SANTE FE, N.M. (Legal Newsline) - The Supreme Court of New Mexico issued a mixed ruling in a case involving the destruction by fire of a hydroponic tomato facility whose power had been shut off, without notice, for nonpayment by the local utility.
The lack of electricity rendered the waters pumps useless and Sunnyland Farms claimed that the Central New Mexico Electrical Cooperative's wrongful suspension of service kept firefighters and Sunnyland employees from extinguishing the blaze before it consumed the facility.
The April 18 opinion was written by Justice Edward L. Chavez and concurred in by the remaining members of the five-justice court.
Sunnyland purchased its electricity from CNMEC and on Sept. 8, 2003, CNMEC shut off electrical service to Sunnyland. Although CNMEC generally gives its customers a 15-day notice prior to suspending service, it failed to do this, according to the opinion.
"The trial court record," the opinion says, "indicates a confusing array of possible billing irregularities, but it is not necessary to address them here because CNMEC does not contest the trial court's findings that it was negligent and it breached its duty to Sunnyland."
On Sept. 9, 2003, before the power was restored, a fire broke out near where Sunnyland employees were engaged in arc welding near some cardboard boxes. Employees tried to put out the fire using ordinary hoses but were unable to control the fire without running water.
Sunnyland did not contest that its employees were negligent in starting the fire and in their reaction to it. One example given was the employee's failure to use a fire extinguisher.
Firefighters were called to the scene but were unable to access well water due to the lack of electricity needed to power the pumps. The firefighters contacted CNMEC in an attempt to have the power restored but a mix-up in communication foiled the attempt. The buildings were destroyed.
The opinion notes that Sunnyland had failed to make alternative arrangements for emergency water in the event of a power failure
The trial court found CNMEC liable in both contract and tort and it calculated the total consequential contract damages at more than $21 million, of which $13.7 million was for the net value of lost crops that would have grown had the facility not burned.
Tort damages were reduced by 80 percent to account for Sunnyland's comparative fault, but the court allowed Sunnyland to elect a remedy in contract or tort after the resolution of its appeals. The court also awarded $100.000 in punitive damages to Sunnyland as well as post-judgment interest.
Cross-appeals were filed with the Court of Appeals which affirmed the trial court on all issues raised by Sunnyland but reversed the court on several issues raised by the utility company.
"The Court of Appeals held that in New Mexico, awards of consequential damages in contract are governed by a 'tacit agreement' test, which the trial court had failed to apply. It therefore reversed the award of damages in contract," the opinion says.
"It vacated the trial court's calculation of future lost profits, that the trial court's calculations of crop yields lacked sufficient evidence and did not rise to the level of 'reasonable certainty,' and then substituted a calculation that it found more reasonable.
"The Court of Appeals vacated the award of punitive damages due to the trial court's failure to find the facts necessary to establish corporate liability. Finally, it affirmed the trial court's rulings on pre- and post-judgment interest and on CNMEC's offset of the damages."
On the Court of Appeal's rulings, only Sunnyland appealed.
"This Court has previously stated that in an action for breach of contract, the breaching party 'is justly responsible for all damages flowing naturally from the breach,'" Chavez wrote.
"Damages 'that arise naturally and necessarily as the result of the breach' are 'general damages,' which give the plaintiff whatever value he or she would have obtained from the breached contract.
"In some circumstances, the plaintiff can also recover for 'consequential damages' or 'special damages,' which 'are not based on the capital or present value of the promised performance but upon benefits it can produce or losses that may be caused by its absence.'
"In a contract action, a defendant is liable only for those consequential damages that were objectively foreseeable as a probable result of his or her breach when the contract was made. To the extent our earlier cases suggest a different standard, they are overruled.
"There were no findings in this case that CNMEC should have known of a particular vulnerability to fire on Sunnyland's part, or that Sunnyland had no backup source of power or water.
"With neither findings nor evidence of special circumstances, we cannot uphold a judgment for consequential damages. Accordingly, we affirm the Court of Appeals' reversal of the trial court's award of contract damages to Sunnyland."
Sunnyland also appealed the Court of Appeals' reversal of the trial court's calculation of damages. Although the contract damages were no longer at issue the court recognized that the calculations were still relevant to the determination of the tort judgment.
The trial court had awarded Sunnyland damages for lost profits but the Court of Appeals reversed the trial court, concluding that Sunnyland had not met its burden of proving the amount of the lost profit with "reasonable certainty."
"However," Chavez wrote, "the issue in this case is not whether Sunnyland proved with reasonable certainty the fact that it lost profits. Instead, the issue raised by CNMEC is whether the lost profits are supported by substantial evidence.
"On this record, we cannot say that the damage award was overly speculative or unsupported by substantial evidence. [Sunnyland's Expert] explained his reasoning and calculations, giving 'a satisfactory explanation as to how he arrived at his opinion.
"Therefore, we reverse the Court of Appeals on this issue and reinstate the trial court's calculation of the negligence damages."
The court also found that the trial court's punitive damages award was not supported by substantial evidence, the offset of damages by accounting for CNMEC's settlement with Sunnyland's insurer was contrary to public policy, and the pre and post-judgment interests were either correctly decided or no longer at issue.