IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 00-60723
_____________________
MISSISSIPPI CHEMICAL CORPORATION,
Plaintiff - Appellee-Cross-Appellant,
versus
DRESSER-RAND COMPANY,
Defendant - Appellant-Cross-Appellee.
Appeals from the United States District Court
for the Southern District of Mississippi
________________________________________________________________
March 29, 2002
Before JOLLY and PARKER, Circuit Judges, and Mills*, District Judge
E. GRADY JOLLY, Circuit Judge:
This appeal presents issues under Mississippi law concerning
the statute of limitations for breach of warranty claims,
contractual warranties, and the assessment of damages resulting
from the failure of machinery.
In 1989, Dresser-Rand Company (“Dresser”) designed and sold
Mississippi Chemical Corporation (“MCC”) a gas compressor train for
use in the production of ammonia. The compressor train consisted
*
District Judge of the Central District of Illinois, sitting by
designation.
1
of, inter alia, two separate compressors -- a high case compressor
and a low case compressor.1 The compressor train did not work as
promised. The high case compressor broke in 1990. The low case
compressor broke in 1993 and again in 1996. Each time one of the
compressors malfunctioned, Dresser attempted to repair the
compressor train.
MCC eventually filed suit, claiming negligent design, breach
of express warranty, and breach of the implied warranties of
merchantability and fitness for a particular purpose. A jury
awarded MCC damages on the warranty claims in the amount of
$4,422,876.92. Dresser appeals the judgment, arguing issues
relating to the statute of limitations, to the terms of the
warranty, to the proper notice of breach of the warranty, and to
damages.2
We hold first that the statute of limitations does not
preclude MCC’s express warranty claim because the failure of the
repair or replace remedy for the warranty occurred within six years
of the date that the complaint was filed. Second, we hold that the
express terms of the warranty do not bar MCC’s cause of action.
Third, we hold that MCC provided adequate notice of the defects in
the compressor train to trigger liability under the express
1
The “high” and “low” refer to the pressure in each individual
compressor.
2
In the event of a reversal or remand, MCC cross appeals alleging
three errors on the part of the district court. Because we are
affirming the district court’s judgment, we do not address MCC’s
cross appeal claims.
2
warranty. Finally, we hold that the damage award calculation made
by the jury was not (1) as a substantive matter, incorrect or (2)
under the evidence presented, speculative. Accordingly, we affirm
the judgment of the district court.
I
MCC produces ammonia at its fertilizer plant in Yazoo City,
Mississippi. For the most part, the ammonia is used as an input in
fertilizer -- a small amount is sold on the market or stored in
inventory for future use. The production of ammonia involves the
compression of gas in a compressor train. Each train consists of,
among other things, a low case and a high case compressor.
In 1989, in an effort to increase its ammonia production, MCC
bought a specially designed compressor train from Dresser. The
sales contract for the train contained an express warranty
guaranteeing that the train would be free from defects and comport
with certain technical specifications. As an exclusive remedy for
the breach of this warranty, Dresser offered to correct promptly
any defect at its own expense.
In April 1990, the high case compressor broke. MCC notified
Dresser of the problem and shipped the high case compressor to New
Orleans for repair. Dresser supplied a redesigned compressor and
assured MCC that this new compressor would cure all the defects in
the train.
In December 1992, however, MCC began to experience excessive
vibrations in the low case compressor. In May 1993, these
vibrations became sufficiently severe to require a reduction in the
3
speed of the compressor train. This reduction resulted in a loss
of ammonia production.
In September 1993, Dresser identified a fracture in a
component (the 7th stage impeller) of the low case compressor as
the cause of the vibration problem and recommended a modification
of that component. In December 1993 and again in November-December
1996, similar vibration problems were identified in the other
components of the low case compressor (specifically, the 4th, 5th,
and 6th stage impellers). Dresser agreed to inspect and modify
these components.
In December 1996, Dresser advised MCC that similar repairs
would have to be made to the impeller components of the high case
compressor.
In March 1997, MCC filed suit for breach of the express
warranty, breach of the implied warranties of merchantability and
fitness for a particular purpose, and negligent design.
Dresser filed a motion to dismiss, asserting that Mississippi
Chemical’s warranty claims were barred by the statute of
limitations. In denying the motion, the district court found that
Dresser’s statute of limitations defense contained mixed questions
of law and fact and, therefore, was not amenable to summary
disposition.
After discovery, Dresser filed a motion for summary judgment
asserting again that the statute of limitations barred the warranty
claims and, for the first time, asserted that the “economic loss”
4
doctrine barred MCC’s negligent-design claim.3 The district court
denied this motion.
