United States Court of Appeals,
Fifth Circuit.
No. 96-60528.
Carl COTTINGHAM; Greenville Auto Mall, Inc., Formerly doing
business as Greenville Buick Cadillac-Pontiac Co., Inc.,
Plaintiffs-Appellees,
v.
GENERAL MOTORS CORPORATION, Defendant-Appellant.
Aug. 19, 1997.
Appeal from the United States District Court for the Southern
District of Mississippi.
Before POLITZ, Chief Judge, DeMOSS, Circuit Judge, and DOHERTY,1
District Judge.
PER CURIAM:
General Motors Corporation ("GM") appeals the jury award of
$6,250.00 in compensatory damages and $600,000.00 in punitive
damages to Carl Cottingham ("Cottingham") and Greenville Auto Mall,
Inc. ("Greenville Auto Mall"), on the basis the district court
erred in not granting GM's Motion for Judgment as a matter of law
as to individual claims asserted by Cottingham, as Cottingham has
no standing to bring suit against GM under the provisions of the
Buick Motor Division Dealer Sales & Service Agreement ("Dealer
Agreement") executed on November 1, 1990, between GM and Greenville
Auto Mall, a Mississippi Corporation.
Further, GM appeals the district court's failure to grant
summary judgment or judgment as a matter of law on Cottingham's and
1
District Judge of the Western District of Louisiana, sitting
by designation.
1
Greenville's claims of breach of contract, breach of fiduciary duty
and breach of implied duty of good faith and fair dealing, all
flowing from the Dealer Agreement executed between GM and
Greenville, and the subsequent award of compensatory and punitive
damages based on the contractual claims of Cottingham and
Greenville. Further, GM appeals the verdict rendered on the claim
of common law breach of fiduciary duty under Mississippi law.
As we find, as a matter of law, that Cottingham does not have
standing to pursue any of the claims made against GM under the
terms of the Dealer Agreement, or under Mississippi law, and as
Greenville Auto Mall, as the proper party to the Dealer Agreement
failed to prove any damages relating to its claims under the Dealer
Agreement, we set aside the jury's award of compensatory and
punitive damages.
Background
In 1993, Vickery Chevrolet Oldsmobile, Inc. ("Vickery") filed
for Chapter 11 bankruptcy protection in the Northern District of
Mississippi. During the course of the bankruptcy proceedings,
Benjamin Beverly was GM's preferred candidate to purchase Vickery's
assets and to replace Vickery as GM's Chevrolet/Oldsmobile dealer
in Greenville, Mississippi.
Thereafter, however, Carl Cottingham, Dealer Operator for
Greenville Auto Mall, Inc. of Greenville, Mississippi, a Buick,
Pontiac and Cadillac dealership, expressed an interest in buying
the Vickery assets. Subsequently, both Beverly and Cottingham
filed motions with the bankruptcy court seeking approval for their
2
respective proposals to purchase the Vickery assets.
During the pendency of the motions, but prior to the hearing
before the bankruptcy court, Beverly's attorney, Paul Mathis,2
issued a subpoena to GM requesting information surrounding
potential purchasers, including the Greenville Auto Mall, Inc. GM
sought to limit the scope of the production, however, was
unsuccessful and thereafter responded to the subpoena by producing
the documents requested. Armed with the subpoena response during
the hearing held by the bankruptcy court on Beverly's and
Cottingham's competing motions, Mathis cross-examined Cottingham
regarding a $900,000.00 financial loss reported in the financial
records of Greenville Auto Mall, Inc. which GM had produced in
response to the Mathis subpoena. Cottingham alleges the
cross-examination caused him great embarrassment and internal
problems among the other shareholders within Greenville Auto Mall,
Inc.
