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U.S. District Judge Robert Cleland ruled Thursday that a 2002 agreement between Kahne and Ford was not enforceable under Michigan law, because significant parts of it were left open for future negotiations.
"No reasonable jury could conclude, based on the record of evidence presented, that the parties had reached agreement on all material or essential terms," Cleland wrote.
Ford had claimed that Kahne signed a contract obligating him to drive Fords and appear in promotional activities. The lawsuit alleged Kahne left Ford in 2003 -- when he was racing in the NASCAR Busch series -- to join a Dodge team owned by Ray Evernham.
But Kahne's attorney, David Baum, argued during a July 20 court hearing that the contract was merely an "agreement to agree" on a "mutually acceptable racing series with a reasonably competitive team." Baum said it was not an enforceable contract for Kahne to exclusively race for Ford.
Kahne said he was happy to be putting the matter behind him.
"I'm thrilled that this decision sets the record straight that my move to Evernham Motorsports and the NASCAR Nextel Cup series was in good faith and didn't breach my Ford contract," he said in a statement.
Ford Racing Technology officials said they intentionally designed Kahne's agreement to be flexible to allow the young driver to try different types of racing.
"We felt strongly that our agreement with Kasey should have been enforced requiring him to continue to drive for Ford Racing," Dan Davis, director of Ford Racing Technology, said in a statement.
But it's unlikely Ford will appeal the decision, Davis said.
Baum said Kahne did his part to try to reach an agreement with Ford, but the automaker didn't do enough to place the 25-year-old on a suitable team and refused to move him up to NASCAR's Nextel Cup Series in 2004.
Ford lawyer Maurice Jenkins argued that Kahne did receive an offer from Ford to race with another team in the Busch series but Kahne already had decided at that point that he hadn't gotten what he wanted.
Baum said Kahne wanted to stay with Ford but had to move on to advance his career.
Kahne was named NASCAR Rookie of the Year last season after finishing 13th in the points standings. This season, he's 13th in Nextel Cup earnings with more than $2.86 million, but isn't among the top 20 drivers in the standings.
Also Thursday, Cleland denied a Ford motion asking to add an unjust enrichment claim against Kahne along with the breach-of-contract claim.
Ford had argued that Kahne has "cashed in" on the value of the development deal he had with Ford, and the company should be compensated for it.
Cleland said in his ruling that Ford failed to show why it
should be allowed to amend its complaint after the deadline to do
so had passed and that its original complaint failed to state a
sufficient claim for unjust enrichment.