The case proceeded to trial. At the end of MCC’s case-in-
chief, Dresser renewed its motion for judgment as a matter of law
based on the same reasons given in its summary judgment motion.
The district court granted the motion in part, holding that the
“economic loss” doctrine barred MCC’s negligent design claim. On
the remaining warranty claims, however, the case went to the jury.
The jury found that Dresser had breached (1) the implied
warranty of merchantability; (2) the implied warranty of fitness
for a particular purpose; and (3) the express warranty. The jury
based its breach of the express warranty finding on a conclusion
that the exclusive “repair and replacement” remedy had failed its
essential purpose. The jury awarded MCC $4,422,876.92 in damages
for the profits lost during the three different periods when the
compressor train was malfunctioning.
The district court then denied Dresser’s post-verdict motions
for (1) judgment as a matter of law and (2) remittitur or a new
trial. Dresser now appeals the denial of these motions.4
3
The “economic loss” doctrine provides that a “plaintiff who
suffers only economic loss as the result of a defective product may
have no recovery in strict liability or negligence, though such
damages may be pursued under a breach of warranty theory of
liability." East Mississippi Elec. Power Ass’n v. Porcelain
Products Co., 729 F.Supp. 512, 514 (S.D.Miss. 1990). A Mississippi
appellate court has applied this doctrine. State Farm Mut. Auto.
Ins. Co. v. Ford Motor Co., 736 So.2d 384, 386 (Miss.App. 1999).
4
Dresser also appeals the judgment entered on the jury verdict.
This judgment appeal duplicates the appeal of the district court’s
denial of the motion for judgment as a matter of law. Accordingly,
5
We review de novo the district court's ruling on a motion for
judgment as a matter of law. See Cozzo v. Tangipahoa Parish
Council-President Government, 279 F.3d 273, 280 (5th Cir. 2002)
(citation omitted). However, when an action is tried by a jury,
such a motion is a challenge to the legal sufficiency of the
evidence supporting the jury’s verdict. Brown v. Bryan County,
Okla., 219 F.3d 450, 456 (5th Cir. 2000), cert. denied, 532 U.S.
1007 (2001). Accordingly, we consider the evidence "drawing all
reasonable inferences and resolving all credibility determinations
in the light most favorable to the non-moving party[.]" Id.
Furthermore, we must always keep in mind “that our standard of
review with respect to a jury verdict is especially deferential."
Id. Thus, we will reverse "only if no reasonable jury could have
arrived at the verdict.” Snyder v. Trepagnier, 142 F.3d 791, 795
(5th Cir. 1998) (citation omitted), cert. dismissed, 526 U.S. 1083
(1999).
We review the denial of a motion for new trial for abuse of
discretion. See Hidden Oaks Ltd. v. City of Austin, 138 F.3d 1036,
1049 (5th Cir. 1998) (“Absent a clear showing of an abuse of
discretion, we will not reverse the trial court's decision to deny
a new trial.”) (citations and internal quotation marks omitted).
II
we treat Dresser as appealing only the denial of its motion for
judgment as a matter of law and the denial of its motion for a new
trial or remittitur.
6
We first address Dresser’s arguments with respect to
liability.
A
(1)
Dresser argues that it is not liable for the breach of the
express or implied warranties because the statute of limitations
bars any warranty-based cause of action.
The Mississippi version of the UCC sets out the statute of
limitations for contract claims:
(1) An action for breach of any contract for sale must be
commenced within six (6) years after the cause of action
has accrued.
(2) A cause of action accrues when the breach occurs,
regardless of the aggrieved party’s lack of knowledge of
the breach. A breach of warranty occurs when the tender
of delivery is made, except that where a warranty
explicitly extends to future performance of the goods and
discovery of the breach must await the time of such
performance the cause of action accrues when the breach
is or should have been discovered.
MISS. CODE ANN. § 75-2-725(1)-(2). Dresser argues that the second
sentence of Section 75-2-725(2) bars any cause of action based on
breach of warranty -- implied or express. Dresser correctly states
that in breach of warranty cases, the Code defines, as the starting
date for the statute of limitations, the date of delivery in all
but one situation (i.e., where there has been a guarantee of future
performance).
Applying this definition to the facts at hand, Dresser states
that it is undisputed that it delivered the compressor train to MCC
in 1989, more than six years before MCC filed its complaint.
