705 F.2d 712 (4th Cir. 1983), 82-1199, Atlantic Purchasers, Inc. v. Aircraft Sales, Inc.

Docket Nº:82-1199(L), 82-1200, 82-1322.
Citation:705 F.2d 712
Party Name:ATLANTIC PURCHASERS, INC., Stella Maris Inn, Ltd., Appellants, v. AIRCRAFT SALES, INC., Donald J. Anklin, Appellees.
Case Date:April 14, 1983
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 712

705 F.2d 712 (4th Cir. 1983)

ATLANTIC PURCHASERS, INC., Stella Maris Inn, Ltd., Appellants,


AIRCRAFT SALES, INC., Donald J. Anklin, Appellees.

Nos. 82-1199(L), 82-1200, 82-1322.

United States Court of Appeals, Fourth Circuit

April 14, 1983

        Argued Dec. 9, 1982.

Page 713

[Copyrighted Material Omitted]

Page 714

        Paul Copenbarger (Copenbarger & Copenbarger on brief), for appellants.

        David R. Badger, Charlotte, N.C. (Ronald L. Chapman, David R. Badger, P.A., Charlotte, N.C., on brief), for appellees.

        Before ERVIN and CHAPMAN, Circuit Judges, and BRYAN, Senior Circuit Judge.

        ERVIN, Circuit Judge:

        Stella Maris Inn, Ltd., and its wholly owned subsidiary, Atlantic Purchasers, Inc., brought this diversity action for fraud and breach of express warranty against Aircraft Sales, Inc., and its sole stockholder, Donald J. Anklin. 1 The jury awarded Stella Maris compensatory and punitive damages, and after the verdict was returned Stella Maris unsuccessfully requested the trebling of the compensatory award pursuant to the North Carolina Unfair Trade Practices Act of 1969, N.C.G.S. Secs. 75-1.1, 75-16. Both Stella Maris and Aircraft Sales appeal. Finding no error in the district court's judgment, we affirm.


        In 1975, Stella Maris bought a Beechcraft airplane from Aircraft Sales. It allegedly spent $25,000.00 modifying the plane before Aircraft Sales acknowledged that it could not convey good title. Aircraft Sales then suggested that it take back the plane and give Stella Maris credit for it toward the purchase of a Cessna. Anklin personally travelled to Florida to meet with Stella Maris' agent, where the parties prepared a draft agreement after Anklin made specific representations about the Cessna's mechanical condition and age. These representations were confirmed by the plane's log books on actual inspection of the plane in North Carolina, where, on August 21, 1976, Stella Maris and Aircraft Sales signed a lease purchase agreement. The agreement included a specific disclaimer of all warranties not described on its face. Stella Maris contends that this disclaimer was not part of the draft agreement, which, its agent was assured by Aircraft Sales, was identical to the proffered document. Within three weeks of delivery the Cessna suffered engine failure. Aircraft Sales performed repair work on the engines and submitted a bill that Stella Maris claims was grossly inflated. When Stella Maris refused to pay the bill, Aircraft Sales kept the plane. The present litigation ensued.

        At trial, Stella Maris presented evidence indicating that the Cessna's engines had been operated for many more hours than Anklin and Aircraft Sales represented, that necessary airworthiness inspections prior to sale had not been performed as claimed, and that the log books had been tampered with so as to substantiate these representations.

        The jury returned a special verdict finding that Anklin and Aircraft Sales made specific representations about the condition of the Cessna which as express warranties were part of the bargain between the parties, that Stella Maris relied on these warranties, that the defendants failed to make good on the warranties, and that Stella Maris suffered $31,000.00 in actual damages. In addition, the jury found that the defendants' representations were made with knowing and willful knowledge of their falsity and with the intent to induce reliance thereon, and that Stella Maris was entitled to recover $15,000.00 in punitive damages as a consequence. In response to the court's instructions to tender a judgment on the verdict, Stella Maris submitted a claim including a trebling of the actual damages and an award of attorneys' fees

Page 715

pursuant to the North Carolina Unfair Trade Practices Act ("the Act"). 2 After briefing and a hearing, the court denied Stella Maris' motion to amend its complaint and refused to treble the damages. The court also denied Aircraft Sales' motions to set aside the verdict and for a new trial. The court requested the parties to determine if they would agree to a new trial with supplemental pleading and preparation. Upon their failure to do so, judgment was entered for the amount awarded by the jury.

