Victor Deng and DM Technology & Energy, Inc. v. Clarence \"Buddy\" Scoggins and Complete Lighting Source, Inc. , 169 So. 3d 1015 ( 2014 )

Rel: 12/5/14
Notice: This opinion is subject to formal revision before publication in the advance
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the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2014-2015
____________________
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____________________
Victor Deng and DM Technology & Energy, Inc.
v.
Clarence "Buddy" Scroggins and Complete Lighting Source,
Inc.
Appeal from Jefferson Circuit Court, Bessemer Division
(CV-07-0563)
BRYAN, Justice.
Victor Deng and DM Technology & Energy, Inc. ("DM"),
appeal from a judgment based on the jury's verdict entered by
the Jefferson Circuit Court in favor of Clarence "Buddy"
Scroggins and Complete Lighting Source, Inc. ("Complete
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Lighting"), on their claims against Deng and DM alleging
breach of contract and fraud. We affirm the judgment as to
the breach-of-contract claim but reverse the judgment as to
the fraud claim, and we remand the case to the circuit court
for a new trial on that claim.
Facts and Procedural History
Scroggins is the owner of Complete Lighting, an Atlanta-
based company that sells lighting equipment, including lamps,
ballasts, and fixtures. Deng is the owner of DM, a
California-based company that also sells lighting equipment.
Scroggins began to work as a sales representative for DM in
late 2004 or early 2005. Scroggins testified that the parties
originally intended for Scroggins to sell DM's fluorescent
products but that he had difficulty selling those products
because DM did not have the necessary stock to fill the orders
he generated.
As part of its business, Complete Lighting sold lighting
equipment to owners of aquariums. Scroggins became aware of
concerns expressed by aquarium owners related to high energy
consumption, costs, and heat caused by existing aquarium-
lighting fixtures. Scroggins testified that, in response to
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those concerns, he developed an idea for an LED lamp tube that
could be used in aquariums. Scroggins did not have the
ability to manufacture the LED lamp tube, so he communicated
his idea to Deng, who owned a company in China with
manufacturing capabilities. Deng developed a prototype of the
LED lamp tube, which he sent to Scroggins. Scroggins
testified that the first prototype was "not even close" to his
original idea. He discussed his concerns with Deng, who,
according to Scroggins, sent him a second prototype that was
better. However, Scroggins still was not satisfied with the
prototype. Scroggins testified that the third prototype Deng
sent him was something that Scroggins thought was marketable.
While the prototype for the LED lamp tube was in
development, a friend of Scroggins's, Skip Busby, suggested an
alternative use for the LED lamp tubes in display counters in
retail businesses, such as Wal-mart Stores, Inc. ("Wal-mart").
Busby arranged a meeting for Deng and Scroggins in
Bentonville, Arkansas, with one of Wal-mart's suppliers,
Leggett & Platt, Inc., to demonstrate the LED lamp tubes. In
July 2006, while in Bentonville but before the meeting with
Leggett & Platt, Scroggins and Deng executed an agreement that
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had been drafted by Scroggins ("the exclusivity agreement").
The exclusivity agreement provided, among other things:
"1. [DM] gives the right to sell to Complete
Lighting exclusively for one year from the signed
date. At the end of this term, said contract will
be reviewed and re-negotiated if needed.
"2. [DM] guarantees 5% commission for present
and future sales from any and all customers
[Complete Lighting] brings of the LED [lamp] [t]ube.
"3. [DM] guarantees to deliver product in
quality condition.
"4. [DM] guarantees not to sell [to]
customer[s] direct[ly] without commissions to
[Complete Lighting] under any circumstances."
As a result of their meeting with Leggett & Platt,
Gabriel Logan, a limited liability company that sells to Wal-
mart through Leggett & Platt, expressed interest in the LED
lamp tube and, in November 2006, purchased 25 samples, or
$88,940.22 worth of product, from DM. The samples were to be
used in a test run in stores. Scroggins testified that he had
received very positive feedback from Wal-mart and "Zales,"
presumably Zales Jewelry Company, to whom Scroggins testified
he had sent a sample.
From July 2006 to March 2007, there were no further sales
of LED lamp tubes. Scroggins testified that he had trouble
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getting working samples from DM that could be delivered to
customers. Another difficulty in selling the LED lamp tubes
was that the drivers in the samples kept burning out.1 In
August 2006, Deng applied for a patent for the LED lamp tube
in the United States. Deng was listed as the sole "inventor"
of the LED lamp tube. Scroggins was not named in the patent
application.
In March 2007, Deng sent Scroggins a letter, stating:
"It is with regret that we find the need to
terminate the contract of 'exclusiveness' regarding
the LED Lamp Tubes as manufactured by us. It is our
belief that the conditions of said agreement have
not been fulfilled. Over an eight month period only
one customer has been produced. As with you, we
also believed the future potential of this customer
could have been vastly significant. However, [DM]
has invested a large amount of dollars for this
product's R[esearch] & D[evelopment]. And
unfortunately, to help continue this new product's
growth, DM feels it need[s] to have more
sales/customers by this time.
"This termination will be effective March 31,
2007. All commissions accrued up to that date will
be paid as per our agreement."
Deng did not pay Scroggins a commission on the November 2006
sale to Gabriel Logan.
