Opinion
Civil Action No. 3:00CV53.
March 21, 2001.
MEMORANDUM OPINION
This matter is before the Court on several post-trial motions by both Plaintiff and Defendant. The case was tried to a jury and a verdict was returned in favor of Plaintiff on Count I of the Complaint, the Plaintiff having withdrawn all but Counts I and II before submission of the matter to the jury.
Defendant's Motion
Defendant Osprey has moved the Court to Amend the Judgment Order pursuant to Fed.R.Civ.P. 59(e). Defendant argues that the Court committed a clear error of law by permitting the jury to deliberate on both Count I (breach of implied duty) and Count II (breach of express warranty). Defendant urges dismissal of Count I for which the jury returned the only verdict in favor of Plaintiff and entry of judgment on Count II for which the jury found in favor of Defendant. See Lux v. Spotswood Constr. Loans, 176 B.R. 416 (E.D. Va. 1 993) (the Court may amend judgment when the Court committed a clear error of law). Plaintiff initially argues in response that the Defendant waived its objections to the verdict on Count I because it failed to object to the related jury instructions. But see City of Richmond v. Madison Mgmt. Group. Inc., 918 F.2d 438, 454 (4th Cir. 1990) (technical objection to jury instructions need not be made where the trial court is adequately informed of the parties' positions). In this case, prior to trial, and again at the close of Plaintiff's case-in-chief, the Defendant moved the Court for judgment as a matter of law on the basis that only the issues involved in Count II could be presented to the jury because the terms of the express warranty in the governing contract which was the basis for the claim in Count II superceded any implied obligation as was the basis for Count I. The trial court was therefore adequately informed of Defendant's objections to Count I in a timely fashion and any further objection to relevant jury instructions would have been fruitless.
An implied duty to perform in a proper and workmanlike manner is not waived by agreement to disclaim, without limitation, all warranties.
This matter arises out of two breach of contract theories. One is breach of an implied duty and the other is breach of an express warranty. Section 3 of the governing contract specifically disclaims all warranties of merchantability and fitness for a particular purpose, two concepts which apply specifically to contracts for the sale of goods. The dispute in this case is over a contract for services, which is clearly recognized in North Carolina law (and elsewhere) as distinct from a contract for the sale of goods. The basic question is whether a contract which states that the parties specifically agree that a "seller" makes no other warranties to a customer, whether express or implied, with respect to "services can disclaim work product by reference to a standard that clearly applies to goods. A warranty of merchantability can be waived by express agreement, but it is illogical and incorrect to apply this standard to the performance of services. Likewise, the warranty of fitness for a particular purpose has no meaning when applied to the services performed by Defendant. Perhaps the proper inquiry is whether parties who agree to a particular warranty for services can avoid all of its implied duties simply by disclaiming, without limitation, all warranties not specified in the contract. The Defendant argues that a warranty "merely sets out the manner in which the services will be delivered" which makes it, in operation, the same as a duty. (Def.'s Mem. in Supp. of Rule 59(e) at 6).
Starting with the basics, "a duty is a legal obligation owed or due to another . ., that needs to be satisfied; an obligation for which somebody else has a corresponding right." Black's Law Dictionary at 521 (7th ed. 1999). A warranty is "an express or implied promise that something in furtherance of the contract is guaranteed by one of the contracting parties; esp., a seller's promise that the thing being sold is as represented and promised." Id. at 1581. An integrated contract does not automatically disclaim implied duties by disclaiming implied warranties. When, as here, the contract specifically states that the parties agree to disclaim all warranties "with respect to services hereunder, whether express or implied, " it is difficult to distinguish among the competing terms. The section seems to clearly embody the understanding of the parties, irrespective of the inappropriate drafting incorporating terms of art reserved for contracts for the sale of goods, that all warranties with respect to goods or services are waived. However, a duty under the law is different from a warranty under the law and the Court therefore does not agree with Defendant that the two concepts are coterminous in the context of this case. See, e.g., Bruce Farms. Inc. v. Coupe, 219 Va. 287, 291-292, 247 S.E.2d 400, 403 (1978) (holding that a contract to provide services implies a covenant to perform according to prevailing standards which is different from express warranties such as the warranty of habitability which are made, for instance, in a contract for the sale of a dwelling).
