Opinion
Case No. 3D05-2130.
Opinion filed October 25, 2006.
An Appeal from the Circuit Court for Miami-Dade County, Roberto M. Pineiro, Judge, Lower Tribunal No. 04-1525.
Hodgson Russ and Richard A. Goetz (Boca Raton), for appellant/cross-appellee.
Boies, Schiller Flexner and Bruce A. Weil, for appellee/cross-appellant.
Before GERSTEN, SUAREZ, and ROTHENBERG, JJ.
RKR Motors, Inc., d/b/a Autohaus of Pompano ("RKR Motors"), appeals a final judgment awarding Associated Uniform Rental Linen Supply, Inc. ("Associated"), $82,444.00, in lost profits. Associated cross-appeals claiming the trial court should have awarded it liquidated damages in the amount of $102,309.00. We affirm in part the trial court's final judgment finding actual lost profits of $82,444.00, but reverse the trial court's final judgment on the cross-appeal and remand for entry of final judgment in the liquidated damages amount of $102,309.00.
RKR Motors and Associated entered into three, five-year contracts in 2000, wherein Associated was to rent and launder uniforms to RKR Motors for the use of RKR Motors' employees. The contracts contained a liquidated damages clause which provided that, if the customer terminated the contracts before expiration, damages would be based on a certain formula and the length of time remaining on the contracts. RKR Motors terminated the contracts prior to their expiration. Associated then brought the present action. The parties stipulated that RKR Motors had breached the contracts and that the only issue to be determined at the bench trial was the amount of profits lost by Associated due to RKR Motors' breach of contract. Associated presented expert testimony that Associated's actual lost profits were $82,444.00, and that Associated's damages pursuant to the liquidated damages clause were $102,309.00. RKR presented expert testimony that Associated's actual lost profits were $10,437.00, and that Associated was not entitled to liquidated damages. After hearing all the testimony, the trial court entered final judgment for Associated in the amount of $82,444.00, and denied Associated's request for liquidated damages. This appeal and cross-appeal follow.
Three witnesses testified at trial. Of the three, two were experts on the issue of the amount of lost profits. Two issues were presented. The first is what is the appropriate legal standard to be used in this case to determine lost profits for breach of contract and the second is which expert provided evidence that met the legal standard.
Associated's expert concluded that Associated's actual lost profits were $82,444.00. He first determined the amount remaining under the contract to be paid by RKR Motors to Associated. He then made adjustments to that amount by deducting costs attributed to Associated in performing the contract, such as sales tax, the cost of the garments, the cost to launder the garments, the cost to wash the garments and the cost to repair and maintain the machines. He testified that he deducted a total of approximately thirty-seven and one-half percent of the contract price as expenses attributable to Associated. He then deducted expenses, such as the fuel costs related to making the stops to deliver these garments. After making these deductions, he arrived at a total actual lost profit for the three years remaining under the contract of $82,444.00. He testified that the income from this contract was only one and one-half percent of Associated's total income of over $4 million. As the profits from the contract were a small percentage of Associated's overall income, he did not deduct certain expenses, such as officers' salaries, office rent or certain employees' salaries. He testified that these expenses did not decrease or increase, but remained the same both before the contracts were entered into and after the contracts were terminated. These expenses were not necessary to perform the contracts and, therefore, did not warrant being deducted.
RKR's expert arrived at approximately the same figure for the remainder of the contracts, but arrived at a different amount for actual lost profits. Aside from deductions for actual costs to service the contracts, he deducted a percentage of the administrative expenses, the general expenses of the company as a whole, and the expenses for selling and delivery to arrive at actual lost profits of $10,437.00 over three years. The trial court, at the end of all the evidence, found Associated's expert to be more credible and determined that his calculations met the requirements of Florida law for establishing lost profits.
This court's standard of review is twofold. First, we have de novo review to determine whether the trial court's interpretation and application of Florida law as to lost profits for breach of contract were correct. See Gilliam v. Smart, 809 So. 2d 905 (Fla. 1st DCA 2002). Second, should we find the trial court's interpretation and application to be correct, we must then determine whether there was competent substantial evidence to support the trial court's findings of fact. See Developers of Am., Corp. v. ABC Promotions Unltd., Inc., 549 So. 2d 1042 (Fla. 3d DCA 1989). We find that the trial court's interpretation and application of Florida law as to lost profits for breach of contract is correct and also find that the record contains competent substantial evidence to support the trial court's findings of fact.
