Holloway Automotive Group v. Steven Giacalone , 169 N.H. 623 ( 2017 )

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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
9th Circuit Court-Manchester District Division
No. 2016-0141
HOLLOWAY AUTOMOTIVE GROUP
v.
STEVEN GIACALONE
Argued: November 17, 2016
Opinion Issued: February 15, 2017
Coughlin, Rainboth, Murphy & Lown, P.A., of Portsmouth (Bradley M.
Lown on the brief and orally), for the plaintiff.
Gallagher, Callahan & Gartrell, Professional Corporation, of Concord (R.
Matthew Cairns and Lisa M. Lee on the brief, and Mr. Cairns orally), for the
defendant.
DALIANIS, C.J. The plaintiff, Holloway Automotive Group (Holloway),
appeals the order of the Circuit Court (Michael, J.) ruling that the liquidated
damages clause contained in the parties’ contract is unenforceable. We reverse
and remand.
The relevant facts follow. Holloway is an authorized franchise dealer of
Mercedes-Benz North America, Inc. (MBUSA), with a principal place of business
in Manchester. On November 15, 2014, the defendant, Steven Giacalone,
purchased a new Mercedes-Benz automobile from Holloway for $71,630.
At the time of the purchase, the defendant signed an “AGREEMENT NOT
TO EXPORT” (the Agreement). (Bolding and underlining omitted.) The
Agreement stated that “MBUSA prohibits its authorized dealers from exporting
new Mercedes-Benz vehicles outside of the exclusive sales territory of North
America and will assess charges against [Holloway] for each new Mercedes-
Benz vehicle it sells . . . which is exported from North America within one (1)
year.” Therefore, the defendant promised “not [to] export the Vehicle outside
North America . . . for a period of one (1) year” from the date of the Agreement
and, if he did so, to pay Holloway $15,000 as liquidated damages.
The vehicle was subsequently exported within the one-year period.
Holloway sued the defendant, claiming breach of contract and
misrepresentation and seeking liquidated damages in the amount of $15,000,
plus interest, costs, and attorney’s fees.
The trial court held a hearing on the merits at which Holloway
acknowledged that MBUSA had not assessed any charges against it due to the
vehicle’s export. Nonetheless, Holloway made an offer of proof, itemizing the
damages it may suffer due to the export of the vehicle by a customer. These
damages include loss of income from maintaining and servicing the vehicle,
future sales of additional vehicles, warranty work, resale income, financing
income, and detriment to the rating and ranking of the dealership.
With the trial court’s permission, Holloway submitted a post-trial
supplemental memorandum of law to which it attached its responses to the
defendant’s interrogatories itemizing its potential losses over three years as:
$4,800 in lost income from servicing the vehicle; lost “referral business, service
income, aftersales of vehicles or products or warranty extensions, [and]
potential resale income”; $1,969 in lost finance income; $3,060 in lost lease
income; $300 in payment by Mercedes-Benz “as compensation for reduced risk
due to automatic withdrawal”; and $5,955 in lost profit “on various products
and services.”
The trial court found that the Agreement was entered into “between the
parties to protect [Holloway] from a claim by [MBUSA],” but that MBUSA did
not, in fact, charge Holloway any fees despite the vehicle having been exported.
In addition, the court found that
the amount of $15,000.00 was a ‘guesstimate’ of difficult-to-
ascertain damage at the time the parties agreed to it. . . . In this
instance, [Holloway] suggests that the vehicle might return for
maintenance, that there may be further customer sales, that the
plaintiff may need warranty work on a vehicle (this is speculative,
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especially since the liquidated damage agreement is only in force
for one year and this is a new vehicle), and the potential resale
income if the car is traded. . . . It is difficult to see how
maintenance on a new vehicle, perhaps a couple of oil changes,
further sales and warranty work on a new vehicle, as well as
potential resale income, would be anywhere near $15,000.00,
because of the one year contract time frame.
