FinishMaster, Inc. v. Richard's Paint and Body Shop, LLC et al
Filing
262
ORDER GRANTING IN PART AND DENYING IN PART 237 Motion for New Trial; DENYING as Moot 230 Motion for Entry of Judgment; DENYING as Moot 240 Conditional Motion for Entry of Judgment. Signed by Judge Andrew W. Austin. (jk)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
RICHARD’S PAINT AND BODY SHOP,
LLC D/B/A CUSTOM CAR CRAFTERS
Plaintiff, Counter-Defendant
v.
BASF CORPORATION AND
FINISHMASTER, INC.,
Defendants, Counter-Plaintiffs
§
§
§
§
§
§
§
§
§
NO. A-11-CA-560 AWA
ORDER
Before the Court are: Plaintiff’s Motion for Entry of Judgment, filed on September 11, 2012
(Clerk’s Docket No. 230); Defendants’ Rule 49 Motion for a New Trial, filed on September 18,
2012 (Clerk’s Docket No. 237); Defendants’ Conditional Motion for Entry of Judgment, filed on
September 21, 2012 (Clerk’s Docket No. 240); and the Parties’ various response and reply briefs.
The Court conducted a hearing on these issues on October 3, 2012.
I.
Background Facts
In their Rule 49 Motion for a New Trial, Defendants argue that the Court must order a new
trial because the jury’s answers to several questions on the verdict form are in direct conflict with
each other. The facts are these: After an eight-day trial, the Court instructed the jury on the relevant
law in a 17-page charge, and gave the jury a ten-question verdict form to complete. Clerk’s Docket
No. 216. The verdict form and charge sent four issues to the jury: (1) Custom Car Crafter’s breach
of warranty claim on merchantability; (2) CCC’s breach of warranty claim on fitness for a particular
purpose; (3) CCC’s common law fraud claim; and (4) CCC’s fraud-based affirmative defense to the
Defendants’ breach of contract claims.
In the verdict form, Question One addressed liability for the merchantability warranty,
Question Two addressed liability for the fitness warranty, and Question Three posed the fraud
liability question. Question Four asked what damages CCC had suffered for any of these claims,
with the jury’s consideration of that question conditioned on a “yes” answer to at least one of the first
three questions.1 The jury found that both defendants breached the implied warranty of fitness for
a particular purpose with regard to the paint supplied to CCC, but that neither defendant had
breached the implied warranty of merchantability. The jury also found that the Defendants had
defrauded CCC. Because the jury found liability on two of the three claims, it answered Question
Four, and awarded CCC $1,500,000 in compensatory damages. Questions Five and Six addressed
punitive damages; Five asked whether CCC had proved its fraud claim by “clear and convincing
evidence” (the threshold for awarding punitive damages for fraud under Texas law) and Six asked
the jury to fix a punitive damage figure. The jury found that CCC had in fact proved its fraud claim
by clear and convincing evidence, and assessed punitive damages of $1,500,000 against BASF and
$750,000 against FinishMaster.
The remaining four questions addressed BASF’s and FinishMaster’s breach of contract
claims for CCC’s failure to return the “up-front” money it had been paid under its contracts with the
two defendants. Those contracts required that if CCC terminated the contracts prematurely, it was
obligated to return the prepayment, or some part thereof. Among other things, CCC pled fraud as
an affirmative defense to these claims. At the close of the evidence, it was undisputed that CCC had
failed to repay any of the prepaid monies, and the sole remaining issue was CCC’s defense of excuse
1
CCC agreed that the damages it suffered from any breach of warranty were the very same
damages it suffered from any fraud—the costs of repairing defective paint and lost profits from lost
customers.
2
based on fraud. The Court thus proposed that the only questions the jury should be asked were
whether CCC had proven its fraud/excuse defense, and, if not, how much BASF and FinishMaster
were each entitled to be repaid. Questions Seven and Nine posed the fraud defense question as to
each of the two defendants, and Questions Eight and Ten asked the amount CCC owed BASF and
FinishMaster, respectively. No party objected to this structuring of the issues.2 Notwithstanding the
jury having found that BASF and FinishMaster had defrauded CCC, and having awarded not just
actual but also punitive damages for that fraud, when it answered the fraud/excuse questions on the
contract claims, the jury found that CCC had failed to prove fraud for purposes of that defense, and
awarded damages of $176,000.00 to BASF and $100,000 to FinishMaster.
Defendants contend that this verdict contains a fatal inconsistency because the jury was
instructed that to answer either the fraud or excuse questions affirmatively they had to find that
Defendants made a material false misrepresentation to CCC. For its part, CCC argues that
Defendants waived any inconsistency in the verdict because they failed to raise any objection to the
verdict before the jury was discharged. Alternatively, CCC argues that the jury’s findings are not
fatally inconsistent and the Court should enter a judgment on that verdict.
II.
