Penncro Associates, Inc. v. Sprint Spectrum, L.P.

F I L E D
United States Court of Appeals
Tenth Circuit
PU BL ISH
August 24, 2007
UNITED STATES COURT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

PENNCRO ASSOCIA TES, IN C.,

Plaintiff-Appellee/Cross-
Appellant,

v.
Nos. 06-3288, 06-3296, and 06-3365
SPRIN T SPECTRUM , L.P. d/b/a
SPRINT PCS,

Defendant-Appellant/Cross-
Appellee.

Appeal from the United States District Court
for the District of K ansas
(D.C. No. 04-CV-2549-JW L)

Russell S. Jones, Jr. (Richard M . Paul, III, with him on the briefs), Shughart
Thomson & Kilroy, P.C., Kansas City, M issouri, for Defendant-Appellant/Cross-
Appellee.

Richard P. M cElroy, M cElroy & Associates, LLP, M edia, Pennsylvania (Sheila E.
Branyan and Jason W . Norris, Blank Rome LLP, Philadelphia, Pennsylvania,
with him on the briefs), for Plaintiff-Appellee/Cross-Appellant.

Before K ELLY, BALDO CK , and G O RSU CH , Circuit Judges.

G O R SU CH, Circuit Judge.
 Sprint Spectrum, L.P., does not dispute that it breached its contract with its

former bill collector, Penncro Associates, Inc. Still, it offers tw o reasons w hy, in

its view , the district court’s judgment for Penncro in excess of $17 million should

be reversed. First, Sprint argues that the parties’ agreement precludes the sort of

damages Penncro seeks. In their contract, the parties agreed to forego

“consequential damages,” and Sprint urges us to find that the term, as defined by

the parties’s agreement, includes any and all “lost profits” – whether flowing

directly or consequentially from Sprint’s breach. Because all of Penncro’s

claimed damages are lost profits, Sprint argues the district court’s judgment is

fatally flaw ed. Secondly, and alternatively, Sprint contends that Penncro’s

damages should be calculated on the basis of the work it was ready and able to

perform, rather than on the basis of a fixed monthly fee, as the district court

found. For its part, Penncro cross-appeals, arguing that it is entitled to an

additional $6.5 million in damages. Penncro submits that the district court erred

when it found that the company was able, by taking on new work after Sprint’s

breach, to avoid losses in this amount.

W e affirm the district court on all three questions presented to us. W hile

parties to a contract may define their terms as they please – a duck may be a

goose – we see no evidence that Sprint’s and Penncro’s definition of the term

consequential damages was designed to embrace (and thus foreclose the award of)

profits lost as a direct result of Sprint’s breach. Likewise, the plain and

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unambiguous language of the parties’ agreement obliged Penncro to provide

Sprint with a fixed amount of available labor capacity, and required Sprint to pay

for that capacity, whether utilized or not. Finally, we see no clear error in the

district court’s finding that Penncro managed to avoid a modicum of the losses

that Sprint’s breach imposed.

I

Originally, Sprint, a national telecommunications company, handled for

itself the not-inconsiderable task of trying to collect from its cell phone customers

behind on their monthly bills. Beginning in April 2002, however, it decided to

“outsource,” contracting first with Penncro and subsequently with two additional

vendors to assume the job. Under the terms of the parties’ agreements, customers

with overdue Sprint accounts trying to make outgoing calls were automatically

routed to centers run by one of the three vendors, based on which one had the

shortest estimated wait time. Penncro’s employees introduced themselves as

Sprint’s agents, informed callers that their accounts were past due, and attempted

to collect monies owed to Sprint – a service known as first-party inbound

collections work. 1

1
It is first party because Penncro’s employees identify themselves as
Sprint’s agents, and inbound because Sprint’s customers’ calls are routed to
Penncro rather than being initiated by Penncro. This is in contrast with third-
party outbound collections, where Penncro’s employees initiate calls to customers
with past-due accounts and introduce themselves as third-party collections agents.
See infra p. 7.

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 A

The nature of the parties’ agreement was spelled out in four interrelated

documents: (1) a M aster Services A greement (“M SA”); (2) a Contract Order;

(3) an attachment to the Contract Order (“Attachment A”); and (4) an Addendum

to Attachment A.

