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 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.
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
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 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 had been drafted by Scroggins ("the exclusivity agreement"). The exclusivity agreement provided, among other things:
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 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.
In March 2007, Deng sent Scroggins a letter, stating:
Deng did not pay Scroggins a commission on the November 2006 sale to Gabriel Logan.
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:
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 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.
Prior to trial, Scroggins had testified by affidavit in June 2007 and again in May 2008 that
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 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."
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
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 appealed only the denial of the motion for a JML or a new trial.
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.
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:
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)).
Delchamps, Inc. v. Bryant, 738 So.2d 824, 831 (Ala.1999) (citations omitted).
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-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
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 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,
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:
HIF Bio, 600 F.3d at 1352 (quoting Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808-09, 108 S.Ct. 2166, 100 L.Ed.2d 811 (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, that "patent law [was] not essential to plaintiffs' remaining causes of action," including their fraud claims, because "each cause of action could
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.
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 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, 108 S.Ct. 2166. 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.
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
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 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:
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 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
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 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:
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
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:
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 asked what his opinion as to the value of the LED lamp tubes was based on, Scroggins responded:
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:
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 Deng sold the 25 samples to Gabriel Logan
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.
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 (Ala.Civ.App. 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:
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 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.2d 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 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 Coulliette, 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
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 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.
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.