1
It was later discovered that the problem was not in the
design of the LED lamp tube but in the LED lighting itself,
which was not manufactured by DM.
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In April 2007, Scroggins and Complete Lighting sued Deng,
DM, and BARTCO Lighting ("BARTCO"), a company to whom Deng and
DM had sold some "Retrofit LED tubes." Scroggins and Complete
Lighting alleged in the complaint:
"14. Upon information and belief, and prior to
the ... unilateral termination of the [exclusivity
agreement], DM Technology and Deng and BARTCO
entered into a conspiracy to not only defraud
Scroggins and Complete Lighting of the proprietary
LED Lamp Tubes technology they created, but also any
and all future commissions or sales associated with
the LED Lamp Tubes.
"15. Upon information and belief, and in
furtherance of the conspiracy, DM Technology and
Deng entered into an agreement with BARTCO wherein
BARTCO would [sell] the LED Lamp Tubes that were
created by Scroggins and Complete Lighting and
subsequently manufactured by DM Technology and Deng.
"16. Scroggins and Complete Lighting also
completed sales to Gabriel Logan and are owed back
commissions for sales.
"17. Scroggins and Complete Lighting are owed
past and future commissions on sales of all LED Lamp
Tubes by DM Technology and Deng and BARTCO.
"18. Upon information and belief, DM Technology
and Deng have sold BARTCO over 2.8 million dollars
of LED Tubes, for which Scroggins and Complete
Lighting are owed a five percent (5%) commission of
$140,000.00.
"19. Upon information and belief, DM
Technology, Deng and BARTCO have continued the
conspiracy by continuing to market the LED Lamp
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Tube[s], by effectuating further sales of LED Lamp
Tubes."
Scroggins and Complete Lighting sought an injunction
preventing Deng, DM, and BARTCO from manufacturing, making, or
selling the LED lamp tubes. They also sought damages for,
among other claims, breach of contract and fraud. BARTCO was
eventually dismissed from the case and is not a party to this
appeal.
The action was removed to federal court but was remanded
to the Jefferson Circuit Court because of "fatal procedural
defects in the removal." Deng and DM moved the circuit court
to dismiss the claims against them, arguing that the court did
not have jurisdiction over them. The circuit court initially
granted their motion but later set aside the dismissal on
Scroggins and Complete Lighting's motion to alter, amend, or
vacate the judgment.
In March 2013, the case was tried before a jury. At
trial, questions were posed regarding an alleged promise by
Deng to include Scroggins's name on the patent for the LED
lamp tubes. Scroggins testified that he and Deng had
discussed patenting the idea for LED lamp tubes but did not
discuss a time frame for securing that patent.
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Prior to trial, Scroggins had testified by affidavit in
June 2007 and again in May 2008 that
"[a]pproximately a year to a year and a half
into th[e] process [of developing the LED lamp tube]
Deng suggested that the LED light needed to be
patent[ed].
"I did not have the funds available to pay for
the patent, so we agreed that the patent would be
submitted in DM Technology's name.
"It was during this time period that I became
concerned that once the technology was patented
there would be nothing to prevent Deng from stealing
my idea.
"Therefore, in exchange for the patent being
issued to DM Technology's name instead of mine, we
agreed that I would be the exclusive agent
throughout the United States to [sell] the LED Lamp
Tubes [that] DM Technology manufactured. We
subsequently entered into [the exclusivity]
agreement."
However, Scroggins testified at trial that the
exclusivity agreement was executed in exchange for allowing
Deng to put his name as well as Scroggins's name on the LED-
lamp-tube patent. Scroggins further testified at trial that
the exclusivity agreement was "a temporary thing while we
worked on ... getting [me] on the patent, whatever we had to
do. It was more of a short-term protection for me."
Scroggins also testified that if Deng had not agreed to
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include him on the patent, Scroggins "would have looked for
another source" to manufacture the LED lamp tube.
Scroggins testified that around November 2006 he learned
that a patent application for the LED lamp tube was pending in
China. The Chinese patent application did not name Scroggins
as an inventor. Scroggins testified that he called Deng about
the omission and that Deng assured him that this was the
"standard process" in China and that it "would not affect
[their] relationship and the plans that [they] had,"
presumably related to securing the United States patent.
Scroggins also testified that Deng told him the application
for the patent in China was unrelated to the United States
patent application.
Deng testified at trial that he did not include
Scroggins's name on the United States patent application
because the LED lamp tube was not Scroggins's idea. Deng
testified that Scroggins was a sales representative and that
he, Deng, "never had an intent to put Buddy Scroggins'[s] name
on th[e] patent" because "[i]t [was] not [Scroggins's]
business."
