Buono Sales, Inc. v. Chrysler Motors Corporation

• Decision Date: 21 September 1971
• Docket Number: No. 18911-18913.,18911-18913.
• Citation: 449 F.2d 715
• Parties: BUONO SALES, INC., Appellant in 18,911 v. CHRYSLER MOTORS CORPORATION, Appellant in 18,912. Appeal of CHRYSLER CORPORATION, Appellant in 18,913.
• Court: U.S. Court of Appeals — Third Circuit

449 F.2d 715 (1971)

BUONO SALES, INC., Appellant in 18,911 v. CHRYSLER MOTORS CORPORATION, Appellant in 18,912.

Appeal of CHRYSLER CORPORATION, Appellant in 18,913.

Nos. 18911-18913.

United States Court of Appeals, Third Circuit.

Argued April 2, 1971.

Decided September 21, 1971.

Samuel Carotenuto, Reussille, Cornwell, Mausner & Carotenuto, Red Bank, N. J., for appellant in No. 18911 and appellee in Nos. 18912/18913.

Robert Ehrenbard, Kelley, Drye, Warren, Clark, Carr & Ellis, New York City, for appellant in Nos. 18912/13 and appellees in No. 18911 (Pitney, Hardin & Kipp, Newark, N. J., Joseph Fortunato, Newark, N. J., on the brief).

Before FORMAN, SEITZ, and ALDISERT, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge.

On a previous appeal in this case we determined that Chrysler¹ was liable to plaintiff, a New Jersey automobile dealer, for discontinuing production of the DeSoto automobile in 1960. Our conclusion was based on a finding of breach of contract and tortious interference with plaintiff's business. Buono Sales, Inc. v. Chrysler Motors Corp., 363 F.2d 43 (3d Cir.) (en banc), cert. denied, 385 U.S. 971, 87 S.Ct. 510, 17 L.Ed.2d 435 (1966). Now, after remand and trial in the district court, we are asked by both sides to review the amount of damages which have been assessed against defendants and to consider for the first time the merits of plaintiff's claim under still a third theory of liability.

Plaintiff, Buono Sales, Inc., has been engaged since 1935 in the business of selling and servicing Chrysler products. In 1960, it was a dealer in DeSoto, Plymouth, and Valiant automobiles, operating in Hawthorne, New Jersey under a DeSoto-Plymouth Direct Dealer Agreement executed in 1957. On November 18, 1960, the President of Chrysler Motors Corporation notified plaintiff and more than 1600 other dealers that production of the DeSoto was being discontinued and that the car was being withdrawn from the market because a "drastic shift by the consumers" toward low-priced cars had resulted in a lack of interest in the DeSoto. Thereafter, Chrysler's Dodge division mailed a brochure to the owners of 1956-1959 DeSotos, suggesting that the recipients take their cars to Dodge dealers for servicing.² Since November 18, 1960, plaintiff has continuously operated as a single-line Plymouth dealer.

Plaintiff filed this action against Chrysler alleging breach of contract (Count 1), tortious interference with business (Count 4), and violation of the Automobile Dealers' Day in Court Act³ (Count 6). The district court dismissed the complaint in its entirety. On appeal, this Court reversed, directed that judgment be entered in favor of plaintiff on Counts 1 and 4, and ordered a trial on the question of damages under both counts. Buono Sales, Inc. v. Chrysler Motors Corp., supra. Count 6 was not before this Court because the parties, by stipulation, had agreed that the statutory claim would be abandoned were Chrysler not found liable for breach of contract under Count 1.

On remand, the district court assessed damages of $30,000 on Count 1, awarded six cents nominal damages on Count 4, and dismissed Count 6. Chrysler now appeals from the judgment of the district court on Count 1, and plaintiff has filed a cross-appeal from the judgments entered on all three counts.

BREACH OF CONTRACT

In our previous opinion, we held that Chrysler had breached its Direct Dealer Agreement with plaintiff by discontinuing production of the DeSoto:

"The contract before us is clear. Its unmistakable intent is to protect Chrysler as to its dealers in every foreseen contingency. It does not by its terms or impliedly give Chrysler the naked right to discontinue without contract cause, manufacturing and distributing to its dealers DeSoto automobiles. In so doing Chrysler broke the contract." 363 F.2d at 49.

On remand, plaintiff sought to recover as damages the profits it would have made in the future from the sale of DeSoto automobiles. Chrysler, however, claimed that plaintiff sustained no damages and was in fact better off without having to sell the DeSoto because, when the contract was breached, the DeSoto was an unprofitable commodity lacking in consumer interest.

