A federal district court in Hawai’i recently found that the defendant, BYD Motors, Inc. (“BYD”), a California-based electric vehicle manufacturer, acted in bad faith in terminating its contract with the plaintiff, Soderholm Sales and Leasing, Inc (“Soderholm”), a licensed motor vehicle dealer conducting businesses in Hawai’i and the Pacific Islands. Soderholm Sales and Leasing, Inc. v. BYD Motors, Inc., 2022 WL 16847543 (9th Cir. Nov. 10, 2022). The dispute arose over a motor vehicle licensing and distributorship agreement the parties entered into in December 2016.
The agreement granted Soderholm a non-exclusive right to purchase BYD’s electric buses and to operate as a BYD-authorized sales and service organization at preapproved locations. Soderholm was responsible for promoting, advertising, and selling BYD vehicles. If Soderholm failed to fulfill its end of the bargain, BYD was contractually authorized to terminate by noticing Soderholm at least 30 days before the date of termination.
Soon after, Soderholm purchased several fleets of BYD automobiles and displayed and promoted them to its customers. Soderholm also showcased the vehicles at various auto shows in Hawai’i. At this time, the parties understood that it would take anywhere from three to five years for Soderholm to establish a customer base for BYD vehicles, due to customers’ relative unfamiliarity with electric cars and the lack of infrastructure needed to maintain the vehicles.
In September 2018, BYD suddenly provided Soderholm with a written notice of its intent to terminate, citing dissatisfaction with Soderholm’s performance, particularly Soderholm’s “commercially unreasonable” margins on BYD buses and bullish business tactics. BYD then rescinded the September 2018 letter in response to Soderholm’s complaint that the 30-day notice provision was invalid under Hawai’i law. Upon rescission of the September 2018 letter, Soderholm contacted BYD regarding further purchases and resales of BYD buses, but BYD refused to deal. When BYD had failed to respond to Soderholm’s multiple attempts to communicate with BYD, Soderholm filed suit in February 2019. BYD later issued a new termination letter in November 2020.
In its action, Soderholm asserted four counts against BYD: (1) BYD’s September 2018 letter, which put Soderholm on notice for 30 days, constituted a violation of Hawai’i’s requirement of 60 days’ notice; (2) BYD’s attempt to terminate constituted bad faith; (3) BYD’s sales efforts with local and state governments violated Hawai’i law; and (4) BYD intentionally misrepresented to industry members that it had terminated its agreement with Soderholm. BYD counterclaimed, asserting breach of contract and tortious interference by Soderholm with prospective contracts.
The court found for Soderholm on its bad faith claim and on both of BYD’s counterclaims. Specifically, the court held that the September 2018 letter and BYD’s refusal to communicate with Soderholm upon rescission of that letter constituted bad faith, because BYD deprived Soderholm of its contractual rights before their dispute over the termination of the agreement was resolved. The court determined that, under Hawai’i law, the contract had remained in effect until Soderholm commenced litigation and during that time, Soderholm retained all its rights under the franchise agreement. Thus, BYD stripped Soderholm of its right to buy new BYD products by refusing to deal.
Based on its finding that BYD had deprived Soderholm of its contractual right to buy BYD products, the court dismissed BYD’s breach of contract counterclaim. BYD could not prevail on a contractual breach claim against Soderholm since BYD could have but chose not to fulfill its obligations under the agreement. The court furthered that even if BYD established that Soderholm breached during a period when BYD was fully performing, BYD had not presented any evidence that it would have made sales but for Soderholm’s actions. The court also ruled against BYD on its tortious interference claim, because BYD failed to present evidence that its loss of bids with government entities was a result of statements that Soderholm had made to those entities about the effect of state or federal laws.
However, the court ruled for BYD on the rest of Soderholm’s claims. First, the court found that Soderholm’s claim about BYD’s alleged statutory violation was moot as BYD had already rescinded the September 2018 letter. Second, the court held that BYD’s sales efforts did not violate Hawai’i law because Soderholm did not present any evidence that BYD had finalized a sale with the County of Hawai’i or any other government entity within the state. Neither had Soderholm proved that it suffered damages from BYD’s attempts to make sales. Third, the court concluded that Soderholm failed to establish the elements of intentional misrepresentation with clear and convincing evidence.
Based on these findings, the court awarded Soderholm $1.5 million, which represented the value of Soderholm’s capital investment and of its business during the time BYD had acted in bad faith, $300,000 in prejudgment interest, and reasonable attorneys’ fees and costs.
