Art Janpol Volkswagen, Inc. v. Fiat Motors of North America, Inc.

• Citation: 767 F.2d 690
• Decision Date: 10 July 1985
• Docket Number: Nos. 83-1401,83-1526,s. 83-1401
• Parties: ART JANPOL VOLKSWAGEN, INC., d/b/a Art Janpol Motors, Plaintiff-Appellee Cross-Appellant, v. FIAT MOTORS OF NORTH AMERICA, INC., Defendant-Appellant Cross-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 690

767 F.2d 690

ART JANPOL VOLKSWAGEN, INC., d/b/a Art Janpol Motors, Plaintiff-Appellee Cross-Appellant, v. FIAT MOTORS OF NORTH AMERICA, INC., Defendant-Appellant

Cross-Appellee.

Nos. 83-1401, 83-1526.

United States Court of Appeals, Tenth Circuit.

July 10, 1985.

Oliver Burton Cohen of Cohen & Aldridge, P.A., Albuquerque, N.M., for plaintiff-appellee cross-appellant.

Jeffrey E. Livingston of Pavia & Harcourt, New York City (David A. Botwinik and Richard L. Mattiaccio of Pavia & Harcourt, New York City, and Nicholas R. Gentry of Johnson and Lanphere, P.C., Albuquerque Before SETH, LOGAN, and SEYMOUR, Circuit Judges.

N.M., with him on brief), for defendant-appellant cross-appellee.

SEYMOUR, Circuit Judge.

Art Janpol Volkswagen, Inc. ("Janpol"), a New Mexico corporation, brought this diversity action against Fiat Motors of North America, Inc. ("Fiat"), a New Jersey corporation, alleging breach of contract and seeking monetary and injunctive relief. After a bench trial on the merits, the district court entered judgment in favor of Janpol, and awarded compensatory and punitive damages. The court denied attorneys fees to Janpol, and both parties appeal. We affirm in part and reverse in part.

I. BACKGROUND

Janpol is an automobile dealer in Albuquerque, New Mexico, engaged in the sales of various makes of imported cars. Fiat is the North American importer and distributor for Fiat cars manufactured in Italy. In 1977 Janpol and Fiat entered into an automobile dealership contract governed by a "Dealer Sales & Service Agreement." ¹ Under this contract Fiat agreed to sell Fiat cars to Janpol for resale on the retail market. Fiat also agreed to supply Janpol with replacement and repair parts and to reimburse Janpol for certain warranty repairs. The parties operated under their agreement satisfactorily until approximately 1981, when their relationship began to deteriorate. At that time, Janpol began receiving a number of weather-beaten and defective cars from Fiat. Many of the cars had been stored outside in unprotected conditions for lengthy periods as a result of declining sales in the United States and problems related to work stoppages and strikes in Italy. The cars required a substantial amount of repair and refurbishing before Janpol could sell them to its retail customers. While Fiat bore the expense of the repair and refurbishing, a number of cars were returned to Fiat, at Janpol's expense, when Janpol concluded that it could not sell them lawfully in New Mexico as new cars.

In addition to the problems related to storage, a number of Janpol's Fiat customers experienced serious and costly mechanical problems with cars both inside and outside the new car warranty period. The problems included malfunctions in the cars' cooling, oil, ignition, transmission, exhaust and electrical systems. According to witnesses for both Fiat and Janpol, some of these problems were caused by design defects, while others were caused by poor workmanship during manufacturing and assembly. These problems occurred throughout the life of the contract but increased noticeably in 1979 and 1980.

Janpol and Fiat also became embroiled in numerous disputes over the processing and payment of warranty claims that Janpol submitted to Fiat. These claims were to be submitted and processed in accordance with specific Fiat warranty procedures and payment to Janpol required approval and authorization by Fiat. Disputes as to the necessity, amount, and proper submission of warranty claims increased, and many claims remained unresolved. As a result, in 1981 Janpol refused to perform any further warranty or recall repair work for Fiat unless Fiat customers paid for such work in advance. Relations between Janpol and Fiat worsened until February 1982 when Fiat notified Janpol that it intended to cancel Janpol's franchise and to terminate the contract because of Janpol's refusal to perform warranty claim and recall service work. Janpol brought an action in New Mexico state court seeking to enjoin Fiat's cancellation of the franchise agreement and alleging breach of contract. Janpol sought damages for lost profits, loss of business goodwill, repair work expenses Fiat removed the action to federal district court. Following a bench trial on the merits, the court found that Fiat had failed to provide Janpol with saleable quality cars and had failed to honor Janpol's proper warranty claims. The court also found that as a result of customer complaints and in order to maintain its business reputation, Janpol was forced to make warranty repairs and bear the cost itself, to repurchase cars from dissatisfied customers and resell them at a loss, and to defend and settle lawsuits brought by dissatisfied Fiat purchasers. The court awarded Janpol $38,198 in compensatory damages and $50,000 in punitive damages. ² In a separate order entered after the judgment on the merits, the court denied Janpol's request for attorneys fees. On appeal, Fiat contends that the district court erred in (1) finding a breach of contract; (2) computing the compensatory damages; and (3) awarding punitive damages. On cross-appeal, Janpol argues that the district court erred in denying its request for attorneys fees.