Cottingham and Greenville Auto Mall, Inc. subsequently sued GM
for breach of contract, breach of fiduciary duty, breach of the
implied duty of good faith in fair dealing, defamation, and
intentional infliction of emotional distress, based on GM's
disclosure of the information requested by the subpoena and the
cross-examination by Mathis of Cottingham during the bankruptcy
hearing. Plaintiffs' Complaint sought both compensatory and
2
Beverly, as a minority candidate, had been pledged financial
support through GM's Holding Division, thus Mathis, as his
attorney, was seeking to facilitate the acquisition of the Vickery
assets by his client, Beverly.
3
punitive damages.
Despite motions filed on behalf of GM to dismiss all claims
for failure to state a claim, for summary judgment, and for
judgment as a matter of law, the case was ultimately submitted to
the jury on those claims involving breach of the Dealer Agreement,
breach of fiduciary duty, and breach of the duty of good faith.3
The jury returned a verdict in favor of Cottingham and Greenville
Auto Mall, Inc., and against GM in the amount of $6,250.00 in
compensatory damages (actual) and $600,000.00 in punitive damages,
finding GM had breached the terms of the Dealer Agreement by
disclosing the financial information of Greenville Auto Mall, Inc.
to Mathis in response to the subpoena; that GM breached the
implied duty of good faith and fair dealing under the Dealer
Agreement; and that GM owed plaintiffs (Cottingham and GM) a
fiduciary duty and GM had breached that fiduciary duty.4
Discussion
The district court's interpretation of a contract or in this
case, the Dealer Agreement, is a conclusion of law reviewable de
3
Pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure, the district court dismissed Plaintiffs' claims for
intentional infliction of emotional distress and defamation. This
Court presumes that those claims were Cottingham's individually as
Greenville Auto Mall, Inc., a corporation, could suffer no such
injury. Cottingham and Greenville Auto Mall were allowed to amend
the Complaint to allege a claim of civil conspiracy; however, this
claim was dismissed prior to submission of the case to the jury
when the district court judge impliedly granted GM's motion for
judgment as a matter of law by declining to instruct the jury on
civil conspiracy and placed no question on the jury interrogatories
reflecting the claim of civil conspiracy.
4
Jury Interrogatories, Questions 1-5.
4
novo on appeal. Ham Marine, Inc. v. Dresser Industries, Inc., 72
F.3d 454, 458 (5th Cir.1995). Further, an initial determination of
whether the contract is ambiguous is also reviewed de novo. Thrift
v. Estate of Hubbard, 44 F.3d 348, 357 (5th Cir.1995).
The issue of whether or not Carl Cottingham had personal or
individual standing via the Dealer Agreement to pursue his claims
against GM was preserved on appeal by GM's motion for judgment as
a matter of law pursuant to Fed.R.Civ.P. 50(a) and thus is properly
before this Court. McCann v. Texas City Refining, Inc., 984 F.2d
667, 672 (5th Cir.1993).
GM, on appeal, argues Michigan law should apply to all claims
based on the clear provisions of the Dealer Agreement. Appellees,
Cottingham and Greenville, argue that GM failed to properly
preserve for appeal the application of Michigan law to those claims
based on breach of the Dealer Agreement and thus waived the issue
of the application of Michigan law by not specifically referencing
Michigan law as controlling in the pretrial order. Valley Ranch
Development Co., Ltd. v. F.D.I.C., 960 F.2d 550, 554 (5th
Cir.1992).
This Court cannot agree with appellee's argument. Article
17.12 of the Dealer Agreement clearly states that Michigan law
governs the Agreement.5 One of defendant's jury instructions on
5
17.12 Applicable Law.
This Agreement is governed by the laws of the State of
Michigan. However, if performance under this Agreement
is illegal under a valid law of any jurisdiction where
such performance is to take place, performance will be
modified to the minimum extent necessary to comply with
5
the contract given by the district court, was derived from Hubbard
Chevrolet Co. v. General Motors Corp., 873 F.2d 873 (5th Cir.)
reh'g denied, 878 F.2d 1435, cert. denied, 493 U.S. 978, 110 S.Ct.
