Duane MARTIN and Robert Rick, Plaintiffs-Appellees, v. The JOSEPH HARRIS CO., INC., a foreign corporation, Defendant-Appellant.
No. 84-1416
United States Court of Appeals, Sixth Circuit.
Argued April 16, 1985. Decided July 15, 1985.
767 F.2d 296
MILBURN, Circuit Judge.
Here, the District Court immediately replaced the juror with an alternate. The juror who had been contacted took no part in any deliberations. The District Court essentially erected a wall between the potential for taint and the remaining jurors.
The foregoing analysis illustrates that the District Court did not err when it refused to declare a mistrial on the basis of the unauthorized juror contact. The present case does not fall within that narrow class of cases in which, regardless of whether prejudice is proven, a court should grant a mistrial as a preventive rather than a remedial measure.
III.
Defendant‘s second ground for appeal is a remark made by the District Court in response to a narrative, non-responsive answer offered by defendant on direct examination. The Court responded to the government‘s objection to defendant‘s answer by stating: “Mr. Shaeffer, just ask him to answer the questions. This is a narration of something previously rehearsed apparently.” Tr. 387.
The next day, defense counsel made an objection to the Court‘s use of the word “rehearsed;” the Court thereupon made a curative instruction to the jury, explaining that they should attach no significance to the word “rehearsed,” and that it was solely within their province to assess each witness’ credibility.
Defendant urges that the remark was non-curable; that it implied that defendant was perjuring himself; that the Court had invaded the province of the jury and violated the high standard of cautious impartiality imposed on judges.
One isolated remark, of a slightly ambiguous nature, which was later retracted, is not so potent as to deny defendant a fair trial. See Glasser v. United States, 315 U.S. 60, 83, 62 S.Ct. 457, 470, 86 L.Ed. 680 (1942) (“The trial was long and the incidents relied on by petitioners few. We must guard against the magnification on appeal of instances which were of little importance in their setting.“)
In conclusion, the jury conviction is affirmed.
Richard A. Kay, argued, and Myra L. Willis, Varnum, Riddering, Schmidt & Howlet, Grand Rapids, Mich., for plaintiffs-appellees.
Before MERRITT and MILBURN, Circuit Judges, and GUY, District Judge.*
MILBURN, Circuit Judge.
The defendant, Joseph Harris Co., Inc., brings this appeal following the district court‘s granting the plaintiffs’ motion for a judgment notwithstanding the verdict and a second trial in plaintiffs’ action for damages as a result of defective seeds. Because we hold that the district court was correct in holding that, under the facts of this case, the disclaimer of warranty and limitation of remedy clause used by the defendant was unconscionable under Michigan law, and because we further hold that the district court properly held that the implied warranty of merchantability was breached as a matter of law, we affirm.
Plaintiffs Duane Martin and Robert Rick (“Martin and Rick“) were commercial farmers in Michigan. In August of 1972, Martin and Rick placed independent orders for cabbage seed with the defendant, Joseph Harris Co., Inc. (“Harris Seed“), a national producer and distributor of seed. Plaintiffs had been customers of Harris Seed for several years and, as in earlier transactions, the order form supplied by Harris Seed included a clause disclaiming the implied warranty of merchantability and limiting buyers’ remedies to the purchase price of the seed.1 A similar clause was also used by Harris Seed‘s competitors for the same purpose. Neither of the plaintiffs read the clause nor did the salesman make any attempt either to point it out or to explain its purpose.
Three to four months after placing their orders, plaintiffs received Harris Seed‘s 1973 Commercial Vegetable Growers Catalog. Included in the lower right-hand corner of one page of the catalog was a notification that Harris Seed would no longer “hot water” treat cabbage seed. Hot water treatment had successfully been used since 1947 to eradicate a fungus known as phoma lingam or “black leg,” a seed borne disease that causes affected plants to rot before maturing.2
Plaintiffs planted their cabbage crop in April and May of 1973, using, among other seed, that supplied by Harris Seed. In mid-July, Harris Seed notified plaintiffs that the seed lot used to fill plaintiffs’ order was infected with black leg. Although plaintiffs attempted to minimize the effect of the disease, large portions of their cabbage crops were destroyed. However, in marketing their smaller than usual crop, both plaintiffs made a profit equal to or higher than previous years. This unusual profit margin was due to the rise in market price for cabbage in 1973, which in turn was affected in part by the fact that the 1973 black leg epidemic reduced the amount of available cabbage.
