Tom Hughes Marine v. American Honda ( 2000 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
TOM HUGHES MARINE, INCORPORATED,
Plaintiff-Appellant,
v.
No. 99-2046
AMERICAN HONDA MOTOR COMPANY,
INCORPORATED,
Defendant-Appellee.
Appeal from the United States District Court
for the District of South Carolina, at Columbia.
Joseph F. Anderson, Jr., District Judge.
(CA-98-255-3-17)
Argued: May 5, 2000
Decided: July 11, 2000
Before WILKINSON, Chief Judge, NIEMEYER, Circuit Judge, and
Jerome B. FRIEDMAN, United States District Judge
for the Eastern District of Virginia, sitting by designation.
_________________________________________________________________
Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Chief Judge Wilkinson and Judge Friedman joined.
_________________________________________________________________
COUNSEL
ARGUED: Demetri K. Koutrakos, CALLISON, TIGHE & ROBIN-
SON, L.L.P., Columbia, South Carolina, for Appellant. Wade H.
Logan, III, NELSON, MULLINS, RILEY & SCARBOROUGH,
L.L.P., Charleston, South Carolina, for Appellee. ON BRIEF: David
Reece Williams, III, CALLISON, TIGHE & ROBINSON, L.L.P.,
Columbia, South Carolina, for Appellant. Amy Yager Jenkins, NEL-
SON, MULLINS, RILEY & SCARBOROUGH, L.L.P., Charleston,
South Carolina, for Appellee.
_________________________________________________________________
OPINION
NIEMEYER, Circuit Judge:
After a representative of American Honda Motor Co., Inc. stated
to Tom Hughes Marine, Inc., a boat sales and service business in
West Columbia, South Carolina, that Tom Hughes Marine would
enjoy an exclusive territory for the distribution of Honda-brand out-
board motors in the Columbia area if it agreed to become a Honda
dealer, Tom Hughes Marine entered into an integrated, written
"Dealer Sales Agreement" with Honda. But this agreement, which
was terminable at will by either party, included no promise of exclu-
sivity. When American Honda Motor Co. licensed another dealership
approximately four years later and 20 miles from Tom Hughes
Marine, Tom Hughes Marine brought this action, alleging, in two
counts, that Honda made fraudulent and negligent misrepresentations
in promising Tom Hughes Marine an exclusive territory. The district
court granted the motion of American Honda Motor Co. for summary
judgment, and we affirm because the dealership can point to no repre-
sentation by American Honda Motor Co. that constituted a demon-
strably false statement of existing or preexisting fact and because
redress for injuries stemming from broken promises properly resides
in the realm of contract law, not tort.
I
For 16 years before American Honda Motor Co. approached Tom
Hughes Marine, Tom Hughes and his wife, Alice Hughes, operated
a boat sales and repair business in West Columbia, South Carolina,
through the corporation, Tom Hughes Marine, Inc. Tom Hughes is the
president and sole shareholder of Tom Hughes Marine. In 1993, Rob-
2
ert L. Wells, a district sales manager for American Honda Motor Co.
("Honda"), approached Tom Hughes for the purpose of establishing
a Honda-brand outboard motor dealership in the Columbia, South
Carolina area. Honda did not have a significant market for its marine
outboard motors in the Columbia area, and it had no dealer there.
Tom Hughes recognized that if Tom Hughes Marine agreed to
become a Honda dealer, the dealership would have to commit finan-
cial resources and hard work toward the promotion of Honda and its
products to build a market for Honda's outboard motors.
During negotiations with Wells for the dealership, Tom Hughes
came to understand that Honda would give Tom Hughes Marine an
exclusive geographic territory for an indefinite period for the sale and
service of Honda-brand outboard motors. In his affidavit, Hughes
stated:
In the negotiations, I was promised by Mr. Wells that if I
would become a Honda dealer, I would have a protected,
exclusive territory. I agreed to become a Honda dealer on
those terms.
***
The exclusive territory was specifically described by Mr.
Wells as to its limits. I signed the dealer agreement relying
on his promise and would not have signed it and would not
have accepted the Honda dealership without an exclusive
territory . . . .
In his deposition, Hughes articulated the full scope of his discussions
with Wells:
I asked how much protection that I was going to have.
