The judge started his opinion by pointing out that his “analysis will be swifter than Richard Petty’s race-clinching pit stop at the 1981 Daytona 500” Here is an unlikely case of Car Guy v. Car Guy, brought, it just so happens, before a car guy judge. It’s the story of a race car owner and race car driver who had been a winning combination for many seasons. Somewhere along the way, it all went south. (All quotations are from the court’s opinion.) Judge Chandler of the Delaware Court of Chancery begins his opinion: “Success on the track does not guarantee success […]
The judge started his opinion by pointing out that his “analysis will be swifter than Richard Petty’s race-clinching pit stop at the 1981 Daytona 500”
The judge started his opinion by pointing out that his “analysis will be swifter than Richard Petty’s race-clinching pit stop at the 1981 Daytona 500”
Here is an unlikely case of Car Guy v. Car Guy, brought, it just so happens, before a car guy judge. It’s the story of a race car owner and race car driver who had been a winning combination for many seasons. Somewhere along the way, it all went south. (All quotations are from the court’s opinion.)
Judge Chandler of the Delaware Court of Chancery begins his opinion: “Success on the track does not guarantee success off the track. With regret that a winning team fell apart, I must now sort through the wreckage of a failed relationship between race car owner and race car driver.”
The car owner and driver had raced successfully in the two “45 cars,” with the 45 car being driven “into Victory Lane (or an equal celebratory parking spot) on more than one occasion.” Their deal was that the owner paid all expenses, and the driver got 40% of any race winnings. The owner owed the driver $1,966 in race winnings and $4,562 in unpaid parts and repair invoices, but problems didn’t materialize until the free engine came along.
The driver’s friend gave him a 460 SB 2 Clements racing engine, which went into the 45 car. At the end of the season, the driver sold the engine for $15,000. He used that money, plus another $5,000 contributed by the owner, to buy a new 430 SB 2 racing engine. Later, the owner asked to remove the engine from the 45 car to use it in a mud truck. The driver didn’t care about that, but the owner later changed his mind and put the engine in another car, “the 12 car,” which was driven by a rookie.
The driver was unhappy that the engine “had not reached its original destination-the underside of a mud truck’s hood.” The engine was then moved to the car of a direct competitor, the 48 car, “a caution flag moment” that furthered the decline of the relationship. The engine “met its doom under the hood of the 48 car” when it threw a rod.
Eventually, the conflict made the driver quit. The owner went to the driver’s shop to pick up his car hauler, and was upset that various parts had been taken off it and it was no longer usable. The owner sued for the damages to the hauler. The driver sued for his race winnings, unpaid invoices, and the $15,000 he had put into the purchase of the second engine.
Legal maneuvering
Soon after the suit was filed, the driver added a claim that he and the owner were partners. Claiming that a partnership existed was an interesting legal maneuver. Generally, a partnership is defined as any situation where two or more people enter into a common enterprise for profit. They don’t need a written partnership agreement, and they don’t even need to agree that they are partners. The strategic advantages are that, if a partnership exists, each of the partners has fiduciary duties to the other, and can be sued if he breaches those duties.
Also, either partner can usually dissolve the partnership at any time, which means a halt to business, liquidation of assets, payment of all bills, and distribution of remaining assets to the partners in accordance with their ownership interests. An additional consequence in Delaware is that the nature of the partnership claim forced the case to be moved from the Superior Court to the Court of Chancery. After the case was moved to the Court of Chancery, the driver dismissed the partnership claim without explanation (yes, all this did run up everyone’s legal bills).
The quick decision
The judge started his opinion by pointing out that his “analysis will be swifter than Richard Petty’s race-clinching pit stop at the 1981 Daytona 500.” He stated flatly that he was disregarding all testimony given by the owner and driver, and was relying upon the testimony of the three witnesses who knew both men well, none of whom had “a dog in the fight or, more aptly, a car in the race.”
There was little debate about the race winnings, and the driver won that claim. The judge agreed that the driver had taken various pieces of equipment off the owner’s car hauler, although not to the extent the owner had claimed. The judge rejected the driver’s claim that many of those items had been donated to him by sponsors. The judge determined that these items had been donated to the team, not to the driver, citing as higher authority “the wise words of the great Richard Petty: ‘[W]inning isn’t necessarily a driver thing or a car thing. It’s a team thing’”
The judge had little trouble with the engine issue: “My finding on that point was as easy to gauge as the 1992 Indianapolis 500 finish was difficult to determine.” The engine was clearly given to the driver by his friend. “No one was required to include [the friend’s] name when saying grace at dinner,” a direct reference to such a requirement the movie “Talladega Nights.” Similarly, no one was required “to win a critical race in order to receive [the friend’s] support,” another movie reference, this time to “Cars.”
The judge found that the owner had converted (the legal term for taking something that doesn’t belong to you) the engine when he put it into the 48 car and it was damaged beyond repair, and awarded the driver the $15,000 he had paid toward its purchase.
He pointed out that if the owner had owned the engine, he would have been free to give it to anyone, including a competitor. As authority for that proposition, the judge cited the movie “Days of Thunder” as “providing hope that a car owner would be so generous as to give another driver one of the owner’s spare engines, so that the driver could exorcise his racing demons, win the final race, and begin one of Hollywood’s more closely watched romances.”
The owner argued that the engine was worth less than that because it was just a backup engine. That didn’t go far with the judge, who thought that backup cars and equipment could be critical to racing success. “Just ask Jimmy Johnson, who recently won one of the Daytona 500 qualifiers in a backup car.”
Lessons to be learned
In the end, each party won some and lost some. After offsetting all the claims, the net result was that the owner owed the driver $1,260.67. The judge also ruled that each would have to pay his own legal fees. So, morally, the driver can probably say that he won. But financially, the inescapable conclusion is that they both lost. The case is a fun read (you can read the entire opinion at www.sportscarmarket.com/racecase), but what can we take away from it?
The easy lesson is that it’s risky to make handshake deals with friends. Of course, you can’t have your lawyer write a contract for every little deal you make. But that doesn’t mean you shouldn’t take care of business. Confirm everything you can in writing, even if just with a short note or email. And avoid offsetting obligations-the I-owe-you-this- but-you-owe-me-that-so-we’re-even sort of thing. Pretty soon, no one can remember all the pieces, and when frustration builds, the relationship suffers.
In litigation, it’s very tempting to make legal maneuvers that force the other party to spend a lot of time and money overcoming obstacles, hoping he will lose his appetite for the battle. This seems to be what the driver did with his partnership claim. In an overwhelming number of cases, this strategy backfires. It costs you just as much effort and money to get nowhere, and it usually just strengthens the other party’s resolve.
It’s better strategy to keep the case focused on the real issues, and get to the decision point as economically as possible.
Also, pick your battles. In this case, it seems that the parties fought about everything, whether it mattered or was worth it or not. They were foregone conclusions that the owner owed the driver for the race winnings, and the driver owed for the equipment taken from the car hauler. By making issues out of these impossible items, all they accomplished was to get the judge angry at both of them, disregarding their testimony altogether. It is far more effective to limit your claims and positions to those that are legitimate and supportable.
Did you get the impression that this case should have been settled early on, with everyone just walking away? The judge sure thought so. It’s hard to make a moral point in litigation. Like it or not, cases almost always end up being totally pragmatic, and totally about money. Be realistic about the situation and the likely outcomes, and don’t be reluctant to settle as early as possible. You’ll be wealthier in the end.