*1 9G RESEARCH, MARKETING
ACOUSTIC Systems, Medical
INC. d/b/a/
Inc., Petitioner LLC., Respondent.
TECHNICS, 07SC789.
No.
Supreme Court
En Banc. 2, 2008.
Dec. Denver, Colorado, Johnson, At-
Larry G. torney Petitioner. *2 Merrick, W. G.W. Merrick & Associ- compensation.
Glenn agreement The ates, LLC, Village, At- Greenwood stated:
torney Respondent. for At completion re-coating and re-
labeling of probe the 8000th or if [Sonora] Opinion Justice RICE delivered the of the in any way discontinues or abandons the Court. process prior completion [RCRL] to the probe, the 3000th will pay [Sonoral [Tech- In this case we evaluate a whether medi- $8,000 payment" nies] "closure per cal device refurbisher found breach of its (5) year period years, for a of five or at its contract with a technical consulting firm can can [Sonoral make a pay- one-time held liable for lost future aris- $15,000, ment of commencing one ing from Marketing the breach. Acoustic after the re-coating date of re-labeling Research, Inc., doing business as Sonora probe the 8000th or the date [Sonora] dis- Systems, ("Sonora"), Medical Inc. asserts continues or abandons re-coating Technics, that because its contract with Inc. re-labeling process. permitted it royalty-generating to cease ac- time, tivity long As royal- an award of as Sonora made the payment, closure ty damages process to Technics is abandon the RCRL matter of time. appeals law. Sonora thus the de- Technics, cision of the court appeals Consistent with the agree- terms of the Research, Marketing
LLC v. Acoustic
ment, Technics consulted with Sonora for
(Colo.App.2007),
payment. Sonora counterclaimedfor dеclar- Proceedings I. Facts and Below atory judgment, alleging agreement that the consideration, was void due to lack of provider Sonora is a of aftermarket medi- inducement, fraud in mistake, mutual cal imaging products, including transesopha- purpose. frustration of geal echocardiology probes ("TEE-probes") used to obtain images ultrasound of trial, At president Sonora's testified that heart. consulting Technics is a solo technical had been refurbishing approxi- practice. engaged help Sonora Technics to it mately TEE-probes per year, that it had develop and commercialize re-coat re- paid any royalties never to Technics and had ("RCRL") process label refurbishing plans so, no to do and that it intended to TEE-probes. In exchange, agreed Sonorа continue its process in-house RCRL indefi- Technicsg' pay hourly consulting Technics an fee over a nitely. The also heard from period up months, to nine as well as valuation who offered his calculation on the first TEE-probes re- present of the value of Technics' By coated and compensating re-labeled. royalties. part through royalties, Technics in The concluded materially Sonоra had outlay tied its implementa- to the successful agreement, $419,000 breached the awarding process. tion of a RCRL past-due royalties, roy obligation pay royalties alties, Sonora's was to payment. and the closure expire upon re-coating re-labeling rejected Sonmora's affirmative defenses 3,000th probe, or sooner if by Technics, Sonora chose breach of contract lack of con process. sideration, abandon the RCRL mistake, Sonora was mutual and frustration of also pay bound to complete purpose. affirmed, "closure" fee to al $324,000.1 Although judgment to generally that the have stated
though it reduced to rule of for certiorari for future certainty applies to claims this court petitioned royal of future addressed an award we have not damages, id. at whether determine royal- involving lost future Technics, rule in a case under ty damages to *3 by na- royalty payments are Because in-house ties. to cease Sonora permitted that events, such as time, contingent on future speculative ture any is production RCRL extraction, sales or future oil not. future album hold that is law. We a matter of as roy- all future argues should hold found, support, we with record Sonora the Because a matter of law. reasonably alty damages speculative as royalties were future lost that otherwise, calculation, asserts If we hold Sonora capable of to occur certain im- risky and royalty contracts will become uphold the affirm the proposition disagree with the practical. We