Mount Sage, LTD v. Rolls-Royce Commercial Marine Inc.

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-11440
Non-Argument Calendar
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D.C. Docket No. 0:12-cv-60863-WJZ
MOUNT SAGE, LTD.,
Plaintiff - Counter
Defendant - Appellant
Cross Appellee,
versus
ROLLS-ROYCE COMMERCIAL MARINE INC.,
Defendant - Counter
Claimant - Appellee
Cross Appellant,
M/Y DOLCE VITA II,
Defendant -
Counter Defendant -
Appellee.
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________________________
Appeals from the United States District Court
for the Southern District of Florida
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(January 5, 2016)
Before HULL, MARCUS, and DUBINA, Circuit Judges.
PER CURIAM:
Appellant and Cross-Appellee, Mount Sage, Ltd. (“Mount Sage”), filed suit
in federal district court asserting various contract claims against Appellee and
Cross-Appellant Rolls-Royce Commercial Marine, Inc. (“Rolls-Royce”) regarding
repairs to a yacht. At the close of Mount Sage’s case-in-chief, the district court
granted Rolls-Royce’s Motion for Judgment as a Matter of Law on one count
invoking the Magnuson-Moss Warranty Act. Mount Sage appeals that order.
Further, Mount Sage appeals the district court’s enforcement of the limitation of
liability clause contained in the parties’ service contract. Rolls-Royce cross-
appeals the district court’s damages calculation. After reviewing the record and
reading the parties’ briefs, we affirm in part and reverse and remand in part.
I. BACKGROUND
Robert Mintz is the owner of Mount Sage and the DOLCE VITA II, a yacht
equipped with two MTU-brand 12V200 engines and a water jet propulsion system.
In February 2011, Mount Sage purchased guide vanes from Rolls-Royce for the
vessel’s water jets. The parts were warranted and included terms (the “Parts
Terms”) disclaiming Rolls-Royce’s liability in the event “the Part has been
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installed repaired or altered other than by [Rolls-Royce] in any way that – in [Rolls
Royce’s] judgment – would affect the performance or reliability of the Part.”
In June 2011, Mount Sage hired Rolls Royce to perform an overhaul of the
water jets and replace the yacht’s existing guide vanes with those purchased in
February 2011. Rolls-Royce provided a copy of its service terms (the “Service
Terms”) with its quote for the overhaul, which the parties stipulated at trial
constituted the parties’ contract for the overhaul and installation. The service
contract contained the following limitation of liability clause:
IN NO EVENT, WHETHER AS A RESULT OF BREACH OF
CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE)
OR OTHERWISE WILL SELLER BE LIABLE FOR ANY
INDIRECT, CONSEQUENTIAL, SPECIAL, OR INCIDENTAL
DAMAGES OF ANY KIND. . . .
THE TOTAL LIABILITY OF SELLER, WHETHER IN
CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE)
OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, OR
RESULTING FROM THE PERFORMANCE NONPERFORMANCE
OF ANY PURCHASE ORDER, OR FROM THE MANUFACTURE,
SALE, DELIVERY, RESALE, REPAIR, REPLACEMENT OR USE
OF ANY PART OR THE FURNISHING OF ANY SERVICE
RELATED THERETO, WILL IN NO EVENT EXCEED TWENTY
PERCENT (20%) OF THAT TOTAL PRICE OF THE PURCHASE
ORDER THAT GIVES RISE TO THE CLAIM.
During the overhaul, Rolls-Royce observed cracks in the yacht’s impellers.
Rolls-Royce notified Mintz that the impellers needed to be reconditioned, but
Mintz requested that Rolls-Royce perform temporary repairs. These repairs were
performed under a separate work order totaling $8,960.55. Following the overhaul
and repairs, Mintz noticed that the DOLCE VITA II experienced vibrations. Rolls-
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Royce investigated the vibrations and paid a third party to balance the impellers.
Rolls-Royce’s vibration analysis registered no vibrations after the balancing.
Despite this, Mintz continued to notice vibrations and observed
deterioration in the guide vanes. In September 2012, Mount Sage again purchased
new impellers and guide vanes from Rolls-Royce, which were installed by another
marine repair facility, Advantage Marine Services. Even after the installations of
the new parts, Mintz continued to notice vibrations in the vessel. Mintz ultimately
discovered the cause—the engines were not properly aligned with the water jets.
Mount Sage brought suit against Rolls-Royce alleging breach of express and
implied warranties for the sale of its parts and work conducting the overhaul.