***
Mr. Wells gave me four specifics as far as territory. One
was that he was going to put a dealer in Florence. One was
that he was going to put a dealer in Augusta . . . . He would
3
not go to Orangeburg. And the other gesture was Lake
Greenwood, he was going to have a franchise for the Green-
wood area.
Hughes testified that this description of his discussion with Wells
exhausted his recollection of what Wells promised:"[T]his is all I rec-
ollect." While no additional detail or terms about exclusivity were dis-
cussed, Hughes did explain in further testimony his understanding
that the exclusive territory would be granted for an indefinite period
-- "until the end of time" -- so long as Tom Hughes Marine "contin-
ue[d] to service [Honda's] needs [and] meet [Honda's] market needs."
Alice Hughes confirmed the substance of the negotiations involving
exclusive territory, although her testimony was less specific.
Following the discussions with Wells, Tom Hughes Marine and
Honda signed a written "Dealer Sales Agreement" on November 16,
1993, under which Tom Hughes Marine agreed to sell and service
Honda-brand outboard motors. The agreement, however, included no
provision granting Tom Hughes Marine an exclusive territory, and it
was silent regarding any plans by Honda to enter into other dealership
agreements with businesses in the greater Columbia area. Moreover,
the agreement included a merger clause stating:
It is declared by both parties hereto that there are no other
oral or written or any agreement [sic] or understandings
between them affecting this Agreement or relating to the
sale or servicing of Honda Marine Products or parts there-
fore, and this Agreement supersedes and cancels all previ-
ous or other agreements or understandings between the
parties hereto.
In addition, the agreement provided that it could not "be modified,
amended or altered unless such modification, amendment or alteration
[was] in writing and signed by both parties." Finally, the agreement
was terminable at will on 30 days' notice by either party.1
_________________________________________________________________
1 The Dealer Sales Agreement also granted Tom Hughes Marine a
"non-exclusive right and license to use [Honda's] Trademarks," a provi-
sion that, Honda argues, supports its claim that Tom Hughes Marine
could not have been granted an exclusive territory. We agree with Tom
Hughes Marine, however, that the nonexclusive trademark license does
not speak to the issue of territorial exclusivity and is irrelevant to this
case.
4
In 1997, several years after the parties signed the Dealer Sales
Agreement, Tom Hughes learned that Honda planned to license
another dealer in the Columbia area, approximately 20 miles from
Tom Hughes Marine. Tom Hughes protested to Wells that this action
was inconsistent with Honda's promise that his dealership would
enjoy an exclusive territory as long as it met Honda's sales quotas,
which it had. According to Hughes, Wells agreed, stating, "You are
right. It is not going to happen."
When Honda nevertheless proceeded later that year to license a
new dealer in the Columbia area, Tom Hughes Marine brought this
action, based on diversity jurisdiction, alleging fraudulent and negli-
gent misrepresentation. In granting Honda's motion for summary
judgment, the district court concluded that the Dealer Sales Agree-
ment precluded Tom Hughes Marine from relying on precontract rep-
resentations because they were merged into the contract; that a claim
of exclusivity was inconsistent with the agreement's nonexclusive
grant to Tom Hughes Marine to use Honda's trademarks; that Tom
Hughes Marine's claim of exclusive territory was too indefinite; and
that Tom Hughes was not entitled to rely on any misrepresentation:
Hughes is a sophisticated businessman who has been very
successful in developing his business. Thus, Hughes's con-
duct, in failing to read (or thoroughly read) [the contract] is
reckless, and he is unable to establish that he had a right to
rely on Honda's representation or that he justifiably relied
upon it.
This appeal followed.
II
At the outset, it is important to note that, despite Tom Hughes
Marine's allegations that Honda's representative made -- and Honda
failed to keep -- express promises of an exclusive territory, Tom
Hughes Marine does not assert a cause of action for breach of con-
tract. This was surely a deliberate decision made in recognition of the
Dealer Sales Agreement's clause merging all antecedent promises
into the written agreement. That agreement disavows any previously
5
existing agreements between the parties and precludes the parties
from orally modifying or adding to its terms.
