901 F.2d 349 (3rd Cir. 1990), 89-1522, In re Merritt Logan

Docket Nº:Appeal of ENGINEERING AND REFRIGERATION, INC., at No. 89-1522
Citation:901 F.2d 349
Party Name:In re MERRITT LOGAN, INC., Debtor-In-Possession. MERRITT LOGAN, INC. d/b/a Rancocas Thriftway v. FLEMING COMPANIES, INC.; Fleming Foods of Pennsylvania, Inc.; Hussman Refrigeration, Inc. and Engineering & Refrigeration, Inc.,
Case Date:April 23, 1990
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 349

901 F.2d 349 (3rd Cir. 1990)

In re MERRITT LOGAN, INC., Debtor-In-Possession.

MERRITT LOGAN, INC. d/b/a Rancocas Thriftway

v.

FLEMING COMPANIES, INC.; Fleming Foods of Pennsylvania,

Inc.; Hussman Refrigeration, Inc. and Engineering

& Refrigeration, Inc.,

Appeal of ENGINEERING AND REFRIGERATION, INC., at No. 89-1522

In re MERRITT LOGAN, INC. Debtor-In-Possession.

MERRITT LOGAN, INC. d/b/a Rancocas Thriftway,

v.

FLEMING COMPANIES, INC.; Fleming Foods of Pennsylvania,

Inc.; Hussman Refrigeration, Inc.; and

Engineering & Refrigeration, Inc.

Appeal of HUSSMAN REFRIGERATION, INC., at No. 89-1523

In re MERRITT LOGAN, INC. Debtor-In-Possession.

MERRITT LOGAN, INC. d/b/a Rancocas Thriftway,

v.

FLEMING COMPANIES, INC.; Fleming Foods of Pennsylvania,

Inc.; Hussman Refrigeration, Inc.; and

Engineering & Refrigeration, Inc.

Appeal of MERRITT LOGAN, INC., at No. 89-1524

In re MERRITT LOGAN, INC. Debtor-In-Possession.

MERRITT LOGAN, INC. d/b/a Rancocas Thriftway,

v.

FLEMING COMPANIES, INC.; Fleming Foods of Pennsylvania,

Inc.; Hussman Refrigeration, Inc.; and

Engineering & Refrigeration, Inc.

Appeal of FLEMING COMPANIES, INC. and Fleming Foods of

Pennsylvania, Inc. at No. 89-1525

Nos. 89-1522, 89-1523, 89-1524 & 89-1525.

United States Court of Appeals, Third Circuit

April 23, 1990

Argued Dec. 11, 1989.

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Page 351

Dennis L. Platt, (Argued), Terence P. Fenningham, Sweeney, Sheehan & Spencer, P.C., Philadelphia, Pa., for Engineering and Refrigeration, Inc.

Edward C. German, (Argued), Jeffrey N. German, German, Gallagher & Murtagh, Philadelphia, Pa., for Fleming Companies, Inc. and Fleming Foods of Pennsylvania, Inc.

Angelo L. Scaricamazza, Jr. (Argued), Naulty, Scaricamazza & McDevitt, Philadelphia, Pa., for Hussmann Refrigeration, Inc.

Kell M. Damsgaard, (Argued), J. Gordon Cooney, Jr. (Argued), Morgan, Lewis & Bockius, Philadelphia, Pa., for Merritt Logan, Inc.

Before HUTCHINSON, COWEN and ROSENN, Circuit Judges.

OPINION

HUTCHINSON, Circuit Judge.

I.

In these consolidated appeals, the defendants, the seller, installer and manufacturer of a commercial refrigeration system, appeal separate money judgments that the United States District Court for the Eastern District of Pennsylvania entered in favor of the plaintiff, Merritt Logan, Inc. (Merritt Logan). Merritt Logan cross-appeals challenging several issues that the district court decided in favor of the defendants.

This action arose out of the failure of the refrigeration system that Merritt Logan, then the operator of a neighborhood grocery store in Philadelphia, purchased for use in its new venture, a supermarket in Willingboro, New Jersey. The damages awarded Merritt Logan included the cost of

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replacement and/or installation of the failed refrigeration system as well as the lost profits and spoiled product the jury found were a consequence of the system's failure. The damages awarded totalled $1,550,000. Of this total $1,000,000 was attributed to lost profits arising from the direct seller's breach of warranty. The district judge entered judgment, jointly and severally, against defendants, Fleming Companies, Inc. and Fleming Foods of Pennsylvania, Inc. (collectively referred to as "Fleming"), for this $1,000,000 award.

