Opinion
No. 301-11305, (Jointly Administered).
April 14, 2004
MEMORANDUM OPINION
This matter came to be heard upon Regal's objection to the claim of LaserTron, Inc. (hereinafter "LaserTron") and to the claim of Richard Roman (hereinafter "Mr. Roman"). LaserTron seeks damages in the amount of $1,019,036.55 and Mr. Roman seeks damages in the amount of $63,153.73 for breach of a contract providing for the development and operation of certain Ground ZeroTM attractions at Regal's entertainment facilities.
Based on the pleadings, the evidence and witnesses presented at trial, and the argument of counsel, the Court finds that LaserTron's claim should be allowed in the amount of $53,491.10 and Mr. Roman's claim should be allowed in the amount of $42,202.52, both with pre-judgment interest to be determined. The following represents the Court's findings of fact and conclusions of law as required by F.R.Bankr.P. 7052.
I. BACKGROUND
The claims of LaserTron and Mr. Roman are for breach of a contract (hereinafter the "Agreement") dated March 31, 1997, which provided for the installation and operation of the Ground ZeroTM amusement within Regal's FunScape location in Wilmington, Delaware. In May 1997, LaserTron and Regal amended the Agreement to add the installation and operation of the Ground ZeroTM amusement at Regal's FunScape location in Ft. Lauderdale, Florida. Finally, in February 1998, LaserTron and Regal again amended the Agreement to add the installation and operation of the Ground ZeroTM amusement at Regal's FunScape locations in Victor, New York, and Cicero, New York.
In general, the Agreement provided that LaserTron would install its Ground ZeroTM lasertag attraction in four of Regal's FunScapes and that the term of the Agreement at each location, pursuant to section 6.0, would be "a period ending five (5) years after the date of the official opening of that Location to the public." The official opening dates were:
Wilmington — June 1997.
Ft. Lauderdale — January 1998.
Victor — July 1998.
Cicero — July 1998.
These FunScapes were all closed on or about November 28, 2000. When the FunScapes were closed, the time remaining on the Agreement for all locations collectively was 105 months.
The FunScape concept was developed by Mr. Roman, who served at the time as an entertainment consultant to Regal. The FunScapes were family entertainment centers located in or adjacent to Regal's theater megaplexes, although admission to the theaters were separate from admission to the FunScapes. The centers included arcade games, a food court, and various attractions, including the Ground ZeroTM attraction.
Through Mr. Roman, Regal began to discuss the FunScape concept with LaserTron in about 1995 or 1996. Those discussions ultimately led to the development of the Ground ZeroTM lasertag attraction and its installation at the four FunScapes involved in these claims.
Under the Agreement, LaserTron was to receive 41.25% of the Net Proceeds attributable to patronage of the Ground ZeroTM attraction and Mr. Roman was to receive 2.5% of the Net Proceeds. The term "Net Proceeds" is defined in the Agreement to include "gross receipts from operations minus any applicable sales, use, franchise and/or other taxes."
The Agreement is between LaserTron and Regal and is also signed by Mr. Roman. It requires that in exchange for its 41.25% share of the Net Proceeds, LaserTron will "acquire and install" the Ground ZeroTM attractions, will "[p]rovide the repair parts in support of Regal's on-Location technician necessary to maintain the Equipment," will supply "plans for any required build-out" to Regal, and will maintain insurance on the equipment. Mr. Roman has no obligations under the Agreement although in signing it, he acknowledges his acceptance of the license fee of 2.5% of the Net Proceeds for LaserTron's use of the Grand ZeroTM attraction.
Rather than perform its obligations under the Agreement itself, LaserTron in essence "outsourced" them to a limited partnership, called LTGZ Partners, L.P. (hereinafter "LTGZ Partners") in 1998. The Private Placement Memorandum for the partnership along with the testimony of Mr. Kessler at trial described LTGZ Partners as "the entity that actually funded the Ground Zeros for LaserTron, Inc.'s agreement with Regal Cinemas" and the "operating company" for the Ground ZeroTM attractions installed at the FunScapes. As described further in the Private Placement Memorandum, all monies received from the Regal Agreement were to be paid by LaserTron to LTGZ Partners. In return, LaserTron would be compensated through its subsidiary, LT Ground Zero, Inc., which served as the general partner of LTGZ Partners. Both testimony and the Private Placement Memorandum indicate that LTGZ Partners would pay LT Ground Zero, Inc., 30% of its net income.
