Federal Circuits, 10th Cir. (May 04, 1976)
Docket number: 75-1348
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U.S. Supreme Court - United States v. Parke, Davis & Co., 362 U.S. 29 (1960)
U.S. Supreme Court - Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (1946)
Daniel L. Berman of Berman & Giauque, Salt Lake City, Utah (Douglas J. Parry of Berman & Giauque, and Lowell V. Summerhays, Salt Lake City, Utah, on the brief), for plaintiff-appellee.
Merlin O. Baker of Ray, Quinney & Nebeker, Salt Lake City, Utah (Jonathan A. Dibble of Ray, Quinney & Nebeker, Salt Lake City, Utah, and Lillick, McHose & Charles, Los Angeles, Cal., on the brief), for defendant-appellant.Before HOLLOWAY, BARRETT and DOYLE, Circuit Judges.DOYLE, Circuit Judge.The appellant has appealed from a judgment entered against it on a jury verdict in the amount of $600,000 in favor of Randy's Studebaker Sales, Inc., d/b/a Randy's Datsun Sales. Violations of Sections 1 and 2 of the Sherman Antitrust Act and violations of the Automobile Dealer Franchise Act, 15 U.S.C. Sections 1221-25 were alleged. In essence Nissan Motor Corporation was charged with conspiring with Datsun dealers to eliminate competition in the retail distribution of new Datsun automobiles and to eliminate particularly the competition of the plaintiff as a Datsun dealer in the Salt Lake market. The jury found in favor of the defendant under the Sherman Antitrust Act. The damage award was given in the claim under the Automobile Dealers Franchise Act.Randy's theories under the Automobile Dealer's Act were, first, that Nissan had failed to act in good faith in performing or complying with the obligations of an automobile manufacturer under the dealership agreement in that it had discriminated against the plaintiff in the distribution and allocation of automobiles and, secondly, that the Nissan Company had failed to act in good faith in refusing to renew plaintiff-appellee's Dealer Sales and Service Agreement; that Nissan was motivated by its desire to eliminate Randy's from competition; third, that Nissan failed to act in good faith in that it coerced Randy's through threats and other conduct in an effort to compel abandonment of its facilities and market area and relocation in a new, smaller market, thereby removing Randy's from the competitive scene.The cause has been here before. On the prior occasion, Nissan had appealed the preliminary injunction decree which had enjoined defendant from terminating the dealership of plaintiff and from failing to provide as many automobiles as Nissan provided to the other dealers in Salt Lake. The injunction against failure to provide an equal number of cars was modified by this court so as to maintain the status quo. Otherwise, it was affirmed.The underlying controversy has had a considerable history dating back to a time soon after the initial grant of the franchise by Nissan, the distributor for Datsun vehicles, parts and accessories in the continental United States. The first written franchise was given to Randy's in June 1966. Thereafter, this agreement was renewed periodically. During the period in question an effort was made by Nissan to move Randy's to larger facilities at a different location, but this never came about. Conflicting evidence was presented as to the willingness of Randy's to move. There was also evidence that Nissan had thwarted a proposed move by installing a new dealer in a proposed location. The only substantial change in Randy's facilities occurred in 1972 with the addition of a parts area.The problem from the standpoint of Randy's was a shortage of vehicles during most of the period of the franchise. Its evidence was that it sold virtually every new Datsun that was delivered. There were two additional dealerships installed in Salt Lake City, Clines in 1968, and Schettler-Williams in 1970. The result was that Randy's had less automobiles to sell. Randy's testimony established that his method of competing with the other two Datsun dealers was by price competition. The other dealers complained to Nissan, and the latter warned Randy's to keep its gross margins and thus the retail price high.Geographically, the other two dealers were relatively close to Randy's, and soon after their installation Nissan started a campaign to persuade Randy's to move out to the suburbs. Randy's was unwilling to go to the place suggested, Bountiful, Utah, for the reason that a previous Datsun dealer had gone bankrupt there in 1968. According to Randy's evidence, there was a willingness on its part to move to Granger, Utah, but that did not materialize.In 1972 Randy's was informed about a new means of allocating cars to the Salt Lake City market. This was based on dealers' "planning potential" an estimate based on the percentage of the market which a dealer could be expected to penetrate. Since Datsuns were in short supply, so it was argued, the "planning potential" was an important factor in the allocation of cars. Randy's maintained that its "planning potential" was arbitrarily arrived at that it had no relation to the number of cars that it was able to service. The sum total of the program, according to the evidence on Randy's part, was that the supply of new Datsuns to Randy's was diminished and the supply of the other two Salt Lake dealers was increased. The number of cars allocated to Randy's in 1972 was insufficient to allow it to break even using its traditional pricing policies.The final franchise agreement