C&O Motors, Inc. v. General Motors Corporation

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 08-1157

C&O MOTORS, INCORPORATED, a West Virginia corporation,

Plaintiff – Appellant,

v.

GENERAL MOTORS CORPORATION, a Delaware corporation,

Defendant - Appellee.

Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. John T. Copenhaver,
Jr., District Judge. (2:05-cv-00835)

Argued: January 27, 2009 Decided: April 1, 2009

Before MICHAEL, GREGORY, and AGEE, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Mark A. Swartz, SWARTZ LAW OFFICES, St. Albans, West
Virginia, for Appellant. Mark S. Lillie, KIRKLAND & ELLIS,
L.L.P., Chicago, Illinois, for Appellee. ON BRIEF: Allyson H.
Griffith, Mary Jo Swartz, SWARTZ LAW OFFICES, St. Albans, West
Virginia, for Appellant. John H. Tinney, THE TINNEY LAW FIRM,
P.L.L.C., Charleston, West Virginia; Michael A. Duffy, KIRKLAND
& ELLIS, L.L.P., Chicago, Illinois, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

This appeal arises out of General Motors, Inc.’s

(GM’s) decision to phase out its Oldsmobile line of vehicles

during the period from 2001 to 2004. Only weeks before GM

announced its decision to terminate the Oldsmobile line, GM

entered into a five-year Dealer Agreement with C&O Motors, Inc.

(C&O) whereby GM agreed to provide C&O with Oldsmobiles to be

sold at C&O’s dealership. When C&O was informed by GM of the

impending phase-out of Oldsmobile, C&O, without consultation

with GM, purchased the blue sky rights to a nearby Nissan

dealership in order to mitigate for the anticipated loss of

Oldsmobile sales. The Nissan franchise proved successful for

C&O and appreciated sufficiently in value to offset all losses

C&O claims to have incurred in lost profits and in its

“mitigation” efforts. C&O nevertheless brought suit seeking

recovery from GM for a variety of damages including the cost

incurred in purchasing the Nissan franchise, the cost of

separating the GM and Nissan facilities on its premises, and

lost profits from the decline in Oldsmobile business during the

latter four years of the Dealer Agreement. C&O also alleges

that GM committed numerous violations of the West Virginia motor

vehicle dealership statute stemming from GM’s conduct relating

to C&O’s purchase of the Nissan franchise. Because, by its own

admission, C&O has suffered no actual loss, we hold that its

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breach of contract action fails as a matter of law. We also

conclude that none of C&O’s claims under the dealership statute

are meritorious. Accordingly, we affirm the judgment of the

district court.

I.

In 2000 C&O and GM entered into a Dealer Agreement

pursuant to which GM agreed to provide Oldsmobiles to C&O for

five years beginning November 1, 2000, and ending October 31,

2005. A numerical quantity was not specified, but Article 4.1

of the Dealer Agreement provides that:

Because General Motors distributes its Products
through a network of authorized dealers operating from
approved locations, those dealers must be appropriate
in number, located properly, and have proper
facilities to represent and service General Motors
Products competitively and to permit each dealer the
opportunity to achieve a reasonable return on
investment if it fulfills its obligations under its
Dealer Agreement.

J.A. 1206.

In December 2000 GM announced that it was phasing out

its Oldsmobile line of vehicles over the coming years. GM

offered assistance to Oldsmobile dealers during the phase-out in

the form of a Transitional Financial Assistance Program (TFAP)

that included repurchasing of new and unused vehicle inventory,

signs, essential tools, and parts and accessories. The TFAP

also included a supplemental transition assistance payment to be

tailored to the individual circumstances of each dealer.

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 C&O declined GM’s assistance. Instead, in 2001 C&O,

ostensibly to mitigate for the impending phase-out, purchased

the blue sky rights to Lester Raines Nissan for $1 million. It

then entered into a contact with Nissan North America, Inc.

