United States District Court, D. South Dakota, Southern Division
SIOUX FALLS KENWORTH, INC., d/b/a ISUZU TRUCKS OF SIOUX FALLS, Plaintiffs,
ISUZU COMMERCIAL TRUCK OF AMERICA, INC., Defendant.
OPINION AND ORDER ON POST-TRIAL MOTIONS
ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE
Falls Kenworth Inc., doing business as Isuzu Trucks of Sioux
Falls (SFK), sued Isuzu Commercial Truck of America Inc.
(Isuzu) asserting various statutory, contractual, and
quasi-contractual claims relating to Isuzu's termination
of SFK's Isuzu dealership and Isuzu's handling of
SFK's claims for payment for warranty-covered service
work. After a mixed jury verdict awarding SFK $ 1, 676, 000
in damages, Isuzu moved for remittitur, Doc. 148, judgment as
a matter of law, Doc. 150, and a new trial, Doc. 154. SFK
moved for an award of attorney's fees. Doc. 156. For the
reasons explained below, this Court denies Isuzu's motion
for a new trial on the condition that SFK accept a partial
remittitur of the damages, denies Isuzu's motion for
judgment as a matter of law, and grants SFK's motion for
a truck dealership located in Sioux Falls, South Dakota. It
sells Kenworth, Volvo, and Hino trucks, as well as several
trailer lines. Doc. 138-1 at 33. SFK is owned by North
American Truck and Trailer (NATT), a holding company that
owns seventeen dealerships in four different states. Doc.
138-1 at 32-33, 129-32. William Rush is the president of
NATT, and he and his family own the company in its entirety.
Doc. 138-1 at 31, 33.
management includes Rush,  his son Michael Rush, Dan Mills, and
Doug Wersal. Doc. 138-1 at 35. Rush's son Michael is the
vice president of sales, responsible for managing SFK's
sales force and vehicle inventory. Doc. 138-1 at 36. Mills is
SFK's fleet service manager, a position that gives him
authority to implement policies and procedures for all of
NATT's service departments. Doc. 138-1 at 37; Doc. 138-2
at 77. Mills works from an office in his home in Geddes,
South Dakota, where he also farms. Doc. 138-2 at 98-100.
Wersal oversees SFK's parts department. Doc. 138-1 at 40,
154; Doc. 138-3 at 39.
January 2010, SFK entered into a franchise agreement with
Isuzu to sell and service Isuzu products. Doc. 138-1 at 42;
PL's Ex. 4. SFK did not pay Isuzu anything for the
franchise agreement, but did purchase its own Isuzu parts,
tools, inventory, and signage. Doc. 138-1 at 135. Article
V.A.3. of the franchise agreement provided that if Isuzu
desired to terminate the agreement for a failure of
performance, Isuzu would "endeavor to review" the
failures with SFK and would determine, based on a plan
proposed by SFK, whether SFK could remedy its failures, and
if so, then allow SFK a reasonable amount of time in which to
remedy any failure. Doc. 47-6 at 47; PL's Ex. 4. If,
however, Isuzu terminated the franchise agreement for one of
the reasons listed in Article V.A.2., including SFK's
submission of a ''false or fraudulent" warranty
reimbursement claim, then the review procedure described in
Article V.A.3. of the agreement did not apply. Doc. 47-6 at
46-47; PL's Ex. 4. In 2011, NATT's dealership in
Rapid City-Black Hills Truck and Trailer-also obtained an
Isuzu franchise, which it still has today. Doc. 138-1 at 43,
customer base for Isuzu trucks was mainly local. Doc. 138-1
at 41-42. National companies with a presence in Sioux Falls
like Schwan's Company and Fed Ex Corporation would
purchase "mega-fleets" of Isuzu trucks elsewhere,
so SFK could not easily penetrate the mega-fleet market. Doc.
138-1 at 41-42. Accordingly, SFK only sold six new Isuzu
trucks during its approximately five years as an Isuzu
dealer. Doc. 138-1 at 50; PL's Ex. 2. SFK's primary
activity as an Isuzu dealer was the sale of parts for and
service on Isuzu mega-fleets that were purchased elsewhere
but used in the Sioux Falls area. Doc. 138-1 at 47, 50-51.
Cunningham, a district parts and service manager for Isuzu
who oversaw Isuzu's franchise relationship with SFK and
multiple other dealerships, testified that Isuzu deemed SFK a
"telecontact" dealer, a designation that Isuzu
assigned to vehicle dealers in smaller markets. Doc. 138-5 at
12. SFK's status as a telecontact dealer meant that Isuzu
would communicate with SFK through email and telephone rather
than traveling to Sioux Falls. Doc. 138-4 at 132-33; Doc.
138-5 at 12. Cunningham explained that she would visit a
telecontact dealer if asked, but that SFK never made such a
request. Doc. 138-4 at 133.
Isuzu franchise holder, SFK would do warranty repairs on
Isuzu vehicles and then seek reimbursement from Isuzu for
such repairs. Vehicle dealers like SFK use a computerized
communication system called ICS to submit their claims for
warranty work to Isuzu. Doc. 138-2 at 115-16; Doc. 138-4 at
136, 141. Isuzu has a guide that lists the standard repair
times allotted for dealers to fix particular issues covered
by warranty. Doc. 138-1 at 90; Doc. 138-2 at 106-07; Doc.
138-4 at 136; Doc. 138-5 at 41, 51, 146-47. If the dealer is
unable to fix the problem within the standard repair time, it
can request payment for these "other labor hours"
(OLH) from Isuzu. Doc. 138-4 at 136; see also Doc.
138-1 at 90, 157; Doc. 138-5 at 150-51. Isuzu had informed
SFK and other dealers that they must explain their requests
for OLH. Def's Ex. 124; Doc. 138-4 at 139."
September 2013, Isuzu and SFK were having issues over the
warranty claims SFK submitted. On September 11, 2013,
Cunningham emailed Mills about some warranty claims Mills had
submitted that were beyond the usual 90-day period for claims
submission. Def.'s Ex.130; Doc. 138-4 at 145-150.
