Soderholm Sales & Leasing, Inc. v. BYD Motors Inc.

SODERHOLM SALES AND LEASING, INC., Plaintiff, v. BYD MOTORS INC., JOHN DOES 1-10, JANE DOES 1-10,DOE CORPORATIONS 1-10, DOE ENTITIES 1-10, Defendants.

CIV. NO. 19-00160 LEK-KJM

UNITED STATES DISTRICT COURT DISTRICT OF HAWAII

June 30, 2021

FINDINGS OF FACT AND CONCLUSIONS OF LAW

This matter came before the Court for a nonjury trial on January 19, 2021. Jeffery Miller, Esq., appeared on behalf of Plaintiff/Counterclaim Defendant Soderholm Sales and Leasing, Inc. ("Soderholm"), and Christian Adams, Esq., appeared on behalf of Defendant/Counterclaimant BYD Motors Inc. ("BYD"). Soderholm and BYD filed written closing arguments on February 19, 2021, [dkt. nos. 145, 146,] and they filed written rebuttal arguments on March 12, 2021, [dkt. nos. 147, 148]. The Court, having considered the pleadings filed herein and the testimony given at trial, including the witnesses' declarations and deposition testimony, having judged the credibility of the witnesses, having examined the exhibits admitted into evidence, and considered the arguments and representations of counsel, makes the following Findings of Fact and Conclusions of Law ("FOFCOL"), and FINDS in favor of Soderholm as to its claim that BYD acted bad faith in connection with BYD's 2018 attempt to terminate their agreement. The amount of the award of damages to Soderholm for this claim will be determined after supplemental briefing. The Court FINDS in favor of BYD as to all of Soderholm's remaining claims. Further, the Court FINDS in favor of Soderholm as to all of BYD's counterclaims. Any finding of fact that should more properly be deemed a conclusion of law and any conclusion of law that should more properly be deemed a finding of fact shall be so construed.

I. FINDINGS OF FACT

This action arises from the parties' disputes regarding their prior motor vehicle licensing and distributorship agreement.

A. The Parties and the Agreement

1. Soderholm sells and leases various types of motor vehicles in the State of Hawai`i and in the Pacific Islands. Soderholm purchases these vehicles from the manufacturers that it represents. [Decl. of R. Erik Soderholm ("E. Soderholm Direct"), filed 1/11/21 (dkt. no. 123), at ¶ 5.]

a. Soderholm is a Hawai`i corporation with its principal place of business in the City and County of Honolulu. [First Amended Complaint ("Amended Complaint"), filed 6/7/19

(dkt. no. 20), at ¶ 1; Answer to Complaint ("Answer"), filed 11/19/19 (dkt. no. 39), at ¶ 1 (admitting Amended Complaint ¶ 1).]

b. Erik Soderholm and his brother started the business in 1989. [E. Soderholm Direct at ¶ 4.]

c. Erik Soderholm is currently the entity's vice president, and his wife, Denise Soderholm, is its president. [Id.]

d. Soderholm is a licensed motor vehicle dealer, under Hawaii's Motor Vehicle Industry Licensing Act ("MVILA"), Haw. Rev. Stat. Chapter 437, in the City and County of Honolulu, the County of Hawai`i, the County of Maui, and the County of Kaua`i. [E. Soderholm Direct at ¶ 6.]

2. BYD manufacturers rechargable electric batteries and electric vehicles. [Direct Testimony/Aff. of Justin Scalzi ("Scalzi Direct"), filed 1/11/21 (dkt. no. 126), at ¶ 3.]

a. BYD is a limited liability company, organized under Delaware law, with its principal place of business in California. [Answer, Counterclaim at ¶ 1; Answer to Def. BYD Motor Inc.'s Counterclaim Filed November 19, 2019 ("Counterclaim Answer"), filed 12/9/19 (dkt. no. 43), at ¶ 2 (admitting the allegations in Counterclaim ¶ 1).]

b. At the time of trial, Justin Scalzi ("Scalzi") was the Senior Director of Business Development on the WestCoast. [Scalzi Direct at ¶ 1.] From 2014 to 2018, he was the Regional Sales Manager, responsible for California, Arizona, Nevada, and New Mexico. In 2018, he became the Director of Business Development on the West Coast, and Hawai`i was also assigned to him. [Id. at ¶ 5.]

c. BYD's company headquarters are in Shenzhen, China, where its affiliate company has one of its bus factories. One of BYD's bus factories is in Lancaster, California. [Id. at ¶ 3.]

d. BYD obtained a Hawai`i motor vehicle manufacturer license in 2017, [E. Soderholm Direct at ¶ 8,] and a Hawai`i motor vehicle dealer license in 2020, [Tr. Exh. 71 (Notice of Licensure); Scalzi Direct at ¶ 57].

