No. 88-532 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

ZEKE'S DISTRIBUTING COMPANY, 

Plaintiff and Appellant, 

-vsBROWN-FORMAN CORPORATION, I 

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 

Filed: 

Submitted on Briefs: Auq. 3, 1989 

Decided: September 21, 1989 

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