On August 5, 1975, plaintiffs brought this action. After a hearing on the enforceability of the disclaimer of warranty and limitation of liability clause, the district court ruled that the clause was unconscionable and, therefore, unenforceable. A jury was impaneled to try plaintiffs’ legal liability theories of negligence and breach of implied warranty. Following a six-day trial the jury returned a verdict against plaintiffs on both theories; however, the district court granted the plaintiffs’ motion for a j.n.o.v. on the implied warranty issue. A second jury impaneled to hear the issue of damages returned verdicts in favor of Martin in the amount of Thirty-six Thousand ($36,000.00) Dollars and in favor of Rick in
II.
Our review of the district court‘s rulings in this diversity case is controlled by the State of Michigan‘s version of the Uniform Commercial Code,
A.
The first issue raised by Harris Seed is whether the district court erred in holding the disclaimer and limitation clause unconscionable under
A threshhold problem in this context is whether under Michigan law warranty disclaimers which comply with
Comment 1 [to § 2-302] lists and describes ten cases which are presumably intended to illustrate the underlying basis of the section: In seven of those cases disclaimers of warranty were denied full effect. It is difficult to reconcile the intent on the part of the draftsman to immunize disclaimers from the effect of 2-302 with the fact that they used cases in which courts struck down disclaimers to illustrate the concept of unconscionability.
Id. (footnotes omitted). Therefore, because this issue is unsettled under Michigan law and according the district court‘s conclusion “considerable weight,” we hold that the district court correctly relied upon
We next turn to a more troublesome subissue; viz., whether within the special facts of this case the disclaimer and exclusionary clause was unconscionable under Michigan law. As has often been stated, commercial contracts will rarely be found unconscionable, see, e.g., A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 186 Cal.Rptr. 114 (1982), Stanley A. Klopp, Inc. v. John Deere Co., 510 F. Supp. 807, 810 (E.D. Pa. 1981), aff‘d, 676 F.2d 688 (3rd Cir. 1982),4 because in the commercial setting the relationship is between business parties and is not so one-sided as to give one party the bargaining power to impose unconscionable terms on the other party.
In making its determination of unconscionability, the district court relied upon Allen v. Michigan Bell Telephone, 18 Mich. App. 632, 171 N.W.2d 689 (1969).5 In Allen an insurance agent contracted with Michigan Bell Telephone Company to place advertisements in the classified telephone directory. When the advertisements were not included, he brought an action for damages. To defend the action, Michigan Bell Telephone Company relied on a limitation of remedies clause which, if upheld, would have limited the plaintiff‘s recovery to the contract price. In refusing to uphold the limitation, the Michigan court stated “the principle of freedom to contract does not carry a license to insert any provision in an agreement which a party deems advantageous.” Id. at 691-92. Rather, the court stated that:
[i]mplicit in the principle of freedom of contract is the concept that at the time of contracting each party has a realistic alternative to acceptance of the terms offered. Where goods and services can only be obtained from one source (or several sources on non-competitive terms) the choices of one who desires to purchase are limited to acceptance of the terms offered or doing without. Depending on the nature of the goods or services and the purchaser‘s needs, doing without may or may not be a realistic alternative. Where it is not, one who successfully exacts agreement to an unreasonable term cannot insist on the court‘s enforcing it on the ground that it was “freely” entered into, when it was not....
There are then two inquiries in a case such as this: (1) what is the relative bargaining power of the parties, their relative economic strength, the alternative sources of supply, in a word, what are their options?; (2) is the challenged term substantively reasonable?
Id. at 692.
With reference to the test announced in Allen, Harris Seed argues that the relative bargaining power of the parties is not a proper consideration under
Other closely related factors suggested by the Michigan court in Allen for determining the presence of procedural unconscionability are the relative economic strength of the parties and the alternative sources of supply. With reference to the relative economic strength of the parties, we note that Harris Seed is a large national producer and distributor of seed, dealing here with independent, relatively small farmers. As to alternative sources of supply, the farmers were faced with a situation where all seed distributors placed disclaimers and exclusionary clauses in their contracts. Thus, this presents a situation where “goods [could] only be obtained from ... several sources on non-competitive terms ... and doing without [was] not a realistic alternative.” Allen, supra, 171 N.W.2d at 692.6
Another pertinent factor considered by the district court in its unconscionability finding was that Harris Seed‘s salesman did not make Martin and Rick, who were uncounseled laymen, aware of the fact that the clauses in question altered significant statutory rights. Such a disclosure is an important consideration under Michigan law. Mallory v. Conida Warehouses, Inc., 134 Mich. App. 28, 350 N.W.2d 825, 827 (1984); cf. Johnson v. Mobil Oil Corp., 415 F. Supp. 264, 269 (E.D. Mich. 1976) (“[b]efore a contracting party with ... immense bargaining power ... may limit its liability vis-a-vis an uncounseled layman ... it has an affirmative duty to obtain the voluntary knowing assent of the other party.“).
