may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2004).
IN COURT OF APPEALS
Machines Sales and Service, Inc.,
Robert E. Murphy,
Hennepin County District Court
File No. CT9914896
Andrew S. Birrell, R. Travis Snider, Birrell & Newmark,
Bruce A. Finzen, David L. Mitchell, John P. Morgan, Robins Kaplan Miller & Ciresi, LLP, 800 LaSalle Avenue, 2800 LaSalle Plaza, Minneapolis, MN 55402 (for appellant)
Considered and decided by Klaphake, Presiding Judge; Kalitowski, Judge; and Peterson, Judge.
U N P U B L I S H E D O P I N I O N
In this appeal from the judgment and denial of posttrial motions after a second trial on damages in a breach-of-contract action, appellant argues that the district court erred in admitting and relying on the testimony of respondent’s expert witness; improperly expanded the scope of damages in its construction of a consulting agreement; improperly rejected testimony considering actual market circumstances; and ignored remand instructions from a prior appeal. We reverse and remand.
Respondent Business Machines, Sales and Service, Inc. (BMS) is a corporation that sells and leases computers, business equipment, and supplies. In 1997, appellant Robert E. Murphy sold his 50% interest in BMS and entered into a consulting contract with the company.
consulting contract required appellant to use his best efforts to sell BMS
products and BMS to pay appellant a commission of 40% of the net gross profit
on all product sales, provided that he achieved a monthly minimum net gross
profit of $6,000 on sales of BMS products.
Bus. Mach. Sales & Servs., Inc. v. Murphy, No. C6-01-1720,
2002 WL 1315610, at *1 (
appealed, arguing that the district court erred by construing the $6,000
commitment as a guarantee.
The damages issue was retried to the district court in January 2004. Before trial, appellant moved to exclude the
testimony of BMS’s expert witness, Kenneth Hirschey. Hirschey provides
consulting services to small businesses, including litigation support regarding
economic and labor matters, and teaches business courses at two
Hirschey testified that the total damages to BMS were in the range of $106,000 to $148,000. Hirschey began with the premise that “one of the best indications of future performance is past activity,” and predicted that appellant would have continued to generate equivalent sales into the future, or at a minimum, the contractual amount of $6,000 per month. Hirschey testified that he then factored in normal wage-rate growths for sales persons with similar experience, unemployment rates, and market conditions to arrive at a “basis escalation factor” that he used to arrive at the minimum projected gross profit, and an expected projected gross profit.
Hirschey’s expert report explains that Hirschey multiplied the $6,000 monthly minimum net gross profit in the contract by the national average annual real wage growth for the United States business sector, as reported in the February 2002 Economic Report of the President for the relevant years, to arrive at a minimum projected net gross profit total of $106,241 during the relevant time period. To arrive at an expected net gross profit of $148,953, Hirschey multiplied appellant’s average monthly net gross profit in the first 17 months of the contract period, $8,300, by the same national average annual real wage growth rate for each year of the relevant period.
Hirschey could not identify any authority that supports using the national
average annual wage growth in the
Appellant did not present any expert testimony to rebut Hirschey’s testimony. His witnesses included Michael Forde, Graham Lant, and Charles Palmer, who were customers to whom he sold or leased office equipment while under contract with BMS. Forde testified that due to market circumstances, his need for computers and other office equipment declined and that the person who was put in charge of procuring business equipment had other contacts that she worked with and based her purchasing decisions on price. Lant and Palmer testified that during the relevant period, their organizations began using a national vendor instead of BMS.
Appellant testified at trial about his efforts to sell to the 21 BMS accounts to which he had exclusive access under the contract. The district court found that appellant’s testimony was not credible. Appellant admitted selling $19,156.51 in competitive products to BMS customers during the relevant period, and on appeal, he concedes that this breach caused damages of $19,156.51. Appellant did not present any evidence regarding failure to mitigate damages.
Based on Hirschey’s testimony, the district court found that BMS’s total loss of net gross profits due to appellant’s breach of the consulting contract was $148,953. The court found that appellant did not present any evidence regarding mitigation, and it did not reduce the damage award for any failure to mitigate. Appellant moved for amended findings or a new trial, asserting that (1) BMS presented only speculative evidence of its damages; (2) BMS failed to prove that it mitigated its damages; (3) the contract limits any damages in excess of $6,000 per month; and (4) the district court erred by (a) failing to take judicial notice of evidence; (b) failing to discredit Hirschey and his analysis; and (c) discrediting appellant’s testimony and failing to adopt appellant’s testimony concerning the market conditions during the relevant period. The district court denied the motion, finding that it was essentially a motion for reconsideration. This appeal followed.
