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Kolb v. Chrysler Corp.

decided: October 15, 1981.


Appeal from the United States District Court for the Eastern District of Wisconsin.

Before Cummings, Chief Judge, Kunzig, Judge,*fn* and Cudahy, Circuit Judge.

Author: Kunzig

This is an action by plaintiff-appellant Kolb arising out of his participation in a car dealership under defendant-appellee Chrysler's "Dealer Enterprise" (D.E.) program. A jury verdict in favor of Kolb was set aside by the district judge upon a motion for judgment notwithstanding the verdict (J.N.O.V.). We now partially reject and partially sustain Kolb's appeal from that decision.

On or about February 24, 1969, Chrysler and Kolb-the latter a Chrysler District Manager-together established a car dealership in Wisconsin named "Waukesha Chrysler-Plymouth (Corporation), Inc." Kolb contributed $30,000 in exchange for 100 percent of the common stock of the Corporation and Chrysler contributed $90,000 in exchange for 100 percent of the preferred stock. Only the preferred stock had voting power. Plaintiff and two officers of Chrysler became the directors of the Corporation, plaintiff also serving as president and general manager.

The parties further executed a written stock agreement. Pursuant to this agreement, Kolb was required gradually to purchase the outstanding preferred stock of the Corporation from Chrysler utilizing bonuses paid to him by the Corporation. Immediately after each purchase, Kolb was to exchange the preferred for additional common stock of the Corporation, thereby preserving Chrysler's exclusive voting power so long as the preferred stock was outstanding. The agreement also contained a common stock buy-out provision to apply in the event of Kolb's departure from the business.

Finally, Chrysler entered into a direct dealer agreement with the Corporation, granting it a franchise to market Chrysler passenger cars, parts and accessories. Kolb signed this contract on behalf of the Corporation.*fn1

Kolb's management proved unsuccessful. The dealership lost approximately $30,000 in 1969 and an additional $60,000 during the first half of 1970. In July 1970, Chrysler obtained Kolb's resignation as an officer and director. It later bought out his stock for nominal consideration and sold the assets of the Corporation to a private capital dealer. The business thereafter prospered. Kolb, however, suffered a complete loss of his investment in the project.

On June 29, 1971, Kolb filed this lawsuit, alleging numerous federal and state claims. Most of the claims were dismissed upon defendant's motion for summary judgment in a comprehensive decision by District Judge Robert W. Warren. Kolb v. Chrysler Corp., No. 71-C-326 (E.D.Wis. Sept. 30, 1977)*fn2 At trial, District Judge Terence T. Evans, presiding, only four counts remained.

The first two counts concerned alleged violations of federal and state Dealer Acts. The Automobile Dealer's Day in Court Act, 15 U.S.C. §§ 1221-1225 (1976), gives an automobile dealer the right to recover damages caused by the failure of an automobile manufacturer to act in "good faith" in performing the terms of the franchise agreement or in terminating or not renewing the dealer's franchise. § 1222. The Act defines "good faith" as follows:

The term "good faith" shall mean the duty of each party to any franchise ... to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party: Provided, That recommendation, endorsement, exposition, persuasion, urging or argument shall not be deemed to constitute a lack of good faith.

s 1221(e). See, e.g., Autohaus Brugger, Inc. v. Saab Motors, Inc., 567 F.2d 901 (9th Cir.), cert. denied, 436 U.S. 946, 98 S. Ct. 2848, 56 L. Ed. 2d 787 (1978); Lawrence Chrysler Plymouth, Inc. v. Chrysler Corp., 461 F.2d 608 (7th Cir.), cert. denied, 409 U.S. 981, 93 S. Ct. 317, 34 L. Ed. 2d 245 (1972). The Wisconsin Dealer Act provides a private remedy to dealers if a manufacturer has "unfairly, without due regard to the equities of said dealer and without just provocation, canceled the franchise of any motor vehicle dealer," or "induced or coerced ... any motor vehicle dealer to accept delivery of any motor vehicle or vehicles, parts or accessories therefor, or any other commodities which shall not have been ordered...." Wis.Stat.Ann. § 218.01(3)(a) 15, 17 and (9) (1980-1981 Supp. West). "The purpose of the law is to furnish the dealer with some protection against unfair treatment by the manufacturer." Forest Home Dodge, Inc. v. Karns, 29 Wis.2d 78, 85, 138 N.W.2d 214, 218 (1965).

The two remaining counts were for breach of contract and fraud. The breach claim was premised upon the following provision of the stock agreement:

As soon as practical after the initial twelve (12) months of Manager's (i. e., Kolb's) operation, the Corporation's (i. e., dealership's) auditors shall determine if the Corporation has sustained a net operating loss during and for such period, and shall advise the Board of Directors of the Corporation the amount of any such loss. Thereupon the Board of Directors shall notify Chrysler and Manager of the amount of such loss. Upon receipt of such notice, Chrysler and Manager shall determine if additional capital is required to maintain the capital of the Corporation at a satisfactory level, and, if so, the amount of additional capital that shall be required. Chrysler and Manager shall each contribute to the capital of the Corporation in cash, a proportionate share of such additional capital.

Kolb complained that Chrysler failed to perform the twelve-month audit and to contribute additional capital to offset the first year losses.

The court submitted the case to the jury upon a special verdict with written questions. The jury's responses were not entirely favorable to either side. The jury found: 1) violation of the federal Dealer Act, damages of $135,000; 2) violation of the state Dealer Act, no damages; 3) breach of the written stock agreement, damages of $30,000; 4) no fraud. Both parties then moved for judgment notwithstanding the verdict under Fed.R.Civ.P. 50. Kolb requested that the verdict be set aside insofar as the jury found no damages under the state Dealer Act and no fraud. Chrysler sought a determination that it had not violated the Dealer Acts, federal or state, and had no liability under the stock agreement. Chrysler's motion was granted, Kolb's denied. Kolb's action was dismissed. Kolb v. Chrysler Corp., No. 71-C-326 (E.D.Wis. June 24, 1980).

With regard to the purported Dealer Act violations, the court said: "The verdict of the jury that Chrysler violated both the federal and the state laws cannot be sustained. No evidence in the record shows that Chrysler acted without just provocation, and certainly nothing Chrysler did can be termed coercion under either law." Id. at 4. Further, "Even if the jury findings on liability were permitted to stand, the record in this case in no way supports a damage award of $135,000 to ...

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