Glovatorium, Inc. v. NCR Corp.

• Decision Date: 20 August 1982
• Docket Number: No. 81-4453,81-4453
• Citation: 684 F.2d 658
• Parties: The GLOVATORIUM, INC., Plaintiff-Appellee, v. NCR CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 658

684 F.2d 658

The GLOVATORIUM, INC., Plaintiff-Appellee, v. NCR CORPORATION, Defendant-Appellant.

No. 81-4453.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 11, 1982.

Decided Aug. 20, 1982.

William B. Irvin, McLaughlin & Irvin, San Francisco, Cal., for defendant-appellant.

Richard L. Perez, Oakland, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California.

Before KENNEDY, SCHROEDER and ALARCON, Circuit Judges.

ALARCON, Circuit Judge:

Glovatorium filed this action against NCR Corporation (NCR) in state court alleging breach of contract, intentional and negligent misrepresentation, breach of warranty, and fraud for conversion of equipment. NCR removed the action to the federal district court on the basis of diversity of citizenship. After a jury trial, Glovatorium was awarded compensatory damages NCR appeals from the judgment of the district court.

for intentional misrepresentation, breach of warranty, and breach of the implied covenant of good faith. Punitive damages were also awarded.

I. SUFFICIENCY OF THE EVIDENCE OF FRAUD BY NCR

NCR contends that the evidence adduced at trial did not establish that it acted fraudulently in the sale of the SPIRIT/8200 computer system to Glovatorium. Under California law, fraud is established when a misrepresentation is knowingly made with the intent to induce reliance, and justifiable reliance results, causing plaintiff damage. Crocker-Citizens National Bank v. Control Metals Corp., 566 F.2d 631, 636-37 (9th Cir. 1978); Fidelity Savings and Loan Association v. Aetna Life & Casualty Corp., 440 F.Supp. 862, 866 (N.D.Cal.1977), aff'd 647 F.2d 933 (9th Cir. 1981). Review of whether there is sufficient evidence to support the finding of fraud is, however, a procedural matter in which we must apply federal law. Neely v. St. Paul Fire & Marine Insurance Co., 584 F.2d 341, 345 (9th Cir. 1978). This court will not disturb a jury verdict unless the evidence is such "that no reasonable man would accept it as adequate to establish the existence of each fact essential to the liability." Kunz v. Utah Power & Light Co., 526 F.2d 500, 504 (9th Cir. 1975); see also Little v. Valley National Bank of Arizona, 650 F.2d 218, 220 (9th Cir. 1981). ¹ It is the function of the jury, not of this court, to weigh conflicting evidence and judge the credibility of witnesses. Standard Oil Co. v. Perkins, 347 F.2d 379, 383 (9th Cir. 1965).

A.

Glovatorium sought to show fraud by NCR in that NCR sold the SPIRIT system with knowledge of its defects. Review of the record indicates that the evidence supports the claim that NCR had knowledge of the defects. First, Norman Cohen, a former district manager for NCR, testified that he notified the SPIRIT support group in Dayton, Ohio of problems with the system. RT: 624-25. He also stated that he advised "headquarters" about these problems. RT: 628. Second, NCR's own witness, Peter Ford, who was associated with the SPIRIT support group, RT: 1256, stated that as project leader for the SPIRIT development team, he "was responsible for the time and delivery of the system and reporting progress to management at NCR." RT: 1254 (emphasis added). It can reasonably be inferred that as project leader he knew of the problems and that as part of his report to NCR management about the progress of the system, he advised them of the problems with the system. Third, there was evidence that NCR "corporate" attempted to cover up defects in the system. RT: 636-37. For instance, one of the problems experienced with the system was that it was so slow that many clients found they could accomplish the same task faster if it were done manually rather than using the SPIRIT system. RT: 628. NCR, however, developed and distributed a demonstrator model for the system to be used as a sales tool that "was specifically designed to function very, very effectively, and very fast, much more so than the actual SPIRIT programs did." RT: 636-37. Thus, it is reasonable to infer knowledge of this defect on the part of NCR since the demonstrator was specifically designed to cover it up.

B.

Fraud on the part of NCR was also claimed with regard to the sales representations made to Glovatorium concerning the route accounting system. ²

Under California law, fraud is properly inferred from the immediate failure to perform a promise. Kaylor v. Crown Zellerbach, Inc., 643 F.2d 1362, 1368 (9th Cir. 1981). In the matter before us, it was represented to Glovatorium that the computer would perform route accounting functions and that it would be delivered with the system by September, 1975. See, e.g., RT: 710-11. The computer was delivered in September, 1975, but could not be used for any route accounting functions. See RT: 713. The payroll function was not operating until late 1975 or early 1976, RT: 781, and once in operation, it never ran properly. RT: 545. The route accounting system (without the other systems) was not available until March, 1976. RT: 781. Only one of Glovatorium's five routes was ever put on the computer because of problems with the system. RT: 719-20. The accounts payable and general ledger systems were never installed because of problems. RT: 497-509. Under Kaylor, the immediate failure to perform in terms of the installation and the operation of the computer systems for which Glovatorium contracted is evidence from which fraud on the part of NCR is properly inferred.

