Dollar Rent a Car Systems, Inc. v. P.R.P. Enterprises, Inc. , 242 F. App'x 584 ( 2007 )


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  •                                                                        F I L E D
    United States Court of Appeals
    Tenth Circuit
    UNITED STATES CO URT O F APPEALS
    August 2, 2007
    TENTH CIRCUIT                       Elisabeth A. Shumaker
    Clerk of Court
    DOLLAR RENT A CAR SYSTEM S, IN C.,
    an Oklahoma corporation,
    Plaintiff-Counter-Defendant-
    Appellee,                                    No. 06-5140
    v.                                              (N.D. Oklahoma)
    P.R.P. ENTERPRISES, INC., a Florida                 (D.C. No. 01-CV -0698-P)
    corporation; PED RO R . P. DE M ORA ES,
    an individual resident of Florida; RUBENS
    P. TADDEI, an individual resident of
    Florida; P.R.T. ENTERPRISES, IN C., a
    Virginia corporation; ROSANA TADDEI,
    an individual resident of Florida,
    Defendants-Counter-Claimants-
    Appellants.
    OR D ER AND JUDGM ENT *
    Before BR ISC OE, SE YM OU R, and M U RPH Y, Circuit Judges.
    After examining the briefs and appellate record, this panel has determined
    unanimously that oral argument would not materially assist the determination of
    *
    This order and judgment is not binding precedent except under the
    doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
    however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
    Cir. R. 32.1.
    this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
    therefore ordered submitted without oral argument.
    I.    Introduction
    Plaintiff-Appellee Dollar Rent A Car Systems (“Dollar”), an Oklahoma
    corporation, sued Defendant-Appellant PRP Enterprises, Inc., a Florida
    corporation, and PRT Enterprises, Inc., a Virginia corporation, (“Franchisees”)
    for declaratory judgment that Dollar w as entitled to terminate its relationship with
    Franchisees and breach of contract arising from Franchisees’ failure to make
    payments as required under its License and M aster Lease Agreements with Dollar.
    D ollar also sued Franchisees’ personal guarantors and owners, Pedro R.P. De
    M oraes, Rubens P. Taddei, and Rosana Taddei for breach of their Guarantee
    Agreements with Dollar. Franchisees counterclaimed, asserting Dollar had
    wrongfully terminated its contractual relationship with Franchisees. The district
    court, pursuant to its diversity jurisdiction under 
    28 U.S.C. § 1332
    (a)(1), held a
    bench trial, found in favor of Dollar on all of Dollar’s claims, and awarded Dollar
    damages, litigation costs and expenses, and attorney’s fees. Because it concluded
    Dollar was justified in terminating its contracts with Franchisees, the district
    court found against Franchisees on Franchisees’ counterclaims.
    Franchisees, along with M oraes and the Taddeis, appeal the district court’s
    ruling. Franchisees assert the district court erroneously admitted testimony from
    Dollar’s expert witness as to Franchisees’ financial condition and the likelihood
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    of Franchisees’ future profitability. Franchisees also allege the district court
    erroneously concluded Dollar w as justified in terminating its relationship with
    Franchisees and should have awarded consequential damages or lost profits to
    Franchisees for Dollar’s wrongful termination of the contracts.
    This court exercises jurisdiction pursuant to 
    28 U.S.C. § 1291
    . After
    reviewing the record and the district court’s extensive findings of fact and
    conclusions of law , this court affirms the district court’s evidentiary ruling and
    legal conclusions regarding Franchisees’ liability.
    II.   Background
    PRP Enterprises is a closely held corporation owned entirely by M oraes.
    PRT Enterprises is a closely held corporation owned by M oraes and Rubens
    Taddei. Both corporations were engaged in the rental car business under
    franchise agreements with Dollar.
    PRP operated Dollar franchises in Pensacola, Florida, from 1991 to 2001
    and in M obile and Birmingham, Alabama, from 1999 to 2001. PRT operated
    Dollar franchises in Norfolk, Virginia, from 1992 to 2001 and in Richmond,
    Virginia, from 1999 to 2001. In each operational location, Franchisees had
    License Agreements with Dollar that obligated them to pay license fees, system
    fees, Dollar reservation system charges, and revenue management charges, and to
    reimburse Dollar for supplies and materials, travel agent comm issions, frequent
    flier payments, customer adjustments, goodwill certificates, and intercity
    -3-
    payments. 1 Franchisees also had M aster Lease Agreements in each location,
    which allowed them to lease cars from Dollar’s fleet of vehicles and obligated
    them to pay fleet-leasing fees, as well as finance charges and late charges on any
    unpaid fleet-leasing fees. M oraes personally guaranteed PRP Enterprises’ debts
    in collateral Guarantee Agreements. M oraes and the Taddeis each personally