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At the close of Scroggins and Complete Lighting's case-
in-chief, Deng and DM, on the one hand, and Scroggins and
Complete Lighting, on the other, separately moved for a
judgment as a matter of law ("JML"), which motions were
denied. They renewed those motions at the close of all the
evidence. The circuit court denied the renewed motions for a
JML as well and submitted only the breach-of-contract and
fraud claims to the jury. The breach-of-contract claim was
based on Deng and DM's alleged failure to pay Scroggins the
commission owed on the sale to Gabriel Logan, and the fraud
claim was based on Deng's alleged fraudulent promise to put
Scroggins's name on the patent. The jury returned a verdict
in Scroggins and Complete Lighting's favor on both claims and
awarded them $4,750 in compensatory damages on the breach-of-
contract claim, $1.5 million in compensatory damages on the
fraud claim, and $1.5 million in punitive damages on the fraud
claim.2
2
Deng and DM argue that the $1.5 million in compensatory
damages was actually an award for "nominal compensatory
damages." Deng and DM's brief, at 28. Scroggins and Complete
Lighting argue that the verdict form identified those damages
as "Nominal/Compensatory" damages and that the jury clearly
chose compensatory rather than nominal damages. Deng and DM
cite no evidence to the contrary. The circuit court described
the damages awarded for the fraud claim as "compensatory
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On May 1, 2013, Deng and DM filed a motion, renewing
their request for a JML or, in the alternative, requesting a
new trial. Scroggins and Complete Lighting opposed Deng and
DM's motion and moved the circuit court to strike evidence
attached to Deng and DM's motion related to an allegedly fake
2003 Chinese patent for the LED lamp tubes and unauthenticated
tax returns for DM. They also moved for sanctions against
Deng and DM. After a hearing, the circuit court entered an
order denying Deng and DM's motion for a JML or, in the
alternative, a new trial and also denying Scroggins and
Complete Lighting's motion for sanctions. The circuit court
went on to grant Scroggins and Complete Lighting's motion to
strike evidence of the 2003 Chinese patent and the
unauthenticated tax returns. The circuit court also entered
a separate order awarding Scroggins and Complete Lighting
court costs in the amount of $4,133.44. Deng and DM have
damages" in its judgment based on the jury's verdict, and Deng
and DM refer to them as "compensatory damages" in their
renewed motion for a JML or, in the alternative, for a new
trial. In fact, they raise the argument that the damages are
"nominal compensatory damages" for the first time on appeal.
"'An issue may not be raised for the first time on appeal.'"
Allsopp v. Bolding, 86 So. 3d 952, 962 (Ala. 2011).
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appealed only the denial of the motion for a JML or a new
trial.
Issues
Deng and DM allege that the circuit court erred in
denying their motion for a JML or, in the alternative, a new
trial because, they argue, (1) the fraud claim is preempted by
federal patent law and, therefore, the circuit court did not
have jurisdiction over that claim; (2) Scroggins and Complete
Lighting changed the basis of their fraud claim during the
course of the trial, which, Deng and DM argue, constituted
"trial by ambush"; (3) the fraud claim was based on
contradictory testimony by Scroggins; (4) Scroggins and
Complete Lighting did not present evidence of several elements
of a fraud claim; (5) the compensatory-damages award for the
fraud claim was based on speculative evidence; (6) the
punitive-damages award was not supported by clear and
convincing evidence; and (7) the punitive-damages award was
the result of prejudice, bias, passion, or other improper
motive. Deng and DM also argue, in the alternative, that the
punitive-damages award is excessive and that they are entitled
to a remittitur of those damages.
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Standards of Review
"When reviewing a ruling on a motion for a JML,
this Court uses the same standard the trial court
used initially in deciding whether to grant or deny
the motion for a JML. Palm Harbor Homes, Inc. v.
Crawford, 689 So. 2d 3 (Ala. 1997). Regarding
questions of fact, the ultimate question is whether
the nonmovant has presented sufficient evidence to
allow the case to be submitted to the jury for a
factual resolution. Carter v. Henderson, 598 So. 2d
1350 (Ala. 1992). The nonmovant must have presented
substantial evidence in order to withstand a motion
for a JML. See § 12–21–12, Ala. Code 1975; West v.
Founders Life Assurance Co. of Florida, 547 So. 2d
870, 871 (Ala. 1989). ... In reviewing a ruling on
a motion for a JML, this Court views the evidence in
the light most favorable to the nonmovant and
entertains such reasonable inferences as the jury
would have been free to draw. Id. Regarding a
question of law, however, this Court indulges no
presumption of correctness as to the trial court's
ruling. Ricwil, Inc. v. S.L. Pappas & Co., 599 So.
2d 1126 (Ala. 1992)."
Waddell & Reed, Inc. v. United Investors Life Ins. Co., 875
So. 2d 1143, 1152 (Ala. 2003).
With regard to a motion for a new trial, this Court has
stated:
"'"It is well established that a ruling on a motion
for a new trial rests within the sound discretion of
the trial judge. The exercise of that discretion
carries with it a presumption of correctness, which
will not be disturbed by this Court unless some
legal right is abused and the record plainly and
palpably shows the trial judge to be in error."'"
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Baptist Med. Ctr. Montclair v. Whitfield, 950 So. 2d 1121,
1126 (Ala. 2006) (quoting Curtis v. Faulkner Univ., 575 So. 2d
1064, 1065–66 (Ala. 1991), quoting in turn Kane v. Edward J.
Woerner & Sons, Inc., 543 So. 2d 693, 694 (Ala. 1989), quoting
in turn Hill v. Sherwood, 488 So. 2d 1357, 1359 (Ala. 1986)).
"Furthermore, a jury verdict is presumed to be
correct, and that presumption is strengthened by the
trial court's denial of a motion for a new trial.
In reviewing a jury verdict, an appellate court must
consider the evidence in the light most favorable to
the prevailing party, and it will set aside the
verdict only if it is plainly and palpably wrong."