Waiver and Federal Rule of Civil Procedure 49
CCC’s primary argument against the granting of a new trial is that BASF and FinishMaster
waived their ability to object to the verdict because they failed to object to it before the jury was
discharged. Oddly, whether the waiver argument is even applicable to this verdict depends upon
2
A complicating factor on the fraud defenses to the contract claims was that BASF’s contract
was governed by New Jersey law, while the FinishMaster contract was governed by Indiana law.
Added to this was the fact that CCC’s common law fraud claim was brought under Texas law, as
Texas is where the allegedly false statements were made.
3
whether it is characterized as a “general” or a “special” verdict.3 In brief, for “general” verdicts some
courts have held that a party may not object to an inconsistency in the verdict if the objection is
raised after the jury has been discharged. On the other hand, no such waiver rule is applied by these
courts to verdicts considered “special” verdicts. Thus, whether a verdict is characterized as general
or special under Rule 49 is a critical question when there is a potential inconsistency among the
jury’s answers.
A.
The Waiver Issue
As mentioned, a number of federal appellate courts have held that a party waives any
objection to an inconsistent general verdict under Rule 49(b) if the party fails to raise the objection
before the jury is discharged. See Fields v. Corizon Health, Inc., 2012 WL 3854592 at * 11(11th Cir.
Sept. 6, 2012) (finding that a party waives a Rule 49(b) inconsistency challenge if the party does not
object before the jury is discharged); Radvansky v. City of Olmsted Falls, 496 F.3d 609, 618 (6th Cir.
2007) (same); Mason v. Ford Motor Co., Inc., 307 F.3d 1271, 1275-6 (11th Cir. 2002) (same);
Zhang v. American Gem Seafoods, Inc., 339 F.3d 1020, 1033-34 (9th Cir. 2003) (same), cert denied,
541 U.S. 902 (2004); Lockard v. Missouri Pacific R. Co., 894 F.2d 299, 304 (8th Cir. 1990) (same);
Diamond Shamrock Corp. v. Zinke & Trumbo, LTD., 791 F.2d 1416, 1423 (10th Cir. 1986) (same),
cert. denied, 479 U.S. 1007 (1986).
In a case that predates all of these decisions, the Fifth Circuit held that an inconsistency
objection was waived when the party did not object while the jury was still in court. See Stancill v.
3
“Oddly” because, as will be seen below, the very concept of “general” and “special
verdicts” is an arcane one, and is very difficult to apply to current practice. That such an outdated
distinction makes the difference between an entry of a judgment on an otherwise inconsistent verdict
being permitted or prohibited is strange, to say the least.
4
McKenzie Tank Lines, Inc., 497 F.2d 529, 534-35 (5th Cir. 1974) (“By failing to object to the form
of the verdict and answers at the time they were announced by the jury, both parties waived any
objection to inconsistencies under Rule 49(b)”). In later cases, the circuit rejected the same waiver
arguments for Rule 49(a) verdicts. See, e.g. Mercer v. Long Mfg. N.C., Inc., 671 F.2d 946, 948 n.
1 (5th Cir. 1982) (on rehearing). In a rather long footnote that gathers cases in the circuit on this
issue, the Mercer court characterized its previous decision in Stancill as having found that a waiver
took place, but also emphasized that the trial court had not only asked counsel for any objections
before the jury, but also called them to the bench to ask again. Id. Further, in explaining why no
waiver argument could be raised in Rule 49(a) inconsistency situations, the court explained that its
prior decisions encouraging parties to raise verdict inconsistencies before the jury is discharged is
not the same as requiring the objections:
Obviously—as it nearly always will be—it would have been better practice here for
Defendant Long Manufacturing to have moved for resubmission or to have raised
specifically the issue of inconsistent interrogatories prior to the dismissal of the jury.
While there are many practices which we recommend parties follow, extolling the
virtue of a procedure is not equivalent to mandating that it be followed with the dire
consequence of waiver for failure to adopt the practice. We know of no case in this
Circuit holding that inconsistencies in special verdicts pursuant to F.R.Civ.P. 49(a)
are waived if not raised prior to release of the jury.
Id. at 947-48. Finally, in Brunner v. Maritime Overseas Corp., 779 F.2d 296, 297(5th Cir. 1986),
the court relied upon this very argument in a case which did not even make a finding regarding
whether the verdict in the case was a general or special verdict. It is worth quoting this portion of
the decision in full:
The threshold question is whether appellants have preserved their error. At the time
the charge was given to the jury, appellants did not object to the charge on the ground
that the interrogatories could result in inconsistent answers. Appellants also did not
object when the verdict was returned. The consideration of this issue would have
5
been better served if appellants had made their objection at least at the time that the
jury returned its verdict so that the court could evaluate whether or not it was
inconsistent and could have sent it back to the jury to reconsider. But, appellants did
not waive their right to complain of inconsistent answers by failing to object. If
answers to jury interrogatories are in irreconcilable conflict, then the judge has no
authority to enter judgment based upon those answers. Fugitt v. Jones, 549 F.2d
1001, 1005 (5th Cir.1977). Thus, failure to object does not waive the right to raise
the issue in a motion for new trial when answers to interrogatories result in
irreconcilable conflict. Guidry v. Kem Manufacturing Company, 598 F.2d 402, 407
(5th Cir.1979), cert. denied, 445 U.S. 929, 100 S.Ct. 1318, 63 L.Ed.2d 763 (1980);
Mercer v. Long Manufacturing NC, Inc., 671 F.2d 946, 947 (5th Cir.1982); Alverez
v. J. Ray McDermott, 674 F.2d 1037 (5th Cir.1982). We conclude that appellants
have met the procedural requirement to raise the inconsistent verdict claim.
