Petition — Fredonia Broadcasting Corp. v. RCA Corp.
Supreme Court brief1978
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| mic Tai YAK. JR. CLERK |
NO. @8-1)1 ee ee
IN THE
Supreme Court of the United States
OCTOBER TERM, 1977
FREDONIA BROADCASTING CORP., INC.,
Petitioner
Vv.
RCA CORPORATION,
Respondent
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
JOSEPH D. JAMAIL
JAMAIL & KOLIUS
3300 One Allen Center
Houston, Texas 77002
Attorneys for Petitioner
"Alpha Low Brie} Co., One Main Plasa, No.1 Moin St, Houston, Texes 77002
INDEX
Page
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Questions Presented for Review ..............0.00s000- 2
Constitutional Provisions, Statutes and Rules Involved... .. 3
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Le RA Ceuh Ele eeeesebedevesscscescccccece 5
CECE. Cee peeasecddacdccnveccecccess 12
EE SCL ah Gua be dee bi0e de oweseeccocss 13
Appendix A (Opinion of Court of Appeals; March 8, 1978) 15
Appendix B (Opinion of Court of Appeals; July 2, 1973) 32
Appendix C (Fifth Amendment, U. S. Constitution)...... 96
Appendix D (Fourteenth Amendment, U. S. Constitution) . 97
Appendix E (Text of Statute Involved) ................ 99
Appendix F (Rule 7; United States Supreme Court)..... 100
Appendix G (Rule 19; United States Supreme Court).... 101
CITATIONS
CASES Page
Fredonia Broadcasting Corp., Inc. v. RCA Corp., 481 F.2d
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STATUTES
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U.S. CONSTITUTION
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Ne ee eee eee dese ec ccececccscccce 2,3,10
SUPREME COURT RULES
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NO.
Supreme Court of the United States
OCTOBER TERM, 1977
FREDONIA BROADCASTING CORP., INC.,
Petitioner
Vv.
RCA CORPORATION,
Respondent
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
The petitioner, Fredonia Broadcasting Corp., Inc., prays
that a writ of certiorari issue to review the judgment
of the United States Court of Appeals for the Fifth Cir-
cuit entered in the above case on March 8, 1978.
OPINIONS OF THE COURTS BELOW
The opinion of the court below is reported in 569 F.2d
251. The opinion is printed in Appendix A. A related
opinion in this same case is reported at 481 F.2d 781
(Sth Cir. 1973) see Appendix B.
2
Il.
STATEMENT OF JURISDICTION
The judgment of the court below was entered on
March 8, 1978 (Appendix A). Petitioner’s motion for
rehearing and for rehearing en banc was denied on
April 7, 1978, 572 F.2d 320.
This Court has jurisdiction of this application for the
writ of certiorari pursuant to 28 USCA § 1254(1).
Il.
QUESTIONS PRESENTED FOR REVIEW
A. Whether a district judge must be disqualified as a
matter of law by an appellate court in a situation in which
a former law clerk — who had worked on the case while
law clerk during the first trial and had subsequently
joined the law firm representing one of the parties prior
to the second trial in the same case — had withdrawn
from all participation as counsel for such party prior to
the second trial; and whether such action by the appel-
late court, in disqualifying the district judge without a
hearing, contravenes 28 USCA § 144 and the Fifth and
Fourteenth Amendments to the United States Constitu-
tion.
B. Whether a district judge can be disqualified as a
matter of law by an appellate court in a situation in which
the party subsequently complaining on appeal has specifi-
cally advised the district judge prior to trial that the judge
is not disqualified, and in which the record fails to dis-
close any evidence of actual lack of impartiality or in-
tegrity on the part of the district judge or any other
grounds for disqualification; and whether such action by
the appellate court in disqualifying the district judge
3
without a hearing, contravenes 28 USCA § 144 and the
Fifth and Fourteenth Amendments to the United States
Constitution.
C. Whether reversal of the trial court’s judgment en-
tered pursuant to a jury verdict is proper under circum-
stances in which there is no holding whatsoever by the
appellate court that the errors, if any, in the court’s charge
were harmful, or that the errors, if any, resulted in an
erroneous verdict.
D. Whether the action of the appellate panel in dis-
qualifying the district judge in the absence of observance
of the statutory procedure and in the absence of observ-
ance of any other orderly process of law has “so far
departed from the accepted and usual cause of judicial
proceedings . . . as to call for an exercise of this court’s
power of supervision,” pursuant to Rule 19, of the Rules
of the United States Supreme Court.
IV.
CONSTITUTIONAL PROVISIONS, STATUTES,
AND RULES INVOLVED
A. Fifth Amendment to the United States Constitution,
see Appendix C.
B. Fourteenth Amendment to the United States Consti-
tution, see Appendix D.
C. 28 United States Code Annotated, Section 144, see
Appendix E.
D. Rule 7 of the Rules of the United States Supreme
Court, see Appendix F.
E. Rule 19 of the Rules of the United States Supreme
Court, see Appendix G.
4
Vv.
STATEMENT OF THE CASE
The basis for federal jurisdiction in the court of first
instance is diversity of citizenship pursuant to 28 USCA
§ 1332.
The opinion of the court below accurately summarized
the procedural aspects of the case. RCA Corporation
(RCA) entered into a contract with Fredonia Broad-
casting Corporation (Fredonia) to sell to Fredonia UHF
color television broadcasting equipment for the operation
of a television station in Lufkin, Texas. This station be-
gan broadcasting on July 30, 1969, and ceased operation
on March 18, 1970. Fredonia then sued RCA for fraud,
for breach of warranty, seeking actual and exemplary
damages totalling $2,650,000. RCA counterclaimed for
$506,333.80, the amount not yet paid for the equipment,
plus interest and attorneys’ fees. In the first trial, the
jury, in a special verdict, found in favor of Fredonia and
awarded $850,000 in actual damages and $150,000 in
exemplary damages. As for the counterclaim, the jury’s
response to the court’s question required the court to en-
ter judgment in favor of Fredonia.
RCA appealed, claiming error in the trial court’s treat-
ment of both the liability and the damages issues involved
in Fredonia’s claims. RCA also asserted that the district
court erred in not granting it a directed verdict on the
counterclaim. A panel of the Fifth Circuit found rever-
sible error in the instructions under which the district court
had submitted Fredonia’s claim of fraud to the jury and
remanded the case for a new trial. The panel also set aside
Fredonia’s judgment on the counterclaim.
5
On remand, Fredonia, following pretrial conferences
in which the liability issues were narrowed, proceeded
to trial the second time on its claim of fraud. The jury
again found for Fredonia, awarding $1,000,000 in act-
ual damages and $750,000 in exemplary damages. On
RCA’s counterclaim, the court awarded $511,182.11, the
amount due for the equipment on the date of Fredonia’s
default in payment and the costs awarded on the first
appeal.
On appeal from the second trial, a panel of the Fifth
Circuit again reversed the trial court, holding this time
that the trial judge should have disqualified himself. The
conclusion was apparently reached based on “findings
of fact” made by the appellate panel, even though no mo-
tion for disqualification of the trial judge, pursuant to the
required statutory procedure, was ever made by any
party at any stage in the proceedings.
VI.
ARGUMENT
A party seeking the recusal of a district judge is obliged
to follow the statute governing such procedure. Section
144 of 28 USCA provides as follows:
“Whenever a party to any proceeding in a district
court makes and files a timely and sufficient affi-
davit that the judge before whom the matter is pend-
ing has a personal bias or prejudice either against
him or in favor of any adverse party, such judge
shall proceed no further therein, but another judge
shall be assigned to hear such proceedings.
“The affidavit shall state the facts and the reasons
for the belief that bias or prejudice exists, and shall
6
be filed not less than ten days before the beginning
of the term at which the proceeding is to be heatd,
or good cause shall be shown for failure to file it
within such time. A party may file only one such
affidavit in any case. It shall be accompanied by a
certificate of counsel of record stating that it is made
in good faith.”
The Respondent RCA did not at any time file an affi-
davit pursuant to this procedure, and never at any time
requested permission to do so. Despite the absence of any
hearing before another judge, and despite the lack of
any affidavit from the Respondent RCA raising the mat-
ter of any disqualification, the Court of Appeals pro-
ceeded to make the following “findings:”
(a) “No matter how many assurances were given
by Fredonia’s counsel that the former law clerk
would withdraw from the case, we think it clear that
the propriety of continuing the proceedings before
this district judge had been irrevocably tainted, and
the impartiality of the judge had been reasonably
questioned.” (p. 2596)
(b) “What is offensive here is that the district
judge seemed to countenance the notion that the law
clerk could improperly use the specific knowledge
gained from working with him on this particular
case.” (p. 2597)
(c) “When, as here, a judge is confronted with a
situation where the appearance of impropriety is al-
ready established, a taint on the judicial system re-
mains as long as he presides over the case.” (p.
2598)
(d) “Because of the nature of the judge-law clerk
relationship, this trial judge invited serious questions
to his impartiality when he refused to recuse him-
self.” (p. 2598)
7
(e) “We hold that a reasonable man, viewing the
facts as they stood at the time of RCA’s motion,
would reasonably question this trial judge’s impar-
tiality and the integrity of the judicial system.” (p. .
2598)
In order to put in perspective the decision facing the
trial judge and the subsequent handling of that matter
by the appellate panel, the following points should be
observed:
First, the only motion filed by RCA concerning dis-
qualification was a motion directed to the disqualification
of the former law clerk or the law firm, and there was
no motion specifically directed to the disqualification of
the district judge. (Record at 289-90)
Second, counsel for RCA not only did not direct its
motion to disqualification of the district judge, he specifi-
cally stated on the record that the district judge was not
disqualified and specifically advised the district judge that
in his view, and in the view of his client, the district judge
was not disqualified. Counsel for RCA specifically ad-
vised the district judge as follows:
“RCA Corporation, the Defendant in this action,
Your Honor, moves for a declaration of disqualifica-
tion of Jamail and Gano to continue as Counsel in
the Fredonia case before the present Court. I would
like to say, Your Honor, that the motion is directed
to a disqualification of the firm of Counsel for the
Plaintiff in this case and not a disqualification of
the Court. J don’t believe that the Court is disquali-
fied in this case at all.” (emphasis added) (Record
at 289-90)
“I suggested earlier this morning during our in-
formal discussions that — not that this Court is in
8
any way disqualified and not that RCA Corporation
nor I as its Counsel has any question about the fair-
ness of this Court or any question of propriety on
the part of this Court, but that a solution to the
problem would be the referral of this case to another
judge of Jamail and Gano and Mr. Stein desire to
continue as Counsel in the case, ... .” (emphasis
added) (Record at 294)
Third, although one alternative to remedying the dis-
qualification of the law clerk or law firm suggested by
counsel for RCA was the recusal of the district judge, the
only rules or guidelines cited by counsel for RCA to the
district judge, and the only rules specifically in point
relied upon by the appellate panel in its decision, are the
rules pertaining to the disqualification of the law clerk,
and such rules in no way compel the conclusion under
the circumstances involved that either the law firm or
the district judge must be disqualified.
If the appellate panel is correct, and the Petitioner sub-
mits that it is not, the only remedy to be invoked in the
future will be recusal of the judge. This Court can easily
take judicial notice of the havoc that will follow in the
Southern District of Texas, Houston Division, or in any
other district with a large population and numerous dis-
trict judges. As each of two law clerks takes leave of one
of the eight or more district judges currently handling a
Houston Division docket, he will have to advise the firm
he joins of all cases he was handling as law clerk. If he
joins a large firm with a substantial federal practice, the
firm will immediately be disqualified from representing
any clients involved in those cases before that particular
judge. That judge will then recuse himself from those
cases and reassign them to another judge. This process
9
will then have to be repeated every year for each of two
law clerks for each of eight judges with respect to all cases
involved at the time of the clerk’s departure. Judge Jus-
tices’ solution, as approved by the local rules of the Su-
preme Court and the First Circuit, would appear to be
the better solution: withdrawal of participation by the
former law clerk, and not disqualification of the law
firm and trial judge.
Fourth, if counsel for RCA at any time reached the
conclusion, contrary to its assertions made in open court
and quoted above, that the district judge was in any way
biased or prejudiced, he could have filed an affidavit
specifically bringing this matter to the attention of the
district judge, pursuant to 28 USCA § 144. This procedure,
requiring a hearing by a different district judge, would
have clearly brought to the attention of the trial judge
in question that it was in fact his disqualification, and not
the disqualification of the law clerk or law firm, that was
being raised by counsel for RCA.
Finally, the district *udge in his order pertaining to
RCA’s motion for disqualification specifically acknowl-
edged that the former law clerk would no longer appear
as counsel for the Petitioner, and specifically acknowledged
not only the absence of any rule concerning such situa-
tion in the Fifth Circuit, but the relevance as well of the
rules concerning such situation in the Supreme Court
(see Appendix F) and First Circuit.
With respect to “findings” (a), (c), (d), and (e)
quoted from the appellate panel opinion above, the appel-
late court presumably finds as fact and holds as a matter
of law that the impartiality and the integrity of the dis-
trict judge had been reasonably questioned.
10
Although the appellate panel has obviously arrived at
a different conclusion from that of the district judge as
to the appropriate manner in which any impropriety, if
it did exist, should have been cured — i.e., recusal of
the judge rather than withdrawal of the law clerk —
the language employed by the appellate panel in reaching
its conclusion is calculated not to question the district
judge’s judgment, but his integrity. No lawyer involved
in this litigation has ever contended, and there is no evi-
dence in the record, that the district judge was actually
engaged in actions that compromised his integrity. The
case was tried to a jury; there were no facts for him to
find. The judge was called upon only to make rulings on
the law. There was no evidence whatsoever that this dis-
trict judge made his decisions on the law based on any
reasons Other than reasons that were honorable. The re-
versal of this judgment entered pursuant to a jury ver-
dict on the mere speculation, outside the record, as to the
lack of integrity or impartiality on the part of the trial
judge, without relying on any actual showing in the
record, or without requiring at a minimum that the dis-
trict judge be confronted directly with such allegations,
if any exist, by way of affidavit pursuant to the procedures
anticipated in 28 USCA § 144, is an abuse of the peroga-
tive of the appellate panel of the highest order. Such
action by the appellate panel violates the Petitioner’s
right to a fundamentally fair trial pursuant to statute and
pursuant to the Fifth and Fourteenth Amendments.
With respect to “finding” (b) quoted above, the appel-
late panel finds as fact that the district judge “seemed
to countenance the notion that the law clerk could im-
properly use the specific knowledge gained from work-
ing with him on this particular case.” (p. 2597) There
ll
is absolutely no evidence, and there is in fact no con-
tention made by counsel for RCA, that the former law
clerk ever engaged in any improper action, or that the
district judge countenanced such behavior after the time
the matter was first brought to his attention. The record
clearly discloses that when the potential conflict was
first brought to the attention of the district judge on
April 1, 1974, the district judge in fact encouraged coun-
sel for RCA to put everything on the record concerning
the entire matter of disqualification. (Record at 289)
After the motion was heard, the former law clerk with-
drew from any further participation in the case, and coun-
sel for RCA never contended at any time that the former
law clerk had engaged in any improper conduct. Counsel
for RCA advised the court as follows:
“We do not know of any impropriety on Mr.
Stein’s part. If there has been any such, we are
completely unaware of it.” (Record at 292)
More importantly, although the district judge wrote the
former law clerk after he had resumed his new duties
with the law firm for the Petitioner in this cause, there
is absolutely no evidence, and certainly no contention
made by counsel for RCA, that of the hundreds of cases
handled by a district judge during any given year, he had
any recollection that this particular law clerk had worked
on this particular case at the time he first directed a
letter to him. The former law clerk may have recalled
that he had worked on the case; but to assume as a
matter of law that the district judge should have also re-
called this former law clerk’s association in this particular
case is unrealistic and is grossly unfair to the district
judge. As the record clearly reflects, the participation of
12
the former law clerk involved only rather insignificant
correspondence regarding the setting of a hearing, and
the former law clerk withdrew from any further participa-
tion in this case once ue matter had been raised at the
hearing by counsel for RCA. Counsel for RCA never
did thereafter bring directly to the attention of the district
judge by way of the procedure provided in 28 USCA
§ 144 that it was in fact the disqualification of the district
judge it was seeking, and not the disqualification of either
the law clerk or the law firm.
With respect to the appellate panel’s opinion concern-
ing “The Remaining Element of the Fraud Claim” and
“The Proper Measure of Damages,” there is no holding
by the court that the errors, if any, in-the court’s charge
were harmful or that the errors, if any, resulted in an
erroneous verdict. The Petitioner, Fredonia Broadcast-
ing Corporation, Inc., respectfully submits that the charge
was not erroneous, that it was correctly based on the
opinion of this court in the prior panel’s decision, Fredonia
Broadcasting Corp., Inc. v. RCA Corp., 481 F.2d 781
(Sth Cir. 1973), and that if there were any errors in such
charge, they were not harmful and did not result in an
erroneous verdict.
WHEREFORE, PREMISES CONSIDERED, the Peti-
tioner prays that its Petition for a Writ of Certiorari to
the United States Court of Appeals for the Fifth Circuit
be in all things granted; that the decision of such appel-
late court be reversed and the decision of the district
court be in all things reinstated and affirmed; and that
Pieces: +0
13
this Court grant such other and further relief to which
Petitioner may show itself justly entitled.
Respectfully submitted,
JAMAIL & KOLIUS
JOSEPH D. JAMAIL
3300 One Allen Center
Houston, Texas 77002
(713) 651-3000
Attorneys for Petitioner
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the
foregoing instrument was forwarded to opposing counsel
on this ____ day of , 1978, by certified mail, re-
turn receipt requested.