Delchamps, Inc. v. Bryant, 738 So. 2d 824, 831 (Ala. 1999)
(citations omitted).
Analysis
As a threshold matter, we note that Deng and DM allege no
error in either the jury's verdict or the circuit court's
judgment as they relate to the breach-of-contract claim or the
compensatory-damages award related to that claim. "'An
argument not made on appeal is abandoned or waived.'" Muhammad
v. Ford, 986 So. 2d 1158, 1165 (Ala. 2007) (quoting Avis Rent
A Car Sys., Inc. v. Heilman, 876 So. 2d 1111, 1124 n.8 (Ala.
2003)). Therefore, the judgment is affirmed insofar as it
relates to Scroggins and Complete Lighting's breach-of-
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contract claim, and the remaining arguments will be addressed
only as they relate to the fraud claim.
Deng and DM argue that the circuit court "lacked subject
matter jurisdiction over the case because [Scroggins and
Complete Lighting's] claims attacked the validity and
ownership of a patent." Deng and DM's brief, at 12. The
United States Code, 28 U.S.C. § 1338(a), provides, in
pertinent part, that "[t]he [federal] district courts shall
have original jurisdiction of any civil action arising under
any Act of Congress relating to patents" and that "[n]o State
court shall have jurisdiction over any claim for relief
arising under any Act of Congress relating to patents."3
Deng and DM argue that, "prior to trial, Scroggins
maintained that the LED Lamp Tube was his idea. Scroggins
also testified that he and Deng agreed that the patent would
be submitted in DM Technology's name, only. In return,
Scroggins would be the exclusive agent throughout the United
States to sell the LED Lamp Tube." Deng and DM's brief, at
3
Again, we note that the breach-of-contract claim did not
relate to the patent for the LED lamp tube, but to Deng and
DM's alleged failure to pay Scroggins and Complete Lighting
the commission owed under the exclusivity agreement. Thus,
our analysis of this jurisdiction issue is limited to the
fraud claim.
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14. However, Deng and DM argue, at trial "Scroggins[ and
Complete Lighting's] counsel told the jury that the case
centered on who actually invented the LED Lamp Tube," id., and
"[Scroggins] testified that Deng had obtained the patent of
Scroggins's idea without Scroggins's knowledge or permission."
Id., at 15. Deng and DM argue that "[t]his ... changed
[Scroggins's] case from one based upon the [exclusivity
agreement] to one attacking the validity of the patent
itself." Id. Therefore, Deng and DM argue, Scroggins and
Complete Lighting's fraud claim is federally preempted under
§ 1338(a) and the circuit court did not have jurisdiction over
that claim.
Deng and DM also cite the statement from University of
Colorado Foundation, Inc. v. American Cyanamid Co., 196 F.3d
1366, 1372 (Fed. Cir. 1999), that "the field of federal patent
law preempts any state law that purports to define rights
based on inventorship" and argue that,
"[i]n returning a verdict in Scroggins[ and Complete
Lighting's] favor on the fraud count, the judgment
necessarily had to have determined that Scroggins,
not DM Technology, was the 'inventor' of the LED
Lamp Tube. In doing so, the jury stepped into a
field that is within the exclusive jurisdiction of
the federal courts, rendering the judgment as void
as a matter of law."
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Deng and DM's brief, at 15.
However, in HIF Bio, Inc. v. Yung Shin Pharmaceuticals
Industrial Co., 600 F.3d 1347, 1354 (Fed. Cir. 2010), the
United States Court of Appeals for the Federal Circuit ("the
Federal Circuit") stated: "Despite th[e] broad language [in
American Cyanamid], this court has emphasized that a claim
arises under the patent laws only if the inventorship issue is
essential to the resolution of the claims." The Federal
Circuit noted:
"The district court's jurisdiction under § 1338(a)
'extend[s] only to those cases in which a well-
pleaded complaint establishes either that federal
patent law creates the cause of action or that the
plaintiff's right to relief necessarily depends on
the resolution of a substantial question of federal
patent law, in that patent law is a necessary
element of the well-pleaded claims.'"
HIF Bio, 600 F.3d at 1352 (quoting Christianson v. Colt Indus.
Operating Corp., 486 U.S. 800, 808-09 (1988)).
Citing American Cyanamid, among others, the Federal
Circuit concluded in HIF Bio that the plaintiffs' claims for
a declaratory judgment as to inventorship and slander of title
were preempted by federal patent law because a determination
of inventorship was essential to the resolution of those
claims. The Federal Circuit went on to conclude, however,
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that "patent law [was] not essential to plaintiffs' remaining
causes of action," including their fraud claims, because "each
cause of action could be resolved without reliance on the
patent laws." 600 F.3d at 1355. The Federal Circuit concluded
that, even though the question of inventorship may be relevant
to a claim, that claim is not preempted where "a determination
of inventorship is not essential to any of the ... elements of
[the claim]." HIF Bio, 600 F.3d at 1356.
The issue of the inventorship of the LED lamp tube may be
relevant to Scroggins and Complete Lighting's fraud claim, but
it is not essential to the particular elements of that claim.