The law embraces terms of art for a particular reason — to avoid confusion by adherence to specific, precise meanings of phrases regardless of context, thereby eliminating the imprecision that leads to disputes. Dare Count Bd. of Ed. v. J. G. B. Sakaria, 492 S.E.2d 369, 372 (N.C. 1997). In this case, North Carolina law does not specifically support an implied duty to perform the exact services that Osprey performed. However, there is sufficient caselaw to distinguish a duty to perform one's work from a warranty applicable to the product of one's labor. See Moss v. Best Knitting Mills. 130 S.E. 635, 637 (N.C. 1925) (holding that in a construction contract, "it is the duty of the builder to perform his work in a proper and workmanlike manner" for which the remedy upon breach is damages in "the cost of putting the building in proper condition.") The implied duty is not the same as a warranty of results.
"The duty-versus-warranty distinction is not difficult but for the fact that the North Carolina Courts employ the term "implied warranty" in the sale of buildings where what was described in actuality was an implied duty. See Griffin v. Wheeler-Leonard Co., 225 S.E.2d 557, 567-568 (N.C. 1976).
Defendant argues that the implied duty is tantamount to a warranty of results, which cannot be implied in contract under North Carolina law.Perfecting Serv. Co. v. Product Dev. Sales Co., 136 S.E.2d 56, 66 (N.C. 1964) (a professional "is not a warrantor or insurer of results"). However, the term "professional" is used to identify an individual who is "highly proficient in many endeavors" as opposed to an amateur. Id. at 65. While "[n]o implied warranties arise by reason of the engagement . . . he must answer for breach of his express contracts" or, necessarily, breach of his duty or standard of care.
This contract was for professional services installing the SAP P.13 software, touted as the most complex business software package in the world. In many respects, the installation of the software is similar to the cases cited by Plaintiff relying on the "proper and workmanlike" duty. See Moss v. Best Knitting Mills. 130 S.E. 635. In other respects, the services provided by Defendant were of a professional nature, which give rise to the standards expressed in cases governing professionals such as engineers and physicians. The Defendant attempts to raise yet another legal concept distinct from the implied duty and the express warranty — the implied warranty of results. This argument is raised for the first time in its post-trial motion. All physicians, engineers, builders and programmers owe implied duties to the persons with whom they are engaged. Without an express agreement to waive the duty, those duties are always implied. Depending on the type of agreement, the law may also imply warranties in the contract unless expressly waived. One warranty that is not implied into any contract for services of a professional like a physician is a warranty of results. Hawkins v. McCain, 79 S.E.2d 493, 499 (N.C. 1954) (holding that a physician who accepts an engagement without a contract implies that he possesses requisite skill, learning and ability necessary to practice medicine, that he will exercise reasonable and ordinary care and he will use his best judgment, but not that he warrants a cure.) When the service provider is a professional, he must fulfill express or implied warranties endemic to his profession and he has a duty to do so with a standard of care of an ordinary reasonable person unless some other duty is to be applied. Id.; Perfecting Serv. Co. v. Product Dev. Sales Co., 136 S.E.2d at 65. While the law implies no promise to a patient that he or she will be cured, it does obligate the physician to discharge his duty with the skill required under the law. The physician may not treat the patient in a negligent way even if there is an express agreement between the two parties to the contrary. Like the physician's duty to exercise an established standard of care, it was Osprey's obligation or duty under the contract and the governing law of North Carolina to perform its services in a proper and workmanlike manner. Moss v. Best Knitting Mills. 130 S.E. 635.
Except where strong public policy or law prohibits waiver. For instance, parties cannot agree to waive negligence. Fortson v. McClellan, 508 S.E.2d 549, 552 (N.C. 1998).
The Court notes there is no allegation of negligence remaining in this case, the analysis is for descriptive purposes only.
The Defendant also asserts that Plaintiffs position at trial and the related jury instructions concerning Count II to the effect that Osprey failed to properly configure the software system necessarily implied a warranty of results. The Defendant had no duty to warrant the results but it had a duty to perform in a proper and workmanlike manner. The fact that the decimal configuration was wrong and that it caused damage throughout the system is only evidence that the Defendant failed in its duty, not that there was also a requirement for a particular result.
The express warranty was a representation or promise by Defendant to conform to certain standards.
Defendant argues that this contract was not governed by any implied duty because the Master Agreement waived any warranty other than the express warranty contained in section 3. The express warranty in the contract states that Defendant's services would be of professional quality in conformity with generally accepted information systems development practices. See also Kaperonis v. Underwriters at Lloyd's London, 212 S.E.2d 532, 539 (1975) (holding that conforming to established industry practices is not per se the exercise of due care as a matter of law). While no warranty of results can be implied into a services contract, "[w]hen one undertakes a professional assignment, the engagement implies that he possesses the degree of professional learning, skill and ability which others of that profession ordinarily possess, he will exercise reasonable care in the use of his skill and application of his knowledge to the assignment undertaken, and will exercise his best judgment in the performance of the undertaking."Perfecting Serv. Co. v. Product Dev. Sales Co., 136 S.E.2d at 65. Count II therefore imposed a different obligation than the implied duty encompassed by Count I.
