Diesel Machinery, Inc. v. B.R. Lee Industries
| Decision Date | 30 September 2003 |
| Docket Number | No. CIV. 01-4178.,CIV. 01-4178. |
| Citation | 328 F.Supp.2d 1029 |
| Parties | DIESEL MACHINERY, INC., Plaintiff, v. B.R. LEE INDUSTRIES, INC., Defendant. |
| Court | U.S. District Court — District of South Dakota |
Rollyn H. Samp, Samp Law Office, Sioux Falls, SD, Michael P. Healy, Steven L. Hobson, Healy Law Firm, Kansas City, MO, for Plaintiff.
Carleton R. Hoy, James L. Hoy, Hoy & Hoy, Sioux Falls, SD, William A. Clineburg, Jr., Alex S. Drummond, King & Spalding, Atlanta, GA, for Defendant.
After the Plaintiff, Diesel Machinery, Inc. ("DMI"), obtained a judgment against Defendant, B.R. Lee Industries, Inc. ("LeeBoy"), for lost business profits in the amount of $665,000 and for punitive damages in the sum of $4,335,000, LeeBoy filed a motion for judgment notwithstanding the verdict or, alternatively, for new trial or remittitur. (Doc. 279.)
On October 2, 2000, DMI and LeeBoy entered into a Dealership Agreement giving DMI the exclusive right to sell LeeBoy products in South Dakota and certain counties in Minnesota. On July 12, 2001, LeeBoy Sales Manager Bryce Davis called DMI President Dan Healy and told Mr. Healy that DMI's agreement was cancelled effective immediately. Two or three days prior to the phone call to DMI, LeeBoy had contacted another dealer in Sioux Falls, J.D. Evans, and asked that company to be LeeBoy's exclusive dealer in South Dakota. See Trial Transcript at p. 533.1 Mr. Davis did not give any reason for the termination during the July 12 telephone call to Dan Healy. LeeBoy sent a confirmation letter to Mr. Healy dated July 12, 2001, indicating that it had acquired another product line (Rosco) for which there was already an existing dealer in Sioux Falls and that "[t]he consolidation of dealers has resulted in the cancellation of your LeeBoy Dealer Agreement effective July 12, 2001." On July 20, 2001, DMI's lawyer sent a letter to LeeBoy threatening litigation. (Doc. 112, Defendant's Motion for Summary Judgment, Ex. C, marked as Ex 20 for trial but not offered or received; TT at 127.) Among other things, the July 20 letter set forth the terms of South Dakota's Dealer Protection Act, SDCL § 37-5-3, explained that DMI sued Ingersoll-Rand for wrongful termination of DMI's Ingersoll-Rand franchise agreement, and offered to settle with LeeBoy for $600,000. (Doc. 112.) Attached to the letter was a copy of this Court's Memorandum Opinion and Order issued in the Ingersoll-Rand case. (Id.) The letter requested a response from LeeBoy by August 3, 2001. Kelly Majeski, Vice President of Sales and Marketing for LeeBoy, testified that he called to talk to Dan Healy after he received the July 20 letter, but Dan Healy simply referred Mr. Majeski to his lawyer. (TT at 774.) Dan Healy does not remember that phone call. (TT at 554.)
This lawsuit was filed on August 9, 2001. After the lawsuit was filed, LeeBoy sent letters to counsel for DMI indicating that LeeBoy was denying liability under the South Dakota statutes and that LeeBoy thought DMI's claims were "spurious and essentially worthless." (TT at 127.) On September 13, 2001, LeeBoy's lawyer sent a letter to DMI's lawyer which stated, in part:
Although DMI's productivity fell far short of LeeBoy's expectation, DMI has contended since the termination of the Agreement that it values its relationship with LeeBoy. Due to this expression of interest, LeeBoy is prepared to re-appoint DMI as its exclusive dealer pursuant to a mutually acceptable dealer Agreement that complies with South Dakota law.
Please let me know by the close of business on September 18, 2001 if this is acceptable and we will forward a copy of a proposed Agreement.
(Plaintiff's Exhibit 83.) That is the first time Pat Healy, DMI's owner, had ever heard that LeeBoy thought DMI's sales performance fell short of LeeBoy's expectations. (TT at 128-131.)
DMI filed a motion for summary judgment contending that the Court should find as a matter of law that LeeBoy's cancellation of the dealer franchise was done unfairly, without due regard to the equities of the dealer and without just provocation, all in violation of SDCL § 37-5-3. LeeBoy asserted that DMI's limited sales and failure to maintain an inventory of LeeBoy's products justified the termination of the franchise. LeeBoy argued that only a jury could decide whether LeeBoy had cause to terminate its relationship with DMI based on the latter's alleged poor performance. The Court disagreed with LeeBoy's argument because the record is clear that LeeBoy did not rely on DMI's lack of performance as a reason for terminating the franchise. DMI's Statement of Undisputed Material Facts states at paragraph 202:
At the time LeeBoy announced DMI was terminated, LeeBoy did not suggest nor did it think that DMI had breached or violated any portion of the Dealership Agreement including any of the conditions of § 8.3. Labriola Depo. at 32-34, attached as Ex.2.