The M SA contained certain generic terms and conditions Sprint employed

with all vendors. It obligated neither party to perform and expressly indicated

that the scope and specific terms of the services provided would be governed by

contract orders. M SA § 2.2.

The Contract Order was just such a document, involving only Sprint and

Penncro, and detailing the particular services, staffing levels, and compensation

rates attending to the parties’ relationship. Under the terms of the Contract

Order, Penncro agreed, among other things, to “maintain staffing levels”

sufficient to provide Sprint with “80,625 productive hours” per month. Contract

Order § C. A productive hour was defined as time spent by a fully trained

Penncro employee handling calls, waiting for calls, training, or waiting due to

system downtime. Id. § B. This amounted, more or less, to an agreement to

maintain approximately 500 full-time call center employees at Sprint’s disposal. 2

In exchange, Sprint agreed “to pay for 80,625 productive hours per month” at a

2
Each full time employee (“FTE”), or equivalent, counted as 161.25
productive hours per month. Contract Order § C. The total number of employee-
hours (80,625) divided by hours per employee (161.25) equals 500 employees.

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rate of $22 per hour (less for training hours, more for overtime hours). Id. §§ B,

C. 3

The parties’ agreement anticipated a three-year commitment at these levels

of service, but also anticipated that the number of “productive hours” could vary

according to certain terms specified in Attachment A. In Attachment A, the

parties set forth various performance metrics on which Penncro and other vendors

were evaluated. Poor performance for three consecutive months could result in a

reduction of “the number of productive hours requested by . . . 20% .” Attachment

A at 3. Six months of consecutive poor performance entitled Sprint to terminate

the contract for cause. Id.; Contract Order § D; M SA § 5.3.

Sprint emailed the Addendum to Attachment A to Penncro in September

2002, several months into the parties’ relationship. A cover email outlined a

number of changes to the parties’ incentive program effected by the Addendum,

and the document was included as an email attachment. One change not outlined

in the cover email, but made in the A ddendum, was the removal of the w ord

“guaranteed” before the reference to the number of productive hours outlined in

3
To oversee the operation, Penncro agreed to provide one supervisor for
every 15 FTEs and one manager for every 5 supervisors. Contract O rder § C.
The 500 FTEs required 33 (33.33) supervisors, who required 7 (6.67) managers,
for a total of 40 management-level employees. For these services, Sprint agreed
to pay a flat monthly fee of $4,500 per management-level employee.

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Section C of the Contract Order – that is, the number of call center hours that

Penncro promised to supply and for which Sprint promised to pay. 4

B

The presence or removal of the word “guaranteed” does not seem to have

had much bearing on the parties’ performance, which was fraught w ith difficulty.

Penncro endured considerable staffing problems and was for many months unable

to retain sufficient employees to provide the number of productive hours required

by the parties’ contract. The hours Penncro did provide, moreover, were of

sufficiently poor quality to rank Penncro last am ong Sprint’s three vendors in

several performance-categories for a number of months. Sprint, meanwhile, did

not experience the call volume it had anticipated and so never called on Penncro

to provide the contracted-for number of productive hours. From the beginning,

Sprint and Penncro discussed the actual number of hours that Sprint needed and

Penncro could provide, agreeing, for the time being, to have Penncro bill and

Sprint pay only for the hours that Penncro actually supplied. At no time did the

total hours (supplied, billed, or paid for) reach the 80,625 hours for which the

parties had contracted. According to Penncro’s CEO, this arrangement was

acceptable – neither party complained or took action under the contract – because

4
The M SA indicated that Sprint could propose changes to services by
providing a change notice (which may, per § 17.1, be via email); if Penncro did
not respond within seven days, the changes were deemed effective. Id. § 2.5.
The email from Sprint asked for both an email and an initialed hard-copy reply.
It appears that Penncro did not, in fact, respond. Sprint O pening Br. at 7 n.2.

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both parties had difficulties performing, the contract was in its early stages, and

the parties fully expected to meet their obligations over the contract’s three-year

term. In September 2002, Sprint emailed Penncro to announce a unilateral

reduction in the number of FTEs (and therefore productive hours) due to “lower

than expected call volume.” Penncro voiced no objection.

