Morgan v. SOUTH CENT. BELL TELEPHONE CO.

Citation: 466 So. 2d 107Docket: 82-1273

Court: Supreme Court of Alabama; February 21, 1985; Alabama; State Supreme Court

Combined Opinion SummaryCombined Opinion Original

EnglishEspañolSimplified EnglishEspañol Fácil

Robert E. Morgan, Edwin M. Speed, and their professional association sued South Central Bell Telephone Company and L.M. Berry Company for damages due to Morgan's omission from the Yellow Pages in the 1978 and 1979 Birmingham directories, as well as the 1980 Bessemer directory. Initially, a jury awarded the plaintiffs $57,000, but the trial court later granted the defendants' motion for judgment notwithstanding the verdict, reducing the plaintiffs' compensation to nominal damages of $25.

Morgan and Speed, periodontists who had previously taught at the University of Alabama Dental School, formed a professional association for private practice. Speed was responsible for setting up their office and securing telephone service. He communicated multiple times with Bell about ensuring both names were listed in the Yellow Pages, which was crucial for their advertising since it was the only form permitted by the State Board of Dental Examiners. 

Upon receiving the 1978 directory, they found Speed's name correctly listed, but Morgan's name was missing from the Yellow Pages, although it appeared in the White Pages. After contacting Bell, Morgan was informed that the omission was recognized, but no immediate remedy could be provided. A supplementary directory was later issued to correct errors, but Morgan's name remained absent, leading to further apologies from Bell without resolution. The plaintiffs argued that Bell's failure to correct the listing constituted a mistake that should have been addressed in the supplemental publication.

Morgan learned there may be an issue with Berry, the company responsible for selling advertisements for the Yellow Pages under contract with Bell. After confirming with Berry that work on the 1979 directory had not started, Morgan followed up in early 1979 to ensure his name would be included. Berry assured him there was nothing else required. Weeks later, Berry contacted Morgan to check if any changes were needed, to which Morgan responded through his secretary that no changes were necessary, assuming the information was correct.

When the 1979 directory was delivered, Morgan found his name missing. After verifying with Bell, which suggested Berry might be at fault, Morgan visited Berry’s office but was informed there was no record of his listing. Following this, a complaint was filed by Speed and Morgan on December 27, 1979. 

In 1980, after the lawsuit was initiated, a Berry representative created a contract to include both Morgan and Speed in the 1980 Yellow Pages, which was successfully completed. However, when Morgan opened a new office in Bessemer, he was assured by Bell representative Chris Allen that his name would appear in the Bessemer Yellow Pages. Despite this, Morgan’s name was again omitted from the Yellow Pages but listed in the White Pages.

It was established at trial that Morgan's name could only be listed in the Yellow Pages through a contract with Berry, while additional listings in the White Pages were managed directly through Bell. The plaintiffs asserted they were unaware of this arrangement until the trial. The key points of contention included fraud, negligence, and breach of contract regarding the 1978 and 1979 Birmingham directories, and fraud against Berry and breach of contract against both Bell and Berry concerning the 1980 Bessemer directory. Dr. Speed's name was consistently listed as requested, while Dr. Morgan's name was omitted from several Yellow Pages editions.

The trial court granted directed verdicts on fraud and negligence claims related to the 1978 Birmingham telephone directory due to the one-year statute of limitations. It also granted Berry a directed verdict on the breach of contract claim concerning the 1978 directory and on the fraud claim related to the 1980 directory. Despite these rulings, the court instructed the jury to consider claims for negligence and fraud regarding the 1980 Bessemer directory, even though no such claims had been made against Bell. The jury found Bell liable for $18,000 in damages for breach of contract and negligence regarding the 1978 and 1980 Yellow Pages, and awarded Robert E. Morgan $5,000 for mental anguish. For the 1979 Yellow Pages, the jury held both Bell and Berry liable for $24,000 in damages, $5,000 for mental anguish, and $5,000 in punitive damages based on fraud. The defendants did not object to the inclusion of claims for which directed verdicts were given, and subsequently filed motions for judgment notwithstanding the verdict or a new trial. The trial court granted the judgment notwithstanding the verdict, reducing the damages to nominal damages of $25 without ruling on the new trial motions. The plaintiffs appealed, seeking reinstatement of the original judgment or a remittitur option. The standard of review on appeal involves testing the sufficiency of the evidence without weighing credibility, focusing on whether the evidence supports the plaintiffs' case when viewed favorably under the scintilla rule.

Twelve issues presented by the plaintiff were consolidated into four key legal questions for consideration: 

1. Whether the trial court erred in ruling there was insufficient evidence of fraud.
2. Whether the trial court erred in ruling there was insufficient evidence of negligence.
3. Whether the trial court erred in deeming the appellants' proof of lost profits as too speculative to justify compensatory damages.
4. Whether the trial court incorrectly applied an exculpatory clause from a 1980 contract in its assessment of the jury's verdict.

The court analyzed these issues, particularly focusing on the fraud claim where the plaintiffs alleged that defendants failed to inform them about the necessity of a written contract for Yellow Pages listing and misled them into believing no further action was required. The court noted that while evidence suggested the defendants committed fraud, the plaintiffs did not demonstrate the intent necessary for punitive damages as outlined by Alabama law—specifically, that the misrepresentations were made with knowledge of their falseness or recklessly without regard for the truth. 

