Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-02214/USCOURTS-ca10-88-02214-0/pdf.json

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

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FI LED 

Uflited Scacn Courc of Appc. 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

Tenth Circuit 

JUfl 11 1990 

.ROBERT L. HOECKER 

VAN Clerk ITALLIE COMPANY, INC., 

Plaintiff-Appellee, 

Cross-Appellant, 

vs. 

TRI-MAX CORPORATION, 

Defendant-on-Counterclaim, 

Third Party PlaintiffAppellant, Cross-Appellee, 

vs. 

GENERAL ELECTRIC COMPANY, INC., 

Third Party DefendantAppellee. 

No. 88-2192 

No. 88-2214 

No. 88-2245 

No. 88-2744 

No. 88-277 6 

(D.C. No. Civ-85-2270-P) 

(W.D. Okla.) 

ORDER AND JUDGMENT* 

** Before*~3⁄4LDOCK and EBEL, Circuit Judges, and SAM, District 

Judge. 

* 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. 

** Honorable David Sam, United States District Judge for the 

District of Utah, sitting by designation. 

*** After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The cause therefore is ordered 

submitted without oral argument. 

Appellate Case: 88-2214 Document: 010110036173 Date Filed: 06/11/1990 Page: 1 
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Van Itallie Company is a distributor of Stratapax drill 

blanks, polycrystalline diamond-faced cutters manufactured by 

General Electric Company. Tri-Max Corporation produces and 

markets drill bits for use in the oil and gas industry. Between 

1979 and 1983, Van Itallie, on behalf of General Electric, 

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supplied Tri-Max under an open account with Stratapax drill 

blanks which Tri-Max incorporated into its drill bits. 

Accompanying each delivery to Tri-Max was a General Electric 

invoice/packing slip which contained the following warranty: 

WARRANTY 

Seller warrants that each product to be delivered 

hereunder will be of the kind designated or specified 

and no other warranty, except of title, shall be 

implied. . If any product delivered hereunder fails 

to conform to the specifications or to be the kind 

designated prior to the date which is 60 days from the 

date of shipment or prior to the date of use or resale 

of the product by Buyer, whichever date sooner occurs, 

and if Buyer shall notify Seller thereof immediately, 

Seller shall thereupon, at its option, either (1) 

correct the defect or defects by repairing or, at its 

option, by making replacement material available at 

Buyer's plant or (2) refund the purchase price. The 

liability of Seller (except as to title) arising out of 

the supplying of said product or its use, whether on 

warranties, contract, negligence, or otherwise, shall 

not in any case exceed the liability as herein provided 

and, upon expiration of the applicable warranty period 

specified herein, all such liability shall terminate. 

The foregoing shall constitute the sole and exclusive 

remedy of Buyer and the sole and exclusive liability of 

Seller. THE WARRANTIES STATED IN THIS PARAGRAPH ARE 

EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES (EXCEPT OF 

TITLE) WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, 

INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR 

PURPOSE .... 

In September 1985, Van Itallie instituted this diversity 

action pursuant to 28 U.S.C. § 1332 against Tri-Max seeking 

payment of $61,221 allegedly due on twelve drill blank shipments 

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Appellate Case: 88-2214 Document: 010110036173 Date Filed: 06/11/1990 Page: 2 
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during 1983. Tri-Max joined General Electric as a party to the 

action and claimed breach of warranty and product liability 

against Van Itallie and General Electric. According to Tri-Max, 

fifty-four of its drill bits failed in service because of 

• Tl'I defective Stratapax drill blanks, resulting in a $1.8 million 

loss to the business. 

At the close of Tri-Max's case, the district court directed a 

verdict under Fed. R. Civ. P. 50(a) in favor of Van Itallie and 

General Electric on Tri-Max's product liability claim. The court 

concluded that Tri-Max as a matter of law had fail~d to prove that 

the fifty-four drill blanks were unreasonably dangerous or the 

cause of any loss to Tri-Max. At the close of all the evidence, 

the district court submitted special interrogatories to the jury. 

The jury returned a verdict against Van Itallie on its open 

account claim and in favor of Tri-Max on its breach of warranty 

claim. The jury found that the warranty contained on the invoice/ 

packing slip was a part of the agreement between the parties, but 

that the limited remedy failed of its essential purpose. The jury 

assessed damages of $140,000 and $420,000 against Van Itallie and 

General El~ctric respectively. Subsequently, the district court 

granted judgment notwithstanding the verdict under Fed. R. Civ. P. 

50(b) to Van Itallie and General Electric on the warranty claim. 

