H.c. Smith Investments, L.l.c. v. Outboard Marine Company

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2004 FED App. 0259P (6th Cir.)
File Name: 04a0259p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
H.C. SMITH INVESTMENTS,
L.L.C.,
Plaintiff-Appellee/
Cross-Appellant,
v.
OUTBOARD MARINE
COMPANY, et al.,
Defendants,
RAYTHEON AIRCRAFT
SERVICES, INC.,
Defendant-Appellant/
Cross-Appellee.
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Nos. 02-1506/1611
Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 00-00128—Richard A. Enslen, District Judge.
Argued: March 11, 2004
Decided and Filed: August 4, 2004
2 H.C. Smith Investments v.
Outboard Marine Co., et al.
Nos. 02-1506/1611
*The Honorable Richard D. Cudahy, Senior Circuit Judge of the
United States Court of Appeals for the Seventh Circuit, sitting by
designation.
Before: MARTIN and CLAY, Circuit Judges; CUDAHY,
Senior Circuit Judge.*
_________________
COUNSEL
ARGUED: Kathleen McCree Lewis, DYKEMA GOSSETT,
Detroit, Michigan, for Appellant. Jon R. Muth, MILLER,
JOHNSON, SNELL & CUMMISKEY, Grand Rapids,
Michigan, for Appellee. ON BRIEF: Kathleen McCree
Lewis, Kyle R. Dufrane, DYKEMA GOSSETT, Detroit,
Michigan, Richard G. Ward, SULLIVAN, WARD, ASHER
& PATTON, Southfield, Michigan, for Appellant. Jon R.
Muth, Susan G. Davis, MILLER, JOHNSON, SNELL &
CUMMISKEY, Grand Rapids, Michigan, for Appellee.
_________________
OPINION
_________________
BOYCE F. MARTIN, JR., Circuit Judge. H.C. Smith
Investments, L.L.C. hired Raytheon Aircraft Services, Inc. to
inspect a jet airplane that it was considering purchasing.
Approximately one year after the inspection and subsequent
purchase, Smith Investments discovered that Raytheon failed
to detect that the airplane had extensive corrosion damage,
which substantially diminished its value and safety. Smith
Investments filed suit against Raytheon, alleging negligent
inspection, negligent supply of information, and breach of
contract with respect to the inspection.

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A jury found in favor of Smith Investments on the
negligent-inspection and negligent-supply-of-information
claims, and in favor of Raytheon on the breach-of-contract
claim. The district court awarded Smith Investments
approximately $1.9 million in damages.
Raytheon appeals the district-court judgment, arguing that
the court erred in granting Smith Investments' Rule 50 motion
and in instructing the jury on the negligent-supply-of-
information claim. Smith Investments cross-appeals, arguing
that the district court erred in denying its Rule 50 motion and
in instructing the jury that it could allocate to Smith
Investments the fault of its agent, Travel Consultants
Aviation. We find no error in any of the judgments of the
district court, and we affirm.
I.
In early 1997, Smith Investments hired Travel Consultants
Aviation to assist it in its endeavor to locate and purchase a
second-hand airplane for personal and charter use. Travel
Consultants Aviation eventually located a 1969 Hawker-
Siddeley jet airplane in Florida at the Aero Toy Store, which
had purchased the airplane from Outboard Marine Company.
On July 10, 1997, Smith Investments submitted a conditional
offer to purchase the airplane for $2.2 million, subject to the
airplane being inspected by Raytheon at its Ft. Lauderdale,
Florida, location.
Shortly thereafter, Tony Zeka, a Raytheon mechanic,
inspected the airplane and then faxed a handwritten, nine-
page letter to Lloyd Huth, a Travel Consultants Aviation
employee, that set forth his findings. The letter stated that the
airplane's logbooks were not up to Federal Aviation
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1"Part 135" refers to the section of the Federal Aviation Regulations
that governs lo gbook-insp ection standards for charter airplanes.
