IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
July 23, 2010
MENTE CHEVROLET OLDSMOBILE INC., ET AL
The opinion of the court was delivered by: Juan R. Sánchez, J.
On November 19, 2009, a jury awarded $4 million to Plaintiffs Mente Chevrolet Oldsmobile, Inc., Mente Chrysler Dodge, Inc., and Donald Mente for Defendant GMAC's breach of contract. GMAC now asks this Court to overturn the jury's verdict and grant GMAC judgment as a matter of law under Federal Rule of Civil Procedure 50(b). Alternatively, GMAC requests a new trial under Federal Rule of Civil Procedure 59.*fn1 Because this Court finds no grounds to disturb the jury's verdict, both of GMAC's motions are denied.
For more than fifteen years, Donald Mente owned two car dealerships, Mente Chevrolet Oldsmobile (the Chevrolet Dealership) and Mente Chrysler Dodge (the Chrysler Dealership). The Chevrolet Dealership was purchased by Mente's parents in 1971, and Mente began working there in 1979. In the 1990s, Mente assumed full control of the Chevrolet Dealership. Around the same time, the Mente family purchased the Chrysler Dealership.*fn3 All financial transactions for the dealerships were managed by Donna Johnson, who worked as the Chevrolet Dealership's controller for almost 30 years. Johnson was also the controller for the Chrysler Dealership after it was purchased by the Mente family.
Mente operated both dealerships under franchise agreements with General Motors (GM) and finance arrangements known as "floor plans"*fn4 with GMAC.*fn5 The Chevrolet Dealership's floor plan with GMAC began in 1982 and was governed by the Wholesale Security Agreement (WSA). The Chrysler Dealership's floor plan also operated pursuant to an identical contract. Under the WSA, Plaintiffs were required to repay GMAC "faithfully and promptly" for all cars sold to customers.*fn6
The meaning of the term "faithfully and promptly" was a central issue at trial because this Court determined the phrase was ambiguous. The WSA did not define the phrase or provide a specific time period for repayment. GMAC argued the term required immediate payment, transferred to GMAC the same day a vehicle was sold. Plaintiffs argued, based on their prior course of dealing with GMAC, they were authorized to wait for their receipt of third-party funds before paying GMAC.*fn7 If Plaintiffs failed to remit payment "faithfully and promptly," GMAC could declare the dealerships "out of trust."*fn8
Mente testified his business relationship with GMAC became problematic in 2006, after GM initiated a plan to decrease the number of GM dealerships. Near the end of 2006, GMAC ordered Mente to reduce the number of used cars on his lot and increase his profits. Around the same time, the parties had disputes related to a revolving line of credit GMAC supplied. GMAC abruptly asked Plaintiffs to reduce their $500,000 line of credit by half within 30 days, a time period 60 days shorter than GMAC normally allowed.*fn9 Mente told GMAC he would not be able to reduce his credit to $250,000 in such a short period of time. Despite Mente's protest, GMAC sent a letter to Mente purporting to confirm the parties' agreement for Mente to pay down his credit. On July 17, 2007, Mente left a message for his contact at GMAC denying the existence of such an agreement.
Two days later, on July 19, 2007, a GMAC agent audited the Chevrolet Dealership and demanded immediate payment of $317,841.20 for the cars missing from the dealership's lot.*fn10 This audit took place while Johnson, the sole person responsible for managing the dealerships' financial records, was on vacation. Johnson always informed GMAC of her absences to ensure it would not audit the dealerships while she was away*fn11 and to inform them payments for sold vehicles would not be made in her absence.*fn12 Before the July audit, Johnson gave GMAC written notice she leave for vacation on July 16, 2007, and would return to work the following Monday, July 23, 2007.
Mente asked GMAC to give him 24 hours to locate Johnson because he could not access the Chevrolet Dealership's financial records or issue checks in her absence. He reached Johnson by phone, but she could not return to work until the following day. GMAC refused to wait and immediately declared the dealerships out of trust.*fn13 If GMAC had waited, Plaintiffs claimed they had funds available to pay GMAC $269,405 on July 19 and approximately $400,000 on July 20.*fn14
Later the same day, GMAC sent eight guards to the Chevrolet Dealership and GMAC agents seized the titles, keys, and manufacturer's certificates of origin for all cars at the Chevrolet Dealership. GMAC took control of both dealerships' open accounts with GM and all funds contained therein.*fn15 GMAC instructed GM to cease its vehicle shipments to the dealerships. GMAC also initiated a new policy, in which Plaintiffs could not complete a vehicle sale unless they provided GMAC with a certified check for the full sale proceeds, including any trade-in credit, warranty payments, sales tax, or state registration fees. GMAC also forbade Plaintiffs from adding used cars to the floor plan or selling used cars at auctions to quickly generate income. GMAC billed Plaintiffs for charges associated with GMAC's actions, such as the cost of the security guards stationed at the dealerships. GMAC instituted similar policies at the Chrysler Dealership.
On July 25, 2007, Mente received three letters from William Tierney, GMAC's Director of Commercial lending, demanding he pay $7, 592,393.59 by the end of the following business day. See Exs. 41-43. This figure included $6,751,428.25 for the principal owed for vehicles financed by GMAC at both dealerships, $289,643 for unpaid vehicles at the Chevrolet Dealership, $51,321.87 for interest payments, and $500,000 for the balance of the Chevrolet Dealership's line of credit. Ex. 43. If Mente failed to make this payment, Tierney told him GMAC could take possession of all dealership property. Tierney also told Mente his wholesale credit line had been suspended indefinitely. Mente did not make the $7.5 million payment within 24 hours, and GMAC took possession of the dealerships.