Brunner, 779 F.2d at 297. Notably, in stating its holding, the circuit did not limit it to Rule 49(a)
cases.4 Further, while the court does not set out the questions, it does describe them in enough detail
to infer their content as being close to this:
•
Were the defendants negligent in leaving oil on the deck of the ship?
•
Was the vessel unseaworthy due to having oil on the deck?
•
What were the plaintiff’s damages, if any?
As will be seen in the following section, this could be viewed as being a general verdict. In short,
the state of the law in the Fifth Circuit is less than clear. At a minimum, the circuit does not
recognize a waiver argument in Rule 49(a) cases, and although the circuit did allow a waiver
argument in Stancill, the Brunner and Holt Oil cases muddy the waters as to whether Stancill stands
for the broad proposition that waiver will always be available as an argument in Rule 49(b) verdicts.
Added to this is the fact that the adoption of a strong waiver rule is difficult to defend
4
The circuit reached a very similar holding in Holt Oil & Gas Corp. v. Harvey, 801 F.2d 773,
781 at n. 9 (5th Cir. 1986), cert. denied, 481 U.S. 1015 (1987), where it held that a party did not
waive the issue by failing to object at the time the jury returned its verdict since “[i]f answers to jury
interrogatories are in irreconcilable conflict, then the trial judge lacks authority to enter judgment
based upon those answers.” Further, the case does not classify the verdict as “general” or “special.”
6
logically. First, neither Rule 49(a) nor 49(b) contains a waiver provision stating that a party waives
an inconsistency challenge if he or she fails to raise an objection before the jury is discharged.5
5
The full text of Rule 49 is:
Rule 49. Special Verdict; General Verdict and Questions
(a)
Special Verdict.
(1) In General. The court may require a jury to return only a special
verdict in the form of a special written finding on each issue of fact.
The court may do so by:
(A) submitting written questions susceptible of a
categorical or other brief answer;
(B) submitting written forms of the special findings
that might properly be made under the pleadings and
evidence; or
(C) using any other method that the court considers
appropriate.
(2) Instructions. The court must give the instructions and explanations
necessary to enable the jury to make its findings on each submitted
issue.
(3) Issues Not Submitted. A party waives the right to a jury trial on
any issue of fact raised by the pleadings or evidence but not submitted
to the jury unless, before the jury retires, the party demands its
submission to the jury. If the party does not demand submission, the
court may make a finding on the issue. If the court makes no finding,
it is considered to have made a finding consistent with its judgment
on the special verdict.
(b)
General Verdict with Answers to Written Questions.
(1) In General. The court may submit to the jury forms for a general
verdict, together with written questions on one or more issues of fact
that the jury must decide. The court must give the instructions and
explanations necessary to enable the jury to render a general verdict
and answer the questions in writing, and must direct the jury to do
both.
7
“Statutory construction begins with the ordinary meaning of the text.” TLI, Inc. v. U.S., 100 F.3d
424, 427 (5th Cir. 1996). The clear and unambiguous wording of subdivision 49(b)(4) states that
“judgment must not be entered” by the Court if the jury’s answers are inconsistent, and “the court
must direct the jury to further consider its answers and verdict, or must order a new trial.” FED . R.
CIV . P. 49(b)(4). Thus, in Schaafsma v. Morin Vermont Corp., 802 F.2d 629, 634 (2nd Cir. 1986),
the court rejected a waiver argument under Rule 49(b) on the rationale that Rule 49(b) specifically
provides that in the case of inconsistency the “judgment shall not be entered” and thus “while a
party’s failure to object to such a double inconsistency carries some weight in our analysis on appeal,
(2) Verdict and Answers Consistent. When the general verdict and the
answers are consistent, the court must approve, for entry under Rule
58, an appropriate judgment on the verdict and answers.
(3) Answers Inconsistent with the Verdict. When the answers are
consistent with each other but one or more is inconsistent with the
general verdict, the court may:
(A) approve, for entry under Rule 58, an appropriate
judgment according to the answers, notwithstanding
the general verdict;
(B) direct the jury to further consider its answers and
verdict; or
(C) order a new trial.
(4) Answers Inconsistent with Each Other and the Verdict. When the
answers are inconsistent with each other and one or more is also
inconsistent with the general verdict, judgment must not be entered;
instead, the court must direct the jury to further consider its answers
and verdict, or must order a new trial.
FED . R. CIV . P. 49.
8
the terms of Rule 49(b) make it the responsibility of a trial judge to resolve the inconsistency even
when no objection is made.” Id. (internal quotations and citations omitted).
