Haynes Trane Service v. American Standard

Decision Date06 July 2009
Docket NumberNo. 07-1440.,No. 07-1441.,No. 08-1102.,No. 08-1100.,07-1440.,07-1441.,08-1100.,08-1102.
Citation573 F.3d 947
PartiesHAYNES TRANE SERVICE AGENCY, INC., Plaintiff, and Frederick M. Haynes, Plaintiff-Appellant, v. AMERICAN STANDARD, INC., d/b/a The Trane Company, Defendant-Appellee, Haynes Trane Service Agency, Inc., Plaintiff-Appellant, Frederick M. Haynes, Plaintiff, v. American Standard, Inc., d/b/a The Trane Company, Defendant-Appellee, Frederick M. Haynes, Plaintiff-Appellant, Haynes Trane Service Agency, Inc., Plaintiff, v. American Standard, Inc., d/b/a The Trane Company, Defendant-Appellee, Haynes Trane Service Agency, Inc., Plaintiff-Appellant, Frederick M. Haynes, Plaintiff, v. American Standard, Inc., d/b/a The Trane Company, Defendant-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Marcy G. Glenn, Holland & Hart LLP, Denver, CO, (Christopher A. Crisman, Holland & Hart LLP; J. Lawrence Hamil and Charles B. Hecht, Hamil/Hecht LLP, Denver, CO, with her on the briefs) for Plaintiffs-Appellants.

Daniel M. Reilly (Larry S. Pozner, Sean Connelly, Kent C. Modesitt, and Clare Pennington, with him on the brief), of Reilly Pozner & Connelly LLP, Denver, CO, for Defendant-Appellee.

Before HARTZ, TYMKOVICH and HOLMES, Circuit Judges.

ORDER

These matters are before us on the Petition for Rehearing En Banc of Appellants Haynes Trane Service Agency, Inc. and Frederick M. Haynes. We also have a response from American Standard, Inc.

Upon the panel's consideration of both pleadings, the petition for rehearing is GRANTED for the limited purpose of revising and adding a paragraph in the Economic-Loss Rule section of our Opinion, on pages 29 to 34. The Opinion filed on April 7, 2009, is vacated and the attached revised Opinion is substituted in its place.

The petition and response were also circulated to all of the judges on the court who are in regular active service. As no judge called for a poll, the request for en banc consideration of these appeals is denied.

OPINION

HARTZ, Circuit Judge.

This is the second appeal in litigation between Plaintiffs/counterdefendants Frederick M. Haynes (Mr. Haynes) and Haynes Trane Service Agency (HaynesTSA) and Defendant/counterclaimant American Standard d/b/a Trane (Trane). For almost four decades Mr. Haynes operated a Denver-based franchise of Trane, a manufacturer of heating, ventilation, and air conditioning (HVAC) products. After receiving his franchise, Mr. Haynes formed HaynesTSA, which initially functioned as a service wing of his operations. HaynesTSA later entered into a separate agreement with Trane to distribute certain HVAC products. The disputes arose when HaynesTSA cheated Trane by abusing a rebate program under which Trane would reduce the price it charged retailers, such as HaynesTSA, to enable them to meet the retail prices of products sold by their competitors. Trane terminated its distributorship agreement with HaynesTSA and, shortly thereafter, terminated Mr. Haynes's franchise. Mr. Haynes and HaynesTSA brought suit in the United States District Court for the District of Colorado. Trane counterclaimed.

An initial jury trial and appeal, see Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 51 Fed.Appx. 786 (10th Cir.2002) (Haynes I), whittled the case down to the following claims: (1) Mr. Haynes's claim that Trane, despite language in the franchise agreement permitting it to terminate the franchise at will, could terminate only for good cause (which it lacked) because statements and conduct by Trane had either (a) modified the agreement to require good cause or (b) equitably estopped Trane from denying that the agreement required good cause; (2) claims by both Mr. Haynes and HaynesTSA that Trane breached fiduciary duties; and (3) Trane's counterclaims against HaynesTSA (a) for fraud based on its abuse of the rebate program and (b) for unjust enrichment and an accounting arising out of HaynesTSA's allegedly fraudulent acts.1

Before the second trial the district court ruled that Trane's unjust-enrichment claim added nothing to its fraud claim; that its accounting claim was dependent on Trane's proving its fraud claim; and that if Trane did prove fraud, an equitable accounting would be performed because a jury would have difficulty calculating Trane's damages. At the close of the Plaintiffs' case at the second trial the court granted judgment as a matter of law (JMOL) against the modification-of-contract claim of Mr. Haynes and the fiduciary-duty claims of Mr. Haynes and HaynesTSA. The jury then returned verdicts that Mr. Haynes had established the elements of his equitable-estoppel claim and that Trane had established its fraud counterclaim. After the jury was discharged, the court ruled that Mr. Haynes's misconduct precluded application of an equitable doctrine in his favor and, despite the jury's verdict, entered judgment for Trane on Mr. Haynes's equitable-estoppel claim. And with respect to Trane's fraud claim, the court appointed a special master for an accounting to determine damages. Before the special master heard any evidence, however, the parties stipulated that Trane's damages were $1,770,000.

