American Eagle Insurance v. United Technologies Corp. ( 1995 )


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  •                      UNITED STATES COURT OF APPEALS
    For the Fifth Circuit
    No. 93-1841
    AMERICAN EAGLE INSURANCE COMPANY and MARTINAIRE, INC.,
    Plaintiffs-Appellants,
    VERSUS
    UNITED TECHNOLOGIES CORPORATION and PRATT & WHITNEY-CANADA, LTD.,
    Etc.
    Defendants-Appellees.
    Appeal from the United States District Court
    for the Northern District of Texas
    (February 24, 1995)
    Before WIENER, EMILIO M. GARZA, and BENAVIDES, CIRCUIT JUDGES.
    BENAVIDES, CIRCUIT JUDGE:
    This   appeal    involves     the   application   of   Texas   law   to
    negligence, strict liability and breach of implied warranty claims
    brought in a diversity suit against an aircraft engine manufacturer
    and its parent organization.        The district court granted summary
    judgment against Plaintiffs.        We AFFIRM IN PART and REVERSE AND
    REMAND IN PART.
    I.   Undisputed Facts
    On February 28, 1985, Appellee Pratt & Whitney-Canada, Ltd. (a
    subsidiary of United Technologies Corporation, also an Appellee),
    manufactured and sold a PT-6 aircraft engine to the Cessna Aircraft
    Company.   On May 29, 1985, after installing the engine in a Cessna
    Caravan Aircraft, Cessna sold the aircraft to the Federal Express
    Corporation, the first purchaser. On August 7, 1987, the fifth and
    last purchaser, Martinaire, Inc., acquired the aircraft.
    On September 4, 1987, the airplane crashed.               There were no
    personal injuries.       However, there was damage to the aircraft and
    damage on the ground to property owned by a third party for which
    the Appellants, Martinaire, Inc. and American Eagle Insurance
    Company, became legally responsible. The aircraft was subsequently
    destroyed and sold for salvage.
    A service policy between Federal Express and Pratt & Whitney-
    Canada, Ltd., disclaimed implied warranties, liability in tort and
    contract, and limited remedies to repair or replacement.                  The
    policy also contained an express warranty against defects in the
    engine.    By its own terms, the warranty expired on May 29, 1986.
    II.   Procedural History
    On September 1, 1989, Plaintiffs/Appellants filed suit against
    Defendants/Appellees alleging negligence; strict product liability;
    breach    of   implied   warranty   under   Chapter   2   of    the   Uniform
    Commercial Code; and breach of implied warranty under the Texas
    Deceptive Trade Practices Act, Tex. Bus. & Com. Code § 17.50(a)
    (Vernon 1987) ("DTPA").         The district court granted Appellees'
    Motion for Summary Judgment, dismissing all of Appellants' claims.
    Appellants primarily contest the following conclusions of the
    district court: (1) there is no claim for negligence when the only
    damages are economic; (2) there is no claim for strict product
    liability when the only damage is to the product itself; and (3)
    there is no claim for breach of warranty because the four-year
    statute of limitations ran from the date of delivery to the
    original purchaser.      With the exception of Appellants' claim of
    breach of implied warranty under the DTPA, we agree with the
    district court's conclusions.
    III.     Negligence and Strict Product Liability
    The first question is whether Texas recognizes a cause of
    action for negligence when the only loss is economic. This Circuit
    has already found that Texas does not recognize such a cause of
    action. In Arkwright-Boston Mfgrs. Mut. v. Westinghouse Elec., 
    844 F.2d 1174
    (5th Cir. 1988), this Court held that Texas does not
    permit   recovery    under   a   negligence   theory   for   economic   loss
    resulting from damage to a defective product.           Consequently, the
    district court properly granted summary judgment against Appellants
    on their negligence claim.