3. Soderholm and BYD - through BYD Heavy Industries, a division of BYD - entered into a Sales and Service Agreement, effective December 1, 2016 ("Agreement"). [Tr. Exh. 1 (Agreement).]

a. Denise Soderholm signed the Agreement on behalf of Soderholm, and Macy Neshati signed it on behalf of BYD Heavy Industries. [Id. at 16.]

b. The Agreement was effective for one year, and was to continue thereafter, unless the Agreement was terminated according to Article VII of the Agreement. [Id. at 3, art. III.]

c. The Agreement granted Soderholm "a non-exclusive right to (a) buy new BYD Products, and (b) identify itself as an authorized [sales and service organization ('SSO')] of BYD Products at the locations approved by BYD . . . ." [Id. at 2, art. I.] The Agreement defined "BYD Products" as "BYD Vehicles and Parts and Accessories," which were "[t]he BYD vehicle line(s) of products set forth on the Data Sheet attached [to the Agreement]" and "[n]ew or remanufactured BYD Vehicle parts and accessories marketed by BYD." [Id. at 1-2, ¶¶ 11, 13, 14.]

d. Under the Agreement, Soderholm was responsible, in Hawai`i and the Pacific Islands for: "(a) actively and effectively selling new BYD Vehicles; (b) actively and effectively promoting through SSO's own advertising and sales promotion activities, the purchase and use of new BYD Vehicles; and (c) meeting or exceeding the Sales Performance Criteria." [Id. at 7, art. V.A.8.1; id. at BYD001297, ¶ C (Data Sheet definition of "Area of Primary Responsibility").]

e. The Agreement stated:

BYD may terminate this Agreement at any time at its election, for one of the reasons set forth in Section VII(A)(4), VII(A)(S) [sic] or VII(A)(6), or for breach or another term of this Agreement, by notice in writing given to the SSO specifying the date of termination which date will not be less than thirty (30) days after the date of said notice, or under such other circumstances as provided by law.

[Tr. Exh. 1 (Agreement) at 11, art. VII.A.2.] f. Article VII, section A.4 permits termination if the SSO fails to maintain a valid license, and section A.5 permits termination if the SSO becomes incapacitated. [Id. at 11.] Section A.6 permits termination "Due to Certain Acts or Events[,]" including "[f]ailure to meet sales objectives in SSO's Area of Primary Responsibility or otherwise maximize sales of BYD vehicles and products." [Id.]

4. Erik Soderholm negotiated the Agreement with Mr. Neshati. [Soderholm's Designation of Depo. Testimony of Macy Neshati, filed 12/29/20 (dkt. no. 97), Exh. 1 (excerpts of trans. of Macy Neshati's 8/12/20 Zoom depo.) ("Neshati Depo. (Soderholm excerpts)") at 14:8-15:14;¹ E. Soderholm Direct at ¶¶ 9-12.]

a. Mr. Neshati started working for BYD in January 2016, but he had known Erik Soderholm for many years prior to that from various bus industry events. [Neshati Depo. (Soderholm excerpts) at 9:15-10:5, 10:13-24, 13:20-21; E. Soderholm Direct at ¶ 9.]

b. Mr. Neshati asked Erik Soderholm for a sample dealer agreement, and Erik Soderholm provided him with the agreement between Soderholm and ElDorado. The Agreement is anedited version of the ElDorado agreement. See E. Soderholm Direct at ¶ 10; see also Tr. Exh. 1 at BYD001298 ("Dealer and ElDorado agree . . .").

c. According to Erik Soderholm, when the parties entered into the Agreement,

BYD and Soderholm understood it would take 3-5 years to establish BYD electric bus sales in Hawaii by bringing in demonstration buses for private and public entities, making presentations, writing bid specifications, and responding to RFPs from governmental entities. Soderholm knew sales of BYD motor vehicles would take longer than diesel and gas products it sold because potential customers were not familiar with the relatively new technology of electric buses and many customers lacked the necessary infrastructure to keep the electric motor vehicles sufficiently charged during their intended routes and uses. Adding charging infrastructure was an indirect cost to purchasing electric motor vehicles and created an added hurdle for sales of BYD products.

[E. Soderholm Direct at ¶ 16.]

5. According to BYD, Soderholm held itself out to be the exclusive dealer of BYD products in Hawai`i, and this was contrary to the terms of the Agreement, which expressly stated it was non-exclusive. See, e.g., Scalzi Direct at ¶ 35.

B. Parties' Performance Under the Agreement

6. Soderholm purchased BYD vehicles, demonstrated and displayed them at various events, and attempted to promote and sell them to Soderholm's customers.

a. In 2017, Erik Soderholm began to introduce Scalzi to his client contacts, in both the public and private sector. [E. Soderholm Direct at ¶ 18.]

1) According to Scalzi, during these initial meetings, Erik Soderholm told Soderholm's customers, both public entities and private customers, that he would sue them if they did not buy BYD buses from Soderholm. Erik Soderholm said he had sued others before and had never lost. [Scalzi Direct at ¶ 12.]

2) As an example, Scalzi cites a March 2017 presentation that he saw Erik Soderholm make for the County of Maui. [Id. at ¶ 14.] According to Scalzi, Don Medeiros told him "they loved [BYD's] product, but did not like or want to do business with [Soderholm], and did so only when they had to because there was no other choice." [Id.]

3) Erik Soderholm denies Scalzi's allegations, pointing out that such a practice would be inconsistent with Soderholm's long-standing customer relationships and that Scalzi's allegations are belied by Soderholm's continued sales to the customers Scalzi claims Erik Soderholm alienated. [E. Soderholm Direct at ¶¶ 19-20.]

4) It is not necessary for this Court to resolve this dispute about whether Erik Soderholm thr...