Production Specialti v. Minsor Systems Inc

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-3297
PRODUCTION SPECIALTIES GROUP, INC.,
a Wisconsin Corporation,
Plaintiff-Appellee,
v.
MINSOR SYSTEMS, INC., a Michigan Corporation
and MINSOR POWERTRAIN SYSTEMS LLC,
a Michigan limited liability company,
Defendants-Appellants.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 04 C 758—Charles N. Clevert, Jr., Judge.
____________
ARGUED MARCH 26, 2007—DECIDED JANUARY 17, 2008
____________
Before ROVNER, WILLIAMS, and SYKES, Circuit Judges.
WILLIAMS, Circuit Judge. Minsor Systems and Minsor
Powertrain Systems (“Minsor”) entered into a contract
with Production Specialties Group (“PSG”) in which PSG
agreed to make Minsor a machine needed for manufactur-
ing an automotive part. Minsor cancelled the contract
after PSG was unable to deliver an acceptable machine,
and PSG brought this diversity action for breach of
contract and fraud in the inducement. A jury found for
PSG on both claims and awarded punitive damages on the
2 No. 06-3297
fraud claim. Minsor moved for judgment notwithstand-
ing the verdict and for a new trial on the fraud claim,
arguing that PSG’s claims were barred by the economic
loss doctrine; that the court issued erroneous jury in-
structions; and that the evidence was insufficient to
support either a verdict for the plaintiff on the fraud claim
or punitive damages. The district court denied both
motions, and Minsor appeals from that ruling. We find
that Minsor failed to preserve its economic loss argu-
ment and that an erroneous burden of proof instruction
did not constitute plain error. In addition, we conclude
that the district court did not err in giving a punitive
damages instruction because there was sufficient evidence
to show that Minsor intentionally disregarded PSG’s
rights. For these reasons, we affirm.
I. BACKGROUND
Minsor supplies automotive parts. In March 2004,
Minsor solicited bids on a contract to manufacture a
machine that could turn a steel forging into a “TB
knuckle,” an automotive part that is attached to a truck
axle. Minsor needed to submit a prototype of the TB
knuckle to its customer by April 15, 2004. Minsor selected
PSG to produce the machine as it was the only company
that could commit to delivering the prototype TB knuckles
on time. In early April, PSG received steel forgings so
it could begin making the prototypes. At this point,
PSG began having problems. Before it submitted its bid,
Minsor’s vice-president of engineering, Brett Stevenson,
told PSG that it would need to make a machine that
could remove 2.0 millimeters to 2.5 millimeters of excess
material per side from the steel forging. But when PSG
received the steel forgings to make the prototype, it
discovered that they actually contained significantly
more than 2.5 millimeters of excess material. This
No. 06-3297 3
meant that the machine PSG was making could not
transform the forgings into TB knuckles as quickly as its
original bid had promised. PSG informed Stevenson of
this problem, and according to PSG’s vice-president of
sales and engineering, Rick Glowacki, Stevenson assured
PSG that the steel forgings it had received were just
preliminary prototypes and PSG would be able to make
changes to the forgings that would be used during the
actual production process. After receiving this assurance,
PSG signed the contract on April 13, 2004. The contract,
consistent with PSG’s original bid, required PSG to
produce a machine that could manufacture 22 parts per
hour. A couple weeks later, PSG learned that, contrary
to Stevenson’s assurance, the forgings could not be
changed to eliminate the excess material. Realizing that
this meant it would have difficulty providing Minsor
with a machine that could manufacture the promised
22 parts per hour, PSG offered to cancel the contract and
return Minsor’s initial payment. Minsor declined and told
PSG to keep working on the machine to see how close it
could come to meeting the 22 parts per hour goal. By June,
PSG had still not been able to produce an acceptable
machine, and Minsor had rejected PSG’s proposals to
address the problem. Minsor then cancelled the con-
tract because of PSG’s failure to perform.
PSG brought suit for breach of contract and fraud in the
inducement. It claimed that Minsor fraudulently induced
it to enter into the contract when Stevenson told PSG’s
Glowacki that the steel forgings with the excess stock
were just prototypes that could be changed later. PSG’s
principal evidence that this statement was false was the
testimony of Minsor’s vice-president of quality assurance,
Patrick Smith. Smith testified that he knew early in the
process that the production forgings would likely be the
same as the prototypes and could probably not be changed.
