Opinion ID: 405374
Heading Depth: 1
Heading Rank: 2

Heading: Deere's Claims

Text: 8 As noted, the case went to the jury on only two of Carter's causes of action. Deere claims error relating to both. This Court will address the fiduciary duty issue first and the de facto trustee issue second.
9 The question of whether Carter and Deere enjoyed a fiduciary relationship is perhaps the central issue of the case sub judice, since the jury appears to have based most of its million dollar damage award on a perception that Deere breached some fiduciary duty owed to Carter. 4 The cause of action, as it appeared in Carter's final complaint, stated: The actions of Defendant toward Plaintiffs ... constitute a breach of the fiduciary duty which Defendant owed to Plaintiff Carter Equipment Company as a result of the Dealer-Supplier Relationship entered into by the parties. The district court recognized that, because this case was based on diversity jurisdiction, the Mississippi state law was the law of decision. The district court noted that it was contrary to his experience to impose a fiduciary relationship in a case, such as the one sub judice, involving written contracts that expressly set out the relationships between the parties. The district court, however, relied upon a Mississippi Supreme Court case, Parker v. Lewis Grocer Co., 246 Miss. 873, 153 So.2d 261 (1963), that the court believed alligned Mississippi with a view completely at variance with (the district court's) own views and experience on the subject. 10 Deere contends this determination, together with the submission of a jury instruction relating to a possible fiduciary relationship, was error. The basis of Deere's argument is that the contracts entered into by Deere and Carter controlled the entirity of the parties' relationship. On the other hand, Carter contends that, while Mississippi law does not recognize every franchise or contractual relationship as giving rise to a fiduciary duty, the facts of the present case clearly suggest Deere owed a fiduciary duty to Carter. 11 Mississippi applies a broad brush to the equitable doctrine of the fiduciary and does not preclude a jury's finding a fiduciary relationship exists between a franchisor and franchisee. To the contrary, the case referred to by the district court-Parker v. Lewis Grocer Co.-indicates Mississippi law would indeed recognize a fiduciary relationship in an appropriate situation. Parker, which relied upon a prior Mississippi Supreme Court decision, Risk v. Risher, 197 Miss. 155, 19 So.2d 484 (1944), emphasized the Mississippi Supreme Court's position that fiduciary obligations may arise outside the conventional boundaries traditionally recognized as giving rise to fiduciary relationships. See DeTenorio v. McGowan, 510 F.2d 92 (5th Cir. 1975) (Godbold, J. dissenting); Ham v. Ham, 146 Miss. 161, 110 So. 583, 584 (1926). 12 The Mississippi Supreme Court held that the facts involved in Parker created a fiduciary relationship between a landlord and tenant, even though the parties' underlying relationship was contractual. 5 The court pointed out that the relation is not restricted to such confined relations as trustee and beneficiary, partners, principal and agent, guardian and ward, managing directors and corporation, etc. ... It applies to all persons who occupy a position out of which the duty of good faith ought in equity and good conscience to arise. Parker, 153 So.2d at 275-76 quoting Risk (citations omitted) (emphasis in Parker ). The court went on to state: 13 Wherever one person is placed in such a relation to another by the act or consent of that other, or by the act of a third person, or of the law, that he becomes interested for him, or interested with him, in any subject of property or business, he is in such a fiduciary relation with him that he is prohibited from acquiring rights in that subject antagonistic to the person with whose interests he has become associated. 14 Id. at 276 (quoting Risk ) (emphasis in Parker ). 15 The language of the Mississippi Supreme Court indicates that, under Mississippi law, a fiduciary relationship may encompass, in certain instances, a relationship based upon a contractual agreement. Ordinarily, courts do not impose fiduciary duties upon parties to contractual agreements. Accordingly, Mississippi law does not dictate that out of every contractual-or franchising-arrangement a fiduciary relationship arises. The Mississippi Supreme Court teaches that the relationship of franchisor/franchisee does not negate the possibility the parties may also be fiduciaries. A fiduciary relationship may arise, if the appropriate facts are present. 16 The existence or nonexistence of a fiduciary relationship between parties is a question of fact for the jury. 6 As such, the jury must be given guidance regarding when such a relationship exists. At the outset, (i)t is the nature of the relation which is to be regarded, and not the designation of the one filling the relation. Parker, 153 So.2d at 276 (quoting Risk ). The court in Parker provided guidance regarding the genesis of a fiduciary relationship by stating that one of the parties will not be permitted to frustrate the mutual purposes of the parties or drive the (other party) from the business world. Id. at 275 (emphasis added). In other words, the parties must have mutual or shared intentions. 7 A fiduciary relationship arises only if the activity of the parties goes beyond their operating on their own behalf and the activity is for the benefit of both. 17 Arnott v. American Oil Co., 609 F.2d 873 (8th Cir.), cert. denied, 446 U.S. 918, 100 S.Ct. 1852, 64 L.Ed.2d 272 (1979) provides further guidance in the particular context of franchising arrangements. 