Edmark Auto, Inc. et al v. Zurich, Inc. et al
Filing
145
ORDER re: 135 Report and Recommendations. The Court finds no error in the Report and adopts the recommendations contained therein. IT IS HEREBY ORDERED that: Defendant's Motion for Partial Summary Judgment (Dkt. 70 ) is DENIED and Plaintiff's Motion to Amend (Dkt. 112 ) is GRANTED. Signed by Judge Edward J. Lodge. (km)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
EDMARK AUTO, INC., an Idaho
corporation; CHALFANT CORP., an
Idaho corporation,
Dealers,
Case No. 1:15-cv-00520-EJL-CWD
ORDER
vs.
ZURICH AMERICAN INSURANCE
COMPANY, a New York corporation;
UNIVERSAL UNDERWRITERS
SERVICE CORPORATION, a Delaware
corporation,
Defendant.
INTRODUCTION
On February 6, 2018, United States Magistrate Judge Candy W. Dale issued a
Memorandum Decision and Order (Dkt. 97) (“MDO”) and Report and Recommendation
(Dkt. 70, Dkt. 112 (“Report”). (Dkt. 135.) The MDO grants Plaintiffs’ Motion to Compel
(Dkt. 97) and the Report recommends that Defendants’ Motion for Partial Summary
Judgment (Dkt. 70) be denied and Plaintiffs’ Motion to Amend/ Correct (Dkt. 112) be
granted. (Dkt. 135.)
Any party may challenge the Magistrate Judge’s proposed recommendation by
filing written objections within fourteen days after being served with a copy of the Report.
28 U.S.C. § 636(b)(1)(C). In this case, Defendants filed an Objection to the Report on
February 20, 2018 (Dkt. 138); Plaintiffs filed a timely response to that Objection on March
ORDER- 1
6, 2018 (Dkt. 142); and the matter is now ripe for this Court’s consideration. Fed. R. Civ.
P. 72; Local Civ. R. 73.1.
STANDARD OF REVIEW
Pursuant to 28 U.S.C. § 636(b)(1)(C), this Court “may accept, reject, or modify, in
whole or in part, the findings and recommendations made by the magistrate judge.” Where
the parties object to a report and recommendation, this Court “shall make a de novo
determination of those portions of the report which objection is made.” Id. Where,
however, no objections are filed the district court need not conduct a de novo review.
Rather, “the Court need only satisfy itself that there is no clear error on the face of the
record in order to accept the recommendation.” Advisory Committee Notes to Fed. R. Civ.
P. 72 (citing Campbell v. United States Dist. Court, 501 F.2d 196, 206 (9th Cir. 1974)).
DISCUSSION
The Court has reviewed the objected to portions of the Report de novo. The Court
has also conducted a review of the entire Report, as well as the record in this matter, for
clear error. Finding no error, the Court adopts the Report and its Recommendations.
BACKGROUND
As a preliminary matter, the Court adopts the factual findings outlined in the Report.
However, by way of brief background, the relevant facts are as follows.
The claims at issue arise from a long-running business relationship between two
automobile dealers, Edmark Auto, Inc. (“Edmark”) and Chalfant Corp. (“Chalfant”)
(collectively “Dealers”) and two insurance companies, Zurich American Insurance
Company (“Zurich”) and Universal Underwriters Service Corporation (“Universal”)
ORDER- 2
(collectively “Insurers”). Insurers authorized Dealers to offer and sell certain Vehicle
Service Contracts (“VSCs”) to their customers. VSCs are contracts for extended warranty
agreements that cover the repair or replacement of parts due to mechanical breakdown.
VSCs require customers to pay upfront for the extended warranty but permit
cancellation before the end of the VSC term. When customers cancelled the VSCs before
the end of the VSC term, the customers were entitled to a pro-rated refund for any value
left in their extended warranty at the time of cancellation. The parties dispute how they
intended to allocate the costs of that refund between Dealers and Insureds.
There are two primary contracts at issue:
1.
the Vehicle Service Contract Dealer Agreement
(“VSC Dealer Agreement”) (Dkt.70-3, Exs. A, D) 1
and
2.
the Dealers Designated Refund Account Addendum
(“DDRA Addendum”) to the VSC Dealer Agreement
signed and effective November 1, 1996 (Dkt. 70-3, Exs.
