2010-563, Holloway Automotive Group d/b/a Holloway Motor Cars of Manchester v. Goran Lucic & a.

HOLLOWAY AUTOMOTIVE GROUP d/b/a HOLLOWAY MOTOR CARS OF

No. 2010-563

Manchester District Court

Manchester District Court (DeVries founder, president and sole shareholder, Goran Lucic, appeal an order of the DALIANIS, C.J. The defendants, Sedo, Inc. (the corporation) and its

Coughlin, Rainboth, Murphy & Lown, P.A. Sherman Law, PLLC

trial court’s enforcement of a liquidated damages provision in the parties’ Motor Cars of Manchester (Holloway), for breach of contract. We affirm the Lucic are liable to the plaintiff, Holloway Automotive Group d/b/a Holloway , J.) ruling that both the corporation and

orally), for the defendants.

Lown on the brief and orally), for the plaintiff.

page is: http://www.courts.state.nh.us/supreme. a.m. on the morning of their release. The direct address of the court's home reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00 to press. Errors may be reported by E-mail at the following address: editorial errors in order that corrections may be made before the opinion goes Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any Readers are requested to notify the Reporter, Supreme Court of New well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule 22 as foreign dealer had sought to collect any commission, the dealers had the right p. 2 the exported vehicles in its sales territory. Although, at the time of trial, no Mercedes-Benz required it to pay a commission if a foreign dealer discovered Holloway presented evidence that its contractual relationship with

the damages provision an unenforceable penalty. was grossly disproportionate to the $7,500 per-vehicle liquidated sum, making was a $300 per vehicle administrative fee. This fee, the defendants contended, because the only penalty Mercedes-Benz actually assessed against Holloway defendants argued that the liquidated damages clause was unenforceable $7,500 liquidated damages plus attorney’s fees for each vehicle. The Holloway sued the corporation and Lucic, individually as its alter ego, seeking Less than two weeks later, both vehicles were exported. As a result,

delivered the vehicles. Massachusetts consulting project. Satisfied with these assurances, Holloway because he planned to lend the vehicles to contractors working for him on a enforce it. Lucic assured Holloway that he had no interest in exporting 2 corporation liable for the reasonable attorney’s fees Holloway incurred to liquidated damages. In the event of a breach, each agreement made the export of the [v]ehicle,” the corporation would pay Holloway $7,500 as “regardless of whether the [corporation] or any other party actually cause[d] the Each agreement also provided that if the vehicle was exported within a year, export the [v]ehicles[s] outside North America . . . for a period of one (1) year.” Holloway vehicles and signed two identical agreements promising “not [to] In May 2008, Lucic, on behalf of the corporation, paid $99,000 for two

penalty exposure. customers to enter into a no-export agreement to minimize Holloway’s exportexport, subjects Holloway to certain penalties and fees. Holloway requires that Holloway sells, even when Holloway neither knows of nor consents to the is exported from North America within one (1) year.” Thus, export of a vehicle against [Holloway] for each new Mercedes-Benz vehicle it sells or leases which outside the exclusive sales territory of North America” and “assess[es] charges Mercedes-Benz prohibits Holloway “from exporting new Mercedes-Benz vehicles

I. Background

authorized dealer of Mercedes-Benz North America (Mercedes-Benz). The trial court could have found the following facts. Holloway is an

as the award of attorney’s fees, and remand. pierce the corporate veil. Therefore, we vacate the award against Lucic as well contract, but conclude that the district court lacked equitable jurisdiction to unenforceable penalty because Holloway suffered only de p. 3 (Emphasis omitted.) The defendants argue that this provision is an

. . . .

AGREEMENT, THE UNDERSIGNED SHALL BE OBLIGATED TO compensatory, not punitive.” Restatement (Second) of Contracts

result of the breach are uncertain in amount or difficult to prove; (2) the parties unenforceable penalty. In a valid clause: (1) the damages anticipated as a AMERICA WITHIN ONE[ ]YEAR OF THE DATE OF THIS Three criteria distinguish a valid liquidated damages clause from an “The central objective behind the system of contract remedies is THEREFORE, IF THE VEHICLE IS EXPORTED OUTSIDE NORTH

THE VEHICLE IS EXPORTED OUT OF NORTH AMERICA. rather than to breach, does not make it a penalty. Id DIFFICULT TO FIX THE ACTUAL DAMAGES TO [HOLLOWAY] IF. at 231. mere fact that a liquidated damages provision encourages a party to perform, THE PARTIES AGREE THAT IT WOULD BE IMPRACTICAL OR possibility of a damage award . . . by its nature . . . induce[s] performance,” the on Contracts § 65:1, at 223 (4th ed. 2002). On the other hand, because “the breach prohibitively and unreasonably costly” are void. 24 R. Lord, Williston of the underlying agreement by penalizing non-performance and making a II. Liquidated Damages to the actual damage a breach will likely cause that they “coerce performance comment a at 157 (1981). As a result, liquidated damages so disproportionate § 356

a result of the breach.