4 No. 06-3297
At the trial, Minsor unsuccessfully moved for judgment
as a matter of law at the close of PSG’s case. It did not
renew this motion at the close of all the evidence, and the
jury returned a verdict in favor of PSG. Minsor then
retained new counsel who moved for judgment notwith-
standing the verdict and for a new trial. In its motions,
Minsor argued that: (1) PSG should have written into
the contract Stevenson’s assurance that the forgings
could be changed and, therefore, was barred from assert-
ing a fraud claim under the economic-loss doctrine;
(2) the district court erroneously instructed the jury that
the standard of proof on the fraud claim was by a prepon-
derance of the evidence instead of clear and convincing
evidence; (3) insufficient evidence supported the jury’s
verdict on the fraud claim; and (4) there was insufficient
evidence to justify the giving of a punitive damages
instruction. Minsor did not challenge the jury’s verdict on
the breach of contract claim.
PSG argued that Minsor had waived the economic-loss
doctrine defense because it did not raise this defense
before trial in a motion for summary judgment or a motion
to dismiss. It contended that Minsor was only entitled to
plain error review of the erroneous jury instruction
because it did not object at trial and that the instruction
did not violate Minsor’s substantial rights because the
court also instructed the jury that to award punitive
damages it had to find by clear and convincing evidence
that Minsor intentionally disregarded PSG’s rights.
Finally, PSG pointed to Smith’s testimony as evidence
that was sufficient to support the jury’s verdict on the
fraud claim and support the giving of a punitive damages
instruction. The district court accepted all of these argu-
ments and denied Minsor’s motions.
No. 06-3297 5
II. ANALYSIS
As an initial matter, we note that at the time of the
trial in this case, the Federal Rules of Civil Procedure
required a party moving for judgment notwithstanding
the verdict (“J.N.O.V.”) to first move for judgment as a
matter of law at the close of all the evidence. Fed. R. Civ.
P. 50(b) (2005);1 see also Laborers’ Pension Fund v. A & C
Envtl., Inc., 301 F.3d 768, 775 (7th Cir. 2002). As PSG
points out, Minsor did not do this, and we have strictly
enforced this rule in the past, even in cases where a
defendant moved for judgment as a matter of law at the
close of the plaintiff ’s case. See, e.g., Mid-Am. Tablewares,
Inc. v. Mogi Trading Co., 100 F.3d 1353, 1364 (7th Cir.
1996); Downes v. Volkswagen of Am., Inc., 41 F.3d 1132,
1139-40 (7th Cir. 1994). Therefore, we must affirm the
denial of Minsor’s motion for J.N.O.V.
These procedural rules do not apply to motions for a new
trial however. See Fed. R. Civ. P. 59. Therefore, we can
consider all of Minsor’s arguments in support of that
motion. On appeal, Minsor renews the arguments it
made in the district court.
A. Economic Loss Doctrine
PSG argues that Minsor waived its argument that the
economic loss doctrine bars PSG from recovering on its
fraud claim by not raising it sooner, and we agree. A
motion for a new trial is not the appropriate place to
raise for the first time arguments that could have been
brought earlier in the proceedings. Naeem v. McKesson
1
Effective December 1, 2006, Rule 50 was amended “to permit
renewal of any Rule 50(a) motion for judgment as a matter of
law, deleting the requirement that a motion be made at the close
of all the evidence.” Fed. R. Civ. P. 50 advisory committee’s note.
6 No. 06-3297
Drug Co., 444 F.3d 593, 610 (7th Cir. 2006); Anderson v.
Flexel, Inc., 47 F.3d 243, 247 (7th Cir. 1995). Minsor’s
economic-loss argument is a legal question that could have
been easily resolved at the summary judgment stage or
even as a motion to dismiss for failure to state a claim.
Minsor brought neither of these motions and did not
even raise this defense in the course of the trial itself.
B. Sufficiency of the Evidence & Burden of Proof
Instruction
Minsor next argues that the district court erroneously
denied its motion for a new trial on the grounds that
the jury was given the wrong burden of proof on the
fraud claim and that PSG did not present sufficient
evidence to support the jury’s verdict on that claim. Under
Wisconsin law, which the parties agree applies, PSG
had to prove the following elements to support its fraud
claim: (1) Minsor made a factual misrepresentation before
contract formation, (2) Minsor knew the representa-
tion was untrue or made it recklessly without caring
whether it was true, (3) Minsor made the representation
intending to deceive PSG and induce PSG to act on it, and
(4) PSG believed the representation to be true and justifi-
ably relied on it. Kaloti Enters., Inc. v. Kellogg Sales Co.,
699 N.W.2d 205, 211 (Wis. 2005); Malzewski v. Rapkin,
723 N.W.2d 156, 162 (Wis. Ct. App. 2006). Each element
must be proven by “clear, satisfactory, and convincing
evidence.” Digicorp, Inc. v. Ameritech Corp., 662 N.W.2d
652, 663 (Wis. 2003) (internal quotation marks omitted).
