July 20, 2020- Horizon Well Service, LLC v. Pemco of New Mexico, LLC, No. A-1-CA-36742

A-1-CA-36742Nmctapp

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1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Court of Appeals of New Mexico
2| HORIZON WELL SERVICE. LLC Filed 7/20/2020 12:31 PM
3 Plaintiff-A ppellant, Se ee
Mark Reynolds
Al v. No. A-1-CA-36742
5] PEMCO OF NEW MEXICO, LLC,
6 Defendant-Appellee
Detendant-Appeltee.
7| APPEAL FROM THE DISTRICT COURT OF LEA COUNTY

OO

rT A ¥73,,3 Dit atta EA
Lee A. KIPKSCY, DISTTICT JUGS

Law Offices of Gary C. Mitchell, P.C.

Car ehall

— OO

r( NAGY
aly \&. IVITLOHerr

Ruidoso, NM

Hinkle Shanor LLP
Richard E. Olson

EWE Se I EDGE

Chelsea R. Green
Roswell, NM

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MEDINA, Judge.

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a3} Horizon Well Services, LLC (Horizon) appeals the district court’s final

judgment on remand in favor of PEMCO of New Mexico, LLC (PEMCO). Horizon

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argues that the district court erred in concluding that: (1) Horizon failed to prove

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damages for lost profits; (2) PEMCO did not engage in unfair practices; (3) Horizon

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is not entitled to punitive damages; and (4) Horizon owes PEMCO the remaining

BACKGROUND

Q;} Horizon is an oil and gas well servicing company in southeastern New Mexico

that provides swabbing services with specialized equipment known as_a swabbing

unit.' PEMCO provides large machine shop services for a number of oil field

servicing companies in the Permian Basin and routinely repairs and maintains

swabbing units. In 2010, Horizon hired PEMCO to fabricate a swabbing unit (Unit).

Horizon agreed to pay $144,935.00 for fabrication and provided PEMCO with a

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truck chassis* on which to mount the Unit. Prior to completion, Horizon requested

additional modifications to the Unit, increasing the total cost to $161,060.46.

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PEMCO delivered the completed Unit on March 24, 2011, and provided a one-year

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general warranty on the “parts that [PEMCO] fabricated and put on” the Unit.

433 Upon delivery, Horizon noticed the Unit vibrating during use and returned it

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to PEMCO in early April 2011 to address the vibration. PEMCO replaced the

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gearbox and worked on both the driveline and split shift box. In July 2011, the Unit’s

transmission failed. Horizon took the Unit to American Equipment (American), a

'A swabbing unit is a large rig built on a truck chassis used to remove fluids
from gas wells. The unit has a winch with a cable and foldable mast with a pulley
on top.

The truck provided by Horizon is described as a “bare truck” with “200,000
miles on the engine.”
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heavy equipment and truck repair shop, to have the transmission repaired. American

consulted with Watson Truck

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transmission needed to be replaced. Horizon purchased a new transmission for

$6,289.12, and American installed it in the Unit. American also remachined the

drivelines on the Unit to reduce vibration. Horizon paid American $2,471.79 for its

services.

{44 Despite these repairs, the Unit continued to vibrate. In late August 2011,

Horizon returned the Unit to PEMCO. PEMCO reduced the angle of the transfer

case and replaced damaged bolts and brackets. In September 2011, Horizon took the

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Unit to Watson because the Unit’s transmission would not shift properly. During

repair, Dan Wharf, Watson’s operations manager, detected the same vibration issue

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and advised Horizon that the new transmission would fail if the vibration issue was

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not addressed. Instead of taking the Unit to PEMCO, Horizon continued using the

Unit.

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{53} In mid-September 2011, Horizon took the Unit to PEMCO. While at PEMCO,

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Wharf was called in to inspect the transmission and he determined that it needed to

be replaced. Wharf believed that the transmission failed due to driveline vibration

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likely caused by installation of the transfer case at too great an angle. PEMCO

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ordered a transmission from Watson and repositioned the transfer case to one-half

or one degree. After these repairs the vibrations ceased and there were no further

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transmission failures. PEMCO’s president, Gary Buie, told Wharf that PEMCO
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would pay for the new transmission. However, PEMCO later billed Horizon

