Background
Foundation Automotive Corp. purchased BAPTKO, Inc.’s Chevrolet and Subaru dealerships in North Dakota. The amended asset purchase agreement required BAPTKO to manage dealership inventory in accordance with a 12-month rolling average and required Foundation to make annual earnout payments if specified performance measures were met. Foundation later assigned dealership-specific rights and obligations to FA ND CHEV, LLC and FA ND SUB, LLC.
After the parties’ relationship deteriorated, litigation followed over alleged contractual and business misconduct. BAPTKO claimed the Foundation parties failed to pay $3 million in earned payments, while the Foundation parties alleged that BAPTKO had breached its inventory-management obligations and other provisions. The district court granted BAPTKO partial summary judgment on liability for the earnout payments, allowed the Foundation parties to seek an offset at trial for BAPTKO’s alleged breaches, and entered judgment after the jury found that BAPTKO had not breached the agreement. It also awarded BAPTKO $1,085,186.44 in attorney’s fees.
The Court’s Holding
The Eighth Circuit affirmed. Applying North Dakota law, it held that no reasonable jury could find that BAPTKO’s alleged breaches amounted to a total failure of consideration excusing the Foundation parties’ performance. BAPTKO delivered functioning dealerships, both dealerships met the specified earnings targets, and the transaction’s central object—the transfer of the dealerships—was achieved. Any proven breach therefore could support damages, but not complete relief from the earnout obligations.
The court held that the Foundation parties waived their challenge to joint and several liability by failing to raise it properly before their renewed motion for judgment as a matter of law. It also found no reversible prejudice in the district judge’s trial comments, most of which occurred outside the jury’s presence, and upheld the limitation on expert testimony concerning Subaru inventory because the Foundation parties had not supplied record evidence that a BAPTKO management decision caused the asserted reduction. The jury instructions accurately reflected the summary-judgment ruling, and the jury’s finding that BAPTKO had not breached made one proposed instruction immaterial.
Finally, the court upheld the fee award. The agreement permitted BAPTKO to recover reasonable expenses it necessarily incurred defending Robert Kupper personally as part of enforcing the agreement, even though Kupper was not a defined party to the contract. The district court also acted within its discretion by calculating a lodestar and reducing it by 10% to account for counsel’s confusing and inadequate billing records.
Key Takeaways
- An alleged prior breach excuses all further performance under North Dakota law only when it defeats the very object of the agreement; an insubstantial breach ordinarily supports damages instead.
- A party cannot first raise an argument defeating liability in a renewed motion for judgment as a matter of law and preserve it for appeal.
- A contractual prevailing-party clause may cover fees incurred defending a nonparty when those expenses were reasonably and necessarily incurred to enforce the agreement.
Why It Matters
The decision distinguishes between contractual breaches that justify a damages offset and the much narrower category that excuses performance altogether. Where the buyer received operating businesses that achieved the agreement’s financial targets, alleged deficiencies in pre-closing inventory management did not eliminate the buyer’s earnout obligations.
The ruling also underscores the importance of preserving allocation-of-liability arguments before judgment and furnishing a concrete factual foundation for expert opinions. For fee disputes, it confirms that courts may use an across-the-board percentage reduction when deficient billing records prevent precise line-by-line review.