IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________________
No. 00-11270
_______________________________
AMERISTAR JET CHARTER, INC.,
Plaintiff-Counter Defendant-Appellee,
versus
SIGNAL COMPOSITES, INC., ETC; ET AL,
Defendants,
SIGNAL COMPOSITES, INC. D/B/A SIGNAL AEROSPACE,
Defendant-Counter Claimant-Appellant.
_________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________
November 13, 2001
Before GARWOOD and WIENER, Circuit Judges and CLEMENT,* District
Judge.
CLEMENT, District Judge:
Defendant Signal Composites, Inc. d/b/a Signal Aerospace
("Signal") appeals the district court's grant of partial summary
judgment in favor of Ameristar Jet Charter, Inc. ("Ameristar") on
Ameristar’s breach of warranty claim. Because several issues of
*
Chief Judge of the Eastern District of Louisiana, sitting
by designation.
material fact exist, we reverse the district court’s decision and
remand for further proceedings consistent with this opinion.
I.
FACTS AND PROCEEDINGS
Ameristar is a commercial jet charter service that operates a
fleet of approximately 20 aircraft. In 1997, Ameristar entered
into a business arrangement with 3D Industries ("3D") to procure
airplane combustion liners. Ameristar agreed to finance the
venture, and 3D would locate and purchase the liners. Under
Federal Aviation Administration ("FAA") guidelines, only General
Electric Corporation ("GE") or GE-approved companies are authorized
to manufacture combustion liners for commercial aircraft. 3D
obtained liners from Signal, an airline parts distributor that
originally bought the liners from Masbe Corporation ("Masbe"), a
Taiwanese company not approved by GE.
Between August and November 1997, Signal delivered 120 inner
and outer liner sets and 14 individual outer liners to 3D, which
passed them on to Ameristar. The liners looked like GE parts and
were stamped with a GE manufacturer’s code. Ameristar did not use
these liners in its own jets, but commissioned 3D to resell them to
third parties. In February or March 1998, the FAA approached
Ameristar with suspicions that the liners were not suitable for use
in commercial aircraft. Ameristar continued to sell the liners
until March 1998 and notified Signal that it believed the liners
2
were counterfeit on April 30, 1998. Because the liners are not
commercial GE parts, the district court found that Signal breached
the warranty of merchantability and granted partial summary
judgment in favor of Ameristar, awarding more than $1.1 million in
damages.1
II.
ANALYSIS
A. Standard of Review
We review a grant of summary judgment de novo, applying the
same standard as the district court. See Morris v. Covan World
Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998). A motion for
summary judgment is properly granted only if there is no genuine
issue as to any material fact. See Fed. R. Civ. P. 56(c); Celotex
Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986). An issue is material if its resolution could affect the
outcome of the action. See Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding
whether an issue of fact exists, we must view the facts and the
inferences to be drawn therefrom in the light most favorable to the
1
The district court referred Ameristar’s summary judgment
motion to a magistrate judge and adopted the magistrate’s report
and recommendation without comment. Left for future disposition
were Ameristar’s claims against Signal, Stehr and Durrani for
conspiracy and common law fraud. These claims were subsequently
dismissed without prejudice or severed, so that the judgment on the
breach of warranty claim became final.
3
nonmoving party. See Little v. Liquid Air Corp., 37 F.3d 1069,
1075 (5th Cir. 1994).
In granting summary judgment in favor of Ameristar, the
district court found (1) that Signal is a merchant subject to
Texas’ warranty of merchantability, (2) that Signal breached the
warranty by falsely representing the liners to be commercial GE
parts, and (3) that Ameristar timely notified Signal of the breach.
Signal challenges each of these determinations and also disputes
the district court’s calculation of damages. In addition, Signal
appeals two of the district court’s evidentiary rulings and its
refusal to award attorneys’ fees in connection with Ameristar’s
failed claim under Texas’ Deceptive Trade Practices Act.
B. Breach of Warranty
Under Texas law the warranty of merchantability is implied in
every transaction for the sale of goods if the seller is a merchant
of goods of that type. See Hininger v. Case Corp., 23 F.3d 124,
128 (5th Cir. 1994) (citing TEX. BUS. & COM. CODE § 2.314(a)).
