United States Court of Appeals
For the First Circuit
No. 01-1240
ARTURO CORREA, MELISA MOSCA-DE-CORREA,
CONJUGAL PARTNERSHIP CORREA-MOSCA,
Plaintiffs, Appellees,
v.
CRUISERS, A DIVISION OF KCS INTERNATIONAL, INC.,
Defendant, Appellant.
No. 01-1241
ARTURO CORREA, MELISA MOSCA-DE-CORREA,
CONJUGAL PARTNERSHIP CORREA-MOSCA,
Plaintiffs, Appellees,
v.
CRUSADER ENGINES, THERMO POWER CORPORATION,
Defendants, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Salvador E. Casellas, U.S. District Judge]
Before
Torruella, Circuit Judge,
Coffin, Senior Circuit Judge,
and Selya, Circuit Judge.
Luis N. Blanco-Matos, for appellant Thermo Power Corporation.
Jorge C. Cruz-Jové, with whom Juan B. Soto-Balbas, Mercado &
Soto, Michael G. Derrick, Roane Waring, III and Shuttleworth,
Williams, Harper, Waring & Derrick were on brief for appellant
Cruisers.
Francisco M. Troncoso, with whom Richard Schell-Asad was on
brief, for appellees.
July 23, 2002
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TORRUELLA, Circuit Judge. Defendants-appellants,
Cruisers, a Division of KCS International, Inc., and Thermo Power
Corporation, appeal from a jury verdict finding that they breached
a warranty against hidden defects in the sale of a motorboat to
plaintiffs. In accordance with the jury's verdict, the United
States District Court for the District of Puerto Rico ordered
rescission of the sales contract and return of the purchase price
of the boat, plus interest. In addition, the jury awarded to the
plaintiffs their costs for dockage, repair and maintenance,
insurance premiums, and license fees. The district court further
awarded attorney's fees based on its determination that defendants
acted obstinately in the course of the litigation. On appeal,
defendants-appellants contend that the plaintiffs' claim for breach
of warranty against hidden defects is barred by the statute of
limitations. Alternatively, even if the claim was properly before
the district court, defendants-appellants contend that the district
court erred in allowing the testimony of plaintiffs' expert, in
permitting the jury to award non-defect-related expenses, and in
granting attorney's fees. We affirm in part and reverse in part,
remanding the case for action consistent with this opinion.
I. Background and Procedural History
Despite having weathered an eight-day jury trial, the
facts in this case are far from settled. However, since this is an
appeal from a denial of judgment as a matter of law, which we
review de novo, we will present the relevant facts in the light
most favorable to the plaintiffs. See Down E. Energy Corp. v.
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Niagara Fire Ins. Co., 176 F.3d 7, 13-14 (1st Cir. 1999) (reviewing
denial of judgment as a matter of law on limitations grounds de
novo and in light most favorable to non-moving party).
On March 22, 1995, plaintiffs-appellees ("plaintiffs"),
Arturo Correa ("Correa") and his wife Melissa Correa, purchased a
1995 Cruisers 3570-Esprit motor yacht ("yacht" or "boat") in San
Juan, Puerto Rico from People's Marine. The yacht, manufactured by
Cruisers, a Division of KCS International, Inc. ("Cruisers"), was
equipped with two Crusader, model 454Xli, marine gasoline engines,
manufactured by Thermo Power Corporation ("Crusader"). The
plaintiffs paid $132,350 for the boat, which was delivered to them
at the San Juan Bay Marina on June 11, 1995.
Pursuant to the sale of the yacht, both Cruisers and
Crusader issued limited warranties, guaranteeing to repair or
replace, free of charge, any defects in their respective products.
Cruisers' warranty provided five years of coverage for the hull of
the boat and one year for all other items manufactured by Cruisers.
Crusader's warranty covered the engines for two years.
In the two months after the plaintiffs received their
boat, they took several excursions to Fajardo, Puerto Rico and to
the U.S. Virgin Islands. On these outings, plaintiffs experienced
problems with the engines, including backfiring, stalling, and an
inability to start. On July 26, 1995, Correa wrote a letter of
complaint to Cruisers, with a copy to People's Marine, describing
the problems that plaintiffs had encountered with the boat,
including engine troubles.
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Correa, in August of 1995, made further complaints to
People's Marine about "hard starting" of the engines, meaning that
the engines would not restart immediately after they had been
running for awhile and were then shut off. Crusader was familiar
with "hard starting" as a common symptom of "vapor lock," which
other manufacturers had been experiencing in the summer of 1995 due
to a new fuel pump in Crusader engines. Crusader had found that
the installation of additional fuel booster pumps had solved the
hard starting problem. Accordingly, it ordered two booster pumps,
which were installed on plaintiffs' yacht by People's Marine
sometime during September of 1995.
After the booster pumps were installed, the Correas
continued to experience engine problems. On September 25, 1995,
Correa wrote another letter to Cruisers, explaining that the
engines were stalling and backfiring. In this letter, Correa
informed Cruisers that he had already alerted People's Marine of
the continuing problem.
On October 21, 1995, Crusader sent Paul Doppke, a
certified Crusader marine engine specialist, to Puerto Rico to
examine Correa's engines. Doppke found that the booster pumps had
been misinstalled by People's Marine, which explained the
continuing engine problems. Doppke removed the booster pumps and
instead installed a new fuel delivery system that Crusader had
found to eliminate the vapor lock problem. Doppke, with Correa
aboard the yacht, then conducted a sea trial and performed
diagnostic tests to determine how the engines were running. During
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the sea trial, which lasted over four hours, the engines ran
without any difficulties.
During the trial, there was evidence that after the
installation of the new fuel delivery system Correa took his boat
out to watch an offshore race in San Juan Bay and experienced
engine problems.1 On November 10, 1995, Correa again contacted
Cruisers to alert the company. That same day, following the
telephone conversation, Correa sent a letter indicating that he
expected Cruisers and Crusader to fix his engines and Cruisers to
repair the other problems with the boat, including, inter alia,
leaks, a rusting ice-maker door, defective wipers, and a broken gas
alarm, that had plagued him since the time of delivery or shortly
thereafter.
In response to Correa's complaints, Cruisers and Crusader
sent a team of their top management and technical personnel to
Puerto Rico to inspect Correa's yacht. This team included Gerald
Scott, Vice President and General Manager of Crusader; Jim
Viestenz, President of Cruisers; Jim Hayes, Customer Service and
Quality Control Manager for Cruisers; Andrew Prietz, Customer
Service Manager for Crusader; Guillermo Cidre, owner of People's
Marine; and Osmani del Pino, a mechanic employed by People's
Marine. The Crusader and Cruisers representatives, along with
1
Although at trial there was corroborating evidence of Correa's
engine problems during the regatta, there was conflicting testimony
as to when the regatta occurred: before or after the installation
of the new fuel delivery system. Viewing the facts in the light
most favorable to the plaintiffs, however, we will assume that the
regatta and the concomitant engine problems arose after the new
fuel delivery system was installed on October 21, 1995.