As call volumes and the hours necessary to handle them w aned, Sprint gave

notice of its intent to terminate Penncro’s first-party inbound collections contract

by letter dated January 17, 2003. The parties then entered a four-month ramp-

down period during which the number of FTEs requested of Penncro was

incrementally reduced. The reason Sprint gave for its action was that Penncro

was in third place or below in six agreed performance measures for the six

months from July 2002 through December 2002 – an event entitling Sprint to

terminate the parties’ relationship for cause under Section D of the Contract

Order.

As the parties were ramping down, and in spite of their prior performance

problems, Sprint and Penncro entered into a new contract order for a different but

related service – third-party outbound collections work (see supra note 1). Sprint

asserted that it would not have given this new work to Penncro if Penncro was

still performing under the parties’ initial, first-party inbound contract, as Sprint

did not think Penncro capable of handling both tasks. Penncro also entered into

two other contracts for third-party outbound collections work during the same

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time-period, one with AT& T and another with a utility company, American

W ater.

C

In November 2004, Penncro sued Sprint for breach of the parties’ first-

party inbound collections contract in federal district court, invoking the court’s

diversity jurisdiction. Penncro claimed that Sprint was liable for breach of

contract as a matter of law because Sprint’s stated reason for termination was

erroneous: Penncro was not in last place for the full six consecutive months

necessary to justify termination under the parties’ contract. The district court

agreed and entered summary judgment for Penncro on the question of liability.

For its part, Sprint itself chose to pitch its battle primarily on the field of

damages and a three-day trial on damages followed, after which the district court

issued a detailed 45-page ruling. During trial, Sprint pointed to Section 13 of the

M SA , which rules out the award of consequential damages and proceeds to define

the term as “includ[ing], but . . . not limited to, lost profits, lost revenues and lost

business opportunities.” This language, Sprint submitted, prohibited either party

from obtaining recovery of any and all lost profits. The district court disagreed,

holding that the M SA forbids only “consequential” or “indirect” damages that are

“beyond direct economic loss or ordinary loss of bargain damages,” thereby doing

nothing to rule out of bounds lost profits suffered as a direct consequence of

Sprint’s breach.

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 As a fallback argument, Sprint contended that any award of lost profits

should be limited to the hours that Penncro’s employees actually worked or could

have worked. Again the district court disagreed, holding that, in spite of the

difficulties that both sides had in living up to their obligations under the contract,

Sprint’s agreement constituted an unambiguous and “unqualified promise to pay

for 80,625 productive hours per month without regard to whether it actually

called upon Penncro to provide those hours.”

Based on these holdings, the district court awarded Penncro $17,136,612 in

expectation damages: $53,109,386 in lost contractual revenues (lost profits),

minus $28,307,302 in costs avoided by not having to perform and $7,665,472 in

losses avoided due to the breach. Penncro contested many of these reductions,

especially those concerning avoided losses. The district court found that, solely

because of Sprint’s termination which freed up call-center capacity, Penncro was

able to mitigate its losses by taking on new work for Sprint (the third-party

outbound collections contract), AT& T, and American Water. Penncro disputed

the court’s assessment, arguing that it easily could have handled the new work as

well as Sprint’s existing first-party inbound collection work.

Both parties appeal. W e turn first to Sprint’s appeal and then Penncro’s

cross-appeal.

II

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 The proper construction of a contract is a question of law we review de

novo. See In re Villa W est Assocs., 146 F.3d 798, 802 (10th Cir. 1998); Liggatt v.

Employers M ut. Cas. Co., 46 P.3d 1120, 1125 (Kan. 2002). Under Kansas law ,

which the parties agree controls this dispute, see M SA § 17.6, a contract is

ambiguous if reading its plain language yields doubtful or conflicting meanings.

Ligatt, 46 P.3d at 1125. However, ambiguity will only be found where the

meaning is genuinely uncertain, and even then not until the language has been

given a reasonable and practical construction in light of the contract as a whole.

Id.; Decatur County Feed Yard, Inc. v. Fahey, 974 P.2d 569, 574 (Kan. 1999). In

determining whether or not a contractual ambiguity exists, moreover, we are

obliged under K ansas law to confine ourselves to the four corners of the contract.

See Decatur County Feed Yard, Inc., 974 P.2d at 574; City of Wichita v. Sw. Bell

Tel. Co., 24 F.3d 1282, 1287 (10th Cir. 1994). Only after finding the presence of

a contractual ambiguity may we look to extrinsic evidence – including the parties’

course of conduct – to construe the documents. Sw. Bell Tel. Co., 24 F.3d at

1287; Farrell v. Gen. M otors Corp., 815 P.2d 538, 546 (Kan. 1991). It is with

these standards fixed in mind that we approach the parties’ competing

contentions.