8 The Eighth Circuit recognized the need for mutual or shared purposes, and indicated that such intentions were demonstrated through proof that both parties have a common interest and profit from the activities of the other. 9 Arnott, 609 F.2d at 881. Of course, mutual or shared purpose gives rise to, and is demonstrated by, trust or confidence placed by one person in the integrity and fidelity of another person. Id. at 881 n.6. Indeed, whether the parties repose trust or confidence in one another is critical to an ultimate determination regarding the existence of a fiduciary relationship. 18 In addition to the goals of the parties and the requisite need for trust or confidence in one another, the nature of the agreement between the parties may provide evidence that a fiduciary relationship exists. If the franchisor has power to control the franchisee, there is an increased likelihood that a fiduciary relationship exists, since trust or confidence necessarily must flow from the controlled or dominated party. As a result, the power, authority, and bargaining position of both the franchisor and franchisee becomes critical. If both parties stand on equal or nearly equal footing, there is less likelihood a fiduciary relationship exists, since equity will not be necessary to protect a party. 10 19 Although Mississippi law recognizes the existence of a fiduciary relationship as a possible outgrowth of a franchising arrangement, it is apparent that the district court erred in instructing the jury regarding what might constitute a breach of such a relationship. The district court instructed the jury: 20 Therefore, if you find from a preponderance of the evidence in this case that such a fiduciary relationship did exist between Carter Equipment Company and John Deere Industrial Equipment Company, and that John Deere breached any of its duties under that relationship, and if you further find from a preponderance of the evidence that such violation or breach of the fiduciary relationship was a proximate cause of damages to Carter Equipment Company, then you must find in favor of Carter Equipment Company and award damages according to the evidence and the instructions given you by the Court. 21 Deere contends, and this Court agrees, the substantive instruction is erroneous since it fails to provide any guidance regarding what might constitute a breach of the fiduciary duty. 11 22 Parker indicates a fiduciary has the generalized obligation of dealing fairly and in good faith. 12 More specifically, the cases addressing fiduciary duty demonstrate that a breach of the duty arises when one party breaches the others trust or confidence by affirmatively acting in a way that produces the other party's loss. 13 The rule is that a party breaches his fiduciary duty by actively utilizing some power, control, or opportunity to destroy, injure, or gain a preferential advantage over the party with whom it has a mutual interest. The parties have a mutual interest, by definition. As a result, there is an obligation not to affirmatively undermine one another. This does not mean a party must take unnecessary risks or forego seeking its individualized interests pursuant to their bargain. 14 It merely prohibits affirmative misconduct. 23 The instruction approved by the Arnott court effectively conveys the nature of a breach of a fiduciary relationship: 24 Out of such a (fiduciary) relation, the law requires that neither party exert undue influence or pressure upon the other, take selfish advantage of his trust or deal with the subject matter of the trust in such a way as to benefit himself or prejudice the other except in the exercise of the utmost good faith and with the full knowledge and consent of the other person involved. 25 In summary, the district court did not err in submitting a cause of action pertaining to a fiduciary obligation. The court did err, however, in failing to instruct the jury properly regarding what constitutes a breach of such a duty. 15
26 The only other cause of action submitted to the jury was labelled by Carter as Breach of Trust and Deliberate and/or In (sic) Negligent Depletion of Reserve Account. The reserve account arose from a mechanism for financing sales of Deere equipment. Basically, Carter's customers could finance the purchase of equipment with Deere. The Carter reserve account was a repository in which Deere deposited a portion of the money Carter normally would have received from payments by the customers to Deere for the purchased equipment. If a customer defaulted, Deere would repossess the equipment and, in some instances, sell it to someone else. Deere then would charge any losses it suffered against the reserve account. 27 The record indicates that, from some time around November 1977 until the month prior to trial, $105,836.35 had been charged by Deere against Carter's reserve account. Carter sought this amount in damages for Deere's alleged mishandling of the reserve account. In this regard, the district court charged the jury: 28 You are further instructed that under the law the defendant John Deere Industrial Equipment Company may be under a duty of trustee-in-fact, with respect to the Carter Equipment Company Repossession Reserve Account, if it were such a trustee that it had the duty to handle all repossessions prudently and properly to prevent or minimize loss to the Reserve Account. You are further instructed that the defendant, John Deere Industrial Equipment Company had a duty not to breach this trust, if any, and to either deliberately or negligently mishandle repossessions of equipment sold by Carter Equipment Company so as to unnecessarily cause losses to and to deplete the Carter Equipment Company Repossession Reserve Account. 