Florafax International, Inc. v. Gte Market Resources, Inc.,

Facts

Floratex (P) was a flowers by wire company that allowed placement and receipt of orders between florists throughout the United States. P also solicits agreements with third party clients which allow companies such as supermarket chains, and American Express to order flowers by toll-free calling with P handling the inbound and outbound communication. P and Bellerose entered into a contract in October 1989, wherein P would accept direct consumer orders and also place the outbound order with the delivering florist. GTE (D) provided telecommunications and call answering centers. P subcontracted out much of the telecommunication and telemarketing services to D for the Bellerose deal. The P-D contract had a termination clause in it that required payment of consequential and lost profit damages in the event D decided to cease to perform its duties under the contract. The P-D contract noticed that P would be supplying services to other companies besides Bellerose. Evidence showed that D had extensive and full knowledge of P's business and the quantum of business done with Bellerose and other customers and that P was going to aggressively enter into as many arrangements with Bellerose type customers as it could. Also prior to entering into the contract, D did a financial analysis that showed it would make little or no money from the contract, but D nonetheless entered into the deal in the hope that the financial analysis was wrong. Almost immediately certain problems arose with D's performance under the contract with the most glaring the failure to provide sufficient personnel to answer phones for Mother's Day. This failure to perform caused Bellerose to terminate its contract with P. P then had to take survival actions to set up its own call center to take the calls. P sued D for lost profits on the P-Bellerose contract, the cost of setting up its own call center, and the costs associated with D's duties to handle the services contracted for. A battle of the experts ensued over the lost profits issue. In addition to seeking damages attributable to costs associated with performing the services D was supposed to perform, P sought lost profits it claimed would have been realized from the Bellerose contract. The projections were basically grounded on the pricing terms of the P-D contract and projections of the number of Bellerose orders. A starting point for the latter projections had as their basis the number of calls actually received by GTE from Bellerose customers during the five to seven-month period Bellerose calls and orders were actually being handled by D. P's expert increased the Bellerose sales volume from 1990 to 1991 one hundred percent (100%), while the D expert kept the call and order volumes flat in his projections. The one hundred percent (100%) increase was based on evidence the Bellerose sales volume increased about this percentage over the 1990 year levels. D's expert, in contrast, used a flat growth rate because a general floral industry survey indicated declining volumes in the floral industry from the late 1980s through 1991. P's expert estimated the Bellerose loss at $1,921,028.00 for a period extended out to three years. D's expert estimated the Bellerose loss over the same time frame to be $505,731.00 if the fees to be paid to D by P remained constant for this period of time. The jury found that D breached and P suffered $750,000 in damages. Additional damages of $820,000 were incurred for the costs associated with setting up the call center and to supply services D had agreed upon. D appealed but admitted it breached the contract but disputed the lost profit award. The Court of Civil Appeals reversed the lost profit award - remanding with instructions for a determination of lost profits incurred during a sixty (60) day period, a time frame chosen on the basis the collateral contract contained a clause allowing either party to it to terminate the collateral contract on sixty (60) days notice. Both parties sought certiorari, P claiming error by the Court of Civil Appeals in limiting lost profits to a sixty (60) day period and GTE attacking the propriety of any lost profit award.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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