Opinion ID: 531044
Heading Depth: 1
Heading Rank: 2

Heading: the breach of warranty counterclaim

Text: 30 USI next argues on appeal that the trial judge committed prejudicial error in charging the jury that reliance was an essential element of USI's breach of warranty counterclaim, and therefore, the district court should have granted its motion for a new trial. USI contends that its contract with Gregg to purchase his companies was explicitly predicated upon the accuracy of Gregg's representations and warranties, particularly those regarding the financial condition of his businesses. USI claims that it produced evidence at trial that Gregg breached the contract and its warranties by materially misrepresenting the status of the C-38 dredging job in progress as of the closing. It maintains that Gregg failed to accurately state the financial condition of the companies because he did not follow generally accepted accounting principles in his bookkeeping, and because he failed to record a major loss and provide for adequate company reserves which resulted in a material overstatement of the companies' net income. 31 At the outset, we recognize that we are reviewing a case brought before the United States District Court for the Middle District of Florida on the basis of diversity jurisdiction. The parties cite to New York law in arguing this issue. 12 Accordingly, in asserting that the jury charge on breach of warranty was erroneous, USI states that under New York law, where an express warranty or representation exists as part of a signed writing, reliance need not be proven to establish a breach of contract. Gregg counters, however, that New York law requires that a party establish reliance before it can recover for a breach. Courts construing the reliance issue under New York law acknowledge that this is an unsettled area of law. Ainger v. Michigan Gen. Corp., 632 F.2d 1025, 1026 n. 1 (2d Cir.1980); Ostano Commerzanstalt v. Telewide Sys., Inc., 608 F.Supp. 1359, 1365 (S.D.N.Y.1985), aff'd in pertinent part, 794 F.2d 763 (2nd Cir.1986); CPC Int'l Inc. v. McKesson Corp., 134 Misc.2d 834, 513 N.Y.S.2d 319, 322 (N.Y.Sup.Ct.1987). Our review of the district court's charge to the jury thus involves not only an analysis of whether the charges, considered as a whole, sufficiently instruct the jury so that the jurors understand the issues involved and are not misled, Pesaplastic, C.A. v. Cincinnati Milacron Co., 750 F.2d 1516, 1525 (11th Cir.1985), but also consideration of the status of the New York law in this area as presented by the parties to the trial judge at the time the jury instruction was formulated. 32 USI argues that under New York law, reliance need not be proven in cases where the parties have made an express warranty part of the contract and where the warranty was breached. Ainger v. Michigan Gen. Corp., 476 F.Supp. 1209, 1223-27 (S.D.N.Y.1979), aff'd on other grounds, 632 F.2d 1025 (2d Cir.1980); Delta Holdings, Inc. v. Nat'l Distillers & Chem. Corp., [1987-1988 Transfer Binder] Fed.Sec.L.Rep. (CCH) p 93,700 at 98,225, 1988 WL 36330 (S.D.N.Y. Apr. 11, 1988); CPC Int'l, 513 N.Y.S.2d at 322-23. Gregg however, points to several cases on New York warranty law which hold that a buyer cannot recover for breach of an express warranty unless he first shows that he relied upon the warranty. Crocker Wheeler Elec. Co. v. Johns-Pratt Co., 29 A.D. 300, 302, 51 N.Y.S. 793, 794 (N.Y.App.Div.1898), aff'd, 164 N.Y. 593, 58 N.E. 1086 (1900); Holdridge v. Heyer-Schulte Corp., 440 F.Supp. 1088, 1104 n. 9 (N.D.N.Y.1977); Scaringe v. Holstein, 103 A.D.2d 880, 477 N.Y.S.2d 903, 904 (N.Y.App.Div.1984); Friedman v. Medtronic, Inc., 42 A.D.2d 185, 345 N.Y.S.2d 637, 643 (N.Y.App.Div.1973); Ellen v. Heacock, 247 A.D. 476, 286 N.Y.S. 740, 742 (N.Y.App.Div.1936). Upon review of the relevant case law, we agree with the New York courts that it is unsettled whether reliance is required in breach of warranty cases. Accordingly, we consider whether, under this state of the New York law, the trial judge erred in his instructions to the jury. 33 The trial judge instructed the jury in relevant part that: 34 In order to find Gregg liable on this claim, you must find all of the following: 35 One. That Gregg made a misrepresentation as to a material fact. 36 Two. That USI entered into the Agreement and Plan and Employment Agreement in reliance on that misrepresentation of fact; 37 And three. That USI was damaged as a result. 38 A warranty is an assurance by one party to a contract of the existence of a fact upon which the other party may rely. It is intended to relieve the promisee of any duty to ascertain the fact for itself. It amounts to a promise to indemnify the promisee for any loss if the fact warranted proved untrue. It is immaterial whether the person who made the warranty in issue made it under misinformation and in good faith. If you find that Gregg made any warranty of material fact upon which USI was entitled to rely and did in fact rely, and that the warranty given was breached, then your verdict should be for USI on this claim. 39 If you find that USI relied upon its own investigation of the former Gregg companies rather than on the representations of those companies made by Gregg, then USI has not proved the essential requirement of reliance under this claim and you must find against USI and in favor of Gregg on this claim. 40 (R134-123, 124). We find that this instruction, when considered in light of the charges as a whole, properly informed the jury of the issues in the case and the applicable law. Many cases under New York warranty law support the district court's charge that a showing of reliance is necessary to establish a breach of warranty claim. See e.g. Crocker Wheeler, 51 N.Y.S. at 794; Holdridge, 440 F.Supp. at 1104 n. 9; Friedman, 345 N.Y.S.2d at 643. Although we recognize that these cases are primarily New York sales of goods decisions under the Uniform Commercial Code, it is reasonable to extend the reliance requirement applicable in sales cases to situations involving the transfer or sale of securities. See Land v. Roper Corp., 531 F.2d 445, 448 (10th Cir.1976). Since the vast majority of states follow the U.C.C., including New York, we cannot criticize the trial judge for instructing the jury in accordance with that law. 41 Nor are we prepared to hold that the trial judge committed reversible error in instructing the jury based upon what the parties represented to him as the law on this point. 13 Other than the Ainger case, the cases cited by USI in its brief on appeal were not available to the trial judge when formulating the jury instructions. Most of the cases cited by Gregg were available to the district court and represented the existing law of New York on the reliance issue in warranty cases. Even a reading of Ainger shows that the Second Circuit, in affirming the district court on other grounds, refused to join the ongoing debate in the New York courts over the reliance issue. Ainger, 632 F.2d at 1026. The Second Circuit stated that the district court's discussion of New York law on reliance was dicta since the trial court held that reliance was established in the case. Id. at 1026 n. 1. The circuit court noted that [b]ecause there was reliance in this case, we will not speculate how the New York courts would decide a case in which there was none. Id. We also refuse to speculate here, especially when ample law supports the trial court's instruction that reliance must be proven in a breach of warranty case. 42 The district court correctly instructed the jury as to the law on breach of warranty based on what was represented to it. When the instructions, taken together, properly express the law applicable to the case, there is no error even though an isolated clause may be ... subject to criticism. Johnson v. Bryant, 671 F.2d 1276, 1280 (11th Cir.1982). We do not doubt that the jury was properly guided in its deliberations by the court's charge. See Miller v. Universal City Studios, Inc., 650 F.2d 1365, 1372 (5th Cir. July 1981). It considered and weighed the evidence regarding USI's breach of warranty counterclaim and returned a verdict in favor of Gregg. Since we find no error in the trial judge's jury instruction, we hold that the district court acted well within its discretion in denying USI's motion for a new trial.