15
APPENDIX A
OPINION OF COURT OF APPEALS; March 8, 1978
FREDONIA BROADCASTING CORPORATION,
INC.,
Plaintiff-Appellee,
Vv.
RCA CORPORATION,
Defendant-Appellant.
No. 75-2702.
United States Court of Appeals,
Fifth Circuit.
Action was brought by television station against seller
of broadcast equipment to recover damages arising out of
contract to purchase such equipment, and seller counter-
claimed for balance due on the equipment plus interest and
attorneys’ fees. Following remand, 481 F.2d 781, judg-
ment was entered in the United States District Court
for the Eastern District of Texas, at Tyler, William Wayne
Justice, J., in favor of plaintiff for actual and exempla-
tory damages, and in favor of defendant on the counter-
claim in the amount due for the equipment on the date
of the default, and defendant seller appealed. The Court
of Appeals, Tjoflat, Circuit Judge, held that: (1) once it
appeared that plaintiff might have an unfair advantage
in litigation because counsel included lawyer who had
been law clerk for the trial judge during the first trial
of the case, the trial judge had no alternative to disqualify-
ing himself; (2) this would not preclude law firm repre-
16
senting plaintiff from continuing to serve as counsel be-
fore another district judge; (3) in order to recover ex-
emplary damages plaintiff would have to prove at new
trial that when seller made representation about the
equipment, it knew they were false and made them “reck-
lessly” without any knowledge of their truth; (4) plain-
tiff’s compensatory damages, if otherwise recoverable,
should be limited to actual damages and certain conse-
quential damages, but not lost profits or sum spent to
purchase replacement equipment, and (5) seller had not
waived interest claim.
Reversed and remanded on piaintiff’s fraud claim and
vacated and remanded on defendant’s interest claim.
Appeal from the United States District Court for the
Eastern District of Texas.
Before TJOFLAT and HILL, Circuit Judges, and MA-
HON*, District Judge.
TJOFLAT, Circuit Judge.
This diversity case is before us for the second time.
Briefly, RCA Corporation (RCA) entered into a contract
with Fredonia Broadcasting Corporation (Fredonia) to
sell to Fredonia UHF color television broadcasting equip-
ment for the operation of a television station in Lufkin,
Texas. This station began broadcasting on July 30, 1969,
and ceased operation on March 18, 1970. Fredonia
then sued RCA for fraud, for breach of the sales contract,
and for breach of warranty, seeking actual and exemplary
damages totalling $2,650,000. RCA counterclaimed for
$506,333.80, the amount not yet paid for the equipment,
* District Judge of the Northern District of Texas, sitting by
designation.
BE OP le iy
17
plus interest and attorneys’ fees. The jury, in a special
verdict,’ found in favor of Fredonia and awarded $850,-
000 in actual damages and $50,000 in exemplary dam-
ages. As for the counterclaim, the jury’s response to the
court’s questions required the court to enter judgment in
favor of Fredonia.
RCA appealed, claiming error in the trial court’s
treatment of both the liability and the damages issues in-
volved in Fredonia’s claims. RCA also asserted that the
district court erred in not granting it a directed verdict
on the counterclaim. A panel of this court found reversi-
ble error in the instructions under which the district
court had submitted Fredonia’s claim of fraud to the
jury and remanded the case for a new trial.? The panel
also set aside Fredonia’s judgment on the counterclaim.’
1. Fed. R. Civ. P. 49(a). The questions propounded to the j
can be found in the appendix to the opinion in the prior q
Fredonia Broadcasting Corp., Inc. v. RCA Corp., 481 F.2d 781,
806-11 (Sth Cir. 1973).
2. The panel also found that many of the issues raised by
Fredonia’s multiple theories of recovery had been correctly resolved
against Fredonia. To paraphrase the prior panel’s holding, 481 F.2d
at 805-806: (1) Fredonia’s breach of contract claims were precluded
by the terms of the contract, which the jury found Fredonia had
aifirmed; (2) Fredonia’s breach of warranty claim was foreclosed
unless the district court found on remand that the contract terms
were unconscionable; (3) Fredonia’s claims of misrepresentation as
to date of delivery and degree of supervision were negated by the
jury’s finding that Fredonia’s reliance upon RCA’s misrepresenta-
tions was not justified; (4) Fredonia’s claim of misrepresentation
as to the merchantability of the equipment stands. The prior panel
determined that Fredonia could not seek damages for lost profits
under Texas law. Because Fredonia’s fraud claims stand independent-
ly of its precluded contract claims, the case was remanded to the
district court for determinations of the actual damages from the
fraud and the availability of exemplary damages.
_ 3. The merits of RCA’s counterclaim were submitted to the jury
in the form of one issue, raised by Fredonia’s defense to the counter-
18
On remand, Fredonia, following pretrial conferences in
which the liability issues were narrowed, proceeded to
trial on its claim of fraud. The jury again found for
Fredonia, awarding $1,000,000 in actual damages and
$750,000 in exemplary damages. On RCA’s counterclaim,
the court awarded $511,182.11, the amount due for the
equipment on the date of Fredonia’s default in payment
and the costs awarded on the first appeal. In this second
appeal, RCA seeks reversal of the judgment against it on
two principal grounds. The first stems from the trial
judge’s disposition of RCA’s pretrial motion for disqualifi-
cation of either Fredonia’s counsel or the trial judge from
further involvement in the case. The second concerns,
once again, the judge’s instructions to the jury on dam-
ages. With respect to the counterclaim, RCA asserts
error in the court’s failure to include in the judgment
an amount representing the interest accumulated on the
balance due on the equipment.*
I
The principal issue in this appeal involves the trial
judge’s course of action when faced with RCA’s oral mo-
tion, made at a pretrial hearing on April 1, 1974, for
the disqualification of either Fredonia’s counsel or the
judge. That motion formally brought to the trial judge’s
claim. That issue was whether RCA had coerced Fredonia into exe-
cuting the sales agreement and accompanying promissory notes. The
panel found the evidence to be insufficient to support that defense
and thus concluded that the trial court had erred in not summarily
resolving the issue in favor of RCA.
4. The indebtedness due on the equipment was evidenced by
several promissory notes. These notes, the validity of which are no
longer in contest, expressly provide for interest from the date of
default.
19
attention the appearance of impropriety created by the
participation in the case of one of his former law clerks,
an associate in the law firm representing Fredonia. Ap-
parently, the judge had already known of the former
law clerk’s association with Fredonia’s counsel because
the judge had previously written to him and RCA’s coun-
sel of record about a pending pretrial matter. The former
law clerk was present at the April 1 hearing. During the
hearing, it was pointed out that he had been on the
judge’s staff during the first trial of the action. RCA sug-
gested that the former law clerk had therefore acquired
intimate knowledge of the case and of the judge’s in-
clinations about the issues involved. RCA’s counsel con-
sequently questioned the propriety of allowing the case
to go forward without the withdrawal from the case of
either the trial judge or Fredonia’s counsel.
On April 26, 1974, the district judge denied RCA’s mo-
tion. In its order denying the motion, the court acknowl-
edged that the former law clerk, had, as law clerk,
“worked on the case when it was tried for the first time”
and that he had “participated in the recent proceedings
in the case,” but was of the opinion that this was not
a sufficient ground to disqualify Fredonia’s counsel from
further participation in the case. The order also recited
that the former law clerk, according to Fredonia’s coun-
sel, would “participate no further in this case.” The court
thus determined that the recusal of the trial judge would
serve no useful purpose.
[1] In deciding not to disqualify Fredonia’s counsel,
the district judge considered the ethical canons and the
rules promulgated by the Supreme Court and the Court
20
of Appeals for the First Circuit.° Although these rules
explicitly forbid a former law clerk from participating in
a case which was pending before the court during his
term of service, the district judge found the absence in
this Circuit of a formal rule of that nature to be im-
portant. This was an erroneous assumption by the district
judge. These rules are express safeguards of the integrity
of the judicial process, a concern of all courts. The district
judge correctly noted that the canons and rules do not
require disqualification of an entire law firm when the
propriety of a former law clerk’s participation in a
case is drawn in question. Under the facts presented
es \
5. The Code of Professional Responsibility provides as follows:
A lawyer should avoid even the appearance of impropriety.
ABA, Code of Professional Responsibility, Canon 9.
A lawyer shall not accept private employment in a matter
in which he had substantial responsibility while he was a public
employee.
ABA, Code of Professional Responsibility, DR 9-101(B).
The rules of the Supreme Court of the United States provide as
follows:
No one serving as a law clerk or secretary to a justice of
this court shall practice as an attorney or counsellor in any
court or before any agency of government while continuing
in that position; nor shall he after separating from that position
practice as an attorney or counsellor in this court until two
years have elapsed since such separation; mor shall he ever
participate, by way of any form of professional consultation
and assistance, in any case that was pending in this court
during the period that he held such position.
Rules of the United States Supreme Court, Rule 7 (emphasis
added).
The Courts of Appeals of the First Circuit and the District of
Columbia have similar rules. The appendix to RCA’s brief to this
court, containing correspondence from the clerks of the United
States Court of Appeals for the Tenth Circuit and various federal
district courts, indicates that numerous federal courts follow the
practice outlined in the Supreme Court’s rule although they have
not promulgated a formal rule. Brief of Appellant at A. 2 through
19. Fredonia does not dispute these representations.
ONS a sikine
21
in this case, however, we need not delve into the problems
involved in disqualifying a party’s counsel.
[2] The question here centers instead on the disqualifi- .
cation of the trial judge. Once it appeared that Fredonia
might have an unfair advantage in the litigation because
its counsel included a lawyer who had been exposed to
the trial judge’s innermost thoughts about the case, the
trial judge had no alternative to disqualifying himself. No
matter how many assurances were given by Fredonia’s
counsel that the former law clerk would withdraw from the
case, we think it clear that the propriety of continuing
the proceedings before this district judge had been irre-
vocably tainted, and the impartiality of the judge had been
reasonably questioned.
In order fully to appreciate the role of a law clerk and
to evaluate the taint of impropriety that occurred in this
case, we consider it appropriate to note briefly the role
of law clerks in our judicial system. Historically, the prac-
tice of employing federal judicial law clerks began in
1882 when Justice Horace Gray was appointed to the
Supreme Court. Justice Oliver Wendell Holmes, who
continued this practice when he succeeded Justice Gray,
termed law clerks “puisne judges.” Congress has pro-
vided that “district judges may appoint necessary law
clerks.” 28 U.S.C. § 752 (1970). The law clerk has no
statutorily defined duties but rather performs a broad
range of functions to assist his judge. A judicial clerk-
ship provides the fledgling lawyer insight into the law,
the judicial process, and the legal practice. The associa-
tion with law clerks is also valuable to the judge; in addi-
tion to relieving him of many clerical and administrative
chores, law clerks may serve as sounding boards for ideas,
22
often affording a different perspective, may perform re-
search, and may aid in drafting memoranda, orders and
opinions.°
This general knowledge and experience is an invaluable
asset to the law clerk and his subsequent utilization of
the knowledge is to be encouraged. See generally K. Lle-
wellyn, The Common Law Tradition: Deciding Appeals,
321-23 (1960). A law clerk, by virtue of his position,
is obviously privy to his judge’s thoughts in a way that
the parties cannot be. We are not holding that a former
law clerk may never practice before the judge for whom
he clerked. Such a holding would clearly be unwarranted
and would cast an undue burden on the law clerk. More-
over, it would hinder the courts in securing the best
qualified people to serve as law clerks. What is offensive
here is thaf the district judge seemed to countenance the
notion that the law clerk could improperly use the specific
knowledge gained from working with him on this par-
ticular case. The impartiality of a trial judge is seriously
open to question when the judge refuses to recuse him-
self after being made aware that his former law clerk
is actively involved as counsel for a party in a case in
which the law cleark participated during his clerkship.
In addition to the possibility that Fredonia might have
an unfair advantage because of its counsel’s former as-
sociation with the trial judge, we are concerned with the
6. We note, as did RCA in its brief to this court, that the
problem is exacerbated under the facts here, where the prior remand
was based on trial court error in fashioning the law in this case.
Although the record does not disclose which facets of the first trial
were participated in by the former law clerk, one could readily
infer that he had been involved in drafting the jury instructions
which the prior panel found to be erroneous.
P
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23
“purity of the judicial process and its institutions.” Kin-
near-Weed Corp. v. Humble Oil & Refining Co., 403 F.2d
437, 439-40 (Sth Cir. 1968), cert. denied, 404 U.S. 941,
92 S.Ct. 285, 30 L.Ed.2d 255 (1971). The Supreme Court
has repeatedly stated that “justice must satisfy the appear-
ance of justice.” Offutt v. United States, 348 U.S. 11,
14, 75 S.Ct. 11, 13, 99 L.Ed. 11 (1954); accord, In re
Marchison, 349 U.S. 133, 136, 75 S.Ct. 623, 625, 99
L.Ed. 942 (1955); Tumey v. Ohio, 273 U.S. 510, 532,
47 S.Ct. 437, 444, 71 L.Ed. 749 (1927). The Code of
Judicial Conduct for United States Judges, approved by
the Judicial Conference of the United States, expresses
concern that the judicial system be protected from the
appearance of impropriety in the eyes of both the parties
and the general public.
A judge should avoid impropriety and the appearance
of impropriety in all his activities.
A. A judge . . . should conduct himself at all
times in a manner that promotes public confidence
in the integrity and impartiality of the judiciary.
Code of Judicial Conduct for United States Judges, Canon
2 & 2 A. The Commentary to Canon 2 states that
[p]ublic confidence in the judiciary is eroded by
irresponsible or improper conduct by judges. A judge
must avoid all impropriety and appearance of im-
propriety.
When, as here, a judge is confronted with a situation
where the appearance of impropriety is already estab-
lished, a taint on the judicial system remains as long
as he presides over the case. This court, moreover,
24
through the exercise of our supervisory powers, can pro-
hibit any practice which threatens the judicial process
and its integrity. United States v. Columbia Broadcast-
ing System, Inc., 497 F.2d 107, 109-10 (Sth Cir. 1974).
Because of the nature of the judge-law clerk relation-
ship, this trial judge invited serious questions to his im-
partiality when he refused to recuse himself. Congress, in
amending the statutory provision for the disqualification
of judges, adopted the language proposed in the American
Bar Association’s Canons for Judicial Conduct 3C(1)'
with the exception of making the disqualification manda-
tory by substituting the word “shall” for the ABA’s
“should.”* The statute provides, in part, “A judge shall
disqualify himself in a proceeding in which his im-
partiality might reasonably be questioned.” 28 U.S.C.
§ 455(a) (Supp. 1977). We have held this statutory
provision to be applicable in cases where, as here, the
effective date of the statute was after the commencement
of the trial but prior to the full submission of the issue
on appeal. Parrish v. Board of Commissioners of Alabama
State Bar, 524 F.2d 98, 102 (Sth Cir. 1975) (en banc);
Davis v. Board of School Commissioners, 517 F.2d 1044
(Sth Cir. 1975), cert. denied, 425 U.S. 944, 96 S.Ct.
1685, 48 L.Ed.2d 188 (1976).°
7. In amending 28 U.S.C. §455, Congress also intended to
codify the standards of Canon 2, discussed supra in the text. See
Overseas Private Inv. Corp. v. Anaconda Co., 418 F.Supp. 107, 111
n. 6 (D.D.C, 1976).
8. The Code of Judicial Conduct for United States Judges, ap-
proved by the Judicial Conference of the United States, also employs
the mandatory standard for disqualification. Code of Judicial Conduct
for United States Judges, Canon 3 C.
9. Even under the standards in effect at the time the district
judge refused to recuse himself, we would reach the same result.
25
Section 455(a) is a general safeguard of the appear-
ance of impartiality and establishes a “reasonable factual
basis — reasonable man” standard. Parrish, 524 F.2d at
103. We hold that a reasonable man, viewing the facts
as they stood at the time of RCA’s motion, would rea-
sonably question this trial judge’s impartiality and the
integrity of the judicial system. The district judge could
not remain in the case. Consequently, we find that we
must remand this case once again, this time for a trial
before a different judge.
[3] We note here that nothing in the record before
us would preclude the law firm representing Fredonia
from continuing to serve as counsel before another
district judge. Disqualification of counsel is a drastic mea-
sure and conceivably could have due process implications,
especially when counsel has served throughout proceedings
as involved and lengthy as these and the client’s invest-
ment in legal representation is substantial.
Il
The record of the second trial discloses some confusion
concerning the effect of the prior panel opinion. For the
The old standard, 28 U.S.C. §455 (1970) (prior to the 1974
amendment), left the decision whether recusal was required to the
discretion of the judge. In this circuit, there was a presumption
against disqualification. See, Edwards v. United States, 334 F.2d
360 (Sth Cir. 1964), cert. denied, 379 U.S. 1000, 85 S.Ct. 721, 13
L.Ed.2d 702 (1965) (judges have a “duty to sit”). Although few
district judges were reversed under the old standard, an appellate
court always has the inherent power to promote justice by holding
improper a trial judge’s failure to disqualify himself, Texaco, Inc.
v. Chandler, 354 F.2d 655 (10th Cir. 1965), cert. denied, 383 U.S.
936, 86 S.Ct. 1066, 15 L.Ed.2d 853 (1966), and an appellate court
could reverse for an abuse of discretion. See Note, Disqualification
of Judges and Justices in the Federal Courts, 86 Harv. L. Rev. 736,
740 (1973).