Tom Hughes Marine has instead brought two claims in tort, alleg-
ing that Honda made fraudulent and negligent misrepresentations. In
its complaint, Tom Hughes Marine characterized Wells' promises of
exclusivity as "misrepresentations" that were made fraudulently or, in
the alternative, negligently. But however Tom Hughes Marine's com-
plaint characterizes Wells' statements, they are what they are, and the
complaint's characterizations cannot change the objective nature of
the statements. If these precontract statements amounted to promises,
they were merged into the integrated written Dealer Sales Agreement,
and Tom Hughes Marine's only claim would be for breach of con-
tract. As the Supreme Court of South Carolina has recognized, a mere
showing that a party has failed to keep his promises"is not sufficient
to demonstrate actionable fraud." Woodward v. Todd, 240 S.E.2d 641,
643 (S.C. 1978). Rather, a party's recourse for unkept promises is
confined to an action in contract, which "may entitle [the party] to
relief . . . if it is determined the promises were actually made." Id. On
the other hand, if Wells' statements were misrepresentations of fact,
then they would have to be considered against the requirements for
proving fraudulent and negligent misrepresentation under South Caro-
lina law.2 The viability of Tom Hughes Marine's action therefore
turns on the legal nature of Wells' precontract statements.
_________________________________________________________________
2 Under South Carolina law, in order to recover in an action for fraudu-
lent misrepresentation, a party must establish the following elements:
"(1) a representation; (2) [its] falsity; (3) its materiality; (4) knowledge
of the falsity or a reckless disregard of its truth or falsity; (5) intent that
the representation be acted upon; (6) the hearer's ignorance of its falsity;
(7) the hearer's reliance upon the truth; (8) the hearer's right to rely
thereon; and (9) the hearer's consequent and proximate injury." West v.
Gladney, 2000 WL 576188, at *3, ___ S.E.2d ___, ___ (S.C. May 8,
2000). And to recover on a claim for negligent misrepresentation, a party
must prove that: "(1) the defendant made a false representation to the
plaintiff; (2) the defendant had a pecuniary interest in making the state-
ment; (3) the defendant owed a duty of care to see that he communicated
truthful information to the plaintiff; (4) the defendant breached that duty
by failing to exercise due care; (5) the plaintiff justifiably relied on the
representation; and (6) the plaintiff suffered a pecuniary loss as the prox-
imate result of his reliance upon the representation." Id.
6
"The general rule is that [torts based on misrepresentation] must
relate to a present or pre-existing fact, and cannot ordinarily be predi-
cated on unfulfilled promises or statements as to future events."
Woodward, 240 S.E.2d at 643 (applying rule to fraudulent misrepre-
sentation) (quoting Davis v. Upton, 157 S.E.2d 567, 568 (S.C. 1967));
Koontz v. Thomas, 511 S.E.2d 407, 413 (S.C. App. 1999) (applying
rule to negligent misrepresentation). An exception to this rule exists
only when a person makes a promise "having at the time no intention
of keeping his agreement." Woodward, 240 S.E.2d at 643 (quoting
Davis, 157 S.E.2d at 568); see also Thomas & Howard Co. v. Fowler,
82 S.E.2d 454, 456 (S.C. 1954); cf. Longman v. Food Lion, Inc., 197
F.3d 675, 683 (4th Cir. 1999) (noting that, in securities fraud context,
opinions of company executives "could be false and factual if the
directors did not believe what they said they believed and proof could
be had ``through the orthodox evidentiary process'" (quoting Virginia
BankShares, Inc. v. Sandberg, 501 U.S. 1083, 1093 (1991)).
This distinction between a promise and a misrepresentation of fact
is not merely a technicality of labeling, but reaches to the fundamental
difference between tort and contract. While tort law prescribes duties
governing one's conduct vis-a-vis the general public, contract law
enforces bargained-for obligations to a particular party. Tort duties
are imposed upon parties "by the law itself, without regard to their
consent to assume them," whereas "one need not enter into the obliga-
tion of a contract with another save by one's own free will." W. Page
Keeton, et al., Prosser and Keeton on the Law of Torts § 1, at 4 (5th
ed. 1984). Tort law thus orders general societal conduct to protect
against invasions of its members' interests, while contract law facili-
tates the right of societal members to arrange their own relationships
and enforce them in accordance with their agreements. See Strum v.
Exxon Co., 15 F.3d 327, 330 (4th Cir. 1994); Restatement (Second)
of Torts § 4 cmt. c (1965).
