The Plaintiff in the following case was a Canadian dealer of a Wisconsin dairy manufacturer’s equipment for 20 years. He claimed that the Manufacturer forced him to sell his dealership to a neighboring dealer at a below-market price. The jury agreed and awarded Plaintiff $471,124 in damages and Manufacturer appealed.
Dealers were assigned territories with the exclusive right to sell and service the Manufacturer’s dairy products. The Plaintiff’s territory included “arguably the richest dairy county in Canada,” on which 55,000 dairy cows grazed. His dealership was making a profit of $400,000 a year.
The dealership contract gave the Manufacturer the right to change assigned territories, but provided that it could only do so for good cause and with 90 days’ advance written notice.
The neighboring dealership wanted to buy Plaintiff’s dealership to get his prime territory, but they were not able to come to terms—Plaintiff wanted a much higher price than the neighboring dealership was willing to pay. The Manufacturer’s sales manager, whose district included both territories, advised his superiors that Plaintiff was doing a poor job with his territory (whether this was true was unclear). The sales manager advised his boss that they should approach Plaintiff and ask him to sell. “If he refuses or makes it too difficult,” his email said, “we would in the short term, modify the territory lines in favor of… the neighboring dealership.” They thought that this change would place “unbearable pressure” on Plaintiff to sell without cancelling him outright.
The two managers told Plaintiff that the company would eliminate his territory altogether unless he agreed to sell his dealership to the neighboring dealership. Manufacturer also threatened to stop selling dairy equipment to Plaintiff.
The sales director sent the Plaintiff a letter reminding him that the Manufacturer had decided to allow the neighboring dealership to take over his territory. The sales director warned Plaintiff that the decision was not negotiable and that the company would proceed with or without his cooperation. The next month Plaintiff sold the dealership to the neighboring dealership. Plaintiff valued the goodwill of his dealership at $1.5 million. Manufacturer, siding with the neighboring dealership, forced him to sell it for half that amount. Plaintiff argued that Manufacturer violated the dealership agreement.
The jury found that the Manufacturer—though it did not purport to terminate Plaintiff’s contract—in fact terminated it, and did so without complying with the agreement’s good cause and 90 day notice requirements. Although Manufacturer did not formally terminate the agreement, by telling Plaintiff that unless he sold out to the neighboring dealership his territory would be shrunk to zero, it was telling him that he was finished.
Circuit Judge Richard Posner of the US Court of Appeals, Seventh Circuit, wrote in his opinion that with regard to remedy, Manufacturer “fire[d] a blunderbuss of objections” concerning the calculation of damages by Plaintiff’s expert, who was a certified management accountant with other professional certifications.
Manufacturer argued that the accounting expert did not attempt to verify Plaintiff’s financial statements prepared in the ordinary course of business by outside accountants. But the judge stated that an expert witness is not required to verify all the facts on which he relies. He can rely on hearsay (in this case, what the accountants stated in the financial statements) provided that such reliance is an accepted practice in his profession. It was in this case.
The Manufacturer objected that the expert assumed that had Plaintiff not been terminated, his dealership would have remained as valuable as it had been in recent years. Manufacturer said this was mere speculation. However, the damages calculated by the expert under “goodwill” were the sum of the discounted future earnings of the dealership based on that assumption. This, the court held, was a standard method of business valuation—the “capitalized earnings” approach.
In addition, Manufacturer argued that even if it could not lawfully reduce Plaintiff’s territory to zero, it could shrink it some, which would reduce his profits. Judge Posner, however, held that the jury was entitled to find that any shrinkage attempted by Manufacturer would have been a further attempt to move the dealership without complying with the contract or with the duty of good faith performance imposed by contract law.
Manufacturer had other complaints about Plaintiff’s accounting expert, but Judge Posner said they also went not to the admissibility of the accounting expert’s testimony but to its weight. Manufacturer had the opportunity to discredit Plaintiff’s accounting expert’s testimony before the jury, the judge explained. It tried to do so, and “succeeded in persuading it to award Plaintiff only about half the damages calculated by Plaintiff’s accounting expert.”
The decision of the district court and the jury award were affirmed.