Following GMAC's seizure of the dealerships, Plaintiffs could not raise enough income to pay state-required dealership fees, refunds due to customers, operating costs, or employee salaries. On July 27, 2007, Plaintiffs terminated all employees except Johnson and another essential employee and closed the Dealerships. Mente and Johnson continued to sell or trade cars to other dealerships and used their personal funds to pay the Dealerships' operating costs. At the end of September, following 30 days of negotiation, GMAC agreed to return $59,000 of the funds it seized from Plaintiffs and to refrain from enforcing its creditor rights for 90 days if Plaintiffs promised to waive their right to sue GMAC. This covenant was memorialized in a Forbearance Agreement (the Agreement) drafted by GMAC and presented to Mente and Johnson. Mente and Johnson signed the Agreement the same day it was presented.*fn16 At the time the Forbearance Agreement was signed, Plaintiffs were represented by counsel. At the end of the forbearance period, Plaintiffs sued GMAC for breach of the WSA.
Discovery was contentious. While Plaintiffs sought quick relief, GMAC tried to prolong this litigation. GMAC twice moved to continue the case and extend the trial date, and this Court twice refused to grant such a delay. GMAC persistently refused to turn over documents and, when documents were produced, delayed the documents' submission to Plaintiffs.*fn17 GMAC also continually frustrated Plaintiffs' attempts to identify and locate former and current employees of GM and GMAC who knew the circumstances surrounding the Mente dealerships' closure.
At trial, Plaintiffs argued GMAC breached the WSA by improperly declaring the dealerships out of trust and seizing all of the dealerships' property. Plaintiffs argued GMAC's declaration Plaintiffs were out of trust was pretextual and part of a scheme to force GM dealerships to close if they were not sufficiently profitable.*fn18 Plaintiffs contended they would have fully paid GMAC if they had been given the opportunity to pay upon Johnson's return the following day. Plaintiffs' experts testified the dealerships' closures caused Plaintiffs to lose approximately $707,000 in profits from vehicle sales, $1.15 million in franchise value, and more than $3 million in dealership value. GMAC asserted Plaintiffs were out of trust because Plaintiffs did not immediately remit payment when GMAC demanded payment on July 19, 2007. GMAC further argued Plaintiffs' claims were barred by the Forbearance Agreement.
The jury returned a verdict for Plaintiffs and awarded $4,000,000 in damages. The jury found the dealerships were not out of trust on July 19, 2007, and GMAC breached the WSA by its actions on July 19, 2007, and thereafter.*fn19 Official Verdict Slip (Nov. 19, 2007), at 3-4. The jury also determined the Forbearance Agreement was unenforceable because Mente and Johnson did not sign the agreement "knowingly and voluntarily without duress, fraud or undue influence." Id. at 1. The jury further found enforcement of the Forbearance Agreement was barred by the equitable doctrine of unclean hands and some of Plaintiffs' claims accrued after they signed the waiver.*fn20 Id. at 2.
On December 9, 2009, GMAC filed a renewed motion for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(b)*fn21 and a motion for new trial pursuant to Rule 59. On June 29, 2010, this Court directed the parties to submit supplemental briefing regarding Plaintiffs' ability to recover damages based on the value of the two dealership properties. These properties were owned by entities not joined as parties, Don's Limited Partnership and Don's Second Limited Partnership. Mente held a majority stake in both partnerships.
In its supplemental brief, GMAC argued Plaintiffs did not produce sufficient evidence at trial or post-trial demonstrating Plaintiffs had "standing" to recover the partnership properties' losses. Plaintiffs asserted the jury assessed damages based on the total value of the dealerships, including the real estate, because the dealerships would have received financial termination assistance from GM and Chrysler if GMAC had not preemptively shut down their operations. In support, Plaintiffs cite the testimony of Thomas Bellairs, who stated the $3 million diminution of property value provided a basis for the amount GM would have paid Plaintiffs in dealer assistance. Plaintiffs further argue the property losses are personal because Mente was named as borrower on the notes and mortgage for the partnership properties, and the foreclosure proceedings on these properties were instituted against Mente personally. In addition, Plaintiffs state the partnerships' general partner (Mente himself) assigned Mente all claims and damages to partnership interests.
Plaintiffs also submitted the organizational documents for Don's Limited Partnership, Don's Second Limited Partnership, and Don's Corporation. The partnership agreements show Mente was the limited partner for both partnerships and held a 98 percent in each. Don's Corporation, for which Mente is the sole shareholder, director, and board member, owned a 2 percent interest in each partnership. The documents include affidavits authorizing Mente to enter into mortgage agreements on behalf of the partnership. These organizational documents were not introduced at trial, but Plaintiffs argue this Court can consider them post-trial because they are public records and were always available to GMAC.*fn22
In support of its renewed motion for judgment as a matter of law, GMAC argues this Court should overturn the jury verdict because: (1) the Forbearance Agreement was valid and barred Plaintiffs' suit; (2) Plaintiffs ratified the Forbearance Agreement by accepting the return of funds from GMAC; (3) Plaintiffs' measure of damages was too speculative for the jury to award any amount; (4) Plaintiffs lacked standing to obtain relief; and (5) the WSA was unambiguous and should not have been submitted to the jury for interpretation.
