C&B Sales & Service, Inc. v. McDonald

REVISED, June 17, 1999

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 97-30976

C & B SALES & SERVICE INC

Plaintiff - Appellant

VERSUS

MAXWELL C MCDONALD, JR, ET AL

Defendants

MAXWELL C MCDONALD, JR

Defendant - Appellee

Appeal from the United States District Court
For the Western District of Louisiana
June 14, 1999

Before REAVLEY, DAVIS, and DUHÉ, Circuit Judges

DUHÉ, Circuit Judge:

The district court on remand held that Plaintiff C & B Sales

& Service, Inc. had not submitted sufficient evidence to prove the

damages it suffered as a result of Maxwell McDonald’s breach of his

fiduciary duty. The district court placed the burden on C & B to

prove both McDonald’s revenues from and his costs of the business
he did in breach of his duty. Because we read the prior panel’s

opinion as placing the burden on C & B to prove McDonald’s revenues

and the burden on McDonald to prove his costs, we reverse. For

reasons of judicial economy and because undisputed financial

information in the record permits, we render judgment for C & B

against McDonald for $1,500,000.00 plus interest and costs.

FACTS AND PROCEEDINGS

Maxwell McDonald was an employee and later officer and

director of C & B Sales & Service, Inc. (“C & B”), which serviced

and leased gas compression equipment. McDonald, without the

knowledge of C & B, joined with Robert Humphrey and Compression

Components Corp. (“CCC”)1 in purchasing and selling used gas

compression equipment. McDonald and Humphrey subsequently created

Compressor Operating, Inc. (“COI”), which leased gas compression

equipment. McDonald’s involvement with Humphrey, CCC, and COI came

to C & B’s attention during negotiations to sell C & B. C & B sued

McDonald, Humphrey, CCC, and COI for racketeering, breach of

fiduciary duty, fraud, negligent misrepresentation and unfair trade

practices. The district court held that McDonald breached his

fiduciary duty to C & B, and awarded damages based on McDonald’s

pro rata shareholder bonus from the sale of C & B. The district

court dismissed all other claims. C & B appealed the amount of the

damages award and the dismissal of its other claims; McDonald

cross-appealed the amount of the damages award and the breach of

fiduciary duty determination. A panel of this court (“the first

1
Humphrey was owner and president of CCC.

2
panel”) affirmed the breach of fiduciary duty claim and the

dismissal of the remaining claims. The first panel vacated the

damages award for lack of a nexus between McDonald’s breach of

fiduciary duty to C & B and the amount awarded, and remanded the

damages issue. On remand, the district court held again that C &

B sustained damages as a result of McDonald’s fiduciary breach.

However, the district court also held that “the degree of or amount

of damages was not proven with sufficient clarity,” C & B Sales

& Serv. Inc. v. McDonald, No. 91-1201, p.6 (W.D. La. filed Aug. 20,

1997) (memorandum ruling), and awarded nothing. C & B appeals.

ANALYSIS

As this second appeal demonstrates, a great deal of confusion

surrounds the term “damages.” In its first opinion, the district

court equated “damages” with “profits,” focusing exclusively on

whether C & B submitted sufficient evidence of McDonald’s profits

from his breach of fiduciary duty. The district court noted:

McDonald would owe C & B the profits he received from the
transactions involving Humphrey, COI and/or CCC.
‘Profits’ by definition are ‘The excess of the selling
price of goods over their cost.’ Accordingly,
plaintiff’s burden was to present evidence upon which
this Court could base its calculations of the money
received by McDonald - less his cost to obtain and sell
the equipment at issue. . . . [C & B’s accountant] did
not establish with any degree of credibility the amount
of profits which McDonald actually received as a result
of the transactions. Given the periodic settling up by
McDonald and Humphrey, the amount for which a piece of
equipment was sold or leased was not necessarily the
amount McDonald received as a result of the sale.

C & B Sales & Serv. Inc. v. McDonald, No. 91-1201, p.31, 35 (W.D.

3
 2
La. filed Feb. 18, 1994) (memorandum ruling). The district court

“did not find sufficient credible evidence to establish the base

cost, to McDonald, of the equipment purchased to offset against the

amount ultimately received by McDonald . . . .” Id. at 34. The

district court, acknowledging that McDonald’s accounting practices

were “convoluted with only periodic accounting,” id. at 32,

utilized article 1999 of the Louisiana Civil Code, which permits

courts to reasonably assess damages when they are insusceptible of

precise measurement. See La. Civ. Code Ann. art. 1999 (West 1987).