The amount of lost profits as damages for breach of contract is determined by subtracting the service contractor's cost of performance from the contract price, including both fixed and variable costs. Physicians Reference Lab., Inc. v. Seckinger, 501 So. 2d 107 (Fla. 3d DCA 1987). The evidence at trial must show what costs are involved to be deducted. If the evidence is that certain costs are not necessary for the performance of the contracts in question, those costs do not have to be deducted solely because they are costs incurred by the plaintiff in running its overall business. In Knight Energy Servs., Inc. v. C.R. Int'l Enters., 616 So. 2d 1079 (Fla. 4th DCA 1993), the appellate court upheld the jury award of lost profits amounting to basically the total contract price. The plaintiff testified at trial that his business had a fixed overhead which did not change due to the contracts in question. He testified there was a fixed overhead and that employees' salaries were being paid no matter which client was involved. His company was already paying those salaries, the phone bill, etc., with or without the contracts. There were no additional costs associated with the contracts in question to be deducted from the contract price. Defense counsel questioned the representative in an attempt to demonstrate that some overhead expenses were necessary to perform the contracts. The jury accepted the plaintiff's position and awarded, basically, the total of the contract price. The appellate court upheld the verdict as the jury had accepted the plaintiff's testimony. The appellate court stated: "We are not in a position to state that no reasonable juror could return the verdict as awarded." Knight, 616 So. 2d at 1080.
In Boca Developers, Inc. v. Fine Decorators, Inc., 862 So. 2d 803, 805 (Fla. 4th DCA 2003), the same appellate court further explained its decision in Knight. The court stated that, inKnight, "[p]laintiff testified unequivocally that there were no deductible costs or expenses necessary to fully perform this contract." In Boca, the appellate court would not affirm an award totaling the contract price as, contrary to Knight, there was no testimony that the fixed costs, such as salaries of employees, were not involved in furnishing services pursuant to the contract.
Associated's expert testified that fixed costs such as salaries and office rent were the same prior to the contract being entered into and subsequent to its termination and that the only expenses to be deducted were those specific to the performance of the contracts. Therefore, there were no further costs involved in furnishing the services required under the contracts. The trial court found Associated's expert's testimony to be credible specifically stating in the final judgment:
As such, the costs that were expended for overhead would have been expended regardless, as Plaintiff was not seeking to expand . . . operations, nor was the payment to provide for the expansion of operations by hiring more employees and expanding production facilities. . . . Since the overhead is already ongoing and the salaries are already being paid, the only extra overhead to incur in order to service the Defendant's account is contained within an evaluation provided by Plaintiff's expert, which is the amount Plaintiff needs to expend over and above what Plaintiff is already expending in order to service Defendant's account.
Therefore, the trial court properly interpreted Knight and properly applied the facts of this case to Knight in awarding the actual lost profits. The record also contains competent substantial evidence to support the trial court's factual findings. As the Fourth District Court of Appeal stated inKnight, we are not in a position to say that no reasonable juror could return the verdict awarded.
It is very important in this analysis, as well as in any analysis by an appellate court, for the court to keep in mind the court's standard of review. As stated above, we review this case based on de novo review of the law which simply means that we are free to decide the question of law without deference to the trial judge. See Execu-Tech Bus. Sys. v. New Oji Paper Co., 752 So. 2d 582 (Fla. 2000). Our next standard for review in this case is whether or not there is competent substantial evidence to support the trial court's factual findings. These solely are our areas of review. We must always be diligent to keep in mind that we may not reweigh the evidence or substitute our judgment for that of the trier of fact. Shaw v. Shaw, 334 So. 2d 13 (Fla. 1976). The question of credibility of witnesses is also to be resolved by the trier of fact and not by the appellate court.See Cal. Club Realty, Inc. v. Lucca, 517 So. 2d 72 (Fla. 3d DCA 1987) (it is for the trial court, and not the appellate court, to pass on the credibility of the witnesses). The weight of the evidence is a matter also exclusively within the province of the trier of fact. Tibbs v. State, 397 So. 2d 1120 (Fla. 1981), aff'd sub nom. Tibbs v. Florida, 457 U.S. 31 (1982). We must always keep in mind that a damages award in a non-jury trial should be sustained on appeal if supported by competent substantial evidence. Pearce Pearce, Inc. v. Kroh Bros. Dev. Co., 474 So. 2d 369 (Fla. 1st DCA 1985). We may not always agree with the outcome as determined in the lower court but that is not our standard of review. We review each case based solely upon specific standards of review which are determined primarily by the type of decision under review by the appellate court. With all respect to the detailed well-analyzed dissent, it goes beyond our standard of review. It re-weighs and analyzes the testimony to arrive at its decision. This, as an appellate court, we cannot do.
