Court Opinion

ID: 23180
Source: CourtListenerOpinion
Date Created: 2010-04-25 08:07:11+00
Date Added: 2024-06-11T15:04:46.339202
License: Public Domain

Revised February 16, 2001

                  UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT
                      _______________________

                          No. 99-41443
                     _______________________

  FRANK E. COGHLAN, III, on behalf of themselves and all other
   similarly situated persons; JOANNA L. COGHLAN, on behalf of
      themselves and all other similarly situated persons,

                                          Plaintiffs-Appellants,

                              versus

        WELLCRAFT MARINE CORPORATION; GENMAR INDUSTRIES,
   INC.; GENMAR HOLDINGS, INC.; AQUASPORT MARINE CORPORATION,

                                          Defendants-Appellees.

_________________________________________________________________

           Appeal from the United States District Court
                for the Southern District of Texas
_________________________________________________________________

                         January 26, 2001

Before JOLLY, JONES, and SMITH, Circuit Judges.

EDITH H. JONES, Circuit Judge:

          The Coghlans, dissatisfied boat purchasers, appeal from

the district court’s sua sponte dismissal of their case for failure

to state a claim.     Because they have stated several legally

cognizable claims upon which relief might be granted, we reverse

and remand in part, and affirm in part.
                                    BACKGROUND

            In May 1998, the Coghlans, residents of Texas, purchased

an Aquasport 205, a type of recreational fishing boat manufactured

by   Wellcraft     Marine   Corporation.            Wellcraft      is   a   Delaware

corporation with its principal place of business in Florida.                       The

boat cost about $28,000.          The Coghlans’ purchase was motivated, at

least in part, by Wellcraft’s marketing campaign for this line of

boats,     which    emphasized       the       advantages     of    all-fiberglass

construction.      In addition to rot-resistance and durability, it is

generally believed among mariners that all-fiberglass boats tend to

hold     their   value   better      than      their    wood-fiberglass      hybrid

counterparts.

            The Coghlans assert that they relied on Wellcraft’s

representations     that    the    Aquasport      205   was   made      entirely   of

fiberglass.      A few months after the purchase, they discovered that

the deck of the Aquasport 205 is actually composed of 1.5 inches of

plywood encased entirely within fiberglass.                 Disappointed by this

revelation, the Coghlans filed suit against Wellcraft, seeking

class certification on behalf of all similarly situated Aquasport

owners.

            The Coghlans’ suit alleged a claim against Wellcraft

under the Magnuson-Moss Warranty Act (MMWA), 15 U.S.C. §§ 2301-

2312, for breach of the implied statutory warranty of fitness for

a particular purpose.       They also pled state law claims for fraud,

                                           2
negligent misrepresentation, breach of contract, deceptive trade

practices, unjust enrichment and civil conspiracy. In response to

this laundry list of accusations, Wellcraft filed a limited motion

to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),

seeking dismissal on the pleadings of the MMWA and civil conspiracy

claims.

          The district court independently analyzed the pleadings

and concluded that the Coghlans had failed to allege any real

damages, a required element for each of their causes of action.

The court went well beyond the scope of the 12(b)(6) motion before

it and sua sponte ordered all the Coghlans’ claims dismissed,

pending a satisfactory attempt to re-plead.

          The Coghlans attempted in an amended pleading to cure the

deficiencies identified by the district court, but the court again

concluded that the Coghlans had failed to assert the requisite

“palpable injury.”   The court denied leave to file the amended

complaint and reiterated its order dismissing all claims.      The

Coghlans timely appealed.

                            DISCUSSION

          The question whether the Coghlans alleged facts stating

a justiciable controversy is a matter of law, reviewed de novo.

See Southwest Livestock and Trucking Co. v. Ramon, 169 F.3d 317

(5th Cir. 1999); Treaty Pines Invs. v. Commissioner of Internal

                                 3
Revenue, 967 F.2d 206, 210 (5th Cir. 1992).1                     While the trial

court’s denial of the motion to amend is reviewed for abuse of

discretion by this court, the discretion of the district court is

limited by Fed. R. Civ. P. 15(a), which provides that “leave [to

amend] shall be freely given when justice so requires.”. Lowery v.

