Court Opinion

ID: 169578
Source: CourtListenerOpinion
Date Created: 2010-08-14 17:32:26+00
Date Added: 2024-06-11T17:25:02.745611
License: Public Domain

F I L E D
                                                                United States Court of Appeals
                                                                        Tenth Circuit
                    UNITED STATES CO URT O F APPEALS
                                                                       August 2, 2007
                                TENTH CIRCUIT                       Elisabeth A. Shumaker
                                                                        Clerk of Court

 DOLLAR RENT A CAR SYSTEM S, IN C.,
 an Oklahoma corporation,

               Plaintiff-Counter-Defendant-
               Appellee,                                    No. 06-5140
          v.                                              (N.D. Oklahoma)
 P.R.P. ENTERPRISES, INC., a Florida                 (D.C. No. 01-CV -0698-P)
 corporation; PED RO R . P. DE M ORA ES,
 an individual resident of Florida; RUBENS
 P. TADDEI, an individual resident of
 Florida; P.R.T. ENTERPRISES, IN C., a
 Virginia corporation; ROSANA TADDEI,
 an individual resident of Florida,

               Defendants-Counter-Claimants-
               Appellants.

                           OR D ER AND JUDGM ENT *

Before BR ISC OE, SE YM OU R, and M U RPH Y, Circuit Judges.

      After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

      *
        This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

I.    Introduction

      Plaintiff-Appellee Dollar Rent A Car Systems (“Dollar”), an Oklahoma

corporation, sued Defendant-Appellant PRP Enterprises, Inc., a Florida

corporation, and PRT Enterprises, Inc., a Virginia corporation, (“Franchisees”)

for declaratory judgment that Dollar w as entitled to terminate its relationship with

Franchisees and breach of contract arising from Franchisees’ failure to make

payments as required under its License and M aster Lease Agreements with Dollar.

D ollar also sued Franchisees’ personal guarantors and owners, Pedro R.P. De

M oraes, Rubens P. Taddei, and Rosana Taddei for breach of their Guarantee

Agreements with Dollar. Franchisees counterclaimed, asserting Dollar had

wrongfully terminated its contractual relationship with Franchisees. The district

court, pursuant to its diversity jurisdiction under 28 U.S.C. § 1332(a)(1), held a

bench trial, found in favor of Dollar on all of Dollar’s claims, and awarded Dollar

damages, litigation costs and expenses, and attorney’s fees. Because it concluded

Dollar was justified in terminating its contracts with Franchisees, the district

court found against Franchisees on Franchisees’ counterclaims.

      Franchisees, along with M oraes and the Taddeis, appeal the district court’s

ruling. Franchisees assert the district court erroneously admitted testimony from

Dollar’s expert witness as to Franchisees’ financial condition and the likelihood

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of Franchisees’ future profitability. Franchisees also allege the district court

erroneously concluded Dollar w as justified in terminating its relationship with

Franchisees and should have awarded consequential damages or lost profits to

Franchisees for Dollar’s wrongful termination of the contracts.

      This court exercises jurisdiction pursuant to 28 U.S.C. § 1291. After

reviewing the record and the district court’s extensive findings of fact and

conclusions of law , this court affirms the district court’s evidentiary ruling and

legal conclusions regarding Franchisees’ liability.

II.   Background

      PRP Enterprises is a closely held corporation owned entirely by M oraes.

PRT Enterprises is a closely held corporation owned by M oraes and Rubens

Taddei. Both corporations were engaged in the rental car business under

franchise agreements with Dollar.

      PRP operated Dollar franchises in Pensacola, Florida, from 1991 to 2001

and in M obile and Birmingham, Alabama, from 1999 to 2001. PRT operated

Dollar franchises in Norfolk, Virginia, from 1992 to 2001 and in Richmond,

Virginia, from 1999 to 2001. In each operational location, Franchisees had

License Agreements with Dollar that obligated them to pay license fees, system

fees, Dollar reservation system charges, and revenue management charges, and to

reimburse Dollar for supplies and materials, travel agent comm issions, frequent

flier payments, customer adjustments, goodwill certificates, and intercity

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payments. 1 Franchisees also had M aster Lease Agreements in each location,

which allowed them to lease cars from Dollar’s fleet of vehicles and obligated

them to pay fleet-leasing fees, as well as finance charges and late charges on any

unpaid fleet-leasing fees. M oraes personally guaranteed PRP Enterprises’ debts

in collateral Guarantee Agreements. M oraes and the Taddeis each personally

guaranteed the debts of PRT Enterprises through collateral Guarantee

Agreements. All disputes under the agreements were to be governed by

O klahom a law .