7
Consequently, Dresser concludes that all of MCC’s warranty claims
are barred as a matter of law. With respect to MCC’s express
warranty claim, this argument is unpersuasive.
The express warranty for the compressor train reads in
relevant part:
Seller warrants to Purchaser that the Equipment supplied
hereunder by Seller will be free from defects in material
and workmanship, will be of the kind and quality
designated and described in this Offer and will conform
with all applicable specifications and drawings
incorporated herein. If, within eighteen (18) months
from the date of delivery of the Equipment to Purchaser,
or (12) months from the date of start-up, whichever
occurs first, Seller receives from Purchaser written
notice that the Equipment supplied hereunder does not
meet the warranties specified above, and if the Equipment
does not meet such warranties, Seller shall promptly
correct each such defect at its own expense.
Purchaser’s exclusive remedies for breaches of the
express warranties contained in this Contract shall be
stated herein.
This express warranty is a “repair or replacement” warranty.
To “repair or replace” represents the exclusive remedy for a breach
of the express warranty. Under the Mississippi UCC, “backing up”
an express warranty with an exclusive promise to repair or replace
the good in question is permissible. MISS. CODE ANN. § 75-2-
719(1)(a). But if the repair or replacement remedy fails its
essential purpose, then the buyer may seek any alternative remedy
provided in the Code. MISS. CODE ANN. § 75-2-719(2). Under Section
719, the buyer first must seek repair or replacement to remedy a
breach of an express warranty, and only if the seller fails to meet
this promise (in UCC speak, the repair or replacement remedy fails
its essential purpose), may the buyer bring a contract action.
8
It is important to distinguish Dresser’s “repair or replace”
promise from its promise that the compressor train would be free
from defects. See Delhomme Indus., Inc. v. Houston Beechcraft,
Inc., 735 F.2d 177, 183 (5th Cir. 1984)(distinguishing a warranty
and the limited remedy to enforce that warranty). Based on this
distinction, we read Sections 719 and 725 in tandem. Accordingly,
we hold that the cause of action based on the express warranty did
not accrue for the purpose of Section 725, until the promise to
repair or replace the compressor train failed its essential
purpose. The high case compressor failed in 1990. Dresser
immediately repaired and replaced this part of the compressor
train. The train then functioned normally until December 1992,
when the low case compressor began to malfunction. The malfunction
caused the train to run at a diminished rate and produce less
ammonia. Thus, as a matter of law, December 1992 represents the
earliest possible date that the repair and replace remedy could
have failed its essential purpose. Up until that point in time,
the remedy was accomplishing its goal -- i.e., the 1990 repairs
were successful and the compressor train was running smoothly.
Because MCC filed its complaint within six years of December 1992
-- the earliest possible date that Dresser could have breached the
9
limited remedy for the express warranty5 -- the statute of
limitations does not bar MCC’s express warranty cause of action.6
(2)
Along slightly different lines, Dresser argues that the
express terms of the warranty limit the duration of the warranty to
eighteen months from the date of purchase or twelve months from the
date of start-up. The malfunctioning periods for which the jury
assessed damages began in 1993, more than twelve months after the
date of the start-up (sometime shortly after October 3, 1989). So,
according to Dresser, the compressor train was not covered by the
express warranty during the malfunctioning periods at issue. We
find this argument is unpersuasive.
As noted above, the relevant provision of the express warranty
reads:
If, within eighteen (18) months from the date of delivery
of the Equipment to Purchaser, or (12) months from the
date of start-up, whichever occurs first, Seller receives
from Purchaser written notice that the Equipment supplied
hereunder does not meet the warranties specified above,
and if the Equipment does not meet such warranties,
Seller shall promptly correct such defect at its own
expense.
5
In fact, because repair and replacement was the exclusive remedy
for the breach of the express warranty, Mississippi law precluded
MCC from bringing any contract action until after this date.
6
It makes no difference that this cause of action was labeled as a
breach of the express warranty as opposed to a breach of the repair
or replace remedy. Once the repair and replace remedy was broken,
Section 719 entitled MCC to proceed under any damage theory
contained in the Mississippi Code, including a “breach of warranty”
theory. See Delhomme, 735 F.2d at 184 (“when a limited remedy
fails of its essential purpose, the buyer is relegated to the UCC
remedy applicable to his underlying claim for redress”)(citation
omitted).
