Petition for Writ of Certiorari — Crosthwait Equipment Co. v. John Deere Co.

Bupreme Court, U.S,

f: . FITLED

P f LP A.

_ SEP 24 1993

GFFICE OF THE

No. 1— CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1993

CROSTHWAIT EQUIPMENT COMPANY, INC..

A. CURTIS CROSTHWAIT, JR., ALLEN

E. CROSTHWAIT and RUTH CROSTHWAIT,

Petitioners,

VERSUS

JOHN DEERE COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

OF COUNSEL:

JIM WAIDE

WAIDE LAW OFFICE

POST OFFICE BOX 1357

TUPELO, MS 38802

601/842-7324

(Counsel of Record)

JOHN P. FOX

ATTORNEY AT LAW

POST OFFICE BOX 167

HOUSTON, MS 3885!

601/456-4201

Attorneys for Petitioners

QUESTIONS PRESENTED

1. Is the United States Constitution's Seventh Amendment

right to trial by jury violated when the district judge balances the

evidence of non-movant and movant to determine whether to

grant judgment as a matter of law?

2. In determining whether to grant a judgment as a matter of

law, should the district judge balance all the evidence, or should

the district judge determine whether any evidence supports the

verdict?

TABLE OF CONTENTS

PAGE

CPG SEIE FC URTNIG sivivniisecesssninccctacsetscisrrasarsaeee 1

RON BAe A IE os vcccicssuccertseroracsacuunamaaeeeeeanee ll

SANE OE PINION vse cinceeiirsiersivionictreinpceiatiane lil

NIE TIOW scnccssictrerisxcasostninesdamnrieebacsadnia eae l

PUNO osc covasccssinssscteinsesesseiedieeaeniceanianeae ae l

Constitutional Provision Involved ............ccccscccscccesesseseececeeeees ]-2

SUNSTONE OE TIRE G8 svc ccisnccancssonantsiccnistuabnectueneasaaee 2

Argument

BY WEIGHING ALL OF THE EVIDENCE AND

DECIDING THAT THE EVIDENCE OF JOHN DEERE

WAS MORE CREDIBLE AND OUTWEIGHED THAT OF

PETITIONERS, THE FIFTH CIRCUIT DENIED

PETITIONERS' CONSTITUTIONAL RIGHT OF TRIAL

BY JURY. INSTEAD OF WEIGHING ALL OF THE

EVIDENCE, THE FIFTH CIRCUIT SHOULD HAVE

UTILIZED THE TEST ADOPTED BY THE EIGHTH

CIRCUIT, AND CONSIDERED ONLY WHETHER THERE

WAS ANY EVIDENCE TO SUPPORT THE VERDICT. . 7

SRN IIN : vcccrinssisaeizesccnsnsintienpuaarecensteniaie een 13

Appendix A (Fifth Circuit Opinion) ...............ceccrcrsssneseresseseoees 14

Appendix B (Order Denying Petition for Rehearing).............. 21

ill.

TABLE OF AUTHORITIES

Boeing v. Shipman, 411 F. 2d 365 (Sth Cir. 1989)......2,8,9,10,11

Casko v. Elgin, Joilet and Eastern Ry. Co., 361 F. 2d 748, 749

hol io ince seagusecncnsteiuesienauneoeaieereeseunes 1]

Caudill v. Farmland Industries, Inc., 919 F. 2d 83, 86 (8th Cir.

ec sdeseubenseduncenmienin 1]

Crosthwait Equipment Co. v. John Deere Co.. 992 F. 2d 525

(Sth Cir. 1993)

i aeiallldneabidenagatetbberennineeniesedekéuneunieeresoed passim

Kingston v. McGrath, 232 F. 2d 495 (9th Cir. 1956) ................. 1]

Lyons v. J. C. Penney Co., 316 F. 2d 753 (7th Cir. 1963)......... 1]

Simpson v. Skelly Oil Co., 371 F. 2d 563 (8th Cir. 1967) ....10,11

Spray-Rite Service Corp. v. Monsanto Co., 684 F. 2d 1226

ST acide cs ccruencamensnenesnvnsasnsniennverseeibinenis 14,15

Venture Technology, Inc. v. National Fuel

Gas Distribution Corp., 459 U.S. 1007, 74 L. Ed. 2d 398,

nl aaa ca cecanccennnuurtchernesoctueceniseversesesses 10,14

United States Constitution Amendment Seven................. passim

Bagalay, Directed Verdicts and Right to Trial by Jury in Federal

Courts, 42 Tex. L. Rev. 1053, 1061 (1964)................scsseee 14

lV.

2B W. Barrow & Holtzoff, Sec. 1075, at 399-400...... 13, 14

43 Law and Contemporary Problems at .............00.. 12,13

1

IN THE

SUPREME COURT OF THE U?tsi fED STATES

CROSTHWAIT EQUIPMENT COMPANY, INC.,

A CURTIS CROSTHWAIT, JR., ALLEN E.

| CROSTHWAIT and RUTH CROSTHWAIT,

Petitioners,

VERSUS

JOHN DEERE COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

OPINION BELOW

The Opinion of the United States Court of Appeals for the

Fifth Circuit is reported at 992 F. 2d 525 (Sth Cir. 1993). It is

attached as an Appendix.

JURISDICTION

| This Court has jurisdiction to review the decision of the

United States Court of Appeals for the Fifth Circuit entered on

June 4, 1993, with Petition for Rehearing denied June 30, 1993.

This Court has jurisdiction to review by a Writ of Certiorar!

under 28 USC Section 1254.