Mount Sage also alleged a violation of the Magnuson-Moss Warranty Act
(“MMWA”). During the jury trial, Rolls-Royce moved for judgment as a matter of
law on all counts at the close of Mount Sage’s case-in-chief. Specifically, Rolls-
Royce argued that Mount Sage failed to present any evidence the parts supplied by
Rolls-Royce were defective or prove the existence of a contract. Mount Sage
voluntarily dismissed Counts I, II, and VI relating to the sale of the parts. The
district court denied Rolls-Royce’s motion as to Counts III and IV—Breach of
Express Warranty for Labor/Services and Breach of Implied Warranty for
Workmanlike Performance—noting that the Service Terms were the stipulated
service contract between the parties. The court granted Rolls-Royce’s motion to
dismiss Count V under the MMWA because it determined that the Service Terms
for the overhaul did not constitute a “service contract” as defined in the MMWA.
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The jury found that Rolls-Royce breached the implied warranty for
workmanlike performance and Mount Sage breached the service contract by failing
to pay Rolls-Royce. The jury awarded Mount Sage $103,038.26 in direct damages
consisting of a $29,707.30 invoice from Rolls-Royce; “Various Invoices” totaling
$43,000; $1,523.40 invoice from Lauderdale Marine Center, LLC; $24,487.70
invoice from Advantage Marine Services; and a $4,319.86 invoice from
Lauderdale Marine Center, LLC. The jury awarded Rolls-Royce $10,000.
Mount Sage filed a post-verdict motion for reconsideration of damages,
arguing that the limitation of liability clause contained in the service terms was
unenforceable. The district court denied the motion, concluding that the clause
was enforceable under admiralty law. The court’s Order of Final Judgment reduced
the jury award to 20% of its total, “pursuant to the Services Terms.”
II. ISSUES
1) Whether the district court erred in determining that the limitation of liability
clause contained in the Service Terms was enforceable under admiralty law.
2) Whether the district court erred in dismissing Mount Sage’s Magnuson-
Moss Warranty Act claim because it determined that the parties’ service
contract was not covered under the Act.
3) Whether the district court erred in calculating Mount Sage’s damages
pursuant to the limitation of liability provision.
III. STANDARDS OF REVIEW
We review de novo the district court’s order granting a motion for judgment
as a matter of law. Rossbach v. City of Miami, 371 F.3d 1354, 1356 (11th Cir.
2004). “A judgment as a matter of law is warranted only ‘[i]f during a trial by jury
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a party has been fully heard on an issue and there is no legally sufficient
evidentiary basis for a reasonable jury to find for that party on that issue.’”
U.S.S.E.C. v. Ginsburg, 362 F.3d 1292, 1297 (11th Cir. 2004) (quoting Fed. R.
Civ. P. 50(a)(1)). Contract interpretation is a question of law reviewed de novo.
Daewoo Motor Am., Inc. v. Gen. Motors Corp., 459 F.3d 1249, 1256 (11th Cir.
2006). “[R]eviewing damage awards, this court should reverse only if it finds the
award to be clearly erroneous.” Bunge Corp. v. Freeport Marine Repair, Inc., 240
F.3d 919, 923 (11th Cir. 2001).
IV. DISCUSSION
A. Limitation of Liability Clause
The Eleventh Circuit applies the three-part test to determine whether a
limitation of liability clause is enforceable in a maritime contract.1 Diesel
“Repower,” Inc. v. Islander Invs. Ltd., 271 F.3d 1318, 1324 (11th Cir. 2001). The
clause must (1) clearly and unequivocally indicate the parties’ intentions; (2) not
absolve the repairer of all liability and still provide a deterrent to negligence; and
(3) the “businessmen” must have equal bargaining power so there is not
overreaching. Id. In Diesel, Islander Investments hired Diesel “Repower” to
repower Islander’s vessel. Id. at 1319–20. The parties’ contract contained a
limitation of liability clause limiting Diesel’s liability to the purchase order price.
Id. at 1324–25. The Eleventh Circuit concluded that the clause was enforceable
1 A contract to repair a vessel, at issue in the instant case, invokes admiralty jurisdiction.
See Diesel, 271 F.3d at 1322–23. The federal interest in uniform application of admiralty law is
great. Id. at 1324. Therefore, the interpretation of a limitation of liability clause in a vessel repair
contract is governed by substantive admiralty law. See id.
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where the parties’ intent was clear; the director of Islander was a sophisticated
businessman familiar with the marine industry; and the exposure of the purchase
order price, uncompensated labor, and replacement parts provided a sufficient
deterrent to negligence. Id. at 1325.
Mount Sage attacks the validity of the limitation of liability clause in this
case on the same grounds presented to the district court—that the clause was not a
sufficient deterrent to negligence and the parties did not have equal bargaining
power.2 The district court properly dismissed these arguments in its well-reasoned
order on Mount Sage’s post-trial motion for reconsideration.
