Opinion
NO. 217-2010-CV-5002
09-08-2011
Pinefield Consulting, Inc. v. Port City Air, Inc.
ORDER
The Defendant, Port City Air, Inc., has moved in limine to bar the Plaintiff, Pine-field Consulting, Inc., from seeking damages based upon the "carrying costs" of its damaged aircraft for seven months, which is the subject of this lawsuit. The Plaintiff objects. For the reasons stated in this Order, the Motion is DENIED WITHOUT PREJUDICE because the availability of such damages turns upon the facts presented at trial.
I
The following facts are not in dispute. This is a breach of contract case brought by an aircraft owner against a company that provided maintenance services for the aircraft. The Defendant entered into a contract to inspect the aircraft in December 2006 and January 2007. Following these inspections, the aircraft flew for approximately four months. But in April of 2007, the aircraft sustained damage when it landed in Knox-ville, Tennessee with only two out of three of its landing gears deployed. The aircraft has since been repaired and sold. The Plaintiff claims that the Defendant breached the contract by failing to adequately inspect both the electrical landing gear deployment system and the manual backup system.
The Defendant denies that it breached contractual duties toward the Plaintiff or that any of its actions caused the accident. However, it argues even assuming arguendo that the Plaintiff prevails on its breach of contract claim, a question exists as to the types of consequential damages that are permitted. Both parties agree that although the aircraft has been fully repaired, it suffered diminution in value because of the accident. The Plaintiff claims loss of value between $300,000 and $400,000; however, the Defendant claims that it would owe only $231,000. This dispute is purely factual.
A significant legal issue is raised by the Plaintiff's claim that it is entitled to damages for the loss of use of the aircraft during the seven months it was being repaired and its intention to admit evidence of what it calls "carrying costs"—the costs of financing, insurance, and pilot salaries—it incurred during those months to establish its damages for loss of use. The Plaintiff does not claim that it lost business profits from its inability to use the aircraft. Similarly, the Plaintiff found it unjustified to charter another aircraft and, thus, it has no claim for the costs of a replacement or rental aircraft in this case.
The Defendant does not dispute that if a breach of contract is found that the Plaintiff can recover damages for loss of use, but argues that evidence of the fixed carrying costs of owning the aircraft during the time it was out of service should not be admitted. It argues:
The fixed carrying costs of aircraft ownership do not bear any relationship to the actual economic value of the loss of use of the aircraft. Because the carrying costs are not a reasonable approximation or a proxy for the lost opportunity of not being able to fly the aircraft, the introduction of these costs will be more prejudicial than probative and will not assist the fact finder in accurately determining the damages in this case.Defendant's Motion in Limine, at 3. The Defendant reasons that the Plaintiff might be able to recover lost profits for the loss of use if it incurred any, but cannot recover the fixed costs because "the Plaintiff would still have had to pay these same fixed costs, even if the contract had not been breached." Id.
The Plaintiff alleges in its Objection to the Motion in Limine that the aircraft was used by it in connection with its real estate business. According to the Plaintiff, at the time of the accident in April 2007, "significant erosion had begun in the real estate market and, as a result, [it] actively considered] liquidating the jet." Plaintiff s Objection to the Defendant's Motion in Limine, at 2. The Plaintiff asserts that the accident "necessarily delayed the[] opportunity to sell the plane and required that [it] continue to carry the costs of ownership." Id. It claims it was required to continue the cost of paying the ownership on the plane because it had invested a great deal of money in "'qualifying' [its] two pilots for this particular aircraft. . . ." Id. Further, "[]given the dearth of similarly qualified pilots[], [it] w[as] required to keep them on the payroll because [it] relied on numerous representations that the repairs would be completed more quickly than they actually occurred." Id. It argues that "it would have been commercially unreasonable to stem the fixed costs by engaging in a 'fire sale' of the aircraft prior to repairs being completed" because had it been sold prior to repairs, the aircraft would have been bought for "pennies on the dollar." Id. at 4.