The court reasoned that “the one year contract period” had passed, “[i]n
retrospect there were no fees charged by [MBUSA],” and “[o]ther than wild
guesses there [was] certainly no indication of any of the damages associated
with the breach.” Thus, because the “actual losses to [Holloway] during the
one-year period were essentially zero,” the trial court declined to enforce the
liquidated damages clause in the Agreement. Holloway unsuccessfully sought
reconsideration, and this appeal followed.
I. Liquidated Damages
We first address Holloway’s argument that the trial court erred when it
found the liquidated damages provision unenforceable. “[O]ur function on
appeal is to determine whether a reasonable person could have arrived at the
same determination as the trial court, based on the evidence, and we will not
upset the trial court’s finding as long as it is substantiated by the record and is
not erroneous as a matter of law.” Orr v. Goodwin, 157 N.H. 511, 515 (2008)
(quotation omitted).
A valid liquidated damages provision must meet three criteria: “(1) the
damages anticipated as a result of the breach are uncertain in amount or
difficult to prove; (2) the parties intended to liquidate damages in advance; and
(3) the amount agreed upon must be reasonable and not greatly
disproportionate to the presumable loss or injury.” Id. at 514. Failure to meet
any of the three criteria will result in the provision being unenforceable as a
penalty. See Technical Aid Corp. v. Allen, 134 N.H. 1, 22 (1991). The trial
court found that the first two criteria were met, and the parties do not
challenge these findings on appeal.
The third criterion of a valid liquidated damages clause requires “that the
amount stipulated was a reasonable one, that is to say, not greatly
disproportionate to the presumable loss or injury.” Shallow Brook Assoc’s v.
Dube, 135 N.H. 40, 46 (1991) (quotation omitted). “[W]e have adopted a two-
part test for assessing the reasonableness of the amount stipulated whereby we
first judge whether the provision was a reasonable estimate of difficult-to-
ascertain damage at the time the parties agreed to it.” Orr, 157 N.H. at 515
(quotation and emphasis omitted). “If it is a reasonable estimate, we must then
conduct a retrospective appraisal of the liquidated damages provision, and if
the actual damages turn out to be easily ascertainable, we must then consider
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whether the stipulated sum is unreasonable and grossly disproportionate to
the actual damages from a breach.” Id. “If so, the liquidated damages
provision will be deemed unenforceable as a penalty, and the aggrieved party
will be awarded no more than the actual damages.” Id. “Thus, even if the
liquidated sum is reasonable in light of the anticipated or presumable loss, the
provision will not be enforced if the actual loss to the party is minimal and easy
to prove.” Id. (quotation omitted).
The parties do not contend that the liquidated sum of $15,000 was an
unreasonable estimate of difficult-to-ascertain damages at the time they agreed
to it. Thus, the question before us is whether the actual damages turned out
to be “easily ascertainable.” See id. Holloway argues that the trial court erred
when it found that the liquidated damages clause is unenforceable without first
“expressly find[ing] in connection with the retrospective appraisal of damages
that the damages were ‘easy to prove’ or were ‘easily ascertainable,’” and that,
in fact, the court “appeared to indicate . . . that such actual damages were . . .
not easily ascertainable.” Holloway also asserts that the trial court erred when
it found that the only damages contemplated by the Agreement were the
charges that might have been imposed by MBUSA.
The defendant counters that the trial court “correctly found that the
damages were ascertainable” and, thus, “properly invalidated the liquidated
damages clause” because the $15,000 liquidated damages amount is
“unreasonable and greatly disproportionate.” The defendant asserts that “the
entire contract was premised” upon charges being imposed by MBUSA.
Because those charges are prohibited by RSA 357-C:5, II(d)(8) (Supp. 2016),
and because “there were no penalties assessed within [MBUSA’s] one-year limit
to do so,” the defendant argues that the trial court correctly concluded that the
damages were “easily ascertainable at zero.” The defendant also argues that
the trial court properly rejected Holloway’s “other ‘unascertainable’ damages”
because “there is nothing requiring [him] to have maintenance performed at
Holloway’s dealership,” and “loss of financing damages are illusory because
there was no financing here.”
