Estate of Korf v. A.O. Smith Harvestore Products, Inc.

• Court: U.S. Court of Appeals — Tenth Circuit
• Writing for the Court: Before MOORE and McWILLIAMS, Circuit Judges, and BRATTON; PER CURIAM
• Citation: Estate of Korf v. A.O. Smith Harvestore Products, Inc., 917 F.2d 480 (10th Cir. 1990)
• Decision Date: 06 November 1990
• Docket Number: 89-1136,Nos. 89-1135,s. 89-1135
• Parties: ESTATE OF Robert W. KORF, Sr. and Minnie Korf, Plaintiffs, Appellees, Cross-Appellants v. A.O. SMITH HARVESTORE PRODUCTS, INC., a Delaware corporation, Defendant, Appellant, Cross-Appellee.

Page 480

917 F.2d 480

ESTATE OF Robert W. KORF, Sr. and Minnie Korf, Plaintiffs Appellees, Cross-Appellants v. A.O. SMITH HARVESTORE PRODUCTS, INC., a Delaware corporation, Defendant, Appellant, Cross-Appellee.

Nos. 89-1135, 89-1136.

United States Court of Appeals Tenth Circuit.

Nov. 6, 1990.

Donald E. Egan (Lee Ann Watson, Paul C. Miltonberger, Michael F. Smetana of Katten Muchin & Zavis, Chicago, Ill., Michael S. Porter, Jon M. Leader of Howe & Porter, Denver, Colo., and Francis A. Benedetti, Wray, Colo., with him on the brief), for defendant, appellant, cross-appellee.

E. Gregory Martin of Wood, Ris & Hames, Denver, Colo. (Wilfred R. Mann with him on the brief), Boulder, Colo., for plaintiffs, appellees, cross-appellants.

Before MOORE and McWILLIAMS, Circuit Judges, and BRATTON, Senior District Judge. ^*

PER CURIAM.

This action arises out of the purchase of a Harvestore agricultural feed and storage structure by Robert W. Korf, Sr. The Harvestore structure was manufactured by A.O. Smith Harvestore Products, Inc. ("AOSHPI") and sold to the Korfs by Big Horn Harvestore Systems, Inc. ("Big Horn"), an independent Harvestore dealer. The Korfs claimed at trial that the structure did not function as represented and that, as a result of AOSHPI's fraudulent misrepresentations, their farming operation suffered financial losses. At trial, the jury found in favor of the Korfs and awarded them compensatory damages in the amount of $171,091.46 and punitive damages of $580,000. The claimed errors on appeal revolve around the damage award. With regard to the jury's award of compensatory damages for the alleged fraud, AOSHPI claims that the trial court erred in denying its motion for a directed verdict on the ground that the Korfs failed to prove an element of value required by Colorado law. AOSHPI challenges the punitive damage award on three grounds. AOSHPI claims: 1) that the trial court improperly instructed the jury as to punitive damages, 2) that the punitive damage award was excessive, and 3) that the punitive damage award violated AOSHPI's due process rights. The Korfs cross-appeal, alleging that the trial court erred in failing to award prejudgment interest on the compensatory damage portion of their verdict. As to the issues on direct appeal, we affirm. We reverse and remand as to the issue of prejudgment interest asserted on cross-appeal.

I.

Prior to the death of Robert Korf, Sr., the Korf family jointly farmed land owned by Robert Korf, Sr. and his wife, Minnie Korf, as well as the acreage of their two sons, Robert, Jr. and Eldon. In 1979, a Harvestore salesman from Big Horn approached the Korfs about purchasing a Harvestore silo for storing their corn crop. Robert Korf, Sr. and his two sons viewed an AOSHPI film and were provided with brochures on the Harvestore system. AOSHPI represented in this literature that the Harvestore silo reduced or prevented oxygen from coming in contact with stored grain in the silo, thus permitting the storage of grain at a higher moisture content, for a longer time, and at a reduced storage cost. Although the equivalent storage space in the more traditional storage bins would cost only $30,000, the Korfs believed the $125,000 price of the Harvestore structure was justified by the savings it would permit. They jointly decided to purchase the silo.

Shortly after storing their 1979 fall corn crop in the Harvestore silo, the Korfs noted signs of serious spoilage in the Harvestore-stored corn due to oxygen exposure. The Korfs were forced to sell this corn at prices well below the market price. Once emptied, Big Horn resealed the entire Harvestore structure, hoping to alleviate the oxygen influx into the silo. The Korfs placed a portion of their 1982 fall corn crop in the silo. Once again the corn spoiled and after March, 1983, the Korfs were unable to sell any of the corn. They ceased using the Harvestore silo in early 1984.

At trial experts for the Korfs testified that, in fact, the Harvestore increases rather than decreases the amount of air in contact with the stored feed. These experts reviewed numerous AOSHPI internal reports and engineering studies documenting the failure of the Harvestore silo to prevent the access of oxygen into the moisture-rich grain inside. They introduced AOSHPI patents, dating as early as 1946, some of which acknowledged this defect and detailed its basic cause. Apparently, when the unloader door at the bottom of the silo is opened to remove feed, breather bags in the structure collapse, causing air to rush into the silo. This process pumps oxygen into the feed mass itself instead of merely exposing the surface grain to air, as would be the case in a conventional silo.

