Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-85-01099/USCOURTS-ca10-85-01099-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

---

HOLLAND 

vs. 

COOPER 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

CORPORATION, ) 

) 

Plaintiff-Appellee, ) 

) 

) 

) 

INDUSTRIES, INC., ) 

) 

Defendant-Appellant. ) 

ORDER AND JUDGMENT* 

FILED 

Unit.eel St.at.es Court of Appeals 

'T'~nth Circuit 

APR 131989 

ROBERT L. HOECKER 

Clerk 

No. 85-1099 

(D.C. No. 82-2055 

D. Kansas) 

Before HOLLOWAY, Chief Judge, LOGAN, Circuit Judge, and BOHANON, 

District Judge** 

This is a diversity breach of warranty action governed by the 

Kansas Uniform Commercial Code and Kansas decisions. After a jury 

trial the court entered judgment on a jury verdict for the 

plaintiff Holland Corporation. The defendant Cooper Industries 

appeals. 

In this appeal the issues are whether the trial court erred 

in (1) ruling the implied warranty of merchantability extended 

from Cooper to Holland when they were not in privity of contract 

* 

This order and judgment has no precedential value and shall 

not be cited or used by any court within the Tenth Circuit except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

**The Honorable Luther L. Bohanon, United States District Judge of 

the Eastern, Northern and Western Districts of Oklahoma, sitting 

by designation. 

Appellate Case: 85-1099 Document: 010110035122 Date Filed: 04/13/1989 Page: 1 
and (2) denying Cooper's motion for a directed verdict on certain 

elements and amounts of damages. We affirm. 

I 

In 1979, Holland Corporation's predecessor in interest 

purchased a hydraulic drill (the "Jumbo") from Contractors Supply 

Company. Cooper Industries' predecessor in interest manufactured 

the Jumbo. 

Holland mines rock to use in its construction business and to 

sell. In its underground mine, Holland uses industrial drills to 

bore deep holes in the rock into which explosives are packed. The 

explosives blow the rock into pieces, which are taken above-ground 

and broken into various useable sizes. Originally, Holland had 

been using two pneumatic drills. In 1977 Holland was approached 

by a salesman from Contractors, a Cooper representative, about 

buying a hydraulic drill. Hydraulic drills were a more recent 

innovation than pneumatic drills and supposedly drilled much 

faster. Holland became interested, thinking one hydraulic drill 

might replace two pneumatic drills, decreasing costs and 

increasing profits. Eventually, Holland purchased the Jumbo. 

From the day the Jumbo arrived it broke down incessantly. 

Holland, Contractors, and Cooper labored in vain to remedy the 

Jumbo's difficulties. Late in 1981 Holland informed Cooper it 

wanted its money back. When the parties could not settle their 

dispute, Holland brought this action against Cooper for breach of 

express warranties and the implied warranty of merchantability. 

Holland claimed loss of its bargain and consequential damages 

amounting to $610,867. Holland won a jury verdict for $465,034. 

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II 

A. IMPLIED WARRANTY OF MERCHANTABILITY 

Holland complained that Cooper breached the implied warranty 

of merchantability, inter alia. The trial judge submitted 

Holland's warranty claim to the jury. Jury Instructions 8 and 12. 

Cooper argues that Holland's implied warranty of merchantability 

claim should not have been submitted to the jury. 

The implied warranty of merchantability, codified in the 

Kansas 

provides: 

Uniform Commercial Code at K.S.A. 84-2-314 (1983), 

Unless excluded or modified (section 84-2-

316), a warranty that the goods shall be 

merchantable is implied in a contract for their 

sale if the seller is a merchant with respect to 

goods of that kind. 

Cooper contends that, in the circumstances of this case, 

Holland may not invoke the implied warranty of merchantability 

against it because Holland and Cooper were not in privity of 

contract. Cooper sold the drill to Contractors. Contractors then 

sold it to Holland. Cooper and Holland were not in privity of 

contract. 

