Lewis Jorge Construction Management, Inc. v. Pomona Unified School District (2004) 34 Cal.4th 960.

Horvitz& Levy LLP represented the Pomona Unified School District (PUSD) in this California Supreme Court case. The question was whether a contractor suing for breach of a construction contract may recover damages representing profits the contractor claimed it would have earned on future contracts but for the contractor’s impaired bonding capacity attributable to the defendant’s breach.

Lewis Jorge Construction Management, Inc., a contractor, sued PUSD for breach of a contract to build an elementary school. Lewis Jorge claimed damages representing lost profits on future contracts with unidentified parties. Lewis Jorge’s theory was that PUSD’s breach and its claim on Lewis Jorge’s performance bond impaired Lewis Jorge’s bonding capacity, which prevented the contractor from bidding on other contracts. The jury awarded Lewis Jorge $3,148,197 in lost profit damages under this theory. The Court of Appeal affirmed, holding that even if not actually foreseen by the contracting parties, such lost profits “are recoverable as general damages because they follow from the breach in the ordinary course of events and as the natural and probable consequence of the breach.”

The Supreme Court unanimously reversed the Court of Appeal’s decision on the lost profits award, holding the lost profits were not recoverable either as general damages or as special damages. The lost profits were not general damages because they were “not the natural and necessary result of the breach of every construction contract involving bonding,” and they were not special damages because they were not “actually foreseen or foreseeable as reasonably probable to result from [PUSD’s] breach.” In other words, PUSD had no reason to know, at the time of contracting, that termination probably would prompt Lewis Jorge’s bonding company to suspend and then reduce Lewis Jorge’s bonding capacity.

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