Bus software, $28,409,512 verdict review/cut

BUS SOFTWARE CONTRACT: $28,409,512 verdict reduced by $9,439,756 consequential damages as precluded by contract and $70,000 lost perpetual license fees duplicative of award for lost license fees… no reduction or new trial on account of expert’s possibly weak analysis based on assumption that a rational customer would have purchased Plaintiff’s software absent Defendant’s unauthorized look-up access or had it used best efforts to sell the software… Molloy.

A Missoula jury awarded Education Logistics of Missoula and affiliate Logistics Management of Mercer Island $28,409,512 for failure of Laidlaw Transit to promote Edulog’s computerized bus routing software to Laidlaw’s school district customers in the US and Canada 1/11/03-8/12 pursuant to a 1992 agreement and for providing unlicensed access to districts. The jury found that Laidlaw breached the contract with Edulog by failing to use its “best efforts” to promote the use of the Edulog software and failed to prove by a preponderance of the evidence that any breach was excused by prior material breach or estoppel, and awarded $8,596,956 lost license fees, $8,596,956 lost annual license maintenance fees, $70,000 lost perpetual license fees, and $9,460,000 lost royalties. It found that Laidlaw breached the contract by providing districts unlicensed access to the Edulog software and that the breach was not excused by prior material breach or estoppel, and awarded $842,800 lost license fees and $842,800 lost annual maintenance fees. The Court entered judgment for Plaintiffs for $28,409,512. (MLW 11/24/12). Prior to close of the case, Laidlaw moved for JML as to whether the annual license & maintenance fees constituted consequential damages that should be excluded. The Court advised that it was reserving ruling as to consequential damages until after the verdict. Laidlaw also moved for JML as to Neil Beaton’s expert testimony, arguing that it should be excluded for a variety of reasons. He was allowed to testify following a Rule 104 hearing. While I expressed reservations as to some of his assumptions, I determined that it was a matter of weight as opposed to admissibility.

Some of Laidlaw’s arguments here present a unique situation — some either were or were not raised in its summary judgment briefing but were not raised in its 50(a) motion. Edulog argues that those arguments are waived. However, if a party raises a pure question of law before the case goes to the jury it does not need to raise them in a 50(a) or 50(b) motion to preserve them for appeal, Cochran (9th Cir. 2000), because a pure question of law does not implicate sufficiency of the evidence presented to the jury. Moreover, the 7th Circuit has held that a judge may revisit after trial issues raised at the summary judgment stage “if he has a conviction at once strong and reasonable that the earlier ruling was wrong, and if rescinding it would not cause undue harm to the party that benefitted from it.”Avita (7th Cir. 1995) (citing Arizona (US 1983). Laidlaw is now asking to revisit questions that it raised in its summary judgment motion but which the Court at the time determined it did not need to resolve. It did not raise those arguments in its 50(a) motion, but it did raise them in its 50(b) motion. It is unnecessary to resolve what standard applies to these arguments because they fail on the merits under any standard.

Laidlaw argued before and at trial that annual license & maintenance fees should be excluded because they are consequential damages, recovery of which is barred by the Agreement. Edulog insists that the award is for general damages. General damages are “damages the law would impute as the natural, necessary and logical consequence of the wrong or breach;” consequential damages are “the natural but not necessary result of the wrong or breach.” Byrum (Mont. 2007). Consequential damages must be “contemplated” at the time of contracting. McEwen (Mont. 2012). The Agreement makes no mention of annual license & maintenance fees. For instance, it does not require payment for annual license & maintenance fees. They are not the “natural, necessary and logical consequence of” Laidlaw’s breach of the Agreement. Edulog argues that they are not merely fees for upgrades & maintenance, but are license fees required for a district to continue as a licensed user, which Laidlaw has an ongoing duty to promote. However, nothing in the plain language of §4.7.3 which Edulog cites implies that it will continue to charge districts annual license & maintenance fees after the district has purchased a license. If anything, it prohibits such ongoing charges — the license is granted to the district “without further charge.” The fact that Edulog was able to recover annual license & maintenance fees from the districts does not mean that the Agreement expressly permitted them. Nothing in the agreement suggests that lost annual license & maintenance fees are a “natural, necessary and logical consequence” of Laidlaw’s breach of the Agreement. The conclusion here is that they are consequential damages expressly barred by §13.0: “LAIDLAW SHALL NOT BE LIABLE FOR INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES.” But these fees are not likely even consequential damages — there is no evidence that the parties “contemplated” them at the time of contracting — and if anything, terms of the contract suggest that Edulog could not charge such fees. So even if the lost annual license & maintenance fees are the natural but not necessary result of the breach, Edulog could not recover them because there is no evidence that the parties “contemplated” them at the time of contracting.