Cunningham also asked Mills for the repair orders and other
documentation on some of the claims he submitted so that she
could determine whether the OLH Mills requested was
justified. Def.'s Ex. 130; Doc. 138-4 at 148. Mills
apologized that the claims were late and said that it would
not happen again because he had restructured the service
department. Def.'s Ex. 130; Doc. 138-2 at 189. This
restructuring included Mills assuming responsibility for
submitting warranty claims to Isuzu for work performed by
SFK's service department. Doc. 138-1 at 37; Doc. 138-2 at
74, 99-100, 164-66, 189. Before Mills took over, Sarah Lee
and then Verlyn Wiertzema submitted warranty claims to Isuzu,
and there appeared to be few issues with SFK's warranty
work or Isuzu's payment thereof when Lee and Wiertzema
were submitting warranty claims. Doc. 138-2 at 164-65.
September 14, 2013, Cunningham emailed Mills to tell him that
she was returning four of the warranty claims discussed in
the September 11, 2013 email because Mills had yet to send
the repair orders and other documents she had requested.
Def.'s Ex. 130; Doc. 138-4 at 150. Mills did not send the
requested repair orders and other documents until October 3,
2013. Doc. 138-4 at 150-51; Def.'s Exs. 131-134.
Cunningham emailed Mills on October 4 asking for a repair
order on a particular claim. Doc. 138-4 at 152; Def.'s
Ex. 137. When Mills did not respond, Cunningham emailed him
again on October 8 asking him to send the repair order
"ASAP." Def.'s Ex. 137. Nearly two months
passed before Mills sent the repair order on December. 4,
2013. Doe. 138-4 at 153-54; Def.'s Ex. 140. Cunningham
emailed Mills the following day saying that she was returning
two claims to Mills because they lacked an adequate
explanation for OLH. Def.'s Ex. 142; Doe. 138-4 at
155-56. Cunningham reiterated to Mills that claims for OLH
required detailed explanations. Def.'s Ex. 142.
December 17, 2013, Mills emailed Cunningham asking her to
increase the rate Isuzu paid for parts SFK used in Isuzu
warranty repairs. Def.'s Ex. 210; Doc. 138-2 at 14. Under
South Dakota law, the reimbursement a manufacturer pays a
vehicle dealer for parts the dealer uses in warranty repairs
"may not be less than the current retail rate
customarily charged by the vehicle dealer for such
parts." South Dakota Codified Laws (SDCL) §
32-6B-61. Section 32-6B-61 states that when establishing a
compensation schedule for warranty work, manufacturers
"shall rely on the vehicle dealer's written schedule
of hourly labor rates and parts and may not obligate any
vehicle dealer to engage in unduly burdensome documentation
thereof, including, " without limitation, obligating
vehicle dealers to engage in transaction by transaction
calculations." Id. Mills told Cunningham in one
of his December 2013 emails that "other
manufacturers" were paying a 72% parts markup on
warranty repairs. Def.'s Ex. 210; Doc. 138-2 at 14.
December 2013, Isuzu granted SFK's requester an increase
in the hourly rate Isuzu paid SFK for labor on warranty
repairs. Def.'s Ex. 267; Doc. 138-4 at 214. Around that
same time, Mills emailed Cunningham expressing frustration
that Isuzu had not paid a particular warranty claim even
though he had submitted a repair order explaining the claim
over two weeks earlier. Def.'s Ex. 148. He asked
Cunningham if she would be in the office the following day,
and Cunningham replied that she would. Def.'s Ex. 148.
Cunningham wrote in an email that she was happy to discuss
any claims Mills wanted, but Mills never called her.
Def.'s Ex. 148; Doc. 138-4 at 158-59.
early January 2014, Mills emailed Cunningham that SFK's
markup rate on Isuzu parts was 66%. Def.'s Exs. 153, 213;
Doc. 138-2 at 15-16. He attached four identical invoices as
proof of a 66% retail markup rate charged by SFK.
Doc. 138-4 at 198-200; Def.'s Ex. 216. Later that month,
Cunningham asked Mills for fifty consecutive repair orders to
establish the retail rate SFK customarily charged. Def.'s
Ex. 217; Doc. 138-4 at 201. Mills neither provided the fifty
consecutive repair orders nor called Cunningham to talk about
her request. Doc. 138-4 at 201-02. Instead, Mills sent
Cunningham a follow-up email on February 25, 2014, stating
that although he knew Cunningham had requested more
information, he "did not have any" and, in any
event, "in our state all we need to do is display what
our system is set at." Def.'s Ex. 219. Mills
reiterated in the email that he would be satisfied with a
66% markup rate on Isuzu parts. Def.'s Ex. 219.
spring of 2014, Isuzu requested a meeting with SFK to discuss
SFK's sales and warranty claims. Doc. 138-1 at 150-51;
Doc. 138-4 at 164-65. Isuzu arranged for Cunningham,
Isuzu's central region director Mike Donaldson, and
Isuzu's life-cycle business manager Patrick Becker to
travel to Sioux Falls to meet with SFK on May 12, 2014.
