Hutchinson Utilities Com'n of City of Hutchinson v. Curtiss-Wright Corp.

• Decision Date: 11 October 1985
• Docket Number: Nos. 84-5165,CURTISS-WRIGHT,84-5184,s. 84-5165
• Citation: 775 F.2d 231
• Parties: 42 UCC Rep.Serv. 396 HUTCHINSON UTILITIES COMMISSION OF the CITY OF HUTCHINSON, Hutchinson, Minnesota, Appellee/Cross-Appellant, v.CORPORATION, a Delaware corporation, Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 231

775 F.2d 231

42 UCC Rep.Serv. 396

HUTCHINSON UTILITIES COMMISSION OF the CITY OF HUTCHINSON Hutchinson, Minnesota, Appellee/Cross-Appellant, v. CURTISS-WRIGHT CORPORATION, a Delaware corporation Appellant/Cross-Appellee.

Nos. 84-5165, 84-5184.

United States Court of Appeals Eighth Circuit.

Submitted May 17, 1985.

Decided Oct. 11, 1985.

John M. Mason, Minneapolis, Mn., for appellant/cross-appellee.

Lawrence Zelle, Minneapolis, Mn., for appellee/cross-appellant.

Before BRIGHT, Senior Circuit Judge, ROSS and JOHN R. GIBSON, Circuit Judges.

ROSS, Circuit Judge.

This is a diversity case governed by Minnesota law. The appellant, Curtiss-Wright Corporation (Curtiss-Wright), appeals from a judgment granting damages to Hutchinson Utilities Commission (Hutchinson) for Curtiss-Wright's breach of an express warranty and fraudulent misrepresentation in connection with the sale of a generating unit. Curtiss-Wright argues that the trial court erred in finding that Hutchinson had established a right to recover under the theories of either breach of warranty or misrepresentation. Curtiss-Wright also contends that the trial court should have reduced the damage award because Rolls-Royce, Ltd., a former defendant in the suit until it entered into a settlement with Hutchinson, was at least partially responsible for the damages incurred by Hutchinson. Finally, Curtiss-Wright alleges that the court erred in awarding Hutchinson prejudgment interest. Hutchinson cross-appeals, arguing that the trial court erred in refusing to grant it a rescission remedy and in denying its request for an attorneys' fees award. We reverse the trial court's prejudgment interest award, remand for a determination of whether Curtiss-Wright is entitled to have the damage award reduced based on Rolls-Royce's responsibility for some of the damages, and affirm in all other respects.

FACTS

Hutchinson is a municipal electrical and natural gas utility company located in Hutchinson, Minnesota. In 1975, Hutchinson purchased a generating unit from Curtiss-Wright for $2,844,058.77. The unit, which is technically referred to as a Gas Turbine Generating Unit (GTGU), is composed of three major component parts: 1) a jet engine manufactured by Rolls-Royce, Ltd., 2) a power turbine manufactured by Curtiss-Wright, and 3) a power generator manufactured by Brush Electrical, Ltd.

On January 11, 1979, after Hutchinson had used the unit for approximately 700 operating hours, a piece of one of the twenty-six inlet guide vanes (IGVs) (a part of the Rolls-Royce engine anti-icing system which routes air from the engine to the compressor) cracked, was sucked into the engine, and caused internal damage to the engine. Curtiss-Wright transported the damaged engine to its headquarters in New Jersey for examination. The examination disclosed that many of the IGVs were cracked.

Curtiss-Wright took the position that the engine damage caused by the IGV cracking could have been avoided if Hutchinson had conducted proper periodic inspections of the IGVs. Accordingly, Curtiss-Wright refused to honor Hutchinson's request to repair the engine under a warranty which obligated Curtiss-Wright to "remedy, free of charge, any defects of workmanship or materials that give trouble of any kind." After negotiations, Curtiss-Wright ultimately repaired the engine and returned it to Hutchinson, but only upon Hutchinson's payment of $381,000 for the repairs. Curtiss-Wright alleges that the repairs actually cost $609,686.57.

While the engine was being repaired, Hutchinson hired a metallurgist to examine the stator casing--a large circular steel lining inside the power turbine. The metallurgist concluded that the stator casing was severely cracked and incapable of being welded.

Subsequently, in December of 1980, Hutchinson filed this action against Curtiss-Wright and Rolls-Royce. Curtiss-Wright filed a counterclaim against Hutchinson, seeking to recover the unpaid costs which it incurred in repairing the engine. Curtiss-Wright also filed a cross-claim against Rolls-Royce. The cross-claim alleged that any damages arising from an engine defect was Rolls-Royce's responsibility since Rolls-Royce manufactured the engine, and sought indemnity or contribution from Rolls-Royce in the event a judgment was entered against Curtiss-Wright.