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Correa, took the boat out for a sea trial. The group experienced
no noticeable engine problems. In addition, computer monitoring of
the engines indicated that the engines were functioning properly.
Prior to leaving, Gerald Scott asked Correa to call him directly if
Correa experienced further engine problems so that he could ensure
that Crusader would fix or replace the engines.
Immediately after this inspection visit, on December 6,
1995, Cruisers wrote to Correa to summarize the repairs and
replacements that, pursuant to the inspection, would be made under
warranty by People's Marine. On December 11, 1995, Crusader wrote
to Correa, reassuring him that the engines were running properly
according to the inspection, but suggesting that the propellers be
repitched. After People's Marine had performed at least some of
the prescribed replacements and repairs, Correa wrote another
letter to Cruisers on December 26, 1995, detailing repairs that had
not been completed by People's Marine and further repairs or
replacements that were required. In this letter, Correa also
advised Cruisers that People's Marine, in conducting the repairs,
had noted that the engine water hoses were blistered and filled
with water. In response, on January 12, 1996, Cruisers notified
Correa that new water hoses were being sent to People's Marine for
installation. There was testimony at trial that the boat would
have been unusable until the water hoses were replaced because
there was a danger of the boat sinking. Sometime after January 12,
1996, People's Marine did replace the engine water hoses, although
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it is unclear exactly when. Correa testified that the hoses were
replaced in March or April of 1996.
At trial, there was testimony that Correa used his boat
again in either January or February of 1996 to travel to Palomino
Island, off the coast of Fajardo. There is a factual dispute as to
whether Correa suffered engine problems during this venture. If
Correa did experience problems during this trip, there was no
evidence presented at trial that Correa made any further complaints
to Cruisers, Crusader, or People's Marine. The evidence was also
unclear as to whether this trip to Palomino Island occurred before
or after the engine hoses were replaced.
The plaintiffs did not use their boat again until June of
1996. At this time they encountered engine problems while
traveling to the U.S. Virgin Islands. On June 18, 1996, Correa
again wrote to Cruisers detailing necessary repairs and service
that had previously been communicated to Cruisers and/or People's
Marine, but had not yet been completed. This letter, however, did
not mention any problems with the engines. People's Marine
responded on June 19, indicating that they had been trying to
contact Correa to arrange a time to perform the necessary warranty
service.
In August of 1996, Correa made further complaints to
Guillermo Cidre of People's Marine about the engines and discussed
the possibility of trading in his boat for a Cruisers 4270 (a
higher-end model of motor yacht). On August 20, 1996, Correa wrote
a letter to People's Marine memorializing his dissatisfaction with
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his yacht due to its engine problems. Correa also indicated in
this letter that he would accept a Cruisers 4270 in exchange for
his boat as compensation and settlement for his difficulties, as
long as such settlement was confirmed by August 30, 1996. Correa
sent a copy of this letter to Crusader and Cruisers on August 22,
1996.
Cruisers answered Correa's letter on September 9, 1996.
Cruisers responded that it wanted another opportunity to inspect
and repair Correa's boat, but that if a defect were found,
Cruisers, Crusader, and People's Marine would allow Correa to
trade-in his boat, valued at the full purchase price, in partial
satisfaction towards a new Cruisers 4270, which would be sold to
Correa at a discount of $63,831 from the normal retail price.
Under this offer, the cost to Correa for the Cruisers 4270 would be
$195,150 after the inclusion of the trade-in value and discount.
Plaintiffs rejected this offer on September 26, 1996. Crusader, on
October 9, 1996, also responded to Correa's September 9 letter and
indicated that it was willing to perform warranty service on the
engines, if needed, but that this required an inspection of the
engines. Plaintiffs refused Crusader access to the boat.
On January 27, 1997, plaintiffs filed their complaint
against Cruisers and Crusader in the District Court for the
District of Puerto Rico, seeking rescission of the sales contract
and damages for breach of warranty against hidden defects. At the
end of plaintiffs' evidence, Cruisers and Crusader moved for
judgment as a matter of law, claiming that the breach of warranty
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claim was barred by the statute of limitations. The district court
denied the motion. The defendants, to no avail, renewed this
argument at the close of all evidence. After an eight-day trial in
March of 2000, the jury returned a verdict for the plaintiffs,
finding both defendants liable for breach of warranty. Plaintiffs
were granted rescission of the contract and were ordered to return
the Cruisers 3570 Esprit boat to the defendants. The jury ordered
the defendants to return the $132,350 purchase price of the boat,
plus interest, and to reimburse plaintiffs for dockage fees of
$14,980.38, maintenance and repair expenses of $3,350.28, insurance
premiums of $13,326.00, and license fees of $1,164.95. Judgment
was entered on March 23, 2000.
On March 29, 2000, plaintiffs filed two post-judgment
motions pursuant to Federal Rule of Civil Procedure 59(e). The
first requested an amendment of the judgment to find defendants
liable for the payment of future dockage, license, and insurance
fees until defendants accept possession and title of the boat.
Plaintiffs supplemented this motion on June 16, 2000 by submitting
invoices for dockage and insurance fees for the months of April,
May, and June of 2000, since, as of this time, the plaintiffs still
retained custody of the boat.2 The second motion requested a
finding that the defendants were obstinate, thereby entitling
plaintiffs to attorney's fees.
2
It appears that at this time the plaintiffs and defendants were
involved in settlement negotiations prior to filing an appeal. As
a result, defendants had not yet paid the judgment to plaintiffs,
so the plaintiffs had not yet returned the boat to defendants.
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On December 18, 2000, the district court issued two
orders amending its judgment. The court found defendants liable
for further dockage and insurance fees in the amounts of $1,108 and
$2,916, respectively, and stated that plaintiffs could apply for
further expenses incurred until defendants accept possession and
title of the boat. The court also determined defendants to have
been obstinate and awarded attorney's fees to plaintiffs in the
amount of $30,000. On January 17, 2001, defendants filed their
notices of appeal, challenging both the judgment and the two orders
issued on December 18, 2000.3
3
Plaintiffs argue that Crusader appeals only from the original
judgment and not from the orders amending the judgment, since these
orders were not explicitly cited in Crusader's notice of appeal.
Federal Rule of Appellate Procedure 3(c) provides that the notice
of appeal must "designate the judgment, order, or part thereof
being appealed." Failure to do so prevents the party from
appealing the unspecified ruling. See Lehman v. Revolution
Portfolio LLC, 166 F.3d 389, 395 (1st Cir. 1999) (disallowing
appeal of substitution order, which post-dated notice of appeal,
where order not specifically appealed). Normally, an appeal from
a Rule 59(e) motion is considered separate from an appeal from the
judgment, see LeBlanc v. Great Am. Ins. Co., 6 F.3d 836, 839 (1st
Cir. 1993) (stating that appeal from denial of Rule 59(e) motion is
not an appeal of underlying judgment), so that each must be
referenced in the notice of appeal to be properly appealable.
