No. 88-532
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
ZEKE'S DISTRIBUTING COMPANY,
Plaintiff and Appellant,
-vs-
I
BROWN-FORMAN CORPORATION,
I I
Defendant and Respondent. I
r
.'
.
-.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis & Clark,
The Honorable Gordon Bennett, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Charles A. Smith, Helena, Montana
Robert T. Curnrnins, Helena, Montana
For Respondent:
Stuart L. Kellner; Hughes, Kellner, Sullivan & Alke,
Helena, Montana
Submitted on Briefs: Auq. 3, 1989
Decided: September 21, 1989
Filed:
Clerk
Justice R. C. McDonough delivered the Opinion of the Court.
This appeal involves a motion for new trial in an action
for breach of contract and the implied covenant of good faith
and fair dealing. Plaintiff Zeke's Distributing Company
(Zeke's) appeals the ruling of the District Court of the
First Judicial District, Lewis and Clark County, granting
defendant Brown-Forman Corporation's (Brown-Forman) motion
for new trial. The District Court granted the motion on the
grounds that the court erred in receiving over Brown-Forman's
proper objection certain exhibits and testimony prejudicial
to Brown-Forman's case. We affirm.
Plaintiff Zeke's frames two issues for determination on
appeal. First, did the District Court abuse its discretion
in setting aside a jury verdict and ordering a new trial
because of alleged prejudicial error committed in allowing
certain evidence to be admitted. And alternatively, if this
Court upholds the District Court's Order Granting New Trial,
did the District Court err in refusing to allow Zeke's to
present evidence of projected lost profits as part of the
tort element of damages. Defendant Brown-Forman also raises
an issue for appeal: Did the District Court err in denying
Brown-Forman's motions for directed verdicts and judgment
notwithstanding the verdict with respect to the issues of its
breach of the implied covenant of good faith and its
liability for punitive damages?
Zeke's, a Montana corporation, is a beer and wine
distributor licensed by the State of Montana to sell and
distribute beer and wine to retail outlets in the Helena
area. Brown-Forman is a national distributor of alcohol and
distilled spirits doing business in the State of Montana.
Pursuant to a written agreement entered April 20, 1984, and
assigned to Brown-Forman by a California corporation called
"California Cooler," Zeke's was granted an exclusive
distributorship of California Cooler beverages throughout
Lewis and Clark, Broadwater, the southeast half of Powell,
and the northern half of Jefferson counties. The agreement
was terminable by either party with or without cause on
thirty days1 written notice.
Brown-Forman terminated the agreement by letter on
February 13, 1987. Zeke's protested the termination in a
letter dated February 17, 1987, setting forth the
difficulties that would be caused by the termination and
stating that the matter would be t.urned over to Zeke's
attorney. By letter of February 26, 1987, Leon R. Timmons,
Brown-Forman's assistant secretary and senior attorney,
requested Zekels to direct all future correspondence
concerning the distributorship to him. No other response was
ever made to Zeke's initial protest letter. On March 27,
1987, Timmons wrote a letter instructing Zeke's to
"disregard" the termination letter and advising Zeke's the
termination would be effective on October 1, 1987. This
advise was given at a time when Timmons believed that 1)
Zeke's did not have a written contract of distributorship, 2)
the verbal contract was non-exclusive, and 3) Montana law
required reasonable notice before termination of a
non-written contract for distributorship. Timmons' belief
was incorrect as to the first two factual premises. Zeke's
did not inquire further into its status after the letter of
March 27 and Brown-Forman supplied no further information on
the matter.
On February 12, 1987, four days before receipt of the
original notice of termination by Zeke's, Brown-Forman wrote
Clausen's Distributing Company of Helena (Clausen's) a letter
making continuation of Clausen's distributorship of
Brown-Forman's other products contingent on its acceptance of
a California Cooler distributorship. Between March and
October of 1987, Brown-Forman supplied California Cooler to
both Zeke's and Clausen's on a non-exclusive basis. During
this time Brown-Forman ceased supplying Zeke's with the sales
"backup" it previously had supplied while supplying Clausen's
with this backup. After April 16, 1987, Zeke's made no
further orders for California Cooler from Brown-Forman.
Zeke's filed suit against Brown-Forman and Clausen's in
the District Court of the First Judicial District on June 30,
1987. The District Court dismissed Clausen's as a defendant
and Zeke's subsequently amended its complaint to allege
three causes of action against Brown-Forman: 1) breach of
contract, 2) breach of the implied covenant of good faith and
fair dealing, and 3) a cause of action for punitive damages
based on willful breach, fraud, malice, and oppression.