A

1. Sprint begins its appeal by renew ing its argument that Penncro

impermissibly seeks lost profits. Section 13 of the M SA forbids the recovery of

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“consequential damages,” specifying that they “include, but are not limited to,

lost profits, lost revenues and lost business opportunities.” In Sprint’s parlance,

this means that any lost profits are (forbidden) consequential damages. For

several reasons, we are persuaded that Sprint’s interpretation is foreclosed by the

unambiguous language of the M SA.

Section 13’s syntax alone propels us in this direction. The 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.” O rdinary

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. W ebster’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.

The common legal meaning of the terms involved confirms this reading.

Direct damages refer to those which the party lost from the contract itself – in

other w ords, the benefit of the bargain – while consequential damages refer to

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economic harm beyond the immediate scope of the contract. 5 Lost profits, under

appropriate circumstances, can be recoverable as a component of either (and both)

direct and consequential damages. 6 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. All of this is by way of saying that, under the

circumstances we face here, a reading of Section 13 informed by the normal legal

meaning of its terms suggests that it bars only the recovery of consequential lost

profits, not direct lost profits. Section 13 says that no consequential damages are

recoverable, “includ[ing]” lost profits; it simply does not speak to direct damages,

or to lost profits recoverable under such a theory.

A review of Section 12 of the M SA further strengthens our confidence

about the parties’ meaning in Section 13. In Section 12, Sprint obligated Penncro

to indemnify Spring against “all claims, damages, losses, liabilities, costs,

5
See Restatement (Second) of Contracts § 347(a) & cmts. a, c (1981);
Black’s Law Dictionary 416-17 (8th ed. 2004); 24 Samuel W illiston & Richard A .
Lord, A Treatise on the Law of Contracts § 64.12 (4th ed. 1993).
6
See, e.g., Source Direct, Inc. v. M antell, 870 P.2d 686, 693 (K an. Ct.
App. 1994); Restatement (Second) of Contracts § 347.

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expenses, and reasonable attorney’s fees” arising from claims by third parties for

work performed by Penncro. M SA § 12.1. By using the phrase “all . . .

damages,” the parties manifested a clear intent to insulate Sprint from any

damages, direct or indirect, claimed by third parties. W hen it came to insulating

Sprint from liability to Penncro itself, however, the parties in the very next

section precluded recovery only of the class of damages that are “consequential

[or] indirect.” Id. § 13. W hen a contract uses different language in proximate

and similar provisions, we commonly understand the provisions to illuminate one

another and assume that the parties’ use of different language was intended to

convey different meanings. See Decatur County Feed Yard, Inc., 974 P.2d at 574

(before finding ambiguity, court must view contested language in light of the

contract as a whole); cf. Sosa v. Alvarez-M achain, 542 U.S. 692, 712 n.9 (2004)

(“[W]hen the legislature uses certain language in one part of the statute and

different language in another, the court assumes different meanings were

intended.”) (internal quotation and citation omitted); Rogers v. Shanahan, 565

P.2d 1384, 1386 (Kan. 1976) (presuming that “the legislature intended a different

meaning when it used different language . . . in different parts of a statute”).

Finally, our understanding of the parties’ chosen language comports w ith

how Kansas courts have interpreted similar terms. In Brennan v. Kunzle, 154

P.3d 1094, 1112-13 (Kan. Ct. App. 2007), for example, a mortgage allowed the

plaintiffs to recover expenses incurred to enforce the agreement, “including, but

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not limited to, reasonable attorneys’ fees.” The court held that this formulation

authorized the recovery only of those attorneys’ fees incurred in pursuing

remedies under the mortgage and simply did not speak, one way or the other, to

other attorney’s fees, such as those incurred in defending counterclaims. The

same logic applies here: Section 13 is all about consequential lost profits and

does not tell us anything, one way or the other, about direct lost profits. Cf.

Dikeman v. Nat’l Educators, Inc., 81 F.3d 949, 953 (10th Cir. 1996) (allowing, in

a statute w here examples of a general term were listed, that the m ore general term

limits the scope of the examples). 7

2. Sprint responds by observing that parties are free to diverge from

linguistic and legal norms and to define terms in their contracts as they see fit.