"'Fraud' is defined as (1) a false
representation (2) of a material existing fact (3)
relied upon by the plaintiff (4) who was damaged as
a proximate result of the misrepresentation. If
fraud is based upon a promise to perform or abstain
from performing in the future, two additional
elements must be proved: (1) the defendant's
intention, at the time of the alleged
misrepresentation, not to do the act promised,
coupled with (2) an intent to deceive."
Coastal Concrete Co. v. Patterson, 503 So. 2d 824, 826 (Ala.
1987) (citation omitted).
Scroggins and Complete Lighting's fraud claim is based on
Deng's allegedly false promise to put Scroggins's name on the
patent application for the LED lamp tube, his alleged lack of
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intent when he made the promise to fulfill that promise, and
the damage Scroggins and Complete Lighting allegedly suffered
by relying on that promise. Scroggins's status as the actual
inventor of the LED lamp tube is not essential to proving any
of those allegations or any other element of a fraud claim
based on an allegedly false promise. Thus, although the issue
of inventorship may be relevant to the fraud claim in this
case, it is not essential to a resolution of that claim, and
"[Scroggins and Complete Lighting's] right to relief [does
not] necessarily depend[] on the resolution of a substantial
question of federal patent law." Christianson, 486 U.S. at
809. Thus, the fraud claim is not federally preempted under
§ 1338(a), and Deng and DM are not entitled to have that claim
dismissed for lack of subject-matter jurisdiction. See HIF
Bio, supra.4
4
Deng and DM also cite Hunter Douglas, Inc. v. Harmonic
Design, Inc., 153 F.3d 1318 (Fed. Cir. 1998), for the
proposition that "if a state-law cause of action requiring a
'false statement' as an element attacks the validity of a
patent, it necessarily depends on a question of federal patent
law and the federal courts have exclusive subject matter
jurisdiction over the action, even where no federal cause of
action is otherwise involved." Deng and DM's brief, at 13.
However, Scroggins and Complete Lighting have not challenged
the validity of the patent or requested any changes be made to
the patent or sought a declaration of rights under the patent.
Instead, they have alleged that Deng fraudulently promised to
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Deng and DM also argue that even if the circuit court has
jurisdiction over the fraud claim, they are entitled to a JML
on that claim because "Scroggins [and Complete Lighting]
failed to ... present evidence of reasonable reliance,
proximate cause of damages, or intent to deceive." Deng and
DM's brief, at 42. With regard to reasonable reliance, Deng
and DM argue that "Scroggins's testimony that he relied on
Deng's alleged promise that Scroggins would be put on the
Patent is unreasonable as a matter of law. Scroggins drafted
the [exclusivity] [a]greement. That [a]greement stated that
only Deng would be listed on the patent." Deng and DM's
brief, at 46.
However, the exclusivity agreement does not address the
acquisition of a patent for the LED lamp tube or state who
would be listed on any patent. Scroggins testified at trial
that Deng promised him that "[he] would be a partner" and that
"[he] would be on [the patent]." Scroggins testified that "if
[Deng] had not made that promise," Scroggins would have
located a different source to manufacture the LED lamp tube.
include Scroggins on the patent application for the LED lamp
tube and that Scroggins and Complete Lighting suffered damage
as a result of that false promise. Thus, Deng and DM's
reliance on Hunter Douglas is misplaced.
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When the evidence is viewed in the light most favorable to
Scroggins and Complete Lighting as nonmovants, see Waddell,
supra, Scroggins's testimony is sufficient to create a jury
question as to whether Scroggins reasonably relied on Deng's
alleged promise. Thus, Deng and DM have not demonstrated that
they are entitled to a JML in this regard.5
Deng and DM next argue that they are entitled to a JML on
the fraud claim because "Scroggins [and Complete Lighting]
presented no evidence that any alleged misrepresentations by
Deng proximately caused damage to Scroggins [and Complete
Lighting]." Deng and DM's brief, at 47. Deng and DM argue
that, "[u]nder federal patent law, co-inventors of a patent
are not accountable to one another for profits or sales of the
5
Deng and DM also argue that Scroggins's reliance on
Deng's promise to put his name on the patent was unreasonable
because, they say, Scroggins was on notice of the alleged
misrepresentation. However, it is unclear how the evidence
they cite in support of this argument –- i.e., that Scroggins
believed that a retrofit LED tube was essentially the same as
an LED lamp tube, that Scroggins was aware that Deng had sold
retrofit LED tubes to BARTCO a few months before the
exclusivity agreement was signed, that Scroggins prepared the
exclusivity agreement to protect his interest in the LED lamp
tube, and that "Scroggins could not reasonably have believed
that Deng agreed that the Retrofit and LED Lamp Tube[s] were
the same product," Deng and DM's brief, at 47, –- would put
Scroggins on notice that Deng's alleged promise to put his
name on the patent was false.
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patented product. Thus, even [if] Scroggins had been listed
on the Patent of the LED [l]amp [t]ube, Deng would have had no
duty to pay Scroggins any royalties." Deng and DM's brief, at
48. However, Scroggins and Complete Lighting did not allege
injuries in the form of lost royalties but, instead, alleged
that Deng and DM had essentially stolen the idea for the LED
lamp tubes by not including Scroggins on the patent and that
Scroggins and Complete Lighting were entitled to recover
damages based on "the value of the stolen product" and lost
opportunities for future sales of that product. Scroggins and
Complete Lighting's brief, at 67.