    A related issue is whether Texas recognizes a cause of action
    for strict product liability when the damage is to the defective
    product itself.       In Mid-Continent Aircraft Corp. v. Curry City
    Spraying Serv., Inc., 
    572 S.W.2d 308
    (Tex. 1978), the Texas Supreme
    Court held that in transactions between a commercial seller and a
    commercial buyer, when no physical injury has occurred to persons
    or "other property," injury to the defective product itself is an
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    economic loss governed by the Uniform Commercial Code.           In short,
    strict tort liability would not be applied when economic loss alone
    was asserted.
    Given this situation, Appellants argue that damage to the hull
    of the aircraft caused by the defective engine is damage to "other
    property."      In   Mid-Continent,    the   defective   component   was   a
    crankshaft gear bolt in an airplane's engine which caused the pilot
    to conduct an emergency landing, destroying the aircraft.            While
    not specifically addressed, the court's opinion was premised on the
    idea that the entire aircraft was the defective product, rather
    than "other property" damaged by a defective engine or component
    part.   This interpretation of Mid-Continent is supported by Shipco
    2295, Inc. v. Avondale Shipyards, Inc., 
    825 F.2d 925
    (5th Cir.
    1987), cert. denied, 
    485 U.S. 1007
    (1988).         In Shipco, this Circuit
    rejected an argument that a vessel's defective steering mechanism
    caused damage to unrelated components in the same vessel or "other
    property."     The controlling inquiry in Shipco was whether the
    parties bargained separately for individual components of the
    vessel.   If they had, then the individual defective components
    making up the vessel could cause damage to the whole, allowing
    recovery under a strict product liability theory.
    The summary judgment evidence shows that Appellants' claim was
    for the loss of the aircraft, not for physical injuries.          There is
    no   summary   judgment   evidence    indicating    Appellants   bargained
    separately for the engine.       It is likewise undisputed that the
    engine was installed in the aircraft prior to Appellants' purchase.
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    Once Appellees properly show the absence of evidence to support the
    Appellants'    case,      the   burden   shifts    to   the    Appellants    to
    demonstrate the existence of a genuine issue of material fact. See
    Celotex Corp. v. Catrett, 
    477 U.S. 317
    , 325 (1986).                  Here, the
    evidence shows that Pratt & Whitney-Canada, Ltd. manufactured and
    sold the engine to Cessna.        The engine was subsequently installed
    into the aircraft by Cessna.        The aircraft was then sold to Federal
    Express.    The record also shows the aircraft's chain of title and
    history of ownership, with the ultimate purchase of the entire
    aircraft by Appellants.          There is simply no evidence that the
    parties bargained separately for individual components of the
    aircraft.     Consequently, the aircraft hull does not qualify as
    "other property" damaged by the defective engine component.
    Appellants further argue that damage to the ground where the
    aircraft crashed constitutes "other property," allowing recovery
    under a strict product liability theory.                Section 402A allows
    recovery for damages sustained as a result of an unreasonably
    dangerous product.         See Restatement (Second) of Torts § 402A
    (1965).
    Appellees correctly counter that the damage at the crash site
    must be damage to Appellants' "other property."               Here, the ground
    damage    occurred   to    a    third-party's     property     for   which   the
    Appellants subsequently became legally responsible.              In Signal Oil
    & Gas Co. v. Universal Oil Prods., 
    572 S.W.2d 320
    (Tex. 1978), the
    Texas Supreme Court emphasized that the damage to "other property"
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    must be to the plaintiff's property to state a claim for strict
    product liability:
    One who sells any product in a defective condition
    unreasonably dangerous to the user or consumer or to his
    property is subject to liability for physical harm
    thereby caused to the ultimate user or consumer, or to
    his property. . . .
    Signal Oil & 
    Gas, 572 S.W.2d at 325
    (emphasis in original).
    Appellants admitted that it owned no property, other than the
    aircraft, that was damaged as a result of the crash.                  Thus, the
    district court properly granted summary judgment on Appellants'
    strict product liability claim.
