LEONARD T. STRAND, Chief District Judge.
Plaintiff Americredit Financial Services, Inc., d/b/a GM Financial (GM Financial), filed its complaint (Doc. No. 1) against defendants Adams Motor Company (AMC) and Robert G. Adams (Adams) on August 2, 2018, based on diversity jurisdiction under 28 U.S.C. § 1332. Two motions by GM Financial are currently before me: (1) a motion (Doc. No. 14) to dismiss defendants' counterclaims and strike an affirmative defense and (2) a motion (Doc. No. 27) for summary judgment.
Defendants did not file a resistance to the motion to dismiss counterclaims and strike an affirmative defense. They did file a resistance (Doc. No. 34) to the motion for summary judgment and GM Financial filed a reply (Doc. No. 35). I find that oral argument is unnecessary. See Local Rule 7(c).
The only fact in dispute is the amount of the judgment to which GM Financial is entitled. See Doc. No. 34. All other facts discussed below are undisputed:
GM Financial is a Delaware corporation with its principal place of business in Fort >Worth Texas. AMC is an Iowa company operating an automobile dealership in Denison, Iowa. Adams is a resident of Iowa.
GM Financial acted as AMC's floorplan lender
On July 1, 2015, GM Financial and AMC entered into a Term Loan Promissory Note for the sum of $800,000 (the Second Term Loan). Id. at 3. The Second Term Loan provides that AMC will repay GM Financial $800,000.00 plus interest at the rate of 4.25 percent. Id. at 4. AMC agreed that its payments would comply with the payment provisions set forth in Section 5 of the Second Term Loan. Id. It further agreed that it would be in default if it failed to make any payment under the Second Term Loan when due or if it committed an "Event of Default" under the Loan Agreement. Id.
Adams guaranteed all of AMC's obligations to GM Financial. Id. The Continuing Guaranty provides that Adams "unconditionally and absolutely guarantees the prompt and punctual payment, when due, upon maturity, by acceleration, or otherwise, of all of the Obligations that [GM Financial] may now and in the future extend to [AMC]." Id.
GM Financial performed all of the terms and conditions of the Loan Agreement, term loan promissory notes and Continuing Guaranty. Id. AMC failed to pay as required by the Loan Agreement, First Term Loan and Second Term Loan. Id. at 5. GM Financial sent defendants Notices of Default on December 13, 2017; January 3, 2018; January 10, 2018; January 30, 2018; February 13, 2018; February 22, 2018; March 7, 2018; March 13, 2018; March 21, 2018 and April 3, 2018. Id. On April 23, 2018, GM Financial terminated AMC's credit lines and demanded immediate payment of the outstanding balances of the Loan Agreement, First Term Loan and Second Term Loan in the amount of $2,377,608.35. As of January 31, 2019, GM Financial asserts that defendants are indebted in the amount of $1,103,107.37, plus interest and legal fees. Id.
On January 17, 2018, GM Financial filed a Petition for Replevin with the District Court of Crawford County, Iowa, which sought possession of vehicles financed by GM Financial. Id. at 6. GM Financial filed a motion for summary judgment in that action, which was granted on August 14, 2018.
GM Financial filed the instant action on August 2, 2018, alleging breach of contract (Count I), breach of contract of the continuing guaranty (Count II) and unjust enrichment (Count III). See Doc. No. 2. Defendants asserted three affirmative defenses in their Answer: failure to state a claim, unclean hands and waiver. Doc. No. 27-2 at 7; Doc. No. 9. They also filed counterclaims based on promissory estoppel and breach of the implied covenant of good faith and fair dealing. Id. GM Financial argues in its motion to dismiss counterclaims and strike an affirmative that defendants have released all claims, including claims for waiver against GM Financial. Defendants did not file a response to that motion and the time for doing so has passed.
GM Financial seeks to dismiss the counterclaims of promissory estoppel and breach of implied covenant of good faith and fair dealing identified in defendants' Answer (Doc. No. 9). Under Rule 12(b)(6), "to survive a motion to dismiss for failure to state a claim, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Carlsen v. GameStop, Inc., 833 F.3d 903, 910 (8th Cir. 2016). The Supreme Court has provided the following guidance in considering whether a pleading properly states a claim:
Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009).