During trial and over Brown-Forman's objection Zeke's
introduced plaintiff's exhibit #21, the letter to Clausen's
requiring Clausen's to distribute California Cooler or
possibly lose its distributorship of other Brown-Forman
products. Brown-Forman also objected to the admissibility of
testimony elicited from its agent Timrnons on
cross-examination concerning other lawsuits arising from
Brown-Forman's efforts to consolidate its distributorships.
After trial, a jury awarded Zeke's $8,623.70 in compensatory
damages and $143,000 in punitive damages. Brown-Forman moved
the District Court for a new trial. The District Court
granted Brown-Forman's motion and Zeke's now appeals that
order.
Zeke's first contention on appeal is that the District
Court abused its discretion by granting Brown-Forman a new
trial on the grounds that the admission of exhibit #21 and
the testimony of Timmons concerning other lawsuits were
irrelevant and prejudicial to Brown-Forman's case. Relevant
evidence is evidence having any tendency to make the
existence of any fact of consequence to the determination of
the action more probable or less probable than it would be
without the evidence. Rule 401, M.R.Evid. Evidence which is
not relevant is not admissible. Rule 402, M.R.Evid. The
court ruled and the jury was properly instructed (Instruction
9) that Brown-Forman properly terminated the written
distributor agreement upon 30 days notice. The only contract
existing between the parties was an implied contract based on
the letter. Thus, there were no issues to be determined
arising out of the termination of the written agreement or
any implied obligation attendant to it. (Instruction 9.)
The only contract existing between the parties was an implied
contract based on Tirnrnons' letter of March 27, 1987,
instructing Zeke's to disregard the termination notice given
earlier and extending Zeke's distributorship until October 1,
1987. Exhibit #21 only relates to the existence of a
contractual relationship between Clausen's and Brown-Forman,
it did not tend to make more or less probable the existence
of an implied contract between Zeke's and Brown-Forman. Nor
does evidence of other lawsuits against Brown-Forman tend to
make the existence of an implied contract between the parties
more or less probable.
Further, there were factual issues at trial as to
whether the implied contract between the parties gave Zeke's
an exclusive or non-exclusive distributorship, and based on
this determination, whether Brown-Forman breached the implied
contract. It is clear that evidence of other lawsuits is not
relevant toward these issues. Exhibit #21, the February 12
letter to Clausen's, was written prior to Timrnons'
"disregard" letter of March 27, at a time when Brown-Forman
was in the process of lawfully terminating the written
agreement. At the time, the implied contract on which Zeke's
case is based did not exist. If the letter is relevant
toward breach of this contract, it tends to establish that
Brown-Forman intended that the implied contract with Zeke's
be non-exclusive, because Brown-Forman was already employing
Clausen's as a distributor. More importantly, the letter
also tends to show the aggressive or "heavy-handed" tactics
Brown-Forman used in consolidating its distributorships.
However, the nature of these tactics is not only irrelevant
toward breach of the implied contract between Zeke's and
Brown-Forman, it is also highly prejudicial to Brown-Formants
case. Thus, while the letter may have been relevant
regarding non-exclusivity and materially favorable to
Brown-Forman, introduction of the letter by Zeke's clearly
prejudiced Brown-Forman. Relevant evidence may be excluded
if its probative value is substantially outweighed by the
danger of unfair prejudice, confusion of the issues, or
misleading the jury. Rule 403, M.R.Evid. This determination
of admissibility is within the discretion of the trial judge
and will not be disturbed unless there is manifest abuse of
discretion. Welnel v. Hall (1985), 215 Mont. 78, 694 P.2d
1346, Kimes v. Herrin (1985), 217 Mont. 330, 705 P.2d 108,
Dahlin v. Holmquist, (Mont. 1988), 766 P.2d 239, 46 St.Rep.
2127. The trial judge did not abuse his discretion by
granting a new trial on the grounds that admission of this
evidence prejudiced Brown-Forman.
Zeke's also argues that the evidence is relevant toward
the issue of good faith and fair dealing. Prior to the
introduction of evidence concerning other lawsuits involving
Brown-Forman on cross-examination of Timmons, the court had
properly sustained objections by Brown-Forman that this
evidence was irrelevant toward the issue of good faith and
fair dealing. The court correctly noted that while the
testimony tended to establish Brown-Forman's policy of
consolidating distribution of its products, the testimony did
not establish whether the other terminations were made in
good faith or bad faith and thus were not relevant to that
issue. The court should have sustained a similar objection
to this testimony when it was elicited from Timmons on
cross-examination.
