American Eagle Insurance v. United Technologies Corp. , 48 F.3d 142 ( 1995 )

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
-3-
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.
-4-
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"
-5-
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.
-6-
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.
-8-
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
-10-
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.
-11-