2| $8,578.76 for the replacement.
31 46} Horizon filed suit against PEMCO for breach of contract, breach of warranty,
Al and violations of the New Mexico Unfair Trade Practices Act (UPA). PEMCO
5|_counterclaimed for debt and money due, alleging that Horizon still owed $13,214.86
6] for the fabrication of the Unit and for the cost of replacing the second transmission.
7| After a bench trial, the district court dismissed the complaint and counterclaim. This
8] Court reversed the dismissal in Horizon Well Serv., LLC v. PEMCO of N.M., LLC,
9] No. 33754, mem. op. (N.M. Ct. App. Dec. 30, 2015) (non-precedential) (Horizon J),

10] and remanded for further proceedings. On remand, the parties stipulated to the

11} district court’s use of transcript testimony and exhibits from the first trial in the

12} “retrial/reconsideration” of the remaining claims. After reviewing testimony and

13] exhibits, the district court concluded in part:

14 11. [PEMCO] breached its express one[-]year warranty to Horizon[;]

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16 14. The exhibits and testimony .. . as to the lost profits or down time

17 of the . . . [U]nit while in the repair shops were speculative and vague[;]

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19 17. Horizon’s claim for damages resulting from lost profits or down

20 time 1s dismissed because it has not been proven with reasonable

21 certainty[; ]

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19. Horizon has failed to establish that [PEMCO] or its agents
knowingly made any false or misleading representation with regard to
the fabrication of the... [U]nit at_issue_or [PEMCO’s] ability_to

B WN eS

DW 2GYEEV GEESE So EDO VE BV QUEEECY

fabricate a swabbing unit[;]

ON

21. Horizon’s claim for unfair trade practices by [PEMCO] is

dismissed]; ]

23. Horizon failed to provide any evidence that [PEMCO’s] actions
were malicious, willful, reckless, wanton, fraudulent, or in bad faith[;]

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24. Horizon’s claim for punitive damages is denied.

The district court awarded Horizon $10,039.02 in consequential damages and

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awarded PEMCO $13,214.46 for the remaining balance due for fabricating the Unit.

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This appeal followed.

DISCUSSION

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Standard of Review

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{7 | While Horizon raises several different arguments, each assert that the district

court erred as a matter of law. “When a party is challenging a legal conclusion, the

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standard for review is whether the law correctly was applied to the facts.” Benavidez

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vy. Benavidez, Z000-NMCA-138, §} 21, [40 N.M. 637, 145 P.3d [1/7 (internal

quotation marks and citation omitted). “We are deferential to facts found by the

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district court, but we review conclusions of law de novo.” /d.

I. Horizon Failed to Establish Lost Profits With Reasonable Certainty

{8} | Horizon contends the district court erred in concluding that Horizon failed to

establish damages for lost profits resulting from a breach of express warranty.

Specifically, Horizon argues that testimony regarding its inability to bill for use of

the Unit at a rate of $2,000 a day while the Unit was under repair and unavailable

for a period of twenty-two days was sufficient to establish lost profits.

99} “A plaintiff with damages measured by lost profits has the burden of providing

a sufficient evidentiary basis to determine damages, including proof of overhead or

other costs or expenses in addition to gross profit.” Cent. Sec. & Alarm Co. v.

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Mehler, 1996-NMCA-060, 4 21, 121 N.M. 840, 918 P.2d 1340. “Where a legal right

to damages exists for breach of contract, the fact that lost profits may not be

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computed with exact mathematical certainty does not prevent the plaintiff from

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submitting the issue to the fact[-]finder.” Ranchers Expl. & Dev. Corp. v. Miles,

1985-NMSC-019, 4 5, 102 N.M. 387, 696 P.2d 475. However, proof of the amount

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of damages “cannot be based upon surmise, conjecture, or speculation.” Mehler,

COryy 7

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AY EF WY 144 11 4 4 4 7A 41
22. [LW IDOI It Is pOsslble lO present dOcurdle OCvideHnece Ol We

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amount of damages, the party upon whom the burden rests to prove damages must

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present such evidence.” First Nat’! Bank in Albuquerque v. Sanchez, 1991-NMSC-

065 418 YNEME 317-814 P2d
VOD co) Zz JIT, O19 F.2d

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1 14 1 1 13 “Ta wh i+ 4
I rt I r tO iit U

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making a contract, damages for lost profits are allowed if proven, and such damages

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are defeated only where there is uncertainty as to the cause of damage rather than

lage.” Miles, 1985-NMSC-019, q5 (emphasis added).