unpaid warranty claims, shipping expenses, diminution in the value of its inventory of Fiat cars, and diminution in the value of the franchise. Janpol also claimed that Fiat had violated the New Mexico Motor Vehicle Dealers Franchising Act, N.M.Stat.Ann. Secs. 57-16-1 et seq. (1978 & Supp.1981). Finally, Janpol sought punitive damages and attorneys fees.

II. BREACH OF CONTRACT

Fiat first claims that the district court erred in finding that Fiat failed to provide Janpol with quality cars and improperly rejected Janpol's warranty claims. Fiat argues that its actions do not constitute a breach of contract and also argues that the finding of improper rejection of warranty claims is not supported by the evidence. ³ We disagree.

The findings of fact by a trial court must be upheld on appeal unless they are clearly erroneous. Fed.R.Civ.P. 52(a). Findings are not to be determined clearly erroneous unless, after a review of the entire record, we are left with a definite and firm conviction that a mistake has been made. See, e.g., Anderson v. City of Bessemer City, --- U.S. ----, ----, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518, 53 U.S.L.W. 4314, 4317 (1985), Thornton v. Coffey, 618 F.2d 686, 690 (10th Cir.1980); Diggs v. Western Electric Co., 587 F.2d 1070, 1072 (10th Cir.1978). Our review of the record shows that the trial court's finding of breach of contract is supported by the evidence and is not clearly erroneous.

Under the terms of the contract, Fiat expressly agreed to provide Janpol with quality cars. ⁴ Janpol produced evidence that a number of cars were delivered to it in a deteriorated condition, and witnesses for both Fiat and Janpol testified that many cars were not saleable when received because of weather damage and mechanical problems. Fiat argues that it did not breach its obligation to provide quality cars because it agreed to pay for the repair and refurbishing of the cars after Janpol received them and before they were sold. Janpol also presented evidence, however, that on at least one occasion it rejected almost all the cars in one shipment when it concluded that the cars could not be sold lawfully as new cars to New Mexico consumers The district court also found that Fiat had willfully and improperly failed to honor fifty-eight proper warranty claims in the amount of $7,633. Fiat contends that it was simply following its standard warranty claims procedures, as prescribed by the contract, and that the court's finding is clearly erroneous because there is insufficient evidence to show that Janpol's claims were proper. We are not persuaded.

                after such repair and refurbishing. 5   In addition, in a number of cases where Fiat directed Janpol to repair cars it had received in an unsaleable condition, the parties subsequently became embroiled in unresolved disputes over Janpol's right to reimbursement for these repairs.  Janpol introduced evidence that as a result of these uncorrected problems and other Fiat car defects, it was forced to sell several cars as used, to sell several more at a substantial loss from the retail price for a new car, to repurchase several cars from dissatisfied customers, and to perform repairs for customers free of charge in order to preserve customer goodwill and its reputation as a car dealership.  At the time of the lawsuit, Janpol also possessed three newly delivered Fiat cars which it apparently had accepted but was unable to sell because of subsequent mechanical defects, and which Fiat refused to repurchase.  Thus, despite Fiat's claim that subsequent repairs could cure its failure to deliver quality cars, the record indicates that Janpol's subsequent attempts at repair were often fruitless, unsuccessful, and uncompensated
                

At trial, Janpol's service manager testified that he was familiar with the warranty claims procedures and that Janpol followed the prescribed procedures in submitting claims. He also testified that from his experience, Fiat's warranty rejection rate was much higher than that of other car manufacturers. The service manager and Janpol's president testified that on several occasions, Janpol obtained prior authorization from Fiat for major repairs but that Fiat then rejected the warranty claims after the repairs were completed. The record contains evidence that Fiat's warranty review policies were inconsistent, that claims were rejected with no reason given, and that on occasion, Fiat had allowed claims that were not submitted in accordance with its procedures.

Moreover, the record indicates that Fiat's zone service manager, who was responsible for warranty problems with Janpol, was unable to explain a number of warranty rejections and nonpayments when confronted at trial with specific warranty claims. He...