Cooper relies on Professional Lens Plan, Inc. v. Polaris 

Leasing Corp., 675 P.2d 887 (Kan.1984). In Professional Lens, the 

Kansas Supreme Court held that "implied warranties of fitness and 

merchantability are not extended to a remote seller or 

manufacturer of an allegedly defective product, which is not 

inherently dangerous, for only economic loss suffered by a buyer 

who is not in contractual privity with the remote seller or 

manufacturer ~" Id. at 898-899. See also Owens-Corning Fiberglas 

v. Sonic Dev. Corp., 546 F.Supp. 533 (D.Kan.1982). The Jumbo was 

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not inherently dangerous, Holland suffered only economic loss (as 

opposed to personal injury or property damages), and Holland was 

not in privity of contract with Cooper. The trial judge, however, 

found the Kansas Supreme Court would not require privity here, 

stating: 

The two cases cited above [Professional Lens 

and Owens-Corning] held that the implied warranty 

of merchantability does not extend to a remote 

seller or manufacturer of a defective product which 

is not inherently dangerous for only economic 

losses suffered by a buyer not in contractual 

privity. The facts of this case do not fit into 

that mold. Here [Cooper] is not a remote 

manufacturer but is, instead, a manufacturer 

intimately involved in the sale of this hydraulic 

drill. The close working relationship necessary 

for the custom designing of this drill and the 

training and supervision differentiates this case. 

Therefore, the rule of Owens-Corning and 

Professional Lens is inapplicable on these facts. 

XV R. 1192. 

In Professional Lens, the court expressed concern that 

allowing the buyer to invoke the implied warranty of 

merchantability against a manufacturer with whom the buyer was not 

in privity of contract would destroy the manufacturer's ability to 

disclaim the warranty and to limit damages. See Professional 

Lens, 675 P.2d at 898; K.S.A. 84-2-316, 84-2-718, and 84-2-719 

(1983). A remote buyer could recover from a manufacturer for 

breach of the warranty even though the manufacturer had disclaimed 

the warranty to an intermediate buyer, who then disclaimed it to 

the remote buyer. Further, "(r]emote buyers may use a seller's 

goods for unknown purposes from which enormous losses might ensue. 

Since the remote seller cannot predict the purpose for which the 

goods will be used he faces unknown liability and may not be able 

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to insure himself." Professional Lens, 675 P.2d at 896 (quoting 

White and Summers, Uniform Commercial Code§ 11-6 (2d ed. 1980)). 

We agree with the trial judge that, on the unique facts of 

this case, treating Cooper as a seller to Holland under K.S.A. 84-

2- 314 does not implicate the concerns underlying the holding in 

Professional Lens. Cooper and Holland had extensive personal 

contacts during the sale of this custom-made drill. Cooper could 

have disclaimed the warranty or limited damages during its direct, 

personal contacts with Holland. Further, their contacts were 

extensive enough to allow Cooper to evaluate the intended use of 

the Jumbo and potential losses Holland might incur if the drill 

was defective. Thus, Cooper could foresee and had ample 

opportunity to control its potential liability. 

In the unique and limited circumstances of this case, we are 

persuaded that the district judge's decision on this question of 

state law was reasonable and proper. See Fullerton Aircraft Sales 

v. Beech Aircraft Corp., 842 F.2d 717, 721-22 (4th Cir. 1988); 

Frank's Maintanance v. C.A. Roberts Co., 408 N.E. 2d 403 (Ct. App. 

Ill. 1980); Richards v. Goerg Boat and Motors, Inc., 384 N.E. 2d 

1084 (Ct. App. Ind. 1979). 

B. DAMAGES 

At the close of Holland's case, Cooper moved for a directed 

verdict 

motion 

on, 

Cooper 

among other 

contended 

things, 

that 

the issue of damages. In its 

submissible elements of 

Holland's claims for damages 

Thereafter, Cooper propounded 

matter of law, it 

"the 

are 

eleven 

limited as follows . " 

limitations which, as a 

asked the trial court to place on Holland's 

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damage award. Cooper reasserted these limitations in its motion 

for judgment notwithstanding the verdict or for a new trial. 

Cooper contends the trial court erred in denying the motion. 

This is what the trial court ruled: 

The defendant initially challenges the 

submissibility of certain damages claims by 

plaintiff Holland Corporation. The defendant does 

not challenge the instructions of the court as to 

the measure of damages, but rather the error 

claimed is in allowing plaintiff to argue for 

certain amounts of money before the jury. 