In November of 1983, Hutchinson and Rolls-Royce entered into a settlement agreement pursuant to which Hutchinson agreed to release Rolls-Royce from the action and to indemnify Rolls-Royce against Curtiss-Wright's claims for indemnity or contribution. In return, Rolls-Royce agreed to pay Hutchinson $75,000. Upon learning of the settlement agreement, the trial court dismissed Rolls-Royce as a party to the action.

The case then proceeded to trial before the court. The trial court held that Curtiss-Wright was liable for breach of its express warranty based on the IGV and stator casing defects. The court also held that Curtiss-Wright was liable for misrepresentation based on Curtiss-Wright's representations that the power turbine was capable of operating for 100,000 hours when it knew that the stator casing would last only a fraction of that time. Finally, the court dismissed Curtiss-Wright's counterclaims.

The court awarded Hutchinson damages of $532,487. This figure (which was the same under either the breach of warranty ¹ or the misrepresentation theory ² ) represented a reimbursement of the $381,000 which Hutchinson had paid Curtiss-Wright to repair the engine, and a recovery of $149,000 to obtain and install a shrouded stator casing and $2,487 to ship the new stator casing from Curtiss-Wright's headquarters to Hutchinson.

The court also awarded Hutchinson prejudgment interest on the entire damage award from January 11, 1979 (the date the engine was damaged) to the date judgment was entered. The court further awarded Hutchinson its costs and disbursements, but denied Hutchinson's request for attorneys' fees.

DISCUSSION

1. Breach of Warranty

In finding Curtiss-Wright liable for breach of warranty, the trial court stated:

Curtiss-Wright's ³ only argument as to why it should not be held liable for breach of warranty is that Hutchinson failed to properly inspect the IGVs. It is clear that Hutchinson did have the opportunity to inspect the IGVs during the first 700 hours of operation. However, the Curtiss-Wright inspection requirements were an onerous burden for any purchaser and Curtiss-Wright failed to convince this court that proper inspection would have avoided the damage caused by IGV cracking. Curtiss-Wright's contention that failure to inspect should defeat the warranty must fail.

Hutchinson Utilities Commission v. Curtiss-Wright Corp., No. 3-80-83, slip op. at 17 (D.Minn. May 29, 1984) (footnote omitted).

On appeal, Curtiss-Wright continues to rely on its failure to inspect argument. ⁴ First, Curtiss-Wright asserts that Hutchinson is foreclosed from recovering under the express warranty because compliance with the IGV inspection requirements was a condition precedent to the existence of the express warranty. Second, Curtiss-Wright contends that Hutchinson cannot recover damages under the express warranty because Hutchinson failed to establish that a breach of the warranty, rather than its failure to inspect the IGVs, was the proximate cause of the engine damages.

a. Condition Precedent

In the contract of sale between Hutchinson and Curtiss-Wright, Hutchinson agreed that it would "[i]nsure full compliance with Curtiss-Wright's operating, and maintenance instructions." Curtiss-Wright's operating and maintenance manual required an inspection of each of the IGVs every 250 hours of engine use. At the time the January 11, 1979 engine damage occurred, the engine had been used over 700 hours, yet Hutchinson had not conducted an inspection of the IGVs. Curtiss-Wright argues that its IGV inspection requirement was a condition precedent to the existence of the warranty which was not satisfied by Hutchinson.

The only Minnesota case on point is Chatfield v. Sherwin-Williams Co., 266 N.W.2d 171 (Minn.1978). In Chatfield, a professional painter sued a paint manufacturer for breach of warranty in connection with the sale of red barn paint. The paint manufacturer argued that the painter was precluded from recovering for breach of warranty because the painter failed to follow its directions relating to the amount of linseed oil to put in the paint. The court dealt with this argument as follows:

Defendant also argues that, assuming the warranties involved here were breached, plaintiff is precluded from recovery of damages because he used the paint contrary to the directions and such "misuse" was beyond the scope of the warranties. Although defendant cites several cases in support of this claim--Chisholm v. J.R. Simplot Co., 94 Idaho 628, 495 P.2d 1113 (1972); Elanco Products Co. v. Akin-Tunnell, 516 S.W.2d 726 (Tex.Civ.App.1974); Iverson Paints, Inc. v. Wirth Corp., 94 Idaho 43, 480 P.2d 889 (1971); Brown v. General Motors Corp., 355 F.2d 814 (4th Cir.1966)--all are distinguishable from this case. In the Chisholm case, watering the fields within a specified time was essential to activate the weed killer which was alleged to have been defective, and the importance of following that direction should have been obvious to plaintiffs. In Iverson also, the directions for using the machine were very precise, and they were almost completely ignored--neither of which is the fact here. In the Elanco case the manufacturer had stressed the necessity of following directions and had disclaimed any affirmations made about the product unless the directions were followed. The court accordingly treated compliance with the directions as a condition precedent to the existence of the express warranty sued on. Here no comparable stress was laid on the importance of the directions, and they certainly were not specific and precise as to quantity. In Brown, plaintiff did not...