                                                         F I L E D
                                                     United States Court of
                                                             Appeals
                             PUBLISH
                                                       January 5, 1998
                  UNITED STATES COURT OF APPEALS

                          TENTH CIRCUIT                PATRICK FISHER
                                                             Clerk

PROTECTORS INSURANCE SERVICE, INC.,
a Colorado corporation,

                   Plaintiff-Appellee,

v.                                                  No. 96-1399

UNITED STATES FIDELITY & GUARANTY COMPANY,
a Maryland Corporation; FIDELITY & GUARANTY
INSURANCE UNDERWRITERS, INC., an Ohio
corporation; and FIDELITY & GUARANTY INSURANCE
COMPANY, an Iowa corporation,

                   Defendants-Appellants.


          Appeal from the United States District Court
                      District of Colorado
                      (D.C. No. 94-B-2669)


Bruce A. Menk, Hall & Evans, LLC, Denver, Colorado (Alan Epstein of
the same firm, and Mark Holtschneider, USF&G, Baltimore, Maryland,
with him on the briefs), for appellants.

Gerald P. McDermott, McDermott & Hansen, Denver, Colorado, for
appellee.


Before BALDOCK and BRORBY, Circuit Judges, and BROWN,* District
Judge.


BROWN, District Judge.

* The Honorable Wesley E. Brown, Senior District Judge, United
States District Court for the District of Kansas, sitting by
designation.


     The defendants (hereinafter “USF&G”) appeal a jury verdict in

plaintiff’s favor totaling $844,650.00.   The jury found that USF&G
breached a contract with plaintiff and that, as a result, plaintiff

lost future profits in the amount of $809,650.00 and received

$35,000.00 less than fair market value upon the sale of its

business.   On appeal, USF&G concedes liability for breaching the

contract, but argues that the lost profits award should be vacated

because it represents an impermissible double recovery.      In the

alternative, USF&G argues that the evidence was insufficient to

support an award of lost profits. The jurisdiction of the district

court was founded upon 28 U.S.C. § 1332(a); we have jurisdiction

pursuant to 28 U.S.C. § 1291.     The parties agree that the law of

Colorado governs this contract dispute.     See   New York Life Ins.

Co. v. K N Energy, Inc., 80 F.3d 405, 409 (10th Cir. 1996) (federal

court sitting in diversity must apply the substantive law of the

forum state).

     Summary of Facts.

     The plaintiff, a Colorado corporation, was an insurance agency

formed in 1979.    The sole owner of plaintiff’s corporate stock was

Earl Colglazier. Plaintiff was an agent of USF&G and had a written

contract authorizing it to solicit and submit applications for

USF&G insurance.     If the applications were accepted, plaintiff

would be paid a commission by USF&G.      Although plaintiff was an

independent agency, it had contracts with only two insurance

carriers; thus, over 80% of the insurance it sold from 1979 to 1992

was USF&G business. Insofar as termination of the agency agreement


                                  2
between plaintiff and USF&G was concerned, the contract stated that

the parties “agree to make a good faith effort to provide for

rehabilitation and thereby avoid termination of this Agreement.”

     In March of 1992, USF&G notified Colglazier that because of

profitability concerns it was establishing a formal rehabilitation

program for plaintiff.      The program set a goal of achieving

certain   “earned   loss   ratios”   (which   measure   the   agent’s

profitability to the insurance company) in plaintiff’s commercial

and personal lines of insurance in 1992. In October of 1992, USF&G

notified Colglazier that it was going to terminate its personal

lines contract with plaintiff in 180 days if the goals of the

rehabilitation program were not met by the end of 1992. The letter

stated that after May 1, 1993, USF&G would not accept any new

personal lines business and would nonrenew the current business.