award. special concerns royalties raise future Analysis general rule for requiring departure II. from damages. future royalty payments argues damages future have allowed contingent on uncertain courts by nature Other capable is events, any damages royalties long as as the loss therefore award future degree of proved a reasonable being with is for lost typical certainty. example, that un courts have also asserts For matter of law. Sonora case, recovery of lost when ly facts of this where allowed specific der fran repudiates to cease permitted Sonora franchisee terminates royalty agreement royalty-gener long as as the franchisor agreement, hence chise production-and RCRL time, that, of fu but for the activity-at award can demonstrate ating enjoyed damages spеculative as a mat have continued suc royalty is business would ture Barnes, See, Burger King Corp. v. disagree e.g., on both counts. of law. We cess. ter (S.D.Fla.1998) 1367, F.Supp.2d 1371 1 action, contract In a breach of royalties based on (awarding future franchise damages it takes to is the amount measure of King financial ana by Burger calculations position it would plaintiff in the place the McAlpine Automatic lyst); v. AAMCO not occurred. occupied had the breach have 1232, Transmissions, F.Supp. 1275 461 Bank, 576, 165 Colo. Taylor State v. Colo. (E.D.Mich.1978) (awarding franchise (1968). However, 772, 580, 774 440 P.2d levels); royalties projected present from sales for losses be damages are not recoverable Gunn, No. Yogurt BelioveIt's I Can't of. Civ.A. an amount that can be established yond 94-OK-2109-TL, 599391,at WL v. Mc Pomeranz 1997) (D.Colo. 15, (acknowledging April *24 (Colo. 1378, Corp., Donald's might on differ be awarded 1993) McMurtry, 157 (citing Riggs v. Colo. facts, holding future ent (1965)). 33, 39, Recogniz 400 P.2d franchisor where franchi not be awarded to proving fu ing "practical difficulties agreement of franchise sor's own termination precision," we have held that ture losses with losses); proximate cause of future damages pro seeking future must plaintiff al., Radisson and generally Robert Ebe et "(1) proof of the trier of fact with vide the Sealy-BarnesH- the Potential Demise of future, damages acerue in the fact that will (2007) Rule, 8, 3 27 Franchise L.J. inton (2) which admissible evidence sufficient (reviewing under which courts cireumstances compute a of fact to enable the trier would allowed franchisors to recover have Id. at 1382. of the loss." approximation fair royalties). lost long as the fact of future loss involving artist may cases certain, amount of awarded recognize that artists with royalties, courts approximation. Id. be an that there was insuffi- concluded between Sonora 1. The support royalty, provided one of which in the record to two tiers of cient evidence per-unit triggered depending royalty cost of higher on the tier. be award on the basis of its eventually implemented. process an established track record able to jury's underlying turb the сonclusion that prove lost with reasonable certain Sonora would continue process the RCRL ty, notwithstanding inherently risky through at least the contemplated units unpredictable nature of the the contract. entertainment Because the per- contract mitted Sonora to See, cease Mission, eg., Contemporary business. time, Corp.,
Inc. v.
Famous Music
557 F.2d
maintains that
should
(2d Cir.1977)
not have
(allowing
been allowed
evidence of lost
to award
projected
based on
royalties projected
production.
from music album's
success);
initial
Square
Freund v. Wash.
reviewing
A
court will not set aside factual
Press, Inc.,
34 N.Y.2d
findings of a trial court where
findings
419, 421
(holding plaintiff
314 N.E.2d
*4
supported by
are
competent
adequate
royalties
claim
speculative,
author's
for lost
evidence in the record. Anderson v. Cold
noting
royalties may
that lost
be awarded
Spring Tungsten,
7, 18,
170 Colo.
458 P.2d
provides
where claimant
stable foundation
(1969).
758
Again, Pomerans dictates
royalties);
for a reasonable estimate of
plaintiff seeking
that a
must
generally
Simensky, Determining
Melvin
establish, by
preponderance
of the evi
Damages
Breach
Emtertainment
for
of
dence,
the fact
damage
and a reasonable
Agreements,
Sports
8 Ent. &
L.
