Groseth Intern., Inc. v. Tenneco Inc.

• Decision Date: 15 May 1989
• Docket Number: 16207,Nos. 16206,s. 16206
• Citation: 440 N.W.2d 276
• Parties: GROSETH INTERNATIONAL, INC. and Clifford Groseth, Plaintiffs and Appellees, v. TENNECO INC. and J.I. Case Co., Defendants and Appellants. GROSETH INTERNATIONAL, INC., Plaintiff and Appellee, v. INTERNATIONAL HARVESTER CO., Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 276

440 N.W.2d 276

GROSETH INTERNATIONAL, INC. and Clifford Groseth, Plaintiffs and Appellees, v. TENNECO INC. and J.I. Case Co., Defendants and Appellants.

GROSETH INTERNATIONAL, INC., Plaintiff and Appellee, v. INTERNATIONAL HARVESTER CO., Defendant and Appellant.

Nos. 16206, 16207.

Supreme Court of South Dakota.

Argued Jan. 10, 1989.

Decided April 19, 1989.

Rehearing Denied May 15, 1989.

Steven M. Johnson, Celia Miner of Brady, Reade & Johnson, Yankton, for plaintiffs and appellees.

John Simko of Woods, Fuller, Shultz & Smith, Sioux Falls, for Intern. Harvester.

Maurice J. McSweeney, James L. Huston of Foley & Lardner, Milwaukee, Wis., for defendants and appellants.

HEEGE, Circuit Judge.

Previously, plaintiffs Groseth International, Inc. and Clifford Groseth appealed the entry of summary judgments against them. We determined that genuine issues of material fact existed and remanded the case for trial. Groseth International, Inc. v. Tenneco, Inc., 410 N.W.2d 159 (S.D.1987).

Following remand, defendants Tenneco Inc., J.I. Case Company, and International Harvester Company admitted liability at trial for violations of SDCL 37-5-3. A jury returned substantial compensatory and punitive damage verdicts for the violation of SDCL 37-5-3 and for defamation. Defendants appeal various issues from the trial and verdicts. Plaintiffs have also filed a notice of review. We affirm in part, reverse in part and remand for retrial of the damages issues under proper instructions consistent with this opinion.

I. MEASURE OF DAMAGES FOR VIOLATION OF SDCL 37-5-3

At trial defendants admitted that they violated SDCL 37-5-3 ^* because of the manner in which they terminated the franchise contract of Groseth International, Inc. For violations of SDCL 37-5-3, SDCL 37-5-4 provides that: "Each and every person and corporation who or which violates any provision of Secs. 37-5-1 to 37-5-3, inclusive, shall be liable to any dealer damaged thereby for all damages caused to such dealer by such violation." Defendants contend that the jury was improperly instructed on the measure of damages for violation of SDCL 37-5-3. We agree.

The trial court instructed the jury on the measure of damages, in part, as follows:

The amount of gross profits, if any, minus direct or variable expenses, lost in the past and are [sic] reasonably certain to be lost in the future as a proximate result of the termination of its International Harvester dealership contract. You are not to award the costs of fixed future overhead costs which Groseth International can avoid by cutting costs or can apply to some other profitable use.

Groseth International concedes that the use of the term "gross profits" is a misnomer and should have been either "gross earnings," "gross receipts," or "gross sales." It is further conceded that the term "direct expenses" means "costs of goods sold" or "cost of merchandise sold," and the term "variable expenses" refers to the cost of sales such as commissions and salesmen salaries.

The instruction misstates the proper measure of damages. We concur with the parties that the proper measure of damages for loss of profits is set forth in Buono Sales, Inc. v. Chrysler Motors Corp., 449 F.2d 715 (3d Cir.1971). From our interpretation of Buono, supra, the correct measure of damages, as it relates to this case, is: The amount of net profits (computed according to sound and accepted accounting principles) lost in the past and reasonably certain to be lost in the future as a proximate result of the termination of the franchise plus the amount of fixed future overhead expenses which plaintiff proves with reasonable certainty cannot be avoided by cutting costs or application to some other profitable use.

The court's instruction on damages permitted the jury to award an amount equal to the loss of "gross profits" as that term is traditionally used in accordance with sound and accepted accounting principles. Reversal of the jury's verdict is necessary, and we remand for a retrial of damages consistent with this opinion.

II. ADMISSIBILITY OF EXHIBIT 100

At trial, Groseth International's expert witness prepared a compilation of sales, costs of sales (merchandise) and selling expense of sales to support the award of damages for loss of profits. By interpolating those figures, the expert estimated the earnings lost over a ten year period. These figures were summarized in Exhibit 100. It is apparent that the jury accepted these figures because the jury's award of compensatory damages matches the totals stated in Exhibit 100.

