LANDSMAN PACKING CO. v. CONTINENTAL CAN CO.

WALTER E. HOFFMAN, Senior District Judge:

Landsman Packing Company ("Landsman") filed suit against Continental Can Company ("Continental") in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida, alleging breach of contract regarding Landsman's leasing of a capping machine from Continental. Continental counterclaimed for rents due on the capping machine, costs of machine parts unpaid by Landsman, and to regain possession of a loaned capping machine allegedly converted by Landsman. Continental removed the case to the United States District Court for the Southern District of Florida pursuant to 28 U.S.C. §§ 1332 and 1441. The district court granted Continental's motion for summary judgment on its counterclaim for machine rent and cost of parts in the amount of $26,672.20.

The case proceeded to a jury trial on Landsman's breach of contract claim and Continental's counterclaim of conversion. The jury decided against Continental on the conversion claim and ruled in favor of Landsman on its breach of contract claim, awarding $500,490 in direct damages and $5,332,500 in consequential damages. The district court denied Continental's post-trial motions for judgment n.o.v. and new trial, but granted a motion for remittitur and reduced direct damages from $500,490 to $8,710. Continental appeals the judgment following the jury's award of direct and consequential damages, and the jury's finding of no conversion.

Because the trial judge improperly instructed the jury on the breach of contract issue, we vacate the jury's award of damages and remand the case to the district court for a new trial. The jury's verdict on the conversion claim is also vacated as against the clear weight of the evidence, and the issue is remanded for a determination of damages.

I.

In 1969 Landsman contracted to lease a capping machine from Continental for the purpose of placing caps on jars of fruit processed by Landsman. The machine was shipped to Landsman in 1972 and ran satisfactorily until May 1981. On June 11, 1981, the parties renewed the 1969 contract and executed a new lease agreement that contained essentially the same terms as the 1969 agreement and provided for automatic annual renewals.1 At all times under the lease, Landsman was using the capping machine originally shipped in 1972.

In May 1981, the machine allegedly began misapplying caps, resulting in a faulty seal, which caused the fruit contents to spoil. Landsman contacted Continental and they sent servicemen to repair the machine. Despite Continental's repair efforts, the machine continued to malfunction, and on October 30, 1981, Landsman's plant manager gave its first written notice to Continental regarding Continental's failure to repair the machine. The capping problem continued to recur through December 1982, at which time Continental loaned Landsman a new machine to determine if that would cure the problem.2 Although the new machine worked properly, Landsman was forced to close its plant in April 1983, allegedly because of loss of customers and sales due to the malfunctioning machine. New York law controls the issues in this case pursuant to paragraph 13 of the lease agreement.3

II.

On appeal, Continental asserts several grounds for reversal of the jury's findings below. We will categorize and review these issues in three groups. The first issue we will address is whether Landsman's claims are barred by the expiration of specific time limitations in the lease, such as the 12 month limited warranty, and the 30 day written notice of claim requirement. See supra note 1 (quoting paragraphs 9(a) and (b) of lease). Second we will comment on the trial judge's admission of certain expert testimony. The final issue calls for a review of whether the jury's finding that Landsman did not convert the loaned capping machine was against the clear weight of the evidence.

III.

A. The 12 Month Warranty

At trial Landsman alleged that Continental breached two provisions of the lease agreement: first, paragraph 4 of the lease, which requires Continental to furnish repair parts and machine service;4 and, second, paragraph 9(b), which provides for a warranty against faulty workmanship and defective materials extending twelve months from the date of original shipment of the machine or its replacement parts. See supra note 1. Landsman further claimed that the exclusive remedy of repair or replacement provided in paragraph 9(c) failed of its essential purpose. Id.

