Page 34 - Economic Damages Calculation

fendant’s] own national sales manager in an internal memorandum to [Defendant] executives.
While this $24 million projection for 1985 may seem high in light of sales under the 1982
Agreement, [Defendant’s] claim that it is purely speculative has a hollow ring when a high-level
[Defendant] executive experienced in sales found the projection sufficiently credible to approve
the termination of [Plaintiff] and the establishment of a [Defendant] military sales representative.
Thus, it was not erroneous to allow the $24 million figure to be presented to the jury, nor for
[Plaintiff] to show that that sales level would have resulted in roughly $600,000 in commissions
in 1985. In addition, we agree with the district court that [Plaintiff's] projection of [Defendant]
sales over a five-year period, based upon a 10% per year sales increase, was relevant and proba-
tive in light of [Plaintiff's] typically longstanding relations with its clients and the lack of evi-
dence that [Defendant] would have terminated [Plaintiff] even without [Defendant]'s participa-
tion in [Plaintiff’s former employee's] disloyal acts. fn 31

While the Second Circuit found that a damage claim and award supported by projections accepted by
both sides in the normal course of business (that is, outside of litigation) provided a reasonable basis for
the award, there is other case law, including the following matter, that was decided by the Supreme
Court of Texas where courts have held differently.

Texas Instruments, Inc. v. Teletron Energy Mgmt., Inc.

This matter involved a new product, the T-2000 voice-prompted programmable thermostat for residen-
tial and light commercial use. fn 32 The thermostat was developed by Teletron and was to be manufac-
tured and sold by Texas Instruments (TI). Teletron sued Texas Instruments for, among other things,
breach of contract, and sought lost profits. At the initial trial, the jury first found that Teletron was enti-
tled to, among other damages, $500,000 of past lost profits. However, the trial court disallowed the
award.

Teletron appealed, and the Texas Court of Appeals overturned the trial court decision and modified the
award to include the $500,000 in past lost profits. Texas Instruments then appealed the Court of Appeals
decision to the Texas Supreme Court seeking dismissal of the $500,000 of lost profits, among other
things.

In considering the appeal, the Texas Supreme Court addressed some of its prior decisions relating to
new businesses (refer to chapter 4 in this practice aid for a discussion of new business issues), and com-
pared those decisions to the case at hand, including with respect to reasonableness of management ex-
pectations regarding profitability. Additionally, the Texas Supreme Court evaluated the issue of projec-
tions which were developed by Teletron, and which Teletron argued were agreed upon by Texas Instru-
ments. In overturning, the Texas Supreme Court held, in part, the following:

The contrast between Southwest Battery and Pace on the one hand, and the present case on the
other, is quite sharp. Those cases involved the sale of established products — car batteries and
cigarettes; the present case involves the proposed sale of a new and unique product which had
never been sold before. In our former cases, the products were in existence, and the damages re-
sulted from failure of delivery; in the present case, a working model of the T-2000 never existed.

fn 31 Id. at 852.

fn 32 Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276 (Tex. 1994).

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