10
By its very terms, the eighteen and twelve months time
limitations refer to the notice of the breach, not to the duration
of the warranty. The contract required MCC to provide notice
within twelve months of start-up, but if timely notice was given,
the contract did not impose any time bar on Dresser’s promise to
repair. The contractual terms, therefore, do not preclude a breach
of the express warranty claim stemming from the failure of the low
case compressor in 1993 and 1996, if we assume that MCC provided
adequate notice.7 We now turn to address whether MCC’s furnished
notice sufficient to trigger Dresser’s liability under the express
warranty.
B
There are two notice requirements at issue -- the specific
notice provision contained in the warranty and the default notice
provision of the Mississippi UCC. Dresser’s arguments and our
7
Dresser also argues that the statute of limitations bars MCC’s
implied warranty claims. As made clear from our earlier
discussion, the jury awarded MCC consequential damages based on the
lost profits caused by the malfunctioning compressor train. In
making this determination, the jury found breaches of the implied
warranties of merchantability and fitness for a particular purpose
as well as a breach of the express warranty. Here, the implied
warranties and the express warranty are co-extensive -- that is,
they provide the same guarantees relating to compressor train.
Given this fact, the consequential damages resulting from a breach
of both the implied and express warranties are -- as undisputed by
the parties -- the same as the consequential damages resulting from
a breach of the express warranty only. In other words, once
liability attaches under the express warranty, there are no
additional consequential damages incurred because of a breach of
the implied warranties. Because we have held that MCC can maintain
an action for a breach of the express warranty, we see no reason to
decide whether the statute of limitations bars MCC’s implied
warranty claims.
11
analysis are, however, the same with respect to both requirements.
We outline the two relevant notice requirements before considering
Dresser’s arguments.
As previously noted, the express warranty reads:
[I]f, within eighteen (18) months from the date of
delivery of the Equipment to Purchaser, or twelve (12)
months from the date of start-up, whichever occurs first,
Seller receives from Purchaser written notice that the
Equipment supplied hereunder does not meet the warranties
specified above, and if the Equipment does not meet such
warranties, Seller shall promptly correct each such
defect at its own expense.
The other notice provision at issue -- the default notice
provision of the Mississippi UCC -- requires that a buyer who
accepts tender of goods “must within a reasonable time after he
discovers or should have discovered any breach notify the seller of
breach or be barred from any remedy.” MISS. CODE ANN. § 75-2-
607(3)(a). For notice to be sufficient under 607(3)(a), “[it] need
not be a specific claim for damages or an assertion of legal
rights.” Eastern Air Lines, Inc. v. McDonnell Douglas Corp., 532
F.2d 957, 976 (5th Cir. 1976)(citations omitted).
The sale of the compressor train occurred in March 1989. In
April 1990, MCC wrote to Dresser, stating “[t]his letter
constitutes notice by MCC that [Dresser] is in breach of the
warranties provided in said Contract.” Dresser argues that this
notice letter relates only to the damaged high case compressor.
Dresser asserts that it did not receive -- as mandated by the
warranty’s terms -- timely notice of the defects in the low case
compressor, that is, within twelve months of the date of the start-
12
up. Dresser contends that the plain terms of the warranty,
therefore, exclude claims based on the failure of the low case
compressor. Along similar lines, Dresser argues that because it
never received written notice of the defects in the low case
compressor, MCC did not comply with the default notice requirement
of the Mississippi UCC and, therefore, MCC’s express warranty claim
is barred as a matter of law. The express warranty here required
notice of defects in the “Equipment” to trigger liability under the
express warranty. The contract, in turn, defined “Equipment” to
include both the high case and the low case compressors.
It is undisputed that MCC gave notice of defects in the high
case compressor within the time frame contemplated by the warranty.
It is further undisputed that MCC provided evidence that the
defects in the high case compressor were common to the low case
compressor as well. Given this evidence, a reasonable jury could
have concluded -- under the express notice provision of the
contract and/or the default notice provision of the Mississippi UCC
-- that MCC’s 1990 letter provided sufficient notice to trigger
liability for any common defect in the low case or the high case
compressor. See Eastern Air Lines, 532 F.2d at 973 (citations
omitted)(holding that whether a notice provision has been complied
with “is a question which is particularly within the province of
the jury”).8
8
There are two plausible readings of the notice provision in the
contract. Under one reading, the notice provision addresses any
equipment that is subject of the contract -- that is, a single
13
The district court therefore did not err in denying Dresser’s
motion for judgment as a matter of law based on a lack of notice.
III
A
We now turn our attention to the issue of damages. In this
appeal, Dresser challenges both the sufficiency of the evidence
supporting the damage award and whether the jury’s method of
computation was flawed under Mississippi law.