Def.'s Ex. 113; Doc. 138-1 at 153-54; Doc. 138-4 at 169;
Doc 138-5 at 62; Doc. 138-5 at 117-18. Although Michael Rush
knew of the planned meeting and Cunningham had sent Mills an
email telling him about it, neither man attended. Doc. 138-1
at 151; Doc. 138-2 at 147; Doc. 138-3 at 29-30; Doc. 138-4 at
165; Def.'s Ex. 114: Cunningham, Donaldson, and Beckermet
with William Rush in his office for approximately an hour and
a half. Doc. 138-5 at 68, While discussing the parts markup
rate SFK was requesting, Rush told Isuzu that SDCL §
32-6B-61 did not require SFK to provide Isuzu with repair
orders to establish its markup rate. Doc. 138-1 at 79-82, 85;
Doc. 138-5 at 74, 77; PL's Ex. 9. Rush and the Isuzu
representatives also discussed the training of SFK's
parts personnel and its service technicians. Doc. 138-1 at
67-69, 119, 160.
the meeting concluded, Wersal gave the Isuzu representatives
a document listing four different markup rates that Black
Hills Truck and Trailer used for Isuzu parts. Doc. 13 8-1 at
154; Doc. 138.-3 at 43, 50-51; Doc. 138-4 at 202; Doc. 138-5
at 74, 120; Def.'s Ex.. 222. Wersal later emailed
Cunningham that SFK's standard markup rate for Isuzu
parts was 58%. Def.'s Ex. 223; Doc. 138-3 at 44. Wersal
attached a document listing four different markup rates that
SFK used for Isuzu Parts. Doc. 138-3 at 49-51; Def.'s Ex.
223. Cunningham replied that she Would forward the
information to Isuzu's corporate office and would contact
Wersal if she had any questions. Def.'s Ex. 115; Doc.
138-4 at 203.
after the meeting with Isuzu representatives, Rush sent Mills
a memo saying that the rejected warranty claims should be
resubmitted with an explanation of the requested OLH.
PL's Ex. 8; Doc. 138-2 at 193. That same day, Donaldson
emailed Rush requesting the South Dakota statute saying that
said SFK did not have to provide repair orders to establish
its parts markup rate. Def.'s Ex. 9; Doc. 138-1 at 85.
Rush emailed the text of SDCL § 32-6B-61 to Donaldson,
who then forwarded Rush's email to Paul Hirose, an
in-house attorney for Isuzu. PL's Ex. 9; Doc. 138-5 at
77-78. On May 15, 2014, Donaldson forwarded Rush an email
from Hirose saying that Isuzu was requesting one hundred
consecutive repair orders to calculate SFK's parts markup
rate. PL's Ex. 9; Doc. 138-1 at 86-87. Hirose asserted
that providing 100 repair orders was not "unduly
burdensome" under SDCL § 32-6B-61 because the
repair orders already existed and should not be difficult to
print or download. Def.'s Ex. 9; Doc. 138-1 at 86- 87.
Rush did not respond to Donaldson about the forwarded email
from Hirose. Doc. 138-5 at 80.
in May 2014, Cunningham sent a mass email to SFK and other
vehicle dealers advising that Isuzu had added more training
classes and that the dealers' franchise agreements
required them to have two fully-trained Isuzu technicians.
PL's Ex. 20; Doc. 138-5.at 10.
mid-June 2014, Donaldson sent Rush an email listing the
warranty claims Isuzu had yet to pay and stating that the
main problem with these claims was a failure to adequately
explain the requests for OLH. PL's Ex 10; Doc. 138-5 at
80. Rush did not respond to Donaldson's email. Doc. 138-5
10, 2014, Cunningham emailed Mills about SFK's warranty
claim for a transmission replacement SFK had done on a Fed Ex
truck back in April. Doc. 138-4 at 174-76; Def.'s Ex.
176; PL's Ex. 61. Cunningham asked Mills to reduce the
amount of OLH he was requesting for the transmission
replacement, but Mills replied that he did not agree with the
proposed reduction. Def.'s Ex. 176; Doc. 138-4 at 174.
Cunningham and Mills also exchanged emails in July concerning
the training of SFK's technicians. Def.'s Ex. 247;
Doc. 138-4 at 226-27. Mills questioned the wisdom of
requiring SFK to have two technicians certified on Isuzu
vehicles when SFK did not have enough business from Isuzu to
keep even one certified technician busy. Def.'s Ex. 247.
Cunningham explained that she wanted SFK to have two
fully-certified technicians so that there would be no gaps in
service if an Isuzu-trained technician went on vacation or
left the dealership. Def.'s Ex. 247. At trial, however,
Cunningham testified that there was a time in 2014 when none
of the twenty to twenty-five Isuzu dealers she supervised had
two fully-trained Isuzu technicians. Doc. 138-4 at 241-244;
PL's Ex. 36. She also admitted that she did not know how
many fully-trained technicians the franchise agreement
required SFK to have. Doc. 138-3 at 99; Doc. 138-5 at 10.
29, 2014, Mills submitted a warranty claim to Isuzu that
requested 53.1 hours of OLH. Doc. 138-2 at 120-21, 182, 197;
Doc. 138-4 at 183-84, 233; Def.'s Ex. 206. Isuzu
responded on ICS that the claim was excessive, but did not
specifically mention that Mills's claim was requesting
53.1 hours of OLH. Def.'s Ex. 206; Doc. 138-2 at 121,
197. Around that same time, Mills emailed Cunningham asking
her why SFK's parts markup rate had not been changed to
58%. Def 's Ex. 227. Cunningham forwarded Mills the email
from Hirose asking for 100 consecutive repair orders and told
Mills that Isuzu had yet to receive the requested
documentation. Def.'s Ex. 227; Doc. 138-4 at 206.
and Cunningham continued to exchange emails concerning the
April 2014 Fed Ex warranty claim until August 8, 2014, when
Cunningham wrote the following message to Mills in ICS:
"YOU HAVE FAILED TO SUPPORT DOCUMENTATION FOR EXCESSIVE
OLH. CLAIM DENIED. RESUBMIT FOR REASONABLE
OLH." PL's Ex. 61; Doc. 138-4 at 177; Doc.
138-5 at 23. Rush testified at trial that because of other
communications Isuzu had sent SFK, he believed that a denied
claim could not be resubmitted. Doc. 138-1 at 96.
August 11, 2014, Michael Rossetti, the director of field
operations for Isuzu, sent Rush a letter expressing concern
about the warranty claims Mills had been submitting. Doc.
138-1 at 89; PL's Ex. 11. Rossetti provided Rush with
examples of his concerns, including Mills's failure to
submit 100 consecutive repair orders to support SFK's
claim for a 58% markup rate on Isuzu parts, his July 29, 2014
warranty claim for 53.1 hours of OLH for a job with a
standard repair time of 1.1 hours, and his claim for OLH on
the April 2014 Fed Ex truck transmission replacement.