At each FunScape, patrons secured admission by purchasing a wristband, which could be used to play all attractions including the Ground ZeroTM. Regal maintained a count of the patronage of the various attractions in each FunScape to determine how many times each attraction was actually played. Generally, turnstiles were used to count attendance at each attraction, although the Ground ZeroTM had its own internal counter to keep tract of patronage. Pursuant to the Agreement, no specific method of counting patronage of the attractions was required nor was proof presented at trial regarding industry standards or accepted practices for counting patronage of attractions at a family entertainment center.
At the end of each month, Regal sent a utilization report to LaserTron. Regal's report summarized the relative patronage of the attractions at each FunScape and calculated LaserTron's percentage of Net Proceeds from the wristband sales by weighting these sales according to the turnstile numbers at the various attractions. Accompanying this report was a check made out to LaserTron, which LaserTron then endorsed over to LTGZ Partners. Subsequently, in May 2000, Palace Entertainment (hereinafter "Palace") took over Regal's operation of the FunScapes. After the first two months, Palace made its checks payable directly to LTGZ Partners.
Paul Henderson, the Vice President of Operations and Development for LTGZ Partners, testified at trial. Neither he nor others working with him were employees of LaserTron. As an employee of LTGZ Partners, Mr. Henderson traveled to the four FunScapes and met with other LTGZ Partners employees. Through 1998 and 1999 and into the year 2000, Mr. Henderson complained to Regal about its operation of the FunScapes. The matter went to arbitration, and effective October 28, 1999, Regal and LaserTron exchanged mutual releases. The claims for breach of contract presented here are for the time period after October 28, 1999.
II. LASERTRON'S AND MR. ROMAN'S CLAIMS
LaserTron and Mr. Roman claim Regal breached the agreement in three ways: (1) by closing the FunScapes on November 28, 2000, before the Ground ZeroTM had operated for five years; (2) by providing an inaccurate accounting of the Ground ZeroTM patronage caused by errors in the turnstiles and by the use of complimentary wristbands; and (3) by failing to provide accurate information despite LaserTron's requests. For these breaches, LaserTron and Mr. Roman request damages for early termination and for the alleged accounting errors.
Mr. Roman's claim for breach is identical to LaserTron's except his share of Net Proceeds. Thus, unless otherwise stated, whenever this opinion refers to LaserTron's claim it is also referring to Mr. Roman's claim.
A. Damages for Early Termination
LaserTron calculates its damages by taking its last year's receipts from Regal ($318,327.62), finding the average receipts monthly per location ($318,372.62 ÷ 48 location months from the 4 locations), or an average of $6,631.83 per month per location. Using the 105 months remaining on the contract, LaserTron calculates its "absolute minimum damages" at $696,341.64 for the early termination of the contract ($6,631.83 × 105 months). Since the Net Proceeds under this formula would be $1,688,100.90 during the 105 months, Mr. Roman's share would be $42,202.52.
These numbers were taken directly from LaserTron's Proposed Findings of Fact and Conclusions of Law. While the calculations do not produce exactly the sums LaserTron and Mr. Roman claim, they are very close.
To these figures, LaserTron add certain enhancements, including an additional 2% COLA adjustment (to $722,462.60), a 24% adjustment (to $895,853.62) for errors caused by turnstile problems and complimentary wristbands (see discussion below), from which LaserTron subtracted $23,000 for expenses (yielding damages for early termination of $872,853.62). Mr. Roman's comparable number for early termination was $54,294.16.
B. Damages for Pre-Termination Accounting Errors
In addition to early termination damages, LaserTron and Mr. Roman claim damages for pre-termination accounting errors due to turnstile errors and the use of complimentary wristbands (which form the basis for the enhanced termination damages set forth above). For pre-termination accounting errors, LaserTron adds $146,182.93 to its claim and $8,859.57 to Mr. Roman's claim. Accordingly, the total damages claimed by LaserTron are $1,019,036.55, and by Mr. Roman are $63,153.73. In addition, the claimants request prejudgment interest.
III. REGAL'S OBJECTION
Regal opposes LaserTron's and Mr. Roman's claims and argues: (1) that LaserTron is not the appropriate claimant; (2) that it did not breach the Agreement when it closed the FunScapes; (3) that there was no breach of the Agreement caused by inaccurate accounting; and (4) that in any event the measure of damages is lost profits which have not been proven with "reasonable certainty."