between these parties expired on April 23, 1973. On that occasion Nissan notified Randy's that its franchise was not to be renewed. Instead, it conditioned a renewal on Randy's acquisition or construction of larger facilities, on its hiring additional workers, increasing working capital and increasing sales performance. November 30, 1973 was the deadline for accomplishing these objectives, but on August 17, 1973, Randy's filed the present lawsuit claiming violation of the Sherman Act, 15 U.S.C. Sections 1, 2, and the Automobile Dealer Franchise Act, supra. The allegation in the complaint was that the termination had occurred because Randy's had refused to follow Nissan's resale price maintenance policies and had failed to conform to Nissan's competitive price maintenance policies.The district court granted a preliminary injunction on December 11, 1973. This directed Nissan to supply Randy's with at least as many cars as were supplied to other Datsun dealers in the market area. Nissan appealed the order to this court and obtained the modification mentioned, that is, an allocation of cars equal to the number that had been furnished rather than an increased quota.1 The cause was tried and judgment was entered in favor of Randy's on March 26, 1975, on the count of violation of the Automobile Dealer Franchise Act, supra.On this appeal Nissan advances the following points (among others):1. That the Automobile Dealer Franchise Act does not apply to the facts in this case.2. That an incorrect measure of damages has been adopted and awarded.3. That it was error to receive in evidence certain ad hoc surveys.4. That it was error for the court to take judicial notice of the preliminary injunction.Being of the opinion that none of these contentions are meritorious, we affirm.I.The Franchise Act gives to an automobile dealer a federal cause of action against an automobile manufacturer who fails to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, cancelling, or not renewing the franchise. See 15 U.S.C. Section 1222.Good faith is defined as the duty of a dealer and a manufacturer "to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party." 15 U.S.C. Section 1221. One proviso excludes "recommendation, endorsement, persuasion, urging, or argument" as constituting a lack of good faith. Id. Also, the cases have considered mere arbitrariness by a manufacturer as not giving rise to a claim under the Act.2It would appear then that the manufacturer's action in order to lack good faith must be unfair and inequitable in addition to being for the purpose of "coercion" or "intimidation." The problem becomes difficult in the individual case because the standards are not clear for determining whether the conduct involved qualifies as unfair and inequitable and as being coercion or intimidation. The distinction between illicit pressure and simple recommendation, endorsement, persuasion, urging, etc., is equally difficult. Legislative history does not provide clarification. House Report No. 2850, 84th Cong., 2d Sess. (1956), 1956 U.S.Code Cong. & Admin.News, pp. 4596, 4603, saysManufacturer coercion or intimidation or threats thereof is actionable by the dealer where it relates to performing or complying with any of the terms or provisions of the franchise, or where it relates to the termination, cancellation, or nonrenewal of the dealer's franchise.The Report goes on to say:Thus, where a dealer's resistance to manufacturer pressure is related to cancellation or nonrenewal of his franchise a cause of action would arise.However, the Report is quick to explain that the manufacturer is not prohibited from terminating or refusing to renew the franchise of a dealer who is not providing the manufacturer with adequate representation and, further, that the Act does not prevent a manufacturer from cancelling or not renewing an ineffective or undesirable dealer's franchise. Also, appointment of added dealers according to the House Report is a normal competitive method for securing a better distribution. Hence, curtailment of this "would be inconsistent with the antitrust objectives of this legislation." 1956 USCCAN, pp. 4603-04.The Committee Report specifies one practice which constitutes coercion or intimidation and that is pressure by the manufacturer on the dealer to accept automobiles, parts or accessories or supplies not needed. Thus an effort to compel a dealer to sell a specified quota of its automobiles, parts or accessories would be coercion. This is in contrast to normal sales recommendation or persuasion. The line may indeed be thin between normal recommendation and coercion or intimidation.It is important to be mindful that it was the unequal bargaining power between the manufacturer and the dealer and the abuses resulting therefrom that brought about the enactment. The purpose of Congress was to balance the power now heavily weighted in favor of automobile manufacturers. See 1956 USCCAN, p. 4596.To ascertain the meaning of good faith it is necessary to examine the cases. Thus, a manufacturer who refuses to renew a franchise is not guilty of lack of good faith where the dealer has failed to comply with the franchise terms for a long period of time.3 Nor in the case of one who has had sub-standard sales performance.4 Or if the dealer should have inadequate financial resources, termination of the franchise is not in bad faith.5 Elimination of a dealer who has sold its manufacturer-approved location and seeks to move to a