2"Squawks" refer to problems with the airplane that require repair or
replacement.
Regulations "Part 135"1 standards (but that they could be with
additional work) and listed the "squawks"2 that Mr. Zeka
discovered while conducting a physical inspection of the
airplane. Mr. Huth also stated that Mr. Zeka told him during
a phone conversation that the airplane had been well kept.
After Mr. Zeka reported his findings to Travel Consultants
Aviation, the sale was completed and Smith Investments took
possession of the airplane.
Roughly one year later, in September 1998, the airplane
was taken to the Aviation Maintenance and Technical Support
center in St. Louis, Missouri, for a mandatory, 1200-hour, 24-
month inspection. During the course of this inspection,
extensive internal corrosion of the airplane was discovered.
Smith Investments incurred substantial costs in repairing the
corrosion uncovered during this inspection. In addition, the
prospect that additional corrosion was yet to be discovered
within the body of the airplane raised serious questions about
the airplane's safety and value.
After learning about the corrosion, Smith Investments
contacted Raytheon to inquire why this had not been
discovered when it inspected the airplane. Raytheon
responded by stating it was hired only to conduct a "Part 135"
inspection and that Travel Consultants Aviation never
requested a more extensive inspection that would have
revealed the corrosion. Wolfgang Heuberger, Raytheon's Ft.
Lauderdale service-center manager, stated in deposition that
no Raytheon employee would have agreed to conduct a "pre-
purchase" inspection because of the vagueness of the term.
Raytheon will inspect airplanes, Mr. Heuberger stated, but

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only for requests narrower or more specific than a "pre-
purchase" inspection. In addition, according to John C.
Willis, President of Raytheon Aircraft Services, the scope of
work requested was limited to the "Part 135" inspection,
which involved logbook research and a pre-flight check of the
engine and oil. Mr. Willis also stated that Raytheon stopped
inspecting the airplane after Mr. Huth instructed Raytheon
that Smith Investments would not be buying the airplane
based on the "Part 135" compliance issue that Mr. Zeka had
reported earlier to Mr. Huth. Mr. Willis added that the
airplane was removed from the Raytheon service center the
day after Mr. Huth relayed this message to Raytheon.
According to Smith Investments, Travel Consultants
Aviation directed Raytheon to conduct a comprehensive "pre-
purchase" aircraft evaluation and Mr. Zeka represented to
Travel Consultants Aviation that he would complete this task.
Smith Investments contends that Mr. Zeka failed to disclose
that the Ft. Lauderdale service center was not authorized by
Raytheon for Hawker inspections and, therefore, that its
employees were unaware of the inspection criteria in
Raytheon's Hawker Evaluation Guide, which includes
inspection for corrosion. Smith Investments also alleges that
the invoice submitted by Raytheon for its work, which states
"evaluated aircraft," implies that Raytheon conducted a
comprehensive inspection of the airplane.
II.
In 2000, Smith Investments filed its initial complaint
against Raytheon and alleged breach-of-contract and
negligent-inspection claims. In 2002, Smith Investments
amended its complaint for the second time and added a
negligent-supply-of-information claim against Raytheon.
Raytheon answered the complaint and pleaded thirteen
affirmative defenses, including comparative fault of Smith
Investments' agent, Travel Consultants Aviation.
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Outboard Marine Company, the original owner of the
airplane, was named at the outset of the suit as a co-
defendant. The district court granted Outboard Marine's
motion to dismiss the fraudulent-misrepresentation and
negligent-misrepresentation claims alleged by Smith
Investments. Outboard Marine also moved to dismiss the
third claim against it, a breach-of-express-warranty claim.
The district court denied this motion pending either a stay or
termination of Outboard Marine's Chapter 11 bankruptcy
proceeding in the Northern District of Illinois.