Texas A&M Univ. System, 117 F.3d 242, 245-46 (5th Cir. 1977).                     It

contravenes the liberal pleading presumption of Rule 15(a) and

constitutes an abuse of discretion for a district court to deny a

timely motion to amend where the underlying facts or circumstances

relied upon by a plaintiff may be a proper subject of relief.                    Id.

at   245.      A    court    may    not   dismiss    on   the   pleadings   if   the

allegations support relief on any possible theory.                       Cinel v.

Connick, 15 F.3d 1338, 1341 (5th Cir. 1994).

             The district court did not consider whether Texas or

Florida     law,     the    only    two   arguable    candidates,    governs     the

Coghlans’    various        state   claims;     it   dismissed   after   reviewing

precedents borrowed from a variety of circuits and jurisdictions.

On   appeal,       the   Coghlans    rely   on   Florida    law,   neglecting     to

demonstrate why it applies.2                But regardless whether Texas or

      1
            The Coghlans have not appealed the dismissal of their Magnuson-Moss
Warranty Act claim or their civil conspiracy claim. We do not consider these
claims.   See United States v. Bigler, 817 F.2d 1139, 1140 (5th Cir. 1987);
Zuccarello v. Exxon Corp., 756 F.2d 402, 407-08 (5th Cir. 1985).
      2
            State law governs these claims. When deciding matters of state law,
a federal court must apply the choice-of-law rules of the state in which it sits.
See Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); De Aguilar v.
Boeing Co., 47 F.3d 1404, 1413 (5th Cir. 1995). Texas state courts use a choice-

                                            4
Florida law is applied, the Appellants managed to plead several

legally cognizable claims which should not have been dismissed on

the pleadings alone.

            The only damage sought by the Coghlans is the benefit of

their bargain with Wellcraft, or the difference in value between

what they were promised, an all fiberglass boat, and what they

received, a hybrid wood-fiberglass boat.             Along with the “out of

pocket” damages formula, which measures the difference between what

the plaintiff paid in consideration and what he actually received,

“benefit of the bargain” is a standard method for measuring damages

in fraudulent representation and certain contract cases.                     The

benefit of the bargain measure of damages is neither novel nor

exotic.3     A simple example proffered by the Coghlans at oral

argument makes the common-sense nature of benefit of the bargain

damages clear: if a man buys what is represented to him as an 18k

gold ring, but later discovers that the ring is merely 10k gold, he

is entitled to the difference in value between the 18k ring that he

bargained for and the 10k ring that he received.

of-law formula borrowed from section 6 and 145 of the Restatement (Second) of
Conflict of Laws, and will apply the law of the state with the most significant
relationship to a particular substantive issue. See Duncan v. Cessna Aircraft
Co., 665 S.W.2d 414, 421 (Tex. 1984). Because the district court did not reach
this issue, we do not address it. Spence v. Glock, 227 F.3d 308, 311-12 (5th
Cir. 2000).
      3
             For a discussion of “benefit of the bargain damages” vis-a-vis “out
of pocket damage” see Comment Note--“Out of Pocket” or “Benefit of the Bargain”
as Proper Rule of Damages for Fraudulent Representation Inducing Contract for the
Transfer of Property, 13 A.L.R. 875 (1967).

                                       5
           Wellcraft     and    the    district       court       misperceived    the

Coghlans’ burden at the pleadings stage.                   Whether the Appellants

may ultimately succeed in proving benefit of the bargain damages is

a test that awaits discovery.                  If, however, such damages are

theoretically available for the causes of action they have pled,

dismissal on the pleadings was premature.

           As   the   Coghlans    contend,         Texas     and    Florida   permit

recovery of benefit of the bargain damages in certain contexts.