(Nissan) whereby it agreed to provide separate facilities for

the Nissan dealership and laid out a time frame for separating

the Nissan and GM facilities. On December 17, 2001, C&O’s

general manager, Paul Walker, informed GM that C&O had applied

for a Sales and Services Agreement from Nissan and that the GM

and Nissan sales departments would be in the same building

initially but would be totally separated after a period of two

years. C&O began selling Nissan vehicles in 2002.

On April 17, 2002, GM sent C&O’s principal, James

Love, a proposed letter agreement for his execution. The letter

informed C&O that the addition of the Nissan dealership to the

GM facility without the prior approval of GM would constitute a

material breach of the Dealer Agreement. The letter included

provisions stating that C&O agreed that the costs and expenses

incurred to effectuate the separation of the Nissan dealership

were to be paid by C&O and that the letter agreement was made

and executed under C&O’s own free will and C&O was not

influenced, coerced, or induced to enter into the agreement by

any representations or promises of GM not set forth in the

letter. The letter agreement further provided that it could be

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enforced with equitable relief and that C&O must pay GM’s

attorney’s fees if GM prevails in enforcing the letter

agreement.

In response, Love struck certain provisions from the

letter agreement, including the provision asserting that the

addition of the Nissan dealership without GM’s approval

constituted breach of the Dealer Agreement and the provision

regarding enforcement of the letter agreement. Love initialed

the changes, signed the letter, and returned it to GM on June

10, 2002. Love did not strike the provisions of the letter

requiring C&O to separate the Nissan and GM dealership

facilities within two years.

On September 14, 2005, C&O served GM with a three-

count complaint alleging actual and anticipatory breach of the

Dealer Agreement and violations of West Virginia’s motor vehicle

dealership statute. C&O initially claimed damages in the form

of $2.47 million in “mitigation costs” incurred when it

purchased the Nissan dealership and when it separated the Nissan

and GM dealership facilities. In ruling on GM’s motion for

summary judgment, the court concluded that C&O’s claim for

“mitigation costs” failed as a matter of law because C&O

conceded that it had profited from its mitigation, and C&O was

only entitled to expectation damages for a breach of contract.

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At the same time the district court dismissed the majority of

C&O’s other claims.

With the mitigation damages claim dismissed, C&O added

a claim for lost profits. To ascertain lost profits, C&O’s

general manager, Walker, conducted an analysis of actual versus

anticipated Oldsmobile sales, which relied entirely on data from

a single baseline year to generate its predictions. On GM’s

motion the district court required that Walker testify as an

expert and submit an expert report pursuant to Fed. R. Civ. P.

26(a)(2)(B). GM then challenged Walker’s report as failing to

meet Federal Rule of Evidence 702’s standards for admissibility

of expert testimony as clarified by the Supreme Court in Daubert

v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and

Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999). The district

court agreed with GM, but gave Walker an opportunity to amend

his report in accordance with the Daubert and Kumho standards.

Walker declined to do so and instead submitted a letter

defending his analysis. Despite expressing its disapproval of

Walker’s failure to amend his expert report, the district court

elected to allow the case to proceed to trial, stating that:

“Walker may defend his lost profits opinion at trial, and GM may

renew its motion [to exclude Walker’s evidence] at that time.”

J.A. 972. At trial C&O attempted to use Walker’s lost profits

analysis, and GM renewed its motion. Because Walker had

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produced no further analyses that met the requirements of Rule

702 and because the district court refused to permit Walker to

testify about the contents of his prior report, C&O was forced

to rest its case without presenting concrete data on lost

profits. GM subsequently moved for judgment as a matter of law,

and the district court granted the motion. This appeal

followed.

II.

The district court’s award of summary judgment to GM

on C&O’s claim for mitigation damages is reviewed de novo, with

the facts viewed in the light most favorable to C&O. See Toll

Bros., Inc. v. Dryvit Sys., Inc., 432 F.3d 564, 568 (4th Cir.

2005). The district court’s grant of judgment as a matter of

law to GM on C&O’s lost profits claim is also reviewed de novo.