    IV.    Breach of Warranty
    The district court concluded that Appellants' claims for
    breach of express and implied warranty brought under the Uniform
    Commercial   Code     were    barred    by     the   four-year      statute   of
    limitations. Appellants do not contest that these claims were time
    barred.   Rather, Appellants argue that the district court erred by
    dismissing their claim for breach of implied warranty brought under
    the Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code §
    17.50(a) (Vernon 1987) ("DTPA").
    While   the    summary   judgment       dismissed   all   of   Appellants'
    claims, it failed to address, specifically, the claim for breach of
    implied warranty under the DTPA.         Consequently, the first question
    is whether this Court should proceed to rule on the viability of
    this claim or remand to the district court for its determination of
    the issue.
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    As a matter of judicial economy, this Court may address an
    issue   for   the    first   time     on     appeal   if   additional   factual
    development in the district court would not be necessary.                   The
    pertinent aspects of Appellees' summary judgment motion challenging
    Appellants' DTPA implied warranty claim include: (1) an application
    of the appropriate statute of limitations; and (2) an evaluation of
    the effectiveness of Appellees' written disclaimer of implied
    warranties.
    The parties agree that the defective condition of the engine
    was discovered by Appellants on the date of the crash or September
    4, 1987.   A claim under the DTPA for breach of an implied warranty
    is governed by the discovery rule and a two-year limitations
    period.    McAdams v. Capitol Prods. Corp., 
    810 S.W.2d 290
    (Tex.
    App.--Fort Worth 1991, writ denied).              Thus, under the DTPA, the
    limitations period begins to run when the breach is discovered.
    Here, the breach was discovered on September 4, 1987, and the suit
    was filed on September 1, 1989.            The claim was brought within two
    years and is not time barred.
    Regarding      the   second    question,    Appellees'    disclaimer   was
    contained in the original contract of sale.1                A disclaimer that
    satisfies the "conspicuous" requirement of chapter 2 of the Uniform
    Commercial Code is likewise sufficient to disclaim any implied
    1
    The portion of the original contract of sale containing the
    disclaimer is set out in an Appendix to this opinion. While it
    appears that this page does not constitute the entire written
    portion of the contract, it is the only page contained in the
    record.
    -7-
    warranties under the DTPA.        See Singleton v. La Coure, 
    712 S.W.2d 757
    (Tex. App.--Houston [14th Dist.] 1986, writ ref'd n.r.e.).
    The issue whether a disclaimer is conspicuous is a question of
    law, which we review de novo.       See Cate v. Dover Corp., 
    790 S.W.2d 559
    , 560 (Tex. 1990); Allied Fin. Co. v. Rodriguez, 
    869 S.W.2d 567
    ,
    570 (Tex. App.--Corpus Christi 1993, n.w.h.); Ellmer v. Delaware
    Mini-Computer, 
    665 S.W.2d 158
    , 159-60 (Tex. App.--Dallas 1983, no
    writ).   The Texas Business and Commerce Code S 1.201 states:
    [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
    . . . is conspicuous. Language in the body of a form is
    "conspicuous" if it is in larger or other contrasting
    type or color.   But in a telegram any stated term is
    "conspicuous." Whether a term or clause is "conspicuous"
    or not is for decision by the court.
    Comment 10 following this section states that this provision was
    intended   to   indicate   some    of   the   methods   of   making   a   term
    "attention-calling," but that the test is "whether attention can
    reasonably be expected to be called to it."
    The Texas Supreme Court has interpreted section 1.201 and
    comment 10, declaring:
    Admittedly, an ambiguity is created by the requirement
    that disclaimer language be conspicuous to "a reasonable
    person against whom it is to operate."      Comment 10,
    however, clearly contemplated an objective standard,
    stating the test as "whether attention can reasonably be
    expected to be called to it."
    
    Cate, 790 S.W.2d at 560
    .     The Texas Supreme Court then applied an
    objective standard of conspicuousness to the written warranty and
    went even further, disapproving other cases, such as Ellmer, that
    could be read as imposing a subjective standard.             
