Crosthwait Equipment Co., Inc. v. John Deere Co.

• Citation: 992 F.2d 525
• Decision Date: 04 June 1993
• Docket Number: No. 92-7181,92-7181
• Parties: CROSTHWAIT EQUIPMENT CO., INC., et al., Plaintiffs, Crosthwait Equipment Company, Inc., A. Curtis Crosthwait, Jr., and Ruth A. Crosthwait, Plaintiffs-Counter Defendants-Appellants, Cross Appellees, and Allen E. Crosthwait, Plaintiff-Appellant, v. JOHN DEERE COMPANY, et al., Defendants, John Deere Company, Defendant-Counter Claimant-Appellee, Cross Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 525

992 F.2d 525

CROSTHWAIT EQUIPMENT CO., INC., et al., Plaintiffs Crosthwait Equipment Company, Inc., A. Curtis Crosthwait Jr., and Ruth A. Crosthwait, Plaintiffs-Counter Defendants-Appellants, Cross Appellees and Allen E. Crosthwait, Plaintiff-Appellant, v. JOHN DEERE COMPANY, et al., Defendants John Deere Company, Defendant-Counter Claimant-Appellee, Cross Appellant.

No. 92-7181.

United States Court of Appeals, Fifth Circuit.

June 4, 1993.

Rehearing Denied June 30, 1993.

William C. Walker, Jr., Oxford, MS, John P. Fox, Houston, MS, for appellant.

W.O. Luckett, Jr. and Stephen A. Brandon, Clarksdale, MS, for appellee.

Appeal from the United States District Court for the Northern District of Mississippi.

Before KING and EMILIO M. GARZA, Circuit Judges, and COBB ¹, District Judge.

COBB, District Judge:

After a jury verdict was returned for the plaintiffs, the district court granted defendant's motion for judgment as a matter of law on the verdict and denied defendant's motion for judgment or a new trial on its counterclaim for damages. Plaintiffs appeal; defendants cross-appeal as to damages. For the reasons given below, we AFFIRM the district court's order granting defendant's motion for judgment as a matter of law, and REVERSE and REMAND for further proceedings as to damages.

I.

Curtis and Ruth Crosthwait, with their son Allen E. Crosthwait, owned and operated Crosthwait Equipment Co., Inc., (collectively, Crosthwait), an authorized John Deere dealership selling agricultural and consumer products and equipment. In 1988, John Deere Company, (Deere), received information indicating that Crosthwait had prepared and submitted to Deere and its affiliate, Deere Credit Services, Inc., sales and credit documents containing material, false representations. In March 1990, after numerous reports of fraudulent activities, several Deere employees discussed the need to investigate Crosthwait's business practices. This resulted in a field audit of sales and credit documents prepared by Crosthwait. The audit led John Deere to terminate Crosthwait's dealership, based on fraudulent sales and credit documents, and pursuant to its dealership agreements with Crosthwait.

Crosthwait filed suit in state court for breach of contract and breach of fiduciary duty. Upon removal, the district court ordered that Crosthwait could stay in business for ninety days under Mississippi law. ² During this period, Crosthwait amended its petition to include intentional infliction of emotional distress, alleging undue pressure to sign a closure agreement to avoid litigation; and intentional interference with prospective and existing contractual sales, in that Deere removed certain tractors that Crosthwait had or could have sold during the ninety-day period. Deere counterclaimed for damages on the account balance due.

At trial, twenty-one former customers testified without contradiction that numerous sales and credit documents bearing their names and submitted to Deere or Deere Credit Services contained falsifications regarding various transactions between the dealership and them. Crosthwait inflated down payments, incorrectly recorded purchase prices, and listed fictitious equipment as trade-ins. Uncontroverted evidence indicated that serial numbers were tampered with and in some instances exchanged from one piece of equipment to another. Allen Crosthwait himself testified that he submitted falsified sales and credit documents to Deere and its affiliate.