However, we have held that in determining what is being
appealed, the court may look to the appellant's intent. See id.;
see also In re San Juan Dupont Plaza Hotel Fire Litig., 45 F.3d
564, 567 (1st Cir. 1995); Mariani-Giron v. Acevedo-Ruiz, 945 F.2d
1, 2 (1st Cir. 1991). In this case, Crusader's intent to appeal
both the judgment and the orders amending the judgment is clear.
Crusader's brief explicitly adopts Cruisers' arguments regarding
reimbursable expenses and attorney's fees, which were the subject
matters of the orders. If Crusader only intended to appeal the
judgment, there would have been no need to discuss attorney's fees,
which were not included in the original judgment. See Foman v.
Davis, 371 U.S. 178, 181 (1962) (finding that appellant intended to
appeal both judgment and denial of motion to vacate based in part
on parties' briefs addressing issues relevant to the original
judgment and to the motion).
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On appeal, defendants-appellants argue that the district
court committed four errors because: (1) the plaintiffs' claim for
breach of warranty is barred by the statute of limitations; (2) the
testimony of plaintiffs' expert should have been excluded; (3) the
jury should not have been permitted to award non-defect-related
expenses; and (4) the award of attorney's fees was not warranted.
We address each of these alleged errors in turn.
II. Statute of Limitations
Appellants contend that the district court erred in
refusing to grant them judgment as a matter of law because
plaintiffs' breach of warranty claim is barred by the statute of
limitations. Viewing the record in the light most favorable to the
non-moving party, we review de novo whether the statute of
limitations has run so that judgment as a matter of law is proper.
See Down E. Energy, 176 F.3d at 13-14 (reviewing de novo whether
claim was barred by statute of limitations so as to warrant
judgment as a matter of law); Fed. R. Civ. P. 50(a) (providing that
judgment as a matter of law is warranted when there is no legally
sufficient evidentiary basis for a reasonable jury to find for the
plaintiffs). Because this Court's jurisdiction is based on
diversity of citizenship, we apply Puerto Rico law to this issue.
See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938) (holding that
federal court exercising diversity jurisdiction must apply
substantive state law); Fitzgerald v. Expressway Sewerage Constr.,
Inc., 177 F.3d 71, 74 (1st Cir. 1999) (same).
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Section 3841 of the Puerto Rico Civil Code ("Code")
obligates a vendor to provide a vendee with a warranty against
hidden defects that render a product sold "unfit for the use to
which it was destined." P.R. Laws Ann. tit. 31, § 3841 (1990).
Such warranty covers only serious defects that are pre-existent and
unknown to the vendee at the time of sale, regardless of whether
the defects are known to the vendor. See id. (stating that vendor
is not liable for patent or visible defects); id. § 3842 (providing
for liability of vendor even if defects are unknown to him); Ferrer
v. Gen. Motors Corp., 100 P.R.R. 244, 254, 100 P.R. Dec. 246, 255-
56 (1971) (summarizing requirements for breach of warranty claim).
If there is a breach of warranty, the Code gives the vendee the
option of rescission of the contract or a proportional reduction in
price. See P.R. Laws Ann. tit. 31, § 3843 (1990).
The Code further provides that any action brought for
breach of warranty must be filed within six months of delivery of
the product sold. See id. § 3847. The Supreme Court of Puerto
Rico, however, has interpreted the limitations period more
leniently: the statute of limitations begins to run not on the
actual date of delivery, but rather on the date that "steps to come
to an understanding following the contract were interrupted."
Ferrer, 100 P.R.R. at 254, 100 P.R. Dec. at 256; accord Betancourt
v. W.D. Schock Corp., 907 F.2d 1251, 1253-54 (1st Cir. 1990); Kali
Seafood, Inc. v. Howe Corp., 709 F. Supp. 285, 287 (D.P.R.)
[hereinafter Kali Seafood I], aff'd, 887 F.2d 7 (1st Cir. 1989)
-13-
[hereinafter Kali Seafood II]; Casa Jaime Corp. v. Castro, 89
P.R.R. 686, 688, 89 P.R. Dec. 702, 704 (1963).
The district court, in denying the defendants' motion for
judgment as a matter of law, determined that the statute of
limitations had never begun to run because of ongoing negotiations
between the parties. The district judge ruled that since "the main
failure here is of the engines, which according to the plaintiffs
were never repaired, we hold that the claims continually made to
Cruisers on any and all items were continually tolling the statute
in this case."4 Because there were still problems in January
and/or February of 1996 involving the repair of the engine water
hoses, followed by a letter of complaint (although not referencing
the engine problems) from Correa on June 18, 1996, and more
communication in August and September of 1996, the district court
determined there were ongoing efforts "to come to an understanding"
so that the January 27, 1997 filing of the complaint was "within
the necessary six months as prescribed by the Civil Code."
It is undisputed that the Correas were in continual
communication with defendants about their engine problems from June
of 1995 through December 5, 1995, when the representatives from
Cruisers and Crusader came to Puerto Rico to inspect the boat.
Thus, until at least December 5, 1995, the parties were engaged in
4
Although the district court uses the term "tolling," and the
defendants dispute the applicability of the Code's tolling
provision, see P.R. Laws Ann. tit. 31, § 5303 (1990), it is clear
from this context that the district court is not applying the
tolling provision, but rather discussing what triggers the running
of the limitations period.
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efforts to reach an understanding about any defects involving the
boat's engines.5 See Kali Seafood II, 887 F.2d at 8-9 (affirming
that the "steady communication" between November 1980 and August
1983 regarding the functioning and repair of ice maker prevented
limitations period from running); cf. Betancourt, 907 F.2d at 1253-
54 (deciding that gap in communication between April 1982 and
November 1984 precluded a finding of a "continuous series of
'claims and answers'" and therefore did not prevent the statute of
limitations from running).
The parties primarily disagree as to whether there were
continuing efforts to resolve the engine problems between December
5, 1995 and August of 1996. Appellants argue that plaintiffs made
no complaints about the engines during this period of more than six
months so that the statute of limitations had expired when
plaintiffs renewed their complaints in August of 1996. Even if we
were to accept their argument that the statute of limitations would
expire during a six-month lull in communication -- a matter on
which we take no view -- we find no such break. Evidence at trial
indicates that on December 26, 1995, Correa was still in
communication with the defendants about unresolved problems,
5
Because the district court determined that Cruisers and Crusader
were jointly and severally liable, and People's Marine was an
authorized dealer of Crusader from December of 1995 to August of
1996, the district court ruled that communication between Correa
and Cruisers, Crusader, and/or People's Marine was effective as
between them all for purposes of the statute of limitations: "But
once this statute was tolled against Cruisers which is solidarily
liable with Crusader then any and all claims against Cruisers
throughout all this period is attributable as a tolling to
Crusader." This finding was not challenged on appeal.
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including the blistered engine hoses, which allegedly prevented any
use of the boat. In addition, there was testimony to indicate that
the engine hoses were not replaced until January or February of
1996, at the earliest, so that plaintiffs were unable, during this
time, to test whether their engines were functioning properly.
