Page 71 - Calculating Lost Profits

As a general matter, for the mitigation doctrine to be applied, the defendant must plead mitigation as an
affirmative defense fn 7 and successfully demonstrate that the plaintiff could have reduced damages by
mitigation efforts. Alternatively, the plaintiff may respond that mitigation was not reasonably possible
because of costs, logistics, or other issues.

Cases With a Reduction in Lost Profit Damages for Failure to Mitigate

Cypress Engine Accessories, LLC v. HDMS Ltd. fn 8 addressed engine parts purchased by Cypress that it
alleged were defective. Pursuant to an agreement between the parties, HDMS credited Cypress for the
faulty parts, which were returned to HDMS. In a counterclaim, HDMS claimed that Cypress was wrong-
fully sold competing parts, with damages calculated as the difference between HDMS’s retail price (less
a restocking fee) and the wholesale price of those parts. Cypress argued that HDMS failed to mitigate its
damages because it did not resell the parts in the retail market. The court found that if HDMS had resold
the returned engine parts at retail value, it would not have lost money (that is, HDMS could have miti-
gated its losses by the resale of engine parts at retail value).

Cambridge Plating Co., Inc. v. Napco, Inc. fn 9 found error in an award of over $3 million in compensa-
tory damages because Cambridge Plating failed to mitigate its damages. A dispute over a defective ma-
chine part could have been remedied by the purchase and installation of a new part. Cambridge Plating
did not install the new part until 15 months after it knew of the defect, and the installation took one day.
Although the district court recognized that Cambridge Plating failed to mitigate its damages, the court
did not adjust the damage award. The appellate court vacated and remanded the district court’s award
because of Cambridge Plating’s failure to mitigate.

Cases With Offsets in Lost Profit Damages for Mitigation

C & O Motors, Inc. v. General Motors Corporation fn 10 addressed mitigation as an offset to lost profits
damages claimed by C & O Motors, Inc. (C & O). General Motors (GM) decided to phase out its
Oldsmobile line of vehicles, from 2001–2004. GM had recently entered into a five-year dealer agree-
ment with C & O to provide Oldsmobile vehicles for sale at C & O’s dealership. When GM informed C
& O of the phaseout of Oldsmobile vehicles, C & O purchased rights to a Nissan dealership. The Nissan
dealership was profitable and offset the lost profits that C & O claimed against GM. C & O sued GM for
damages, including the costs associated with acquiring the Nissan franchise. The district court found that

fn 7 Failure to mitigate damages is generally an affirmative defense. For example, see the following cases, applying Fifth Circuit law,
E.E.O.C. v. Serv. Temps Inc., 679 F.3d 323, 334 n.30 (5th Cir. 2012); Branch Banking & Trust Co. v. Lexiam Enters., LLC, No. 3:15-
CV-2928-M, 2016 U.S. Dist. LEXIS 147305, at *8 (N.D. Tex. Oct. 24, 2016). "The failure to plead an affirmative defense generally
results in waiver of that defense." Garrison Realty, L.P. v. Fouse Architecture & Interiors, P.C., 546 Fed. App'x 458, 465 (5th Cir.
2013); see also Fed. R. Civ. P. 8(c). "A court may excuse the failure to plead an affirmative defense, however, if the opposing party is
not prejudiced." Id. (citing Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 350 (1971) for the proposition that "the
purpose of the pleading requirement in Rule 8(c) is to give the opposing party notice and an opportunity to argue why the defense is
inappropriate.").

fn 8 Cypress Engine Accessories, LC v HDMS Ltd., USDC So. District of Texas, C. A. No. H-15-2227 (October 6, 2017).

fn 9 Cambridge Plating Co., Inc. v. Napco, Inc., U.S. Ct. Appeals, 1st Cir. Nos. 95-1781, 95-1782 (June 3, 1996).

fn 10 C & O Motors, Inc. v. General Motors Corporation, U.S. Ct. Appeals, 4th Cir. No 08-1157 (April 1, 2009).

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