Apparently, at trial Landsman focused its claim on Continental's alleged breach of the 12 month warranty. By its terms, the warranty coverage for the machine was limited to 12 months from the date of original shipment, which was in 1972. The warranty also covered any replaced parts for 12 months from the date of shipment of the particular part. Id. Regarding Landsman's breach of warranty claim, the trial judge instructed the jury that the time limitations set forth in the lease may be disregarded if so unreasonable that they amount to eliminating all remedy under the contract and charged the jury with the following special interrogatory:

Continental argues on appeal that the special interrogatory is erroneous for two reasons. First, Continental contends that the last clause of the interrogatory, stating as follows: "and that such time limitation was reasonable," makes the interrogatory erroneous because in form it is an impermissible compound question. Second, Continental argues that the jury should not have been permitted to determine the reasonableness of the 12 month warranty. Before we address the merits of this claim, we must first determine whether Continental properly preserved this issue for appeal. Although Continental objected to the interrogatory during a precharge conference held in judicial chambers, it failed to object at the critical moment the jury was charged with the interrogatory.

Rule 51 of the Federal Rules of Civil Procedure requires that an objection to jury instructions be stated distinctly after the charge and before the jury retires. Lang v. Texas & Pacific Railway Co., 624 F.2d 1275, 1279 (5th Cir.1980).5 The purpose of Rule 51 is to ensure that the trial judge is made aware of any alleged errors, and to give the judge an opportunity to correct any error before the jury begins its deliberations. Pate v. Seaboard Railroad, Inc., 819 F.2d 1074, 1082 (11th Cir.1987); Lang, 624 F.2d at 1279; Williams v. Hoyt, 556 F.2d 1336, 1340 (5th Cir.1977), cert. denied, 435 U.S. 946, 98 S.Ct. 1530, 55 L.Ed.2d 544 (1978); Independent Development Board v. Fuqua Industries, Inc., 523 F.2d 1226, 1237-38 (5th Cir.1975). Additionally, Rule 51 must be read in conjunction with Rule 46, which essentially states that formal exceptions to court rulings or orders are unnecessary provided the party makes his objections known to the court.6 See Fuqua Industries, 523 F.2d at 1238 n. 11.

This Circuit has recognized two narrow exceptions where a party's failure to properly object will be disregarded: 1) where the party's position has been made clear previously to the court and it is plain that further objection would have been unavailing; and, 2) where it is necessary to correct a fundamental error or prevent a miscarriage of justice. Pate, 819 F.2d at 1082; Lang, 624 F.2d at 1279; Williams, 556 F.2d at 1340; Fuqua Industries, 523 F.2d at 1238. The first exception is pertinent to this case.

Continental's first claim of error, regarding the form of the interrogatory, can be dispensed with easily. See supra (quoting alleged objectionable interrogatory). As a general rule, an interrogatory constitutes reversible error if it is ambiguous or if one of the issues is improperly submitted to the jury. Dougherty v. Continental Oil Co., 579 F.2d 954, 960 n. 2 (5th Cir.1978), vacated by joint stipulation, 591 F.2d 1206 (5th Cir.1979). A party who fails to object during trial to the form of an interrogatory, however, cannot raise the objection for the first time on appeal. Charles Stores, Inc. v. Aetna Insurance Co., 490 F.2d 64, 67-68 (5th Cir.1974); Nimnicht v. Dick Evans, Inc., 477 F.2d 133, 134 (5th Cir.1973); see also 5A J. Moore & J. Lucas, Moore's Federal Practice 49.03[2] (2d ed. 1988). Although Continental objected to a jury determination of reasonableness during the precharge conference, there was no objection to the form of the interrogatory either at the precharge conference or at the charging of the jury. On the contrary, the record indicates that during the precharge conference, Continental expressly requested the form of the interrogatory to which it now objects.7 Counsel for Continental stated the following:

Continental failed to preserve for appeal any issue regarding the form of the interrogatory and will not be permitted to claim error in the form of an interrogatory that it requested.