These are some of the areas that are solely within the province of the trier of fact because the trier of fact and not the appellate court is present in the courtroom, observing the demeanor and responses of each witness, and analyzing the credibility of the testimony. As case law has stated, the appellate court does not, and cannot, enter into the province of the trier of fact, nor can the appellate court second guess or retry the case to analyze the evidence to determine if it is reasonable to the appellate judges. If it is reasonable to the trier of fact and if the testimony and the evidence meet the required legal standards, it is not up to the appellate court to state otherwise. The appellate court cannot go behind the testimony to analyze the testimony.
The trial court, after finding actual lost profits to be $82,444.00, found liquidated damages to be $102,309.00. The trial court specifically stated in its final judgment that the liquidated damages clause in the contracts was not disproportionate to the actual lost profits, but elected, on the basis of equity, to award actual lost profits and not the liquidated damages. Florida law recognizes that, where damages are not reasonably ascertainable at the time of contracting, the parties may agree to the amount of damages should a breach occur.See Hyman v. Cohen, 73 So. 2d 393 (Fla. 1954). If damages for a breach are readily ascertainable at the time of contracting, they are considered a penalty and not liquidated damages, and legally cannot be enforced. Bruce Builders v. Goodwin, 317 So. 2d 868 (Fla. 4th DCA 1975). Where parties to a contract agree to the consequences of a breach, the agreement will control provided that a remedy is mutual, unequivocal and reasonable. Hatcher v. Panama City Nursing Ctr., Inc., 461 So. 2d 288 (Fla. 1st DCA 1985). The trial court in the final judgment found that damages were not ascertainable at the time of contracting between the parties, and that the liquidated damages provision was not a penalty. The trial court also found the liquidated damages in the amount of $102,309.00, not to be disproportionate to the actual damages of $82,444.00. As the trial court found liquidated damages not to be a penalty and not to be disproportionate to the actual damages, the trial court was required to enforce the liquidated damages provision. The trial court stated that it was denying liquidated damages for equitable reasons, but failed to state the reasons. As the liquidated damages provision is enforceable, we reverse that portion of the final judgment denying liquidated damages, affirm that portion of the final judgment as to the amount of actual lost profits and remand with instructions for entry of judgment in the amount of the liquidated damages.
Affirmed in part, reversed in part, and remanded with instructions.
GERSTEN, J., concurs.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DISPOSED OF.
As I disagree with the majority's interpretation and application of Florida law regarding the calculation of lost profits, I must respectfully dissent.
FACTS
RKR Motors and Associated Uniform entered into three contracts, in which Associated Uniform agreed to rent and launder uniforms to be used by RKR Motors' employees. After RKR Motors terminated the contracts, Associated Uniform filed a multi-count complaint against RKR Motors, which included a count for breach of contract. Specifically, the breach of contract count asserted, "Pursuant to the terms of the Contract between the parties, Plaintiff is entitled to liquidated damages in the sum of $110,076.48 which is due, as well as compensatory damages and/or lost profits in the event liquidated damages are deemed unrecoverable." The contract that the parties entered into provides in relevant part as follows:
The customer [RKR Motors] acknowledges that the Company [Associated Uniform] has made an investment in the garments, and in the event of cancellation of the Service Agreement by the customer prior to termination date, or in the event of cancellation of this Service Agreement, by the Company as a result of customer's breach of any term of this agreement, the customer shall pay, liquidated damages and not as a penalty the greater of: 75% of the average weekly service charge on the account per week multiplied by the unexpired weeks remaining in the agreement together with all the accrued service charges remaining or the purchase price of the garments in inventory at the rates listed above as replacement values together with all accrued service charges then outstanding.
