howard-industries-inc-siemens-industry-inc-aka-siemens-energy ( 2013 )

Opinion issued January 24, 2013
In The
Court of Appeals
For The
First District of Texas
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NO. 01-12-00458-CV
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HOWARD INDUSTRIES, INC., SIEMENS INDUSTRY, INC. A/K/A
SIEMENS ENERGY & AUTOMATION, INC., HD SUPPLY ELECTRICAL,
LTD. A/K/A HD SUPPLY, INC., A & H ELECTRIC CO., LLC F/K/A A&H
ELECTRIC CO., A&H ELECTRIC COMPANY, LLC, AND A&H
ELECTRIC COMPANY, Appellants
V.
CROWN CORK & SEAL COMPANY, LLC, Appellee
On Appeal from the 410th Judicial District
Montgomery County, Texas
Trial Court Case No. 09-04-04232-CV
OPINION
A jury found in favor of Crown Cork & Seal Company, LLC (“Crown”) on
its claim for breach of an implied warranty of merchantability against appellants
Howard Industries, Inc., Siemens Industry, Inc. a/k/a Siemens Energy &
Automation, Inc., HD Supply Electrical, Ltd., a/k/a HD Supply, Inc., A&H Electric
Co., LLC f/k/a A&H Electric Co., A&H Electric Company, LLC, and A&H
Electric Company. The jury determined that Crown had suffered $69,400 in
damages as a result of the breach. The trial court rendered judgment on the jury’s
findings. The court also awarded Crown attorney’s fees of $150,000 for trial
preparation and attendance and an additional $50,000 for appellate attorney’s fees.
The appellants raise one issue on appeal. 1 They assert that the trial court
erred in awarding attorney’s fees to Crown on its breach of the implied warranty of
merchantability claim.
We affirm.
Background Summary
Crown, a manufacturer of aluminum drinking cans, hired A&H Electric to
complete a turnkey installation of a new industrial-size transformer at Crown’s
facility. A&H Electric delivered and installed the transformer at Crown’s facility
1
This appeal, originally filed in the Ninth Court of Appeals, Beaumont, Texas, was
transferred to the First Court of Appeals, Houston, Texas. See TEX. GOV’T CODE
ANN. § 73.001 (Vernon 2005).
2
in May 2005. Howard Industries had manufactured the transformer, which was
sold to Crown through a distribution chain that included Siemens, HD Supply, and
A&H Electric.
In August 2007, the transformer failed. Crown filed suit against Howard
Industries, Siemens, A&H Electric, and HD Supply. Crown asserted causes of
action for breach of contract, breach of express warranty, and breach of implied
warranty of merchantability.
The case was tried to a jury. After Crown had presented its evidence, the
trial court granted a directed verdict on Crown’s breach of express warranty claim
in favor of all defendants, except A&H Electric. The trial court also granted a
directed verdict on Crown’s breach of contract claim in favor of all defendants.
The trial court explained that it had granted the motion for directed verdict on
Crown’s breach of contract claim, not because there was no contract, rather, the
trial court granted the motion because “this is a warranty case.” The trial court
further explained, “[T]here is no question [the defendants] gave [Crown] what [it]
bought. It just maybe wasn’t in the shape you thought it was going to be in. So,
yeah, granted as to [breach of] contract.”
The parties also reached an agreement during trial regarding the amount of
Crown’s reasonable and necessary attorney’s fees. Although they did not concede
that Crown was entitled to attorney’s fees, the defendants stipulated that Crown’s
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attorney’s fees were $150,000 through trial, $25,000 for an appeal to the court of
appeals, and $25,000 for review by the supreme court.
The jury found that A&H Electric had not breached an express warranty.
The jury did, however, find that Howard Industries, Siemens, A&H Electric, and
HD Supply had each breached an implied warranty of merchantability with respect
to the transformer. Because it found in favor of Crown on the implied warranty
claim, the jury was asked to determine Crown’s economic damages. The jury
found that Crown had suffered damages of $69,400, representing Crown’s cost to
replace the transformer.
Following trial, Crown filed a motion for entry of judgment. In the
motion, Crown argued that, because its breach of implied warranty of
merchantability claim was “grounded” in contract, rather than in tort, it was
entitled to recover its attorney’s fees under section 38.001(8) of the Civil Practice
and Remedies Code. It asserted that the contractual nature of its implied warranty
claim was demonstrated by the fact that it had sought and recovered only economic
damages.