As noted previously, our standard of review for sufficiency of
the evidence is highly deferential to the jury’s verdict. See
Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969) (en banc)
(“If the facts and inferences point so strongly and overwhelmingly
in favor of one party that the Court believes that reasonable men
could not arrive at a contrary verdict, granting of the motions is
proper.”), overruled on other grounds, Gautreaux v. Scurlock
Marine, Inc., 107 F.3d 331 (5th Cir. 1997) (en banc). In contrast,
we review de novo the legal conclusions that the district court
made concerning the damage award. See Nero v. Indus. Molding
Corp., 167 F.3d 921, 929 (5th Cir. 1999)(holding that the court
notice of defect in the compressor train served to cover as notice
for each and every defect that occurred in the train. An
alternative reading of the contract suggests notice as to each
defect before the warranty was triggered. Given that there are two
plausible readings of the contractual provision at issue -- and one
is consistent with the verdict -- we see no reason to set-aside the
jury’s determination that Dresser received adequate notice to
trigger liability under the express warranty.
14
should review legal issues, such as the availability of a specific
type of damages, de novo).9
At trial, MCC put on evidence of the damages resulting from
the lost production of ammonia during the three different periods
when the compressor train was malfunctioning. The periods were:
(1) May 17, 1993 to September 17, 1993; (2) December 17, 1993 to
August 31, 1994; and (3) November 25, 1996 to February 25, 1997.
For the most part, during each of these three periods the
compressor train continued to produce ammonia, albeit at a
diminished rate.
MCC’s damage calculation -- which was accepted in whole by the
jury -- consisted of a three-step process: First, MCC computed the
9
Several panels of this court recently have held, erroneously, that
courts should review a jury’s damage award for clear error. See
Cozzo, 279 F.3d at 294 (“This court will reverse a jury's
assessment of damages only for clear error.”)(citation omitted);
Pendarvis v. Ormet Corp., 135 F.3d 1036, 1038 (5th Cir. 1998)(“A
jury's assessment of damages, on the other hand, will only be
reversed for clear error.”)(citation omitted); Ham Marine, Inc. v.
Dresser Indus., 72 F.3d 454, 462 (5th Cir. 1995)(“The jury
calculated that Ham suffered damages in the amount of $3,517,283.94
as a result of Dresser’s breach of contract. An assessment of
damages is not reversed unless it is clearly erroneous.”)(citations
omitted). The statements in these cases are contrary to the
established precedent in this circuit. The rule is reflected in
Farpella-Crosby v. Horizon Health Care, 97 F.3d 803 (5th Cir.
1996): “The determination . . . requires a detailed analysis of
whether the specific facts and circumstances reflected by the
evidence presented to the jury are sufficient to support the jury's
findings and award. We are governed by the standard set out in
Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969) (en
banc) [that is, no reasonable jury could have arrived at the
verdict under the evidence presented].” Id. at 805 (emphasis
added); See also Caldarera v. Eastern Airlines, Inc., 705 F.2d 778,
783 (5th Cir. 1983)(“The jury’s assessment of damages is even more
weighted against appellate reconsideration [than a district court’s
assessment].”).
15
profit per unit of ammonia during each of the three malfunctioning
periods.10 Second, it estimated the quantity of ammonia lost in
each malfunctioning period because of the reduction in the speed of
the compressor train. Finally, it multiplied the profit per unit
by the number of units lost to come up with the total amount of
damages (i.e., lost profits) caused by the malfunctioning
compressor train.
Dresser lodges two objections to this damage calculation.
First, it suggests that because MCC dipped into other sources of
ammonia (e.g., its existing inventory, its production from its
Donaldsonville plant, and the open market11) to make up for the lost
10
MCC did this by first subtracting from the gross sales of
ammonia (i.e., market price X quantity of ammonia) the cost of
delivery and other discounts. MCC then divided this figure by the
total quantity of ammonia sold -- this yielded the so-called “net-
back” price of the ammonia. From this net-back price, MCC
subtracted the per unit costs of electricity, natural gas, and the
other variable inputs used in the production of ammonia.
Dresser contends that this lost profit calculation is
incorrect because MCC used the market price to compute the profit
per unit even though the majority of MCC’s ammonia production was,
in fact, used as inputs into other products (e.g., fertilizer). We
do not find this argument persuasive.
The market price is a reasonably good proxy for the lost
ammonia’s value as an input. To be sure, we can think of no better
proxy. After all, if the ammonia’s value to MCC as an input was
less than the market value, one assumes that MCC would have sold
all of the ammonia it manufactured on the open market, which it did
not.