B, C). 2
According to Insurers, the VSC Dealer Agreement and DDRA Addendum are clear
and unambiguous. The DDRA Addendum modified the VSC Dealer Agreement and
1
There are two VSC Dealer Agreements: one with Edmark from 1996 (Dkt. 72-2) and
the other with Chalfant from 2009 (Dkt. 72-5). The Report notes the only substantive difference
between the two agreements, other than the parties, was the addition of an arbitration clause in
the 2009 version. Therefore, the VSC Dealer Agreements are analyzed together.
2
There are three DDRA Addendum agreements. (Dkts. 72-3, 72-4.) The Report notes
that the DDRA Addenda with Edmark and Chalfant are distinct agreements but contain the exact
same terms, other than the parties. Therefore, the DDRA Addenda are analyzed together.
ORDER- 3
provided a mechanism for the Dealers to pay a portion of the customers’ refunds upon
cancellation. (Dkt. 70-1, pp. 2-3.)
Under the DDRA Program, Dealers paid Insurers $80 upon the sale of each VSC.
(Dkt. 70-1, p. 3.) This $80.00 payment was referred to as the “Dealers Refund Payment.”
(Id.) The collective sum of all $80.00 payments remitted by Dealers was referred to as the
“Dealers Designated Refund Account” (“DDRA”). (Id.) When a VSC was cancelled,
Insurers allege that they paid the entire amount of the cancellation refund, “and the amount
of the dealers’ share was subtracted from the DDRA fund balance on the Defendants’
books.” (Id.)
The Dealers referred to their portion of the refunds as dealer “charge backs.” (Dkt.
52, ¶¶ 19, 24.) The Dealers referred to the DDRA program with Insurers as the “No Charge
Back Program.” (Id. at ¶¶ 1, 26.) The Dealers understood that Insurers could change the
amount of the Dealers Refund Payment at any time and that Insurers would monitor and
administer the DDRA fund so that it would cover all anticipated liabilities from “charge
backs.” (Id.)
On April 21, 2015, Insurers terminated the DDRA Addendum on the basis that the
DDRA fund balance was “in a significant deficit position” and “no funds exist from which
to make any distribution.” (Dkt. 72-8.) 3 Defendants seek repayment of hundreds of
thousands of dollars in refund payments on the basis that the DDRA Addendum and VSC
3
By September 2015, Insurers reported that Dealers owed them $231,122.71 representing
the negative deficiency balance in the DDRA. (Dkt. 56, p. 10.) As Insurers continue to pay
cancellation refunds, this claimed deficiency grows. Id.
ORDER- 4
Dealer Agreement clearly and unambiguously provide that Dealers are obligated to pay or
reimburse Defendants for any and all deficiencies. (Id.)
The Dealers argue that the contracts are ambiguous and, as a whole, support their
understanding that: (1) Insurers had to pay all chargebacks for VSC cancellations after 90
days of sale from the DDRA if the dealership paid the Dealers Refund Payment and (2) the
DDRA would never be in deficit if Universal properly established and managed the
account. (Dkt. 91, p. 7.) Accordingly, Dealers refused to pay the alleged negative
deficiency balance in the DDRA and, instead, filed suit against Insurers. (Dkt. 1.)
Dealers make seven claims against the Insurers: (1) breach of contract, (2) breach
of the covenant of good faith and fair dealing; (3) fraud/ fraudulent concealment, (4) unfair
business practices, (5) breach of fiduciary duty, (6) unjust enrichment, and (7) fraud in the
inducement. (Dkt. 52.) Insurers filed a Counterclaim with four claims: (1) breach of
contract, (2) breach of the covenant of good faith and fair dealing, (3) unjust enrichment,
and (4) accounting. (Dkt. 56.)
On July 20, 2017, Insurers filed the instant summary judgment motion. (Dkt. 70.)
Fundamentally, Insurers argue that this is a basic contract dispute and that, pursuant to the
plain and unambiguous language of the VSC Dealer Agreement and DDRA Addendum,
Dealers owe them for the growing deficiency in the DDRA. (Dkt. 70-1.)