12-15
computation
basis for
damage.
of that
848
(1990) (reviewing
profits
case law on lost
in P.2d at
1382. The court of
held that
contracts);
House,
entertainment
Calvin R.
presented
Technics
sufficient evidenceto sat
Rejection
Specific
Good Faith
Technics,
Perform
isfy this burden.
jury heard injuries, past and for all the relevant pensate on TEE- research market presented who product Dobbs, that Sonora's Law B. Dobbs probes and testified future." 1 Dan ed.19983). (2d 8.1, ex- Rather рriced. § The 277-78 competitively Remedies offering was reported holds, Sonora's data presented pert what the future waiting than to see showing its medical device accept the assessment must parent average growth occupied experienced would have position had business annually percent since than of more had the breach not occurred. rate market that tеstified The 2001. likely to remain stable TEE-probes was II. Conclusion ten-year period. a five- over at least appeals and hold We affirm the and found this evidence jury weighed damages, including lost concluding Technics, that So- apparently awarded a breach royalties, reasonably certain to continue nora was if are demonstrated contract action it had refurbished process until furthеr hold We operating probes. Sonora least damages for lost future jury's award of eighteen market and had an established case, adjusted by the *5 at the under its belt of months by rec- supported the appeals, of trial, giving the a reasonable of time and shall not be disturbed. ord the con- Because for its conclusion. basis royalty damages to be provided for
tract
dissents,
EID
and Justice
Justice COATS
basis,
fеe-per-unit
the
computed on a
joins in the dissent.
the fu-
specifically calculate
not need to
did
COATS,dissenting.
Justice
derive from con-
ture revenues Sonora
predict changes that
production or to
tinued
majority's
of
agree
articulation
I
with the
company's
in
cost-basis
might occur
the
certainty," governing the recov-
"rule of
the
because
process.
the RCRL
ery
of contract
of
for brеach
3,000-unit ceiling
on
provided
contract
the
its
jurisdiction,
part
over
but
to
royalty damages,
was not asked
applied to this
interpretation of the rule as
pro-
viability
predict the
of Sonora's
Although
plaintiff's
testimo-
case.
into the indefinite future.
cess
profitability
producing
of
ny about the future
at issue
diagnostic instrument
the medical
for the fact finder.
this is a case
evidence, I
admissible
here
havе been
the cireumstances
There are cases where
pre-
it insufficient
to
nevertheless
consider
jury to
impossible
it
for a
determine
make
dict,
certainty,
with reasonable
degree of
royalties with a reasonable
company.
of the defendant
production choices
dic-
certainty,
in those cases Pomeranz
and
impossi-
it
broadly speaking, I consider
More
adjudged spec-
must be
tates
divine,
required degree of
with the
ble to
But this is not
ulative as a matter of law.
award,
damage
yet
un-
certainty for a
that the
deter-
such a case. We hold
unconstrained,
made,
contractually
and
support and
adequate record
mination has
any
capital
to commit
to
choices whether
appeal.
on
shall not be disturbed
future,
I do not
project in the
particular
finally argues that
the award
by
on
the ma-
the authorities relied
believe
the terms of
works to rewrite
jority suggest otherwise.
contract,
produc-
requiring it to continue
its
losses,
loss,
uncertainty
predicting future
3,000 units,
in
at a
of at least
even
tion
profits or
might be
to terminate whether
right
spite
bargained
of its
losses,
impe
provides the
any other kind of
True,
Sono-
production at
time.
because
attempted by the
striking
it no
tus for
thе balance
royalty agreement,
ra breached the
v. Mc
See Pomeranz
paying royal-
rule of
longer
to avoid
has
(Colo.
