Opinion ID: 3011059
Heading Depth: 2
Heading Rank: 1

Heading: Valuation of the Cooper Franchise

Text: Cooper argues the District Court misconstrued our mandate in Cooper I, preventing it from proving important components of its damages: the value of the franchise to Cooper and Amana specifically, rather than to a hypothetical buyer and seller; Cooper's lost profits between November 8, 1991 and March 8, 1994; the value of Cooper's complementary distribution lines; and the enhanced value of the franchise due to Amana's subsequent expansion of its distribution line. Amana responds that the District Court's restriction of damages to the fair market value of the franchise as of March 8, 1994 was not only consistent with Cooper I, but was required by the New Jersey Supreme Court's decision in Westfield Centre Serv., Inc. v. Cities Serv. Oil Co., 432 A.2d 48 (N.J. 1981). We exercise plenary review on these issues because they involve whether the District Court properly interpreted the law of the case as set forth in Cooper I. See Feather v. United Mine Workers of America, 903 F.2d 961, 964 (3d Cir. 1990). It is axiomatic that on remand after an appellate court decision, the trial court must proceed in accordance with the mandate and the law of the case as established on appeal. Bankers Trust Co. v. Bethlehem Steel Corp., 761 F.2d 943, 949 (3d Cir. 1985). Moreover, where (as here) the mandate requires the District Court to proceed in a manner consistent with the appellate court decision, the effect is  `to make the opinion a part of the mandate as completely as though the opinion had been set out at length.'  Id. (quoting Noel v. United Aircraft Corp., 359 F.2d 671, 674 (3d Cir. 1966)). Our opinion in Cooper I did not expressly address whether the measures of damages that Cooper now proposes should be included in the scope of the second 5 trial. As noted, we remanded in order for the District Court to remedy two errors in the original calculation of damages: the jury's mistaken assumption that Cooper had possessed an exclusive distributorship, and its valuation of the franchise as of the wrong date. Cooper does not claim either error was repeated in the second trial. Moreover, to the extent our opinion provided guidance as to the specific method by which damages should be calculated on remand, we held the franchise should be valued according to  `either the present value of lost future earnings or the present market value of the lost business, but not both.'  63 F.3d at 278 (quoting Johnson v. Oroweat Foods Co., 785 F.2d 503, 507 (4th Cir. 1986)). The District Court's choice of the latter of these two measures was consistent with that mandate. It was also consistent with New Jersey law, which controls in this diversity case. The statute itself does not specify a particular measure of damages: Any franchisee may bring an action against its franchisor for violation of this act . . . to recover damages sustained by reason of any violation of this act and, where appropriate, shall be entitled to injunctive relief. N.J. Stat. Ann.S 56:10-10 (West 1998). But in Westfield, the New Jersey Supreme Court held that a franchisor who in good faith and for a bona fide reason terminates, cancels or fails to renew a franchise for any reason other than the franchisee's substantial breach of its obligations has violated [the NJFPA] and is liable to the franchisee for the loss occasioned thereby, namely, the reasonable value of the business less the amount realizable on liquidation. These are the damages contemplated by N.J.S.A. 56:10-10 . . . . Westfield, 432 A.2d at 57. The court further held that [r]easonable value would be that price upon which willing parties, buyer and seller, would agree for the sale of the franchisee's business as a going concern. Id. at 55. It is clear from the court's discussion that these willing parties are hypothetical buyers and sellers, not the actual parties in the case: for example, the court noted the potential usefulness of IRS valuation techniques and expert testimony based on comparable sales in the area. See id. 6 Westfield appears to be the only case that discusses the proper measure of damages under the NJFPA. Here, Amana terminated Cooper in good faith and for a bona fide reason and not for the franchisee's substantial breach of its obligations. See Cooper I, 63 F.3d at 267 (describing the business reasons for which Amana decided to terminate Cooper's franchise). Thus, under Westfield Amana is liable to Cooper for a loss equal to the value of the franchise as measured by its fair market value to a hypothetical buyer and seller, minus the value of assets that can be liquidated by Cooper. The question is whether this measure of damages necessarily excludes the other measures advanced by Cooper. As we discuss, Westfield and our mandate in Cooper I exclude most of these additional damages theories, but they do not refute Cooper's lost profits argument.
Cooper contends the District Court should have allowed it to present evidence of the franchise's value to the parties themselves, rather than its market value as measured by what third parties would be willing to pay for it. As noted, however, Westfield suggests the opposite. See 432 A.2d at 55 (Reasonable value would be that price upon which willing parties, buyer and seller, would agree for the sale of the franchisee's business as a going concern.). Moreover, our opinion in Cooper I refers, variously, to the current value of [the] business, the value of the business as a going concern, and the present market value of the lost business. 63 F.3d at 278. Such terms suggest an objective, not subjective, measure of the franchise's value. Accordingly, we believe the District Court correctly determined that the purported value of the franchise to Cooper and Amana themselves was not a proper measure of damages.
