Wash Solutions, Inc. v. Pdq Mfg., Inc.

• Decision Date: 24 January 2005
• Docket Number: No. 04-1039.,04-1039.
• Parties: WASH SOLUTIONS, INC., a Missouri Corporation, Appellee, v. PDQ MANUFACTURING, INC., a Delaware Corporation, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

395 F.3d 888

WASH SOLUTIONS, INC., a Missouri Corporation, Appellee, v. PDQ MANUFACTURING, INC., a Delaware Corporation, Appellant.

No. 04-1039.

United States Court of Appeals, Eighth Circuit.

Submitted: November 15, 2004.

Filed: January 24, 2005.

Rehearing Denied February 14, 2005.

COPYRIGHT MATERIAL OMITTED

Frank Susman, argued, St. Louis, MO, for appellant.

Kevin F. Hormuth, argued, St. Louis, MO, for appellee.

Before RILEY, JOHN R. GIBSON, and GRUENDER, Circuit Judges.

GRUENDER, Circuit Judge.

PDQ Manufacturing, Inc. ("PDQ") appeals the district court's denial of its motion for judgment as a matter of law or, in the alternative, a new trial, and its entry of judgment on a jury verdict awarding $580,000 in compensatory damages and $125,000 in punitive damages to Wash Solutions, Inc. ("Wash") on Wash's claims of violation of the notice requirement under the Missouri Franchise Act ("the Act"), breach of contract, and tortious interference with a business expectancy. For the reasons discussed below, we affirm in part and reverse in part.

I. BACKGROUND

PDQ is a manufacturer of car washes. Wash was PDQ's exclusive distributor for the St. Louis, Missouri region until PDQ prematurely terminated the distributorship agreement in September 2001. Wash had been pursuing a new and potentially significant customer for PDQ products in Wallis Oil ("Wallis"), a Mobil fuel distributor in the region. At the time of the termination, Wash and Wallis were discussing a deal in which they would form a partnership to hold the exclusive distributorship. Before the deal could be completed, however, PDQ offered the exclusive distributorship directly to Wallis. Wallis accepted, and PDQ terminated Wash's agreement eight months before it was to expire. This lawsuit by Wash followed. The business history among PDQ, Wash and Wallis is explained more fully below.

During the late 1990s, PDQ's exclusive distributor in the St. Louis region was a company known as Nu-Look. In mid-1998, Nu-Look employee Scott Brooks began to cultivate Wallis as a potential customer for PDQ car washes. Wallis was considering the replacement of numerous car washes it had purchased from Ryko, a competitor of PDQ. Wallis' president, Mark Martinovich, testified that before Brooks' sales efforts, his opinion of PDQ had been "very low." As a result of Brooks' efforts, Wallis executives became convinced that PDQ's equipment and organization were far superior to Ryko.

In the spring of 2000, Brooks purchased Nu-Look and its exclusive PDQ distributorship for $233,000 and incorporated as Wash Solutions. On July 23, 2000, PDQ and Wash executed a new exclusive distributorship agreement for a term ending in June 2001. The agreement allowed PDQ to terminate the exclusive distributorship prematurely, but only for cause as listed in the agreement (e.g., failure to make sales quotas). The agreement also provided for automatic one-year renewals unless one party notified the other in writing of its intent not to renew at least 30 days prior to the end of the term. No cause was required for a party to elect not to renew the agreement.

In June 2000, Martinovich presented Brooks with a schedule for the purchase of new car washes for 26 Wallis locations. Brooks informed PDQ via letter that Wallis was committed to buying PDQ equipment from Wash for those locations. Wallis soon purchased two newly-introduced model G-5 PDQ car washes from Wash. The two G-5s were plagued with the problems often associated with the roll-out of new products. Wash spent extensive time diagnosing and fixing problems with the car washes. While the G-5s were not functioning as promised, Wallis decided to purchase Ryko car washes for its next two locations. Nevertheless, Wallis continued to discuss with Wash the purchase of PDQ car washes for future locations on the Wallis schedule.

Sometime in early 2000, Brooks had first suggested to PDQ executives the idea of partnering with Wallis in a PDQ distributorship. Soon after Brooks incorporated Wash, Martinovich told PDQ's Director of Distributor Development, Richard Kochuyt, that Wallis was "excited" about the possibility of partnering with Wash in a PDQ distributorship. PDQ encouraged Wash's efforts to partner with Wallis. As of May 2001, neither PDQ nor Wallis questioned that Brooks and Wash would remain a part of the exclusive distributorship if Wallis decided to buy in.

