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.
7
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.
8
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
12