The defendants filed a cross-motion for entry of judgment. They asserted
that Crown was not entitled to attorney’s fees because Texas law does not provide
for an attorney’s fees award based on a claim of breach of implied warranty of
merchantability.
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The trial court implicitly granted Crown’s motion for entry of judgment
when it signed the judgment awarding Crown actual damages of $69,400, as found
by the jury, attorney’s fees of $150,000 for trial preparation and attendance, and
appellate attorney’s fees totaling $50,000.
Howard Industries, Inc., Siemens Energy & Automation, Inc., A&H
Electric Company, and HD Supply, Inc. (collectively, “Appellants”) appealed the
trial court’s judgment. Appellants raise one issue on appeal, asserting that the trial
court erred by awarding Crown its attorney’s fees.
Attorney’s Fees Award
A. Standard of Review
On appeal, Appellants do not question the amount of the attorney’s fees
awarded to Crown. Rather, Appellants challenge Crown’s right to recover
attorney’s fees under Civil Practice and Remedies Code section 38.001(8), the
section under which Crown sought to recover its attorney’s fees in the trial court.
See TEX. CIV. PRAC. & REM. CODE ANN. §38.001(8) (Vernon 2008).
Appellants recognize that, because the transaction here involved the sale of
goods, the Uniform Commercial Code (“UCC”)—adopted in Texas as Chapter
Two of the Business and Commerce Code—governs Crown’s breach of implied
warranty of merchantability claim. See TEX. BUS. & COM. CODE ANN. §§ 2.101–
.725 (Vernon 2009). Appellants point out that attorney’s fees are not recoverable
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under the UCC provisions governing Crown’s breach of implied warranty claim.
The determination of whether Crown was entitled to attorney’s fees under a
particular statute is a question of law, which we review de novo. See Holland v.
Wal–Mart Stores, Inc., 1 S.W.3d 91, 94 (Tex. 1999); Bollner v. Plastics Solutions
of Tex., Inc., 270 S.W.3d 157, 171 (Tex. App.—El Paso 2008, no pet.).
B. Analysis
The general rule in Texas is that a party who prevails in a lawsuit is
entitled to recover attorney’s fees only if authorized by statute or contract. See
Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006). In the trial
court, Crown did not assert that the UCC provisions governing its breach of
implied warranty claim authorized the recovery of attorney’s fees. Rather, Crown
claimed that Civil Practice and Remedies Code section 38.001(8) authorized its
attorney’s fees recovery. Pursuant to that provision “[a] person may recover
reasonable attorney’s fees from an individual or corporation, in addition to the
amount of a valid claim and costs, if the claim is for . . . an oral or written
contract.” TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8). Crown averred that
its implied warranty claim was “grounded in contract” because it sought only
economic damages. According to Crown, this is sufficient to bring the claim
within section 38.001(8).
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We must determine if Crown’s claim for breach of implied warranty is in
essence a breach of contract action. We agree with Crown that our analysis is
guided by the Supreme Court of Texas’s decision in Medical City Dallas, Ltd. v.
Carlisle Corporation, 251 S.W.3d 55 (Tex. 2008). There, the court determined
that a claim for breach of express warranty governed by UCC article 2 is a suit
based on a written contract, even though the plaintiff did not plead a breach of
contract claim and did not recover on that theory. See id. at 59, 63. The supreme
court held that a party who prevails on a breach of express warranty claim may
recover attorney’s fees under section 38.001(8). See id.
The Medical City court began its analysis by noting that the UCC
provisions pertaining to the remedies for breach of warranty are silent on the
recovery of attorney’s fees.2 See id. at 59 (citing TEX. BUS. & COM. CODE ANN.
§§ 2.714–.715 and cmt.). The court determined that recovery of attorney’s fees
may nonetheless be authorized under another statue. See id. at 60. It concluded
that Civil Practice and Remedies Code section 38.001 is such a statute. Id.
The supreme court noted that the legislature requires courts to construe
section 38.001 liberally to promote its underlying purposes. See id. at 59; see also
TEX. CIV. PRAC. & REM. CODE ANN. § 38.005 (Vernon 2008). The court analyzed
2
These provisions also apply to Crown’s breach of implied warranty of
merchantability claim. See TEX. BUS. & COM. CODE ANN. §§ 2.714–.715 (Vernon
2009).