The court held as a matter of law that the warranty's language was 

conspicuous and its limited remedy had not failed of its essential 

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Appellate Case: 88-2214 Document: 010110036173 Date Filed: 06/11/1990 Page: 3 
purpose. 1 The district court, however, denied Van Itallie's 

motion for judgment on the open account, holding that the evidence 

was sufficient to support the jury's finding in favor of Tri-Max. 

These consolidated appeals from the district court's rulings 

ensued. 2 Our jurisdiction arises under 28 U.S.C. § 1291. 

Applying Oklahoma substantive law, 3 we affirm in part and reverse 

1 At the conclusion of Tri-Max's case, Van Itallie and General 

Electric moved for a directed verdict on the warranty claim as 

well as the product liability claim. The district court took the 

motion on the warranty claim under advisement and indicated that 

the jury would act in an advisory capacity on that issue. The 

court's actions in this regard were technically incorrect. Fed. 

R. Civ. P. 39(c) specifically authorizes a district court, in its 

discretion, to impanel an advisory jury in any case "not triable 

of right by a jury." Thus, where an action is triable as of right 

to a jury, as this action was, the district court is powerless to 

impanel an advisory jury. See McKinney v. Gannett Co., Inc., 817 

F.2d 659, 673 (10th Cir. 1987). We therefore construe the 

district court's grant of a directed verdict in favor the Van 

Itallie and General Electric on the warranty claim after 

submitting that claim to the jury, as a judgment notwithstanding 

the verdict pursuant to Fed. R. Civ. P. 50(b). 

2 A motion for a directed verdict and a motion for judgment 

notwithstanding the verdict are governed by the same standard. 

Reazin v. Blue Cross and Blue Shield of Kansas, Inc., 899 F.2d 

951, (10th Cir. 1990). In determining the propriety of either 

motio~we must view the evidence in a light most favorable to the 

nonmoving party; we may not pass upon the witnesses' credibility 

or substitute our judgment for that of the jury. Id. at Yet 

a scintilla of evidence will not withstand either motion. Dixon 

v. City of Lawton, 898 F.2d 1443, __ (10th Cir. 1990). Instead, 

the evidence must be sufficient to create an issue for the jury; 

where reasonable minds could differ as to the import of the 

evidence, the motions should be denied. Banghart v. Hollywood 

Gen. P'ship, F.2d ____ (10th Cir. 1990). 

3 Because Van Itallie commenced this diversity action in the 

Oklahoma federal district court, we must apply the substantive law 

that an Oklahoma state court would apply, including its choice of 

law rules. Because all parties agree that Oklahoma substantive 

law applies to this action, we shall proceed accordingly without 

further analysis. See Missouri Pac. R.R. Co. v. Kansas Gas & 

Elec. Co., 862 F.2d--=r§"6, 798 n.l (10th Cir. 1988). Although 

(footnote continued on next page) 

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Appellate Case: 88-2214 Document: 010110036173 Date Filed: 06/11/1990 Page: 4 
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in part the judgment of the district court. 

I. 

Product Liability 

The district court properly directed a verdict for Van 

Itallie and General Electric on Tri-Max's product liability claim. 

In Kirkland v. General Motors Corp., 521 P.2d 1353 (Okla. 1974), 

the Oklahoma Supreme Court adopted the Restatement (Second) of 

Torts§ 402A (1965) and set forth the elements necessary to 

sustain a product liability claim in Oklahoma. Among other 

things, the plaintiff "must prove that the defect made the article 

unreasonably dangerous" and "that the product was the cause of the 

injury; the mere possibility that it might have caused the injury 

is not enough." Id. at 1363. 

The trial record does not support Tri-Max's assertion that 

the fifty-four specified drill blanks were the cause of any 

redressable injury in tort. The most Tri-Max proved was a ''mere 

possibility." While Tri-Max throughout the trial vigorously 

.,,. attacked the quality of the Stratapax drill blank generally, such 

evidence was insufficient to sustain a finding that the fifty-four 

blanks were the proximate cause of any loss to Tri-Max. 

Similarly, the evidence was insufficient to permit a reasonable 

jury to find that the drill blanks were unreasonably dangerous. 

(footnote continued from previous page) 

entitled to some deference, we ultimately review de novo the 

district court's interpretation of state law. Midamer"Tca Fed. 

Sav. and Loan Ass'n v. Shearson/American Exp. Inc., 886 F.2d 1249, 

1253 (10th Cir. 1989). 

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At most, any defect in the blanks caused Tri-Max purely economic 

loss. A strong argument can be made that the risk that a product 

may not perform as expected does not per se make the product 

unreasonably dangerous within the meaning of§ 402A. 4 

II. 