RKR Motors filed its answer and affirmative defenses, asserting that the liquidated damages clause is "unreasonable," a "penalty," and "unconscionable on its face" because the liquidated damages clause permits Associated Uniform "to receive 75% of the total gross payment of the contracts, while providing no services."
Approximately one week prior to the commencement of the bench trial, RKR Motors admitted liability by conceding that it had breached the contracts. Thus, the only issues that remained to be determined by the trial court pertained to the amount and type of damages to award Associated Uniform. Both parties agree that RKR Motors is entitled to liquidated damages in the approximate amount of $102,000.00, unless a computation of Associated Uniform's lost profits reflects an amount which is disproportionate to the liquidated damages amount. See Lefemine v. Baron, 573 So. 2d 326, 328 (Fla. 1991).
Based on the formula contained in the contract, the parties agreed that the liquidated damages amount was approximately $102,000.00.
At the bench trial, the parties disagreed as to the amount of lost profits sustained by Associated Uniform as a result of RKR Motors' breach of the contracts, and therefore, each party presented expert testimony on that issue. Associated Uniform's expert calculated the lost profits at $82,444.00, whereas RKR Motors' expert calculated Associated Uniform's lost profits at $10,437.00. The difference in the lost profits calculations was due to the methodology used by each expert. In addition, Associated Uniform introduced its income statements which indicated that its average net profits for a three year period was 8% of its average total revenue.
Both experts agreed that in order to calculate Associated Uniform's actual lost profits due to RKR Motors' breach of the contracts, Associated Uniform's expenses must be subtracted from its projected revenue. The experts, however, disagreed on the expenses which must be considered in this computation. Associated Uniform's expert subtracted only those expenses that he believed would be saved as a result of not having to fulfill the contracts, but did not subtract any of Associated Uniform's fixed expenses, such as administrative expenses. On the other hand, RKR Motors' expert subtracted a portion of all of Associated Uniform's expenses, based on his opinion that all of the expenses were involved with rendering services to RKR Motors.
The trial court agreed with Associated Uniform's expert, finding that his valuation was correct because it only took into account the amount of extra overhead that Associated Uniform incurred in order to service RKR Motors' contracts, over and above what it would have expended without servicing RKR Motors' contracts. Accordingly, the trial court found that Associated Uniform suffered $82,444.00 in actual lost profits. Finally, although the trial court concluded that the liquidated damages amount was not disproportionate to Associated Uniform's actual lost profits, the trial court awarded Associated Uniform lost profits, not liquidated damages, in the amount of $82,444.00, finding, "the Court believes that it would be in the best interest of equity and elects to award Plaintiff its actual lost profits as a result of Defendant's breach of the contracts. . . ." This appeal followed.
In paragraph 2 of the final judgment, the trial court stated:
Plaintiff is in the business of renting uniforms and providing service on those uniforms, regardless of obtaining the Defendant's account. As such, the costs that were expended for overhead would have been expended regardless, as Plaintiff was not seeking to expand their operations, nor was the payment to provide for the expansion of operations by hiring more employees and expanding production facilities. Further, Plaintiff did not expect to put an undue burden on their operations since their overhead, salaries, rent and a number of other costs was something that Plaintiff knew it already had. Since the overhead is already on-going and the salaries are already being paid, the only extra overhead to incur in order to service the Defendant's account is contained within the valuation provided by Plaintiff's expert, which is the amount Plaintiff needs to expend over and above what Plaintiff was already expending in order to service Defendant's account.
ISSUES ON APPEAL AND CROSS-APPEAL
On appeal, RKR Motors challenges the amount of lost profits awarded to Associated Uniform, arguing that the methodology used by the trial court to calculate lost profits was legally incorrect. On cross-appeal, Associated Uniform asserts that the trial court erred by not awarding damages pursuant to the contracts' liquidated damages provisions, as it found that the liquidated damages amount was not disproportionate to Associated Uniform's actual lost profits.
