Harley-Davidson Motor v. Powersports, Inc.

• Citation: 319 F.3d 973
• Decision Date: 21 February 2003
• Docket Number: No. 02-2095.,02-2095.
• Parties: HARLEY-DAVIDSON MOTOR COMPANY, INCORPORATED, Plaintiff-Appellant, v. POWERSPORTS, INCORPORATED and POWERSPORTS OF SEMINOLE COUNTY, INCORPORATED, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

319 F.3d 973

HARLEY-DAVIDSON MOTOR COMPANY, INCORPORATED, Plaintiff-Appellant, v. POWERSPORTS, INCORPORATED and POWERSPORTS OF SEMINOLE COUNTY, INCORPORATED, Defendants-Appellees.

No. 02-2095.

United States Court of Appeals, Seventh Circuit.

Argued January 14, 2003.

Decided February 21, 2003.

Peter J. Stone (Argued), Foley & Lardner, Milwaukee, WI, for Plaintiff-Appellant.

Stephen D. Raber (Argued), Williams & Connolly, Washington, DC, for Defendants-Appellees.

Before EASTERBROOK, RIPPLE and ROVNER, Circuit Judges.

RIPPLE, Circuit Judge.

In this diversity action, Harley-Davidson Motor Company, Inc. ("Harley-Davidson") alleged that PowerSports Inc. and its wholly-owned subsidiary PowerSports of Seminole County, Inc. (collectively "PowerSports") had made fraudulent misrepresentations in order to obtain Harley-Davidson's approval of a transfer of a Harley-Davidson dealership to PowerSports. Harley-Davidson sought rescission of that approval. In granting summary judgment for PowerSports, the district court held that, even though Harley-Davidson was seeking the equitable remedy of rescission rather than tort damages, its misrepresentation claim was barred under Wisconsin's economic loss doctrine. For the reasons set forth in the following opinion, we reverse the judgment of the district court.

I BACKGROUND

A. Factual Background

1.

On November 8, 1999, Harley-Davidson received a request from Scott Smith of Harley-Davidson of Seminole County, a dealership located in Fern Park, Florida ("Fern Park dealership"), to approve the sale of that dealership to PowerSports of Seminole County. Florida law required Harley-Davidson to respond to the request for approval of the transfer within 60 days.¹

Harley-Davidson has a unique business model based on active dealership contact with its customers. This system is designed to enhance customer satisfaction with ownership. In Harley-Davidson's words, "Harley-Davidson sells lifestyle and relationships, not just goods and services." R.46, Ex.78 at 4. Consequently, Harley-Davidson dealers are required to have an on-site owner-operator, and Harley-Davidson requires that new dealer applicants be committed to its business approach. Harley-Davidson also does not allow any of its dealerships to be publicly owned.

On November 24 and December 13, 1999, Harley-Davidson sent letters inquiring about PowerSports' interest in and ability to purchase and run the dealership in compliance with Harley-Davidson's dealer contract and expectations. The November 24th letter explained to PowerSports that it could not go public and maintain the dealership because, under the dealer contract, "no publicly-owned corporation may, directly or indirectly, in whole or in part, own and/or operate any Harley-Davidson dealership." R.39, Ex.54 at 1. The letter also inquired about PowerSports' plan for "using a d/b/a that doesn't include the PowerSport's name." Id. at 3. In the December 13th letter, Harley-Davidson specifically asked such questions as, "Why does Power Sports want to purchase the Fern Park dealership?"; "What are Power Sport's plans for the Fern Park dealership?"; "What is [PowerSports'] plan for compliance with Harley-Davidson's on-site owner operator requirement?" R.46, Ex.32.

On December 16, 1999, representatives of Harley-Davidson and PowerSports met to discuss the proposed transfer. PowerSports provided Harley-Davidson with an "Operating Plan" for the Fern Park dealership. See R.46, Ex.34. The plan indicated that PowerSports would focus on the local Seminole County, Florida, market. In the plan, PowerSports stated that it would "distinguish the [Fern Park] dealership by offering unparalleled attention to our customers," and that it would "promote motorcycling, encourage rider education, support our local community, and participate in local charities, as well as the Seminole County Harley Owners Group." Id. at 1. It stated under the heading "marketing strategy" that it would "identify potential customers through customers who frequent our store, active participation in the Harley Owners Group, and development of contacts at bike events, poker runs, and community events," and that it would "advertise in bike magazines, newspapers, billboards, and through direct mail." Id. It also planned "to promote events such as open houses, pig roasts, and customer appreciation days." Id. The plan explained that PowerSports would create "friendship[s]" with its customers rather "than the traditional `customer-dealer' relationship." Id. at 2. The plan made no mention of any plans involving the internet or of purchasing multiple brands over the internet either at home or at the dealership, of turning the Fern Park dealership into a web-interfaced facility center, or of PowerSports going public.