In contrast, Dealers argue that the VSC Dealer Agreement and DDRA Addendum
are ambiguous and reasonably subject to their interpretation. (Dkt. 91.) Dealers further
argue that Insurers did not manage the DDRA consistent with applicable standards and
Insurers intentionally misled them into believing that Insurers were administering the
ORDER- 5
Dealer Refund Payments in the Dealer’s Designated Refund Account in a manner that
would cover all of the Dealers’ future liability for canceled VSCs. (Id.)
On February 6, 2018, the Magistrate Judge issued the Report denying Insurers’
summary judgment motion in all respects and finding substantial evidence in the record to
support Plaintiffs’ punitive damages claim. Insurers allege the Report is flawed in six
respects, because the Magistrate Judge:
(1) did not apply the correct standard in finding the contract is
ambiguous;
(2) considered extrinsic evidence prior to finding the contracts
were ambiguous;
(3) interpreted the contracts in an unreasonable manner and in
conflict with the actual terms of the contracts;
(4) erred in recommending that Dealers’ unjust enrichment
claim and disgorgement remedy may proceed in light of the
enforceable contracts;
(5) erred in analyzing Dealers’ fraud claim by considering
inadmissible evidence and finding support for the justifiable
reliance element of the claim; and
(6) erred in analyzing Dealers’ motion to amend by considering
inadmissible evidence and failing to find the punitive damages
claim “reasonably disputed” in light of the “substantial
evidence” supporting Insurers’ claims and defenses.
(Dkt. 138, pp. 2-3.)
Each of these arguments is considered and ultimately rejected as further explained
below. The Magistrate Judge found genuine disputes of material fact for the jury to resolve,
including the proper interpretation of the VSC Dealer Agreement and the DDRA
ORDER- 6
Addendum. The Court finds no error in the Report’s analysis of the law or the application
of the law to the facts in the record.
ANALYSIS
1.
The Report Correctly Found the Contracts Are Ambiguous without
Consulting Extrinsic Evidence and Interpreted the Contracts in a Reasonable
Manner.
Insurers argue that the VSC Dealer Agreement and DDRA Addendum are clear and
unambiguous. Insurers argue, as a matter of law, that the only reasonable interpretation of
these contracts is as follows:
(1) the DDRA Addendum modifies but does not replace the
VSC Dealer Agreement;
(2) the DDRA Addendum requires Dealers to pay portions of
refunds for canceled VSCs from the DDRA Refund Account;
Dealers’ share of the VSC cancellation refunds were to be paid
from DDRA Refund Account unless the DDRA Refund
Account became insolvent; and, if the DDRA Refund Account
contained less funds than the Dealers’ obligations, then Dealers
were obligated to pay the deficiency;
(3) the DDRA Addendum did not require that Insurers deposit
the $80.00 Dealer Refund Payments into a specific bank
account; and
(4) upon termination of the DDRA Addendum, the rights and
obligations of the parties would be as set forth in the VSC
Dealer Agreement, with the exception of paragraph 2(c) of the
DDRA Addendum, which would remain in effect.
(Dkt. 70-1.) In contrast, the Dealers argue the contract is ambiguous and with extrinsic
evidence, a trier of fact could reasonably find: (1) Insurers had to pay all chargebacks for
VSC cancellations after 90 days of sale provided the Dealers paid the required $80.00 fee
ORDER- 7
per warranty and (2) the DDRA Refund Account would never be in deficit if it had been
properly managed. (Dkt. 91, p. 7.)
A.
The Magistrate Judge Applied the Correct Legal Standards to the Issue of
Contract Interpretation and Did Not Consult Extrinsic Evidence.
The Magistrate Judge found, “the DDRA Addendum as [a] whole is reasonably
subject to conflicting interpretations and is ambiguous on its face.” (Dkt. 135, p. 11.) The
Magistrate Judge further found, “[t]he Court need not consider extrinsic evidence to make
this finding.” (Id.)
Notwithstanding these explicit statements, Defendants argue the Magistrate Judge
improperly considered extrinsic evidence. Defendants’ argument rests on three alleged
examples of improper consideration of extrinsic evidence.
First, in finding Section 2(c) was ambiguous, the Magistrate Judge stated,
“[a]lthough this section appears to indicate the Dealer is obligated to pay any deficiency if
the obligation, as determined in Section 2(b) of the DDRA Addendum, exceeded the
amount in the [DDRA], it is unclear whether that determination should have been made on
a case-by-case basis (i.e. refund-by-refund or some other periodic determination) by the
Insurers in administration of the account.” (Dkt. 135, p. 15.)