Findings of fact,
whether based on oral or documentary evidence, will be set aside only if
clearly erroneous, and a reviewing court defers to the district court’s
evaluation of witness credibility.
that Hirschey’s testimony about the damages BMS incurred as a result of the
breach of contract should have been excluded as unreliable under the
“The function of the expert is ‘to assist the [fact finder] in reaching a correct conclusion from the facts in evidence.’ The expert must base his opinion on facts sufficient to form an adequate foundation for an opinion and should not be allowed to speculate.” Hudson v. Snyder Body, Inc., 326 N.W.2d 149, 154-55 (Minn. 1982) (quoting Albert Lea Ice & Fuel Co. v. United States Fire Ins. Co., 239 Minn. 198, 202, 58 N.W.2d 614, 617 (1953)).
The measure of damages for breach of contract is the amount that will place the plaintiff in the same situation as if the contract had been performed. Logan v. Norwest Bank Minn., N.A., 603 N.W.2d 659, 663 (Minn. App. 1999); see also 4 Minnesota Practice, CIVJIG 20.60 (1999) (stating that damages for breach of contract should put the non-breaching party in the same position the party would have been had the contract not been breached).
general rule in
Consulting Co. v. Circo Resorts, Inc., 297 N.W.2d 260, 266-67 (
The district court
relied solely on Hirschey’s analysis to reach its damages award. To determine the minimum loss in net gross
profits Hirschey multiplied the national average annual wage-growth rate across
But a national
average wage-growth rate does not provide a basis for determining with a
reasonable degree of certainty and exactness what would have been the growth in
the net gross profit of a single business due to the efforts of an individual
sales person. A national average, by
definition, reflects the experiences of many employees across the
Because we are remanding for a new trial on damages, it is not necessary for us to address appellant’s remaining arguments regarding trial errors. But because similar issues may arise in a new trial, we address appellant’s arguments in the interests of judicial economy.
Appellant argues that the district court impermissibly allowed BMS to expand the scope of the damages by construing the parties’ agreement to require that appellant use his “best efforts” to sell not just to the 21 exclusive BMS accounts listed in the contract, but to other BMS customers as well.
Appellant contends that any damages resulting from the breach should be limited to damages caused by a failure to use his “best efforts” to maintain the 21 exclusive accounts and sales to other accounts should not be considered. BMS argues that because appellant was permitted to sell BMS products to any BMS customers to meet his $6,000 commitment, that fact should be considered in the award of damages.
In Murphy I, this court concluded that appellant did not guarantee BMS
$6,000 per month in net gross profits; rather, he “agreed to give his best
effort to achieve this goal.” Murphy I, 2002 WL 1315610, at *3. Accordingly, the district court was directed
to “make findings on the reasonably certain amount of net gross profits that [appellant]
would have generated in light of market circumstances, had he used his best
efforts to perform in the remaining months of the contract.”
argues that it was clearly erroneous for the district court to disregard his
testimony. The record indicates that the
district court did not disregard appellant’s testimony; rather, the court ruled
that appellant could supplement the record from the first trial but that any
repetitive testimony would be stricken.
Evidentiary rulings are within the district court’s discretion and are
reviewed under the abuse-of-discretion standard. Kroning
v. State Farm Auto. Ins. Co., 567 N.W.2d 42, 45-46 (
that the district court ignored this court’s remand instruction when it
rejected appellant’s argument that BMS failed to mitigate its damages by
failing to hire, or even attempt to hire, a replacement for appellant. “It is the duty of the [district court] on
remand to execute the mandate of [an appellate] court strictly according to its
terms. The [district] court has no power
to alter, amend, or modify [this court’s] mandate.” Halverson v. Village of Deerwood, 322
N.W.2d 761, 766 (
party has the burden of showing that damages could have been mitigated with
reasonable diligence. Lanesboro
Produce & Hatchery Co. v. Forthun, 218
Reversed and remanded.
 The contract defines “net gross profit” as “equal to sales revenue minus the cost of goods sold by Murphy.”
 Hirschey testified that the real wage growth is the difference between the consumer price index and the productivity wage growth.
 The “before-and-after” method compares a plaintiff’s profit record before the breach with its record after the breach, while the “yardstick” method relies on studies of the profits of business operations that are closely related to plaintiff’s business.