749 F.3d 399
5th Cir.2014Background
- Hess Management entered a five-year Management Agreement (with one-year renewal options) to manage Premier’s Fluker Pit; Bankston guaranteed Premier’s obligations. Compensation: greater of $25,000/month or $0.50/ton.
- Premier sent deficiency notices in Nov. 2007; terminated Hess in Dec. 2007 and excluded Hess from the pit. Hess had not been paid prior to termination.
- The Fluker Pit operated at a loss and permanently shut down on May 16, 2008; contract contained a clause allowing termination upon permanent shutdown with 180 days’ notice (and a separate one-month notice if operation was unprofitable).
- Bankruptcy court found Premier breached in bad faith and awarded Hess $375,000 (15 months × $25,000), limiting recovery to 180 days after the pit’s closure.
- District court reversed and awarded Hess the full contract value (60 × $25,000 = $1.5 million, present value awarded), reasoning damages are measured at time of breach.
- Fifth Circuit reversed the district court, holding post‑breach events (the pit closure and contractual notice provision) limit recoverable expectation damages to the period Hess would have actually earned under the contract.
Issues
| Issue | Plaintiff's Argument (Hess) | Defendant's Argument (Bankston/Premier) | Held |
|---|---|---|---|
| Proper temporal point for measuring contract damages | Damages accrue at time of breach; Hess entitled to full present value of remaining contract ($1.5M) | Damages may account for post‑breach events; limit to what would have been earned given eventual pit closure | Held: Measure damages to reflect post‑breach events reasonably contemplated by parties; award limited to $375,000 (180 days after closure period) |
| Effect of bad faith breach on damages | Bad faith breach justifies full contract value as compensatory/punitive remedy | Bad faith damages are limited to direct consequences of breach and should not produce a windfall beyond expectation interest | Held: Bad faith does not expand damages beyond losses directly caused; does not override closure/notice terms limiting recovery |
| Relevance of contractual termination/closure clause | Irrelevant; breach fixed damages at date of repudiation | Relevant; parties contemplated shutdown and 180‑day notice, so damages should reflect that contingency | Held: Contractual closure provision is controlling; damages should reflect the contractually limited earning period |
| Role of mitigation/post‑breach events in calculating damages | Post‑breach closure is irrelevant to principal damages calculation | Courts may consider post‑breach events and mitigation to avoid overcompensating plaintiff | Held: Courts may account for post‑breach events (and mitigation principles) when calculating expectation damages to place non‑breaching party in the position they would have occupied had contract been performed |
Key Cases Cited
- Gibbs Const. Co., Inc. v. Thomas, 500 So. 2d 764 (La. 1987) (explains expectation damages aim to place injured party in same position as full performance)
- Sharbono v. Steve Lang & Son Loggers, 696 So. 2d 1382 (La. 1997) (damages are due from date of active breach; discussion focused on interest computation)
- L & A Contracting Co., Inc. v. Ram Indus. Coatings, Inc., 762 So. 2d 1223 (La. Ct. App. 2000) (addresses timing for interest on breach‑related awards)
- Cadle Co. v. Pratt (In re Pratt), 524 F.3d 580 (5th Cir. 2008) (standard of review for bankruptcy court decisions)
- Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007) (instructs federal courts to predict state supreme court decisions when state law unclear)