369 F.3d 896 (5th Cir. 2004), 03-40652, Propulsion Technologies, Inc. v. Attwood Corp.

Docket Nº:03-40652.
Citation:369 F.3d 896
Party Name:PROPULSION TECHNOLOGIES, INC., d/b/a PowerTech Marine Propellers, Plaintiff-Appellee-Cross-Appellant, v. ATTWOOD CORPORATION; et al., Defendants, Attwood Corporation, Defendant-Appellant-Cross-Appellee.
Case Date:May 26, 2004
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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369 F.3d 896 (5th Cir. 2004)

PROPULSION TECHNOLOGIES, INC., d/b/a PowerTech Marine Propellers, Plaintiff-Appellee-Cross-Appellant,

v.

ATTWOOD CORPORATION; et al., Defendants,

Attwood Corporation, Defendant-Appellant-Cross-Appellee.

No. 03-40652.

United States Court of Appeals, Fifth Circuit

May 26, 2004

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[Copyrighted Material Omitted]

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Marie Roach Yeates (argued), Catherine B. Smith, Penelope E. Nicholson, Gwendolyn Johnson Samora, Daniel Saul Goldberg, Vinson & Elkins, Kim Bernard Battaglini, Manuel Lopez, Kristi Belt, Shook, Hardy & Bacon, Houston, TX, for Propulsion Technologies, Inc.

David William DeBruin (argued), William Mark Hohengarten, Jenner & Block, Washington, DC, for Attwood Corp.

Donald W. Fowler, Rebecca Anne Womeldorf, Shawn Derek Bryant, Spriggs & Hollingsworth, Washington, DC, for Chamber of Commerce of U.S., Amicus Curiae.

Appeals from the United States District Court for the Southern District of Texas.

Before JOLLY, DUHÉ and STEWART, Circuit Judges.

DUHÉ, Circuit Judge:

Plaintiff Propulsion Technologies d/b/a PowerTech! Marine Propellers ("PowerTech") markets small steel boat propellers manufactured by a unique "segmented blade" tooling technique. Defendant Attwood Corporation formerly operated a foundry and produced rough castings of propellers for PowerTech. A jury found that Attwood breached a contract with PowerTech, fraudulently induced PowerTech to enter into the contract, and misappropriated trade secrets. It awarded PowerTech actual and punitive damages. After post trial motions, the district court denied a request by PowerTech for attorney's fees and entered judgment in an amount reflecting the damages awarded for fraudulent inducement, misappropriation of trade secrets, and punitive damages, but not contract damages.1 Attwood appeals, contesting each claim on which damages were awarded, and PowerTech cross appeals, contesting the ruling on attorney's fees and asking for reinstatement of contract damages.

Because the agreement is unenforceable under the statute of frauds as a transaction in goods with no ascertainable quantity term, we reverse and render.

I. FRAUDULENT INDUCEMENT CLAIM.

At the close of PowerTech's evidence, Attwood moved for judgment as a matter of law urging that the Texas Uniform Commercial Code governed the parties' agreement and that its statute of frauds

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bars recovery.2 The statute of frauds bars recovery under a sales contract that lacks a written quantity term or a written specification that the buyer will purchase exclusively from the seller.3 Attwood points out that the agreement at issue, a letter of January 28, 1997, specifies no quantity of propellers nor contains any exclusivity provision.

But the district court denied the motion, refusing to hold as a matter of law that the U.C.C. governed the agreement. To the contrary, the court determined that the U.C.C. did not apply because the contract was not a sale of "goods."4 The district court held that the agreement was a "hybrid contract" for both services and goods, and that the predominant purpose of the contract was the provision of "services" rather than the sale of "goods."5 If correct, the common law rather than the U.C.C. would apply, and the statute of frauds--found in section 2.201 of the U.C.C.--would be inapplicable.

A. Waiver.

PowerTech first contends that Attwood has waived the statute-of-frauds defense as it relates to fraudulent inducement. At its first motion for judgment as a matter of law, Attwood urged the statute-of-frauds defense but only on the breach-of-contract claim. Attwood did not argue that the statute of frauds could bar the fraud claim as well as the contract claim until it renewed its motion for judgment as a matter of law.

