Background
3B Protection, Inc., a California corporation, was hired by PNM Resources to perform work at an electrical substation in Sandia, New Mexico. 3B subcontracted with Hatch Industries, LLC to build and install a wall around the substation. After Hatch completed the work and submitted a final invoice for $106,570.62, 3B refused to pay, claiming the work was untimely, substandard, and more expensive than estimated. Hatch sued for breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment. 3B denied the claims and filed counterclaims on the same theories.
The central procedural dispute arose from 3B’s damages disclosures under Arizona Rule of Civil Procedure 26.1(a)(7). In both its initial and supplemental disclosures, 3B described its damages only in general terms — “loss of income, damage to reputation, delay, and inconvenience” — and offered a formula for calculating damages whose variables 3B acknowledged were “presently unknown.” 3B identified no expert witnesses, no exhibits quantifying its losses, and no witness testimony addressing the dollar amount of any harm. Meanwhile, uncontroverted evidence established that PNM had paid 3B in full for the wall and had waived any defects in the work, and that 3B had paid nothing to remediate Hatch’s allegedly substandard performance.
Hatch moved for summary judgment on 3B’s counterclaims and separately served a Rule 68 offer of judgment for $170,000 inclusive of all damages, fees, and costs, which 3B did not accept. The superior court granted summary judgment dismissing 3B’s counterclaims, finding 3B had failed to demonstrate a triable issue of fact as to damages. The case proceeded to a jury trial on Hatch’s claims, and the jury awarded Hatch $106,570.62 for breach of contract and $54,685.85 — representing 2% per month pre-judgment interest under the invoice — for breach of the covenant of good faith and fair dealing. The court also awarded Hatch costs, attorneys’ fees under the parties’ contract, and Rule 68 sanctions. 3B appealed all of these rulings.
The Court’s Holding
The Arizona Court of Appeals affirmed on all issues. On the summary judgment ruling, the court held that 3B’s failure to disclose a computation of damages, supporting documents, or meaningful witness testimony as required by Rule 26.1(a)(7) left it unable to survive a no-evidence summary judgment motion. The court emphasized that while exact precision in damages is not required, a party must still provide some reasonable evidentiary basis from which a trier of fact could estimate its loss. 3B’s formula, resting on admittedly unknown variables, and its witnesses’ speculative beliefs about possible future repair costs fell short of that threshold — particularly given that PNM had accepted the wall, paid 3B in full, and waived any defects, rendering future remedial expenditures entirely conjectural.
On the jury verdict, the court rejected 3B’s argument that the two damages awards were duplicative. Applying the principle that courts must search for a reasonable, coherent reading of a jury’s verdicts before setting them aside, the court found the awards were readily explained: the jury awarded the unpaid invoice amount under the breach of contract claim and the 2% per month contractual pre-judgment interest under the breach of the covenant claim — exactly what Hatch’s counsel had requested and walked through in closing argument. That the jury allocated the interest figure to a different claim line did not make the awards duplicative, especially where the verdict form provided no separate line for interest.
Because no error was found in either the summary judgment or the jury verdict, the court declined to disturb the award of costs, attorneys’ fees, and Rule 68 sanctions in favor of Hatch. The court also granted Hatch its costs and reasonable attorneys’ fees on appeal.
Key Takeaways
- Arizona Rule 26.1(a)(7) requires a party to disclose an actual computation and measure of claimed damages, the supporting documents, and the expected testimony of damages witnesses — a placeholder formula with unquantified variables does not comply.
- A no-evidence summary judgment motion is the proper vehicle to challenge an opposing party’s failure to disclose sufficient damages evidence; it is not a Rule 37 discovery sanction and does not require the procedural safeguards attendant to sanctions.
- A jury verdict allocating contractual pre-judgment interest to a separate claim line is not necessarily duplicative where the total award coherently reflects the principal owed plus the interest rate provided in the underlying contract.
- Failure to accept a Rule 68 offer of judgment and then recover a less favorable result exposes the rejecting party to fee and cost sanctions, which will be upheld if the underlying verdict stands.
Why It Matters
This decision is a practical reminder to litigants and counsel that vague damages disclosures carry serious consequences. Saying damages are “to be determined at trial” or offering a formula with unknown inputs is not a placeholder that buys time — it is a disclosure failure that can doom counterclaims at the summary judgment stage, even when the underlying liability theory may have merit. Arizona’s Rule 26.1(a)(7) requires substance, not just structure.
The case also illustrates how courts will work to preserve jury verdicts against duplicative-damages challenges when the record provides a coherent explanation. Practitioners should be deliberate about verdict form design — particularly when seeking pre-judgment interest — to avoid creating ambiguity that invites post-trial attack. Though the opinion is non-precedential under Arizona Supreme Court Rule 111(c), it reinforces well-settled principles that regularly arise in commercial litigation.