Tuf Racing Products v. American Suzuki ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-3497
Tuf Racing Products, Inc.,
Plaintiff-Appellee,
v.
American Suzuki Motor Corporation,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 94 C 50392--Philip G. Reinhard, Judge.
Argued March 31, 2000--Decided July 24, 2000
Before Posner, Chief Judge, and Ripple and Rovner,
Circuit Judges.
Posner, Chief Judge. Tuf, a dealer in
motorcycles in DeKalb, Illinois, in 1987 signed a
franchise contract with Suzuki that the latter
terminated in 1994, precipitating this diversity
suit by Tuf under the Illinois Motor Vehicle
Franchise Act, 815 ILCS 710/1 et seq. Although
Tuf carried other brands as well as Suzuki and so
was able to survive the termination, it claims to
have suffered damages of some $1.2 million from
the alleged breach. A jury agreed that the
termination had been wrongful but awarded Tuf
only $137,000, to which, however, the judge added
$391,318 in attorneys’ fees under the franchise
act’s fee-shifting provision, 815 ILCS 710/13,
which requires such an award if the plaintiff
"substantially prevails."
Construed as favorably to Tuf as the record
permits, which is the correct approach in light
of the verdict, the facts reveal that Suzuki
became angry at Tuf for selling motorcycles
outside the geographical area in which its
dealership was located, some of these to other
Suzuki dealers for resale. The franchise
agreement did not forbid either practice (sales
for resale are forbidden except to other Suzuki
dealers), but apparently Suzuki received
complaints from its other dealers about Tuf’s
"poaching" on their markets, and so it wrote Tuf
complaining about its conduct. The letter focused
on sales for resale but Suzuki’s regional manager
called Tuf’s owner and told him that Suzuki had
been getting complaints about Tuf’s selling
outside its immediate vicinity too and that it
should not do that either. When Tuf did not
desist from the practices complained of, Suzuki
decided to precipitate a breach of the franchise
contract by Tuf, which it did by such tactics as
denying standard credit terms and then accusing
Tuf of failing to maintain a regular plan for
sales on credit, as required by the franchise
agreement.
All the grounds Suzuki gave in its notice of
termination--not only failure to maintain a
regular credit plan, but also inadequate sales
volume, insufficient inventory, and inadequate
promotion--were pretextual, the real reason for
termination being that Tuf had irritated Suzuki’s
other dealers by the two practices that Suzuki
had asked it to desist from. The invocation of
"pretext" in this context is puzzling. In the law
of contracts, while procuring a breach by the
other party to your contract would excuse the
breach, United States v. Peck, 102 U.S. 64
(1880); Herremans v. Carrera Designs, Inc., 157
F.3d 1118, 1124 (7th Cir. 1998); Swiss Bank Corp.
v. Dresser Industries, Inc., 141 F.3d 689, 692
(7th Cir. 1998); Mendoza v. COMSAT Corp., 201
F.3d 626, 631 (5th Cir. 2000); E. Allan
Farnsworth, Contracts sec. 8.6, p. 544 (3d ed.
1999), merely having a bad motive for terminating
a contract would not. If a party has a legal
right to terminate the contract (the clearest
example is where the contract is terminable at
will by either party), its motive for exercising
that right is irrelevant. Kumpf v. Steinhaus, 779
F.2d 1323, 1326 (7th Cir. 1985); Harrison v.
Sears Roebuck & Co., 546 N.E.2d 248, 255-56 (Ill.
App. 1989). The party can seize on a ground for
termination given it by the contract to terminate
the contract for an unrelated reason. So if Tuf
gave cause for termination (other than "cause"
procured by Suzuki’s own misconduct, for example
in withholding standard credit terms), that would
be the end of the case--at least if Tuf were
charging merely a breach of contract.
But it is not; we are under the franchise act,
which requires franchisors to deal with their
franchisees in good faith. 815 ILCS 710/4(b);
Kawasaki Shop of Aurora, Inc. v. Kawasaki Motors
Corp., U.S.A., 544 N.E.2d 457, 462-63 (Ill. App.