In response, Colglazier wrote USF&G and asserted that his personal

and commercial accounts were intertwined and that terminating the

personal lines, although only 20% of his sales, would effectively

put him out of business.    Faced with this situation, Colglazier

decided to sell all of plaintiff’s assets, including the rights,

title and interest on its insurance policies, to Centennial Agency,

Inc., on January 1, 1993.      The purchase agreement called for

plaintiff to receive cash payments of slightly over $148,000.00.1


     1
       The principal owner of Centennial, Mark Swanson, is the
brother of David Swanson, the USF&G special agent that was assigned
to work on plaintiff’s rehabilitation.      After the sale, David

                                 3
        Plaintiff    later     brought     this   suit    alleging       that   USF&G

breached    the     contract    by   not   making   a    good    faith    effort    at

rehabilitation to avoid termination of the agreement.                       For our

purposes it suffices to say that the jury could reasonably find

from the evidence that USF&G breached the agreement by improperly

measuring plaintiff’s loss ratios, by unfairly changing the goals

and criteria of the rehabilitation program, and/or by certain other

arbitrary actions.

        With respect to damages, plaintiff presented the testimony of

John Putnam, an expert in valuation of insurance agencies.                      Putnam

testified that plaintiff’s business was sold at a “distressed”

price    because    of   the    circumstances under which it was sold,

including time pressure to make a sale and USF&G’s stated intention

of terminating the agency’s personal lines insurance.                           Putnam

testified that the agency would have been worth approximately

$175,000 had it not been sold under distress.                   Aplt. App. at 226.

Putnam arrived at this value by using three different methods: a

multiple of revenues, a price/earnings ratio, and a capitalization

of earnings.        Id. at 254.       In addition to this evidence, Earl

Colglazier testified that he would have continued to operate the

agency for at least ten more years had USF&G not given him the

termination notice.            Plaintiff also presented rather confusing


Swanson left his job and joined his brother’s agency, becoming the
agent responsible for plaintiff’s former book of business. Aple.
Supp.App. at 49.

                                           4
evidence with respect to its net profits in the years before the

sale.     According to Colglazier’s testimony, Protectors Insurance

Service     was   operated   in   conjunction   with   a   company   called

Protectors Management Service, which conducted “all of the office

insurance activities, salary, payroll, paying everybody on behalf

of Protectors Insurance Service.”         Aplt. App. at 72.    The returns

of Protectors Insurance Service showed reported net income in the

years before the sale ranging from a low of about $36,000 to a high

of about $84,000, with an average of about $59,000.              Plaintiff

argues that the returns of Protectors Management Service show that

plaintiff’s net income was actually higher than this.           Defendant,

on the other hand, argues that the combined returns of the two

companies show that plaintiff made under $2,000 in 1991 and lost

over $17,000 in 1992.

        The district court instructed the jury with respect to damages

as follows:

             To the extent that actual damages have been
             proved by the evidence you shall award as
             actual damages:

             1. The amount of net income and earnings the
             Plaintiff ... would have earned if the
             Defendants had not breached the contract; and

             2. The amount which is the difference between
             the price the Plaintiff ... received for the
             sale of the agency’s business and the
             reasonable sale value of the agency’s business
             if the Defendants had not breached the
             contract....”

Aplt. App. at 41. USF&G objected to this instruction, arguing that

                                      5
it permitted plaintiff to obtain a double recovery because the

reasonable sale value of the agency was based on the agency’s

ability to earn future profits and, thus, plaintiff would be

compensated twice if it received lost profits on top of the sale

price.   The district court rejected this, finding that the two

items were distinct because the sale value in 1992 was a “snapshot

in time” that did not include lost future profits.            Aplt. App. at

60.   As indicated previously, the jury returned a special verdict

finding $809,650 in lost profits and a $35,000 difference between

the actual sale price of the agency and its reasonable sale value.

      Discussion.

      USF&G   first   argues   that       the   district    court’s   damage

instruction was erroneous because it permitted the plaintiff to

obtain a double recovery.      We agree.         In a breach of contract

action, the objective is to place the injured party in the same

position it would have been in but for the breach.               McDonald’s

Corp. v. Brentwood Center, 942 P.2d 1308, 1310 (Colo.App. 1997).

A double or duplicative recovery for a single injury, however, is

invalid. Westric Battery Co. v. Standard Elec. Co., 482 F.2d 1307,

1317 (10th Cir. 1973).     Plaintiff contends there was no double

recovery here because “[t]he record is devoid of any factual basis

for believing that the damages for the decreased sales price are

based upon or included future lost profits.”               Aple. Br. at 30.