Continental's second objection claims the interrogatory erroneously provided for a jury determination of whether the warranty's 12 month time limitation was reasonable. Although Continental failed to formally object to the special interrogatory at the charging of the jury, Continental did raise objections during the precharge conference held in judicial chambers. Counsel for Continental and Landsman both explained to the trial judge their respective positions on this reasonableness issue.8 Continental specified its rationale in support of its objections, indicated that it would not abdicate its position, and expressly reserved its objections when it made a suggestion as to how the jury interrogatory should be worded if the trial judge insisted on including the reasonableness issue.

Accordingly, because the trial judge was made sufficiently aware of Continental's objections and that further objections apparently would have been unavailing, we find that Continental falls within the first exception to the formal objection rule and is deemed to have preserved this issue for appeal. Therefore, we will review the merits of Continental's claim that the issue of the reasonableness of the 12 month time limitation was improperly put to the jury.

The trial judge's decision to include a reasonableness determination in the jury interrogatory apparently was based on Landsman's argument that the 12 month warranty fell within the purview of § 1-204 Comment [1] of the New York Uniform Commercial Code ("N.Y.U.C.C.").9 Comment [1] of that section provides the following:

We find that the trial judge erred in submitting this issue to the jury for the following two reasons.

First, § 1-204 Comment [1] is not applicable to the warranty provision. Comment [1] applies to time limitations that "eliminat[e] all remedy under the contract." The 12 month warranty does not eliminate all remedy under the contract. The 12 month time period merely limits the duration of the warranty, not the time within which Landsman may recover for breach of contract.10 New York courts, as well as others, have upheld 12 month warranty limitations as reasonable. Broe v. Oneonta Sales Co., 100 Misc.2d 1099, 420 N.Y.S.2d 436, 437 (N.Y.Sup.Ct.Special Term 1978); Unsinn v. Republique Francaise, 281 App.Div. 738, 117 N.Y.S.2d 801, 802-03 (1953) (Van Voorhis, J., dissenting); Abraham v. Volkswagen of America, Inc., 795 F.2d 238, 250 (2d Cir.1986).11 These courts have also held that the court — not the jury — should make the determination of whether designated warranty periods are "reasonable" or "unconscionable." Broe, 420 N.Y.S.2d at 437 (citing Wilson Trading Corp. v. Ferguson, Ltd., 23 N.Y.2d 398, 297 N.Y.S.2d 108, 111 & n. 1, 244 N.E.2d 685, 687-88 & n. 1 (1968) (the latter case being an opinion from New York's highest court)).

The warranty on the capping machine began to run in 1972, the date of shipment, and expired in 1973.12 This is so even though Landsman and Continental executed a new lease agreement in 1981. The new lease did not purport to cover a "new machine"; rather, the warranty provision in the 1981 lease expressly stated that it commenced from the date of the original shipment of the machine, not the execution of the lease. Id. Otherwise, it could be argued that the warranty would renew with each successive annual renewal of the lease, which would create a warranty with no time limit at all. This would be an unreasonable burden to impose on Continental, as the lessor, and clearly was not intended by the parties.13

Second, Landsman itself demonstrates that expiration of the warranty did not eliminate all remedy under the contract. Landsman argues two theories of breach of contract: breach of the warranty, and Continental's breach of its obligation to provide machine service and repair under paragraph 4 of the lease. See supra note 1 (quoting paragraph 4 of the lease). Continental had a duty to repair and service the machine irrespective of the warranty. Because there are two theories under which Landsman sues for breach of contract, it cannot be said that expiration of the warranty eliminates all remedy under the contract.

We find, therefore, that it was reversible error for the trial judge to allow the jury to determine the reasonableness of the 12 month warranty limitation. Under the facts of this case, the jury should not have been permitted to extend the warranty beyond the agreed-upon 12 months.