      The contracts between Franchisees and Dollar permitted Dollar to terminate

the contracts under various conditions. Pursuant to each M aster Lease

Agreement, Dollar was permitted to terminate the agreement immediately without

notice in the “event of default,” which was defined to include, among other

things, (1) Franchisees’ failure to pay in full any lease payments on the date the

payments were due, (2) Franchisees’ insolvency, or (3) Franchisees’ breach of

either the M aster Lease Agreement itself or the License Agreement, or

guarantors’ breach of the Guarantee Agreement. Upon the occurrence of a

default, Dollar w as permitted to enter Franchisees’ property to repossess its

vehicles.

      1
       Because the License Agreements were entered into on different dates, the
terms of the agreements vary slightly. The Pensacola and Norfolk agreements
contain the same terms, however, as do the Richmond and A labama agreements.

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      Under the Pensacola and Norfolk License Agreements, Dollar had the

ability to terminate the agreements for “good cause” upon the delivery of notice

to Franchisees for, among other things, (1) the failure to cure a default under a

collateral agreement, such as the M aster Lease Agreement, (2) Franchisees’

insolvency or inability to pay their debts as the debts came due, or (3)

Franchisees’ failure to comply with the terms of the License Agreement on three

or more occasions within any twelve-month period, including the failure to pay

license fees, advertising assessments, reservation fees, or other fees.

Additionally, after giving written notice of monies due under the License or

M aster Lease Agreements or other collateral agreements, Dollar retained the right

to terminate the License A greements following the expiration of a three-day cure

period.

      In addition to including provisions substantially similar to those referenced

above regarding contract termination following repeated failures to comply with

the terms of the License Agreements and the failure to make payments owed

within three days of receiving notice, the Richmond and A labama License

Agreements provided that the agreements could terminate automatically and

without notice to Franchisees if Franchisees became insolvent or were unable to

pay their debts as the debts became due. The Richmond and A labama License

Agreements further specified that any description of default in any notice Dollar

provided to Franchisees did not preclude Dollar from articulating additional or

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supplemental bases for default in any action, hearing, or suit relating to the

agreement or the agreement’s termination.

      The events precipitating Dollar’s termination of the License and M aster

Lease Agreements occurred in September 2001. It is undisputed that Franchisees

failed to make a fleet payment of $273,570.25 it owed Dollar, w hich was due to

Dollar on September 17, 2001. By September 18, 2001, the parties stipulated that

Franchisees owed Dollar a total of $569,000, including the missed fleet payment.

As a result of Franchisees’ unpaid debts, Dollar notified Franchisees in writing on

September 18, 2001, that the M aster Lease Agreements would terminate on

September 21 unless the missed fleet payment of $273,570.25 was paid in full by

that time. The next day, however, before the expiration of the three-day cure

period Dollar initially granted to Franchisees in its September 18 notice, Dollar

notified Franchisees in writing that it was immediately terminating its M aster

Lease Agreements and its License Agreements with Franchisees. Following

termination of the agreements, Dollar disconnected Franchisees from its central

reservation center, began repossessing its fleet from Franchisees’ locations, and

drew on a $422,000 letter of credit held as security for Franchisees’ obligations.

On September 21, 2001, Dollar filed its breach of contract and declaratory

judgment action in federal district court.

      After a lengthy pre-trial period, the district court held a bench trial, which

culminated on October 28, 2004. After requesting written closing arguments and

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post-trial briefing on issues related to damages, the district court issued an

extensive, forty-nine page memorandum detailing its findings of fact and

conclusions of law. Revising a mathematical error in its damage calculation, the

court issued an amended judgment.