Thus, this period of time should constitute continuing
communication between the parties about warranty service so as to
prevent the statute of limitations from commencing to run. See
Kali Seafood I, 709 F. Supp. at 287 (finding that statute of
limitations did not begin to run while ice maker was undergoing "a
series of modifications in an effort to make it function
properly"). As a result, when viewing the evidence in the light
most favorable to the plaintiffs, the earliest time the statute
could have begun to run was March of 1996, after replacement of the
engine hoses, which would mean that the limitations period would be
exhausted six months later, at the beginning of September of 1996.
However, Correa made further complaints about the boat,
in general, on June 18, 1996, and about the engines, in particular,
in August of 1996. Letters continued to be exchanged between the
parties until October of 1996. These further communications
indicate that there was no six-month gap, as appellants allege, in
which the statute could run, but rather that the parties were still
trying to reach an understanding about the warranty until October
of 1996. Although there is no evidence of complaints specific to
the engines between March and August of 1996, the parties could
still have been attempting to reach an agreement during this time,
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in which the boat was used only the one time (in June 1996).6
Thus, the earliest "trigger date" to start the limitations period
would be October of 1996, when Correa refused all further efforts
from the defendants to inspect the boat and remedy the problem.
See Kali Seafood II, 887 F.2d at 8, 9 (noting that trigger date
starting the limitations period was the day that "appellant called
a halt to all remedial efforts"). The complaint, filed on January
27, 1997, was well within six months of this trigger date.
Therefore, we find that the plaintiffs' claim is not barred by the
statute of limitations.
III. Expert Testimony
Appellants assert that even if plaintiffs' breach of
warranty claim was properly before the court, the district court
erred in allowing the testimony of plaintiffs' expert witness,
Ramón Echeandía. In essence, plaintiffs' expert opined that the
engines' fuel management system was defective, as evidenced by
excessive smoke during their operation and sooty spark plugs,
thereby causing engine stalling and backfiring. Appellants contend
that the expert's testimony should have been excluded because he
6
Appellants argue that, contrary to the district court's finding,
only communication regarding the alleged engine defect, as opposed
to other repairs covered by the boat's warranty, can prevent the
limitations period from starting to run for a breach of warranty
claim. We need not address that claim. Even if we limit our
review of continuous communications to those involving the engines,
the gap between the end of February or April of 1996, when the
engine hoses had been fixed, and August of 1996, when Correa
specifically mentioned the engine problems again, was less than six
months.
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was not qualified, relied on a defective methodology, and gave
irrelevant testimony.
We review the district court's decision to admit expert
testimony for abuse of discretion. See Gen. Elec. Co. v. Joiner,
522 U.S. 136, 138-39, 143, 146 (1997) (holding that abuse of
discretion standard applies on review regardless of whether the
trial court admitted or excluded the contested expert testimony);
Diefenbach v. Sheridan Transp., 229 F.3d 27, 29 (1st Cir. 2000).
Federal Rule of Evidence 702 imposes an important
gatekeeper function on judges by requiring them to ensure that
three requirements are met before admitting expert testimony:
(1) the expert is qualified to testify by knowledge, skill,
experience, training, or education; (2) the testimony concerns
scientific, technical, or other specialized knowledge; and (3) the
testimony is such that it will assist the trier of fact in
understanding or determining a fact in issue. See Fed. R. Evid.
702; Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589, 592
(1993) (discussing trial judge's role in screening scientific
expert testimony for reliability and relevancy); see also Kumho
Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999) (extending
Daubert's gatekeeping obligation to technical and other specialized
expert testimony); Diefenbach, 229 F.3d at 30 (setting forth three
requirements of Rule 702).
At trial, defendants objected to the proffered testimony
of Echeandía on three grounds. Defendants contended that Echeandía
could not properly be qualified as an expert because he lacked
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education, training, and experience with fuel management systems,
including marine systems. Second, defendants asserted that the
expert's methodology was unreliable because he did not use any
instruments to inspect the engines. Further, defendants argued
that his proffered testimony was irrelevant because it related to
fuel mismanagement rather than to engine stalling or backfiring.
In response to these objections, the district court conducted an
extensive voir dire as to Echeandía's qualifications and opinion.
Upon conclusion of the voir dire, the district court found that
Echeandía was qualified as an expert "in light of his experience."
Echeandía testified that he holds a bachelor's degree in
mechanical engineering from the Mayagüez Agricultural College of
the University of Puerto Rico. He obtained an engineering license
after passing a qualifying exam given by the government of Puerto
Rico and the College of Engineers.
In addition to his education, Echeandía testified as to
his mechanical engineering experience, particularly as it
corresponds to engine repair. He worked for the Puerto Rican
Cement Company for five years, where he performed maintenance on
heavy equipment, including work on Caterpillar, GM, Diesel,
Wisconsin, Pearce, and Perkins engines. Echeandía then moved to
Sea Train Line Container Division, where he worked for six years as
maintenance engineer for all of the company's equipment, which
included tractors, trailers, vans, diesel generators for
refrigeration units, Johnson outboard motors, and Chevrolet and
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Ford engines. He also assisted the chief engineer with repair of
auxiliary engines on vessels.
Echeandía then worked for approximately three years at
Orbital de Puerto Rico, performing mechanical maintenance on
gasoline and diesel engines. After his stint at Orbital, he bought
Miami Rebuilders of Models, Inc., where he overhauled automobile
engines, diesel engines, and marine engines for about three years.
His work on specific marine engines included, inter alia, the
rebuilding of approximately fifteen 454 Chevrolet ("Chevy")
carburetor engines and twenty marine diesel engines.7 He then
opened an automobile repair shop, in which he has been repairing
fuel injection engines for more than twenty years. Echeandía was
also able to explain to the court how a marine fuel injection
engine differs from an automobile fuel injection engine.
Based upon these qualifications, we find no abuse of
discretion in the district court's decision to qualify Echeandía as
an expert in mechanical engineering of engines based on his
experience. Rule 702 permits qualification of an expert based on
knowledge, skill, experience, training, or education. See Tokio
Marine & Fire Ins. Co. v. Grove Mfg. Co., 958 F.2d 1169, 1175 (1st
Cir. 1992) (citing United States v. Paiva, 892 F.2d 148, 160 (1st
Cir. 1989)). Although plaintiffs' expert might not have qualified
as an expert based solely on his educational background in marine
engines, his experience repairing various marine and fuel-injection
7
Correa's boat also has 454 Chevy engines, although they are fuel
injection engines, whereas the 454 Chevy engines that Echeandía
rebuilt were carburetor engines.
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engines for over twenty years provided a basis for the district
court to find him qualified to opine on the function of plaintiffs'
marine engines. Thus, we will not disturb the district court's
qualification determination. See Diefenbach, 229 F.3d at 30
(noting that trial court has "broad discretionary powers" in
qualification of experts and that court's decision will be affirmed
unless there is clear error); United States v. Hoffman, 832 F.2d
1299, 1310 (1st Cir. 1987) (same).