This, Sprint contends, is what the parties did here, defining “consequential

damages,” to encompass any lost profits, including those normally thought to

derive directly from a party’s breach. And, to be sure, parties to a contract are

free to define their terms in any manner they wish. Up may be defined as down,

right as left, day as night. But, while the parties may depart from the meanings

associated with ordinary English and existing law, courts will recognize and give

7
See also Coremetrics, Inc. v. Atomic Park.com, LLC, 2005 W L 3310093,
at *4 (N.D. Cal. Dec. 7, 2005) (“Under the plain reading of this [similarly
worded] provision, ‘loss of profits’ is referenced only as a subset or species of
indirect damages.”); In re Ardent, Inc., 305 B.R. 133, 138-39 & n.3
(Bankr. D.D.C. 2003); Com bustion Sys. Servs. v. Schuykill Energy Resources,
Inc., 1993 W L 496946, at *2-5 (E.D. Pa. Nov. 19, 1993); Canal Elec. Co. v.
Westinghouse Elec. Corp., 756 F. Supp. 620, 623 n.2, 327 (D. M ass. 1990).

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effect to such private definitions only where the parties’ intention to deviate from

common usage is manifest. See Corbin on Contracts § 24.8; Restatement

(Second) of Contracts § 202(3)(a). That is, we are reluctant to shed ordinary

meanings and presume unusual private ones without some clear indication that the

parties wished us to do so. Here, we are directed to no textual indicia that the

parties intended such a departure. Neither do we find Sprint’s proffered authority

of much help to its cause. In many of the cases Sprint cites, lost profits were not,

as here, placed in an illustrative list of the sorts of consequential damages

excluded; instead, they were singled out as a separate and distinct category of

forbidden damages. 8 Sprint’s own authority thus illustrates how parties easily can

manifest an intent to preclude lost profits of any stripe and highlights how Section

13, by contrast, simply failed to do so. 9

8
See Vaulting & C ash Servs. v. Diebold, 199 F.3d 440 (5th Cir. 1999)
(unpub.) (lost profits deemed to be separate category of precluded damages, as
“consequential” modifies only “damages,” not “lost profits”); Imaging Sys.
Intern., Inc. v. M agnetic Resonance Plus, Inc., 490 S.E.2d 124, 127 (Ga. Ct. App.
1997) (lost profits set off from consequential damages by disjunctive “or”);
CompuSpa, Inc. v. IBM , 228 F. Supp. 2d 613, 626 (D. M d. 2002) (same).
9
Sprint’s remaining cases rely on other, entirely independent grounds for
denying lost profits that do not usefully inform our analysis. See ALLTEL Info.
Servs., Inc. v. F.D.I.C., 194 F.3d 1036, 1039-40 (9th Cir. 1999) (denying lost
profits for breach of contract because a federal statute specifically defined direct
compensatory damages to exclude lost profits); Continental Holdings, Ltd. v.
Leahy, 132 S.W .3d 471, 475, 476-77 (Tex. App. 2003) (denying recovery for
direct lost profits under contract precluding liability for “loss of profits, loss of
business or any other indirect or consequential damages” where a separate early
termination provision limited recovery to the time the contract was actually in
(continued...)

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 B

Even if Penncro is entitled to direct lost profits, Sprint submits that it is not

obliged under the parties’ agreement to pay for 80,625 productive hours per

month when Penncro never provided (or was able to provide) that amount of

labor. At the very least, Sprint urges us to find ambiguity in the contract on this

point so that we might step outside the four corners of the document and examine

extrinsic evidence, including the parties’ course of conduct during the contract’s

“start up” period when they agreed to provide and pay for fewer hours of work.

Penncro responds that, while its willingness or ability to perform was an

element of liability, liability is not contested and performance is irrelevant to the

assessment of damages because the contract’s language unambiguously requires

Sprint to pay for 80,625 productive hours per month. W e are constrained to

agree.