Similarly, at the December 16th meeting, representatives of PowerSports orally assured Harley-Davidson that PowerSports would focus on the local market and would distinguish itself by doing "the best in Florida," R.46, Ex.87 at 2, that it would operate an exclusive Harley-Davidson dealership, and that it would not use the PowerSports name in conjunction with the Harley-Davidson name or logo. At the meeting, public ownership was discussed. Harley-Davidson representatives testified that PowerSports representatives stated at the meeting that, although it had discussed public ownership before, PowerSports was "[n]owhere near" going public, that it had no present plans to take the company public, and that, if it ever did go public, it would divest itself of the Harley-Davidson dealership. R.39, Ex.E at 65-66; see R.46, Exs.78, 87, 89, 103, 108. Harley-Davidson representatives asked the PowerSports representatives whether PowerSports would be willing to sign a separate agreement covering public ownership, the on-site owner-operator requirement, limits on the number of Harley-Davidson dealerships PowerSports would acquire, and the maintenance of the Fern Park dealership as an exclusive Harley-Davidson dealership. R.39, Ex.D at 165-69. According to the testimony of the Harley-Davidson representatives, the PowerSports representatives indicated they would sign such an agreement. However, Harley-Davidson never provided such a separate agreement for PowerSports to sign.

At the December 16th meeting, PowerSports also gave Harley-Davidson a written response to the November 24th and December 13th questions. The written response stated in part: "With respect to your concern about PowerSports, Inc. wanting to go public, you requested that [PowerSports and its representatives] to specifically confirm that they acknowledge, accept, and will comply [with] all requirements of the Harley-Davidson Dealer Contract. It is our intent to comply with all lawful aspects of the Harley-Davidson Motor Company Dealer contract." R.39, Ex.33 at 1.

In the course of discovery, PowerSports produced documents, dating from 1997 and continuing through January 3, 2000, that indicated that PowerSports had plans inconsistent with its representations at the December 16th meeting. The documents indicated that PowerSports planned to go public and to become an internet company that consolidated its dealerships and sold its products almost exclusively on the internet rather than in dealerships. For example, on January 3, 2000, PowerSports created a list of position points and draft slides to use for an upcoming investor roadshow. This document, not disclosed earlier to Harley-Davidson, indicated that PowerSports was planning to become a pure internet business and that it viewed dealerships as "a necessary evil that we bought and integrated only because we needed the franchises and the fulfillment capability. The only reason why we would invest any new capital in our existing dealerships is to expand their physical space to handle the greater volume of internet orders we will get." R.46, Ex.123 at 1. The document stated that PowerSports wanted "to distance [itself] from brick and mortar as much as possible." Id. None of these documents were disclosed to Harley-Davidson. Moreover, in November or early December 1999, PowerSports retained investment bankers to discuss and plan an upcoming IPO. This development also was not disclosed to Harley-Davidson.

PowerSports maintains that these documents are immaterial because "the most recent information about PowerSports' internet plans and desire to go public was disclosed to Harley in a timely manner." R.50 at 1-5. In this respect, PowerSports refers to the draft offering memorandum that it mailed to Harley-Davidson on January 4th. See id. We shall discuss this document further below.

On December 31, 1999, Harley-Davidson faxed a letter to PowerSports that included a copy of Harley-Davidson's public ownership policy and its policy on multiple ownership. In the letter, Harley-Davidson requested that PowerSports provide more documents and information; it specifically requested information concerning PowerSports' upcoming private placement.

On the morning of January 3, 2000, PowerSports faxed a letter to Harley-Davidson stating that "later today" it would provide the requested information, including the draft memorandum for the upcoming PowerSports private placement offering. R.39, Ex.76. PowerSports did not provide Harley-Davidson with the information on January 3rd; rather, as recited below, it mailed the information to Harley-Davidson on January 4th, which arrived in Harley-Davidson's mailroom on January 5th.

On January 3rd, Harley-Davidson representatives met at their offices and made the decision to approve PowerSports' request to purchase the dealership. On January 4th, and concluding on the morning of January 5th, Harley-Davidson prepared an approval letter to send to PowerSports. The letter recited the representations made by PowerSports upon which Harley-Davidson was relying in making its decision, including that PowerSports would not use the PowerSports name in conjunction with the Harley-Davidson...