IV. DISCUSSION A. The Burden of Proof
Neither LaserTron nor Mr. Roman argued that the burden of proof should fall on Regal, and the trial proceeded as it would have in a state court breach of contract case. The burden of proof in claims litigation shifts between the parties in bankruptcy court, depending initially on what is alleged in the proof of claim and in the objection. The creditor's burden is to allege sufficient facts entitling him to the amount requested and to attach all supporting documentation. If the creditor's claim meets these standards, it is deemed prima facie valid under F.R.Bankr.P. 3001(f). It is then up to the debtor to produce "evidence equal in force to the prima facie case." In re Allegheny Int'l., Inc., 954 F.2d 167, 173 (3d Cir. 1992) (citations omitted). If the debtor meets this burden, then the burden shifts back to the claimant to prove his claim by a preponderance of the evidence. In re VTN, Inc., 69 B.R. 1005, 1008 (Bankr. S.D. Fla. 1987).
Here, LaserTron's claim simply states that it is entitled to "share Net Proceeds earned pursuant to Agreement dated 5/31/97" and gives the amount claimed. The Agreement is attached, and unexplained categories of claimed damages are contained on a sheet apparently prepared by LaserTron. The only other document attached is an unexplained document relating to LTGZ Partners. Except for the Agreement itself, no real facts are alleged, other than the unexplained and unsworn categories of damages claimed. This claim does not contain enough to entitle it to prima facie validity. As one court reviewing a similarly deficient claim has stated, "[this claim] is supported, in part, by admittedly self-serving documentation. The supporting documentation . . . is of no evidentiary benefit — it consists merely of [the claimant's] unsubstantiated and self-serving capitulations of his claim." In re All-American Auxiliary Ass'n., 95 B.R. 540, 545 (Bankr. S.D. Ohio 1989). Accordingly, Regal's objection, stating that the claim "is conclusory and unsupported" is sufficient, and the burden of proof is on LaserTron and Mr. Roman to prove their claims for breach of contract.
B. Whether LaserTron is a Proper Claimant
While the burden of proof as to breach of contract and any damages therefrom is LaserTron's and Mr. Roman's, this is not true of Regal's last minute challenge to LaserTron as the proper claimant for any breach and damages. The Court finds this argument to be too late to totally bar LaserTron's claim. Not only is this argument not referenced in Regal's objection, it was also not raised in the joint pre-trial statement.
In addition, the proof demonstrated that neither the Agreement between LaserTron and Regal nor the claim had been assigned to LTGZ Partners. As stated above, LaserTron used LTGZ Partners as an operating company, in essence, outsourcing its duties under the Agreement to LTGZ Partners in exchange for payment of 30% of LTGZ Partners' profits to LT Ground Zero, Inc., a subsidiary of LaserTron. Accordingly, Regal, LaserTron, and Mr. Roman are still the contracting parties, and LaserTron is the proper party to assert its claim under the Agreement.
C. Breach of Contract
As stated above, LaserTron contends that Regal breached the Agreement in three ways: (1) by closing the FunScapes on November 28, 2000, before the Ground ZeroTM attractions had operated for five years; (2) by inaccurate accounting of the Ground ZeroTM patronage caused by errors in the turnstiles and by the use of complimentary wristbands; and (3) by failing to provide accurate accounting information despite LaserTron's request for information. LaserTron and Mr. Roman have requested their share of Net Proceeds under the Agreement, together with certain enhancements and interest.
1. Closing the FunScapes
LaserTron asserts that the Agreement obligated Regal to keep each of the FunScapes (and the Ground ZeroTM attractions) in operation for at least five (5) years after installation of each Ground ZeroTM attraction and seeks damages in the form of lost profits for the remaining term of the contract. In response, Regal argues that the Agreement contains no covenant by Regal requiring it to keep the FunScapes open for five years.
Specifically, Regal asserts that because keeping the FunScapes open for a period of five years is not listed in section 2.2, which sets forth a detailed list of Regal's obligations, it did not breach the Agreement by closing the FunScapes when it did. In particular, Regal points to section 2.2(h), which provides that Regal shall "[o]perate the Ground Zero amusement during Regal's customary hours of business."
Regal ignores the language of section 6.0 which states that "[t]he term of this Agreement shall commence on the date hereof and it shall continue with respect to each Location for a period ending five (5) years after the date of the official opening of that Location to the public."