As for the expert's methodology, the district court had
plaintiffs' expert describe how he arrived at his opinion regarding
Correa's engines. Echeandía testified during voir dire that when
he arrived to inspect the boat, Correa opened the engine hatches,
and Echeandía made a visual inspection. Echeandía then stood next
to the engines while Correa started the engines. Plaintiffs'
expert attested to an excessive amount of smoke coming from the
engines, indicating to him a bad fuel system. Echeandía testified
that it is important for an engine to have the right proportions of
gasoline and air flowing into it, otherwise the engine will not
burn properly and the spark plugs will "foul up." A "fouled up"
spark plug, according to Echeandía, can cause engine backfiring or
problems starting the engine. After warming up the engines, Correa
and Echeandía took the boat out for a test. After their return,
Echeandía removed a spark plug from the engines and noted it was
blackened from soot, rather than clean, as it should be in a
properly functioning engine.
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Defendants objected to Echeandía's methodology,
complaining that a visual inspection, accompanied by removal of a
spark plug, was insufficient to be reliable. Specifically,
defendants noted that Echeandía did not use any instruments or
gauges to determine whether Correa's engines were functioning
properly. Nor did plaintiffs offer any evidence to show that this
type of cursory examination is an accepted or recognized
methodology for diagnosing marine engine problems.
The district court, however, accepted Echeandía's
methodology as reliable. In reviewing the reliability of proffered
expert testimony, the trial court conducts a "flexible inquiry,"
which includes consideration of "the verifiability of the expert's
theory or technique, the error rate inherent therein, whether the
theory or technique has been published and/or subjected to peer
review, and its level of acceptance within the scientific
community." Ruiz-Troche v. Pepsi Cola of P.R. Bottling Co., 161
F.3d 77, 81 (1st Cir. 1998). Acceptance of the methodology by the
other party's expert may give additional credence to the
reliability of the proffered testimony. See id. at 84 (opining
that plaintiff's expert, who used the same scientific technique as
defendant's expert, added validation to methodology of defendant's
expert).
Although plaintiffs did not offer any evidence that
Echeandía's visual inspection of the engines was a well-accepted
method of diagnosing the existence of engine or fuel management
problems, here, we find it to be a matter of common sense that a
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visual inspection, including observation of excessive smoke and
"fouled up" spark plugs, would be one acceptable way for a mechanic
or engineer to detect an engine problem. Moreover, one of
Crusader's experts, Andrew Prietz, offered support for Echeandía's
methodology by acknowledging that a sooty spark plug is a sign of
fuel mismanagement, which can cause stalling and shutting off of
the engine. Taking into account the "flexible inquiry" that a
district court conducts, we cannot say that the court committed
"meaningful error" in admitting Echeandía's testimony. See Ruiz-
Troche, 161 F.3d at 83 (stating that district court's reliability
determination will only be reversed when there is a "'meaningful
error in judgment'") (quoting Anderson v. Cryovac, Inc., 862 F.2d
910, 923 (1st Cir. 1988)).
Appellants further claim that Echeandía's testimony
should have been excluded because it was irrelevant. The relevancy
inquiry under Rule 702 focuses on whether the expert testimony
"likely would assist the trier of fact to understand or determine
a fact in issue." Id. at 81 (discussing "special relevancy"
requirement of Rule 702). Appellants claim that Echeandía's
testimony is irrelevant because it relates only to smoke and sooty
spark plugs (i.e., the fuel management system), rather than to an
engine stalling or starting problem, which is the alleged defect.
The district court disagreed, however, and ruled that the expert
testimony was relevant. Because Echeandía explained that the
excess smoke and "fouled up" spark plugs could cause engine
backfiring or stalling, we agree with the district court that his
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testimony was relevant as to whether or not the engines were
defective. Thus, there was no abuse of discretion in admitting the
expert testimony.
IV. Expenses
Appellants also appeal the district court's ruling
permitting the jury to award plaintiffs the expenses they incurred
for dockage, insurance, and licenses, as well as the amendment to
the judgment for additional dockage, license, and insurance fees.
In their motion for judgment as a matter of law, based on
limitations grounds, defendants argued that if the court did not
grant their motion, the court should nevertheless, under Puerto
Rico law, disallow plaintiffs' claims for dockage, insurance, and
license fees because these expenses would have been incurred
regardless of any alleged defect. The issue of what constitutes
reimbursable "expenses" under Puerto Rico law in an action for
rescission of contract is a question of law. Therefore, we review
the district court's decision de novo. See Disola Dev., LLC v.
Mancuso, 291 F.3d 83, 86 (1st Cir. 2002).
The Puerto Rico Civil Code provides that when there is a
breach of warranty against hidden defects, "the vendee may choose
between withdrawing from the contract, the expenses which he may
have incurred being returned to him, or demanding a proportional
reduction of the price." P.R. Laws Ann. tit. 31, § 3843 (1990).
However, if the vendor had knowledge of the hidden defects and did
not inform the vendee, then the vendee has the additional remedy of
being "indemnified for the losses and damages should he choose the
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rescission." Id. In the case before us, there was no allegation
that the defendants were aware of any hidden defect at the time of
sale, so only "expenses," as opposed to "losses and damages," are
recoverable.
Plaintiffs, in addition to the purchase price of the boat
($132,350.00) plus interest, sought reimbursement of the following
"expenses," incurred between the date of delivery and trial:
insurance for the boat ($13,326.00); dockage fees ($14,980.38);
license fees ($1,164.95); and miscellaneous costs for missing
equipment, repairs, and maintenance (totaling $3,350.28). At
trial, defendants objected to these "expenses," except for the
miscellaneous costs, claiming that these were not recoverable
"expenses" because they were not related to the alleged defect.
Rather, these were ordinary expenses associated with owning a boat
that would have been incurred whether or not the boat was
defective. The district court found otherwise, considering the
costs as "reasonable expenses for the upkeep" of the boat that
should go to the jury. We disagree. Although the case law
interpreting the expanse of the remedy for breach of warranty under
§ 3843 is hardly crystal clear, our review indicates that
recoverable "expenses," as opposed to "losses and damages," are to
be interpreted narrowly and are limited to costs that are directly
related to the defect.
In Berríos v. Courtesy Motors of Puerto Rico, Inc.,
91 P.R. Dec. 441 (1964), the plaintiff, who purchased an automobile
with a defective transmission, sued the vendor for breach of
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warranty against hidden defects. In addition to rescission of the
sales contract and return of the vehicle down payment and
installment payments already made, the plaintiff also sought
reimbursement for transportation expenses that he incurred over the
eleven months while his vehicle was inoperable. See id. at 444.
The Supreme Court of Puerto Rico held that these transportation
costs were not recoverable. See id. at 449. Rather, the court
indicated that the transportation costs were more properly
considered as "losses" or "damages," which would be appropriate
only where the vendor knew of the defect at the time of sale. See
id. at 448-49. Since the trial court made no finding that the
vendor knew of the defective transmission, the court excluded the
transportation costs from the plaintiff's award. See id.