26
benefit of the parties and the court on remand, and to
expedite the anticipated third trial, we shall set forth
what must be determined on remand. For the sake of
clarity, we will discuss the element of Fredonia’s fraud
claim remaining to be tried; then we will address the
proper measure of damages. In many respects these mat-
ters are intertwined.
A. The Remaining Element of the Fraud Claim.
Following the remand of this case for a new trial,
Fredonia amended its complaint, thus modifying its theory
of recovery. By the conclusion of the final pretrial hearing,
the liability issues had been narrowed to a claim of
fraud, that RCA had misrepresented the merchantability
of the equipment sold to Fredonia. The nature of this
claim under Texas law requires further explication.
[4] The prior panel opinion held that Fredonia’s claims
of fraud were independent of its contract claims and that
the jury’s finding that RCA had misrepresented the mer-
chantability of its equipment was valid. The type of fraud
at issue in this case is fraud in the inducement to con-
tract. Two categories of fraudulent inducement to con-
tract are recognized in Texas: (1) “misrepresentation”
of a past or existing fact, sometimes called “false state-
ment” and (2) “false promise,” which may be described
as an intentional tort and is sometimes simply termed
“fraud.” Custom Leasing, Inc. v. Texas Bank & Trust
Co., 516 S.W.2d 138, 142-43 (Tex. 1974) (adopting the
Restatement of Restitution § 8, Fraud and Misrepresenta-
tion (1957) ); International Harvester Co. v. Kesey, 487
S.W.2d 799, 803 (Tex.Civ.App.—El Paso 1972), rev'd
on other grounds, 507 S.W.2d 195 (Tex. 1974).
27
[5] In order to recover damages for a claim of misrep-
resentation, it is necessary to show that a material mis-
representation was made, that the speaker made it with
the intention that it should be acted upon by the plaintiff,
and that the plaintiff acted in reliance upon it and there-
by suffered some actual injury. E. g., Custom Leasing, Inc.,
516 S.W.2d at 143; Traylor v. Gray, 547 S.W.2d 644,
650 (Tex.Civ.App.—Corpus Christi 1977). Fredonia
has already proved this claim as to the merchantability
of RCA’s equipment. 481 F.2d at 795-96, 806. It was not
necessary, in proving its case of misrepresentation, for
Fredonia to show that RCA’s representatives knew that
the questioned representations were false when they
made them. See Baker v. Moody, 219 F.2d 368, 371 (Sth
Cir. 1955); Griffin v. Phillips, 542 S.W.2d 432, 434 (Tex.
Civ.App.—Eastland 1976, writ ref'd n.r.e.); Custom
Leasing, Inc., 516 S.W.2d at 144; Success Motivation
Institute, Inc. v. Lawlis, 503 S.W.2d 864, 870 (Tex.Civ.
App.—Houston [1st Dist.] 1973, writ ref’d ua.r.e.).
[6-8] Exemplary, or punitive damages cannot be re-
covered for simple misrepresentation or false statements;
it is necessary to demonstrate the speaker’s knowledge
of the falsity of the representation to justify an award
of such damages. Baker, 219 F.2d at 371; Griffin, 542
S.W.2d at 434; Lawlis, 503 S.W.2d at 870. Under Texas
law, the mere failure to perform a promise is not itself
any evidence of an intent not to perform. Turner v. Bris-
coe, 141 Tex. 197, 171 S.W.2d 118, 119 (1943); Pre-
cision Motors v. Cornish, 413 S.W.2d 752, 756 (Tex.
Civ. App.—Dallas 1967, writ ref’d n.r.e.). It is this addi-
tional element that distinguishes misrepresentation, from
the second category of fraudulent inducement to contract,
“false promise.” False promise is an intentional tort,
28
requiring proof of intent not to perform the promise at
the time it was made. McDaniel v. Pettigrew, 536 S.W.2d
611, 616 (Tex.Civ.App.—Dallas 1976, writ ref'd n.r.e.).
Susanoil, inc. v. Continental Oil Co., 519 S.W.2d 230,
236 (Tex.Civ.App.—San Antonio 1975, writ ref’d n.r.e.).
Texas jurisprudence makes it clear that intent to de-
fraud is the gist of the tort of false promise. E. g., Collins
v. McCombs, 511 S.W.2d 745, 747 (Tex.Civ.App.—San
Antonio 1974, writ ref’d n.r.e.); Susanoil, Inc., 519 S.W.
2d at 236. Therefore, in order to recover exemplary
damages Fredonia must prove at the new trial that when
RCA made the representations about the equipment,
RCA knew they were false or made them “reckless-
ly”’® without any knowledge of their truth; that is, that at
the time RCA made them, RCA had the intent not to
fulfill the promise. Custom Leasing, Inc., 516 S.W.2d at
142-43; Susanoil, 519 S.W.2d at 235."
10. In Texas “recklessly” indicates a higher standard than negli-
gence in this context.
Even though the Court decisions and text writers use the
word “reckless” in support of an award of exemplary damages,
the measure of such conduct to support such an award must
involve conduct of an unconscionable nature, such as, malice,
fraud, oppression, bad faith, knowledge of the falsity, intention
to defraud, conscious indifference or wanton disregard of the
rights of others... .
International Harvester Co. v. Kesey, 487 S.W.2d 799, 804-05 (Tex.
Civ. App.—El Paso 1972, rev’d om other grounds, 507 S.W.2d 195
(Tex. 1974) (citations omitted).
11. The holding of the prior panel opinion is summarized in
481 F.2d at 805-06. The distinction between the two categories of
fraudulent inducement to contract, that is misrepresentation and
false promise with its additional element of intent, is implicit in
this summary. Compare holding three with holding four, id. at 806.
The panel stated that “Fredonia, on remand, can seek exemplary
damages if fraud is proven.” Jd. (Emphasis added). Insofar as there
are any statements in the prior opinion which are inconsistent with
the holding, those statements cannot stand.
-———
ms ane tee - whee,
29
B. The Proper Measure of Damages.
[9, 10] RCA correctly claims error in the trial court’s
instructions, in the second trial, on the measurement of
damages. Because of the confusion that apparently ex-
ists on the part of both parties, we find it necessary to
summarize the Texas law on damages in this type of
suit. In Texas, the common law measure of damages,
when the defrauded party has not sought recission of
the contract, is the value given for the goods less the fair
market value of the goods received. E. g., Sobel v. Jenkins,
477 S.W.2d 863, 868 (Tex. 1972); Morriss-Buick v. Pon-
drom, 131 Tex. 98, 113 S.W.2d 889, 890 (1938). Tray-
lor v. Gray, 547 $.W.2d 644, 656 (Tex.Civ.App.—Cor-
pus Christi 1977). Our review of Texas law shows that
consequential damages are also recoverable in actions for
fraud in the inducement to contract. Success Motivation
Institute, Inc. v. Lawlis, 503 S.W.2d 864, 866 (Tex.Civ.
App.—Houston (lst Dist.) 1973, writ ref’d n.r.e.);
El Paso Development Co. v. Ravel, 339 S.W.2d 360, 363-
64 (Tex.Civ.App.—El Paso 1960, writ ref’d n.r.e.). See
also, International Harvester Co. v. Kesey, 507 S.W.2d
195 (Tex. 1974), rev’g 487 S.W.2d 799 (Tex.Civ.App.—
El Paso 1972).
{11, 12] On retrial Fredonia may therefore recover as
consequential damages pecuniary losses that resulted di-
rectly, naturally, and proximately from the fraud. These
losses must be ascertained with reasonable certainty and
cannot represent fictitious, conjectural, speculative, or
contingent values. As the prior panel held in its opinion,
481 F.2d at 802-04, Fredonia is not entitled to recover
losts profits because “prospective profits from a new en-
terprise which has no history of profits are too remote
30
and speculative to be included in compensatory damages.”
Id. at 803 (quoting Southwest Bank & Trust Co. v.
Executive Sportsman Ass'n, 477 §.W.2d 920, 929 (Tex.
Civ.App.—Dallas 1972, writ ref’d n.r.e.) ). Fredonia’s
damages, if otherwise recoverable, should be limited as
follows:
(1) Actual damages for the unmerchantable RCA
equipment, i. e., the amount Fredonia paid, or obligated
itself to pay, for the equipment less the fair market
value of that equipment.
(2) Fredonia cannot recover the sums spent to pur-
chase from a different manufacturer items to replace
the RCA equipment. To allow recovery for this expendi-
ture, in addition to the actual damages relating to the un-
merchantable equipment, would doubly compensate Fre-
donia.
(3) The proper measure of consequential damages
for the loss of the FCC permit and the CBS affiliation
is the money Fredonia expended to obtain them. Allow-
ing Fredonia to recover their “value” is actually allowing
recovery for lost profits. As discussed above, such profits
would be purely speculative since Fredonia was never a
going concern.
(4) RCA should not be held accountable for the entire
cost of the television station structure, the wiring of the
station, and the engineering fees to supervise the con-
struction of the building. However, any sums spent by °
Fredonia to modify the building or wiring to accept re-
placement equipment obtained from other manufacturers
are recoverable from RCA as consequential damages.
31
In addition to the actual and consequential damages
we have outlined above, Fredonia may recover exemp-
lary damages if Fredonia proves that RCA acted from
the outset with the intent not to fulfill its promises. See
part II A, supra.
Il
{13] With regard to the judgment on RCA’s counter-
claim, our examination of the record convinces us that the
district court erred in determining as a matter of law.
that RCA had waived its claim to the interest by its
procedural conduct at the second trial. The counter-
claim and, therefore the interest, were not in issue at
trial, and no reference during that proceeding to the debt
due on the equipment could be deemed as a waiver by
RCA of the interest stipulated in the notes. On remand,
the district court must determine the merits of RCA’s
claim for the additional interest on the notes from the
date of default. ,
This case is REVERSED and REMANDED for fur-
ther proceedings, consistent with this opinion, on Fre-
donia’s fraud claim. The judgment of the district court on
RCA’s counterclaim is VACATED and REMANDED for
further proceedings on RCA’s interest claim. It is further
ordered that this case be assigned on remand to a different
district judge for all further proceedings.
32
APPENDIX B
OPINION OF COURT OF APPEALS; July 2, 1973
FREDONIA BROADCASTING CORPORATION, INC.,
Plaintiff-Appellee,
Vv.
RCA CORPORATION,
Defendant-Appellant.
No. 72-2341.
United States Court of Appeals,
Fifth Circuit.
July 2, 1973.
Rehearing Denied Nov. 2, 1973.
Action was brought by television station against seller
of equipment to recover damages arising out of contract
to purchase such equipment. The United States District
Court for the Eastern District of Texas, at Tyler, William
Wayne Justice, J., entered a judgment awarding damages
to the buyer station and adverse to the seller on its counter-
claim for damages and the seller appealed. The Court
of Appeals, Coleman, Circuit Judge, held that the buyer’s
breach of contract claims were precluded by terms of.
contract which jury found that buyer had affirmed, in-
struction on repudiation was erroneous and that findings
that seller made misrepresentations as to dates of delivery
and degree of installation supervision were negated by
jury’s findings that reliance was not justified.
ee ee
33
Reversed and remanded with instructions.
Gewin, Circuit Judge, filed an opinion concurring in
the result.
James E. Coleman, Jr., Marvin S. Sloman, Earl F. Hale,
Jr., Dallas, Tex., for defendant-appellant.
_.. John Gano, Houston, Tex., Ben Johnson, Dallas, Tex.,
for plaintiff-appellee.
Before WISDOM, GEWIN and COLEMAN, ° Circuit
Judges.
COLEMAN, Circuit Judge:
RCA contracted to sell UHF color television broad-
casting equipment to Fredonia Broadcasting Corporation
for the operation of television station, KAEC-TV, in Luf-
kin, Texas. The station was designated as Channel 19 and
‘was to cover the Lufkin and Nacogdoches area. Fre-
donia’s operation failed. The station began broadcasting
on July 30, 1969, and ceased operation on March 18,
1970.
Fredonia sued’ RCA for fraud, for breach of sales
contract, and for breach of warranty. Fredonia sought
actual and punitive damages in the total amount of $2,-
650,000. RCA counterclaimed for $605,493.80 for the
value of the broadcasting equipment delivered.
The District Court submitted the case to the jury under
Rule 49(a), Fed.R.Civ.P.* The jury was asked to answer
1. RCA properly removed the case to the United States District
Court for the Eastern District of Texas under 28 U.S.C. § 1441.
2. Rule 49, Fed. R. Civ. P., states as follows:
(a) Special Verdicts. The court may require a jury to re
turn only a special verdict in the form of a special written
34
18 fact questions and two damages questions. The jury
found in favor of Fredonia and awarded $850,000 for
actual damages and $150,000 for exemplary damages.
finding upon each issue of fact. In that event the court
may submit to the jury written questions susceptible of
categorical or other brief answer or may submit written
forms of the several special findings which might properly
be made under the pleadings and evidence; or it may
use such other method of submitting the issues and requiring
the written findings thereon as it deems most appropriate. The
court shall give to the jury such explanation and instruction
concerning the matter thus submitted as may be necessary to
enable the jury to make its findings upon each issue. If in so
doing the court omits any issue of fact raised by the pleadings
or by the evidence, each party waives his right to a trial by
jury of the issue so omitted unless before the jury retires he
demands its submission to the jury. As to an issue omitted
without such demand the court may make a finding; or, if it
fails to do so, it shall be deemed to have made a finding in
accord with the judgment on the special verdict.
(b) General Verdict Accompanied by Answer to Interroga-
tories. The court may submit to the jury, together with ap-
propriate forms for a general verdict, written interrogatories
upon one or more issues of fact the decision of which is neces-
sary to a verdict. The court shall give such explanation or
instruction as tay be necessary to enable the jury both to make
answers to the interrogatories and to render a general verdict,
and the court shall direct the jury both to make written answers
and to render a general verdict. When the general verdict and
the answers are harmonious, the appropriate judgment upon
the verdict and answers shall be entered pursuant to Rule 58.
When the answers are consistent with each other but one or
more is inconsistent with the general verdict, judgment may
be entered pursuant to Rule 58 in accordance with the answers,
notwithstanding the general verdict, or the court may return
the jury for further consideration of its answers and verdict
or may order a new trial. When the answers are inconsistent
with each other and one or more is likewise inconsistent with
the general verdict, judgment shall not be entered, but the
court shall return the jury for further consideration of its
answers and verdict or shall order a new trial.
This case is under Rule 49(a) and not 49(b). The District Court
erroneously called the “questions” under Rule 49(a) “interrogatories”.
In this opinion we shall use the term “question”. All the “questions”
a Nee hee
35
On Appeal, RCA raises numerous issues concerning the
findings as to both liability and damages.
We reverse and remand for a new trial on both issues.
THE FACTS
On January 15, 1969, RCA and several other sup-
pliers of broadcast equipment made presentations to a
committee of Fredonia’s Board of Directors, composed
of Dr. Basil Atkinson, chairman of the Board; Al Cudlipp,
president; and Edward McFarland, attorney for Fre-
donia. William Carr, a consulting engineer for Fredonia,
was also present. RCA’s written proposal, titled Broadcast
Equipment Proposal, was explained by its field salesman,
George McClanathan, and by its area sales manager, Dana
Pratt. At this meeting Fredonia did not make any final
decision as to which supplier to choose, but decided to
ask for another meeting with RCA.
Cudlipp called McClanathan and asked him to come
to Lufkin for a final negotiation session. This meeting
was held on February 6, 1969. Atkinson, Cudlipp, and
McFarland were present on behalf of Fredonia.
At these meetings Fredonia claims that RCA made sev-
eral oral representations which induced it to enter into a
contract with RCA.
Fredonia claims that RCA represented (1) it would de-
liver the equipment in time for Fredonia to meet the on-the-
asked the jury by the District Court are set out fully in Appendix
A. The term “interrogatory” is used in Appendix A to avoid con-
fusion when there are cross-references. Throughout the remainder
of this opinion all “questions” will not be footnoted and the reader
is directed to refer to Appendix A.
_ Furthermore, in this case, no general verdict was requested of the
jury or entered by it.
36
air date of June 1, 1969; (2) it would supervise the installa-
tion; and (3) it would deliver used and new equipment
which would run and operate properly and would be suit-
able for the purposes for which it was intended. McFar-
land, Fredonia’s attorney, testified that he relied on these
representations in advising his client to enter into a con-
tract with RCA. Cudlipp also testified that he relied on
these representations.
These oral representations conflict with RCA’s written
broadcast proposal since that written proposal states: (1)
RCA would not be liable in damages for delays in de-
livery and the buyer could cancel if delivery was not
made within the date specified, (2) RCA would not
assume responsibility for the installation and operation
of equipment if the buyer requested RCA to furnish
a representative to supervise the installation, and (3)
RCA’s warranty for the equipment would not include
liability for damages of any kind connected with the use
of the equipment or its failure to function properly. RCA’s
written broadcast proposal also states that:
{the] proposal including any modifications or addi-
tions agreed to in writing by the parties prior to ac-
ceptance by RCA expresses the entire understanding
of the parties . . . and no agreement modifying or
supplementing the terms of this proposal shall be
valid unless in writing duly signed by the parties.
The evidence is conflicting as to whether RCA made
misrepresentations as to the date of delivery, degree of
supervision, and quality of the equipment and as to
whether Fredonia relied on these misrepresentations.
Both Cudlipp and McFarland testified that McClanathan
37
promised on February 6, 1969, that delivery could be
arranged so that Fredonia could meet its air date of June
1, 1969. McClanathan and Pratt both knew that Fre-
donja was attempting to meet an air date of June 1,
1969. An internal memorandum of RCA, titled Contract
Data Sheet, which informed RCA’s internal organization
of the expected air date, stated that the air date for the
new station was estimated to be May 15, 1969. This docu-
ment also stated that the required delivery date for
studio equipment was April 1, 1969, and the required
delivery date for the transmitter and the antenna was
May 1, 1969.
