Cole v. Homier Distributing Co., Inc.

Citations: 599 F.3d 856; 2010 U.S. App. LEXIS 6464; 2010 WL 1171741Docket: 09-1725

Court: Court of Appeals for the Eighth Circuit; March 29, 2010; Federal Appellate Court

Original Court Document: View Document

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The appeal involves Gregory M. Cole and Cole's Tractor Equipment, Inc. against Homier Distributing Company, Inc. concerning claims related to the dissolution of their agreements. Appellants filed breach-of-contract claims, alongside violations of the Missouri Franchise Act, tortious interference, and fraud. The district court dismissed the tortious interference and fraud claims due to failure to state a claim and later granted summary judgment in favor of Homier, citing Appellants' inability to prove damages.

Cole, the sole owner of Cole's Tractor, entered an oral agreement with Homier in December 2002 to become a distributor for Farm Pro tractors, establishing over thirty dealerships in Missouri by September 2004. However, in July 2004, Homier implemented a policy prohibiting dealers from selling Farm Pro products through electronic auction websites, while not restricting its own sales in that manner. Subsequently, the parties formalized their oral agreement in two written documents on September 20, 2004: the Distributorship Agreement, which granted Cole exclusive distribution rights in Missouri and outlined termination procedures, and the Purchase Agreement, which enabled Cole to purchase and sell caged tractors while maintaining stock of parts.

By June 2007, Cole's sales had significantly decreased, with only 24 out of the 38 originally established Farm Pro Dealerships still operational. Cole attributes this decline to Homier's failure to supply necessary equipment and a price increase on Farm Pro tractors. On June 15, 2007, Homier notified Cole of its intent to terminate the Distributorship Agreement within 90 days, citing Cole's poor sales performance and lack of territory development, though stating that Cole could continue as a Farm Pro dealer. During the notice period, Homier allegedly marketed and sold directly to Cole's dealerships. Cole filed a lawsuit against Homier in Missouri state court for breach of contract, tortious interference, fraud, and constructive termination without proper notice. Homier removed the case to federal court, where the district court dismissed the tortious interference and fraud claims for failure to state a claim, granted a Daubert motion to exclude Cole's damages expert report, and ultimately granted summary judgment in favor of Homier on the breach of contract claims. The court also dismissed the constructive termination claim due to lack of evidence of relevant sales. Cole's motions to strike certain exhibits and respond to them were denied. Cole is appealing these rulings. In addressing Cole's appeal on the dismissal of tortious interference and fraud claims, the court emphasizes that to survive a motion to dismiss, claims must be facially plausible, accepting the allegations as true and allowing reasonable inferences in favor of the nonmoving party. If only a mere possibility of misconduct is inferred from the allegations, the complaint is subject to dismissal.

Count III of Cole's complaint alleges tortious interference with contracts and business expectancies under Missouri law, which requires proof of five elements: 1) a contract or valid business expectancy; 2) the defendant's knowledge of the contract or relationship; 3) intentional interference by the defendant causing a breach; 4) absence of justification; and 5) damages from the defendant's actions, as established in *Horizon Mem'l Group, LLC v. Bailey*. Cole claims that Homier interfered with its dealer relationships by selling directly to them, violating the Distributor Agreement. The district court dismissed this claim, concluding that the dealership agreements were not preexisting but arose from the agreements with Homier, thus failing to support a tortious interference claim.

Missouri law permits a claim for tortious interference even without an existing contract, provided there is a reasonable expectancy of a business relationship. However, a plaintiff cannot claim interference with a business expectancy involving a party to the contract that created that expectancy. The critical issue was whether Cole had independent relationships with its dealers before the agreement with Homier. The complaint indicated that Cole established no such relationships prior to entering into the Distributorship Agreement with Homier; the dealership agreements were formed only after this agreement.

Cole's reliance on *American Business Interiors, Inc. v. Haworth, Inc.* and *BMK Corp. v. Clayton Corp.* was unpersuasive, as both cases involved plaintiffs with legitimate expectations arising from prior business relationships, unlike Cole’s situation. Consequently, without evidence of independent business relationships predating its agreement with Homier, Cole's claim for tortious interference was dismissed, affirming the district court's decision.

Count IV of Cole's complaint asserts a fraud claim under Missouri law, requiring proof of six elements: 1) a material representation by the defendant; 2) knowledge of its falsity; 3) intent for the plaintiff to rely on it; 4) plaintiff's ignorance of its falsity; 5) justifiable reliance by the plaintiff; and 6) damages incurred by the plaintiff. Cole claims that Homier promised an exclusive distributorship in Missouri in exchange for establishing dealerships, but intended to bypass Cole and deal directly with those dealerships once they were established. The crux of the appeal is whether Homier intended not to honor its representations at the time of the agreement, as lacking this intent means there is no misrepresentation, only a breach of promise. The district court dismissed Cole's fraud claim, finding insufficient evidence of Homier's intent not to perform. On appeal, Cole argues that Homier's actions—favoring oral agreements, not providing necessary parts, giving inconsistent reasons for terminating the agreement, and contacting Cole’s dealerships—demonstrate such intent. However, the court found these allegations do not convincingly indicate a fraudulent intent at the time of the agreement. The court noted that the performance of the agreement for almost two years does not inherently indicate a fraudulent intent, as it could be consistent with a genuine intent to perform. Thus, the allegations did not sufficiently differentiate between a breach of contract and a fraud claim.