Courts assess "plausibility" by "`draw[ing] on [their own] judicial experience and common sense.'" Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir. 2012) (quoting Iqbal, 556 U.S. at 679). Also, courts "`review the plausibility of the plaintiff's claim as a whole, not the plausibility of each individual allegation.'" Id. (quoting Zoltek Corp. v. Structural Polymer Grp., 592 F.3d 893, 896 n.4 (8th Cir. 2010)). While factual "plausibility" is typically the focus of a Rule 12(b)(6) motion to dismiss, federal courts may dismiss a claim that lacks a cognizable legal theory. See, e.g., Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013); Ball v. Famiglio, 726 F.3d 448, 469 (3d Cir. 2013); Commonwealth Prop. Advocates, L.L.C. v. Mortg. Elec. Registration Sys., Inc., 680 F.3d 1194, 1202 (10th Cir. 2011); accord Target Training Intern., Ltd. v. Lee, 1 F.Supp.3d 927, 937 (N.D. Iowa 2014).
GM Financial argues that defendants' counterclaims fail because defendants signed a Forbearance Agreement
In support of their counterclaim of promissory estoppel, defendants
GM Financial argues defendants have not alleged sufficient facts to state a claim of promissory estoppel because the parties' relationship is governed by written agreements. Under Iowa law,
Newkirk v. GKN Armstrong Wheels, Inc., 168 F.Supp.3d 1174, 1189 (N.D. Iowa 2016) (quoting Schoff v. Combined Ins. Co. of Am., 604 N.W.2d 43, 49 (Iowa 1999)).
Because the parties already have a written contract, the issue is whether the alleged promise in this case (to continue providing financing through February 16, 2018) added to or altered the terms of the contract by means of promissory estoppel. The Master Loan Agreement provides in section 21.5:
Doc. No. 1-1 at 17. "Change Notice" under the Master Loan Agreement means "any written notice sent or provided to Borrower by Lender, advising Borrower of a change in, or establishment of, one or more of the terms and conditions of this Agreement and/or any Related Document." Id. at 1.
Defendants do not indicate whether GM Financial's notice of its intent to cease lending effective February 16, 2018, was written or oral. See Doc. No. 9 at 11-12. They did not attach any documents to their Answer. Regardless of the type of notice, neither would be sufficient to establish a claim of promissory estoppel. If the notice was written, defendants would have a claim of breach of contract, not promissory estoppel. See Scott v. Grinnell Mut. Reins. Co., 653 N.W.2d 556, 562 (Iowa 2002) ("[T]he law will not imply a contract where there is an express contract."); John T. Jones Const. Co. v. Hoot Gen. Constr., 543 F.Supp.2d 982, 1021 (S.D. Iowa 2008) ("Because [the plaintiff] has a complete remedy at law for breach of contract there is no reason to resort to equity."). If the notice was oral, it would be ineffective under section 21.5 of the Master Loan Agreement providing that all amendments to the Agreement (aside from a Change Notice) must be in writing and signed by the Borrower and Lender and no oral statement by GM Financial or its agents may be construed as modifying the provisions of the Agreement. See Doc. No. 1-1 at 17. A Change Notice must also be a "written notice," but does not require both parties' signatures. As such, defendants' counterclaim fails based on the parties' written agreement.
Additionally, defendants' promissory estoppel claim fails because it does not allege facts constituting detrimental reliance. Defendants have not stated any facts to suggest they changed their position in reliance on the alleged promise that lending would continue through February 16, 2018. They have not alleged any action or inaction they took in reliance on the alleged promise that was to their detriment. While they allege they had to seek financing from other institutions with less favorable terms, the alleged facts do not support a finding that this was due to GM Financial's broken promise rather than defendants' defaults. In other words, they have not alleged they were worse off as a result of relying on the promise as opposed to the position they would have been in otherwise.
For these reasons, I find that defendants' counterclaim of promissory estoppel fails to state a claim upon which relief may be granted. GM Financial's motion to dismiss will be granted as to that counterclaim.
With regard to their second counterclaim, defendants allege that the contracts between the parties are commercial contracts containing an implied covenant of good faith and fair dealing. Doc. No. 9 at 13. They allege that the purpose of the parties' agreement was to provide defendants with the necessary cash-flow financing to operate their car dealership. In exchange, defendants paid interest on that financing and sold GM branded vehicles. Id. at 13-14. Defendants allege the implied covenant was breached by GM Financial when it abruptly reduced defendants' used-vehicle floor plan and refused to make loans for used vehicles. Id. They allege this caused damage as they were forced to seek financing from other institutions with less-favorable terms, suffered cash flow problems that prevented defendants from timely repaying GM Financial and ultimately had to cease operating due to its financial position. Id. at 14.