The jury, however, was instructed that in order to find
that Minsor committed fraud, PSG had the burden of
establishing each element by a preponderance of the
evidence. PSG submitted the wrong instruction to the
district court, and the error went unchecked. Minsor
No. 06-3297 7
never supplied its own correct instruction and waited
until its motion for a new trial to challenge the court’s
instruction.
Fed. R. Civ. P. 51(d)(2) permits a court to consider a
plain error in the jury instructions affecting substantial
rights that has not been preserved as required by Fed. R.
Civ. P. 51(d)(1). As in the criminal context, “before an
appellate court can correct an error not raised at trial,
there must be (1) error, (2) that is plain, and (3) that
affects substantial rights,” and (4) the court must be
convinced that the error “seriously affects the fairness,
integrity or public reputation of judicial proceedings.” See
Johnson v. United States, 520 U.S. 461, 466-67 (1997)
(internal quotation marks omitted); Higbee v. Sentry Ins.
Co., 440 F.3d 408, 409 (7th Cir. 2006).
Although the district court clearly erred by giving the
wrong instruction, we find that Minsor has not met its
“burden of establishing that the error affected substan-
tial rights, i.e., that the outcome probably would have
been different without the error.” United States v. Pree,
408 F.3d 855, 869 (7th Cir. 2005) (internal quotation
marks omitted). We conclude that the jury probably
would have found that Minsor committed fraud, even if
it had been instructed under the proper, higher burden of
proof of “clear, satisfactory, and convincing evidence.” In
challenging this point, Minsor focuses principally on the
last element of the fraud claim: that PSG believed the
representation to be true and justifiably relied on it.
Minsor points out that before PSG signed the contract, it
had already begun working with the prototype forgings
and knew that they contained more than 2.5 millimeters
of excess material. Therefore, Minsor contends, PSG
could not have justifiably relied on Minsor’s statement
that the machines it was making would only have to
remove 2.0 millimeters to 2.5 millimeters of excess mate-
rial from the forgings.
8 No. 06-3297
This argument ignores the evidence that Minsor made
further false representations about the excess material
after PSG informed Minsor of the difficulties it was hav-
ing with the prototype forgings. Rick Glowacki (of PSG)
testified that Brett Stevenson (of Minsor) told him that
the prototype forgings were just preliminary and could
be changed later. Based on this statement, Glowacki
was reassured that the original representations about
the excess material to be removed from the forging would
be honored even though the prototype forgings turned out
to have more excess material than expected. PSG pre-
sented enough evidence for the jury to conclude that
Stevenson’s statement was knowingly false. Specifically,
Patrick Smith (of Minsor) testified that he knew the
prototype forgings probably could not be changed early in
the process, around the same time that Stevenson told
Glowacki the prototype forgings could be changed. Smith
also testified that he had discussions with Stevenson
about problems with the prototypes. The jury could
easily infer from this testimony that at the time Steven-
son told Glowacki that changes could be made to the
prototypes, Stevenson, like Smith, knew that changes
probably would not be possible. Indeed, that the jury
awarded PSG punitive damages suggests that it found
by “clear, satisfactory, and convincing evidence”2 that
Stevenson had made a knowing misrepresentation. Cf.
United States v. Verrusio, 803 F.2d 885, 892 (7th Cir. 1986)
(finding plain error when an incorrect burden of persua-
sion was assigned to a criminal defendant because the
evidence on the relevant issue was roughly in equipoise).
In its reply brief, Minsor argues that PSG was not
justified in relying on Stevenson’s statement because all
2
The jury was correctly instructed that this heightened burden
applied for PSG’s punitive damages claim.
