Ae, Inc. v. Goodyear Tire & Rubber Co.
| Decision Date | 11 August 2009 |
| Docket Number | No. 07-1526.,07-1526. |
| Citation | 576 F.3d 1050 |
| Parties | AE, INC., a Colorado corporation, Plaintiff-Appellant, v. The GOODYEAR TIRE & RUBBER COMPANY, an Ohio corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Stephen G. Masciocchi (David L. Black, Anthony J. Navarro, William W. Maywhort, and J. Lee Gray, with him on the briefs), Holland & Hart LLP, Denver, CO, for Plaintiff-Appellant.
Roger P. Thomasch (Mary A. Wells and L. Michael Brooks, Jr., Wells, Anderson & Race LLC, with him on the briefs), Ballard, Spahr, Andrews & Ingersoll, LLP, Denver, CO, for Defendant-Appellee.
Before KELLY, LUCERO, and MURPHY, Circuit Judges.
Plaintiff AE, Inc. ("AE") suffered property damage caused by a defective heating system designed in part by defendant Goodyear Tire & Rubber Company ("Goodyear"). After a jury awarded damages, the district court declined to award prejudgment interest under Utah law. It employed a presumption that damages are not calculable when a plaintiff provides varying damages estimates over the course of litigation, as was the case here. Because the jury had not adopted AE's damages calculation, the court held that AE failed to rebut this presumption. AE now appeals, seeking reversal of the court's prejudgment interest ruling.
This case requires us to revisit our understanding of Utah's standard for awarding prejudgment interest. Although the Utah Supreme Court established over one hundred years ago that such interest is appropriate when "the injury and consequent damages are complete and must be ascertained as of a particular time and in accordance with fixed rules of evidence and known standards of value," Fell v. Union Pac. Ry. Co., 32 Utah 101, 88 P. 1003, 1007 (1907), subsequent courts have been inconsistent in describing the proper test. Thankfully, the Utah Supreme Court recently returned to this question to explain that the Utah courts' various formulations have not altered the fundamental Fell question: "[T]he standard focuses on the measurability and calculability of the damages." Encon Utah, LLC v. Fluor Ames Kraemer, LLC, 210 P.3d 263, 272 (Utah 2009).
We conclude that under Encon Utah, the district court employed an improper presumption that AE was not entitled to prejudgment interest simply because its damages estimates were inconsistent. However, even absent such a presumption, we affirm the district court's ruling that AE is not entitled to prejudgment interest. The evidence at trial required the jury to exercise vast discretion in assessing the necessity, scope, accuracy, and precision of AE's claimed damages. Because such determinations "are peculiarly within the province of the jury to assess at the time of the trial," Fell, 88 P. at 1006, AE's damages are not sufficiently calculable to serve as the basis for prejudgment interest under Utah law.1 Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.
Central to the dispute before us is a house in Deer Valley, Utah (the "AE house") owned and managed by AE, a Colorado corporation created for this sole purpose. At a cost of approximately $4.5 million, the 13,000-square foot house was built in the early 1990s for the Katzenberg family by New Star General Contractors ("New Star"). At the time the AE house was built, Goodyear produced a hose called Entran II for use in hydronic radiant heating and snowmelt systems manufactured by Chiles Power Supply Company ("Heatway systems"). The AE house utilizes a Heatway system, and thus Entran II is embedded throughout the house and its outdoor areas.
In 1999, AE learned that Heatway systems in two other properties had failed due to problems with Entran II. At a meeting of companies responsible for installation and maintenance of the AE house's Heatway system, AE was told that those failures were due to "batch problems" and that the Entran II used in the AE house was manufactured well after the suspect batches. Chiles wrote to Jeffrey Katzenberg assuring him that the Entran II in the AE house was in quite good condition and there were no visible signs of deterioration. Around the same time, a Katzenberg employee asked New Star how much it might cost to replace the Entran II. Based on a figure of $50 per square foot, New Star came up with a total of $650,000.
Sometime after April 1, 2000, Katzenberg and AE learned that the Entran II hose used in the AE house was, in fact, defective. On July 14, 2005, AE filed a products liability action against Goodyear in the United States District Court for the District of Colorado.2 Among other claims, AE alleged negligent product design and manufacture, negligent failure to warn, strict liability for design and manufacture defect, and strict liability for failure to warn.