The court assessed damages as the amount of McDonald’s shareholder

bonus from the sale of C & B.

The first panel reversed and remanded the damages award as

having no nexus with McDonald’s fiduciary breach. First, the panel

acknowledged that the plaintiff in a breach of fiduciary duty case

need show only the agent’s gain, not the plaintiff’s actual loss.

See C & B Sales & Serv. Inc. v. McDonald, 95 F.3d 1308, 1314 (5th

Cir. 1996). In sum, C & B bore the burden of proving McDonald’s

revenues from his breach of duty, while McDonald bore the burden of

proving the costs incurred in achieving those revenues. See id. at

1318. Second, the panel held that C & B failed to show with

specificity the revenues McDonald received; therefore, the burden

never shifted to McDonald to show profits. See id. However, the

panel acknowledged that article 1999 permits a reasonable

2
The district court found C & B’s accountant’s report fatally
flawed based on its underlying cost assumptions. The district
court did not discredit the credibility of the underlying data
establishing revenues.

4
approximation of damages when they can not be determined with

specificity. See id. The panel remanded to the district court for

further consideration of damages under article 1999. See id.

We read the first panel’s opinion as directing that the same

burden shifting that applies to the breach of fiduciary duty

damages determination applies to the article 1999 damages

determination on remand. First, the panel suggested examining the

approximate gross revenues of McDonald and his cohorts, noting that

McDonald bore the burden of showing expenses. See id. Second,

this interpretation is consistent with the district court’s

credibility determinations in its first opinion. That court deemed

C & B’s accountant’s report fatally flawed not because of the

underlying data utilized or the revenue determinations, but because

of cost assumptions. See C & B Sales & Serv. Inc. v. McDonald, No.

91-1201, p.6 (W.D. La. filed Feb. 18, 1994) (memorandum ruling).

Such a credibility finding would not inhibit the trial court’s

ability to assess approximate revenues from the underlying data.

Therefore, in assessing damages under article 1999 on remand, the

district court should have placed the burden of approximating

McDonald’s revenues on C & B, and the burden of approximating

McDonald’s costs on McDonald.

The district court’s opinion on remand reexamined whether C &

B submitted sufficient evidence for the court to approximate

profits, never examining as dictated by the panel’s opinion whether

C & B submitted sufficient evidence for the court to approximate

revenues. The district court on remand cited extensively to and

5
incorporated language from its first opinion, which had focused

exclusively on C & B’s failure to prove profits. For example, the

district court on remand stated:

The evidence presented does not afford this Court a
reasonable or a reliable basis to separate the financial
activities of the entities, i.e., COI and CCC and their
profits. Again, this Court made a specific finding in
its initial ruling that plaintiff had failed to carry the
burden of proof to establish with sufficient credible
evidence what profits defendant, McDonald, received. . .
. [T]he plaintiff [has not] presented sufficient credible
evidence to establish the profit McDonald, COI, CCC and
Humphrey received and/or the profit McDonald received
alone.

C & B Sales & Serv. Inc. v. McDonald, No. 91-1201, p.6 (W.D. La.

filed Aug. 20, 1997) (memorandum ruling).

We note that the district court found the report on which C &

B’s accountant relied fatally flawed, and therefore found C & B’s

accountant not credible.3 We review these credibility

determinations for clear error. See Fed. R. Civ. P. 52(a); Justiss

Oil Co. v. Kerr-McGee Ref. Corp., 75 F.3d 1057, 1067 (5th Cir.

1996). The district court did not clearly err in finding the report

and the accountant not credible. Therefore, we rely on neither the

report nor the accountant in reviewing the damage determination.

C & B submitted in evidence “item files.” The item files

summarize and contain invoices, checks, and journal entries

detailing McDonald’s transactions with CCC and COI. In addition,

C & B and McDonald submitted Joint Exhibit 1, containing C & B’s

summary of the financial transactions in the item files and

3
As noted above, the district court found the cost assumptions
and cost allocations flawed, not the revenue data.

6
McDonald’s comments on and objections to the information in the

item files. The district court did not address these item files in

its first opinion, or its opinion on remand. There is no

indication in the record that the district court did not find these

files credible. In addition, the record reflects that McDonald and

CCC evenly shared costs and revenues in their joint transactions,

and that McDonald and Humphrey each owned 50% of COI.