First, to find a limitation of liability clause unenforceable for unequal
bargaining power “[t]here must be some evidence that the party holding the
superior bargaining power exerted that power in overreaching the less
sophisticated party by, for example, engaging in fraud or coercion or by insisting
on an unconscionable clause.” Sander v. Alexander Richardson Inc., 334 F.3d 712,
720 (8th Cir. 2003) (applying admiralty law). As in Diesel, the record clearly
supports that Mintz is a sophisticated businessman familiar with the maritime
industry and with equal bargaining power as Rolls-Royce. Further, Mount Sage’s
2 Mount Sage advances additional arguments in its brief that the limitation of liability
clause is invalid. First, Mount Sage incorrectly argues that the limitation of liability clause is also
an unenforceable liquidated damages clause. The district court correctly dismissed this argument.
Next, Mount Sage argues that the contractual remedies fail their essential purpose under New
York warranty law and the UCC. As Rolls-Royce correctly points out, this argument is
unavailing—the only contract at issue on appeal is for services, and New York’s application of
the UCC does not apply to services. Directory Publishers Inc. v. Lake Country Hearth &
Leisure, 753 N.Y.S.2d 660, 662 (N.Y. 2002) (citations omitted) (“New York Courts have
consistently held that the UCC does not apply contracts which are predominately for the
rendition of work, labor and services rather that for the sale of goods.”)
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misreading of the Parts Terms to impute in the Service Terms a mandate to use
Rolls-Royce to install parts does not establish the overreaching discussed in Diesel
and Sander.
Mount Sage next argues that the dollar value Rolls-Royce was obligated to
pay under the limitation of liability clause was insufficient in light of Mount Sage’s
damages. Our precedent does not set a fixed dollar amount or percentage
obligation in a limitation of liability clause to be a sufficient deterrent. Instead,
whether the terms of a limitation of liability clause are a sufficient deterrent to
negligence is a “fact-specific inquiry . . . [considering the] liability risks compared
to the overall obligations under the contract.” Diesel, 271 F.3d at 1325. In the
instant case, Rolls-Royce was required to pay 20% of the purchase order price and,
similar to Diesel, provide uncompensated labor and replacement parts to conduct
repairs under warranty. Considering Rolls-Royce’s overall obligations under the
service contract, we agree with the district court’s finding that these potential
liabilities were a sufficient deterrent to negligence. Therefore, we affirm the district
court’s determination that the limitation of liability clause was enforceable under
admiralty law.
B. MMWA
The Magnuson-Moss Act3 (“MMWA”) is designed to protected consumers
from deceptive warranty practices in the sale of “consumer products” or “service
contracts.” The term service contract is defined in the MMWA as “a contract in
writing to perform, over a fixed period of time or for the specified duration,
3 15 U.S.C. §§ 2301–2312 (2012).
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services relating to the maintenance or repair (or both) of a consumer product.” 15
U.S.C. § 2301(8). Services related to separate repairs or installations are not
covered. See generally Robin Towing Corp. v. Honeywell, Inc., 859 F.2d 1218,
1223 (5th Cir. 1988) (where repairs to the consumer’s fire alarm were obtained by
separate oral requests and none of the consumer’s contracts with the supplier
contemplated future maintenance services, the supplier extended no service
contract as defined in the MMWA); 16 C.F.R. § 700.1(h) (2015) (“[W]arranties
which apply solely to a repairer’s workmanship in performing repairs are not
subject to the Act.”)
Mount Sage voluntarily dismissed all counts related to warranties on the
parts sold by Rolls-Royce. Therefore, its remaining claims concerned the
warranties associated with the separate Service Terms for the overhaul of the water
jets. This separate contract did not contemplate maintenance or repair of the parts
sold “over a fixed period of time.” Accordingly, the MMWA does not apply to
Mount Sage’s remaining claims and the district court correctly dismissed Count V.
C. Damages Calculation
In its Order of Final Judgment, the district court reduced the total damages
awarded by the jury to 20%, “pursuant to the Services Terms.” We conclude this
calculation constitutes clear error. As discussed above, the district court found as a
matter of law that the limitation of liability clause in the Service Terms was
enforceable. The Service Terms expressly state that Rolls-Royce’s liability could
not “exceed twenty percent (20%) of that total price of the purchase order that
gives rise to the claim.” As Rolls-Royce points out, the jury verdict awarded
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damages from repair work conducted by third parties, outside the scope and price
of Rolls-Royce’s overhaul purchase order. Accordingly, the district court’s
reduction of the total jury award to 20% incorrectly included those third party
invoices. Therefore, we reverse the district court’s Order of Final Judgment and
remand with instructions that damages be recalculated to conform to the contract’s
limitation of liability.
V. CONCLUSION
For the foregoing reasons, we affirm the district court orders dismissing
Count V under the MMWA and enforcing the limitation of liability clause in the
Service Terms. We reverse the Order of Final Judgment, and remand this case with
the instruction to recalculate the damages in accordance with the Service Terms.
AFFIRMED in part, REVERSED and REMANDED in part.
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