In the context of torts involving misrepresentation, proof of liabil-
ity focuses on the truthfulness of a purported statement of fact, look-
ing backward from the time the representation was made to determine
the truth vel non of the fact represented. Through these torts, society
imposes a duty on its members not to make false statements of fact
and thereby induce others' reliance on the falsehood. In contrast, in
a breach of contract claim, the inquiry looks forward from the time
7
the promise was made to determine whether conduct comported with
the promise.
Considering these principles distinguishing contract and tort, we
turn to the statements made in this case by Honda's representative,
examining them to determine whether they were promises, the breach
of which would give rise to a breach-of-contract claim, or misrepre-
sentations of existing or preexisting fact, which give rise to tort
claims. Reviewing the statements allegedly made by Wells and
imputed to Honda, it becomes apparent that each was forward-
looking, indicating what Honda would do in the future. During the
negotiations leading up to the formation of the Dealer Sales Agree-
ment, Wells purportedly told Tom Hughes that he would enjoy an
exclusive territory if he agreed to sell and service Honda products.
Wells described the territory in terms of locations where Honda
would and would not license future dealerships. Later on, Wells alleg-
edly assured Tom Hughes that his dealership would continue to enjoy
an exclusive territory if it met Honda's sales quotas. These state-
ments, when made, all concerned future events and all amounted to
nothing more than promises.
Under South Carolina law, these promises cannot form the basis of
an action for fraudulent or negligent misrepresentation, unless, as we
have noted, Honda had no intention of doing what it promised at the
time the promises were made. See Woodward, 240 S.E.2d at 643;
Davis, 157 S.E.2d at 568; Thomas & Howard , 82 S.E.2d at 456.
While Tom Hughes Marine does allege such a fraudulent intent,
claiming that the statements of Honda's representative concerning an
exclusive territory were "false at the time they were made" and that
they "were made with the intent, design and purpose of deceiving
[Tom Hughes Marine]," Tom Hughes Marine has offered no proof
supporting these allegations. And Tom Hughes conceded as much in
his deposition when he stated that he had no information regarding
the intentions of Honda's representative at the time he promised an
exclusive territory:
Q. "Do you think, looking back on it now, Mr. Wells
intended to promise you an exclusive geographical area like
that, Augusta to Greenwood to Florence, nothing in Orange-
burg?
8
A. "Sir, I don't know what his intentions are, only that was
the statement that was made and I trusted that statement.
Moreover, Honda asserts that in fact "[n]o other dealer selling Ameri-
can Honda's marine products was planned at that time for the Colum-
bia, South Carolina area," a fact the evidence supports, because for
almost four years, Honda licensed no other dealers in the Columbia
area.
In sum, while Tom Hughes Marine has offered evidence of broken
promises, it has presented no proof that Honda or its representatives
made demonstrably false statements of fact. In the absence of any evi-
dence that Honda made promises while contemporaneously harboring
an intention to dishonor them, Tom Hughes Marine's claims
grounded in tort must fail. See Woodward, 240 S.E.2d at 643; Davis,
157 S.E.2d at 568; Thomas & Howard, 82 S.E.2d at 456.
In addition to its tort claims based on promises made during the
negotiations leading up to the Dealer Sales Agreement, Tom Hughes
Marine asserts that Honda's approvals of advertising in which Tom
Hughes Marine represented that it was the area's"exclusive Honda
dealer" amounted to fraudulent or negligent misrepresentations. Even
assuming, arguendo, that by approving Tom Hughes Marine's adver-
tisements, Honda adopted or ratified the statements contained in
them, such statements could not form the basis of an action for fraud
or misrepresentation because they were true when made. See, e.g.,
West v. Gladney, 2000 WL 576188, at *4, ___ S.E.2d ___, ___ (S.C.
May 8, 2000) (falsity of representation is an essential element of
claims for fraud and negligent misrepresentation). Until 1997, when
Honda licensed a second dealership in the Columbia area, Tom
Hughes Marine was the area's exclusive Honda dealer. And because
Tom Hughes Marine was aware that Honda licensed a second dealer-
ship in Columbia in 1997, it could not have relied on any statements
that Honda might have made after that time. See id. ("[T]here can be
no reasonable reliance on a misstatement if the plaintiff knows the
truth of the matter") (quoting Harrington v. Mikell, 469 S.E.2d 627,
629 (S.C. App. 1996)).
Accordingly, we affirm the judgment of the district court.
AFFIRMED
9