Contracts must be interpreted as a whole and consistent with the purposes of the contract. The states governing the Agreement in this case all follow this basic rule of contract interpretation. See, e.g., Northwestern Nat'l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996) ("[c]ontracts must be construed as a whole, to give effect to the intentions of the parties"); E.I. du Pont de Nemours Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985) ("[i]n upholding the intentions of the parties, a court must construe the agreement as a whole, giving effect to all provisions therein"); Village of Hamburg v. Am. Ref-Fuel Co. of Niagara, L.P., 727 N.Y.S.2d 843, 284 A.D.2d 85, 89 (N.Y.App.Div. 2001) (every term of a contract must be given effect and meaning, and a reasonable effort must be made to harmonize all of the contract's terms); Empire Props. Corp. v. Mfr. Trust Co., 288 N.Y. 242, 248, 43 N.E.2d 25, 28 (N.Y. 1942) (written contract must be read as a whole, and every part must be interpreted with reference to the whole); U.S.B. Acquisition Co. V. Stamm, 660 So.2d 1075, 1080 (Fla.Dist.Ct. App. 1995) ("[e]very provision in a contract should be given meaning and effect and apparent inconsistencies reconciled if possible").
Pursuant to section 8.0, the Agreement is governed by, construed, and interpreted in accordance with the laws of the state in which the Ground ZeroTM attraction is located. Here, two Ground ZeroTM attractions were located in New York, one in Delaware, and one in Florida.
The Agreement clearly was intended to bind Regal to operate the Ground ZeroTM attractions for the five-year period. To find otherwise would require the Court to give section 6.0 of the agreement no meaning or effect. The Court finds that Regal breached the Agreement by closing the FunScapes and the Ground ZeroTM attractions before the term of the Agreement had expired. Accordingly, LaserTron is entitled to damages for the 105 collective months remaining under the Agreement.
Damages for Early Termination
The more difficult question is the damages to be awarded for the early termination breach. Again the Court must look to state law to answer this question.
When a contract is terminated early as this one, neither New York, Delaware, or Florida measure damages by the proceeds (called Net Proceeds in this Agreement) that would have been paid by the breaching party. Rather, these states measure early termination damages by looking to lost future profits. In New York, the measure has been stated as the difference between what the non-breaching party "would have earned and been entitled to recover on performance, and the amount which it would have cost him to perform the contract." 36 N.Y. Jur.2d Damages § 34 (2003). In Florida, the measure is not the contract price, but lost profits requiring the non-breaching party to "show its total costs and expenses necessary to perform the contract and then [to] deduct that sum from the balance owing on the contract price." Indian River Colony Club, Inc. v. Schopke Const. Eng'g, Inc., 619 So.2d 6, 7 (Fla.Dist.Ct.App. 1993) (emphasis omitted). In Delaware, lost profits are the measure of damages for breach of contract. Crowell Corp v. Himont USA, Inc., 1994 WL 762663 (Del. Super Ct. 1994). The goal of awarding lost profits for breach of contract rather than the contract price is "to place plaintiff in the position he would have been in absent the breach, no worse, but no better." Kenford Co., Inc. v. County of Erie, 489 N.Y.S.2d 939, 943 (N.Y.App.Div. 1985), Koplowitz v. Girard, 658 So.2d 1183, 1184 (Fla. Dist. Ct. App. 1995) (citation omitted) ("goal of an award of damages in breach of contract action is `to restore the injured party to the condition he would have been in had the contract been performed'").
An award of lost profits is not automatic. To recover damages for lost profits, a party must prove that the lost profits were within the contemplation of the parties at the time the contract was entered into and that damages are capable of measurement with reasonable certainty. Lehigh Constr. Group, Inc. v. Almquist, 692 N.Y.S.2d 551, 552 (N.Y.App.Div. 1999); Timmons v. Cropper, 172 A.2d 757 (Del.Ch. 1961); Sharick v. Southeastern Univ. of the Health Sci., Inc., 780 So.2d 142 (Fla.Dist.Ct. App. 2001) (Ramerez, J., concurring) (lost profits allowed if proved with reasonable certainty). However, when damages have been shown to exist, New York courts do not deny a party damages "`when it is apparent that the quantum of damage is unavoidably uncertain, beset by complexity or difficult to ascertain.'" Stanford Square, L.L.C. v. Nomura Asset Capital Corp., 229 F. Supp.2d 199, 206 (S.D.N.Y. 2002) (citations omitted). In Florida, the "[i]nability to give the exact or precise amount of damages does not preclude recovery." A.O. Smith Harvestore Prod., Inc. v. Suber Cattle Co., 416 So.2d 1176, 1178 (Fl. Dist. 1982). And in Delaware, if a "defendant [has] reason to foresee this kind of harm and the difficulty of proving its amount, the injured party will not be denied a remedy in damages because of the lack of certainty." Emmett S. Hickman Co. v. Emilio Capaldi Dev., Inc., 251 A.2d 571, 573 (Del.Super. 1969).