    guaranteed the debts of PRT Enterprises through collateral Guarantee
    Agreements. All disputes under the agreements were to be governed by
    O klahom a law .
    The contracts between Franchisees and Dollar permitted Dollar to terminate
    the contracts under various conditions. Pursuant to each M aster Lease
    Agreement, Dollar was permitted to terminate the agreement immediately without
    notice in the “event of default,” which was defined to include, among other
    things, (1) Franchisees’ failure to pay in full any lease payments on the date the
    payments were due, (2) Franchisees’ insolvency, or (3) Franchisees’ breach of
    either the M aster Lease Agreement itself or the License Agreement, or
    guarantors’ breach of the Guarantee Agreement. Upon the occurrence of a
    default, Dollar w as permitted to enter Franchisees’ property to repossess its
    vehicles.
    1
    Because the License Agreements were entered into on different dates, the
    terms of the agreements vary slightly. The Pensacola and Norfolk agreements
    contain the same terms, however, as do the Richmond and A labama agreements.
    -4-
    Under the Pensacola and Norfolk License Agreements, Dollar had the
    ability to terminate the agreements for “good cause” upon the delivery of notice
    to Franchisees for, among other things, (1) the failure to cure a default under a
    collateral agreement, such as the M aster Lease Agreement, (2) Franchisees’
    insolvency or inability to pay their debts as the debts came due, or (3)
    Franchisees’ failure to comply with the terms of the License Agreement on three
    or more occasions within any twelve-month period, including the failure to pay
    license fees, advertising assessments, reservation fees, or other fees.
    Additionally, after giving written notice of monies due under the License or
    M aster Lease Agreements or other collateral agreements, Dollar retained the right
    to terminate the License A greements following the expiration of a three-day cure
    period.
    In addition to including provisions substantially similar to those referenced
    above regarding contract termination following repeated failures to comply with
    the terms of the License Agreements and the failure to make payments owed
    within three days of receiving notice, the Richmond and A labama License
    Agreements provided that the agreements could terminate automatically and
    without notice to Franchisees if Franchisees became insolvent or were unable to
    pay their debts as the debts became due. The Richmond and A labama License
    Agreements further specified that any description of default in any notice Dollar
    provided to Franchisees did not preclude Dollar from articulating additional or
    -5-
    supplemental bases for default in any action, hearing, or suit relating to the
    agreement or the agreement’s termination.
    The events precipitating Dollar’s termination of the License and M aster
    Lease Agreements occurred in September 2001. It is undisputed that Franchisees
    failed to make a fleet payment of $273,570.25 it owed Dollar, w hich was due to
    Dollar on September 17, 2001. By September 18, 2001, the parties stipulated that
    Franchisees owed Dollar a total of $569,000, including the missed fleet payment.
    As a result of Franchisees’ unpaid debts, Dollar notified Franchisees in writing on
    September 18, 2001, that the M aster Lease Agreements would terminate on
    September 21 unless the missed fleet payment of $273,570.25 was paid in full by
    that time. The next day, however, before the expiration of the three-day cure
    period Dollar initially granted to Franchisees in its September 18 notice, Dollar
    notified Franchisees in writing that it was immediately terminating its M aster
    Lease Agreements and its License Agreements with Franchisees. Following
    termination of the agreements, Dollar disconnected Franchisees from its central
    reservation center, began repossessing its fleet from Franchisees’ locations, and
    drew on a $422,000 letter of credit held as security for Franchisees’ obligations.
    On September 21, 2001, Dollar filed its breach of contract and declaratory
    judgment action in federal district court.
    After a lengthy pre-trial period, the district court held a bench trial, which
    culminated on October 28, 2004. After requesting written closing arguments and
    -6-
    post-trial briefing on issues related to damages, the district court issued an
    extensive, forty-nine page memorandum detailing its findings of fact and
    conclusions of law. Revising a mathematical error in its damage calculation, the
    court issued an amended judgment.
    Relying in significant part on the testimony of M oraes and the Vice
    President of Dollar’s Licensee Division, M ario Nargi, the district court found
    Franchisees began encountering financial difficulties by the first quarter of 2001
    and had previously missed payments to Dollar during the spring and summer of
    2001. By September 2001, franchisees w ere also significantly behind in their