Other evidence was to the contrary and showed that
Fredonia did not expect to be on the air by June 1, 1969.
William Carr, Fredonia’s consulting engineer, testified for
the defendant that he advised his client that July 1, 1969,
was a reasonable air date. Carr also testified that Fre-
donia was delayed because Fredonia did not supply
enough personnel to work at installing the equipment.
The building to house the station’s equipment was not
completely finished on May 9, 1969. A letter from Fre-
donia’s Washington attorneys to the FCC states that the
anticipated air date was July 1, 1969. McClanathan’s
representations as to a delivery date can also be inter-
preted to mean that RCA would ship the equipment
within 120 days of Fredonia’s acceptance on February
6, 1969, and not that Fredonia would be on the air 120
days from February 6, 1969.
Finally, the evidence shows that permission to construct
microwave towers, which were. essential for the broad-
casting of network programs, was not received until June
5, 1969.
38
There was evidence that RCA represented through its
agents that it would supervise installation of the equip-
ment, but there was also other evidence which showed that
Fredonia intended to rely on Carr to supervise the installa-
tion. Carr testified that under the terms of his consulting
contract he was to be responsible for the installation of the
equipment. Correspondence between Carr and Cudlipp
corroborates Carr’s responsibility. Cudlipp also testified
that RCA’s Barbour did a lot of work Cudlipp expected
Carr to do. Cudlipp also testified that he felt Carr was not
at the station as often as he should have been.
While there was evidence to show that RCA repre-
sented to deliver operable and suitable equipment and did
not do so, there was also evidence to show that Fredonia,
itself, might have been at fault in causing the equipment
not to operate. Barbour, an RCA employee, testified that
when he arrived at the station on June 4, 1969, he found
that there were errors made in the installation of the equip-
ment. Barbour also testified that Fredonia experienced
problems that were normally to be expected in the starting
up of a television station. Other evidence showed that
Cudlipp wrote a letter stating that he had a good operating
crew, but that they were not very gocd in the maintenance
of the equipment. RCA also introduced testimony that
showed it had given Fredonia credit for two inoperable
cameras that RCA had delivered. Finally, after RCA’s
Parker had conducted a proof of performance on the
transmitter, Cudlipp wrote Barbour that for Fredonia he
accepted the proof of performance. This evidence tended
to show that RCA delivered operable equipment and that
any breakdowns in broadcast transmission was the fault of
Fredonia.
39
The parties disagree as to when a binding contract was
made between the parties and disagree as to which docu-
ments constituted the contract.
At the February 6, 1969 meeting Fredonia was not
satisfied with the exact written terms of RCA’s written
broadcast approval and requested three changes. McClan-
athan, RCA’s salesman, said that while he did not have
the authority to bind RCA to any revision, he could put
Fredonia in touch by telephone with Edwin Tracy, RCA’s
Division Vice-President of Broadcast Sales, who had au-
thority to accept and approve changes. The three changes
Fredonia requested concerned (1) additions and dele-
tions to the proposal, (2) freight charges, and (3) method
of down-payment. Tracy agreed to these changes for RCA.
RCA contends that these three changes were the only
ones made to the written agreement.
McFarland at this meeting [according to his testimony]
was concerned that RCA’s broadcast proposal did not bind
RCA. McFarland, therefore, prepared a letter of accept-
ance, dated February 6, 1969, which stated that Fredonia
accepted RCA’s broadcast proposal at a package price of
$471,967.00. Fredonia claims that the letter together with
the broadcast proposal constitute the contract between
the parties. This acceptance letter enumerated the three
changes that Fredonia wanted RCA to make in the broad-
cast proposal.
The letter also stated specifically that a down-payment
of 25% of the total price would be made. This 25%
down-payment was to be paid in part as follows: (1) $25,-
000 paid immediately, (2) $50,000 paid on notification
the transmitter was ready, and (3) the remainder paid
thirty days thereafter. Fredonia sent to RCA’s office at
40
Camden, New Jersey, the $25,000 on February 6, 1969.
RCA accepted the check and deposited it to its bank ac-
count. The February 6, 1969 acceptance letter also detailed
the arrangement for the payment of notes to cover the
balance of the amount due.
McFarland testified that it was agreed with Tracy that
this acceptance letter consummated a contract between
RCA and Fredonia. Tracy testified that an acceptance
was not given since it was RCA’s procedure that a con-
tract would be made only when approved by RCA at
its home office in Camden, New Jersey. Fredonia’s re-
liance on the acceptance letter to form a binding contract
conflicts with the procedure specified in RCA’s broadcast
proposal which states that the broadcast proposal “shall
not be binding upon RCA until accepted by it in writing
at Camden, New Jersey” and that “use [receipt] of a
downpayment shall not constitute an acceptance”. Mc-
farland testified that he relied on Tracy’s representation
that a binding contract had been made.
McFarland admitted that he knew that RCA would
require the signing of a conditional sales contract which
would incorporate a security agreement. McFarland also
testified that he felt that such an arrangement was pro-
vided for in the February 6, 1969, acceptance letter since
that letter details an arrangement for the payment of notes.
The broadcast proposal also anticipates that a conditional
sales agreement will be entered into since it states that
if the buyer desires deferred payment terms the buyer
“agrees to arrange for RCA’s standard form of deferred
payment contract and related instruments to be signed
prior to any shipment”.
— a
41
Cudlipp received the conditional sales agreement on
April 14, 1969, and executed the agreement on April 20,
1969. RCA approved the Conditional Sales Agreement
on April 28, 1969. RCA contends that only then was a
final binding contract concluded between the parties. The
terms of Conditional Sales Agreement are exactly the
same as the January 15, 1969, broadcast proposal except
thrat the later conditional sales agreement gives RCA
a security interest in the equipment.
Fredonia contends that it was coerced into signing the
conditional sales agreement because RCA would not ship
any equipment until such an agreement was signed. The
evidence shows that RCA withheld delivery until the con-
ditional sales agreement was signed by Fredonia. An
RCA interoffice memo verifies that no shipment was
to be made until the conditional sales agreement was
signed. No equipment was delivered until after the date
Fredonia signed the conditional sales agreement. The first
shipment of equipment was received at the end of April,
1969, and was not enough to get Fredonia on the air.
It was only in the beginning of July, 1969, that enough
equipment was received to put the station on the air.
Fredonia asserts that the delay in the shipment of the
equipment caused Fredonia to miss its scheduled air date
and thereby damaged Fredonia by the loss of advertising
revenues.
Fredonia introduced into evidence also instances where
RCA delivered defective equipment. Fredonia intended to
show by such evidence that such inoperabie equipment
caused the station to broadcast on an intermittent basis
and thereby lose advertising revenues.
42
The evidence showed that RCA did deliver three differ-
ent cameras which were inoperable. RCA sent Fredonia
a TK-42 camera, costing $27,000, which John Barbour,
an employee of RCA’s project management department,
testified was inoperable. The testimony of John Cassidy,
RCA’s Manager of Project Management and Administra-
tive Services corroborates Barbour’s account. RCA also
sent Fredonia a TK-26 camera which Barbour admitted
had been subject to cannibalization. An RCA internal
memorandum showed that this camera was intended to
be scrapped by RCA and not sold. A second internal RCA
memorandum chows that RCA considered the TK-26
camera not fit for resale or refurbishing after Fredonia
returned the camera to RCA. A TP-6 projector RCA sold
Fredonia was also intended to be scrapped as shown by an
RCA internal memorandum. RCA contends that the TK-
26 camera and the TP-6 projector were repaired before
the station went on the air and did not cause a delay.
Fredonia introduced other evidence to show that RCA
delivered defective equipment. Barbour testified that a
Klystron tube in the transmitter which was furnished by
RCA operated at reduced power. A Klystron tube is a
power source and produces a great increase in power
sufficient to cause the antenna system to radiate. Reduc-
tion in power of the Klystron tube causes the area re-
ceiving the station’s signal to be reduced. Barbour fur-
ther testified that the de-icer on top of the television tower
did not work properly. A malfunctioning de-icer requires
the station to reduce its power because otherwise other
equipment might be damaged. De-icers are used so that
the station can always operate at maximum power. RCA
also furnished a u-bend connector on the transmitter that
os Jas ek Re
DOT ee er.
43
did not work and required replacement. Lee Roy Frank-
lin an engineer for Fredonia, testified that the station
could not broadcast on its second day of operation be-
cause of a shorted capacitor on the blower motor inside
the transmitter. Franklin and another Fredonia engineer,
James Kirkland, enumerated other instances when broad-
cast equipment broke down.
* Cudlipp and McFarland repeatedly testified that the
delay of the initial broadcast date and interruptions in
broadcast service damaged the station because advertising
revenues were lost. Employees of RCA who made repre-
sentations as to dates RCA would deliver equipment and
as to the quality of the equipment knew that delay as to
the initial broadcast date and intermittent broadcast
operation would cause Fredonia to be damaged. Fredonia
never introduced evidence data showing exactly on what
dates broadcasting service was interrupted so that adver-
tising revenue was lost. Fredonia also never introduced
any financial analysis to concretely detail advertising reve-
nue that it allegedly lost. However, Norman Fischer, a
broadcasting consultant, did testify as an expert witness
for Fredonia. Over RCA’s objection, Fischer gave his
opinion as to the value of the station at various points
in time as follows: (1) value of the station just before
it went off the air taking in account its future potential—
$2,420,000; (2) value of the station just before it went
off the air without taking into account its future potential
—$850,000; (3) value of the station just after it went
off the air—$525,000; and (4) value of the station just
after it went off the air minus its CBS affiliation—$450,-
000.
44
THE LAW
1. Breach of Contract
[1] In its amended complaint Fredonia asserted three
different theories.* of relief: fraud, breach of contract,
and breach of warranty. Of course, under Rule 8(e),
Fed.R.Civ.P., Fredonia may state as many claims as it
has, regardless of their consistency. See Wright & Miller,
Federal Practice and Procedure: Civil § 1283, pp. 373-
375; Pulliam v. Gulf Lumber Co., 5 Cir. 1963, 312 F.2d
505, 507; and Breeding v. Massey, 8 Cir., 1967, 378
F.2d 171, 178.
In the answers to the questions submitted to it, the
jury found that RCA breached the contract, breached its
warranty as to representations about the equipment, and
also committed fraud.
{2, 3] In general, a defrauded party has three general
remedies as follows:
1. A right to damages for being led into the trans-
action;
2. Recission of the fraudulent transaction and resto-
ration of the situation which the parties occupied
before the fraudulent transaction was entered in-
to; and
3. Enforcement against the fraudulent person of the
kind of bargain he represented that he was mak-
ing.
3. Fredonia also raised repudiation of the contract in the pre-trial
order. The jury found in Question No. 11 that RCA repudiated the
contract. The jury’s determination of repudiation is discussed infra.
—
45
Williston on Contracts, Third Edition, § 1523, pp. 606-
607. The defrauded party cannot seek both to have the
contract rescinded and at the same time sue on the con-
tract for the damages resulting from the fraudulent trans-
action. Ringsby Truck Lines, Inc. v. Beardsley, 8 Cir.,
1964, 331 F.2d 14, 17 and authorities cited therein,
_ International Sec. Life Ins. Co. v. Finck, 475 S.W.2d 363
(Tex.Civ.App. 1971), Holley v. Corbell, 443 S.W.2d 63
(Tex.Civ.App. 1969), Dallas Farm Machinery Company
v. Reaves, 158 Tex. 1, 307 S.W.2d 233, 238-239 (1957).
[4] However, at the same time a judgment for fraud
and breach of contract can stand, Southwestern Packing
Co. v. Cincinnati Butchers’ S Company, 5 Cir., 1944, 139
F.2d 201, 203; Bankers Trust Company v. Pacific Em-
ployers Insurance Company, 9 Cir., 1960, 282 F.2d 106,
110; and International Sec. Life Ins. Co. v. Finck, supra
475 S.W.2d at 369. In Bankers Trust Co. v. Pacific Em-
ployers Insurance Co., supra, the Court said:
It is the law that one who has been fraudulently
induced into a contract may elect to stand by that
contract and sue for damages for the fraud. When
this happens and the defrauding party also refused
to perform the contract as it stands, he commits a
second wrong, and a separate and distinct cause of
action arises for the breach of contract. The same
basic transaction gives rise to distinct and inde-
pendent causes of action which may be consecutively
pursued to satisfaction. “Thus, an action on a con-
tract induced by fraud is not inconsistent with an
action for damages for the deceit; * * *.” 18 Am.
Jur. 139, El. of Rem. § 14 (1st ed. 1938). “A right
of action on a contract and for fraud in inducing
plaintiff to enter into such contract may exist at
the same time, and a recovery on one of the causes
46
will not bar a subsequent action on the other.” 50
C.J.S. Judgments § 676, p. 121 (1st ed. 1947). The
courts of many states have recognized the rule that a
suit on a contract and a suit for fraud in inducing
the contract are two different causes of action with
separate and consistent remedies, [Footnote omitted. ]
Id. 282 F.2d at 110. See also Falls Sand and Gravel Co.
v. Western Concrete, Inc., 270 F.Supp. 495, 500 (D.Mont.
1967).
In the present case, by the very terms of the contract,
Fredonia’s breach of contract claims cannot stand; the
contract precludes it.
The jury’s answers to Questions Nos. 7 and 9 show how
the jury viewed the contractual relationship of the parties.
[5] The jury found that a contract existed in Question
No. 7* when it found that the “parties intended” that the
defendant’s proposal of January 15, 1969, coupled with the
plaintiff's February 6, 1969, letter of acceptance, and the
4. The wording of Question No. 7 is unfortunately misleading.
Question No. 7 states:
Do you find from a preponderance of the evidence that the
parties intended that the defendaut’s proposal of January 15,
1969, coupled with the plaintiff's letter of acceptance of this
proposal, dated February 6, 1969, and oral representations, if
any, made to the plaintiff by the defendant, constituted the
contract between the parties?
Answer “It did” or “It did not”.
Question No. 7 starts out asking the Eg what the parties intended
to be the contract and concludes with the jury finding what was,
the contract. The finding of whether documents constitute a contract
is a conclusion of law and not for the jury’s fact finding determina-
tion. Success Motivation Institute, Inc. v. Jamieson Film Co., 473
S.W.2d 275, 280 (Tex. Civ. App. 1971) and cases cited therein.
We see Question No. 7 as telling what the jury believed the parties
intended the contract to be and not what the contract was.
47
oral representation made by the defendant to the plaintiff
“constituted the contract between the parties”.
{6] The jury further found in Question No. 9 that the .
defendant breached this contract by the following acts:
(a) By deliberately withholding shipment to the plain-
tiff of the items of equipment contracted for more
. than 75 days after February 6, 1969, and there-
after until plaintiff completed documents sub-
mitted to it by the defendant?
(b) By delivering such equipment contracted for on a
delayed, erratic, and incomplete basis?
(c) By delivering equipment that was not of a quality
such as is generally sold in the market and suit-
able for that which it is intended or for the par-
ticular uses to which the goods were to be put?
(d) By withholding personnel necessary to supervise
the installation of equipment until after June 1,
1969, and in failing to maintain such supervisory
personnel on the site, except on an intermittent and
irregular basis?
(e) By failing, after notice, if any, to correct or reme-
dy any such condition, or repair or replace any
such equipment?
The jury’s answer to Question No. 7 that a contract
existed between the parties and its answer to Question No.
9 that RCA breached the contract show that the jury
believed Fredonia affirmed the contract it had been in-
duced into by fraud.° In affirming the contract, Fredonia
is bound by the contract terms as were set out in RCA’s
January 15, 1969, proposal. In that proposal, as we
5. The jury found RCA committed fraud in Questions No. 1, 2,
and 3. These fraud claims are discussed infra.
48
have already discussed. RCA was absolved from any re-
sponsibility for late delivery, failure to supervise, and de-
fective equipment.’ Therefore, Fredonia’s claims for breach
of contract cannot stand.
6. The exact contract terms of the January 15, 1969, proposal
limiting RCA’s liability are as follows:
5. Delivery. (a) RCA will endeavor to meet the estimated
delivery dates specified in this agreement (and as may be from
time to time revised by mutual agreement) but shall not be
liable in damages or otherwise, nor shall you be relieved of
performance, because of delays in delivery; provided, however,
that, except as may otherwise be stated in this agreement
(including any revisions hereof), as to equipment items which
have not been shipped to you within four (4) months after the
estimated delivery dates applicable to such items, you shall
have the right, provided RCA is notified in writing, to cancel
any such items from this agreement to the extent that such
items shall not have been shipped to you prior to RCA’s
receipt of the notice of cancellation. In the event of cancellation
of any such items the contract price shall be reduced accord-
ingly, except that if unit prices are not set out opposite the
equipment items cancelled the reduction in contract price shall
be as mutually agreed upon.
8. Insiallation. RCA will furnish you with an instruction book
setting forth pertinent information relating to installation and
operation of the equipment. RCA will at your request and
subject to prior commitments, furnish a representative to super-
vise the installation of the equipment listed in Schedule A and
to instruct your personnel in the adjustment and operation
thereof. Unless otherwise provided in this proposal, charges for
’ furnishing such representative shall be at the current per diem
rate in effect at the time, plus transportation and reasonable
living expenses, and shall be = upon submission of in-
voices. Such supervisory service 1 not include the furnishing
or arranging for the furnishing of any equipment, materials
or services required for the actual installation. You will assume
complete responsibility for the installation and operation of the
equipment including, adequately staffing your organization with
technically qualified personnel, furnishing or arranging for the
furnishing by others of equipment, materials or services not
otherwise provided for in this proposal, and the obtaining of all
permits, licenses or certificates required by any regulatory body
for the installation or use of the equipment.