See Formosa Plastics Corp. v. Presidio Engineers and Contractors,

960 S.W.2d 41, 49-50 (Tex. 1997) (recognizing the “benefit of the

bargain” measure of damages as remedy for common law fraud in

Texas); Bankston Nissan v. Walters, 754 S.W.2d 127, 128 (Tex. 1988)

(successful Deceptive Trade Practices Act plaintiffs may elect to

receive either out-of-pocket damages or benefit of the bargain

damages); Leyendecker v. Wechter, 683 S.W.2d 369, 373 (Tex. 1985)

(Texas DTPA permits recovery of benefit of the bargain damages);

DuPuis v. 79th St. Hotel, 231 So. 2d 532, 536 (Fla. 3rd DCA 1970)

(Florida courts have adopted both the “out of pocket” and “benefit

of the bargain” rules in fraud cases and choose between them as

circumstances require to do substantial justice); Martin v. Brown,

566 So. 2d 890, 891 (Fla. 4th DCA 1990) (applying “benefit of the

bargain”   formula     in   a   fraudulent         representation       case);    Ft.

Lauderdale   Lincoln    Mercury       v.       Corgnati,    715 So. 2d 311,   314

                                           6
(awarding benefit of the bargain-type damages for diminished value

under the Florida Deceptive and Unfair Trade Practices Act); Gregg

v. U.S. Industries, 887 F.2d 1462, 1466 (11th Cir. 1989) (reviewing

the   use    of   benefit   of   the   bargain   damages   in   Florida   fraud

actions).     Our task is to evaluate each of the Coghlans’ state law

claims for the availability of benefit of the bargain relief.

             1) Fraud-- Texas and Florida both follow the “flexibility

theory” in fraud actions, which permits a trial court to instruct

the jury under either the out-of-pocket rule or the benefit of the

bargain rule, whichever will more fully compensate the defrauded

party.      Martha A. Gottfried, Inc. v. Amster, 511 So. 2d 595, 599

(Fla. 4th DCA 1985); Formosa, 960 S.W.2d at 48; Arthur Andersen &

Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997).

Therefore, regardless whether Texas or Florida law is applied, it

was improper to dismiss the Coghlans’ fraud claim on the pleadings;

a fraud claim seeking benefit of the bargain damages is legally

cognizable in both Texas and Florida.

             2) Deceptive Trade Practices--The Coghlans also seek the

benefit of their bargain under the consumer protection statutes of

Texas or Florida. A successful Texas Deceptive Trade Practices Act

(DTPA) plaintiff may recover under either the out-of-pocket rule or

the benefit of the bargain rule.             Leyendecker v. Wechter, 683
S.W.2d 369,373 (Tex. 1985); Blackstone v. Dudley, 12 S.W.3d 131,

                                        7
135 (Tex. App. 1999). The rule will be applied that affords a

victorious Texas DTPA plaintiff the larger sum.   Leyendecker, 683
S.W.2d at 373.

          Similarly, Florida’s Deceptive and Unfair Trade Practices

Act (DUPTA) has been interpreted to allow victims of deceptive acts

to recover the diminished value of their purchases. Ft. Lauderdale

Lincoln Mercury, 715 So. 2d at 313; Urling v. Helms Exterminators,

468 So. 2d 451, 453 (Fla. 4th DCA 1985).   The measure of damages in

Florida DUTPA cases has been determined to be “the difference in

the market value of the product or service in the condition in

which it was delivered and its market value in the condition in

which it should have been delivered according to the contract of

the parties.”    Rollins, Inc. v. Heller, 454 So. 2d 580, 585 (Fla.

3rd DCA 1984) (quoting from a Texas case, Raye v. Fred Oakley

Motors, Inc., 646 S.W.2d 288, 290 (Tex. App. 1983)).     While the

Florida DUTPA cases do not use the phrase “benefit of the bargain”

in describing this damages formula, the two are clearly synonymous:

the value of the product as promised minus the value of the product

delivered.   Thus Texas’s DTPA and Florida’s DUTPA both recognize

the legal cognizability of benefit of the bargain damages.

          3) Breach of Contract-- Benefit of the bargain damages

are the very essence of a breach of contract action and are

recoverable under both Texas and Florida contract law. An award of

                                 8
damages for breach of contract is supposed to place the injured

party as nearly as possible in the position that he would have

occupied had the defaulting party performed the contract.          Stewart

v. Bassey, 245 S.W.2d 484, 486 (Tex. 1952); Rector v. Larson’s

Marine, Inc., 479 So. 2d 783, 785 (Fla. 2nd DCA 1985).        The Coghlans

assert that they were contractually entitled to an all-fiberglass

boat but Wellcraft breached by delivering a wood-fiberglass hybrid.

