Sierra Diesel Injection Service v. Burroughs Corp.

• Decision Date: 28 January 1987
• Docket Number: No. CV-R-84-535-ECR.,CV-R-84-535-ECR.
• Parties: SIERRA DIESEL INJECTION SERVICE, a Nevada corporation, Plaintiff, v. BURROUGHS CORPORATION, INC., a Delaware corporation, Defendant.
• Court: U.S. District Court — District of Nevada

651 F. Supp. 1371

SIERRA DIESEL INJECTION SERVICE, a Nevada corporation, Plaintiff, v. BURROUGHS CORPORATION, INC., a Delaware corporation, Defendant.

No. CV-R-84-535-ECR.

United States District Court, D. Nevada.

January 28, 1987.

COPYRIGHT MATERIAL OMITTED

Haase, Harris & Morrison, Reno, Nev., for plaintiff.

Brown & Bain, P.A., Phoenix, Ariz., Lionel Sawyer & Collins, Reno, Nev., for defendant.

ORDER

EDWARD C. REED, Jr., Chief Judge.

The defendant in this action has filed a motion asking this Court to reconsider its order denying the defendant's motion for summary judgment, entered on October 14, 1986. 648 F.Supp. 1148. The basis for this motion is the allegation that the Court neglected relevant Nevada case law when denying that motion, and that it did not consider part of the defendant's legal theory that was alleged in the summary judgment motion. In that the facts of the case were stated fully in the Court's original order, and because the defendant has not challenged the Court's characterization of them, they will not be restated here.

RELEVANT NEVADA CASE LAW

The defendant claims that this Court erred in denying the motion for summary judgment regarding the statute of limitations on Nevada fraud claims, in that it did not apply the case which defendant claims is controlling on this subject, Howard v. Howard, 69 Nev. 12, 239 P.2d 584 (1952). This case, contends the defendant, indicates that a claim for fraud accrues for statute of limitations purposes on the date of discovery of facts which, in the exercise of proper diligence, would have enabled the plaintiff to learn of the defendant's fraud, regardless of the date of the actual discovery of the fraud. In this sense, the defendant maintains that this Court erred in holding that a genuine issue of material fact exists regarding the date on which the statute began to run.

The defendant, however, overlooks later Nevada case law, which indicates that statutes of limitations questions are to be determined by jury or bench trial when the pertinent facts are subject to opposing inferences. In Millspaugh v. Millspaugh, 96 Nev. 446, 611 P.2d 201 (1980), for example, the plaintiff had asked the defendant, her son, to prepare a document which would convey her home to her children upon her death. The defendant presented her with a document in 1971 which created a joint tenancy among all parties, which he nonetheless represented as the sort of instrument she had requested. In 1976, the plaintiff discovered this discrepancy, and brought suit in 1978 to cancel the deed. The defendant moved for summary judgment contending that the statute of limitations had expired in 1975, long before the suit was filed. Id., at 201-02; see also NRS § 11.190(3)(d). In essence, the defendant argued that the statute began to run in 1972 when the plaintiff consulted another attorney about making a will. At this consultation, the plaintiff had told her attorney about the document, and the way she thought that it operated. She did not show the instrument to her attorney, nor did they have any further discussion concerning it. Id., at 202.

The Nevada Supreme Court found that these facts evidenced the existence of a genuine issue of material fact as to when the claim accrued. "The pertinent question here," the court stated, "is whether defendant should have learned, through the exercise of proper diligence, of the fraud or mistake when she met with her attorney in 1972, thereby triggering the statute of limitations." Id. Whether the defendant's brief conversation with her attorney regarding the status of the deed was sufficient to charge her with knowledge of the fraud or mistake was not conclusively resolved by the evidence before the court, in that equally plausible, opposite inferences could be drawn from the 1972 meeting. Id. In view of this fact, the court remanded the question to the lower court for resolution at trial.