The implied covenant of good faith and fair dealing is inherent in all contracts. Alta Vista Properties, LLC v. Mauer Vision Ctr., PC, 855 N.W.2d 722, 730 (Iowa 2014). "The underlying principle is that there is an implied covenant that neither party will do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Id. (quoting Am. Tower, L.P. v. Local TV Iowa, L.L.C., 809 N.W.2d 546, 550 (Iowa Ct. App. 2011)) (internal quotations omitted). The implied covenant of good faith and fair dealing "does not give rise to new substantive terms that do not otherwise exist in the contract." Bagelmann v. First Nat'l Bank, 823 N.W.2d 18, 34 (Iowa 2012). It "prevents one party from using technical compliance with a contract as a shield from liability when that party is acting for a purpose contrary to that for which the contract was made." Mid-Am. Real Estate Co. v. Iowa Realty Co., 406 F.3d 969, 974 (8th Cir. 2005).
GM Financial argues that this counterclaim fails because defendants have not sufficiently alleged what the "covenant" was that was breached. They point out that defendants have admitted that the purpose of the agreement was to "create a discretionary credit facility under which [AMC] may request loans from [GM Financial] and [GM Financial] may, in its discretion, make loans to [AMC]." Doc. No. 1-1 at 1. The Master Loan Agreement provided that GM Financial could reduce financing "at any time." Id. at 16. GM Financial argues defendants may not rely on actions expressly permitted by the contract to support their claim. GM Financial further argues that defendants may not avail themselves of rights under the contract when they have admitted many acts of default including selling vehicles out of trust and failing to make loan payments. Finally, it argues that defendants have not alleged facts regarding any damages defendants suffered as a result of any alleged breach.
The implied covenant of good faith and fair dealing generally operates upon a condition or term of a contract that is subject to the control of one of the parties. See, e.g. Midwest Mgmt. Corp. v. Stephens, 291 N.W.2d 896, 913 (Iowa 1980) (stating that a contract affording one party's "sole discretion" to terminate the contract required party "to exercise that discretion in a reasonable manner on the basis of fair dealing and good faith."). Here, both parties were permitted to terminate the agreement "at any time and for any or no reason." Doc. No. 1-1 at 16. While the agreement contained an implied covenant of good faith and fair dealing, defendants have failed to allege sufficient facts to suggest a breach of that implied covenant that is attached to a contract term. See Bagelmann, 823 N.W.2d at 34 (concluding there was no breach of implied covenant of good faith and fair dealing by mortgagee's failure to notify or update mortgagors concerning flood zone status because any allegation of bad faith lacked a contract term to which it could be attached). They have not alleged that GM Financial's early termination unfairly prevented defendants from receiving the benefits of the contract. As noted above, the implied covenant of good faith and fair dealing cannot create new substantive terms. Moreover, any "benefit" of the contract that defendants were deprived of was the result of defendants' own defaults, not GM Financial's actions.
For these reasons, I find that defendants' counterclaim of breach of the implied covenant of good faith and fair dealing fails to state a claim upon which relief may be granted. GM Financial's motion to dismiss will be granted as to that counterclaim.
With regard to GM Financial's waiver argument, I note that this is essentially an affirmative defense to defendants' counterclaims raised in GM Financial's motion to dismiss. See First Union Nat. Bank v. Pictet Overseas Trust Corp., Ltd., 477 F.3d 616, 622 n.5 (8th Cir. 2007) (citing, with approval, cases in which the court has accepted and favorably cited affirmative defenses raised for the first time on a motion to dismiss or motion for summary judgment). The Forbearance Agreement was attached to the complaint as Exhibit 5. See Doc. No. 1-5. It was signed on April 6, 2017, and provides in relevant part:
Doc. No. 1-5 at 5-6. Defendants offer no resistance to GM Financial's argument with regard to the above provision of the Forbearance Agreement.
