Thrifty Rent-A-Car Systems, Inc. v. Brown Flight Rental One Corp., RENT-A-CAR

• Decision Date: 11 May 1994
• Docket Number: RENT-A-CAR,No. 93-5078,93-5078
• Parties: THRIFTYSYSTEMS, INC., Plaintiff-Appellee, v. BROWN FLIGHT RENTAL ONE CORPORATION, and Richard Brown, an individual, Defendants-Appellants, v. PENTASTAR SERVICES, INC., Thomas Bonner, Scott Anderson, Fred Chesbro, Todd Hamilton, Third-Party Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1190

24 F.3d 1190

THRIFTY RENT-A-CAR SYSTEMS, INC., Plaintiff-Appellee, v. BROWN FLIGHT RENTAL ONE CORPORATION, and Richard Brown, an individual, Defendants-Appellants, v. PENTASTAR SERVICES, INC., Thomas Bonner, Scott Anderson, Fred Chesbro, Todd Hamilton, Third-Party Defendants.

No. 93-5078.

United States Court of Appeals Tenth Circuit.

May 11, 1994.

Russell A. Cook (Drew Neville with him on the briefs), Linn & Helms, Oklahoma City, OK, for appellants.

James L. Kincaid (W. Kyle Tresch with him on the briefs), Crowe & Dunlevy, Tulsa, OK, for appellee and third-party defendants.

Before KELLY, Circuit Judge, BARRETT, Senior Circuit Judge, and THEIS ^*, Senior District Judge.

BARRETT, Senior Circuit Judge.

In this diversity case, Brown Flight Rental One Corp. (Brown Flight) and Richard Brown (Brown), hereinafter collectively referred to as appellants, appeal from summary judgment in favor of Thrifty Rent-A-Car Systems, Inc. (Thrifty) dismissing appellants' counterclaims and affirmative defenses and a judgment in favor of Thrifty in accordance with a jury verdict. A summary of the relevant uncontested facts follows.

Thrifty is a wholly owned subsidiary of Pentastar Transportation Group, which in turn is wholly owned by Chrysler Corporation. Thrifty is in the business of selling vehicle rental franchises, which it effectuates through license agreements. Thrifty's support services include, but are not limited to, leasing vehicles to its licensees, featuring Chrysler vehicles.

Prior to September, 1990, Brown and members of his family had operated an independent car rental business in New York City. In December, 1990, Brown Flight, a company formed by the Brown family, entered into a "Thrifty Rent-A-Car System, Inc. License Agreement for Vehicle Rental Leasing & Parking" (License Agreement) under which Brown Flight became a Thrifty licensee. Sections 10.3 and 10.4 of the agreement provided:

10.3 Entire Agreement. This License Agreement (including all Addenda and Exhibits hereto) constitutes the entire agreement of the parties, into which all prior negotiations, commitments, and undertakings with respect to the subject matter hereof are merged.

10.4 Representations. This License Agreement is not based upon any representations as to profits, nor has any other representation not herein expressly set forth been made to induce LICENSEE to accept and execute this License Agreement or, to the extent such representation has been made, LICENSEE hereby warrants and represents that LICENSEE has not relied thereon for any purpose and LICENSEE hereby waives and releases any claim it may have against THRIFTY or against any other Person with respect to such representation....

(Appellants' Appendix, Vol. 1 at 90).

Section 10.9 of the agreement provided that the agreement "shall, except where otherwise expressly provided herein, be governed and construed under and in accordance with the laws of the State of Oklahoma." Id. at 91. The purchase price for the franchise was $400,000.00. Brown Flight paid $250,000.00 down. Thrifty carried the balance of $150,000.00, secured by a promissory note and security agreement.

Brown Flight also entered into three "Master Lease Agreement[s]" (Lease Agreements) with Thrifty under which Brown Flight could lease cars from Thrifty for use in its car rental business. Under the Lease Agreements, Thrifty was not responsible to appellants for any loss of business or other damage caused by the interruption of the supply of goods or services on the part of Thrifty or for any other losses or damages sustained by appellants except as specifically provided. (See e.g., Appellants' Appendix, Vol. 1 at 116). The Lease Agreements further provided that they would be "interpreted under and governed by the laws of the State of Oklahoma." Id. at 119.

Although Brown signed the License Agreement and Lease Agreements as president of Brown Flight without reading them, (Appellees' Appendix at 85-7), he signed them only after his attorney had reviewed them. Id. at 87.

Pursuant to the Lease Agreements, Brown Flight ordered over 500 Chrysler vehicles from Thrifty for delivery in March and July, 1991. Thrifty approved the orders and forwarded them to Chrysler. Thrifty subsequently notified appellants that Chrysler had cancelled a large percentage of the order.

