Since everyone who commented on my jury story agreed that Little Company was out of luck, you'll be happy to hear that the jury agreed with you. They were out only an hour before coming back with a decision that no contract was breached. They felt sorry for Little Company and would have awarded some damages if they could, but they took seriously their duty of sticking to the words of the contract they had been asked to examine. What's more, if they'd agreed there was a breach, they would have awarded only the legal fees for fighting the Mexican government, not the millions of dollars in lost profits.
Sometimes I worry about juries, but the defendant's lawyer told me she has great faith in their intelligence and good sense. She said this even in the middle of the trial when things didn't seem to be going well. She was right.
But should the jury really have put aside its sympathy for Little Company? After all, wasn't there some good sense in that nagging feeling that Little Company was getting hung out to dry for something Big Company did that they couldn't control?
I look at this trial as a problem in contract drafting. Little Company signed a guaranty agreement that it didn't understand. It should never have promised to make good to the Mexican government for the errors of Big Company without thinking through what would happen if Big Company screwed up something Little Company couldn't control, and without making sure Big Company was on the hook contractually to pay them back if that happened. In those situations, it's crucial to get a written reimbursement agreement (called an indemnity), and be sure it covers not only final losses if you lose but also expenses of defense even if you win in the end. An insurance policy would be a good idea, too. Corporate directors get both before they agree to serve. So Little Company might have been better off asserting a claim against its own counsel, if it bothered consulting any, than against Big Company. Maybe Big Company would have refused to sign an indemnity, reasoning that that's what they were paying their trusted native guide for: to make sure there were no problems in Mexico's wild and woolly legal system. In that case, Little Company could make an informed decision whether to sign the guaranty and keep getting commissions, or go find another customer. (The guaranty wasn't optional; the Mexican government requires it of an agent for a foreign principal engaged in the import business.)
The case is also a problem in legal pleading in a lawsuit. As I said in the comments below, the agreement that went sour here is not the agency agreement, it's the guaranty agreement, but Little Company didn't allege a breach of the guaranty agreement (for good reason, since LC didn't get BC to co-sign it). The jury was confused by the task of finding a reimbursement obligation in the agency agreement, for the very good reason that it's not in there.
If the reimbursement obligation had been anywhere, it would have been in the guaranty agreement or in some indemnity agreement signed in connection with the guaranty agreement. If that stuff isn't written, or isn't written properly, it's the plaintiff's job to plead a statutory duty, or implied duty, or breach of some inherent duty of principals to agents, or duty of good faith and fair dealing (that's the "moral obligation" of corporations to corporations). The thing is, you don't get to dream all that up in front of the jury; you have to plead it right at the start. Why didn't the plaintiff do that here? Who knows? They didn't seem to know much contract law. They seemed to think that playing on the jury's feelings of sympathy and outrage would be enough.
If the plaintiff didn't plead the right theories, why didn't the defendants get the case thrown out on motions to dismiss or motions for summary judgment before it ever got to the jury? The answer is, they tried, but the judge wouldn't grant the motions. I think there's almost no doubt the defendant would have won on appeal no matter what the jury had done. For one thing, the plaintiff waited too long to file the suit, and its theory of why the statute of limitations hadn't run was, um, unorthodox. But the jury didn't get to hear those aspects of the case. Only the appellate court would have heard them.
As for the lost profits, the jury wasn't having any of that. Now, it's true that the idea of damages for the lost value of Little Company's destroyed business wasn't crazy. After all, one day they had a business, and the next day it was basically dead. The problem was that it's one thing to project future business, and another to make it up out of thin air, with no historical basis. "I coulda been a contendah!" Texas law is admirably clear about speculative future profits not grounded in any historical track record. The plaintiffs hired a damages expert who came up with a number and then backfilled with analysis and data (as he admitted in an incautious email -- when will people learn?). The defendants hired a more experienced damages expert who said if someone turned in work like that at his firm, he'd be fired on the spot. I guess the jury wasn't impressed.
So remember: don't go around signing guaranty agreements. They're very tricky. The associated law of indemnity, reimbursement, contribution, joint and several liability, and subrogation are some of the hardest areas in business law. That jury was being asked to sort out one of the thorniest legal problems there is, and they weren't even being pointed to the right issues!
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