One of the rationales offered by courts that have interpreted Rule 49(b) to contain an implied
waiver provision is that “[t]he purpose of the rule is to allow the original jury to eliminate any
inconsistencies without the need to present the evidence to a new jury,” which also “prevents a
dissatisfied party from misusing procedural rules and obtaining a new trial for an asserted
inconsistent verdict.” Lockard, 894 F.2d at 304. See also, Pensacola Motor Sales Inc. v. Eastern
Shore Toyota, LLC, 684 F.3d 1211, 1225 (11th Cir. 2012); Radvansky, 496 F.3d at 618; Stancill,
497 F.2d at 536. But this same rationale applies equally to a case submitted to a jury through a Rule
49(a) special verdict. As the Second Circuit has acknowledged, “the basis for a sharp distinction
regarding waiver between Rule 49(a) verdicts and Rule 49(b) verdicts is unclear.” Denny v. Ford
Motor Co., 42 F.3d 106, 111(2nd Cir. 1994).6
Other courts have justified the implied waiver rule by reference to the text of Rule 49(b),
which states that in the case of inconsistent jury verdicts, the first directive to the court is that it
“must direct the jury to further consider its answers and verdict,” while Rule 49(a) does not contain
this language. Based on the absence of the re-submission language in Rule 49(a), some courts have
6
Thus, the Second and the First Circuits have held that a party waives an inconsistency
objection under either Rule 49(a) or 49(b), if the party fails to raise such an objection before the jury
is discharged. See e.g., Denny, 42 F.3d at 110-11(holding that there should be no distinction between
49(a) and 49(b), and that waiver under either provision should be determined on a case-by-cases
basis); Peckham v. Continental Cas. Ins. Co., 895 F.2d 830, 836 (1st Cir. 1990) (holding that party
waived inconsistency argument under Rule 49(a) by not objecting before jury was dismissed); Frey
v. Alldata Corp., 895 F. Supp. 221, 223 (E.D. Wis. 1995) (same); Manes v. Metro-North Commuter
Railroad, 801 F. Supp. 954, 961(D. Conn. 1992) (same).
9
found that waiver applies to an inconsistency challenge under Rule 49(b), but not Rule 49(a). As
the 10th Circuit reasoned:
Unlike Rule 49(b), Rule 49(a) does not contain a specific direction to send the jury
back for further deliberations in the event of an inconsistency in the jury's answers.
Therefore, Rule 49(a) does not require a party to object to the inconsistencies in a
jury's answers to a special verdict before the jury is discharged in order to preserve
his right to challenge the inconsistencies in a subsequent motion or on appeal.
See Bonin v. Tour West, Inc., 896 F.2d 1260, 1263 (10th Cir. 1990) (citation omitted). This reasoning
is no more persuasive than the rationale just discussed. The Fifth Circuit has specifically addressed
the fact that Rule 49(a) does not contain a re-submission provision, but have nevertheless held that
both Rule 49(a) and Rule 49(b) verdicts permit re-submission when the results are inconsistent. See,
e.g., Wavelinq, Inc. v. JDS Lightwave Products Group, Inc., 2008 WL 3540200 at *5 (5th Cir. Aug.
14, 2008). The Circuit explained:
The practice of resubmission to the jury for clarification when the verdict is
conflicting is well-established. Federal Rule of Civil Procedure 49(b) explicitly
allows a district court to “direct the jury to further consider its answers and verdict”
when the answers to interrogatories are inconsistent with the general verdict or each
other. Rule 49(a), which concerns special verdicts, does not explicitly provide for
resubmission to the jury. However, we have held that special verdicts, such as the
one involved in this case, should be treated the same because Rule 49(a) does not
prohibit resubmission of inconsistent verdicts and it has long been the practice of this
circuit.
Id. The Circuit reached the same result twenty years earlier in Nance v. Gulf Oil Corp.:
Contrary to Gulf's assertions, Rule 49(a) does not prohibit resubmission of a 49(a)
verdict form. While Rule 49(a) unlike 49(b) does not provide for resubmission of a
verdict form, Rule 49(a) certainly does not preclude resubmission. Furthermore, it
has long been established in this Circuit that inconsistent special verdict answers may
be resubmitted to a jury for clarification of the inconsistency.
Nance v. Gulf Oil Corp., 817 F.2d 1176, 1178 (5th Cir. 1987) (internal quotations and citations
omitted). Thus, the different wording in the two subsections itself does not provide a compelling
10
rationale for the argument that a party waives an inconsistency challenge under Rule 49(b), but not
Rule 49(a), when the party fails to raise such an objection before the jury is discharged.
Having considered all of the above, the Court concludes first that Fifth Circuit precedent does
not mandate that a party automatically waives an inconsistency argument in a Rule 49(b) case if that
party fails to raise an objection before the jury is discharged in the case. In addition, the Court
concludes that the case law from other jurisdictions which have adopted this rule is not persuasive
and declines to follow those cases. Based upon these conclusions, the Court finds that regardless
of how the verdict in this case is characterized under Rule 49, BASF and FinishMaster have not
waived any argument they have that the verdict in this case was inconsistent.