B. 30 Day Notice Provision

Continental also argued that Landsman's claim should be barred because Landsman failed to comply with the lease provision which states that all claims are waived unless written notice of the claim is given within 30 days of discovery of the basis for the claim. See supra note 1 (quoting paragraph 9(a) of the lease). The trial judge submitted to the jury the following special interrogatory which asked the jury to determine the reasonableness of this time limitation:

Similar to its objections regarding the 12 month warranty, Continental claims the jury interrogatory is erroneous because it is compound in form, and because it improperly allows the jury to determine the reasonableness of the time limitation. Again, there is a threshold issue as to whether these issues were preserved for appeal. In accordance with our reasoning concerning the 12 month warranty, we find that Continental cannot claim error with regard to the form of the interrogatory because it requested that form and failed to state any objection as to form. With regard to the reasonableness issue, however, we find that Continental did preserve this issue for appeal. Although Continental did not formally object to the interrogatory at the charging of the jury, it did raise sufficient objections at the precharge conference.14 The reasonableness issue, therefore, was preserved for appeal and merits our review. See also supra (explaining exception to formal objection rule).

Our review of the 30 day notice provision is distinguishable from the 12 month warranty with regard to the issue of the reasonableness of the time limitation. Because N.Y.U.C.C. § 1-204 Comment [1] generally is not applicable to warranties, a jury determination of the reasonableness of a warranty time limitation is inappropriate. See supra. Unlike the 12 month warranty, however, the 30 day notice clause does fall within the purview of N.Y.U.C.C. § 1-204 Comment [1]. Comment [1] applies to the 30 day notice provision because that provision does operate to "eliminat[e] all remedy under the contract." The contract specifically states that all claims are waived unless Continental receives written notice of the claim within 30 days after Landsman discovers the basis for such claim. See supra note 1 (quoting paragraph 9(a) of lease). The reasonableness of the 30 day limitation, therefore, was properly drawn into question.

Under New York Law, issues of reasonableness pertaining to § 1-204 have generally been held to present questions of fact for the jury. Sherkate Sahami Khass Rapol v. Henry R. Jahan & Son, Inc., 701 F.2d 1049, 1051 (2d Cir.1983); see also Wilson Trading Corp., 297 N.Y.S.2d at 111, 244 N.E.2d at 687 (relating to latent defects). Furthermore, New York courts have stated that unreasonably short time limitations which preclude all claims may be held invalid. See Weisz v. Parke-Bernet Galleries, Inc., 67 Misc.2d 1077, 325 N.Y.S.2d 576, 582-83 (N.Y.Civ.Ct.1971), 10 U.C.C.Rep.Serv. 292, 293 (finding 10 day limitation period unreasonable because claim could not realistically be known within 10 days), rev'd on other grounds, 77 Misc.2d 80, 351 N.Y.S.2d 911 (N.Y.App.Term 1974); Jessel v. Lockwood Textile Corp., 276 App.Div. 378, 95 N.Y.S.2d 77 (1950) (holding that time limitation precluding claims must comply with rules of reasonableness).15

The trial judge did not commit reversible error, therefore, in allowing the jury to determine whether the 30 day time period was a reasonable limitation because this limitation operated to eliminate all remedy under the contract.

Regardless, it does not seem that the reasonableness of the 30 day limitation deserves much scrutiny. This provision was triggered by the discovery of a "basis for a claim." Because Continental had a contractual obligation to service and repair the machine, arguably no "basis for a claim" would exist until after it became evident that Continental could not or would not repair the machine. See Rochester Welding Supply Corp. v. Burroughs, 78 A.D.2d 983, 433 N.Y.S.2d 888, 889 (1980). Under the facts of this case, Landsman first became aware of a machine malfunction and gave nonwritten notice to Continental in May 1981. Continental sent repairmen to cure the malfunction and assured Landsman that the machine would operate properly. This scenario replayed itself several times and on October 30, 1981, Landsman gave its first written notice questioning Continental's ability to repair the machine.

