Kutner Buick, Inc. v. American Motors Corp.

• Decision Date: 24 February 1989
• Docket Number: No. 88-1670,88-1670
• Citation: 868 F.2d 614
• Parties: KUTNER BUICK, INC., Appellant, v. AMERICAN MOTORS CORPORATION and American Motor Sales Corporation, Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 614

868 F.2d 614

13 Fed.R.Serv.3d 192

KUTNER BUICK, INC., Appellant, v. AMERICAN MOTORS CORPORATION and American Motor Sales

Corporation, Appellees.

No. 88-1670.

United States Court of Appeals,

Third Circuit.

Argued Jan. 26, 1989.

Decided Feb. 24, 1989.

H. Laddie Montague, Jr. (argued), Martin I. Twersky, Berger & Montague, Philadelphia, Pa., for appellant.

William J. Lehane (argued), Drinker, Biddle & Reath, Philadelphia, Pa., for appellees.

Before GIBBONS, Chief Judge, and SEITZ and GREENBERG, Circuit Judges.

OPINION OF THE COURT

GIBBONS, Chief Judge:

In this diversity case, Kutner Buick, Inc. (Kutner), a retail distributor of automobiles, appeals from a judgment in favor of American Motors Corporation (AMC) in Kutner's suit for breach of contract and fraud in the inducement of a contract. The trial court granted a directed verdict on the fraud in the inducement claim. The court submitted the breach of contract claim to the jury, but when the jury deadlocked, declared a mistrial. Thereafter, the court dismissed the breach of contract claim, purporting to act pursuant to Fed.R.Civ.P. 50(b). We will affirm the judgment in AMC's favor on the fraud in the inducement claim, but reverse the judgment in its favor on the breach of contract claim and remand for a new trial on that claim.

I. The Contract Claim

Kutner alleges that in 1981 it entered into a contract with AMC to serve as an AMC-franchised dealer for a ten-year period. A claimed term of the agreement was that the franchisee would have territorial exclusivity for distribution of AMC products in northeast Philadelphia. The evidence at trial was undisputed that there was a ten-year written franchise agreement. Kutner's witnesses claimed there was an oral agreement for territorial exclusivity coterminous with the franchise. William Carroll, an AMC zone manager, testified that there was an exclusivity agreement, but he was not certain about its duration. Mr. Carroll's version was that the exclusivity promise was to be reevaluated after Kutner's AMC dealership became established. Kutner's version was that it would not have incurred the significant start-up costs or agreed to a ten-year franchise term if it had not been promised territorial protection for that term.

Kutner has been a General Motors Corporation-franchised dealer since 1952, selling Buicks from a facility in northeast Philadelphia at 7100 Castor Avenue. In February, 1978, Kutner acquired another facility six blocks away, at 7227 Bustleton Avenue. Prior to being designated as an AMC dealer, Kutner used the Bustleton Avenue facility for selling Buicks, servicing new cars, and reconditioning used cars. In 1978, Kutner approached AMC about acting as an AMC dealer and some discussion ensued. On December 16, 1980, Kutner was turned down because Matt Slap had territorial exclusivity for the area. When in the summer of 1981 Matt Slap closed his AMC dealership, an AMC zone representative approached Kutner about taking on the AMC line. The ten-year franchise agreement mentioned above was signed, and thereafter Kutner used the showroom at Bustleton Avenue for the display and sale of AMC products. Kutner continued, however, to service Buicks, as well as AMC products, at the facility.

In the summer of 1982, a representative of Potamkin Motors approached an AMC zone representative to discuss the possibility of obtaining an AMC dealership in northeast Philadelphia. AMC told Potamkin it was not interested in another dealer in northeast Philadelphia at that time. In December of 1982, Mr. Carroll, with whom Kutner dealt on the subject of territorial exclusivity, was transferred. A new zone manager, in the summer of 1983, began negotiating with Potamkin Motors for an additional AMC franchise in northeast Philadelphia. An internal AMC memorandum can be read as indicating that the negotiations with Potamkin Motors were accelerated because of the pendency of a proposed state law which would have given Kutner the power to prevent location of an additional AMC franchise in close proximity to the Bustleton Avenue facility. See 63 Pa.Stat.Ann. Sec. 818.18 (Purdon Supp.1988) (effective Jan. 1, 1984).

Potamkin Motors was awarded a franchise in the northeast Philadelphia region close to the Bustleton Avenue facility. When Kutner was so advised, it claimed that AMC had breached its contract and resigned as a dealer. Kutner sought unsuccessfully to obtain another automobile franchise for the Bustleton Avenue location. Kutner has continued to sell and service Buicks there.