Defendant claims at least Four Hundred Four 

Thousand Six Hundred Fifty-Seven and 21/100 Dollars 

($404,657.21) of the Six Hundred Ten Thousand Eight 

Hundred Sixty-Seven and 44/100 Dollars 

($610,867.44) of damages claimed by plaintiff in 

its arguments to the jury are not recoverable as a 

matter of law. Thus, defendant claims the maximum 

amount recoverable under the law is Two Hundred Six 

Thousand Two Hundred Ten and 23/100 Dollars 

($206,210.23). In particular, defendant disputes 

plaintiff's separate arguments that it was entitled 

to Three Hundred Twelve Thousand Four Hundred 

Ninety-Seven and 65/100 Dollars ($312,497.65) for 

use of supplemental pneumatic drills and Ninety-Two 

Thousand One Hundred Fifty-Nine and 56/100 Dollars 

($92,159.56) for the purchase of rock from union 

quarries. 

In order to determine the submissibility of 

this evidence to the jury, the court must look at 

the evidence in the context of the entire trial, 

including the instructions. 

In Instruction No. 14, the court stated as 

follows 

The measure of damages for breach of an 

express or implied warranty is the difference 

between the value of the goods at the time of 

delivery and the value had they conformed to the 

warranty, unless special circumstances show damages 

of a different amount. 

If you find that other damages were incurred 

by the plaintiff that were the direct, immediate 

and probable result of the breach of express or 

implied warranty, then you may award plaintiff such 

sum as you believe will fairly and justly 

compensate the plaintiff for the damages you 

believe plaintiff sustained as a result of the 

breach. 

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If you find that plaintiff is entitled to 

recover damages, in fixing the amount thereof you 

should not include any loss which could have been 

prevented by reasonable care and diligence 

exercised by it after the loss occurred. 

This instruction, which has not been 

challenged, is a fair reading of the law as stated 

at K.S.A. 84-2-714(2); Schatz Distributing Co. v. 

Olivetti Corp. of America, 7 Kan. App. 2d 676, 647 

P.2d 820(1982). 

The trial was lengthy and complicated with 

numerous witnesses providing extensive evidence as 

to damages. The jury did not award to the 

plaintiff the full measure of damages requested by 

plaintiff, but rather awarded a substantially 

lesser amount. While the jury obviously did award 

an amount greater than the difference between the 

value of the goods at the time of delivery and the 

value had they conformed to the warranty, the court 

cannot as a matter of law say that special 

circumstances showing damages of a different amount 

did not exist. Further, the court will not reweigh 

the evidence on which the jury concluded that such 

damages were the direct, immediate and probable 

result of the breach of express or implied 

warranty. The arguments made by Cooper Industries 

now are essentially the same arguments made at 

closing argument before the jury, and these 

arguments go to the weight of the evidence. It was 

the province of the jury to decide whether such 

damages were the direct, immediate and probable 

result of the breach of express or implied 

warranty. 

Memorandum and Order, V R. 936-938. 

Our review of the trial court's denial of Cooper's motions 

for a directed verdict and for judgment notwithstanding the 

verdict is limited; "we may find error only if the evidence points 

but one way and is susceptible to no reasonable inferences 

supporting [Holland]; we must construe the evidence and inferences 

most favorably to [Holland]." Zimmerman v. First Federal Sav. & 

Loan Ass'n, 848 F.2d 1047, 1051 (10th Cir. 1988). Our review in 

this regard is de novo, i.e., we apply the same standard applied 

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by the district court. Guilfoyle v. Missouri, Kansas and Texas 

Railroad Co., 812 F.2d 1290, 1292 (10th Cir. 1987). 

The substantive law under which we evaluate Cooper's 

arguments is K.S.A. 84-2-714. That section, which prescribes the 

damages a buyer may recover for breach of express or implied 

warranties, provides: 

(1) Where the buyer has accepted goods and 

given notification (subsection (3) of section 84-2-

607) he may recover as damages for any 

nonconformity of tender the loss resulting in the 

ordinary course of events from the seller's breach 

as determined in any manner which is reasonable. 