Sufficient evidence supported the claim that the implied duty to perform in a proper and workmanlike manner was breached.
With respect to proof of the implied duty, Defendant argues that "no such evidence was ever elicited" to support Plaintiffs claim of a separate and enforceable provision implied in the contract despite the express disclaimer of all warranties. (Def.'s Mem. in Supp. of Rule 56 (e) at 7-8). To the contrary, the Court finds that there was such an offer of proof that the jury presumably accepted. Plaintiffs witnesses testified that they deferred entirely to the Defendant for the installation of the system even though they possessed some level of related expertise themselves. In fact, the Plaintiff acceded to Defendant's expertise in reliance on Osprey's implied duty, even though the evidence established that various warning signals emerged and concerns were expressed.
The same evidence which justified the granting of the Defendant instruction on the Plaintiffs duty to mitigate its own damages. See discussion, infra.
Plaintiff's Motions
Plaintiff Omni has moved the Court (1) for a New Trial; (2) for Alteration of the Verdict; and (3) for the Court to make additional findings. The Plaintiff argues that the jury's verdict was not compatible with the evidence and jury instructions such that the Court should order a new trial pursuant to Fed.R.Civ.P. 59(a) or alter the judgment by making additional findings as permitted by Fed.R.Civ.P. 49(a).Motion for A New Trial
Fed.R.Civ.P. 59(a) provides that a new trial should be granted where the trial court is of the opinion that the verdict was rendered in contravention of the clear weight of the evidence; is based on false evidence; or that leaving the verdict intact results in a clear miscarriage of justice. Aetna Casualty Surety Co. v. Yeatts, 122 F.2d 350, 352 (4th Cir. 1941); see also Atlas Food Sys. and Serv. Inc. v. Crane Nat'l Vendors. Inc., 99F.3d 587, 594 (4th Cir. 1996) (anal in the order for a new trial under the "three-pronged Rule 59 standard" set out in Aetna Casualty Surety Co. v. Yeatts). Plaintiff argues that the jury awarded inadequate damages which contravene the evidence; the jury's findings as to liability are irreconcilably inconsistent and therefore unreliable; the Court erred in its instruction regarding mitigation of damages for want of evidence; and that the jury's verdict is clearly the result of compromise.
Damages awarded were adequate in light of the evidence adduced at trial.
Plaintiff argues it presented unrebutted evidence at trial that it suffered $1,310,331 in damages. The jury returned its verdict on the first special interrogatory (breach of implied duty) in favor of Plaintiff but awarded only $675,000. Plaintiff argues that the jury clearly disregarded the instructions and evidence regarding damages and improperly awarded Plaintiff only the amount of the fee it paid to Defendant. (Pl.'s Mem. in Supp. of Mot. for New Trial at 3-4).
In order to determine whether a jury verdict is inadequate and must be set aside, the Court must find "whether it is against the weight of the evidence" by comparing the evidence adduced at trial with the amount of the verdict. Cline v. Wal-Mart Stores. Inc., 144 F.3d 294, 305 (4th Cir. 1998). In this case, the evidence of the expenditures that Plaintiff claimed as damages was indeed $1,310,331. The stipulation agreed to by the Defendant requires that the amount of expenditures be taken as fact; however, it is not a stipulation as to the appropriate measure of damages, namely, whether all of or any part of the amount expended was necessary and appropriate. Based on the evidence, it is reasonable for the jury to have concluded that $675,000 was the amount required to make Plaintiff whole — including whether they determined that the amount of Defendant's fee and the amount of damages were one in the same. It was the duty of the jury to assess Plaintiffs damages, once it decided there had been a breach, and there was sufficient evidence presented to warrant a mitigation instruction that enabled the jury to assess such an amount.Snead v. Holloman, 400 S.E.2d 91, 94 (199 1) (holding that such a decision is one of factfinding, left to a jury in all but exceptional cases).
