Appeals court turns down C&O Motors appeal

CHARLESTON – The Fourth Circuit Court of Appeals has upheld a federal judge's ruling that a Kanawha Valley car dealership is not entitled to damages because General Motors phased out Oldsmobiles.

C&O Motors had sued GM in 2005, claiming it lost millions of dollars in trying to mitigate the phase-out of the brand of vehicles.
But federal Judge John T. Copenhaver agreed with GM that C&O hadn't proven it was entitled to anything and granted GM's motion for judgment as a matter of law.

C&O appealed to the federal court in Richmond, Va., which affirmed Copenhaver's ruling on April 1.

The case stemmed from a dealer agreement C&O and GM entered into wherein GM agreed to provide Oldsmobiles to the dealership from Nov. 1, 2000 through Oct. 31, 2005.

In December 2000, GM announced it would be phasing out Oldsmobiles.

According to court documents, GM offered a financial assistance program to dealerships where it would repurchase new and unused vehicles, signs, tools, parts and accessories. The program would also provide a supplemental payment to the dealership based on special circumstances.

C&O declined to take part in this program. Instead, the dealership paid $1 million for the Lester Raines Nissan dealership in 2001.

In its contract with Nissan, C&O agreed to separate the GM and Nissan dealership facilities. C&O General Manager Paul Walker said that the Nissan and GM sales departments would be in the same building initially, but separated after two years. In 2002, C&O began selling Nissans.

In April 2002, GM sent a letter to C&O saying that the addition of the Nissan dealership was a breach of the 2000 dealer agreement. GM said the costs of separating the dealerships would be the responsibility of C&O and that if GM had to go to court to enforce the letter, C&O would be responsible for legal costs.

C&O struck out these provisions and sent the letter back to GM in June 2002. Then in September 2005, C&O sued GM in southern West Virginia federal court, claiming GM breached the dealer agreement and violated state motor vehicle dealership laws.

C&O sought $2.4 million from GM in mitigation costs. Copenhaver ruled that this claim failed because C&O had conceded it profited from mitigating the loss of the Oldsmobile line by purchasing the Nissan dealership. The court said C&O was only entitled to damages related to an alleged breach of contract by GM.

Thereafter, C&O amended its lawsuit to include lost profits.

Paul Walker did an analysis of actual and anticipated Oldsmobile sales using data from a single baseline year, according to court records. GM moved for Walker to testify as an expert and to submit a report. When the court agreed, GM argued that the report failed to meet federal evidentiary rules.

Copenhaver agreed, but permitted Walker to amend his report. Instead, Walker submitted a letter defending his analysis.

When the case went to trial, Walker was not permitted to testify about his analysis and C&O was forced to rest its case. GM moved for judgment as a matter of law and Copenhaver agreed.

In its appeal, C&O claimed it was entitled to a total of $3.4 million in lost Oldsmobile sales and mitigation costs.

The appeals court found that C&O had suffered no economic loss and therefore there were no "legally cognizable" damages to recover.

The appeals court points out that the Nissan dealership, purchased for $1 million in 2001, had appreciated in value to $5 million in 2006. That value doesn't include the profits C&O earned from selling some 2,000 Nissans from 2002 to 2005, the court notes.

"Based on C&O's own appraisal of the value of the Nissan dealership in 2006, the Nissan dealership's increase in value has more than compensated C&O for all of its 'mitigation damages' and lost profits," the appeals court said in its ruling. "Because there is no loss, C&O's breach of contract claim must therefore fail."

As far as C&O seeking costs to separate the Nissan and GM facilities, the appeals court ruled that C&O breached the dealer agreement with GM because the agreement called for C&O to get prior written approval before adding a new line of vehicles. And C&O in its contract with Nissan entered into before GM sent the letter in April 2002, already required C&O to separate the facilities.

"Having asserted no reason to doubt the validity of its agreement with Nissan, C&O cannot claim that GM's insistence that the Nissan and GM facilities be separated within two years was 'unreasonable considering current economic conditions' or 'not otherwise justified by reasonable business considerations,'" the court said.

Fourth Circuit Court of Appeals case number: 08-1157