(2) The measure of damages for breach of 

warranty is the difference at the time and place of 

acceptance between the value of the goods accepted 

and the value they would have had if they had been 

as warranted, unless special circumstances show 

proximate damages of a different amount. 

(3) In a proper case 

consequential damages under the 

also be recovered. 

any incidental and 

next section may 

In this appeal, Cooper reasserts most of the eleven arguments 

it made to the trial court in its motions for a directed verdict 

and for judgment notwithstanding the verdict. We will address 

Cooper's arguments in the order in which they are presented. 

1. Loss of Bargain 

Holland claimed damages for the difference between the value 

of the drill at the time of delivery and the value it would have 

had if it had conformed to the warranty. K.S.A. 84-2-714(2) 

(1983). This element of damages was presented to the jury in the 

first paragraph of Jury Instruction 14. Cooper asserts this claim 

for loss of bargain is overstated as a matter of law. 

First, Cooper asserts "[t]here is no evidence that the Jumbo 

had no value, salvage or otherwise, when the pump failed in April 

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or May 1981 or at any time thereafter." Brief of Appellant at 23. 

Cooper did not present this argument to the trial court. We will 

not consider it. 

Second, Cooper argues Holland's loss of bargain damages are 

legally limited in any event by the amount Contractors paid Cooper 

for the Jumbo: $137,676. Cooper's attempt to limit Holland's 

recovery to any transaction price is inconsistent with the express 

language of K.S.A. 84-2-714(2). Although the transaction price is 

evidence of the value of the goods as warranted, recovery is not 

legally tied to any transaction price. It is tied to the value of 

the goods as warranted. Evidence of two transaction prices was 

introduced: the price Contractors paid Cooper, and the price 

Holland paid Contractors. From these two prices, the jury could 

have reasonably concluded that the value of the Jumbo, if it had 

been as warranted, would have been approximately $176,000. 

Further, based on the evidence of the Jumbo's performance the jury 

could have reasonably concluded the value of the Jumbo as 

delivered was approximately $18,000. Consequently, the jury had a 

reasonable basis for assessing Holland's loss of bargain damages. 

Holland's claim under K.S.A. 84-2-714(2) was not overstated 

as a matter of law. 

2. Consequential Damages 

In addition to damages under K.S.A. 84-2-714(2), Holland 

claimed consequential damages under K.S.A. 84-2-715(2). 

K.S.A. 84-2-715 provides: 

( 2 ) 

seller's 

(a) 

peculiar 

at the 

Consequential damages resulting from the 

breach include 

any loss resulting from general or 

requirements and needs of which the seller 

time of contracting had reason to know and 

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which could not reasonably be prevented by cover or 

otherwise. 

This element of damages was presented to the jury in the 

second and third paragraphs of Jury Instruction 14. Holland 

requested consequential damages for the cost of operating a second 

drill and for the net cost of rock purchased from another mine. 

Holland's theory supporting its claim for consequential damages 

ran like this. Based upon Cooper's demonstration of the Jumbo at 

Holland's mine, Holland reasonably expected the Jumbo to drill 

approximately twice as fast as one of its pneumatic drills. Since 

they expected the Jumbo to drill twice as fast, they expected to 

retire both pneumatic drills, use only the Jumbo, and still 

produce the same amount of rock. Holland thus expected to make 

more profit while maintaining the same level of production because 

the Jumbo would be cheaper to operate than the two pneumatic 

drills. But the Jumbo failed to perform as expected. So in order 

to maintain its production levels, Holland continued operating one 

of the pneumatic drills and purchased rock from another mine. 

Consequently, Holland made less profit than it would have made had 

the Jumbo performed as it reasonably expected. Holland's expenses 

were increased and profits reduced in the amount of the cost of 

operating the second drill and the price of the rock purchased 

from another mine in excess of Holland's production costs. 

Cooper argues these consequential damages are not recoverable 

as a matter of law. 

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a. The cost of operating a second drill 

First, Cooper asserts that awarding the costs of operating 

the second drill theoretically gives Holland a double recovery. 

We disagree. 