A district court may grant a defendant's motion for judgment as a matter of law if "the court finds that a reasonable jury would not have a legally sufficient evidentiary basis" to rule for the plaintiff. Fed. R. Civ. P. 50(a)(1). A court "should grant such a motion only if, viewing all the evidence in favor of the nonmoving party, no reasonable jury could find liability on a particular point." Grazier v. City of Philadelphia, 328 F.3d 120, 123 (3d Cir. 2002). "In determining whether the evidence is sufficient to sustain liability, the court may not weigh the evidence, determine the credibility of witnesses, or substitute its version of the facts for the jury's version." McDaniels v. Flick, 59 F.3d 446, 453 (3d Cir. 1995) (citation omitted).
GMAC first asserts the jury's finding Plaintiffs did not sign the Forbearance Agreement "knowingly and voluntarily, without duress, fraud or undue influence" is unsupported by the evidence. A waiver of the right to sue is valid if "made knowingly and voluntarily" and without "evidence of fraud or undue influence," so long as enforcement of the agreement would not be against the public interest. Jakimas v. Hoffman-La Rouche, 485 F.3d 770, 781-82 (3d Cir. 2007). To determine the validity of a waiver or release, a court must apply a totality of the circumstances test. Id. This test includes consideration of the following non-exclusive factors:
(1) the clarity and specificity of the release language; (2) the plaintiff's education and business experience; (3) the amount of time plaintiff had for deliberation about the release before signing it; (4) whether plaintiff knew or should have known his rights upon execution of the release; (5) whether plaintiff was encouraged to seek, or in fact received benefit of counsel; (6) whether there was an opportunity for negotiation of the terms of the Agreement; and (7) whether the consideration given in exchange for the waiver and accepted by the employee exceeded the benefits to which the employee was already entitled by contract or law.
Long v. Sears Roebuck & Co., 105 F.3d 1529, 1538 (3d Cir. 1997) (alteration omitted).*fn23
Plaintiffs agree the Forbearance Agreement's language was clear and specific, all parties were represented by counsel, Plaintiffs knew the agreement constituted a waiver of their rights, and Plaintiffs signed the waiver for the purpose of receiving a portion of the funds seized by GMAC. Mente admitted his counsel actively negotiated the Forbearance Agreement with GMAC's counsel over the course of 30 days, and he had time to reflect on its terms. Thus, the majority of the factors indicate Mente and Johnson signed the Forbearance Agreement knowingly and voluntarily.
The "consideration" Plaintiffs received, however, is problematic and did not exceed the benefits to which Plaintiffs were already entitled. Consideration is typically required to create an enforceable contract. For consideration to be valid, it must "confer a benefit upon the promisor or cause a detriment to the promisee" and "be an act, forbearance or return promise bargained for and given in exchange for the original promise." Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir. 2002) (quoting Channel Home Ctrs. v. Grossman, 795 F.2d 291, 299 (3d Cir. 1986)). "Detriment to the promisee is sufficient in the legal sense if at the request of the promisor and upon the strength of that promise, the promisee performs any act which causes the promisee the slightest trouble or inconvenience, and which the promisee is not otherwise obliged to perform." Adelvision L.P. v. Groff, 859 F. Supp. 797, 804 (E.D. Pa. 1994); see also Cohen v. Sabin, 307 A.2d 845, 849 (Pa. 1973) ("Clearly performance of that which one is already legally obligated to do is not consideration sufficient to support a valid agreement.").
As its purported consideration, GMAC returned $59,000 of the money it seized from Plaintiffs and agreed to refrain from legal action against Plaintiffs for 90 days. At the time Plaintiffs signed the Forbearance Agreement, they were in dire financial circumstances stemming from GMAC's improper actions. Because Plaintiffs were not out of trust, GMAC had no legal right to keep the money it seized from their accounts and the returned $59,000 was money to which Plaintiffs were already entitled. Furthermore, because GMAC caused Plaintiffs' default by refusing to allow them to remit payment, GMAC had no legal right to pursue legal action against Plaintiffs. Thus, GMAC incurred no detriment and there was no consideration for the signing of the Forbearance Agreement.*fn24
Despite GMAC's inequitable conduct, when examining the totality of the circumstances, this Court is forced to conclude the jury's finding Plaintiffs did not sign the Forbearance Agreement "knowingly and voluntarily" is unsupportable. The terms of the negotiated agreement were clear, Plaintiffs were represented by counsel, and Plaintiffs understood the substance of the agreement. Because the jury's finding is not supported by substantial evidence, the Forbearance Agreement cannot be invalidated on this ground.*fn25
The jury verdict, however, also invalidated the Forbearance Agreement by applying the doctrine of unclean hands.*fn26 This doctrine is applicable to the instant matter. Although GMAC is the defendant in this action, GMAC asserted waiver as an affirmative defense and asked the Court to dispose of Plaintiffs' claims by enforcing the Forbearance Agreement. This Court is entitled to use its equitable powers to decline to enforce the agreement under the law of unclean hands.*fn27