ANGE do EGO

410} Here, the district court found among other things that “[t]he exhibits and

testimony . . . as to lost profits or down time of the swabbing unit while in the repair

shops were speculative and vague.” We agree. In support of its claim for lost profits

Horizon’s owner, Bret Abernathy, testified that during the summer the Unit worked

an average of twelve to fourteen hours a day at a rate of one hundred-sixty-five

dollars an hour, plus “add-ons.” Using Abernathy’s estimate for each day the Unit

was down, Horizon sought a total of $44,000 in lost profit damages. However,

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Horizon did not present evidence of any specific jobs lost while the Unit was being

repaired.

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414; Our Supreme Court addressed a similar issue in Herzog Contracting Corp. v.

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A & S Construction Co., where an asphalt paving company’s claim for lost-profit

damages was denied for lack of proof. 1988-NMSC-022, 9§ 7-9, 107 N.M. 6, 751

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P.2d 690. In Herzog, the plaintiff sued for breach of contract and sought lost-profit

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damages in excess of profits expected under the terms of the contract. /d. ¥ 5. In

support of its claim for lost profits, the plaintiff proffered two alternative theories

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“overhead earned,” and (2) “lost rental value” asserting that it lost approximately

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$100,000 per month for a period of eight and one-half months due to delay caused

by the defendant’s breach. /d. 9 6. Although the district court determined that the

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defendant breached the contract, it only awarded damages provided for by the
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contract, because the plaintiff “was unable to demonstrate that it missed or failed to

bid for anv other 1ob opportunity.”
id i bets i ied “/J*

BINS EGE

lost job opportunities, our Supreme Court affirmed the district court’s findings, and

concluded that “[the plaintiff] failed to meet the most basic requirement of achieving

its damages, namely proof based on a reasonable certainty both as to the allowance

of damages and as to the amount.” /d. § 9 (emphasis omitted). Similar to the plaintiff

in Herzog, Horizon failed to provide evidence of lost job opportunities. Without such

evidence the district court was only presented with Abernathy’s estimate of potential

lost profits.

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42} Although Abernathy estimated that the Unit operated twelve to fourteen hours

a day and gave a base hourly charge, if we were to calculate lost profits as Horizon

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suggests, the resulting $44,000 figure appears to represent gross income, and

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awarding a gross figure for lost profits would result in a windfall for Horizon. See

Mehler, 1996-NMCA-060, § 18 (concluding that awarding a gross figure without

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deduction of additional expenses would give the plaintiff “a windfall and would be

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contrary to the principle of compensatory damages”). Abernathy estimated that out

of the hourly rate charged, Horizon paid two workers at $12 and $24 an hour

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respectively, plus overtime, but could not confirm the actual rates. After reviewing

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payroll documentation, Abernathy stated that Horizon paid the two workers $6,600

and that that figure had been “taken off’ of the damages estimate. Yet, the $44,000

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lost-profit estimate does not appear to reflect such a reduction for labor.
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1j 43} Additionally, Abernathy could not account for fuel costs or workers’

2 compensation premiums paid during the twenty-two-day period. Nor did Abernathy

1 far the Linititealft .wzhichiwranld
3\ testify to-other overhead-expenses, such-as insurance for the Unit itself, which would

4| necessarily reduce the profits Horizon ultimately realizes. Because these costs are

5} unknown, any estimate of Horizon’s net profit for the twenty-two-day period would

6] be speculative at best. Compare Mascarenas v. Jaramillo, 1991-NMSC-014, 9 21-

8] as imprecise where no evidence was presented to show prospective tenants or fair

9} rental value), and Deaton, Inc. v. Aeroglide Corp., 1982-NMSC-147, 4 20, 99 N.M.

10} 253, 657 P.2d 109 (concluding that lost-profit damages award was too speculative

ms oduced),

fi wi i, - -052, ; olding that a dentist’s testimony

13] was sufficient, without documentary corroboration, to establish lost profits under the

14] circumstances where he testified as to cost, billing rate, and average number of

15] X-rays he would have taken each month if the machine at issue were not inadequate |

17] Horizon failed to prove lost profits.

