Adams v. TDC General Contractors LLC

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IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
TEXARKANA DIVISION
REUBEN L. ADAMS 	PLAINTIFF
v. 	Civil No. 4:22-cv-04110
TDC GENERAL CONTRACTORS LLC 	DEFENDANT
REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
Before the Court is Defendant TDC General Contractors LLC’s (“TDC”) Motion for
Partial Summary Judgment relating to damages. 	ECF No. 51. 	Plaintiff Reuben L. Adams
(“Adams”) has responded to the Motion. 	ECF No. 66. 	TDC also filed a Reply. 	ECF No. 67.
Pursuant to the provisions of 28 U.S.C. § 636(b)(1)(A) and Local Rule 72.1, the Honorable Susan
O. Hickey referred this Motion to the undersigned. ECF No. 72. A hearing was conducted on
September 25, 2024, on the instant motion and it is now ripe for consideration.1
1. 	Background
On April 10, 2019, Adams engaged TDC to provide general contractor services for the
construction and related work of a multiunit residential apartment complex (“the Contract”)
located at 911 Pecorella Street in Texarkana, Arkansas (the “Apartment Complex”). ECF No. 2.
On November 9, 2022, Adams filed this diversity suit alleging TDC failed to perform in a
workmanlike manner in the construction of the Apartment Complex within 180 days of the
contract execution date. In addition to the breach of contract claim, Adams asserts claims based
on negligence, unjust enrichment, promissory estoppel, violation of the Arkansas Unfair Deceptive
Trade Practices Act (“ADTPA”), and negligent hiring, retention, and supervision. Id. Adams
1 During the September 25, 2024, hearing, the parties submitted arguments addressing the following motions: Motion
for Summary Judgment filed by Adams (ECF No. 48); Motion for Partial Summary Judgment (Damages) filed by
TDC (ECF No. 51); Motion for Summary Judgment (ADTPA) filed by TDC (ECF No. 54); and Motion for Summary
Judgment (Defects) filed by TDC (ECF No. 58). Each of these motions will be addressed with a separate Report and
Recommendation.
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claims he is entitled to compensatory, punitive, incidental, and treble damages. Id. On January 6,
2023, TDC filed its Answer to Adams’s Complaint admitting it entered a contract with Adams to
construct the Apartment Complex in a workmanlike manner. ECF No. 5. However, TDC denied
all the other allegations made by Adams. Id.
On June 18, 2024, TDC filed the instant motion arguing it is entitled to judgment as a
matter of law on Adams’ claims regarding damages for mental anguish, punitive damages, and
consequential damages for lost profits. ECF No. 51.2 In Adams’ response to discovery submitted
by TDC, he alleges he is entitled to $10,000.00 for mental anguish, $76,000.00 for lost profits, and
$162,200.00 for punitive damages. ECF No. 51-1.
First, TDC argues Adams is not entitled to damages for mental anguish because he has not
alleged any physical injury in his Complaint, responses to discovery, or during his sworn
deposition. ECF No. 51, p. 2. 	Second, TDC states Adams is not entitled to punitive damages
because “Plaintiff has not pled that TDC knew or should have known that its negligent conduct
would probably result in injury to Plaintiff and that TDC continued such negligence in disregard
of the consequences in his Complaint.” ECF No. 53, 2. Third, TDC argues it is not liable for lost
profits because lost profits are consequential damages and TDC did not tacitly agree to be liable
for these losses. Id.
Adams filed a Response to the motion on July 2, 2024, arguing his mental anguish was not
“caused by negligence”, but “arises from TDC’s breach of its contract with Plaintiff” and
consequently he is entitled to damages for mental anguish. ECF No. 66, p. 5. In addition, Adams
argues he is entitled to punitive damages because “TDC’s deception regarding competence to
2 TDC attached the following exhibits to the motion: Plaintiff’s Responses to First Set of Discovery (ECF No. 51-1),
Deposition of Adams (ECF No. 51-2), Expert Report of Jason Bodart (ECF No. 51-1), and the Contract between the
parties (ECF No. 51-4).
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perform general contractor service demonstrates a conscious indifference on which a malice
inference, i.e., intent to wrongfully claim competence injurious to Plaintiff, is present.” Id. at p. 6.
Last, Adams argues TDC should be liable for lost profits in this case because they agreed to build
rental property for Adams, they knew he intended to rent out the property to generate rental
income, and the lost profits were a loss that flowed naturally from the breach of the contract. Id.
at p. 4.3
2. 	Applicable Law
Federal courts sitting in diversity generally apply the substantive law of the forum state.
See Holbein v. TAW Enterprises, Inc., 983 F.3d 1049, 1061 (8th Cir. 2020) (citation omitted).