Int’l Ground Transp. v. Mayor & City Council of Ocean City, 475

F.3d 214, 218 (4th Cir. 2007).

A.

GM is charged with breaching its Dealer Agreement with

C&O by phasing out the Oldsmobile line before the end of the

agreement. C&O originally claimed entitlement to $2,473,456 in

“mitigation costs” connected with its purchase of Lester Raines

Nissan in anticipation of GM’s impending breach of the

Agreement. These damages included (1) the cost of acquiring the

Nissan franchise plus a limited amount of furnishings, fixtures,

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and tools; (2) the costs related to the construction or

renovation of dealership facilities; (3) the fair market rental

value of the facilities that temporarily accommodated the Nissan

showroom during construction and renovation; and (4) statutory

interest at 10% per year through July 2006. After C&O’s claim

for “mitigation costs” was rejected by the district court, C&O

added a claim for lost profits based on forecasted lost business

during the phase-out of the Oldsmobile line. According to the

report generated by Walker, C&O’s lost profits from Oldsmobile

vehicle sales, trade-ins, and parts and service during the years

2002-2005 amounted to $1,972,985. The district court concluded

that Walker’s expert report failed to comply with the

requirements of Federal Rule of Evidence 702 and refused to

admit his testimony and report about lost profits into evidence

at trial.

On appeal C&O challenges the denial of $1,526,641 of

its purported “mitigation costs” claim as well as the rejection

of its lost profits analysis. C&O argues specifically that it

is entitled to the $1 million it paid for the blue sky rights to

Lester Raines Nissan in addition to the $526,641 it paid to

separate the Nissan and Chevrolet/Oldsmobile dealership

facilities, and it reasserts its entitlement to the alleged lost

profits as calculated by Walker.

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 C&O’s claim for damages relies on an unsupportable

argument with respect to the consequences of mitigation and the

nature of compensatory damages in a contract action. Although

reasonable mitigation costs are generally recoverable, recovery

is subject to a requirement of actual loss.

A party is entitled to recover as incidental losses

damages incurred in a reasonable effort, whether successful or

not, to avoid harm once the party has reason to know that

performance by the other party will not be forthcoming.

Restatement (Second) of Contracts § 350 & cmt. b (1981); see

also id., § 347 cmt. d (“[T]he injured party is expected to take

reasonable steps to avoid further loss.”). Although the

reasonableness of mitigation is a question of fact, 22 Am. Jur.

2d Damages § 344 (2003), and thus properly resolved by a jury,

the net effect of the actions taken by C&O in this case to

mitigate for GM’s impending breach renders a determination of

their reasonableness unnecessary.

A plaintiff in a contract action is only entitled to

be put in the same economic position that it would have been in

had the contract not been breached. See Ohio Valley Builders’

Supply Co. v. Wetzel Constr. Co., 151 S.E. 1, 4 (W. Va. 1929);

22 Am. Jur. 2d Damages § 28 (2003) (“The sole object of

compensatory damages is to make the injured party whole for

losses actually suffered; the plaintiff cannot be made more than

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whole, make a profit, or receive more than one recovery for the

same harm. . . . The plaintiff is not entitled to a windfall,

and the law will not put him in a better position than he would

be in had the wrong not been done or the contract not been

broken.”).

The Restatement (Second) of Contracts makes clear that

“[i]f the injured party avoids further loss by making substitute

arrangements for the use of his resources that are no longer

needed to perform the contract, the net profit from such

arrangements is . . . subtracted [from the injured party’s

damage award].” Restatement (Second) of Contracts § 347 cmt. d

(1981).

When this principle is applied to the present case, it

becomes clear that C&O has suffered no economic loss and

therefore no legally cognizable damage as a result of GM’s

alleged breach. C&O concedes that the Nissan dealership whose

blue sky rights it purchased for $1 million in 2001 was, by

2006, worth “[t]wo and a half million blue sky. [Two million]

at least, blue sky.” J.A. 141. And “[t]he business and the

tools and the equipment and the franchise would be worth five

million.” J.A. 141; see also J.A. 140 (“[I]t’s worth five

million[,] four and [sic] half maybe to the right buyer”).