This assertion is contradicted both by the record and by common


                                      6
sense.   The testimony of plaintiff’s expert, John Putnam, shows

that his determination of the reasonable sale value of the agency

was based largely -- if not entirely -- upon the agency’s ability

to generate future profits.      His testimony makes clear that the

value of an agency to a buyer is determined from its potential to

generate a future income stream.       See e.g., Aplt. App. at 226.

Putnam conceded that all of the methods he used to determine value

took into account the agency’s ability to generate future profits.

Aplt. App. at 254.     When asked what the reasonable sale price of

the agency’s business would have been but for the distress factors

brought about by the defendant, Putnam replied:

             Well, at the time that it was sold, you know,
             based upon income, because to a large degree
             this is what we all — and I am talking about
             commission revenue, what kind of income is
             coming into the agency, what kind of expenses
             they had. In my opinion the agency was worth
             approximately $175,000 at the time that it was
             sold had it not been sold under duress or
             distress.

Aplt. App. at 228.

     We agree with USF&G that Albrecht v. The Herald Co., 452 F.2d

124 (8th Cir. 1971), although it is not controlling in this

diversity action, is analogous to the situation       before us.   In

Albrecht, the plaintiff was a contract carrier for a newspaper

publisher.    After plaintiff charged the subscribers on his route a

greater price than the suggested retail price of the publisher, the

publisher began competing directly with the plaintiff on his own


                                   7
route. As a result of defendant’s actions, plaintiff was forced to

sell the route for $12,000.             The publisher’s actions were later

found to violate the Sherman Act and the plaintiff obtained a jury

verdict comprised of three elements of damages: (1) plaintiff’s

lost       profits   prior   to   the   sale    caused   by   the   publisher’s

competition; (2) the difference between the fair market value of

plaintiff’s business (with all his customers intact) at the time of

the sale and the actual sale price received; and (3) loss of future

profits following the forced sale.             Id. at 126.2   In reversing the

award of lost profits, the Eighth Circuit explained after an

extensive review of cases why such an award was impermissible:

               [N]one of these cases allowed a plaintiff
               damaged by an antitrust violation to recover
               both the value of the business as a going
               concern at the time of the damage and future
               profits of that business after the time of the
               damage. The future profits which were allowed
               in those cases were used as a method of
               calculating the damage to the value of the
               businesses involved because no other reliable
               method of valuing the business was presented.
               However, in the instant case we have clear
               proof in the record of the value of
               plaintiff’s business as a going concern, and
               that   value   must  necessarily   take   into
               consideration    its  future    profit-earning
               potential.    Thus, we think that the cases
               relied on by the defendant, which allow the
               plaintiff to recover the going-concern value
               of his business, but not future profits in
               addition, are applicable to the instant case.

               *      *      *


       The jury awarded damages for three items in the respective
       2

amounts of $2,000, $12,000, and $57,000. Id. at 126.

                                         8
          It is our opinion that the plaintiff has
          received all permissible damages under items
          one and two, damages occasioned prior to the
          sale and the full market value on the sale of
          his route as a going concern, free of the
          restrictive practices. This value is figured
          on the basis of his reconstituted route with
          all 1200 customers. Fair market value would be
          that price a willing seller could secure from
          a willing buyer, and the evidence establishes
          $24,000 as the maximum price obtainable.
          Plaintiff has thus been made whole on his
          actual damages [....] He is not entitled to
          sell the route, receive full compensation
          therefor, and still receive the profits the
          route might have made over his reasonable
          work-life expectancy. The trial judge did cut
          these damages down to future losses occurring
          after the sale for a period of three years. We
          feel this also is duplicitous. The prospect of
          future earnings is considered in arriving at
          the fair market value of a given business.
          Here undoubtedly the value of the route rested
          not in its tangible assets of an old truck and
          paper wrapper (valued $600) but in the
          exclusive contract for distribution of a well
          regarded newspaper in a given area. Whatever
          that fair market value might be, plaintiff has
          received it. Capitalizing and discounting
          future profits is one method of figuring
          present value, but this does not mean that a
          person is entitled to present value plus
          future profits.

Id. at 131.

     To the extent Colorado courts have addressed the question of

duplicative damages, they have adopted a view similar to Albrecht.