Landsman cannot be said to have "discovered the basis for a claim" during the time Continental was attempting to repair the machine and repeatedly assuring Landsman that any problems were cured. Id.; cf. Anderson v. Farmers Hybrid Co., Inc., 87 Ill.App.3d 493, 42 Ill.Dec. 485, 488, 408 N.E.2d 1194, 1197 (1980) (finding that contract provision requiring written notice of claim within 30 days of delivery could be waived by seller's conduct in responding to buyer's oral complaint that was made within 30 day period). The written notice on October 30, 1981, therefore, arguably complied with the 30 day notice provision.16

IV.

Continental raised several other issues that we need not address in light of our granting a new trial. However, in the interest of providing guidance on retrial, we will comment on the trial judge's admission of certain testimony by Landsman's financial expert.

During trial a dispute arose regarding the admissibility of the testimony of Landsman's financial expert. The expert's testimony concerned the economic damages suffered by Landsman resulting from the closing of its fruit processing plant. The expert calculated what Landsman's profits would have been through 1987 had Landsman not gone out of business in 1983.

Apparently the financial statements of Landsman were combined with another commonly owned company called Spring Lake Cold Storage ("Spring Lake"), which was not a party to the case. The trial judge properly excluded these combined financial statements from evidence, but he permitted the financial expert to testify despite the expert's reliance on an analysis of the combined financial records. The expert stated that it was common for small, commonly owned businesses to combine their financial statements and that there was not a "significant difference" in his calculations as to Landsman standing alone or with Spring Lake. The trial judge denied Continental's motion to strike the testimony because the expert "explained that there [was] no affect."

Because the case is going to be retried, we need not determine the admissibility of this testimony. We assume, however, that when this case is retried, Landsman will segregate its financial records and have the expert make a more accurate analysis of Landsman's financial condition standing alone.

V.

The final issue we will address is whether Landsman converted the capping machine which Continental loaned to Landsman in December 1982. The jury found that Landsman did not convert the loaned capping machine, and the trial judge denied Continental's motion for a judgment n.o.v.

The standard for ruling on a motion for judgment n.o.v. is the same as that for a directed verdict. Michigan Abrasive Co. v. Poole, 805 F.2d 1001, 1004 (11th Cir.1986) (citing Neff v. Kehoe, 708 F.2d 639, 641-42 (11th Cir.1983) and Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969)). Specifically, the court should consider all the evidence in a light most favorable to the nonmovant and grant a judgment n.o.v. only if the facts and inferences point overwhelmingly in favor of the movant such that there can be but one reasonable conclusion. Poole, 805 F.2d at 1004; see also Fairley v. American Hoist & Derrick Co., 640 F.2d 679, 681 (5th Cir.Unit A Mar.1981). On appeal, a reviewing court should apply the same standard because the same substantive issues presented to the lower court must be addressed on appeal. Poole, 805 F.2d at 1004; Neff, 708 F.2d at 641.

We find that the trial judge erred in not granting the judgment n.o.v. Based on the facts and inferences surrounding the conversion issue, the only reasonable conclusion that the jury should have reached is that Landsman did convert the capping machine.

The conversion claim arose because after Landsman closed its processing plant, it retained the capping machine originally leased and the capping machine that Continental provided as a loaner in December 1982. Apparently, Landsman was holding the machines as evidence for this suit. The loaned machine is the subject of Continental's conversion claim.

Landsman had possession of the loaned machine pursuant to an agreement authorizing Landsman to use the machine rent-free for three months.17 After Landsman closed its processing plant, it ceased paying rent for the leased machine and never commenced paying rent for the loaned machine. Although Landsman was to pay rent for the loaned machine after the three-month period, Continental did not issue a rental invoice until 1986.18 Nevertheless, in 1983 Continental twice made demands by letter for return of the machines.19 Landsman refused to return the machines. Consequently, Continental has counterclaimed alleging that Landsman's refusal to return the loaned machine constitutes conversion.

