ATLANTIC PURCHASERS, INC., Stella Maris Inn, Ltd., Appellants, v. AIRCRAFT SALES, INC., Donald J. Anklin, Appellees.
Nos. 82-1199(L), 82-1200, 82-1322
United States Court of Appeals, Fourth Circuit
Argued Dec. 9, 1982. Decided April 14, 1983.
The government maintained direct contact with Hastings, and contact through his lawyer with Gorman, for a considerable part of the period between their testimony before the grand jury and the trial. Hastings assured the Assistant U.S. Attorney that he would keep in touch, while Gorman‘s lawyer, who had agreed to ensure his availability for the trial, testified that he had no indication Gorman would disappear. After the two men vanished, the government attempted in vain to locate them by service of process. While these attempts were unavailing, they were not unreasonable. We conclude therefore that the grand jury testimony of Hastings and Gorman was admissible under West and Garner.3
III.
The additional claims of Thomas and Curtis are without merit. The judgment of the district court is
AFFIRMED.
David R. Badger, Charlotte, N.C. (Ronald L. Chapman, David R. Badger, P.A., Charlotte, N.C., on brief), for appellees.
Before ERVIN and CHAPMAN, Circuit Judges, and BRYAN, Senior Circuit Judge.
ERVIN, Circuit Judge:
Stella Maris Inn, Ltd., and its wholly owned subsidiary, Atlantic Purchasers, Inc., brought this diversity action for fraud and breach of express warranty against Aircraft Sales, Inc., and its sole stockholder, Donald J. Anklin.1 The jury awarded Stella Maris compensatory and punitive damages, and after the verdict was returned Stella Maris unsuccessfully requested the trebling of the compensatory award pursuant to the North Carolina Unfair Trade Practices Act of 1969,
I.
In 1975, Stella Maris bought a Beechcraft airplane from Aircraft Sales. It allegedly spent $25,000.00 modifying the plane before Aircraft Sales acknowledged that it could not convey good title. Aircraft Sales then suggested that it take back the plane and give Stella Maris credit for it toward the purchase of a Cessna. Anklin personally travelled to Florida to meet with Stella Maris’ agent, where the parties prepared a draft agreement after Anklin made specific rеpresentations about the Cessna‘s mechanical condition and age. These representations were confirmed by the plane‘s log books on actual inspection of the plane in North Carolina, where, on August 21, 1976, Stella Maris and Aircraft Sales signed a lease purchase agreement. The agreement included a specific disclaimer of all warranties not described on its face. Stella Maris contends that this disclaimer was not part of the draft agreement, which, its agent was assured by Aircraft Sales, was identical to the proffered document. Within three weeks of delivery the Cessna suffered engine failure. Aircraft Sales performed repair work on the engines and submitted a bill that Stella Maris claims was grossly inflated. When Stella Maris refused to pay the bill, Aircraft Sales kept the plane. The present litigation ensued.
At trial, Stella Maris presented evidence indicating that the Cessna‘s engines had been operated for many more hours than Anklin and Aircraft Sales represented, that necessary airworthiness inspections prior to sale had not been performed as claimed, and that the log books had been tampered with so as to substantiate these representations.
The jury returned a special verdict finding that Anklin and Aircraft Sales made specific representations about the condition of the Cessna which as express warranties were part of the bargain between the parties, that Stella Maris relied on these warranties, that the defendants failed to make good on the warranties, and that Stella Maris suffered $31,000.00 in actual damages. In addition, the jury found that the defendants’ representations were made with knowing and willful knowledge of their falsity and with the intent to induce reliance thereon, and that Stella Maris was entitled to recover $15,000.00 in punitive damages as a consequence. In response to the court‘s instructions to tender a judgment on the verdict, Stella Maris submitted a claim including a trebling of the actual damages and an award of attorneys’ fees
On appeal, Stеlla Maris contends that the jury verdict shows that it made out a clear case under the Act and that, in accordance with
Aircraft Sales’ position as appellee is that it was not put on notice of the possibility of treble damages prior to Stella Maris’ post-verdict mоves, that there was no evidence on essential elements of proof under the Act, and that Stella Maris has elected a punitive damages remedy to the exclusion of treble damages. As cross-appellant, Aircraft Sales contends that the court erred in submitting the breach of express warranty issue to the jury, and that, assuming fraud was properly submissible, the court erred in failing to charge the jury that Stella Maris’ reliance on representations had to be reasonable. Donald Anklin also disputes the propriety of holding him personally liable.