    payments to other creditors. M oraes admitted the amount of past-due debt
    exceeded the cash Franchisees had on hand. Dollar’s expert testified to
    Franchisees’ poor financial condition, including the precipitous increase in
    Franchisees’ accounts payable between January 2001 and September 2001. Based
    on the expert’s testimony, the court found that, by September 19, 2001,
    Franchisees were insolvent, did not have the ability to continue as a going
    concern, and were not able to pay their debts as the debts became due.
    The court further found that, in a series of conversations between
    Franchisees and Dollar from September 17 through September 19, Dollar was
    informed about Franchisees’ dire financial condition. In multiple telephone calls
    between M oraes and Dollar collectors on September 17, M oraes indicated
    Franchisees were unable to pay past due amounts or make their fleet payment.
    -7-
    On September 18, Franchisees’ bookkeeper told a Dollar collector that M oraes
    had laid off Franchisees’ entire accounting staff the previous day. On September
    19, M oraes spoke with Dollar’s Director of Credit and Collections, as well as
    with Nargi, and indicated Franchisees w ould be unable to pay their debt in full
    without receipt of a bank loan or Dollar’s willingness to buy Franchisees’
    franchise locations. Also on September 19, M r. Taddei called Nargi and indicated
    Franchisees would probably have to file for bankruptcy.
    Applying these findings to the language of the License and M aster Lease
    Agreements, the court concluded there were multiple grounds for Dollar’s
    termination of Franchisees’ contracts. The court determined Franchisees
    defaulted on their payment obligations under the M aster Lease and guarantor
    defaulted on the Guarantee Agreements, permitting Dollar to immediately
    terminate the M aster Lease Agreements. The court further concluded
    Franchisees’ failure to pay amounts due under the License Agreements for several
    successive months in 2001 constituted material breach of the License Agreements
    and provided “good cause” for D ollar’s termination upon notice to Franchisees.
    The court additionally determined from the testimony and documentary evidence
    that Dollar’s knowledge of Franchisees’ insolvency and inability to pay its debts
    constituted material breach and amounted to “good cause” permitting Dollar to
    terminate the Pensacola and Norfolk License Agreements upon notice and to
    automatically terminate the Richmond and Alabama License Agreements.
    -8-
    Finally, the court indicated Franchisees’ failure to cure their nonpayment of
    amounts due under the M aster Lease Agreements represented a default under
    collateral agreements with Dollar, which provided an additional ground for “good
    cause” termination upon notice to Franchisees pursuant to the License
    Agreements. Based on these determinations, the court concluded the notice of
    immediate termination that Dollar provided Franchisees on September 19 was
    valid and that Dollar was not obligated to honor its initial offer of a three-day
    cure period. The court found it significant that, after receiving Dollar’s
    termination notices and a subsequent notice reaffirming the termination notices,
    M oraes never offered to make payments to Dollar.
    Based on its conclusion that Dollar’s termination of the License and M aster
    Lease A greements were permitted by the terms of the agreements, the court
    rejected Franchisees’ breach of contract counterclaim. Citing well-established
    tenets of Oklahoma contract law, the court rejected Franchisees’ assertion that the
    offer of a three-day cure was binding and could not be revoked. The court further
    concluded Franchisees’ statements to Dollar on September 17 through September
    19 regarding Franchisees’ inability to pay amounts due was tantamount to a
    repudiation of its contracts with Dollar. Finally, the court asserted as an
    independent ground for Franchisees’ inability to recover damages the provisions
    in the License and M aster Lease Agreements in which Franchisees waived any
    right to recover lost profits or consequential damages. As to the limitation-on-
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    damages provisions in the agreements, the court concluded Franchisees failed to
    demonstrate these provisions were unconscionable.
    III.   Discussion
    A.     Adm ission of Expert Testimony Regarding Franchisees’ Financial
    Condition
    On appeal, as they did before the district court, Franchisees challenge the
    district court’s decision to admit the testimony of Steven Wilsey, a certified
    public accountant with training in business appraisal and valuation. Franchisees
    contest W ilsey’s expertise in the evaluation of rental car franchises. In particular,
    Franchisees argue W ilsey failed to apply the very accounting standards he
    testified were applicable to the evaluation of Franchisees’ management plan,
    calling into question his testimony regarding the likelihood of Franchisees’ future
