FIFTH DIVISION
BARNES, P. J.,
REESE, P. J., and COLVIN, J.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
https://www.gaappeals.us/rules
DEADLINES ARE NO LONGER TOLLED IN THIS
COURT. ALL FILINGS MUST BE SUBMITTED WITHIN
THE TIMES SET BY OUR COURT RULES.
October 28, 2020
In the Court of Appeals of Georgia
A20A0962. ULTRA GROUP OF COMPANIES, INC. v. S & A
1488 MANAGEMENT, INC. et al.
REESE, Presiding Judge.
Ultra Group of Companies, Inc. (“Ultra”) appeals from the trial court’s final
order affirming a decision of the Georgia Lottery Corporation (“GLC”) and the
hearing officer’s decision in favor of S&A 1488 Management, Inc. and Salim Gillani
(collectively, the “Appellees”). On appeal, Ultra argues that the GLC hearing officer
erred in finding that the liquidated damages provision in the parties’ contract was an
unenforceable penalty, and that Ultra failed to prove its lost profits arising from the
breach of the agreement. For the reasons set forth infra, we affirm.
The background facts are largely undisputed. Ultra is coin-operated amusement
machine (“COAM”) master license holder. In 2011, Ultra entered into a ten-year
agreement with the Appellees to provide COAMs at a convenience store in Duluth.
The parties split the revenue from the COAMs pursuant to the agreement. The
contract contained a liquidated damages provision:
Liquidated Damages. If Proprietor breaches paragraph 13 of this
Agreement [providing for a ten-year term], the parties agree that it
would be difficult to ascertain the exact damages of the Company and
the parties agree that the Company shall be entitled to recover from the
Proprietor as liquidated damages an amount equal to seventy percent
(70%) of the net revenue (as determined in paragraph 5 above) from all
Company Machines for the period from the date of the Agreement to the
date of the breach, divided by the number of months from the date of
this Agreement until the breach, multiplied by the Company share of the
net revenue as stated in paragraph 5, multiplied by the number of
months remaining on the Term of Lease. The parties agree that this
amount is a reasonable estimate of the damages likely to be incurred as
a result of any breach and not as a penalty.
The Appellees sold the convenience store, and the new store owner removed
the COAMs in 2013. Ultra alleged that the Appellees breached the COAM agreement
and sought resolution before a GLC hearing officer pursuant to OCGA § 50-27-102
(d). Ultra sought unpaid revenue from the COAMs prior to the Appellees’ sale of the
store, and lost profits after the new owner removed the COAMs from the store from
2
the date of the sale until the end of the ten-year term. Ultra claimed $1,218,060.95 in
liquidated damages and $1,602,683.49 in actual damages for its lost-profits claim.
The hearing officer awarded $108,801 for the underpayment of revenue while
the COAMs were still at the store. However, the hearing officer declined to award
Ultra damages in the post-removal period based on his findings that the liquidated
damages provision was unenforceable and that Ultra had failed to prove its lost
profits with reasonable certainty. The hearing officer was “particularly troubled” by
Ultra’s inability to report whether the COAMs had been re-rented. The hearing officer
acknowledged the risk of awarding Ultra a double recovery, and found that Ultra’s
lost profits were speculative without this “critical fact[.]”
Ultra appealed the decision to the chief executive officer of the GLC pursuant
to OCGA § 50-27-102 (d) (5). The chief executive officer failed to render a decision
within 30 days, and thus, pursuant to GLC RU 13.2.5 (1) (b) (4),1 affirmed the
decision of the hearing officer. Ultra filed a petition for judicial review to the superior
court under OCGA § 50-27-102 (d) (5), and the superior court affirmed the GLC’s
decision. This appeal followed.
1
See https://www.gacoam.com/API/Documents/Document?documentID=255
(last visited October 9, 2020).
3
In reviewing the decision of the chief executive officer of the GLC, the
superior court “shall not reverse the chief executive officer’s findings of fact unless
it is against the weight of the evidence as set forth in [OCGA §] 5-5-21, and the chief
executive officer’s legal conclusions shall not be set aside unless there is an error of
law.”2 “[W]hen this Court reviews a superior court’s order in an administrative
proceeding, our duty is not to review whether the record supports the superior court’s
decision but whether the record supports the final decision of the administrative
[body].”3 With these guiding principles in mind, we now turn to Ultra’s specific
claims of error.