In May 2001, PDQ requested Wash to renew the exclusive distributorship agreement by executing an addendum extending the term of the agreement to June 2002. Wash complied. By July 2001, however, PDQ was considering terminating Wash's exclusive agreement and offering the distributorship to Wallis directly. PDQ and Wallis met without Wash's knowledge to discuss a potential sale of the distributorship to Wallis. Wallis presented a business plan to PDQ that included a schedule for the purchase of car washes consistent with the schedule it had presented to Brooks a year earlier.

Meanwhile, Brooks and Martinovich continued to discuss a potential partnership between Wash and Wallis. No one informed Brooks of Wallis' separate negotiations to obtain the distributorship directly from PDQ. On August 28, 2001, PDQ offered the distributorship for the St. Louis region to Wallis. Unaware of PDQ's separate offer to Wallis, on September 20 Brooks provided Wallis with information about Wash's assets and lease agreements as a prelude to a possible partnership agreement. Brooks also surprised Wallis with the information that, as part of any possible partnership arrangement, he expected Wallis to pay $326,000 to cover his bank debt. As a result, Brooks' partnership offer to Wallis required Wallis to pay a total of $469,368. Wallis instead accepted PDQ's offer of the distributorship for $140,000 on September 25. PDQ sent Wash a notice of immediate termination three days later. After taking over the distributorship, Wallis continued to buy PDQ car washes in accord with the schedule it had given to Wash in June 2000.

Wash brought a diversity action against PDQ in federal district court claiming violation of the notice requirement under the Act,¹ breach of the exclusive distributorship agreement and tortious interference with a business expectancy. A jury found for Wash on all claims and awarded compensatory damages of $100,000 on the Act claim, $150,000 on the breach of contract claim, and $330,000 on the tortious interference claim. The jury also awarded punitive damages of $125,000 on the tortious interference claim. The district court entered judgment on the verdict, denying PDQ's post-verdict motion for judgment as a matter of law or alternatively for a new trial or remittitur. PDQ appeals.

II. DISCUSSION

PDQ first contends that the evidence was insufficient to support the jury's award of damages for future lost profits. As a corollary, PDQ contends that the district court erred in admitting the testimony of Wash's expert on damages. PDQ next contends that there was insufficient evidence to support the jury's verdict for Wash on the tortious interference claim and that the district court erred by not clearly instructing the jury on the mutually exclusive nature of the two alternative business expectancies for that claim. Finally, PDQ argues that the evidence was insufficient to support an award of punitive damages.

We review the district court's grant or denial of a motion for judgment as a matter of law de novo, using the same standard as the district court. Arabian Agric. Servs. v. Chief Indus., 309 F.3d 479, 482 (8th Cir.2002). Judgment as a matter of law is appropriate when "there is no legally sufficient evidentiary basis for a reasonable jury to find for that party." Fed.R.Civ.P. 50(a)(1); Tipton v. Mill Creek Gravel, Inc., 373 F.3d 913, 917 (8th Cir.2004). We view the record in the light most favorable to Wash and give it the benefit of all reasonable inferences. Tipton, 373 F.3d at 917. Judgment as a matter of law is appropriate when the record contains no proof beyond speculation to support a verdict. Arabian Agriculture Servs., 309 F.3d at 482.

We review the district court's denial of a motion for a new trial for abuse of discretion. Jones v. Swanson, 341 F.3d 723, 732 (8th Cir.2003). "When `the basis of the motion for a new trial is that the jury's verdict is against the weight of the evidence, the district court's denial of the motion is virtually unassailable on appeal.'" Id. (quoting Keeper v. King, 130 F.3d 1309, 1314 (8th Cir.1997)).

A. Future Lost Profits

PDQ argues that Wash did not introduce sufficient evidence to support a claim for future lost profits because Wash had no history of profitable sales on which to base its future damages calculations. We disagree.

We apply Missouri law in this diversity action. See Midwest Oilseeds, Inc. v. Limagrain Genetics Corp., 387 F.3d 705, 711 (8th Cir.2004) (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). "The general rule under Missouri law is that anticipated profits of a commercial business are too remote and speculative to warrant recovery." Tipton, 373 F.3d at 918 (citing Coonis v. Rogers, 429 S.W.2d 709, 714 (Mo.1968)). However, anticipated profits can be recovered when they are "made reasonably certain by proof of actual facts with present data for a rational estimate of their amount." Coonis, 429 S.W.2d at 714 (quotation omitted). "[S]peculation as to probable or expected lost business profits is spurned, and proof of lost profits must be substantial." Tipton, 373 F.3d at 919 n. 6 (citing Ozark Employment Specialists, Inc. v. Beeman, 80 S.W.3d 882, 897 (Mo.Ct.App.2002)).

For established businesses, expected future profits may be extrapolated with reasonable certainty from historical evidence of the income and expenses of the business prior to the damaging event. Tipton, 373 F.3d at 918. Of course, for a new business, such historical data is not available. However, "[w]hile the general...