The Coghlans’ alleged expectancy or benefit of the bargain is thus

the difference in value between the boat which they claim they

contracted for and the boat that was actually delivered to them.

           In Florida, the non-breaching party to a contract is

entitled to “insist upon the benefit of his bargain, and seek the

damages that would place him in the position he would have been in

had the contract been completely performed.” McCray v. Murray, 423
So. 2d 559, 561 (Fla. 2nd DCA 1982); see also National Education

Centers v. Kirkland, 635 So. 2d 33, 33 (Fla. 4th DCA 1994).

           Similarly,     under   Texas   contract   law    “[e]xpectancy

damages,   similar   to   benefit-of-the-bargain     recoveries,    award

damages for the reasonably expected value of the contract.”          Hart

v. Moore, 952 S.W.2d 90, 97 (Tex. App. 1997).              Benefit of the

bargain-type damages place the injured party in as nearly as

possible the position that he would have occupied if the contract

                                    9
had been properly performed. Cook v. Rowhanian,774 S.W.2d 679, 686

(Tex. App. 1989).

           4)    Unjust   Enrichment--       The   district   court      properly

dismissed the Coghlans’ unjust enrichment claim.              In Texas, unjust

enrichment is based on quasi-contract and is unavailable when a

valid, express contract governing the subject matter of the dispute

exists.   Woodard v. Southwest States, Inc., 384 S.W.2d 674, 675

(Tex. 1964); Burlington Northern Railroad Co. v. Southwestern

Electric Power Co., 925 S.W.2d 92, 97 (Tex. App. 1996). Unjust

enrichment is an equitable remedy in Florida as well, used to strip

ill-begotten, non-contractual benefits from a defendant.                   N.G.I.

Travel Associates v. Celebrity Cruises, Inc.,764 So.2d 672, 675

(Fla. 3rd DCA 2000); People’s Nat’l Bank of Commerce v. First Union

Nat’l Bank of Florida, 667 So. 2d 876 (Fla. 3rd DCA 1996).                     An

express contract governed the Coghlans’ purchase of their boat, and

no   implied    or   quasi-contract   will    be   found    where   an    express

contract exists.

           5) Negligent Misrepresentation-- Texas courts have held

that benefit of the bargain damages are not recoverable in a claim

for negligent misrepresentation.           D.S.A., Inc. v. Hillsboro Indep.

Sch. Dist., 973 S.W.2d 662, 663 (Tex. 1998).               In Texas negligent

misrepresentation actions the plaintiff can recover only the amount

                                      10
necessary to compensate for direct pecuniary loss.                        Metropolitan

Life Insurance Co. v. Haney, 987 S.W.2d 236, 246 (Tex. App. 1999).

            Florida has been less explicit in its treatment of this

issue.     However, it appears that Florida courts do allow the

recovery     of   benefit        of   the     bargain         damages    in     negligent

misrepresentation actions.            See PK Ventures, Inc. v. Raymond James

& Associates, Inc., 690 So. 2d 1296 (Fla. 1997)(holding that “fraud

in the inducement is an independent tort not barred by the economic

loss   rule);     Wassal    v.     Payne,         682 So. 2d 678     (Fla.    1st    DCA

1996)(economic       loss   rule      does    not       bar   tort    action    based    on

fraudulent or negligent misrepresentations).

            Because the district court did not reach the choice of

law issue and because it appears that the Coghlans’ negligent

misrepresentation claim is legally cognizable in Florida, we must

reverse the district court’s dismissal of this claim and remand it

as well.

            In summary, we affirm the district court’s dismissal of

the Coghlans’ unjust enrichment claim on the pleadings, but reverse

and remand on the dismissal of the claims for breach of contract,

fraudulent      misrepresentation,           negligent        misrepresentation         and

deceptive    trade    practices       (DTPA/DUTPA).             While    we     share   the

district court’s implicit concern over the rise of “no-injury”

                                             11
product liability law suits4, the district court acted prematurely

in   dismissing    this    case   sua    sponte      on    the    pleadings:   the

determination that there has been no injury in this case must be an

evidentiary one, since the relevant state jurisdictions recognize

benefit of the bargain damages for the claims that the Coghlans

allege.

