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SHEPERD v. AMERICAN HONDA MOTOR CO.

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA


May 28, 1993

WILLIAM SHEPERD, an individual, MARY JO SHEPERD, an individual, Plaintiffs,
v.
AMERICAN HONDA MOTOR CO. INC., et al., Defendants.

The opinion of the court was delivered by: EUGENE F. LYNCH

ORDER DENYING MOTION FOR RECONSIDERATION

 In its Order of January 25, 1993, in which the Court granted defendants' motion to dismiss, the Court tentatively denied plaintiffs' request for leave to amend based on plaintiffs' failure to propose how they would amend the complaint to overcome the deficiencies discussed in the Court's Order. The Court invited plaintiff to file a motion for reconsideration to explain with specificity how it would overcome the deficiencies in its original complaint. This matter is now before the Court on plaintiffs' motion for reconsideration. Having carefully considered the parties briefs and supporting papers, the Court deems it proper to confirm its Order of January 25, 1993 and dismiss plaintiffs' RICO claim with prejudice.

 Plaintiffs propose to amend their complaint to allege a specific number (200) of automobiles diverted from their dealership from the period January 1, 1989 through March 1991; a specific profit margin ($ 1,200.00) with regard to each automobile; and a specific monetary damages figure based on the diversion of such automobiles ($ 240,000.00).

 Plaintiffs apparently misapprehend the substance of the Court's previous ruling. The plaintiffs in Imagineering Inc. v. Kiewit Pacific Co., 976 F.2d 1303 (9th Cir. 1992), were able to point to specific subcontracts they lost out on, similar to the 200 specific cars plaintiffs point to in this case. Plaintiffs cannot, by merely supplying concrete figures to supplement their complaint, cure the fundamental defect in their original complaint.

 As this Court explained at some length in its previous Order, the Sheperds in essence complain of diminished profitability stemming from their receipt of a "mix" of models less attractive than that supplied to their competitors. The Court explained in its Order of January 25, 1993:

 

Here the Sheperd plaintiffs complain of the diversion of popular makes, models, and colors of cars to other dealerships, as well as lower allocations of cars, which impeded their ability to compete effectively and resulted in the sale of their dealership at a distressed price. There can be no doubt that the alleged diversion tactics and reduced allocations would have been likely to have some adverse effect on the profitability of the Sheperds' dealership, and consequently affect the market value of the dealership. But the financial losses reflected in reduced profitability and a distressed sale price are too attenuated from the alleged wrongful conduct of defendants to give plaintiffs standing to recover treble damages under RICO.

 

Unlike the Imagineering plaintiffs who lost out entirely on specific contract bids, the Sheperd plaintiffs encountered only the possibility of diminished profits on the sales of the vehicles they received. Unlike even a lost-volume seller in a contract case, the Sheperd plaintiffs cannot even point to specific sales which they would have made in the absence of diversionary tactics by defendants. The Sheperd plaintiffs nowhere allege that their showroom was empty or their dealership lot vacant, but only that their inventory of vehicles was such that presumably it would not turn over as fast, or with as high a profit margin, as those of their competitors. Presumably the cars allocated to the Sheperds' dealership were sold by the dealership, and generally sold above cost. Nonetheless, the dealership's inability to sell cars as quickly and profitably as competing Honda dealerships in the area resulted in diminished profitability for the Sheperds' dealership and a decline in its market value. For this Court, or a jury, to assess what portion of the dealership's diminished profitability and market value were attributable to the defendants' wrongful conduct, apart from other factors, would be an exercise in sheer speculation. * * *

 

Here a multitude of imaginable factors may have contributed to the diminished profitability of the Sheperds' dealership and its diminished market value, apart from the alleged wrongful conduct of defendants. Among other factors, the managerial decisions of those charged with the management of the Sheperds' dealership may have played a very significant role. In a highly competitive market, like that in which the Sheperds' dealership had to compete, decisions about marketing, pricing strategy, customer service, employee hiring and wages, and overhead allocations, to name a few, may be critical to the profitability and ultimate market value of a business enterprise. Second, the actions undertaken by the dealership's competitors in a fluid and competitive market could certainly influence the profitability and market value of the Sheperds' dealership. And finally, external factors like shifting demographic patterns, local economic trends and consumer demand, and local government regulation might influence the success of a particular dealership.

 

As the Ninth Circuit observed in Imagineering, 976 F.2d at 1312, "Essentially, the [proximate cause] rule has more to do with problems of proof than foreseeability." The problems of proof in this case, where the injuries alleged are the likely byproduct of a wide range of contributing factors, are simply too momentous for plaintiffs to overcome. * * *

 (January 25, 1993 "Order Granting Motion to Dismiss," at 11-14).