    Id. at 560-61.
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    Under an objective standard, the circumstances surrounding the
    transaction are not relevant to the issue of conspicuousness.     
    Id. at 561.
      However, once a court determines that a disclaimer is not
    conspicuous under an objective standard, it may still give effect
    to the disclaimer if it is shown that the buyer            had actual
    knowledge of the disclaimer. 
    Id. In other
    words, actual knowledge
    of the disclaimer overrides the question of conspicuousness.      
    Id. In Texas,
    the courts examine the entire document when making
    their determination of whether a disclaimer is conspicuous.      See,
    e.g., 
    Cate, 790 S.W.2d at 560
    -61; Allied 
    Fin., 869 S.W.2d at 570
    -
    71; 
    Ellmer, 665 S.W.2d at 159
    .        Appellees did not include the
    entire contract in their summary judgment evidence.
    While it is true that the disclaimer paragraph is in boldface,
    Appellees go further and claim that "the boldface language is in
    contrasting 'type.'"   This is not so.     The disclaimer is in the
    identical type as that contained on the rest of the page.2
    Nonetheless,   because   the   question   of   the   disclaimer's
    conspicuousness is gauged by a review of the entire contract and we
    do not have the entire contract before us, we are not in a position
    to evaluate whether the disclaimer is conspicuous as a matter of
    2
    In making this statement, Appellees attempt to characterize
    their disclaimer in terms addressed (in a non-exclusive listing) by
    this Court in Stevenson v. Trw, Inc., 
    987 F.2d 288
    , 296 (5th Cir.
    1993). In Stevenson, we suggested that a disclaimer of this nature
    may satisfy the conspicuousness requirement if it is printed in all
    capital letters, in larger type than the terms around it, or in
    larger and boldface type. Our Stevenson opinion does not imply
    that these examples constitute an exclusive list.
    -9-
    law.    Certain factors, such as the length of the document, whether
    the disclaimer was on the front or back of the document, the extent
    to which other portions of the document were in boldface, and
    whether    other   portions    of    the    document    were     in   larger    or
    contrasting    type,   could    conceivably      have    a     bearing   on    the
    conspicuousness issue.
    The summary judgment evidence was not developed sufficiently
    to allow either this court or the district court to make a decision
    on the merits of Appellees' disclaimer contention.               Consequently,
    the district court erred in granting summary judgment against
    Appellants on their claim of breach of implied warranty under the
    DTPA.     This ruling, of course, does not preclude the district
    court's future consideration of this issue if properly presented.
    Finally, Appellants argue that the district court erred in
    dismissing, on a separate ground, their claims against United
    Technologies Corporation.           Appellees provided summary judgment
    evidence showing that United Technologies Corporation did not
    design, manufacture, warrant, sell or otherwise place in the stream
    of commerce the PT-6 aircraft engine.          To hold United Technologies
    Corporation liable, Appellants rely solely on a logo on the engine
    service policy that contains, in part, the designation "United
    Technologies."      However, the document does not mention United
    Technologies Corporation, referring only to Pratt & Whitney-Canada,
    Ltd.
    Generally, there is no vicarious liability under Texas law if
    the parent and the subsidiary corporations are entirely separate
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    legal entities and there is no showing of fraud.              See Lucas v.
    Texas Indus., Inc., 
    696 S.W.2d 372
    , 374 (Tex. 1984).             Here, the
    existence of only a logo on the service policy does not create a
    material fact issue necessary for United Technologies Corporation
    to be held liable.     Under these circumstances, the district court
    did not err by dismissing United Technologies Corporation.
    We AFFIRM the summary judgment as it pertains to Appellants'
    claims based on negligence and strict product liability, and as it
    pertains   to   all   claims   against    Appellee   United   Technologies
    Corporation.    We REVERSE and REMAND the summary judgment in part,
    as it relates to Appellants' claim for breach of implied warranty
    under the DTPA against Appellee Pratt & Whitney-Canada, Ltd.
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