II.
At the time the events which gave rise to this litigation occurred, the North Carolina Unfair Trade Practices Act stated:
Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.
The procedure to be follоwed in a private action is bifurcated. “Ordinarily it would be for the jury to determine the facts, and based on the jury‘s finding, the court would then determine as a matter of law whether the defendant engaged in unfair or deceptive acts or practices in the conduct of trade or commerce.” Hardy v. Toler, 288 N.C. 303, 218 S.E.2d 342, 346-47 (N.C.1975). The elements of “unfairness” and “deceptiveness” are defined broadly: “[a] practice is unfair when it offends established public policy as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.... [A] practice is deceptive if it has the capacity or tendency to deceive; proof of actual deception is not required.” Marshall, 276 S.E.2d at 403. Good faith is no defense to an alleged violation of the Act. Id. “Proof of fraud would necessarily constitute a violation of the [Act].” Hardy, 218 S.E.2d at 346. On the other hand, mere intentional breach of a valid contract is not, without more, a violation. United Roasters,
It appears that the jury‘s special verdict would suрport a finding of Aircraft Sales’ liability under the Act. The jury specifically found that the defendants made representations about the Cessna‘s condition with knowledge of their falsity, and that Stella Maris relied on those representations. This finding encompasses the elements of the action of deceit or fraud, see Newton v. Standard Fire Ins. Co., 291 N.C. 105, 229 S.E.2d 297, 302 (N.C.1976), and, as a matter of law, the commission of fraud in these circumstances constituted a violation of the Act. Had Stella Maris brought this case under the Act, we may assume it would have been entitled to treble damages.4
III.
In a diversity action, we are governed by the substantive law of the relevant state, but we apply federal procedural rules. Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). While it is clear that under North Carolina procedure a plaintiff would not be permitted to recover statutory treble damages when it had argued and won a common law compensatory damages award, see Abernathy, 285 S.E.2d at 327-328, Stella Maris correctly asserts that its claim for treble damages must be resolved under the more liberal Federal Rules of Civil Procedure. Rule 54(c) provides that, except in cases of judgment by default, “every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleadings.” As we stаted in Robinson v. Lorillard Corporation, 444 F.2d 791, 803 (4th Cir.1971), cert. dismissed, 404 U.S. 1006, 92 S.Ct. 573, 30 L.Ed.2d 665 (1971), “[t]his provision has been liberally construed, leaving no question that it is the court‘s duty to grant whatever relief is appropriate in the case on the facts proved.” See also New Amsterdam Casualty Co. v. Waller, 323 F.2d 20, 25 (4th Cir.1963) (“a party‘s misconception of the legal theory of his case does not work a forfeiture of his legal rights“), cert. denied, 376 U.S. 963, 84 S.Ct. 1124, 11 L.Ed.2d 981 (1964). Rule 54(c) is not, however, without its limits. A party will not be given relief not specified in its complaint where the “failure to ask for particular relief so prejudiced the opposing party that it would be unjust to grant such relief.” United States v. Marin, 651 F.2d 24, 31 (1st Cir.1981). Accord, Robinson, 444 F.2d at 803. In particular, a substantial increase in the dеfendant‘s potential ultimate liability can constitute specific prejudice barring ad-
Stella Maris’ complaint gave no warning to Aircraft Sales that successful prosecution of the action could result in an award to Stella Maris of three times Stella Maris’ actual damages. This default denied Aircraft Sales and its counsel the opportunity to make a “realistic appraisal of the case, so that [their] settlement and litigation strategy [could be] based on knowledge and not speculation.”
IV.
We may dispose of the defendants’ claims on their cross-appeal more briefly.
Anklin, finally, argues that he could not be held personally liable to Stella Maris since Aircraft Sales was the legal seller in the transaction. This argument is without merit: under North Carolina law, the corporate veil will be pierced when fraud is shown. See Huski-Bilt, Inc. v. First Citizens Bank & Trust Co., 271 N.C. 662, 157 S.E.2d 352 (N.C.1967); Rаm Textiles, Inc. v. Hillview Mills, Inc., 47 N.C.App. 593, 267 S.E.2d 700 (N.C.App.1980), disc. review denied, 301 N.C. 530, 273 S.E.2d 454 (N.C.1980). Fraud clearly was shown here, and Anklin could be held personally liable for the actions of his wholly owned corporation.