CONSTITUTIONAL PROVISION INVOLVED

The constitutional provision involved is United States

Constituuon Amendment Seven, which says:

"In suits at common law, where the value in controversy

shall exceed twenty dollars, the right of trial by jury shall

be preserved, and no fact tried by a jury shall be otherwise

reexamined in any Court of the United States than according

to the rules of the common law."

STATEMENT OF THE CASE

Petitioners, former franchisees of the John Deere Company,

obtained a $3.4 million jury verdict against John Deere

Company for acting in bad faith in terminating their franchise.

The district court, applying Boeing Co. v. Shipman, 411 F. 2d

365 (Sth Cir. 1969), determined that under "all the evidence" the

facts pointed ''so strongly and overwhelmingly" in favor of John

Deere, that judgment as a matter of law should be entered in

John Deere's favor. The United States Court of Appeals for the

Fifth Circuit agreed. 992 F. 2d 525 (Sth Cir. 1993). Because the

WwW

Fifth Circuit's permitting the trial court to weigh all the

evidence, instead of determining whether any evidence

supported the verdict, 1s inconsistent with the practice in other

circuits, Petitioners request review.

This suit was filed on June 7, 1990 by Petitioners, franchisees

of John Deere in Houston, Mississippi since 1955. R., Vol. 1,

pp. 1-45. The Complaint alleges that John Deere breached the

franchise contract by terminating their dealership because

Petitioners had invaded the assigned territories of other John

Deere franchisees. R., Vol. 5, pp. 1149-1157. Respondent

answered, claiming that the franchise was actually terminated

because of Petitioners' fraud. R., Vol. 5, pp. 1158- 1195. The

district court determined that Mississippi law implies a "duty of

good faith and fair dealing" and that terminating Petitioners

because they had invaded the territory of other dealers by

charging lower prices would violate this duty. Memorandum

Opinion, R., Vol. 10 pp. 2173-2174. Accordingly, the trial court

determined that a jury should decide the issue of the reason for

the termination. In words of the trial court:

"In short, if the jury finds that John Deere terminated the

dealership because of the falsifications and not because of an

unlawful motive, then Plaintiff's breach of contract

naturally will fail because John Deere clearly had the

contractual right to terminate when Crosthwait Equipment

falsified documents it had tendered to Deere. However, if

the jury finds that John Deere terminated the dealership

because of an unlawful motive, such would likely constitute

a breach of the duty of good faith and fair dealing. See OMP

v. Security Pacific Business Finance Inc., 716 F. Supp.

239, 249 (N.D. Miss. 1988)."

Memorandum Opinion, R., Vol. 10, pp. 2173-2174.

A two week trial then commenced to determine the factual

issue of the reasons for Petitioners’ termination. John Deere

introduced much evidence that it justifiably terminated the

dealership because the Petitioners had submitted numerous

financing contracts containing false statements as to the amount

of down payments, identity of equipment taken as a trade in, and

a changed serial number on a tractor. Tr. 850, 1953, 1519-20

1821, 1823-24, 1845-52, 1470-75, 1478-80, 1482-91, 1491-99,

1649-50, 1667-69, 1685-86. John Deere claimed it had

discovered the fraudulent practices in a 1990 audit, which it

conducted after it had begun receiving information that

Petitioners were submitting false or misleading documents. Tr.

495-497, 507-509. According to John Deere, the chief source of

the information of fraud was Toby Dexter, a former business

partner of Allen Crosthwait Tr. 883-885, 1818-1829.

On the other hand, according to Petitioners’ proof, the audit's

disclosure of "fraudulent" practices was not the real reason for

the termination. Indeed, the audit itself was begun, not because

of Dexter's complaints, but because of competitors’ complaints

that Petitioners were invading their territories and cutting prices.

Tr., 76-78. Petitioners’ strongest proof was an internal John

Deere memorandum, which read, in part:

Besides the financial risk involved with staying in business

with a Known lying thief, what they are doing to our

surrounding J.D. Dealers, goes directly against our 'Best

Dealer in Town' campaign. They are destroying dealer

margins, wrecking havoc with customer relations and

committing grievous business infractions. Not only will they

never become the best dealer for us in Houston, Mississipp1,

they did not deserve the further opportunity to do so.

Trying to force guidelines on them will only prolong the

eventual cure, which is to stop doing business with them...."

6.

"One such topic was the 'word' on the street that he

(Crosthwait) had a Lamar Johnson in his employ who was

selling equipment out of Batesville, Mississippi for him at

prices approaching the low volume...."

Plaintiff's Exhibit |.

Further, Don Holcomb, one of the members of the John

Deere committee who voted to terminate Petitioners' franchise,

admitted that, in making his termination vote, he relied, at least

in part, upon the concern with "dealer relations". Tr., 371-372.

Petitioners also attacked Deere's evidence that the

termination was the result of complaints by former partner, Toby

Dexter. Al Steinback, a Deere agent, admitted that the reason

for the audit was complaints from other dealers about

Crosthwait, not Dexter's complaints. Tr. 76-77, 88. In fact,

Dexter's complaints, including his complaints about a switched

serial number, had been known for two years before the "audit".

Tr., 495-496, 477, 481, 892-893. Petitioners’ claim that their

"fraud" was not the real reason for the termination was

supported by evidence that John Deere had never terminated a

dealer for such a reason, Tr. 559, and that John Deere was aware

of numerous other dealers who had committed equally serious

4ransgressions, such as inflated down payments, and

misrepresented trade-ins. Tr., 526-527, 410, 1784. Fa..ure of

dealers to accurately reflect down payments had become so

common that John Deere actually had a box on its printed

repossession form to indicate whether the down payment had

been made. Tr., 1455, 1456.