Laidlaw also claims that $26,723,912 — all but the $842,000 for lost license fees on Edulog’s unauthorized look-up access claim — are consequential damages. It insists that the $26,723,912 was for anticipated lost profits from hypothetical transactions with 3rd parties, while the $842,000 resulted from transactions that actually occurred and were direct damages. It argues that the $70,000 for lost perpetual license fees was an alternative to an award for lost full license fees. Edulog did not object to this proposition that awards for both would be duplicative, and its expert testified to that effect. Thus it is unnecessary to resolve whether the lost perpetual license fees are consequential damages. This leaves the lost license fees and lost royalties associated with the best efforts claim. These damages are not consequential; they are general. Laidlaw relies on several cases and secondary sources standing for the “hornbook” proposition that lost profits are consequential damages. It is unclear which hornbook it is reading because the law is at odds with its argument. While lost profits may be consequential damages, they are not necessarily consequential damages. They may be recovered as direct damages in some circumstances, such as when profits are the object of and inducement to the contract. Green (Mont. 1962); Carlson (Mont. 1910). The same is true in other jurisdictions. The royalties and license fees were the very objects of the Agreement, and they induced Edulog to enter the Agreement.

Laidlaw argues that Beaton’s economic analysis was “speculative, scientifically unsupported, legally unsupportable, mathematically and mechanically unreliable, highly prejudicial, and could not provide evidentiary support for the verdict.” It argues that his analysis was merely of lost profits, which the Court had earlier precluded in its summary judgment. The question of lost profits was addressed in the order only in the context of Alan Hess’s report, which focused on forecasted lost profits but was not tied to specific customers. The gist of Hess’s reasoning was that Edulog’s profits had declined while competitor VersaTrans’s had increased, so Laidlaw’s conduct must have been the cause. His opinion testimony was properly excluded. The Court expressly treated his “lost profits” analysis separately from the look-up-access and best-efforts damages analyzed by Beaton, and never concluded that his analysis concerned only “lost profits” and would have been excluded by the summary judgment order. Significantly, Laidlaw treated the lost profits damages calculated by Hess — which were expressly excluded — separately from the look-up-access and best-efforts damages calculated by Beaton. Beaton testified that his analysis was based on an assumption that 100% of Laidlaw’s customers would have purchased Edulog’s software had it used its best efforts and not granted unauthorized access. Laidlaw argues that this assumption is wholly unsupported by any evidence. While there may be some weaknesses in his opinion — perhaps serious weaknesses — those problems go to weight, not admissibility. Laidlaw’s counsel shrewdly challenged him in voir dire and cross, asking whether customers always made rational decisions and, if not, how he could assume that 100% of Laidlaw’s customers would have acted rationally and purchased Edulog’s software and would all of them have thought Edulog was a superior product. Beaton stuck to his guns, claiming that every customer would have purchased Edulog’s software. Laidlaw’s counsel thoroughly communicated these critiques to the jury. The verdict arguably shows that the cross had a significant impact in that the jury awarded less than half the damages that Beaton estimated. The verdict is well within the jury’s prerogative, given the conflicting proof. Laidlaw also argues that Beaton’s “acceleration assumptions” had no basis in fact. They concern the statute of limitations that apply to Edulog’s claims — Edulog can recover only for breaches that occurred before 1/11/03. Laidlaw’s counsel asked probing questions on cross as to whether Beaton was accelerating installation dates to get around the statute of limitations, and in closing attacked his acceleration assumptions. Beaton’s assumption might be fragile and is, perhaps, weakly supported, but Laidlaw sharply cross-examined him and exposed its view of the weakness to the jury, which was instructed not to consider any breaches that occurred prior to 1/11/03. Beaton admitted that there were math and mechanical errors in his schedule of damages. Laidlaw’s counsel thoroughly highlighted these errors on cross and in closing. They go to weight, not admissibility. Beaton testified over objection about First Student/Laidlaw’s 2012 revenues & profits. Laidlaw contends that this was prejudicial and warrants a new trial. Edulog counters that it was based solely on a stipulated exhibit and Laidlaw opened the door because it claimed it did not have the revenue to perform under the contract. The first rationale is dispositive. Beaton’s testimony was based solely on a stipulated exhibit.

In arguing that the award as to best efforts and unauthorized look-up access is not supported by substantial evidence, Laidlaw essentially re-hashes its closing arguments. As Edulog discusses in response, there is evidence on which a reasonable jury could have based its award. Moreover, while it awarded the same damage amounts across different categories, that correctable error alone does not warrant a new trial. Except as discussed above, the Court will not 2nd-guess the jury’s calculation of damages.

Education Logistics and Logistics Management v. Laidlaw Transit, 40 MFR 242, 4/1/13.

Ronald Bender & Matthew Cuffe (Worden Thane), Missoula, and Samuel Bull & Charles Nomellini (Foster Pepper), Seattle, for Plaintiffs; Debra Parker, Missoula, and James Jordan & Devon Sharp (Munsch Hardt Kopf & Harr), Dallas, for Laidlaw.