Arkansas substantive law applies because Arkansas is the forum state, Plaintiff’s claims are
pursuant to Arkansas law, and the parties’ arguments presume the application of Arkansas law.
However, federal procedural law governs the procedural standards for diversity cases. Smith v.
Toyota Motor Corporation, 964 F.3d 725, 728 (8th Cir. 2020).
The standard for summary judgment is well established. A party may seek summary
judgment on a claim, a defense, or “part of [a] claim or defense.” Fed R. Civ. P 56(a). When a
party moves for summary judgment, “[t]he court shall grant summary judgment if the movant
shows there is no genuine dispute as to any material fact, and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a); Krenik v. County. of Le Sueur, 47 F.3d 953, 957 (8th Cir.
1995). This is a “threshold inquiry of … whether there is a need for trial – whether, in other words,
there are genuine factual issues that properly can be resolved only by a finder of fact because they
reasonably may be resolved in favor of either party.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242 (1986). A fact is material only when its resolution affects the outcome of the case. Id. at p.
3 Adams attached eight exhibits to his response including what he describes as “Plaintiff’s Response to Defendant’s
Partial Motion for Summary Judgment (Damages) Annex” which the Court interprets as Adams’ separate statement
of facts. ECF No. 66-8.
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248. A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a
verdict for either party. Id. at p. 252.
In deciding a motion for summary judgment, the Court must consider all the evidence and
all reasonable inferences that arise from the evidence in a light most favorable to the nonmoving
party. 	Nitsche v. CEO of Osage Valley Elec. Co-op, 446 F.3d 841, 845 (8th Cir. 2006). The moving
party bears the burden of showing that there is no genuine issue of material fact and that it is
entitled to judgment as a matter of law. See Enterprise Bank v. Magna Bank of Missouri, 92 F.3d
743, 747 (8th Cir. 1996). The nonmoving party “may not rest upon mere allegations or denials …
but must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S.
at 256.
3. 	Discussion
a) TDC is entitled to judgment as a matter of law on Adams’ claim for damages based
on mental anguish.
At the hearing on September 25, 2024, Adams, through his counsel, conceded he is not
entitled to damages for mental anguish in this case. Negligent infliction of emotional distress is
not a recognized tort under Arkansas law, and to obtain an award of mental anguish damages on a
negligence claim, there must be evidence of a preceding physical injury that led to the mental
anguish. Henderson v. Globallab Solutions, Inc., 310 F.R.D. 400 (2015); See also, Dowty v. Riggs,
2010 Ark. 465, at *7, 385 S.W.3d 117 (2010). Here, Adams has not alleged he suffered any
physical injury. Accordingly, TDC is entitled to summary judgment on Adams’ claim for damages
based on mental anguish.
b) TDC is entitled to summary judgment on the issue of punitive damages.
In Arkansas, punitive damages are a question for the jury (or the judge in trial to the court)
when there is evidence “[t]he defendant knew or ought to have known, in light of the surrounding
circumstances that his or her conduct would naturally and probably result in injury or damage and
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that he or she continued the conduct with malice or in reckless disregard of the consequences …”
Ark. Code Ann. § 16-55-206(1). “Punitive damages are justified only when the defendant acts
wantonly or with such conscious indifference to the consequences of his acts that malice may be
inferred.” McDowell v. United Parcel Service, Inc., 707 F. Supp. 3d 823 (2023) citing Edwards v.
Stills, 335 Ark. 470, 484, 984 S.W.2d 366, 373 (1998).
Punitive damages may be awarded when the evidence is “clear and convincing.” Ark. Code
Ann. § 16-55-207. Negligence alone, however gross, is not enough to justify punitive damages.
See McDowell at 828. Moreover, when an “action is [based] in contract … punitive damages are
not recoverable.” El Dorado Warehouse LLC v. Hartford Fire Insurance Company, 2023 WL
11156614, at *5; L.L. Cole & Son, Inc. v. Hickman, 282 Ark. 6, 10, 665 S.W.2d 278, 281 (1984).
In this case, nothing in the record shows any conduct on the part of TDC meeting or
suggesting the “willful and wanton” standard necessary to warrant an award for punitive damages.
TDC entered a contract with Adams to construct the Apartment Complex. It is undisputed TDC
has been working in the construction business for many years in the Texarkana, Arkansas area. It
defies logic, and clearly can’t be proved by clear and convincing evidence, that TDC’s
representation that it could complete the construction of the Apartment Complex in a workmanlike
manner (even if they breached the contract to do so) could be construed as a misrepresentation
from which malice could be inferred. Accordingly, TDC is entitled to summary judgment
regarding Adams’ claim for punitive damages.
c) There are disputed questions of material facts concerning Adams’ claim for lost
profits which precludes summary judgment.