Specifically, there was evidence that the Plaintiff had reason to believe that there was a problem with the decimal place configuration prior to the "go-live" date. For example, its agents participated in regular meetings in which on more than one occasion there were warning signs of the erupting problem. There was also evidence of a type of "hothne" for the manufacturer that was never effectively utilized by Plaintiff. The Plaintiff took the position that it turned over everything regarding installation to the Defendant and did not feel it had any responsibility to watch over the process. The jury apparently concluded otherwise. While on the one hand, the jury found the Defendant to be in breach for failure in its duty to provide its services in the proper and workmanlike manner, it found that Plaintiff was not entitled to all of the expenditures it argued it incurred as a result of the breach. It is reasonable for the jury to have concluded that Plaintiff had adequate warning that Defendant was not performing, but did nothing but sit back and allow the ultimate problem to occur. These are not such clear circumstances to support a finding that the jury's verdict as to damages was against the weight of the evidence. Snead v. Holloman, 400 S.E.2d at 94 (citing Bass v. Hocutt, 19 S.E.2d 871, 872 (1942)). Nor is this such an exceptional case with a gross disparity between the evidence and verdict as to require the Court to interpose its unilateral judgment for the collective wisdom of the jury panel. See also Tokio Marine Fire Ins.. Co.. Ltd. v. Norfolk Western Ry. Co., 1996 U.S. Dist. LEXIS 22389, at *8..9 (M.D. N.C. Sept. 6, 1996); Miller v. Miller, 160 S.E.2d 65, 74 (N.C. 1968) (holding that the mitigation standard is the same for an injured party to a contract to that of an injured victim of a tort).
The Court did draw the line by precluding any hypothetical evidence as to what would have happened if the manufacturer had interceded or results occurring in other problem scenarios, but the Court did permit evidence of whether Plaintiff even attempted to get a second opinion when confronted with warning signs because it was relevant and material to its duty to mitigate its own potential damages.
Surely, one of the purposes of the meetings and constant interchange.
The jury's verdict can be reasonably attributed to permissible formulations other than compromise.
Plaintiff argues that when it is shown that a jury verdict is based on an improper compromise, the trial court must set aside the verdict and order a new trial. Burger King Corp. v. Mason, 710 F.2d 1480, 1486 (1 1th Cir. 1983). Plaintiffs argument does not take into account, however, the law in this circuit which provides that the trial court's authority to order a new trial must be justified by the exercise of its sound discretion. Atlas Food Sys. Serv.. Inc. v. Crane Nat'l Vendors. Inc., 99F.3d at 599. While the verdict may very well be based on the jury's judgment that Plaintiffs damages were in the same amount as the fee it paid to Osprey for the installation of the system, it is not per se evidence of a compromised verdict. The jury could have properly disregarded expenditures it viewed as not being attributable to Defendant's breach or otherwise discounted or disbelieved part of the Plaintiffs evidence as to the extent of its claimed damages. Ultimately, the conclusion that the original cost of installation ($675,000) approximated the cost of repair ($1,310,331 less $675,000) is not so arbitrary as to cause the Court to conclude its instructions were ignored. Accordingly, there is no reason to override the usual presumption in favor of the validity of a jury's verdict. Id see also, Lane Constr. Corp. v. Cardinal Indus., Inc., 1992 U.S. App. LEXIS 29976, at *5, (4th Cir. Nov. 13, 1992)(unpublished).
The jury findings as to liability are consistent in as much as one theory of liability was accepted while another alternate theory was rejected.
Plaintiff proceeded to trial on alternate theories of recovery, breach of implied duty and breach of express warranty. Now Plaintiff argues that it is inconsistent to find that the Defendant could have breached his implied duty without breach of the express warranty because "Osprey's services could not have met the standard set forth in the express warranty without also satisfying its implied duty of workmanlike performance." (Pl.'s Mem. in Supp. of Mot. for New Trial at 5). As stated previously, an implied duty is a separate and distinct cause of action from a breach of an express warranty. For the reasons already discussed herein, the duty to perform services in a "proper and workmanlike manner" is not part and parcel of the express warranty of a professional "to conform to generally accepted information systems development practices." Therefore, this argument has no basis in law or fact and must be rejected as it was when raised by the Defendant (and opposed by Plaintiff) for a different purpose.
Motion for Additional Findings and Special Verdict
In the alternative, Plaintiff moves the Court pursuant to Fed.R.Civ.P. 49(a) to make additional findings and enter a special verdict to correct what it believes to be a flawed jury verdict form in which the finding as to Count II (express warranty) inadvertently left out the identifying phrase that the jury was to make its finding in regard to "the services of' Defendant employees rather than render its judgment on just the basis of whether the employers themselves met the applicable standard. The jury was properly instructed on the issue in multiple instructions and both parties not only approved of the flawed verdict form, but also requested that the remainder of the instructions not be provided to the panel. It cannot, therefore, be fairly concluded that the "issue was omitted from those issues submitted to the jury." See AG Sys. v. United Decorative Plastics Corp., 55 F.3d 970, 974 (4th Cir. 1995).