On the negligence claim, the court found that the trial court improperly classified the defendants' actions as nonfeasance (failure to act) rather than misfeasance (improper performance of a duty), noting that Alabama law does not permit tort liability for nonfeasance when there is no duty to act outside of the contractual obligation.

Misfeasance, defined as negligent affirmative conduct in the execution of a promise, can result in both tort and contract liability for physical harm to individuals and property. This stems from the obligation under tort law to exercise reasonable care to prevent harm, which extends to parties engaged in contractual transactions. Even when a contract exists, the duty to act with reasonable care is not negated. Liability in tort is established when misperformance poses a foreseeable, unreasonable risk of harm to the plaintiff’s interests, necessitating an assessment of the defendant's activity, the parties' relationship, and the nature of the injury.

In this case, the relationship between the plaintiffs and defendants was primarily contractual, but the circumstances indicated a clear reliance on the Yellow Pages for advertising. The defendants demonstrated negligent performance by omitting plaintiff Morgan's name from the directory multiple times, leading to tort liability. The injuries incurred were significant enough to justify imposing tort liability.

Additionally, the jury's award of compensatory damages for lost profits was supported by two forms of evidence: testimony from a former patient who could not find Morgan's name and statistical evidence presented by Morgan and a statistician showing the impact of the omission on the business's first year of operation. Morgan conducted a survey comparing patient acquisition from Speed's advertisement versus his own, which indicated zero patients due to the omission. However, the trial court excluded the survey testimony, which the plaintiffs attempted to present outside the jury's presence.

Morgan provided extensive testimony regarding his qualifications as a statistical researcher and detailed a survey he conducted over three weeks at the Association's offices, where he interviewed new patients seeking full mouth surgery. The survey results indicated that one out of five patients in the first week, two out of six in the second week, and two out of seven in the third week were attracted solely by a Yellow Pages advertisement. Extrapolating this data, Morgan estimated an average of 1.6 patients per week over 48 weeks, resulting in a total loss of $53,760 for 1978 based on a $700 fee per surgery.

Dr. Alfred Bartolucci, an expert in biostatistics, corroborated Morgan's findings, asserting that the survey was reliable, not time-dependent, conducted across different seasons, and involved a sufficiently large sample size to allow for projection to the total patient population. Nevertheless, the trial court excluded this evidence, viewing the claims of lost profits as overly speculative.

Morgan further confirmed the average charge for surgery and stated the weekly patient figure without objection from the defendants. The legal standard in Alabama, as established in Paris v. Buckner Feed Mill, requires that lost profits be a direct result of the breach and ascertainable with reasonable certainty, though absolute certainty is not necessary. This principle is consistent across most states, allowing recovery for damages linked to the wrongdoing even when exact amounts are uncertain. The U.S. Supreme Court and the Fifth Circuit Court of Appeals have underscored that damages do not become non-recoverable due to difficulties in calculation as long as they are proximately caused by the wrongful act.

Recovery for damages is permitted even if the exact amount cannot be mathematically determined, as denying recovery would promote contract breaches, particularly among new businesses with fluctuating profits. The plaintiffs provided sufficient evidence of lost profits, including expert testimony that utilized a standard method of comparing two similar businesses, Morgan and Speed, to estimate damages linked to Morgan's Yellow Pages advertising. Although the survey did not yield exact figures, it allowed the jury to reasonably calculate lost profits due to the defendants' failure to include Morgan's name.

Additionally, the document addresses whether the defendants could limit their liability through an exculpatory clause in the 1980 contract for services. The clause in question stated that the Telephone Company would not be liable for errors or omissions in advertising beyond the charges for the omitted advertisement. The trial court deemed this clause valid and enforceable. However, the plaintiffs argued that the clause was unconscionable and not freely negotiated. The court referenced a prior case, Lloyd v. Service Corp. of Alabama, emphasizing that exculpatory clauses in residential leases should not be enforced if not clearly negotiated or if there is an imbalance in bargaining power, placing the burden of proof on the party enforcing the clause.

The case highlights the necessity for a clear rule on exculpatory clauses, particularly those affecting public interest. It references the California Supreme Court's ruling in Tunkl v. Regents of the University of California, which established six criteria for determining the validity of such clauses: 

1. The agreement involves a business generally subject to public regulation.
2. The service provided is of significant importance to the public and often essential for some.
3. The provider represents a willingness to serve any public member seeking service.
4. The provider holds a significant bargaining advantage due to the nature of the service.
5. The service is offered under a standardized contract with no option for additional fees for protection against negligence.
6. The transaction places the purchaser's person or property at risk due to potential negligence by the provider.

The court finds that the contract in question meets these criteria, as the telephone company operates under public regulation and provides a crucial service by distributing Yellow Pages to customers. The telephone company’s dominance in advertising, linked to its utility service, allows it to impose terms, including liability limitations, without giving customers a real choice. Thus, the exculpatory clause in the 1980 Bessemer contract is deemed unenforceable and contrary to public policy. The judgment of the trial court is reversed and remanded for a new trial, with concurrence from several justices, while one justice recused.