18} «14; To the extent Horizon contends its lost-profit calculations include loan

19] payments, Horizon does not develop this argument or explain how or why loan

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profits. We, therefore, decline to address the issue. See Corona v. Corona, 2014-

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NMCA-071, 4 28, 329 P.3d 701 (“This Court has no duty to review an argument that

is nota

ESE a

Il PEMCO Did Not Violate the UPA

45} Horizon next argues the district court erred by concluding, as a matter of law,

that PEMCO did not violate the UPA, NMSA 1978, §§ 57-12-1 to -26 (1967, as

amended through 2019). In asserting this claim, Horizon disputes the district court’s

factual findings contending that PEMCO knowingly misrepresented its expertise,

the nature of plans used to fabricate the Unit, and that fabrication would be

completed in a timely manner. PEMCO argues that it appropriately represented its

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ability to construct swabbing units, and that the issues in this case do not rise above

a breach of warranty.

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{16} Four elements must be established to invoke the UPA: (1) “the complaining

party must show that the party charged made an oral or written statement, visual

3Given our holding that the district court properly determined that Horizon
failed to prove lost profits, we need not address Horizon’s claim that the district
court erred in concluding that it failed to mitigate its damages for lost profits.

See Sheraden v. Black, 1988-NMCA-016, § 10, 107 N.M. 76, 752 P.2d 791 (“It is
well settled in New Mexico that the function of a reviewing court on appeal is to
correct erroneous results, not to correct errors that, even if corrected, would

not change the result.”’).
‘In its brief in chief, Horizon sets out five paragraphs of case law addressing
the UPA but does not develop a specific argument as to its claim of error or establish

how the facts of this case amount to a UPA violation. Ordinarily, we need not address
Horizon’s argument further, however, PEMCO’s answer brief addressed UPA issues
not raised in the brief in chief. Horizon in turn provided limited argument in its reply.

We therefore briefly address arguments made 1n Horizon’s reply.

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description or other representation’ that was either false or misleading;” (2) “the

false_or misleading representation must have been knowingly made in connection

ao HG. te ta Y NS VY = = cs os 2 =

with the sale, lease, rental or loan of goods or services in the extension of credit

or collection of debts;” (3) “the conduct complained of must have occurred in the

regular course of the representer’s trade or commerce;” and (4) “the representation

must have been of the type that may, tends to or does, deceive or mislead any

person.” Stevenson v. Louis Dreyfus Corp., 1991-NMSC-051, § 13, 112 N.M. 97,

811P.2d 1308 (omission, internal quotation marks, and citations omitted). As

relevant to this case, “[t]he ‘knowingly made’ requirement is met if a party was

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actually aware that the statement was false or misleading when made, or in the

exercise of reasonable diligence should have been aware that the statement was false

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or misleading.” /d. ¥ 17.

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a7} The district court found that “Horizon failed to establish that [PEMCO] or its

agents knowingly made any false or misleading representation with regard to the

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fabrication of the swabbing unit at issue or [PEMCO’s] ability to fabricate a

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swabbing unit.” Horizon disputes these findings by directing us to evidence that

PEMCO: (1) did not generally build swabbing units; (2) only manufactured five

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swabbing units over a thirty-year period; (3) had not built a swabbing unit for five

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years prior to building the Unit at issue; and (4) did not use plans designed by an

engineer but rather hand-drawn plans created by Buie and his father-in-law.

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41833 Horizon does not discuss relevant case law or develop arguments as to why

these facts show that PEMCO

DAS VY AEG ev DENS VY 5 oo + © eae eat Gt

say that “the rig was not manufactured in a proper manner[.]” Conversely, the

following evidence reveals that Horizon was aware that PEMCO did not regularly

build swabbing units and had not done so in some time. Buie testified that he

discussed with Abernathy the fact that PEMCO did not regularly fabricate swabbing

units and that it had not done so recently. Abernathy similarly testified that he was

aware PEMCO had not constructed a swabbing unit for a number of years.

4193 Further, although Abernathy testified that Horizon would not have agreed to

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the use of handwritten plans, without further development these facts alone do not

establish a knowing misstatement or omission. Horizon was aware that PEMCO

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intended to use its own plans and had declined to take measurements of Horizon’s

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other swabbing unit. Finally, Horizon also fails to establish a connection between

established case law and delivery of the Unit after the projected completion date

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sufficient to demonstrate a UPA violation. Considering the evidence presented and

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giving deference to the district court’s factual finding, Benavidez, 2006-NMCA-138,

4 21, and applicable law, we conclude that the district court properly determined that

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PEMCO did not violate the UPA.

