557 F.3d 469 (7th Cir. 2009), 08-1067, Lindquist Ford, Inc. v. Middleton Motors, Inc.

Docket Nº:08-1067, 08-1689.
Citation:557 F.3d 469
Party Name:LINDQUIST FORD, INC., Steven Lindquist, and Craig Miller, Plaintiffs-Appellees, v. MIDDLETON MOTORS, INC., Defendant-Appellant.
Case Date:February 25, 2009
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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557 F.3d 469 (7th Cir. 2009)

LINDQUIST FORD, INC., Steven Lindquist, and Craig Miller, Plaintiffs-Appellees,


MIDDLETON MOTORS, INC., Defendant-Appellant.

Nos. 08-1067, 08-1689.

United States Court of Appeals, Seventh Circuit.

February 25, 2009

Argued Sept. 18, 2008.

As Amended March 18, 2009.

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[Copyrighted Material Omitted]

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Robert E. Shumaker, Attorney (argued), Dewitt, Ross & Stevens, Madison, WI, for Plaintiffs-Appellees.

Mark J. Steichen, Attorney (argued), Boardman, Suhr, Curry & Field, Madison, WI, for Defendant-Appellant.

Before EASTERBROOK, Chief Judge, and SYKES and TINDER, Circuit Judges.

SYKES, Circuit Judge.

Middleton Motors, Inc., a struggling Ford dealership near Madison, Wisconsin, sought managerial and financial assistance from Lindquist Ford, Inc., a successful Ford dealership located in Bettendorf, Iowa. The ensuing negotiations centered on Middleton's need for management services and a cash infusion from Lindquist. The two dealerships generally agreed that Craig Miller, Lindquist's general manager, would take over as manager of Middleton and that Lindquist would be compensated for these services based on Middleton's profits after Miller turned the dealership around. A more specific agreement, however, was not reached.

In the meantime, Miller assumed management responsibilities over both dealerships, and the parties continued to discuss

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the details of the compensation for Miller's services, the contemplated cash investment by Lindquist, and other terms of a possible joint venture. The negotiations ultimately fell apart because Lindquist did not come forward with any cash. Middleton, still sustaining losses, fired Miller without having paid for his services.

Lindquist and Miller 1 sued Middleton for breach of contract, promissory estoppel, quantum meruit, and unjust enrichment, seeking recovery for the eleven months of management services Miller provided Middleton. The district court granted summary judgment for Middleton on the first two claims, and the latter two claims proceeded to trial. The court excluded a large amount of background evidence, believing that the only issues for trial were whether Middleton could overcome a " presumption" that compensation was owed and the amount of damages. After a bench trial, the court entered judgment for Lindquist under both quantum meruit and unjust enrichment; damages were awarded based on the court's determination of the market rate of compensation for auto-dealership general managers or consultants in the field. Middleton appeals.

We reverse. Quantum meruit and unjust enrichment are both quasi-contractual theories, but the two claims have different elements and damages measures under Wisconsin law. The district court got off on the wrong foot by misconstruing these causes of action. This was understandable given some confusing phraseology in Wisconsin caselaw, but as a result of its misstep, the court failed to try the key issues, erroneously excluded relevant evidence, and failed to weigh the particular equities at stake in the commercial circumstances of this case. Accordingly, we remand for retrial.

I. Background

A. A Failed Business Relationship

Middleton Motors, Inc., is a Ford dealership located in Middleton, Wisconsin, and owned and operated by brothers Robert, Dave, and Dan Hudson. In the months leading up to the events at issue in this suit, Middleton was experiencing heavy financial losses, and the brothers disagreed about how to best manage the dealership. For assistance Middleton looked to Lindquist Ford, Inc., a Ford dealership located in Bettendorf, Iowa. In 2002 and early 2003, Dave Hudson and Craig Miller, Lindquist's general manager, spoke generally about the possibility of Lindquist becoming involved in Middleton's operations and ownership. Meanwhile, Middleton's situation worsened. In March 2003 Dave Hudson told Miller that he and Robert had placed Dan on a leave of absence, that Middleton continued to sustain losses, and that Middleton needed Lindquist's help. Before entering into more serious negotiations, the parties signed a confidentiality agreement drafted by Lindquist. It included the following relevant provisions:

In connection with the interest of [Lindquist], in exploring the possible acquisition (the " Transaction" ) of all or a portion of the business (the " Business" ) owned by you, We are requesting that you or your representatives furnish certain information relating to the Business....