At trial Continental established that Landsman had possession of the machine, that Continental had demanded its return, and that Landsman refused to return the machine. Landsman contends that it did not convert the machine because it did not "intend" to deprive Continental of the machine. In support of its argument Landsman quoted Wabco Trade Co. v. S.S. Inger Skou, 482 F.Supp. 444 (S.D.N.Y.1979), which states the following: "[in a conversion action the defendant must have] an intent to exercise dominion or control over the property in a manner inconsistent with the rights of another." Id. at 448 (quoting United States v. Morrison, 536 F.2d 286, 289 (9th Cir.1976)).

We disagree with Landsman's argument that lack of an intent to deprive another of property vitiates a conversion claim. The court in Wabco Trade Co. states that an action for conversion requires only an intent to exercise dominion or control over the property, not an intent to deprive one of property permanently. See also Employer's Fire Ins. Co. v. Cotten, 245 N.Y. 102, 156 N.E. 629, 630 (1927); Bradley v. Roe, 282 N.Y. 525, 27 N.E.2d 35, 38-39 (1940). The trial judge's instructions to the jury were consistent with this interpretation of the law.20

Landsman intended to "exercise dominion and control" over the machine for the purpose of gathering evidence. Mr. Samuel Landsman, President of Landsman Packing Company, testified in three instances that he refused to return the machines because he felt he needed them for his suit against Continental.21 Landsman's evidentiary investigations, however, do not justify keeping property from its rightful owner.22 When Landsman refused to return the machine after Continental's demands, its possession became inconsistent with the rights of Continental as the owner. Where the possessor of property rightfully obtains possession but wrongfully retains it, a cause of action for conversion arises when the owner makes a demand for return of the property and the possessor refuses. See Cotten, 156 N.E. at 630; 18 Am.Jur.2d Conversion § 47 (1980). In other words, the occurrence of a demand and refusal constitutes prima facie evidence of conversion. Pierpoint v. Hoyt, 260 N.Y. 26, 182 N.E. 235, 236 (N.Y.1932); Ball v. Liney, 48 N.Y. 6, 12 (N.Y.1871); McEntee v. New Jersey Steamboat Co., 45 N.Y. 34, 37 (1871).23

Landsman's contention that it did not intend to "deprive" Continental of the machine permanently does not rebut the conversion charge. Landsman intended to prevent and succeeded in preventing Continental from regaining rightful possession of the machine. Landsman presented no additional evidence to rebut the prima facie case established by Continental.24 Thus, based on the facts and inferences viewed in a light most favorable to Landsman, the only reasonable conclusion the jury could reach is that Landsman converted the capping machine.

The general measure of damages for conversion is that the owner of the property may recover its fair and reasonable market value at the time of the conversion plus interest. Fantis Foods, Inc. v. Standard Importing Co., 49 N.Y.2d 317, 425 N.Y.S.2d 783, 786, 402 N.E.2d 122, 125 (1980); Wm. H. Wise & Co. v. Rand McNally & Co., 195 F.Supp. 621, 629 (S.D.N.Y.1961) (citing Bankers Commercial Corp. v. Mittleman, 21 Misc.2d 1096, 198 N.Y.S.2d 184, 186 (N.Y.Sup.Ct.1960). We assume that Landsman continues to hold the capping machine.25 Thus, Continental's election for a cause of action in conversion will have the effect of a sale and transfers title to the property to Landsman upon satisfaction of the judgment. Pierpoint, 182 N.E. at 236; Terry v. Munger, 121 N.Y. 61, 24 N.E. 272, 272 (1890).

VI.

We therefore vacate the jury's award of damages on Landsman's breach of contract claim because the jury was improperly instructed on the breach of warranty issue, and we vacate the jury's verdict on Continental's counterclaim of conversion as against the clear weight of the evidence. The case is remanded for a new trial on the breach of contract claim and for a determination of damages on the conversion claim.

VACATED AND REMANDED.