Global Petrotech, Inc. v. Engelhard Corp.

• Decision Date: 19 July 1995
• Docket Number: No. 94-20189,94-20189
• Citation: Global Petrotech, Inc. v. Engelhard Corp., 58 F.3d 198 (5th Cir. 1995)
• Parties: GLOBAL PETROTECH, INC., Plaintiff-Appellee, v. ENGELHARD CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 198

58 F.3d 198

GLOBAL PETROTECH, INC., Plaintiff-Appellee, v.ENGELHARD CORPORATION, Defendant-Appellant.

No. 94-20189.

United States Court of Appeals Fifth Circuit.

July 19, 1995.

Sharis L. Hauder, Fanning, Harper & Martinson, Dallas, TX, Howard G. Sloane and Daniel L. Cantor, Cahill, Gordon & Reindel, New York City, for appellant.

William B. Allison, Robert Ellison Meadows, and Herman E. Jacobs, Sewell & Riggs, Houston, TX, for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, GARWOOD and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

Engelhard Corporation("Engelhard") appeals the district court's final judgment and order overruling it's motions for judgment as a matter of law, for new trial and to alter judgment arising from the jury trial of claims brought by Global Petrotech, Inc.("Global") under the Texas Deceptive Trade Practices Act ("DTPA").After the jury answered all special interrogatories in favor of Global, the district court entered a final judgment awarding Global $351,156.22 in compensatory damages, $500,000.00 in exemplary (punitive) damages, prejudgment interest at 10%, postjudgment interest at 3.74%, attorneys fees and costs.We vacate the award of punitive damages, and remand for new trial on that issue.

I.BACKGROUND

In August 1990, Global, a small Houston trading company that purchases goods for resale and export to customers in China, was contacted by China Technical Corporation("CTC"), a subsidiary of China National Technical Import & Export Corporation("CNTIC"), to obtain a quote for palladium chloride from Engelhard.Global related CTC's specification to an Engelhard customer service representative on August 3, 1990.In that request, Global inquired about the price and the terms of purchasing 170 kilograms of palladium chloride with a palladium content between 59.5% and 60.5%.Global also informed Engelhard that it was inexperienced in handling precious metal commodities like palladium.Engelhard's response quoted a price for "Palladium Chloride solution red-brown powder, hygroscopic, soluble in dilute HC1, 60% PD content (theoretical)."The quote was erroneous in that it identified a solution of palladium chloride with 60% palladium, which does not exist.Palladium chloride solution manufactured by Engelhard only contains 10% or 20% palladium.

Because Global was unfamiliar with palladium chloride, it did not realize that Engelhard's quote was incorrect.On October 24, 1990, Global sent Engelhard a purchase order for 170 kilograms of palladium chloride solution containing 60% palladium, with 3279.373 troy ounces of palladium as the amount of palladium required to fabricate the goods.Global then wire-transferred $316,459.49 to Engelhard as advance payment for the order.

In December 1990, Engelhard shipped the palladium chloride order directly to CTC.After receiving the shipment, CTC notified Global that the product was incorrect; CTC received 510 kilograms of palladium chloride solution containing only 20% palladium rather than palladium chloride containing a concentration of 60% palladium.¹Global then contacted Engelhard about CTC's receipt of 20% palladium instead of 60%.On January 4, 1991, Engelhard requested Global to find out whether CTC could use the palladium chloride solution, and that, if CTC could not, CTC should return the shipment to Engelhard to be reprocessed into palladium chloride containing a concentration of 60% palladium.²

On January 11, 1991, Global informed Engelhard that CNTIC would be returning the palladium chloride solution to Engelhard, requested that Engelhard provide Global with the name of Engelhard's shipping agent in Beijing for delivery of the shipment and requested that Engelhard reimburse CNTIC for all direct out-of-pocket costs incurred relating to CNTIC's handling of the shipment.³

After Engelhard informed Global that it did not have a shipping agent in Beijing, CNTIC shipped the palladium chloride solution back to the United States via an Air China flight from Beijing to JFK airport in New York.CNTIC had procured $521,566.80 in insurance on Global's behalf from the Peoples' Insurance Company of China ("PICC") to cover the return shipment.⁴

When the return shipment of palladium chloride solution arrived at JFK airport, it was placed in an airport warehouse.Sometime later it was lost or stolen by an unknown third party.

When it was determined that the return shipment could not be located, Global requested a new shipment from Engelhard in late March 1991.Engelhard did not refund the $316,459.49 that Global paid for the first shipment, and agreed to send a second shipment only if Global paid Engelhard in advance, or provided a letter of credit in advance, for the cost of the palladium needed to fabricate another shipment.Global protested, complaining about Engelhard's demand for a higher per ounce price for the second shipment of palladium than charged for the first shipment.