What this flexibility apparently means is that if the injured party offers some logical factual basis for calculating lost profits, then that is sufficient. See Stanford Square, L.L.C. v. Nomura Asset Capital Corp., 229 F. Supp.2d at 206 (must show a "`definite and logical connection' . . . permitting the fact finder to draw reasonable inferences"); Sostchin v. Doll Enter., Inc., 847 So.2d 1123, 1128 (Fla.App. 2003) (lost prospective profits may be established as a reasonable "yardstick" by which such lost profits can be measured); Tanner v. Exxon Corp., 1981 WL 191389 at *2 (Del.Super. 1981) (there must be some "reasonable basis for inference" of lost profits).
There is no doubt that here the parties contemplated that LaserTron (and thus Mr. Roman) would suffer damage if the FunScapes and Ground ZeroTM attractions were closed before the end of the five-year term. Indeed, in an amendment to the Agreement adding the Victor and Cicero locations in New York, liquidated damages were provided on a sliding scale if Regal were required to terminate early as a result of its previous agreement with an unrelated third party. These liquidated damages were as follows:
$200,000 for a Location termination during 1998;
$150,000 for a Location termination during 1999;
$100,000 for a Location termination during 2000; and
$50,000 for a Location termination during 2001.
To prove its lost profits, LaserTron looked to the Net Proceeds paid over to LaserTron during the final year of operation under the Agreement, found the average monthly receipts for the four locations, and multiplied that average by the 105 months remaining on the Agreement. To those lost revenues, LaserTron applied a 2% COLA adjustment and a 24% enhancement for accounting errors caused by turnstile problems and the use of complimentary wristbands. From that total LaserTron, subtracted $23,000 for expenses (repair parts and the like) over the remainder of the term.
While this history of previous gross receipts adjusted for errors and the cost-of-living increase minus projected expenses would seem to provide a "logical connection," a "reasonable yardstick," and a "reasonable basis for inference" for awarding lost profits as damages, there are several serious problems with LaserTron's calculations: (1) LaserTron, through its own making, was to realize as profits only 30% of the net revenue of LTGZ Partners, to which it outsourced its obligations under the Agreement; (2) the proof did not support the anticipated growth represented by the 2% COLA; and (3) the claimed accounting errors resulting from turnstiles and complimentary wristbands were unsubstantiated.
LTGZ Partners was not a party to the Agreement nor was it an assignee, a successor, or subsidiary of LaserTron. Rather it was an entirely separate company whose only link to LaserTron was its general partner, LT Ground Zero, Inc. While LaserTron did not provide a copy of any agreement between LTGZ Partners other than a Private Placement Memorandum, the proof showed that LaserTron had no operating expenses of its own but rather performed all of its obligations through this outsourcing arrangement, in return for 30% of LTGZ Partners' net revenues paid to LaserTron's subsidiary, LT Ground Zero, Inc.
No proof was presented regarding the earnings history of LT Ground Zero, Inc., from LTGZ Partners. Had such been offered, that history might have been sufficient to provide a "yardstick" for the measurement of lost profits. However, some records from LTGZ Partners were offered into evidence.
Accordingly, the estimate that it would cost LaserTron only $23,000 for future expenses is misguided. Rather, LaserTron's expenses are encompassed in its agreement to pay an independent third party (LTGZ Partners) all its revenues from Regal in exchange for 30% of LTGZ Partners' net revenues (payable to LT Ground Zero Inc.). Further, there was no proof that Regal's failure to pay what it owed under the Agreement would result in any liability of LaserTron to LTGZ Partners, which would most certainly have increased LaserTron's damages. Thus, the lost profit analysis for LaserTron should, therefore, focus on LTGZ Partners and the 30% of its net income due LaserTron.