Although the record does not allow calculation of McDonald’s

gains to the penny, the law does not require such specificity;

article 1999 and Circuit precedent require only a reasonable

approximation. See, e.g., La. Civ. Code Ann. art. 1999 (West

1987); C & B Sales & Serv. Inc. v. McDonald, 95 F.3d 1308, 1319

(5th Cir. 1996); Austin v. Parker, 672 F.2d 508, 522 (5th Cir.

1982). McDonald’s gain from his fiduciary breach, approximated

from the undisputed revenue and cost data in the record, is at

least $1,500,000.00.

McDonald’s breach of fiduciary duty to C & B involved a

continuing, ongoing operation involving interrelated transactions

spanning a period of three years. McDonald should not escape

liability for his fiduciary breach because his scheme was long and

involved. To avoid this result, we approximated the total revenues

received by McDonald over the three year period, and approximated

the total costs incurred by McDonald over the three year period.4

4
The financial records indicate that Humphrey purchased,
rented, and sold most of the equipment on behalf of Humphrey’s and
McDonald’s joint ventures. CCC then invoiced McDonald for
McDonald’s 50% of costs, and McDonald invoiced CCC for McDonald’s
50% of the proceeds.

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 In approximating the total revenues McDonald received as a

result of his fiduciary breach, we reviewed the invoices and

canceled checks summarized in the joint exhibit and included in the

item files.5 Most files involving McDonald and CCC transactions

contained: an invoice from CCC to the purchaser listing the item

being sold and the sales price; an invoice from McDonald to CCC

listing the item and McDonald’s 50% share of the proceeds; either

a canceled check from CCC to McDonald indicating a McDonald invoice

number, or the relevant McDonald invoice marked paid, listing a CCC

check number. We summed the amounts received by McDonald as

evidenced by the invoices and canceled checks to arrive at

approximate revenues from McDonald and CCC transactions. Most

files involving COI contained: a lease agreement including rental

terms or an invoice from CCC or COI to C & B listing the equipment

and sales price; an invoice from COI to C & B listing the item and

the rental due or the sales price or an invoice from McDonald to

CCC listing the item and McDonald’s 50% share of the sale or rental

price; some indicia that C & B paid the invoice.6 Since McDonald

testified to a 50% interest in COI, we summed the amounts received

by COI as evidenced by the leases, invoices and indicia of payment,

and divided the total in half to arrive at McDonald’s approximate

5
We disregarded files for transactions not involving McDonald
or for transactions unrelated to McDonald’s fiduciary breach.
6
Indicia included copies of canceled checks from C & B to COI
or wire payments from Hanover on behalf of C & B. If the record
indicated that COI invoiced C & B but did not indicate that C & B
had paid the invoice or that COI had received payment, we did not
include that amount in our approximation of revenues.

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revenues from COI transactions. We then summed the amounts

received by McDonald from CCC transactions and COI transactions to

arrive at the total approximate revenues McDonald received by

breaching his fiduciary duty to C & B.

In approximating the total costs McDonald incurred from

conduct breaching his fiduciary duty to C & B, we reviewed the

invoices, journal entries and canceled checks summarized in the

joint exhibit and included in the item files. Most files involving

CCC transactions contained: journal entries indicating the cost to

McDonald; invoices from CCC to McDonald listing the item and

McDonald’s 50% share of the acquisition cost and other expenses

related to the item; a canceled check from McDonald to CCC listing

CCC invoice numbers.7 We summed the costs incurred by McDonald as

evidenced by the invoices and canceled checks to arrive at

approximate costs incurred by McDonald from McDonald and CCC

transactions. For most of the transactions involving COI, COI had

purchased the equipment from CCC at CCC’s cost of acquisition.

Humphrey and McDonald each bore 50% of the costs and each received

50% of the revenues associated with the McDonald and CCC

transactions, and Humphrey and McDonald each owned 50% of COI.