location not in keeping with the manufacturer's metropolitan planning does not establish a lack of good faith on the part of the manufacturer.6 And where the dealer refuses to take all of the manufacturer's line of cars, choosing instead to continue to deal in competitor cars, lack of good faith is not shown by refusal to renew the franchise.7The exertion of pressure on a dealer to give up a separately-located dealership in a competing line has been held to evidence a lack of good faith on the part of the manufacturer.8The decision of the Second Circuit in Autowest, Inc. v. Peugeot, 434 F.2d 556 (2d Cir. 1970), is particularly helpful in solving the problem at bar, for this was an effort to maintain prices by threats, coercion and finally termination. In this case the Second Circuit through Judge Lumbard said:While each case necessarily presents questions as to the Act's reach, we hold that coercion and subsequent termination for failure to adhere to a manufacturer's suggested resale price to dealers states a cause of action.434 F.2d at 561.The court did not feel that United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960) was applicable because that was a Sherman Act case which involved concerted action with respect to retail price fixing. The target of the manufacturer in Autowest as indeed in the case at bar was price control with respect to a single dealer. The Second Circuit opinion recognized that an unfair trade practice was being employed which, regardless of whether it violated the Sherman Act, was sufficient to establish the requisite lack of good faith.To look at the problem another way: There are two essential elements to a Sherman Act Section one violation, an unreasonable restraint of trade and a contract, combination, or conspiracy to attain it. The Franchise Act reaches those activities of an automobile manufacturer which would constitute an unreasonable restraint of trade under the Sherman Act or another invalid trade practice. In the lack of good faith evaluation the presence or absence of such invalid trade practices is, of course, a foremost consideration.Bad faith also was held to exist where a manufacturer during the term of the franchise sought to drive a dealer out of business by deliberately supplying insufficient cars. Junikki Imports, Inc. v. Toyota Motor Co., 335 F.Supp. 593 (N.D.Ill.1971).9In the case at bar Nissan used the non-renewal weapon to coerce the dealer into a program of retail price fixing. The evidence also supports the factual conclusion that Nissan curtailed substantially the supply of new Datsuns in its effort to bring about price maintenance and so as to suppress price competition. It also sought to force appellee to spend large sums of money in capital improvements which could be deemed an effort to force appellee to raise its prices in order to be on a profit basis and thereby to be non-competitive price-wise. Randy's theory was that unless it could have continued price competition it was impossible for it to stay in business.In the light of the facts and the cases defining lack of good faith, we hold that the evidence was adequate to establish a violation of the Automobile Dealer Franchise Act.II.We next consider whether the standards prescribed by the trial court to govern the jury in determining the amount of a damage award were correct and whether the evidence was sufficient. The court's charge contained the stock explanations such as that which advises the jury not to misconstrue the fact that a damage instruction is being given as an indication that some damage should be found together with the explanation that difficulty of computation does not mean that damages are not to be awarded.In general, the theory or basis of the damages was that of loss of profits resulting from the discriminatory allocation together with loss of future profits from the loss of the franchise.The Dealers Franchise Act is silent on the measure of damages, but inasmuch as the standards contained in the charge sought to submit actual loss measured by loss of profits, present and future, it is not objectionable and no exception is taken to it. In essence, the main complaint found in Nissan's argument is that the evidence of damage is conjectural and inadequate, and so we examine it in that light.Randy's evidence was presented primarily through the testimony of an expert, Frank Stuart, a management consultant. He described two elements of damage: lost profits from 1970-73 caused by the discriminatory allocation of cars, and lost future profits occasioned by Nissan's failure to renew the franchise agreement.As to the profits lost through discriminatory allocation: Stuart made computations, based first on the assumption that Randy's would have received and could have sold the same number of cars as Cline's, and a computation based on the average of cars sold by Cline's and Schettler-Williams. In each case, the number of cars that Randy's should have received (computed both ways) was multiplied by the "net profit per new unit sold" to obtain the lost profits. Net profit per new unit sold, which, Stuart testified, was a Nissan calculation, was obtained by deducting the variable expenses from gross profits and dividing by the number of cars sold. Nissan objected at the time to its introduction, reasoning that there was no evidence in the record to support the assumption that Randy's would have been allocated or received the same number of cars as the other two dealers. The