The jury awarded Merritt Logan damages totaling $550,000 on a negligence theory against two of the defendants: Engineering & Refrigeration, Inc. (E & R), the installer of the refrigeration system, and Hussmann Refrigeration, Inc. (Hussmann), the manufacturer of the system. Of this $550,000 total, the jury awarded Merritt Logan $400,000 for replacement and/or installation of the refrigeration system, $100,000 for spoiled product and $50,000 for lost profits. With regard to this $550,000 award, the jury found Hussmann was seventy percent negligent and E & R was thirty percent negligent. The district court entered judgments against these two defendants consistent with the jury's findings.

Fleming, E & R and Hussmann make various arguments concerning the damages awarded for lost profits. They say, under the applicable New Jersey law, lost profits are speculative and cannot be recovered because the supermarket was a new business. They also say that the evidence does not show with reasonable certainty that Merritt Logan would have had any profits. Hussmann and E & R also contend that the district court erred in instructing the jury on the lost profits issue and in various rulings on the admission of evidence concerning those losses.

E & R and Hussmann additionally contend that the damages awarded against them, jointly and severally, for replacement and/or installation of the failed system, lost product and lost profit, are economic losses not recoverable in negligence, since this case arose in a commercial context. According to the defendants, under New Jersey law, these damages can only be recovered in a claim for breach of warranty under the Uniform Commercial Code (U.C.C.).

Fleming also contends the district court erred in denying its motion for judgment notwithstanding the verdict on Merritt Logan's breach of warranty claim because the evidence was insufficient to show that Fleming was the seller of the refrigeration system to Merritt Logan under the U.C.C.

Fleming, E & R and Hussmann all argue that the district court erred in denying the motions they made for a mistrial when they learned, during trial, that Merritt Logan's cash register tapes and a letter concerning Merritt Logan's financing arrangements had not been produced when requested during discovery.

Finally, Hussmann argues that the $400,000 awarded for replacement and/or installation of the failed refrigeration system was excessive because it cost Merritt Logan substantially less for the actual purchase and installation of the system and that the evidence as to lost product was insufficient to support an award of $100,000.

In its cross-appeal, Merritt Logan challenges the district court's refusal to award pre-judgment interest on Merritt Logan's claims for breach of warranty. Merritt Logan says its claim for breach of the implied covenant of good faith and fair dealing should have been submitted to the jury. It also appeals the district court's entry of judgment notwithstanding the verdict, which set aside $200,000 in damages that the jury awarded Merritt Logan as a result of Fleming's premature demand for repayment of an inventory loan.

Both Merritt Logan and Fleming contend we should amend the judgment to impose the $1,000,000 award for lost profits against all defendants jointly and severally.

We will affirm the judgment of the district court in part and vacate and remand in part for the following reasons with respect to each issue:

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We do not believe the Supreme Court of New Jersey would follow or strictly apply to Merritt Logan's supermarket the so-called "new business rule" that provides that an award to a new business for lost profits is prohibited as an award of speculative damages. This supermarket had operated for about one and one-half years, and Mr. Merritt Logan (Mr. Logan), the principal shareholder of Merritt Logan, had extensive experience in the retail food business, albeit not as the manager of a supermarket. Moreover, we do not believe the New Jersey Supreme Court would apply the new business rule as a per se rule. We believe the New Jersey Supreme Court would allow damages for lost profits if these damages are proved with reasonable certainty. We also hold that the evidence in this case was sufficient to show with reasonable certainty that the supermarket would have earned the lost profits the jury awarded but for the problems with the refrigeration system.

We reject E & R's related attack on the portion of the jury charge that connected Merritt Logan's operation of its neighborhood grocery store to the supermarket for the purpose of applying the new business rule. Reading the charge as a whole we do not think the reference was misleading in light of the circumstances of the case, our prediction as to New Jersey's relaxation of the new business rule and the evidence of Mr. Logan's long and varied experience in the grocery business.

E & R and Hussmann's arguments on the admission of evidence fail to convince us that they are entitled to a new trial. We see no abuse of discretion by the district judge in admitting the challenged testimony.

Although we hold that the district court erred in submitting Merritt Logan's negligence claim against Hussmann to the jury, we conclude that the award against Hussmann is proper under a breach of warranty theory. 1 Accordingly, we uphold the jury's total damage award on this alternate theory.

Fleming's argument that Hussmann was the only seller under the U.C.C., and thus Fleming is not liable for breach of warranty under the code, overlooks the fact that all sellers who participate in distributing a product to a consumer are liable for breach of warranty. We therefore reject Fleming's argument that it was not a seller as defined in the U.C.C.

With regard to the late production issues, Fleming, E & R and Hussmann fail to tell us what was in the cash register tapes that Merritt Logan brought to trial after having failed to produce them during discovery. Accordingly, we are unable to conclude that the district court erred in denying a mistrial on that basis. The defendants have likewise failed to explain how they would have been helped if they had the letter from the government lending agency about Merritt Logan's working capital requirements any earlier. Moreover, no one moved for a continuance when the tapes and the letter...

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