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the nature of an express warranty claim and determined that “a claim based on an
express warranty is, in essence, a contract action” in that it “involves a party
seeking damages based on an opponent’s failure to uphold its end of the bargain.”
See id. at 58, 61. The court further noted that, although a breach of warranty claim
is distinct from a breach of contract claim, it is “a creature of contract” and is
“contract-based.” See Medical City, 251 S.W.3d at 60–61.
As part of its analysis, the court also considered the type of damages
sought. See id. 61–62. The Medical City plaintiff had sought damages only for
economic loss. See id. at 61. This also supported the court’s conclusion that the
plaintiff’s breach of warranty claim was based in contract, entitling the plaintiff to
recover its attorney’s fees. See id. In this regard, the court explained, “Under the
economic loss rule, the nature of the injury helps determine which duty or duties
are breached and, ultimately, which damages are appropriate: ‘When the injury is
only the economic loss to the subject of a contract itself, the action sounds in
contract.’” Id. (citing Am. Nat. Petroleum Co. v. Transcon. Gas Pipe Line Corp.,
798 S.W.2d 274, 282 (Tex. 1990) (quoting Jim Walter Homes, Inc. v. Reed, 711
S.W.2d 617, 618 (Tex. 1986)).
More recently, in 1/2 Price Checks Cashed v. United Automobile
Insurance Co., the Supreme Court of Texas applied its analysis from Medical City
to conclude that a holder suing the drawer on a dishonored check under the UCC
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may recover attorney’s fees under section 38.001(8). 1/2 Price Checks, 344
S.W.3d 378, 388, 392 (Tex. 2011). The court determined that a suit on a
dishonored check is a suit on a contract. See id. at 386. A drawer unconditionally
promises not only to pay the payee, but also to pay a subsequent holder of the
instrument. See id. The court concluded that the check itself is the contract. See
id.
The 1/2 Price Checks court also explained,
Importantly, section 38.001(8) does not distinguish between formal
contracts and other types of contracts, nor between codified contract
claims as compared to those that have not been codified. Section
38.001(8) does not narrow its scope to claims for breach of contract,
nor differentiate between different types of contracts: it merely applies
to claims on written or oral contracts.
Id. at 388.
Citing Medical City’s analysis, the 1/2 Price Checks court also considered
the type of damages being sought by the plaintiff. See id. at 387. It noted that the
plaintiff there sought damages only for its economic loss. See id. The court
concluded, “Here, Half-Price’s damages are solely based on its economic loss due
to UAIC’s failure to pay the amount of the dishonored check—the fact that Half-
Price sued pursuant to a statutory provision does not negate the reality that its
damages sound in contract.” Id. at 387.
Utilizing Medical City and 1/2 Price Checks to guide our analysis, we turn
to our determination of whether section 38.001(8) applies to Crown’s breach of
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implied warranty claim. We first address Appellants’ contentions that Crown
cannot recover attorney’s fees under section 38.001(8) because (1) “there was no
oral or written contract between Crown and any Defendant,” and (2) Crown did not
prevail on a breach of contract claim. Appellants emphasize that they obtained a
directed verdict on Crown’s breach of contract claim. Appellants also aver that
Texas law does not permit recovery of attorney’s fees under section 38.001(8)
when a claim merely “sounds in contract.”
Appellants’ contentions are contrary to the supreme court’s analyses and
holdings in Medical City and in 1/2 Price Checks. The Medical City court held
that the plaintiff there could recover its attorney’s fees under section 38.001(8) for
its breach of express warranty claim even though there was no separate contract
between the parties and despite the fact that the plaintiff had neither pleaded a
breach of contract cause of action nor prevailed on such theory at trial. See 251
S.W.3d at 58. The court determined that section 38.001(8) encompasses claims
that are simply contract-based, such as breach of an express warranty claim, which
is a “creature of contract.” See at 60–61.
