Waggoner Motors v. Waverly Church of Christ

• Citation: 159 S.W.3d 42
• Parties: WAGGONER MOTORS, INC. v. WAVERLY CHURCH OF CHRIST.
• Decision Date: 16 September 2004
• Court: Tennessee Court of Appeals

159 S.W.3d 42

WAGGONER MOTORS, INC. v. WAVERLY CHURCH OF CHRIST.

Court of Appeals of Tennessee, At Nashville.

May 8, 2003 Session.

September 16, 2004.

Permission to Appeal Denied February 28, 2005.

James D. Kay, Jr., Matthew Brothers, and Jeanette Armington, Nashville, Tennessee, and Robert I. Thomason, Waverly, Tennessee, for the appellant, Waverly Church of Christ.

Dan R. Bradley, Waverly, Tennessee, for the appellee, Waggoner Motors, Inc.

Permission to Appeal Denied by Supreme Court February 28, 2005.

OPINION

WILLIAM C. KOCH, JR., J., delivered the opinion of the court, in which WILLIAM B. CAIN and PATRICIA J. COTTRELL, JJ., joined. This appeal involves an automobile dealer whose vehicles were damaged by paint overspray from a church's construction project on adjacent property. The dealer filed suit against the church in the Circuit Court for Humphreys County seeking damages for the cost of cleaning the vehicles and lost profits. Following a bench trial, the trial court determined that the church had not properly supervised the painting and that the paint overspray had damaged the automobile dealer. Accordingly, the trial court awarded the dealership $344,778 in damages and $11,170 in discretionary costs. On appeal, the church takes issue with the trial court's decisions regarding liability, damages, and discretionary costs. The dealer also takes issue with the damages award. The dealer's evidence regarding its lost profits is too speculative to support the trial court's judgment. However, we have determined that the evidence supports a judgment for $85,692. We have also determined that the trial court erred with regard to a portion of the discretionary costs. Accordingly, we reduce the dealer's damages to $85,692.00 and modify the award for discretionary costs to $8,501.25.

I.

Waggoner Motors, Inc. ("Waggoner") is an automobile dealer that has sold Chrysler and Chevrolet automobiles in Waverly since September 1991. It is located at 401 West Main Street, adjacent to the Waverly Church of Christ. Sometime in early 1997, the church, acting as its own general contractor, began constructing a 9,000-square-foot general purpose building in back of its existing building. By June 1997, the steel beams and trusses and the roof had been installed, but the walls had not been erected.

The church hired Ronald E. Bare to paint the steel beams supporting the roof and instructed him to perform the work on June 17, 1997. Notwithstanding Mr. Bare's concern about the weather conditions on that day, the church and its construction supervisor directed him to begin painting the beams using an airless paint sprayer. The wind began to blow in the direction of Waggoner but Mr. Bare continued working for several more hours.¹ Sometime during the afternoon, a representative of Waggoner informed the church that many of the cars parked at the dealership were covered with fine droplets of silver paint. On the morning of June 18, 1997, the church elder overseeing the project and the construction supervisor hired by the church instructed the painter to complete the work without using the sprayer and agreed to pay for the additional time it would take to finish the job.

As it turned out, the paint spray damaged fifty-two new vehicles, thirty-seven used vehicles, and three vehicles owned by Waggoner's customers. Ronald K. Waggoner, Sr., one of Waggoner's owners, contacted his lawyer soon after the incident seeking advice regarding the sale of the paint-damaged vehicles. Acting on his lawyer's advice, he declined to sell any of the vehicles until the paint had been removed and disclosed the incident to all customers interested in purchasing the affected vehicles.

A representative of the church's insurance company assured Mr. Waggoner shortly after the incident that he would arrange for the vehicles to be cleaned and detailed. In mid-July, after hearing nothing from the church's insurance company, Mr. Waggoner contacted Chrysler Insurance Company² and Cincinnati Insurance Company³ to obtain permission to hire Detail Master to clean the vehicles. This work was completed approximately three weeks later with varying degrees of success.⁴

On June 23, 1997, Mr. Waggoner telephoned Howard Forrest, Chrysler's Dealer Relations Manager, to inform him that paint overspray had damaged his entire inventory. This telephone call triggered Chrysler's review of Waggoner's current finances. Apparently Chrysler had had concerns before the incident about Waggoner's capitalization, as well as the fact that the amount of its floor plan financing⁵ was greater than the amount warranted by its sales. Mr. Forrest visited Waggoner on June 24, 1997, and informed Mr. Waggoner that Chrysler had decided to "freeze" the floor plan at its current level. He also repeated Chrysler's continuing concern about Waggoner's inability to sell its over-aged inventory.