Deng and DM also make the following argument in their
brief:
"Scroggins did not present any evidence that he
ever attempted to apply for a patent on the LED Lamp
Tube; nor did Scroggins present any evidence that he
ever tried to stop the patent application process;
nor did he complain to the Patent and Trademark
Office that Deng was attempting to patent his idea.
Thus, it is illogical to conclude the Deng's alleged
misrepresentation that he would put Scroggins on the
Patent was the proximate cause of any damage[]
Scroggins may have suffered."
Deng and DM's brief, at 48.
However, Scroggins testified that Deng had promised to
include him on the patent that he, Deng, was going to apply
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for, that Scroggins learned that Deng had applied for a patent
in China in Deng's name only some months after the application
had been filed, and that when Scroggins asked Deng about it,
Deng assured him that everything would be as they had planned
(i.e., that both Scroggins and Deng would be included on the
United States patent application for the LED lamp tube). This
testimony is sufficient to create a question of fact as to
whether Deng's allegedly false promise to include Scroggins on
the patent proximately caused Scroggins and Complete
Lighting's alleged injuries. Therefore, Deng and DM have not
demonstrated that they are entitled to a JML in that regard.
Deng and DM also argue that they are entitled to a JML on
the fraud claim because, they say, Scroggins and Complete
Lighting "failed to present substantial evidence that, when
Deng allegedly promised to put Scroggins on the Patent, Deng
had a present intent to deceive Scroggins and not perform his
promise. Deng's alleged failure to perform a promised act is
not sufficient proof of a present intent to deceive." Deng
and DM's brief, at 49. However, Deng testified at trial that
he never intended to include Scroggins's name on the patent.
Deng and DM do not argue or cite any authority indicating that
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this testimony, combined with Scroggins's testimony that Deng
had promised to put his name on the patent, is insufficient to
create an issue of fact for the jury as to Deng's intent at
the time the alleged promise was made. Thus, Deng and DM have
not demonstrated that the circuit court erred in denying their
motion for a JML on that basis.
Deng and DM argue that they are entitled to a new trial
"because [the jury's verdict] was based upon pure speculation
by Scroggins." Deng and DM's brief, at 22. Deng and DM argue
that, "[i]n Alabama, damages cannot be based upon speculation;
rather, they must be direct and reasonably certain." Deng and
DM's brief, at 22.
This Court has stated:
"[D]amages may be awarded only where they are
reasonably certain. Damages may not be based upon
speculation. ... However, 'this does not mean that
the plaintiff must prove damages to a mathematical
certainty .... Rather, he must produce evidence
tending to show the extent of damages as a matter of
just and reasonable inference.' C. Gamble, Alabama
Law of Damages § 7-1 (2d ed. 1998), as cited in
Industrial Chemical [& Fiberglass Corp. v. Chandler,
547 So. 2d 812, 820 (Ala. 1988)]. The rule that one
cannot recover uncertain damages relates to the
nature of the damages, and not to their extent. If
the damage or loss or harm suffered is certain, the
fact that the extent is uncertain does not prevent
a recovery."
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Jamison, Money, Farmer & Co. v. Standeffer, 678 So. 2d 1061,
1067 (Ala. 1996). See also Alabama Power Co. v. Alabama
Public Serv. Comm'n, 267 Ala. 474, 478, 103 So. 2d 14, 17
(1958) ("One of the fundamental rules of damages is that to be
compensable they must be direct and reasonably certain, not
remote and speculative."); Crommelin v. Montgomery Indep.
Telecasters, Inc., 280 Ala. 391, 394, 194 So. 2d 548, 551
(1967) ("[N]either the fact nor amount of damages, nor the
cause of the damages, can rest solely on speculation.").
"'This Court has held that "the general rule is that
compensatory damages are intended only to reimburse one for
the loss suffered by reasons of an injury to a person or
property." Sessions Co. v. Turner, 493 So. 2d 1387, 1390
(Ala. 1986). It is equally well established that damages may
not be awarded where they are remote or speculative.'" Torsch
v. McLeod, 665 So. 2d 934, 940 (Ala. 1995) (quoting United
Servs. Auto. Ass'n v. Wade, 544 So. 2d 906, 912 (Ala. 1989)).
In a fraud action, "[t]he purpose of damages ... is to place
the defrauded person in the position he would occupy if the
representations had been true. All naturally resulting
damages, including expenses incurred as a result of the fraud,
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are recoverable, but they must be actual damages proved at
trial." Wilhoite v. Franklin, 570 So. 2d 1236, 1237 (Ala.
Civ. App. 1990) (citation omitted).
Scroggins and Complete Lighting argue that, as a result
of Deng's fraudulent promise to include him on the patent for
the LED lamp tubes, they lost out on the value of that
product, including future sales of the product. At trial,
Scroggins testified as follows:
"Q: When ... you and [Deng] first started
talking about this product and you told him about
your idea as it developed, did y'all ever discuss
either of y'all's opinions about the value of the
product?
"A: Yes, sir, we both did.
"Q: And what, if anything, did [Deng] say about
the value –- his opinion of the value of the
product?
"A: We both agreed it was in the millions."