    profitability.
    This court reviews a district court’s determination to admit evidence for an
    abuse of discretion. Nat’l Envtl. Serv. Co. v. Ronan Eng’g Co., 
    256 F.3d 995
    ,
    1001 (10th Cir. 2001). “U nder the abuse of discretion standard, a trial court’s
    decision will not be disturbed unless the appellate court has a definite and firm
    conviction that the lower court made a clear error of judgment or exceeded the
    bounds of permissible choice in the circumstances.” Boughton v. Cotter Corp., 
    65 F.3d 823
    , 832 (10th Cir. 1995) (quotation omitted). This court’s review of the
    record indicates that W ilsey demonstrated appropriate credentials to permit the
    -10-
    district court to qualify him as an expert witness pursuant to Federal Rules of
    Evidence 702 and 703.
    As to the methodology W ilsey used in evaluating Franchisees’ future
    prospects for profitability and W ilsey’s experience in conducting such
    evaluations, when the district court sits as fact-finder in a bench trial, the court
    has the right to evaluate for itself the credibility of the testifying witness. See
    Duplan v. Harper, 
    188 F.3d 1195
    , 1202–03 (10th Cir. 1999). The record here
    reveals extensive examination regarding W ilsey’s assessments of Franchisees’
    finances and detailed cross-examination regarding both the limits of W ilsey’s
    experience and the limits of the methodology he used in analyzing Franchisees’
    business. This comprehensive examination of the witness ensured the court was
    well aware of the strengths and weaknesses of W ilsey’s expertise when
    determining how to weigh W ilsey’s testimony. This court, therefore, concludes
    the admission of W ilsey’s testimony and, more specifically, its consideration of
    W ilsey’s testimony on the likelihood of Franchisees’ future profitability was not
    an abuse of the district court’s discretion.
    B.    Termination of License and M aster Lease A greem ents
    Franchisees’ broader argument on appeal is that the district court erred in
    concluding Dollar was justified in terminating its License and M aster Lease
    Agreements with Franchisees. Franchisees contest the district court’s
    determination that Franchisees repudiated their agreements with Dollar by making
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    statements indicating their impending insolvency. Franchisees also challenge the
    district court’s conclusion that Dollar’s September 18 offer of a three-day cure
    period was revocable and non-binding. Nowhere, however, do Franchisees
    contest the district court’s underlying factual findings regarding the financial
    condition of their business at the time Dollar terminated the License and M aster
    Lease Agreements or the court’s legal conclusion that Franchisees w ere, in
    several ways, in material breach of both the M aster Lease and License
    Agreements at the time Dollar terminated the agreements.
    W hen a litigant appeals from the judgment in a bench trial, the district
    court’s factual findings are reviewed for clear error and its legal conclusions are
    reviewed de novo. Holdeman v. Devine, 
    474 F.3d 770
    , 775 (10th Cir. 2007).
    This court’s review of the record provides assurance that the district court’s
    findings of fact were not clearly erroneous. Additionally, this court’s review of
    the contract provisions and O klahoma contract law demonstrates the correctness
    of the district court’s legal conclusion regarding Dollar’s right to terminate its
    License and M aster Lease Agreements w ith Franchisees, the propriety of its
    conclusion regarding repudiation, and the appropriateness of its determination
    that the three-day cure offered by Dollar was not required under any of the
    agreements and was not supported by the consideration that would have been
    necessary to make the offer binding. This court has nothing to add to the district
    court’s thorough memorandum, which exhaustively details its factual findings and
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    provides ample support for its legal conclusions. W e therefore affirm the district
    court’s judgment for substantially the reasons articulated by the district court. 2
    IV.   Conclusion
    For the reasons set forth above, the amended judgment of the district court
    is A FFIR M E D.
    ENTERED FOR THE COURT
    M ichael R. M urphy
    Circuit Judge
    2
    Because this court affirms the district court’s determination that Dollar’s
    termination of the License and M aster Lease Agreements was not wrongful and
    that Franchisees are not entitled to damages, we need not reach Franchisees’
    argument that the district court erred in concluding the terms of the agreements
    barred Franchisees’ claim for consequential damages or lost profits.
    -13-
    

Document Info

Docket Number: 06-5140

Citation Numbers: 242 F. App'x 584

Judges: Briscoe, Murphy, Seymour

Filed Date: 8/2/2007

Precedential Status: Non-Precedential

Modified Date: 8/3/2023