Section 2.104 of the Texas Business and Commercial Code provides
that a "merchant" is:
a person who deals in goods of the kind or otherwise by
his occupation holds himself out as having knowledge or
skill peculiar to the practices or goods involved in the
transaction or to whom such knowledge or skill may be
attributed by his employment of an agent or broker or
other intermediary who by his occupation holds himself
out as having such knowledge or skill.
4
TEX. BUS. & COM. CODE § 2.104. In Nelson v. Union Equity Coop.
Exchange, 548 S.W.2d 352, 357 (Tex. 1977), the Texas Supreme Court
expansively construed the definition of merchant under the code as
"intended to apply to all but the most casual or inexperienced
sellers."
Signal contends that it is solely a merchant of military
aircraft parts and, as such, may not be held liable for failing to
provide suitable commercial parts. The distinction between
military and commercial aircraft parts is based on highly technical
differences of which Signal is well aware, and as a sophisticated
distributor Signal is clearly not such a casual seller that it
would not have known the importance of these differences to buyers.
Accordingly, the district court correctly held Signal to be a
merchant of airline parts, without regard to the distinctions
between military and commercial merchandise.
Having concluded that Signal is a merchant, the district court
found that it breached the implied warranty of merchantability by
falsely labeling the liners as GE parts. The label at issue is the
number "99207," which was stamped on the liners as the
manufacturer’s identification code. GE representative Thomas Woo
testified at a deposition that "99207" signifies one of two things:
(1) that the part was manufactured by GE at its plant in Lynn,
Massachusetts, or (2) that the part was manufactured pursuant to a
design which originated at that facility.
5
Signal does not dispute the district court’s finding that the
liners were not commercial GE parts. However, Signal contends that
it did not agree to supply Ameristar with commercial parts, that 3D
represented Ameristar as a willing investor in military parts, and
that Ameristar did in fact receive military parts. We do not find
that Signal’s position is contradicted by the record.
First, aside from Ameristar’s letter to Signal notifying it of
the alleged breach of warranty, there is no evidence of any
communication between Signal and Ameristar. Therefore, there is no
support for Ameristar’s allegation that Signal promised to deliver
commercial GE liners.
Second, in June 1997, 3D advised Signal that "Our investor is
cool in investing in J85 parts that aren’t compatible with 610
parts, so I guess we can say that we will back you on your
Sabreliner deal but only for 610 parts." Although the meaning of
this statement is unclear, Signal interprets 3D to say that
Ameristar was willing to invest in non-commercial parts. Even
though the summary judgment record does not contain evidence that
Ameristar knew of 3D’s communication or was in fact "cool" in
making the investment, this interpretation bolsters Signal’s theory
that Ameristar knew it was purchasing military liners.
Third, although the district court found that the liners were
not commercial GE parts, there is no evidence that the liners were
not in fact military GE parts. In her report and recommendation,
the magistrate judge noted that "[w]hen questioned by Signal’s
6
counsel regarding the testing of the liners, Woo acknowledged that
he compared them with a GE drawing for a commercial liner rather
than a military liner." In light of the absence of evidence to
resolve these factual disputes, we find that the question of
whether Signal breached the warranty of merchantability should not
have been decided on summary judgment.
Finally, even if the liners were in fact unmerchantable,
Signal challenges the district court’s determination that Ameristar
provided timely notice of the alleged defect. Under Texas law,
when a buyer has accepted goods, it must notify the seller "within
a reasonable time after it discovers or should have discovered any
breach or be barred from any remedy." TEX. BUS. & COM. CODE §
2.607(c)(1). The notice provisions of the Texas Code are liberally
construed, and whether notice is adequate depends on the
reasonableness of buyers’ efforts to communicate their
dissatisfaction in light of all the circumstances. See Reynolds
Metals Co. v. Westinghouse Elec. Corp., 758 F.2d 1073, 1078 (5th
Cir. 1985). Notice is ordinarily a question of fact and becomes a
question of law "only where there is no room for ordinary minds to
differ about the proper conclusion to be drawn from the evidence."
Palmco Corp. v. American Airlines, Inc., 983 F.2d 681, 685 (5th
Cir. 1993) (citing Carroll Instrument Co. v. B.W.B. Controls, 677
S.W.2d 654, 657 (Tex.App.–Houston [1st Dist.] 1984, no writ)).
