International Adhesive Coating Co., Inc. v. Bolton Emerson Intern., Inc.

• Decision Date: 04 May 1988
• Docket Number: No. 87-2104,87-2104
• Citation: 851 F.2d 540
• Parties: 26 Fed. R. Evid. Serv. 436 INTERNATIONAL ADHESIVE COATING COMPANY, INC., et al., Plaintiffs, Appellees, v. BOLTON EMERSON INTERNATIONAL, INC., et al., Defendants, Appellees. Emerson Electric Co., d/b/a Chromalox, and Leo C. Pelkus, Inc., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 540

851 F.2d 540

26 Fed. R. Evid. Serv. 436

INTERNATIONAL ADHESIVE COATING COMPANY, INC., et al Plaintiffs, Appellees, v. BOLTON EMERSON INTERNATIONAL, INC., et al., Defendants, Appellees Emerson Electric Co., d/b/a Chromalox, and Leo C. Pelkus Inc., Defendants, Appellants.

No. 87-2104.

United States Court of Appeals First Circuit.

Heard May 4, 1988.

Decided July 18, 1988.

Raymond R. Ouellette with whom Ouellette, Hallisey, Dibble & Tanguay, P.A., Dover, N.H., was on brief, for defendants, appellants.

Duncan J. MacCallum, Quincy, Mass., for plaintiffs, appellees Intern. Adhesive Coating Co., Inc., et al.

Before BOWNES, BREYER and TORRUELLA, Circuit Judges.

BOWNES, Circuit Judge.

Emerson Electric Company d/b/a Chromalox (Emerson) appeals from a judgment following jury verdict holding it liable for $285,000 in damages suffered by plaintiff International Adhesive Coating Company (International). The jury found that Emerson breached its warranties on an Emerson industrial boiler purchased by International, causing numerous disruptions in International's manufacturing business. Although disputing liability below, Emerson now defers to the jury finding of liability, but it attacks the damages award on the ground that International's damages expert's testimony should have been excluded. Emerson claims that the expert's testimony was speculative, lacked a factual basis and was, therefore, unduly prejudicial. We affirm.

I. FACTUAL BACKGROUND

Our review of the evidence and the inferences to be drawn therefrom must be made in the light most favorable to the verdict-winner, plaintiff-appellee International. Service Merchandise Co. v. Boyd Corp., 722 F.2d 945, 947 (1st Cir.1983).

International is a manufacturer of industrial adhesive products located in Windham, New Hampshire. International buys unfinished film and paper in bulk, applies an adhesive surface to it, then rolls and cuts the resultant tape-like product and sells it. The centerpiece for this manufacturing process is a single large industrial coating and laminating machine, which melts adhesive and then coats it evenly on the paper or film. Heat for melting the adhesive comes from a steam-generating boiler, and, unless the boiler is functioning properly, the entire manufacturing process comes to a halt. It was a defect in International's boiler which gave rise to the current dispute.

The particular laminating machine used by International is known as a "Park Coater." It was designed and assembled by Bolton Emerson, Incorporated. International obtained its Park Coater through a lease/purchase agreement with Bolton Emerson Leasing Corporation. ¹ The machine was delivered and installed at International's Windham facility in January of 1981. Initially, the Park Coater functioned properly, but within three to four months International encountered a series of problems with the boiler. By mid-1984, International had experienced a dozen or so breakdowns, each caused by a failure in the electrical heating elements of the boiler and each resulting in a shut-down of its manufacturing process. The shut-downs ranged in length from several hours to an entire work week.

International notified Bolton of its problems with the boiler and Bolton referred it to Emerson, which had actually manufactured the electrical heating elements at issue. Emerson, in turn, put International in touch with Leo C. Pelkus, Incorporated (Pelkus), Emerson's sales representative. International worked with Pelkus to remedy its boiler problems and tried a number of recommended steps, including water treatment, but none proved effective. International could keep operating only by maintaining a supply of spare electrical heating elements with which to replace the functioning elements when they malfunctioned, which they did at regular intervals.