Petitioners denied that any of the false entries were

intentional or made for the purpose of injuring John Deere. Tr.,

584-599. Petitioners gave a detailed description of each of the

discrepancies and refuted Deere's claims that fraud was involved

in any of them. Tr., 974-1047.

The jury accepted Petitioners’ view of the evidence, finding

John Deere had terminated the franchise for bad faith conduct --

cutting into dealer margins -- rather than for fraud. It returned a

verdict totaliing $3.4 million in damages against John Deere. R..,

Vol. 11, pp. 2442, 2443.

The District Judge, however, found that the evidence was so

overwhelming in favor of John Deere, that the verdict should be

set aside, and judgment entered for John Deere. The District

Court wrote:

"The Court is further of the opinion that the Crosthwait

Equipment Company, Inc.'s averments as to retaliation by John

Deere Company relative to its motivation concerning

Crosthwait's selling outside of its territory and cutting into other

dealer margins was not supported by the evidence in this case.

The Court does not believe that the notation in the Everett memo

that Crosthwait was ‘destroying other dealer margins’ raised a

jury issue that would support the Petitioners' theory of the case.

It is noted that the Boeing case specifically provides that a mere

scintilla of evidence will not suffice to make a jury issue.

Boeing, 411 F. 2d at 374. There must be a substantial conflict in

the evidence to constitute a jury issue. It 1s the opinion of this

court that the only logical construction of the evidence in the

case sub judice after a review of all of the evidence, is that the

falsification of the numerous credit documents was an act of

default and that the dealership was lawfully terminated by John

Deere Company."

Tr., 2496.

Relying on its authoritative decision iii v. Shipman,

411 F. 2d 365, 374-75 (Sth Cir. 1969), the Fifth Circuit agreed,

holding that considering "all the evidence", the jury should have

returned its verdict for John Deere, and affirming the District

Judge. 992 F. 2d at 525. The Crosthwaits petitioned the Fifth

| |

Circuit for rehearing, pointing to a number of factual errors in

the Fifth Circuit opinion, ranging from such matters as the

relationship between the parties, the chronological order of

events between the audit and the complaints by Dexter and the

Fifth Circuit's ignoring the evidence favoring Petitioners, while

emphasizing the evidence in John Deere's favor. Petitioners

argued that the net result of the Fifth Circuit's weighing the

conflicting testimony between Plaintiffs and Defendants, and the

Court's making its own causation determination was to deprive

Petitioners of their "constitutional right to a jury trial”.

On June 30, 1993, the Fifth Circuit denied the Petition for

Rehearing without opinion.

ARGUMENT

BY WEIGHING ALL OF THE EVIDENCE AND

DECIDING THAT THE EVIDENCE OF JOHN DEERE WAS

MORE CREDIBLE AND OUTWEIGHED THAT OF

PETITIONERS, THE FIFTH CIRCUIT DENIED

PETITIONERS' CONSTITUTIONAL RIGHT OF TRIAL BY

JURY. INSTEAD OF WEIGHING ALL OF THE EVIDENCE,

THE FIFTH CIRCUIT SHOULD HAVE UTILIZED THE

TEST ADOPTED BY THE EIGHTH CIRCUIT, AND

CONSIDERED ONLY WHETHER THERE WAS ANY

10.

EVIDENCE TO SUPPORT THE VERDICT.

Applying its decision in Boeing v. Shipman, 411 F. 2d 365,

374-375 (Sth Cir. 1969), the Court of Appeals determined that

the jury should have ruled for John Deere on the grounds that

the "overwhelming" evidence was that "fraud", not a desire to

stifle competition, was the reason for the termination.

The Fifth Circuit's weighing of all the evidence, rather than

determining only whether any evidence supported the verdict, is

contrary to the rule in other Circuits. Dissenting from this

Court's denial of certiorari in Venture Technology, Inc. v.

National Fuel Gas Distribution Corp., 459 U.S. 1007, 74 L. Ed.

2d 398, 103 S. Ct. 362, Justice White describes the conflict in

the circuits:

"... [I]t is the Second Circuit's practice to examine all of the

evidence in a manner most favorable to the non-

moving party. This is also the position of at least the Fifth

and Seventh Circuits. Boeing v. Shipman, 411 F. 2d 365,

374-75 (Sth Cir. 1969); Panter v. Marshall Field & Co., 646

F. 2d 271, 281-282 (7th Cir. 1981). In the Eighth Circuit,

however, it appears thatonly evidence which supportsthe

verdict winner is to be considered. Simpson v. Skelly Oil

Co., 371 F. 2d 563 (8th Cir. 1967). The First and Third

Circuits follow a middle ground: the reviewing court may

11.

consider uncontradicted, unimpeached evidence from dis-

interested witnesses. Layne v. Vinzant, 657 F. 2d 468, 472

(Ist Cir. 1981); Inventive Music, Ltd. v. Cohen, 617 F. 2d 29,

33(3d Cir. 1980). Thus, the federal courts of appeals follow

three different approaches to determining whether evidence

is sufficient to create a jury issue."

The conflict between the circuits is demonstrated by many

cases in addition to those cited by Justice White. A recent

pronouncement from the Eighth Circuit on the issue, Caudill v.