9
(...continued)
effect, i.e., only up to its termination, not to the end of the written contract
period). The case that perhaps comes closest to supporting Sprint is In re.
Arbitration Between Intercarbon Bermuda, Ltd. and Caltex Trading and
Transportation Corporation, 146 F.R.D. 64 (S.D.N.Y. 1993). But there, the court
never purported to construe the parties’ contract de novo, as we must do here, but
was merely called on to review an arbitrator’s handling of the case for
“misconduct” under a very different standard of review (asking merely whether a
“party was denied a fundamentally fair hearing”). Id. at 72 (internal quotation
and citation omitted). Further, to the extent the court addressed the issue, it
summarily concluded, without analysis, that all lost profits are consequential
damages. Id. at *73. Even Sprint does not make this claim; Sprint argues that
consequential damages include direct lost profits in this case only because of a
specific, defining contractual clause.

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 1. The relevant contract language provides flatly that Penncro “agrees to

maintain staffing levels” and that Sprint agrees “to pay for” 80,625 productive

hours per month. Contract Order § C. Sprint’s obligation to pay thus is not

conditioned in any way on how many hours Penncro was actually able to provide.

Instead, the parties entered into a bilateral contract in which Penncro promised to

provide Sprint with, and Sprint promised to pay Penncro for, a fixed amount of

labor. See, e.g., Heller v. M artin, 782 P.2d 1241, 1243 (Kan. Ct. App. 1989) (In

“a classic bilateral contract[,] . . . each [party] promises future performance in

consideration for the other’s promise of future performance.”); cf. People’s

Exchange Bank of Elmdale v. M iller, 29 P.2d 1079, 1081 (Kan. 1934).

W e acknowledge the apparent (at first blush, at least) inequity of this

reading, as it affords Penncro damages for services it never rendered, and was

unable to render. But a somewhat gentler light is shone on our interpretation

when one recognizes that the parties’ contract was one for capacity. Penncro

agreed to “maintain staffing levels” at 80,625 productive hours, and a productive

hour includes time spent waiting for calls. Contract Order §§ B, C. Neither

Penncro’s obligation nor its compensation was dependant on the number of calls,

if any, that Sprint actually routed to Penncro. In return, Sprint agreed to pay for

this set amount of call center capacity, whether or not Penncro’s phones w ere

ringing. Contract Order § C.

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 The terms of the parties’ incentive program, in Attachment A, confirm the

point. As structured, the capacity hours agreed to by the parties could be changed

only in the event of poor performance – and in no event by more than twenty

percent. By contrast, under Sprint’s reading of the parties’ agreement, Sprint

could reduce (or, presumably increase) the number of hours it sought from

Penncro simply by making a phone call at the beginning of the month. Such a

reading would make the agreement to reduce capacity only in the event of poor

performance, and even then only by twenty percent, surplusage. Indeed, the

entire incentive program would be meaningless if 80,625 hours were merely a

forecast of the parties’ future work – rather than a binding capacity commitment

on both sides – that Sprint could alter at its whim.

2. Sprint replies w ith three arguments. First, it stresses Penncro’s

demonstrated inability to provide all the hours envisioned by the contract and the

parties’ agreement to proceed in several months on different terms. But, having

found the promise to pay for 80,625 hours of capacity to be unambiguous in the

language of the contract itself, we are precluded by Kansas law from entertaining

Sprint’s extrinsic evidence concerning the parties’ course of conduct. Farrell,

815 P.2d at 546. Of course, not every state is so restrictive on this score, see

generally Farnsworth on Contracts § 7.12, but the parties deliberately contracted

for application of Kansas law. Furthermore, the M SA explicitly prohibits

modification of the contract’s terms except in writing, M SA § 17.15, so the

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parties themselves specifically agreed that there could be no modification of their

obligations through the course of performance. Cf. Riley State Bank of Riley v.

Spillman, 750 P.2d 1024, 1028 (Kan. 1998) (holding that, where a clause required

waiver to be in writing, course of conduct could not give rise to waiver).

Of course, Sprint’s arguments about Penncro’s failure to perform its end of

the bargain could well have offered a good basis for contesting liability. See,

e.g., Fusion, Inc. v. Neb. Aluminum Castings, Inc., 962 F. Supp. 1392, 1395 (D.

Kan. 1997) (discussing plaintiff’s material breach proffered as a defense to a

breach of contract claim). But Sprint long ago made the tactical decision not to

contest liability on this or any other basis – such as mutual breach, anticipatory

breach, mistake, fraud, or material misrepresentation – and its decision to hang its

hat at trial solely on the nature and quantum of Penncro’s damages cannot be

reconsidered on appeal. See Cortez v. Wal-M art Stores, Inc., 460 F.3d 1268,

1276 (10th Cir. 2005); Wilson v. M uckala, 303 F.3d 1207, 1215 (10th Cir. 2002);

see also H ill v. K em p, 478 F.3d 1236, 1250-51 (10th Cir. 2007).

