing the use of, land or chattels, the damages include an amount for

(a) the value of the use during the period of detention or prevention, or the value of the use of or the amount paid for a substitute

(emialhgsis added).

4 . See Alan E. Brownstein, What's the Use? A Doctrinal and Policy Critique of the Measurement of Loss of Use Damages, 37 Rutgers L.Rev. 433 (1985).

5 . Because we find that PurCo need not demonstrate "fleet utilization," or lost profits, in order to recover loss of use damages in this case, we find it irrelevant whether PurCo can produce "fleet utilization" records.