506, 107 L.Ed.2d 508 (1989) and its application of Michigan law and
was not objected to by plaintiffs. In Hubbard, this Court followed
the contract's choice of Michigan law in the dealer agreement
almost identical to the contract at issue. The jury instruction
surrounding the tort claim pursuant to the common law claim of
breach of the fiduciary obligation was, it seems, derived from
Mississippi law.
As GM referenced the Dealer Agreement and thus its choice of
law provision in its submissions to the court, objected to the
application of Mississippi law and obtained a jury instruction
couched under Michigan law, GM did not waive its right to appeal
this issue. However, this Court need not reach that issue, as the
provisions relied on in this Court's interpretation of the language
of the Dealer agreement are clear and unambiguous and as such their
interpretation would be the same under either the law of Michigan
or Mississippi.
Dealer Agreement
Each of the claims submitted to the jury by the district
court is based upon or flows from the 1990 Dealer Agreement,
executed between Buick Motor Division of General Motors Corp., a
Delaware Corporation ("Buick") and Greenville Auto Mall, a
such law if it was effective as of the effective date of this
Agreement.
6
Mississippi Corporation ("Dealer").6
6
Pertinent provisions of the contract are as follows:
The glossary of the Dealer Agreement states: Dealer—The
corporation, partnership or proprietorship that signs the
Dealer Agreement with Division.
Dealer Agreement—The Dealer Sales & Service agreement,
including the Agreement proper that is executed, the
Standard Provisions, all of the related addenda, the
accounting and Service Policies and Procedures Manuals,
and the Terms of Sale Bulletins.
The third section of the preamble states as follows:
DEALER OPERATOR
Dealer agrees that the following Dealer Operator
will provide personal services in accordance with Article
II of the Standard Provision:
Carl Y. Cottingham.
The thirteenth section of the preamble states:
EXECUTION OF AGREEMENT
This Agreement and related agreements are valid only if
signed:
(a) on behalf of the Dealer by its duly authorized
representative and, in the case of this Agreement, by its
Dealer Operator; and
(b) on behalf of Buick by the General Sales and Service
Manager and his authorized representative.
Greenville Auto Mall is designated as the Dealer Firm Name,
and by his signature on May 13, 1991, Carl Y. Cottingham is
designated as the Dealer Operator.
Article 2. Dealer Operator
This is a Personal Service Agreement entered into in
reliance on the qualifications of Dealer Operator
identified in Paragraph Third, and on Dealer's assurance
that Dealer Operator will provide personal services by
7
Section 11.3 of the Dealer Agreement forms the specific basis
for Cottingham's and Greenville's claims under the terms of the
Dealer Agreement. Both plaintiffs claim GM supplied documentation
requested by a federal subpoena issued on behalf of Paul Mathis in
the bankruptcy proceeding in breach of GM's obligations under §
11.3. Section 11.3 provides:
11.3 Confidentiality of Dealer Data
Division agrees not to furnish any personal or financial
data submitted to it by Dealer to any nonaffiliated entity
unless authorized by Dealer, required by law, or pertinent to
judicial or administrative proceedings, or to proceedings
under the Dispute Resolution Process.
Under the clear provisions of § 11.3, the duty of
confidentiality is owed only to the "Dealer." "Dealer" is a
defined term under the Dealer Agreement as the "corporation,
partnership or proprietorship that signs the Dealer Agreement with
the Division." Greenville Auto Mall, the corporation, signed the
Dealer Agreement by way of Carl Cottingham, acting on behalf of the
corporation.
Carl Cottingham, individually, is defined as the "Dealer
Operator" under the Agreement. By definition, the "Dealer
Operator," Cottingham, merely must own at least 15 percent of the
Dealership. Therefore, Cottingham, individually, is a shareholder
exercising full managerial authority over Dealership Operations.