Farmland Industries, Inc., 919 F. 2d 83, 86 (8th Cir. 1990),

contrasts with that of the Fifth Circuit:

"Generally, only evidence favoring the non-moving party

should be considered. Dace v. ACF Industries, Ind., 722 F.

2d 374, 376 (8th Cir. 1983). As we stated in Dace, however,

‘[t}here may be particular situations in which the rules should

not be rigidly applied. If, for example, the moving party's

evidence is completely disinterested, uncontradicted, and

unimpeached..., some modification of the general rule may

be called for.""

Many other cases have also rejected the Fifth Circuit's "all of

the evidence" test in favor of the test which permits

consideration of whether any evidence supports the verdict.

See, for example, Casko v. Elgin,Joliet and Eastern Ry. Co., 361

F. 2d 748, 749 (7th Cir. 1966); Lyons v. J.C. Penney Co., 316 F.

12.

2d 753 (7th Cir. 1963); Simpson v. Skelly Oil Co., 371 F. 2d 563

(8th Cir 1967): Kingston v. McGrath, 232 F. 2d 495 (9th Cir.

1956). See also Judge Rivers' dissent in Boeing v. Shipman, 411

F. 2d 365, 381-82 (Sth Cir. 1961), arguing that consideration of

all the evidence is inconsistent with this Court's precedents.

The fundamental conflict on the proper standard is explained

in Johnston, "Jury Subordination Through Judicial Control", 43

Law and Contemporary Problems at 30-31:

"Although the cases articulate multiple standards for testing

the sufficiency of the evidence, for purposes of analysis, the

standards fall under two categories. The method of

application of the standard is far more important than the

language of the standard. The first category favors the jury

relative to the trial judge. It requires isolation and

identification of the facts on which the judge tests the

sufficiency of the evidence. It excludes any attempt at

weighing the evidence. The standard, in its simplest form is

whether ‘any evidence’ supports the verdict. A restatement of

the standard is that it considers only the facts favorable to the

verdict winner. According to Justice Black, it closely

approximates the standards of the common law demurrer to

the evidence. To the extent that it favors the jury, the any

evidence standards reflects the concerns that prompted the

adoption of the Seventh Amendment. The second category

favors the trial judge relative io the jury. It does not require

clear isolation and identification of the facts; rather, it views

the evidence pervasively and allows the trial judge to weigh

it. This standard instructs the trial judge to decide if there is

13.

substantial evidence to support the verdict or if the verdict

loser's evidence ‘overwhelmed’ the verdict winner's evidence.

Another distinction between the two categories 1s the

evidence from which the facts used to test sufficiency are

drawn. The any evidence standard most appropriately

addresses the evidence adduced in the chief aspects of the

Plaintiffs' case. If, at the close of its case, the Plaintiff has

any evidence which satisfies the standard, that evidence also

satisfies the standard at the close of the Defendant's case.

The any evidence standard then addresses whether Plaintiff

established a prima facie case. If a prima facie case is made,

the any evidence standard precludes a directed verdict at

both the close of the Plaintiff's case and the Defendant's case.

The overwhelming evidence standard most appropriately

addresses the evidence adduced by both the Plaintiff and the

Defendant. Even if the Plaintiff, at the close of the case, has

some evidence, that evidence may later be overwhelmed by

the Defendant's evidence."

Professor Johnston concludes that the "any evidence"

standard is most faithful to the Seventh Amendment:

"Even considering its impact on modern litigation, the

historical context and development of the constitutional

right to jury trial, which cannot be ignored entirely, favors

the any evidence standard. The any evidence standard

clearly favors the jury as the principal decision maker.

The Court's control over the jury by taking the case from the

jury or overturning a jury's verdict is reduced to a minimum

by the any evidence standard. The concern about 'run away'

juries is unrealistic in view of the other devices such as new

trials. In addition, the any evidence standard provides a

degree of certainty by requiring isolation and identification

of the facts to which the standard is applied. It permits the

14.

lawyers to predict reasonably the outcome of litigation

in order to plan strategy and tactics. It simply avoids

transferring the cloak of secrecy from the jury's

deliberations to the judge's decision-making. Thus, both

history and the modern litigative process suggest the any

evidence standard is the best remedy."

Other commentators who agree with Professor Johnston that

considering only non-movant's evidence 1s more consistent with

the Seventh Amendment are 2B W. Barrow & Holtzoff. Sec.

1075 at 399-400, and Bagalay, Directed Verdicts and the Right

to Trial in Federal Courts, 42 Tex. L. Rev. 1053, 1061 (1964).

In addition to the conflict between the circuits on the general

standards to apply in deciding whether to grant judgment as a

matter of law, there is also a conflict among the circuits in cases

with facts almost precisely like these. Justice White also

described this disagreement in his dissent in Venture Technology,

supra:

"(The Second Circuit] stated that ‘even where a termination

follows the receipt of complaints from wholesalers or

agents, there 1s no basis for inferring the existence of

concerted action absent some evidence of a tacit

understanding or agreement with them.’ Schwimmer, 677 F.

2d 946, 953 (2d Cir. 1982):.... This view of the evidence

necessary to create a jury question under the Sherman Act is

15.

shared by the Third Circuit.... The Seventh and Eighth

Circuits, however, clearly reject this position. Spray-Rite

Service Corp. v. Monsanto Co., 684 F. 2d 1226 (7th Cir.

1982): Battle v. Lubrizol Corp., 673 F. 2d 984 (8th Cir.

