In E.L. & Associates v. Pabon, a company sued two former directors and their son for breaching fiduciary duties when the company lost a lease for a restaurant it operated and the directors’ son opened a nearly identical restaurant in the same location. No. 14-15-00631-CV, 2017 Tex. App. LEXIS 4547 (Tex. App.—Houston [14th Dist.] May 18, 2017, no pet. history). A jury found that the directors breached their fiduciary duties and that their son assisted in the breaches of fiduciary duty, but awarded no damages to the company. The company appealed and complained that the trial court should not have submitted a mitigation instruction in the damages question. The instruction stated: “Do not include in your answer any amount that you find E.L. & Associates, Inc. could have avoided by the exercise of reasonable care.” Id. at *7.
The court of appeals first discussed the concept of the duty to mitigate damages:
The doctrine of mitigation of damages, sometimes referred to as the doctrine of avoidable consequences, requires an injured party to use reasonable efforts to avoid or prevent losses. In the context of a breach of contract case, the doctrine has been stated as follows: “‘Where a party is entitled to the benefits of a contract and can save himself from the damages resulting from its breach at a trifling expense or with reasonable exertions, it is his duty to incur such expense and make such exertions.’” The doctrine has been applied in breach of contract and tort cases.
Id. at *9 (internal citations omitted).
The company argued that it could not have a duty to mitigate before it incurred damages, and the court of appeals disagreed: “It is not the damages themselves that trigger the duty to mitigate, but knowledge by the non-breaching party of the breach that ultimately causes the damages. The question before us, then, is what the breach of fiduciary duty was, and when EL&A had knowledge of the breach.” Id. at *13.
The court then found that the company had knowledge of the defendant’s breaches before any damages occurred and that it could have done something to mitigate the harm:
[T]he jury properly could have considered evidence of Efrain or George’s failure to mitigate by signing a new lease if there was evidence that they were aware of the breach before the Pabons’ lease was signed on March 15, 2011. To that end, the record contains evidence that EL&A repeatedly was made aware throughout 2009 and 2010 that the Pabons were refusing to renew and provide a guaranty for the lease on EL&A’s behalf. The record also contains evidence that EL&A was made aware at least as early as January 2011 that the Pabons had disclosed Efrain’s status as the majority shareholder of EL&A. Based on this evidence, the record before us could support a jury finding that EL&A failed to reasonably mitigate its damages — its loss of the restaurant location — by having Efrain sign and become guarantor of a lease after learning of the Pabons’ breaches but before (1) the month-to-month lease was terminated in February 2011; or (2) Solis signed the new lease for the same location on March 15, 2011.
The court then held that the trial court did not err by including a mitigation instruction in the damages question and affirmed the judgment.