By 1983, the problem had become so acute that International decided to take matters into its own hands. Two steps were initiated. First, International went to an outside electrical equipment sales company to obtain different elements for its boiler. Second, International purchased and had installed a used oil-fired boiler which could be used to provide the necessary steam when the electric boiler was inoperable. The first step alone provided the necessary solution to International's problems. The outside sales company designed a replacement element which was then built by the Ogden Manufacturing Company. The Ogden element was longer than the original Emerson element and it had a lower power density. Once the Ogden element was installed, the boiler began to function normally and without incident. The replacement oil-fired boiler was also installed and was used, among other things, during the period while the Ogden elements were being manufactured and before they were installed. ²

II. PROCEEDINGS BELOW

In June of 1984, International filed a diversity action in United States District Court claiming damages as a result of the defective Emerson boiler. It named as defendants Emerson, Bolton and Pelkus. ³ Bolton filed a third-party complaint against Automatic Steam Products Corporation (Automatic), the company which manufactured the boiler shell into which the Emerson elements were inserted. International in turn filed a direct claim against Automatic. International's basic claims sounded in theories of strict liability, negligence and warranty (express warranty, implied warranty of merchantability and implied warranty of fitness for a particular purpose). International additionally claimed, as a third-party beneficiary, breach of a contract between Pelkus and the other defendants.

The case came on for trial in August of 1987. In pretrial proceedings, the district court dismissed the strict liability, negligence and contract claims against all defendants as well as two of the three warranty claims against Automatic. The remaining warranty claims were put to the jury. International claimed $285,000 from the breach of warranties, which fell into four categories: ⁴ $43,000 for the cost of the original boiler (including costs of repairs); $77,600 for the cost of overhead during the periods when the plant was not operating; ⁵ $145,000 for lost business as a result of the boiler breakdowns; and $19,000 for the cost of the replacement oil-fired boiler. The damage amounts had been calculated by Stephen Vesey, an accounting expert, who reviewed International's financial records and prepared a report outlining the documentable costs assignable to each of International's claimed losses.

On the basis of a pretrial deposition, Emerson moved in limine to exclude Vesey's testimony at trial on the ground that it was speculative and lacked a factual basis. The district court denied the motion, declaring that Emerson's attacks on Vesey's knowledge could go to the weight of his testimony, not its admissibility. Vesey was allowed to testify to his damage estimates. Afterwards, Emerson made a second motion to exclude Vesey's testimony on the same grounds of insufficient knowledge and speculation. This motion was also denied.

The jury returned its verdict on a special verdict form. It found: (1) that the defendants had breached their warranties on the Park Coater; (2) that International had been damaged $285,000 as a result of the breach; (3) that International had not misused the product; and (4) that 100% of the damages had been caused by the defective heating elements. Under an indemnity agreement between the defendants, the last finding meant that Emerson was liable for the entire $285,000 verdict. Hence, only Emerson has appealed.

III. ADMISSION OF VESEY'S TESTIMONY

Emerson's sole claim on appeal is that the district court erred in admitting the testimony of Stephen Vesey, International's damages expert. According to Emerson, Vesey's testimony was "sheer speculation" and lacked a factual basis as required by Federal Rule of Evidence 703. Moreover, because of its insufficient factual basis, the prejudicial impact of Vesey's testimony substantially outweighed its probative force making it excludable under Federal Rule of Evidence 403. Because analysis of International's claims under the two rules turns on the same issue of factual basis, we consider compliance with the two rules together.

We begin by noting that our standard of review here is a limited one. The admission of expert testimony is a matter reserved to the trial court's discretion. Lynch v. Merrell-National Laboratories, 830 F.2d 1190, 1196-97 (1st Cir.1987); 3 J. Weinstein & M. Berger, Weinstein's Evidence p 703, at 703-4 (1987). In the absence of an abuse of that discretion or a "clear error" of law, the trial judge's decision will not be reversed. DaSilva v. American Brands, Inc., 845 F.2d 356, 361 (1st Cir.1988).

Rule 703 provides:

The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence.

Closely related to Rule 703 is Rule 705, which provides:

The expert may testify in terms of an opinion or inference and give reasons therefor without prior disclosure of the underlying facts or data, unless the court requires otherwise. The expert may in any event be required to disclose the underlying facts or data on cross-examination.

Although when enacted these rules constituted a break with prior practice, their meaning is now well-established. First, an expert is entitled to rely on facts and/or data which have not been admitted into evidence if the expert's reliance on those facts or data is reasonable. Almonte v. National Union Fire Ins. Co., 787 F.2d 763, 770 (1st Cir.1986); American Universal Ins. Co. v. Falzone, 644 F.2d 65, 66-67 (1st Cir.1981). As noted in Rule 703, such reasonableness is measured...