1989). Tuf appears to think that the good-faith
provision entitles it to complain about a
pretextual termination even if there is good
cause for termination. This is incorrect. The
cases cited in the preceding paragraph hold that
the fact that there is a duty of good faith read
into every contract does not justify judicial
inquiry into motive. A party can stand on his
contract rights; what he cannot do is resort to
opportunistic or otherwise improper behavior in
an effort to worm his way out of his contractual
obligations. In Dayan v. McDonald’s Corp., 466
N.E.2d 958, 974 (Ill. App. 1984), we read that
"no case has been cited nor has our research
revealed any case where a franchise termination
for good cause was overcome by the presence of an
improper motive. As a general proposition of law,
it is widely held that where good cause exists,
motive is immaterial to a determination of good
faith performance." Dayan was not decided under
the franchise act, but we are given no basis in
case law or common sense for supposing that the
duty of good faith created by the act sweeps
beyond the common law duty. The judge’s charge to
the jury, however, though not a model of clarity,
is consistent with Dayan. For although the jury
was asked to decide whether Suzuki had acted in
bad faith in terminating Tuf for any of the
reasons given in its notice of termination, it
was also told that Suzuki would have an
affirmative defense if any of the reasons were
grounds for termination in the contract, even if
the other reasons cited in the notice were not.
It would have been more straightforward to
instruct the jury to determine simply whether the
termination had been a breach of the contract,
but Suzuki is not complaining about the charge.
Its main argument for reversal is that the judge
improperly allowed Tuf to inject a new ground at
trial, what Suzuki calls the "match-up" theory of
a breach of the franchise agreement. To
understand this argument requires us to delve
into the agreement. Section 9.1 provides that if
the dealer fails to conduct his business in
conformity with the agreement, Suzuki may
terminate him upon written notice. Section 9.2
lists 15 violations that Suzuki can base
termination on with only 15 days’ notice to Tuf,
and section 9.3 lists 11 more violations on which
termination can be based provided that 60 days’
notice is given. The first list contains the more
serious violations, like insolvency, and the
second the lesser ones, such as failing to
maintain the sales volume agreed upon with
Suzuki. Suzuki terminated Tuf with 60 days’
notice, but the list of violations in the notice
does not match up completely with the list in
section 9.3. Suzuki argues that even so, given
section 9.1, the termination could still be
proper. The judge disagreed, and did not let
Suzuki argue that, but instead allowed Tuf to
argue that the failure of the notice to match the
list of violations in section 9.3 showed that the
termination was improper.
Read most naturally, section 9.1 does not create
a separate basis for termination. All it says is
that "if Dealer does not conduct its business in
accordance with the requirements set forth
herein, Suzuki may terminate this Agreement by
giving Dealer written notice of termination," and
all this seems to mean is that Suzuki can
terminate the franchise agreement if the dealer
does not comply with it but that Suzuki must give
written notice of the termination. The succeeding
sections indicate how much written notice must be
given, which depends on the gravity of the
violation. If there are grounds for termination
other than the 26 listed in sections 9.2 and 9.3,
they do not appear in the contract. Were they
assumed to exist nevertheless, the contract would
have a hole, since it doesn’t indicate how much
written notice Suzuki must give if it wants to
terminate on the basis of a ground for
termination not stated in the contract. The
contract contains no provision to the effect that
"termination based on a violation of the
franchise agreement that is not listed in
sections 9.2 or 9.3 requires ___ days’ written
notice." The 26 grounds taken as a whole seem
pretty exhaustive, moreover; there is no
compelling reason to interpolate additional
grounds and thus embrace the ambiguity just
identified. The most plausible reading of the
contract, therefore, is that a notice of
termination that fails to specify any of the 26
listed grounds for violation violates the
contract.
Tuf has been shy about making this argument,
maybe because a defect in notice would be a
technical violation from which no damages could
be shown to flow. In any event it argues merely
that Suzuki’s failure to conform to the
requirements of section 9.3 is further evidence
of Suzuki’s bad faith in terminating the
franchise agreement. But here Suzuki drops the
ball, failing to argue that bad faith in the
sense of bad motive is not a violation of the
franchise act. Instead Suzuki contends that Tuf
did argue in the district court that the failure
of the notice of termination to match the grounds
for termination listed in the contract was an
independent breach, and complains that the judge
prevented it from meeting the argument by
forbidding it to cite section 9.1 as an
independent basis for termination. However this
may be (as near as we can determine, Tuf didn’t
make the argument but the judge instructed the
jury as if it had!), since Suzuki has never
explained how its interpretation could be right
given the hole in the contract that such an
interpretation would create, no injustice was
done by its being forbidden to present the
interpretation to the jury. Probably no injustice
was done by Tuf’s "bad faith" theory either
(which may be why Suzuki has failed to oppose
it), for remember that the jury was correctly
instructed that Suzuki should prevail if it had a
basis in the contract for terminating Tuf.
