Miller's Bottled Gas, Inc. v. Borg-Warner Corp.

• Decision Date: 03 March 1992
• Docket Number: BORG-WARNER,No. 90-5886,90-5886
• Parties: Prod.Liab.Rep. (CCH) P 13,032 MILLER'S BOTTLED GAS, INC., Plaintiff-Appellant, v.CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1043

955 F.2d 1043

Prod.Liab.Rep. (CCH) P 13,032

MILLER'S BOTTLED GAS, INC., Plaintiff-Appellant, v. BORG-WARNER CORPORATION, Defendant-Appellee.

No. 90-5886.

United States Court of Appeals, Sixth Circuit.

Argued April 4, 1991.

Decided Feb. 3, 1992.

Rehearing Denied March 3, 1992.

John R. Bush, argued, briefed, Bush, Ross, Gardner, Warren & Rudy, Tampa, Fla., Karl N. Crandall, Bowling Green, Ky., Frank Miller, Jr., Louisville, Ky., for plaintiff-appellant.

Philip I. Huddleston, Huddleston Bros., Bowling Green, Ky., Hugh N. Smith, briefed, David S. Nelson, argued, Smith & Fuller, Tampa, Fla., for defendant-appellee.

Before RYAN and SUHRHEINRICH, Circuit Judges; and ZATKOFF, District Judge. ^*

RYAN, Circuit Judge.

Plaintiff, Miller's Bottled Gas, Inc. (Miller's), purchased allegedly defective carburetors from defendant Borg-Warner Corporation. Miller's appeals both the district court's summary judgment for Borg-Warner rejecting Miller's negligence-based product-liability claim, and the court's directed verdict for Borg-Warner dismissing Miller's fraud and negligent misrepresentation claims.

With respect to the product-liability claim based upon alleged negligence, the issue before us is whether under Kentucky law Miller's may recover for purely economic injury. We conclude that it may not do so. With respect to the fraud claim, the issue is whether Miller's produced more than a scintilla of clear and convincing evidence that Borg-Warner made false statements concerning the carburetors in order to induce Miller to rely upon the statements. We conclude that Miller produced the requisite evidence. With respect to the negligent misrepresentation claim, the issue is whether Miller provided more than a scintilla of evidence that Borg-Warner made false statements concerning the carburetors. We conclude that Miller produced the requisite evidence on this point as well.

Because the issues before us concern the sufficiency of the evidence, it is necessary that we burden the opinion with a rather extensive recitation of the facts.

I.

A.

In 1975, Roy Johnson, then a Borg-Warner employee, conceived an idea for a dual-fuel carburetor. He produced fourteen hand-built prototypes. According to Johnson, Borg-Warner mounted the prototypes on different vehicles throughout the country in order to gauge the carburetors' performance. Dynamometer tests rated engines equipped with these prototype carburetors high in terms of power and efficiency.

Borg-Warner attached one of the fourteen prototypes to both 460-cubic-inch and 350-cubic-inch engines, which traveled over a 135-to-150-mile stretch of roads featuring a variety of terrains and driving conditions. The corporation tested another prototype using a Chevrolet Suburban equipped with a 350-cubic-inch engine. Johnson testified that this second prototype experienced "almost any condition that you could find through the midwest or the eastern part of the United States." Overall, according to Johnson, all fourteen carburetors performed at least satisfactorily in field tests conducted all over the United States, including the Southwest. By Johnson's estimate, the carburetors were driven a total of "three quarters of a million miles" during this field testing.

Next, perhaps in 1978, Borg-Warner built experimental "production prototypes" or "under-development" units more or less based upon the fourteen prototypes. According to trial witnesses, abbreviated dynamometer tests indicated that the majority of these units "ran very well." Borg-Warner field-tested these prototypes by installing some of them in Borg-Warner officers' cars. According to former Borg-Warner employees, the corporation continued to test the new carburetor in the laboratory on an ongoing basis.

In late 1979 and early 1980, Borg-Warner manufactured a "pilot run" of the new carburetors. Johnson performed dynamometer tests on the pilot run carburetors, which came to be called "acucarbs," sixteen to twenty hours per day. A defense witness stated "[W]e kind of rushed [the pilot-run acucarbs] onto company cars.... We did this quickly because [the sales department wanted to] get it out there into the marketplace...." His memory refreshed by a written report, the witness testified that he believed that one of the pilot-run acucarbs "ran lean and had a huge backfire that caused damage to backfire vent doors and spring."