Sr, Bere ee Be on
0 ee eS
49
The District Court recognized the inconsistency be-
tween the breach theory and the terms of the contract.
It attempted to reconcile and explain the inconsistency
in its post-trial order as follows: 7
9. Warranty. RCA warrants the equipment of its manufacture
(except used equipment, electron tubes, transistors and television
tape recorder handwheel panel assemblies) purchased by you
-» hereunder to be free from defects in workmanship and material
for a period of one (1) year after delivery and RCA agrees
to male good f. o. b. its factory, all defective parts which are
returned to RCA’s factory, transportation prepaid, provided that
our examination discloses that the defects are due to defective
workmanship or material and that the equipment has not been
misused, altered, repaired, or improperly installed. Correction
of such defects by repair or replacement at RCA’s factory and
the shipment of the repaired or replaced parts to you f. o. b.
RCA’s factory, shall constitute the fulfillment of all of RCA’s
obligations in respect of the equipment furnished hereunder.
You agree that except for such repair and replacement, RCA
shall in no event be liable for damages of any kind connected
with the use of the equipment or its failure to function
properly. Used equipment shall bear no warranty unless other-
wise specified. Electron tubes, transistors and television tape
recorder headwheel panel assemblies shall bear the warranty
accompanying them at the time of delivery. Equipment furnished
by RCA but manufactured by another shall bear the warranty
given by such other manufacturer. No warranites other than
those set forth in this paragraph are given or are to be implied
with respect to the equipment furnished hereunder.
Il, Other Conditions. (a) Neither RCA nor you shall be liable
for general, special, indirect, or consequential damages in con-
nection with any obligations created by this agreement or arising
out of any acts performed in relation to such obligations. Both
RCA and you acknowledge that such lack of liability, without
limiting the generality of the foregoing, extends to loss of
actual or anticipated revenue, loss of air time, and damage
to the business reputations of either party to this agreement.
In affirming the contract, Fredonia was bound by all its provi-
sions. Included in the provisions was the agreement to be bound
by RCA’s deferred payment scheme. This deferred payment scheme,
as discussed infra, was set out in a conditional sales agreement.
This conditional sales agreement became part of the contract that
Fredonia affirmed.
50
[Ujnless there is some theory under which Fre-
donia can void the entire February 6 transaction,
or at least certain of its terms, it seems clear to
the court that Fredonia would be precluded from
recovery by the “terms and conditions” portion,
which specifically defines the relationship between
the parties as regards delivery dates, warranties, and
supervision of installation. The effect of the jury’s
finding on the fraud theory is obvious. Less ap-
parent is the effect of the jury’s determination that
RCA is liable also upon the warranty and breach of
contract theories. To uphold the jury’s verdict on
the theories of breach of warranty and breach of
contract, the court must assume that the jury tacitly
reformed the contract, on the basis that RCA fraud-
ulently represented that the warranty, delivery, and
supervision provisions were actually different from
those provisions as stated in writing in the formal
“terms and conditions” atteched to the McClanathan
proposal. Otherwise, Fredonia is left with the ex-
press written provisions of the February 6 pro-
posal which preclude RCA’s liability.
[7] We cannot agree that the jury could “reform”
the contract. The judgment of the District Court as to
breach of contract must be reversed and remanded for a
new trial since the jury’s answers do not “represent a
logical and probable decision on the relevant issues as
submitted”. Colvin, Prigmore v. Dempsey—Tegler & Co.,
Inc., 5 Cir., 1973, 477 F.2d 1283, 1285 (1973). See
also Griffin v. Matherne, 5 Cir., 1973, 471 F.2d 911,
915 and cases cited therein. z
Fredonia’s claim for damages for fraud may, how-
ever, stand independently of the contract claim.
Ds aiiee tsar: a
51
Il. Repudiation of the Contract
[8] In Question No. 11 the jury found that RCA
repudiated the contract by deliberately withholding ship-.
ment of the equipment until Fredonia executed the
Conditional Sales Agreement [Question il(a)]; by de-
livering equipment on a delayed, erratic, and incomplete
basis [Question 11(b)]; by delivering equipment not
suitable for the use for which it was intended and not
Suitable as is generally sold on the market [Question No.
11(c)]; by withholding personnel necessary to supervise
the installation of the equipment [Question No. 1i(d)];
and by failing after notice to repair defective equipment
[Question No. 11 (e)].
RCA objected to Question No. 11 at the trial level
and renews its objection on appeal. RCA argues that
Question No. 11 is improper for two reasons. First, RCA
contends that the actions of RCA found by the jury
to have been repudiation deal with the quality of RCA’s
performance and not with actions “which render perform-
ance impossible or demonstrate a clear determination not
to continue with performance”. RCA contends that this
is the way repudiation is described in Comment 1 to
U.C.C. § 2-610, V.T.C.A. Bus. & C. § 2-610.’ Second,
RCA asserts that the jury was not instructed properly as
to U.C.C. § 2-610, V.T.C.A. Bus. & Co. § 2.610, since
7. Comment 1 to U.C.C. § 2-610, V.T.C.A. Bus. & C. § 2.610
states as follows: j
With the problem of insecurity taken care of by the preceding
section and with provision being made in this Article as to the
effect of a defective delivery under an installment contract
anticipatory repudiation centers upon an overt communication
of intention or an action which renders performance impossible
or Cemonstrates a clear determination not to continue with
performance.
52
there was no instruction that repudiation (as it is defined
in U.C.C. § 2-610, V.T.C.A. Bus. & C. § 2.610) required
a loss that would “substantially impair the value of the
contract to the other” party.
As to repudiation, the District Court instructed the
jury as follows:
Repudiation . . . is defined as such words or
actions by a contracting party as indicate that he is
not going to perform his contract in the future.
It is conduct which shows a fixed intention to aban-
don, renounce, and refuse to perform the contract.
No Texas Court has as yet interpreted U.C.C. § 2-610,
V.T.C.A. Bus. & C. § 2.610, nor has any Court of any
state in this Circuit.
RCA’s contention that the jury’s findings concerning
RCA’s actions only goes to the quality of the acts
and do not have the characteristics of acts of repudiation
is without merit. All the acts the jury found in Questions
Nos. 11(a)-(e) could have “demonstrated in the jury’s
mind a clear determination [by RCA] not to continue
with performance” or “actions [which would] render per-
formance impossible”. The jury was properly instructed
as to this aspect of repudiation when the Court instructed
the jury that “repudiation is denied by such words or
actions . . . [that] indicate [that the contracting party]
is not going to perform his contract in the future”.
However, the District Court’s instruction did not com-
ply with the plain language of U.C.C. § 2-610, V.T.C.A.
Bus. & C. § 2.610, which states:
When either party repudiates the contract with
respect to a performance not yet due the loss of
53
which will substantially impair the value of the
contract to the other, the aggrieved party may
(1) for a commercially reasonable time await per-
formance by the repudiating party; or
(2) resort to any remedy for breach (Section 2-703
or Section 2-711), even though he has notified
the repudiating party that he would await the
— performance and has urged retraction;
an
(3) in either case suspend his own performance or
proceed in accordance with the provisions of this
Article on the seller’s right to identify goods to
the contract notwithstanding breach or to salvage
unfinished goods (Section 2-704).
{9} Clearly, a repudiation is not actionable unless it
“substantially impairs the value of the contract”. Com-
ment 3 to U.C.C. § 2-610, V.T.C.A. Bus. & C. § 2.610,
describes the test to determine if the substantial value of
the contract has been impaired as whether a “material
inconvenience or injustice will result”.
[10] The District Court’s instruction was incorrect
since it did not tell the jury that for it to find repudiation
there must be a substantial impairment of the contract,
and it did not define substantial impairment. Therefore,
the jury’s determination that RCA repudiated the contract
cannot stand.*
Ill. Fraud
A. Delivery and Supervision
In Questions Nos. 1, 2, and 6 the jury made findings
as to whether RCA made certain fraudulent misrepresen-
8. See infra our discussion as to the measure of damages for
repudiation.
Se TM
54
tations to Fredonia. The jury found in Question No. |
that the defendant warranted and represented that if it
got the contract it would deliver the equipment so as to
meet the air date of June 1, 1969. The jury found in
Question No. 2 that the defendant warranted and repre-
sented that if it got the contract it would supervise the
installation of the equipment. The jury further found in
subparts to Questions Nos. 1 and 2 that (1) the represen-
tations as to delivery date and supervision were made for
the purpose of inducing the plaintiff into a contract
[Questions 1(b) and 2(b)]; (2) the representations as to
delivery date and supervision were believed and relied
upon by Fredonia [Questions 1(c) and 2(c)]; (3) the
representations as to delivery date and supervision were
made with the intent, design, and purpose of deceiving
the plaintiff [Questions 1(d) and 2(d)]; and (4) the
representations as to delivery date and supervision were
a proximate cause of Fredonia’s damages [Questions 1(e)
and 2(e)].
The jury found in Question No. 6(a) that the plaintiff
relied on the defendant’s agents’ statements as to delivery
date. The jury further found in Question No. 6(b) that
the plaintiff relied on the defendant’s agents’ statements
as to the supervision that the defendant would furnish.
However, in Question No. 6(c) the jury was asked
whether the plaintiff's reliance on the defendant’s agents’
statements as to date of delivery and supervision of the
installation was justified. The jury answered that the reli-
ance “was not justified”.
After the jury returned its answers to the questions on
liability, the District Court realized that there was a
eee
55
possible inconsistency® to the jury’s answer in No. 6(c)
{where the jury found reliance was not justified] with
the jury’s answers in Nos. l(c), 2(c), 6(a), and 6(b)
{where the jury found Fredonia relied on RCA’s state-
ments].
The District Court in its order denying RCA’s post-
_trial motions held it not to be required that the reliance
induced by the alleged fraudulent conduct must be reason-
able. The District Court, citing no cases, stated the law
to be:
[iJf an actor induces another by fraudulent mis-
representations to rely on a false promise, and a
detriment thereby is suffered by that other, the actor
is guilty of fraud although the other’s reliance on
the promise was unreasonable.
RCA contends that if the reliance was not justified as
to these two misrepresentations, then there can be no
recovery in damages stemming from these two misrepre-
sentations. RCA states that Texas cases require that for
fraud to attach the reliance must be reasonable.
This Court said in Edwards v. Allied Chemical, 5 Cir.,
1969, 414 F.2d 60 that:
Texas allows recovery for fraud only where the
defrauded party ‘had a right to rely’ on the misrepre-
9. The District Court contemplated resubmitting these questions
to the jury. After a discussion with attorneys for both sides, the
District Court decided that the verdict for the plaintiff was supported
by the jury’s findings in other questions where the jury found that
the defendant breached or repudiated the contract. Attorneys for
both parties agreed resubmission was not necessary. Under Rule
49(a) resubmission is not allowed. Rule 49(b), however, does pro-
vide for resubmission. See Griffin v. Matherne, supra at 917 n. 6.
56
sentation. Bell v. Henson, Ct. of Civil Appeals,
1934, 74 S.W.2d 455 (err. dism’d).
Id. at 64.
[11] We must agree with RCA that the District Court
erred and that the reliance must be justified. Any dam-
ages stemming from RCA’s fraudulent misrepresentations
as to date of delivery and installation of the equipment
cannot lie. Therefore, we need not consider other reasons
RCA alleged for overturning the jury’s findings in Ques-
tions Nos. 1 and 2.
B. Merchantability of the Equipment .
[12] In Question No. 3(a) the jury found that the
defendant represented that it would deliver in the future
goods suitable to be sold in the market and suitable for
the use which they are intended. The jury further found
in succeeding subparts to Question No. 3 that such repre-
sentation was untrue and made for the purpose of in-
ducing the plaintiff to enter into the contract [3(b)], such
representation was relied upon by the plaintiff [3(c)],
and such representation was a proximate cause of plain-
tiffs damages [3(d)]. Unlike in Questions Nos. 1 and 2
the jury was not asked to find in Question No. 3 whether
such representation as to the suitability of the goods was
made with the intent, design, and purpose of deceiving
the plaintiff.
RCA claims that as a matter of Texas law, the jury
cannot find fraud unless it finds the defendant had the
intent and design to defraud the plaintiff.
[13] This is correct, Hazle v. McDonald, 449 S.W.2d
343, 345 (Tex. Civ. App. 1969) and Dobbs v. Camco,
57
Inc., 445 S.W.2d 565, 570 ref. n.r.e. (Tex. Civ. App.
1969). When the fraud involves future performance as
was involved in Question No. 3 regarding the future
delivery of suitable equipment, then there must be at the
time the misrepresentation is made an intent not to
perform the promised act. Medina v. Sherrod, 391 S.W.2d
66 (Tex. Civ. App. 1965). Therefore, the District Court
“erroneously omitted a question as to whether RCA had
an intent to deceive at the time it represented it would
deliver suitable equipment.
However, Fredonia is correct in asserting that, under
Rule 49(a), Fed. R. Civ. P., as to any omitted question,
it is deemed that the court made a finding on the issue
omitted in accordance with the judgment on the special
verdict. L’Urbaine Et La Seine v. Rodriquez, 5 Cir.,
1959, 268 F.2d 1, 4 and John R. Lewis, Inc. v. Newman,
5 Cir., 1971, 446 F.2d 800, 805. Since RCA made no
objection at the trial to the omitted question, RCA’s
objection on appeal comes too late. 7d. and authorities
cited therein.
C. Misrepresentation as to What Constituted the Contract
[14] In Question No. 4 the jury found that the de-
fendant represented that the plaintiff's delivery of the
February 6, 1969, acceptance letter together with its
check for $25,000 would constitute an acceptance of the
plaintiffs proposal of January 15, 1969, so as to con-
stitute a valid binding contract between the parties. RCA
raises for the first time on appeal numerous obiections to
this question. RCA’s failure to object at trial is waiver
of the right to protest on appeal. Safeway Stores v. Dial,
5 Cir., 1963, 311 F.2d 595, 600 reh. den. 314 F.2d 33;
58
Simmons v. Union Terminal Company, 5 Cir., 1961, 290
F.2d 453, 454; and Clegg v. Hardware Mutual Casualty
Co., 5 Cir., 1959, 264 F.2d 152, 158.*°
D. Error in the Instructions as to Misrepresentation
[15] RCA also claims, as it did at trial, that th:
District Court erroneously allowed the jury to assess
damages for the misrepresentations as to which the jury
found that reliance was not justified. RCA contends that
this occurred when the District Court instructed the jury
as to damages as follows:
In assessing the actual damages, if any, sustained
by Fredonia Broadcasting Corporation, Incorporated,
you may consider all such damages as were proxi-
mately caused by the conduct you have already found
on the part of the Defendant, RCA... .
The Court before it made the statement about which
RCA complains instructed the jury as follows:
Fredonia Broadcasting Corporation, Incorporated,
must show a causal connection between the breach
and repudiation of the contract and the breach of
the warranty of merchantability and the alleged
damages. Thus, you should award to the Plaintiif
such damages, if any, as you find from a preponder-
ance of the evidence or the direct, natural and proxi-
mate result of the breach and repudiation of the
contract and breach of warranty of merchantability
and that were within the contemplation of the parties
at the time of the making of the contract.
10. This same waiver rule applies under Rule 49(b). See the
following cases: Nimnicht v. Evans, 5 Cir., 1973, 477 F.2d 133
(1973) and Wyoming Construction Company v. Western Casualty
& Surety Company, 10 Cir., 1960, 275 F.2d 97, cert. den. 362 U‘S.
976, 80 S.Ct. 1061, 4 L.Ed.2d 1011.
59
By this instruction, the Court limited the findings of
damages to three specific types of conduct on the part
of RCA. The court’s allusion to “all such conduct as
you already have found” would refer to these three types
of conduct mentioned previously and would not allow
the jury to consider other conduct which it had already
found.
[16] The Court's instruction did not permit the jury
to consider or award damages for any type of fraud
committed by RCA.”’ The charge to the jury must be
taken as a whole and not considered in fragments, Garrett
v. Campbell, 5 Cir., 1966, 360 F.2d 382, 386, 387 and
cases cited therein, and, therefore, we find no error in
the charge.
However, since the jury erroneously awarded damages
for breach of contract, as discussed supra, the jury’s
determination of the amount of damages cannot stand.
Damages are discussed infra.
E. Strict Liability
[17] Fredonia claims that the jury’s answers to Ques-
tions Nos. 3(a), 17(a), and 17(b) made RCA liable
under strict liability.
11. It should be noted that the District Court in a colloquy with
RCA’s counsel about the matter stated that “he didn’t submit to
the jury anything relating to the alleged fraudulent misrepresenta-
tion”. It should also be noted that the jury’s finding of fraudulent
warranty of the equipment in Question No. 3 was not effected by
the jury’s finding in Question No. 6(c) that the reliance was not
justified. Question No. 6(c) covered only RCA’s fraudulent repre-
sentation as to date of delivery and degree of supervision. In addi-
tion, the District Court in its instruction on damages quoted previ-
ously did not instruct the jury that damages could be awarded for
the fraudulent warranty.
60
Section 402A(1) of the Restatement of Torts 2d titled
Special Liability of Seller of Product for Physical Harm
to User or Consumer states:
One who sells any product in a defective condi-
tion unreasonably dangerous to the user or consumer
or to his property is subject to liability for physical
harm thereby caused to the ultimate user or con-
sumer, or his property.