The case was tried before a jury in 2002. At the close of
Raytheon's defense, Smith Investments moved under Federal
Rule of Civil Procedure 50 for judgment as a matter of law on
Raytheon's affirmative defense of Travel Consultant
Aviation's comparative fault as a non-party. The district court
granted the motion in favor of Smith Investments, precluding
the jury from allocating fault to Smith Investments for any
negligence of Travel Consultants Aviation as a non-party to
the suit. The next day, Smith Investments again moved under
Rule 50 for judgment as a matter of law on Raytheon's
affirmative defense of Travel Consultants Aviation's
comparative fault as an agent of Smith Investments. The
district court denied this motion and stated: "The unstated
premise of yesterday's ruling as to [Travel Consultants
Aviation] was that TCA did not occupy the position of a non-
party because TCA was acting as an agent of plaintiff. This
clarification is obvious and the jury should be allowed to
consider TCA's negligence as the negligence of a party."
The jury returned a verdict in favor of Smith Investments
on the negligent-inspection and negligent-supply-of-
information claim and in favor of Raytheon on the breach-of-
contract claim. The jury allocated 80% of the comparative
fault to Raytheon and 20% to Travel Consultants Aviation as
Smith Investments' agent. The district court awarded
approximately $1.9 million in damages to Smith Investments.

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On appeal, Raytheon argues that the district court erred in
granting Smith Investments' Rule 50 motion as to Travel
Consultants Aviation's status as a non-party and in instructing
the jury on the negligent-supply-of-information claim. Smith
Investments cross-appeals and argues that the district court
erred in denying its Rule 50 motion as to Travel Consultants
Aviation's status as an agent and in instructing the jury that it
could allocate to Smith Investments the fault of its agent.
III.
We review the denial of a Rule 50 motion de novo. Gray v.
Toshiba Am. Consumer Prods., Inc., 263 F.3d 595, 598 (6th
Cir. 2001). As a federal court sitting in diversity, we apply
the standard for a motion for judgment as a matter of law used
in Florida, the state law that governs this action. See Potti v.
Duramed Pharm., Inc., 938 F.2d 641, 645 (6th Cir. 1991).
As to the allegations of improper jury instructions, we
review those claims de novo as well. Fisher v. Ford Motor
Co., 224 F.3d 570, 576 (6th Cir. 2000). A district court's
refusal to give a jury instruction is reviewed for abuse of
discretion. Ibid.
IV.
The first issue Raytheon alleges on appeal is that the district
court erred in granting Smith Investments' motion for
judgment as a matter of law on Raytheon's affirmative
defense of comparative fault. Specifically, Raytheon pleaded
that Travel Consultants Aviation, Smith Investments'
purchasing agent, was comparatively liable for the damages.
By granting this motion in favor of Smith Investments, the
district court precluded the jury from directly apportioning
any negligence to Travel Consultants Aviation in its own
capacity.
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Nos. 02-1506/1611
We review de novo a district court's grant of a judgment as
a matter of law. Gray, 263 F.3d at 598. As a federal court
sitting in diversity, we apply the standard for a motion for
judgment as a matter of law used in Florida. See Potti, 938
F.2d at 645.
Judgment as a matter of law is proper "only when the
evidence and all inferences of fact, construed most strictly in
favor of the non-moving party, cannot support in the minds of
jurors any reasonable difference as to any material fact or
inference." Stewart & Stevenson Servs., Inc. v. Westchester
Fire Ins. Co., 804 So. 2d 584, 588 (Fla. App. 2002).