Each liquidated damages clause at issue states:

the corporate veil; and (3) an award of attorney’s fees to Holloway was proper. provisions of the agreements are enforceable; (2) it had jurisdiction to pierce contend that the district court erred in finding that: (1) the liquidated damages corporate veil to hold Lucic personally liable for the breaches. The defendants agreements and enforced the liquidated damages provisions; it also pierced the The district court found that the corporation had breached the no-export

the likelihood that Holloway would have to pay a foreign dealer. the amount of Holloway’s potential liability under the commission provision or to do so at any time. The defendants did not introduce evidence concerning ascertain.” Ladco Properties XVII v. Jefferson-Pilot Life Ins. p. 4 resulting from a breach” when “damages are speculative or difficult to damages clauses “to avoid later controversy over the amount of actual damages Holloway’s actual damages difficult to ascertain. Parties employ liquidated

We agree that the possibility of speculative, future damages rendered

reality after the breach. Id appraisal” to determine whether the parties’ initial expectations conform to

although pre-breach damages may have been speculative, occasionally the (8th Cir. 2008). Our retrospective appraisal simply acknowledges that, , 531 F.3d 718, 720 the agreements and proceed to the next step, which is a “retrospective liquidated sum here was a reasonable estimate at the time the parties executed Because there is no argument to the contrary, we conclude that the

actual damages difficult to ascertain. result of the defendants’ breach and that these potential damages make its Holloway argues, however, that it faces “ongoing[,] potential damages” as a unreasonable, bear the burden of proof. Id to date are a $300 per vehicle administrative fee that Mercedes-Benz assessed. The defendants, as the parties alleging that the liquidated amount is. at 515-16. Holloway’s only out-of-pocket damages

breach.” Orr unreasonable and grossly disproportionate to the actual damages from a law. Id. as long as it is substantiated by the record and is not erroneous as a matter of court, based upon the evidence, and we will not upset the trial court’s finding a reasonable person could have arrived at the same determination as the trial

reasonable. First, we assess whether the amount “was a reasonable estimate the actual damages. Id We employ a two-part test to determine whether a liquidated sum is. unenforceable penalty, and the aggrieved party will be awarded no more than disproportionate to easily ascertainable, actual damages, the provision is an , 157 N.H. at 515. If the stipulated sum is grossly

ascertainable, we must then consider whether the stipulated sum is at 49 (quotation omitted). “[I]f the actual damages turn out to be easily ask whether actual damages are “easily ascertainable” after a breach. See id. Brook Assoc’s v. Dube, 135 N.H. 40, 48 (1991) (quotation omitted). Next, we of difficult-to-ascertain damages at the time the parties agreed to it.” Shallow

analysis to the third criterion – the reasonableness of the agreed amount. liquidated damages provision meets the first two criteria; thus, we limit our Orr v. Goodwin, 1 p. 5 57 N.H. 511, 514 (2008). Here, the parties agree that the reasonable and not greatly disproportionate to the presumable loss or injury. intended to liquidate damages in advance; and (3) the amount agreed upon is 5

equitable remedy,” and neither party contends otherwise. LaMontagne As to the merits, “[t]he doctrine of piercing the corporate veil is an

(200 p. 5 5). “The ultimate determination as to whether the trial court ha[d] lacks general equitable power. See, e.g., Matte v. Shippee, 152 N.H. 216, 223 (quotation omitted). We have noted on several occasions that the district court Builders v. Bowman Brook Purchase Group, 150 N.H. 270, 274 (2003) burden because its damages remained speculative at trial. Cf actual damages were reasonably certain and that Holloway failed to meet this III. Piercing the Corporate Veil The defendants argue that it was Holloway’s burden to show that its Books & Video v. Town of Troy, 149 N.H. 569, 575 (2003). jurisdiction cannot be conferred where it does not already exist.” Route 12 matter jurisdiction may be raised at any time in the proceedings because jurisdiction by not objecting at trial. To the contrary, “the issue of subject the defendants waived any objection to the district court’s subject matter Before turning to the merits of this issue, we address Holloway’s argument that any more than does the advance estimate of the parties.” Restatement the corporate veil and hold Lucic personally liable for the corporation’s breach. estimate of the court or jury may not accord with the principle of compensation If, at the time of trial, damages remain speculative or difficult to ascertain, “the The parties dispute whether the district court had jurisdiction to pierce are no longer speculative at the time of trial, trigger the retrospective appraisal. As a result, only “easily ascertainable” damages, meaning damages that