(Doc. 107, p. 46.) (Section 8.3 of the Agreement sets out nine grounds for default that would allow LeeBoy to terminate the Agreement by providing written notice of the termination.) LeeBoy responded: "LeeBoy admits Paragraph 202, but denies its relevance to Plaintiff's Motion." (Doc. 135, p. 21.) Second, during the pretrial conference on October 7, counsel for LeeBoy admitted that LeeBoy terminated the franchise with DMI for the sole reason that LeeBoy had acquired Rosco and it made no sense to have two dealers in a small market like South Dakota. Third, in support of its motion for summary judgment, DMI submitted an Affidavit signed by Dan Healy on behalf of DMI which states, in part:
LeeBoy never advised, suggested or told DMI that it had any problem, concern, complaint, disagreement or criticism of DMI in any way or that DMI had breached any part of the Dealer Agreement, or violated any LeeBoy policy, program or procedure or that DMI had any kind of shortcoming or insufficiency relating to advertising, signage, marketing, sales, service or part performance or any other matter, or that DMI should do or refrain from doing anything that DMI was or was not doing.
(Doc. 107, Ex. 1.) LeeBoy did not submit any evidence contradicting DMI's affidavit.2
During the pretrial conference on October 7, 2002, the Court announced its ruling that the relationship between DMI and LeeBoy was a franchise. By Memorandum Opinion and Order issued on October 24, 2002, the Court granted DMI's motion for summary judgment, finding that it had been conclusively established that "LeeBoy unfairly terminated the agreement with DMI without due regard to the equities of DMI and without just provocation, all in violation of SDCL § 37-5-3." (Doc. 204, p. 7.) The amount of damages remained the only issue for trial.
Both parties filed numerous motions in limine prior to trial. The Court will limit its discussion to the rulings that LeeBoy argues entitles it to judgment notwithstanding the jury's verdict or, in the alternative, a new trial or remittitur.
DMI moved to exclude any reference to its litigation with Ingersoll-Rand. (Doc. 202.) LeeBoy wanted to introduce evidence of the Ingersoll-Rand litigation in order to argue that DMI did not pursue reinstatement of the LeeBoy dealership agreement because DMI officers thought they could make more money litigating than selling LeeBoy equipment as they allegedly had done before with Ingersoll-Rand. This Court decided to exclude the evidence after making a specific finding that the probative value of DMI's lawsuit against Ingersoll-Rand, and settlement of the lawsuit, was outweighed by the confusion it would cause the jury. (TT at 8). See Fed.R.Evid. 403. However, a witness for DMI testified during DMI's case-in-chief that it did not sell more Ingersoll-Rand pavers because the pavers were low quality and DMI had bad experiences with them. The Court found that DMI had opened the door to testimony regarding the fact that Ingersoll-Rand had terminated its dealership agreement with DMI. LeeBoy then elicited testimony from a number of witnesses that DMI had been terminated by Ingersoll-Rand (TT at 246; 399; 637; 756; 1014). LeeBoy also elicited testimony that DMI had "been down that road before," referring to dealership termination disputes. (TT at 178-79; 637.) The Court did not allow LeeBoy to present any more specific testimony regarding DMI's lawsuit against Ingersoll-Rand and the settlement of that lawsuit.
LeeBoy asked the Court to preclude any references during the trial to First Islamic Bank, an investment bank and one of LeeBoy's owners. (Doc. 195.) In response to that motion, DMI presented evidence that LeeBoy is a "long term investment" of First Islamic Bank. Page 15 of First Islamic's annual report for the year 2000 states it acquired 84% ownership stake in LeeBoy in January, 2000. First Islamic Bank's investment strategies are discussed on page 20 of its annual report:
First Islamic operates its direct investment line of business through its wholly-owned U.S. subsidiary, Crescent Capital Investments, Inc., which is headquartered in Atlanta, Georgia.
* * * * * *
First Islamic's direct investment team works closely with company management to establish a clearly defined business plan, management equity incentives, and a capital structure to foster growth and profitability.
* * * * * *
The Bank's aim is to grow its investments through the holding period with strategic and financial support, and to exit at the right time and at the right price in order to maximize returns for all stockholders. To this end, the Bank's direct investment team works together with management to position the company for sale to a financial or strategic buyer, or for an initial public offering.
Prior to ruling on the motion to preclude references to First Islamic Bank, the Court reviewed the deposition of Ed Underwood. (TT at 36.) Ed Underwood is an Executive...
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