Sid Tilstra v. BouMatic LLC , 791 F.3d 749 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-3333
SID TILSTRA and TILSTRA DAIRY EQUIPMENT, LTD.,
Plaintiffs-Appellees,
v.
BOUMATIC LLC,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Western District of Wisconsin.
No. 3:12-cv-00827-slc — Stephen L. Crocker, Magistrate Judge.
____________________
ARGUED APRIL 17, 2015 — DECIDED JUNE 30, 2015
____________________
Before POSNER and WILLIAMS, Circuit Judges, and WOOD,
District Judge.*
POSNER, Circuit Judge. This diversity suit pits a dealer in
dairy (“milking parlor”) equipment (the corporate plaintiff,
owned by Sid Tilstra, the other plaintiff, but to simplify we’ll
pretend that Mr. Tilstra is the only plaintiff) in southwestern
*Hon. Andrea R. Wood of the Northern District of Illinois, sitting by des-
ignation.
2 No. 14-3333
Ontario against a manufacturer of such equipment, Bou-
Matic, a Wisconsin company. The parties agree that the law
applicable to the substantive issues in this case is Wisconsin
law; their contract authorized BouMatic to designate either
Wisconsin law or the law of the jurisdiction in which the
dealer is located as the law to govern a dispute between the
parties, and it chose Wisconsin law.
Tilstra had been a dealer in BouMatic’s dairy equipment
for about twenty years. He claims that by devious means,
violating the rule of contract law that contracts be performed
in good faith, BouMatic forced him to sell his dealership to a
neighboring BouMatic dealer at a below-market price. The
jury agreed and awarded Tilstra $471,124 in damages, which
the magistrate judge (presiding by agreement of the parties)
upheld over the objections of BouMatic, which has appealed.
Each BouMatic dealer is assigned a territory within
which he has the exclusive right to sell and service BouMatic
products. Tilstra’s territory included (according to John
Ghey, the BouMatic district sales manager whose domain
included that territory) “arguably the richest dairy county in
Canada,” on which 55,000 dairy cows grazed. His dealership
was making a profit of about $400,000 a year.
The dealership contract reserved to BouMatic “the right
to change, at its sole discretion, the assigned territory,” but
further provided that “BouMatic shall not terminate this
[dealership] Agreement or effect a substantial change in the
competitive circumstances of this Agreement without good
cause and only upon at least ninety (90) days’ advance writ-
ten notice sent by certified mail. The term ‘good cause’
means Dealer’s failure to comply substantially with essential
No. 14-3333 3
and reasonable requirements imposed upon Dealer by Bou-
Matic.”
Adjacent to Tilstra’s territory was another BouMatic terri-
tory, this one assigned to a dealership that the parties call
Dortmans. Dortmans’ territory grazed only about half the
number of dairy cows as Tilstra’s. Dortmans wanted to buy
Tilstra’s dealership in order to obtain his territory. But the
two were unable to come to terms—Tilstra was demanding a
much higher price than Dortmans was willing to pay. A
BouMatic district sales manager, Ghey, whose district in-
cluded both territories, advised his superiors that Tilstra was
doing a poor job with his territory; whether this was true is
unclear, but in 2009, BouMatic’s regional sales manager,
Stephane Desjardins, advised Ghey by email that “We
[should] approach Sid [Tilstra] again and ask him to sell. If
he refuses or makes it too difficult, we would in the short
term, modify the territory lines in favor of Advanced [an-
other adjacent BouMatic dealer] and Dortmans. This would
… put unbearable pressure on Sid [to sell]—without cancel-
ling him outright or immediately.”
Desjardins and Ghey met with Tilstra and told him that
BouMatic would eliminate his territory altogether unless he
agreed to sell his dealership, with all its assets, to the Dort-
mans by the first of the next month (December 2009), the sale
to be closed by January 1. There is evidence that BouMatic
also threatened to stop selling dairy equipment to Tilstra.
Tilstra was willing to sell his dealership, but he contin-
ued to resist the terms offered by Dortmans. On January 8
BouMatic’s North American Director of Sales sent Tilstra a
letter reminding him that BouMatic had decided to “have
Dortmans … take over the territory covered by your com-
4 No. 14-3333
pany. … [O]ur decision … is not negotiable and … we will
proceed with or without your cooperation.” The following
month Tilstra sold the dealership to Dortmans for $500,000
plus a five-year consulting contract under which he would
receive a total of $310,000 in consulting fees. The sale was
completed in March.
Tilstra had valued the goodwill of his dealership at $1.5
million; BouMatic, siding with Dortmans, had forced him to
sell it for half that amount even when the consulting contract
awarded to Tilstra as part of the deal is deemed part of the
price of the dealership. In this suit, brought some two and a
half years later, Tilstra argues that BouMatic both violated
the dealership agreement and improperly interfered with his
negotiations with Dortmans; but the latter claim was dis-
missed as untimely, leaving only the former.