Therefore, throughout the rest of our analysis of the damage
issue, we ignore the fact that much of the ammonia production lost
because of the malfunctioning compressor train was destined for use
as an input.
11
Throughout the remaining analysis, we refer to these three sources
as simply MCC’s “inventory.”
16
production from the malfunctioning compressor train, its damages
should be limited to the replacement cost of these substitute
sources. Dresser refers to these substitute sources in UCC
parlance as “cover,” and contends that it is entitled to judgment
as a matter of law because MCC offered no evidence concerning the
value of this “cover.”
Second, Dresser argues that the district court erred in
admitting the testimony of Tim Sterling (the person whose testimony
primarily supported MCC’s damage calculation) because he had no
personal knowledge of the facts underlying his testimony. Without
Sterling’s testimony, Dresser concludes, the jury could not have
arrived at the same verdict.
We first address Dresser’s argument on the substantive merits
of the damage award and then proceed to its evidentiary argument.
Throughout our analysis, we must keep in mind that the crux of
Dresser’s challenge is to the sufficiency of the evidence
supporting the damage award.
(1)
“[T]he point of an award of damages, whether it is for breach
of contract or for a tort, is, so far as possible, to put the
victim where he would have been had the breach or tort not taken
place.” Chronister Oil Co. v. Unocal Refining and Marketing (Union
Oil Co. of California), 34 F.3d 462, 464 (7th Cir. 1994)(Posner,
C.J.)(citation omitted). This general principle serves as the
17
focal point of the appropriate measure of damages as we work our
way through applicable provisions of the Mississippi UCC.
In the event of a breach of warranty, a buyer may seek direct,
incidental, and consequential damages. MISS. CODE ANN. § 75-2-714.
Here, the jury was only instructed on -- and presumably only
awarded -- consequential damages. We therefore restrict our
attention to consequential damages and do not consider any direct
damages caused by the breach of the express warranty.
Under the Mississippi UCC, “consequential damages” include:
(a) Any loss resulting from general or particular
requirements and needs of which the seller at the time of
contracting had reason to know and which could not
reasonably be prevented by cover or otherwise; and
(b) Injury to person or property proximately resulting
from any breach of warranty.
MISS. CODE ANN. § 75-2-715(2). Under Mississippi law, lost profits
are recoverable as consequential damages if three requirements are
met: (1) the seller had reason to know at the time of contracting
that if he breached the contract, the buyer would be deprived of
those profits -- i.e., the lost profits were foreseeable; (2) the
lost profits are reasonably ascertainable;12 and (3) the lost
profits could not have been reasonably prevented. See Massey-
Ferguson, Inc. v. Evans, 406 So.2d 15, 19 (Miss. 1981).
(a)
12
This requirement is easily satisfied in this case because the
expected production rates used by MCC for each claim period were
based on the average actual production of ammonia seven days before
and after the compressor train malfunctioned.
18
The first requirement, foreseeability, requires that the
breaching party, at the time of contracting, have reason to know
that such “lost profits” were possible. See Id. (internal citation
omitted). Foreseeability is to a large extent a notice requirement
that requires buyers -- at the time of contracting -- to disclose
the potential extent of their damages or forfeit the right to claim
such damages upon breach. Such notice is critical because it
ensures that the “contracted for” price reflects the entire scope
of the risk (i.e., the potential liability for breach) that the
seller has agreed to bear. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF
LAW 141 (5th ed. Aspen 1998).
Whether damages are reasonably foreseeable is a finding of
fact within the province of the jury. See Migerobe, Inc. v.
Certina USA, Inc., 924 F.2d 1330, 1338 (5th Cir. 1991). Here, the
jury heard evidence that (1) Dresser knew if the compressor train
malfunctioned the ammonia plant would have to be shut-down; (2)
Dresser knew that ammonia was necessary for the production of MCC
products; and (3) in the past Dresser’s predecessors in interest
had made -- and serviced -- compressor trains for MCC. From this
evidence, a reasonable jury could draw the conclusion that the lost
profits from the lost production of ammonia were “reasonably
foreseeable.”13
13
Dresser also argues that it could not have foreseen that the
ammonia plant would ever produce more than 1400 tpd (tons of
ammonia per day). Dresser bases this argument on the initial
design contract in which MCC requested a compressor train that
19
(b)
We now turn to the “cover” requirement necessary for the
recovery of “lost profits.” As noted above, Dresser argues that
MCC’s damages should be limited to the value of the substitute
ammonia it secured to replace the diminished production by the
compressor train. Under Section 715(2) consequential damages are
restricted to those damages “which could not be prevented by cover
or otherwise.” MISS. CODE ANN. § 75-2-715. This “cover” requirement
imposes on the buyer a duty to mitigate his damages. Comment 2 UCC
§ 2-715. When dealing with lost profits, this duty means that a
buyer “cannot recover for losses he reasonably could have
prevented.” See Massey-Ferguson, 406 So.2d at 19.