Dealer Operator will have an unencumbered ownership interest in
Dealer of at least 15 percent at all times. A Dealer Operator must
be a competent business person, and effective manager, must have
demonstrated a caring attitude toward customers, and should have a
successful record as a merchandiser of automotive products and
services or otherwise have demonstrated the ability to manage a
dealership. The experience necessary may vary with the potential
represented by each dealer location.
8
in the corporation/Dealer, Greenville Auto Mall, and an employee,
as Dealer Operator of the corporation/Dealer, Greenville Auto Mall.
It is clear § 11.3 does not require the duty of
confidentiality to run to the benefit of the Dealer Operator, i.e.,
Cottingham, rather the duty of confidentiality runs only to the
benefit of the Dealership, Greenville Auto Mall, Inc. Therefore,
no duty of confidentiality is owed to Cottingham, individually,
pursuant to the Dealer Agreement.
The express language of the Dealer Agreement forecloses any
benefit of the contract from running to anyone not a party to the
Agreement; Cottingham, individually, is not a party to the
contract. Section 17.9 reflects:
17.9 No Third Party Benefit Intended.
This Agreement is not enforceable by any third parties
and is not intended to convey any rights or benefits to anyone
who is not a party to this Agreement.
The Agreement is between the parties, Buick Motor Division,
Dealer Sales & Service, and Greenville Auto Mall, a Mississippi
corporation. As such, Carl Cottingham, individually, is not a
party to the Agreement under the terms of the Dealer Agreement.
No fiduciary obligations are created by the Agreement as §
17.1 provides:
This Agreement does not make either party the agent or
legal representative of the other for any purpose, nor does it
grant either party authority to assume or create any
obligation on behalf of or in the name of others. No
fiduciary obligations are created by this Agreement.
Consequently, no contractual obligation or benefit plead by
Cottingham flows to Cottingham, individually, and therefore
9
Cottingham is not the proper party to bring suit on an alleged
contractual breach.
This Court finds of interest the Seventh Circuit case of
Carney v. General Motors Corporation, 23 F.3d 1154 (7th Cir.1994),
wherein the Seventh Circuit also found that a Dealer Operator, as
an individual, was not a proper party to bring suit against GM for
damages based on GM's failure to allow a change in the location of
the GM dealership, Carney Chevrolet. The Seventh Circuit held,
But Mr. Carney [the Dealer Operator] does not have an
individual right to "operate" a GM dealership in the Murphy
building or anywhere else. This right belongs to Carney
Chevrolet, and not to an individual corporate shareholder,
even if he is the sole shareholder and chief executive....
See also Twohy v. First Nat. Bank of Chicago, 758 F.2d 1185,
1194 (7th Cir.1985) (holding that under general principles of
United States corporate law, a stockholder of a corporation
has no personal or individual right of action against third
persons for damages that result indirectly to the stockholder
because of an injury to the corporation). Therefore, this
cause of action belongs to Carney Chevrolet and not Al Carney
as an individual.
Carney, 23 F.3d at 1157 (some citation omitted).
Cottingham argues however, that the Third Circuit case of In
re Headquarters Dodge, Inc., 13 F.3d 674 (3d Cir.1993), controls
and identifies the Dealer Agreement as a Personal Service
Agreement, such that Cottingham would have standing, individually,
to bring his claims against GM under the Dealer Agreement. We
disagree.
The issue addressed in Headquarters Dodge involved a ruling by
the bankruptcy court that GM had the right to exercise a right of
first refusal to purchase the dealership assets, regardless of
whether the proposed buyer was qualified to be a dealer. The
10
trustee and purchaser appealed, and the Third Circuit remanded on
the basis that genuine issues of material fact precluded a granting
of summary judgment by the bankruptcy court.
