Hydra-Mac, Inc. v. Onan Corp.
| Decision Date | 01 November 1988 |
| Docket Number | No. C9-88-662,INC,HYDRA-MA,C9-88-662 |
| Citation | 430 N.W.2d 846 |
| Parties | , International Harvester Company, Respondents, v. ONAN CORPORATION, Appellant. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. The trial court was correct in its determination of the terms of the warranty disclaimer.
2. The trial court was correct in finding the statute of limitations defense had been waived.
3. Even if the statute of limitations defense was not waived, estoppel and tolling prevented application of the defense.
4. There was sufficient evidence to support the jury's award of lost profits and punitive damages.
Craig W. Gagnon, Mark P. Wine, David L. Bishop, Oppenheimer Wolff & Donnelly, Minneapolis, for Hydra-Mac, Inc.
John Q. McShane, Janice K. O'Grady, Mary T. Novacheck, Bowman and Brooke, Minneapolis, for Intern. Harvester Co.
Lawrence J. Field, Harold D. Field, Jr., Marc D. Simpson, Leonard, Street and Deinard, Minneapolis (Henry H. Feikema, Stacey A. DeKalb, Smith, Juster, Feikema, Malmon & Haskvitz, Chartered, Minneapolis, of counsel), for Onan Corp.
Heard, considered, and decided by WOZNIAK, C.J., and LANSING and KALITOWSKI, JJ.
Respondents Hydra-Mac, Inc. (Hydra-Mac) and International Harvester Company (IH) commenced this action against appellant Onan Corporation (Onan) concerning engines purchased from Onan for front end loaders. Both respondents asserted claims for breach of warranty. Hydra-Mac also asserted a claim of fraud.
Following a jury verdict in favor of Hydra-Mac and IH on all claims, the trial court denied Onan's post-trial motions for judgment notwithstanding the verdict, or in the alternative, a new trial, amended or additional findings of fact, or remittitur. Onan appeals from the portion of the judgment awarding $1,881,023 in lost profits and $3,000,000 in punitive damages to Hydra-Mac and $2,751,000 in lost profits to IH. We affirm.
Onan manufactures the "NH" series of small internal combustion engines. From 1969 through 1974, Hydra-Mac, a small skid steer loader developer and manufacturer, purchased NH engines from Onan for use in its loaders.
During 1974 and 1975, Hydra-Mac's Bruce Steiger designed the 8C, Hydra-Mac's latest model of skid steer loader. In the early 1970's, Onan developed a new aluminum NH engine called the "NHCV." Steiger testified that Onan's sales engineer, Milt Mosimann, and an Onan brochure touted the NHCV as a more durable, cooler, quieter, and more reliable engine. As the result of Onan's claims about the NHCV, Hydra-Mac was induced to incorporate it into the 8C and began to purchase NHCV's in November of 1975.
In 1975, IH agreed to purchase 8C's from Hydra-Mac for marketing as the IH Model 4130 skid steer loader. Onan acknowledged by letter IH's participation in the project. IH began to receive loaders in February of 1977.
Between November 1975 and July 1979, Onan delivered approximately 2,556 NHCV engines to Hydra-Mac. In total, Hydra-Mac purchased approximately 2,600 engines. IH purchased a total of 1,045 loaders.
The NHCV experience
Hydra-Mac: Problems with the NHCV began when Hydra-Mac's first two test engines failed. When the first engine failed, Onan claimed it suffered from a manufacturing defect. When the second failed, Onan, after weeks of testing the failed engine, said that its suggested "fix" would alleviate the problem. Again, Onan endorsed the NHCV for use in the 8C despite Onan engineer Milt Mosimann's opinion that the engine was not appropriate for such use, a fact not known by Hydra-Mac until trial. Mosimann testified that Onan executives did not pull the NHCV because they wanted to test a prototype in the new 8C. Onan did not reveal Mosimann's opinion to Hydra-Mac, nor did Mosimann for fear of losing his job.
In the spring of 1976, Hydra-Mac's customers and dealers complained about severe problems such as high oil consumption, overheating, head gasket blowout, warped cylinder blocks, detonation, carburetor problems, and low power.
In 1976, Onan began its long line of proposed solutions. According to Steiger, Onan first suggested one, and then two, Belleville washers. The engines continued to fail. Onan recommended adjustments in the level or pattern of torque and a side-draft carburetor to replace the down-draft carburetor. By the end of 1977, Hydra-Mac had received over 100 reports of engine failures.