Dresser cites a number of cases for the proposition that
because MCC covered by securing alternative ammonia, its damages
would allow the ammonia plant to produce up to 1400 tpd.
Dresser further contends that because MCC’s damage calculation
was based on expected production rates of 1402 tpd for the first
claim period, 1531 tpd for the second claim period, and 1521 tpd
for the third claim period, the jury could not have adopted -- as
a matter of law -- MCC’s damage calculation.
The jury heard evidence that the compressors in the compressor
train were designed to run at 10,800 rpm (revolutions per minute).
During the malfunctioning periods, the jury heard evidence that the
compressors ran at a slower rpm. The jury also heard evidence
that when the train functioned normally, that is, the compressors
functioned at the designed 10,800 rpm, the plant produced more than
1400 tpd. Based on this evidence, a reasonable jury could have
concluded that Dresser should have foreseen that malfunctioning
compressors would run at lower rpm’s, resulting in a reduction in
ammonia production. This is the only conclusion with respect to
foreseeability that the jury had to reach to adopt MCC’s damage
calculation.
20
are limited to the cost of that cover. This argument does not
reflect the law in Mississippi for the recovery of lost profits.
To reiterate, the applicable law provides that the buyer can only
recover for the lost profits he “could not have prevented by cover
or otherwise.” MISS. CODE ANN. § 75-2-715(2)(a). If the buyer
chooses not to cover, (i.e., mitigate his damages) and cover would
have prevented the lost profits, the buyer cannot recover for lost
profits. See H & W Indus., Inc. v. Occidental Chemical Corp., 911
F.2d 1118, 1123 n.9 (5th Cir. 1990)(“Failure to cover does not
deprive the buyer of all remedies but he may not recover
consequential damages.”); Dura-Wood Treating Co. v. Century Forest
Indus., Inc., 675 F.2d 745, 755 (5th Cir.)(“The so-called loss of
potential profits could have reasonably been prevented by a
different form of cover or otherwise. In the absence of such
preventive measures, the district court’s award of consequential
damages . . . is not authorized[.]”), cert. denied, 459 U.S. 865
(1982). In short, this “duty to mitigate” restriction on the
award of lost profits has nothing to do with the actual cost of the
cover.
To recognize that “cover,” as argued by Dresser, is not
mitigation of lost profits in this case, one must understand that
the substitute sources of ammonia -- that is, ammonia from
inventory -- represented a profit opportunity for MCC. It makes no
ultimate difference whether the jury measured the damages as it did
21
here (see supra page 16) or as Dresser argues the jury should have
measured the damages -- i.e., by computing the value of the ammonia
units procured from MCC’s own inventory. The ammonia was
completely fungible. Because MCC had to make up for the lost
ammonia production by dipping into its own inventory, it had fewer
total units of ammonia. The jury heard evidence about the fewer
number of units. It also heard evidence concerning the value (in
terms of profits) of each of these units. The jury multiplied
these two terms together to come up with the amount of lost
profits. This award places MCC in the same position as it would
have been but for the breach of warranty -- that is, if MCC had not
had to dip into its own inventory. As noted earlier, this is the
precise point of a contract damage award. See Chronister Oil, 34
F.3d at 464.
Accordingly, the damage award was not -- under de novo review
of the legal issues involved -- incorrect. Morever, insofar as
Dresser challenges the sufficiency of the evidence supporting the
award, a reasonable jury, drawing all inferences in favor of MCC,
could have determined the amount of damages as awarded in this
case. In sum, the award complied with the three requirements
necessary to recover “lost profits” as consequential damages under
Mississippi law. Accordingly, the district court did not err by
denying Dresser’s motions for remittitur, a new trial, or judgment
as matter of law based on an alleged misguided damage calculation.
22
(2)
Finally, we address Dresser’s evidentiary challenge. Dresser
argues that the district court abused its discretion when it
allowed testimony by Sterling, MCC director of risk management and
property taxation, concerning the amount of lost profits caused by
the defective compressor train. Sterling’s testimony was admitted
under Rule 701 of the Federal Rules of Evidence. At the time of
trial, this Rule read:
If the witness is not testifying as an expert, the
witness' testimony in the form of opinions or inferences
is limited to those opinions or inferences which are (a)
rationally based on the perception of the witness, and
(b) helpful to a clear understanding of the witness'
testimony or the determination of a fact in issue.
