Hanson v. Ford Motor Company

• Decision Date: 17 May 1960
• Docket Number: No. 16236.,16236.
• Citation: 278 F.2d 586
• Parties: Leif M. HANSON et al., Appellants, v. FORD MOTOR COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

278 F.2d 586 (1960)

Leif M. HANSON et al., Appellants, v. FORD MOTOR COMPANY, a corporation, Appellee.

No. 16236.

United States Court of Appeals Eighth Circuit.

May 17, 1960.

COPYRIGHT MATERIAL OMITTED

Joe A. Walters, Minneapolis, Minn., and Floyd V. Nichols, Albert Lea, Minn., for appellants.

Robert J. Sheran, Mankato, Minn., for appellee.

Before JOHNSEN, Chief Judge, and VAN OOSTERHOUT and BLACKMUN, Circuit Judges.

BLACKMUN, Circuit Judge.

Leif M. Hanson, then of Enderlin, North Dakota, in April or May, 1954, accepted from Ford Motor Company, a Delaware corporation, an exclusive Lincoln-Mercury agency at Albert Lea, a county seat community with a population of about 13,500 in southern Minnesota. His territory embraced Freeborn County of that State and the east half of Faribault County adjoining to the west. Hanson started business in June 1954 and had his "grand opening" in July of that year. Sixteen months later, in November, 1955, he was adjudged bankrupt on an involuntary petition.

This diversity action by Hanson against the Ford Motor Company emerges from this unsuccessful venture. It is based on fraud and, specifically, on representations made to Hanson by defendant and alleged to have been false and to have induced him to invest in this enterprise to his injury. The trustee in bankruptcy of Hanson, individually, and d/b/a Hanson Motors, is also a party plaintiff representing the unpaid creditors in the bankruptcy proceeding.

The case was tried to a jury and a verdict was returned for the plaintiffs. The defendant made the usual motions for a directed verdict at the close of the plaintiffs' case and again at the close of all the evidence. After the receipt of the verdict, and in compliance with Rule 50(b), F.R.Civ.P., 28 U.S.C.A., defendant moved for judgment in accordance with its previous motion for a directed verdict. This motion was granted and judgment for the defendant was entered. This appeal by the plaintiffs is from that judgment.

It is not necessary, in the posture in which this case comes to us, to review in detail the evidence contained in the extensive record. It will suffice to note only certain of the primary facts for background purposes. At the time of the trial Hanson was a person 57 years of age who had received some schooling beyond the 8th grade. He had begun to work for a Ford dealer at the age of 18. He later was employed briefly with an automobile agency in Minneapolis. In 1925 he began a 22-year period of employment, interrupted once for only a few months, with the defendant and served in various capacities in the Fargo, North Dakota, territory. In 1947, he purchased a Ford agency at Enderlin, near the southeast corner of North Dakota. He was there for 5 years and apparently prospered. He sold the dealership in 1952 and went searching for a larger Ford agency which would be capable of supporting not only his own family but that of his son whom he wished to have in business with him.

This search resulted in a contact in early 1954 with Twin City representatives of the Lincoln-Mercury Division of the Ford Motor Company. Lincoln-Mercury at that time had no exclusive dealer in Albert Lea and had declared the town an "open point" available for an exclusive agency. Albert Lea was regarded as a growing community with some industry; it was located in good farming country, and had other established automobile dealers selling cars in the competitive price field with Lincoln and Mercury. Conferences between Hanson, occasionally accompanied by his son or his wife, and defendant's representatives, principally Ben W. Mischke and John F. Cooney, took place in Minneapolis and at Albert Lea at various times during the succeeding weeks. There is evidence tending to show that the defendant was enthusiastic about the prospects at Albert Lea and, particularly through Mischke, represented to Hanson that he could make profits and that other Lincoln-Mercury dealers in southern Minnesota "were making proper returns on their investment" and were making money; that Hanson advised Mischke, at the latter's request, of the extent of his own available assets; that Hanson insisted on seeing actual operating statements of other exclusive Lincoln-Mercury dealers in southern Minnesota; that Mischke told him this was not possible because of company policy; that he, Mischke, however, said he would prepare a statement evidencing those figures; that in March 1954 Mischke gave Hanson a paper purporting to show sales and earnings of exclusive Lincoln-Mercury dealers in New Ulm (population 10,000 and 80 miles away), Mankato (population 18,000 and 60 miles away), and Winona (population 25,000 and 100 miles away); that this statement indicated a net annual income of $22,400 plus a $6,000 dealer's salary which equated with about $190 per new car on indicated sales of 11 Lincolns and 108 Mercurys; that Hanson then signed the Albert Lea franchise agreement and undertook its obligations; that he leased a building there and started business in June 1954; that he invested over $37,000 in the enterprise; and that after the inception of the bankruptcy proceedings Hanson discovered that the representations as to the earnings of the exclusive Lincoln-Mercury dealers at Winona, Mankato and New Ulm were not true.