Second, in finding Section 2(c) ambiguous, the Magistrate Judge stated, “the
question of whether there should have been a deficiency at all is raised by the Dealers
through their assertion that the Insurers had a duty to manage and monitor the funds and
the account in the Dealers’ best interest and according to industry standards.” (Id. at p. 16.)
ORDER- 8
Third, when determining whether Section 3 of the DDRA Addendum required
Defendants to deposit the $80 Dealer Refund Payments into a specific bank account, the
Magistrate Judge stated that this question “implicates others, including whether a potential
fiduciary relationship or the implied covenant of good faith and fair dealing required the
Insurers to manage the [DDRA] for the Dealers’ benefit- consistent with relevant industry
standards.” (Id.)
Contrary to Defendants’ arguments, none of these statements reflects the improper
consideration of extrinsic evidence. Rather, the Magistrate Judge merely noted that the
contract itself leaves certain issues unaddressed. It was entirely appropriate for the Court
to identify these unresolved issues and, by doing so, did not improperly consult extrinsic
factual evidence regarding the parties’ intent.
Moreover, the implied covenant of good faith and fair dealing exists in every
contract. “In every contract there is an implied covenant of good faith and fair dealing.’”
Silicon Intern. Ore, LLC v. Monsanto Co., 155 Idaho 538, 552, 314 P.3d 593, 607 (2013)
(quoting Wash. Fed. Sav. v. Van Engelen, 153 Idaho 648, 656, 289 P.3d 50, 58 (2012)).
The Magistrate Judge did not improperly consult extrinsic evidence concerning the
contract’s meaning by considering this legal issue; she was simply recognizing the legal
requirement that the “parties must perform in good faith the obligations imposed by their
agreement.” (Id.) (emphasis in original) (quoting Idaho First Nat. Bank v. Bliss Valley
Foods, Inc., 121 Idaho 266, 288, 824 P.2d 841, 863 (1991)).
This same analysis holds true for fiduciary obligations. The existence of a fiduciary
duty and its impact on the Insureds’ duties to the Dealers provides additional legal context
ORDER- 9
for interpreting the contract terms at issue. It was entirely appropriate for the Magistrate
Judge to identify and consider this legal context when attempting to apply the instant
contractual language to the parties’ dispute and, by doing so, the Magistrate Judge did not
improperly consult extrinsic evidence.
B.
The Magistrate Judge’s Interpretation of the Contract Was Reasonable.
The Magistrate Judge correctly found the VSC Dealer Agreement and DDRA
Addendum were ambiguous as applied to the facts of this case. In doing so, the Magistrate
Judge correctly construed the contract as a whole, rather than focusing on isolated
provisions out of context.
“The primary aim in interpretation of all contracts is to ascertain the mutual intent
of the parties at the time the contract was made.” Opportunity, L.L.C. v. Osserwarde, 136
Idaho 602, 607, 38 P.3d 1258, 1263 (2002). “In determining the intent of the parties, the
Court must view the contract as a whole.” Bakker v. Thunder Spring-Wareham, LLC, 141
Idaho 185, 190, 108 P.3d 332, 337 (2004).
When the contract is unambiguous, the intent of the parties can be ascertained from
the language of the agreement. Opportunity, L.L.C., 136 Idaho at 607, 38 P.3d at 1263. (“If
possible, the intent of the parties should be ascertained from the language of the agreement
as the best indication of their intent.”) A contract is ambiguous if the intent of the parties
cannot be ascertained from the language of the agreement and “intent becomes a question
of fact to be determined in light of extrinsic evidence.” Id. “Whether a contract is
ambiguous or unambiguous is a question of law.” Pocatello Hosp., LLC v. Quail Ridge
Medical Investor, LLC, 156 Idaho 709, 720, 330 P.3d 1067, 1078 (2014).
ORDER- 10
Insurers take issue with three specific findings in the Report: (1) there is a “circular
ambiguity” in the terms of the DDRA Addendum; (2) the DDRA Addendum does not
clearly require Dealers to pay their portion of refunds; and (3) the Dealers are not obligated
to pay the identified deficiency under the plain language of Section 2(c). (Dkt. 138, pp. 711.) As discussed more fully below, each of these findings is supported by a reasonable
interpretation of the contracts as a whole.
