Sir Speedy, Inc. v. L & P Graphics, Inc.

• Decision Date: 24 February 1992
• Docket Number: D,No. 513,513
• Citation: 957 F.2d 1033
• Parties: SIR SPEEDY, INC., Plaintiff-Appellee, v. L & P GRAPHICS, INC., Defendant, Neil H. Blatte and Business Service Centers, Inc., Defendants-Appellants. ocket 91-7699.
• Court: U.S. Court of Appeals — Second Circuit

Page 1033

957 F.2d 1033

SIR SPEEDY, INC., Plaintiff-Appellee, v. L & P GRAPHICS, INC., Defendant, Neil H. Blatte and Business Service Centers, Inc.,

Defendants-Appellants.

No. 513, Docket 91-7699.

United States Court of Appeals, Second Circuit.

Argued Nov. 18, 1991.

Decided Feb. 24, 1992.

Lawrence G. Greene, Boston, Mass. (Perkins, Smith & Cohen, on the brief), for plaintiff-appellee.

Thomas G. Wolff, Stamford, Conn. (Roberts, Gaillard, Kambas, Cousins & Sweigart, on the brief), for defendants-appellants.

Before FEINBERG, MESKILL, and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

Defendants Neil H. Blatte and his wholly owned corporation Business Services Centers, Inc. (collectively "Blatte"), appeal from so much of a final judgment entered in the United States District Court for the District of Connecticut, following a jury trial before Ellen Bree Burns, Chief Judge, as (1) set aside the jury's award to them of $35,000 on their counterclaims against plaintiff Sir Speedy, Inc. ("Sir Speedy"), in connection with its breach of a franchise agreement, and (2) denied defendants punitive damages, attorneys' fees, and costs. On appeal, defendants contend principally (1) that the district court's grant of judgment notwithstanding the verdict ("n.o.v.") was premised on both an erroneous legal premise and a view of the evidence that did not meet the appropriate standard, (2) that under California law they were entitled to an award of attorneys' fees as the prevailing party in the litigation, and (3) that under Connecticut law they were entitled to recover punitive damages. For the reasons below, we affirm the denial of punitive damages but reverse the granting of judgment n.o.v. and the denial of costs and attorneys' fees.

I. BACKGROUND

Sir Speedy is a nationwide franchisor of printing and document reproduction centers. From November 1979 to June 1985, Blatte was a Sir Speedy franchisee. The events leading to the present suit by Sir Speedy and counterclaims by Blatte, viewed in the light most favorable to defendants, were as follows.

A. The Beginning and End of the Franchise Relationship

In 1979, Blatte was interested in setting up a business in Connecticut. He saw an advertisement for Sir Speedy printing franchises and sought additional information. After receiving promotional materials, Blatte met with a Sir Speedy representative in October 1979 to discuss the costs and potential benefits of becoming a Sir Speedy franchisee. As discussed in greater detail in Part II.A. below, during that meeting Sir Speedy gave Blatte two documents describing the financial performances of its printing centers, stating that the documents reflected what Blatte could expect to earn if he purchased a franchise.

In November 1979, the parties entered into a 15-year franchise agreement. Blatte paid Sir Speedy $20,000 as an initial franchise fee and $32,000 for equipment. In addition, he was to pay Sir Speedy each week 5% of his printing center's gross sales as royalties. Under certain circumstances, Blatte could also be required to pay up to $100 per week to help defray the cost of Sir Speedy's system-wide advertising. The franchise agreement required Sir Speedy to assist Blatte in, inter alia, acquiring the necessary equipment, training, and location to start his business; it was also to provide a "continuing assistance program which shall include consulting and assistance by field representatives, accounting and marketing assistance, [and] advising the Franchisee of new developments and techniques in the printing and reproduction industry." (Franchise agreement p 3h.)

After attending a two-week Sir Speedy training program in California, Blatte opened his Sir Speedy printing center in Wilton, Connecticut, in March 1980. He operated the franchise for five years, with results never rising above the mediocre. In 1983, Sir Speedy brought suit against Blatte for unpaid royalties under the franchise agreement. That suit was settled in March 1985. As part of the settlement, Blatte signed a promissory note in the amount of $16,000 ("March 1985 note"), representing his past royalty obligations.