Second, recognizing the weakness of its appeal to extrinsic evidence, Sprint

argues that its obligation to pay only for hours that Penncro actually worked is

manifest in the parties’ agreement itself, pointing us to Section 2.2 of the M SA.

Section 2.2 indicates that “[t]he execution of a Contract Order . . . is [Penncro]’s

agreement to provide and Sprint’s agreement to accept and pay for Services and

Deliverables in accordance with this Agreement and the applicable Contract Order

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. . . .” Rather than support Sprint’s position, however, this section merely

confirms, as w e have already indicated, that the M SA did not obligate either party

to supply or purchase services, deferring the nature of the parties’ (possible)

future obligations to the Contract Order. As the document itself explains, “Sprint

has no obligation to accept and pay for Services or Deliverables that are not set

forth in an executed Contract Order.” M SA § 2.2; see also supra Part I.A. And

the Contract Order unambiguously reflects Sprint’s promise to pay for 80,625

productive hours.

Third, Sprint argues that the Addendum to Attachment A, which removed

the term “guaranteed” before the words “productive hours outlined in Section C

of the Contract Order” from Attachment A, commands its construction.

Specifically, Sprint argues that the removal of the word “guaranteed” shows that,

under the agreement in effect at the time of the breach, the number of productive

hours were not, if they ever w ere, guaranteed by Sprint.

For its part, the district court refused to credit the removal of “guaranteed.”

The court noted that Sprint made this change unilaterally, sending the Addendum

as an email attachment to Penncro, and without even noting the alteration in its

cover email w hich, notably, highlighted other changes. See supra Part I.A. But

even assuming that the Addendum effectively modified Attachment A to remove

the word “guaranteed,” the presence or absence of the word is immaterial to our

conclusion that Sprint promised to pay for 80,625 hours of call center capacity.

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Attachment A, whether or not modified by the Addendum, merely sets out the

details of the incentive plan Sprint used to evaluate its vendors. Under its terms,

vendors can be rewarded for good performance by monetary bonuses, and they

can be punished for poor performance by a reduction in productive hours. The

performance plan, however, simply does not speak to the critical question before

us – namely, the nature of the “productive hours” agreed to by the parties for

alteration under Attachment A’s incentive plan. Put plainly, was “80,625

productive hours,” merely a forecast of demand? O r was it a fixed amount of

labor capacity? Attachment A is mute on this dispositive question. Instead, it

merely points the reader back to Section C of the Contract Order: In the event of

poor performance, Attachment A says that Sprint “may permanently reduce the

number of productive hours requested of [Penncro],” and “[t]his reduction will

result in a corresponding reduction of the amount of productive hours outlined in

Section C of the Contract Order.” Addendum at 3. Thus, under the terms of the

incentive plan, the parties could modify Penncro’s promised productive hours

outlined in Section C based on its success or failure under certain tests, but it

simply does not speak to the nature (capacity v. forecast) of the productive hours

promised in Section C. 10

10
The same problem attends Sprint’s argument that the word “requested”
in Attachment A evinces an intent only to pay for the capacity actually supplied.
Any reference to the hours that Penncro was to provide, whether described as
“requested,” “guaranteed,” or otherwise, simply refers the reader back to Section
(continued...)

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 III

In calculating damages, the district court found that, after Sprint moved to

terminate the parties’ first-party inbound collections contract, Penncro managed

to avoid $7,665,472 in losses by taking on work for AT& T and American W ater,

as w ell as third-party outbound collections w ork for Sprint. In its cross-appeal,

Penncro does not challenge the district court’s finding that it had sufficient

capacity to take on the new Sprint work only by virtue of Sprint’s termination of

its initial contract. But Penncro does contest the district court’s conclusion that

Penncro’s damages should be reduced by the amounts associated w ith its A T& T

and American W ater contracts, $6.5 million in all. In Penncro’s view , it easily

could have handled these new jobs in addition to fulfilling its first-party inbound

collections work for Sprint – and, thus, the amounts it earned from AT& T and

American Water should not qualify as avoided losses. Accordingly, resolution of

Penncro’s cross-appeal fairly hinges on the resolution of a single factual question:

Could Penncro have taken on this additional work and still performed its initial

contract with Sprint? Putting the point differently, was Penncro what contract

law calls a lost volume seller? See Bill’s Coal Co., v. Bd. of Pub. Util. of

Springfield, M o., 887 F.2d 242, 245 (10th Cir. 1989) (“A lost volume seller is one

10
(...continued)
C of the Contract Order, which sets forth the parties’ binding commitment to
provide and pay for a fixed amount of capacity.

