Emerson Electric Co. v. Farmer

• Decision Date: 15 June 1970
• Docket Number: No. 28107.,28107.
• Citation: 427 F.2d 1082
• Parties: EMERSON ELECTRIC CO., Appellant, v. Guy F. FARMER, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

427 F.2d 1082 (1970)

EMERSON ELECTRIC CO., Appellant, v. Guy F. FARMER, Appellee.

No. 28107.

United States Court of Appeals, Fifth Circuit.

June 15, 1970.

Lloyd Leemis, Jacksonville, Fla., M. Reese Dill, Cleveland, Ohio, for appellant.

Edward S. Parrish, Jr., James A. Fischette, Jacksonville, Fla., for appellee.

Before JOHN R. BROWN, Chief Judge, and COLEMAN and CLARK, Circuit Judges.

JOHN R. BROWN, Chief Judge:

This case involves a little thermal electronics, a little of the romance of business acquisitions through debt positions, a little plain and fancy misrepresentation of the products' proficiency, and a little Florida law on fraud. But mostly it involves the more prosaic problem of the use of F.R.Civ.P. 41(b)¹ on dismissals on the merits at the close of the Plaintiff's case. What complicates it is not the misuse of the rule so much as it is the contradictory findings and conclusions resulting from findings and conclusions now called for and those inherent in the demurrer like acceptance of the Plaintiff's evidence by assuming its full truth. The upshot is that we must reverse and remand for further proceedings.

The outline can be greatly streamlined by our repeating or paraphrasing the Trial Court's specific findings.²

At the time of the events alleged here, Emerson was one of the leading manufacturers of electrical motors for use in cooling and refrigeration appliances of the conventional coil-compressor variety. It therefore had a vital interest in any developments in electronics which could cause obsolescence of its products or offer a potential for better ones. For a number of years major manufacturers of refrigeration equipment had been seeking substitutes for the coil-compressor system without any major break-through. Though Emerson was not directly engaged in this type of research, it followed it closely so as to be aware of any new developments that might affect its interest. Indeed, a management policy was to exploit the research and development of other companies through acquisitions.

What the refrigeration industry had been looking for was how to exploit through practicable commercial applications the century old "Peltier" principle whereby a temperature differential³ is created when direct current is passed from one metal conductor or semi-conductor to another of different composition. In measuring the efficiency of refrigeration systems, one must determine the BTU's (British Thermal Units) and the Delta T from which a COP (Co-efficiency of Performance) is calculated. A thermoelectric system to be competitive with the coil-compressor system would have to have a comparable initial cost and a COP of .67.

Emerson became very interested in the Defendant because of an industry magazine article relating to Guy Farmer, the Defendant, and AFCO, a company in which he was a director and financially interested. The article bore the catchy title, "Cool It, Man, in Solid State", with a picture of Farmer as the inventor or inventive genius standing next to the president of AFCO, self-described as a "peddler". The article in extravagant terms reported AFCO's estimate of 2,000 applications for their discovery, the transistor compressor, and an expected gross sales of 2 million dollars.

Pursuing this revelation, Emerson sent Richard Lindgren, a non-technical vice-president, to the AFCO plant in Florida. While there he was in contact with Farmer and was shown various machines. Farmer's statements led Lindgren to believe that Farmer had made a break-through in the technology of thermo-electricity. Also believing this, Emerson's management, on March 28, sent the research and marketing vice-president for a personal inspection and conference. Farmer gave another tour of the plant, displayed his appliances and made statements to the visiting representative about the efficiency of and the cost of his modules (transistors). Farmer not only represented that his system was competitive both in initial cost and in operating cost with conventional coil-compressor systems, but represented that his new modules would perform at given and stated capacities. Farmer's statements made to Emerson executives March 28-30 were specific in details as to BTU's, wattage, Delta T, and in other technical areas, and were made in connection with the display of AFCO's 200 pound ice maker which Farmer said was not in operating condition at the time.⁴

These reports brought the president of Emerson to Florida on March 29 who likewise was in direct contact with Farmer. He and his associates asked for an audited statement of AFCO's financial position and an opportunity for Emerson to have scientific-industrial tests made on the machines and modules since no such facilities were there available in Florida. Farmer and AFCO declined these requests since, as Emerson had previously been advised, there was another group in the wings willing on the very next day to put the $300,000 in the enterprise.

