Sioux Falls Kenworth, Inc. v. Isuzu Commercial Truck of Am., Inc.
| Decision Date | 18 August 2017 |
| Docket Number | 4:14-CV-04187-RAL |
| Parties | SIOUX FALLS KENWORTH, INC., d/b/a ISUZU TRUCKS OF SIOUX FALLS, Plaintiffs, v. ISUZU COMMERCIAL TRUCK OF AMERICA, INC., Defendant. |
| Court | U.S. District Court — District of South Dakota |
Sioux Falls Kenworth Inc., doing business as Isuzu Trucks of Sioux Falls (SFK), sued Isuzu Commercial Truck of America Inc. (Isuzu) asserting various statutory, contractual, and quasi-contractual claims relating to Isuzu's termination of SFK's Isuzu dealership and Isuzu's handling of SFK's claims for payment for warranty-covered service work. After a mixed jury verdict awarding SFK $1,676,000 in damages, Isuzu moved for remittitur, Doc. 148, judgment as a matter of law, Doc. 150, and a new trial, Doc. 154. SFK moved for an award of attorney's fees. Doc. 156. For the reasons explained below, this Court denies Isuzu's motion for a new trial on the condition that SFK accept a partial remittitur of the damages, denies Isuzu's motion for judgment as a matter of law, and grants SFK's motion for attorney's fees.
SFK is a truck dealership located in Sioux Falls, South Dakota. It sells Kenworth, Volvo, and Hino trucks, as well as several trailer lines. Doc. 138-1 at 33. SFK is owned by North American Truck and Trailer (NATT), a holding company that owns seventeen dealerships in four different states. Doc. 138-1 at 32-33, 129-32. William Rush is the president of NATT, and he and his family own the company in its entirety. Doc. 138-1 at 31, 33.
SFK's management includes Rush,1 his son Michael Rush, Dan Mills, and Doug Wersal. Doc. 138-1 at 35. Rush's son Michael is the vice president of sales, responsible for managing SFK's sales force and vehicle inventory. Doc. 138-1 at 36. Mills is SFK's fleet service manager, a position that gives him authority to implement policies and procedures for all of NATT's service departments. Doc. 138-1 at 37; Doc. 138-2 at 77. Mills works from an office in his home in Geddes, South Dakota, where he also farms. Doc. 138-2 at 98-100. Wersal oversees SFK's parts department. Doc. 138-1 at 40, 154; Doc. 138-3 at 39.
In January 2010, SFK entered into a franchise agreement with Isuzu to sell and service Isuzu products. Doc. 138-1 at 42; Pl.'s Ex. 4. SFK did not pay Isuzu anything for the franchise agreement, but did purchase its own Isuzu parts, tools, inventory, and signage. Doc. 138-1 at 135. Article V.A.3. of the franchise agreement provided that if Isuzu desired to terminate the agreement for a failure of performance, Isuzu would "endeavor to review" the failures with SFK and would determine, based on a plan proposed by SFK, whether SFK could remedy its failures, and if so, then allow SFK a reasonable amount of time in which to remedy any failure. Doc. 47-6 at 47; Pl.'s Ex. 4. If, however, Isuzu terminated the franchise agreement for one of the reasons listed in Article V.A.2., including SFK's submission of a "false or fraudulent" warranty reimbursement claim, then the review procedure described in Article V.A.3. of the agreement did not apply. Doc. 47-6 at 46-47; Pl.'s Ex. 4. In 2011, NATT's dealership in Rapid City—BlackHills Truck and Trailer—also obtained an Isuzu franchise, which it still has today. Doc. 138-1 at 43, 133-34.
SFK's customer base for Isuzu trucks was mainly local. Doc. 138-1 at 41-42. National companies with a presence in Sioux Falls like Schwan's Company and Fed Ex Corporation would purchase "mega-fleets" of Isuzu trucks elsewhere, so SFK could not easily penetrate the mega-fleet market. Doc. 138-1 at 41-42. Accordingly, SFK only sold six new Isuzu trucks during its approximately five years as an Isuzu dealer. Doc. 138-1 at 50; Pl.'s Ex. 2. SFK's primary activity as an Isuzu dealer was the sale of parts for and service on Isuzu mega-fleets that were purchased elsewhere but used in the Sioux Falls area. Doc. 138-1 at 47, 50-51.
Dawn Cunningham, a district parts and service manager for Isuzu who oversaw Isuzu's franchise relationship with SFK and multiple other dealerships, testified that Isuzu deemed SFK a "telecontact" dealer, a designation that Isuzu assigned to vehicle dealers in smaller markets. Doc. 138-5 at 12. SFK's status as a telecontact dealer meant that Isuzu would communicate with SFK through email and telephone rather than traveling to Sioux Falls. Doc. 138-4 at 132-33; Doc. 138-5 at 12. Cunningham explained that she would visit a telecontact dealer if asked, but that SFK never made such a request. Doc. 138-4 at 133.