C&O has alleged losses of $1,526,641 in mitigation

costs plus $1,972,985 in lost profits during the years 2002-

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2005. C&O’s total claimed loss is therefore $3,499,626. At the

same time, C&O, through its purported mitigation, had acquired a

Nissan dealership with a total value in 2006 of $5 million.

This $5 million does not even take into account C&O’s profits

from the sale of at least 2,000 Nissan vehicles between 2002 and

2005. Based on C&O’s own appraisal of the value of the Nissan

dealership in 2006, the Nissan dealership’s increase in value

has more than compensated C&O for all of its “mitigation

damages” and lost profits. Because there is no loss, C&O’s

breach of contract claim must therefore fail.

B.

C&O makes an additional statutory argument that it is

entitled to compensation for the expenses it incurred in

separating the Nissan and Chevrolet facilities pursuant to W.

Va. Code § 17A-6A-10(1). This claim has no merit. Section 17A-

6A-10(1) provides that:

A manufacturer . . . may not require any new motor
vehicle dealer in this State to do any of the
following: . . .

(f) . . . Notwithstanding the terms of any franchise
agreement, a manufacturer . . . may not enforce any
requirements, including facility requirements, that a
new motor vehicle dealer establish or maintain
exclusive facilities, personnel or display space, when
the requirements are unreasonable considering current
economic conditions and are not otherwise justified by
reasonable business considerations. The burden of
proving that current economic conditions or reasonable
business considerations justify exclusive facilities

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 is on the manufacturer . . . and must be proven by a
preponderance of the evidence.

W. Va. Code Ann. § 17A-6A-10(1) (West 2002).

In pressing this claim, C&O fails to acknowledge two

important facts. First, under Article 4.4.2 of the Dealer

Agreement, C&O was required to obtain GM’s prior written

approval before adding a new vehicle line. C&O failed to do so

before adding the Nissan line in 2001. Second, C&O specifically

agreed in its contract with Nissan, entered into four and a half

months prior to the April 17, 2002, letter from GM, that it

would maintain separate facilities for the Nissan dealership.

Having asserted no reason to doubt the validity of its agreement

with Nissan, C&O cannot claim that GM’s insistence that the

Nissan and GM facilities be separated within two years was

“unreasonable considering current economic conditions” or “not

otherwise justified by reasonable business considerations.” Id.

Rather, C&O’s prior contractual obligation with Nissan to

separate the facilities undercuts any argument that GM’s later

demands were unreasonable or unjustified or caused the need for

separation.

III.

The district court rejected a number of claims made by

C&O alleging violations of the West Virginia Code arising out of

the April 17, 2002, letter agreement. The district court’s

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rulings on a number of these claims were noted as error in the

statement of issues section of C&O’s opening brief. But only

two -- alleged violations of W. Va. Code §§ 17A-6A-10(1)(d) and

(h) -- were substantively argued in the brief. Accordingly, we

consider the remaining assignments of error to be abandoned.

See Edwards v. City of Goldsboro, 178 F.3d 231, 241 n.6 (4th

Cir. 1999). We address the two argued claims in turn.

A.

C&O first contends that GM violated W. Va. Code § 17A-

6A-10(1)(d) by impermissibly threatening to terminate the Dealer

Agreement in the April 17, 2002, letter.

Section 17A-6A-10(1)(d) forbids any manufacturer or

distributer from requiring any new motor vehicle dealer in West

Virginia to

Enter into any agreement with the manufacturer or
distributor or do any other act prejudicial to the new
motor vehicle dealer by threatening to terminate a
dealer agreement or any contractual agreement or
understanding existing between the dealer and the
manufacturer or distributor. Notice in good faith to
any dealer of the dealer’s violation of any terms or
provisions of the dealer agreement is not a violation
of this article.