GMAC also argued the doctrine of unclean hands cannot be applied in this matter because Plaintiffs seek legal, not equitable, relief. This argument is similarly unavailing.*fn28
Unclean hands is an equitable doctrine which applies "when a party seeking relief has committed an unconscionable act immediately related to the equity the party seeks in respect to the litigation." Highmark, Inc. v. UPMC Health Plan, Inc., 276 F.3d 160, 174 (3d Cir. 2001). A claim is barred under the doctrine of unclean hands when "(1) a party seeking affirmative relief (2) is guilty of conduct involving fraud, deceit, unconscionability, or bad faith (3) directly related to the matter in issue (4) that injures the other party and (5) affects the balance of equities between the litigants." Imprisoned Citizens Union v. Shapp, 11 F. Supp. 2d 586, 608 (E.D. Pa. 1998) (citation and internal quotation marks omitted); see also Lucey v. Workmen's Comp Appeal Bd., 732 A.2d 1201, 1204 (Pa. 1999) (stating the doctrine of unclean heads "closes the doors of a court of equity to one tainted with iniquity or bad faith relative to the matter in which he seeks relief").*fn29
The jury found the dealerships were not out of trust on July 19, 2007, and therefore found GMAC's seizure of the dealerships' finances and property were actions made in bad faith. In June 2007, GMAC agents abruptly notified Mente his credit would be reduced by a quarter of a million dollars. Instead of permitting Mente the standard 90-day period in which to secure alternate funding, GMAC gave him 30 days to comply with their drastic credit reduction. In July 2007, GMAC agents audited the Mente dealership knowing Johnson, the only person who could remit payment, was unavailable. On the date of the audit, the Chevrolet Dealership had been operating under the same floor plan with GMAC for 25 years. During those 25 years, GMAC had never demanded immediate payment of outstanding funds in Johnson's absence. Despite this history, GMAC demanded instant payment and refused Mente's request to allow him 24 hours to locate Johnson and remit payment. When GMAC was not remunerated on the spot, it declared the Chevrolet Dealership out of trust and dispatched a cadre of guards to occupy it and the Chrysler Dealership. GMAC seized both dealerships and all of the dealerships' physical and liquid assets, causing Mente to fall behind on his financial obligations to third parties and making Mente unable to pay his employees. GMAC prohibited Plaintiffs from selling vehicles without GMAC's approval and without receiving immediate and complete payment from all customers. Once GMAC wrongfully seized the dealerships' assets, it offered to partially return these seized items to secure Plaintiffs' promise to forfeit their rights to sue GMAC for its impermissible conduct. As consideration for Plaintiffs' waiver, GMAC offered to refrain from pursuing a creditor's action against the dealerships, despite knowing it was not legally entitled to take such action.
GMAC's improper actions induced Plaintiffs to sign the Forbearance Agreement. By declaring the dealerships out of trust and plundering Plaintiffs' inventory, GMAC stripped the dealerships of the ability to generate income and access their own money, thereby placing Mente in an untenable financial situation. GMAC's actions forced Mente to rely upon GMAC to obtain financing for his operating costs. Mente's floundering finances motivated him to waive his legal rights against GMAC to receive the funds necessary to cover his escalating expenses. GMAC's actions were taken in bad faith for the purpose of shutting down the dealerships, and these actions caused Plaintiffs to sign a release of their legal rights. Thus, the evidence supports the jury's finding that the doctrine of unclean hands bars enforcement of the Forbearance Agreement. As such, GMAC may not use the Forbearance Agreement to avoid liability.
In a final attempt to convince the Court to enforce the Forbearance Agreement, GMAC argues Plaintiffs ratified the Forbearance Agreement by accepting its benefits after signing it. Plaintiffs contend GMAC waived its ratification argument because GMAC did not raise the issue until its renewed Rule 50 motion. Ratification is an affirmative defense which must be raised in a responsive pleading or it will be deemed waived. Jakimas, 485 F.3d at 773; Chainey v. Street, 523 F.3d 200, 209 (3d Cir. 2008); Johnston v. Katz, No. 94-6693, 1996 WL 107402, at *4(E.D. Pa. Mar. 7, 1996). GMAC argues it did not waive its ratification defense because "ratification" is "inextricably intertwined" with claims of undue influence and because "the parties tried the ratification issue by consent." GMAC's Reply in Supp. of GMAC's Renewed Mot. for J. as a Matter of Law, at 10. An affirmative defense is not preserved merely because it relates to another party's claims. Moreover, a "defendant's failure to raise an issue in a Rule 50(a)(2) motion with sufficient specificity to put the plaintiffs on notice waives the defendant's right to raise the issue in their Rule 50(b) motion." Chainey, 523 F.3d at 218 (quoting Williams v. Runyon, 130 F.3d 568, 571-72 (3d Cir. 1997)). Because GMAC failed to raise ratification in its oral motion, GMAC has waived it right to assert ratification as an affirmative defense now.