Zeke's also argues that exhibit #21 is relevant toward
the issue of good faith and fair dealing because its effect
was to coerce Clausen's into accepting a California Cooler
distributorship at a time when Brown-Forman had an exclusive
agreement with Zeke's. There is no other evidence in the
record which tends to demonstrate bad faith on the part of
Brown-Forman. Moreover, the exhibit tends to establish
possible misbehavior by Brown-Forman toward Clausen's rather
than demonstrating such misbehavior toward Zeke's. Even if
exhibit #21 has some attenuated relevance toward breach of
the implied covenant of good faith and fair dealing, the
letter should have been excluded because it was prejudicial
to Brown-Formants case. Zeke's argues that admission of this
evidence constituted harmless error and thus granting a new
trial based on its admission was an abuse of discretion. For
error to be the basis for a new trial, it must be so
significant as to materially affect the substantial rights of
the complaining party. Rule 61, M.R.Civ.P., Giles v. Flint
Valley Forest Products (1979), 179 Mont. 382, 588 P.2d 535.
Considering the result arrived at by the jury in this case,
the error cannot be characterized as harmless; admitting the
evidence clearly was prejudicial and misleading and
materially affected the substantial rights of Brown-Forman to
a fair trial.
The decision to grant a new trial is within the sound
discretion of the trial court, and will not be overturned
absent a showing of manifest abuse of discretion. Tope v.
Taylor (Mont. 1988) 768 P.2d 845, 45 St.Rep. 2242; Walter v.
Evans Products Co. (1983), 207 Mont. 26, 672 P.2d 613; Giles,
588 P.2d 535. Upon Brown-Forman's motion for new trial, it
was within the District Court's discretion to determine if
the probative value of the evidence was outweighed by the
prejudice to Brown-Forman. We find no abuse of discretion.
Zeke's second contention is that the trial court erred
in refusing to allow evidence of lost profits as part of the
tort element of damages. As part of its damages claimed for
Brown-Forman's alleged breach of the implied covenant of good
faith and fair dealing, Zeke's offered to prove damages for
lost profits beyond the period ending September 30, 1987, the
extension date of the contract. Pursuant to Brown-Forman's
motion in limine, granted prior to trial, the District Court
excluded this evidence and gave the jury the usual
instruction for tort damage, limiting Zeke's lost profits to
the extension period of the contract. Zeke's relies on this
Court's decision in State Bank of Townsend v. Maryann's, Inc.
(1983), 204 Mont. 21, 664 P.2d 295. In that case Maryann's
claimed that the bank's negligent misrepresentation with
respect to a loan made to Maryann's prevented it from
continuing to operate a store it reasonably could have
expected to operate into the future. This Court held that
the trial court had not erred in admitting evidence of future
lost profits. However, the present case is distinguishable
on its facts. Under the implied contract arising out of the
March 27 letter, Zeke's distribution of California Cooler was
expressly limited to the period ending September 30, 1987.
This limitation not only applied to Zeke's compensatory
damages for breach of contract, it also applied to
compensatory damages for breach of the implied covenant of
good faith and fair dealing. Thiel v. Johnson (1985), 219
Mont. 271, 711 P.2d 829. Zeke's could not reasonably expect
to distribute California Cooler beyond the extension date,
thus the District Court did not err in limiting Zekels proof
of future lost profits based on breach of the implied
covenant to the extension period of the contract.
Finally, we address the issue raised by Brown-Forman in
its appeal: Did the District Court err in denying
Brown-Forman's motions for directed verdicts and judgment
notwithstanding the verdict with respect to the issues of its
breach of the implied covenant of good faith and fair dealing
and its liability for punitive damages? The implied covenant
of good faith and fair dealing is based on the "reasonable
expectations" of the parties that the other will not act
"arbitrarily, capriciously, or unreasonably." Nicholson v.
United Pacific Ins. Co. (1985), 219 Mont. 32, 710 P.2d 1342.
Under the statute applicable when this cause of action arose,
punitive damages can be awarded in a tort action for breach
of the implied covenant of good faith and fair dealing only
if the breach amounts to oppression, malice, or fraud.
Section 27-1-221,MCA (1985). Brown-Forman argues that there
was not enough evidence of malice to submit the issue of
punitive damages for breach of the implied covenant to the
jury, thus the District Court erred by denying its motions
for directed verdict and judgment notwithstanding the verdict
on this issue. We need not determine the sufficiency of the
evidence to support the jury's verdict in this case. A grant
of a new trial by the trial court is a re-examination of
issues of fact, 5 25-11-101 MCA; it must be commenced fresh
or anew. Town Pump v. Dist. Ct. (1979), 180 Mont. 358, 590
P.2d 1126; Waite v. Waite (1964), 143 Mont. 248, 389 P.2d
181. In as much as the case will be retried de novo,
Brown-Forman will have an opportunity to raise the issue of
the sufficiency of the evidence supporting punitive damages
at the appropriate time.
We affirm the District Court.
We Concur: A
g@gtclT'A*
Chief Justice