Similarly, the District Court for the District of Puerto
Rico has held that the remedy for breach of warranty is limited to
the price paid for the contract and "expenses directly related to
a product's hidden defects." Ramos Santiago v. Wellcraft Marine
Corp., 93 F. Supp. 2d 112, 118 (D.P.R. 2000). In Ramos Santiago,
the plaintiff sued for breach of warranty against hidden defects
arising out of a contract for the sale of a motor boat. The
plaintiff sought recovery of the price of the boat, the cost of
removing and transporting it, the cost of maintaining it in storage
while inoperable, and damages for "mental anguish suffered from
being out at sea in a broken-down boat with a severely injured
passenger on board." Id. at 118 & n.5. The district court
differentiated between these sums, implying that the price of the
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boat, the removal and transportation cost, and the storage cost
would be recoverable because they qualify as "directly related
economic loss" due to the defect, whereas the mental anguish
damages would not be because they are "beyond the damage to the
boat itself." Id. at 118. In sum, the court limited recoverable
expenses to those that stemmed from "the objective fact of the
[alleged] defect" rather than "from the damages caused by such
defect." Id. (internal quotation marks omitted); see also Ferrer,
100 P.R.R. at 254-55, 100 P.R. Dec. at 256 (finding that, as a
result of defective automobile, appellant should be reimbursed the
contract price and "the expenses which he necessarily incurred as
a result of the faults or defects" of the vehicle, but was not
entitled to any damages).
Plaintiffs, defending the district court's determination
that the dockage, insurance, and license fees are recoverable
expenses under § 3843, cite to a case where the Supreme Court of
Puerto Rico, in addition to rescission of the contract, explicitly
awarded insurance expenses to the plaintiff for a breach of
warranty. See Departamento de Asuntos del Consumidor v. Marcelino
Mercury, Inc., 105 P.R. Dec. 80, 85 (1976) (awarding plaintiff the
sale price of the defective car plus payments made to appellees for
monthly installments, registration, insurance, and financing).
Although this case facially seems to indicate that insurance
payments related to the defective product qualify as expenses under
§ 3843 rather than as damages or losses, we do not read the case to
decide this issue. First, Marcelino Mercury does not even discuss
-27-
the difference between expenses and losses or damages. Second,
although not explained in the opinion, it appears that the
insurance payments were recoverable because they were part of the
amount the plaintiff paid to appellees as part of the contract.
Cf. Rios Ruiz v. Auto Outlet Sales, Nos. KLRA0100707, KLRA0100715,
2002 WL 537660, at *7 (P.R. Cir. Ct. App. Jan. 23, 2002)
(nullifying the financing contract because of the rescission of the
underlying sales contract). Thus, the court did not award expenses
incurred by the plaintiff after perfection of the contract, but
rather, in granting rescission of the sales contract, ordered
return of all the payments made by the plaintiff to the appellees
under the contract. Therefore, the facts of Marcelino Mercury do
not undermine our conclusion under Berríos and Ramos Santiago that
recoverable expenses are limited to those directly related to the
defect.
In the case before us, we find that the plaintiffs'
expenses for dockage, insurance, and licensing are not related in
any way to the defect in the boat's engines, but are expenses that
would have been incurred by the plaintiffs whether or not their
boat suffered from any problems. As a result of this finding and
our understanding of § 3843, we vacate the district court's
judgment of March 23, 2000, insofar as it awards reimbursement of
dockage fees, insurance premiums, and license fees.8
8
Appellants do not appeal the judgment's award of maintenance and
repair fees in the amount of $3,350.28.
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Appellants further appeal the district court's order of
December 18, 2000 amending the judgment to award payment to
plaintiffs of additional dockage, license, and insurance fees
incurred after the entry of judgment on March 23, 2000, and to
allow motions for future additional expenses. The district court,
in amending the judgment, adopted the plaintiffs' rationale that
the court's March 23 judgment rendered the plaintiffs legal
custodians, or bailees, of the boat until the judgment becomes
final and defendants accept possession of the boat. As legal
custodians, the court determined that the plaintiffs were under a
legal duty to maintain the boat with due diligence, thereby
necessarily incurring further dockage and insurance expenses.
Because we find that the district court erred in adopting
plaintiffs' bailment theory, we reverse the amendment of the
judgment awarding dockage and insurance fees.
The March 23, 2000 judgment ordered the plaintiffs to
return the boat to defendants and awarded a monetary amount to
plaintiffs against defendants. Although plaintiffs could not move
to enforce the judgment until ten days after its entry, see Fed. R.
Civ. P. 62(a), there was nothing to prevent plaintiffs from seeking
court enforcement of the judgment after the expiration of this ten-
day automatic stay period, had they so desired. See Fed. R. Civ.
P. 69 (providing process for execution of money judgments); Fed. R.
Civ. P. 70 (providing process for enforcement of judgments to
perform specific acts). Contrary to plaintiffs' assertion, there
is no requirement that the judgment become final before it can be
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enforced. Cf. Fed. R. Civ. P. 62(d) (providing that when an appeal
is taken, the appellant may seek a stay of execution of the
judgment by filing a bond). Thus, plaintiffs did not become
bailees of the boat by operation of the judgment. Rather, the
plaintiffs had a duty to return the boat to the defendants. If the
defendants refused to accept the boat and/or pay the judgment, then
the proper remedy would have been for plaintiffs to move for
enforcement of the judgment rather than to continue incurring
additional expenses for the maintenance of the boat. Because
plaintiffs failed to turn over the boat to defendants and/or
request an enforcement of the judgment, they cannot now recover for
unnecessarily incurred expenses. Cf. Knapp Shoes, Inc. v. Sylvania
Shoe Mfg. Corp., 72 F.3d 190, 204-05 (1st Cir. 1995) ("The general
principle is well settled that a party cannot recover for harms
that its own reasonable precautions would have avoided.") We
hereby vacate the December 18, 2000 order insofar as it awards the
plaintiff dockage and insurance fees incurred after the entry of
judgment and permits application to the district court for further
such awards.
V. Attorney's Fees
In addition to the award of dockage, insurance, and
license fees, appellants challenge the district court's December
18, 2000 order awarding attorney's fees to plaintiffs in the amount
of $30,000. We review the trial court's determination of whether
attorney's fees are appropriate, based on obstinate conduct, for
abuse of discretion. See Dopp v. Pritzker, 38 F.3d 1239, 1253 (1st
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Cir. 1994) (vacating award of attorney's fees because party's
conduct, viewed in context of "the overall nature of the
litigation," did not support finding of obstinacy). An error of
law constitutes an abuse of discretion. See Goya Foods, Inc. v.
Wallack Mgmt. Co., 290 F.3d 63, 75 (1st Cir. 2002). Since
jurisdiction is based on the diversity of the parties, we apply the
substantive law of Puerto Rico to this issue. See Grajales-Romero
v. Am. Airlines, Inc., 194 F.3d 288, 301 (1st Cir. 1999).
