Graphic Directions, Inc. v. Bush
17 Brief Times Rptr. 939, 1993 Colo. App. LEXIS 158, 862 P.2d 1020 (1993)
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Rule of Law:
To recover damages for lost profits resulting from a breach of fiduciary duty, a plaintiff must present substantial evidence that provides a reasonable basis for computing the loss of net profits and must establish that these damages are the direct result of the defendant's wrongful conduct.
Facts:
- Graphic Directions, Inc. (GDI) was a graphics business started by Grant and Oli Duncan.
- Robert L. Bush was a shareholder, vice-president, and marketing director for GDI, and F. Dennis Dickerson was the art director.
- After Grant Duncan's death in 1988, Oli Duncan continued to operate the business.
- Dissatisfied with Oli Duncan's management, Bush made preparations in early 1989 to start his own competing business while still employed by GDI.
- Bush discussed his plans with Dickerson and another employee, but not with Oli Duncan.
- On April 17, 1989, Bush and Dickerson resigned from GDI.
- Immediately following their resignation, Bush and Dickerson began operating Concepts 3, a competing graphics business.
Procedural Posture:
- Graphic Directions, Inc. (GDI) filed a complaint in a Colorado trial court against former employees Robert L. Bush and F. Dennis Dickerson for claims including breach of fiduciary duty.
- At trial, a jury returned a verdict in favor of GDI, awarding it compensatory and exemplary damages against both Bush and Dickerson for breach of fiduciary duty.
- The trial court entered judgment on the jury's verdict and denied the defendants' post-trial motions for judgment notwithstanding the verdict or a new trial.
- Bush and Dickerson, as appellants, appealed the judgment on the breach of fiduciary duty claim to the Colorado Court of Appeals, an intermediate appellate court.
- The Court of Appeals initially reversed the trial court's judgment.
- On certiorari review, the Colorado Supreme Court vacated the Court of Appeals' judgment and remanded the case for reconsideration in light of its decision in Pomeranz v. McDonald’s Corp.
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Issue:
Does a plaintiff provide sufficient evidence of damages for lost profits from a breach of fiduciary duty by presenting evidence of lost taxable profits and reduced sales volume, without providing historical financial data to calculate lost net profits or establishing a direct causal link between the defendants' conduct and the specific losses?
Opinions:
Majority - Chief Judge Sternberg
No, a plaintiff fails to provide sufficient evidence of damages for lost profits by presenting only evidence of lost taxable profits and reduced sales volume. To establish damages, a plaintiff must submit substantial evidence that provides a reasonable basis for calculating the loss of net profits and must prove that the defendant's breach of fiduciary duty was the direct cause of those losses. Here, GDI's evidence of lost taxable profits and reduced sales volume was not a proper measure of lost net profits. GDI failed to provide historical financial statements to compare income and expenses, which would be necessary to calculate lost net profits. Furthermore, GDI did not establish a causal link, as its own accountant could not state that the defendants' conduct caused the losses, and there was no proof that all lost customers were a direct result of the defendants' pre-termination solicitation.
Analysis:
This case clarifies the evidentiary standard for proving lost profit damages in Colorado. By applying the 'substantial evidence' standard from Pomeranz, the court reinforces that while the exact amount of damages may be uncertain, the fact of damages and their cause cannot be speculative. The decision mandates that plaintiffs provide specific proof of lost 'net profits' (revenue minus expenses), not just gross figures like lost sales or taxable income. This holding raises the bar for plaintiffs in breach of fiduciary duty cases, requiring them to present concrete financial data and establish a direct causal link to succeed on a claim for lost profits.
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