For example, in State of Colorado v. Morison, 148 Colo. 79, 365

P.2d 266 (Colo. 1961),3 the court addressed the damages recoverable


     3
       Morison was overruled in part on other grounds by Evans v.
Bd. of County Comm. of El Paso County, 174 Colo. 97, 482 P.2d 968
(Colo. 1971).

                                9
by a farmer whose dairy cows had become diseased through the

defendant’s negligence:

             [T]he Morisons are admittedly entitled to such
             special damages as they are able to show with
             reasonable certainty resulted from defendants'
             negligence.     This would include loss of
             profits due to diminished milk production from
             the cows before their sale; the value of
             silage or feed that became contaminated and
             therefore unusable; and the reasonable cost of
             disinfecting the milking equipment, barn
             facilities, and the farm in general.
                 However, the Morisons are not entitled to
             be awarded any sum representing loss of
             profits for the dairy operation from and after
             the date of the sale of their diseased cows.
             Nor are they entitled to be compensated for
             the loss of the progeny which they could
             reasonably have expected from the cows.
             Having received the diminution in their market
             value[,] to allow these additional items would
             be a form of double recovery. In other words,
             fair market value itself reflects, inter alia,
             the fact that the farm animal may have income
             producing ability, including the ability to
             propagate.

     A similar approach was taken by the Colorado Court of Appeals

in Forsyth v. Associated Grocers of Colorado, Inc., 724 P.2d 1360

(Colo.App.     1986),   where   a   jury   had   awarded   damages   to   an

independent grocer who had to sell his business as a result of a

misrepresentation by the defendant.        The court of appeals reversed

the judgment because the trial court’s instruction on damages

permitted the jury to award lost profits in addition to an amount

awarded to ensure that plaintiff received the fair market value of

the business. “Such a result,” the court concluded, “would lead to

an improper double recovery.”       Id. at 1365.

                                     10
     Numerous jurisdictions hold to the view that “when the loss of

business is alleged to be caused by the wrongful acts of another,

damages are measured by one of two alternative methods: (1) the

going concern value; or (2) lost future profits.”      Malley-Duff &

Assoc. v. Crown Life Ins. Co., 734 F.2d 133, 148 (3rd Cir. 1984).

See also Johnson v. Oroweat Foods Co., 785 F.2d 503, 508 (4th Cir.

1986) (the courts allow a plaintiff to recover either the present

value of lost future earnings or the present market value of the

lost business, but not both).      The “going concern value” is the

price a willing buyer would pay and a willing seller would accept

in a free marketplace for the business in question.      Malley-Duff,

734 F.2d at     148.   It measures damages by awarding the difference

between the going concern value and the price actually received by

the plaintiff upon sale of the business.     Cf id.   This is clearly

the measure of damages that was presented by plaintiff’s expert in

the instant case and it properly supports the consequent award of

$35,000 by the jury.     The award of lost profit damages in addition

to this amount, however, was an improper double recovery.