(1)
The Contract Must Be Read as a Whole.
The central is whether the VSC Dealer Agreement and DDRA Addendum are
ambiguous as applied to the facts of this case. The Court is reluctant to walk through the
isolated provision-by-provision interpretation urged by Insurers. Reviewing the contract as
a whole, in light of the parties’ respective breach of contract claims, the Court finds the
DDRA Addendum is ambiguous and there are genuine disputes of material fact concerning
the parties’ intent that must be decided by the jury.
Fundamentally, the Court cannot say, as a matter of law, that Insurers were allowed
to manage the DDRA in a manner that allowed Dealers to be liable for hundreds of
thousands of dollars in deficits to be incurred on an on-going and unlimited basis without
notice to Dealers. Likewise, the Court cannot say, as a matter of law, that the Dealerships’
exposure was limited to $80.00 per chargeback for VSC cancellations and the DDRA could
never be in a deficit position. Clearly the parties intended that the “the total fees in Dealer’s
Designated Refund Account accurately reflect the amount of Dealer’s future liabilities for
refunds under Section 2(b) of this program and are being transferred to Company for this
ORDER- 11
specific purpose.” (Dkt. 72-3, p. 2). At the same time, the DDRA provides a mechanism
for Insurers to collect “any deficit” that may arise. (Id.)
This fundamental ambiguity in the DDRA Addendum creates a genuine dispute of
material fact. Only a jury can resolve the parties’ competing interpretations of the DDRA
Addendum.
(2)
There is a “Circular Ambiguity” in the Terms of the DDRA
Addendum.
Insurers take issue with the Report’s specific finding that there is a circular
ambiguity in the DDRA Addendum. This finding was made in response to Insurers’ request
that the Court find, as a matter of law, that the DDRA Addendum modifies but does not
replace the VSC Dealer Agreement.
As a preliminary matter, it is unclear why Insurers request this partial ruling on
summary judgment. Nevertheless, the Court has reviewed the Report in light of Insurer’s
Objections and finds the Report correctly denied summary judgment on this issue: it is
simply unclear if the DDRA Addendum modifies the VSC Dealer agreement, the VSC
Agreement modifies the DDRA Addendum, or if the two contracts modify each other.
First, the DDRA Addendum clearly states that it “is attached to and made part of”
the VSC Dealer Agreement and “shall be referred to as Dealers Designated Refund
Account Program (Program).” (Dkt. 72-3, p. 2.) Second, under the DDRA Addendum, the
parties agreed to replace Section 15 of the VSC agreement with the DDRA Addendum in
its entirety. “[I]t is agreed . . . that Section 15 of [the VSC Dealer Agreement] . . . is deleted
and the following substituted therefore.” (Id.) Third, the DDRA Addendum at Section 7
ORDER- 12
states that, if the DDRA Addendum is terminated, then Section 15 of the VSC Dealer
Agreement “shall replace the provisions of this addendum, with the exception that Section
2(c) of this addendum will continue to apply.” (Id. at p. 3.) Fourth, there is an obvious
ambiguity created by the substitution of the DDRA for Section 15.
Section 15 of the VSC Dealer Agreement is a termination provision. (Dkt. 72-2, p.
6.) It does not address liability for customer refunds. The customer refund provision is in
Section 4.H of the VSC Dealer Agreement. (Dkt. 72-2, p. 4.) That provision states that the
Dealer agrees:
That in the event of cancellation or other reduction in the
purchase price of a Service Contract, to refund to
contractholder or to lienholder, if applicable, the unearned
purchase price. [Insurer] shall return to Dealer, that portion of
the refund calculated by dividing: (1) the amount of the remit
less any amounts paid to Dealer or any of its employees or
assigned from such remit by (2) purchase price of the service
contract. From the amount calculated above, [Insurer] shall
deduct where applicable any cancellation or service fee.
(Id.)