Id. Under Rule 701, “a lay opinion must be based on personal
perception, must be one that a normal person would form from those
perceptions, and must be helpful to the jury." United States v.
Riddle, 103 F.3d 423, 428 (5th Cir. 1997) (quoting Soden v.
Freightliner Corp., 714 F.2d 498, 511 (5th Cir. 1983)). In
particular, the witness must have personalized knowledge of the
facts underlying the opinion and the opinion must have a rational
connection to those facts. See Robinson v. Bump, 894 F.2d 758, 763
(5th Cir.), cert. denied, 448 U.S. 823 (1990). If these two
requirements are met “a layman can under certain circumstances
express an opinion even on matters appropriate for expert
testimony.” Soden, 714 F.2d at 511 (citations omitted).
23
Dresser contends that Sterling has no personal knowledge
regarding (1) whether, or in what amount, MCC lost ammonia
production; (2) the best method for determining lost ammonia
production; and (3) the profits lost because of the malfunctioning
compressor train. As a consequence, Dresser argues that the
district court should not have allowed Sterling to testify about
the lost profits caused by the defective compressor train.
Other circuits that have addressed this question have allowed
lost profit testimony by a layperson witness if the witness has
direct knowledge of the business accounts underlying the profit
calculation. See Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153,
1175 (3d Cir. 1993)(allowing Rule 701 testimony by the owner of a
corporation as to the amount of lost profits); In re Merritt Logan,
Inc., 901 F.2d 349, 359 (3d Cir. 1990)(allowing Rule 701 testimony
by the principal shareholder of the plaintiff concerning that
company’s lost profits); Teen-Ed, Inc. v. Kimball International,
Inc., 620 F.2d 399, 403 (3d Cir. 1980)(allowing testimony by the
plaintiff’s accountant and bookkeeper regarding lost profits);
Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 265 (2d Cir.
1995) (“[A] president of a company, such as Cook, has ‘personal
knowledge of his business . . . sufficient to make . . . him
eligible under Rule 701 to testify as to how lost profits could be
calculated.’”)(internal citations and quotation marks omitted),
cert. denied, 516 U.S. 1114 (1996).
24
Here, Sterling had previously -- for insurance purposes --
computed lost profits resulting from other slowdowns at the ammonia
plant. Furthermore, the production figures (both actual and
expected) at the core of Sterling’s damage computation were entered
into evidence from other sources. On cross-examination, Dresser
had the opportunity to challenge these figures as well as
Sterling’s credibility and methodology. See Teen-Ed, 620 F.2d at
403 (“The modern trend favors the admission of [lay] opinion
testimony, provided that it is well founded on personal knowledge
and susceptible to specific cross-examination.”). As we have
already noted, the way that Sterling computed the damages in this
case complied with the three requirements for the award of lost
profits under Mississippi law. Furthermore, Sterling had personal
knowledge of MCC’s books because he had previously done lost
profits calculations for MCC for insurance purposes. The extent of
Sterling’s knowledge is similar to the knowledge of the witnesses
testifying to lost profits in Lightning Lube, In re Merritt, Teen-
Ed, and Securitron. We see no need to depart from the reasoning
of our sister circuits on this issue. Accordingly, we hold that
the district court did not abuse its discretion when it allowed
Sterling’s testimony about lost profits.
IV
In sum, we hold that (1) the statute of limitations does not
bar MCC’s cause of action because it is alternatively based on a
25
breach of the limited remedy to repair and replace the compressor
train; (2) the contractual terms of the warranty do not bar MCC’s
breach of the express warranty claim; (3) MCC provided sufficient
notice to trigger liability under both the terms of the express
warranty and the default notice provision of the Mississippi UCC;
(4) the damage award calculation was not, as a substantive matter,
incorrect because the award put MCC in the same position it would
have been in but for Dresser’s breach; and (5) Sterling had
sufficient knowledge of MCC’s underlying business accounts to
testify under Rule 701 about lost profits.
In addition, we have carefully examined the remaining
arguments for reversal or a new trial advanced by Dresser and find
them unpersuasive.
Accordingly, the district court’s judgments denying (1)
Dresser’s motion for judgment as a matter of law and (2) its motion
for remittitur or a new trial are
AFFIRMED.
26