H.C. Smith Investments v. Outboard Marine Co.

• Decision Date: 04 August 2004
• Docket Number: No. 02-1611.,No. 02-1506.,02-1506.,02-1611.
• Parties: H.C. SMITH INVESTMENTS, L.L.C., Plaintiff-Appellee/Cross-Appellant, v. OUTBOARD MARINE COMPANY, et al., Defendants, Raytheon Aircraft Services, Inc., Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

377 F.3d 645

H.C. SMITH INVESTMENTS, L.L.C., Plaintiff-Appellee/Cross-Appellant, v. OUTBOARD MARINE COMPANY, et al., Defendants Raytheon Aircraft Services, Inc., Defendant-Appellant/Cross-Appellee.

No. 02-1506.

No. 02-1611.

United States Court of Appeals, Sixth Circuit.

Argued March 11, 2004.

Decided and Filed August 4, 2004.

COPYRIGHT MATERIAL OMITTED

Appeal from the United States District Court for the Western District of Michigan, Richard A. Enslen, J.

Jon R. Muth (argued and briefed), Susan G. Davis (briefed), Miller, Johnson, Snell & Cummiskey, Grand Rapids, MI, for Plaintiff-Appellee Cross-Appellant.

Thomas F. Koernke, Koernke & Compton, Grand Rapids, MI, for Defendant.

Kathleen McCree Lewis (argued and briefed), Kyle R. Dufrane (briefed), Dykema Gossett, Detroit, MI, Richard G. Ward (briefed), Sullivan, Ward, Asher & Patton, Southfield, MI, for Defendant-Appellant Cross-Appellee.

Before: MARTIN and CLAY, Circuit Judges; CUDAHY, Senior Circuit Judge.^*

OPINION

BOYCE F. MARTIN, JR., Circuit Judge.

H.C. Smith Investments, L.L.C. hired Raytheon Aircraft Services, Inc. to inspect a jet airplane that it was considering purchasing. Approximately one year after the inspection and subsequent purchase, Smith Investments discovered that Raytheon failed to detect that the airplane had extensive corrosion damage, which substantially diminished its value and safety. Smith Investments filed suit against Raytheon, alleging negligent inspection, negligent supply of information, and breach of contract with respect to the inspection.

A jury found in favor of Smith Investments on the negligent-inspection and negligent-supply-of-information claims, and in favor of Raytheon on the breach-of-contract claim. The district court awarded Smith Investments approximately $1.9 million in damages.

Raytheon appeals the district-court judgment, arguing that the court erred in granting Smith Investments' Rule 50 motion and in instructing the jury on the negligent-supply-of-information claim. Smith Investments cross-appeals, arguing that the district court erred in denying its Rule 50 motion and in instructing the jury that it could allocate to Smith Investments the fault of its agent, Travel Consultants Aviation. We find no error in any of the judgments of the district court, and we affirm.

I.

In early 1997, Smith Investments hired Travel Consultants Aviation to assist it in its endeavor to locate and purchase a second-hand airplane for personal and charter use. Travel Consultants Aviation eventually located a 1969 Hawker-Siddeley jet airplane in Florida at the Aero Toy Store, which had purchased the airplane from Outboard Marine Company. On July 10, 1997, Smith Investments submitted a conditional offer to purchase the airplane for $2.2 million, subject to the airplane being inspected by Raytheon at its Ft. Lauderdale, Florida, location.

Shortly thereafter, Tony Zeka, a Raytheon mechanic, inspected the airplane and then faxed a handwritten, nine-page letter to Lloyd Huth, a Travel Consultants Aviation employee, that set forth his findings. The letter stated that the airplane's logbooks were not up to Federal Aviation Regulations "Part 135"¹ standards (but that they could be with additional work) and listed the "squawks"² that Mr. Zeka discovered while conducting a physical inspection of the airplane. Mr. Huth also stated that Mr. Zeka told him during a phone conversation that the airplane had been well kept. After Mr. Zeka reported his findings to Travel Consultants Aviation, the sale was completed and Smith Investments took possession of the airplane.

Roughly one year later, in September 1998, the airplane was taken to the Aviation Maintenance and Technical Support center in St. Louis, Missouri, for a mandatory, 1200-hour, 24-month inspection. During the course of this inspection, extensive internal corrosion of the airplane was discovered. Smith Investments incurred substantial costs in repairing the corrosion uncovered during this inspection. In addition, the prospect that additional corrosion was yet to be discovered within the body of the airplane raised serious questions about the airplane's safety and value.