PL's Ex. 11. Rossetti wrote that although Isuzu was
denying the claim for OLH on the Fed Ex transmission because
it was incorrect and unsupported by an explanation, Isuzu
would reimburse SFK for a reduced amount of OLH if Mills
supplied the appropriate information. PL's Ex. 11. Rush
forwarded Rossetti's letter to Mills rather than
responding himself. Doc. 138-1 at 93; Doc. 138-2 at 42-43;
Doc. 138-5 at 177.
September 3, 2014, Mills had corrected the July 29, 2014
warranty claim so that it now requested 5.3 hours of OLH
rather than 53.1. PL's Ex. 60; Doc. 138-4 at 236-38.
SFK's entry of 53.1 hours resulted from SFK trying to
enter 5.31 hours into Isuzu's ICS system when that system
accepted only one digit after the decimal and auto-corrected
the 5.31 entry to 53.1. Doc. 138-1 at 109-112; Doc, 138-2 at
120, 182. In a September 9, 2014 email to Donaldson,
Cunningham wrote that she didn't think the OLH request of
5.3 hours for this warranty claim "[was] too bad."
PL's Ex. 40; Doc. 138-4 at 238-40.
expected SFK to bill repairs covered by Isuzu warranty to
Isuzu and not to the customer. SFK followed this practice,
although its customer agreements contained language entitling
SFK to bill the customer. Doc. 138-1 at 99, 102. In
mid-September 2014, after Isuzu had not paid SFK for its
April 2014 warranty claim on replacing a Fed Ex transmission,
SFK sent a bill for $11, 714.87 to Fed Ex stating that Fed
Ex's warranty, claim had been denied. Def.'s Exs.
181, 202; Doc. 138-2 at 52-53. Fed Ex is one of the largest
customers of Isuzu trucks in the United States. Doc. 138-6 at
135. Fed Ex reported to Isuzu being billed directly for the
transmission replacement. Def.'s Ex. 181. Rush explained
at trial that Isuzu's refusal to pay the warranty claim
prompted SFK to bill Fed Ex directly for unpaid or underpaid
warranty work under SFK's customer agreement with Fed Ex.
Doc. 138-1 at 99, 102. Rossetti sent Rush an email on October
8, 2014, stating that SFK had neither responded to his August
11 letter nor resubmitted the warranty claims discussed in
that letter. PL's Ex. 14. Rossetti further asserted that
SFK had violated the franchise agreement by billing Fed Ex
for the transmission replacement and that Isuzu had declined
to pay for this work because SFK had refused to document its
request for OLH. PL's Ex. 14. Rossetti concluded the
email by stating "As these matters are urgent and
serious, would you please let me know when you will be
available this week for a telephone call?" PL's Ex.
14. Rush never responded to Rossetti. Doc. 138-2 at 46-47;
Doc. 138-5 at 178-79.
meantime, Mills emailed Cunningham saying that South Dakota
law did not require SFK to submit 100 consecutive repair
orders to establish its parts markup rate. PL's Ex. 15.
Mills also wrote that he would resubmit a particular warranty
claim but that the claim would become the customer's
responsibility if Isuzu did not pay. PL's Ex. 15.
Cunningham forwarded Mills's email to Rossetti, who
emailed Mills and Rush on October 10, 2014. PL's Ex. 15.
Rossetti wrote that the franchise agreement required SFK to
perform warranty work for Isuzu -customers free of charge to
the customers, and that SFK had failed to properly document
its warranty claims. PL's Ex. 15. He also wrote that
until "Mr. Rush and Isuzu discuss these violations of
your Isuzu dealer agreement and your mistreatment of Isuzu
customers, all future communications must be with Mr.
Rush." Pi's Ex. 15. Rush did not respond to this
email. Doc. 138-2 at 51-52; Doc. 138-5 at 180.
October 16, 2014, Edwin Robinson, manager of dealer
development for Isuzu, sent Cunningham and Donaldson an email
asking them to read a draft of a termination letter Isuzu
planned on sending SFK and then tell him whether they had any
issues or concerns with it. PL's Ex. 75; Doc. 138-4 at
240-41. Cunningham replied that the draft letter was
"[n]ice" and that her only concern was that the
letter mistakenly referred to Mills as SFK's service
manager. PL's Ex. 75; Doc. 138-4 at 241.
October 17, 2014, Isuzu sent Rush a letter stating that it
intended to terminate the franchise agreement effective
January 23, 2015, claiming that SFK had violated the
agreement as well as SDCL § 32-6B-45. Doc. 138-1 at 100;
PL's Ex. 16. Under § 32-6B-45, a franchisor cannot
terminate a franchise agreement "without good
cause." SDCL § 32-6B-45. Good cause is defined as
"failure by a vehicle dealer to substantially comply
with essential and reasonable requirements imposed upon the
vehicle dealer by the vehicle dealership agreement, if the
requirements are not different from those requirements
imposed on other similarly situated vehicle dealers by their
terms." Id. Section 32-6B-45 provides that good
cause for termination also exists if a dealer engages in the
conduct enumerated in subsections (1) through (8) of the
statute. Id. When a franchisor terminates a
franchise agreement, it must comply with §
32-6B-45's notice and cure provision, which requires the
franchisor to "provide a vehicle dealer at least ninety
days prior written notice of termination." Id.