Therefore, McDonald’s 50% of the sale proceeds from CCC to COI

7
In those instances in which McDonald paid for the acquisition
of an item or related expenses, McDonald issued an invoice to CCC
listing the item and the 50% of the cost attributed to CCC. These
invoices were generally marked paid, listing a CCC check number.
We attributed an equal amount of costs to McDonald, based on his
testimony and C & B’s assertion that McDonald and CCC each bore 50%
of the costs and received 50% of the revenues from their joint
transactions.

9
offset the 50% of COI’s acquisition cost attributed to McDonald,

leaving as a cost only the 50% of CCC’s acquisition cost already

accounted for by the CCC transactions. In those cases in which CCC

sold equipment to COI for more than CCC’s acquisition cost, we

considered the appropriate amount as McDonald’s costs. Likewise,

we attributed 50% of all costs other than acquisition costs to

McDonald. We then summed the costs incurred by McDonald from

McDonald and CCC transactions and McDonald and COI transactions to

arrive at the total approximate costs McDonald incurred from

conduct breaching his fiduciary duty to C & B.

We render judgment for C & B in the amount of McDonald’s

approximate gain, $1,500,000.00 plus interest and costs. We render

rather than remand for reasons of judicial economy8 and because

undisputed data in the trial record indicate the appropriate damage

award. See, e.g., 28 U.S.C.A. § 2106 (1994) (authorizing appellate

courts to dispose of cases “as may be just under the

circumstances”); Grosso v. United States, 390 U.S. 62, 71 (1968)

(finding authority in 28 U.S.C. § 2106 for rendering rather than

remanding on a factual issue when the record would permit only one

finding); Sidag Aktiengesellschaft v. Smoked Foods Prods. Co., 960

F.2d 564, 566-67 (5th Cir. 1992) (rendering the quantum of attorney

fees on appeal to save the court and parties from further appeals

8
C & B sued McDonald in 1991. Since then, the parties have
endured a trifurcated trial, an appeal on the merits and damage
award, a remand on the issue of damages, and an appeal of the
district court’s determination on remand. The district court has
made great efforts in managing this litigation, but has professed
its inability to calculate a damages award based on the record.
Rendering will avoid further litigation.

10
and because “no useful purpose would be served by further delaying

its final disposition”); Avery v. Homewood City Bd. of Educ.,674

F.2d 337, 341 n.5 (5th Cir. 1982) (rendering on a fact issue when,

based on the record, any other finding by a district court would be

deemed clearly erroneous); Ferrero v. United States, 603 F.2d 510,

515 (5th Cir. 1979) (noting that the Fifth Circuit would compute

the damage award rather than remand to the district court when the

evidence before it was as complete as it was at trial); id.

(rendering a damage award when remand would be mere wasted motion);

In re Thirteen Appeals Arising Out of San Juan Dupont Plaza Hotel

Fire Litigation, 56 F.3d 295, 312 (1st Cir. 1995) (rendering

attorney fees on appeal, because the record “was sufficiently

developed that [the Court of Appeals could] apply the law to the

facts . . . and calculate a fair and reasonable fee without

resorting to remand”); id. at 311 (noting that the district court’s

abuse of discretion in reallocating attorney fees on remand, the

voluminous record, and the amount of time, energy and money already

spent in resolving the issue justified the reviewing court’s

rendering rather than remanding); Matter of Marchiando, 13 F.3d

1111, 1114 (7th Cir. 1994) (noting that when the facts are not

disputed, the reviewing court may make a factual finding without

remanding); Felder v. United States, 543 F.2d 657, 671 (9th Cir.

1976) (rendering a damage award giving due regard to the trial

court’s credibility determinations, because rendering required

arithmetic calculations that the reviewing court could perform as

easily as the trial court); Universal Athletic Sales Co. v.

11
Salkeld, 511 F.2d 904, 907 (3d Cir. 1975) (noting that the

reviewing court could render rather than remand for determination

of copyright infringement where the record was fully developed and

there were no credibility issues); Wulff v. Signleton, 508 F.2d

1211, 1214 (8th Cir. 1974) (noting that effective judicial

administration requires disposal of a case on appeal rather than

remanding where the point to be decided is clear); id. (reaching

the merits despite direct authority to do so because of the

circumstances of the case and judicial economy).

REVERSED AND RENDERED

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