1982). Because illegal conspiracies can rarely be proved

through evidence of explicit agreement, but must usually be

established through inferences from the conduct of the

alleged conspirators, the disagreement in the Circuits in the

nature of proof required is especially significant."

In this case, had the Court applied the standard of the

Seventh and Eighth Circuits, there would have been sufficient

evidence to make a jury verdict. Spray-Rite Service Corp. v.

Monsanto Co., 684 F. 2d 1226:

"We believe... that proof of termination following competitor

complaints is sufficient to support an inference of concerted

action. In Battle v. Lubrizol Corp., 673 F. 2d 984 (8th Cir.

1982), the Eighth Circuit declined to follow Sweeney, and

held ‘that proof of dealer's complaints to the manufacturer

about a competitor dealer's price cutting and the

manufacturer's action in response to such complaints would

be sufficient to raise an inference of concerted action.'...We

agree."

Here, Petitioners produced evidence that the termination was

preceded by competitor complaints. Had this case been tried in

the Eighth or Seventh Circuits, this would have been enough to

create a jury issue. The fact that there was actually an internal

16.

memorandum pointing to the competitor complaints about

"cutting dealer margins", in itself, would have insured that this

case survived a mouon for directed verdict in the Seventh or

Eighth Circuits. The fact that it would not survive such a

mouon in the Fifth Circuit highlights the conflict among the

circuits under facts such as these. The Fifth Circuit's finding

that the memorandum was only a "'scintilla" of evidence, and not

sufficient to create a jury issue underscores the Fifth Circuit's

view that a district judge may decide the weight to give

evidence.

lhe conflict between the circuits is clear and is based upon

fundamental differences between federal judges as to the

requirements of the Seventh Amendment. To resolve this

conflict, certiorar! should be granted.

Respectfully submitted,

JIM WAIDE

(Counsel of Record)

WAIDE LAW OFFICE

POST OFFICE BOX 1357

TUPELO, MS 38802

601/842-7324

JOHN P. FOX

ATTORNEY AT LAW

POST OFFICE BOX 167

HOUSTON, MS 3885!

601/456-4201

Attorneys for Petitioners

DATED: September 22, 1993

No.:

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1993

CROSTHWAIT EQUIPMENT COMPANY, INC..,

A. CURTIS CROSTHWAIT, JR., ALLEN

E. CROSTHWAIT and RUTH CROSTHWAIT,

Petitioners,

VERSUS

JOHN DEERE COMPANY,

Respondent.

APPENDIX A

OF COUNSEL

JIM WAIDE

WAIDE LAW OFFICE

POST OFFICE BOX 1357

TUPELO, MS 38802

601/842-7324

(Counsel of Record)

JOHN P. FOX

ATTORNEY AT LAW

POST OFFICE BOX 167

HOUSTON, MS 3885]

601/456-4201

Attorneys for Petitioners

19.

CROSTHWAIT EQUIPMENT CO..,

INC., et. al., Plaintiffs,

Crosthwait Equipment Company, Inc., A.

Curtis Crosthwait, Jr., and Ruth A.

Crosthwait, Plaintiffs- Counter Defendants

Appellants, Cross Appellees,

and

Allen E. Crosthwait, Plaintiff- Appellant,

PI

JOHN DEERE COMPANY,

et al., Defendants,

John Deere Company, Defendant- Counter

Claimant- Appellee, Cross Appellant.

No. 718]

United States Court of Appeals,

Fifth Circuit,

June 4, 1993

Agricultural equipment dealer brought action in state court

against equipment company for breach of contract, breach of

fiduciary duty, intentional infliction of emotional distress, and

intentional interference with contract. Company removed action

to federal court. Company counterclaimed for damages on

account balance due. The United States District Court for the

Northern District of Mississippi, Glen H. Davidson, J.. entered

20.

judgment as matter of law for company following jury verdict

for dealer, and denied company's motion for judgment as matter

of law on its counterclaim, Dealer appealed and company cross-

appealed. The Court of Appeals, Cobb, District Judge, sitting by

designation, held that: (1) company lawfully terminated

dealership agreement for submission of fraudulent sales and

credit contracts; (2) assuming that Mississippi franchise

cancellation statute applied, termination of agreement did not

violate 90- day notice provision of that statute: and (3) company

was entitled to recover damages.

Affirmed in part; reversed and remanded in part.

1. Federal Courts Key 765

Court of Appeals uses same standard of review that guided

trial court in its ruling on motion for judgment as matter of law.

2. Federal Civil Procedure Key 2609

In ruling on motion for judgment as matter of law, all

evidence with all reasonable inferences is considered in light

most favorable to party opposed to motion.

3. Federal Courts Key 765

In reviewing ruling on motion for judgment as matter of law,

if facts and inferences point so strongly and overwhelmingly in

favor of one party that Court of Appeals believes that reasonable

jurors could not arrive at contrary verdict, motion was properly

granted: if there is substantial evidence opposed to motion, that

is, evidence of such quality that reasonable and fair-minded

jurors in exercise of impartial judgment might have reached

different conclusions, motion should have been denied.

4. FraudKey 58 (1)

To prove fraud under Mississippi law, plaintiff has burden of

21.

showing by clear and convincing evidence that defendant

knowingly made false, material representations to plaintiff

which defendant intended to induce actin on part of plaintiff in

manner reasonably contemplated, that plaintiff did not know

falsity of defendant's representations, that plaintiff relied upon

truth of representations, that plaintiff had right to do so, and that

plaintiff suffered consequent and proximate injury.