B.
Was the verdict in this case “general” or “special”?
Even if the Court has misread the state of the law in the Fifth Circuit on this issue, there is
still the question of whether the verdict here was a special or a general verdict, as, at most, in the
Fifth Circuit the waiver argument only applies to general verdicts under Rule 49(b). Historically,
most jury cases in federal courts were resolved by a general verdict in which the jury was simply
asked to find for the plaintiff or for the defendant. 9B CHARLES ALAN . WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE
AND
PROCEDURE § 2501. In 1937, Rule 49 was adopted to make
available to trial judges two different procedures as discretionary alternatives to the general verdict.
Guidry v. Kem Mfg. Co., 598 F.2d 402, 405 (5th Cir. 1979). Under Rule 49(a), or the “Special
Verdict” subdivision, the trial judge was given authority to dispense with the general verdict
altogether and instead submit the various fact issues in the case to the jury in the form of individual
fact questions, on each of which the jury would return a special verdict. 9B CHARLES ALAN .
11
WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2501. Thirty-three years
ago, the Fifth Circuit noted that:
[t]he special verdict permitted by Rule 49(a) is a splendid device for clarification of
jury verdicts and for focusing the jurors’ attention on the disputed facts without the
possible confusion that may result from a lengthy charge concerning the different
legal rules that would apply if the jury reaches one factual conclusion rather than
another.
Guidry, 598 F.2d at 405. But, “like all fine tools, it must be skillfully employed and its successful
use requires the careful attention of counsel for all parties as well as of the court to be certain that
the questions are framed to avoid the possibility of inconsistent answers.” Id. at 405-06. Rule
49(b), or the “General Verdict with Answers to Written Questions” subdivision, gave courts the
power to ask a jury to return a general verdict (asking the jury to decide who wins), accompanied by
answers to certain interrogatories about particular issues in the case. Id. In more complex cases,
courts may use multiple general verdicts or they can mix and match general and specific verdicts
with regard to different claims. 9B CHARLES ALAN . WRIGHT & ARTHUR R. MILLER, FEDERAL
PRACTICE AND PROCEDURE § 2504.1.
As noted, in order to be able to make a waiver argument, CCC must demonstrate that the
verdict in this case was a general verdict under Rule 49(b). To do so, CCC relies heavily on an
unpublished opinion from the Northern District of Texas, Giddy Up, LLC v. Prism Graphics, Inc.,
2008 WL 656504 at * 3 (N.D. Tex. Mar. 12, 2008). In that case Judge Boyle relied on Eleventh
Circuit caselaw to find that the jury rendered Rule 49(b) general verdicts, and then went on to find
that the defendant had waived any argument that the jury’s answers to several questions were
inconsistent. On the contract claim, the jury was asked:
Has Giddy Up proved by a preponderance of the evidence that PRISM breached
[various provisions of the contract]?”
12
On the fraud and the DTPA clams, the court instructed the jury on the elements of the claims, and
then asked:
Has Giddy Up proved by a preponderance of the evidence that the defendants
committed fraud? and
Has Giddy Up proved by a preponderance of the evidence that the defendants
violated the DTPA?7
Judge Boyle concluded that these questions constituted the submission of general verdicts on
multiple theories of liability under Rule 49(b). Id.
CCC argues that the questions submitted in this case are very similar to those in Giddy Up,
and thus the Court should find that the verdict in this case was submitted under Rule 49(b). As the
Defendants point out, there are many more cases—including cases decided by the Fifth Circuit—in
which other similar questions were considered to be Rule 49(a) special verdicts. For example, in
Guidry, discussed above, a plaintiff brought a products liability action against two manufacturers
whose chemicals for clearing drains harmed him. The two questions posed to the jury at issue in that
case asked:
•
Was the product supplied by defendant Kem Manufacturing Company (Kem)
defective, or did defendant Kem breach its implied warranty or negligently
fail to warn plaintiff, in a manner which was a proximate cause of injury to
plaintiff Mr. Guidry?
•
Was third-party defendant Kem Manufacturing Company actively negligent
in a manner which was a proximate cause of injury to plaintiff?
7
The exact wording of the questions on these last two claims is not contained in the opinion,
but it is possible to glean their likely content from what is discussed about those questions, and from
the wording on the one question that is quoted in the decision.
13
Guidry, 598 F.2d at 404-05. The Fifth Circuit concluded that these questions constituted a special
verdict under Rule 49(a). The two questions at issue in this case are difficult to distinguish from
those in Guidry. The questions posed were:
•
Did CCC prove by a preponderance of the evidence that BASF or
FinishMaster committed fraud?
•
Has CCC proven by a preponderance of the evidence that its failure to pay
BASF the [prepaid monies] is excused [ where the court’s instruction limited
the meaning of “excuse” to fraud by BASF]?