The Puerto Rico Rules of Civil Procedure provide that
"[i]n the event any party or its lawyer has acted obstinately or
frivolously, the court shall, in its judgment, impose on such
person the payment of a sum for attorney's fees which the court
decides corresponds to such conduct." P.R. Laws Ann. tit. 32, App.
III, R. 44.1(d) (Supp. 1998). Although the Rules do not themselves
define obstinacy, there is ample case law within this Circuit to
elucidate the concept.
"A finding of obstinacy requires that the court determine
a litigant to have been unreasonably adamant or stubbornly
litigious, beyond the acceptable demands of the litigation, thereby
wasting time and causing the court and the other litigants
unnecessary expense and delay." De León López v. Corporación
Insular de Seguros, 931 F.2d 116, 126 (1st Cir. 1991). Once the
court has determined that a party has engaged in obstinate conduct,
imposition of attorney's fees is mandatory. See R. 44.1(d)
(stating that the court "shall" impose attorney's fees in cases of
obstinacy); see also Dopp, 38 F.3d at 1252; Fernández Mariño v. San
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Juan Cement Co., 18 P.R. Offic. Trans. 823, 829 (1987). The amount
of the fees awarded, however, is left to the discretion of the
court. See Dopp, 38 F.3d at 1252; Fajardo Shopping Ctr., S.E. v.
Sun Alliance Ins. Co., 81 F. Supp. 2d 331, 334 (D.P.R. 2000)
(noting that award of fees need not match actual attorney's fees
incurred, but should be determined based on extent of obstinate
conduct).
The Supreme Court of Puerto Rico has stated:
The main purpose of awarding attorney's fees
in cases of obstinacy is to impose a penalty
upon a losing party that because of his
stubbornness, obstinacy, rashness, and
insistent frivolous attitude has forced the
other party to needlessly assume the pains,
costs, efforts, and inconveniences of a
litigation.
Fernández Mariño, 18 P.R. Offic. Trans. at 830. Under this theory,
attorney's fees are appropriate when a party unnecessarily prolongs
or complicates litigation. See id. Examples of obstinate conduct
include: denying all liability in answering a complaint, where the
defendant later admits liability; raising inapplicable defenses;
denying all liability when only the amount of damages sought is
contested; and denying a fact, knowing it is true. See id. at 830-
31 (collecting cases). Obstinacy is to be judged in light of the
overall circumstances of the particular case. See Dopp, 38 F.3d at
1253 (opining that court should look at case's "personality" in
evaluating obstinacy); Fajardo Shopping Ctr., 81 F. Supp. 2d at 334
(recognizing that certain conduct may or may not be obstinate
depending upon the particular stage of litigation or the particular
case). Though the degree of obstinacy is the critical factor in
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determining whether attorney's fees are warranted, other factors to
be weighed include, inter alia, the nature of the litigation, the
legal issues involved, the time spent, and the efforts and
abilities of the attorneys. See Velázquez Ortiz v. Universidád de
Puerto Rico, 128 P.R. Dec. 234, 238 (1991).
In this case, the district court based its obstinacy
determination on the following findings: (1) Cruisers and Crusader
denied a fact that was known to them, namely, that after the fuel
system was replaced on October 21, 1995, the plaintiffs suffered
further engine problems; (2) the defendants stubbornly denied all
liability, even when it was "highly probable" that the plaintiffs
would prevail; (3) the defendants limited their proposed settlement
to $150,000, although the original price of the boat was $132,350
and the judgment was for more than $200,000.
The district court found that defendants denied the
existence of any engine problems after Paul Doppke's repairs on
October 21, 1995. The court relied on defendants' answers, which,
in response to the complaint's allegations of continuing engine
problems after October 21, 1995, averred that defendants lacked
sufficient knowledge to answer. Yet, the court determined that
defendants were aware of further engine problems because Guillermo
Cidre and Osmani del Pino, employees of People's Marine, witnessed
one of the engine failures and because defendants' representatives
came to Puerto Rico in December of 1995 to investigate plaintiffs'
engine complaints. The court found that this "denial" of a known
fact constituted obstinacy. See Fernández Mariño, 118 P.R. Offic.
-33-
Trans. at 830, 832 ("[A]ttorneys must take special care when
drawing their pleadings so as not to deny facts which they know or
which may be easily verified and that to deny allegations in an
indiscriminate manner, even with the pet phrase 'for lack of
information,' is an undesirable practice which attorneys should
take special care to avoid.") (citing P.R.-Am. Ins. Co. v. Tribunal
Superior de P.R., 100 P.R. Dec. 747 (1972)).
We find the district court's reliance on this factor to
be flawed. As a matter of law, denying a fact is different than
asserting an inability to answer for lack of sufficient
information. Fernández Mariño, on which the district court relied,
discusses the danger of indiscriminately denying facts that are
known or are easily verifiable. See 18 P.R. Offic. Trans. at 832-
34 (finding defendants obstinate in a wrongful death suit arising
out of an accident where a truck hit a child on a bicycle where
defendants denied every allegation in the complaint, including the
occurrence of the accident and that the child was riding the
bicycle). Although Fernández Mariño also warns against
indiscriminately claiming a lack of sufficient information to
answer, Fernández Mariño, and the cases upon which it relies, did
not involve circumstances where the lawyers stated that they lacked
knowledge. See 18 P.R. Offic. Trans. at 832-34 (finding attorney's
fees appropriate where defendants denied every allegation in
complaint); Abreu Roman v. Rivera Santos, 92 P.R. Dec. 325, 331
(1965) (affirming award for attorney's fees where defendants denied
a fact that they had accepted in an earlier proceeding before the
-34-
same court); cf. P.R.-Am. Ins. Co., 100 P.R. Dec. at 749 (reversing
award of attorney's fees where defendant admitted facts in
interrogatory that had originally been denied in the answer because
there was no evidence that the inclusion of these additional
interrogatory questions imposed additional costs on plaintiff). As
a result, Fernández Mariño does not provide support for imposing
attorney's fees where the defendants have asserted a lack of
sufficient knowledge to answer, as opposed to flatly denying
allegations which they know to be true.
In addition, as a factual matter, this case is quite
different than Fernández Mariño. Defendants recognized, and
implicitly admitted, that plaintiffs were complaining of engine
problems after October 21, 1995, which is why they sent
representatives to Puerto Rico to inspect the boat in December of
1995. However, having not witnessed or been able to diagnose the
engine problems themselves after October 21 because no problems
were experienced during the defendants' sea trials, defendants
could not, in good faith, either admit or deny liability as to
whether the engines were defective. Rather, their only option was
to answer that they lacked sufficient knowledge to answer
plaintiffs' allegations about post-October engine problems. Even
if Guillermo Cidre and Osmani del Pino, both from People's Marine,
witnessed an engine failure after October 21, 1995 and we attribute
knowledge of such failure to the defendants, as the district court
suggests, it would be strange indeed, in the context of a lawsuit,
for defendants in their answers to admit that the engines were
-35-
defective without discovery as to what caused the engine failure.