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who has the capacity to perform the contract which was breached as well as other

potential contracts,” without resource or capacity constraints.).

W hether a party to a contract is a lost volume seller is a question of fact.

Rodriguez v. Learjet, Inc., 946 P.2d 1010, 1014 (Kan. Ct. App. 1997). W e

therefore w ill not disturb the district court’s factual findings about Penncro’s

ability to service AT& T, American W ater, and its original Sprint contracts

simultaneously unless they are clearly erroneous. For a factual finding to be

clearly erroneous, it “must be more than possibly or even probably wrong; the

error must be pellucid to any objective observer.” United States v.

Cardenas-Alatorre, 485 F.3d 1111, 1118-19 (10th Cir. 2007).

After extensive proceedings, the district court found that Penncro had the

capacity to assume additional collections work only by virtue of Sprint’s contract

termination – and, thus, that it was not a lost volume seller. The district court had

before it ample evidence to support this conclusion. Unconstrained by the

strictures against extrinsic evidence in this inquiry, the district court was able to

observe and take full account of Penncro’s continual staffing difficulties and

significant performance problems throughout the life of its first-party inbound

contract with Sprint. It noted, too, that Penncro solicited and was awarded the

AT& T contract expressly on the basis of the telecommunications experience it

garnered from having worked for Sprint and on the understanding that those who

had performed Sprint’s work would service AT& T’s contract. As to American

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W ater, the district court found that its contract was awarded only after Sprint’s

breach and all of the w ork w as performed in the same facility where Sprint’s

work had been performed; this allowed Penncro to let its leases at other facilities

lapse and to reallocate existing resources to American Water’s work, thereby

saving significant start-up and training costs.

To be sure, Penncro points to competing evidence and testimony from its

employees suggesting that it had adequate capacity, or could have found adequate

capacity, to cope with Sprint’s contract on top of the new work it received. But

pointing to conflicting evidence inconsistent with the district court’s finding is

insufficient, standing alone, to establish clear error, for “every trial is replete with

conflicting evidence, and in a bench trial, it is the district court, which enjoys the

benefit of live testimony and has the opportunity firsthand to weigh credibility

and evidence, that has the task of sorting through and making sense of the parties’

competing narratives.” Watson v. United States, 485 F.3d 1100, 1108 (10th Cir.

2007). The district court, moreover, found Penncro’s evidence unpersuasive in

several ways we find illuminating. For example, the district court discounted

Penncro’s assertions that it had the capacity to handle AT& T’s work at a different

facility because that contract had to be performed by the same personnel who

handled Sprint’s work. The court also found that Penncro could not have

performed the A merican W ater contract at a different facility because Penncro

could not have opened and staffed a new facility in time to take on American

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W ater’s work. And the district court found that Penncro’s staffing woes

throughout the life of its initial contract with Sprint spoke volumes to its capacity

to take on additional work. Though reasonable factfinders might come to

different conclusions on the facts associated with Penncro’s cross-appeal, we are

persuaded that the district court considered them thoughtfully and came to a well-

reasoned result free of clear error.

***

W e hold that, in keeping with plain meaning and legal norms, where parties

to an agreement exclude liability only for consequential damages, profits lost as a

direct result of a breach may be recovered. As to the amount of profits lost, we

hold that the parties’ fixed-capacity agreement obliged Sprint to pay for that

amount of capacity, whether utilized or not. Finally, we discern no clear error in

the district court’s finding in this case that Penncro avoided losses as a result of

Sprint’s breach by taking on work from AT& T and American W ater.

Accordingly, we affirm the district court’s judgment to Penncro in the amount of

$17,136,612. Sprint’s appeal on the award of attorneys’ fees is dismissed as

moot.

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