enforcement of the liquidated damages clause against the corporation. they satisfied this burden, and, therefore, we affirm the trial court’s the liquidated sum. Orr, 1 p. 5 57 N.H. at 515. The defendants do not argue that Holloway’s damages were easily ascertainable and grossly disproportionate to defendants, the parties seeking to invalidate the clause, to prove that future damages were reasonably certain. Rather, it was incumbent upon the liquidated damages rules. The burden was not upon Holloway to show that Desmarais, 136 N.H. 179, 188 (1992). This argument misapprehends our

liquidated amount. damages at the figure to which the parties initially agreed and enforce the very uncertainty the parties initially sought to avoid, a court should fix (Second) of Contracts, supra § 3 p. 5 56 comment b at 158. When faced with the

actual loss effectively penalizes the party in breach. enforcing a clause that, in reality, is clearly and grossly disproportionate to the damages after a breach are certain. See Orr, 1 p. 5 57 N.H. at 515. In such a case, p. 6 6

IV. Attorney’s Fees

us. veil, we decline to consider this argument as the issue is not properly before judicata in Holloway’s pending superior court action to pierce the corporate Finally, although Holloway asserts the district court’s findings are res standard, and if there is some support in the record for the trial court’s award of attorney’s fees under an unsustainable exercise of discretion discretion by awarding Holloway’s attorney’s fees. We review a trial court’s The defendants argue that the trial court unsustainably exercised its

vacate its order holding Lucic personally liable. veil. Because the district court lacked jurisdiction to grant this remedy, we individual liability was the one the district court cited – piercing the corporate doctrine justified Lucic’s personal liability. Thus, the only basis for Lucic’s export agreements, and the trial court’s order explains that the veil-piercing not Lucic as an individual, purchased the vehicles and entered into the no- Lucic individually liable without piercing the corporate veil. The corporation, Similarly, we reject Holloway’s argument that the district court held

See properly exercised its inherent power to sanction Lucic for testifying falsely. Next, Holloway argues that, by piercing the corporate veil, the trial court

Holloway’s showroom months earlier. upon [Holloway].” This “fraud” occurred not in the courtroom at trial, but in determined Lucic used the corporate identity to “promote an injustice or fraud remedies in these cases. See Moreover, as its order makes clear, the trial court pierced the veil because it remedy.” LaMontagne Builders the two courts necessarily have concurrent powers to fashion general equitable, 150 N.H. at 274 (quotation omitted). because piercing the corporate veil is not a sanction at all; it is an “equitable have concurrent jurisdiction in civil cases with less than $25,000 in damages, equitable power. It argues that because the district court and superior court State v. Martina, 135 N.H. 111, 115-1 p. 6 6 (1991). We reject this argument Holloway first contends the district court does, in fact, have general

piercing the corporate veil. jurisdiction, it has no general power to grant an equitable remedy such as remedy. Contrary to Holloway’s assertions, whatever the district court’s argument conflates jurisdiction to hear a case with the power to grant a

Matter of O’Neil & O’Neil, 159 N.H. p. 6 615, 622 (2010). jurisdiction in this case is a question of law subject to de novo review.” In the p. 7 7

which the trial court must reduce its initial fee award. See breach of contract claims are “analytically severable” and, if so, the amount by award and remand to the trial court to determine whether the veil-piercing and not prevail against Lucic individually. Therefore, we vacate the current fee Here, although Holloway prevailed against the corporation, Holloway did DUGGAN, HICKS, CONBOY and LYNN, JJ., concurred.

corporation will be liable for any attorney’s fees.

261. award should be reduced to exclude time spent on unsuccessful claims. Id. at and the successful and unsuccessful claims are analytically severable, any fee 252, 261-62 (2006). Where a party prevails upon some claims but not others, determination, we will uphold it. LaMontagne Builders v. Brooks, 154 N.H.