Corp., 843
production. Donald's
if it ceases RCRL
ties even
1993).
in
na
variations
However,
Although wide
remedy
pay-
"not
is
arrangements
accrues,"
of contractual
is "tra-
ture
periodically
able
as loss
might
enjoined from,
therefore
be
likely
unquestionably
fur
effects of their breach
render the determination of "reasonable cer-
ther use of the defendant's
in
contribution
production,
Storage
Quan
Corp.
tainty"
any particular
highly
Tech.
v.
in
case
fact
(D.Colo.
Corp.,
tum
F.Supp.2d
dependent,
the inclusion of a contractual
con-
2005)
allowing
dition
unfettered discretion to either
(acknowledging right
grant
injune-
to
tive
prevent
relief to
right
production,
violation of
continuе or
se
discontinue
choice, radically
calcu-
by patent),
alters the
leaving
cured
the defendant free
predictability. By virtually ignoring
lus of
to make other
By
exclusive use contracts.
qualitative
token,
difference between market
having
same
established its
subjective preference,
conditions and
to
contribution,
for the
use
its
treating
party's
unbridled
future,
freedom of both the
and the
the defendant
court,
returning
barred from
simply
choice as
one more factor
should
to be taken
the defendant
comply
jury,
majority,
refuse to
into account
legal
its
at least
mind,
my
certainty
our
obligation
transforms
rule of
pay royalties
speculation.
into a license for
sales. See I
Yogurt
Can't Believe It's
Gunn,
(D.Colo.
No. 1997 WL
appeals apparently
foresaw
1997) ("At worst,
if the franchisor had not
difficulty
predicting damages
in the
terminated the franchise
might
open-ended
produce
face of an
entitlement to
required
have been
again
to sue
or perhaps
chose,
no more than the defendant
and it
again
again
compel
the franchisee to
found,
therefore
implied
reliance on the
pay
those
timely
in a
fashion
duty
good
faith
fair dealing,
this con-
as those
acerued ...."
(quoting
simply
illusоry.
tractual term to
Perhaps
Press,
Postal
Instant
Sealy,
Inc. v.
43 Cal.
recognition
implied duty
good
App .4th
Cal.Rptr.2d
(1996)));
*6
inject
faith
dealing
and fair
cannot
substan-
see also Am. Mach. & Constru. Co. v. Stew
tive terms into a
obligate
party
contract or
Haas,
art &
115 La.
Unlike the breach of a franchise tive dimension to the rule of ment, however, where the issue is limited to majority acknоwledges awarding dam- predictability by of continued sales ages on the basis of the full ceiling unit franchisee, maj. 98-99, op. see at or the effectively deprives the defendant of its bar- exclusively breach of an dis- material, gained-for right copyrighted production tribute to terminate at where the issue pay only payment," time and a "closure prediction sales, is limited to a about future unproducеd rather than units. maj. 98-99, op. determining explanation however, authority, Without or it provision losses on the basis of a contractual simply holds because of the defendant's by majority like that described longer it no has to avoid case is making predictions limited to paying royalties, if production. even it ceases about future profita- sales even continued maj. op. bility. See at 100. psychological It involves a prediction way about future choices that no limit- majority purports While the treat ed the contract. right contractual to terminate acknowledge specula- merely time as one additional factor for tive nature jury's consideration, of future under effectively these it in fact contractual deprive conditions would not eliminates the defendant's freedom of choice plaintiff meaningful penalty way, remedies. To the ex- for its breach. In this it tent that the defendant has backhandedly accomplishes precisely breached its con- what tract, to, presumably longer no has a appeals attempted by extending the court of faith and fair good implied condition actually majority increases
dealing. The damage award certainty of a provi- eliminating the by simply losses greatest that created of the contract
sion majority's approach
uncertainty. I find the satisfying than that of persuasive or more
no appeals. dissent. respectfully
I therefore EID to state JUSTICE
I am authorized in this dissent.
joins
The PEOPLE of State Colorado, Plaintiff CARBAJAL, Defendant.
Dean
No. 07SA340.
Supreme Court of
En Banc.
Dec. 2008.