See Grajales-Romero, 194 F.3d at 300-01 (rejecting claim that a
party "engages in obstinacy when it merely answers a complaint and
denies responsibility for a plaintiff's damages, even if it accepts
that responsibility later"). Moreover, since defendants were never
able to recreate the engine failures during discovery, it does not
strike us as either unusual or obstinate to refuse to admit that
the engines were defective. Just because the jury, at the close of
the trial, determined that the engines were defective, does not
indicate that the defendants were obstinate in asserting the
contrary, much less in asserting a lack of knowledge. See Dopp, 38
F.3d at 1254 ("Indeed, even if a party's claim ultimately fails, it
cannot be deemed frivolous or obstinate for that reason alone.").
Defendant Cruisers did not deny basic facts such as the purchase of
the boat by the plaintiffs or that the defendants were the
manufacturers of the engines and the boat, and defendant Crusader
claimed insufficient knowledge to answer many, but not all, of the
allegations in the complaint. Cf. Fernández Mariño, 18 P.R. Offic.
Trans. at 832 (finding that defendant obstinately denied every
allegation in the complaint, including basic underlying facts).
The second finding that the district court relied upon in
finding defendants obstinate was their denial of all liability,
even when it appeared "highly probable" that plaintiffs would
prevail. The district court seems to suggest that defendants
should have admitted liability as to the engine defects, see
Fernández Mariño, 118 P.R. Offic. Trans. at 831 (stating that a
-36-
party should assume liability when it appears prima facie),
limiting the trial issues to the remedy as well as to whether moral
and mental anguish damages were available as a matter of law.
However, the district court fails to consider the statute of
limitations defense, which, if decided in favor of the defendants,
would have absolved them of any liability under the breach of
warranty claim. See Dopp, 38 F.3d at 1253 (overlooking "relevant
factor deserving of significant weight" is an abuse of discretion).
Further, as discussed above, defendants did not deny all knowledge
of the engine defects, but rather averred their lack of sufficient
information regarding the alleged engine defects. Thus, the
district court's reliance on this second finding also seems
insufficient for an obstinacy determination. See Mejias-Quiros v.
Maxxam Prop. Corp., 108 F.3d 425, 429 (1st Cir. 1997) (stating that
appellant's claim that defendant was obstinate, based on refusals
to concede certain facts, denial of negligence, and litigation of
the issue, could not "have been seriously intended").
The third finding relied upon by the district court was
the defendants' failure to propose a reasonable settlement during
trial, thereby unnecessarily prolonging the litigation. Defendants
limited their proposed settlement to $150,000. The district court
found that this was unreasonable under the circumstances, given the
likelihood that plaintiffs would prevail on their claims, the
original price of the boat in 1995 of $132,350, and the final
judgment exceeding $200,000. We disagree.
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First, defendants might have thought that they had a
reasonable chance of succeeding on their statute of limitations
defense so that they would not be liable for any amount of money.
Second, the proposed settlement of $150,000, made when the boat was
over five years old, exceeded the price of the boat when new.
Third, as discussed above, the part of the judgment allowing
expenses for dockage, insurance, and licensing fees is not
permitted as a matter of law. As a result, the final judgment does
not exceed $200,000, but is limited to the original price of the
boat, plus legal interest, and the expenses awarded for repairs and
maintenance. Thus, a settlement offer of $150,000 can hardly be
considered so unreasonable as to rise to the level of obstinacy.
In Dopp, we overturned an obstinacy determination based,
in part, on a finding that the defendant was unreasonable in
assessing the plaintiff's damages. The defendant, Pritzker,
claimed that the plaintiff's damages were limited to $35,000. The
jury awarded a verdict to the plaintiff, Dopp, in the amount of
$17,000,000. We stated:
Though we readily acknowledge that Pritzker's
stated valuation verges on the ludicrous,
there is nothing to show that Dopp -- who even
now challenges a $17,000,000 verdict as too
paltry . . . -- ever placed a more reasonable
value on the case, or that a realistic
settlement offer by Pritzker would have
satisfied Dopp and shortened the proceedings.
38 F.3d at 1254-55. The key issue is not whether or not the
defendant's proposed settlement amount approaches plaintiff's
claimed damages, but whether the parties engaged in good faith
-38-
negotiations. See Reyes v. Banco Santander, 583 F. Supp. 1444,
1445-56 (D.P.R. 1984).
The plaintiffs, in their motion to amend the judgment to
include attorney's fees, did not allege any facts to show that
defendants did not engage in good faith negotiations. Instead,
plaintiffs only pointed to the allegedly inadequate settlement
offers of $20,000, prior to trial, and $150,000, during trial, as
evidence of lack of good faith. Under our case law, this alleged
insufficiency is not tantamount to bad faith in conducting
settlement negotiations. As a result, we also find this ground
inadequate to support the district court's obstinacy determination.
Because we conclude that the district court's findings
on which it based its obstinacy determination were infected with
legal errors that skewed the court's judgment on the matter, we
reverse the award granting attorney's fees to plaintiffs. See
Dopp, 38 F.3d at 1253 (stating that "'a district court abuses its
discretion when a relevant factor deserving of significant weight
is overlooked, or when an improper factor is accorded significant
weight, or when the court considers the appropriate mix of factors,
but commits a palpable error of judgment in calibrating the
decision scales.'"); see also Goya Foods, 290 F.3d at 75
(committing legal error is abuse of discretion). Moreover, when
looking at the overall "personality" of the case, the district
court opined that "the degree and intensity of Defendants'
obstinate conduct was significant, although not extreme. . . . it
did not border on fraud, and the litigation itself did not extend
-39-
beyond that to be expected of similar cases which go to trial." In
light of the district court's findings, influenced by errors of
law, and the defendants' overall conduct, which was not determined
to be extreme, we find that the district court abused its
discretion. See Dopp, 38 F.3d at 1255 (vacating award of
attorney's fees where the court's "subsidiary findings do not
support is ultimate finding of obstinacy" and "the record does not
otherwise show that [the defendant] was 'unreasonably adamant or
stubbornly litigious, beyond the acceptable demands of the
litigation'"); Velázquez Ortiz, 128 P.R. Dec. at 238 (asserting
that the degree or intensity of the obstinate conduct is the
critical or determining factor). Thus, we vacate the award of
attorney's fees.
VI. Conclusion
Because we find that the district court properly held
that the plaintiffs' claim was not time-barred and that plaintiffs'
expert's testimony was admissible, we affirm the judgment as to
defendants' liability. However, because we conclude that the
district court erred in awarding dockage, insurance, license, and
attorney's fees to plaintiffs, we vacate the judgment insofar as it
includes these sums and remand the case to the district court for
action consistent with this opinion.
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Correa v. Cruisers, a Division of KCS International, Inc.
Court: Court of Appeals for the First Circuit
Date filed: 2002-07-23
Citations: 298 F.3d 13
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