1. Ultra argues that the GLC hearing officer erred in finding that the liquidated
damages provision in the parties’ contract was an unenforceable penalty.
As an initial matter, Ultra contends that its liquidated damages claim should be
analyzed under the Uniform Commercial Code (“UCC”) framework, citing OCGA
§ 11-2A-504. However, Ultra has failed to show that it raised this argument before
the hearing officer. Failure to raise this argument before the hearing officer waived
2
See OCGA § 50-27-102 (d) (5).
3
Welcker v. Ga. Bd. of Examiners of Psychologists, 340 Ga. App. 853, 855 (1)
(798 SE2d 368) (2017) (citation and punctuation omitted).
4
judicial review.4 Thus, we will analyze Ultra’s liquidated damages claim under the
non-UCC framework.
“If the parties agree in their contract what the damages for a breach shall be,
they are said to be liquidated and, unless the agreement violates some principle of
law, the parties are bound thereby.”5 We apply a three-part test in determining
whether a liquidated damages clause is enforceable:
A contractual provision requiring payment of a stipulated sum by one of
the parties upon termination or cancellation of the contract will be
treated as an enforceable liquidated damages provision rather than an
unenforceable penalty only if all three of the following factors are
present: First, the injury caused by the breach must be difficult or
impossible of accurate estimation; second, the parties must intend to
provide for damages rather than a penalty; and third, the stipulated sum
must be a reasonable pre-estimate of the probable loss resulting from
such a breach.6
4
See Excelsior Elec. Membership Corp. v. Ga. Pub. Svc. Comm., 322 Ga. App.
687, 693 (3) (745 SE2d 870) (2013).
5
OCGA § 13-6-7.
6
Nat. Svc. Indus. v. Here to Serve Restaurants, 304 Ga. App. 98, 99 (695 SE2d
669) (2010) (punctuation and footnote omitted).
5
“At trial, the party who defaults on the contract has the burden of proving the
liquidated damages clause is an unenforceable penalty. A defaulting party can carry
this burden by proving any of the three factors is lacking.”7 “The enforceability of a
liquidated damages provision in a contract is a question of law for the court which
necessarily requires the resolution of questions of fact.”8 “In close cases involving a
liquidated damage clause, the [Georgia] Supreme Court has advocated interpreting
the clause as a penalty.”9
In this case, the hearing officer did not err in finding that the liquidated
damages clause was not a reasonable pre-estimate of the probable loss resulting from
a breach. As noted by the hearing officer, Ultra failed to show whether the COAMs
had been re-rented, and the liquidated damages provision did not take this possibility
into account. We have rejected liquidated damages clauses where the lessor received
all future revenue and full possession of the property with the ability to re-rent or sell,
because “[t]he liquidated damages placed the lessor in a far better position than it
7
Caincare, Inc. v. Ellison, 272 Ga. App. 190, 192 (1) (612 SE2d 47) (2005)
(citations omitted).
8
Id. (citation and punctuation omitted).
9
Id. at 195 (1).
6
would have been if the contract had never been breached.”10 “[B]oth possession of the
[property] and a present lump sum award of future rent without any calculation of
damages based on the future rental value of the [property], and the likelihood of
reletting, provides [the lessor] with payment potentially bearing no reasonable
relation to actual damages.”11
2. Ultra argues that the hearing officer erred in finding that Ultra failed to prove
its lost profits. Ultra claimed actual damages of $1,602,683.49 by calculating the
average monthly revenue of the COAMs while the COAMs were still at the store,
multiplying by the remaining number of months left in the contract, applying a
present value discount, and subtracting $25,000 for the residual value of the five
COAMs.
Generally, in determining contract damages, “the person injured, is, so far as
it is possible to do so by a monetary award, to be placed in the position he would have
10
Caincare, 272 Ga. App. at 193 (1) (citation omitted); accord Carter v. Tokai
Financial Svcs., 231 Ga. App. 755, 758-759 (2) (500 SE2d 638) (1998); Peterson v.
P. C. Towers, 206 Ga. App. 591, 594 (3) (426 SE2d 243) (1992).
11
Peterson, 206 Ga. App. at 594 (3).
