Montana Trucks v. UD Trucks North America

VEHICLE DEALERSHIP: Limitation of Remedies not procedurally or substantively unconscionable under Texas law, prohibits dealer from asserting claim for lost profits due to breach of contract involving trucks with non-compliant air brakes… fraud claim subject to Montana law, barred by 2-year statute that ran from time Japanese employee deposition revealed that compliance certificates were false… punitives, pled as separate cause, are not stand-alone cause, claim fails because substantive claims fail… repurchase claim subject to Montana law, barred by 2-year statute for claims arising out of statutory liability… constructive fraud claim not ripe for decision, but also subject to 2-year fraud statute… Molloy.

Montana Trucks and UD Trucks North America (formerly Nissan Diesel) entered into a dealer sales & service agreement in 2003 which specified that Montana Trucks was an authorized seller of UD trucks and UD would provide vehicles that complied with Federal Motor Vehicle Safety Standards. MT purchased 8 UD3300 trucks 12/06-12/07. Although UD represented that they were certified for the US, they were noncompliant with FMVSS §121 air brake rules. UD recalled the 3300s in 2007 because they did not satisfy air brake regulations.

Also in 2006, Pioneer Drive entered into a similar sales agreement with UD. Randy Botsford was president of PD and a majority owner of MT. Randy’s brother Terry Botsford was attorney for PD and had an ownership interest in MT. Mark Byington was PD’s CFO and had an ownership interest in MT. UD made the same representations to PD as to UD3300 compliance with §121. PD sued Nissan Diesel (now UD Trucks) in 7/08 for, inter alia, breach of contract for failing to supply compliant trucks. ND removed to this Court in 8/08. Terry Botsford received reports from Link-Radinski that found noncompliant brakes. ND denied the noncompliance. ND Japan employee Kazuaki Sasame was deposed in 2/10. Randy Botsford and Byington attended. Sasame testified that the compliance certificates that accompanied the trucks were false. ND settled with PD in 4/10 for a confidential amount and Sasame’s deposition was sealed.

UD terminated the dealer agreement with MT in 1/09. MT demanded that UD repurchase 2 trucks pursuant to MCA 30-11-702. UD refused, ostensibly because they had been modified. MT sued UD in 2/12 for breach of contract, fraud, and punitives. The date of the MT suit is 2 years, 2 weeks after the Sasame depositions. UD requests summary judgment.

The Limitation of Remedies provision prevents MT from asserting its claim for consequential damages for breach of contract. Since only 2 of the 3 parts ofRestatement of Conflict of Laws §187(2)(b), which Montana relies on, are met, the choice-of-law provision will be enforced and Texas law is applied to the breach of contract claim. Both parties eventually agreed that Texas law applies to the contract claim. MT claimed in its 2nd amended complaint that lost profits are the damages it suffered. Not until its response to UD’s summary judgment motion did it assert that it suffered additional damages from continuing to acquire operating loans based on UD’s representations that the trucks were compliant. UD requested summary judgment on “contract damages,” so the analysis is limited to lost profits because they are the only damages claimed in the complaint. Lost profits are consequential damages. Tex. Bus. & Com. Code 2.715. The Limitations of Remedies provision precludes consequential damages including lost profits. MT argues that the limitation is unconscionable under TBCC 2.719. Texas law requires a showing of substantive and procedural unconscionability. Blount (Tex. App.-Dallas 1968) declared that unconscionability results when “no man in his senses and not under a delusion would enter into and no honest and fair person would accept” a contract on such terms. MT notes that it was not allowed to revise the contract despite its requests. However, there is no showing that it was oppressed or unfairly surprised by the limitation. Lindemann (5th Cir. 1987), in which the plaintiff was unable to negotiate exclusion of consequential damages, found no procedural unconscionability even though one party had superior bargaining power. The same result rings true here. MT also insists that the contract was substantively unconscionable because it limited its direct & consequential damages while only limiting UD’s consequential damages. Since MT only pled consequential damages, the briefs addressed the limitation of consequential damages, which is not unconscionable because it applies equally to both parties. Construing the facts favorably to MT, no reasonable jury could find that the agreement is procedurally or substantively unconscionable. The Limitations of Remedies prohibits MT from asserting lost profits due to a breach of contract. Summary judgment for UD on breach of contract.