Raytheon bore the burden of pleading comparative fault as an
affirmative defense. See Fla. Stat. Ann. § 768.81(3)(e). This
required Raytheon to demonstrate to the court "that there
[was] legally sufficient evidence in the record from which the
jury [could] find that [Travel Consultants Aviation, the non-
party] was at fault." S. Bell Tel. & Tel. Co. v. Florida Dep't
of Transp., 668 So. 2d 1039, 1041 (Fla. App. 1996). Smith
Investments moved for judgment as a matter of law and
argued that Raytheon failed to demonstrate that legally
sufficient evidence existed to support a finding that Travel
Consultants Aviation was at fault. Specifically, Smith
Investments argued that in Raytheon's attempt to ascribe
negligence to Travel Consultants Aviation as a non-party,
Raytheon failed to articulate an applicable standard of
ordinary care or to establish that Travel Consultants
Aviation's conduct fell short of the standard. The district
court granted judgment as a matter of law on the grounds that
Travel Consultants Aviation was an agent of Smith
Investments rather than a non-party. Instructing the jury, the
district court stated:
An agency relationship existed between the plaintiff
[Smith Investments] and Travel Consultants [Aviation]
. . . . An agent is a person who was employed to act for
another whose actions are controlled by the employer or
subject to the employer's right . . . to control. The

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plaintiff is responsible for the negligence of TCA, if such
negligence occurred while TCA was performing services
which it was employed to perform or while TCA was
acting at least in part because of a desire to serve the
plaintiff and was doing something that was reasonably
incidental to its employment or something the doing of
which was reasonably foreseeable and to be expected of
persons similarly employed.
The effect of this instruction permitted the jury to allocate any
fault of Travel Consultants Aviation directly to Smith
Investments as an agent rather than to Travel Consultants
Aviation as a non-party. We find no error in the district
court's grant of the motion for judgment as a matter of law.
Although Florida law permits a jury to apportion comparative
fault to a non-party, see Fla. Stat. Ann. § 768.81(3)(e) and
Fabre v. Marin, 623 So. 2d 1182 (Fla. 1993) (overruled on
other grounds), a third party to whom fault may be attributed
as an agent should not also have fault attributed to it as a non-
party in the same suit. That would be duplicative.
Furthermore, we are unpersuaded that permitting the jury to
apportion any fault of Travel Consultants Aviation as a non-
party rather than as an agent would have affected the outcome
of this case or would "support in the minds of jurors any
reasonable difference as to any material fact or inference."
Stewart & Stevenson Servs., 804 So. 2d at 588. Therefore, we
affirm the district court's grant of the motion for judgment as
a matter of law.
V.
The second issue Raytheon argues on appeal is that the
district court erroneously instructed the jury regarding
Raytheon's liability for the tort of negligent supply of
information. This tort imposes liability on one who, in the
course of his business, profession, or employment, or in any
other transaction in which he has a pecuniary interest,
supplies false information for the guidance of others who
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justifiably rely on this information in their business
transactions if the supplier fails to exercise reasonable care or
competence in communicating the information. Gilchrist
Timber Co. v. ITT Rayonier, Inc., 696 So. 2d 334, 336 (Fla.
1997). Raytheon contends that liability for this tort requires
an affirmative statement, but that, at most, Raytheon made an
omission for which liability cannot be imposed.
We review de novo whether the district court's jury
instructions were proper. Fisher, 224 F.3d at 576. We review
for abuse of discretion whether the district court properly
refused to give a specific jury instruction. Ibid.
The district court instructed the jury on the negligent-
supply-of-information claim as follows:
The claim of the plaintiff [Smith Investments] is that
there was information negligently supplied by the
defendant [Raytheon], or negligent supply of
information. The following instructions relate to the
plaintiff's claim of negligent supply of information.
Let me begin by explaining the plaintiff's negligent
supply of information claim by informing you of the
specific elements or items of proof that the plaintiff is
required to prove by a preponderance of the evidence.
And here there are eight of them. Not three or four.
First, that the defendant, in fact, supplied information
to the plaintiff to use in making a business decision.
Secondly, that the defendant supplied the information
in the ordinary course of business as an aircraft service
station.
Third, that the defendant intended to supply this
information either directly or indirectly for the benefit of
the plaintiff.
Fourth, that the information supplied was false and
misleading because of incompleteness.

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Fifth, that the defendant failed to use reasonable care in
providing the information.
Sixth, that had the defendant used reasonable care, it
would have known that the information was false or
misleading because of incompleteness.
Seventh, that the plaintiff justifiably relied on that
information.