In Nevada, therefore, the question of what constitutes sufficient knowledge to place a party under an affirmative duty to discover the fraud or mistake is normally a jury question. Id. As this Court stated in the earlier order denying summary judgment, one plausible interpretation of the facts of this case is that the plaintiff did not have sufficient knowledge of facts constituting defendant's alleged fraud until 1982, at which time an independent expert was hired. The report of that expert was apparently the first indication from an unbiased professional source that the defendant's computer systems would never be able to perform the tasks as represented by the defendant. Indeed, up until 1982, the defendant had steadfastly promised that the machines would be able to perform as lauded, and had also promised to repair any difficulties experienced with the machines. Although it is possible that a reasonable person would suspect fraud from the first moment the machine failed to operate, it is equally possible that a reasonable person would not think that he had been defrauded until the report of the independent expert was in. These equally possible inferences indicate the existence of a genuine issue of material fact, which precludes summary judgment. Id. Defendant's motion for reconsideration on this point is thus groundless.

EXCLUSION OF WARRANTY

Defendant's second contention in the motion for reconsideration deals with the alleged express waiver of warranty by the plaintiff. This point and all later contentions in the present motion were raised in the initial motion for summary judgment, and were heard at oral argument before the Magistrate. The Magistrate, however, did not consider them in her report and recommendation. Curiously, the defendant did not object to their absence in its objections to the Magistrate's recommendation. For this reason, this Court did not consider waiver of warranty or the other arguments in the earlier order. 28 U.S.C. § 636(b)(1) makes clear, however, that this Court must review the Magistrate's recommendation de novo, in spite of the parties' lack of objection. Even though serious waste of judicial resources is involved in the reservation of these objections, this Court must still consider them.

The defendant urges that Nevada statutes and case law preclude plaintiff's reliance on implied warranty claims, in that a conspicuous waiver of all warranties was stated on the parties agreements. NRS § 104.2316(2) provides that:

... to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify an implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, "There are no warranties which extend beyond the description on the face hereof."

NRS § 104.2316(2). To exclude implied warranties of fitness, therefore, Nevada law requires that the waiver be in writing, and that it also be conspicuous. Id.

The defendant claims that the bold, capital letters alone are enough in Nevada to make a waiver conspicuous. In support of this contention, it cites Sierra Creek Ranch, Inc. v. J.I. Case, 97 Nev. 457, 634 P.2d 458 (1981). In this case, the defendant had sold a used wheel loader to the plaintiff and had warranted the power train, engine and transmission for 90 days after the sale. The parties' written agreement included a disclaimer, written in bold, capital letters, which indicated that all other warranties, including implied warranties of fitness and merchantability were nonexistent. The trial court had held that this language, so written, was sufficient to exclude all implied warranties.

The state supreme court agreed. It found that "a disclaimer, written conspicuously, in capital letters, was sufficient to preclude the existence of any implied or express oral warranties." Id., at 460. In that the trial court had found the form and language of this disclaimer conspicuous, the higher court was unwilling to disturb that finding on appeal, and held all implied warranties disclaimed. Id.

The defendant would interpret this case to mean that all disclaimers, written in bold, capital letters, are conspicuous as a matter of law. The Sierra Ranch decision, however, cannot be stretched quite this far. Initially, the supreme court's definition of the term "conspicuous" is very confusing, in that the court used that same term in its definition. Id. The upshot of this usage is that the court ends up saying: "What is conspicuously written is conspicuous." This sort of definition does not provide much guidance for later courts to follow. Moreover, the trial court in this case had held the disclaimer to be conspicuous after a full trial on the merits, and not on a motion for summary judgment. The facts are not generously stated in the opinion, but it is possible that the trial court based its holding regarding the conspicuousness of the disclaimer on more than the mere form and content of language alone.

In addition, the Sierra Ranch case fails to discuss NRS § 104.1201(10). This section indicates that

a term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: Negotiable Bill of Lading) is "conspicuous." Language in the body of a form is "conspicuous" if it is in larger or other contrasting type or color ...

NRS § 104.1201(10). As other courts have noted,

"section 1-201(10) of the UCC does give guidance as to what shall be construed as conspicuous, but it is important to note that comment 10 to that section states that the methods listed therein are only some of the methods a seller may use to make the terms of clauses `attention calling.' Comment 10 then states `the test is whether attention can reasonably be expected to be called to it.'"

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