No physical harm was done to Fredonia’s property
as a result of the defective condition of any product RCA
sold Fredonia. Fredonia suffered only economic loss, and
the doctrine of strict liability is not applicable to such
losses. Thermal Supply of Texas, Inc. v. Asel, 468 S.W.2d
927, 929 (Tex.Civ.App. 1971) and Eli Lilly and Com-
pany v. Casey, 472 S.W.2d 598, 599 (Tex.Civ.App.
1971).
IV. Damages
A. Warranty
[18] RCA argues that the damages for breach of
warranty should be limited by the language of the Jan-
uary 15, 1969, proposal which states that “the fulfillment
of RCA’s obligation in respect [to] the equipment fur-
nished” shall be correction of “defects by repair or re-
placement at RCA’s factory”. RCA contends that U.C.C.
§ 2-719, V.T.C.A. Bus. & C. § 2.719, expressly sanctions
the contractual limitation of a seller’s liability to the re- .
pair or replacement of nonconforming goods. RCA states
further that U.C.C. § 2-719, V.T.C.A. Bus. & C. § 2.719,
allows this contractual limitation to be the buyer’s sole
remedy.
a |
ESS BSN WEE PPE IE II a ETI Ege
61
Fredonia argues in response that the contractual limita-
tion cannot apply since (1) fraud “vitiated” the contract
and (2) U.C.C. § 2-719, V.T.C.A. Bus. & C § 2.719, is
inapplicable because of RCA’s fraud in inducing the con-
tract. Furthermore, Fredonia states that U.C.C. § 2-719,
V.T.C.A. Bus. & C. § 2.719, does not allow unconscion-
able and unreasonable limiting provisions.
; The language of the provision in the January 15, 1969,
proposal limiting RCA’s liability for breach of warranty
is as follows:
* * * RCA agrees to make good f.o.b. its fac-
tory, all defective parts which are returned to RCA’s
factory, transportation prepaid, provided that our
examination discloses that the defects are due to de-
fective workmanship or material and that the equip-
ment has not been misused, altered, repaired or im-
properly installed. Correction of such defects by re-
pair or replacement at RCA’s factory and the ship-
ment of the repaired or replacement parts to you
f.o.b. RCA’s factory, shall constitute the fulfillment
of all RCA’s obligations in respect of the equipment
furnished hereunder. You agree that except for such
repair and replacement, RCA shall in no event be
liable for damages of any kind connected with the
use of the equipment or its failure to function
properly.
Section 2-719, V.T.C.A. Bus. & C. § 2.719, provides as
follows:
(a) Subject to the provisions of Subsections (b)
and (c) of this section and of the preceding section
on liquidation and limitation of damages,
(1) the agreement may provide for remedies in
addition to or in substitution for those provided
Se
es
62
in this chapter and may limit or alter the measure
of damages recoverable under this chapter, as by
limiting the buyer’s remedies to return of the
goods and repayment of the price or to repair
and replacement of non-conforming goods or
parts; and
(2) resort to a remedy as provided is optional un-
less the remedy is expressly agreed to be exclusive,
in which case it is the sole remedy.
(b), Where circumstances cause an exclusive or
limited remedy to fail of its essential purpose, remedy
may be had as provided in this title.
(c) Consequential damages may be limited or
excluded unless the limitation or exclusion is uncon-
scionable. Limitation of consequential damages for
injury to the person in the case of consumer goods
is prima facie unconscionable but limitation of dam-
ages where the loss is commercial is not.
Section 2-719(a)(1), V.T.C.A. Bus. & C. § 2-719(a)
(1), clearly provides that the seller may limit the buyer’s
remedy to “repair and replacement of non-conforming
goods or parts”. This same section -also states that this
remedy may be in “substitution for those [remedies] pro-
vided in this chapter”. (emphasis added.)
Section 2-719(a)(2), V.T.C.A. Bus. & C. § 2.719(a)
(2), provides that a remedy provided is optional unless
it is “expressly agreed to be exclusive”. The language of
limitation in RCA’s January 15, 1969 proposal does not
state explicitly that the remedy provided for is to be
the exclusive remedy. However, it is clear that the con-
tractual limitation is intended to be exclusive because
the language of the contractual limitation states that repair
and replacement “shall constitute the fulfillment of all
ote oe
Oi Riri etre tn cae ee. ela A
63
RCA’s obligations in respect of the equipment furnished”.
{Emphasis added.}] Cf. Dow Corning Corporation v.
Capital Aviation, Inc., 7 Cir., 1969, 411 F.2d 622, 626.
Section 2-719(a)(1), V.T.C.A. Bus. & C. § 2.719(a)
(1), allows a seller to limit the buyer’s warranty to re-
pair and replacement and thus limit liability. Southwest
Forest Indus., Inc. v. Westinghouse Elec. Corp., 9 Cir.,
1970, 422 F.2d 1013, 1020 and Lankford v. Rogers Ford
Sales, 478 S.W.2d 248, 251 (Tex.Civ.App. 1972). See
also Annot. 17 A.L.R.3d 1010, 1122 and cases cited
therein.
[19] Fredonia also claims that the contractual limita-
tion cannot apply because as stated in U.C.C. § 2-719(a)
(2), V.T.C.A. Bus. & C. §2.719(a)(2), the limited
remedy fails of its essential purpose. We do not agree,
for the facts clearly show that RCA obeyed the limitation
by repairing and replacing items which Fredonia claims
were defective. See Lankford v. Rogers Ford Sales, supra
at 251; County Asphalt, Inc. v. Lewis Welding & Engi-
neering Corp., 323 F.Supp. 1300, 1309 (S.D.N.Y. 1970),
affirmed 2 Cir., 1971, 444 F.2d 372; Jones & McKnight
Corp. v. Birdsboro Corp., 320 F.Supp. 39, 42 (N.D.
Ill., E.D. 1970), and Comment 1 to U.C.C, § 2-719,
V.T.C.A. Bus. & C. § 2.719.
Fredonia’s contention that the contract limitation can-
not apply because the contract was induced by fraud
has no merit sense, as we have already discussed, when
Fredonia decided to affirm the contract and sue for its
breach, it must be bound by the contract terms.
Fredonia’s claim that the contract limitation is un-
conscionable raises a question that the court below did
not decide.
< Pa |
64
The jury’s determination in (1) Question 4 as to what
the defendant represented the contract to be or (2) in
Question 3 as to what the defendant represented the
quality of the goods to be has no bearing on whether
the contract limitation was unconscionable.
U.C.C. § 2-302, V.T.C.A. Bus. & C. § 2.302, covers
unconscionability and provides as follows:
(a) If the court as a matter of law finds the
contract or any clause of the contract to have been
unconscionable at the time it was made the court
may refuse to enforce the contract, or it may en-
force the remainder of the contract without the un-
conscionable clause, or it may so limit the application
of any unconscionable clause as to avoid any un-
conscionable result.
(b) When it is claimed or appears to the court
that the contract or any clause thereof may be un-
conscionable the parties shall be afforded a reason-
able opportunity to present evidence as to its com-
mercial setting, purpose and effect to aid the court
in making the determination.
Comment 1 to Section 2-302, V.T.C.A. Bus. & C.
§ 2.302 states:
This section is intended to allow the court to
pass directly on the unconscionability of the contract
or particular clause therein and to make a conclu-
sion of law as to its unconscionability. The basic test
is whether, in the light of the general commercial
background, and the commercial needs of the par-
ticular trade or case, the clauses involved are so
one-sided as to be unconscionable under the cir-
cumstances existing at the time of the making of
the contract.
STL, LET EN LA,
65
[20] U.C.C. § 2-302, V.T.C.A. Bus. & C. § 2.302, re-
quires that the District Court make a determination
whether the limitation was unconscionable. On remand’?
the District Court should consider the commercial setting
in which the contract was formed. See County Asphalt,
Inc. v. Lewis Welding & Engineering Corp., supra 323
F.Supp. at 1308, and Comment 1 to U.C.C. § 2-302,
V.T.C.A. Bus. & C. § 2.302.
B. Consequential Damages
[21] Section 2-719(c), V.T.C.A. Bus. & C. § 2.719
(c), provides as follows:
Consequential damages may be limited or ex-
cluded unless the limitation or exclusion is uncon-
scionable. Limitation of consequential damages for
injury to the person in the case of consumer goods
is prima facie unconscionable but limitation of dam-
ages where the loss is commercial is not.
The language of the January 15, 1969 proposal limited
RCA’s liability for consequential damages by the follow-
ing language:
Neither RCA, nor you [Fredonia] shall be liable
for general, special, indirect, or consequential dam-
ages in connection with any obligations created
by the agreement or arising out of any acts per-
formed in relation to such obligations. Both RCA
and you acknowledge that such lack of liability,
without limiting the generality of the foregoing,
extends to loss of actual or anticipated revenue, loss
12. The provision in RCA’s contract which limits its damages
for breach of warranty makes it unnecessary for us to decide what
would be the correct measure of damages for breach of warranty
if the contract limitation did not apply.
=; owen - we -,
ee
CE ee Sa ae
OR ti eel
66
of air time, and damages to the business reputations
of either party to this agreement.
Such limitations are valid and enforceable. County As-
phalt, Inc. v. Lewis Welding & Engineering Corp., 323
F. Supp. 1300, 1308 (S.D.N.Y. 1970) affirmed 2 Cir.,
1971, 444 F.2d 372. Fredonia again contends that such
limitation was unconscionable.
The District Court below did not make such a finding
as required by U.C.C. § 2-302, V.T.C.A. Bus. & C.
§ 2.302, and therefore, we cannot decide the issue.
C. Repudiation
[22] RCA objected to the District Court’s instruction
on the measure of damages for repudiation. The District
Court’s instruction was as follows:
You are instructed that in assessing the actual
damages, if any, sustained by Fredonia Broadcasting
Corporation, Incorporated, you may consider. . .
[the] damages . . . [for repudiation to be] the loss
of value of Fredonia’s television station business,
taking into account the loss of value between the
value of the business and its future potential before
the station ceased operation and the value of the
business after it ceased operation, lost its CBS affilia-
tion and became insolvent.
You may also consider the replacement cost of
items of defective equipment furnished by RCA t
Fredonia. ,
RCA contends that the proper measure of damages for
repudiation is codified in U.C.C. § 2-713, V.T.C.A. Bus.
& C. §2.713, which provides as follows:
Biers init Sanat es
67
(a) Subject to the provisions of this chapter with
respect to proof of market price (Section 2.723),
the measure of damages for nondelivery or repudia-
tion by the seller is the difference between the market
price at the time when the buyer learned of the
breach and the contract price together with any in-
cidental and consequential damages provided in this
chapter (Section 2.715), but less expenses saved in
consequence of the seller’s breach.
(b) Market price is to be determined as of the
place for tender or, in cases of rejection after arrival
or revocation of acceptance, as of the place of arrival.
[23] Clearly, the District Court’s instruction on mea-
sure of damages for repudiation in light of U.C.C. § 2-713
(a), V.T.C.A. Bus. & C. § 2.713(a), was not correct.
No Texas Court has yet interpreted U.C.C. § 2-713,
V.T.C.A. Bus. & C. § 2.713, but that section is similar
to pre-Code Texas law which states that “the measure
of damages for undelivered goods . . . is the difference
in the contract price and the market price at the time
and place of the breach”. Henderson v. Otto Goedecke,
Inc., 430 S.W.2d 120, 123 (Tex. Civ. App. 1968); Otto
Goedecke, Inc. v. Henderson, 388 S.W.2d 728, 730
(Tex. Civ. App. 1965); Idalou Cooperative Cotton Gin
v. Gue, 317 S.W.2d 240, 247 (Tex. Civ. App. 1958);
Pace Corporation v. Jackson, 155 Tex. 179, 284 S.W.2d
340, 347 (1955); and Vise v. Foster, 247 S.W.2d 274,
281 (Tex. Civ. App. 1952). The only difference between
U.C.C, § 2-713(a), V.T.C.A. Bus. & C. § 2.713(a), and
pre-Code Texas law is that U.C.C. § 2-713(a), V.T.C.A.
Bus. & C. § 2.713(a), specifies that the market price
is the price at the time when the buyer learned of the
breach.**
13. U.C.C. § 2-713(b), V.T.C.A. Bus. & C. § 2.713(b ifie
that market price is to be determined as of the place od ‘ead. ‘
LIers -
— <>. + Sle aaa
68
RCA also contends that it was error for the trial judge
to permit damages for both repudiation of the contract
and breach of warranty of merchantability of the contract
since such theories of liability are mutually exclusive.
RCA states that these two theories of relief are incon-
sistent because “repudiation is a failure to make perform-
ance not yet due ander a contract” which “breach of
warranty of merchantability is necessarily a claim of
inadequate performance under a contract”.
[24] Fredonia argues in opposition that it can try
its case on several distinct theories and is not required
to elect one remedy to the exclusion of others. Fredonia
further states that the measure of actual damages does
not differ under the different liability theories it urges."*
[25] Fredonia is correct in stating that it can plead
under the Federal Rules of Civil Procedure as many
theories of relief it has regardless of their consistency.
Pulliam v. Gulf Lumber Co., 5 Cir., 1963, 312 F.2d
505, 507 and Breeding v. Massey, 8 Cir., 1967, 378
F.2d 171, 178. However, a judgment can not be sup-
ported by inconsistent theories if one theory precludes
the other or is mutually exclusive of the other. Cf. Telex
Corporation v. Balch, 8 Cir., 1967, 382 F.2d 211, 213.
_ Fredonia is also incorrect that the measure of damages for
aa of warranty and repudiation is the same. U.C.C. § 2-714(b),
V.T.C.A. Bus. & C. § 2.714(b), states that the measure of damages
for breach of warranty is as follows:
(b) The measure of damages for breach of warranty is the
difference at the time and place of acceptance between the
value of the goods accepted and the value they would have
had if they had been as warranted, unless special circumstances
show proximate damages of a different amount.
This measure of damages is obviously not the same as the measure
of damages for repudiation provided for in U.C.C. § 2-713(a),
V.T.C.A. Bus. & C. § 2.713(a), laid out in the text supra.
—_—
an 6 ewe een
Bbkins Ohne oe
69
[26] Under Texas law prior to the advent of the
Uniform Commercial Code, a party faced with anticipa-
tory repudiation could not claim damages for the an-
ticipatory breach and at the same time treat the contract
as in force. Lumbermens Mutual Casualty Company v.
Klotz, 5 Cir., 1958, 251 F.2d 499, 506 (citing Texas
cases). See also Reliance Cooperage Corp. v. Treat, 8
Cir., 1952, 195 F.2d 977, 981-982.
The Uniform Commercial Code Sections 2-610, V.T.
C.A. Bus. & C. § 2.610; 2-711, V.T.C.A. Bus. & C.
§ 2.711; and 2-106(d), V.T.C.A. Bus. & C. § 2.106(d)
require that prior Texas case law give way. No Texas case
nor any other state court in this Circuit has faced this
exact problem. Therefore, we look to the provisions of
the Uniform Commercial Code for an interpretation, as
would a Texas state court.
[27, 28] U.C.C. § 2-610, V.T.C.A. Bus. & C. § 2.610,
allows the aggrieved party to sue for breach and retain
any remedy for breach of the whole contract. U.C.C.
§ 2-610, V.T.C.A. Bus. & C. § 2.610, provides as follows:
When either party repudiates the contract with
respect to a performance not yet due the loss of
which will substantially impair the value of the
contract to the other, the aggrieved party may
(1) for a commercially reasonable time await per-
formance by the repudiating party; or
(2) resort to any remedy for breach (Section 2.703
or Section 2.711), even though he has notified
the repudiating party that he would await the
latter’s performance and has urged retraction;
and
yw , ~anin a ~
70
(3) in either case suspend his own performance or
proceed in accordance with the provisions of
this chapter on the seller’s right to identify
goods to the contract notwithstanding breach
or to salvage unfinished goods (Section 2.704).
The alternative remedies of U.C.C. § 2-610, V.T.C.A.
Bus. & C. § 2.610, are stated in the disjunctive. Under
U.C.C. § 2-610(1), V.T.C.A. Bus. & C. § 2.610(1) the
aggrieved party can refuse to accede to an anticipatory
repudiation and can choose not to sue for the anticipatory
repudiation. When the aggrieved party follows this course,
the contract remains in existence. Under U.C.C. § 2-610
(2), V.T.C.A. Bus. & C. § 2.610(2), the aggrieved party
can also treat the anticipatory repudiation as a breach
and resort to his remedies under U.C.C. § 2-711, V.T.
C.A. Bus. & C. § 2.711, U.C.C. § 2-711(a), V.T.C.A.
Bus. & C. § 2.711(a), provides as follows:
(a) Where the seller fails to make delivery or
repudiates or the buyer rightfully rejects or justifi-
ably revokes acceptance then with respect to any
goods involved, and with respect to the whole if the
breach goes to the whole contract (Section 2.612),
the buyer may cancel and whether or not he has done
so may in addition to recovering so much of the
price as has been paid
(1) “cover” and have damages under the next sec-
tion as to all the goods affected whether or not
they have been identified to the contract; or
(2) recover damages for non-delivery as provided
in this chapter (Section 2.713).
[Emphasis added]
~— ao
6S eperenr saree eee rea cates 2b ee ees
ee ee eee ee eS
71
The key word in U.C.C. § 2-711(a), V.T.C.A. Bus.
& C. § 2.711(a), is “cancel”’® which is defined in U.C.C.
§ 2-106(d), V.T.C.A. Bus. & C. § 2.106(d), as follows:
(d) “Cancellation” occurs when either party puts
an end to the contract for breach by the other and
its effect is the same as that of “termination” except
that the cancelling party also retains any remedy
oe breach of the whole contract or any unperformed
ance.