In general, damages recoverable for breach of contract are those damages that would place
the injured party in the same position as if the contract had not been breached. Deck House, Inc. v.
Link, 98 Ark. App. 17, 249 S.W.3d 817 (2007). Consequential damages are such damages, loss,
or injury which does not flow directly and immediately from the act of the party, but only from
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some of the consequences or results of such act. Id. Thus, lost profits have been held to be
consequential damages when they do not flow directly and immediately from breach of a contract
but flow from some consequence or result of the breach. Id. To recover consequential damages, a
plaintiff must prove more than the defendant’s mere knowledge that a breach of contract will entail
special damages to the plaintiff; it must also appear that the defendant at least tacitly agreed to
assume responsibility for any such loss. Acker Const., LLC v. Tran, 2012 Ark. App. 214, 396
S.W.3d 279 (2012).4
However, lost profits are not always consequential damages; sometimes, they may be the
natural, proximate result of a breach of contract, and in such a case, the “tacit-agreement” rule
does not apply. Id. Here, the Contract was to construct an Apartment Complex. The Court finds
that lost profits (i.e. lost rental income) from a breach of the Contract, if a breach is ultimately
proved, may be the natural and proximate result of that breach and therefore, are not consequential
damages. Even if a determination is made that lost profits are consequential in this case, the Court
finds there is a question of fact as to whether TDC tacitly agreed to assume responsibility for those
losses. There is no question TDC knew the Apartment Complex was being built to produce rental
income. Moreover, although the Contract is silent regarding lost profits, TDC did not expressly
disclaim liability for lost profits which it certainly could have done.
4 During the September 25, 2024, hearing counsel for TDC argued the tacit agreement rule required that TDC explicitly
agree to be liable for lost profits in the Contract. The Court agreed to allow counsel to informally submit case law to
support his position after the hearing. On October 2, 2024, counsel for TDC sent an email to the Court referencing
case law defining the tacit agreement rule. The case law submitted by TDC’s counsel did not support counsel’s position
that an agreement to be responsible for lost profits must be set forth explicitly in the contract. Instead, counsel argued
there was no evidence TDC “tacitly” agreed to be responsible for any lost profits. ECF No. 84-1. On October 7, 2024,
despite being directed to submit any additional briefing informally, counsel for Adams filed a formal Response to the
email submitted by TDC’s counsel. ECF No. 84. The Court has reviewed both TDC’s and Adams’ post hearing
briefing.
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The Court also finds, at least at this stage of the litigation, that the lost profit damages
offered by Adams is sufficiently reliable. In Acker Constr., LLC v. Tran, 2012 Ark. App. 214, 396
S.W.3d 288 (2012) the Arkansas Court of Appeals specifically stated:
If it is reasonably certain that profits would have resulted had the contract been
carried out, then the complaining party is entitled to recover. Loss may be
determined in any manner that is reasonable under the circumstances. The fact that
a party can state the amount of damages he suffered only approximately is not a
sufficient reason for disallowing damages if, from the approximate estimates, a
satisfactory conclusion can be reached. It has also been held that damages may be
approximated, that a damage figure will be upheld if an amount approximating that
figure can be ascertained from the evidence, and that a damage award need not
correspond in amount to the proof adduced by either party. When, from the nature
of the case, the amount of damages cannot be estimated with certainty, or only a
part of them can be estimated, the question should go to the jury.
Id. at p.11. Accordingly, TDC is not entitled to summary judgment on the issue of lost profits.
4. 	Conclusion and Recommendation
Based upon the foregoing, the Court recommends TDC’s Motion for Summary Judgment
(ECF No. 51) be GRANTED IN PART and DENIED IN PART.
The Court recommends TDC’s motion regarding Adams’ claims for damages based on
mental anguish and punitive damages be GRANTED and those claims be dismissed; and TDC’s
motion regarding TDC’s claim for lost profits be DENIED and this claim proceed to trial.
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The Parties have fourteen (14) days from receipt of this Report and Recommendation
in which to file written objections pursuant to 28 U.S.C. § 636(b)(1). The failure to file timely
objections may result in waiver of the right to appeal questions of fact. 	The Parties are
reminded that objections must be both timely and specific to trigger de novo review by the
district court. See Thompson v. Nix, 897 F.2d 356, 357 (8th Cir. 1990).
DATED this 16 th day of October 2024.
/s/ 	Barry A. Bryant
HON. BARRY A. BRYANT
U.S. MAGISTRATE JUDGE
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