In contrast, under the DDRA Addendum, the obligations of the Insurer and Dealer
for VSC refunds depends on whether the refund occurs within the first 90 days of the VSC
term. If the cancellation occurs within 90 days, Section 2(a) applies and the Insurer is
charged with reimbursing the Dealer as follows:
Dealer and [Insurer] agree that in the event of cancellation or
other reduction in the purchase price of a Service Contract
during the first 90 days of the term of the contract, to refund to
contractholder or to lienholder, if applicable, the unearned
purchase price. [Insurer] shall return to Dealer, that portion of
the refund of unearned purchase price calculated by
multiplying the refund amount by: (1) the amount of the remit
ORDER- 13
less any amounts paid to Dealer or any of its employees or
assigned from such remit; divided by (2) purchase price of the
service contract. From the amount calculated above, Company
shall deduct where applicable any cancellation or service fee.
(Id.) However, if the cancellation occurs after 90 days, Section 2(b) applies and the Dealer
is charged with reimbursing the Insurer as follows:
Dealer and [Insurer] agree that in the event of cancellation of a
Service Contracts after the first 90 days of the term of the
contract, refunds shall be paid by [Insurer]. The portion of such
refund to be deducted from ‘Dealers Designated Refund
Account’ as follows:
A portion of each refund of unearned purchase shall be
calculated by multiplying the refund amount by: (1) The
amount of the remit less any amounts paid to dealer or
any of its employees or assigned from such remit;
divided by (2) the purchase price of the service contract.
From the amount calculated above, [Insurer] shall
deduct where applicable any cancellation or service fee.
The remaining portion of the refund due under this
provision shall be subtracted from “Dealer’s Designated
Refund Account.”
(Id.)
Thus, as a general matter, there is a fundamental conflict between the VSC Dealer
Agreement and DDRA Addendum with regard to how the VSC refund program is supposed
to work. This ambiguity cannot be resolved without reference to extrinsic evidence of the
parties’ intent. Moreover, the Magistrate Judge correctly found a circular ambiguity in the
terms of the DDRA Addendum, which both replaces Section 15 of the Dealer Agreement
and indicates that Section 15 of the VSC Dealer Agreement replaces the terms of the
DDRA Addendum- with the exception of section 2(c) upon termination.
ORDER- 14
(2) Section 2(c) of the DDRA is Ambiguous as a Matter of Law.
Defendants take issue with the Report’s finding that Section 2(c) is ambiguous as a
matter of law. Defendants argue that Section 2(c) clearly and unambiguously: (1) obligates
Dealers to pay any and all deficiencies and (2) is the only DDRA Addendum provision that
survives post-termination.
The Magistrate Judge correctly found Section 2(c) is ambiguous as a matter of law
precluding summary judgment as Defendants request. First, Section 2(c) is ambiguous on
its face. Second, Section 2(c) explicitly references Section 2(b) as well as the “Dealer’s
Designated Refund Account.” Thus, a reasonable juror could find that Section 2(c)
necessarily incorporates Sections 1 and 2(b) before and after termination.
Section 2(c) states:
If the amount remaining in Dealer’s Designated Refund
Account is less than Dealers obligation as determined in
Section 2(b), Company will charge and Dealer will be
obligated to pay Company any deficiency. Company also has
the authority to offset any deficiency to Company under
Section 2(b), from any other amounts owed by Company to
Dealer.
(Id. at p. 3.) Based, in part, on this provision, Insurers argue that Dealers are “always liable
for their share of VSC refunds whether that money came from the DDRA Account, or
whether that money came out of Plaintiffs’ own pocket if there were no funds remaining
in the DDRA Account.” (Dkt. 138, p. 10.)
ORDER- 15
The Court finds ambiguities in the Contract as a whole that preclude this
interpretation of the Contract as a matter of law. While this provision clearly appears to
render Dealers liable for some form of a deficiency, the plain language of Section 2(c)
incorporates Sections 1 and 2(b), which both operate as limits on Insurers’ management of
the DDRA and, thus, Dealers’ liability for any deficits that occurred.
Section 2(c) refers to Section 2(b) and the “Dealer’s Designated Refund Account”
and cannot be interpreted in isolation from Section 2(b) or Section 1. Section 2(b) provides
that Dealers’ portion of the refund would come from the DDRA. (Id.) Under Section 1, the
“Dealer’s Designated Refund Account” is identified and defined. (Dkt. 72-3, p. 2.)
Section 1 sets the Dealers Refund Payment at $80.00 to “be added to dealers remit”
and to “be designated for the payment by Insured . . . of Dealer’s refund liability under
Section 2(b)” of the DDRA Addendum. (Id.) The “Dealer’s Designated Refund Account”
is the sum of the Dealers Refund Payments. (Id.)