V.
For the foregoing reasons, the decision of the district court is affirmed.
AFFIRMED.
ALBERT V. BRYAN, Senior Circuit Judge, dissenting:
Terming as “indecent” the plaintiffs’ claim of trebled damages, the District Judge denied any recovery whatsoever of damages for violations of the North Carolina Unfair Trade Practices Act.1 So it is that we must inquire by whom and by what was the indecency caused.
I.
Review of the evidence immediately establishes that violations of the Act, which created the right to trebled damages, were committed by the defendants. The record at once confirms this conclusion by its recital of the jury‘s answers to the interrogatories submitted by the court. They follow:
(1) Did the defendants expressly represent or warrant to plaintiffs that the Cessna airplane had recently undergone a 100-hour inspection and had had only the major repairs and only the amounts of hours on its engines and air frame that were recorded in the aircraft log books:
ANSWER: Yes
(2) If so, did the plaintiffs rely upon those representations or warranties or any of them, and did they become a part of the bargain between the plaintiffs and the defendants?
ANSWER: Yes
(3) Did the defendants breach or fail to makе good on those express warranties?
ANSWER: Yes
(4) ....
(5) [THIS ISSUE IS TO BE ANSWERED ONLY IF YOU HAVE ANSWERED
If any person shall be injured or the business of any person, firm or corporation shall be broken up, destroyed or injured by reason of any act or thing done by any other person, firm or corporation in violation of the provisions of this Chapter, such person, firm or corporation so injured shall have a right of action on account of such injury done, and if damages are assessed in such case judgment shall be rendered in favor of the plaintiff and against the defendant for treble the amount fixed by the verdict. (accent added)
ANSWER: Yes
(6) ....
The force of these verdicts in revealing the unenviable----perhaps “indecent“-character of the defendant appellees is increased by the failure of the defendants to take the stand as witnesses or otherwise deny under oath the allegations of knowing and wilful misrepresentations. These accusations of fraud were pleaded with particularity by the plaintiffs in accordance with
As stated by the Supreme Court of Nоrth Carolina, “[p]roof of fraud would necessarily constitute a violation of the provision against unfair and deceptive acts [
843 (1978); Hardy, 288 N.C. at 310, 218 S.E.2d at 346-47. Consequently, the jury‘s finding that the defendants defrauded the plaintiffs ipso facto generates the conclusion that the prohibitions of the Act were transgressed.
Once the court ascertains that the Act has been violated, an award of treble damages under
Mistakenly, the defendants assert that the recovery of punitive damages by the plaintiffs precludes the allowance of treble damages.2 The Supreme Court of North Carolina, however, has never declared that the receipt of one bars the other. In Hardy, a case concerning misrepresentations made during the sale of an automobile, the plaintiff prayed for actual, punitive and treble damages. 288 N.C. at 304, 218 S.E.2d at 343. The Court held that the defendant‘s actions were fraudulent, but not sufficiently fraudulent to subject the defendants
Again, it is worthy of note, that the State Supreme Court rejected the notion that the treble damages provision, § 75-16, was exclusively penal in nature. State ex rel. Edmisten v. J.C. Penney Co., 292 N.C. 311, 319, 233 S.E.2d 895, 900 (1977). As a result, the Court of Appeals held that actual damages, even if trebled via § 75-16, were not a penalty.4 In sum, these decisions delineate a clear distinction in both purpose and sсope between treble and punitive damages.
II.
Notwithstanding their claims to the contrary, the defendants were fully aware of this potential liability. Repeated notice of their treble damage accountability was given before and after verdict. The statute itself carried word of this liability before trial. The law of North Carolina charged
them with notice that conduct such as theirs was denounced by section 75-1.1. They were made civilly liable by the treble damage statute, section 75-16, as well as by the decision in Hardy, 288 N.C. at 309, 218 S.E.2d at 346. Indeed this was a claim within the prayer of the complaint “for such further relief as may be just and proper.”