II
In a contract action, the injured party generally has a right to damages based on his "expectation interest," which is measured by: (a) the loss in the value to him of the other parry's performance caused by its failure or deficiency; plus (b) any other loss, including incidental or consequential loss, caused by the breach; less (c) any cost or other loss that he has avoided by not having to perform." Restatement (Second) of Contracts, Section 347 (1979); see also Estate of Young by Bank of New England, N.A. v. Huysmans, 127 N.H. 461,468 (1985). Under the second prong, the Plaintiff may only seek "consequential damages that could have been reasonably anticipated by the parties as likely to be caused by the [Defendant's breach. . . ." Robert E. Tardiff. Inc. v. Twin Oaks Realty Trust, 130 N.H. 673, 677 (1988). These consequential damages may include "loss of use damages," see Rogers v. Nelson, 97 N.H. 72, 75 (1951), which requires the court to consider "[the] reasonable time for making the repairs to the [aircraft] and the value of [its] use." Id. Here, the Defendant does not dispute that the Plaintiff is entitled to loss of use damages generally, assuming that the Plaintiff can establish his breach of contract claim. Instead, the Defendant seeks only to exclude evidence of the Plaintiff's carrying costs for the period while the aircraft was being repaired.
The law regarding measure of damages for the "loss of use" of commercially owned property is less than clear. As the Colorado Court of Appeals recently noted, "[T]here is no uniformity in the way loss of use of damages are awarded. . . . Thus, many loss of use cases give little or no guidance as to which measure of damages is appropriate in a given case." Purco Fleet Serv., Inc. v. Koenig, 240 P-3d 435, 439 (Colo. App. 2010). Many courts hold that in the commercial context, a Plaintiff must demonstrate that an actual loss rather than a presumed loss occurred. Id. at 440-41; MCI Worldcom Network Serv., Inc. v. OSP Consultants. Inc., 585 S.E.2d 540, 543 (Va. 2003). This view arises from Justice Cardozo's opinion in Brooklyn Eastern Terminal v. United States, 287 U.S. 170,174-176 (1932), in which the Court held that a ship owner who suffered loss of one of its three tugboats, but suffered no monetary damages because it kept a "spare boat" for emergencies, could not recover damages. See Brownstein at 491. However, this view is not universally accepted. As the Purco Fleet Services Inc, court noted:
Loss of use damages are generally treated in the same way in contract and tort actions. See generally Brownstein, "What's the Use? A Doctrinal and Policy Critique of the Measurement of Loss of Use Damages, 37 Rutgers Law Review 443, 443 n. 2 (1985) (hereafter "Brownstein").
[The loss of use] theory has been applied in an unusual manner in the context of personal automobiles. Toward the beginning of the Twentieth Century, as the family auto became less of a luxurious rarity and more a staple item, needed for transport to the owner's job, courts began to award loss of use damages to automobile owners on the theory that there is an intrinsic value in the ability to have a car available for use. Alan E. Brownstein, What's the Use? A Doctrinal and Policy Critique of the Measurement of Loss of Use Damages, 37 Rutgers L. Rev., 433, 492-95 (1985). Under this intrinsic theory of loss, the existence of a loss of some (unspecified) magnitude is presumed once a vehicle is unavailable because it is being repaired. . . . The theory for awarding such damages rests on a so-called "egalitarian view," a concept that a car owner who might not be able to afford to rent a substitute should not be penalized for that inability by being denied damages for the rental amount, where a more wealthy owner who is able to rent a substitute might be awarded that measure of damages. MCI Worldcom Network Serv., Inc. v. Mastec. Inc., 370 F.3d 1074,1078 (11th Cir. 1978).Id. at 439-40 (citation omitted). The Restatement of Torts apparently accepts the egalitarian view. See Restatement (Second) Torts Sec. 931, Comment b. Some courts have applied the "egalitarian view" to commercial cases. See, e.g., KLM N.V. v. United Technologies Corp., 610 F.2d 1052,1055-56 (2d Cir. 1979) (reasoning that it is the loss of the right to use that is compensable and adding, "It is no answer to say to the victim of the tort: since you have failed to prove that you would have made a profit from the loss of use of the damaged property, you take nothing.").
