Appellant franchisees challenged an order by the Superior Court of Los Angeles County (California), which granted appellee franchisor damages including all future royalty and advertising fees due under the franchise agreement in compensation for appellant’s breach.
Table of Contents
Overview
Appellant franchisees sought review of a judgment in favor of appellee franchisor. Appellants sought counsel from a small business attorney. Appellant contended that the trial court had erroneously awarded unpaid future royalty and advertising fees to appellee in compensation for appellants’ breach of the franchise agreement by failing to make timely royalty payments in the past. The court stated that appellee was entitled to recover only those damages that were the proximate cause of appellants’ breach. The court found a natural and direct causal connection between appellants’ breach and the loss of the past royalty payments. The court stated, however, that appellants’ failure to timely pay past royalties was not the proximate or natural and direct cause of appellee’s loss of future royalties and advertising fees. The court concluded that a further award of lost future royalties would be disproportionate, unreasonable, unconscionable, and grossly oppressive. Therefore, the court affirmed the judgment of the trial court awarding appellee past royalties and reversed the trial court’s award of lost future expectancy damages in the form of franchise royalty and advertising fee payments.
Outcome
The judgment awarding past unpaid royalty and advertising fees to appellee franchisor was affirmed. The judgment awarding future franchise royalty and advertising fee payments was reversed because appellant franchisees’ breach of the underlying franchise agreement by failing to pay past royalty and advertising fees was not the proximate cause of appellee’s loss of future royalties and advertising fees.
Procedural Posture
Appellant, a car dealership licensed to sell only used cars, challenged a judgment of the Superior Court of Orange County, California, in favor of respondents, an insurance carrier and related parties, on the dealership’s claims for negligent and intentional misrepresentation, breach of contract, reformation, bad faith, breach of fiduciary duty, and unfair competition relating to a policy furnished to the dealership containing lemon law coverage.
Overview
The dealership discovered that the policy’s coverage only applied to the sale of new vehicles when it was sued under the lemon law, Civ. Code, § 1790 et seq. The court held that the trial court made numerous erroneous rulings that essentially deprived the dealership of an opportunity to put on its case. The trial court improperly tossed out the causes of action for negligent and intentional misrepresentation, reformation, and unfair competition. There had been no finding on the issue of whether the predicate elements of a cause of action for reformation had been met under Civ. Code, § 339. The fact that the insurance contract limited lemon law coverage to new car sales hardly proved that the carrier did not engage in unfair business practices under Bus. & Prof. Code, § 17200, in the sale of its new car lemon law coverage to used car dealerships. Thus, the trial court erred in disposing of the unfair business practices claim just because it held that the insurance contract did not provide coverage for the underlying lemon law litigation against the dealership. The trial court properly disposed of the claims for breach of contract, bad faith, and breach of fiduciary duty.
Outcome
The court reversed the trial court’s judgment and remanded the matter for further proceedings.