Evidently the jury concluded that it did not; and
Suzuki’s contention that it had a ground for
termination not stated in the contract is unsound
for the reasons we’ve explained.
We move on to the issue of damages. Tuf
presented its theory of damages by way of its
accountant (a C.P.A.), and in the district court
Suzuki argued that the accountant should not have
been permitted to testify as an expert witness
because he does not have a degree in economics or
statistics or mathematics or some other
"academic" field that might bear on the
calculation of damages. The notion that Daubert
v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.
579 (1993), requires particular credentials for
an expert witness is radically unsound. The
Federal Rules of Evidence, which Daubert
interprets rather than overrides, do not require
that expert witnesses be academics or PhDs, or
that their testimony be "scientific" (natural
scientific or social scientific) in character.
Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137,
150 (1999); Smith v. Ford Motor Co., No. 99-2656,
2000 WL 709895, *3 (7th Cir. June 2, 2000);
United States v. Williams, 81 F.3d 1434, 1441
(7th Cir. 1996); Morse/Diesel, Inc. v. Trinity
Industries, Inc., 67 F.3d 435, 444 (2d Cir.
1995). Anyone with relevant expertise enabling
him to offer responsible opinion testimony
helpful to judge or jury may qualify as an expert
witness. Fed. R. Evid. 702; Advisory Committee’s
Notes to 1972 Proposed Rule 702; United States v.
Navarro, 90 F.3d 1245, 1261 (7th Cir. 1996);
United States v. Williams, supra, 81 F.3d at
1441; City of Tuscaloosa v. Harcros Chemicals,
Inc., 158 F.3d 548, 563 and n. 17 (11th Cir.
1998). The principle of Daubert is merely that if
an expert witness is to offer an opinion based on
science, it must be real science, not junk
science. Tuf’s accountant did not purport to be
doing science. He was doing accounting. From
financial information furnished by Tuf and
assumptions given him by counsel of the effect of
the termination on Tuf’s sales, the accountant
calculated the discounted present value of the
lost future earnings that Tuf would have had had
it not been terminated. This was a calculation
well within the competence of a C.P.A.
The accountant calculated Tuf’s damages at about
$1.2 million, yet the jury awarded only a bit
more than 10 percent of that--leading Suzuki to
argue that the damages award should be set aside
as "speculative," since the jury of course did
not explain the path that led to the award and it
is unclear what that path may have been. We think
it pointless, although it might assist defendants
who seek to win by attrition, to credit a
defendant’s complaint that an award of damages
should be set aside because it was too small to
make sense, which is at root what Suzuki is
arguing. The argument implies that upon a retrial
the plaintiff is likely to obtain a higher award
(since the previous award was irrationally low)
that the appellate court will sustain. In any
event, such an argument is blocked by the
principle that if the award is within the bounds
of reason, the fact that the jury may not have
used reason to arrive at it--may instead have
negotiated an unprincipled compromise in order to
avoid deadlock--will not prevent it from being
upheld. Kasper v. Saint Mary of Nazareth
Hospital, 135 F.3d 1170, 1177 (7th Cir. 1998);
Outboard Marine Corp. v. Babcock Industries,
Inc., 106 F.3d 182, 186-87 (7th Cir. 1997). In
other words, the court looks only at the "bottom
line," to make sure it’s reasonable, and doesn’t
worry about the mental process that led there.
Since the jury is a collective body rather than a
single mind, since it does not write up its
findings as the judge does when he’s the finder
of fact, and since the law protects jurors from
being interrogated about their reasoning
processes, it really isn’t feasible to insist
upon a demonstration that the jury arrived at its
reasonable bottom line by reasoning to it the way
a professional judge would do, rather than by
guesswork, intuition, or compromise.