7
been in had the contract been performed.”12 “Where property was leased for hire, the
measure of damages for the lessee’s breach of contract is the cash value of the
contract less any saving which may accrue from the breach.”13 A party must show lost
profits with “great specificity[,]”14 “reasonable certainty[,]”15 and with a “proven track
record of profitability.”16 “Where appropriate action to mitigate the loss has not been
taken, damages in the nature of lost profits are not recoverable.”17
As noted above, Ultra failed to show whether the COAMs had been re-rented,
despite testimony that Ultra kept records regarding this information. Accordingly,
12
Broadcast Concepts v. Optimus Financial Svcs., 274 Ga. App. 632, 635 (3)
(618 SE2d 612) (2005) (citation and punctuation omitted).
13
Id. (citation and punctuation omitted).
14
Bldg. Materials Wholesale v. Triad Drywall, 287 Ga. App. 772, 776 (2) (653
SE2d 115) (2007) (punctuation and footnote omitted).
15
Id. (punctuation and footnote omitted).
16
EZ Green Assocs. v. Ga.-Pacific Corp., 331 Ga. App. 183, 188 (2) (770 SE2d
273) (2015) (punctuation and footnote omitted).
17
Smith v. A. A. Wood & Son Co., 103 Ga. App. 802, 810 (2) (120 SE2d 800)
(1961).
8
Ultra failed to account for “any saving which may [have] accrue[d] from the
breach[,]”18 and thus failed to prove its lost profits with reasonable certainty.19
Ultra contends that it is a “lost volume seller” that does not have a duty to
mitigate its damages. In order for Ultra to show that it is a lost volume seller, it “must
prove that even though it later resold the repudiated contract goods, the sale to the
third party would have been made regardless of the buyer’s breach so that the seller
would have realized two profits from two sales.”20 The doctrine is based on UCC §
2-708 (2) (OCGA § 11-2-708 (2)).21 We have only applied this doctrine in one case,
18
Broadcast Concepts, 274 Ga. App. at 635 (3) (citation and punctuation
omitted).
19
See Bldg. Materials, 287 Ga. App. at 777 (2) (proof of lost profits
insufficient where plaintiff failed to present evidence of expenses); Smith, 103 Ga.
App. at 810 (2) (proof of lost profits insufficient where claimant failed to mitigate
losses).
20
Unique Designs v. Pittard Machinery Co., 200 Ga. App. 647, 649 (1) (409
SE2d 241) (1991).
21
See id. Under OCGA § 11-2-708 (2):
If the measure of damages provided in subsection (1) of this Code
section is inadequate to put the seller in as good a position as
performance would have done then the measure of damages is the profit
(including reasonable overhead) which the seller would have made from
full performance by the buyer, together with any incidental damages
provided in this article (Code Section 11-2-710), due allowance for costs
9
where the buyer repudiated a contract for lathes.22 In that case, the seller carried a
large inventory of lathes, the lathe to be delivered to the buyer was a stock item not
specially ordered, and the seller’s subsequent sale of the lathes to another buyer
would have occurred even if the original buyer had not repudiated the contract.23
Even assuming arguendo that the lost volume seller doctrine might apply in this
case,24 Ultra failed to present sufficient evidence before the hearing officer in order
for the hearing officer to consider the doctrine’s application. In the absence of
information as to the whereabouts of the COAMs and whether they were re-rented,
the hearing officer was unable to accurately determine whether mitigation was
required and if so, to what extent.25 Thus, because Ultra failed to present evidence
reasonably incurred and due credit for payments or proceeds of resale.
22
See Unique, 200 Ga. App. at 649-650 (1).
23
Id. at 650 (1).
24
This case does not implicate OCGA § 11-2-708 (2), the UCC section from
which the doctrine is based, because the COAM contract was not for the sale of
goods. The corresponding provision for leased goods, OCGA § 11-2A-528 (2), is
similar to OCGA § 11-2-708 (2), but we have no cases applying the doctrine based
on OCGA § 11-2A-528 (2). Additionally, as noted in Division 1, supra, Ultra did not
present its claims to the hearing officer under the UCC framework.
25
Cf. Unique, 200 Ga. App. at 648-650 (1) (applying the lost volume seller
doctrine when the seller immediately sold the contracted item to an alternate buyer,
the seller had a large inventory, and the contracted item was stock with no
10
that would have allowed the hearing officer to calculate Ultra’s lost profits with
reasonable certainty, the hearing officer did not err in rejecting this argument.26
Judgment affirmed. Barnes, P. J., and Colvin, J., concur.
modifications).
26
See Bldg. Materials, 287 Ga. App. at 777 (2).
11