        On appeal, Stella Maris contends that the jury verdict shows that it made out a clear case under the Act and that, in accordance with Fed.R.Civ.P. 54(c), it was entitled to treble actual damages and to attorneys' fees. It also argues that the district court should have permitted amendment of the pleadings pursuant to Fed.R.Civ.P. 15(a). It denies that the award of punitive damages is inconsistent with treble damages under the Act, and suggests that if it is inconsistent, the punitive damages should be eliminated and the actual damages trebled.

        Aircraft Sales' position as appellee is that it was not put on notice of the possibility of treble damages prior to Stella Maris' post-verdict moves, that there was no evidence on essential elements of proof under the Act, and that Stella Maris has elected a punitive damages remedy to the exclusion of treble damages. As cross-appellant, Aircraft Sales contends that the court erred in submitting the breach of express warranty issue to the jury, and that, assuming fraud was properly submissible, the court erred in failing to charge the jury that Stella Maris' reliance on representations had to be reasonable. Donald Anklin also disputes the propriety of holding him personally liable.


        At the time the events which gave rise to this litigation occurred, the North Carolina Unfair Trade Practices Act stated:

Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

        N.C.G.S. Sec. 75-1.1(a) (1969). 3 The Act may be enforced by civil actions brought by the state attorney general, N.C.G.S. Secs. 75-15.1, 75-15.2, and also confers a private right of action on an injured party, N.C.G.S. 75-16. In a private enforcement action, a prevailing plaintiff is entitled to have the damages assessed by the jury trebled. Id. The award of treble damages is a right of the successful plaintiff and is not subject to judicial discretion. Marshall v. Miller, 302 N.C. 539, 276 S.E.2d 397, 402 (N.C.1981).

        The procedure to be followed in a private action is bifurcated. "Ordinarily it would be for the jury to determine the facts, and based on the jury's finding, the court would then determine as a matter of law whether the defendant engaged in unfair or deceptive acts or practices in the conduct of trade or commerce." Hardy v. Toler, 288 N.C. 303, 218 S.E.2d 342, 346-47 (N.C.1975). The elements of "unfairness" and "deceptiveness" are defined broadly: "[a] practice is unfair when it offends established public policy as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.... [A] practice is deceptive if it has the capacity or tendency to deceive; proof of actual deception is not required." Marshall, 276 S.E.2d at 403. Good faith is no defense to an alleged violation of the Act. Id. "Proof of fraud would necessarily constitute a violation of the [Act]." Hardy, 218 S.E.2d at 346. On the other hand, mere intentional breach of a valid contract is not, without more, a violation. United Roasters,

Page 716

649 F.2d at 992. The "trade or commerce" requirement of the Act in its 1976 form is met by demonstrating that the parties were engaged in an activity involving "an exchange of some type ... in which a participant could be characterized as a seller." Johnson v. Phoenix Mutual Life Ins. Co., 300 N.C. 247, 266 S.E.2d 610, 620 (N.C.1980).

        It appears that the jury's special verdict would support a finding of Aircraft Sales' liability under the Act. The jury specifically found that the defendants made representations about the Cessna's condition with knowledge of their falsity, and that Stella Maris relied on those representations. This finding encompasses the elements of the action of deceit or fraud, see Newton v. Standard Fire Ins. Co., 291 N.C. 105, 229 S.E.2d 297, 302 (N.C.1976), and, as a matter of law, the commission of fraud in these circumstances constituted a violation of the Act. Had Stella Maris brought this case under the Act, we may assume it would have been entitled to treble damages. 4


        In a diversity action, we are governed by the substantive law of the relevant state, but we apply federal procedural rules. Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). While it is clear that under North Carolina procedure a plaintiff would not be permitted to recover statutory treble damages when it had argued and won a common law compensatory damages award, see Abernathy, 285 S.E.2d at 327-328, Stella Maris correctly asserts that its claim for treble damages must be resolved under the more liberal Federal Rules of Civil Procedure. Rule 54(c) provides that, except in cases of judgment by default, "every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleadings." As we stated in Robinson v. Lorillard Corporation, 444 F.2d 791, 803 (4th Cir.1971), cert. dismissed, 404 U.S. 1006, 92 S.Ct. 573, 30 L.Ed.2d 665 (1971), "[t]his provision has been liberally construed, leaving no question that it is the court's duty to grant whatever relief is appropriate in the case on the facts proved." See also New Amsterdam Casualty Co. v. Waller, 323 F.2d 20, 25 (4th Cir.1963) ("a party's misconception of the legal theory of his case does not work a forfeiture of his legal rights"), cert. denied, 376 U.S. 963, 84 S.Ct. 1124, 11 L.Ed.2d 981 (1964). Rule 54(c) is not, however,...

To continue reading