This notice must "state all reasons constituting good
cause for the action and shall provide that the dealer has
sixty days in which to cure any claimed deficiency. If the
deficiency is rectified within sixty days, the notice is
void." Id. The notice and cure provision does
not apply if the vehicle dealer is terminated for any of the
reasons listed in subsections (1) through (7) of §
32-6B-45. Id. Isuzu's letter did not satisfy the
notice and cure provision of § 32-6B-45.
claimed in the October 2014 termination letter that SFK
violated § 32-6B-45(7), ' which states that good
cause for termination exists if the vehicle "dealer has
engaged in conduct which is injurious or detrimental to the
dealer's customers or to the public welfare." SDCL
§ 32-6B-45(7); PL's Ex. 16. Isuzu stated that SFK
had violated § 32-6B-45(7) by submitting "hyper-
inflated warranty reimbursement requests, " including
Mills's request for "more than 50 times the
standard labor hours" for a particular repair; billing Isuzu
customers for warranty repairs; failing to "actively and
effectively" promote the sale of Isuzu trucks; failing
to have an adequate inventory of Isuzu trucks; not having any
fully trained Isuzu service technicians; and not having any
staff fully trained in Isuzu parts. PL's Ex. 16. Isuzu
asserted that these actions also violated the franchise
agreement. PL's Ex. 16. Isuzu concluded the
letter by stating "[w]hile you have indicated no
interest in resolving this matter or complying with the
Agreement, should you now desire to do so, please contact Mr.
Edwin Robinson." PL's Ex. 16. Isuzu's letter,
however, did not follow the procedure set forth in Article
V.A.3. of the franchise agreement for termination for a
failure of performance. Doc. 47-6 at 47; PL's Ex. 4. The
letter did not give SFK sixty days to cure any claimed
deficiency and did not mention the review process described
in Article V.A.3. af all. Shaun Skinner, Isuzu's vice
president and general manager, signed the letter. PL's
trial, Skinner testified that he signed the termination
letter after Robinson drafted it. Doc. 138-6 at 133, 138. He
explained that the key factors causing Isuzu to send the
termination letter were SFK billing Fed Ex for warranty work
and its refusal to communicate with Isuzu. Doc. 138-6 at.
133-34, 143-44. Robinson testified that despite drafting the
letter, he had never investigated whether SFK had enough work
to keep one technician busy working on Isuzu products, never
investigated the circumstances surrounding SFK's claim
for 53.1 hours in OLH on one repair (which had been corrected
to 5.3 hours of OLH by the time of the termination letter),
and never asked how many years of experience SFK's parts
managers had working with Isuzu parts. Doc. 138-3 at 71,
75-76. When asked during his deposition whether the October
2014 termination letter provided SFK with a sixty-day cure
period, Robinson testified that the cure period had started
with Rossetti's August 2014 letter. Doc. 138-3 at. 77-78.
At trial, however, Robinson testified that Isuzu had
determined that a cure period was unnecessary under SDCL
§ 32-6B-45 and the franchise agreement. Doc. 138-5 at
216, 235, 238. Robinson said that he had reviewed South
Dakota law to ensure that the termination was proper. Doc.
138-6 at 30.
the reasons Isuzu gave for terminating SFK came as a surprise
to Rush. He testified that SFK generally scored highly on
customer satisfaction surveys Isuzu sent out to SFK's
customers. Doc. 138-1 at 59-60. He also explained that Isuzu
rarely complained about SFK's performance under the
franchise agreement. Doc. 138-1 at 61-66. Indeed, Rush said
that the termination letter was the first time Isuzu
complained to him that SFK's truck sales or truck
inventory was inadequate, and that the May 2014 meeting was
the first time Isuzu raised the training of SFK's
personnel. Doc. 138-1 at 65-66, 104, 126. According to Rush,
Cunningham discussed the training for SFK's technicians
at the May 2014 meeting, and while Isuzu wanted SFK to have
two fully trained technicians, Rush and the Isuzu
representatives agreed for SFK to have one. Doc. 138-1 at
67-68, 119, 160. Rush had issued an internal, memo recording
his understanding to that effect. Doc. 138-1 at 68-69. Rush
testified that eight of SFK's technicians had completed
at least some of Isuzu's online training modules. Doc.
138-6 at 179-80.
did not respond to the October 2014 termination letter,
choosing to sue Isuzu instead. Doc. 138-2 at 54; Doc. 138-5
at 217; Doc. 138-5 at 226. SFK filed an amended complaint
against Isuzii in November 2014 asserting eight causes of
action. Doc. 47-6. The first cause of action alleged that
Isuzu violated SDCL § 32-6B-45 by terminating the
franchise agreement without good cause; the second and third
causes of action sought declaratory judgments that Isuzu
violated SDCL §§ 32-6B-58 and 32-6B-61 by
underpaying SFK for warranty parts and warranty service work;
the fourth cause of action alleged that Isuzu breached the
duty of good faith and fair dealing; the fifth cause of
action alleged that Isuzu intentionally interfered with
SFK's business relationships; the sixth cause of action
alleged that Isuzu defamed SFK; the seventh cause of action
sought a preliminary injunction to maintain the status quo;
and the eighth cause of action alleged that Isuzu breached
the franchise agreement in how it terminated the agreement.
January 12, 2015, after service of the amended complaint on
Isuzu, Robinson sent Rush a letter concerning the October
2014 termination letter. PI.' s Ex. 18. Robinson
maintained that the termination letter had provided SFK with
ninety days' notice of the termination, a cure period in
excess of sixty days, and "an invitation to contact
[Isuzu] if you had any interest in resolving the bases for
termination." PL's Ex. 18. Robinson's letter
stated that South Dakota law did not require Isuzu to provide
SFK with an opportunity to cure given the reasons for the
termination, but that Isuzu was nevertheless "willing to
consider providing" SFK with an, additional period to
cure the breaches listed in the October 2014 termination
letter. PL's Ex. 18. "If you have any interest in an
additional opportunity to cure, " Robinson wrote,
"please notify me in writing by the end of the day on
Wednesday, January 14, 2015." PL's Ex. 18. Rush did
not respond to the letter. Doc. 138-2 at 55; Doc. 138-5 at
238-39. SFK continued to perform some service work on Isuzu
vehicles around this time, including replacing an engine in
an Isuzu truck belonging to Fed Ex around January 2015. Doc.