Scroggins also testified that the possibility that the
LED lamp tubes could be used for more than aquarium lighting
substantially increased Scroggins's opinion of its value. He
stated:
"When [Wal-mart] looked at what they were
looking at, they come out telling me what else it
could be used for. What I thought it was worth
multiplied by 100-fold because we were talking now
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not only –- not only displays, we were talking
refrigerator cabinets. We were talking shoe
displays. We were talking sporting displays. We
were talking every display you could think of in the
store and that was only one customer, so you know."
When asked what his opinion as to the value of the LED
lamp tubes was based on, Scroggins responded:
"That you had one trial store that was crazy
about it for one particular part of that store and
when they came out and brought out everything else
that it could be done with, things I hadn't even
thought of, that I realized that one store had just
quadrupled or whatever the word is and that was only
one store out of all of them in the United States,
all the different people."
Scroggins cited no other basis for his testimony that the
LED-lamp-tube idea was worth millions, and Scroggins and
Complete Lighting presented no other evidence as to the value
of the LED lamp tubes or the amount of the loss they incurred
as a result of the alleged fraud. During closing arguments,
Scroggins and Complete Lighting's counsel attempted to
establish a formula that would support Scroggins's testimony
that the value of the LED lamp tubes was "in the millions."
Scroggins's counsel stated:
"[L]et's talk about the damages and why there is
sort of a legitimate basis. ... We know that there
was a Gabriel Logan sale that consisted of $90,000
for 25 stores.
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"Now, for 25 stores, that's approximately or
exactly $3,600 per store. ... So Walmart at the time
had over 5,200 stores and Buddy testified about
that. ...
"....
"Now, 5,200 at $3,600 per store, that's how much
it is, $18,720,000, a big number, a substantial
number. You can do that for all sorts of stores.
Gabriel Logan would have been selling to everybody.
I think -– I think -– who knows, Target
[Corporation] has thousands of stores talking about
thousands of stores, 1.2 million –- I mean, excuse
me, 6.12 million.
"Well, what would the commission be on ideas
like that, talking about times .05. I mean, we're
just talking about what he would be entitled to
under an exclusive agreement. We're not even
talking about what he would be entitled to if he
owned half the patent like he was supposed to. I'm
trying to be pretty conservative here and when
you're conservative here, you're talking about
almost one million dollars just on Walmart, just on
Walmart. So there is evidence of damages that you
could say yes, that is a reasonable amount of
damages."
The arguments of counsel are not evidence. Scroggins did
not testify as to the per unit value of the LED lamp tubes or
indicate that he had reached his estimate of the value by
taking the per unit cost and multiplying it by the number of
stores Wal-mart had in operation. No evidence was presented
that would corroborate counsel's statement that there was
5,200 Wal-mart stores in operation at the time Scroggins and
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Deng sold the 25 samples to Gabriel Logan6 or that Target
Corporation had "thousands" of stores in operation.
Moreover, there was no evidence presented other than
Scroggins's conjecture that future sales to Wal-mart or Target
were pending or likely to happen or that the LED lamp tubes
had been marketed to or sought after by any customers for any
purposes other than aquarium or display-case lighting. In
fact, Deng and DM presented undisputed evidence that, in spite
of the apparent initial enthusiasm of the "one trial store,"
no sales of the LED lamp tubes were made beyond the 25 samples
sold to Gabriel Logan in 2006. Deng and DM received
$88,940.22 for that sale, and that amount did not include the
cost of repairs that had to be made to the 25 samples as a
result of problems with the LED lighting. Thus, Scroggins's
testimony as to the value of the LED lamp tubes was highly
speculative and was insufficient to justify the jury's award
of $1.5 million in compensatory damages on the fraud claim.
6
Scroggins was asked during trial to give a "ballpark"
figure of how many stores Wal-mart had, to which he responded:
"Five thousand, you know, sticks out." Scroggins did not
testify as to the basis of that estimate, and no other
evidence was presented to support it.
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Scroggins and Complete Lighting argue that Scroggins's
testimony as to the market value of the LED lamp tubes was in
the nature of opinion evidence, pursuant to § 12-21-114, Ala.
Code 1975, and Delmore v. Gonzales, 903 So. 2d 140 (2004), and
that such testimony is sufficient to support the compensatory-
damages award. Section 12-21-114 provides: "Direct testimony
as to the market value is in the nature of opinion evidence;
one need not be an expert or dealer in the article, but may
testify as to value if he has had an opportunity for forming
a correct opinion." In Delmore, this Court determined that
the testimony of the plaintiffs as to the value of certain
property they had inherited from their mother and that, they
argued, had been converted by their stepfather was admissible
to prove damages.
This Court stated:
"[A]ll that is required under §12-21-114, Ala. Code
1975; Rule 701, Ala. R. Evid., and Williamson[ v.
Stephens, 577 So. 2d 1272 (Ala. 1991),] is that a
person's testimony as to value be rationally based
on their perception or based on an opportunity to
form a correct opinion. The evidence, when viewed
in light most favorable to [the plaintiffs], shows
that their testimony was rationally based on their
perceptions or that they had an opportunity for
forming a correct opinion as to the value of their
mother's personal property because their mother
owned some of the property when [one of the
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plaintiff's] lived with her and they both visited
their mother's home on a frequent basis. The manner
in which [the plaintiffs] determined the value of
their mother's personal property goes to the weight
that will be assigned by the jury but is not a
question of admissibility. The trial court
erroneously excluded the list of personal property
that included [one of the plaintiff's] determination
of the value of the personal property. The judgment
is reversed as to this issue, and the case is
remanded for further proceedings consistent with
this opinion."