No. 06-3297 9
he said was that the forgings could be changed, not
that they would be changed, and because PSG made no
attempt to write this assurance into the contract. A party
is not justified in relying on a representation that it
should recognize as obviously false. Hennig v. Ahearn,
601 N.W.2d 14, 24 (Wis. Ct. App. 1999). But Minsor’s
representation that changes could be made to the
forgings was not obviously false. As we have pointed
out, there was enough evidence for the jury to conclude
that Minsor knew there was little possibility of changing
the forgings when it told PSG otherwise. Furthermore,
Glowacki testified that PSG relied on Minsor’s statement
that changes would be possible when it agreed to go
through with the contract in spite of the problems it was
having with the prototypes. The jury could have questioned
whether PSG really did rely on Stevenson’s statement
about making changes to the forgings given the vague and
uncertain nature of that statement. But the jury’s verdict
suggests that it believed Glowacki’s testimony that PSG
did rely on Stevenson’s statement, and we do not ordi-
narily overturn a jury’s credibility finding. Pearson v.
Wellborn, 471 F.3d 732, 738 (7th Cir. 2006).
At any rate, Minsor has failed to show that the particu-
lar error here is of the kind that if left uncorrected would
result in a miscarriage of justice. As explained above,
Minsor probably would have lost on PSG’s fraud claim
even if the jury had been properly instructed, so Minsor
is hard-pressed in claiming that this error tainted the
district court proceedings. And here, the civil litigant
claiming that it alone has been harmed by an erroneous
instruction bears significant responsibility for that error
in the first place. Cf. Diaz-Fonseca v. Puerto Rico, 451
F.3d 13, 36 (1st Cir. 2006) (vacating damages award
stemming from an erroneous jury instruction in an Individ-
uals with Disabilities Education Act case in part because
the award would impact non-party school children by
10 No. 06-3297
diverting scarce educational resources). Minsor had a
chance to submit proposed jury instructions to the court.
See Fed. R. Civ. P. 51(a). It chose not to do so, instead
relying on the instructions submitted by PSG. Minsor has
not provided any reason why the court should cure this
“self-inflicted wound.” See Rivera Castillo v. Autokirey,
Inc., 379 F.3d 4, 10 (1st Cir. 2004); see id. at 12 (finding
no miscarriage of justice when a party failed to propose
jury instructions or object to the court’s instructions).
Indeed, Minsor’s failings run deeper: when the parties
were hashing out the final instructions and the court
sought to clarify that PSG’s punitive damages claim
required a higher burden of proof than the preponderance
standard, Minsor’s counsel simply agreed, never alert-
ing the court that a higher burden should also apply
to PSG’s fraud claim. In sum, because Minsor has not
given us a good reason to excuse its many mistakes, we
conclude that the erroneous instruction here did not
“seriously affect[ ] the fairness, integrity or public reputa-
tion of judicial proceedings.”
C. Punitive Damages
Finally, Minsor argues that the district court erred by
instructing the jury on punitive damages because there
was not sufficient evidence to show that Minsor acted
maliciously, vindictively, or with an improper motive. But
PSG did not have to show that Minsor acted maliciously
or vindictively; it had to show only that Minsor inten-
tionally disregarded PSG’s rights. See Wis. Stat.
§ 895.043(3) (formerly § 895.85(3)); Wischer v. Mitsubishi
Heavy Indus. Am., Inc., 694 N.W.2d 320, 324-25 (Wis.
2005). As we explained above, there was enough evidence
in the record for the jury to conclude that when Minsor
told PSG it could make changes to the prototype forgings,
it knew that this was not true. In addition, there is
No. 06-3297 11
evidence that Minsor was aware that its misstatement
would affect PSG’s ability to perform the contract—PSG
expressed concern to Minsor about its ability to meet the
contract terms if the final forgings contained as much
excess material as the prototypes. We also do not agree
with Minsor that there is no evidence of an improper
motive on Minsor’s part. There is evidence that Minsor
was on a tight deadline to produce prototypes of the TB
knuckle for its customer and that PSG was the only
company that said it could produce the prototypes on
schedule. Therefore, the jury could have concluded that
Minsor wanted to deceive PSG so PSG would continue
producing the prototypes even if doing so meant that PSG
might have trouble meeting its contractual obligations
in the long term. We believe this is enough for the jury
to conclude that Minsor intentionally disregarded PSG’s
rights, and therefore the district court did not err by
instructing the jury on punitive damages.
III. CONCLUSION
For the above reasons, we AFFIRM the decision of the
district court denying Minsor’s motions for judgment
notwithstanding the verdict and for a new trial.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—1-17-08