However, the New Hampshire Supreme Court has never accepted the "egalitarian view." Rather, in the few cases dealing with loss of use damages, the Court has allowed damages only where a plaintiff can prove actual harm. See, e.g., Gelinas v. Mackey. 123 N.H. 690, 695-96 (1983) (finding that the jury could properly have determined that no damages had been incurred for loss of use of the plaintiff s vehicle despite evidence that rental of a comparable vehicle would have cost $20 a day, but the plaintiff did not rent a substitute vehicle and presented no evidence that she either "needed the vehicle or was inconvenienced by its loss. . . ."); see also, e.g., Rogers v. Nelson, 97 N.H. 72, 75-76 (1951) (error to submit to jury damages for amount of train travel when automobile was damaged; damages included only the amount spent for train travel less what would have been spent for travel by auto). Given the New Hampshire Supreme Court's apparent rejection of the intrinsic loss theory for proving loss of use damages, the measure of such damages must be based on actual and demonstrable loss. If the Plaintiff can make that showing—e.g., it obtained a substitute aircraft or that it was unable to take advantage of opportunities because of the unavailability of an aircraft—then damages may be recovered. This depends upon the proof at trial.
III.
The Plaintiff has set forth an alternative theory for recovering its carrying costs. It asserts that it is entitled to damages for its carrying costs because it was "preparing" to sell the aircraft and, but for the accident, it would have been able to do so. Plaintiff appears to assert in its motion that it chose to repair the aircraft, continue to pay the pilots, and to sell the plane after it was repaired, because it was more reasonable to do so than it would have been to sell the plane at a fire sale price before it was repaired.
This alternative theory is not a loss of use claim, but rather a claim for special damage to chattel. In order to make this claim, the Plaintiff must establish that the damages were foreseeable when the parties entered into the contract. This will also depend upon the contract, which is not before the Court. Assuming the Plaintiff is able to present facts supporting its claim for special damages, whether or not the Plaintiff can recover damages for the fixed costs is also contingent upon the "avoidability of damages" theory. Restatement (Second) Contract, Section 350 states the general rule that:
(1) Except as stated in subsection 2, damages are not recoverable for the loss that the injured party could have avoided without undue risk, burden or humiliation.As a general rule, a party cannot recover damages for loss he could have avoided by reasonable efforts. See Grenier v. Barclay Square Commercial Condo. Owners' Ass'n, 150 N.H. 111, 119 (2003) (recognizing that a party seeking damages "must take all reasonable steps to lessen his or her resultant loss."). As the Restatement notes,
(2) The injured party is not precluded from recovery by the rule stated in subsection (1) to the extent he has made reasonable but unsuccessful efforts to avoid loss.
[I]t is sometimes said that it is the 'duty' of the aggrieved party to mitigate damages but this is misleading, because he incurs no liability for his failure to act. The amount of loss that could reasonably have been avoided by stopping performance, making substitute arrangements or otherwise is simply subtracted from the amount that would otherwise have been recoverable as damages.Restatement (Second) Contracts, Section 350, Comment B. Assuming that such damages are reasonably foreseeable then whether or not the damages for the fixed costs of the aircraft are recoverable depends, ultimately, on whether or not the Plaintiff acted reasonably in deciding to repair the aircraft and then sell it, rather than selling it at a "fire sale" price. The Defendant bears the burden of proving that the Plaintiff failed to mitigate its damages, Grenier, 150 N.H. at 119, and the law does not require . . . the [Plaintiff] [to have made] a perfect decision, but only a reasonable one. See Joseph M. Perillo, Corbin on Contracts, § 57.11 (2005) ("The doctrine of avoidable consequences merely requires reasonable efforts to mitigate damages.").
Here, the decision whether or not it was reasonable for the Plaintiff to continue to pay the pilots and pay the fixed costs on the aircraft, rather than selling it, depends upon whether or not its conduct was "reasonable." That decision cannot be made on the basis of the pleadings, which show that there is a dispute as to the essential facts.
For these reasons, the Defendant's Motion must be denied without prejudice.
Richard B. McNamara,
Presiding Justice