UT is also entitled to summary judgment on fraud. The fraud claim is not subject to the choice-of-law provision. “Claims arising in tort are not ordinarily controlled by a contractual choice of law provision. Rather, they are decided according to the law of the forum state.” Sutter (9th Cir. 1992). The exception arises when the provision is sufficiently broad that it encompasses all possible claims. In that case, the choice-of-law provision references only the “agreement” and likely would be read narrowly by the 9th Circuit to exclude noncontractual claims. Narayan (9th Cir. 2010). The fraud claim is governed by Montana law. It is barred by the 2-year limit at MCA 27-2-203 since 2/1/10, the date of the Sasame deposition, is the latest possible date that MT became aware of its claimed cause and yet it did not file its complaint until 2/15/12. MT argues that the statute was tolled by fraudulent concealment because Randy Botsford (the agent) was subject to a confidential protective order in the PD litigation and could not share the information with MT (the principal). UT counters that Botsford was a majority member of MT, holding a 75% share, and could have committed it to action on his own vote, and since he was present at the deposition and was a majority owner of MT, the principal-agent analogy falls short. That depends on the assumption that the principal and agent are different, which is not the case. MT moved 1/23/13 to stay the protective order in the PD litigation to give MT access to documents filed under seal. It argued that the protective order covered “the confidential settlement agreement and the discovery materials and depositions in the Pioneer litigation relating to the braking system and when Defendant knew or should have known about the brake issue” and that “Montana Trucks’ access to this information is paramount to pursuing this action.” I denied the motion to stay but made MT a party to the protective order so it could access the documents. The knowledge that Botsford acquired at the Sasame deposition can be imputed to the same Botsford who is a majority member of MT because he did in fact use that knowledge to the advantage of MT in this litigation by requesting access to the PD documents. MT only has access to the Sasame deposition and other key documents because it knew to ask for them. Randy Botsford had actual knowledge of UT’s fraud 2/1/10, and because he held a majority interest in MT, UT’s fraud was presumptively within MT’s knowledge the same day. Summary judgment for UT on actual fraud.

Punitives are not a stand-alone cause, although MT pled them as a separate cause, but are a type of damages available to one who has been awarded compensatory damages. MCA 27-1-220. MT’s claim for punitives thus fails because the underlying substantive claims fail.

The statutory right of repurchase is supplemental to any agreement between the retailer and manufacturer, MCA 30-11-713(1)(a), and the retailer may elect to pursue contract remedies or the statutory remedy, 713(2). The parties agree that MT has no contractual basis for its repurchase claim because the agreement allows but does not require UD to repurchase the 3300 trucks and parts. MT’s repurchase claim is therefore not subject to the choice-of-law provision, but to Montana law, which provides a 2-year statute for claims arising out of statutory liability. The statute began running 4/17/09 when UD refused to repurchase 2 trucks, and MT did not file its complaint until 2/15/12 and is thus barred from asserting its statutory repurchase claim.

MT asserted a new claim for constructive fraud pursuant to MCA 28-2-406 in its 2nd amended complaint while UD’s motion for summary judgment was pending. Because UD did not address this claim in its motion, it is not ripe for decision. However, both fraud and constructive fraud are subject to a 2-year statute. If the statute bars MT’s fraud claim, it also bars its constructive fraud claim. It must distinguish applicability of the statute to its constructive fraud claim as a matter of law or present a unique fact issue, or summary judgment will be granted on that claim sua sponte under Rule 56(f)(3).

Montana Trucks v. UD Trucks North America, 40 MFR 456, 8/12/13.

Patrick HagEstad, Philip Condra, and Lon Dale (Milodragovich, Dale & Steinbrenner), Missoula, for MT; Billy Donley, David Jarrett, and Richard Mandelson (Baker & Hostetler), Houston & Denver, and Kathleen DeSoto (Garlington, Lohn & Robinson), Missoula, for UD.