Further evidence of fraud is shown by Warman's testimony that the 8200/SPIRIT system was never designed to perform a route accounting function. See RT: 1113-14; see also RT: 153. Yet, Glovatorium was sold the 8200/SPIRIT system to perform a route accounting function. Moreover, NCR had also determined that the SPIRIT system should not be modified. RT: 1060-61. Yet, Glovatorium was sold a modified version of SPIRIT. RT: 206-08. ³

C.

NCR contends that even if the above evidence shows fraud on the part of NCR employees, there is no evidence to establish fraud by NCR.

California law provides for corporate liability where "the advance knowledge, ratification, or act of oppression, fraud, or malice (is) ... on the part of an officer, director, or managing agent of the corporation." Cal.Civil Code § 3294(b). The key inquiry in the determination of whether an employee is a managing agent is "the degree of discretion the employees possess in making decisions that will ultimately determine corporate policy." Egan v. Mutual of Omaha Insurance Co., 24 Cal.3d 809, 822-23, 620 P.2d 141, 148, 169 Cal.Rptr. 691, 698 (1979), cert. denied & appeal denied, 445 U.S. 912, 100 S.Ct. 1271, 63 L.Ed.2d 597 (1980); see also California Jury Instructions, BAJI, 14.74 (1981).

Warman testified that his conduct in connection with the Glovatorium sales transaction was, to his knowledge, "consistent ... with NCR's general policies and practices." RT: 995 (emphasis added). Indeed, the record demonstrates fraudulent acts by several NCR employees. First, Warman made the sale to Glovatorium of the computer system with the knowledge that it was not designed to perform the functions for which it was sold. See RT: 1113-14. Second, the Oakland office manager for NCR and his assistant told one of their employees to switch the serial numbers on the drive from a loaner with the serial numbers on the Glovatorium drive. See RT: 171, 285-86. Glovatorium, however, had been told that the loaner was temporary. RT: 185, 284.

There is also, as discussed above, evidence of fraudulent sales practices regarding the SPIRIT system at the direction of NCR The above evidence and the inferences that can reasonably be drawn from it are adequate to support the jury's conclusion that someone at NCR who was an officer or a director or who qualified as a managing agent participated in or ratified the fraudulent sale representations made to Glovatorium. This is particularly true in light of the fact that NCR offered no evidence to rebut such an inference. A reasonable person might accept the above evidence as adequate to establish NCR's liability; we will not disturb the jury verdict. See Little, 650 F.2d at 220. ⁴

headquarters. NCR seeks to distinguish such alleged fraud from the sales representations made to Glovatorium. The evidence of directions from headquarters, however, probative of intent and, therefore, lack of good faith on the part of NCR and its sales personnel in the representations made concerning the route accounting systems. See United States v. Walls, 577 F.2d 690, 696 (9th Cir.), cert. denied, 439 U.S. 893, 99 S.Ct. 251, 58 L.Ed.2d 239 (1978). Even in criminal cases, probative evidence of willingness to participate in similar crimes is admissible. United States v. Longoria, 624 F.2d 66, 69 (9th Cir.), cert. denied, 449 U.S. 858, 101 S.Ct. 158, 66 L.Ed.2d 73 (1980); United States v. Moreno-Nunez, 595 F.2d 1186, 1188 (9th Cir. 1979).

II. REQUESTED JURY INSTRUCTION DEFINING MANAGING AGENT

Appellant claims prejudicial error in the refusal of the trial court to give its requested instruction which would have defined the term "managing agent."

NCR requested that the judge instruct the jury that corporate liability existed, inter alia, if a managing agent "having power to bind the corporation" was involved in the fraud. No error existed in the trial judge's refusal to give the proffered instruction because the definition of a managing agent is not restricted to those who have power to bind the corporation. As discussed above, the California Supreme Court has held that focus in determining whether one is a managing agent is the degree of discretion the employee has to make decisions that will ultimately determine corporate policy. Egan, 24 Cal.3d at 822-23, 620 P.2d at 148, 169 Cal.Rptr. at 698; see also California Jury Instructions, BAJI 14.74 (1981). NCR's reliance on Toole v. Richardson-Merrell, Inc., 251 Cal.App.2d 689, 711, 60 Cal.Rptr. 398, 414 (1967), as...