6.) We acknowledge and agree that unless and until a written definitive agreement concerning the Transaction

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has been executed neither you, any of your Representatives, us nor any of our Representatives, will have any liability to the other with respect to the Transaction, whether by virtue of this agreement of [sic] any other written or oral expression with respect to the Transaction otherwise.

On April 17, 2003, the two dealerships met to hammer out a deal. Middleton sought Miller's services as a general manager and a cash infusion from Lindquist in exchange for a profit-sharing agreement. A general understanding was reached that Miller would take over as general manager of Middleton and Lindquist would be paid for these services on a percentage-of-net-profit basis, but the specifics of an agreement were not resolved at this meeting. Nevertheless, the parties agreed that Miller would begin working at Middleton on April 21, 2003, and they would negotiate further terms and commit the agreement to writing sometime later. On April 21 Miller started working as general manager of Middleton while maintaining the same position with Lindquist.

The next attempt at a written agreement came in a June 2 fax from Miller to Middleton. This proposal specified that " [t]he only compensation to [Lindquist] will be the Fee, the use of one vehicle, and the reimbursement of travel, meals and lodging costs." The " Fee" was defined as 45% of Middleton's profits; payment was to begin the first month that Middleton showed a net profit. On July 1, 2003, Middleton's accountant sent an email to Lindquist's accountant explaining that he (Middleton's accountant) had met with Miller and rejected the June 2 proposal because it did not require Lindquist to make an up-front cash investment in Middleton. The email also asserted that Lindquist understood from the April 17 meeting that its compensation for Miller's services would come only from Middleton's profits once the dealership was in the black.

On August 28 Middleton's accountant circulated a letter of understanding " for the relationship among the parties to be legally formalized at a later point." The letter stated that the parties " have agreed to enter into an agreement whereby [Lindquist] would provide a cash infusion into [Middleton] and take over management of the operations for the fees discussed below." Those fees included, first, 15% of profits " for recovery of expenses and time associated with the assistance provided by Lindquist" and, second, 22.667% of the remaining real income to be paid for " management of the operations." The letter of understanding reiterated that payment would begin the first month that Middleton reported a net profit. The letter also called for Lindquist to invest $500,000 in exchange for a 25% equity stake in Middleton.

Over the next several months, the parties continued to negotiate but never came to terms on the specifics of an agreement; Lindquist never made a cash investment in Middleton. On March 24, 2004, fed up and still sustaining losses, Middleton fired Miller. On May 11, 2004, Miller sent a letter to Middleton demanding payment for his services. Despite Middleton's persistent losses, Miller asked for $32,627.84 as " final payment for the calendar year 2003," " 50% of adjusted profits per the ‘ Letter of Understanding’ " for 2004-2005, and an additional 50% of adjusted profits for 2006. Middleton rejected Miller's demand, saying it owed nothing because Miller never turned the dealership profitable.

B. Lindquist Files Suit; Middleton Moves for Summary Judgment

Lindquist commenced this action in Iowa state court seeking recovery for Miller's services. Middleton removed the

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case to federal court, and the parties agreed to transfer venue to the Western District of Wisconsin. Lindquist filed an amended four-count complaint asserting claims for breach of contract, promissory estoppel, quantum meruit, and unjust enrichment. Middleton moved for summary judgment on all counts. The district court granted summary judgment for Middleton on the breach-of-contract and promissory-estoppel claims-decisions not challenged on this appeal.

Proceeding to the quantum-meruit claim, the judge framed " [t]he ultimate inquiry" as " whether the parties came to a mutual agreement by their words, conduct or course of dealing, as shown by [the] parties' external expressions of intention." Citing Theuerkauf v. Sutton, 102 Wis.2d 176, 306 N.W.2d 651, 658 (1981), the judge said that Lindquist must show that " (1) defendant requested plaintiffs to perform services; (2) plaintiffs complied with the request; and (3) the services were valuable to defendant." If Lindquist made these showings, the court continued, it was entitled to a rebuttable presumption that the parties had agreed to payment. The court then denied summary judgment on this claim, reasoning that a reasonable fact finder could conclude that all three elements were satisfied.

Middleton had argued that because the parties expected compensation to be based on profits and there were no profits, Lindquist could not recover. The judge rejected this argument, concluding that the parties' expectations became irrelevant once...

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