The basic objective of damages under the Kansas Uniform 

Commercial Code is to put Holland in as good a position as if 

Cooper has fully performed. K.S.A. 84-1-106(1); Cricket Alley v. 

Data Terminal Systems, 732 P.2d 719, 725 (Kan. 1987). 

According to Holland's theory of consequential damages, if 

the Jumbo had performed as warranted Holland would have received a 

Jumbo worth approximately $176,000 and it would have incurred the 

normal costs of operating it. This is the position Holland would 

have been in if the Jumbo had operated as warranted. But the 

Jumbo did not perform as warranted. So Holland received a Jumbo 

worth approximately $18,000, it incurred the normal costs of 

operating the Jumbo, plus $47,128 in above-normal operating costs 

for the Jumbo, plus $312,498 to operate a second pneumatic drill, 

plus $92,160 to purchase rock from another mine. This is 

Holland's position 

two positions is 

Plaintiff's Exhibit 

because of the breach. The difference in the 

approximately what Holland requested in 

77. Holland's damage claim was not, as a 

matter of law, theoretically duplicative. 

Second, Cooper asserts that some of the costs of operating 

the second pneumatic drill are not recoverable as a matter of law 

because Holland did not satisfy its burden of producing evidence 

to prove these damages could not have been prevented by cover or 

otherwise. 

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To recover consequential damages in Kansas, an aggrieved 

buyer has the burden of producing evidence to show they could not 

have been prevented. International Petroleum Services, Inc. v. S 

& N Well Service, Inc., 639 P.2d 29, 38 (Kan. 1982). There is 

evidence to support an inference by the jury that Holland was not 

required to acquire an alternative drill until sometime after 

October 13, 1981. Until then, Cooper and Contractors were 

attempting to repair the Jumbo. But Cooper argues Holland's 

consequential damages should have been cut off on October 13, 

1981. Holland, on the other hand, argues they could not 

reasonably have prevented such damages until February 1983. These 

are arguments both parties should have, and did, make to the jury. 

The exact point in time at which Holland's consequential damages 

could have been prevented is a question of reasonableness. The 

trial judge correctly instructed the jury not to award Holland 

damages it could have prevented. Cooper's argument goes to the 

weight of the evidence. Such questions should be decided by the 

jury, as they were in this case. 

Third, Cooper asserts there was insufficient proof that the 

Jumbo's defects actually caused Holland to incur the costs of 

operating a second drill. More specifically, it says there was 

insufficient evidence from which the jury could reasonably 

conclude that the Jumbo, even if it had been as warranted, would 

have replaced both pneumatic drills. We disagree. Cooper 

demonstrated the Jumbo at Holland's mine. IX R. 160-164. During 

the demonstration the Jumbo drilled approximately twice as fast as 

one of Holland's pneumatic drills. IX R. 348. Further, the 

hydraulic drill that Holland eventually purchased from Tamrock 

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performed as Holland had hoped the Jumbo would. It replaced both 

pneumatic drills. XI R. 445-446, 612. 

Viewed in the light most favorable to Holland, and drawing 

all reasonable inferences in its favor, we think there was 

sufficient evidence from which a reasonable jury could conclude by 

a preponderance of the evidence that the Jumbo, if it had been as 

warranted, would have replaced both pneumatic drills; there was 

sufficient evidence of a causal connection between the Jumbo's 

defect and the costs of operating the second drill. 

Finally, Cooper contends there was insufficient evidence from 

which a jury could determine the amount of damages associated with 

operating the second drill. A buyer seeking consequential damages 

has the burden of producing evidence that demonstrates the amount 

of these damages with reasonable certainty. "Such evidence must 

provide the trier of fact with a reasonable basis upon which to 

arrive at an award." LaVilla Fair v. Lewis Carpet Mills, Inc., 

548 P.2d 825, 834 (Kan. 1976); International Petroleum, 639 P.2d 

at 38. 

Holland's calculation of the costs of operating the second 

drill are summarized in Plaintiff's Exhibit 69. Rue Holland, 

president of Holland Corporation, testified that the amounts in 

this exhibit were derived from the actual costs of operating the 

pneumatic drills during 1977 and 1978, as recorded in Holland's 

accounting records. XI R. 556-559, 566-572, 583-588. Donald 

Voth, Holland's certified public accountant, provided further 

testimony explaining Holland's claim for depreciation. XII R. 