Most importantly, Section 1 reflects that the parties clearly intended “that the total
of all fees in Dealer’s Designated Refund Account accurately reflect the amount of Dealer’s
future liability for refunds under Section 2(b) of this program and are being transferred to
Company specifically for this purpose.” (Id.) Further, under Section 4, the Dealer could
increase or decrease the remit at any time. (Id. at p. 3.)
Thus, in context, it is not clear, as a matter of law, that Section 2(c) clearly and
unambiguously allows Insurers to collect hundreds of thousands of dollars in deficiencies
aggregated over time. A reasonable juror could conclude that such a result was not
consistent with the parties’ intent at contract formation as explicitly indicated in Section 1.
ORDER- 16
Moreover, a reasonable juror could find that such a result is not consistent with Insurers’
implied duties, including the duty of good faith and fair dealing or fiduciary duties, that
would limit how the DDRA was managed.
Insurers also take issue with the Magistrate Judge’s finding that the parties’ posttermination obligations are not clearly and unambiguously limited to Section 2(c). As
discussed supra, Section 7 of the DDRA Addendum states that if the DDRA Addendum is
terminated, then Section 15 of the Dealer Agreement replaces the DDRA Addendum with
the exception of Section 2(c) which will continue to apply. (Dkt. 72-3, p. 3.) However, as
previously discussed, the DDRA contains a circular ambiguity and the express exception
for Section 2(c) creates ambiguity concerning the on-going application of Sections 1 and
2(b). At the very least, Sections 1 and 2(b) operate as a potential limit to the over-all
deficiency Insurers identify ostensibly pursuant to Section 2(c).
In short, the Magistrate Judge: (1) correctly concluded that Section 2(c) of the
DDRA Addendum is ambiguous in and of itself and (2) properly rejected Insurers’
arguments regarding its application as a matter of law. Extrinsic evidence of the parties’
intent is required to apply these contracts to the facts at issue.
2.
The Report Correctly Denied Summary Judgment on Dealers’ Unjust
Enrichment Claim and Disgorgement Remedy.
The Court adopts the Report’s recommendation that summary judgment be denied
on the Dealers’ claims for unjust enrichment. At this stage in the proceedings, it is not clear
that the claims fail as a matter of law and Plaintiffs may proceed with alternative theories
of relief.
ORDER- 17
As the Report correctly notes, under Idaho law, parties generally may not recover
under a theory of unjust enrichment if there is an express contract in place that covers the
same subject matter. Blaser v. Cameron, 121 Idaho 1012, 1017, 829 P.2d 1361, 1366 (Ct.
App. 1991.) However, there are exceptions to the rule including: (1) if the express contract
is found to be unenforceable and (2) if the claim is pursued against a party that was not a
party to the contract. Id.; In re Estate of Boyd, 134 Idaho 669, 673, 8 P.3d 664, 668 (2000).
Plaintiffs have alleged a fraud in the inducement claim and also point out that
Defendant Zurich was not a signatory to the contracts at issue. Moreover, while Defendants
argue that the contract applies exclusively to the dispute; they too have made an unjust
enrichment claim. (Dkt. 56.)
Thus, the enforceability of the contract remains at issue. Accordingly, it would be
premature to dismiss Plaintiffs’ unjust enrichment claim at this time. See Thomas v.
Thomas, 150 Idaho 636, 249 P.3d 829 (2011). (holding district court’s dismissal of unjust
enrichment claim premature because parties disputed enforceability of contract).
3.
The Report Correctly Analyzed Dealers’ Fraud Claim.
In their Objection, Insurers take issue with the Magistrate Judge’s finding that there
are genuine disputes of material fact precluding summary judgment on Dealers’ fraud
claim. (Dkt. 138, p. 14.) Specifically, Insurers argue that the Magistrate Judge did not
address the absence of justifiable reliance and relied upon inadmissible evidence. (Id.)
The Court adopts the Report’s recommendation. First, Insurers concede they did not
raise this argument regarding justifiable reliance in their opening summary judgment brief.
(Dkt. 104, p. 2.) Rather, they raised it in response to Dealers’ opposition brief. (Id.)
