908 N.W.2d 144
S.D.2018Background
- Stern Oil (distributor) and Brown (franchisee/operator of two Exxon-branded stores) entered two 10-year Motor Fuel Supply Agreements (MFSAs) in 2005; Stern Oil agreed to supply up to a contract "Maximum Annual Volume," Brown had to purchase at least 75% annually.
- Brown stopped purchasing fuel ~1.5 years into the contracts; Stern Oil sued for breach and sought lost-profit damages; Brown counterclaimed alleging fraudulent inducement (a verbal 5¢/gallon profit guarantee) and asserted other defenses.
- First trial (bench) awarded Stern Oil ~$925,000; this Court reversed in Stern Oil I and remanded for factual issues on breach and fraud. On remand, a jury found Brown breached, rejected Brown’s fraud defenses, and awarded Stern Oil $260,464 in damages (with $22,659 for BIP contract reimbursements and $0 for Stern Oil’s claimed 1.25% Exxon prompt-payment discount and diesel).
- Stern Oil appealed: argued (1) jury instruction requiring foreseeability of damages was erroneous, (2) exclusion of several lost-profit damage models was erroneous, and (3) it was the prevailing party entitled to contract attorney’s fees; Brown cross-appealed prejudgment interest calculation.
- The Supreme Court held that (a) all contested lost-profit items flowed directly from the MFSAs (including the 1.25% Exxon prompt-payment discount) so foreseeability/consequential-damage instructions were erroneous; (b) the trial court improperly excluded three of four expert damage models and misread the MFSA volume provisions; (c) the trial court abused its discretion in finding Stern Oil was not the prevailing party; and (d) remand for a new damages trial on gasoline-related lost profits (including the 1.25% discount) was required. BIP damages and diesel rulings were left intact.
Issues
| Issue | Plaintiff's Argument (Stern Oil) | Defendant's Argument (Brown) | Held |
|---|---|---|---|
| Whether jury instruction requiring foreseeability for lost profits was proper | Lost profits (markup, freight, Exxon 1.25% discount) are direct damages from the MFSAs and not subject to foreseeability | The Exxon discount arises from a separate contract with Exxon and is consequential; foreseeability instruction was proper | Court reversed: all claimed lost profits were direct damages under the MFSAs; foreseeability instruction was erroneous and not harmless for the 1.25% discount |
| Whether trial court erred excluding three of four expert lost-profit models | All four models (including 100% MAV and projected volumes) were supported by evidence and permissible; exclusion was error | Limiting recovery to 75% of MAV (the buyer’s contractual minimum) was proper because Brown could have fully performed by buying 75% | Reversed: court misread MFSA §4(b) (monthly/annual MAV recalculation); evidence of the excluded models should be admitted and submitted to the jury; SDCL 21-1-5 statutory cap not exceeded by these models |
| Whether Stern Oil was the prevailing party entitled to contract attorney’s fees | Stern prevailed on the breach claim, recovered a substantial monetary judgment, and defeated Brown’s defenses; thus was the prevailing party under the agreements | Brown prevailed on significant issues (diesel, 1.25% discount, expert evidence limits), so no clear prevailing party | Reversed: trial court abused discretion; jury verdict and judgment in favor of Stern meet definition of prevailing party; award of fees to be decided on remand consistent with opinion |
| Whether prejudgment interest start-date was erroneous (Brown notice of review) | (Stern) prejudgment interest properly accrues from date of loss | (Brown) interest should not run from Brown’s first breach date for future damages | Court declined to resolve detailed calculation issues because damages remanded; rejected argument that remand date controls accrual and affirmed that prejudgment interest accrues from date of loss under SDCL 21-1-13.1 |
Key Cases Cited
- Stern Oil Co., Inc. v. Brown, 817 N.W.2d 395 (S.D. 2012) (prior reversal and remand establishing factual disputes on breach and fraud)
- Vanderwerff Implement, Inc. v. McCance, 561 N.W.2d 24 (S.D. 1997) (UCC seller remedies and availability of lost-profit measure for lost-volume sellers)
- Colton v. Decker, 540 N.W.2d 172 (S.D. 1995) (consequential damages must be reasonably foreseeable at contracting)
- Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 11 N.E.3d 676 (N.Y. 2014) (distinguishing direct vs. consequential lost profits—focus on whether profits flow from the contract or a separate agreement)
- SOLIDFX, LLC v. Jeppesen Sanderson, Inc., 841 F.3d 827 (10th Cir. 2016) (analysis recognizing lost profits can be direct or consequential and treating characterization as a legal question)