Mr. Haynes and HaynesTSA appeal. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part and reverse in part. Mr. Haynes's breach-of-contract claim was properly dismissed because (1) Mr. Haynes presented insufficient evidence that his franchise agreement had been modified, and (2) his unclean hands gave the district court authority to deny him an equitable-estoppel remedy. We reject Mr. Haynes's argument that our rulings on the first appeal regarding the sufficiency of his evidence of modification bound the district court under the law-of-the-case doctrine, because the evidence he presented at the second trial was materially inferior to the evidence that we considered on that appeal. In addition, the district court did not err in dismissing the fiduciary-duty claims of Mr. Haynes and HaynesTSA, because they failed to establish the requisites of a fiduciary relationship. Again, the law-of-the-case doctrine does not assist Mr. Haynes on this claim because the evidence at trial was materially inferior to the evidence that we considered on the first appeal. Finally, the district court erred in appointing a special master to calculate Trane's damages, because the calculation was not too complicated for a jury. A recalculation of damages by a jury, however, will also require resolving liability issues, so we must remand for a full trial of Trane's fraud claim.

I. BACKGROUND
A. The Parties' Relationships

The second trial lasted 16 days. To put our analysis in context, we summarize here the essential evidence at that trial. Additional evidence will be addressed in our discussion of specific issues.

Mr. Haynes's relationship with Trane began in 1958 when he took a sales position at Trane's Boston franchise. Over the course of the next decade he took on increasing responsibility and in 1967 his efforts were rewarded with an offer to run Trane's Denver franchise. The franchise agreement was for an "indeterminate" length, and provided that it could be "terminated by either party upon 30 days notice to the other." Aplts. App. Vol. XII at 5388.

Mr. Haynes formed HaynesTSA soon after he received the franchise. Initially HaynesTSA was a service wing of Mr. Haynes's operations. Its role expanded in 1990, however, when it entered into an agreement with Trane to distribute Trane's unitary HVAC products, smaller units for residential and light-commercial applications. Although the initial agreement was for a term of five and one-half months, it was renewed on a yearly basis the following five years in substantially the same form. Either party could terminate the agreement at will upon proper notice.

Central to this case is a flexible pricing program that Trane developed through a series of policy statements or "Sales Plan[s]" provided to its distributors. The program helped Trane distributors compete for business. Thus, although the program was not set forth in HaynesTSA's contract with Trane, HaynesTSA had good reason to participate.

The program worked as follows: If a distributor risked being underbid by its competition, it could request a lowered price quote from Trane. If the request was granted, the distributor could then sell the product at a reduced price and "claim back" (that is, seek from Trane) a portion of the reduction. Id. Vol. XIII at 5984. As a precaution against error or fraud, distributors were required to accompany claimbacks with the invoice number for the sale and retain a copy of the invoice for two years, thereby enabling Trane to determine whether a distributor ultimately sold the unit for the stated price. If a discrepancy was discovered before Trane credited a claimback, Trane adjusted the claimback; but even after a claimback was credited, Trane reserved the right to recover the "amount of credit improperly claimed." Id. Vol. XIII at 5988.

Although Mr. Haynes was president of HaynesTSA, he had little experience in the unitary-products market and therefore hired Willard Forward to manage that company's distributorship venture. Forward and his subordinates gamed the claimback program in a number of ways. Denice Louder, a billing administrator at HaynesTSA, testified that at Forward's behest she routinely submitted claimbacks that stated a price quote below the actual price at which HaynesTSA sold the item. She also testified that HaynesTSA submitted some claimbacks for nonexistent projects and others for units that had been secretly sold to Trane salesmen (claimbacks were available only for units sold to final customers). All told, Louder testified that "nearly every one" of the claimbacks that she submitted to Trane contained "something that wasn't completely right." Id. Vol. XI at 4983.

Periodically, Trane would request random invoices from HaynesTSA to determine whether the amount HaynesTSA billed a customer matched the price stated in a...

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