Furthermore, although the terms of the 1972 sale appeared to be the same as in previous years (unknown to Martin and Rick), Harris Seed decided to discontinue the hot water treatment of its cabbage seed, a standard practice for the previous twenty-six years. This decision by Harris Seed was one which had far-reaching consequences to the purchasers of its cabbage seed. As noted above, hot water treatment had been successful in preventing black leg in Washington State produced cabbage seed since 1947, and although Martin and Rick were unaware of the potential effects of black leg, or indeed even what black leg was, Harris Seed had considerable expertise in such matters.
Another important consideration is the fact that the presence of black leg in cabbage seed creates a latent defect. Although in many cases the fact that a latent defect is present seems to be dispositive, see Majors v. Kalo Laboratories, Inc., 407 F. Supp. 20 (M.D. Ala. 1975); Corneli Seed Company v. Ferguson, 64 So. 2d 162 (Fla. 1953), we note only that it is important to the disposition of this case.
Significantly, in the present case not only was the defect latent, but it was also one which was within the control of Harris Seed to prevent. Even if Martin and Rick had been apprised of and understood the significance of Harris Seed‘s decision to discontinue hot water treatment, they would have been unable to detect the presence of the disease in the seed until their crop had developed into young plants. If Harris Seed were permitted to rely on the
B.
The second major issue is whether the district court erred in granting the plaintiffs’ motion for a judgment n.o.v. on the breach of implied warranty question. We begin by noting that the district court applied the correct standard of law in setting aside the jury verdict:
In evaluating a motion for a judgment n.o.v., the fundamental principle is to keep at a minimum the interference with the jury. This principle takes root in the applicable standard which is exactly the same as the standard for granting a directed verdict: whether, without weighing the credibility of the witnesses or the weight of the evidence, reasonable persons could have reached only one verdict. See, e.g., Minton v. Southern Railway Co., 368 F.2d 719 (6th Cir. 1966); ... The court should view the evidence in the light most favorable to the party who received the jury verdict. See, e.g., Perry v. Gulf, Mobile & Ohio R.R., 502 F.2d 1144 (6th Cir. 1974)....
In addition, when the party moving for a judgment n.o.v. is the party with the burden of proof, the court should grant the motion only if the evidence supporting the verdict is so insufficient that it fails to meet the reasonable person test and the evidence in favor of the claimant is overwhelming. See, e.g., Mihalchak v. American Dredging Co., 266 F.2d 875 (3rd Cir. 1959), cert. denied, 361 U.S. 901 (1959); Gray [Grey] v. First National Bank in Dallas, 393 F.2d 371 (5th Cir. 1968), cert. denied, 393 U.S. 961 (1968)....
App. at 432.7
The district court also stated that “I suspect it was the advocacy skill of defendant‘s counsel that convinced the jury that plaintiffs sustained no damages.” App. at 436. As it did at trial, Harris Seed argues that there is no breach of the implied warranty of merchantability where there is no economic loss. This argument is founded on the fact that Martin and Rick by selling the remaining portion of their 1973 cabbage crop at a higher than usual market price were able to make as much or more profit than they had in previous years. Thus, appellant argues that “[a]lthough black leg was damaging their cabbage, the law of supply and demand was making them ... whole.”
This argument has some appeal, and like the district court, we can understand how the jury could have found for Harris Seed on the belief that Martin and Rick were not “damaged.” However, we are persuaded by the district court‘s finding that the defendant‘s sale of diseased seed to these two plaintiffs did not create the increased market price. Similarly, we note that Martin and Rick purchased some healthy seed from other companies and some other
Harris Seed also argues that there is no breach of implied warranty because the Federal Seed Act,
Harris Seed next argues that reasonable minds could differ on the issue of whether the implied warranty was breached, and, therefore, the district court erred in granting a judgment n.o.v. We disagree. The evidence that the seed sold to Martin and Rick carried black leg was uncontroverted as was the evidence that the black leg in the seed actually caused the plaintiffs’ injury. As the district court held, “[d]efendant introduced no evidence offsetting plaintiffs’ proofs which would allow reasonable people to conclude other than that plaintiffs sustained an injury caused by defendant‘s sale of a product with a defect making it not reasonably fit for its intended use.” App. at 435. Harris Seed, however, argues that there was evidence that the seed would pass without objection in the trade. To support this they quote one expert who testified that “[y]ou could never say something is disease free,” and that he had no knowledge of any seed company ever warranting or guaranteeing their seed against disease. Obviously, this does not respond to the case at hand where the seed marketed produced a crop which not only failed to be disease free but, in addition, was largely unsalable.