Appellees argue that because GM in Headquarters Dodge
characterized its Dealer Agreement as a Personal Service Agreement
in the context of GM's right of first refusal, GM should be
precluded from claiming otherwise in this case and therefore,
Cottingham should have standing to bring his individual claims
based on the Dealer Agreement. Again, we disagree. Headquarters
Dodge is factually distinguishable from the case before this Court.
In Headquarters Dodge, GM asserted that pursuant to § 12.2 of the
Dealer Agreement, GM had a right to control who could become a
Dealer Operator pursuant to Article 2 of the Dealer Agreement.
This position is not inconsistent with the terms of the Dealer
Agreement and has no bearing on the clear and unambiguous terms of
the Dealer Agreement as they relate to the present controversy
between GM and Cottingham.
Further, this Court does not find the holding or statements
contained in Headquarters Dodge to be at odds with this Court's
interpretation of the Dealer Agreement as bolstered by Carney.
When determining whether a non party has standing to sue for
damages for breach of that contract, this Court finds, as a matter
of law, that the non party, Cottingham, has no individual standing
to sue for breach of the Dealer Agreement.
Accordingly, for the reasons stated, this Court finds Carl
Cottingham, individually, has no standing to assert the claims made
11
by him, individually, against GM based on breach of the Dealer
Agreement executed on November 1, 1990 between GM and Greenville
Auto Mall. Consequently, the district court erred in denying GM's
motion. Cottingham's claims against GM couched under the contract
must fall.
Judgement as a Matter of Law—Damages Attributable to the
Corporation, Greenville Auto Mall, Inc.
Having found that Cottingham has no standing to assert the
claims made and thus no basis for the damage award, we must now
determine the sufficiency of the evidence presented to support the
damages awarded to the remaining plaintiff, Greenville Auto Mall.
Polanco v. City of Austin, Texas, 78 F.3d 968, 973-74 (5th
Cir.1996).
During hearing held by the district court pursuant to
Fed.R.Civ.P. 50, GM objected to the jury instructions as they
failed to distinguish between the claims of Cottingham and those of
Greenville Auto Mall, the corporation. In the ensuing discussion,
the district court stated, "[f]rankly, there are not any [damages]
that are attributable to the corporation." Thus, the district
court impliedly granted GM's motion for judgment as a matter of law
with respect to the claims made by Greenville Auto Mall when it
found no damages were suffered by Greenville Auto Mall.
Consequently, the district court found there was no factual basis
for a damage award to Greenville Auto Mall.
The record fully supports the district court's finding that
the corporation, Greenville Auto Mall, as Dealer, did not suffer
damage flowing from Greenville Auto Mall's claims against GM
12
pursuant to the Dealer Agreement. The record reflects no evidence
to support any suggestion that Greenville Auto Mall lost business
or sales as a result of the production of documents by GM to the
subpoena issued by Mathis or the cross-examination of Cottingham at
the bankruptcy proceeding, or that any lender subsequent to the
bankruptcy proceeding disapproved Greenville Auto Mall's previously
established line of credit.7 Thus, any damages awarded under
breach of contract attributed to Greenville Auto Mall, Inc. must
fall.
Breach of Fiduciary Duty Under Mississippi Law
GM also appeals the jury finding that GM breached a fiduciary
duty based in tort under Mississippi law. Cottingham and
Greenville Auto Mall urge the Mississippi Supreme Court's holding
in Parker v. Lewis Grocer Co., 246 Miss. 873, 153 So.2d 261 (1963)
allows their claims. In Parker, the Mississippi Supreme Court
found that certain contractual relationships, in and of themselves,
might give rise to a fiduciary duty under Mississippi common law.
The Fifth Circuit in Carter Equipment Co. v. John Deere Industrial
Equip. Co., 681 F.2d 386 (5th Cir.1982), has interpreted Parker as
holding that a fiduciary relationship may arise "when one party
breaches the others [sic] trust or confidence by affirmatively
7
Plaintiff's response to General Motor's itemization of
uncontested facts, paragraph 2 reflects, "[t]he plaintiffs admit
that the Bankruptcy Court opined that the best interests of all the
parties to the bankruptcy proceeding would be served by the court's
approval of Benjamin Beverly's offer for the Vickery assets."