Even if GMAC had raised this issue in a timely manner, the theory of ratification does not render the Forbearance Agreement enforceable. A party may ratify a contract if it "accepts the benefits flowing from it, or remains silent, or acquiesces in the contract for any considerable length of time after the party has the opportunity to annul or avoid the contract." Retail Brand Alliance, Inc. v. Rockvale Outlet Ctr., No. 06-1857, 2006 WL 403885, at *6 (E.D. Pa. Jan. 31, 2007) (quoting Wahsner v. Am. Motors Sales Corp., 597 F. Supp. 991, 998 (E.D. Pa. 1984)). The theory of ratification allows a promise to "be enforced even though the underlying contract is voidable" on a basis such as duress or fraud. Jakimas, 485 F.3d at 782; United States v. Baird, 218 F.3d 221, 230-31 (3d Cir. 2000); see also Levin v. Garfinkle, 492 F. Supp. 781, 807 (E.D. Pa. 1980) (holding a contract induced by fraud is voidable, not void, so it may be ratified by the parties). Ratification would only apply here if the Forbearance Agreement was voidable on the basis of duress or fraud.*fn30
Because the jury found no such duress or fraud, the agreement was not voidable.*fn31 Therefore, the doctrine of ratification does not apply.
This Court next considers the merits of Plaintiffs' breach of contract claim. GMAC first argues the WSA did not contain ambiguous language and GMAC did not breach the plain language of the contract. "A contract is ambiguous if it is reasonably susceptible to different constructions and capable of being understood in more than one sense." Ins. Adjustment Bureau, Inc. v. Allstate Ins. Co., 905 A.2d 462, 468-69 (Pa. 2006). Once a court determines a contract is ambiguous, its meaning may be decided by the jury. Id. at 469. When deciding the parties' intent, "ambiguities are to be construed against . . . the contract drafter." Shovel Transfer & Storage v. Pa. Liquor Control Bd., 739 A.2d 113, 139 (Pa. 1999).
In ruling on GMAC's motion for summary judgment, this Court determined the phrase "faithfully and promptly" was ambiguous as used in the WSA and consequently submitted interpretation of this phrase to the jury. At trial, Mente testified that 10-14 days typically passed between the day a customer signed a vehicle sale agreement and the day the customer's bank remitted payment for the purchase. After hearing evidence regarding the parties' 25-year business relationship, during which GMAC had never before demanded same-day payment, the jury found the phrase "faithfully and promptly" did not require immediate repayment on the date of purchase. Thus, the evidence is sufficient to support the jury's determination that GMAC breached its contractual obligation to Plaintiffs when GMAC declared the Chevrolet Dealership out of trust.
GMAC next argues Plaintiffs are not entitled to damages because their damages assessment was too speculative. A court reviewing a jury's verdict "has an obligation to uphold the jury's award if there exists a reasonable basis to do so." Evans v. Port Auth. of N.Y. & N.J., 273 F.3d 346, 351 (3d Cir. 2001) (internal punctuation and citations omitted). Pennsylvania contract law permits "some uncertainty in calculating damages," but "the plaintiff must introduce sufficient facts upon which the jury can determine the amount of damages without conjecture." Ware v. Rodale Press, Inc., 322 F.3d 218, 226 (3d Cir. 2003); see also Cohen v. F.D.I.C., No. 91-3944, 2003 WL 21118673, at *6 (E.D. Pa. May 14, 2003) ("Damages are not considered speculative merely because they are not capable of exact calculation.").
Plaintiffs' expert testimony revealed the extent of harm Plaintiffs suffered following GMAC's breach of the WSA. Automotive industry and finance expert Joseph Roesner testified Plaintiffs lost up to $707,000 in car sales and $1.15 million in franchise value when the dealerships were declared out of trust. Real estate expert Thomas Bellairs testified Plaintiffs' properties diminished in value from $5.69 million in 2007 to $2.43 million in August 2009, as a result of the dealerships' closure. Bellairs further testified the dealerships had no value as of the date of trial because of ongoing foreclosure proceedings. Additionally, both Mente and Bellairs explained that, pursuant to the financial assistance provision of their franchise agreement, if GM had shut down the dealerships, GM would have been obligated to pay Plaintiffs a reasonable price for the properties. Based on this testimony and other evidence presented at trial, the jury had sufficient facts from which to award $4 million in damages.
In addition to disputing the amount of damages, GMAC challenges Plaintiffs' entitlement to damages based on diminution of property value, arguing the entities which owned the properties are not parties to the litigation. The Chrysler Dealership and the Big Lot property are owned by Don's Limited Partnership and Don's Second Limited Partnership, respectively. The Chevrolet Dealership is owned by Mente Chevrolet Oldsmobile, Inc.*fn32 According to partnership documents submitted after trial, Mente holds a 98 % stake in Don's Limited and Don's Second Limited Partnerships. The remaining interest belongs to Don's Corporation, a corporate entity of which Mente is the sole shareholder.*fn33
Evidence of diminution of property value is relevant to Plaintiffs' damages. Plaintiffs do not seek reimbursement for the diminution, but argue such diminution reveals the extent of the loss of financial assistance from GM. This lost assistance may be awarded to Plaintiffs as consequential damages because the loss was a reasonably foreseeable consequence of, and caused by, GMAC's contractual breach. See Atlantic Paper Box Co. v. Whitman's Chocolates, 844 F. Supp. 1038, 1046 (E.D. Pa. 1994) (citing Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854)) ("[C]onsequential damages . . . stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting."). Under the Service and Sales agreement between GM and Plaintiffs, which was introduced into evidence, GM promised to financially assist Plaintiffs if their contract expired or was terminated by GM. The relevant section states:
General Motors will provide assistance on owned Premises by either (a) locating a purchaser who will offer to purchase the Premises at a reasonable price; or (b) locating a lessee who will offer to lease the Premises. If General Motors does not locate a purchaser or lessee within a reasonable period of time, General Motors will itself either purchase or, at its option, lease the Premises for a reasonable term at a reasonable rent . . .