            A   final     word    is    in   order        about   federal   court

jurisdiction. On remand, the district court may refuse to exercise

supplemental jurisdiction over the Coghlans’ state law claims. See

28 U.S.C. § 1367(c).          The only federal claim over which the

district court had original jurisdiction, the MMWA action for

breach of warranty, was dismissed. A district court may decline to

exercise supplemental jurisdiction over state law claims in such

circumstances.      Because the Coghlans’ boat cost only $28,000, it

      4
            The key distinction between this case and a “no-injury” product
liability suit is that the Coghlans’ claims are rooted in basic contract law
rather than the law of product liability: the Coghlans assert they were promised
one thing but were given a different, less valuable thing. The core allegation
in a no-injury product liability class action is essentially the same as in a
traditional products liability case: the defendant produced or sold a defective
product and/or failed to warn of the product’s dangers. The wrongful act in a
no-injury products suit is thus the placing of a dangerous/defective product in
the stream of commerce. In contrast, the wrongful act alleged by the Coghlans
is Wellcraft’s failure to uphold its end of their bargain and to deliver what was
promised.   The striking feature of a typical no-injury class is that the
plaintiffs have either not yet experienced a malfunction because of the alleged
defect or have experienced a malfunction but not been harmed by it. Therefore,
the plaintiffs in a no-injury products liability case have not suffered any
physical harm or out-of-pocket economic loss. Here, the damages sought by the
Coghlans are not rooted in the alleged defect of the product as such, but in the
fact that they did not receive the benefit of their bargain. It is worth noting
that the no-injury approach to product litigation has been rejected in several
recent decisions. See, e.g. Briehl v. General Motors Corp. 172 F.3d 623 (8th
Cir. 1999); Ford Motor Co. v. Rice, 726 So. 2d 626 (Ala. 1998).

                                        12
seems unlikely that the diversity jurisdiction threshold of $75,000

can be met.        The fact that the Coghlans’ suit is an as-yet

uncertified class action does not alter diversity analysis, since

at least one member of the plaintiff class must assert a claim in

excess of the amount in controversy requirement.5               See Snyder v.

Harris, 394 U.S. 332 (1969). See also               7A Charles Alan Wright &

Arthur R. Miller, Federal Practice and Proceedure § 1756 (2d ed.

1986).

            Because     the   district      court    acted   prematurely      in

dismissing     the    Coghlans’      breach     of    contract,     fraudulent

misrepresentation, negligent misrepresentation, and deceptive trade

practices claims on the pleadings, we reverse and remand on those

claims.    We affirm the district court’s dismissal of the unjust

enrichment claim.

            AFFIRMED in part, REVERSED in part.

      5
            This court’s decision in In re Abbott Laboratories, 51 F.3d 524 (5th
Cir. 1995), holding that an award of attorney’s fees in a class action was
attributable to the named plaintiffs, rather than to the class as a whole, thus
allowing the combination of the class attorney’s fees and the claims of named
plaintiffs to satisfy the amount in controversy requirement, is peculiar to a
Louisiana statute and has no application here. The standard approach to awards
of attorney’s fees in a class action context is to distribute them pro rata to
all class members, both named and unnamed. Goldberg v. CPC International, Inc.,
678 F.2d 1365 (9th Cir. 1982). Under Texas law, attorney’s fees should not be
attributed to the named class representative for jurisdictional purposes.
Gooding v. Allstate Insurance Co., 2000 WL 626856 (N.D. Tex. 2000); Johnson v.
Direct TV, 63 F. Supp. 2d 768, 770 (S.D. Tex. 1999); Quebe v. Ford Motor Co., 908
F. Supp. 446, 449-50 (W.D. Tex. 1995). Similiarly, Florida law demands that
punitive damages and attorneys’ fees be divided equally among all class memebers,
rather than aggregrated to allow a single named plaintiff to reach the amount in
controversy threshold. Morrison v. Allstate Indemnity Co., 228 F.3d 1255 (11th
Cir. 2000); Cohen v. Office Depot Inc., 204 F.3d 1069 (11th Cir. 2000).

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