Crosthwait argued that such practices had long been known to Deere and, in fact, constituted standard practice in the business that was not material enough to warrant cancellation of his dealership. ³ He further claimed that Deere's audit was a sham, the actual value of financed equipment was sufficient to provide Deere Credit complete security despite misrepresentations of value, and Deere's action in cancelling its dealership was actually in retaliation for selling outside his designated sales area.

After a jury returned a verdict in favor of Crosthwait, the district court granted Deere's motion for judgment as a matter of law as to these claims, but denied its motion for judgment as a matter of law or a new trial on Deere's counterclaim.

II.

Crosthwait contends on appeal that, under Mississippi law, there was insufficient evidence showing deliberate misrepresentation of material facts and actual damages; and there was sufficient evidence of improper motive on Deere's part in terminating the dealership to constitute an affirmative defense to fraud.

We use the same standard of review that guided the trial court in its ruling for judgment as a matter of law. Normand v. Research Institute of America, Inc., 927 F.2d 857, 859 (5th Cir.1991) (quoting Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969) (en banc)). All the evidence with all reasonable inferences is considered in the light most favorable to the party opposed to the motion. If the facts and the inferences point so strongly and overwhelmingly in favor of one party that we believe reasonable jurors could not arrive at a contrary verdict, then the motion was properly granted. If there is substantial evidence opposed to the motion--that is, evidence of such quality and weight that reasonable and fair minded jurors in the exercise of impartial judgment might reach different conclusions--then the motion should have been denied. Id.

A.

To prove fraud under Mississippi law, Deere has the burden of showing by clear and convincing evidence that Crosthwait:

1. knowingly made;

2. false;

3. material;

4. misrepresentations to Deere or Deere Credit;

5. which Crosthwait intended to induce action on the part of Deere or Deere Credit in the manner reasonably contemplated;

6. that Deere or Deere Credit did not know the falsity of Crosthwait's representations;

7. that Deere or Deere Credit relied upon the truth of the representations;

8. that it had the right to do so; and

9. that it suffered consequent and proximate injury.

See Vogel v. American Warranty Home Services Corp., 695 F.2d 877 (5th Cir.1983); Beck Enterprises, Inc. v. Hester, 512 So.2d 672, 675 (Miss.1987).

The record below provides overwhelming evidence that the sales and credit documents prepared by Crosthwait on its customers' behalf for submission to Deere contained false information which the customers did not supply or create, which were deliberate and material and upon which Deere detrimentally relied.

Crosthwait customers needed favorable financial data before Deere Credit Services would approve the credit they needed to finance purchases. This credit allowed Crosthwait to sell its equipment to customers; and, in turn, a portion of the credit funds would be released to Crosthwait as an incentive to place a borrower with Deere Credit Services.

Allen Crosthwait admitted he personally submitted documents to Deere which he knew contained false information. Because Deere relied on these misrepresentations in the course of their sales and credit transactions, these misrepresentations were material. Mr. Al Berzett, manager of Agricultural Finance for Deere Credit Services, testified that the credit information, as supplied by the dealers, helped Deere Credit Services determine whether it would give credit for the purchase. Thus, when the dealer gives this information, it intends to induce reliance and a particular action on the part of Deere and Deere Credit as a consequence of these misrepresentations. Since these representations were false, Deere Credit was not in a position to make an informed decision as to the credit-worthiness of its applications, and was therefore ignorant of the applicants' true credit worthiness. The trial court found that, as a result of these misrepresentations, Deere suffered at least $2000 in damages; and, were it not for the honesty of Crosthwait's customers, would have suffered more.

Deere cancelled Crosthwait's dealership under the terms of its agreements with Crosthwait. The "John Deere Agricultural Dealer Agreement" (Agricultural Agreement) and the "John Deere Consumer Products Dealer Agreement" (Consumer Agreement) gave Deere the right to cancel its dealership appointment with Crosthwait by giving notice "at any time" upon default by...