Ex. 99. At trial, Mente explained that if GM or Chrysler wanted to close his franchise, under this provision, "they would pay [the dealer] whatever the going rate was for a lease of a building that size or they would buy it from [the dealer]." Trial Tr., Nov. 9, 2009, at 200. Mente further testified when GM and Chrysler cancelled his franchise in August, they refused to provide him with financial assistance because the dealerships were not operational after July 27, 2009, the date Plaintiffs were forced to shut down the dealerships due to GMAC's actions. Plaintiffs' real estate expert Thomas Bellairs explained the diminution in property value is the best estimate of the amount GM would have provided Plaintiffs under the financial assistance clause as a fair measure of compensation--in this case, $3,259,000. Trial Tr., Nov. 17, 2009, at 56. Because there was sufficient testimony established regarding the use of property value to calculate the estimated loss Plaintiff suffered in the absence of GM's financial assistance, the identity of the property owners does not alter Plaintiffs' entitlement to damages. The evidence supports the jury's award of $4 million to Plaintiffs.
GMAC also argues it is entitled to a new trial under Federal Rule of Civil Procedure 59. GMAC believes it is entitled to a new trial because this Court erred by (1) excluding two GMAC expert witnesses; (2) allowing three of Plaintiffs' experts to testify outside of their respective areas of expertise; (3) excluding from evidence alleged account statements of Plaintiffs, which GMAC would have used to impeach Johnson; (4) including the term "undue influence" in the jury instruction; and (5) allowing the jury to consider unclean hands. "In general, a district court may grant a motion for new trial pursuant to Fed. R. Civ. P. 59 if it determines that the verdict is inconsistent with substantial justice because the verdict is against the weight of the evidence." Younis Bros. & Co. v. CIGNA Worldwide Ins. Co., 899 F. Supp. 1385, 1387 (E.D. Pa. 1995). When a party moves for a new trial based on alleged trial error, a court conducts two inquiries: "whether an error was in fact made and whether that error was so prejudicial that refusal to grant the new trial would be 'inconsistent with substantial justice.'" Bhaya v. Westinghouse Elec. Corp., 709 F. Supp. 600, 601 (E.D. Pa. 1989); see also McKenna v. City of Philadelphia, No. 07-110, 2008 WL 4450223, at *4 (E.D. Pa. Sept. 30, 2008).
GMAC argues this Court erred by precluding the testimony of its expert witnesses, Paul Quinn and Fred Caruso.*fn34 Under Federal Rule of Civil Procedure 26(a)(2)(c), parties must disclose expert testimony "at the times and in the sequence that the court orders." When a party fails to make the required expert disclosures, "the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed. R. Civ. P. 37(c). This Court considers four factors when deciding whether to prohibit evidence: "(1) the prejudice or surprise of the party against whom the excluded evidence would have been admitted; (2) the ability of the party to cure that prejudice; (3) the extent to which allowing the evidence would disrupt the orderly and efficient trial of the case or other cases in the court; and (4) bad faith or willfulness in failing to comply with a court order or discovery obligation." Nicholas v. Pa. State Univ., 227 F.3d 133, 148 (3d Cir. 2000). A court must also consider the importance of the excluded testimony. Konstantopoulos v. Westvaco Corp., 112 F.3d 710, 719 (3d Cir.1997).
On August 21, 2009, this Court ordered both parties to disclose all experts by September 25, 2009. GMAC did not reveal the identity of its expert witnesses, Quinn and Caruso, until its October 30, 2009 Pretrial Motion; nor did GMAC request an extension of the disclosure deadline. Because GMAC did not meet the expert witness disclosure deadline, this Court decided Quinn and Caruso would not be permitted to testify or submit reports. See Order of Nov. 6, 2009.
This Court properly excluded Quinn and Caruso under the factors listed above. First, GMAC revealed the names of these experts on October 30, 2009, less than two weeks before trial. Permitting these experts to testify would have prejudiced Plaintiffs because Plaintiffs had insufficient time to review the expert reports in preparation for trial.*fn35 Second, there was little Plaintiffs could do to avoid such prejudice due to this Court's unwillingness to continue the impending trial. Third, allowing these experts to testify would have interfered with trial because Plaintiffs would have required additional trial preparation time. Fourth, GMAC's asserted reason for failing to comply with this Court's schedule is its characterization of Quinn and Caruso as "rebuttal" experts, which it argued were exempt from this Court's deadline. This argument is not supported by law.*fn36
Furthermore, GMAC's contentious behavior throughout the course of this litigation leads the Court to believe GMAC acted in bad faith by failing to reveal experts Quinn and Caruso until ten days before trial.
GMAC next argues this Court erred by permitting Plaintiffs' experts Joseph Roesner, Carl Woodwood, and Thomas Bellairs to testify outside their respective areas of expertise.*fn37 To testify as an expert, a witness must have "'specialized knowledge' regarding the area of testimony." Elock v. K-Mart Corp., 233 F.3d 734, 741 (3d Cir. 2000). Such knowledge may be based on "practical experience as well as academic training and credentials." Waldorf v. Shuta, 142 F.3d 601, 625 (3d Cir. 1998). Rule 702 contains three requirements: "(1) the proffered witness must be an expert, i.e., must be qualified; (2) the expert must testify about matters requiring scientific, technical or specialized knowledge; and (3) the expert's testimony must assist the trier of fact." Pineda v. Ford Motor Co., 520 F.3d 237, 243-44 (3d Cir. 2008). The minimum admissibility requirement is the expert witness must "possess skill or knowledge greater than the average layman." Waldorf, 142 F.3d at 625.