ORDER- 18
Accordingly, Defendants waived any argument regarding justifiable reliance. See Zamani
v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007) (“The district court need not consider
arguments raised for the first time in a reply brief.”) This Court will not consider an issue
that was not properly raised before the Magistrate Judge and further notes that justifiable
reliance is not typically an issue appropriately resolved on summary judgment. See Mannos
v. Moss, 143 Idaho 927, 932, 155 P.3d 1166, 1171 (2007).
Second, the Report did not rely on conclusory arguments or inadmissible evidence
as Insurers contend. (Dkt. 138, p. 15.) The undersigned has reviewed the Report’s analysis
of this issue as well as the punitive damages claim. (Dkt. 135, pp. 20-22, 26-29.) In
addition, the undersigned has reviewed the Insurers’ Objections. (Dkt. 138.) The Court
finds that the Magistrate’s findings are appropriate.
On summary judgment, the Court takes the facts as alleged by the non-moving party
and makes every reasonable inference from those facts. Scott v. Harris, 550 U.S. 372, 379
(2007) (“courts are required to view the facts and draw reasonable inferences ‘in the light
most favorable to the party opposing the [summary judgment] motion’”)(quoting United
States v. Deibold, Inc., 369 U.S. 654, 655 (1962).). Thus, while Insurers’ disagree with the
Report’s conclusions, the Court does not find the Magistrate Judge’s analysis was in error.
It was appropriate in light of the standard of review as well as the record as discussed more
fully infra with regard to Dealer’s motion to amend to add a punitive damages claim.
4.
The Report Correctly Analyzed Dealers’ Motion to Amend.
The Report recommends that the Court grant Dealers’ motion to amend to add a
claim for punitive damages. Insurers’ object to the Report’s recommendation on two bases:
ORDER- 19
(1) “the Magistrate [Judge] erred in considering inadmissible evidence” and (2) “[t]here is
substantial evidence supporting Defendants’ claims and defenses.” (Dkt. 138, pp. 17, 18.)
Neither argument is persuasive and the Court adopts the Report’s recommendation.
As a preliminary matter, Insurers’ objections reflect a fundamental disagreement
with Dealers’ theory of the case and Insurers’ perspective concerning the primacy and
clarity of the contract at issue. Nonetheless, the Magistrate Judge correctly found that there
is evidence to support Dealers’ theory of the case and that evidence is both sufficient to
raise material disputes of fact precluding summary judgment and sufficient to allow
Dealers to add a claim for punitive damages.
Again, the Magistrate Judge did not consider inadmissible evidence. The Magistrate
Judge rejected Insurers’ objections to Dealers’ proffered testimony. Further, the record
provided sufficient support to allow the motion to amend.
At trial, Dealers will have to prove by “clear and convincing evidence” that Insurers
engaged in “oppressive, fraudulent, malicious or outrageous conduct.” I.C. § 6-1604(1).
However, to amend the complaint to add a claim for punitive damages, Dealers must show
a “reasonable likelihood of proving facts at trial sufficient to support an award of punitive
damages.” I.C. § 6-1604(2).
At this point, the Court has to agree with the Magistrate Judge: the record
demonstrates a “reasonable likelihood” that Dealers’ can meet this burden at trial. This
includes expert opinion testimony that the Insurers’ conduct constitutes “an extreme
deviation from reasonable standards.” (Dkt. 91-8; Dkt. 91-10, pp. 4-6). It also includes
testimony from the Insurers’ own witnesses who agree that material information was not
ORDER- 20
shared with Dealers. (Dkt. 112-5, p. 7; Dkt. 112- 10, pp. 7, 8.) Finally, it includes the
evidence outlined in the Appendix A to Insurers’ Response to Defendants’ Objections.
(Dkt. 142, Appx. A.)
In short, the Court will allow Plaintiffs to amend the complaint and add a punitive
damages claim. However, the undersigned reserves the right to determine whether the
punitive damages claim, and any other claim, will be submitted to the jury at trial.
CONCLUSION
In sum, the Court finds no error in the Report and adopts the recommendations
contained therein.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED that:
1. Defendants’ Motion for Partial Summary Judgment (Dkt. 70) is DENIED and
2. Plaintiffs’ Motion to Amend (Dkt. 112) is GRANTED.
DATED: March 16, 2018
_________________________
Edward J. Lodge
United States District Judge
ORDER- 21
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