Cole alleges that Homier's inconsistent reasons for terminating the Distributorship Agreement imply fraudulent intent at the agreement's inception. Cole argues that despite Homier citing poor performance as the reason for termination, he was actually Homier’s best distributor, and Homier was also incurring losses. However, the court notes that Cole's complaint and the supporting documents do not substantiate this claim. The inconsistencies Cole refers to come from deposition testimony not included in the permissible documents for a motion to dismiss. Consequently, Cole cannot support his claim against a motion to dismiss. Even if the outside documents were considered, the reasons given by Homier in the termination letter do not contradict Cole's claims on appeal. Additionally, Cole's assertion that Homier breached the agreement by contacting dealerships during the notice period does not indicate fraudulent intent at the time of the agreement. Missouri case law establishes that subsequent breaches alone are insufficient to infer intent to defraud at the contract's inception. Cole's allegations merely suggest a change in Homier's business decisions, which does not legally constitute fraud. 

Regarding the summary judgment, the court examines Cole's contention that the district court incorrectly granted summary judgment on several counts. The standard for summary judgment requires no genuine material fact issues, favoring the moving party. The district court dismissed Cole's damages expert, Dr. Basi, ruling that Cole could not prove damages otherwise, as Cole's subsequent affidavits contradicted earlier claims that relied solely on Dr. Basi’s testimony. Summary judgment was also granted on Count V due to a lack of evidentiary support for Cole's claims about sales of whole goods. Cole is appealing these rulings.

Counts I and II concern contract claims under Missouri law, requiring plaintiffs to demonstrate damages with reasonable certainty. Specifically, for lost-profit damages, a plaintiff must provide a sufficient basis for estimating such damages. Failure to satisfy this evidentiary burden can lead to summary judgment. The analysis begins with Dr. Basi's damages report, which was deemed inadmissible by the district court due to reliance on incorrect factual assumptions and speculative calculations. Expert testimony is admissible if reliable and relevant, but it should be excluded if fundamentally unsupported. The district court found that Dr. Basi’s report was flawed both factually and methodologically, particularly because he incorrectly assumed Cole lost its ability to sell as a dealer after the termination of the Distributorship Agreement, despite evidence indicating that Cole's dealer status remained intact. Dr. Basi's reliance on this erroneous premise rendered his lost-profit analysis invalid. Cole argued that the district court should have focused on the validity of accounting methods rather than factual errors, contending these issues pertain to credibility for the jury. However, since Dr. Basi's analysis lacked support from the record, its exclusion was appropriate as it could not assist the jury.

Dr. Basi's report was excluded by the district court due to its speculative nature, primarily because it projected lost profits over a twenty-five year period, which the court deemed unsupported by the facts of the case. The district court referenced prior case law, notably Structural Polymer Group, Ltd. v. Zoltek Corp. and Tipton v. Mill Creek Gravel, Inc., emphasizing that under Missouri law, lost profits must be ascertainable with reasonable certainty and cannot be based on speculation. The report lacked a connection between the facts and Dr. Basi's analysis, as it failed to consider the Distributorship Agreement’s provision allowing termination with 90 days’ notice, rendering a long-term forecast unrealistic. Previous rulings highlight that while exact calculations are not necessary, lost profit predictions cannot be speculative. Although Cole contended that Missouri's requirements for lost-profit damages have been relaxed, the court found no basis for this assertion, reaffirming that the exclusion of Dr. Basi's twenty-five year forecast was justified and did not constitute an abuse of discretion.

The agreement's requirement for cause for termination and its indefinite nature do not affect the court's decision regarding the exclusion of a speculative twenty-five year profit forecast based on age and government benefits eligibility. The court found that Dr. Basi's report was too speculative to constitute competent proof of damages, thus affirming the district court's exclusion of his testimony. Additionally, Cole's attempt to prove damages through other means after opposing summary judgment was rejected because it contradicted its earlier position during discovery, where it stated reliance on Dr. Basi's calculations. The court highlighted that a party cannot avoid summary judgment by contradicting previous sworn testimony. Cole's argument that its later affidavits were merely clarifications was dismissed, as the record showed a clear reliance on Dr. Basi's report. Furthermore, Cole's claim of needing documents to prove damages was undermined by evidence that the documents had been available before discovery closed, indicating a failure to inspect them rather than a legitimate justification for the contradiction.

Cole's appeal includes references to Homier's response to interrogatories, revealing $95,513.90 in sales of tractors and parts to dealerships before termination notice. However, Cole did not claim damages in the complaint related to these dealer sales. The contract claims specifically alleged damages due to: 1) Homier's termination without good cause; 2) direct sales of whole goods to the public in Missouri; 3) inadequate supply of tractors for resale; and 4) lack of sufficient repair parts for warranty obligations. The complaint did not indicate any intention to seek damages from direct-to-dealer sales, preventing their use against summary judgment as established in N. States Power Co. v. Fed. Transit Admin. 

Regarding Mo. Rev. Stat. 407.405, which requires 90 days' notice before terminating a franchise agreement, Cole claimed Homier violated this by selling to dealerships during the notice period. Homier contended there was no evidence of such sales. Cole's affidavit mentioned $3,247.84 in sales during this period, but the district court deemed this a "sham issue," lacking documentary support. However, upon review, evidence from Christy Cole’s depositions indicated potential direct sales of whole goods during the notice period, supported by invoices. Thus, there are factual disputes regarding these sales. The district court's summary judgment on Count V is reversed, while the dismissal of Counts I and II is affirmed. The case is remanded for further proceedings.