The admission of Exhibit 100 and its apparent use by the jury in calculating damages was error. The measure of damages used in Exhibit 100 is inconsistent with the previously explained correct measure of damages. On retrial Groseth International should present evidence of loss of net profits and not loss of earnings as set forth in Exhibit 100.

III. REDUCTION OF FUTURE DAMAGES TO PRESENT VALUE

Defendants object that the jury was improperly instructed on reducing an award of future damages to present value. Based on the evidence received at trial, we believe the court correctly instructed the jury on the reduction of future damages to present value.

IV. PUNITIVE DAMAGES FOR TERMINATION OF THE FRANCHISE

In its verdict, the jury awarded $1.6 million in punitive damages because of the defendants' actions in terminating Groseth International's franchise contract. We reverse the award of punitive damages and remand for retrial as limited by this decision.

Five factors bear upon the amount of punitive damages:

1. The amount allowed in compensatory damages;

2. The nature and enormity of the wrong;

3. The intent of the wrongdoer;

4. The wrongdoer's financial condition;

5. All of the circumstances attendant to the wrongdoer's actions.

Wangen v. Knudson, 428 N.W.2d 242, 246 (S.D.1988). Under the facts of this case, where we reverse the entire compensatory damage verdict, it is appropriate to reverse the punitive damages verdict. Cf. Hulstein v. Meilman Food Industries, 293 N.W.2d 889 (S.D.1980).

Defendants contend that punitive damages are unavailable in this case. They base their argument on the provisions of SDCL 21-1-4 and SDCL 37-5-4. SDCL 21-1-4 provides: "The general remedy by damages does not include exemplary or penal damages nor interest on any damages unless expressly provided by statute." The damages statute for violation of SDCL ch. 37-5, SDCL 37-5-4, makes no specific reference to punitive or exemplary damages. Thus it would follow that violation of SDCL 37-5-4 in and of itself could not give rise to an exemplary damage award.

Our analysis does not end by applying SDCL 21-1-4 to SDCL 37-5-4. We also examine whether the provisions of SDCL 21-3-2 apply to this case. The statute provides:

In any action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, actual or presumed ... the jury, in addition to the actual damage, may give damages for the sake of example, and by way of punishing the defendant.

Defendants concede that this case involves the breach of a statute and thus meets the statutory limitation of "breach of an obligation not arising from contact...." SDCL 21-3-2. On retrial, a jury may award punitive damages in its discretion if defendants have been guilty of oppression, fraud or malice, actual or presumed in connection with the termination of the dealership. This result is suggested in Mid-America Marketing Corp. v. Dakota Industries, Inc., 289 N.W.2d 797 (S.D.1980). See also, Kunkel v. United Security Ins. Co. in which the court stated, "Conduct which merely is a breach of contract is not a tort, but the contract may establish a relationship demanding the exercise of proper care and acts and omissions in performance may give rise to tort liability." 84 S.D. 116, 135, 168 N.W.2d 723, 733 (1969). Cf. Hoffman v. Louis Dreyfus Corp., 435 N.W.2d 211 (S.D.1989); Aschoff v. Mobil Oil Corp., 261 N.W.2d 120 (S.D.1977).

V. DEFAMATION

The basis for plaintiff Groseth International's claim of defamation is a newspaper article which states in part:

Charles Schneider, a spokesman for Tenneco, Case's parent company, said: "It's a very detailed in-depth business evaluation. We're taking on John Deere; we can't afford to have a bad dealer out there."

In Groseth I, supra, we said:

Groseth claims that Case/Tenneco representatives stated to newspaper reporters that his business was not a good business and that "we can't afford to have a bad dealer out there." The implication was that Groseth was not a fit and proper dealer.... Whether or not the statements are defamatory raises a genuine issue of material fact precluding summary judgment.

410 N.W.2d at 172.

The evidence produced at trial does not support the claim that Case/Tenneco representatives stated to newspaper reporters that Groseth's business was not a good business, nor does it support the implication that Groseth was not a fit and proper dealer.

The correct procedure for determining the meaning and defamatory character of a communication is set forth in Restatement (Second) of Torts Sec. 614 (1977) which provides:

(1) The court determines

(a) whether a communication is capable of bearing a particular meaning, and

(b) whether that meaning is defamatory.

(2) The jury determines whether a communication, capable of a defamatory meaning, was so understood by its recipient.

In this case, the statement that "we can't afford to have a bad dealer out there" is not capable of being and is not defamatory to Groseth and that issue should not have been submitted to the jury.

That part of the judgment awarding plaintiff actual and exemplary damages for defamation is reversed.

VI. INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS

Plaintiff Clifford Groseth filed a notice of review claiming that the trial court erroneously instructed the jury on the claim for intentional infliction of emotional...