Budget Rent-A-Car of Missouri, Inc. v. B & G Rent-A-Car, Inc. ( 1981 )

PRITCHARD, Judge.

On January 3, 1974, respondent as “Li-censor” made an exclusive franchise with “Sublicensee”, Budget Rent-A-Car, of Kansas City, Kansas, to rent automobiles in that city. The sublicensee later changed its corporate name to B & G Rent-A-Car, Inc. B & G Leasing, Inc., with appellants George as its directors and officers, was beneficially interested in B & G Rent-A-Car, Inc. Sublicensee operated under the agreement for about three years in Kansas City, Kansas, and Kansas City, Missouri.

Paragraph 10.05 of the agreement provided: “SUBLICENSEE shall not during the term of this Agreement and for a period of one hundred eighty (180) days after its termination engage in any other vehicle rental business from a location within the licensed territory * * *. SUBLICENSEE further acknowledges the impossibility of accurately determining the tangible and intangible damages which LICENSOR will suffer if SUBLICENSEE fails or refuses to adhere to this provision and accordingly agrees to entry without prior notice, to the extent that applicable notice requirements may be waived, of temporary and permanent injunctions against SUBLICENSEE’S breach of this provision and SUBLICENSEE further agrees to pay to LICENSOR an amount equal to the aggregate of LICEN-SOR’S costs of obtaining any such temporary and permanent injunctive relief, in-eluding all costs of investigation and proof of facts, court costs and attorneys’ fees.”

On December 3, 1976, appellant James R. George notified respondent that the subli-censee agreement was to be terminated as of March 4, 1977, this being within the 90 days notice provision of paragraph 10.02 of the agreement. Sometime before December, appellants George contacted Dollar-A-Day Rent-A-Car Systems and paid $8,750 for a franchise license therefrom on October 13, 1976. The Georges assigned that franchise license to their newly created (December, 1976) company, Nexus Rent-A-Car Corporation, which was formed in anticipation of terminating the relationship with respondent. Dollar-A-Day was competing with respondent. Nexus then began doing business with Dollar-A-Day at the same location that B & G Rent-A-Car had transacted business as sublicensee with respondent. Respondent learned of this and filed a petition for injunction and damages against appellants which resulted in a temporary injunction against appellants and the persons, firms or corporations they owned or controlled, from engaging in the rental car business in Kansas City, Missouri, and Kansas City, Kansas. That injunction did not stop appellants, because there was formed a company called Westmoreland Industries, Inc., which received an assignment of appellants’ rights to their franchise agreement with Dollar-A-Day, except those portions of the Kansas City, Missouri, areas in Clay and Platte counties. Westmoreland had as its front one Joseph L. Stuckey, who had worked as its handyman, but who had no familiarity with or knowledge about the car rental business, nor specifically, what rental volume was generated at each rental location; how many cars Westmoreland held for rentals; and in what banks that company kept its funds. Stuckey was the one the Georges contacted for the assignments of their rights in Dollar-A-Day to Westmoreland, and the payment for those rights came in the form of two $1,000 checks paid from B & G Leasing’s bank account, the checks being signed by its accountant and controller.

Following the assignment to Westmore-land, Dollar-A-Day car rentals were made at B & G Rent-A-Car locations and another was opened near the Holiday Inn in Kansas City, Platte County, Missouri. Prior to the termination of the sublicensee agreement, appellant B & G had operated for over three years from addresses which were advertised as Budget Rent-A-Car locations, which locations and telephone numbers were listed as Budget Rent-A-Car in the telephone book. Appellant continued to use these numbers even after the issuance of the temporary injunction, and wrote numerous rental contracts from the locations. The exhibits show that during the approximate 180 day period that the temporary injunction was in force (until it was dissolved by the trial court on September 1, 1977), appellants made 1,003 car rentals in violation of the injunction and the noncom-petition covenant in the sublicense agreement, having a gross dollar amount of $80,-692.91. The trial court entered judgment of actual damages of $8,000 (about 10% of the gross dollar amount); $11,000 in attorney fees; and punitive damages of $16,000, a total of $35,000.