Obviously then, further pleadings by the plaintiffs were unneeded. Simply to make their claims more formal, plaintiffs moved to amend the complaint to emphasize this claim. Although
Nonetheless, the majority of this Court would uphold the decision of the District Judge arguing that the plaintiffs unduly had failed to plead a cause of action under the Act and so, prejudiced the defendants. Aside from the demerits of the defendants’ claims, it must also be recalled that where the jurisdiction of the Fеderal Court rests on diversity of citizenship, the doctrine of Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), broadly dictates that the court apply State substantive law
The doctrine of Erie, however, does not generally extend to matters of Federal jurisdiction or procedure. Id. At all events, the availability of treble damages as a remedy is assumed by
Rule 54(c) allows a party to receive the relief to which he “is entitled, even if the party has not demanded such relief in his pleadings.” This Court has liberally construed this provision “leaving no question that it is the court‘s duty to grant whatever relief is appropriate in the case on the basis of the facts proved.” Robinson v. Lorillard Corp., 444 F.2d 791, 803 (4th Cir.1971). Additionally,
Although substantial prejudice to an opposing party may defeat relief under 54(c), Robinson, 444 F.2d at 803, the present defendant‘s claim of prejudice is unpersuasive. An award of treble damages would stem directly from the facts proved at trial concerning the defendant‘s fraud. Id. at 803; United States v. Marin, 651 F.2d 24, 31 (1st Cir.1981). More importantly, the issue of fraud was raised by the initial pleadings, was presented to the jury, and was central to a recovery of actual or treble damages. Rental Development Corp. v. Lavery, 304 F.2d 839, 843 (4th Cir.1962).
In respect to any purported surprise, the defendants continually were on notice that the plaintiffs sought a substantial recovery arising from the sale of sophisticated machinery. No fundamental unfairness would be worked upon the defendants by the trebling of damages particularly because these damages are sought simply as a supplement to general damages. See 5 C. Wright & A. Miller, Federal Practice & Procedure, § 1311 (1971).
Therefore, I would reverse the judgment of the District Court and remand with instructions to treble the actual damages awarded by the jury.
Chris GARRETT, Appellant, v. DESA INDUSTRIES, INC., Appellee. No. 82-1597. United States Court of Appeals, Fourth Circuit. Arguеd Jan. 12, 1983. Decided April 14, 1983.
Notes
(a) Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.
* * * * *To recover punitive damages, a plaintiff must prove that the defendant acted “wilfully or under circumstances of rudeness, oppression or in a manner which evidences a reckless and wanton disregard of the plaintiff‘s rights.” Hardy v. Toler, 288 N.C. 303, 306-07, 218 S.E.2d 342, 345 (1975). Actionable fraud inherently involves intentional wrongdoing because “[f]raud is a malfeasance, a positive act resulting from a wilful intent to deceive...” Newton 291 N.C. at 113, 229 S.E.2d at 302; Davis v. Highway Commission, 271 N.C. 405, 408, 156 S.E.2d 685, 688 (1967). Newton represents a revision of the law concerning punitive damages, from those principles set forth in Hardy. Consequently, a plaintiff who demonstrates actionable fraud by the defendant need no longer also show aggravating circumstances in order to receive punitive damages. Newton, 291 N.C. at 113-14, 229 S.E.2d at 302.
This procedure was error. Both parties are entitled freely to cross examine and impeach a court witness. Estrella-Ortega v. United States, 423 F.2d 509, 511 (9th Cir.1970); 2 Wright, Federal Practice and Procedure: Criminal 2d § 418 (1982). The fact that Ingles was called to testify outside the jury‘s presence to aid the court in resolving an evidentiary point rather than before the jury on a substantive issue in the case does not affect the defendants’ right to question her: the value of adversary cross-examination in ascertaining the truth is as great when the truth to be learned concerns the government‘s efforts to procure a witness as when it concerns the acts of an accused. However, this error was harmless. The district court‘s decision to admit the evidence was sustainable еven apart from Ingles’ rather unenlightening testimony.
The Act subsequently was rewritten to eliminate the reference to “trade” and to define “commerce” as “all business activities, however denominated,” except certain professional services.The Supreme Court of North Carolina further has held that the treble damages statute,
(1) to serve as an incentive for injured private individuals to ferret out fraudulent and deceptive trade practices, and by so doing, to assist the State in enforcing the act‘s prohibitions; (2) to provide a remedy for those injured by way of unfair and deceptive trade practices; and (3) to serve as a deterrent against future violations of the statute.
Id.