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Ill. Horizon Failed to Establish That Punitive Damages Were Warranted

20} Horizon argues that the district_court-erred_in denying punitive damages.°

Horizon contends it was entitled to punitive damages because PEMCO

misrepresented its expertise and the nature of the swabbing unit plans. PEMCO

responds that the evidence was insufficient to support Horizon’s claim for punitive

damages. The district court found that Horizon “failed to provide any evidence that

[PEMCO’s] actions were malicious, willful, reckless, wanton, fraudulent, or in bad

faith|]” and denied Horizon’s punitive damages claim. We agree.

13 “Absent proof that the conduct of a party resulting in a breach of contract was

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malicious, fraudulent, oppressive, or recklessly committed, with a wanton disregard

of the other party’s rights, an award of punitive damages is improper.” Jones v. Lee,

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1999-NMCA-008, § 26, 126 N.M. 467, 971 P.2d 858. “Evidence of a culpable

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mental state is required because the purpose of punitive damages is to punish such

conduct and to deter others from similar conduct.” Albuquerque Concrete Coring

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Co., Inc. v. Pan Am. World Servs., Inc., 1994-NMSC-078, § 9, 118 N.M. 140, 879

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P.2d 772. “A mental state sufficient to support an award of punitive damages will

exist when the defendant acts with reckless disregard for the rights of the plaintiff—

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i.e., when the defendant knows of potential harm to the interests of the plaintiff but

>-Horizon also argues the district court erred in denying treble damages under

the UPA. Because we conclude that the district court correctly determined that
PEMCO did not violate the UPA, we need not address this argument.
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nonetheless utterly fails to exercise care to avoid the harm.” Paiz v. State Farm Fire

& Cas. Co., 1994-NMSC-079, 9.26, 118 N.M. 203, 880 P.2d 300 (alteration, internal

NAVAS > 5 ee ees

quotation marks, and citation omitted). “Thus, absent a showing that the breaching

party intended to inflict harm on the non-breaching party or conduct which violates

community standards of decency, the actions of the breaching party will not serve

as a basis for an award of punitive damages.” Jones, 1999-NMCA-008, 26.

23} Horizon relies on the same evidence to support its punitive damages claim as

cited in its UPA argument. However, Horizon again fails to establish facts sufficient

to show that PEMCO’s actions warrant an award of punitive damages. There is no

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evidence indicating that PEMCO intended to harm Horizon. As discussed above, the

evidence presented reveals that PEMCO accurately informed Horizon of its limited

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fabrication experience and that it intended to use its own plans. Likewise, the

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evidence does not indicate that PEMCO acted with reckless disregard for Horizon’s

rights. Indeed, Abernathy testified that PEMCO appeared concerned that the issues

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were causing Horizon to lose customers and that Buie said “he was doing everything

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he [could].” To the extent Horizon argues that PEMCO’s decision to wait for

delivery of a part for the Unit rather than drive to Texas to pick it up sooner supports

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an award of punitive damages, Horizon does not explain how PEMCO’s decision

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rises to a level of reckless disregard for Horizon’s rights under the contract sufficient

to warrant punitive damages. Without evidence that PEMCO’s conduct was

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malicious, fraudulent, oppressive, or recklessly committed, with a wanton disregard

eS)

IV. The District Court Properly Awarded PEMCO the Remaining Balance
for Fabrication

3} Lastly, Horizon challenges the district court’s award of the remaining

fabrication costs under a theory of waiver by estoppel. According to Horizon,

PEMCO both expressly waved the outstanding balance for fabrication, and

implicitly waved the balance when it paid for a transmission replacement. PEMCO

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asserts that it never waived the outstanding balance for fabrication.

43 “Generally, New Mexico cases have defined waiver as the intentional

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relinquishment or abandonment of a known right.” JR Hale Contracting Co. Inc. v.

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United N.M. Bank at Albuquerque, 1990-NMSC-089, § 12, 110 N.M. 712, 799 P.2d

581. Relying on Abernathy’s testimony, that Mr. Bui told him not to worry about

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the final bill, Horizon contends that PEMCO’s president waved the outstanding

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balance for fabrication of the Unit. In doing so, Horizon discounts contrary

testimony from PEMCO’s office manager and ignores Buie’s testimony in which he

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denied waving the remaining balance.