The majority has concluded that the trial court correctly interpreted Florida case law in its calculation of the actual lost profits. I respectfully disagree, and would find that the methodology relied upon by the trial court, and Associated Uniform's expert, was legally incorrect, and that the lost profits sustained by Associated Uniform was $10,437.00, not $82,444.00.
STANDARD OF REVIEW
The majority opinion correctly identifies the applicable standard of review. The trial court's determination as to the proper methodology to be used in Florida to calculate lost profits due to a breach of contract is strictly a legal issue. Thus, our standard of review is de novo. See State Dep't of Transp. v. Manoli, 645 So. 2d 1093 (Fla. 4th DCA 1994) (finding that an expert's calculation of lost profits was based on a misconception of the law where the expert's methodology did not include a deduction of the owner's salary); see also Sostchin v. Doll Enters., Inc., 847 So. 2d 1123, 1126 (Fla. 3d DCA 2003) (finding that a calculation of lost profits which did not take officer's compensation into account as part of a corporation's expenses, but instead was based on gross profits, was inadequate as a matter of law); State v. O'Daniels, 911 So. 2d 247, 251 (Fla. 3d DCA 2005) ("We review the trial court's conclusions of law and application of the law to the facts de novo."); Anthony v. Gary J. Rotella Assocs., P.A., 906 So. 2d 1205, 1207 (Fla. 4th DCA 2005) ("The standard of review of a trial court's application and interpretation of Florida law is de novo.").
THE APPEAL
In calculating Associated Uniform's lost profits, the trial court accepted and utilized the methodology testified to by Associated Uniform's expert. Associated Uniform's expert based his calculation on the actual costs that Associated Uniform did not incur due to RKR Motors' termination of the contracts. In support of its position, Associated Uniform relies on Knight Energy Services, Inc. v. C.R. International Enterprises, Inc., 616 So. 2d 1079 (Fla. 4th DCA 1993). On the other hand, RKR Motors' expert concluded that all of Associated Uniform's fixed costs related to the contract must be considered and RKR Motors' relative portion must be included in the computation. In support of its position, RKR Motor relies on Boca Developers, Inc. v. Fine Decorators, Inc., 862 So. 2d 803 (Fla. 4th DCA 2003). Interestingly, both cases were decided by the Fourth District Court of Appeal. Since the trial court and the majority have relied on Knight and the majority opinion is premised on its interpretation of Knight, I will address Knight first.
In Knight, which was decided in 1993, the plaintiff, C.R. International Enterprises, Inc., obtained an award of lost profits against the defendant, Knight Energy Services, Inc. ("Knight"), which had breached its contract. Knight appealed, arguing, in part, that the plaintiff failed to submit sufficient proof to establish its lost profits claim. In affirming the lost profits award, the Fourth District Court of Appeal noted that, "[t]he nonbreaching party seeking lost profits is entitled to the contract price less any deduction for costs and expenses necessary to fully perform," but also explained that the plaintiff "testified unequivocally that there were no deductible costs or expenses necessary to fully perform this contract."Knight, 616 So. 2d at 1080 (emphasis added).
In Boca, which was decided in 2003, subsequent to Knight, a decorator contracted with a developer to furnish several new model apartments. After the developer breached the contract, the decorator sued and obtained a jury verdict awarding lost profits. The developer appealed, arguing that the trial court erred in allowing the decorator to calculate its lost profits without allocating the fixed overhead costs to the model apartment project. Although it admitted that its fixed costs related to the project were in dispute, the decorator argued that those fixed costs did not have to be included in the calculation of its lost profits because it did such a large volume of business and this particular project did not increase its fixed overhead costs. In rejecting this argument, the Fourth District Court of Appeal explained that, if the decorator worked on one hundred projects a year and its fixed costs did not increase after the first fifty, it does not follow that the plaintiff could recover greater lost profits from the seventy-fifth project than the twenty-fifth project. Instead, the court found that fixed expenses must be allocated across the board. The court distinguished Knight, noting that, in Knight, there was testimony that the fixed costs were not involved in performing the projects under contract, whereas in Boca, there was no evidence offered to suggest that the fixed costs were not involved in the performance of the contract in question. Thus, in Boca, the court reversed the award of lost profits, finding that the trial court erred by not taking into account the fixed costs. Boca, 862 So. 2d at 805-06.