Interpretation of the parties’ written agreement is a question of law,
which we review de novo. Orr, 157 N.H. at 514. When interpreting a written
agreement, we give the language used by the parties its reasonable meaning,
reading the document as a whole, and considering the circumstances and the
context in which the agreement was negotiated. Id. Absent ambiguity, the
parties’ intent will be determined from the plain meaning of the language used
in the agreement. Behrens v. S.P. Constr. Co., 153 N.H. 498, 503 (2006).
The Agreement states in pertinent part:
MBUSA prohibits its authorized dealers from exporting new
Mercedes-Benz vehicles outside of the exclusive sales territory of
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North America and will assess charges against [Holloway] for each
new Mercedes-Benz vehicle it sells . . . which is exported from
North America within one (1) year.
Therefore, in consideration of [Holloway] selling . . . a new
Mercedes-Benz vehicle . . . , the undersigned purchaser . . .
represents, warrants, and agrees as follows:
....
4. If the vehicle is exported outside of North America
anytime within one (1) year of the date of this Agreement, . . .
the Undersigned shall pay to [Holloway] liquidated damages
described below . . . .
5. THE PARTIES AGREE THAT IT WOULD BE
IMPRACTICAL OR DIFFICULT TO FIX THE ACTUAL
DAMAGES TO [HOLLOWAY] IF THE VEHICLE IS EXPORTED
OUT OF NORTH AMERICA. THEREFORE, IF THE VEHICLE
IS EXPORTED OUTSIDE OF NORTH AMERICA WITHIN
ONE-YEAR OF THE DATE OF THIS AGREEMENT, THE
UNDERSIGNED SHALL BE OBLIGATED TO PAY
[HOLLOWAY] THE SUM OF FIFTEEN THOUSAND DOLLARS
($15,000.00) AS LIQUIDATED DAMAGES . . . .
(Bolding omitted.)
Reading the document as a whole, we disagree with the defendant that
the Agreement was intended to limit Holloway’s damages only to charges
imposed by MBUSA. The plain language of the Agreement demonstrates that
the parties contemplated that, in the event the vehicle was exported within the
prohibited time frame, Holloway would face other actual damages that would
be hard to calculate, and they agreed to stipulate to $15,000 as liquidation of
all damages, including those hard-to-calculate damages.
We also disagree with the trial court’s determination that the Agreement
limited Holloway’s actual damages to those incurred during the Agreement’s
one-year period. Under the plain language of the Agreement, although the
vehicle’s export had to occur within one year in order to constitute a breach,
there is nothing in the Agreement restricting Holloway’s damages to that same
one-year period. In Holloway Automotive Group v. Lucic, 163 N.H. 6 (2011), we
upheld a virtually identical liquidated damages provision against a claim that it
constituted an unenforceable penalty because Holloway suffered only de
minimus damages as a result of the breach. Lucic, 163 N.H. at 9-11. Because
Holloway faced “the possibility of speculative, future damages” as a result of
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the defendants’ breach, we agreed that Holloway’s actual damages were thereby
rendered “difficult to ascertain.” Id. (emphasis added).
Similarly, Holloway argues here that at the time the defendant signed the
Agreement it “faced many different losses that would likely result from” the
vehicle’s export. Based upon sales to typical customers, those potential losses
included lost income from “maintenance and service,” “warranty work,” and
“reselling the vehicle,” lost “future sales to the same customer,” and lost
“payments and interest income on financing.” Indeed, the trial court
acknowledged at the hearing that Holloway’s damages were “fairly speculative”
and “difficult to put your finger on.” The trial court also acknowledged that
“ordinarily people would tend to go back to the dealer for any work” and that it
“doesn’t make much sense” for the court to “disregard that.” It was not
Holloway’s burden to show that future damages were reasonably certain;
rather, “it was incumbent upon the defendant[ ] . . . to prove that Holloway’s
damages were easily ascertainable.” Id. at 11.