•
Has CCC proven by a preponderance of the evidence that its failure to pay
FinishMaster [prepaid monies] is excused [where the court’s instruction
limited the meaning of “excuse” to fraud by FinishMaster]?
The Fifth Circuit has also found all of the following questions to be special verdicts:
•
Do you find from a preponderance of the evidence that on the occasion in
question that such a failure, if any, was negligent?8
•
Do you find from a preponderance of the evidence that such negligence, if
any, was a proximate cause of the Plaintiff's injuries?9
•
Did JDS fail to comply with the Asset Purchase Agreement with regard to
(1) “disputed products,” (2) “undisputed products,” and (3) “earn-out
statements”? 10
•
State the amount of damages for any of the three categories to which you
have answered “yes” in the first section.11
8
McDaniel v. Anheuser-Busch, Inc., 987 F.2d 298, 307 (5th Cir. 1993).
9
Id.
10
Wavelinq, Inc. v. JDS Lightwave Products Group, Inc., 2008 WL 3540200 at * 2, 5 (5th Cir.
Aug. 14, 2008). As with Giddy Up, the court does not quote the questions in its decision, so what
is set out in the text is this Court’s best estimate of what the question stated, based on the discussion
contained in this decision.
11
Id.
14
The Fifth Circuit has even found the following to not be a general verdict:
AS TO BREACH OF WARRANTY:
We, the Jury, find for the Plaintiff, Bill Mercer
______.
We, the Jury, find for the Defendant, Long Mfg. N.C., Inc. ______.
AS TO DECEPTIVE TRADE PRACTICES:
We, the Jury, find for the Plaintiff, Bill Mercer
______.
We, the Jury, find for the Defendant, Long Mfg. N.C., Inc. _____.
AS TO STRICT LIABILITY:
We, the Jury, find for the Plaintiff, Bill Mercer
______.
We, the Jury, find for the Defendant, Long Mfg. N.C., Inc. ____.
Mercer v. Long MFG N.C., Inc., 665 F.2d 61, 64 n. 8, 65 (5th Cir. 1980). Like CCC here, the
plaintiff in Mercer argued that these three questions amounted to a “general charge with three
separate general verdicts, one for each of three separate theories of liability.” Id. Indeed, the
questions do seem simply to ask the jury to state who they find for—the plaintiff or the
defendant—as to three causes of action. Despite this, the Fifth Circuit found this to be a special
verdict, stating that “[n]o general verdict was rendered by the jury.” Id. Applying these decisions
to the questions at issue here, the Court would conclude that the jury’s answers to the questions in
this case are plainly special verdicts under Rule 49(a).
Unsurprisingly, courts have been inconsistent in how they characterize verdicts. The Second
Circuit has acknowledged that “there is no clear definition in our caselaw of what constitutes a Rule
49(a) verdict and what constitutes a Rule 49(b) verdict.” Denny v. Ford Motor Co., 42 F.3d 106,
111(2nd Cir. 1994). The Denny court further pointed out that it had held in a previous case that a
verdict form asking five questions calling for a legal conclusion was a special verdict under Rule
49(a), despite the fact that it contained no strictly factual questions. Id. Within the Fifth Circuit
15
there have been many inconsistencies. For example, in Guidry, the court found this question was
a special verdict under Rule 49(a):
•
Was third-party defendant Kem Manufacturing Company actively negligent
in a manner which was a proximate cause of injury to plaintiff?
Guidry, 598 F.2d at 404-05. Yet, just five years earlier, the court found an almost identical question
to be a general verdict under Rule 49(b):
•
Was Jimmy L. Whitley guilty of any negligence? If so, was his negligence
a proximate cause of the collision?
Stancill , 497 F.2d at 534-5. See also, Giddy Up, 2008 WL 656504 at *4 n. 1 (conceding that court’s
interpretation of the verdict in the case conflicted with the Fifth Circuit’s decision in Mercer).
This lack of consistency demonstrates the arbitrary nature of deciding whether a verdict is
a “general” or “special” verdict. While courts have referred very generally to the concepts behind
“general” and “special” verdicts, there is no clear test used to distinguish between them. Thus, the
Court is reluctant to pigeon-hole the verdict form and instructions in this case into either Rule 49(a)
or 49(b). The charge submitted in this case—like every charge used by this Court—contains some
of the characteristics of a special verdict, as well as some of those of a general verdict with answers
to written questions. However, if forced to decide the issue, the Court would conclude that the jury
verdict in this case better fits within the framework of a Rule 49(a) special verdict, than a Rule 49(b)
general verdict. Thus, even if there is a waiver argument available under Rule 49(b), that argument
is inapplicable to the verdict returned in this case.12
12
The Court must admit that it was surprised to learn of the tortured state of the law on this
issue. Not only is there is no consensus among the federal courts of appeal regarding whether a party
waives an inconsistency challenge under Rule 49(a), (b) or both, but the law regarding whether any
particular question is properly characterized as a “special” or “general” verdict is all over the board
as well. Rule 49 was adopted in 1937, and its substance has not been amended since. As noted in
16
III.