In mid-1978, because of continued problems and complaints, Hydra-Mac abandoned the NHCV for 8C's to be manufactured for Hydra-Mac dealers. Onan continued its fix program for 8C's which had already been sold and for new 8C's to be sold to IH. On February 6, 1978, Onan first began to include a disclaimer on the back of its invoices to Hydra-Mac. It provided:
Onan extends to the original purchaser of goods for use Onan's current Limited Warranty, a copy of which has been provided to Purchaser and a copy of which will accompany the product. THERE IS NO OTHER EXPRESS WARRANTY.
IMPLIED WARRANTIES INCLUDING MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE LIMITED TO PERIODS OF WARRANTY SET FORTH IN THE PRINTED WARRANTY AND TO THE EXTENT PERMITTED BY LAW, ANY AND ALL IMPLIED WARRANTIES ARE EXCLUDED.
In mid-1979, Onan informed Hydra-Mac that a graphoil gasket would greatly alleviate the problems. In a letter to Hydra-Mac and IH, Onan stated that the NHCV would never be completely free from heat problems, but Onan did not reveal Onan engineer Tom Schmidt's conclusion that the graphoil gasket would not help because the NHCV was "a [terrible] engine with not enough power in the first place."
Hydra-Mac's sales figures for its entire skid steer loader line declined sharply through 1981. The graphoil gasket reached the market in significant numbers in late 1980. By mid-1981, Hydra-Mac realized the graphoil gasket would not solve the NHCV's problems.
International Harvester: Before purchasing the 8C's, IH investigated the 8C's test history and warranty performance with the NHCV. IH discovered low power, head gasket failures, and high oil consumption. At trial, IH claimed that it was induced by Onan to accept 8C's after a meeting among the three parties. According to IH, Onan represented that design changes would solve the problems.
Soon after it began selling IH 4130's, IH received complaints from customers and dealers. According to testimony at trial, Onan assured IH the problems could and would be corrected. By early 1979, IH's dealers refused to carry other IH models because of the problems with the 4130's. Onan tried the same unsuccessful fixes it was using at Hydra-Mac. Even after the final fix, the graphoil gasket, IH continued to have a failure rate of 15-20%. One of Onan's internal documents stated that a five percent failure rate was too high.
At trial, IH claimed it continued to order loaders through much of 1979 because it relied on Onan's representations that the graphoil gasket would remedy the problem in the delivered machines. Onan continued to discuss a reimbursement program as late as May of 1982. Hydra-Mac and International Harvester filed suit in 1983 after determining there would be no solution in the near future.
Evidence of fraudulent concealment
In addition to Onan's concealment of opinions from its engineers Schmidt and Mosimann about the NHCV, Hydra-Mac and IH presented other evidence that Onan knew the NHCV could not be repaired and had been a bad engine from the beginning.
Several internal documents showed Onan employees recognized the NHCV's problems. Onan did not publish its report, the NH Engine, completed simultaneously with Hydra-Mac's agreement to purchase the NHCV's. The report concluded the NHCV potentially had the very problems experienced later. Rather, Onan provided Hydra-Mac with a brochure promoting the NHCV.
Onan's former Applications Engineer Bart Anderson testified that in 1976, Onan's Executive Vice President Clark Wilson broke away from a good will tour for Steiger of Hydra-Mac at Onan's facilities to meet with several Onan engineers. He expressed concern about the damage Onan could do to Hydra-Mac if Onan did not fix the engine. Wilson told the engineers that Hydra-Mac's potential loss, although small for Onan, was large for Hydra-Mac.
Finally, Anderson testified that in mid-1976, he told Onan executives, after he had studied the engine for only a day, that the NHCV had incurable design problems. In response, Onan told Anderson to design "band-aid fixes" as problems arose rather than having him redesign the entire engine immediately; hence, Onan's fix program. Anderson also testified that his engineering group began to design three new engines to replace the NHCV, but Onan later cancelled the design program. Onan continued to propose fixes and to tell Hydra-Mac that it would fix the engines.
Evidence of lost profits
Hydra-Mac and IH each presented expert testimony on the amount of their lost profits. Onan did not offer any rebuttal evidence.
On appeal, Onan argues the trial court erred in its finding that Onan's disclaimer did not apply to Hydra-Mac or IH and that Onan waived the statute of limitations defense. Onan also contends that the trial court erred in finding that Onan made fraudulent promises to repair through 1981, concealed the irreparable nature of the NHCV engine until 1981, and induced both respondents to detrimentally rely on Onan's promises to fix the engines.
Additionally, Onan maintains that, contrary to the trial court's findings, it did not make express and implied warranties to both respondents. Finally, Onan challenges the trial court finding that there was sufficient evidence to support the jury's damage awards.
1. Did the trial court err in determining the warranty disclaimer did not apply to respondents?
2. Did the trial court err in deciding waiver precluded application of the statute of limitations?
3. Was there sufficient evidence to support the jury's award...
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