Borg-Warner Sales Manager Hollingsworth testified that in the last quarter of 1979, he "raised hell with people all the way from the vice president of engineering to the members of the [acucarb development] task force, because I didn't think that they were following Roy Johnson's unit which they kept telling me that they couldn't build in production, they had to make changes." Specifically, Hollingsworth complained:

[T]he typical situation would be that the doors didn't rub on the nylon plate that was installed in the side of his unit and we had air gaps around [the] doors, both sides.... And they had [installed] a washer that you could adjust, but they were not rubbing.... [I]n production they couldn't build them that way and the engineers would have to allow 16th of an inch or whatever for clearance. And my problem naturally was that they won't work if they are drawing air in ..., if you can see daylight it's no good.

A defense witness confirmed that Hollingsworth registered such protests. According to that witness, "we [Borg-Warner employees] were all aware of the potential air leaks at two places. The sides of the doors and at the seal right at the shaft, and undoubtedly I discussed that [situation] with Mr. Hollingsworth and many others...." According to another witness, Hollingsworth stated that in approximately the last quarter of 1980 "the Acucarb was untried and uncalibrated as it was released to production, it was not tested and proven enough to be sold."

A former Borg-Warner senior project-engineer testified that any test data available as of the first two months of 1980 were "sporadic data that would have been the personal property of Roy Johnson or John Daum that showed single point testing...." According to the project-engineer, the exhausts gas analysis was very limited because Borg-Warner possessed "only two working engine dynamometers with limited exhausts gas analysis and limited capabilities to measure fuel flow air flow into the engine." The engineer testified that "the test specifications were very informal and certainly not regimented."

After the carburetor "went through various stages of design" as a result of testing at various stages, Borg-Warner prepared to build the first production units in January 1980. Hollingsworth testified as follows:

There had been no testing of the units other than the units ... that were on engineering department vehicles, vice president of engineering, Roy Johnson's car, maybe John Daum's car, but people in the engineering department was the only testing that had been done other than the original prototypes that Roy Johnson built. At that point in time we were faced with we either going to have to go into full test program or we are going to have to start producing units.... [Dealers said that] this market is not going to last forever. Under a normal program we would have tested units for anywhere from 90 to 120 days or longer, and they had, normally would have had to have been production units. And at the middle of January, early part of January there had been no production units built. So at that point are we going to run production units on test or are we going to build product and ship it to the customer.

(Emphasis added.) According to one witness, Borg-Warner tested the production units prior to sale by placing one on an employee's car before the employee went for a long drive. Borg-Warner apparently also continued to perform some type of laboratory tests on the acucarb after production and distribution began.

At some point after production began, Borg-Warner placed a gasket between covers of the carburetor to remedy problems caused by air leaks between the top cover and the body joint. Such leaks did not occur in the experimental models, possibly due to a design change that occurred between the experimental and the production designs. Early production units also developed problems with their doors, eventually necessitating the addition of a soft piece of Teflon cloth to the doors.

Several former Borg-Warner employees, including one defense witness, testified that the design of the production version of the new carburetor differed in several significant respects from the design of the fourteen handcrafted prototypes. The witnesses cited differences in fuel enrichment devices, door construction, door seal, backfire valves, calibrations, linkage, tolerance, weight, material, and top-cover thickness. According to one witness, dimensional changes occurred "as the result of rush production."

Several witnesses testified that the design changes impaired the acucarb's performance. Specifically, a former Borg-Warner employee testified that "[T]he linkage had a lot more friction and there were a lot of tolerance problems associated with the production unit that we did not have with the prototype." Another former employee testified that the "first production models didn't produce the same results in the area of power, acceleration [as the prototypes produced].... [T]he factory production model didn't produce enough CO. You couldn't get enough fuel through it.... It ran too lean."

Moreover, one witness stated that due to the design of the acucarb, probably "fewer than twenty men" in the United States knew how to install the carburetor properly. In his view, due to faulty installation and possibly because of thinner material in the production-version cover-plate, the production units had a "problem of deformation of the top plate and the concomitant [problem] of ... associated bowing and allowance of air leaks." Another witness explained...