Immediately following the settlement, Sir Speedy invoked the advertising clause of the franchise agreement and demanded that Blatte begin paying weekly advertising fees. Blatte refused to pay, contending that the pre-conditions to that obligation had not been met and that the demand was made in bad faith, given Sir Speedy's failure to mention such fees in the just-ended

                settlement negotiations.   After discussions, Blatte left the Sir Speedy system on June 1, 1985
                

B. The Present Lawsuit and the Proceedings Below

In July 1986, Sir Speedy commenced the present breach-of-contract action against Blatte, alleging, inter alia, that Blatte had (1) failed to make the required payments on the March 1985 note, (2) failed to pay royalties, (3) failed to pay the demanded advertising fees, and (4) discontinued operation of the franchise in June 1985. By answer filed on August 26, 1986, Blatte contended that his assent to the March 1985 settlement agreement had been procured by fraud and that breaches of contract by Sir Speedy excused him from further performance of the franchise agreement. He counterclaimed for breach of contract, fraud, and violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), Conn.Gen.Stat. § 42-110a et seq. (1987), alleging, inter alia, that Sir Speedy had breached both the franchise agreement and the March 1985 settlement agreement by failing to provide him with the promised business assistance and by improperly demanding advertising payments immediately following the settlement. He claimed that Sir Speedy's failure to provide the services and assistance promised in the franchise agreement prevented his franchise from realizing reasonably expected financial returns.

Following trial, the jury returned a special verdict, finding in favor of Sir Speedy in part and in favor of Blatte in part. The jury found that Blatte had breached the settlement agreement by failing to make the required payments on the March 1985 note, and that he was liable for the unpaid balance of that note, plus interest. It also found that Blatte had breached the franchise agreement by failing, without justification, to make royalty payments from March 1985 until he ceased operation on June 1, 1985, and that he was liable to Sir Speedy for 5% of his gross sales during that period. The jury found, however, that Blatte had been justified in discontinuing the operation of his Sir Speedy franchise. It also found that in connection with the 1985 settlement, Sir Speedy had made materially false representations on which Blatte had relied, and that this excused him from complying with Sir Speedy's demand for advertising payments.

Deciding in favor of Blatte on his principal counterclaims, the jury found that between August 1980 and March 1985, Sir Speedy (1) had breached its obligations under the franchise agreement to provide Blatte with, inter alia, a proprietary system of printing and a continuing assistance program, and (2) had engaged in unfair or deceptive trade practices. The jury found that this conduct had caused Blatte damages in the amount of $35,000.

Following the jury's verdict, Sir Speedy, which had moved for a directed verdict during trial, renewed its motion. In a Ruling on Motion for Directed Verdict on Counterclaim, dated November 26, 1990 ("Verdict Ruling"), the district court granted Sir Speedy judgment n.o.v. on the jury's award of $35,000. The court found that certain Sir Speedy documents on which Blatte had relied at trial to show the level of profits he reasonably expected to achieve were inadmissible because they predated the statute-of-limitations period applicable to his claims and in any event were insufficient. Eliminating these documents, the court concluded that "there was no evidence upon which the jury could calculate damages with the reasonable degree of certainty." Verdict Ruling at 2. In a later decision, the court denied Blatte's request for punitive damages under CUTPA, finding that the "evidence d[id] not support a conclusion that Sir Speedy engaged in a reckless indifference to the rights of Blatte or in any intentional or wanton violation of those rights." Ruling on Pending Motions, dated June 26, 1991, at 3-4. The court also denied both parties' requests for costs and attorneys' fees.

This appeal followed.

II. DISCUSSION

On appeal, Blatte contends principally that the district court erred (1) in excluding two documents on which he relied for proof

                of damages, and (2) in failing to view the trial evidence in the light most favorable to him as the party opposing judgment n.o.v.   In addition, he pursues his requests for punitive damages, costs, and attorneys' fees.   Though we reject Blatte's challenge to the denial of punitive damages, his other claims have merit
                

A. The Adequacy of Blatte's Proof of Damages

Blatte claimed that, as a result of Sir Speedy's failure to provide him with, inter alia, the proprietary printing system and continuing assistance it was obligated to provide him under the franchise agreement, he lost a total of $105,000 in profits for the period 1981-1984. In support of this claim, he introduced, inter alia, two documents that he had received from Sir Speedy in 1979 prior to entering into the franchise agreement. One, entitled "Sir Speedy Instant Printing Centers Pro Forma Statement of Operations" and admitted at trial as defendants' Exhibit W, projected the average monthly sales, expenses, and profits of Sir Speedy franchises at various stages of maturity during the course of a 15-year franchise agreement. Blatte testified that the Sir Speedy representative told him that Exhibit W showed the profits of a typical Sir Speedy center.

The other Sir Speedy document on which Blatte placed principal reliance, entitled "Sir Speedy, Inc. Statement of Average Sales and Estimated Expenses" and...