Thus, the aggrieved party when faced with an anticipa-
tory repudiation can seek his remedies for breach as
provided in U.C.C. § 2-711(a) and (b), V.T.C.A. Bus.
& C. §2.711(a) and (b), and can also maintain an
action for breach of the contract such as a suit for a
breach of warranty. See 67 Am. Jur. 2d, Sales § 516.
Therefore, Fredonia can seek under the Uniform Com-
mercial Code damages for the anticipatory repudiation
and for breach of warranty. However, as we have dis-
cussed previously, Fredonia’s claim for damages for
breach of warranty is negated by the terms of the con-
tract that it elected to affirm.
D. Fraudulent Representation
RCA contends that the District Court erroneously in-
structed the jury as to the measure of damages for fraud.
15. The definition of “cancellation” should be contrasted with
the definition of “termination” in 2-106(c), V.T.C.A. Bus. & C.
§ 2.106(c) which provides as follows:
“Termination” occurs when -ither party pursuant to a power
created by agreement or law puts an end to the contract other-
wise than for its breach. On “termination” all obligations which
are still executory on both sides are discharged but any right
based on prior breach or performance survives.
72
Specifically, RCA claims that the District Court’s in-
struction on damages [which is set out in toto in Part
III D of this opinion supra] was an instruction as to the
measure of damages for fraud.
The District Court’s instruction on damages as we
have previously said in Part III D does not instruct the
jury to consider damages for fraud. The instruction only
pertains to the three types of conduct that are specifically
enumerated. See our discussion in Part III D. Therefore,
there cannot be an erroneous instruction as to damages
on fraud.**
E. Lost Profits
The District Court initially instructed the jury as to
future or lost profits as follows:
[Y]Jou may consider all such damages as were
proximately caused by the conduct you have already
found on the part of the Defendant, RCA, including
the loss of value of Fredonia’s television station
business, taking into account the loss of value be-
tween the value of the business and its future po-
tential before the station ceased operation and the
value of the business after it ceased operation, lost
its CBS affiliation and became insolvent.
You may also consider the replacement costs of
items of defective equipment furnished by RCA to
Fredonia. [Emphasis added]
RCA objected to the charge of the District Court. RCA’
stated that under Texas law the jury under the facts of
16. If fraud is alleged at the new trial when the case is remanded,
the District Court must consider, as establishing the measure of
damages for fraud, the effect of U.C.C. § 2-721, V.T.C.A. Bus. &
C. § 2.721, and the other sections of the code to which it refers.
Pe Re Pa TE LPs. RE as es
73
this case could not award future profits to a new and
unestablished business. The District Court agreed to
correct its charge and or give an instruction on future
profits. The District Court’s corrected instruction was
as follows:
You are instructed that one of the elements of
damage as it relates to alleged future potential loss
—as it relates to the alleged future potential of
Plaintiff's television station, is a loss of profits that
the Plaintiff allegedly anticipated from the contract
in question.
In this connection are you instructed as to this
element the Plaintiff is entitled to recover only net
profits. The Plaintiff is not entitled to his expected
gross profits.
In determining the net profits which Plaintiff rea-
sonably anticipated from the performance of the con-
tract in question, you will determine that amount of
money that the Plaintiff reasonably would have made
over and above the expense that would have been
incurred. in the production of that income. As to
such anticipated future profits, which Plaintiff con-
tends that it could reasonably have been expected
to make in the ordinary course of business, but for
the breach and repudiation of the contract and the
breach of warranty, the Plaintiff has the burden of
proving that he actually lost business as a result of
the breach and repudiation of the contract and
breach of warranty, and that this loss of business
resulted in a loss of net profits.
RCA objected again to the new charge on the basis
that there was no evidence in the record to support a
finding of lost profits.
74
[29] Under Texas law future profits are allowed in
a contract action as part of the damages to an established
business. Atomic Fuel Extraction Corporation v. Slick’s
Estate, 386 S.W.2d 180, 188 (Tex. Civ. App. 1964),
writ ref'd n.r.e. 403 S.W.2d 784 (Tex. 1966). When
the business is new and unestablished, future profits have
been consistently denied under Texas law. Jd. at 189.
It was made very clear in Atomic Fuel Extraction Cor-
poration v. Slick’s Estate, supra, that in those cases where
future profits were allowed to be recovered, “there was
some data and history of profits from an established
business”. 7d. at 188 (citing Texas cases). In the more
recent Texas case of Southwest Bank & T. Co. v. Execu-
tive Sportsman Ass’n, 477 S.W.2d 920 (Tex. Civ. App.
1972), the Court reaffirmed this rule and said:
[T]he case . . . is governed by the well-established
rule that prospective profits from a new enterprise
which has no history of profits are too remote and
speculative to be included in compensatory damages
(citing Texas cases).
Id. at 929.
[30] Fredonia contends that future profits are per-
mitted to be awarded to new enterprises under our deci-
sion in Mechanical Wholesale, Inc. v. Universal-Rundle
Corp., 5 Cir., 1970, 432 F.2d 228. In that decision we
made it very clear that the factor that the enterprise was
new was not controlling, but rather what was conclusive
was the record of profits of the enterprise. We said in
Mechanical Wholesale, Inc. v. Universal-Rundle Corp.,
supra, as follows:
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:
a]
‘
.
75
{T]he mere fact that Mechanical was a new
business does not automatically exclude its claim
for future lost profits. Pace Corp. v. Jackson, supra
{155 Tex. 179, 284 S.W.2d 340]. Though new,
Mechanical had a rapidly growing business. There
was evidence from which the jury could have con-
cluded that but for the breach Mechanical’s com-
mercial business would have grown at the same rate
its other sales grew. Mechanical was entitled to
recover profits which would have accrued from any
normal increase in business if that increase failed to
occur as a result of Rundle’s breach.
Fredonia’s financial records show clearly that in no
month during the time that the station was on the air
did it make a profit. Fredonia was also operating in an
unfavorable business climate. Its station, which was a
UHF station, was in competition in the same town with
a VHF station. Fredonia’s president, Cudlipp, admitted
that a UHF station was not as favorable as a VHF station
since not all television sets are equipped to receive UHF
channels. Therefore, the District Court erred in submit-
ting lost prospective profits as an element of Fredonia’s
damages.
F. Exemplary Damages
[31] RCA is correct in stating that the District Court
erred in awarding Fredonia exemplary damages. We
stated previously in Part III D that the District Court’s
instruction did not permit the jury to consider or award
damages for fraud. Therefore, the District Court was
permitting the jury to award exemplary damages for
Fredonia’s claims based on breach of contract, breach
of warranty, or repudiation. Texas law is clear that ex-
emplary damages cannot be awarded for a contract action.
76
Success Motivation Institute, Inc. v. Jamieson Film Co.,
473 S.W.2d 275, 282 (Tex. Civ. App. 1971); Graham
v. Turner, 472 S.W.2d 831, 839 (Tex. Civ. App. 1971);
Export Ins. Co. v. Herrera, 426 S.W.2d 895, 900, ref.
n.r.e. (Tex. Civ. App. 1966); and McDonough v. Zamora,
338 S.W.2d 507, 513 (Tex. Civ. App. 1960).
G. Absence of Evidence of Damages”
RCA contends that the damages found by the jury
to have proximately resulted from RCA’s breach of con-
tract, breach of warranty, and repudiation were not sup-
ported by evidence of monetary loss.
We agree that Fredonia did not prove its damages to
the required reasonable certainty.
[32, 33] Of course, Fredonia’s recovery of damages
may not be defeated because it failed to prove its damages
with exactness. Southwest Battery Corp. v. Owen, 131
Tex. 423, 115 S.W.2d 1097, 1099 (Tex. S. Ct. 1938).
Damages in a contract action must be based on evidence
that affords a sufficient basis for estimating their amount
in money with reasonable certainty. Schoenberg v. For-
rest, 253 S.W.2d 331, 334 (Tex. Civ. App. 1952) and
authorities cited therein. While it is true that a party who
breaches a contract cannot escape liability because it is
impossible to state or prove a perfect measure of damages,
Southwest Battery Corp. v. Owen, supra 115 S.W.2d at
1099, it is also true that a defendant in a contract action
cannot be assessed with damages that are based on mere
17. We are not discussing in this section of the opinion the
proper measure of damages to be used, but are discussing only the
sufficiency of the evidence. In other parts of this opinion we have
discussed where appropriate the measure of damages for a particular
cause of action that was alleged.
77
opinion and do not rise to the level of a reasonable. cer-
tainty. Schoenberg v. Forrest, supra 253 S.W.2d at 336.
[34] Clearly, Fredonia should have presented evidence
of its damages that would have been more convincing.
This is not a case of proven damages uncertain in amount,
but rather damages that were not proved at all to a
reasonable certainty. Jordan v. Cartwright, 347 S.W.2d
799, 801 (Tex. Civ. App. 1961). Cf. Household Goods
Carriers’ Bureau v. Terrell, 5 Cir., 1969, 417 F.2d 47, 53.
RCA claims further that it was improper for the jury
to base its award of damages on the opinion of Fre-
donia’s expert witness, Norman Fischer, as to the value
of the enterprise at various points in time.
[35] In Texas, as contrasted to other jurisdictions,
witnesses are allowed to give their opinion as to the
value of property before and after it is injured. South-
western Bell Telephone Company v. Willie, 329 S.W.2d
466, 467 (Tex. Civ. App. 1959) and Houston & T.C.R.
Co. v. Ellis, 111 Tex. 15, 224 S.W. 471 (1920). The
distinction is not with the method Fredonia used in prov-
ing damages but rather with the method’s inexactness in
the present case.
V. The Counterclaim
RCA counterclaimed for the amount due on the broad-
cast equipment it delivered. The counterclaim was based
on the conditional sales agreement that Fredonia signed.
The counterclaim was denied on the basis of the jury's
answer to Question No. 18 where the jury found that
Fredonia signed involuntarily because of coercion by
RCA the condirional sales agreement and the accompany-
ing promissory notes.
78
On appeal RCA contends that the District Court erred
in not granting RCA’s motion for a directed verdict on
this issue because “there was no conflict in substantial
evidence which would create a jury question on the issue
of coercion”.
Fredonia claims that this court cannot consider on ap-
peal the sufficiency of the evidence because RCA did not
object to the instruction or Question No. 18 concerning
coercion. Fredonia further argues that the evidence was
sufficient to support the jury’s finding of coercion.
[36] Fredonia’s argument misses the point. RCA’s
objection to Question No. 18 does not go to the form
of Question No. 18 or the submission of Question No. 18
to the jury, but rather RCA’s objection is to the suffici-
ency of the evidence supporting the jury’s finding in
Question No. 18. Cf. Clegg v. Hardware Mutual Cas-
ualty Co., 5 Cir., 1959, 264 F.2d 152, 158 and Merrill
v. Beaute Vues Corporation, 10 Cir., 1956, 235 F.2d
893, 897. RCA preserved its objection to the sufficiency
of the evidence as to coercion by renewing its motion for
a directed verdict at the close of all the evidence and by
asking for a judgment notwithstanding the verdict after
entry of the judgment. Rule 50(b), Fed. R. Civ. P. See
Hernandez v. Employers Mut. Liab. Ins. Co., 5 Cir.,
1965, 346 F.2d 154, 155, Travelers Ins. Co. v. Stanley,
5 Cir., 1958, 252 F.2d 115, and 5A Moore’s Federal
Practice § 50.05[1].
[37] The evidence did not support a finding of coer-
cion. It clearly shows the following: (1) McFarland ad-
mitted that he knew at the time he prepared the accept-
ance letter of February 6, 1969, that RCA would re-
quire the signing of a conditional sales agreement, (2)
-
De ih a a hea A oan a las he RT a elites
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PIL D B teat On a a,
79
McFarland further testified that the February 6, 1969,
acceptance letter contemplated the signing of a condi-
tional sales agreement, (3) the January 15, 1969, pro-
posal states that if the buyer agrees to deferred payment
terms then the buyer agrees to execute RCA’s standard
form of deferred payment contract, and (4) there was
no evidence that RCA made any demands that it did not
have a legal right to make. Therefore, on this evidence
there can be no doubt that reasonable men could not have
arrived at a contrary verdict. Boeing Company v. Ship-
man, 5 Cir., 1969, 411 F.2d 365, 374.
We conclude that the District Court erred in denying
RCA’s motion for a directed verdict on the coercion
issue.
VI. Summary
By reason of the complexity of this litigation, we deem
it appropriate to summarize our holdings:
(1) The jury found that Fredonia affirmed the con-
tract. Fredonia’s breach claims are precluded by
the terms of the contract it affirmed. Damages
awarded for breach of contract may not be al-
lowed.
(2) The jury’s determination that RCA repudiated the
contract cannot stand because the District Court’s
instruction on repudiation was erroneous. The
District Court also erroneously instructed the jury
as to the measure of damages for repudiation.
Fredonia can seek damages for both repudiation
and breach of warranty. If on remand, the District
Court finds that the terms are not unconscionable,
then Fredonia’s claim for breach of warranty will
be foreclosed.
80
(3) The jury’s findings that RCA made misrepresen-
tations as to date of delivery and degree of super-
vision are negated by the jury’s finding that such
reliance was not justified. The jury’s finding as to
RCA’s misrepresentation stands. However, we
find that the jury was never instructed as to dam-
ages for fraud. Therefore, any damages that the
jury awarded do not include damages for mis-
representations. On remand, if Fredonia seeks re-
lief under a claim for fraud, it need only seek to
prove damages as to the misrepresentation as to
merchantability. Fredonia’s fraud claims stand in-
dependent of its contract actions. Fredonia cannot
seek damages under the theory of strict liability.
(4) RCA’s contract language prevents Fredonia from
seeking damages for breach of warranty. On re-
mand the District Court is directed to determine
whether this contract language was unconscion-
able. The same applies to the contract’s terms
as to consequential damages. Fredonia cannot
under Texas law seek damages for lost profits.
Fredonia, on remand, can seek exemplary dam-
ages if fraud is proven. Fredonia must prove its
damages to a reasonable certainty.
Reversed and remanded with instructions.
APPENDIX A
INTERROGATORY NO. ONE
(a) Do you find from » preponderance of the evidence
that prior to or on February 6, 1969, the defendant repre-
sented, warranted, or agreed that if it got the contract
with plaintiff, it would ship and deliver the equipment
contracted for so as to meet the target on-the-air date of
June 1, 1969?
81
Answer “Yes” or “No”.
ANSWER: Yes
If you have answered the foregoing Interrogatory
No. 1(a) “yes”, and only in such event, you will com-
plete your answer to the following parts of Interrogatory
No. One.
(b) Do you find from a preponderance of the evidence
that such representation, if any, by the defendant was
untrue, and made for the purpose of inducing plaintiff to
enter into the contract in question?
Answer “Yes” or “No”.
ANSWER: Yes
(c) Do you find from a preponderance of the evi-
dence that the plaintiff believed and relied on such repre-
sentation, if any, by the defendant prior to February 6,
1969?
Answer “Yes” or “No”.
ANSWER: Yes
(d) Do you find from a preponderance of the evidence
that such representation, if any. was made with the in-
tention, design, and purpose of deceiving the plaintiff and
with no intention of performing that which was promised?
Answer “Yes” or “No”.
ANSWER: Yes
(e) Do you find from a preponderance of the evidence
that such representation, if any, was a proximate cause
82
of plaintiff's damages, if any, as a result of the loss of its
broadcasting business?
Answer “Yes” or “No”.
ANSWER: Yes
INTERROGATORY NO. TWO
(a) Do you find from a preponderance of the evidence
that the defendant represented, warranted, or agreed
prior to or on February 6, 1969, that if it should get the
contract it would furnish its representatives to supervise
the installation of the equipment supplied and furnished
by it and instruct plaintiff's personnel in the operation
and adjustment thereof?
Answer “Yes” or “No”.
ANSWER: Yes
If you have answered the foregoing Interrogatory No.
Two (a) “Yes”, and only in such event, you will com-
plete your answer to the following parts of Interrogatory
No. Two.
(b) Do you find from the preponderance of the evi-
dence that such representation by the defendant was
untrue, and made for the purpose of inducing plaintiff
to enter into the contract in question?
Answer “Yes” or “No”.
ANSWER: Yes
(c) Do you find from a preponderance of the evidence
that the plaintiff believed and relied upon such represen-
tation by the defendant prior to February 6, 1969?
rr
et ee ee er En ale ee ee
“
ne ht ae anne SORT. oe &
83
Answer “Yes” or “No”.
ANSWER: Yes
(d) Do you find from a preponderance of the evidence
that such representation was made with the intention, de-
sign, and purpose of deceiving the plaintiff and with no
intention of performing that which was promised?
Answer “Yes” or “No”.
ANSWER: Yes
(e) Do you find from a preponderance of the evidence
that such representation was a proximate cause of plain-
tiffs damages, if any, as a result of the loss of its broad-
casting business?
Answer “Yes” or “No”.
ANSWER: Yes
INTERROGATORY NO. THREE
(a) Do you find from a preponderance of the evidence
that the defendant warranted, represented, or agreed,
prior to or on February 6, 1969, that if it should get
the contract it would furnish goods of a quality such as
are generally sold in the market and suitable for that
which they are intended, or for the particular uses to
which the goods are to be put?
Answer “Yes” or “No”.
ANSWER: Yes
If you have answered the foregoing Interrogatory No.
Three (a) “Yes”, and only in such event, you will com-
SESS AAE I Po Pe ae 7
ie
84
plete your answer to the following parts of Interrogatory
No. Three.