The jury was entitled to find that BouMatic, though it did
not purport to terminate its contract with Tilstra, in fact ter-
minated it, and did so without complying with the provi-
sion, quoted earlier, forbidding termination “without good
cause and only upon at least ninety (90) days’ advance writ-
ten notice sent by certified mail.” True, BouMatic didn’t
formally terminate the agreement. But by telling Tilstra that
unless he sold out to Dortmans his territory would be
shrunk to zero, BouMatic was telling him that he was fin-
ished, his dealership doomed; for without a territory his po-
sition as a BouMatic dealer would be untenable. The territo-
rial clause of the dealership agreement provides that the
“Dealer shall purchase Bou-Matic products only … for resale
to purchaser-users in Dealer’s assigned territory … [and]
shall solicit sales only in their assigned territory unless al-
lowed by Bou-Matic in writing prior to any solicitation.” So
No. 14-3333 5
if Tilstra’s territory were eliminated, Tilstra wouldn’t be able
to buy any products from BouMatic for resale to anyone, or
solicit any sales from anyone. In other words, no territory,
no dealership. BouMatic ripostes that, as also quoted earlier,
the dealership contract reserved to it “the right to change, at
its sole discretion, the assigned territory.” Elimination of a
dealership’s entire territory is certainly a change, but were it
a change permitted by the contract, it would amount to al-
lowing termination “without good cause,” contrary to an
explicit contract term. That would not be a tenable interpre-
tation of the contract.
Contract law imposes on both parties to a contract a duty
of good faith in the performance of their contractual obliga-
tions. E.g., In re Estate of Chayka, 176 N.W.2d 561, 564 (Wis.
1970). One form of bad faith that Wisconsin law recognizes
is “evasion of the spirit of the bargain,” Foseid v. State Bank of
Cross Plains, 541 N.W.2d 203, 212 (Wis. App. 1995)—an apt
description of BouMatic’s de facto termination (“construc-
tive termination” is the conventional legalism) by taking
away a dealer’s entire territory. Another form of bad faith
recognized in Wisconsin law is “abuse of a power to specify
terms” (in this case to specify the size and shape of the
dealer’s territory). Id. at 213, quoting (as in our earlier quota-
tion from the Foseid opinion) Restatement (Second) of Contracts
§ 205, comment d (1981); see also Zenith Ins. Co. v. Employers
Ins. of Wausau, 141 F.3d 300, 308 (7th Cir. 1998) (Wisconsin
law). An internal email by Desjardins accurately describes
what BouMatic was trying to do to Tilstra (and succeeding)
as “cancellation.”
Backhandedly conceding the point, BouMatic argues that
it had good cause to terminate Tilstra. But it never told Til-
6 No. 14-3333
stra that, as required by the contract, or proved at trial that
Tilstra had failed “to comply substantially with essential and
reasonable requirements imposed upon [Tilstra] by Bou-
Matic.” No doubt BouMatic thought it would make more
money if Dortmans rather than Tilstra managed what had
been Tilstra’s territory. But the dealership contract did not
authorize BouMatic to terminate a dealer merely because it
had found a substitute that it thought it could make more
money from. That would have made the contract terminable
at will by BouMatic. The dealership agreement specifies that
Tilstra may terminate it at will but BouMatic may terminate
only if it has good cause to do so.
With regard to remedy, BouMatic fires a blunderbuss of
objections to the calculation of damages by Tilstra’s expert, a
certified management accountant (with four other profes-
sional certifications as well) named Rinaldo Sciannella.
BouMatic points out that Sciannella did not attempt to verify
Tilstra’s financial statements prepared in the ordinary course
of business (that is, unrelated to the litigation) by outside ac-
countants. But an expert witness is not required to verify all
the facts on which he relies; he can rely on hearsay (in this
case, what the accountants stated in the financial statements)
provided that such reliance is an accepted practice in his
profession, as it is. Fed. R. Evid. 703. BouMatic also points to
a provision in its dealership agreement with Tilstra that “re-
gardless of which party terminates this Agreement, Dealer
shall not be entitled to any termination compensation or to
any compensation for goodwill.” But the section of the
agreement in which this provision appears conditions Bou-
Matic’s right to terminate a dealer on good cause and 90-day
written notice, and BouMatic did not comply with those
conditions and so cannot rely on the provision we quoted. It
No. 14-3333 7
broke its contract with Tilstra, thereby exposing itself to a
liability that would have been excluded only if BouMatic
had terminated Tilstra’s dealership for good cause.
BouMatic objects that the expert assumed that had Tilstra
not been terminated, his dealership would have remained as
valuable as it had been in recent years, and BouMatic re-
gards this as mere speculation. But the damages calculated
by the expert under the rubric of “goodwill” were the sum of
the discounted future earnings of the dealership based on
that assumption, and that is a standard method of business
valuation, known as the “capitalized earnings” approach.
BouMatic points out that even if it couldn’t lawfully
shrink Tilstra’s territory to zero, it could shrink it some, and
that would reduce Tilstra’s dealership profits. But the jury
was entitled to find that any shrinkage attempted by Bou-
Matic would have been a further attempt to transfer the
dealership to Dortmans without complying with the contrac-
tual provisions governing termination or with the duty of
good faith performance imposed by contract law. BouMatic
also argues that Tilstra could have obtained a comparable
dealership from another supplier of milking-parlor equip-
ment, or remained independent. But there was evidence that
it is difficult to secure a new dealership and that a dealership
is necessary to remain competitive—indeed, without a deal-
ership and thus an assured source of supply of milking-
parlor equipment, Tilstra might be relegated to manufactur-
ing its own such equipment, which would hardly be a realis-
tic option.
BouMatic has other complaints about Sciannella as well,
but they too go not to the admissibility of Sciannella’s testi-
mony but to its weight. BouMatic had the opportunity to
8 No. 14-3333
discredit Sciannella’s testimony before the jury, tried to do
so, and succeeded in persuading it to award Tilstra only
about half the damages calculated by Sciannella.
The judgment of the district court is
AFFIRMED.