5. Contracts Key 217

Agricultural equipment company lawfully terminated

dealership agreement as dealer submitted fraudulent sales and

credit documents to equipment company: dealer's customers

needed favorable financial data before company would approve

credit they needed to finance purchases, dealer admitted that it

submitted documents to company which contained false credit

information which customers did not supply or create, company

relied on that false information and was, therefore, ignorant of

customers’ true creditworthiness, company suffered at least

$2,000 in damages and would have suffered more were it not for

honesty of customers, and dealership agreement gave company

right to cancel agreement for falsification of records, contracts,

or other documents.

6. Contracts Key 323(1)

Notation by agricultural equipment company employee on

interoffice memo was not sufficient to raise jury issue as to

whether company cancelled dealership agreement in retaliation

for dealer's selling outside its designated area, rather than for

falsification of sales and credit documents.

7. Damages Key 56

Torts Key 12

Under Mississippi law, agricultural equipment dealer could

not recover for intentional infliction of emotional distress or

22.

intentional interference with contract in connection with

equipment company's termination of dealership agreement as

company lawfully terminated agreement for falsification of sales

and credit documents.

8. Trade Regulation Key 871(3)

Even if relationship between agricultural equipment company

and its dealer was franchise relationship, company did not

violate 90- day notice provision of Mississippi franchise

cancellation statute in terminating dealership agreement;

company terminated dealer for having submitted fraudulent

sales and credit contracts and dealer was allowed by trial court

to continue day-to-day operations for 90 days after it was

notified that it was being terminated. Miss. Code 1972, § 75-24-

51(6).

9. Federal Civil Procedure Key 2341, 2603

Under Mississippi law, trial court erred in denying

agricultural equipment company's motion for judgment as matter

of law or new trial as to equipment dealer's liability for actual

damages arising from dealer's falsification of sales and credit

contracts: there was uncontradicted evidence of losses

sustained, trial court failed to distinguish between disputed and

undisputed debts, and specific amounts were question of fact.

Appeal from the United States District Court for the Northern

District of Mississippi.

Before KING and EMILIO M. GARZA, Circuit Judges, and

23.

COBB), District Judge.

COBB, District Judge:

After a jury verdict was returned for the plaintiffs, the district

court granted defendant's motion for judgment as a matter of law

on the verdict and denied defendant's motion for judgment or a

new trial on its counterclaim for damages. Plaintiffs appeal;

defendants cross-appeal as to damages. For the reasons given

below, we AFFIRMthe district court's order granting defendant's

motion for judgment as a matter of law, and REVERSE and

REMAND for further proceedings as to damages.

Allen and Ruth Crosthwait, with their son A. Curtis

Crosthwait Junior, owned and operated Crosthwait Equipment

Co., Inc., (collectively, Crosthwait), an authorized John Deere

dealership selling agricultural and consumer products and

equipment. In 1988, John Deere Company, (Deere), received in

information indicating that Crosthwait had prepared and

submitted to Deere and its affiliate, Deere Credit Services, Inc.,

sales and credit documents containing material, false

representations. In March 1990, after numerous reports of

fraudulent activities, several Deere employees discussed the

need to investigate Crosthwait's business practices. This

resulted in a field audit of sales and credit documents prepared

by Crosthwait. The audit led John Deere to terminate

Crosthwait's dealership, based on fraudulent sales and credit

documents, and pursuant to its dealership agreements with

Crosthwait.

1. District Judge of the Eastern District of Texas, sitting by designation.

court granted defendant's motion for judgment as a matter of law on the verdict

and denied defendant's motion for judgment or a new trial on its counterclaim

for damages. Plaintiffs appeal: defendants cross-appeal as to damages. Forthe

reasons given below, we AFFIRM the district court's order granting

defendant's motion for judgment as a matter of law.and REVERSE and

REMAND for turther proceedings as to damages.

24.

Crosthwait filed suit in state court for breach of contract and

breach of fiduciary duty. Upon removal, the district court

ordered that Crosthwait could stay in business for ninety days

under Mississippi law.? During this period, Crosthwait

amended its petition to include intentional infliction of

emotional distress, alleging undue pressure to sign a closure

agreement to avoid litigation; and intentional interference with

prospective and existing contractual sales, in that Deere

removed certin tractors that Crosthwait had or could have sold

during the ninety-day period. Deere counterclaimed for

damages on the account balance due.

At trial, twenty-one former customers testified without

contradiction that numerous sales and credit documents bearing

their names and submitted to Deere or Deere Credit Services

contained falsifications regarding various transactions between

the dealership and them. Crosthwait inflated down payments,

incorrectly recorded purchase prices, and listed fictitious

equipment as trade-ins. Uncontroverted evidence indicated that

serial numbers were tampered with and in some instances

exchanged from one piece of equipment to another. Allen

Crosthwait himself testified that he submitted falsified sales and

credit documents to Deere and its affiliate.

Crosthwait argued that such practices had long been known

to Deere and, in fact, constituted standard practice in the

business that was not material enough to warrant cancellation of

his dealership.> He further claimed that Deere's audit was a

2. Miss. Code Ann. § 75-24-51 (6) (1072)

prospective and existing contractual sales, in that Deere

removed tractors that Crosthwait had or could have sold during the ninety-day

period. Deere counterclaimed for damages on the account balance due.

3. Crosthwait cites deposition testimony of several witnesses which claimed

that no other dealership had been cancelled for those reasons, a standard form

containing a box to indicate whether or not the purchase price was actually

made as represented, and the testimony of several employees that they were

aware that misrepresentations happened.