GMAC argues Woodward was not qualified to testify about out of trust dealerships. This Court qualified Woodward as an expert in automotive accounting and practices. At trial, GMAC chose not to make contemporaneous objections during the course of Woodward's testimony, but instead moved to strike the entirety of his testimony after its conclusion. An expert qualified to testify in one area may nonetheless "lack qualifications to testify outside his area of expertise." Calhoun v. Yamaha Motor Corp., 350 F.3d 316, 322 (3d Cir. 2003). When testimony exceeds an expert's area of expertise, the complaining party may submit jury instructions to limit the expert's testimony to its admissible portions. See Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., 410 F. Supp. 2d 417, 422 (W.D. Pa. 2006) (explaining the danger of "prejudice or confusion" caused by admitting opinion testimony can be "cured by an appropriate jury instruction"). Following Woodward's testimony, this Court denied GMAC's motion to strike and found any prejudice resulting from inappropriate testimony could be dealt with by an appropriate jury instruction. GMAC proposed, and this Court read, a limiting jury instruction to strike Woodward's testimony regarding subjective beliefs held by GMAC in relation to Plaintiffs.*fn38 GMAC did not request an instruction limiting Woodward's testimony regarding out of trust dealerships. Additionally, if GMAC had requested such an instruction, this Court would have denied it because Woodward was qualified as an expert in automotive accounting and out of trust dealerships--essentially, dealerships' default on their automotive loans--are within an automotive accounting expert's area of expertise. Moreover, on cross-examination, GMAC questioned Woodward thoroughly on his knowledge of the term out of trust, providing the jury with a basis to weigh Woodward's testimony in this area.*fn39
Next, GMAC argues this Court erred in allowing Plaintiffs' real estate expert Bellairs to testify in several areas. Bellairs testified he appraised Plaintiffs' properties as worth $2.431 million in August 2009. Comparing this number to a 2007 appraisal, showing the properties were worth $5.69 million, Bellairs concluded the property values dropped $3.259 million from 2007 to 2009.
GMAC does not dispute Bellairs's methodology, but claims his testimony was outside the scope of his expertise because the property included a car dealership and Bellairs was not qualified to appraise dealerships. GMAC also argues this Court erred in allowing Bellairs to testify Plaintiffs would have received $3.359 from GM as per the financial assistance provision of their contract. On cross-examination, Bellairs admitted discussion of the dealer service relationship was outside the scope of his expertise. As such, the jury was equipped to weigh the credibility of his testimony in this area. GMAC contemporaneously moved to strike parts of Bellairs's testimony, but this Court denied GMAC's motion, stating the objection related to the weight of testimony and not its admissibility. GMAC did not propose a limiting jury instruction for Bellairs. Moreover, Bellairs testimony did not prejudice GMAC since Mente had already discussed the financial assistance provision.
GMAC further argues this Court erred by allowing Roesner, an automotive industry and automotive finance expert, to testify about the commercial reasonableness of the disposition of collateral and blue sky valuation.*fn40 GMAC did not move to strike any portion of Roesner's testimony or ask for a limiting instruction. Because the contested testimony is merely a sub-section of the automotive finance field, this Court finds Roesner's testimony was within his area of expertise. There is no reason to believe Roesner's testimony created jury confusion. GMAC had ample time to cross-examine Woodword, Bellairs, and Roesner, and this Court concludes GMAC was not prejudiced by the experts' testimony. As such, this Court did not err in allowing the jury to consider their testimony.
GMAC next argues this Court committed prejudicial error by excluding documents which purported to be Plaintiff's account statements, which GMAC attempted to introduce to impeach Johnson's testimony. During cross-examination of Johnson, GMAC sought to introduce uncertified printouts purporting to be a series of internal accounts receivable statements GM created for Mente Chevrolet. This Court excluded these documents because they were not listed on GMAC's exhibit list.*fn41 The Eastern District of Pennsylvania's Local Rule of Civil Procedure 16.1(c)(5) requires identification of all trial exhibits in a party's pretrial memorandum. This Court recognizes that evidence introduced "solely for impeachment purposes" is admissible even if it is not disclosed before trial. Fed. R. Civ. P. 26(a)(3). Impeachment is improper, however, when it is "employed as a guise to present substantive evidence to the jury that would be otherwise inadmissible." United States v. Gilbert, 57 F.3d 709, 711 (9th Cir. 1995) (per curiam). Defendants argue they intended to introduce the document for impeachment purposes only. This Court's review of the document, however, reveals that it purports to address a central trial issue--namely, whether Mente Chevrolet had sufficient funds in its open account with GM to pay GMAC for the cars it sold prior to July 19, 2007. GMAC was aware Plaintiffs intended to introduce trial evidence showing the dealership had sufficient funds to pay GMAC and showing GMAC seized the dealership's open account with GM. Plaintiffs' First Amended Complaint, filed November 10, 2008, asserted GMAC seized Mente's two open accounts with GM on July 19, 2007. The issue continued to be an integral part of Plaintiffs' case; it was addressed in Plaintiffs' responses to both GMAC's motion to dismiss and motion for summary judgment. Therefore, the proffered documents do not constitute "solely" impeachment evidence. If admitted, the document would be substantive evidence supporting GMAC's contention the Mente dealership did not have sufficient funds to pay GMAC the money GMAC demanded.*fn42
To assess whether undisclosed, purported impeachment evidence should be admitted, a court considers the intent of the disclosure requirement in Federal Rule of Civil Procedure 26. This rule "was adopted to end two evils that had threatened civil litigation: expensive and time-consuming pretrial discovery techniques and trial-by-ambush." Hayes, 338 F. Supp. 2d at 503. To determine whether such evidence should be admitted, a court must consider the Third Circuit's "fairness" factors for the exclusion of evidence, analyzing: (1) the prejudice or actual surprise of the party against whom the information was offered; (2) the ability of that party to cure any prejudice; and (3) the offering party's bad faith or willfulness in withholding the information. Id. at 504. "Because reducing gamesmanship is a core aim of [Rule 26], . . . the last inquiry should carry significant weight." Id. at 505.