The supreme court reiterated this position in 1/2 Price Checks, stating,
“[T]hough perhaps not a traditional breach of contract claim, Half-Price has
brought a claim that is contract-based.” 344 S.W.3d at 388. The court made clear
that it was insignificant for section 38.001 purposes that the plaintiff there had
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prevailed on a UCC statutory claim rather than on a breach of contract cause of
action. See 344 S.W.3d at 387. The court explained, “As a general matter, we
further note that section 38.001 lists general types of claims, as opposed to specific
causes of action.” Id. at 388 n.27. Thus, Appellants’ contentions are without merit
and do not support a conclusion that Crown cannot recover its attorney’s fees
under section 38.001(8) for its breach of implied warranty of merchantability
claim.
Here, if Crown’s claim for breach of implied warranty of merchantability
is a contract-based claim, then it is entitled to recover attorney’s fees under section
38.001(8). See Medical City, 251 S.W.3d at 60 (stating that decision whether
38.001 applied to express warranty claim would be made by determining whether
such claim is a suit based in contract). The Medical City court noted that, although
breach of warranty and breach of contract claims are distinct claims with distinct
remedies, an express warranty “is . . . a part of the basis of the bargain and is
contractual in nature.” See id. The same could be argued for an implied warranty
of merchantability claim.
Pursuant to the UCC, “a warranty that the goods shall be merchantable is
implied in a contract for their sale if their seller is a merchant with respect to goods
of that kind.” TEX. BUS. & COM. CODE ANN. § 2.314(a) (Vernon 2009); see also
Printing Ctr. of Tex., Inc. v. Supermind Publ’g Co., 669 S.W.2d 779, 784–85 (Tex.
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App.—Houston [14th Dist.] 1984, no writ.) (regarding implied warranty of
merchantability as contractual term in breach of contract case). The Supreme
Court of Texas has explained, “An implied warranty is a representation about the
implied quality or suitability of a product that the law implies and imports into a
contract.” Am. Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420, 435 (Tex. 1997).
In other words, an implied warranty becomes part of the terms of a contract. See
Parkway Co. v. Woodruff, 901 S.W.2d 434, 439 (Tex. 1995) (quoting Biddle, A
TREATISE ON THE LAW OF WARRANTIES IN THE SALE OF CHATTELS 1 (Philadelphia,
Kay & Brother 1884)); see also Certain–Teed Prods. Corp. v. Bell, 422 S.W.2d
719, 721 (Tex. 1968) (stating that “a warranty which the law implies from the
existence of a written contract is as much a part of the writing as the express terms
of the contract”); Lee v. Perez, 120 S.W.3d 463, 468 (Tex. App.—Houston [14th
Dist.] 2003, no pet.) (explaining that an implied warranty “is part of the contract
itself.”); W. Tank & Steel Corp. v. Gandy, 385 S.W.2d 406, 409 (Tex. Civ. App.—
Texarkana 1964, no writ) (“Warranty, either express or implied, must grow out of
contractual relations between the parties.”). One court expressly stated that “[t]he
implied warranty is contractual in nature.” Darr Equip. Co. v. Owens, 408 S.W.2d
566, 569 (Tex. Civ. App.—Texarkana 1966, no writ).
The foregoing case law aside, we recognize that the Supreme Court of
Texas has instructed that “[i]mplied warranties are created by operation of law and
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are grounded more in tort than in contract.” JCW Electronics, Inc. v. Garza, 257
S.W.3d 701, 704 (Tex. 2008) (citing La Sara Grain Co. v. First Nat’l Bank, 673
S.W.2d 558, 565 (Tex. 1984) and other earlier decisions for this proposition). The
supreme court explained in JCW Electronics that “[c]onceptually, the breach of an
implied warranty can either be in contract or in tort depending on the
circumstances.” Id. The court noted that “[a]s Dean Prosser observed long ago,
this area of the law is complicated ‘by the peculiar and uncertain nature and
character of warranty, a freak hybrid born of the illicit intercourse of tort and
contract.’” Id. at 704–05 (citing William L. Prosser, THE ASSAULT UPON THE
CITADEL (STRICT LIABILITY TO THE CONSUMER), 69 Yale L.J. 1099, 1126 (1960)).