Records for LTGZ partners were introduced at trial. While LPTZ Partners did not appear to be profitable as a whole during the two quarters introduced, the four Regal Locations produced net income during the two quarters ($14,612 during the first quarter of 2000 and $26,143 during the first quarter of 1999). While Regal argues initially in its proposed findings of fact and conclusions of law that LTGZ Partners never had a positive net income and that the 30% payable to LT Ground Zero, Inc. would, therefore, be zero, this lack of profitability was apparently a result of initial outlays for two new unrelated facilities in Memphis and in Florida. It is logical to assume that these locations would soon follow the pattern of the four Regal FunScapes locations and break even or become modestly profitable ater the first few months of substantial investment. For this reason, together with the inequity in foreclosing all damages for termination of a contract 105 months prematurely when all parties clearly contemplated that such termination would cause LaserTron damage, the Court finds LTGZ Partners' figures relating to the four Regal FunScapes in 1999 and 2000 provide a "logical connection" in projecting lost profits.
As an alternative, in its findings of fact and conclusions of law, Regal uses LTGZ Partners' 2000 figures for the four Regal FunScapes to calculate LaserTron's lost profits.
This inequity is apparent from the fact that Regal recognizes substantial damages for early termination would occur, thus providing for the substantial liquidated damages under certain circumstances discussed above.
The average net income for LTGZ Partners for each location during the two quarters is $1,698.13 ($14,612 + $26,143 ÷ 6 months ÷ 4 locations). Using these figures, LaserTron's lost profits, therefore, for the 105 months would be $53,491.10 ($1,698.13 × 105 × 30%).
Mr. Roman's damages should not take into account any expenses because he had none. As the inventor of Ground ZeroTM, his payment from Regal (the Net Proceeds) was his profit. Accordingly, the Court finds that LaserTron's initial calculations of Mr. Roman's damages are more accurate. Utilizing the payments of Net Proceeds from Regal the year before termination, Mr. Roman's damages for early termination (before any enhancements) are $42,202.52 ($771,703.32 gross revenues ÷ 12 months ÷ 4 locations × 105 lost months × 2.5% Roman's cut).
LaserTron and Mr. Roman submit that a 2% COLA should be added to any award for future damages solely to offset projected yearly growth. The Agreement does not contain any provision for a cost-of-living increase. However, in support of LaserTron's contention that revenues would have increased by the months remaining on the Agreement with Regal, Mr. Roman testified that a 2% annual increase would be low. To predict the annual projected increase, Mr. Roman testified he would look at the box office revenue at the adjacent movie theaters over the last five years. According to Mr. Roman, box office revenues at theaters nationwide were up 10% on average over the last five years.
In support of his testimony neither Mr. Roman nor LaserTron offered any evidence of historical revenues at the theaters adjacent to the Brandywine, Cypress Creek, Victor, or Cicero FunScapes, nor any evidence of historical revenues of the Ground ZeroTM attractions at any of the four FunScapes. Also, Mr. Roman admitted he no longer followed this industry. Accordingly, the proof offered is insufficient to support their claims for a 2% annual increase.
Finally, LaserTron and Mr. Roman request a 24% enhancement in future damages as a result of accounting errors caused by turnstile problems and complimentary wristband usage in pre-termination years. As set forth below, these "problems" and their net effect were unsubstantiated, other than by the general observation that net revenues increased somewhat during the six months that an independent entity (Palace) took over collections. This proof is insufficient to support the requested enhancements.
Accordingly, the damages awarded to LaserTron for lost profits for early termination of the agreement are $53,491.10 and to Mr. Roman $42,202.52.
Regal argued that LaserTron and Mr. Roman did not prove that they fulfilled their duty to mitigate their damages. The proof showed that Mr. Roman, who also created the FunScape concept for Regal, created and designed the Ground ZeroTM attraction specifically for Regal's FunScape locations. The Ground ZeroTM was designed to be connected with a wide assortment of other amusements and attractions. Once the FunScapes, which according to Mr. Roman's testimony are a novel concept, were closed, LaserTron had nowhere else to take the Ground ZeroTM attraction. Accordingly, the Court finds that no further mitigation was reasonably possible.