court overruled the objection.Nissan's objection to the introduction of evidence regarding the loss of future profits was also overruled. In computing lost future profits, Stuart determined the average of the before-tax net operating income for 1972 and 1973, obtained from Randy's records. To this figure he added the profits lost from discriminatory allocation, computed in the two ways as above. Finally, he added the profits Randy's actually made. He testified that the sum produced the average net profit for 1972 and 1973, which he selected as representative years. He used this figure to project Randy's earnings over a 10-year period, discounted to present value.The sum of Randy's damage claims for loss of profits from discriminatory allocation and lost future profits were set out in plaintiff's exhibit 87.10 The two methods of computation, using the Cline's comparison and the Cline's/Schettler-Williams comparison, were presented to the jury as alternatives. Using the Cline's comparison, Randy's claimed $1,321,600 in damages; using the Cline's/Schettler-Williams comparison, Randy's claimed $845,400. The jury awarded $600,000 in damages.On appeal, Nissan argues that the evidence was not sufficient to support the damage claims.11 It contends that there was nothing in the record to substantiate Stuart's assumptions regarding the number of cars that Randy's would have been allocated or have received in the absence of discrimination. We are mindful that computations by experts cannot be based on conjecture or be unsupported by the record. Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71, 86 (9th Cir. 1969); Cecil Corley Motor Co., Inc. v. General Motors Corp., 380 F.Supp. 819 (M.D.Tenn.1974), but, here, Stuart's damage calculations were based on records and data that were put into evidence through both testimony and exhibits, all of which were available to the jury during its deliberations.Nissan also points out that Randy Larsen, the owner of Randy's, had no opinion regarding the number of cars he would have received or sold. While damage claims may not be speculative, they also do not have to be mathematically precise; it is sufficient if damages are proved to a reasonable certainty. Garvin v. American Motors Sales Corp., 202 F.Supp. 667 (W.D.Pa. 1962), reversed on other grounds, 318 F.2d 518 (3d Cir. 1963); Cecil Corley Motor Co., Inc. v. General Motors Corp., supra. And, where the defendant's wrongdoing created the uncertainty, it must bear the risk of that uncertainty and cannot complain. Bigelow v. RKO Radio Pictures, 327 U.S. 251, 66 S.Ct. 574, 90 L.Ed. 652 (1946); Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556 (2d Cir. 1970); Garvin v. American Motors Sales Corp., supra. Given a finding by the jury that Nissan discriminated in the allocation of cars, that wrong contributed substantially to the uncertainty regarding the number of cars that Randy's would have received without the discrimination; Nissan, then, is in an unfavorable position to complain of an uncertainty created by its own wrongdoing.Nissan also contends that Stuart's assumption that the discriminatory allocation began in 1970 was contrary to Randy Larsen's testimony that the discrimination did not begin until the latter part of 1971. This discrepancy was brought to Stuart's attention during cross-examination, and he had an opportunity to explain why he calculated the damages from 1970.12 The jury, having heard both pieces of testimony, was in a position to determine which was the more credible and to assess damages accordingly.Nissan further contends that Stuart's alternative assumptions regarding allocation of cars were based on plaintiff's counsel's theories and not his own opinion expressed in the answers to interrogatories, which was that Randy's should have received half of the cars in the market. The shift in assumptions also was elicited in testimony before the jury, which was able to make its own evaluation.Nissan has also argued that Stuart's use of variable net profit, which is gross profit less variable selling expenses, in his damage computations was error. It contends that Stuart should have deducted fixed overhead costs as well, and it relies on Cecil Corley Motor Co., Inc. v. General Motors Corp., 380 F.Supp. 819, 855-58 (M.D.Tenn.1974) as authority for its position. In Corley the court found that it was error to rely on variable net profit in computing damages when both expert witnesses testified that variable net profit was not the same as net profit. Here, Stuart, when asked on both direct and cross-examination why he had made no deduction for fixed overhead costs, testified that he had relied on Nissan policy statements that fixed overhead costs are covered by profits from service and parts sales. He stated that an increase in costs created by increased sales activity would be absorbed by the increased revenue from parts and service that also would be generated by increased sales. Since there was evidence that, pursuant to Nissan's own policy, fixed overhead costs are covered by profits from parts and service, it was not error to use a variable net profits figure in calculating damages.Finally, Nissan contends that the projection of lost profits over a ten-year period was too speculative. But recovery for loss of future profits is permissible under the Act.13 Rea v. Ford Motor Co., 497 F.2d 577 (3d Cir.), cert. denied,Try vLex for FREE for 3 days
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