Respondent’s petition was for an injunction and damages. The pleading for injunction was based upon a violation of paragraph 10.05, supra, of the agreement. Without reference to any other paragraph of the agreement, respondent also prayed for its “actual damages by reason of defendants’ conduct, including, but not limited to, court costs and attorneys’ fees. (5) For such punitive damages against defendants B & G Rent-A-Car, Inc. and B & G Leasing, Inc. as are just and proper in the circumstances.” After the expiration of the 180 days of the noncompetition covenant, the trial court dissolved the temporary injunction which it had entered. Thereafter, on November 20, 1978, without objection, the cause came on for determination of damages, and evidence was heard thereon. Appellants contend, and argue, that respondent’s petition was based on paragraph 10.-05, supra, and that it was limited in damages thereunder to its costs of obtaining the temporary injunction, including costs of investigation and proof of facts, court costs and attorneys’ fees. Appellants say that respondent did not seek relief for actual and exemplary damages under paragraph 10.06 of the agreement, which is “In addition to all of the remedies granted to LI-CENSOR by this Agreement, LICENSOR shall have the right to bring suit against SUBLICENSEE, its partners, shareholders and directors, as applicable for actual damages sustained by LICENSOR and caused by the breach by any one or more of them of any provision of this Agreement or the Operating Manual and for exemplary damages, and such injunctive and other equitable relief as may be appropriate.” In Illinois, a court may retain jurisdiction after an issue of injunctive relief is disposed, to entertain the issue of damages as it may arise from a breach of an underlying duty. See the abstract opinion, Weisbrodt v. Norris, 332 Ill.App. 279, 75 N.E.2d 50[2] (1947); and Dinoffria v. International Brotherhood etc., 331 Ill.App. 129, 72 N.E.2d 635, 641[6, 7] (1947), cert. denied 335 U.S. 815, 69 S.Ct. 33, 93 L.Ed. 370 (1948). Missouri law is the same. See Clark-Lami, Inc. v. Cord, 440 S.W.2d 737 (Mo.1969); Downing v. Dinwiddie, 132 Mo. 92, 33 S.W. 470 (1895); and Martin v. Swenson, 335 F.Supp. 765 (D.C. Mo.1971), construing Missouri law. The trial court dissolved the temporary injunction upon the ground that there could be, after the 180 day period, no danger of immediate and irreparable harm to respondent. This case does not fall within Melbourne Corp. v. City of Chicago, 76 Ill.App.3d 595, 31 Ill.Dec. 914, 394 N.E.2d 1291, 1303[25, 26] (1979), where it was held that damages are not recoverable for the violation of an injunction, the remedy being to seek a citation for contempt. Appellants had adequate notice of respondent’s claim for actual and exemplary damages by the service of the petition, and no separate action therefor was required.

The dispositive issue is whether respondent has adequately proved its damages for breach of the noncompetition covenant. The law of Illinois is that the measure of damages for that violation is the loss of profits and the diminution of the value (injury to) of the plaintiff’s business. Schatz v. Abbott Laboratories, Inc., 51 Ill.2d 143, 281 N.E.2d 323, 325 (1972). But the rule in Schatz, at the same page, is qualified by a quote from Barnett v. Caldwell Furniture Co., 277 Ill. 286, 115 N.E. 389, 390 (1917), “ ‘It is perhaps true that absolute certainty as to the amount of loss or damages in such cases is unattainable, but that is not required to justify a recovery. All the law requires is that it be approximated by competent proof. That proof of the exact amount of loss is impossible will not justify refusing compensation. If that were the law, contracts of the kind here involved could be violated with impunity. All the law requires in cases of this character is that the evidence shall, with a fair degree of probability, tend to establish a basis for the assessment of damages.’ ”

Illinois, apparently, previous to the Schatz case, supra, had followed the rule that the recovery of loss of profits, absent a contract provision contemplating such damages, is not permitted. Flug v. Craft Mfg. Co., 3 Ill.App.2d 56, 120 N.E.2d 666, 671 (1954). In Illinois, however, the strict rule of requiring certainty in the proof of damages in cases involving covenants not to compete has been relaxed in Vendo Company v. Stoner, 58 Ill.2d 289, 321 N.E.2d 1 (1974) cert. denied 420 U.S. 975, 95 S.Ct. 1398, 43 L.Ed.2d 655 (1975). There, Vendo was a former competitor of a business operated by Stoner. Stoner sold out to Vendo in return for cash payments, stock and a managerial position with Vendo, the contract for which contained pre and post termination restrictions on competition. In violation of the noncompetition agreement. Stoner thereafter became involved in another company’s venture competing with Vendo. The judgment of the trial court, reinstated by the Illinois Supreme Court, was Vendo’s loss of profits for some 7 years, and the diminution of the value of its business. Stoner’s challenge to the award was that the damages, which represented the difference between what would have been earned by Vendo had it had the (competing) machine which Stoner marketed and that which was earned without it, was [similarly to what appellants here contend] too speculative and uncertain. In expansion of the basic rule that recovery of anticipated profits was not permitted in Illinois, the Vendo court said, 321 N.E.2d 1, 13[10], “In our consideration of this facet of the appeal we are mindful of two limiting factors. The first is that the loss of profits, whether past or future, claimed to arise out of exclusion from a market is customarily not susceptible of detailed or direct proof, and that unless proof of an inferential character is permitted, the result would be to immunize a defendant from the consequences of his wrongful acts. That principle has been frequently enunciated by the Supreme Court of the United States in the context of actions to recover damages resulting from violations of the Federal antitrust laws. (See Bigelow v. RKO Pictures, Inc. (1946), 327 U.S. 251, 264-265, 66 S.Ct. 574, 90 L.Ed. 652, 660; Zenith Radio Corp. v. Hazeltine Research, Inc. (1969), 395 U.S. 100,123-124, 89 S.Ct. 1562, 23 L.Ed.2d 129, 148-149.) The principle is equally applicable where the claim of lost profits arises from a violation of fiduciary obligations or breach of contract. See Schatz v. Abbott Laboratories, Inc. (1972), 51 Ill.2d 143, 147-149, 281 N.E.2d 323.”