The trade was made, the $300,000 loan was made, the note was signed by AFCO, and Emerson thought it had acquired equity options in a solvent company. Then, we may interpolate, came the dawn.

Within a few weeks audits were completed, tests were made, and little was as represented. AFCO was insolvent; it did not own the "patent" since Farmer had a reversionary right in event of insolvency, and worse, the breakthrough was a breakdown: the machine was a failure.⁵

Before getting involved in the legal significance of all of these paraphrased findings the Trial Judge summed it up this way. "Despite the fact that Farmer had claimed a breakthrough in pumping capacity as well as in the cost of his modules, Emerson's tests showed Farmer's claims were inaccurate and overstated."

Now come the complications, none of which inhere in or arise either out of the facts or out of the Florida law. After inviting a motion under F.R.Civ.P. 41 (b), note 1, supra, to be made at the conclusion of the Plaintiff Emerson's case, the Judge deferred action as he most certainly may. But the invitation was renewed when the Defendant Farmer's evidence was closed. Although nominally a judgment also entered on a 41(b) motion after all evidence,⁶ it is plain that the Judge treated it operationally as one testing the sufficiency of the evidence if fully credited.⁷ Indeed, the Judge said that very thing by conclusion 3 that Emerson "has wholly failed to prove a prima facie case, assuming that all of the evidence introduced by the Plaintiff Emerson on its case in chief is true."

At the outset the legal conclusion on an arguendo acceptance of truth is a flat contradiction of the earlier specific findings which we have capsulated above, although the acceptance of truth is consistent with at least most of those findings. The case therefore has an importance transcending the private Erie interest. For much of the problem comes from the Judge's not following 41(b) as its 1948 amendments contemplated.⁸

As Professor Wright points out, "Before the 1948 amendment of Rule 41, some courts held that * * * the Court was required merely to determine whether the Plaintiff had made out a prima facie case. In this view the question was, not whether the Plaintiff's evidence showed a right to recovery, but whether it was sufficient in the sense that if there were a jury, it would warrant submission of an issue to the jury." 2B Barron and Holtzoff, Federal Practice and Procedure, § 919 at 151 (Wright ed. 1961). In essence the Court was treating a 41(b) motion as a motion for a directed verdict. Before 1948 this view had been adopted by the Third and Fourth Circuits. But the Sixth, Seventh, and Ninth Circuits had held that in a non-jury case the Court is supposed to act as Judge and as jury. The Court had the right to use its full judgment on the weight and credibility of the Plaintiff's evidence and should make its decision on the motion on the basis of all the evidence before the Court. See 5 Moore, Federal Practice, ¶ 41.134 at 1156 (2d ed. 1969) and cases there cited. "The reasoning of those decisions (of the Sixth, Seventh, and Ninth Circuits) was the basis of the amended rule which must now be followed." Wright, supra, at 152. The Judge should now ordinarily evaluate the evidence without making special inferences in the Plaintiff's favor.⁹ The Court should go ahead and resolve the case on the basis of preponderance of the evidence. Ellis v. Carter, 9 Cir., 1964, 328 F.2d 573, 575. This Court subscribed to this view as early as Benton v. Blair, 5 Cir., 1955, 228 F.2d 55, and for the full Court Judge Godbold stated recently, "When the defendant makes a Rule 41(b) motion to dismiss for insufficiency of the plaintiff's evidence it becomes the duty of that court to weigh and evaluate the evidence" (emphasis added). Weissinger v. United States, 5 Cir., 1970, 423 F.2d 795, 798 (en banc).

Why this is something more than a technical transgression is revealed by the quandary the Trial Judge's technique leaves us in. For example, in the specific findings the Court finds flagrant misrepresentation of specific capabilities obviously within the expertise of the claimed discoverer Farmer. The arguendo acceptance of those facts is also inherent in conclusion (3), note 8, supra. But then comes along conclusion (4) which states that Emerson failed to prove false representation of facts, known by Farmer to be false (conclusion (5)).

Just what has the Judge done? What has he meant to do? The enigma wrapped in a mystery becomes enshrouded in fog upon considering conclusion (6). The Court declares that Emerson failed to prove reliance (inducement) because Emerson's president testified that the reason the loan was completed was its desire to outrace the other group of investors. But would it — could it — have made any such apparently decisive holding had the Court found affirmatively as a fact, not just an arguendo assumption, that Farmer had made false statements of material specific facts which were...