Was the Verdict Inconsistent?
With these conclusions, the Court can turn to the “real” issue here—were the jury’s answers
inconsistent? First, the applicable standard is provided by the Seventh Amendment, which requires
courts “to make a concerted effort to reconcile apparent inconsistencies in answers to special verdicts
if at all possible.” Alverez v. J. Ray McDermott & Co., 674 F.2d 1037, 1040 (5th Cir. 1982). Courts
“must attempt to reconcile the jury’s findings, by exegesis, if necessary, before [they] are free to
disregard the jury’s verdict and remand the case for new trial.” Id. (internal citations and quotation
omitted). “Where, however, the answers cannot be reconciled after a concerted effort, a new trial
must be granted.” Guidry, 598 F.2d at 406 (internal citations and quotations omitted). The test for
determining whether the jury’s answers to special verdicts are inconsistent is well-established in the
Fifth Circuit:
[T]he test to be applied in reconciling apparent conflicts between the
jury’s answers is whether the answers may fairly be said to represent
a logical and probable decision on the relevant issues as submitted,
even though the form of the issue or alternative selective answers
prescribed by the judge may have been the likely cause of the
difficulty and largely produced the apparent conflict. . . . If on review
of the District Court's judgment we find that there is no view of the
case which makes the jury's answers consistent and that the
inconsistency is such that the special verdict will support neither the
judgment entered below nor any other judgment, then the judgment
must be reversed and the cause remanded for trial anew.
the text, trying to characterize a modern verdict as “general” or “special” is challenging, as most
verdicts simply do not fit well into either category. The Court questions the remaining vitality of this
distinction, and further questions why it makes sense to preserve a rule which contains language
supporting the argument that a party may waive an inconsistent verdict in one instance, but not in
the other. Whatever the rule of waiver is, it should be the same in both instances, and the distinction
between general and special verdicts has little application to current practice. It would seem that
amendments to this rule are ripe for consideration by the Committee on Rules of Practice and
Procedure.
17
Alverez, 674 F.2d at 1040 (citing Griffin v. Matherne, 471 F.2d 911, 915 (5th Cir. 1973). In
attempting to reconcile special verdicts, courts must “look beyond the face of the interrogatories to
the court’s instructions as well.” Id. In addition, “the court must view the evidence in the light most
favorable to upholding the jury's decision by a finding of consistency.” Ellis v. Weasler Eng’g Inc.,
258 F.3d 326, 343 (5th Cir. 2001). Finally, district courts have wide discretion in determining
whether the jury’s answers are consistent. Richard v. Firestone Tire & Rubber Co., 853 F.2d 1258,
1260 (5th Cir. 1988). “The district judge, who has observed the jury during the trial, prepared the
questions and explained them to the jury, is in the best position to determine whether the answers
reflect confusion or uncertainty.” Id.
As noted, Defendants argue that there is an irreconcilable conflict between Questions 3, 5
and 6 on the one hand, and Questions 7 and 9 on the other. The Court must look at each of these
questions and as well as the Court’s instructions related to them to determine whether “the answers
may fairly be said to represent a logical and probable decision on the relevant issues as submitted.”
Alvarez, 674 F.2d at 1040. Question Three asked: “Did CCC prove by a preponderance of the
evidence that BASF or FinishMaster committed fraud?” The Court instructed the jury that “Fraud”
occurs when:
a.
a party makes a material misrepresentation, and
b.
the misrepresentation is made with knowledge of its falsity or made recklessly
without any knowledge of the truth and as a positive assertion, and
c.
the misrepresentation is made with the intention that it should be acted on by the
other party, and
d.
the other party relies on the misrepresentation and thereby suffers
injury.
Charge at p. 8. The Court further instructed the jury that “misrepresentation” means:
18
a false statement of fact; or a promise of future performance made with an intent, at
the time the promise was made, not to perform as promised; or a statement of opinion
based on a false statement of fact; or a statement of opinion that the maker knows to
be false; or an expression of opinion that is false, made by one claiming or implying
to have special knowledge of the subject matter of the opinion.
Charge at p. 8-9. The Court further instructed the Jury:
If you find that the CCC has proven by a preponderance of the evidence that BASF
or FinishMaster made [any of a list of alleged representations], and that any such
representation meets each and every element listed above for ‘fraud,’ then you will
answer this question “Yes.” Otherwise you will answer the question “No.”
Charge at p. 9. The Jury answered Question Three “Yes” as to both Defendants.
Question Five asked “Did CCC prove by clear and convincing evidence that BASF or
FinishMaster committed fraud?” The Court instructed the jury the following:
If you find that BASF or FinishMaster committed fraud, then you are to consider
whether their conduct supports the award of punitive damages. This requires proof
of the fraud by what is called “clear and convincing evidence.” Clear and convincing
evidence is evidence that produces in your mind a firm belief or conviction as to the
matter at issue. This involves a greater degree of persuasion than is necessary to
meet the preponderance of the evidence standard; however, proof to an absolute
certainty is not required. If you find that the CCC has proven by clear and
convincing evidence that the defendant committed fraud, answer “Yes.” Otherwise,
answer “No.”