And eighth, that the negligent supply of false
information was a legal cause of . . . damages.
Florida has adopted the position set forth in the Restatement
(Second) of Torts § 552 on negligent misrepresentation,
Gilchrist Timber Co., 696 So. 2d at 339 ("By this opinion, we
adopt the Restatement (Second) of Torts' position on
negligent misrepresentation contained in section 552"), which
reads:
(1) One who, in the course of his business, profession or
employment, or in any other transaction in which he has
a pecuniary interest, supplies false information for the
guidance of others in their business transactions, is
subject to liability for pecuniary loss caused to them by
their justifiable reliance upon the information, if he fails
to exercise reasonable care or competence in obtaining or
communicating the information.
(2) Except as stated in Subsection (3), the liability stated
in Subsection (1) is limited to loss suffered (a) by the
person or one of a limited group of persons for whose
benefit and guidance he intends to supply the information
or knows that the recipient intends to supply it; and (b)
through reliance upon it in a transaction that he intends
the information to influence or knows that the recipient
so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give
the information extends to loss suffered by any of the
class of persons for whose benefit the duty is created, in
any of the transactions in which it is intended to protect
them.
12 H.C. Smith Investments v.
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Gilchrist Timber Co., 696 So. 2d at 337.
Raytheon asserts that the phrase "suppl[ying] false
information" in § 552 requires an affirmative
misrepresentation, and that Raytheon made no affirmative
misrepresentation about the airplane. Contrary to that
assertion, we hold that Raytheon in fact made affirmative
misrepresentations about the condition of the airplane in Mr.
Zeka's nine-page letter to Travel Consultants Aviation. In this
letter, Mr. Zeka reported that he had reviewed the airplane's
logbooks and then he listed, over several pages, a series of
"squawks" he had discovered "[d]uring examination of the
aircraft[.]" In this list of "squawks," Mr. Zeka also referred to
corrosion under one of the wings. In addition, Mr. Huth of
Travel Consultants Aviation stated in deposition that Mr.
Zeka told him that the airplane had been well kept. We think
it is relevant that these statements were made after Mr. Zeka
represented to Mr. Huth that he was a Hawker expert and
failed to inform him that Raytheon's Ft. Lauderdale service
center was not an authorized Hawker inspection site. Though
these last two considerations may constitute omissions, they
establish a context in which the affirmative misstatements of
Mr. Zeka to Mr. Huth regarding the airplane's condition
would be reasonably relied upon.
Thus, we hold that the affirmative misstatements made by
Mr. Zeka to Mr. Huth about the airplane's condition are
sufficient to support § 552 liability. Therefore, we find no
error in the district court's jury instruction.
VI.
On cross-appeal, Smith Investments argues that the district
court erroneously instructed the jury that Travel Consultants
Aviation was its agent and, therefore, that the jury
erroneously attributed Travel Consultants Aviation's liability
to Smith Investments. According to Smith Investments,
Travel Consultants Aviation was an independent contractor

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for whom no liability can be attributed to Smith Investments.
Raytheon contends that this argument has no merit because
Travel Consultants Aviation was an agent of Smith
Investments and that attributing its liability to Smith
Investments comports with the fundamental doctrines of
agency law.
The propriety of a jury instruction is reviewed de novo.
Fisher, 224 F.3d at 576. The refusal to give a jury instruction
is reviewed for abuse of discretion. Ibid.
We are unpersuaded by Smith Investments' argument and
hold that an agency relationship existed. First, designating
Travel Consultants Aviation as an agent of Smith Investments
established the requisite standing for Smith Investments to
pursue its breach of contract claim against Raytheon. Indeed,
Smith Investments explicitly refers to Travel Consultants
Aviation as its agent in (1) the "Aircraft Acquisition
Agreement," signed by both Smith Investments and Travel
Consultants Aviation, in (2) its Second Amended Complaint
and Jury Demand, and in (3) its Reply Brief Supporting
Plaintiff's Motion for Partial Summary Judgment. In
addition, this agency relationship was the "only judicial notice
of the whole trial," and no party objected to this notice.