138-1 at 116-17. Despite submitting a warranty claim for the
Fed Ex engine replacement to Isuzu, SFK never received any
payment for the engine or labor. Doc. 138-1 at 117.
the claims in SFK's amended complaint did not make it to
trial. The parties stipulated to dismissal of SFK's
defamation claim, Doc. 36, SFK abandoned its request for a
preliminary injunction, Doc. 74 at 107, and this Court
granted Isuzu summary judgment on SFK's claim that Isuzu
intentionally interfered with SFK's business
relationships, Doc 73; Doc. 74 at 107. This left five claims,
some of which were pleaded in a somewhat unclear manner.
Although SFK asked for declaratory judgments that Isuzu
violated §§ 32-6B-58 and 32-6B-61 by underpaying
SFK for warranty work and parts, it also asked for damages
"in an amount to be determined at trial" for these
alleged violations. Doc. 47-6 at 15-17. SFK's next claim,
which was for breach of the implied covenant of good faith
and fair dealing, alleged that Isuzu had breached the implied
covenant "by its actions as set forth in detail
herein." Doc. 47-6 at 17. Ultimately, this Court
determined that the best reading of SFK's amended
complaint was that the claim for breach of the implied
covenant of good faith and fair dealing encompassed SFK's
claims that Isuzu had damaged it by underpaying SFK for
warranty service work and parts. Doc. 138-4 at 119, 126-27;
Doc. 138-6 at 14, 210-11. The parties plainly understood that
the alleged underpayment by Isuzu of SFK's warranty
claims was a claim framed by the amended complaint.
trial, SFK sought damages in the form of lost net profits
from no longer being an Isuzu dealer, costs of Isuzu parts
and inventory, signage expense, not collecting a 58% markup
rate on Isuzu parts used for warranty work, not receiving
payment for adequate time spent on warranty service work, and
not getting paid at all for certain warranty work. Rush was
SFK's witness on damages. Rush has an extensive business
background, including working as a certified public
accountant and operating a business for decades that owns
multiple vehicle dealerships in multiple states. Doc. 138-1
at 31-33. He began his damages testimony by calculating that
in 2014, SFK made $159, 626.14 in net income from its
operation of the Sioux Falls Isuzu franchise based on new
truck sales, parts sales, service, and shop supplies. Doc.
138-4 at 4-32. From there, Rush testified about three
potential methods for projecting the damages SFK suffered by
losing the Isuzu franchise.
Rush explained that in some circumstances, the appropriate
value of a business can be calculated by taking the
business's annual net income times a multiplier of four
to six. Doc. 138-4 at 31-32. Rush testified that applying a
multiplier of four to SFK's $159, 626.14 in net income
resulted in a figure of $638, 504.56, while applying
multiplier of six resulted in a figure of $957, 756.84. Doc.
138-4 at 32. Rush believed, however, that although this
multiplier method was a proper way to evaluate SFK's loss
of the Isuzu franchise, it should not be used in this case
because it failed to take into account the growth rate SFK
had been able to achieve. Doc. 138-4 at 32-33.
Rush testified that another potentially valid method for
calculating SFK's damages was to multiply the net income
in 2014 by an annual growth rate equal to the inflation rate
of 3% over a ten-year period. Doc. 138-4 at 35-36, Rush said
that Isuzu was SFK's "top performing" product
line "in terms of growth rate percentage" and
opined that SFK's profits on Isuzu business would have at
least matched a 3% inflation rate over the next ten years.
Doc. 138-4 at 35. He projected SFK's damages- for loss of
the Isuzu franchise under this method as $1, 596, 261. Doc.
138-4 at 36. But Rush believed that this second method was
also deficient because the 3% growth rate was too low and the
ten-year period was too short. Doc. 138-4 at 37. Thus, he
proposed a third method for calculating SFK's damages.
this third method, Rush projected SFK's damages using a
fifteen-year period and various growth rates. Doc. 138-4 at
37-52. Rush testified that a fifteen-year period was
appropriate because Isuzu has 81% of the market in North
America for cab-over utility vehicles and therefore left SFK
no alternative for that market but to sell an Isuzu line;
Isuzu has "held the number one position" in America
for over 29 years; and Isuzu is a "very solid
company." Doc. 138-4 at 37. As for the projected growth
rate on sales of Isuzu parts, Rush said that he applied a 17%
rate during the first five years, a 10% rate during the next
five years, and a 6% rate during the last five years. Doc.
138-4 at 43-47, 88. In support of these figures, Rush
testified that SFK had experienced a 17% compound growth rate
in Isuzu parts purchases between 2010 and 2014. Doc. 138-4 at
43; see also Doc. 138-1 at 46-47. He also discussed
an email from Isuzu, introduced as Plaintiff s Exhibit 3,
stating that SFK had purchased $101, 187 in parts in 2013,
and that they should strive to purchase $132, 758 in parts in
2014. Doc. 138-4 at 41-42. In regard to the growth rate for
SFK's Isuzu truck sales, Rush said that he applied a 9.5%
growth rate for the first five years but eventually dropped
this rate to 4.2% in the fifteenth year. Doc. 138-4 at 44,
96-97. According to Rush, this third method for calculating
SFK's damages put SFK's lost future profits from
termination of the Isuzu franchise at $3, 050, 231. Doc.
138-4 at 51. He testified that to arrive at this
amount, he had made certain deductions for costs and had
applied a discount rate to reduce the amount to present
value. Doc. 138-4 at 49-50. Finally, Rush testified on
rebuttal that SFK had 15 unpaid claims for warranty work on
Isuzu trucks, and that the "undisputed" amount
Isuzu owed for these claims was $76, 000. Doc. 138-6 at 178.
Hall, Isuzu's expert, testified that Rush's damages
calculations were flawed and excessive. He opined that the
growth rates and profit margins Rush used were too high,
while the discount rate was too low. Doc. 138-6 at 65-94.