Goodyear and AE stipulated to Goodyear's liability on these claims. AE's remaining claims were dismissed, and the case went to trial on three issues: Goodyear's statute of limitations defenses, the repair or replacement costs resulting from the defective Entran II, and the amount of other associated damages. Goodyear agreed to pay 50% of any damages award.
At trial, New Star's president David Love testified for AE as a cost estimation expert for construction and remodeling projects. Love first described the AE house's construction, highlighting a number of unusual and expensive materials used in the house, including inland cedar and antique chestnut. He then testified regarding the estimates New Star developed to replace the Entran II. Regarding the 1999 estimate of $650,000, he explained that it was based on "[a]bout five minutes worth of thought process." Love stated that he did not begin to seriously consider replacement costs until approximately a year before trial. From that point, New Star produced approximately ten different replacement cost estimates, ranging from about $3.8 to $5.5 million.
When asked what caused the estimates to shift, Love explained that "nobody really knew exactly what was going to have to happen to take out the Entran." As an example, he explained that New Star originally estimated only floor-replacement costs but realized that walls would likely be damaged during construction, requiring a "guess [about] how far up the wall you're going to have to keep taking off product." When describing the difficulty of removing floors from beneath the walls, he admitted, "That's another thing that quite frankly we didn't think about until I thought of it last night."
At the time of trial, New Star's replacement cost estimate was $5,110,648.51. Based on a 12-month repair schedule, the estimate included a security guard and an on-site cleanup crew, a permitting section (which Love admitted was "a guess"), and a number of items labeled "allowances." As to the latter, Love explained that because "this job is so insane, [he] d[id]n't feel comfortable about doing this job on a lump-sum basis." Thus, the estimate included many round figures such as $25,000 for landscaping and $300,000 for cabinetry. He also testified that some calculations were disputed within New Star, such as the amount of material that would be salvaged, saying, Finally, he testified that the estimate included a "contingency" of over $460,000 "for things that we don't know about, and that's what I think we're going to need."
Goodyear's counter-expert was Evan Farnsworth, the chief estimator for a Park City general contractor. At Goodyear's request, he had prepared an estimate for replacing the Entran II in the AE house based on plans and documents provided by AE, concluding that the repair would cost $678,790. At trial, Farnsworth explained why he disagreed with the necessity, cost, and scope of most of the items in New Star's estimate. According to Farnsworth, the project would take five months and would not require many of the employees included in New Star's estimate. He also testified that the project could be completed with significantly less collateral damage than New Star anticipated.
In addition, Farnsworth explained large variations between his and New Star's estimates on specific line items. For example, Farnsworth stated that, in accordance with accepted methods, his approach would eliminate the use of hose underneath the cabinetry, thus obviating the need for cabinetry work. Another contrast, he explained, was that at the established market rate, the concrete work should cost five times less than New Star estimated. Further, Farnsworth testified that his contingency, overhead, and profit figures were much lower than New Star's. Ultimately, he averred that his company had committed to completing the project for the estimated $678,790 price if AE hired it to do so.
At the close of trial, the jury concluded that: (1) Goodyear failed to prove its statute of limitations defenses; (2) the reasonable repair and replacement costs were $3,489,000; and (3) other reasonable costs and losses totaled $848,611. Because the parties had agreed before trial that Goodyear would pay half of any damages award, the jury's findings resulted in a total judgment against Goodyear of $2,168,805.50. Applying Utah law, the district court held that AE was not entitled to prejudgment interest because its damages were not complete and because it had failed to overcome a presumption that its damages were not calculable.
AE appeals the denial of prejudgment interest.
It is well-established that a "federal court sitting in diversity applies state law, not federal law, regarding the issue of prejudgment interest." Loughridge v. Chiles Power Supply Co., 431 F.3d 1268, 1288 (10th Cir.2005) (quotation omitted). Although an award of prejudgment interest is generally reviewed for abuse of discretion, "any statutory interpretation or legal analysis underlying such an award is reviewed de novo." Id. (quotation omitted).
...
To continue reading
Request your trial