2. Breach of Contract and Alleged Damages Caused Pre-Termination by Turnstile Problems and the Use of Complimentary Wristbands
LaserTron asserts that the accounting provisions in the Agreement were breached, resulting in lost revenues to LaserTron and Mr. Roman pre-termination and in additional lost profits post-termination. The evidence presented is inadequate to support these assertions or to conclude that the requested 24% additional revenues pre-termination (and the concomitant 24% enhancement in post-termination lost profits) is reasonable.
a. Turnstile Problems
LaserTron asserts that turnstile problems caused patronage counts of other attractions at the FunScapes pre-termination to be overstated, thereby reducing LaserTron's share of the Net Proceeds pre-termination by 24%. LaserTron also claims that these alleged turnstile problems would have persisted until the end of the five years at each of the FunScapes, and would, in any event, adversely effect the calculation of projected future lost profits discussed above since they are based on pre-termination flawed accountings.
The Agreement specified no required method of counting the patronage of the attractions and no one counting mechanism was given priority. In fact, section 5.0 of the Agreement provides that "the right and authority to manage, direct, control, and conduct the operation of the Ground Zero amusement shall be vested exclusively in Regal." Moreover, no proof was presented that the use of turnstiles in general or Regal's use of turnstiles in particular were contrary to any industry standard or practice.
Accordingly, the use of turnstile counts did not violate the provisions of the Agreement. Nevertheless, LaserTron contends Regal's monthly utilization reports were inaccurate based on "turnstile problems" that resulted in understating the relative patronage of the Ground ZeroTM attractions as compared to other attractions.
Specifically, LaserTron asserts that by over-counting other attractions through the turnstiles, the Ground ZeroTM, which counted patrons on an internal computer, did not receive an accurate portion of the proceeds. Mr. Kessler testified that he watched one videotape that showed turnstiles spinning at the Brandywine FunScape. He did not testify as to the date and time of the videotape, and there is no evidence that this videotape was made during the period covered by the claims. Nor is there any evidence that the tape is representative of all turnstiles at the Brandywine FunScape or at the other FunScape locations. Specifically, no evidence was introduced to indicate when the tape was made, how long a period it covered, or how many turnstiles were observed.
There is simply no competent evidence that any turnstile problems occurred at any of the four FunScape locations during the relevant time period, that any such "problems" were pervasive and caused serious accounting errors, or that using turnstiles for the other attractions was in any way a violation of the Agreement between Regal and LaserTron. While LaserTron's proof showed that it complained about potential turnstile problems, LaserTron never proved that such problems actually existed during the claim period. Even if the Court were to accept Mr. Kessler's testimony regarding the description of a videotape at some unspecified date, it would not be enough to prove that LaserTron's share of Net Proceeds was systematically understated by any amount, much less by 24%.
LaserTron and Mr. Roman argue that to the extent they have not been able to offer a more precise calculation of their damages caused by turnstile and wristband problems, it is attributed to Regal's failure to provide complete and accurate information. Despite this claim, LaserTron and Mr. Roman never filed a motion to compel the production of documents or to subpoena witnesses to support their claims. The failure to employ evidentiary rules cannot now be used as an excuse for failing to meet their burden of proof.
b. Wristband Problems
LaserTron also asserts that Regal gave away complimentary wristbands and that this reduced the total amount of Net Proceeds to be allocated to LaserTron in the monthly revenue split set forth in the utilization report.
The Agreement does not mention, define, or prohibit the use of complimentary wristbands, and their use, if any, does not appear to be a per se breach of the contract language or of any specified industry standard. LaserTron's witness, Mr. Henderson, testified that he could not define "complimentary wristband" and no one from Regal was called as a witness to explain the term, although Ms. Arnold testified through deposition that party wristbands were not given away. While Mr. Henderson offered calculations purportedly to show that LaserTron's Net Proceeds had been reduced in the past as a result of complimentary wristbands, he simply assumed that wristbands were given away by Regal and redeemed by customers, thus having an adverse impact on LaserTron and Mr. Roman. Mr. Henderson's assumption was inherently suspect since it was based solely upon his seeing a thank-you note from a school posted at an unidentified time and location and upon some unnamed employee seeing an unidentified piece of paper in a fax machine. From these, Mr. Henderson concluded that Regal gave away large numbers of complimentary wristbands which resulted in undercounting the number of plays in LaserTron's attractions. This conclusion is nothing more than speculation, and no adjustment will be made based on it.