As an Isuzu franchise holder, SFK would do warranty repairs on Isuzu vehicles and then seek reimbursement from Isuzu for such repairs. Vehicle dealers like SFK use a computerized communication system called ICS to submit their claims for warranty work to Isuzu. Doc. 138-2 at 115-16; Doc. 138-4 at 136, 141. Isuzu has a guide that lists the standard repair times allotted for dealers to fix particular issues covered by warranty. Doc. 138-1 at 90; Doc. 138-2 at 106-07; Doc. 138-4 at 136; Doc. 138-5 at 41, 51, 146-47. If the dealer is unable to fix the problem within the standard repair time, it can request payment for these "other labor hours" (OLH) fromIsuzu. Doc. 138-4 at 136; see also Doc. 138-1 at 90, 157; Doc. 138-5 at 150-51. Isuzu had informed SFK and other dealers that they must explain their requests for OLH. Def.'s Ex. 124; Doc. 138-4 at 139.
By September 2013, Isuzu and SFK were having issues over the warranty claims SFK submitted. On September 11, 2013, Cunningham emailed Mills about some warranty claims Mills had submitted that were beyond the usual 90-day period for claims submission. Def.'s Ex. 130; Doc. 138-4 at 145-150. Cunningham also asked Mills for the repair orders and other documentation on some of the claims he submitted so that she could determine whether the OLH Mills requested was justified. Def.'s Ex. 130; Doc. 138-4 at 148. Mills apologized that the claims were late and said that it would not happen again because he had restructured the service department. Def.'s Ex. 130; Doc. 138-2 at 189. This restructuring included Mills assuming responsibility for submitting warranty claims to Isuzu for work performed by SFK's service department. Doc. 138-1 at 37; Doc. 138-2 at 74, 99-100, 164-66, 189. Before Mills took over, Sarah Lee and then Verlyn Wiertzema submitted warranty claims to Isuzu, and there appeared to be few issues with SFK's warranty work or Isuzu's payment thereof when Lee and Wiertzema were submitting warranty claims. Doc. 138-2 at 164-65.
On September 14, 2013, Cunningham emailed Mills to tell him that she was returning four of the warranty claims discussed in the September 11, 2013 email because Mills had yet to send the repair orders and other documents she had requested. Def.'s Ex. 130; Doc. 138-4 at 150. Mills did not send the requested repair orders and other documents until October 3, 2013. Doc. 138-4 at 150-51; Def.'s Exs. 131-134. Cunningham emailed Mills on October 4 asking for a repair order on a particular claim. Doc. 138-4 at 152; Def.'s Ex. 137. When Mills did not respond, Cunningham emailed him again on October 8 asking him to send the repair order"ASAP." Def.'s Ex. 137. Nearly two months passed before Mills sent the repair order on December 4, 2013. Doc. 138-4 at 153-54; Def.'s Ex. 140. Cunningham emailed Mills the following day saying that she was returning two claims to Mills because they lacked an adequate explanation for OLH. Def.'s Ex. 142; Doc. 138-4 at 155-56. Cunningham reiterated to Mills that claims for OLH required detailed explanations. Def.'s Ex. 142.
On December 17, 2013, Mills emailed Cunningham asking her to increase the rate Isuzu paid for parts SFK used in Isuzu warranty repairs. Def.'s Ex. 210; Doc. 138-2 at 14. Under South Dakota law, the reimbursement a manufacturer pays a vehicle dealer for parts the dealer uses in warranty repairs "may not be less than the current retail rate customarily charged by the vehicle dealer for such parts." South Dakota Codified Laws (SDCL) § 32-6B-61. Section 32-6B-61 states that when establishing a compensation schedule for warranty work, manufacturers "shall rely on the vehicle dealer's written schedule of hourly labor rates and parts and may not obligate any vehicle dealer to engage in unduly burdensome documentation thereof, including, without limitation, obligating vehicle dealers to engage in transaction by transaction calculations." Id. Mills told Cunningham in one of his December 2013 emails that "other manufacturers" were paying a 72% parts markup on warranty repairs. Def.'s Ex. 210; Doc. 138-2 at 14.
In late December 2013, Isuzu granted SFK's request for an increase in the hourly rate Isuzu paid SFK for labor on warranty repairs. Def.'s Ex. 267; Doc. 138-4 at 214. Around that same time, Mills emailed Cunningham expressing frustration that Isuzu had not paid a particular warranty claim even though he had submitted a repair order explaining the claim over two weeks earlier. Def.'s Ex. 148. He asked Cunningham if she would be in the office the following day, and Cunningham replied that she would. Def.'s Ex. 148. Cunningham wrote in an email thatshe was happy to discuss any claims Mills wanted, but Mills never called her. Def.'s Ex. 148; Doc. 138-4 at 158-59.
In early January 2014, Mills emailed Cunningham that SFK's markup rate on Isuzu parts was 66%. Def.'s Exs. 153, 213; Doc. 138-2 at 15-16. He attached four identical invoices as proof of a 66% retail markup rate charged by SFK. Doc. 138-4 at 198-200; Def.'s Ex. 216. Later that month, Cunningham asked Mills for fifty consecutive repair orders to establish the retail rate SFK customarily charged. Def.'s Ex. 217; Doc. 138-4 at 201. Mills neither provided the fifty consecutive repair orders nor called Cunningham to talk about her request. Doc. 138-4 at 201-02. Instead, Mills sent Cunningham a follow-up email on February 25, 2014, stating that although he knew Cunningham had requested more information, he "did not...
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