Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wis.: Damages properly granted after dairy equipment supplier breached good faith duty, (Sep 24, 2014)

By Greg Hammond, J.D.

A leading global dairy equipment supplier was unable to overturn a jury’s determination that it breached the implied duty of good faith and fair dealing in a dealership agreement. In denying the supplier’s renewed motion for judgment as a matter of law, the federal district court in Madison determined that the company’s arguments either lacked merit, or were nothing more than a rehash of its earlier arguments (Tilstra v. Bou-Matic, LLC, September 19, 2014, Crocker, S.).

Background. Tilstra Dairy Equipment, Ltd. and its owner filed suit against dairy equipment supplier Bou-Matic, LLC, alleging that the supplier breached the implied duty of good faith and fair dealing in the parties’ dairy equipment dealership agreement. The jury sided with Tilstra and awarded $471,124 in damages. The court denied Bou-Matic’s motion for judgment as a matter of law, and the company renewed the motion, arguing: (1) there was insufficient evidence to support a finding that Bou-Matic breached its implied duty of good faith or constructively terminated the dealership agreement with Tilstra; (2) there was insufficient evidence of anticipatory repudiation; (3) Tilstra failed to establish a claim of economic duress; (4) the parties’ agreement specifically precluded damages for a loss of goodwill in the event of a termination; (5) the court erroneously allowed Tilstra’s damages expert to testify; (6) Tilstra failed to mitigate its alleged damages; and (7) Tilstra’s counsel made a number of improper and prejudicial statements during closing arguments.

Duty of good faith. Bou-Matic first argued that it could not have breached the implied duty to act in good faith, because the dealership agreement expressly allowed the company to terminate the contract under particular conditions, or to change Tilstra’s territory at its sole discretion. However, the court noted that Bou-Matic’s argument has an “Achilles’ Heel,” as the termination clause also provides that Bou-Matic could not “terminate the agreement or effect a substantial change in the competitive circumstances of the agreement without 90-days notice and good cause.” The court further determined that the jury reasonably concluded that Bou-Matic evaded the spirit of the termination clause by eliminating all of Tilstra’s territory without providing the required 90-day notice and showing of good cause.

Anticipatory repudiation. The jury previously did not reach the special verdict question regarding anticipatory repudiation, because it found sufficient evidence to support the verdict that Bou-Matic breached the implied covenant of good faith. Consequently, the court concluded that it would be unnecessary and even impossible to address the company’s sufficiency of evidence arguments regarding the anticipatory repudiation issue.

Economic duress. Bou-Matic also renewed its argument that Tilstra’s choice to sell its business cannot constitute constructive termination, as Tilstra failed to provide any evidence of economic duress. However, Bou-Matic did not present any authority demonstrating that Tilstra was required to prove the elements of economic duress to show constructive termination of the dealership agreement. Further, the court noted that Bou-Matic still violated its duty to act in good faith, even if Tilstra decided to cut its losses and sell before Bou-Matic effected the territory removal.

Damages. In its next argument, the supplier contended that Tilstra could not recover damages for loss of goodwill, because they were expressly excluded in the dealership agreement. However, the court noted that the provision expressly excluded compensation for goodwill only upon proper termination of the dealership agreement, which would have required Bou-Matic to provide the 90-day written notice and good cause. Tilstra was therefore entitled to seek damages for loss of goodwill.

Expert testimony. Bou-Matic further argued that the court should have struck Tilstra’s damages expert’s testimony, arguing that the expert should have based his calculations on a restricted market, and should have considered a number of other factors. The court rejected this argument, however, finding that the expert was not required to include all factors identified by Bou-Matic, and that the jury was entitled to credit the expert’s testimony. Specifically, the court found the experts’ testimony admissible, as he used the capitalized earnings method to estimate the fair market value of Tilstra, and he considered the economic and industry outlook for Tilstra, the dairy farm equipment market, and the financial health of Tilstra’s business.

Closing argument statements. With regard to the “laundry list” of statements made by Tilstra’s attorney during closing arguments, which Bou-Matic argues were improper or prejudicial, the court found that the first nine claims were just reiterations of previous arguments. His last claim—that Tilstra’s attorney encouraged the jury to award lost future profits in addition to goodwill—was also rejected, as the court determined that the statement referred to the analysis of the loss of goodwill, and the attorney made it clear that Tilstra’s profits had been factored in the goodwill analysis.

Failure to mitigate. The final argument the court addressed was Bou-Matic’s contention that Tilstra should have mitigated its damages by not selling the business, because if Tilstra did nothing, it would not have suffered damages. This argument was also rejected, however, as the jury chose not to accept it, and it was deemed “nothing more than a rehash of its earlier arguments.”

The case number is 12-cv-827-slc.

Attorneys: Gary Antoniewicz and Eric Allen Baker (Boardman & Clark LLP) for Sid Tilstra and Tilstra Dairy Equipment, Ltd. Saul Coerver Glazer (Axley Brynelson, LLP) for Bou-Matic, LLC.

Companies: Tilstra Dairy Equipment, Ltd.; Bou-Matic, LLC

Cases: FranchisingDistribution WisconsinNews