Prior to the trial, AMC made a motion in limine to exclude the testimony of Kutner's accounting expert, F. Gerard Adams, with respect to damages, and a projection of lost profits prepared by that witness. In making the projection of lost profits resulting from the termination of the AMC franchise, Adams disregarded fixed costs at the Bustleton Avenue facility. After reserving decision on the question, the court eventually ruled that Adams' testimony and exhibit would be excluded because Kutner could only recover lost net profits and that calculation required an allocation to AMC sales of fixed costs.

At the end of the plaintiff's case AMC moved as follows:

Your honor, at this time I would like to approach the bench to make a motion....

Pursuant to Rule 50 of the Federal Rules of Civil Procedure, for a directed verdict in favor of the defendants on all counts. I believe that the contract has not been shown to be in existence and I particularly argue that there's been absolutely no showing of fraud on anyone's part, in the testimony that has been elicited through the plaintiff's case to date.

App. 535. No other grounds were advanced in support of the Rule 50 motion. The court denied the motion with respect to the contract count.

AMC then offered testimony in its defense. At the end of the entire case the court renewed the Rule 50 motion, adding no additional grounds. The motion was denied and the court instructed the jury.

After deliberating for some time, the jury informed the court that it could not agree on a unanimous verdict. The court instructed that they deliberate further, but after several days, the jurors still could not agree on a verdict. A mistrial was ordered.

Thereafter, AMC moved "for the entry of judgment in accordance with [its] motion for a directed verdict." The brief in support of the motion urged only, as had been argued in the Rule 50 motion at trial, that Kutner had failed to make out a prima facie case on the existence of a contract. In disposing of the motion, the district court observed: "The defendants have moved for judgment notwithstanding the verdict and the court has granted it for the reason set forth below, which is not the reason advanced by defendants in their motion." App. 742. The court then ruled, consistent with its in limine ruling on the admissibility of Adams' expert opinion testimony, that Kutner's case failed because its proof of damages, by failing to establish the fixed costs to be charged against its AMC sales, was too speculative to go to the jury.

A. Procedural Error

Kutner contends that the trial court erred in granting a Rule 50 motion on a ground that was not presented in support of AMC's motion for a directed verdict, either at the end of Kutner's case or at the end of the entire case. The rule that a post-trial Rule 50 motion can only be made on grounds specifically advanced in a motion for a directed verdict at the end of plaintiff's case is the settled law of this circuit. Orlando v. Billcon Int'l, Inc., 822 F.2d 1294, 1298 (3d Cir.1987); Bonjorno v. Kaiser Aluminum & Chem. Corp., 752 F.2d 802, 814 (3d Cir.1984), cert. denied, 477 U.S. 908, 106 S.Ct. 3284, 91 L.Ed.2d 572 (1986). We need not here repeat the sound reasons which support that rule. It suffices to note that the district court's memorandum establishes its violation. The sufficiency of proof of damages was not advanced as a ground for AMC's directed verdict motion, and could not be relied upon, post-trial, as a ground for granting Rule 50 relief. Thus the judgment dismissing Kutner's contract claim must be reversed.

B. Substantive Error

If the jury had reached a verdict, the procedural error in the grant of Rule 50 relief could be corrected by directing entry of judgment on that verdict. Here, however, there was a mistrial. Thus a new trial is required. That being the case, it is necessary to address, as well, the substantive grounds on which the district court excluded the Adams expert opinion evidence and granted Rule 50 relief.

Kutner owned the Bustleton Avenue facility. After it contracted with AMC to distribute AMC products, at least two separate business activities were carried on at that facility: sale of AMC products and sale of Buicks. Adams' damage theory, which the district court rejected, was that in determining the net lost profits from termination of the sale of AMC products, fixed costs for the Bustleton Avenue facility should be disregarded. This ruling was fundamental legal error. The effect on net income must be measured by revenue lost less costs avoided. This translates into lost revenue less the variable cost of producing this lost revenue. ¹ Fixed or unavoidable costs are by definition unrelated to the individual income producing activity and thus are not relevant to the change in net profit calculation. See, e.g., W. Meigs & R. Meigs, Accounting: The Basis For Business Decisions, 881-84 (5th ed.1981).

Fixed costs remain the same over a relevant range of activity for a given time period; whereas, variable costs change in total in relation to changes in total activity. See C. Horngren & G. Foster, Cost Accounting, 22-24 (6th ed.1987). Whether a cost is fixed or variable depends upon and may change with the specific inquiry. For example, if at a business facility, a single activity was being conducted, all costs, whether denominated as fixed or as variable for financial reporting purposes,...