Concluding that the automobile's relative unpopularity in 1960 was the result of defendant's gradual phasing out of the DeSoto rather than the normal operations of the market place, the district court calculated plaintiff's lost profits on the basis of its experience during the years 1955-1959. The court found that plaintiff's average net profits from DeSoto sales and service during those five years was $9,511.40, ruled that the DeSoto would not have remained a profitable commodity for more than three years beyond the date of Chrysler's breach, and therefore estimated plaintiff's lost profits to be $30,000. Although plaintiff claims that damages should have been projected over a much longer period, we must first consider Chrysler's contention that plaintiff suffered no damages at all because the DeSoto was in fact unprofitable.

In its determination of plaintiff's profits experience with the DeSoto between 1955 and 1959, the district court relied extensively on the expert testimony of Leon Kranztohr, a certified public accountant specifically engaged by the plaintiff to estimate the amount of damages attributable to Chrysler's breach. Essentially, Kranztohr began his calculations with a determination of plaintiff's gross profits from DeSoto sales and service during each of the five years between 1955 and 1959. With respect to new car sales, this figure was arrived at by deducting total wholesale cost and trade-in discounts from total sales revenue. Kranztohr then proceeded to subtract from gross profits certain variable expenses which he believed to be directly related to the DeSoto. In the case of new car sales, such expenses included insurance on plaintiff's inventory of new DeSotos; sales compensation and commissions; advertising, travel, and entertainment expenses; interest on finance charges; and a portion of the losses in the used car department deemed to be directly allocable to sales of new DeSotos. Similar expenses were deducted from plaintiff's DeSoto parts and service sales, including small tools, laundry, freight, policy adjustments, payroll taxes, and employee benefits. The result, which Kranztohr defined as plaintiff's "net profit" from the DeSoto, totalled $36,510.00 for sales of new DeSotos and $11,047.00 for DeSoto parts and servicing over the five-year sample period. By averaging the total net profits in both categories, Kranztohr testified that plaintiff had made an average of $9,511.40 per year from the DeSoto and had therefore lost this added amount of yearly income by virtue of Chrysler's breach.

Chrysler challenges on several grounds, the district court's reliance on the Kranztohr testimony. It first claims that the amount of plaintiff's net profits, if any, during the 1955-1959 period "is plainly of no probative value" since the issue is what "the DeSoto portion of the Agreement was worth on November 18, 1960." Since plaintiff sold only 12 new DeSotos during all of 1960 and, using plaintiff's own method of calculation, made a total net profit of only $192.00, Chrysler maintains that the district court vastly overestimated the value of the dealership agreement at the time of the breach. We disagree and think the district court properly refused to consider plaintiff's 1960 profits experience as an accurate basis for measuring damages.

The evidence indicates that, as early as 1958, Chrysler conceived of a plan to begin curtailing its production of the DeSoto in order to gradually phase out the automobile and leave its dealers with single-line Plymouth franchises. Pursuant to this plan, in 1960 Chrysler drastically reduced the number of DeSoto series from four to two and the number of models from 18 to 6. The resulting reduction in the number of available cars obviously tended to decrease the amount of profit which DeSoto dealers would have otherwise realized. Since there is no evidence that such measures would have been taken by Chrysler had it not intended ultimately to discontinue the DeSoto entirely, we think the five-year period preceding 1960 was properly considered a more accurate representation of what plaintiff's profits would have been in the absence of Chrysler's breach. As the court below stated: "Since the normal operations of the market place were not the cause of the decline in the profits made by plaintiff, it would seem unduly harsh to restrict plaintiff to the 1960 figures in calculating its damages."

Chrysler next contends that, assuming the relevance of plaintiff's "net DeSoto profits" for the years 1955-1959, the district court erred in its computation of such profits. It argues: (a) that those variable expenses which the court deducted from plaintiff's gross DeSoto profits were allocated on an improper basis; and (b) that certain fixed expenses were erroneously not deducted at all. With respect to the former contention, Chrysler complains that such expenses as insurance, sales compensation and commissions, advertising, travel, and entertainment expenses, interest on finance charges, and used-car losses were apportioned between the Plymouth and DeSoto "not on the basis of their purpose," but on the basis of the relative percentage of cars actually sold. In other words, Chrysler says, "if a salesman devoted 50% of his time to promoting DeSoto and 50% to Plymouth but sold three times as many Plymouths as DeSotos only 25% of his time would be charged to the DeSoto." Plaintiff's financial statements for the years in question do not indicate a break-down between DeSoto and Plymouth for many of these expenses, and Chrysler has failed to suggest an alternative means of making the requisite allocations. We agree with the district court that, in the absence of more specific figures, an allocation based upon the percentage of...