Omura v. American River Investors
78 Haw. 416, 894 P.2d 113, 1995 Haw. App. LEXIS 13 (1995)
Rule of Law:
Damages for lost profits in a breach of contract action must be measured by lost net profits, requiring a plaintiff to submit evidence of both gross revenue and associated costs and expenditures to prove losses with reasonable certainty, not mere speculation.
Facts:
- Since 1987, Franklin K. Omura operated a 'Dave’s Ice Cream' franchise selling hand-dipped ice cream in the Waimanalo Shopping Center, which he leased from American River Investors (ARI).
- In June 1990, ARI signed an agreement with Omura, promising not to allow any other tenant in the Center to sell hand-dipped ice cream.
- On August 16, 1992, Anna H. Cho, another tenant in the Center, began selling hand-dipped ice cream with ARI's alleged permission, continuing until November 5, 1992.
- Omura testified that his gross sales decreased, with sales in the second half of August 1992 falling 20% compared to the first half, and overall monthly sales decreasing from August to November 1992 compared to previous years.
- Omura submitted summaries of gross sales receipts and charts showing decreased sales but did not provide any evidence regarding his costs or expenditures related to his ice cream sales.
- ARI presented evidence suggesting Omura's decreased sales might be due to a decline in tourists visiting the Center, noting a similar sales pattern in another tenant's business.
- Cho’s husband testified about her store's hand-dipped ice cream sales revenue during the relevant period.
Procedural Posture:
- Franklin K. Omura filed suit in district court against American River Investors (ARI) and Anna H. Cho, seeking damages for violation of an agreement.
- ARI appeared in court and entered a general denial.
- Anna H. Cho was subsequently dismissed from the case.
- A non-jury trial was held in the district court.
- The district court found in favor of Omura and awarded him $4,000.00.
- Judgment was entered in the district court.
- ARI appealed the judgment to the Hawaii Intermediate Court of Appeals.
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Issue:
Does a plaintiff adequately prove damages for lost profits in a breach of contract action by submitting evidence solely of lost gross sales revenue without providing any evidence of related costs or expenditures?
Opinions:
Majority - Acoba, Judge
No, a plaintiff does not adequately prove damages for lost profits in a breach of contract action by submitting evidence solely of lost gross sales revenue without providing any evidence of related costs or expenditures. The court held that damages for lost profits are measured by lost net profits, which means the excess of returns over expenditures, not lost gross profits or gross sales revenue. To calculate true profits, elements such as the price of materials, interest, and expenses of manufacture and sale must be taken into account. While absolute mathematical certainty is not required, the extent of loss must be shown with reasonable certainty and cannot be based on mere speculation or guess. In this case, the trial court explicitly acknowledged its difficulty in determining an appropriate sum due to the lack of evidence of Omura’s costs and admitted its award was, to some extent, arbitrary. Because Omura had the burden of proving his costs with competent evidence but failed to do so, his submission of only gross sales revenue was insufficient to prove lost net profits. When a plaintiff has proven injury but fails to prove the amount of damages with reasonable certainty, they are entitled only to nominal damages.
Analysis:
This case clarifies the critical distinction between gross sales and net profits in the context of damages for lost profits, emphasizing that plaintiffs bear the burden of proving their economic losses with reasonable certainty. It establishes a clear precedent that evidence of costs and expenditures is an indispensable component of proving lost profits, not merely gross revenue fluctuations. Failure to provide such evidence will result in, at best, nominal damages, even where a breach of contract and some injury are proven. This ruling underscores the importance of meticulous financial record-keeping and comprehensive evidentiary presentation for litigants seeking consequential damages in commercial disputes.