29 The jury apparently found Deere was a trustee in fact and had breached its trust, since it returned a general verdict FOR THE PLAINTIFF. Deere argues the resulting judgment of the district court should be reversed. Initially, Deere argues the district court should have directed a verdict against Carter on the Reserve Account cause of action. This Court, in the case of Maxey v. Freightliner Corp., 665 F.2d 1367 (5th Cir. 1982) (en banc), recently re-emphasized the standard by which this Court and district courts in this Circuit determine whether there is sufficient evidence to submit a case to the jury in connection with motions for directed verdict. In Maxey, this Court relied upon the definitive case in this regard, Boeing Company v. Shipman, 411 F.2d 365 (5th Cir. 1969) (en banc). 30 Under the standard established in Boeing, a motion for directed verdict or for judgment n. o. v. should be granted only when the facts and inferences point so strongly and overwhelmingly in favor of the moving party that reasonable persons could not arrive at a contrary verdict. The court should consider all of the evidence-not just that evidence which supports the nonmovant's case-but in the light and with all reasonable inferences most favorable to the party opposed to the motion. If there is substantial evidence opposed to the motion, that is, evidence of such quality and weight that reasonable and fairminded persons in the exercise of impartial judgment might reach different conclusions, the motion should be denied, and the case submitted to the jury. 31 Maxey at 1371, citing Boeing Company v. Shipman. 32 In the case sub judice, the district court properly refused to grant a directed verdict on the reserve account cause of action. This Court finds there was substantial evidence opposed to the motion, that is, evidence of such quality and weight that reasonable and fair-minded persons in the exercise of impartial judgment might reach the conclusion Deere had acted imprudently with regard to the Reserve Account. 16 Indeed, the jury did reach just such a conclusion. 33 Deere argues alternatively that the district court improperly instructed the jury by allowing it to decide whether Deere was a de facto trustee of a constructive trust. The foundation of this issue is the assertion that Mississippi law recognizes the creation of a constructive trust if there is an abuse of another's funds in a fiduciary relationship. Sojourner v. Sojourner, 247 Miss. 342, 153 So.2d 803, 807-08 (1963); Russell v. Douglas, 243 Miss. 497, 138 So.2d 730 (1962) affirmed in part, reversed in part on other grounds, 246 Miss. 771, 151 So.2d 197 (1963). See also DeTenorio v. McGowan, 510 F.2d at 103 (Godbold, J. dissenting). If a constructive trust is created, the trustee must handle the res prudently and properly. 34 On the other hand, if Deere and Carter were not fiduciaries, a constructive trust would not have been created. In such a case, the terms of the contract and the provisions of Mississippi's Uniform Commercial Code would control the handling of the res; Deere would be required to handle the res in a commercially reasonable manner. Miss.Code 1972, § 75-9-502(2). 35 The district court erred in its handling of the fiduciary relationship issue. It necessarily follows that it erred in its handling of the de facto trustee issue, since the existence of a constructive trust, in Mississippi, is dependent, at least in part, upon the existence of a fiduciary relationship. Consequently, this Court also remands the issue of whether a constructive trust existed in the case sub judice in order to assure the appropriate standard is applied to Deere's handling of the reserve account. If the jury finds no fiduciary relationship existed between the parties, then Deere should have handled the reserve account in compliance with the U.C.C. and the terms of the contracts. On the other hand, if a fiduciary relationship did exist, together with the other factors necessary to give rise to a constructive trust in Mississippi, Deere was obligated to handle the funds in the manner described in the district court's charge.
36 Deere's remaining claims are essentially subsumed in the disposition heretofore made. It is noted, however, that the district court did not err by allowing Roy Carter to testify regarding the worth of the repossessed equipment. This is true even if the standard to be applied under the reserve account cause of action is commercial reasonableness. Section 75-9-507(2) of the Mississippi Code of 1972, which is relied upon by Deere, states: 37 The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner. 38 (emphasis added). 39 This language clearly reveals that Mississippi recognizes price, at least in some cases, to be a factor in determining commercial reasonableness. Therefore, if it is determined on remand that Deere was not a de facto trustee of the reserve account and, as a result, was governed by the terms of the contracts and the U.C.C., price cannot be the determinative factor, but it may be one factor. 40 Finally, this Court acknowledges Deere's complaint that the district court continually recognized objections to the admission of evidence as well taken or valid, but would overrule those objections anyway. Without determining whether such conduct resulted in cumulative prejudice, this Court determines that such an approach to valid objections to the admission of evidence is unnecessary and should be avoided on retrial.