We realize, however, that use of the term "agent" is not
legally determinative. Nazworth v. Swire Florida, Inc., 486
So. 2d 637, 638 (Fla. App. 1986). Indeed, "[t]he standard for
determining whether an agent is an independent contractor is
the degree of control exercised by the employer or owner over
the agent. More particularly, it is the right of control, and not
actual control, which determines the relationship between the
parties." Ibid. (internal citations omitted). Although Mr.
Smith testified that he personally did not control how Travel
Consultants operated, he also testified that the relationship
between his company and Travel Consultants Aviation was
controlled by the Aircraft Acquisition Agreement, which
identified Travel Consultants Aviation as Smith Investments'
14 H.C. Smith Investments v.
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Nos. 02-1506/1611
agent. Thus, even under this more stringent standard, we are
convinced that an agency relationship existed: Smith
Investments maintained a right to control whether Travel
Consultants Aviation could negotiate the purchase of an
airplane and, if so, to direct Travel Consultants Aviation in
that purchase.
As the principal for Travel Consultants Aviation, Smith
Investments is liable for the work Travel Consultants
Aviation conducted within the scope of its role as agent. See
Life Ins. Co. of N. Am. v. Del Aguila, 417 So. 2d 651 (Fla.
1982) (Florida follows the basic doctrine of agency law
wherein a principal is liable for the tortious conduct of his
agent, even though not authorized, if the agent was acting
within the scope of his employment or his apparent authority).
As stated in the "Aircraft Acquisition Agreement," the
inspection of the airplane was within the scope of Travel
Consultants Aviation's role as Smith Investments' agent.
Therefore, we hold that Travel Consultants Aviation was an
agent of Smith Investments and, thus, the district court
properly attributed the fault, if any, of Travel Consultants
Aviation to Smith Investments.
VII.
On cross-appeal, Smith Investments also argues that the
district court erred in denying its motion for judgment as a
matter of law on Raytheon's affirmative defense of
comparative fault attributable to Travel Consultants Aviation.
We review the denial of a motion for judgment as a matter
of law de novo. Gray, 263 F.3d at 598. Under Florida law,
judgment as a matter of law is proper "only when the
evidence and all inferences of fact, construed most strictly in
favor of the non-moving party, cannot support in the minds of
jurors any reasonable difference as to any material fact or
inference." Stewart & Stevenson Servs., Inc., 804 So. 2d at
588.

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According to Smith Investments, Raytheon failed to
establish an applicable standard of ordinary care for Travel
Consultants Aviation and its breach of this standard. Smith
Investments contends that this amounts to reversible error.
Raytheon counters this claim, stating that it established a
standard of care and the breach of this standard through the
testimony of Robert Francis Stanford, an expert witness in the
field of advising airplane purchasers. Mr. Stanford, whose
line of work is similar to the services provided by Travel
Consultants Aviation, testified about airplane inspections and
how he guards his clients' interests during the airplane-
acquisition process.
We hold that the district court committed no error in
denying the motion for judgment as a matter of law and that
Raytheon laid a proper foundation for a comparative-
negligence affirmative defense. Furthermore, because an
agency relationship existed between Smith Investments and
Travel Consultants Aviation, we also hold that the jury
permissibly apportioned a percentage of fault to Smith
Investments, either because of negligence on its own part or
for that of its agent. See Del Aguila, 417 So. 2d 651. Smith
Investments pleaded that Travel Consultants Aviation was its
agent, and documentary evidence and the conduct of the two
companies proved an agency relationship existed.
We therefore find that Raytheon established an applicable
standard of ordinary care for an agent in this context and a
breach of this standard. We also find no merit to Smith
Investments' allegation that Travel Consultants Aviation was
not its agent. The district court's denial of the motion for
judgment as a matter of law is affirmed.
VIII.
Based on the foregoing, we hereby affirm the district court's
judgments in their entirety.

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