 Now the Sheperds have merely come forward with allegations regarding the specific number of diverted cars, the profits they expected to achieve on the sale of each such diverted car, and the total loss of profits to the dealership based on those figures. The Sheperds have nowhere alleged that their showroom was empty or their dealership lot vacant during the pertinent time period. The Sheperds continued to receive allocations of cars from 1989 to 1991, although allegedly they received fewer cars and some of the cars they received were not as easy to sell as diverted "hot" models. Unlike a lost-volume seller who brings a breach of contract action against a reneging buyer based on a lost sale, for whom courts generally recognize a concrete loss, here plaintiffs allege only that their supply or mix of automobiles was different from what it otherwise would have been. Plaintiff does not allege that any of its completed sales were cancelled or that its potential customers were diverted. Presumably plaintiff still had a number of "hot" models available for sale, and continued to sell cars. Thus, for every "hot" model not sold by the Sheperds by virtue of defendants' alleged diversion of the car to another dealership, plaintiff realized an opportunity to sell one of the cars already on its lot. In other words, had plaintiff received the 200 diverted cars, plaintiff may not have sold all the cars it actually did sell from 1989 to 1991. Plaintiffs are not lost-volume sellers.

 Even by alleging the diversion of 200 specific cars, plaintiffs can at most establish diminished profitability flowing from slower turnover, not a concrete loss of $ 240,000. As the Court indicated in its previous Order, a host of factors apart from a dealership's allocation of cars, such as managerial strategy, the actions of competitors, and independent market forces, ultimately determine the dealership's profitability in a highly competitive market. For this Court or a jury to attempt to ascertain what portion of the lost profitability of the Shepherd dealership could be attributed to the diversion of 200 automobiles, as opposed to other factors, would be an exercise in sheer speculation. *fn1"

  It is noteworthy that there was no indication in Imagineering that the plaintiffs, in light of their failure to procure the subcontracts at issue, were thereby able to perform other profitable contracts. In this respect, the loss suffered by the Imagineering plaintiffs was more concrete than the loss suffered by plaintiffs in this case. Yet, the Ninth Circuit found the Imagineering plaintiffs had failed to allege a sufficiently concrete loss which had been proximately caused by defendants' misconduct.

 Although leave to amend shall be freely given when justice so requires, Fed.R.Civ.P. 15(a), the law is well settled that futile amendments should not be permitted. Foman v. Davis, 371 U.S. 178, 182, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962); Smith v. Commanding Officer, Air Force Accounting, 555 F.2d 234, 235 (9th Cir. 1977). The proper test to be applied when determining the legal sufficiency of a proposed amendment is identical to the one used when considering the sufficiency of a pleading challenged under Rule 12(b)(6) of the Federal Rules of Civil Procedure. 3 J. Moore, Moore's Federal Practice ยง 15.08[4] (2d ed. 1974). Because the Court finds that plaintiffs' proposed amendment will not cure the deficiencies noted in this Order and the Court's Order of January 25, 1993, the Court will confirm its decision to disallow plaintiffs' proposed amendment and dismiss plaintiffs' RICO claim. *fn2"

 CONCLUSION

 For the reasons set forth above, as well as those set forth in the Court's Order of January 25, 1993, the Court hereby ORDERS that:

 (1) Plaintiffs' motion for reconsideration of the Court's Order of January 25, 1993 ("Order Granting Motion to Dismiss") is denied;

 (2) All remaining state law claims -- breach of contract, breach of covenant of good faith and fair dealing, fraud, negligent misrepresentation, intentional interference with prospective economic advantage, negligent interference with prospective economic advantage -- shall be remanded to the Superior Court of Contra Costa County forthwith in light of this Court's decision to not exercise its supplemental (pendent) jurisdiction over these claims;

 (3) The Clerk of the Court shall, without delay, mail a copy of this Order to all parties in this case.

 IT IS SO ORDERED.

 DATE: May 28, 1993

 EUGENE F. LYNCH

 United States District Judge

 JUDGMENT AND ORDER OF REMAND - May 28, 1993, Filed

 The Court, having granted defendants' motion to dismiss plaintiffs' cause of action under the Racketeer Influenced and Corrupt Organizations Act -- plaintiffs' only federal law claim -- hereby dismisses this case and remands it forthwith to the California Superior Court for Contra Costa County for disposition of the remaining state law claims. Each party shall bear its own costs.

 IT IS SO ORDERED.

 DATE: May 28, 1993

 EUGENE F. LYNCH

 United States District Judge


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