25.

sham, the actual value of financed equipment was sufficient to

provide Deere Credit complete security despite

misrepresentations of value, and Deere's action in cancelling its

dealership was actually in retaliation for selling outside his

misrepresentations of value, and Deere's action in cancelling its

dealership was actually in retaliation for selling outside his

designated sales area.

After a jury returned a verdict in favor of Crosthwait, the

district court granted Deere's motion for judgment as a matter of

law as to these claims, but denied its motion for judgment as a

matter of law or a new trial on Deere's counterclaim.

II.

Crosthwait contends on appeal that, under Mississippi law,

there was insufficient evidence showing deliberate

misrepresentation of material facts and actual damages: and

there was sufficient evidence of improper motive on Deere's part

in terminating the dealership to constitute an affirmative defense

to fraud.

[1-3] We use the same standard of review that guided the trial

court in its ruling for judgment as a matter of law. Normand v.

Research Institute of America, Inc., 927 F. 2d 857, 859 (Sth Cir.

1991) (quoting Boeing Co. v. Shipman, 411 F. 2d 365, 374-75

(Sth Cir 1969)(en banc)). All the evidence with all reasonable

inferences is considered in the light most favorable to the party

opposed to the motion. If the facts and the inferences point so

strongly and overwhelmingly in favor of one party that we

believe reasonable jurors could not arrive at a contrary verdict,

then the motion was properly granted. If there is substantial

evidence opposed to the motion - that is, evidence of such

quality and weight that reasonable and fair minded jurors in the

exercise Of impartial judgment might reach different conclusions

- then the motion should have been denied. /d.

26.

A.

[4] To prove fraud under Mississippi law, Deere has the

burden of showing by clear and convincing evidence that

Crosthwait:

|. knowingly made;

2. false:

3. material:

4. misrepresentations to Deere or Deere Credit:

5. which Crosthwait intended to induce action on the part of

Deere or Deere Credit in the manner reasonably

contemplated;

6. that Deere or Deere Credit did not know the falsity of

Crosthwait's representations;

7. that Deere or Deere Credit relied upon the truth of the

representations;

8. that it had the right to do so; and

9. that it suffered consequent and proximate injury.

See Vogel v. American Warranty Home Services Corp., 695 F.2d

877 (Sth Cir. 1983); Beck Enterprises, Inc. v. Hester, 512 So.

2d 672, 675 (Miss. 1987).

(S] The record below provides overwhelming evidence that

the sales and credit documents prepared by Crosthwait on its

customers' behalf for submission to Deere contained false

information which the customers did not supply or create, which

were deliberate and material and upon which Deere

ais

2/.

detrimentally relied.

Crosthwait customers needed favorable financial data before

Deere Credit Services would approve the credit they needed to

finance purchases. This credit allowed Crosthwait to sell its

equipment to customers: and, in turn, a portion of the credit

funds would be released to Crosthwait as an incentive to place a

borrower with Deere Credit Services.

Allen Crosthwait admitted he personally submitted documents

to Deere which he knew contained false information. Because

Deere relied on these misrepresentations in the course of their

sales and credit transactions, these misrepresentations were

material. Mr. Al Berzett, manager of Agricultural Finance

for Deere Credit Services, testified that the credit information, as

supplied by the dealers, helped Deere Credit Services determine

whether it would give credit for the purchase. Thus, when the

dealer gives this information, it intends to induce reliance and a

particular action on the part of Deere and Deere Credit as a

consequence of these misrepresentations. Since these

representations were false, Deere Credit was not in a position to

make an informed decision as to the credit-worthiness of its

applications, and was therefore ignorant of the applicants’ true

credit worthiness. The trial court found that, as a result of these

misrepresentations, Deere suffered at least $2000 in damages:

and, were it not for the honesty of Crosthwait's customers,

would have suffered more.

Deere cancelled Crosthwait's dealership under the terms of its

agreements with Crosthwait. The "John Deere Agricultural

Dealer Agreement" (Agricultural Agreement) and the "John

Deere Consumer Products Dealer Agreement" (Consumer

Agreement) gave Deere the right to cancel its dealership

appointment with Crosthwait by giving notice "at any time"

upon default by Crosthwait, defined, inter alia, as "[t}he

falsification of records, contracts reports or any other documents

which the Dealer has submitted to the Company, its affiliates or

EO

28.

assignees". Consumer Agreement $§ 3(c), 10(a); Agricultural

Agreement, § 2(d).

The terms of the agreements are clear and unambiguous. As

the trial court properly gave the language of the agreements its

plain meaning and construction, Continental Cas. Co. v. Hester,

360 So. 2d 695, 696 (Miss. 1978), it correctly concluded that

Deere lawfully ended Crosthwait's dealership.

B.

[6] At oral argument, Crosthwait introduced the novel idea

that "bad faith” on the part of Deere in terminating Crosthwait's

dealership constituted an affirmative defense under Mississippi

law. This argument is predicated on a showing that Deere

cancelled Crosthwait's dealership in retaliation for its selling

outside its designated area. The trial court found that the

evidence offered, a notation by a Deere employee on an inter-

office memo, was not enough to raise a jury issue under the

standard set in Boeing, supra. Applying the same standard, we

agree.

Il.

{7} Having held that the trial court was correct in finding that

Deere lawfully terminated Crosthwait's dealership pursuant to its

contract under Mississippi law, it follows that Crosthwait is not

entitled under that law to an award for emotional distress,

Fuselier, Ott and McKee, P.A. v. Moeller, 507 So. 2d 63, 69

(Miss. 1987) (contractual right to terminate precludes award |

absent malice): or for intentional interference with new and used

sales, Johnson v. Warnaco, Inc., 426 F. Supp. 44, 47 (S.D. Miss.