“Our retrospective appraisal simply acknowledges that, although pre-
breach damages may have been speculative, occasionally the damages after a
breach are certain.” Id. at 10-11 (emphasis added). As we explained in Lucic,
“[p]arties employ liquidated damages clauses to avoid later controversy over the
amount of actual damages resulting from a breach when damages are
speculative or difficult to ascertain.” Id. at 10 (quotations omitted). Thus,
when damages remain speculative or difficult to ascertain at the time of trial,
as they do here, “faced with the very uncertainty the parties initially sought to
avoid, a court should fix damages at the figure to which the parties initially
agreed and enforce the liquidated amount.” Id. This is because “‘the estimate
of the court or jury may not accord with the principle of compensation any
more than does the advance estimate of the parties.’” Id. (quoting Restatement
(Second) of Contracts § 356 cmt. b at 158 (1981)).
The parties agreed to liquidate damages in an amount representing a
reasonable estimate of damages at the time they entered into the Agreement.
The defendant breached the Agreement and “cannot now complain because, as
a result of [his] own calculated business actions, [he] is required to adhere to
the terms of [his] bargain.” Realco Equities, Inc. v. John Hancock Mut. Life
Ins. Co., 130 N.H. 345, 352 (1988).
Finally, the defendant argues that the trial court “made a correct finding
that the damages were zero and therefore ascertainable” because MBUSA is
prohibited by statute from imposing penalties upon Holloway for selling
vehicles that are then exported. See RSA 357-C:5, II(d)(8). However, the
statute precludes a franchisor such as MBUSA from taking or threatening to
take adverse action against a dealer such as Holloway because of its
customer’s export of a vehicle only if the dealer neither knew nor reasonably
should have known that the customer intended to export the vehicle. See id.
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Therefore, in any case in which a customer exports a vehicle, Holloway faces
the risk that MBUSA will assert that Holloway knew or should have known that
the export would occur, and will take adverse action against it on this basis.
Holloway’s potential expenses in defending against such a claim are sufficiently
“impractical or difficult to fix” as to provide a proper basis to indemnify itself
against this risk through utilization of the liquidated damages provision. Even
at the time of trial, Holloway could still have faced a future claim from MBUSA
that it bore some culpability for the export of the vehicle, and thus would have
to incur uncertain damages to defend against such a claim.
For the reasons set forth above, we conclude that the $15,000 liquidated
damages provision is enforceable because Holloway’s damages resulting from
the breach are not “easily ascertainable.” Accordingly, we hold that the trial
court’s determination that the liquidated damages provision in the parties’
Agreement is unenforceable is not supported by the record and is erroneous as
a matter of law.
II. Attorney’s Fees
Holloway argues that it is entitled to its attorney’s fees and costs as set
forth in the Agreement. “An award of attorney’s fees must be grounded upon
statutory authorization, an agreement between the parties, or an established
exception to the rule that each party is responsible for paying his or her own
counsel fees.” Merrimack School Dist. v. Nat’l School Bus Serv., 140 N.H. 9, 14
(1995) (quotation and ellipses omitted). Interpretation of the parties’ written
agreement is a question of law, which we review de novo. Orr, 157 N.H. at 514.
The Agreement states:
If [Holloway] is required to bring any action or lawsuit to enforce
any provisions or rights under this agreement, [Holloway] shall be
entitled to recover judgment against the Undersigned for the
liquidated damages provided above plus all [Holloway’s] costs and
expenses of such action, including, but not limited to, reasonable
attorneys’ fees and court costs.
The plain meaning of the language used by the parties is that if Holloway
prevails in an action brought to enforce the Agreement, it is entitled to
attorney’s fees and costs. Accordingly, we remand for a determination of the
reasonable amount of attorney’s fees and costs Holloway should receive from
the defendant.
Reversed and remanded.
HICKS, CONBOY, LYNN, and BASSETT, JJ., concurred.
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