Harris Seed further argues that there was evidence that the spread of the disease was dictated by environmental and husbandry factors. In particular, it points to testimony to the effect that considerations such as how cabbage was irrigated and how the plants were transplanted were important factors that affected how far the black leg spread. However, the company failed to point to any evidence that these considerations were a factor in the case of Martin and Rick. In fact, the evidence presented at trial was that Martin and Rick followed the recommended instructions for preventing the spread of black leg.
Finally, Harris Seed argues that there was evidence that black leg can be transmitted from a number of sources. For example, the company states that the black leg could have been “windblown or carried over by tools or implements from other fields ...; that it had over-wintered on related cabbage weeds ... in or near Mar-
III.
Giving “considerable weight” to the district court‘s conclusion that Michigan law does not permit the exclusion of the implied warranty of merchantability and limitation of remedy clause to be enforced within the special facts of this case, we affirm the district court‘s unconscionability holding under the peculiar facts of this case. Furthermore, having reviewed the district court‘s decision to grant the plaintiffs’ motion for a judgment notwithstanding the verdict, along with the other issues raised by the appellant, we AFFIRM the decision of the district court in all respects.
MERRITT, Circuit Judge, concurring.
I write to explain my view of the unconscionability issue because I am normally loath to interfere with the contract the parties have made. Judge Hillman has handled this case with great care and intelligence. He found that the limitation of remedy and warranty disclaimer clauses were both procedurally and substantively unconscionable. The procedural unconscionability ruling was based on findings that the plaintiff farmers did not understand the meaning of an “implied warranty of merchantability,” did not have its meaning explained to them, and could not have “bargained” concerning the disclaimer of implied warranty even if they had understood its import because the clause is contained in a standard seed order form which Harris Company seed salesmen must use and cannot modify. The District Court found that Harris Company used this gross disparity in knowledge, and hence bargaining power, to shift the risk of loss from diseased seeds to the party least able to discover and take precautions against disease. The District Court‘s factual findings on these matters are not clearly erroneous, and its ruling, narrow in scope, is that a legally sophisticated seller may not take advantage of a buyer‘s lack of legal expertise about warranties to shift, by cryptic language, the risk of loss due to latent, undiscoverable defects in the product sold.
Our decision, therefore, is based on the unequal position of the parties. If the parties had been roughly equal in their legal sophistication and had actually bargained over the limitation clauses, or if Harris Company‘s salesman had informed the legally unsophisticated farmers of the meaning of these clauses, we would have ground for upholding the limitation clauses as a bargained-for term in an informed, mutually understood exchange. But here, where the technical, legalistic disclaimer failed to inform the farmers as to the risk they were bearing, and where the seed company for the first time failed to take precautions against the risk by hot water treating the seeds, the key element of accurate and roughly equal knowledge regarding the meaning of the contract was absent. The principle of freedom of contract “is enhanced by a requirement that both parties be aware of the burdens they are assuming.” Johnson v. Mobil Oil, 415 F. Supp. 264, 269 (E.D. Mich. 1976). Our holding on unconscionability is thus an application of the fundamental principle of freedom of contract, and that principle would dictate a different result were both of the parties informed as to the meaning of the limitation clauses.
Notes
No question has been raised as to whether this clause complies with the requirements ofNOTICE TO BUYER: Joseph Harris Company, Inc. warrants that seeds and plants it sells conform to the label descriptions as required by Federal and State seed laws. IT MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR PURPOSE, OR OTHERWISE, AND IN ANY EVENT ITS LIABILITY FOR BREACH OF ANY WARRANTY OR CONTRACT WITH RESPECT TO SUCH SEEDS OR PLANTS IS LIMITED TO THE PURCHASE PRICE OF SUCH SEEDS OR PLANTS.
[i]n considering whether the motions for a directed verdict and for judgment notwithstanding the verdict should have been granted, we must look to the [Michigan] standards as to these motions. This follows from the Sixth Circuit adherence to the minority rule that in federal court diversity cases state law governs the standard for granting directed verdict and judgment notwithstanding the verdict motions.Lewis Refrigeration Co. v. Sawyer Fruit Vegetable and Cold Storage Co., 709 F.2d 427, 430 n. 3 (6th Cir. 1983). Furthermore, the standard used by the district court accurately reflects Michigan law. See, e.g., Tucker v. Sandlin, 126 Mich. App. 701, 704, 337 N.W.2d 637, 639 (1983).