Auto Dealership Entitled to New Trial Over Compensation Under Quantum Meruit, Seventh Circuit Decides

In a breach of implied contract lawsuit, a Wisconsin auto dealership must have a new trial because the original trial judge misconstrued Wisconsin law on quantum meruit and unjust enrichment, the Seventh U.S. Circuit Court of Appeals ruled. Lindquist Ford, Inc. v. Middleton Motors, Inc., Nos. 08-1067 & 08-1689 (7th Cir. February 25, 2009).

Middleton Motors, a Ford dealership near Madison, Wis., was a struggling business when it asked the more successful Lindquist Ford of Iowa for financial and management help. In their initial negotiations in 2003, they agreed that Lindquist’s manager, Craig Miller, would manage both dealerships and be compensated by Middleton with a percentage of the profits once he made the dealership profitable again. No deal was struck at that time, but nonetheless, Miller started managing Middleton.

In subsequent months, negotiations ran aground when Lindquist repeatedly did not offer a cash infusion, proposed as an investment in the business, that Middleton wanted. During this time, Middleton repeated several times that Miller’s compensation would be a percentage of Middleton’s profits when the dealership was profitable again. About a year into this situation, Middleton fired Miller, frustrated that the dealership was still unprofitable and no deal had been reached on a cash infusion. Two months after the firing, Miller sent Middleton a letter demanding a salary for 2003, and half of profits for the next two years. Middleton disagreed that it owed Miller anything.

Lindquist and Miller sued for breach of contract, promissory estoppel, quantum meruit and unjust enrichment. The trial court granted summary judgment on the first two counts, but held a bench trial on the latter two. At trial, it excluded a large amount of evidence about the dealerships’ negotiations, the percentage-based compensation to Miller and the risk to Middleton, because it believed that the only important issues were damages and whether Lindquist could prove that there was a quasi-contract by showing a mutual agreement through words and actions. It found for Lindquist and Miller. Middleton appealed.

On appeal, the Seventh Circuit found that the trial judge had profoundly misinterpreted Wisconsin law on quantum meruit and unjust enrichment, possibly because the laws are confusingly phrased. Both concepts are quasi-contractural theories, the judges wrote, but quantum meruit is a contract implied by law and unjust enrichment requires no finding of any features of a contract. This contradicted the trial judge’s heavy reliance on Theuerkauf v. Sutton, 306 N.W.2d 651, 658 (Wis. 1981), which was a contract implied by fact case that mentioned quantum meruit only in passing. Applying a test from Theuerkauf, they wrote, was inappropriate to decide quantum meruit claims and excluded large amounts of evidence that was necessary to determine whether there was a contract implied by law. Thus, a new trial was necessary.

The Seventh also ordered a new trial on the unjust enrichment claim, but not because the trial court had misconstrued that principle. Rather, they wrote, it’s not clear that this case meets the third element of an unjust enrichment test in Wisconsin: that it would be inequitable for Middleton to retain the benefits of Miller’s work without paying him. Again, the judges wrote, a substantial amount of evidence on this question was excluded by the trial court, making it necessary to retry the claim. If the trial court determines on remand that Miller did not reasonably expect to be paid unless he made Middleton profitable, and that he could not after a fair attempt, the Seventh ordered the trial court to enter judgment for Middleton.

Based in Chicago and Oakbrook Terrace, Ill., near Wheaton and Naperville Lubin Austermuehle represents clients in Illinois and throughout the Midwest in complex business litigation matters, including federal and Illinois breach of contract lawsuits. Our Chicago breach of contract lawyers represent parties to all kinds of contracts, including contracts implied by law or by fact. If you need help from an experienced business litigation attorney and you’d like to learn more about how we can help, please contact us by email or call 630-333-0333 to set up a confidential consultation.

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