The fairness factors weigh in favor of this Court's decision to exclude the documents. First, Plaintiffs' counsel told the Court he had never seen these documents before and was unaware of their existence. Both parties agreed the documents were not part of the discovery Plaintiffs produced, nor were they included in the discovery GMAC provided to Plaintiffs.*fn43 In short, Plaintiffs were in fact surprised by GMAC's attempt to introduce Exhibit 432. Second, given that GMAC produced these documents in the middle of trial, Plaintiffs had no ability to cure this prejudice without delaying the orderly presentation of evidence. If the document were admitted at trial, Plaintiffs' counsel would have had insufficient time to investigate the documents' authenticity and, if authentic, the circumstances surrounding the documents' creation. Given the documents' last-minute production during trial, this Court concludes GMAC wilfully withheld them to ambush Plaintiffs at trial. Counsel could easily access these documents at any time since this lawsuit was filed in 2007, so there is no reason counsel would wait until trial to do so except for the purpose of gamesmenship. Therefore, the Court's exclusion of these documents was proper.
Even if this Court's exclusion was erroneous, such error was harmless. After this Court excluded the disputed documents, GMAC used Exhibit 195 (a properly authenticated bank statement) and Exhibit 161 (a spreadsheet created by GM) to show the Chevrolet Dealership did not receive a check for $65,000 until August 2007,*fn44 despite Johnson's testimony this money was due on July 26, 2007. Moreover, the jury's determination the Chevrolet Dealership was not out of trust makes the dealership's ability to repay GMAC on the date of the audit irrelevant. The jury interpreted the WSA to mean the Chevrolet Dealership did not immediately owe money to GMAC upon demand. Instead, the jury found the dealership was contractually allowed to repay GMAC in accordance with its past practice of waiting until it received sales payments from third-party lenders. Therefore, GMAC suffered no prejudice from the exclusion of the purported GM accounts receivable statements.
Finally, GMAC disagrees with the jury instruction regarding the parties' signing of the waiver. GMAC argues this Court erred by including the term "undue influence" in the jury instruction and on the verdict form. This Court instructed the jury:
A waiver must be made knowingly and voluntarily, without fraud or undue influence. You must examine the totality of the circumstances to determine if the Forbearance Agreement constitutes a valid waiver of Mente's claims. Because GMAC raises waiver as an affirmative defense, GMAC bears the burden of showing Mente waived its claims knowingly and voluntarily.
Jury Instructions, at 33. This instruction is a proper recitation of the law on the validity of a waiver.*fn45
Under Federal Rule of Civil Procedure 51(c)(1), a party "object[ing] to an instruction or failure to give an instruction must do so on the record, stating distinctly the matter objected to and the grounds for the objection." Franklin Prescriptions, Inc. v. N.Y. Times, Co., 424 F.3d 336, 339 (3d Cir. 2005) (quoting Fed R. Civ P. 51(c)(1)). The validity of a waiver is a jury question when the circumstances surrounding the signing of the waiver could form the basis for the waiver being rendered void, voidable, or unenforceable. Callen v. Penn. R.R. Co., 332 U.S. 625, 628-29 (1948) (finding waiver issues should have been included in the jury instruction); Wastak v. Lehigh Valley Health Network, 342 F.3d 281, 295 (3d Cir. 2003) (stating whether plaintiff signed a waiver involuntarily is a question for the jury).
At the close of trial, GMAC objected to the jury instructions in general, but did not object to the instruction regarding the validity of a release or to the inclusion of undue influence. GMAC also did not suggest an alternative jury instructions on the validity of a release or on undue influence. Thus, this Court did not err by allowing the jury to consider whether Plaintiffs were subject to undue influence when signing the Forbearance Agreement.*fn46
GMAC also argues this Court erred in allowing the jury to consider the doctrine of unclean hands,*fn47 asserting the same arguments dismissed above in the motion for judgment as a matter of a law. As stated above, the doctrine of unclean hands was applicable to the signing of the Foreclosure Agreement. GMAC does not challenge the wording of the jury instruction on this doctrine. As such, this Court did not err in allowing the jury to consider unclean hands.
Accordingly, this Court denies both GMAC's renewed motion for judgment as a matter of law and GMAC's motion for new trial.
An appropriate order follows.
Juan R. Sánchez, J. United States District Judge