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(253 Ihe district court, sitting as fact-finder, appears to have weighed the

conflicting evidence in making its findings and conclusions. Although Horizon

asserts that this Court is in as good a position to weigh the documentary evidence

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presented in this case, we emphasize that we “ ‘will not disturb the [district court’s

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findings] upon conflicting evidence unless such findings are manifestly wrong or

clearly opposed to the evidence.’ ” United Nuclear Corp. v. Gen. Atomic Co., 1979-

Gt © ae ¥ = tINHAE ad i a ve Fhe

NMSC-036, 4 62, 93 N.M. 105, 597 P.2d 290 (quoting Valdez v. Salazar, 1940-

NMSC-079, 4 17, 45 N.M. 1, 107 P.2d 862). After reviewing the evidence in this

case, we cannot say that the district court’s findings are manifestly wrong or opposed

to the evidence. Buie’s testimony as well as testimony from PEMCO’s office

manager supports a conclusion that PEMCO did not expressly waive the outstanding

balance owed on the Unit. See id. { 69 (affirming the district court’s finding after

reviewing documentary evidence).

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26} Horizon also argues that PEMCO implicitly waived the balance when it paid

for a transmission replacement. “[T]he intent to waive contractual obligations or

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conditions may be implied from a party’s representations that fall short of an express

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declaration of waiver, or from his conduct.” JR Hale Contracting Co. Inc., 1990-

NMSC-089, 7 11. “To prove waiver by estoppel the party need only show that he

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was misled to his prejudice by the conduct of the other party into the honest and

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reasonable belief that such waiver was intended.” /d. § 12. (footnote omitted). The

following facts must be established to support a claim of waiver by estoppel: “(1)

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the party to be estopped made a misleading representation by conduct; (2) the party

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claiming estoppel had an honest and reasonable belief based on the conduct that the

party to be estopped would not assert a certain right under the contract; and (3) the

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party claiming estoppel acted in reliance on the conduct to its detriment or
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prejudice.” Palenick v. City of Rio Rancho, 2013-NMSC-029, § 14, 306 P.3d 447

eQ7 Even assuming PEMCO made a misleading representation by conduct,

Horizon fails to establish that its belief was reasonable. While Horizon generally

asserts that it reasonably believed PEMCO’s payment for a transmission implicitly

waived the outstanding balance for fabrication, it fails to develop a sufficient factual

basis to show why its belief was reasonable. In JR Hale Contracting Co. Inc., our

Supreme Court addressed whether sufficient evidence of waiver by estoppel was

presented to create an issue of fact for the jury. 1990-NMSC-089, § 23. In that case,

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the plaintiff argued that its prior experience with the bank created a reasonable belief

that it would not assert its right to declare a default without first notifying the

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company and providing an opportunity to cure. See id. § 24. Because the bank had

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previously accepted late payment without comment in other transactions and had not

mentioned the past-due payment at issue when it met with the plaintiff, our Supreme

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Court determined that there was sufficient evidence to present the question of

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whether the company’s belief was reasonable to the jury. /d. The Court reasoned

“that the previous course of dealings between the parties is relevant to show the

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meaning that the company reasonably might attribute to the bank’s conduct. |” /d.

Po oe oe

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4 23. In contrast, Horizon presented no evidence of past dealings with PEMCO

illustrating why Horizon could reasonably believe that PEMCO implicitly waived

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Horizon’s outstanding debt.
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8} Horizon also fails to point to any evidence or develop any argument as to how

its alleged reliance was to its detriment

that Horizon’s reliance led to its failure to make payments, it is unclear whether

PEMCO took any collection action against Horizon prior to its counterclaim in this

action. There is no other evidence that Horizon suffered detriment or prejudice as a

result of its failure to pay the outstanding balance for PEMCO’s fabrication services.

Applying the law to these facts, the district court properly concluded that Horizon

owes the remaining balance.

CONCLUSION

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9} For the foregoing reasons, we affirm.

30} IT ISSO ORDERED.

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—_ AFLG Usbiiie Fl 3 Abe te
JACGUELINE R. MEDINA, Judge

WE CONCUR:

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aot A AA

FFY, Budge

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