     Plaintiff contends that Atlas Building Products Co. v. Diamond

Block & Gravel Co., 269 F.2d 950 (10th Cir. 1959) supports the view

that an injured plaintiff can recover lost profits as well as a

“diminution in value” of the business.      Atlas is distinguishable

because   the   plaintiff   in that case continued to operate the

business despite the injury.      Such a plaintiff might not be made


                                   11
whole by receiving lost profits because the business may be left

with assets (e.g., intangible assets such as goodwill) that have

less value than before the injury.    Such a loss would be realized

by the owner upon a subsequent sale of the business.   But where the

business is sold as a going concern and the owner is awarded the

fair market value of the business without the injury,4 the owner

has been made whole because that value takes into account the

prospect of future profits as well as the unreduced value of all

the business’ assets.   Cf. Morison, supra (plaintiff could recover

profits lost before his cows were sold but not after).    Plaintiff

also relies on Twentieth Century-Fox Film Corp. v. Brookside

Theatre Corp., 194 F.2d 846 (8th Cir. 1952), but that case did not

arise under Colorado law and thus does not diminish the holdings in

Morison and Forsyth, supra.   Moreover, we think it clear that the


     4
       Plaintiff argues that Arnott v. The American Oil Co., 609
F.2d 873 (8th Cir. 1979), supports its position, but upon close
inspection it does not.     First of all, Arnott recognized that
“going concern value” and lost future profits are alternative
measures of damage, which necessarily means that it is improper to
award both. See id. at 887. Moreover, the court said that the
jury in that case could have found that the sale “was a forced sale
with no allowance for goodwill or the value of a going business and
therefore that [plaintiff] had not received the fair market value
of his business.” Id. at 887. This analysis in inapplicable to
the instant case. The evidence in this case clearly showed that
the business was sold as a going concern, with its value arising
from the fact that it would continue to operate as an insurance
agency. Second, the damage instruction given to the jury in this
case told them to award the difference between the actual price
received for the business and “the reasonable sale value of the
agency’s business if the Defendants had not breached the contract.”
This instruction was clearly designed to ensure that the plaintiff
received fair market value for the business.

                                 12
Eighth   Circuit’s   view   of    duplicative   damages   was   refined   in

Albrecht and it is the latter decision which provides guidance on

the question before us.

     We do not mean to suggest that there can never be an award of

lost profits in addition to damages for reduction in the value of

the plaintiff’s business.        As we recognized in Westric Battery Co.

v. Standard Elec. Co., 482 F.2d 1307 (10th Cir. 1973), “[i]t is

conceivable that there could be capital loss shown in addition to

out-of-pocket expenses and loss of profits.”        Id. at 1317.    Such a

loss must exist clearly independently of the lost profits, however,

and “[t]he jury must be cautioned about duplicative items of

damage.”    Id.   Neither of these requirements was satisfied in the

instant case.      In sum, we conclude that the judgment must be

vacated in part because it awards plaintiff an impermissible double

recovery.

     Not surprisingly, the parties disagree as to what effect a

double recovery has upon disposition of the appeal.              Plaintiff

argues that only the $35,000 award for diminished sale value should

be vacated and that the lost profits award should stand, while

USF&G argues just the opposite.       Although, as indicated above, the

“going concern” and “lost profit” measures are generally considered

alternative remedies, in this case we conclude that the award of

lost profits must be vacated.        Just as in Albrecht, here we have

“clear proof in the record of the value of plaintiff’s business as


                                     13
a   going   concern,   and    that     value    must   necessarily   take   into

consideration its future profit-earning potential.”             Albrecht, 452

F.2d at 129.     In fact, plaintiff’s expert in this case testified

solely to the going concern value and did not make an estimate of

lost future profits.5        Lost future profits may be used as a method

of calculating damage where no other reliable method of valuing the

business is available, see id., but that was not the case here.

Plaintiff has been made whole by receiving the fair market value of

the business; he “is not entitled to sell the [business], receive

full compensation therefor, and still receive the profits the

[business]     might   have     made     over    his    reasonable   work-life

expectancy.” Id. See also R.E.B., Inc. v. Ralston Purina Co., 525

F.2d 749, 754 (10th Cir. 1975) (ability to earn future profits is

to be calculated as part of reduction of market value).              Moreover,

we note that the lost profits award in this case would still be

duplicative even if the $35,000 were vacated because the former

fails to take into account the additional sum received by plaintiff

(over $148,000) for the sale of the business.              Thus, the award of


      5
         Plaintiff did not present a specific estimate of lost
profits from any witness but instead relied on the plaintiff’s tax
returns and the arguments of counsel. Although plaintiff at one
point attempted to establish the amount of lost profits through its
expert, the trial court sustained an objection to this testimony
because it was beyond the scope of the expert’s report and
designation.    Aplt. App. at 232.      In addition to its other
arguments, USF&G contends that the lost profits award should be
vacated because it was based on speculation by the jury. Because
we find that the lost profit award must be vacated for other
reasons, we do not reach this issue.

                                        14
lost profits cannot stand.

     Under the circumstances, we conclude that the proper course is

to vacate the portion of the judgment awarding $809,650 in lost

profit damages. The alternative award of $35,000 for diminution in

market value is appropriate and is AFFIRMED.   The case is REMANDED

to the district court for entry of judgment in accordance with this

opinion.




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