The principal question before us is whether there is in the record sufficient evidence to justify the jury's conclusion that all the elements of actionable fraud were present. This raises the initial and provocative question whether the state or the federal test of the sufficiency of evidence to support a jury verdict should govern in a diversity action in federal court. The Supreme Court has recently observed that it has not finally decided that question and that the lower federal courts are not in agreement upon it. Dick v. New York Life Ins. Co., 1959, 359 U.S. 437, 444-445, 79 S.Ct. 921, 3 L.Ed.2d 935, and cases cited. See also 5 Moore's Federal Practice (2 Ed. 1951) § 38.10. Although this court, prior to Dick, apparently held, in seeming opposition to some other circuits, that the state standard of sufficiency of the evidence is to be applied,¹ in 3 recent cases, where the state and federal standards were regarded as substantially alike and the parties assumed the state standard was applicable, this basic question, in line with Dick's example, specifically has been left undecided.² So here, because the parties have not raised the point, and because the Minnesota standard that a jury verdict "will not be set aside unless it is manifestly and palpably contrary to the evidence as a whole", Haugen v. Dick Thayer Motor Co., 253 Minn. 199, 214, 91 N.W.2d 585, 594; Barnes v. Northwest Airlines, Inc., 233 Minn. 410, 433, 47 N.W.2d 180, 193, and that it will be sustained "if it is possible to do so on any reasonable theory of the evidence," Bush v. Havir, 253 Minn. 318, 320, 91 N.W.2d 784, 786, or "if the evidence reasonably or fairly tends to sustain it," Delyea v. Goossen, 226 Minn. 91, 99, 32 N.W.2d 179, 184, or if "there is any competent evidence reasonably tending to sustain the verdict," Solosky v. J. A. Johnson Co., 223 Minn. 390, 392, 27 N.W.2d 282, 283, does not appear to us to be unlike the federal standard that there be "substantial evidence," Terminal R. Ass'n of St. Louis v. Howell, 8 Cir., 165 F.2d 135, 138; Smails v. O'Malley, 8 Cir., 127 F.2d 410, 412; Love v. United States, 8 Cir., 141 F.2d 981, 982; Noble v. United States, 8 Cir., 98 F.2d 441, 442; Gunning v. Cooley, 281 U.S. 90, 50 S.Ct. 231, 74 L. Ed. 720; Brady v. Southern Ry. Co., 320 U.S. 476, 479, 64 S.Ct. 232, 88 L.Ed. 239, or a "reasonable basis in fact" for the jury's conclusion, Terminal R. Ass'n of St. Louis v. Fitzjohn, 8 Cir., 165 F.2d 473, 478, 1 A.L.R.2d 290, and that the verdict will not be set aside unless "there is utterly no basis on which it can reasonably rest under the evidence," Samuelson v. Central Nebraska Public Power & Irrigation Dist., 8 Cir., 125 F.2d 838, 839, we regard the state standard, for purposes of this appeal, as applicable.³

The Minnesota Supreme Court has pointed out, however, that in Minnesota "the entire evidence" or "the evidence as a whole" is to be the measure for action on such a motion and not merely that part of the evidence which is favorable to a contrary verdict. Hanson v. Homeland Ins. Co. of America, 232 Minn. 403, 404-405, 45 N.W.2d 637, 638; Hanrahan v. Safway Steel Scaffold Co. of Minnesota, 233 Minn. 171, 176-177, 46 N.W.2d 243, 247; Francis v. Anderson, 254 Minn. 341, 343-344, 95 N.W.2d 79, 81. Thus in Minnesota a mere "scintilla of evidence" is not sufficient to create a question for the jury. The Minnesota court has also said that the granting of the motion "is a right to be cautiously and sparingly exercised," Kolatz v. Kelly, 244 Minn. 163, 166, 69 N.W.2d 649, 652; Caron v. Farmers Insurance Exchange, 252 Minn. 247, 255, 90 N.W.2d 86, 92; Hall v. City of Anoka, 256 Minn. 134, 97 N.W.2d 380, 382.

These, then, are the applicable Minnesota standards which, following the Dick suggestion, we necessarily apply in this case to test the sufficiency of the evidence.

The components of actionable fraud are, of course, a matter of substantive law and therefore, since Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, are to be determined for this case by the law of Minnesota where the wrong, if any, took place. Iasigi v. Brown, 17 How. 183, 194, 15 L.Ed. 208; Smyth Sales, Inc. v. Petroleum Heat & Power Co., 3 Cir., 128 F.2d 697; Western Newspaper Union v. Woodward, D.C.W.D.Mo., 133 F.Supp. 17, 23-24; Restatement of the Law, Conflict of Laws, p. 457 and § 378. The Supreme Court of that state has described the basic elements of a damage action for fraud as follows:

"1. The rule we follow in this state in establishing a fraudulent representation is stated in 8 Dunnell, Dig. (3 ed.) § 3818, as follows:

"`A person is liable for fraud if he makes a false representation of a past or

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