Hall also said that the fifteen-year period Rush used to
calculate SFK's damages was unreasonable given Rush's
testimony about the market for Isuzu trucks in Sioux Falls
being flat, the contentious nature of the parties'
relationship, and the fact that the franchise agreement
allowed either party to terminate the agreement. Doc. 138-6
Court submitted four claims to the jury: the statutory
wrongful termination claim (claim I), the breach of contract
claim for wrongful termination (claim II), the claim that
Isuzu breached the duty of good faith and fair dealing by
refusing to pay SFK a 58% markup on parts and failing to pay
for adequate hours on warranty work, in violation of
§§ 32-6B-58 and 32-6B-61 (claim III), and a claim
that Isuzu breached the duty of good faith and fair dealing
by withholding payments for warranty service work that was
allegedly undisputed (claim IV). Doc. 135. This Court did not
submit the declaratory judgment claims to the jury,
choosing instead to decide those claims itself after the
jury's verdict. Doc. 13 8-6 at 211.
jury returned a mixed verdict. It found in SFK's favor on
the statutory wrongful termination claim and awarded SFK $1,
600, 000 in damages. Doc. 135. The jury also found in
SFK's favor on its claim that Isuzu breached the implied
covenant of good faith and fair dealing by withholding
payments for warranty service work that was undisputed,
awarding SFK $76, 000 in damages on this claim. Doc. 135. But
the jury found in Isuzu's favor on the breach of contract
claim, concluding that SFK had committed a failure of
performance under the franchise agreement, and that while
Isuzu had breached the agreement by failing to follow the
termination procedure, SFK would not have remedied its breach
of the agreement within a reasonable time. Doc. 135. The jury
found partially in SFK's favor and partially in
Isuzu's favor on SFK's claim that Isuzu breached the
covenant of good faith and fair dealing by violating
§§ 32-6B-58 and 32-6B-61. Doc. 135. The jury
concluded that SFK did not actually have a 58% markup rate on
Isuzu parts as SFK had claimed, but that Isuzu had failed to
pay SFK for time that was adequate for warranty service work
and that Isuzu's failure, to do so had prevented SFK from
receiving the reasonably expected benefits of the franchise
agreement. Doc. 135. Nevertheless, the jury did not award SFK
any money under the paragraph of the verdict form asking what
damages SFK suffered as a result of Isuzu's failure to
pay adequate time for warranty work. Doc. 135. The jury's
award of $76, 000 to SFK on unpaid warranty work evidently
included the service time that was at issue in SFK's
§§ 32-6B-58 and 32-6B-61 good faith claim. Doc.
138-7 at 81-83. This Court addressed this obvious rationale
explaining the jury's treatment of the warranty damages
claims. SFK's counsel agreed with the Court, saying that
he did not think the verdict was inconsistent, but
Isuzu's counsel was cagier in responding "I
don't think I could say one way or another." Doc.
138-7 at 82.
this Court entered an interim judgment on the jury's
verdict. Doc. 137. As to SFK's declaratory judgment
claims, this Court concluded that Isuzu did not violate
§§ 32-6B-58 and 32-6B-61 by failing to pay a 58%
markup rate and that any further ruling on the declaratory
judgment claims was rendered moot by the jury's verdict
on the claim for breach of the implied covenant of good faith
and fair dealing. Doc. 137.
Motion for New Trial
standard for granting a new trial under Rule 59 is different
from the standard for granting judgment as a matter of law.
White v. Pence, 961 F.2d 776, 779-82 (8th Cir.
governing question under Rule 59 is whether a new trial is
required to avoid a miscarriage of justice. Greaser v.
Mo. Dep't of Corr., 145 F.3d 979, 983 (8th Cir.
1998). Grounds for granting a new trial include a verdict
that is against the weight of the evidence, an excessive
damage award, and erroneous jury instructions or evidentiary
rulings. Children's Broad. Corp. v. Walt Disney
Co., 245 F.3d 1008, 1017 (8th Cir. 2001). "In
determining whether a verdict is against the weight of the
evidence, the trial court can rely on its own reading of the
evidence-it can 'weigh the evidence, disbelieve
witnesses, and grant a new trial even where there is
substantial evidence to sustain the verdict."'
White, 961 F.2d at 780 (quoting Ryan v.
McDonough Power Equip,, 734 F.2d 385, 387 (8th Cir.
1984)). However, district courts may not "reweigh the
evidence and set aside the jury verdict merely because the
jury could have drawn different inferences or conclusions or
because judges feel that other results are more
reasonable." Id. (quoting Fireman's
Fund Ins. Co. v. Aalco Wrecking Co., 466 F.2d 179, 186
(8th Cir. 1972)). Erroneous evidentiary rulings do not
justify a new trial "unless [the wrongful admission or
exclusion of] the evidence was so prejudicial that a new
trial would likely produce a different result." Diesel
Mach.. Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820,
833 (8th Cir. 2005) (quoting Harrison v. Purdy Bros.
Trucking Co., 312 F.3d 346, 351 (8th Cir. 2002)).
Similarly, courts will not grant a new trial based on
erroneous jury instructions "unless the alleged error
was prejudicial." Hallmark Cards. Inc. v.
Murley, 703 F.3d 456, 460 (8th Cir. 2013). A new trial
is warranted "only 'if the error misled the jury or
had a probable effect on its verdict.'" Bamford.
Inc. v. Regent Ins. Co,, 822 F.3d 403, 410 (8th Cir.
2016) (quoting Acuity v. Johnson, 776 F.3d 588, 596
(8th Cir. 2015)).
argues that it is entitled to a new trial based on the
failure to assign the burden of proof to SFK on its §
32-6B-45 claim; erroneous evidentiary rulings; SFK being
allowed to maintain its declaratory judgment claims; the
submission to the jury of claims for breach of the implied
covenant of good faith and fair dealing; confusing jury
instructions and verdict form; inconsistencies in the
verdict; and Rush being allowed to testify about damages.