We need not determine whether Attwood preserved the precise argument that the statute of frauds would bar the fraudulent inducement claim because Attwood preserved the issue otherwise with the motion it made. One of the expressed bases for its motion for judgment as a matter of law on the fraud claim was insufficient evidence that PowerTech relied on any misrepresentations to its detriment.6 This makes any issues preserved on the invalidity of the contract dispositive of the fraud claim because, "[w]ithout a binding agreement, there is no detrimental reliance, and thus no fraudulent inducement claim."7

Steve Powers, PowerTech's principal, testified that he entered the contract in reliance on Attwood's representations.8 A fraudulent inducement claim "presupposes that a party has been induced to enter a contract."9 If PowerTech did not incur a contractual obligation under the statute of frauds, then it would not have been "induced" to do anything.10 There must remain a legally sufficient basis to support a finding of detrimental reliance to uphold the jury verdict on the fraud claim. This issue was preserved in Attwood's motion. Whether the contract claim fails under the statute of frauds was also indisputably preserved in Attwood's motion. If PowerTech's contract claim fails under the statute of frauds, then Attwood's motion for judgment should have been granted with

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respect to the fraud claim as well because no reasonable jury could find detrimental reliance. We find no waiver of any of these issues.

B. Standard of Review.

Attwood contests the ruling on its Rule 50 motion for judgment as a matter of law. Whether a contract is predominantly for goods or services can involve issues of fact as well as law, but the district court found no facts in dispute on the issue.11 Reviewing the denial of the motion for judgment as a matter of law, we employ the same standard as the trial court.12 A Rule 50 motion for judgment as a matter of law "is a challenge to the legal sufficiency of the evidence supporting the jury's verdict."13

C. Legal Sufficiency of the Evidence.

We agree with the district court that the evidence on whether the contract was a transaction in goods is undisputed and does not create an issue of fact for a jury. The interpretation of the contract is a question of law; further, as the district court stated, pertinent undisputed facts are "the basics of the process involved in producing propellers, the fact that Plaintiff provided the tooling needed to produce castings and ... [the fact] that the castings provided by Attwood were finished and made into propellers by the Plaintiff."14

The Texas U.C.C. applies to transactions "in goods."15 Our initial inquiry is whether the undisputed facts conclusively establish that the contract was a transaction in goods. The U.C.C. definition of "goods" is "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale."16 This definition is broad.17 One of the declared purposes of the Code is "to simplify, clarify and modernize the law governing commercial transactions. It is a general body of law intended as a unified coverage of its subject matter."18 As the Seventh Circuit has stated,

[T]he scope of coverage of "goods" is not ... narrow ... but instead should be viewed as being broad ... so as to carry out the underlying purpose of the Code of achieving uniformity in commercial transactions. The Code, which by its own terms, § 1-102, is to be liberally construed, should be uniformly applied to achieve its purposes.19

Under the Code manufacture-and-sale contracts are not even considered "hybrid" contracts; rather, by the very definition in the statute, a transaction in "goods" encompasses

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a seller's manufacture and sale of products.20

PowerTech has emphasized the facts that Attwood used the buyer's trade secrets and employed the buyer's tooling to make the castings. These elements do not prevent Attwood from being deemed a manufacturer of "goods." The fact that a manufactured item is custom designed for the buyer's needs and is not readily marketable to others is not dispositive--manufactured goods are still "goods."21

The district court was impressed with the service aspect of the contract. True, Attwood was required to provide foundry services and insure quality control. But labor is "an input into the manufacture of every good."22 Manufacture always involves some services, such as engineering, design, fabrication and inspection.23 " ' "Services ... always play an important role in the use of goods, whether it is the service of transforming the raw materials into some usable product or the service of distributing the usable product to a point where it can easily be obtained by the consumer." ' "24

We conclude that Attwood's furnishing the propeller castings was indeed a sale of "goods." As stated about a water tower in the Seventh Circuit case noted above, "In the words of the UCC this was a 'movable' 'thing' 'specially manufactured.' That which [the seller] agreed to sell and [the purchaser] agreed to buy was not services but goods as defined in the U.C.C."25 The same can be said much more easily of these castings.

D. Hybrid Analysis: Dominant Factor of Transaction.

As mentioned, we find the hybrid analysis employed by the district court inapposite to such a contract. Were we to employ the hybrid analysis, however, we would reach the same result. "In such hybrid transactions [such as building contracts involving the sale of both services and materials], the question becomes whether the dominant factor or essence of the transaction is the sale of materials or of services."26 We hold alternatively that, under the hybrid analysis, the evidence conclusively establishes that the dominant factor of this contract was a sale of goods.

Unlike many hybrid contracts deemed to be predominantly for services, this contract does...

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