      Relying in significant part on the testimony of M oraes and the Vice

President of Dollar’s Licensee Division, M ario Nargi, the district court found

Franchisees began encountering financial difficulties by the first quarter of 2001

and had previously missed payments to Dollar during the spring and summer of

2001. By September 2001, franchisees w ere also significantly behind in their

payments to other creditors. M oraes admitted the amount of past-due debt

exceeded the cash Franchisees had on hand. Dollar’s expert testified to

Franchisees’ poor financial condition, including the precipitous increase in

Franchisees’ accounts payable between January 2001 and September 2001. Based

on the expert’s testimony, the court found that, by September 19, 2001,

Franchisees were insolvent, did not have the ability to continue as a going

concern, and were not able to pay their debts as the debts became due.

      The court further found that, in a series of conversations between

Franchisees and Dollar from September 17 through September 19, Dollar was

informed about Franchisees’ dire financial condition. In multiple telephone calls

between M oraes and Dollar collectors on September 17, M oraes indicated

Franchisees were unable to pay past due amounts or make their fleet payment.

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On September 18, Franchisees’ bookkeeper told a Dollar collector that M oraes

had laid off Franchisees’ entire accounting staff the previous day. On September

19, M oraes spoke with Dollar’s Director of Credit and Collections, as well as

with Nargi, and indicated Franchisees w ould be unable to pay their debt in full

without receipt of a bank loan or Dollar’s willingness to buy Franchisees’

franchise locations. Also on September 19, M r. Taddei called Nargi and indicated

Franchisees would probably have to file for bankruptcy.

      Applying these findings to the language of the License and M aster Lease

Agreements, the court concluded there were multiple grounds for Dollar’s

termination of Franchisees’ contracts. The court determined Franchisees

defaulted on their payment obligations under the M aster Lease and guarantor

defaulted on the Guarantee Agreements, permitting Dollar to immediately

terminate the M aster Lease Agreements. The court further concluded

Franchisees’ failure to pay amounts due under the License Agreements for several

successive months in 2001 constituted material breach of the License Agreements

and provided “good cause” for D ollar’s termination upon notice to Franchisees.

The court additionally determined from the testimony and documentary evidence

that Dollar’s knowledge of Franchisees’ insolvency and inability to pay its debts

constituted material breach and amounted to “good cause” permitting Dollar to

terminate the Pensacola and Norfolk License Agreements upon notice and to

automatically terminate the Richmond and Alabama License Agreements.

                                         -8-
Finally, the court indicated Franchisees’ failure to cure their nonpayment of

amounts due under the M aster Lease Agreements represented a default under

collateral agreements with Dollar, which provided an additional ground for “good

cause” termination upon notice to Franchisees pursuant to the License

Agreements. Based on these determinations, the court concluded the notice of

immediate termination that Dollar provided Franchisees on September 19 was

valid and that Dollar was not obligated to honor its initial offer of a three-day

cure period. The court found it significant that, after receiving Dollar’s

termination notices and a subsequent notice reaffirming the termination notices,

M oraes never offered to make payments to Dollar.

      Based on its conclusion that Dollar’s termination of the License and M aster

Lease A greements were permitted by the terms of the agreements, the court

rejected Franchisees’ breach of contract counterclaim. Citing well-established

tenets of Oklahoma contract law, the court rejected Franchisees’ assertion that the

offer of a three-day cure was binding and could not be revoked. The court further

concluded Franchisees’ statements to Dollar on September 17 through September

19 regarding Franchisees’ inability to pay amounts due was tantamount to a

repudiation of its contracts with Dollar. Finally, the court asserted as an

independent ground for Franchisees’ inability to recover damages the provisions

in the License and M aster Lease Agreements in which Franchisees waived any

right to recover lost profits or consequential damages. As to the limitation-on-

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damages provisions in the agreements, the court concluded Franchisees failed to

demonstrate these provisions were unconscionable.

III.   Discussion

A.     Adm ission of Expert Testimony Regarding Franchisees’ Financial
       Condition

       On appeal, as they did before the district court, Franchisees challenge the

district court’s decision to admit the testimony of Steven Wilsey, a certified

public accountant with training in business appraisal and valuation. Franchisees

contest W ilsey’s expertise in the evaluation of rental car franchises. In particular,

Franchisees argue W ilsey failed to apply the very accounting standards he

testified were applicable to the evaluation of Franchisees’ management plan,

calling into question his testimony regarding the likelihood of Franchisees’ future

profitability.