Cooper argues that although Amana did not actually succeed in terminating the franchise until March 8, 1994, Cooper's uncertain status before that date caused a decline in its profits during the November 1991 to March 1994 7 period. The District Court appears to have acknowledged this point. See App. at 319 (statement of the District Court that I can't believe that . . . [Amana's counsel] would have for a moment attempted to argue in his opening that the jury's verdict in the first trial established Mr. Cooper suffered no harm from Amana's conduct during the period from mid-1991 to March 8th, 1994). Lost profits would not be accounted for in a valuation of the franchise as of March 8, 1994 because that value represents only the lost future profits of the business: that is, the present value of the profits Cooper would have earned after March 8, 1994, had its franchise not been unlawfully terminated. See Cooper I, 63 F.3d at 278. Thus, Cooper contends the pre-March 8, 1994 lost profits must be included in the damages calculation in order to make it whole. In response, Amana argues that because Westfield identifies only one measure of damages (fair market value of the franchise at the time of termination), it implicitly forbids other measures, such as lost profits prior to termination. We find no support for Amana's argument, either in Westfield or elsewhere in New Jersey law. The franchisee in Westfield was a gasoline station owner whose business was not affected by uncertainty surrounding his franchise status. Consequently, the fair market value at the date of his franchise's termination was a complete and comprehensive measure of the harm he suffered. There is no reason to believe Westfield precludes lost-profit damages in a case where attempted termination of the franchise itself causes a substantial decline in business. In fact, Westfield's reference to the legislative intent to make franchisees economically whole supports the inclusion of lost profits. 432 A.2d at 58 (awarding attorney's fees); see also Winer Motors, Inc. v. Jaguar Rover Triumph, Inc., 506 A.2d 817, 823 (N.J. Super. Ct. 1986) (holding that under Connecticut franchise law, an award for improper termination should have two components, the losses provable to that date, and the future damages based upon the reasonably anticipated net future profits of the dealership, and noting that there is little difference between the law of New Jersey and Connecticut on this subject). Here, Cooper advances the plausible claim that retailers were aware of Cooper's ongoing litigation with 8 Amana and consequently did not know whether they could count on Cooper for long-term sales and warranty service on Amana products. As a result, at least some retailers may have chosen to reduce or eliminate their dealings with Cooper even before the date of actual termination. Although we express no opinion on the extent of Cooper's lost profits, or even their existence, we believe it was error to preclude Cooper from presenting evidence on the issue. This component of damages was not expressly commanded by Cooper I or Westfield, but it is undeniably a part of the loss suffered by Cooper as a result of Amana's unlawful termination of its franchise. Inclusion of lost profits during this period is the logical result of shifting the valuation date from November 1991 to March 1994. Accordingly, we will reverse and remand for a new trial on this issue.
Cooper also contends its damages should have included the value of what it calls complementary lines, that is, product lines carried by Cooper for the sole purpose of complementing its Amana products. The complementary lines consisted primarily of Hardwick, In-Sink-Erator, and Dacor products. Cooper alleges that when it lost the Amana franchise, its ability to sell these products at a profit was destroyed. We do not believe this issue warrants a new trial. Westfield specifically instructs that the value of assets retained by the franchisee is to be deducted from the damages award. See 432 A.2d at 57. It may be true that Cooper would not have purchased the complementary lines if it did not also sell Amana products. But that fact does not have any legal significance. Cooper acknowledges that it was not required to purchase the additional lines, only encouraged to do so by Amana. The complementary lines fall squarely within the category of assets retained by the franchisee under Westfield, and the District Court properly excluded their value from the damages calculation.
Cooper also contends the District Court erred in refusing to allow it to amend its expert report to reflect the 9 enhanced value that Cooper's franchise would have received between November 1991 and March 1994, if Amana had allowed it to partake in the expansion of Amana's products lines that occurred during that time. Allegedly, three other Amana distributors were given access to the additional brands (Caloric, Modern Maid, and Speed Queen) that had been consolidated by Amana's parent company, Raytheon. Cooper claims it was denied access to these additional lines solely because Amana was in the process of attempting to terminate Cooper's franchise; thus, Cooper should be allowed to include the value of these lines as a component of its damages.1 It is unclear whether Amana denied Cooper access to the additional product lines solely because of the pending litigation. But in any event, Amana was under no legal obligation to offer an expanded product line to Cooper, only to maintain the status quo as required by the injunction that was in effect at the time. As of March 8, 1994, Cooper had never had access to the additional lines and did not have the prospect of access in the future. We believe the expansion offered to other Amana distributors was properly excluded from the calculation of the Cooper franchise's value on that date.