Warranty 

The district court also properly granted Van Itallie and 

General Electric judgment on Tri-Max's breach of warranty claim 

notwithstanding the jury's verdict to the contrary. The Uniform 

Commercial Code, adopted in Oklahoma, provides for both the 

exclusion of warranties and limitation of remedies in the 

commercial setting: 

(2) •.. to exclude or modify the implied warranty 

of merchantability or any part of it the language must 

mention merchantability and in case of a writing must be 

conspicuous, and to exclude or modify any implied 

warranty of fitness the exclusion must be by a writing 

and conspicuous. 

Okla. Stat. Ann. tit. 12A, § 2-316(2) (West Supp. 1990). 

(a) the agreement may provide for remedies in addition 

to or in substitution for those provided in this 

Article and may limit or alter the measure of · 

damages recoverable under this Article, as by 

limiting the buyer's remedies to return of the goods 

4 This point leads to a more fundamental issue regarding TriMax's product liability claim: Whether Oklahoma law recognizes a 

cause of action in tort where a defective product purchased in a 

commercial transaction malfunctions causing purely economic loss? 

See East River Steamship Corp. v. Transamerica Delaval Inc., 476 

U.S. 858 (1986); Laurens Elec. Coop, Inc. v. Altec Indus., Inc., 

889 F.2d 1323 (4th Cir. 1989). The Oklahoma Supreme Court has not 

yet spoken on this issue, and because we do not sit to declare the 

common law of Oklahoma, we decline to express an opinion on the 

issue. 

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Appellate Case: 88-2214 Document: 010110036173 Date Filed: 06/11/1990 Page: 6 
and repayment of the price or to repair and 

replacement of non-conforming goods or parts; and 

(b) resort to a remedy as provided is optional unless 

the remedy is expressly agreed to be exclusive, in 

which case it is the sole remedy. 

(2) Where circumstances cause an exciusive or 

limited remedy to fail of its essential purpose, remedy 

may be had as provided in this Act. 

Id. § 2-719. To avoid the affect of these provisions as 

encompassed within the warranty contained on the invoice/packing 

slip, Tri-Max asserts that (1) the warranty was not part of any 

agreement with General Electric, (2) the exclusion of warranties 

was not conspicuous and (3) the limitation of _remedies failed of 

its essential purpose. 

In Patty Precision Prod. Co. v. Brown & Sharpe Manuf. Co., 

846 F.2d 1247, 1254 (10th Cir. 1988), we held that under Oklahoma 

law, General Electric's disclaimer on certain goods to an initial 

purchaser did not bind a subsequent purchaser where the disclaimer 

was never communicated to the subsequent purchaser. Unlike the 

facts in Patty Precision, the evidence in this case revealed that 

Tri-Max was placed on notice of the limited warranty via the 

invoice/packing slip which accompanied each shipment of drill 

blanks to Tri-Max. Whether officials at Tri-Max ever actually 

read the warranty and were aware of its terms is irrelevant. See 

id. at 1257-58 (Logan, J., concurring in part) (where benefits of 

warranty pass without regard to privity, so should detriments of 

disclaimer, especially in cases between commercial entities 

involving only economic loss). Tri-Max acknowledged at trial that 

the issue of whether the warranty was a part of its agreement with 

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Appellate Case: 88-2214 Document: 010110036173 Date Filed: 06/11/1990 Page: 7 
General Electric was a question of fact. The jury's finding that 

the warranty ran from General Electric to Tri-Max was supported by 

the evidence and will not be disturbed. 

Tri-Max's argument that the exclusion of warranties was not 

conspicuous in contravention of§ 2-316(2) is likewise 

unpersuasive. Conspicuous is defined in Okla. Stat. Ann. tit. 

12A, § 1-201(10) (West 1963): 

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. . Whether a term or clause is 

"conspicuous" or not is for decision by the court. 

Interpreting§ 1-201(10), Oklahoma courts have described 

conspicuous as that which reasonably may be expected to come to 

the attention of the buyer. The location of the disclaimer in the 

contract, its type face and size, the variation in printing, the 

length of the contract and the sophistication of the buyer are all 

factors to be considered, although none alone are determinative. 

P.E.A.C.E. Corp. v. Oklahoma Natural Gas Co., 568 P.2d 1273, 1277-

78 (Okla. 1977); Collins Radio Co. v. Bell, 623 P.2d 1039, 1049-51 

(Okla. App. 1980). 