       This court reviews a district court’s determination to admit evidence for an

abuse of discretion. Nat’l Envtl. Serv. Co. v. Ronan Eng’g Co., 256 F.3d 995,

1001 (10th Cir. 2001). “U nder the abuse of discretion standard, a trial court’s

decision will not be disturbed unless the appellate court has a definite and firm

conviction that the lower court made a clear error of judgment or exceeded the

bounds of permissible choice in the circumstances.” Boughton v. Cotter Corp., 65

F.3d 823, 832 (10th Cir. 1995) (quotation omitted). This court’s review of the

record indicates that W ilsey demonstrated appropriate credentials to permit the

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district court to qualify him as an expert witness pursuant to Federal Rules of

Evidence 702 and 703.

      As to the methodology W ilsey used in evaluating Franchisees’ future

prospects for profitability and W ilsey’s experience in conducting such

evaluations, when the district court sits as fact-finder in a bench trial, the court

has the right to evaluate for itself the credibility of the testifying witness. See

Duplan v. Harper, 188 F.3d 1195, 1202–03 (10th Cir. 1999). The record here

reveals extensive examination regarding W ilsey’s assessments of Franchisees’

finances and detailed cross-examination regarding both the limits of W ilsey’s

experience and the limits of the methodology he used in analyzing Franchisees’

business. This comprehensive examination of the witness ensured the court was

well aware of the strengths and weaknesses of W ilsey’s expertise when

determining how to weigh W ilsey’s testimony. This court, therefore, concludes

the admission of W ilsey’s testimony and, more specifically, its consideration of

W ilsey’s testimony on the likelihood of Franchisees’ future profitability was not

an abuse of the district court’s discretion.

B.    Termination of License and M aster Lease A greem ents

      Franchisees’ broader argument on appeal is that the district court erred in

concluding Dollar was justified in terminating its License and M aster Lease

Agreements with Franchisees. Franchisees contest the district court’s

determination that Franchisees repudiated their agreements with Dollar by making

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statements indicating their impending insolvency. Franchisees also challenge the

district court’s conclusion that Dollar’s September 18 offer of a three-day cure

period was revocable and non-binding. Nowhere, however, do Franchisees

contest the district court’s underlying factual findings regarding the financial

condition of their business at the time Dollar terminated the License and M aster

Lease Agreements or the court’s legal conclusion that Franchisees w ere, in

several ways, in material breach of both the M aster Lease and License

Agreements at the time Dollar terminated the agreements.

      W hen a litigant appeals from the judgment in a bench trial, the district

court’s factual findings are reviewed for clear error and its legal conclusions are

reviewed de novo. Holdeman v. Devine, 474 F.3d 770, 775 (10th Cir. 2007).

This court’s review of the record provides assurance that the district court’s

findings of fact were not clearly erroneous. Additionally, this court’s review of

the contract provisions and O klahoma contract law demonstrates the correctness

of the district court’s legal conclusion regarding Dollar’s right to terminate its

License and M aster Lease Agreements w ith Franchisees, the propriety of its

conclusion regarding repudiation, and the appropriateness of its determination

that the three-day cure offered by Dollar was not required under any of the

agreements and was not supported by the consideration that would have been

necessary to make the offer binding. This court has nothing to add to the district

court’s thorough memorandum, which exhaustively details its factual findings and

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provides ample support for its legal conclusions. W e therefore affirm the district

court’s judgment for substantially the reasons articulated by the district court. 2

IV.   Conclusion

      For the reasons set forth above, the amended judgment of the district court

is A FFIR M E D.

                                        ENTERED FOR THE COURT

                                        M ichael R. M urphy
                                        Circuit Judge

      2
       Because this court affirms the district court’s determination that Dollar’s
termination of the License and M aster Lease Agreements was not wrongful and
that Franchisees are not entitled to damages, we need not reach Franchisees’
argument that the district court erred in concluding the terms of the agreements
barred Franchisees’ claim for consequential damages or lost profits.

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