The jury, attentive throughout the complex trial proceeding, was equally dedicated during deliberation as indicated by the length of its review (over five hours) and the number of questions it asked during the deliberative stage. If anything, the flawed verdict form may have motivated the request by the jury for the instructions on implied duty and express warranty to be re-read which was done with the consent of both parties. Plaintiffs oral argument on the post-trial motions included the assertion that an additional request by the jury to see the resume of the Defendant employee who was in charge of the actual installation was evidence of their confusion over the verdict form. Such a conclusion is far too speculative to justify a holding that the jury ignored the instructions and that the panel was otherwise in a state of complete and hopeless confusion.
Award of Pre-judgment Interest
Finally, Plaintiff moves the Court pursuant to Rule 59(e) to include pre-judgment interest from the date of the breach as authorized under North Carolina law. N.C. Gen. Stat. § 24| 5(a) (provides that the amount awarded bears interest from the date of the breach); Steelcase. Inc. v. The Lilly Co., 379 S.E.2d 40, 44, disc. rev, denied, 384 S.E.2d 530 (1989) (holding the statute clearly provides "the amount awarded on the contract bears interest from the date of breach."). Plaintiff asserts that the date of breach should be fixed as of the "go-live" date of February 1, 1998, whereas the Defendant asserts that anything before the problem was discovered the following Fall would be a windfall to the Plaintiff. (Def.'s Mem. in Opp'n to Pl.'s Mot. for New Trial at 13).
Under North Carolina law, the trial court, as a matter of law, may fix the date of breach where neither party specifically requested it be resolved by the factfinder. Metromont Materials Corp. v. R.B.R. S.T., 463 S.E.2d 305, 307 (N.C. 1995) rev. denied by 467 S.E.2d 903 (N.C. 1996). In this case, the issue was specifically reserved by agreement of the parties for post-trial determination by the Court and it is reasonable to fix the date of breach as the "go-live" date because that is the date by which Defendant had substantially completed its duties under the contract. Defendant cites to no authority supporting its contention that the date of breach was at the point when Plaintiff actually suffered "adverse consequences" or "financial impact." As it is, testimony was offered as to the extra expense and effort incurred by Plaintiff to remedy the problem before any Y-2K "new millennium" issue arose without such damages being necessarily quantified. That alone, in the exercise of the Court's discretion and given the relatively short timeframe in dispute, justifies the result otherwise required by application of the correct legal authority whether or not the Plaintiffs damages in general may have been increased by its own inaction. Therefore, the Court finds the date of breach to be February 1, 1998, from which prejudgment interest shall accrue at the prevailing rate which the parties agree is currently fixed at eight-percent (8%).
Conclusion
Based on the foregoing analysis, it is the opinion of the Court that: (1) the Defendant is not entitled to a court-ordered amended judgment pursuant to Fed.R.Civ.P. 5 9(e); (2) the Plaintiff is not entitled to a new trial or alteration of the jury's verdict; and (3) the Plaintiff is entitled to pre-judgment interest on the verdict amount at the prevailing rate as of February 1, 1998.
An appropriate order shall issue.
Let the Clerk of the Court forward a copy of this Memorandum Opinion and accompanying Order to all counsel of record.
It is so ORDERED.
ORDER
This matter is before the Court on several post-trial motions by both Defendant and Plaintiff. For the reasons specified in the accompanying Memorandum Opinion, and deeming it otherwise proper and just to do so, it is hereby ORDERED that:(1) Defendant's Motion for an Amended Judgment is DENIED;
(2) Plaintiffs Motion for a New Trial is DENIED;
(3) Plaintiffs Motion for Alteration of the Verdict and for Additional Findings is DENIED;
(4) Plaintiffs motion for pre-judgment interest is GRANTED at the prevailing rate of eight-percent (8%) as of February 1, 1998.
The Clerk is directed to enter final judgment this day for the Plaintiff in the amount of Six Hundred Seventy-Five Thousand Dollars ($675,000.00) plus pre-judgment interest at the prevailing state rate (North Carolina) as of February 1, 1998. The interest that shall accrue hereafter will be at the established federal rate.
Let the Clerk of the Court send a copy of this Order to all counsel of record.
It is so ORDERED.