1976) (exercise of "privileged" right interfering with contract is

not wrongful).

IV.

[8] Crosthwait claims that, as Deere terminated its dealership

without notice, it was entitled to damages under the Mississippi

29.

Franchise Cancellation Statute. Miss. Code Ann. § 75-24-51(6)

(1972). While it is arguable that John Deere and Crosthwait

qualify as franchisor/franchisee under the statute,4 ninety-day

notice prior to termination is not required when fraud is the basis

of termination.»

The evidence is clear in showing that Crosthwait was terminated

by Deere for having submitted fraudulent sales and credit

contracts to Deere and Deere Credit. In addition, Crosthwait

was allowed by the trial court, in deference to Mississippi law,

to continue its day-to-day operations for ninety days after it was

notified by Deere that it was being terminated as a dealer. In

sum, even if the relationship between the parties was that of

franchisor/franchisee, Deere did not violate the ninety-day

Statute.

4. "'Franchise' means an arrangement for a definite or indefinite period in

which a person for a consideration grants to another person a license to use a

trade name, trademark, service mark, or related characteristic, and in which

there is a community of interest in the marketing of goods or services at

wholesale, retail, by lease, agreement, or otherwise." Miss. Code Ann. § 75-

24-51(6) (1972). Consideration is the only element in the definition of

"tranchise” that may not be clearly met. Mississippi does not necessarily

require any sort of "payments" as consideration for a franchise. Some

commentators indicate that any good consideration is equivalent to a

"tranchise fee" under Mississippi law. Kennet H. Slade, Applicability of

Franchise and Business Opportunity Laws to Distribution and Licensing

Agreements. 15 Am.Intell.Prop.L.J. | (1987).

5. "No person who has granted a franchise to another person shall cancel or

otherwise terminate any such franchise agreement without notifying such

person of the cancellation, termination, or failure to renew in writing at least

ninety (90) days in advance of the cancellation, termination, or failure to

renew, except that when... fraud... of the franchise... is the basis of grounds of

cancellation or termination, the ninety-day notice shail not be required." Miss.

Code Ann. § 74-24-53 (1972).

ee _|

30.

V.

[9] We agree with Deere that the trial court incorrectly

denied its motion for judgment as a matter of law or a new trial

as to Crosthwait's liability to Deere for actual damages,

attorney's fees, and costs.

Disputes relative to the specific amounts that may be owed to

Deere, noted by the court below, do not negate uncontradicted

evidence of losses sustained. Ruth Crosthwait, Crosthwait's

bookkeeper, testified that Crosthwait received a statement in

1990 indicating that it owed Deere $624, 914, but that she

unilaterally decided not to pay. This debt is undisputed and falls

within Mississippi's definition of "account stated." Hamilton v.

Miller, 217 Miss. 316, 64 So. 2d 147, 149 (1953).©

Since the trial court did not distinguish between disputed and

undisputed debts, and as specific amounts constitute a question

of fact, we REVERSE and REMAND this portion of the case for

a reconsideration of the debts owed to Deere.

The action of the district court in granting judgment for Deere

is AFFIRMED; the action of the district court in failing to grant

Deere judgment as a matter of law on its counterclaim for

Crosthwait's liability is REVERSED and the issue is

REMANDED for trial.

6. "An account stated may be defined, broadly, as an agreement between the

parties to an account based upon prior transactions between them, with respect

to the correctness of the separate items composing the account, and the

balance, if any, in favor of one or the other.... [A}n account stated properly

exists only where accounts have been examined and the balance admitted as

the true balance between the parties."

31.

NO.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1993

CROSTHWAIT EQUIPMENT COMPANY, INC.,

A. CURTIS CROSTHWAIT, JR., ALLEN

E. CROSTHWAIT and RUTH CROSTHWAIT,

Petitioners,

VERSUS

JOHN DEERE COMPANY,

Respondent.

APPENDIX B

OF COUNSEL:

JIM WAIDE

WAIDE LAW OFFICE

POST OFFICE BOX 1357

TUPELO, MS 38802

601/842-7324

(Counsel of Record)

JOHN P. FOX

ATTORNEY AT LAW

POST OFFICE BOX 167

HOUSTON, MS 3885!

601/456-4201

Attorneys for Petitioners

32.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 92-7181]

CROSTHWAIT EQUIPMENT CO., INC., ET AL.,

Plaintiffs,

CROSTHWAIT EQUIPMENT CO., INC.,

A. CURTIS CROSTHWAIT, JR. and RUTH A. CROSTHWAIT,

Plaintiffs-Counter Defendants-

Appellants-Cross Appellees,

and

ALLEN E. CROSTHWAIT,

Plaintiff-Appellant,

versus

JOHN DEERE COMPANY, ET AL.,

Defendants,

JOHN DEERE COMPANY,

Defendant-Counter Claimant-

Appellee-Cross Appellant.

Appeals from the United States District Court for the

Northern District of Mississippi

(June 30, 1993)

Before KING and EMILiO M. GARZA, Circuit Judges and

COBB’, District Judge.

PER CURIAM:

(T IS ORDERED that the petition for rehearing filed in

above entitled and numbered cause be and the same is hereby

denied.

ENTERED FOR THE COURT:

United States Circuit Judge

*District Judge of the Eastern District of Texas, sitting by

designation.

REHG- 4