Commercial – Franchisee failed to timely present evidence of alleged damage

Where a franchisee failed to show he exercised reasonable due diligence during the three years of litigation to discover and present evidence of unpaid rent, the district court erred by awarding it damages raised for the first time on a 59(e) motion.

Background

Gregory Aime was a successful franchise operator of several tax preparation businesses under the umbrella of Liberty Tax. That relationship deteriorated, resulting in litigation that culminated in a bench trial before the district court. Aime largely prevailed and was awarded a significant sum of damages. Both parties appealed.

This court vacated a substantial portion of the damages award but upheld the judgment in Aime’s favor. Upon remand, the district court recalculated damages based on this court’s instructions. On Aime’s motion, the district court subsequently amended its judgment, increasing the damages award based on purportedly new evidence.

Aime’s appeal

Aime contends that the district court mistakenly believed its hands were tied as to potential remedies in the post-remand damages proceedings. The court erred, he reasons, when it concluded that disgorgement damages were unavailable. He urges us to find instead that disgorgement was the proper remedy for Liberty Tax’s breach of the good faith duty, lest Liberty Tax be rewarded for its dishonest dealings. But, as unfortunate as the outcome may be for Aime, his theory fails on two separate bases.

First, after years of litigation, a bench trial, an appeal to this court and a damages proceeding upon remand Aime raised disgorgement for the first time in a motion to reconsider a final judgment. The district court properly concluded that Aime could have raised his disgorgement theory during the litigation, before this court on appeal or during the damages proceeding upon remand, but failed to do so. Therefore, on this basis alone, the district court properly denied the motion.

Second, Aime’s argument for disgorgement damages is precluded by the mandate rule. The rule has two dimensions: “First, ‘any issue conclusively decided by this court on the first appeal is not remanded,’ and second, ‘any issue that could have been but was not raised on appeal is waived and thus not remanded.’” Here, both aspects of the mandate rule preclude Aime’s argument for disgorgement. The district court did not err in concluding that the Rule 59(e) standard and the mandate rule precluded Aime’s disgorgement theory.

Liberty Tax’s appeal

Liberty Tax argues that the district court abused its discretion by granting Aime’s motion to increase the damages award based on newly discovered evidence. It contends that Aime could have discovered the underlying evidence at issue during the litigation, meaning Rule 59(e)’s standard was not satisfied.

Here, upon remand, the parties stipulated to the damages that flowed from Liberty Tax’s breach of contract, including costs of unpaid rent. Then, in his post-judgment motion, Aime raised a July 2018 state court judgment against him for unpaid rent on one of the franchise leases—the “Burnside property”—to justify an increase of the damages award. Aime submitted a declaration regarding his initial discovery of the judgment in 2019, stating that he “could not have included the … judgment in my damage claim at trial in this case because it did not exist at the time.” Relying solely on Aime’s declaration, the district court granted the motion to amend the judgment. That decision amounts to error.

In the declaration and now on appeal, Aime does not show he exercised reasonable due diligence during the three years of litigation to discover and present evidence of unpaid rent on the Burnside property. Therefore, the district court erred by granting Aime’s Rule 59(e) motion to increase the judgment.

Finally, Liberty Tax challenges the district court’s award of $5,000 in nominal damages on Aime’s breach of the implied covenant of good faith claim. Here, Aime’s purportedly separate claims for breach of contract and breach of the implied covenant were effectively one and the same. Therefore, nominal damages were unavailable because Aime was awarded compensatory damages to remedy Liberty Tax’s breach of contract, regardless of the finding that Liberty Tax also breached the contract by breaching the implied covenant. The district court erred by awarding an additional $5,000 as nominal damages.

Affirmed in part, reversed and vacated in part and remanded with instructions.

JTH Tax Inc. v. Aime (Lawyers Weekly No. 001-002-20, 19 pp.) (Roger Gregory, C.J.) Appeal Nos. 19-1746 and 19-1792. Jan 4, 2021. From E.D. Va. (Henry Coke Morgan Jr., S.J.) Amy Mason Saharia for Appellants/Cross-Appellees. David Caldwell Hartnett for Appellees/Cross Appellants.