A waiver is a contract governed by principles of contract law. Huber v. Hovey, 501 N.W.2d 53, 55 (Iowa 1993). "The cardinal rule of contract interpretation is to determine what the intent of the parties was at the time they entered into the contract." Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 434 (Iowa 2008). See also Berryhill v. Hatt, 428 N.W.2d 647, 654 (Iowa 1988) ("It is the cardinal principle of contract construction that the parties' intent controls; and except in cases of ambiguity, this is determined by what the contract itself says."). "Interpretation involves ascertaining the meaning of contractual words; construction refers to deciding their legal effect." Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 25 (Iowa 1978). "Interpretation is reviewed as a legal issue unless it depend[s] at the trial level on extrinsic evidence. Construction is always reviewed as a law issue." Id. "When a contract is not ambiguous, it will be enforced as written, but when there are ambiguities in a contract, they are strictly construed against the drafter." Iowa Fuel & Minerals, Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859, 862-63 (Iowa 1991) (internal citation omitted).
I find the waiver provision in the Forbearance Agreement cited above is clear and unambiguous. As such, I find that it should be enforced as written. See Iowa Fuel & Minerals, Inc., 471 N.W.2d at 862-63 ("When a contract is not ambiguous, it will be enforced as written."). Defendants have waived any and all claims against GM Financial, including the counterclaims. GM Financial is entitled to dismissal of the counterclaims on this additional, alternative basis.
GM Financial seeks to strike defendants' affirmative defense at paragraph 113, which states that "Plaintiff has waived its right to recovery by its course of dealing with Defendants." Doc. No. 9 at 8. Under Federal Rule of Civil Procedure 12(f), a court may "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). Rule 8(c) provides that "a party must affirmatively state any . . . affirmative defense." Fed. R. Civ. P. 8(c). This rule is "intended to give the opposing party both notice of the affirmative defense and an opportunity to rebut it." First Union Nat'l Bank v. Pictet Overseas Tr. Corp., 477 F.3d 616, 622 (8th Cir. 2007).
GM Financial argues that the waiver provision in the Forbearance Agreement applies equally to the affirmative defense in paragraph 113. That provision explicitly states that "Borrower and each Guarantor further waive any rights they have or may have to claim waiver, estoppel, laches or bad faith against GM Financial in connection with any act of GM Financial related to the Loan Agreement or otherwise." Doc. No. 1-5 at 5-6. As stated above, I find the waiver provision to be clear and unambiguous meaning it should be enforced as written. Because defendants' affirmative defense in paragraph 113 is a claim of waiver and defendants specifically agreed to waive any such claim, I find that the affirmative defense in paragraph 113 should be stricken.
As noted above, the only factual dispute between the parties concerns the amount of the judgment to which GM Financial is entitled. Defendants challenge the amount requested by GM Financial, arguing that GM Financial is partially responsible for some of the financial losses. In support, they offer an affidavit by Adams (Doc. No. 34-1) in which he states that GM Financial did not sell the vehicles in a reasonable commercial manner to maximize the return once it repossessed them. Doc. No. 34-1 at 4. Defendants request an evidentiary hearing on the issue of the amount of the judgment.
GM Financial argues that defendants have essentially raised an untimely affirmative defense — that the repossessed collateral could have been sold for more money. Doc. No. 35 at 1. It contends that because defendants never pled failure to mitigate damages, or any related affirmative defense, they have waived the opportunity to assert it now. GM Financial adds that Adams' affidavit is unsupported by independent evidence and does not generate a genuine issue for trial. Id. at 2-3. Finally, it argues that under the Iowa Uniform Commercial Code, GM Financial (as a secured party) is not required to prove that it sold repossessed collateral in a commercially reasonable manner, "unless the debtor or a secondary obligor places the secured party's compliance in issue." Iowa Code § 554.9626(1)(a).
Defendants raised the following affirmative defenses in their answer:
Doc. No. 9 at 7-8. Failure to mitigate damages is an affirmative defense. See Sayre v. Musicland Group, Inc., 850 F.2d 350, 354 (8th Cir. 1988) ("Since the overwhelming majority of federal courts have decided, for whatever reasons, that failure to mitigate damages is an affirmative defense under the catchall clause of Rule 8(c), we would thwart the purpose of the federal rules if we were to hold otherwise."). Rule 8(c) requires that a party "must affirmatively state any avoidance or affirmative defense . . . ." Fed. R. Civ. P. 8(c)(1). "As with other affirmative defenses, failure to plead mitigation of damages as an affirmative defense results in a waiver of that defense and its exclusion from the case." Sayre, 850 F.2d at 354.