In this case, the front of the invoice/packing slip contained 

the following language in capital letters: "THIS TRANSACTION IS 

SUBJECT TO THE TERMS AND CONDITIONS ON THE FACE AND REVERSE SIDE 

HEREOF . . II On the back of the slip were the "STANDARD 

CONDITIONS OF SALE" including the warranty previously set forth. 

The exclusion of warranties was printed in black capital letters 

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Appellate Case: 88-2214 Document: 010110036173 Date Filed: 06/11/1990 Page: 8 
and was the only language so printed aside from the headings. 

While the print was small, it was amply spaced and easily read. 

These factors, coupled with the fact that Tri-Max was a 

sophisticated business in need of no special protection, lead us 

to agree with the district court that the exclusion of warranties 

was conspicuous. 

Lastly, Tri-Max asserts that the limited remedy of repair, 

replacement or refund failed of its essential purpose so as to 

make alternative remedies available to it under§ 2-719(2). The 

Oklahoma Supreme Court has stated that a remedy fails of its 

essential purpose "[w]here the seller is afforded a reasonable 

opportunity to correct the defect and fails timely to respond or 

is repeatedly unsuccessful in the efforts to meet the warrantyimposed obligation." Osburn v. Bendix Home Sys., Inc., 613 P.2d 

445, 449-450 (Okla. 1980). In the commercial setting, a remedy 

fails of its essential purpose only where the seller has refused 

to make repairs or cannot repair the product. Reigel Power Corp. 

v. Veith Hydro, 888 F.2d 1043, 1046 (4th Cir. 1989). See also, 

J. White & R. Summers, Uniform Commercial Code 602 (3d ed. 1988) 

(situations rarely occur where remedy fails of its essential 

purpose). 

This is not a case where the limited remedy failed of its 

essential purpose. The evidence was uncontradicted that General 

Electric had no notice of Tri-Max's warranty claim until Van 

Itallie instituted this suit against Tri-Max. Before a remedy 

contained in a written warranty may fail of its essential purpose, 

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the seller must be given the opportunity to attempt to fulfill its 

obligations under the warranty. In this case, Tri-Max never even 

asked General Electric or Van Itallie to repair or replace the 

fifty-four drill blanks at issue. Tri-Max's evidence that it had 

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rejected approximately 12% of all Stratapax drill blanks and that 

General Electric had granted credit to Tri-Max on only 5% of all 

drill blanks did not allow Tri-Max to assume that General Electric 

would do nothing to remedy the alleged defect in the fifty-four 

drill blanks. Tri-Max simply did not give General Electric or Van 

Itallie any opportunity to correct the problem. 

III. 

Open Account 

Having held that the district court correctly denied Tri-Max 

relief on its product liability and warranty claims, we now ask 

whether the evidence was sufficient to sustain the jury's finding 

against Van Itallie on the open account. In Oklahoma, acceptance 

of goods occurs when a buyer fails to make an effective rejection 

after an opportunity to inspect the goods. CMI Corp. v. Leemar 

Steel Co, Inc., 733 F.2d 1410, 1414 (10th Cir. 1984). Rejection 

of goods occurs when a buyer seasonably notifies the seller of 

rejection within a reasonable time after delivery. Okla. Stat. 

Ann. tit. 12A, § 2-602 (West 1963). A failure to reject goods 

results in their acceptance. Id. § 2-607. A buyer is entitled to 

revoke acceptance within a reasonable time only if it has accepted 

the goods on the assumption that any non-conformity would be cured 

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or its acceptance was induced by the difficulty of discovery or 

the seller's assurances. Id. § 2-608. 

Our review of the record indicates that Tri-Max neither 

effectively rejected the drill blanks or revoked their acceptance. 

Although somewhat unclear from the state of the record, it is 

certain that Van Itallie delivered the fifty-four drill blanks to 

Tri-Max sometime before January 1984. Tri-Max did not complain of 

any problem with those blanks until at least September 1985. 

After a lapse of twenty-one months, Tri-Max attempted to reject 

the blanks or in the alternative, revoke their acceptance. This 

delay was unreasonable as a matter of law. The jury's finding to 

the contrary cannot stand. Because Tri-Max accepted the drill 

blanks, Van Itallie is entitled to recover on the open account. 

Accordingly, the judgment of the district court is AFFIRMED 

IN PART and REVERSED IN PART. The award of attorney's fees and 

costs against Van Itallie on its open account claim is VACATED and 

this cause REMANDED for further consideration of fees and costs 

consistent with this opinion. 

Entered for the Court 

Bobby R. Baldock 

Circuit Judge 

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