765-777. 

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Viewed in the light most favorable to Holland, and drawing 

all reasonable inferences in its favor, we think this was 

sufficient evidence to provide the jury with a reasonable basis on 

which to arrive at an award of damages for the costs of operating 

the second drill and supports the verdict. 

b. The net cost of purchasing rock 

Holland claimed the Jumbo produced so little rock they needed 

to buy rock from another mine. Holland's claim for consequential 

damages included $92,160, which Holland said was the net cost of 

this rock. Cooper asserts that as a matter of law Holland may not 

recover these costs. 

First, Cooper asserts that Holland may not recover these 

costs because only Holland Quarries has a claim against Cooper; 

that Holland Quarries bought the Jumbo, but Holland Construction 

bought the rock from Union Quarries. Further, Holland's theory 

underlying its claim for the net costs of purchasing rock from 

another mine was inartfully presented. We disagree. We think the 

record supports this claim as one that could validly be asserted 

by the parent, Holland Corporation, which brought this suit. 

While Holland Quarries bought the Jumbo, in the working 

relationship of the affiliated Holland companies, it did so to 

serve the needs of Holland Construction, which was the market for 

Holland Quarries' rock. When the Jumbo's failings then caused 

Holland Construction to go out and make the purchases from Union 

Quarries, the damages to Holland Construction could be recovered 

from Cooper. These were damages which were within the affiliated 

companies and which Cooper should have foreseen. All these rights 

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were merged into the parent, Holland Corporation, and its claims, 

when it brought this suit, properly included the damages suffered 

by Holland Construction when it had to purchase rock from the 

outside company, Union Quarries. 

Second, Cooper claims there was insufficient evidence to 

support a finding that Holland's need for the purchased rock was 

caused by the Jumbo's defects. Cooper's argument supporting its 

contention that the Jumbo's defects did not cause Holland to buy 

rock from another mine simply reargues the conflicting evidence in 

the record. Resolution of the conflicts in the evidence was 

properly left to the jury. 

As discussed above, Holland had the burden of producing 

evidence which demonstrated the amount of these damages with 

reasonable certainty and which would provide the jury with a 

reasonable basis upon which to arrive at an award. Holland's 

calculation of the damages it suffered from purchasing this rock 

are detailed in Defendant's Exhibit S-1. Rue Holland and Donald 

Voth testified extensively about the method used to calculate 

these damages. XII R. 586-592, 720-731, 759-762. 

Viewed in the light most favorable to Holland, and drawing 

all reasonable inferences in its favor, we think there was 

sufficient evidence to provide the jury with a reasonable basis 

for an award for the damages to Holland Construction, whose rights 

were merged into the parent, Holland Corporation, which brought 

suit. 

In addition to the motions for a directed verdict or judgment 

notwithstanding the verdict, discussed above, Cooper also 

requested a new trial. The standard for a trial judge to grant a 

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new trial is somewhat less stringent than for a directed verdict 

or judgment notwithstanding the verdict: "The court has the power 

and the duty to order a new trial whenever, in its judgment, this 

action is required in order to prevent injustice." See generally 

C. Wright & A. Miller, 11 Federal Practice and Procedure§§ 2805, 

at 38; 2806 at 42-43 (1973} (distinguishing motions for judgment 

notwithstanding the verdict and for new trial and standards 

applicable to each}. Our standard of review is for "manifest 

abuse of discretion." Brown v. McGraw-Edison Co., 736 F.2d 609, 

616 (10th Cir. 1984). 

As we held above, the trial judge did not err when he denied 

Cooper's motions for a directed verdict or for judgment 

notwithstanding the verdict. Further, we do not think the jury's 

verdict was unjust; the jury awarded Holland considerably less 

damages than was indicated in its proof. The trial judge did not 

abuse his discretion when he denied Cooper's motion for a new 

trial. 

AFFIRMED. 

16 

Entered for the court 

William J. Holloway, Jr. 

Chief Judge 

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