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Keywords

contractlawsuitbreach of contractdamagesappeal

contractbreach of contractappealcorporation

Related Cases

Fiberlok, Inc. v. LMS Enterprises, Inc., 976 F.2d 958, 19 UCC Rep.Serv.2d 119

Facts

Fiberlok, Inc. entered into a supply contract with LMS Enterprises, Inc. for the provision of resin necessary for Fiberlok's fiber bonding processes. After experiencing supply issues and disputes over contract performance, Fiberlok filed a lawsuit seeking the return of equipment and damages for conversion and overcharges. LMS counterclaimed for trade infringement and breach of contract, ultimately leading to a judgment in favor of LMS for lost profits due to Fiberlok's breach.

Fiberlok, Inc. (“Fiberlok”), is a Tennessee corporation engaged in the business of fiberbonding. It maintains its principal office and place of business in Memphis, Tennessee and is authorized to do business in the state of Texas.

Issue

The main legal issue was whether the district court properly calculated lost profits awarded to LMS due to Fiberlok's breach of contract.

The issue on appeal is not whether Fiberlok is guilty of fraudulent inducement and breach of contract but whether the district court properly calculated lost profits.

Rule

The court applied Texas law regarding lost profits, specifically Tex.Bus. & Comm.Code § 2.708, which allows a seller to recover lost profits when the buyer's breach prevents the seller from mitigating damages.

The district court found that Fiberlok's failure to comply with the terms of the contract prevented LMS from paying for its overhead expenses and for its purchases of resin.

Analysis

The court found that the district court's calculation of lost profits was based on credible data from prior transactions and that LMS was an established business capable of predicting its profits with reasonable certainty. The court also determined that Fiberlok's breach directly caused LMS's inability to mitigate its damages, justifying the application of § 2.708(b) for calculating lost profits.

The district court found that Fiberlok's failure to perform under the contract was a direct cause of the closing of LMS's business and therefore excused LMS from the duty to mitigate.

Conclusion

The Court of Appeals affirmed the district court's judgment in favor of LMS, concluding that the calculation of lost profits was not speculative and that Fiberlok's breach was the cause of LMS's inability to mitigate damages.

We hold that the district court did not err in finding that LMS was an established business, and also hold that lost profits were a proper measure of recovery.

Who won?

LMS Enterprises, Inc. prevailed in the case because the court found that Fiberlok's breach of contract directly caused LMS's lost profits, and the damages were calculated based on reasonable data.

LMS was neither an unestablished business at the time the contract was confected nor when it was breached.

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