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Production Specialties Group, Inc. v. Minsor Systems

January 17, 2008

PRODUCTION SPECIALTIES GROUP, INC., A WISCONSIN CORPORATION, PLAINTIFF-APPELLEE,
v.
MINSOR SYSTEMS, INC., A MICHIGAN CORPORATION AND MINSOR POWERTRAIN SYSTEMS LLC, A MICHIGAN LIMITED LIABILITY COMPANY, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Eastern District of Wisconsin. No. 04 C 758-Charles N. Clevert, Jr., Judge.

The opinion of the court was delivered by: Williams, Circuit Judge.

ARGUED MARCH 26, 2007

Before ROVNER, WILLIAMS, and SYKES, Circuit Judges.

Minsor Systems and Minsor Powertrain Systems ("Minsor") entered into a contract with Production Specialties Group ("PSG") in which PSG agreed to make Minsor a machine needed for manufacturing an automotive part. Minsor cancelled the contract after PSG was unable to deliver an acceptable machine, and PSG brought this diversity action for breach of contract and fraud in the inducement. A jury found for PSG on both claims and awarded punitive damages on the fraud claim. Minsor moved for judgment notwithstanding the verdict and for a new trial on the fraud claim, arguing that PSG's claims were barred by the economic loss doctrine; that the court issued erroneous jury instructions; and that the evidence was insufficient to support either a verdict for the plaintiff on the fraud claim or punitive damages. The district court denied both motions, and Minsor appeals from that ruling. We find that Minsor failed to preserve its economic loss argument and that an erroneous burden of proof instruction did not constitute plain error. In addition, we conclude that the district court did not err in giving a punitive damages instruction because there was sufficient evidence to show that Minsor intentionally disregarded PSG's rights. For these reasons, we affirm.

I. BACKGROUND

Minsor supplies automotive parts. In March 2004, Minsor solicited bids on a contract to manufacture a machine that could turn a steel forging into a "TB knuckle," an automotive part that is attached to a truck axle. Minsor needed to submit a prototype of the TB knuckle to its customer by April 15, 2004. Minsor selected PSG to produce the machine as it was the only company that could commit to delivering the prototype TB knuckles on time. In early April, PSG received steel forgings so it could begin making the prototypes. At this point, PSG began having problems. Before it submitted its bid, Minsor's vice-president of engineering, Brett Stevenson, told PSG that it would need to make a machine that could remove 2.0 millimeters to 2.5 millimeters of excess material per side from the steel forging. But when PSG received the steel forgings to make the prototype, it discovered that they actually contained significantly more than 2.5 millimeters of excess material. This meant that the machine PSG was making could not transform the forgings into TB knuckles as quickly as its original bid had promised. PSG informed Stevenson of this problem, and according to PSG's vice-president of sales and engineering, Rick Glowacki, Stevenson assured PSG that the steel forgings it had received were just preliminary prototypes and PSG would be able to make changes to the forgings that would be used during the actual production process. After receiving this assurance, PSG signed the contract on April 13, 2004. The contract, consistent with PSG's original bid, required PSG to produce a machine that could manufacture 22 parts per hour. A couple weeks later, PSG learned that, contrary to Stevenson's assurance, the forgings could not be changed to eliminate the excess material. Realizing that this meant it would have difficulty providing Minsor with a machine that could manufacture the promised 22 parts per hour, PSG offered to cancel the contract and return Minsor's initial payment. Minsor declined and told PSG to keep working on the machine to see how close it could come to meeting the 22 parts per hour goal. By June, PSG had still not been able to produce an acceptable machine, and Minsor had rejected PSG's proposals to address the problem. Minsor then cancelled the contract because of PSG's failure to perform.

PSG brought suit for breach of contract and fraud in the inducement. It claimed that Minsor fraudulently induced it to enter into the contract when Stevenson told PSG's Glowacki that the steel forgings with the excess stock were just prototypes that could be changed later. PSG's principal evidence that this statement was false was the testimony of Minsor's vice-president of quality assurance, Patrick Smith. Smith testified that he knew early in the process that the production forgings would likely be the same as the prototypes and could probably not be changed.

At the trial, Minsor unsuccessfully moved for judgment as a matter of law at the close of PSG's case. It did not renew this motion at the close of all the evidence, and the jury returned a verdict in favor of PSG. Minsor then retained new counsel who moved for judgment notwithstanding the verdict and for a new trial. In its motions, Minsor argued that: (1) PSG should have written into the contract Stevenson's assurance that the forgings could be changed and, therefore, was barred from asserting a fraud claim under the economic-loss doctrine; (2) the district court erroneously instructed the jury that the standard of proof on the fraud claim was by a preponderance of the evidence instead of clear and convincing evidence; (3) insufficient evidence supported the jury's verdict on the fraud claim; and (4) there was insufficient evidence to justify the giving of a punitive damages instruction. Minsor did not challenge the jury's verdict on the breach of contract claim.

PSG argued that Minsor had waived the economic-loss doctrine defense because it did not raise this defense before trial in a motion for summary judgment or a motion to dismiss. It contended that Minsor was only entitled to plain error review of the erroneous jury instruction because it did not object at trial and that the instruction did not violate Minsor's substantial rights because the court also instructed the jury that to award punitive damages it had to find by clear and convincing evidence that Minsor intentionally disregarded PSG's rights. Finally, PSG pointed to Smith's testimony as evidence that was sufficient to support the jury's verdict on the fraud claim and support the giving of a punitive damages instruction. The district court accepted all of these arguments and denied Minsor's motions.

II. ANALYSIS

As an initial matter, we note that at the time of the trial in this case, the Federal Rules of Civil Procedure required a party moving for judgment notwithstanding the verdict ("J.N.O.V.") to first move for judgment as a matter of law at the close of all the evidence. Fed. R. Civ. P. 50(b) (2005);*fn1 see also Laborers' Pension Fund v. A & C Envtl., Inc., 301 F.3d 768, 775 (7th Cir. 2002). As PSG points out, Minsor did not do this, and we have strictly enforced this rule in the past, even in cases where a defendant moved for judgment as a matter of law at the close of the plaintiff's case. See, e.g., Mid-Am. Tablewares, Inc. v. Mogi Trading Co., 100 F.3d 1353, 1364 (7th Cir. 1996); Downes v. Volkswagen of Am., Inc., 41 F.3d 1132, 1139-40 (7th Cir. 1994). Therefore, we must affirm the denial of Minsor's motion for J.N.O.V.

These procedural rules do not apply to motions for a new trial however. See Fed. R. Civ. P. 59. Therefore, we can consider all of Minsor's arguments in support of that motion. On appeal, Minsor renews the arguments it made in the district court.

A. Economic Loss Doctrine

PSG argues that Minsor waived its argument that the economic loss doctrine bars PSG from recovering on its fraud claim by not raising it sooner, and we agree. A motion for a new trial is not the appropriate place to raise for the first time arguments that could have been brought earlier in the proceedings. Naeem v. McKesson Drug Co., 444 F.3d 593, 610 (7th Cir. 2006); Anderson v. Flexel, Inc., 47 F.3d 243, 247 (7th Cir. 1995). Minsor's economic-loss argument is a legal question that could have been easily resolved at the summary judgment stage or even as a motion to ...


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