Thus, the record reflects that the cross-examination by Mathis,
Beverly's lawyer, did not effect the outcome of the bankruptcy
proceedings.
13
acting in a way that produces the other party's loss." Carter, 681
F.2d at 392.
Carter further states,
The rule is that a party breaches his fiduciary duty by
actively utilizing some power, control, or opportunity to
destroy, injure, or gain a preferential advantage over the
party with whom it has a mutual interest. The parties have a
mutual interest, by definition. As a result, there is an
obligation not to affirmatively undermine one another. This
does mean a party must take unnecessary risks or forego
seeking its individualized interests pursuant to their
bargain. (emphasis added)
Id.
However, Carter further instructs:
If the parties, in seeking their individualized interests,
comply with the terms of a contract in which they are also
parties, it would be difficult to find a breach of a fiduciary
duty. Although fiduciaries have mutual interests, they also
have individual goals. If part of their relationship is set
out in a contract, the parties have affirmatively recognized,
in part, those individual interests. Unless the contractual
terms are unconscionable, illegal, or violative of public
policy, fiduciaries, as a practical matter, acknowledge that
activity in conformance with the terms of the contract cannot
amount to misconduct that generally constitutes a breach of a
fiduciary duty.
Id.
Cottingham is not a party to the Dealer Agreement.
Consequently, Parker does not apply. GM also argues § 17.1 of the
Dealer Agreement specifically prohibits the creation of such common
law fiduciary obligation, "[n]o fiduciary obligations are created
by this Agreement." This Court need not reach the issue of whether
or not the clear language of the Dealer Agreement can stand or is
"violative of public policy" under Mississippi law, as this Court
finds that Cottingham, individually, is not a party to the contract
and as such has no standing to allege the common law breach of
14
fiduciary duty flowing from the contract. Cottingham has no
relationship, contractual or otherwise, with GM from which the
fiduciary obligation can flow. Only Greenville Auto Mall has such
a relationship with GM, the Dealer Agreement. Cottingham is not
the franchisee under the contract, nor does he have any other
relationship with GM that could give rise to a fiduciary
relationship as defined by the Mississippi Supreme Court in Parker.
In Parker, the relationship between the parties was that of
landlord/tenant, under a lease agreement. The tenant, Lewis
Grocer, claimed that the landlord, Parker, had violated his trust
by leasing additional land to another tenant for use in the
supermarket business. The fiduciary relationship grew from the
contractual relationship.
In Carter, the relationship was that of franchisee/franchisor,
wherein Carter, the franchisee, sought damages against the
franchisor, John Deere, based on the termination of Carter's
franchise with Deere. Again, the fiduciary obligation grew from
the contractual relationship.
In order for a claim of fiduciary duty to arise under
Mississippi common law, there must be a relationship of some form
which creates an obligation "not to affirmatively undermine one
another." Carter, 681 F.2d at 391. In each of the cases cited,
the relationship grew from a contract. Cottingham is not a party
to the contract and had no relationship outside of the Dealer
Agreement from which a common law obligation of fiduciary duty
could flow.
15
The jurisprudence, also, is clear that any damage resulting
from disclosure under a contract such as that by GM pursuant to the
subpoena issued in the bankruptcy hearing, must have been directly
sustained by the franchisee, Greenville Auto Mall; the district
court found no such loss. Id. at 392 n. 15.
Conclusion
Accordingly, this Court VACATES, as a matter of law, the jury
verdict granting compensatory and punitive damages to Cottingham
and Greenville Auto Mall, and RENDERS judgment in favor of General
Motors Corporation, DISMISSING in their entirety the claims of Carl
Y. Cottingham and Greenville Auto Mall, Inc. against General Motors
Corporation.
16