Defendants did not plead failure to mitigate damages as an affirmative defense. They also did not allege in their Answer (as Adams did in his affidavit) that GM Financial failed to sell the vehicles in a reasonable commercial manner to maximize return upon repossession. Therefore, this defense has been waived. Defendants make no other argument in resistance to GM Financial's motion for summary judgment. Nonetheless, I must determine whether GM Financial is entitled to judgment as a matter of law on its breach of contract claim.
To prevail on a breach of contract claim, a plaintiff must prove:
Royal Indem. Co. v. Factor Mut. Ins. Co., 786 N.W.2d 839, 846 (Iowa 2010) (quoting Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 224 (Iowa 1998)). As noted above, there is no dispute as to these elements and GM Financial has offered sufficient evidence in support of them.
With regard to the amount of damages, "when a contract has been breached the nonbreaching party is generally entitled to be placed in as good a position as he or she would have occupied had the contract been performed." Midland Mut. Life Ins. Co. v. Mercy Clinics, Inc., 579 N.W.2d 823, 831 (Iowa 1998). Damages for breach of contract are limited to "those injuries which may reasonably be considered as arising naturally from the breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of the parties, at the time of contracting, as a probable result of the breach." R.E.T. Corp. v. Frank Paxton Co., Inc., 329 N.W.2d 416, 420 (Iowa 1983) (citing Meyer v. Nottger, 241 N.W.2d 911, 920 (Iowa 1976)). The plaintiff "must prove that the damages resulted from [the defendant's] breach and were in the contemplation of the parties. Royal Indem. Co., 786 N.W.2d at 846. Damages "must be ascertainable with reasonable certainty without resort to speculation and conjecture." Palmer v. Albert, 310 N.W.2d 169, 174 (Iowa 1981).
GM Financial argues it is entitled to damages in the amount of $1,103,107.37 consisting of the following:
Doc. No. 27-1 at 6. GM Financial does not cite any documents in support of these amounts. While GM Financial has submitted a spreadsheet showing defendants' loan history through February 11, 2019, it does not account for all of the amounts identified above. See Doc. No. 27-3 at 68-78. The only document GM Financial has submitted in support of the amount of judgment is an affidavit from Howard Revitz, Assistant Vice President of Commercial Lending Services of GM Financial, stating that "[a]s of January 31, 2019, Defendants are indebted to GM Financial in the amount of $1,103,107.37, plus interest and legal fees." Doc. No. 27-3 at 7.
While GM Financial may be able to support the breakdown of its requested damages as indicated above, that support is not in the record. I decline to award GM Financial's requested amount of damages based solely on a representation in an affidavit. See Farmers Coop. Society, Sioux Center, Iowa v. Leading Edge Pork LLC, No. 16-CV-4034-LRR, 2017 WL 3097163, at *11, n.3 (N.D. Iowa July 20, 2017) (concluding plaintiff had not proven it was entitled to full damages sought because there was no "particularized accounting or documentation detailing the amount of other damages" and that "[a]bsent a detailed accounting of the activity in [defendant's] feed account, the court cannot accurately determine at this stage the amount of finance charges to which [plaintiff] is entitled."). Instead, I will direct GM Financial to provide additional supporting documentation concerning its claimed damages and will give defendants the opportunity to respond.
For the reasons stated herein:
1. GM Financial's motion (Doc. No. 14) to dismiss defendants' counterclaims and strike an affirmative defense is
2. GM Financial's motion (Doc. No. 27) for summary judgment is
3. Within twenty-one (21) days of the date of this order, GM Financial must file either (a) a joint stipulation of the parties concerning the amount of GM Financial's damages or (b) supplemental supporting documentation to establish the amount of its requested judgment, including interest and attorney fees.
4. If GM Financial files supplemental supporting documentation, rather than a joint stipulation of the parties, then defendants may file a response to the documentation within fourteen (14) days after the documentation is filed. In their response, defendant may not raise any already-rejected defenses (such as failure to mitigate damages). However, they may point out any alleged discrepancies in the amount sought or the supporting documentation and challenge the reasonableness of GM Financial's requested attorney fees.
5. Upon reviewing the parties' submissions, I will determine whether further proceedings are necessary concerning the amount of the judgment.