Further, the experts testified that because of its dark color, the Harvestore silo becomes hotter on its sunny side, creating moisture movement through the feed mass. Consequently, they concluded that it should not ever be used for dry corn storage.

II.

AOSHPI first argues that the trial court erred in denying its motion for a directed verdict on the ground that the Korfs failed to prove a requisite element of value necessary to calculate compensatory damages. We disagree and, further, find that AOSHPI waived this error.

In Colorado, the well-settled measure of damages for fraud is the so-called "benefit of the bargain" doctrine. Otis & Co. v. Grimes, 97 Colo. 219, 48 P.2d 788 (1935). In the instant case, the trial court properly applied this doctrine in instructing the jury that the measure of actual damages is the difference between the actual value of the silo at the time of the purchase and its value at that time had the representation been true. See Otis & Co., 97 Colo. 219, 48 P.2d at 791. Accord Colorado Performance Corp. v. Mariposa Assoc., 754 P.2d 401, 408 (Colo.App.1987).

In assessing the sufficiency of the evidence regarding compensatory damages, it is necessary that evidence exist as to both sides of the equation, i.e., the actual value of the property at the time of purchase and the value of the property as represented must be indicated of record. Farmer v. Norm "Fair Trade" Stamp, Inc., 164 Colo. 156, 433 P.2d 490, 492-93 (1967). Wagner v. Dan Unfug Motors, Inc., 35 Colo.App. 102, 529 P.2d 656, 658 (1974).

At trial, AOSHPI moved for a directed verdict after the Korfs' case-in-chief, claiming that the Korfs had failed to prove the actual value of the Harvestore at the time of purchase. The district court deemed the motion "absurd," pointing to the testimony of Minnie Korf and her two sons that the Harvestore was utterly without value (or of negative value while situated on Eldon Korfs' property) since it rotted rather than preserved corn.

Interestingly, AOSHPI abandoned its argument as to the lack of proof of actual value and now asserts on appeal that the Korfs failed to prove the value element on the opposite end of the equation, i.e., the value of the Harvestore as represented. ¹ A review of the record clearly shows that the court, the Korfs' counsel, and even counsel for AOSHPI consistently referred throughout the trial to the purchase price as satisfying this element. Indeed, this was an imminently reasonable assumption because the purchase price is often proffered as proof of the value of a product as represented. See Wagner, 35 Colo.App. 102, 529 P.2d at 658 ("The purchase price was only evidence of the represented value of the vehicle ..., not its actual value"); Farmer, 164 Colo. 156, 433 P.2d at 492 (purchase price accepted as value of equipment as represented); Shirley v. Merritt, 147 Colo. 301, 364 P.2d 192, 194-95 (1961).

Regardless, AOSHPI did not advance at trial the argument now asserted. Its motions for directed verdict at the end of the Korfs' case-in-chief and at the conclusion of the presentation of all evidence failed to address this claimed error. The point is, therefore, not preserved on appeal. ² Neu v. Grant, 548 F.2d 281, 286 (10th Cir.1977); Christiansen v. Farmers Ins. Exch., 540 F.2d 472, 477 (10th Cir.1976).

III.

In addition, AOSHPI requests a new trial with respect to the punitive damage award. It challenges the award on three separate grounds.

A.

AOSHPI first claims that the trial court improperly instructed the jury as to punitive damages. ³ When reviewing claimed error as to an instruction, we must "consider all that the jury heard and, from the standpoint of the jury, decide, 'not whether the charge was faultless in every particular, but whether the jury was misled in any way and whether it had an understanding of the issues and its duty to determine these issues.' " Robinson v. Audi NSU Auto Union Aktiengesellschaft, 739 F.2d 1481, 1486 (10th Cir.1984) quoting Durflinger v. Artiles, 727 F.2d 888, 895 (10th Cir.1984) quoting Alloy Int'l Co. v. Hoover-NSK Bearing Co., Inc., 635 F.2d 1222, 1226-27 (7th Cir.1980). This determination must be made "in the light, not only of the instructions as a whole, but of the allegations of the complaint, the opening statements, the evidence, and the closing arguments." Joyce v. Atlantic Richfield Co., 651 F.2d 676, 682 (10th Cir.1981) quoting Alloy Int'l, 635 F.2d at 1226.

The instruction challenged as insufficient repeats almost verbatim the Colorado pattern instruction on punitive damages. See C.J.I.Civ. 3d 5:3 (1989) Further, the critical language in the instruction is drawn directly from the statute regarding punitive damages in effect at the time of trial. See Colo.Rev.Stat. 13-21-102 (1973).

Despite the virtual identity of language with both the Colorado pattern instruction and the pertinent statute, AOSHPI asserts that the court's instruction did not reflect the prevailing law in Colorado and should, accordingly, have been modified. See Boettcher DTC Bldg. Joint Venture v. Falcon Ventures, 762 P.2d 788, 790-91 (Colo.App.1988) (trial court must modify pattern instructions in accordance with prevailing law). As AOSHPI points out, various Colorado cases have discussed...