Several weeks later, Mr. Waggoner purchased five Chrysler "program" cars at a wholesale auction in Nashville. He intended to use his floor plan to finance the purchase but discovered when he returned to Waverly that Chrysler had declined to approve the financing. When he telephoned Kevin Spivey, Chrysler's Zone Dealer Credit Manager, he discovered that Chrysler had reduced the amount of his floor plan from $400,000 to $200,000. In July 1997, Mr. Waggoner and his co-owner were required to borrow $90,000 to pay for the vehicles purchased in Nashville.

In October 1997, Waggoner filed a negligence action against the Waverly Church of Christ. The church denied liability on the ground that it was not responsible for the negligent acts of the construction supervisor and the painter because they were independent contractors. In April 2000, Cincinnati Insurance Company filed an intervening complaint seeking to recover the $13,241.68 it had paid for the professional cleaning of Waggoner's used vehicles. In July 2000, the trial court denied the church's motion for partial summary judgment seeking dismissal of Waggoner's lost profits claim.⁶

The bench trial began on September 24, 2001. In general terms, Waggoner's case was based on its assertion that the overspray incident had caused Chrysler to cut back its floor plan financing, and that the reduction in floor plan financing had devastating, long-term effects on its ability to acquire and sell new and used vehicles and, therefore, on its profits. The church's defense essentially was that Waggoner had serious financial problems before the overspray incident occurred and that Chrysler's reduction of Waggoner's floor plan financing was the result of these problems, not the overspray incident. The church also asserted that the financial impact of the overspray incident on Waggoner's profits was minor and relatively short-lived.

Waggoner asserted that it had sustained approximately $718,000⁷ in damages as a result of the overspray incident. Its evidence regarding damages came from three witnesses — Mr. Waggoner himself; James Lavender, the dealership's accountant; and Michael P. Kelsay, an economist retained to calculate Waggoner's lost profits. Mr. Waggoner testified in quite general terms about the effect of the overspray incident on the business.⁸ He described the problems and delay in having the automobiles cleaned. He discussed the increased payroll expenses resulting from his decision to continue to pay his sales staff even though they had fewer vehicles to sell and the impact the loss of sales had on his future allocation of new vehicles from Chrysler. He also explained that he and his partner had been forced to borrow money to "band aide" the business. Mr. Waggoner testified that the dealership's damages, excluding its lost profits, were $209,124.07.⁹

The most significant component of Waggoner's damages claim consisted of its alleged lost profits resulting from the overspray incident. Both Mr. Lavender and Dr. Kelsay stated that the reduction in Waggoner's floor plan financing had a "devastating" effect on Waggoner's business. Comparing the dealership's performance following the incident with its performance during the three full calendar years immediately preceding the incident,¹⁰ Dr. Kelsay testified that the dealership had experienced an incremental loss of profits in the amount of $405,457. After adjusting this loss to its present value, Dr. Kelsay opined that Waggoner was entitled to recover $508,663. Dr. Kelsay also testified that Waggoner would continue to be damaged by the overspray incident until its profits returned to his three-year baseline average and its floor plan financing was restored to its pre-incident level.

The church's evidence on the first day of trial regarding Waggoner's damages consisted of the testimony of Donald H. Carpenter, a certified public accountant employed by a firm experienced in calculating economic damages. After analyzing Waggoner's records, Mr. Carpenter concluded that the dealer had been experiencing a steady decline in sales during the two years immediately preceding the overspray incident and that the rate of loss in the six months immediately preceding the incident was greater than the rate during the past two years. He also determined that the records did not show any loss of income traceable to the incident after November 1997. Mr. Carpenter then presented five alternatives for calculating Waggoner's damages traceable to the overspray incident.¹¹ Depending on the alternative chosen, the damages ranged from $10,624 to $44,304. These figures were not adjusted to reflect their present value.

The trial court made its preliminary findings from the bench following the close of proof on September 24, 2001. First, it found that the church had breached its duty to oversee the painting of its new building and that this breach caused the overspray on Waggoner's vehicles. The court also concluded that the overspray was a "possible cause" of Chrysler's decision to reduce Waggoner's floor plan financing. Therefore, ...