(b) Do you find from a preponderance of the evidence
that such representation by the defendant was untrue, and
made for the purpose of inducing plaintiff to enter into
the contract in question?
Answer “Yes” or “No”.
ANSWER: Yes
(c) Do you find from a preponderance of the evidence
that the plaintiff believed and relied upon such repre-
sentation by the defendant prior to February 6, 1969?
Answer “Yes” or “No”.
ANSWER: Yes
(d) Do you find from a preponderance of the evidence
that such representation was a proximate cause of plain-
tiff’s damages, if any, as a result of the loss of its broad-
casting business?
Answer “Yes” or “No”.
ANSWER: Yes
INTERROGATORY NO. FOUR
(a) Do you find from a preponderance of the evidence
that at the February 6, 1969, meeting between officials
of the plaintiff and the defendant that the defendant
represented that the delivery of the plaintiffs letter of
acceptance together with its check for $25,000 would
constitute an acceptance of the plaintiff's proposal of
6 dima tA A ete
85
January 15, 1969, so as to constitute a valid, binding
contract between the parties?
Answer “Yes” or “No”.
ANSWER: Yes
If you have answered the foregoing Interrogatory No.
Four (a) “Yes”, and only in such event, you will com-
plete your answer to the following parts of Interrogatory
No. Four:
(b) Do you find from a preponderance of the evidence
that such representation by the defendant was untrue, and
made for the purpose of inducing plaintiff to enter into
the contract in question?
Answer “Yes” or “No”.
ANSWER: Yes
(c) Do you find from the preponderance of the evi-
dence that such representation by the defendant was
believed and relied upon by the plaintiff?
Answer “Yes” or “No”.
ANSWER: Yes.
(d) Do you find from a preponderance of the evidence
that such representation was a proximate cause of plain-
tiff's damages, if any, as a result of the loss of its broad-
casting business?
Answer “Yes” or “No”.
ANSWER: Yes
a
86
INTERROGATORY NO. FIVE
Do you find from a preponderance of the evidence
that plaintiff at all times after January 1, 1969, and prior
to June 1, 1969, knew, or should have reasonably known,
that it was not able to begin UHF Television broadcasting
on June 1, 1969?
Answer “Yes” or “No”.
ANSWER: No.
INTERROGATORY NO. SIX
(a) Do you find from a preponderance of the evidence
that plaintiff did not rely on any statements of defendant's
agents, George McClanathan or Dana Pratt, as to the
delivery and installation of RCA equipment by June 1,
1969?
Answer “It did rely” or “It did not rely”.
ANSWER: It did rely.
(b) Do you find from a preponderance of the evidence
that plaintiff did not rely on any statements of defendant’s
agents, George McClanathan or Dana Pratt, as to the
obligation of the defendant to furnish representatives to
supervise the installation of the equipment and instruct
plaintiff's personnel in its operation and adjustment?
Answer “It did rely” or “It did not rely”.
ANSWER: It did rely.
If you have answered “It did rely” to either or both
of the preceding Interrogatories Nos. 6(a) and (b), and
only in such event, you will answer the following:
dr ht ee tee Rt
87
(c) Do you find from a preponderance of the evidence
that such reliance was not justified?
Answer “It was justified” or “It was not justified”.
ANSWER: It was not justified.
\ INTERROGATORY NO. SEVEN
Do you find from a preponderance of the evidence
that the parties intended that the defendant’s proposal of
January 15, 1969, coupled with the plaintiff's letter of
acceptance of this proposal, dated February 6, 1969, and
oral representations, if any, made to the plaintiff by the
defendant, constituted the contract between the parties?
Answer “It did” or “It did not”.
ANSWER: It did.
INTERROGATORY NO. EIGHT
Do you find from a preponderance of the evidence
that the Conditional Sales Agreement signed by the plain-
tiff on April 20, 1969, constituted the contract between
the parties?
Answer “It did” or “It did not”.
ANSWER: It did not.
If you have answered Interrogatory No. Seven “It did”,
and Interrogatory No. Eight, “It did not”, you will proceed
to answer the following Interrogatories. Otherwise, it
will not be necessary that they be answered by you.
88
INTERROGATORY NO. NINE
Do you find from a preponderance of the evidence
that the defendant breached the contract in any one or
all of the following particulars:
(a) By deliberately withholding shipment to the plain-
tiff of the items of equipment contracted for more than
75 days after February 6, 1969, and thereafter until plain-
tiff completed documents submitted to it by the defendant?
Answer “Yes” or “No”.
ANSWER: Yes
(b) By delivering such equipment contracted for on
a delayed, erratic, and incomplete basis?
ANSWER: Yes
(c) By delivering equipment that was not of a
quality such as is generally sold in the market and suit-
able for that which it is intended or for the particular
uses to which the goods were to be put?
Answer “Yes” or “No”.
ANSWER: Yes
(d) By withholding personnel necessary to supervise
the installation of equipment until after June 1, 1969,
and in failing to maintain such supervisory personnel on
the site, except on an intermittent and irregular basis?
Answer “Yes” or “No”.
ANSWER: Yes
(e) By failing, after notice, if any, to correct or reme-
dy any such condition, or repair or replace any such
equipment?
b. RO ee ee RE OOO RTE,
BUN tania ek) 2 ee -
89
Answer “Yes” or “No”.
ANSWER: Yes
If you have answered “Yes” to any one or all of the
foregoing allegations of breach of contract, stated in In-
terrogatory No. Nine (a) through (e), and only in such
event, you will then answer the following interrogatory.
INTERROGATORY NO. TEN
Do you find from a preponderance of the evidence
that any conduct of the defendant stated in Interrogatory
No. Nine (a) through (e) was a proximate cause of the
damages, if any, sustained by the plaintiff as a result of
the loss of its television broadcasting business?
Answer “Yes” or “No”.
ANSWER: Yes
INTERROGATORY NO. ELEVEN
Do you find from a preponderance of the evidence that
the defendant repudiated the contract in any one or all
of the following particulars:
(a) By deliberately withholding shipment to the
plaintiff of the items of equipment contracted for for
more than 75 days after February 6, 1969, and there-
after until plaintiff completed documents submitted to it
by the defendant?
Answer “Yes” or “No”.
ANSWER: Yes
(b) By delivering such equipment contracted for on
a delayed, erratic, and incomplete basis?
Answer “Yes” or “No”.
ANSWER: Yes
(c) By delivering.equipment that was not of a quality
such as is generally sold in the market and suitable for
that for which it was intended, or for the particuluar
uses to which the goods were to be put?
Answer “Yes” or “No”.
ANSWER: Yes
(d) By withholding personnel necessary to supervise
the installation of equipment until after June 1, 1969,
and in failing to maintain such supervisory personnel on
the site, except on an intermittent and irregular basis?
Answer “Yes” or “No”.
ANSWER: Yes
(e) By failing, after notice, if any, to correct or reme-
dy any such condition, or repair or replace any such
equipment?
Answer “Yes” or “No”.
ANSWER: Yes
If you have answered “Yes” to any one or all of the
foregoing allegations of repudiation of contract, stated
in Interrogatory No. Eleven (a) through (e), and only
in such event, you will then answer the following inter-
rogatory.
INTERROGATORY NO. TWELVE
Do you find from a preponderance of the evidence that
any conduct of the defendant stated in Interrogatory
SPT eR
PRA ee SPE ARI re REP BBE Sk Ar
Sb Slee welt ate eS:
cae eee
91
No. Eleven (a) through (e) was a proximate cause of
the damages, if any, sustained by the plaintiff as a result
of the loss of its television broadcasting business?
Answer “Yes” or “No”.
ANSWER: Yes
If you have answered “Yes” to either or both of In-
terrogatories Numbered Ten or Twelve, and only in such
event, you will answer the following Interrogatory.
INTERROGATORY NO. THIRTEEN
Do you find from a preponderance of the evidence
that plaintiff waived such breach or repudiation?
Answer “It did” or “It did not”.
ANSWER: It did not.
INTERROGATORY NO. FOURTEEN
(a) Do you find from a preponderance of the evidence
that the management of plaintiff’s television broadcasting
business was not qualified professionally to operate a suc-
cessful UHF television broadcasting station?
Answer “It was” or “It was not”.
ANSWER: It was.
If you have answered Interrogatory No. Fourteen “It
was”, and only in such event, then you will answer the
following Interrogatory:
(b) Do you find from a preponderance of the evidence
that such lack of professional qualifications on the part
of the plaintiff's management proximately caused the
= ae
92
damage, if any, resulting from the loss of plaintiff's tele-
vision broadcasting business?
Answer “Yes” or “No”.
ANSWER: No.
INTERROGATORY NO. FIFTEEN
(a) Do you find from a preponderance of the evidence
that the engineering and technical staff of plaintiff's tele-
vision broadcasting business was not qualified technically
by experience or training to operate successfully a UHF
television broadcasting station?
Answer “It was” or “It was not”.
ANSWER: It was.
If you have answered the preceding Interrogatory No.
Fifteen (a) “It was”, and only in such event, then you will
answer the following Interrogatory.
(b) Do you find from a preponderance of the evidence
that such lack of technical experience and training was
a proximate cause of the damages,. if any, resulting
from the loss of plaintiff's television broadcasting business?
Answer “Yes” or “No”.
ANSWER: No
INTERROGATORY NO. SIXTEEN
(a) Do you find from a preponderance of the evidence
that plaintiff was undercapitalized and lacked the finan-
cial capability to conduct a successful UHF television
broadcasting station?
93
Answer “Yes” or “No”.
ANSWER: No
If you have answered the preceding Interrogatory No.
Sixteen (a) “Yes”, and only in such event, then you will
answer the following Interrogatory.
(b) Do you find from a preponderance of the evidence
that such undercapitalization and lack of financial capa-
bility proximately caused the damages, if any, sustained
by the plaintiff as a result of the loss of its television
broadcasting business?
Answer “Yes” or “No”.
ANSWER: No
INTERROGATORY NO. SEVENTEEN
(a) Do you find from a preponderance of the evidence
that the goods furnished to the plaintiff by the defendant
were of a quality such as are generally sold in the market
and suitable for that for which they are intended, or for
the particular uses to which the goods are to be put?
Answer “Yes” or “No”.
ANSWER: No
If you have answered the precechag interrogatory No.
Seventeen (a) “No”, and only in such event, then you will
answer the following Interrogatory.
(b) Do you find from a preponderance of the evidence
that the failure of the defendant to supply goods of a
quality such as are generally sold in the market and suit-
able for that for which they are intended, or for the
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particular uses to which the goods are to be put was a
proximate cause of the damage, if any, sustained by the
plaintiff as a result of the loss of its television broadcasting
business?
Answer “Yes” or “No”.
ANSWER: Yes
INTERROGATORY NO. EIGHTEEN
Do you find from a preponderance of the evidence
that the plaintiff, acting through its president, involuntarily
signed promissory notes and the Conditional Sales Agree-
ment of April 20, 1969, because of the coercive effect, if
any, of the defendant’s deliberate withholding, if any, of
shipments to the plaintiff of items of equipment neces-
sary for plaintiff to meet its alleged target on-the-air date
of June 1, 1969?
Answer “Yes” or “No”.
ANSWER: Yes
INTERROGATORIES ON DAMAGES
INTERROGATORY NO. ONE
From a preponderance of the evidence, what sum of
money, if any, do you assess as actual damages sustained
by the plaintiff, Fredonia Broadcasting Corporation?
Answer in dollars and cents.
ANSWER: Eight hundred and fifty thousand dollars
95
INTERROGATORY NO. TWO
From a preponderance of the evidence, what sum of
money, if any, do you assess as exemplary damages
against RCA in favor of the plaintiff, Fredonia Broad-
casting Company?
Answer in dollars and cents.
ANSWER: One hundred and fifty thousand dollars.
GEWIN, Circuit Judge (concurring in the result):
I concur in the result reached by my Brother Coleman
in this case. In my view the district court committed errors
with respect to its rulings and jury instructions as to the
issues of liability and damages. Accordingly it is neces-
sary for us to reverse the judgment and to remand the
case for a new trial.
96
APPENDIX C
FIFTH AMENDMENT, U.S. CONSTITUTION
AMENDMENT V—CAPITAL CRIMES; DOUBLE
JEOPARDY; SELF-INCRIMINATION; DUE
PROCESS; JUST COMPENSATION FOR PROPERTY
No person shall be held to answer for a capital, or
otherwise infamous crime, unless on a presentment of a
Grand Jury, except in cases arising in the land or naval
forces, or in the Militia, when in actual service in time
of War or public danger; nor shall any person be subject
for the same offense to be twice put in jeopardy of life
or limb; nor shall be compelled in any criminal case to
be a witness against himself, nor be deprived of life, lib-
erty, or property, without due process of law; nor shall
private property taken for public use, without just com-
pensation.
97
APPENDIX D
FOURTEENTH AMENDMENT, U.S. CONSTITUTION
AMENDMENT XIV.—CITIZENSHIP; PRIVILEGES
AND IMMUNITIES; DUE PROCESS; EQUAL
PROTECTION; APPORTIONMENT OF REPRE-
SENTATION; DISQUALIFICATION OF OFFI-
CERS; PUBLIC DEBT; ENFORCEMENT
Section 1. All persons born or naturalized in the
United States, and subject to the jurisdiction thereof, are
citizens of the United States and of the State wherein
they reside. No State shall make or enforce any law which
shall abridge the privileges or immunities of citizens of
the United States; nor shall any State deprive any per-
son of life, liberty, or property, without due process of
law; nor deny to any person within its jurisdiction the
equal protection of the laws.
Section 2. Representatives shall be apportioned among
the several States according to their respective numbers,
counting the whole number of persons in each State, ex-
cluding Indians not taxed. But when the right to vote at
any election for the choice of electors for President and
Vice President of the United States, Representatives in
Congress, the Executive and Judicial officers of a State,
or the members of the Legislature thereof, is denied to
any of the male inhabitants of such State, being twenty-
one years of age, and citizens of the United States, or in
any way abridged, except for participation in rebellion,
or other crime, the basis of representation therein shall
be reduced in the proportion which the number of such
male citizens shall bear to the whole number of male
citizens twenty-one years of age in such State.
98
Section 3. No person shall be a Senator or Repre-
sentative in Congress, or elector of President and Vice
President, or hold any office, civil or military, under the
United States, or under any State, who, having previously
taken an oath, as a member of Congress, or as an officer
of the United States, or as a member of any State legis-
lature, or as an executive or judicial officer of any State,
to support the Constitution of the United States, shall
have engaged in insurrection or rebellion against the
same, or given aid or comfort to the enemies thereof. But
Congress may by a vote of two-thirds of each House,
remove such disability.
Section 4. The validity of the public debt of the
United States authorized by law, including debts in-
curred for payment of pensions and bounties for services
in suppressing insurrection or rebellion, shall not be
uestioned. But neither the United States nor any State
assume or pay any debt or obligation incurred
in aid of insurrection or rebellion against the United
States, or any claim for the loss or emancipation of any
slave; but all such debts, obligations and claims shall be
held illegal and void.
Section 5. The Congress shall have power to enforce,
by appropriate legislation, the provisions of this article.
——
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99
APPENDIX E
TEXT OF STATUTE INVOLVED
(28 USCA § 144)
§ 144. Bias or prejudice of judge
Whenever a party to any proceeding in a district court
makes and files a timely and sufficient affidavit that
the judge before whom the matter is pending has a per-
sonal bias or prejudice either against him or in favor of
any adverse party, such judge shall proceed no further
therein, but another judge shall be assigned to hear such
proceeding.
The affidavit shall state the facts and the reasons for
the belief that bias or prejudice exists, and shall be filed
not less than ten days before the beginning of the term
at which the proceeding is to be heard, or good cause
shall be shown for failure to file it within such time. A
party may file only one such affidavit in any case. It
shall be accompanied by a certificate of counsel of
record stating that it is made in good faith.
As amended May 24, 1949, c. 139, $65, 63 Stat. 99.
100
APPENDIX F
RULE 7; UNITED STATES SUPREME COURT
Rule 7. Clerks to justices not to practice
No one serving as a law clerk or secretary to a justice
of this court shall practice as an attorney or counsellor
in any court or before any agency of government while
continuing in that position; nor shall he after separating
from that position practice as an attorney or counsellor
in this court until two years have elapsed after such
separation; nor shall he ever participate, by way of any
form of professional consultation and assistance, in any
case that was pending in this court during the period
that he held such position.
ee ee
101
APPENDIX G
RULE 19; UNITED STATES SUPREME COURT
Rule 19. Considerations governing review on certiorari
1. A review on writ of certiorari is not a matter of
right, but of sound judicial discretion, and will be
granted only where there are special and important rea-
sons therefor. The following, while neither controlling nor
fully measuring the court’s discretion, indicate the char-
acter of reasons which will be considered:
(a) Where a/state court has decided a federal ques-
tion of substance not theretofore determined by this
court, or has decided it in a way probably not in accord
with applicable decisions of this court.
(b) Where a court of appeals has rendered a decision
in conflict wit! the decision of another court of appeals
on the same matter; or has decided an important state
or territorial question in a way in conflict with applicable
State or territorial law; or has decided an important ques-
tion of federal law which has not been, but should be,
settled by this court; or has decided a federal question
in a way in conflict with applicable decisions of this court;
or has so far departed from the accepted and usual course
of judicial proceedings, or so far sanctioned such a de-
parture by a lower court, as to call for an exercise of
this court’s power of supervision.
2. The same general considerations outlined above
will control in respect of petitions for writs of certiorari
to review judgments of the Court of Claims, of the Court
of Customs and Patent Appeals, or of any other court
whose determinations are by law reviewable on writ of
certiorari.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.