Delmore, 903 So. 2d at 144.
Deng and DM's argument here is not that Scroggins's
testimony as to the value of the LED lamp tubes was
inadmissible but that the testimony, by itself, is not
competent evidence supporting the jury's $1.5 million
compensatory-damages award. See Johnson v. Harrison, 404 So.
2d 337, 340 (Ala. 1981) ("The rule has long been established
that the party claiming damages has the burden of establishing
the existence of and amount of those damages by competent
evidence. ... The award of damages cannot be made upon
speculation, and the plaintiff has the burden of offering
evidence tending to show to the required degree, the amount of
damages allegedly suffered."). Moreover, unlike the
plaintiffs' testimony in Delmore, Scroggins's testimony that
the LED lamp tubes were worth "millions" was not a statement
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as to the actual market value of the LED lamp tubes but as to
the potential market value of that product based on
speculation as to potential uses and future sales. Delmore is
distinguishable in that regard.
Scroggins and Complete Lighting also argue that Deng and
DM's failure to object to Scroggins's testimony that the value
of the LED lamp tubes was "in the millions" "pretermits"
consideration of their argument on appeal that the
compensatory-damages award is based on speculative evidence.
Scroggins and Complete Lighting's brief, at 39. They cite
Robbins v. Sanders, 890 So. 2d 998 (Ala. 2004), in support of
that argument. However, in Robbins, this Court addressed
whether a failure to object to evidence of certain damages
presented at trial precluded the defendant from arguing on
appeal that "the trial court improperly awarded damages for
claims that were not pleaded in the plaintiffs' complaint."
890 So. 3d at 1009. Robbins does not stand for the
proposition that a failure to object to specific testimony as
to the amount of damages when that testimony is given
precludes an argument on appeal that that testimony is
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insufficient, by itself, to support the damages award. Thus,
Scroggins's reliance on Robbins is misplaced.
Moreover, although Deng and DM did not object when
Scroggins testified that the LED lamp tubes were worth
"millions," they did argue in their motion for a JML at the
close of Scroggins and Complete Lighting's case-in-chief and
in their renewed motion for a JML at the close of all the
evidence that the claimed damages were based on "pure
speculation." Deng and DM also objected during closing
arguments to figures presented by Scroggins and Complete
Lighting's counsel, purportedly giving a "legitimate basis"
for the damages. Deng and DM argued that the figures were
"just pure speculation. There's no testimony about that."
This objection and the arguments made in the motions for a JML
were sufficient to preserve this issue for appellate review.
See Ex parte Couilliette, 857 So. 2d 793, 794 (Ala. 2003)
("'"[T]o preserve an issue for appellate review, it must be
presented to the trial court by a timely and specific motion
setting out the specific grounds in support thereof."'"
(quoting McKinney v. State, 654 So. 2d 95, 99 (Ala. Crim. App.
1995)).
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The jury's award of $1.5 million in compensatory damages
on the fraud claim was based on speculative evidence as to
possible future uses and the value of potential future sales
of the LED lamp tubes. "Although they need not be proved to
a mathematical certainty, 'damages [for fraud] may not be
awarded where they are remote or speculative. A jury must
have some reasonable basis for the amount of its award.'"
Systrends, Inc. v. Group 8760, LLC, 959 So. 2d 1052, 1075
(Ala. 2006) (quoting Parsons v. Aaron, 849 So. 2d 932, 949
(Ala. 2002)). Therefore, "[t]here being no evidentiary basis
for the compensatory damages awarded [to Scroggins and
Complete Lighting on the fraud claim]," the circuit court
erred plainly and palpably in denying Deng and DM's motion for
a new trial. See Systrends, 959 So. 2d at 1079.
Moreover, "[b]ecause the compensatory-damages award has
been eliminated, the punitive damages awarded on this claim
must also be vacated." Systrends, 959 So. 2d at 1079 (citing
Life Ins. Co. of Georgia v. Smith, 719 So. 2d 797, 806 (Ala.
1998) ("We now require ... that a jury's verdict specifically
award either compensatory damages or nominal damages in order
for an award of punitive damages to be upheld."). Our
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decision in this regard pretermits consideration of Deng and
DM's arguments that they were entitled to a new trial because
the award of punitive damages was not supported by clear and
convincing evidence, was excessive, or was the result of
prejudice, bias, passion, or other improper motives. Our
holding in this regard also pretermits consideration of Deng
and DM's arguments that they were entitled to a new trial
because, they argue, Scroggins and Complete Lighting changed
the nature of their fraud claim at trial or because, they say,
Scroggins's testimony at trial contradicted his earlier
affidavit testimony.
Conclusion
For the foregoing reasons, we reverse the circuit court's
judgment based on the jury's verdict in favor of Scroggins and
Complete Lighting on the fraud claim and remand the case for
the entry of an order granting a new trial as to that claim.
We affirm the circuit court's judgment as to the breach-of-
contract claim.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED WITH
DIRECTIONS.
Moore, C.J., and Stuart, Bolin, Parker, Murdock, Shaw,
Main, and Wise, JJ., concur.
35