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Florida Appeals Court Orders Recalculation of Prejudgment Interest in $70M Breach of Contract Case

carpet textureA case of bad carpet resin, and the demise of a 40-year-old carpet brand as a result, produced a $70 million verdict in favor of the carpet manufacturer recently. While the resin manufacturer owed the eight-figure judgment and also owed the carpet manufacturer prejudgment interest, the First District Court of Appeal reversed the trial court’s order setting the amount of interest the resin maker owed the carpet manufacturer. The interest should have been calculated from the time that the carpet manufacturer began suffering economic losses, rather than the time that the resin maker first breached the contract. The decision may possibly make it easier for businesses in commercial disputes in the future to defend against overly large prejudgment interest awards.

The case involved a commercial contractual relationship gone badly awry. Mohawk Industries, Inc. inked a deal with Arizona Chemical Company, LLC in 2000 for Arizona to produce a resin that Mohawk would then use on the backing in its “Unibond” brand carpet, which Mohawk sold with a lifetime warranty. Five years later, Arizona changed its resin formula without notifying Mohawk. Sometime around 2008, Mohawk sensed a problem, since the number of warranty claims lodged by customers who had purchased Unibond carpets increased dramatically. Mohawk eventually determined that the flaw in the Unibond carpet causing the product to fail was the Arizona resin. It discontinued using Arizona resin, selling some of its remaining supply as discounted “second-quality” carpet and completely destroying the rest of it.

Although Mohawk stopped using the Arizona resin, the damage was done. Sales of Unibond nosedived, and Mohawk eventually discontinued the product in 2011. Mohawk later sued Arizona in Jacksonville, claiming breach of contract, breach of express warranty, and breach of implied warranty of fitness for a particular purpose. The case went to trial, and the jury found for Mohawk, awarding the carpet manufacturer $70 million in damages.

That award withstood an appeal by Arizona, in which the appeals court determined that the trial court did not err in disallowing certain evidence Arizona wanted to enter regarding the failure rates of other Mohawk carpets that did not use Arizona resin, and in restricting Arizona’s questioning of Mohawk’s expert witness on the issue of lost profits.

Two months after it issued its ruling on that Arizona appeal, the First District issued another ruling in the case. This time, Arizona was more successful. The trial court had awarded Mohawk a prejudgment interest award in the case. Mohawk received the interest for the harm it suffered from warranty claims, from having to sell some carpet at “second-quality” prices, and from having to destroy the rest of the affected carpet. The trial court, in issuing its award, concluded that Mohawk was entitled to receive interest going all the way back to the date that it applied the defective Arizona resin to its carpet.

The appeals court reversed this ruling because this was the wrong way to assess a start date for awarding prejudgment interest. While there is no precise start date for calculating prejudgment interest, “Florida law does link the date prejudgment interest begins to accrue to the date the plaintiff suffered the pecuniary loss for which the plaintiff is being compensated.” The date that should have been used for calculating Mohawk’s damages award was the date that it began suffering “pecuniary loss” from the bad resin, rather than the date that Arizona first breached the contract by sending Mohawk substandard product. Using a date of breach would have only been appropriate if Mohawk had begun suffering financial losses as soon as Arizona first breached the contract, which Mohawk did not. Its economic losses came later, and that later date was the correct one for assessing prejudgment interest.

When you have to litigate a commercial contract dispute, there may be multiple pieces to the puzzle. In addition to your trial, there may be actions for prejudgment interest, litigation to collect the award, and other actions as well. You need experienced and diligent counsel on your side. The skilled and determined Florida commercial litigation attorneys at Stok Folk + Kon have many years of experience helping businesses defend their interests in every step of the litigation process.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

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South Florida Hotel Owner Forced to Pay Default Interest Rate for $31.5M Loan, Florida Business Lawyers Blog, Feb. 11, 2016