In JCW Electronics the supreme court explained that “[t]he precise nature
of the claim is ordinarily identified by examining the damages alleged: when the
damages are purely economic, the claim sounds in contract, but a breach of implied
warranty claim alleging damages for death or personal injury sounds in tort.” Id. at
705 (citations omitted). As mentioned, the supreme court in Medical City and in
1/2 Price Checks also discussed the importance of the type of damages sought in
determining whether a plaintiff’s claim is based in contract and thus supports
recovery of attorney’s fees under section 38.001(8). See 1/2 Price Checks, 344
S.W. at 388; Medical City, 251 S.W.3d at 60–61.
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Here, Crown sought only the economic damages that it had suffered as a
result of the transformer’s failure. It sought no other damages. Given the nature of
the injury alleged, we conclude that Crown’s breach of implied warranty claim was
based in contract. Accordingly, we further conclude that it is a claim to which
section 38.001(8) applies. See Medical City, 251 S.W.3d at 60–63; see also /2
Price Checks, 344 S.W. at 387–88.
As support for their position that an appellant may not recover attorney’s
fees for a breach of implied warranty claim, appellants point to the Supreme Court
of Texas’s statement in Hyundai Motor Co. v. Rodriguez that a plaintiff may
recover only actual damages for breach of implied warranty. 995 S.W.2d 661, 668
(Tex. 1999). This statement, however, offers little guidance to determining the
issue in this case. The plaintiff in Hyundai Motor sought to recover damages for
personal injuries; thus, the breach of implied warranty claim there sounded in tort,
not in contract. See id. at 662. The question in Hyundai Motor was whether a trial
court must ask the jury to make the same factual determination separately for each
legal theory when claims for breach of an implied warranty and strict liability are
both predicated on the dangerousness of a product’s design. Id. at 662. The
precept cited by Appellants is taken from the supreme court’s discussion regarding
the similarities and the differences between a strict liability claim and breach of
implied warranty claim for purposes of determining the jury charge issue. See id.
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at 668. The court made no determination whether attorney’s fees are recoverable
for breach of implied warranty.
Appellants also cite two other cases as holding that attorney’s fees are not
recoverable for a breach of an implied warranty claim. The first case is 7979
Airport Garage L.L.C. v. Dollar Rent A Car Sys., 245 S.W.3d 488, 509 n.31 (Tex.
App.—Houston [14th Dist.] 2007, pet. denied). There, the court discussed the
award of attorney’s fees for breach of implied warranty in a footnote but also made
clear that the plaintiff was not seeking attorney’s fees based on its breach of
implied warranty claim Id. Rather, the plaintiff requested its attorney’s fees based
on its breach of contract claim and had sought its attorney’s fees for breach of
implied warranty only on the ground that the fees were intertwined with its breach
of contract claim. See id. Moreover, the court in 7979 Airport Garage did not
have the benefit of the supreme court’s decision and analysis in Medical City.
Appellants also cite Basic Energy Service, Inc. v. D-S-B Properties, Inc.,
367 S.W.3d 254, 269 (Tex. App.—Tyler, 2011, no pet.). In Basic Energy, the
court stated, without analysis, “recovery of attorney’s fees for a common law
breach of implied warranty claim is not authorized by statute.” Id. As support for
this proposition, the court cited 7979 Airport Garage. However, as discussed, the
7979 Airport Garage court made clear that, in that case, the plaintiff had sought
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attorney’s fees based on breach of contract, not based on breach of an implied
warranty. See 7979 Airport Garage, 245 S.W.3d at 509 n.31.
For the reasons discussed, the authorities cited by Appellants do not
change our conclusion in this case. See Medical City, 251 S.W.3d at 60–63; see
also /2 Price Checks, 344 S.W.3d at 387–88. Civil Practice and Remedies Code
section 38.001(8) permits an award of attorney’s fees for a suit based on a written
or an oral contract. See TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8). AS
pleaded and tried to the jury in this case, Crown’s breach of implied warranty of
merchantability claim is such a claim. Therefore, Crown was entitled to its
attorney’s fees under section 38.001(8). See TEX. CIV. PRAC. & REM. CODE ANN.
§ 38.001(8); Medical City, 251 S.W.3d at 60–63; see also 1/2 Price Checks, 344
S.W. at 387–88. We hold that the trial court did not err in awarding Crown its
attorney’s fees under section 38.001(8).
We overrule Appellants’ sole issue.
Conclusion
We affirm the judgment of the trial court.
Laura Carter Higley
Justice
Panel consists of Justices Jennings, Higley, and Sharp.
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