Following the Vendo case, see Society of Mt. Carmel v. Fox, 90 Ill.App.3d 537, 543,46 Ill.Dec. 40, 45, 413 N.E.2d 480, 485[11] (1980), where it was said, “The assessment of damages by a trial court sitting without a jury will not be set aside unless manifestly erroneous; and may be upheld if it falls within the range of estimates given by expert witnesses.”

The evolution away from the demand for proof of certainty in damages in actions of this nature in Illinois has had a similar history in Missouri. Hence, the law of both states appears to be the same or similar. Anticipated profits were generally not recoverable. Coonis v. Rogers, 429 S.W.2d 709, 714 (Mo.1968), but note the further quote, “ ‘They [anticipated profits] may be recovered only when they are made reasonably certain by proof of actual facts, with present data for a rational estimate of their amount; and, when this is made to appear, they may be recoverable.’ ” See also Tne-mec Company v. North Kansas City Development Co., 290 S.W.2d 169, 174[4r-6] (Mo. 1956), where it was noted that although the courts of this state have been strict in evaluating the sufficiency of the evidence warranting a recovery of damages for loss of profits, “[T]he law is also well settled that damages may be recovered for loss of profits due to the breach of a contract if the evidence is sufficiently certain and definite to warrant the jury in estimating their extent.” In Hargis v. Sample, 306 S.W.2d 564 (Mo.1957), a case involving a claim of damages by way of loss of profits in hotel room rentals occasioned because of defendants’ failure to repair them, thus making them untenantable, the court said the evidence was sufficient to support the amount of the verdict, but reversed and remanded because of an erroneous instruction on certain claimed items of damages. The court commented, at page 569[4-7], “It has been said, however, that the amount of estimated loss of earnings (and the same would apply to loss of prospective profits) should, in the event of uncertainty, at least be supported by the best evidence available. (Citing case.)” Mills v. Murray, 472 S.W.2d 6 (Mo. App.1971), was a suit for injunction and damages for breach of a three year post-termination noncompetition clause of a contract. Defendants had organized a competing firm and solicited plaintiffs’ clients. The court found that certain clients of plaintiffs were lost and 10% of the value of those contracts would have been the lost profits thereon. Defendants argued that the damages were too speculative because it was not shown how many of plaintiffs’ clients would have remained with them but for defendants’ wrongdoing. At page 16[17], the court said, “But if that be so, it is only because of defendants’ wrong that the damages cannot be determined with more certainty and defendants will not be heard to say, on that account, the plaintiffs may not have full relief for the injury defendants inflicted on them.” And, at page 17, the court said further, “We believe it may fairly be said that whatever uncertainty inhered in the proof of damages for the breach of such a covenant was within the contemplation of the parties at the time it was executed.”

