Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 88 C 589 Joan B. Gottschall, Magistrate Judge.
Before BAUER, RIPPLE, and EVANS, Circuit Judges.
After a one week bench trial, the district court found that Boon Rawd Brewery Co., Ltd. wrongfully terminated its distributorship agreement with Lapinee Trade, Inc.. Subsequently, the district court conducted an extensive hearing on damages, and awarded Lapinee $668,022.63 as compensation for three years of lost profits. Boon Rawd appeals only the damage award, raising three challenges to the district court's findings. Boon Rawd argues that the district court erred in: (1) awarding any damages at all; (2) awarding three years of lost profits; and (3) failing to include Lapinee's interest expense in calculating its lost profits. We agree in large part with the district court's resolution of a complex calculus, but remand for a recalculation of the damages to account for interest expense.
First a little background -- we take the facts as found by the district court. From approximately 1982 until 1987, Lapinee, a California corporation owned by Mr. Chalermchai Harntha and Mrs. Lapinee Harntha, imported and distributed Singha beer. Boon Rawd is the Thailand corporation that brews, bottles, and exports Singha beer. In the early 1980's, Mr. and Mrs. Harntha, doing business as Lapinee Trade, Inc., reached an oral agreement with Boon Rawd to distribute Singha in California. At the time, Singha was not well-established in the American market, and Lapinee had to build a market for it. The early days were difficult for Lapinee. For example, because Singha's labels initially did not conform to California labeling laws, the Harnthas had to relabel by hand every bottle of beer they sold -- approximately 1.2 million bottles.
In July 1982, the Harnthas urged Boon Rawd executives to permit Lapinee to market Singha in Arizona and Nevada as well as California. Boon Rawd authorized the expansion, and agreed to memorialize the California marketing agreement, which they did in a letter in July 1982. In early 1983, while Lapinee had begun building a market for Singha in California, Arizona, and Nevada, Lapinee requested permission to sell Singha in the state of Washington. Boon Rawd agreed and issued an appointment letter in September 1983.
Although all of the appointment letters are worded as one year grants of authority to distribute Singha, the district court found that
Boon Rawd issued such appointment letters for the purpose of allowing the distributor to obtain a state license and did not intend thereby to limit sales authority to a prescribed duration. It appears after the first or in some cases second letter of appointment, Boon Rawd frequently issued no further appointment letters, even though both Boon Rawd and the distributor intended that distribution activities continue.
Boon Rawd does not challenge this factual finding, although as we discuss later, they are none too happy with it. Things between Boon Rawd and Lapinee went along swimmingly throughout 1983, 1984, and much of 1985. As of late 1985, Lapinee had expanded its sales area into Illinois, Minnesota, and Texas in addition to California, Nevada, Arizona, and Washington.
Eventually, however, the relationship deteriorated. *fn1 On October 8, 1987, Boon Rawd terminated Lapinee as distributor effective December 7, 1987. Boon Rawd provided no reasons for the termination at that time. The district court found that it was the custom and practice in the beer industry to terminate a distributorship only for good cause. The court also found that "Lapinee put great time and money into developing an American market for Singha beer and used its best efforts to build the market and sell Singha and the distributorship was taken from it before it could reap any substantial benefit from its investment." Accordingly, on January 19, 1995, the district court found Boon Rawd liable for wrongful termination of the distributorship agreement and set the matter for hearing on damages.
It turns out that Lapinee neither maintained nor retained clear business records over the years. Thus, the court found Lapinee's business records "of little help." Nevertheless, because the court found that it was more likely than not that Lapinee had been damaged, the court determined that Boon Rawd had deprived Lapinee of lost profits. Unfortunately, the district court had a devil of a time figuring out the appropriate measure of damages. The parties agreed that "lost profits" were the appropriate focus of the damage hearing, but disagreed about the amount. Boon Rawd used Lapinee's tax and business records, such as they were, to show that because Lapinee operated in the red, there was no likelihood of any future profit and the court should award zero damages. However, the significance of the tax and other business records was questionable because they covered both Lapinee's beer business and an associated travel agency. Lapinee presented testimony from a number of lay and expert witnesses in support of their request for 10 years of lost profits. The district court awarded three years of lost profits in the amount of $668,022.63. *fn2
We review the district court's damages calculations for clear error, and will reverse only where the calculation is "clearly unreasonable." R.E. Davis Chemical Corp v. Diasonics, Inc., 924 F.2d 709, 712 (7th Cir. 1991). "Because fixing a damage award is an exercise in fact-finding, only those awards that are monstrously excessive, born of passion and prejudice, or not rationally connected to the evidence may be altered." Pincus v. Pabst Brewing Co., 893 F.2d 1544, 1554 (7th Cir. 1990). Furthermore, credibility determinations are the sole province of the district court, to which we owe special deference. U.S. v. Fidelity and Deposit Co. of Maryland, 986 F.2d 1110, 1116 (7th Cir. 1993)(citations omitted). Because this is a diversity contract dispute, we apply Illinois' "most significant contacts" test to determine which substantive law governs. See CSX Transp. v. Chicago and North ...