W. Va. Code Ann. § 17A-6A-10(1)(d) (West 2002).

Contrary to C&O’s assertion the April 17, 2002, letter

was not an impermissible threat to terminate the Dealer

Agreement. The letter as originally received by C&O provided

that: “As we discussed, the addition of Nissan without the prior

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written approval of GM is a material breach of the C&O Motors GM

Dealer Sales and Services Agreement, and if not cured, grounds

for termination of the Dealer Agreement.” J.A. 648. The letter

makes clear that GM would not “proceed further or exercise any

other legal or equitable remedy for this breach” if C&O complied

with certain specified terms, including separation of the

Chevrolet/Oldsmobile and Nissan facilities by December 17, 2003

(the date by which C&O had already informed GM it would have the

facilities separated) and assumption of the costs of separating

the facilities. J.A. 648-49.

The April 17 letter correctly stated C&O’s obligations

under the Dealer Agreement: addition of the Nissan dealership

without the prior written authorization of GM would violate

Article 4.4.2 of the Agreement. The statute makes clear that

“[n]otice in good faith to any dealer of the dealer’s violation

of any terms or provisions of the dealer agreement is not a

violation of this article.” W. Va. Code Ann. § 17A-6A-10(1)(d)

(West 2002). The statement in the letter was therefore not an

impermissible threat. Further, even if C&O perceived the above

language in the Letter Agreement as threatening, Love excised

the offending provision, along with several other provisions of

the letter agreement before signing and returning it to GM in

June 2002.

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 B.

C&O also alleges that GM violated § 17A-6A-10(1)(h).

This section provides that a manufacturer or distributor may not

require a new motor vehicle dealer to “[p]rospectively assent to

a release, assignment, novation, waiver or estoppel which would

relieve any person from liability imposed by this article

. . . .” W. Va. Code Ann. § 17A-6A-10(1)(h) (West 2002).

C&O contends that the letter agreement compelled it to

prospectively assent to release its claim against GM for the

cost of separating the GM and Nissan facilities. This claim

fails for several reasons. Properly viewed, Love’s signing of

the April 17, 2000, letter agreement was not an assent to a

prospective release of claims but rather consideration for the

discharge of a contractual obligation. See Jackson v. Jackson,

99 S.E. 259, 262-63 (W. Va. 1919) (holding that release “founded

upon a valuable consideration” is “binding upon the releasor”);

see also 1 E. Allan Farnsworth, Farnsworth on Contracts § 4.24

(2d ed. 1998). Under Article 4.4.2 of the Dealer Agreement,

If Dealer wants to make any change in location(s) or
Premises, or in the uses previously approved for those
Premises, Dealer will give General Motors written
notice of the proposed change, together with the
reasons for the proposal, for General Motors
evaluation and final decision in light of dealer
network planning considerations. No change in
location or in the use of Premises, including addition
or any other vehicle lines, will be made without
General Motors prior written authorization pursuant to
its business judgment.

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J.A. 1208. C&O breached this provision of the Agreement when it

failed to obtain prior approval from GM to add the Nissan

vehicle line. In the April 17 letter agreement GM offered to

discharge this contractual breach on condition that C&O release

any claim seeking compensation for the cost of separating the

Nissan and GM facilities. C&O was therefore not required to

release its claims relating to separation costs as proscribed by

§ 17A-6A-10(1)(h). Rather, by signing and returning the letter

agreement, C&O was agreeing that release of the separation cost

claim would serve as consideration for GM overlooking C&O’s

prior contractual breach.

IV.

Because we have determined above that C&O cannot

prevail on its claim for damages in this case, we need not reach

C&O’s challenge to the district court’s determination that C&O’s

general manager Paul Walker was required to present his damages

analysis under Federal Rule of Evidence 702 and the standards

set forth in Daubert and Kumho Tire. Similarly, we need not

review the district court’s decision to dismiss C&O’s action as

a matter of law after C&O had rested its case without being

permitted to introduce Walker’s testimony with respect to lost

profits.

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 * * *

The judgment of the district court is

AFFIRMED.

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