In Garrett v. American Family Mutual Insurance Co., 520 S.W.2d 102 (Mo.App. 1974), wherein Kansas law was applied, plaintiff, a general agent, under an agency agreement, was given exclusive rights as to renewals of policies originally written by him, which the trial court found was a property right akin to a noncompetition clause. When defendant converted to a system of captive or exclusive agents plaintiff elected to remain independent. Defendant then assigned his active policies to another agent, informed policyholders that he was no longer with the company, and unleashed several other agents to solicit in his previously assigned territory. Plaintiff sought as damages the total amount of lost commissions based on the number of policies written by defendant which were active at the time of termination minus those he had retained. Plaintiff applied a lapse ratio percentage and a percentage for increment in premiums, and claimed the gross loss of commission as his loss of net profits, found to be proper by this court. Defendant argued that proof of damages was speculative. The court rejected that argument and directed an award based on the average commission for all the policy renewals lost by plaintiff, saying at page 118[21-23], “Where computation of damages is made uncertain by the nature of the breach of contract, ‘[t]he most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created.’ Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 265, 66 S.Ct. 574, 580, 90 L.Ed.2d 652 (1946); Novo Industrial Corp. v. Nissen, 30 Wis.2d 123, 140 N.W.2d 280, 285[10, 11] (1966); 22 Am.Jur.2d, § 23, p. 42. The covert manner of the breach considered, Garrett proved all damage capable of proof and he will not be denied compensation because the nature of the wrongdoing prevented a more fastidious demonstration of loss.” [Note the similarity of this quote with that of the Vendo case, supra.]

Other cases following the Illinois and Missouri trends are:

Burckhardt v. Burckhardt, 42 Ohio 474 (1885); Wood v. Pender-Doxey Grocery Co., 151 Va. 706,144 S.E. 635 (1928), in which an intentional wrong was involved, the holding being that in such cases the degree of proof is much relaxed in favor of the injured party. See also Corbin on Contracts, § 1021 (1964); Williston, A Treatise on the Law of Contracts, § 1345 (3rd Ed. 1968); and McCormick on Damages, § 27, pp. 101 — 102, where it is said, “There are various modifications to the rule of certainty. They enable the courts, while holding up a high standard of certainty as an ideal, to avoid harsh applications of it. Among them are: (a) If the fact of damage is proved with certainty, the extent or amount may be left to reasonable inference, (b) Where the defendant’s wrong has caused the difficulty of proof of damage, he cannot complain of the resulting uncertainty, (c) Mere difficulty in ascertaining the amount of damage is not fatal, (d) Mathematical precision in fixing the exact amount is not required, (e) If the best evidence of the damage of which the situation admits is furnished, this is sufficient. (f) The plaintiff may recover the value of his contract, and this may be measured by the value of the expected profits, (g) Profits may sometimes be proved as evidence of damages, when they would not be directly recoverable.” Note also the Uniform Commercial Code (adopted in Illinois), § 1 — 106(1), and Comment 1; and § 2-715, Comment 4, indicating a relaxation of the rule of certainty in sales transactions.

These observations may be made from the facts in this case: Appellants’ devious concealment of their activities through assignments of rental rights to subsequent sham companies is clearly shown. Their breach of the noncompetition agreement by leasing 1,003 cars during the 180 days made those rentals unavailable to respondent for rental. The parties expressly agreed in the sublicense agreement that there was impossibility of accurately determining the tangible and intangible damages for its breach. The sublicense agreement provides for a method of computing respondent compensation during continuation thereof, i. e., 10% of the gross revenue of appellants (Para. 5.02), and this was acknowledged by appellants’ counsel during trial to be a measure of damage: “MR. MAUER: * * * The contract itself shows any measure of possible damages. Even if they would connect up these contracts of Westmoreland Industries with the defendants in this lawsuit, the contract spells out the benefit is to be ten percent of the gross, Your Honor.” Additionally, respondent’s chief managing officer, with about 15 years experience in the car rental field, testified that respondent would have made a minimum of 10% on the gross volume of the (1,003 rentals) transacted by appellants. In arriving at that percentage, he took into account all the appropriate expense factors and deductions — insurance, employees, high care expense, everything. Had the subli-cense agreement not been terminated, respondent would have been entitled to 10% of the gross revenues for the 1,003 rentals. The fact of the breach and damage therefrom is definitely shown.

By related Points I and II appellants claim that respondent cannot invoke the aid of equity for relief because it did not allege and prove performance on its part. A portion is directed toward the issuance of the temporary injunction, but that injunction was dissolved and is moot. As to performance as it might relate to recovery of damages, respondent’s Mr. Steinberg testified without objection to various acts done to assist appellants, as provided by the subli-cense agreement, which testimony was sufficient to justify the court in finding against the contention, and the pleadings may be treated as amended to meet the same.

Respondent proved its expenses for attorney fees, as allowable under the subli-cense agreement. The evidence shows appellants’ breach to have been wilful and without just cause or excuse, and the same was sought to be concealed. The award of punitive damages is supportable.

The judgment is affirmed.

SOMERVILLE and CLARK, JJ., and SWOFFORD, Senior Judge, concur in majority opinion.

WASSERSTROM, C. J., and DIXON and TURNAGE, JJ., dissent and concur in separate dissenting opinion by TURNAGE, J.