After learning about the corrosion, Smith Investments contacted Raytheon to inquire why this had not been discovered when it inspected the airplane. Raytheon responded by stating it was hired only to conduct a "Part 135" inspection and that Travel Consultants Aviation never requested a more extensive inspection that would have revealed the corrosion. Wolfgang Heuberger, Raytheon's Ft. Lauderdale service-center manager, stated in deposition that no Raytheon employee would have agreed to conduct a "pre-purchase" inspection because of the vagueness of the term. Raytheon will inspect airplanes, Mr. Heuberger stated, but only for requests narrower or more specific than a "pre-purchase" inspection. In addition, according to John C. Willis, President of Raytheon Aircraft Services, the scope of work requested was limited to the "Part 135" inspection, which involved logbook research and a pre-flight check of the engine and oil. Mr. Willis also stated that Raytheon stopped inspecting the airplane after Mr. Huth instructed Raytheon that Smith Investments would not be buying the airplane based on the "Part 135" compliance issue that Mr. Zeka had reported earlier to Mr. Huth. Mr. Willis added that the airplane was removed from the Raytheon service center the day after Mr. Huth relayed this message to Raytheon.

According to Smith Investments, Travel Consultants Aviation directed Raytheon to conduct a comprehensive "pre-purchase" aircraft evaluation and Mr. Zeka represented to Travel Consultants Aviation that he would complete this task. Smith Investments contends that Mr. Zeka failed to disclose that the Ft. Lauderdale service center was not authorized by Raytheon for Hawker inspections and, therefore, that its employees were unaware of the inspection criteria in Raytheon's Hawker Evaluation Guide, which includes inspection for corrosion. Smith Investments also alleges that the invoice submitted by Raytheon for its work, which states "evaluated aircraft," implies that Raytheon conducted a comprehensive inspection of the airplane.

II.

In 2000, Smith Investments filed its initial complaint against Raytheon and alleged breach-of-contract and negligent-inspection claims. In 2002, Smith Investments amended its complaint for the second time and added a negligent-supply-of-information claim against Raytheon. Raytheon answered the complaint and pleaded thirteen affirmative defenses, including comparative fault of Smith Investments' agent, Travel Consultants Aviation.

Outboard Marine Company, the original owner of the airplane, was named at the outset of the suit as a co-defendant. The district court granted Outboard Marine's motion to dismiss the fraudulent-misrepresentation and negligent-misrepresentation claims alleged by Smith Investments. Outboard Marine also moved to dismiss the third claim against it, a breach-of-express-warranty claim. The district court denied this motion pending either a stay or termination of Outboard Marine's Chapter 11 bankruptcy proceeding in the Northern District of Illinois.

The case was tried before a jury in 2002. At the close of Raytheon's defense, Smith Investments moved under Federal Rule of Civil Procedure 50 for judgment as a matter of law on Raytheon's affirmative defense of Travel Consultant Aviation's comparative fault as a non-party. The district court granted the motion in favor of Smith Investments, precluding the jury from allocating fault to Smith Investments for any negligence of Travel Consultants Aviation as a non-party to the suit. The next day, Smith Investments again moved under Rule 50 for judgment as a matter of law on Raytheon's affirmative defense of Travel Consultants Aviation's comparative fault as an agent of Smith Investments. The district court denied this motion and stated: "The unstated premise of yesterday's ruling as to [Travel Consultants Aviation] was that TCA did not occupy the position of a non-party because TCA was acting as an agent of plaintiff. This clarification is obvious and the jury should be allowed to consider TCA's negligence as the negligence of a party."

The jury returned a verdict in favor of Smith Investments on the negligent-inspection and negligent-supply-of-information claim and in favor of Raytheon on the breach-of-contract claim. The jury allocated 80% of the comparative fault to Raytheon and 20% to Travel Consultants Aviation as Smith Investments' agent. The district court awarded approximately $1.9 million in damages to Smith Investments.

On appeal, Raytheon argues that the district court erred in granting Smith Investments' Rule 50 motion as to Travel Consultants Aviation's status as a non-party and in instructing the jury on the negligent-supply-of-information claim. Smith Investments cross-appeals and argues that the district court erred in denying its Rule 50 motion as to Travel Consultants Aviation's status as an agent and in instructing the jury that it could allocate to Smith Investments the fault of its agent.

III.

We review the denial of a Rule 50 motion de novo. Gray v. Toshiba Am. Consumer Prods., Inc., 263 F.3d 595, 598 (6th Cir.2001). As a federal court sitting in diversity, we apply the standard for a motion for judgment as a matter of law used in Florida, the state law that governs this action. See Potti v. Duramed Pharm., Inc., 938 F.2d 641, 645 (6th Cir.1991).

As to the allegations of improper jury instructions, we review those claims de novo as well. Fisher v. Ford Motor Co., 224 F.3d 570, 576 (6th Cir.2000). A district court's refusal to give a jury instruction is reviewed for abuse of discretion. Ibid.

IV.

The first issue Raytheon alleges on appeal is that the district court erred in granting Smith Investments' motion for judgment as a matter of law on Raytheon's affirmative defense of comparative fault....