Burden of Proof Issue on § 32-6B-45 Claim
argues that a new trial is necessary because this Court
failed to instruct the jury that SFK bore the burden of
proving that Isuzu lacked good cause to terminate
SFK under § 32-6B-45. In the past, § 32-6B-45
required the franchisor to establish cause for termination in
a hearing before a South Dakota agency. See SDCL §
32-6B-45 (pre March 2010 version) ("No franchisor may
terminate or refuse to continue any franchise unless the
franchisor has first established in a hearing held under the
provisions of chapter 1-26, that: (1) the franchisor has
cause for termination or noncontinuance . . . .");
see also In re Groseth Int'l. Inc., 442 N.W.2d
229, 232 (S.D. 1989) (applying Chapter 32-6A, which was later
repealed and replaced by Chapter 32-6B, and stating that
"[a] franchisor seeking to terminate a franchise under
the provisions of SDCL ch. 32-6A must show that it has good
cause for termination"). In 2010, the South Dakota
Legislature amended § 32-6B-45 to its current form by,
among other things, removing the language that required the
franchisor to establish good cause for termination before a
South Dakota agency, but leaving in the requirement that a
franchisor cannot terminate a franchise agreement
"without good cause." See SDCL § 32-6B-45. The
current version of § 32-6B-45 is silent on whether the
franchisor bears the burden of proving "good cause"
for termination or whether the franchisee bears the burden of
proving an absence of good cause,, and there are no South
Dakota cases discussing the burden under the current version.
Before and during trial, Isuzu argued that SFK should bear
the burden under § 32-6B-45 given the 201G amendments to
the statute and the general rule that plaintiffs bear the
risk of failing to prove their claims. SFK disagreed, arguing
that Minnesota Supply Co. v. Raymond Corp,, 472 F.3d
524 (8th Cir. 2006)-a case where the Eighth Circuit
considered but did not analyze the language of a Minnesota
statute similar to § 32-6B-45-made clear that Isuzu
should bear the burden of proving that it had good cause to
terminate the franchise agreement.
Court recognized when settling final instructions that there
was no clear answer as to who bears the burden of proof under
§ 32-6B-45. Doc. 138-6 at 8-9, 223-27. Rather than
instructing on the burden of proof under § 32-6B-45 and
risking retrial of a long and costly case, this Court decided
to instruct the jury in a way where everyone would know
whether the burden of proof affected the jury's decision.
Doc. 138-6 at 8-9, 224-27. If the jury indicated that the
burden of proof would affect its analysis, this Court would
decide the issue and instruct the jury accordingly. Doc.
138-6 at 8-9.
Dakota's pattern instruction on the burden of proof and
the preponderance of the evidence, which this Court gave the
jury, explains how the burden of proof should factor into the
jury's analysis: "In the event that the evidence is
evenly balanced so that you are unable to say that the
evidence on either side of an issue has the greater
convincing force, then your finding upon the issue must be
against the party who has the burden of proving it."
Doc. 134 at 9; S.D. Civ. Pattern Jury Instrs. § 1-60-10.
This instruction is consistent with case law explaining that
the principal significance of the burden of proof is that it
acts as a tie-breaker when the evidence is in
equipoise. Blodgett v. Comm'r of Internal
Revenue., 394 F.3d 1030, 1039 (8th Cir. 2005); Jones
v. United States, 207 F, 3d 508, 510 (8th Cir. 2000);
Cigaran v. Heston, 159 F.3d 355, 357 (8th Cir.
1998); Bristow v. Drake St. Inc., 41 F.3d 345, 353
(7th Cir. 1994); Gordan v. St. Mary's Healthcare
Ctr., 617 N.W.2d 151, 157-58 (S.D. 2000). When the
evidence is not evenly balanced, i.e., the greater convincing
force of the evidence favors one party over the other, the
burden of proof plays no role in the trier of fact's
decision. Blodgett, 394 F.3d at 1039 ("In a
situation in which both parties have satisfied their burden
of production by offering some evidence, then the party
supported by the weight of the evidence will prevail
regardless of which party bore the burden of persuasion,
proof or preponderance. Therefore, a shift in the burden of
preponderance has real significance only in the rare event of
an evidentiary tie." (internal citation omitted));
Jones, 207 F.3d at 510 ("[T]he burden of proof
in a civil case serves to determine who prevails only if the
evidence is in equipoise. The rule simply decides, in other
words, who wins if there is a tie."); Cigaran,
159 F.3d at 357 ("The shifting of an evidentiary burden
of preponderance is of practical consequence only in the rare
event of an evidentiary tie: If the evidence that the parties
present balances out perfectly, the party bearing the burden
loses."); Bristow, 41 F.3d at 353
("Burdens of persuasion affect the outcomes only of
cases in which the trier of fact thinks the plaintiffs and
the defendant's positions equiprobable. Burdens of
persuasion are, in other words, tie-breakers. If the trier of
fact, having heard all the evidence, comes to a definite
conclusion, he has no occasion to invoke a burden of
determine whether the jury found that the evidence was
equally balanced, and thus whether the burden of proof would
make a difference in the jury's decision, this Court
submitted the following verdict form on SFK's statutory
wrongful termination claim:
1. Did Sioux Falls Kenworth engage in conduct that was
injurious or detrimental to Sioux Falls Kenworth's
customers or the public welfare? (check one box)
 Evidence is in balance at exactly 50%-50%
If your answer to this question is "yes, " your
verdict on the wrongful termination claim must be for Isuzu.
If your answer is "no, " or you are unable to agree
on a verdict as to Question No. 1, proceed to Questions No. 2
and 3. You are to use the preponderance of the evidence
standard, also known as the greater weight of the evidence
standard, in answering these questions. If you find that the
evidence is in balance, such that the weight of the evidence
is exactly 50%-50%, then so indicate on the verdict form and
this Court will provide you further instructions. Rarely is
evidence exactly 50%-50%, so you should endeavor to decide
this question using the preponderance of the evidence
2. Did Sioux Falls Kenworth fail to substantially comply with
the essential and reasonable requirements imposed upon Sioux
Falls Kenworth by the franchise agreement, if the
requirements are not different from those requirements
imposed on other ...