Charge at p. 11-12. The Jury answered “Yes” as to both Defendants and awarded $1,500,000 in
punitive damages against BASF and $750,000 against FinishMaster.
Questions Seven and Nine each asked effectively the same question: “Has CCC proven by
a preponderance of the evidence that its failure to pay [BASF and FinishMaster] the [prepaid
monies] is excused?” The Court’s instructions contained only one possible excuse for the jury to
consider:
CCC’s failure to comply with the Agreement is excused if all of the following
circumstances occurred:
19
1.
[BASF or FinishMaster]
a.
misrepresented or concealed material facts;
b.
knew at the time it made the representations that they
were untrue;
c.
intended or reasonably expected that CCC would act
upon the representations; and
2.
CCC
a.
did not know that the representations were untrue
when they were made and acted upon;
b.
reasonably relied upon the representations in good
faith to its detriment; and
c.
would be prejudiced by its reliance on the
representations if the other party is permitted to deny
the proof thereof.
Charge at 13-16 (emphasis added). The Jury answered Questions Seven and Nine “No.”
The Jury’s answers to the fraud questions (Questions Three and Six) are in direct conflict
with its answers on the excuse questions (Questions Seven and Nine) since both questions required
the Jury to find that BASF and FinishMaster made a material false misrepresentation to CCC. The
charge clearly and unambiguously instructed the Jury that to find fraud, the jury would have to find
that Defendants made a material misrepresentation to CCC, with knowledge of its falsity or
recklessly without any knowledge of the truth, with the intent that it would be relied upon, and that
the CCC relied on the misrepresentation and suffered injury. Charge at p. 8-9. The jury found these
elements not only by a preponderance of the evidence, but also by “clear and convincing evidence”
when it awarded punitive damages for the fraud. The Court’s instructions to the Jury on excuse were
effectively identical to the affirmative fraud question, also requiring the jury to find that Defendants
made an intentional and material misrepresentations that they expected CCC to rely on and that CCC
did in fact rely on to its detriment. See Charge at 15-16. As already noted, in direct conflict with
their answers to Questions Three and Six, the jury concluded that CCC had not demonstrated these
20
elements buy a preponderance of the evidence, and thus found that CCC was not excused from its
failure to make the repayments due under its contract with each defendant.
While the Court’s instructions were slightly different for the excuse and fraud questions,13
both questions required the jury to find that Defendants committed an intentional and material
misrepresentation. The jury’s finding that Defendants committed fraud by committing an intentional
misrepresentation is in direct conflict with its finding that CCC was not excused from its obligations
under the contracts because Defendants did not make an intentional misrepresentation. See Mercer,
665 F.2d at 66 (holding that there was a direct conflict between jury’s answers to interrogatories
where jury had concluded that defendant had breached warranty, but had not violated Texas DTPA
where district court had specifically charged that breach of express or implied warranty was violation
of the Act). While the answers to Questions Seven and Nine may have reflected the jury’s intention
to prevent CCC from receiving a windfall in the case (as CCC contends), “it also demonstrates a
view of the facts patently contrary” to that reflected in the answers to Questions Three and Five.
Guidry, 598 F.2d at 407. As the Fifth Circuit discussed in Guidry, “the fact analysis reflected by”
the negative answer to questions Seven and Nine, is “Defendants did not commit fraud,” while the
fact analysis essential to the positive answers in Three and Six is “Defendants did commit fraud.”
The jury’s answers to these questions cannot be reconciled because they cannot “fairly be said to
represent a logical and probable decision on the relevant issues.”
13
As noted previously, each of the fraud issues was governed by a different state’s law. The
affirmative fraud claim fell under Texas law, the BASF contract defense was governed by New
Jersey law, and the FinishMaster fraud defense was governed by Indiana law.
21
IV.
Conclusion
Unfortunately, this means that the Court must order a new trial on CCC’s affirmative fraud
claim and its fraud defenses to the BASF and FinishMaster breach of contract counterclaims. The
Court reaches this conclusion unhappily, as the Court is always extremely reluctant to dislodge a
jury’s considered decision. But the Court does not believe it has any other reasonable option in light
of the facts of this case, and the jury’s answers.
Based upon the foregoing, Defendants’ Rule 49 Motion for a New Trial (Clerk’s Docket No.
237) is HEREBY GRANTED IN PART as to CCC’s affirmative fraud claim and as to its fraud
defenses to BASF’s and FinishMaster’s breach of contract counterclaims. The Motion is DENIED
as to the jury’s verdict on the breach of warranty claims. The Court will withhold entry of judgment
on the warranty claims until the new trial is completed.
FINALLY, as a result of these rulings, Plaintiff’s Motion for Entry of Judgment (Clerk’s
Docket No. 230) and Defendants’ Conditional Motion for Entry of Judgment (Clerk’s Docket No.
240) are both DENIED as MOOT.
SIGNED this 5th day of November, 2012.
_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE
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