Plaintiff’s Claim for Consequential Damages was “Doomed to Fail,” Based on Theory of the Case

A party may recover consequential damages caused by a breach of the implied warranty of merchantability, but the breach must cause the consequential damages. The Iowa Court of Appeals in Car Wash Consultants, Inc. v. N/S Corporation, No. 15-1372 (Oct. 12, 2016), held that the plaintiff had failed to show that the breach caused the consequential damages alleged.

The suit concerned a car wash manufactured by N/S Corporation, which was distributed and installed by Car Wash Consultants (“CWC”).  CWC installed the car wash in a facility owned by Martinez; Martinez’ business suffered as the result of several defects in the car wash. CWC claimed it suffered consequential damages, because CWC lost the sale of a second car wash to Martinez, after his bad experience with the first car wash.

The problem, however, was CWC’s theory of the case.  CWC argued that Martinez selected another distributor because N/S blamed CWC for defective installation. CWC claimed that N/S encouraged Martinez to purchase N/S’s product through another distributor.  Thus, according to the Iowa Court of Appeals, CWC’s damages did not arise from N/S’s breach of the implied warranty of merchantability.  Rather, the damages arose from N/S’s interference with CWC’s relationship with Martinez.  CWC’s theory “doomed” CWC’s argument for consequential damages.

CWC did not fare much better on its other points on appeal. Specifically, CWC persuaded the appellate court that it was error to allow N/S to ask questions regarding other litigation between CWC and another car wash manufacturer. However, because the litigation was irrelevant to whether N/S’s breach caused CWC consequential damages, the error was not prejudicial. CWC failed to show prejudice. The questions were only a small part of a lengthy trial, and the jury was instructed that breach had been found, such that prior litigation had little bearing on damages.

Furthermore, the appellate court affirmed a spoliation instruction against CWC, as CWC failed to preserve certain financial records (and then later produced some of the records just days before trial), and there was no prejudice from the instruction.  Again, CWC’s claim was “doomed to fail” because of CWC’s theory of the case. That is, CWC would have lost, even if the instruction had not been given.

Car Wash Consultants reminds litigants that a party’s theory of the case must be consistent with the legal claim and the argument for damages. Otherwise, as in Car Wash Consultants, even if the case theory is plausible, the party may not have proven a legal entitlement to damages.

For further information on commercial litigation, contact Mollie Pawlosky.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- Mollie Pawlosky