In the instant case, Associated Uniform's argument, that an expense must be reduced or "saved" in order to be deducted from revenue in calculating lost profits, is essentially the same argument rejected in Boca, that fixed costs did not need to be deducted from a lost profits calculation because no additional costs were incurred by performing the project in question (and hence, no savings occurred when the project was not performed, as there would be no reduction of fixed costs). See Indian River Colony Club, Inc. v. Schopke Constr. Eng'g, Inc., 592 So. 2d 1185, 1187 (Fla. 5th DCA 1992) (explaining that, in proving lost profits, the non-breaching party must calculate the total costs and expenses necessary to perform the contract, including supervisory services attributable to performing the contract and overhead expenses, and then deduct that sum from the balance owing on the contract price); Physicians Reference Lab., Inc. v. Daniel Seckinger, M.D. Assocs., P.A., 501 So. 2d 107, 109 (Fla. 3d DCA 1987) (providing that lost profits are determined by subtracting the costs of performance, including fixed and variable costs, from the contract price). The majority has taken the same position as Associated Uniform's expert, and ignores the holdings in Boca, Indian River, and this court's decision inPhysicians Reference which hold to the contrary.
The holdings in Boca, Indian River, and Physicians Reference make perfect sense. Requiring a deduction of a share of fixed costs related to the performance of a contract allows for a true measurement of the amount the non-breaching party would have earned on the contract had there been no breach, which is the proper measure of damages. See Indian River, 592 So. 2d at 1187; Physicians Reference, 501 So. 2d at 108. Thus, for the reasons stated herein, I would conclude that the methodology relied upon by Associated Uniform's expert was not only contrary to existing law, but would lead to absurd results, as is evidenced in the instant case. The parties do not dispute that Associated Uniform's average net profit has been 8% of its average total revenue, and a review of the record confirms this percentage. The parties also do not dispute that Associated Uniform services approximately 1000 customers, and that RKR Motors is a "typical" customer. Thus, if Associated Uniform's profit margin is 8% overall, and RKR Motors is a typical customer, Associated Uniform would expect to realize an 8% profit in servicing RKR Motors' account. An examination of the three contracts between Associated Uniform and RKR Motors reflects: (1) as to the May 21, 2003 contract, RKR Motors would have paid Associated Uniform an additional $87.75 per week for 246 additional weeks, had the contract not been breached, for a total of $21,586.50; (2) as to the July 18, 2000 contract, RKR Motors would have paid Associated Uniform approximately $272.00 a week for 98 more weeks, for a total of $26,656.00; and (3) as to the July 18, 2000 contract, RKR Motors would have paid Associated Uniform $825.73 per week for 98 more weeks, for a total of $80,921.54. Thus, if all three contracts had been fully performed, RKR Motors would have paid Associated Uniform a total of $129,164.04, with approximately $108,000.00 being paid over a two year period and the remaining $21,000.00 being paid over an additional three year period.
A review of the income statements in the record shows that Associated Uniform's average annual total revenue is $3,916,690.00, while its average annual net operating profit is only $313,937.00, which is approximately 8% of Associated Uniform's annual revenue.
This contract sets forth monthly charges for three of the five charges that it lists, so a weekly charge was calculated by dividing these amounts by four.
Applying Associated Uniform's 8% profit margin to the $129,164.04, had RKR Motors fully performed the contracts, Associated Uniform would have realized a net profit of $10,333.12. This figure is very close to the amount RKR Motors' expert testified was Associated Uniform's lost profits, after taking Associated Uniform's fixed expenses into account. In contrast, Associated Uniform's expert, who failed to take into consideration Associated Uniform's fixed expenses, calculated Associated Uniform's lost profits at $82,444.00. Thus, in applying the methodology relied upon by Associated Uniform's expert, and in the majority opinion, Associated Uniform would realize a 64% net profit margin on services not rendered and an 8% profit margin for services it actually performs.