By the latter part of 1991, Brown Flight was in default under the agreements. Thrifty terminated the License Agreement and Lease Agreements and initiated this action, alleging that appellants had: breached the Lease Agreements by failing to pay amounts due; breached the License Agreement by failing to report or pay administrative and advertising fees due; and breached the promissory note by failing to make timely monthly payments. Thrifty also alleged that appellants had unlawfully converted Thrifty vehicles.

In their answer, appellants denied liability and alleged, inter alia, that Thrifty's claims were barred because Thrifty had engaged in fraud through concealment and misrepresentation and had breached the very contracts sued upon. Appellants also asserted three counterclaims based on common law fraud, statutory fraud under New York's Franchise Act, and breach of contract. "These [three counterclaims] related to two areas of concern, the furnishing of an adequate supply of rental vehicles by Thrifty and the projected profitability of Defendants' new franchise." (Appellants' Appendix, Vol. 4, Order, at 657-58). Thrifty filed a motion for summary judgment on appellants' counterclaims.

In its order granting summary judgment in favor of Thrifty on appellants' counterclaims, the district court found that appellants' common law and statutory law fraud counterclaims were barred by Sections 10.3 and 10.4 in the License Agreement and that appellants' breach of contract counterclaim based upon Thrifty's acceptance of orders of rental vehicles and failure to deliver them was barred by the Lease Agreements under which it was agreed that Thrifty would not be responsible or liable to its licensee for any failure to provide vehicles or any loss due to the interruption of the supply of vehicles. ¹ In an order filed a week later, the court "reaffirm[ed] its earlier conclusion herein that the summary judgment granted Thrifty precludes any and all of the counterclaim issues, i.e., common law fraud, statutory fraud and breach of contract, as these issues apply to counterclaims, affirmative defenses and/or rescission claims. On the other hand, any affirmative defense and/or rescission claim not based upon common law fraud, statutory fraud and breach of contract ... would remain extant if properly pled and preserved throughout." (Appellants' Appendix, Vol. 4 at 658-59).

The case proceeded to trial on Thrifty's breach of contract and conversion claims. Appellants defended on the basis that Thrifty's conduct prevented them from performing. Appellants denied Thrifty's claim of conversion. During the trial, the district court ruled that the agreements were not ambiguous. (Appellees' Appendix at 83).

The court's instructions to the jury included:

This court has determined in a previously issued order that Thrifty will not be responsible or liable to Brown Flight for its inability to provide vehicles or for any loss due to the interruption of the supply of goods (vehicles) or for any delay in providing vehicles. This determination was based upon language in the vehicle Lease Agreements signed by Brown Flight (as Lessee) and Thrifty which states that "Thrifty shall not be responsible to LESSEE ... for any loss of business or other damage caused by an interruption of the supply of goods or services to be furnished hereunder by Thrifty, ... nor for any other losses or damages sustained by LESSEE hereunder."

In order for you to find that the Browns' performance under the contract with Thrifty is excused, you must find that a total breach occurred. A total breach is one which is so material and important the Browns would be justified in treating the transaction at an end. Additionally, you must find that the Browns promptly notified Thrifty of their intent to treat the transaction as ended. If you do not find that a total breach occurred and that the Browns, with full knowledge of pertinent facts, failed to promptly notify Thrifty of their intent to treat the transaction as ended, then you are instructed that the Browns' performance under the contracts with Thrifty is not excused.

Contract Terms Cannot Be Orally Modified

Under the law and under the contracts in this case, the terms and conditions of the License Agreement, the Master Lease Agreements, the Promissory Note and the individual guarantees are binding on the parties as written. The parties agree the written instruments have not been altered, modified or varied either orally or in writing.

(Appellants' Appendix, Vol. 4 at 872-73).

In accord with the jury verdict, the court entered a judgment of $1,956,344.54, plus prejudgment interest at the annual rate of 6%, in favor of Thrifty and against appellants on Thrifty's breach of contract claims, and $391,410.95, plus post-judgment interest at the annual rate of 3.21%, in favor of Thrifty and against Brown Flight on Thrifty's conversion claims. Thereafter, the court entered a Stipulated Order and Judgment awarding Thrifty costs and attorney fees as the prevailing party in the total amount of $400,000.00.

On appeal, appellants contend that: (1) the district court's pretrial adjudication of their counterclaims and defenses was reversible error; (2) exclusion of relevant evidence was reversible error; (3) the district court's failure to properly instruct the jury was reversible error; and (4), the district court's addition of pre-judgment and post-judgment interest to the breach of contract award was erroneous. Because of its dispositive nature, our discussion will be limited to appellants' first contention only.

I.

Appellants contend that the district court's...