7
In the instant case, the district court held that, due to
Signal’s alleged attempts to disguise the liners as GE products,
Ameristar’s notice was timely as a matter of law. We find that
several issues of fact preclude that determination. First, 3D’s
June 1997 letter advising Signal that its investor was "cool" in
purchasing military parts raises the question of whether Ameristar
knew from the outset that it was not receiving commercial liners.
Furthermore, when Ameristar accepted deliveries of Signal’s liners
between August and November 1997, it did not question the liners’
authenticity, despite the lack of GE documentation, GE bar codes or
GE packaging. On December 19, 1997, Ameristar wrote 3D demanding
"paper work showing certification and traceability of inner and
outer shells" by "2:00 p.m. today." There is no evidence that 3D
ever responded to that request, yet Ameristar failed to contact
Signal with its concerns. As early as February or March 1998, the
FAA approached Ameristar with suspicions that the liners were not
manufactured by GE and therefore were not appropriate for use in
commercial planes. Still, Ameristar failed to notify Signal of a
problem, and in fact continued selling the liners through March.
Despite the FAA’s concerns about the liners’ authenticity and its
own questions about their origin, Ameristar did not notify Signal
of the alleged defect until April 30, 1998. In light of the
equivocal evidence in the record, we find that there is room for
ordinary minds to differ on the issue of whether Ameristar’s notice
to Signal was timely.
8
Accordingly, because there is insufficient evidence to support
its conclusions, we reverse the district court’s determinations
that Signal breached the warranty of merchantability and that
Ameristar’s notice was timely as a matter of law. These questions
should have been left to the trier of fact, and we remand the case
for further proceedings consistent with this opinion.
C. Damages
Under Texas law, a buyer’s damages on a breach of warranty
claim are the difference between the value of the goods as accepted
and the value of the goods as warranted, unless special
circumstances show proximate damages of a different amount. See
TEX. BUS. & COM. CODE § 2.714(b). In the instant case, the district
court set the value of the liners as warranted at $12,100.00 per
set; held that the liners as delivered were worthless; and offset
the damages by $401,466.40, the amount Ameristar received through
resale. We find several problems with this calculation.
First, the district court based the value of the goods as
warranted on GE’s list price for commercial combustion liners.
However, as was explained above, the record evidence does not
compel the conclusion that Signal actually warranted the liners as
commercial GE parts. In addition, the district court set the
market value of commercial GE combustion liners at $12,100.00 per
set when Ameristar was actually selling the liners to third parties
at a much lower price. Second, the district court held that the
9
liners as delivered had no value because they were not suitable for
use in commercial airplanes in the United States. However, the
record is devoid of evidence that there is no alternative market
for these parts, which Signal contends can lawfully be used in
military aircraft. Accordingly, there is no basis in the summary
judgment record for Ameristar’s assertion that the liners are
worthless.
Finally, the district court offset Ameristar’s damages by
$401,466.40, the amount it received from reselling an unspecified
number of liners to third parties through 3D. Despite these sales,
the district court awarded damages for all 120 liners at $12,100.00
per set, thereby granting Ameristar an improper windfall.
Accordingly, in the event that Signal is found liable on remand, we
hold that the district court’s damages calculation must be revised.
D. Attorneys’ Fees and Evidentiary Rulings
In addition to the breach of warranty claim, Signal appeals
two of the district court’s evidentiary rulings and the district
court’s refusal to award attorneys’ fees in connection with
Ameristar’s failed Deceptive Trade Practices Act ("DTPA") claim.
First, we affirm the district court’s decision to admit Thomas
Woo’s affidavit into evidence and to exclude Masbe employee Chun
Tsai Lu’s affidavit as untimely. Finally, we do not find that
Ameristar’s DTPA claim was groundless and therefore affirm the
district court’s decision not to award fees. See TEX. BUS. & COM.
10
CODE § 17.50(c) (providing for award of attorneys’ fees for
groundless claims brought under the DTPA); Donwerth v. Preston II
Chrysler-Dodge, Inc., 775 S.W.2d 634, 637 (quoting TEX. R. CIV. P.
13)(holding that a "groundless" claim under the DTPA is a claim
that has "no basis in law or fact and [is] not warranted by good
faith argument for the extension, modification, or reversal of
existing law").
III.
CONCLUSION
For the reasons explained above, the district court's grant of
partial summary judgment in favor of Ameristar is reversed, and the
case is remanded for further proceedings consistent with this
opinion.
REVERSED AND REMANDED.
11