Suzuki’s other complaints about the award are
niggling and we move on to the last issue, that
of attorneys’ fees. Suzuki argues that Tuf did
not prevail because it obtained so much less than
it asked for. It prevailed in the literal sense,
but did it substantially prevail? We cannot find
any cases that interpret this term in the
franchise act. The parties assume as shall we
that we can turn for guidance to the case law
that has developed around the issue of when a
plaintiff who has won much less than he sought is
entitled to an award of attorneys’ fees under
rules or statutes entitling prevailing parties to
"reasonable" such fees. That case law indicates
that had Tuf obtained merely nominal damages, it
would not have been entitled to any award of
fees, Farrar v. Hobby, 506 U.S. 103, 114 (1992);
Fletcher v. City of Fort Wayne, 162 F.3d 975, 976
(7th Cir. 1998); Bristow v. Drake Street Inc., 41
F.3d 345, 352 (7th Cir. 1994); Coutin v. Young &
Rubicam Puerto Rico, Inc., 124 F.3d 331, 339 (1st
Cir. 1997), and that if it had incurred
attorney’s fees that were disproportionate to a
reasonable estimate of the value of its claim, it
could not recover all those fees, but only the
reasonable proportion, which is to say the amount
that would have been reasonable to incur had the
value of the claim been estimated reasonably
rather than extravagantly. Farrar v. Hobby,
supra, 506 U.S. at 115; Hensley v. Eckerhart, 461
U.S. 424, 434 (1983). Suzuki has shown neither of
these things. But it argues in addition that the
rule in this circuit is that a plaintiff who
fails to obtain an award of damages equal to at
least 10 percent of the amount he sought will be
denied any award of fees, and at one point before
trial Tuf had asked for $1.5 million although
before trial it scaled down its demand. (Its
complaint did not demand a specific amount, but
only an amount greater than the then
jurisdictional minimum in a diversity case of
$50,000, since raised by Congress to $75,000.)
Several cases in this circuit do suggest that a
plaintiff’s failure to obtain at least 10 percent
of the damages it had sought will weigh heavily
against any award of attorneys’ fees. Indeed,
Perlman v. Zell, 185 F.3d 850, 859 (7th Cir.
1999), states this in a way that makes it sound
like a rule, although the cases it cites for the
rule treat it, rather, merely as a factor to
consider along with other factors weighing for or
against an award of attorneys’ fees. Cole v.
Wodziak, 169 F.3d 486 (7th Cir. 1999); Fletcher
v. City of Ft. Wayne, supra, 162 F.3d at 976. (We
cannot find a case in any other court that
mentions the 10 percent rule or factor.) Since a
defendant must take seriously a large demand and
prepare its defense accordingly, it is right to
penalize a plaintiff for putting the defendant to
the bother of defending against a much larger
claim than the plaintiff could prove. But here
the plaintiff scaled back its claim before trial
and obtained more than 10 percent of the scaled-
back demand from the jury. That seems to us
enough to take the case out of the "rule" for
which Suzuki contends.
The fact that the attorneys’ fees awarded exceed
the damages award is not decisive either. Because
the cost of litigating a claim has a fixed
component, a reasonable attorney’s fee in the
sense of the minimum required to establish a
valid claim can exceed the value of the claim.
Hyde v. Small, 123 F.3d 583, 584-85 (7th Cir.
1997). Yet one purpose of fee shifting is to
enable such claims to be litigated, and the
purpose would be thwarted by capping the
attorneys’ fees award at the level of the damages
award. There is no evidence that the $391,000
that Tuf expended to establish its claim--an
amount that was, incidentally, little more than a
third as great as Suzuki’s expenditure in
defending against it--was more than was
reasonably necessary for Tuf to prevail.
The cases we have cited on the issue of
attorneys’ fees are cases interpreting federal
fee-shifting statutes, but Tuf’s entitlement is
created by the law of Illinois. In default of
relevant Illinois cases, however, the parties
have cited to us federal cases, assuming,
reasonably enough, that the common-sense
principles that guide federal courts in
determining attorneys’ fees issues would commend
themselves to Illinois courts as well. But in
addition we have found one Illinois case that
makes the essential point that the damages award
does not cap the fee award. Pitts v. Holt, 710
N.E.2d 155 (Ill. App. 1999).
Affirmed.