Because the amount that Associated Uniform was awarded as compensation for RKR Motors' breach of contract was eight times greater than the amount of profits that Associated Uniform reasonably would have expected to make from the contracts if they had not been breached, Associated Uniform was provided with a windfall. This is contrary to Florida law. See Indian River, 592 So. 2d at 1187 (explaining that a non-breaching party is entitled to recover the amount of profits it would have earned during the remainder of the term of the contract had there been no breach); Pahokee Hous. Auth., Inc. v. S. Fla. Sanitation Co., 478 So. 2d 1107, 1108 (Fla. 4th DCA 1985) (explaining that "a lost profit award must be commensurate with what is fair and just and limited to the actual damages sustained," and finding that a lost profits award, which does not take fixed overhead expenses into account, constituted an "unmerited windfall").
In the instant case, as in Boca, there was no testimony that the fixed costs were not related to the performance of the contracts at issue. Therefore, in calculating the lost profits award, the trial court should have subtracted Associated Uniform's fixed expenses related to performing the contracts.See Boca, 862 So. 2d at 805-06. As the trial court erred in not making this deduction, I would reverse and remand for entry of a final judgment in favor of Associated Uniform in the amount of $10,473.00, and for reconsideration of Associated Uniform's entitlement to attorney's fees and costs.
Associated Uniform relies on testimony providing that no fixed cost, other than the cost of fuel, was "saved" by it not performing the breached contracts. However, as noted above, the correct method in determining lost profits is not to subtract only those expenses that would not be "saved" or reduced by not performing the breached contract. Instead the correct method in determining lost profits is to subtract all costs related to performing the contract.
CROSS-APPEAL
On cross-appeal, Associated Uniform asserts that the trial court erred by not awarding it damages pursuant to the liquidated damages provision of the contracts where it found that the liquidated damages amount was not disproportionate to Associated Uniform's actual lost profits. We agree.
A liquidated damages provision is a clause in a contract that determines in advance the measure of damages in the event of a contractual breach. See Black's Law Dictionary 949 (8th ed. 2004). Moreover,
[i]t is well settled that in Florida the parties to a contract may stipulate in advance to an amount to be paid or retained as liquidated damages in the event of a breach. . . . [T]his Court established the test as to when a liquidated damages provision will be upheld and not stricken as a penalty clause. First, the damages consequent upon a breach must not be readily ascertainable. Second, the sum stipulated to be forfeited must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach as to show that the parties could have intended only to induce full performance, rather than to liquidate their damages.
Lefemine v. Baron, 573 So. 2d 326, 328 (Fla. 1991); see also Crosby Forrest Prods., Inc. v. Byers, 623 So. 2d 565, 567 (Fla. 5th DCA 1993); Humana Med. Plan, Inc. v. Jacobson, 614 So. 2d 520, 522 (Fla. 3d DCA 1992). Even if a liquidated damages provision is otherwise enforceable, equity will relieve against its enforcement when the liquidated damages amount is unconscionable in light of the circumstances existing at the time of the breach. Hutchinson v. Tompkins, 259 So. 2d 129, 132 (Fla. 1972); Coleman v. B.R. Chamberlain Sons, Inc., 766 So. 2d 427, 429 (Fla. 5th DCA 2000); Perez v. Aerospace Acad., Inc., 546 So. 2d 1139, 1141 (Fla. 3d DCA 1989).
The trial court found that Associated Uniform's damages were not ascertainable at the time the contracts were entered into, that the liquidated damages were $102,309.00, and that this amount was not disproportionate to the $82,444.00 it determined were Associated Uniform's lost profits. Despite the finding that the liquidated damages were not disproportionate to Associated Uniform's lost profits, the trial court declined to award the liquidated damages amount, and "in the best interest of equity," awarded $82,444.00 to Associated Uniform.
Unless the trial court found that the imposition of the liquidated damages amount would be "unconscionable," it was required, pursuant to prevailing law, to award the liquidated damages amount. See Hutchinson, 259 So. 2d at 132. I, therefore, agree with Associated Uniform and the majority opinion that the trial court erred in not awarding the liquidated damages amount where it concluded that the liquidated damages amount was not disproportionate to the actual lost profits.