Nonetheless, on April 19, 1991, Global wire-transferred to Engelhard $321,378.26 as payment in advance for the palladium used to fabricate the replacement shipment of palladium chloride.Then on April 29, 1991, Engelhard shipped 170 kilograms of palladium chloride containing a concentration of 60% palladium to CNTIC in Beijing.

CNTIC subsequently filed a claim for insurance proceeds for the lost shipment of palladium chloride solution with PICC.CNTIC assigned its rights under the policy to Global.Global and PICC executed a release agreement on July 30, 1992 specifying that Global promised to release PICC of all liability regarding the insurance for loss, and that PICC would pay Global the sum of $260,000.00.

On January 29, 1992, Global filed suit against Engelhard in Texas state court alleging breach of contract, breach of warranty and violations of the DTPA.Engelhard removed the suit to federal court.On February 1, 1993, the district court ordered the parties to file written arguments on the issue of Engelhard's claim for a credit for the insurance proceeds received by Global.After the parties filed their memoranda, the court ruled that the insurance proceeds would count in reducing a damage award to Global based on the breach of contract claim.⁵The court noted, however, that under Texas law the collateral source rule applies to DTPA claims and therefore, the insurance proceeds would not be applied to an award for Global under the DTPA claim.

In the first amended pretrial order, Global dropped all but its DTPA claims against Engelhard.Global's two DTPA claims stemmed from Engelhard's quote to Global misrepresenting the characteristics of palladium chloride that led to Engelhard shipping an incorrect concentration of palladium in violation of sections 17.46(b)(5) and (7) of the Texas Business & Commerce Code("the Code"), and Engelhard's unconscionable act of retaining Global's purchase money and refusing to supply replacement palladium chloride without additional charge after the first shipment was lost in violation of section 17.50(a)(3) of the Code.Additionally, Global sought punitive damages for Engelhard's "knowing" engagement in an unconscionable course of action, defined in section 17.45(9) of the Code.

At the final pretrial conference, Engelhard's counsel did not dispute that Global rejected the first palladium chloride solution shipment as nonconforming.Thus, the district court ruled that under Texas contract law the first shipment was at all times the property of Engelhard.The court also excluded all evidence of the insurance proceeds received by Global, even on the issue of unconscionability.

During the jury trial, the district court instructed the attorneys that, on the issue of who owned the first shipment of palladium chloride solution after it left Engelhard's possession, "no further questioning should be done about Engelhard's belief or knowledge of risk of loss, or the consequences of the loss, and how that formed their policy."In answering the special interrogatories, the jury found that Engelhard engaged in a false, misleading, or deceptive act that caused damage to Global, and that Engelhard engaged in an unconscionable course of action.Moreover, the jury found that Engelhard's unconscionable course of action was "knowingly" committed.The jury awarded Global $351,156.22 in actual damages and $500,000.00 in punitive damages.On February 8, 1994, the district court entered final judgment against Engelhard; including prejudgment interest on the actual damages at the rate of 10%, attorneys' fees, and postjudgment interest.

II.EXCLUSION OF EVIDENCE

We will not reverse a district court's evidentiary rulings unless they are erroneous and substantial prejudice results.The burden of proving substantial prejudice lies with the party asserting error.F.D.I.C. v. Mijalis, 15 F.3d 1314, 1318-19(5th Cir.1994).Where, however, "the admissibility determination necessarily involves a substantive legal decision,"we engage in a two-tiered review process.Stokes v. Georgia-Pacific Corp., 894 F.2d 764, 767(5th Cir.1990).First we conduct a de novo review of the underlying legal analysis.Id.Second, we examine the evidentiary ruling for abuse of discretion.Id.

A.Mistaken Belief as to Ownership

Punitive damages are proper under the DTPA;"[i]f the trier of fact finds that the conduct of the defendant was committed knowingly, the trier of fact may award not more than three times the amount of actual damages."TEX.BUS & COM.CODE ANN. Sec. 1750(b)(Vernon Supp.1995).Under the DTPA, "knowingly" is defined as "actual awareness of the falsity, deception, or unfairness of the act or practice giving rise to the consumer's claim."TEX.BUS. & COM.CODE ANN. Sec. 17.45(9)(Vernon 1987).

Engelhard argues that the district court abused its discretion by excluding evidence of its belief that the first shipment of palladium chloride solution belonged to Global...