## Facts

- Sprint outsourced inbound collections work beginning in 2002 and contracted with Penncro as a vendor.
- The contract required Penncro to maintain a fixed monthly labor capacity (80,625 productive hours) and required Sprint to pay for that capacity whether used or not.
- The contract also waived consequential damages, expressly including lost profits.
- Sprint became dissatisfied with Penncro’s performance under certain metrics and terminated the contract; Penncro contended the termination breached Sprint’s capacity-payment obligation.
- After termination, Penncro used some freed capacity to perform work for other customers, generating replacement profits relevant to mitigation.
- The district court granted summary judgment to Penncro on liability, then awarded more than $17 million in damages based largely on the remaining-term capacity payments, reduced by avoided losses from replacement work.
- Sprint appealed the damages rulings; Penncro cross-appealed, seeking an additional $6.5 million by challenging the mitigation offset.

## Issues

1. Whether a contractual waiver of “consequential damages,” including “lost profits,” barred recovery of lost profits that were the direct measure of the promised capacity payments.
2. Whether damages should be measured by the fixed capacity payments Sprint promised to make, or instead by the quantity of work Penncro was actually called upon and able to perform.
3. Whether the district court erred in reducing damages for Penncro’s profits from replacement work obtained after Sprint’s breach.

## Decision

- The Tenth Circuit affirmed the judgment in full.
- The court held the consequential-damages waiver did not bar Penncro’s recovery of direct lost profits representing the benefit of Sprint’s promised capacity payments.
- The court held the contract unambiguously required Sprint to pay for reserved capacity whether used or not, supporting a damages measure based on the fixed monthly capacity obligation (minus saved costs and offsets).
- The court upheld the district court’s mitigation finding that Penncro avoided some losses through replacement work and that the resulting profits properly reduced the damages award.

## Legal Principles

- Lost profits may be direct (general) damages when they are the ordinary expectancy from the breached performance obligation; labeling “lost profits” within a consequential-damages waiver does not necessarily bar such direct expectancy profits absent clear drafting to that effect.
- When a contract obligates a buyer to pay for reserved capacity regardless of utilization, expectation damages may be calculated from the unpaid capacity charges for the remaining term, less costs saved due to nonperformance.
- Damages are reduced by losses avoided; profits from substitute work may be treated as offsets when the substitute work was made possible by capacity freed by the breach and the avoided-loss finding is supported by the record.

## Conclusion

The court affirmed a substantial breach-of-contract damages award measured by Sprint’s fixed capacity-payment promise, held the consequential-damages waiver did not preclude direct expectancy lost profits, and approved an offset for profits Penncro earned using capacity freed by the breach.


Penncro Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151 (10th Cir. 2007)