3. Alleged Failure to Provide Complete/Accurate Information
LaserTron asserts that Regal breached the Agreement by failing to provide them with information requested. Specifically, LaserTron contends that Regal breached section 2.0 of the Agreement, which contains mutual covenants by the parties to give each other "complete and accurate information as provided herein relating to the Ground Zero Locations." As to Regal's obligations, the "as provided herein" obligations are found in section 4.0 and 4.1 of the Agreement:
4.0 Books and Records. The books and records regarding each Ground Zero Location shall be maintained by Regal at such Location or at its principal office. LaserTron (or its designated representative) shall have the right at all reasonable times to inspect and examine all books and records. The books and records shall be maintained in accordance with generally accepted accounting principles consistently applied and shall reflect all Ground Zero transactions.
4.1 Reciepts. Any and all gross receipts from operation of the Ground Zero amusement shall be accounted for by Regal and the accounting records shall be retained and available to LaserTron on request. Players under a group plan or other fixed reate shall be accounted for in the amount allocated by Regal in such group plan or other fixed rate as the price per play and reported. Regal will allocate gross receipts from all attractions at the Location proportionately, with each attraction's receipts being equal to the sum of: (i) actual receipts per play in the form of tickets, tokens, etc. and (ii) deemed receipts from group rate or wristband players equal to the number of plays multiplied by the number tickets, tokens, etc., per day.
There was no proof at trial that LaserTron made a request (during the Claim Period) to inspect any books and records at a FunScape location or at Regal's principal office. Nor did LaserTron introduce any evidence that Regal's books and records were not maintained in accordance with generally accepted accounting principles consistently applied. Instead, LaserTron relied on the testimony of Mr. Kessler and Mr. Henderson, who stated that Regal gave them insufficient and sometimes inaccurate information. The only proof to support this testimony was the introduction of several letter from Mr. Henderson to Regal indicating LaserTron's accounting concerns. However, these were primarily introduced for the limited purpose of showing that the letters were sent and not for the truth of the matter asserted in the letters.
Aside from the unsubstantiated complaints regarding the trunstiles and complimentary wristbands set forth above, the only proof by LaserTron as to damages from accounting errors was from its general observation that collections by Palace for six months prior to termination were higher than they had been when Regal was doing the accounting. Without more, this proof is insufficient to establish accounting irregularities, and it does not support a claim for breach of the Agreement.
V. CONCLUSION
Based on the foregoing, the Court finds that Regal breached the Agreement with LaserTron (and Mr. Roman) by closing the four FunScape locations before the specified five year term. The Court has calculated LaserTron's lost profits in the amount of $53,491.10 and Mr. Roman's lost profits in the amount of $42,202.52. Since New York, Deleware, and Florida appear to provide for pre-judgment interest on claims for breach of contract, prejudgment interest will be awarded in addition to the lost profits. Since no proof was offered as to the appropriate interest rates in Delaware, Florida, and New York, the parties will be given time to confer with one another to arrive at an acceptable post-termination interest rate. If no appropriate interest rate can be agreed upon, for example, by averaging the usual rate from these states to determine one applicable rate, the Court will set a further hearing to determine what interest rate to apply.
See Fid. and Guar. Ins. Underwriters, Inc. V. Fed. Dept. Stores, Inc., 845 So. 2d 896, 903 (Fla.Dist.Ct.App. 2003) ("[p]re-judgment interest is recongnized as merely another element of pecuniary damages such that when a verdict liquidates damages on a plaintiff's out-of-pocket pecuniary losses, plaintiff is entitled, as a matter of law, to pre-judgment interest at the statutory rate from the date of that loss"); U.S. for Use of Endicott Enter., Inc. v. Star Brite Constr. Co., Inc., 848 F.Supp. 1161, 1169 (D.Del. 1994) ("[u]nder Deleware law, a party is entitled to prejudgment interest when the amount of damage is calculable, and such interest has been awarded in breach of contract cases"); Patane v. Romeo, 235 A.D.2d 649, 650, 652 N.Y.S.2d 142 (N.Y.App.Div. 1997) (plaintiff successful in breach of contract action entitled to pre-judgment interest "calculated at the statutory simple annual rate").
An order will be entered in accordance with this Memorandum Opinion. Following the certification of an agreed upon interest rate or after further hearing on request of either party to determine the interest rate, a final order will be entered allowing LaserTron's and Mr. Roman's claims.