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P.C. Hoag & Co., Inc. v. Man Lift Mfg., Co.

United States District Court, D. New Hampshire

January 10, 2018

P.C. Hoag & Co., Inc.
v.
Man Lift Mfg., Co., et al.

          REPORT AND RECOMMENDATION

          ANDREA K. JOHNSTONE, UNITED STATES MAGISTRATE JUDGE.

         Plaintiff P.C. Hoag & Co, Inc., (“P.C. Hoag”) brought this action in state court alleging that an aerial lift it purchased from defendants Man Lift Mfg., Co. (“Man Lift”), All Terrain Aerial Lifts (“All Terrain”), and A-1 Expert Tree Services, Inc., (“A-1”) was defective. Man Lift removed the matter here, invoking this court's diversity jurisdiction under 28 U.S.C. § 1332, and the case was assigned to the undersigned magistrate judge. P.C. Hoag and Man Lift consented to the undersigned's jurisdiction and actively litigated this matter, ultimately reaching a settlement. A-1 and All Terrain never appeared and, on P.C. Hoag's motion, were defaulted by the Clerk of Court.

         P.C. Hoag now moves for an entry of default judgment against A-1 and All Terrain and for an award of damages and costs. Doc. no. 40. The court held a damages hearing pursuant to Federal Rule of Civil Procedure 55(b) and granted P.C. Hoag leave to file additional evidence in support of its damages claim. Subsequently, the court determined that it could not enter a final disposition in this matter, as the defaulted parties had not consented to the undersigned's jurisdiction as required by 28 U.S.C. § 636(c)(1). See Henry v. Tri-Servs., Inc., 33 F.3d 931, 933 (8th Cir. 1994); cf. Roell v. Withrow, 538 U.S. 580, 590 (2003) (noting that consent can be inferred when “the litigant or counsel was made aware of the need for consent and the right to refuse it, and still voluntarily appeared . . . before the Magistrate Judge” (emphasis added)); Conetta v. Nat'l Hair Care Ctrs., Inc., 236 F.3d 67, 72-73 (1st Cir. 2001) (holding that magistrate judge did not have the authority on referral under a different subsection of § 636 to make a final determination on damages following an entry of default). The case was accordingly reassigned to a district judge, and P.C. Hoag's motion was referred to the undersigned for report and recommendation. See U.S. Fid. & Guar. Co. v. Guzmán, No. 10-cv-1078-FAB-MEL, 2012 WL 4790314, at *1 n. 1 (D.P.R. Sept. 20, 2012), R&R adopted sub nom. U.S. Fid. & Guar. Co. v. Cobián-Guzmán, No. 10-cv-1078-FAB, 2012 WL 12996294, at *1 (D.P.R. Oct. 5, 2012) (issuing a report and recommendation because the defaulted parties had not consented to jurisdiction); Brown v. Bussone, No. 12-cv-10338-LTS, 2012 WL 4758033, at *1 (D. Mass. July 30, 2012) (same).

         For the reasons that follow, the court recommends that P.C. Hoag's motion be granted in part as to liability, that damages be awarded in the amount of $30, 214.65, and that P.C. Hoag's request for costs be denied without prejudice.

         I. STANDARD OF REVIEW

         After default is entered and when the amount at issue is not a sum certain, “the party must apply to the court for a default judgment.” Fed.R.Civ.P. 55(b)(2); see also KPS & Assocs., Inc. v. Designs by FMC, Inc., 318 F.3d 1, 19 (1st Cir. 2003). Before entering a default judgment, the court “may examine a plaintiff's complaint, taking all well-pleaded factual allegations as true, to determine whether it alleges a cause of action.” Ramos-Falcón v. Autoridad de Energía Electríca, 301 F.3d 1, 2 (1st Cir. 2002) (quoting Quirindongo Pacheco v. Rolon Morales, 953 F.2d 15, 16 (1st Cir. 1992)). The defaulted party is “taken to have conceded the truth of the factual allegations in the complaint . . . .” Ortiz-Gonzalez v. Fonovisa, 277 F.3d 59, 62-63 (1st Cir. 2002) (internal quotation marks omitted) (quoting Franco v. Selective Ins. Co., 184 F.3d 4, 9 n. 3 (1st Cir. 1999)). The defaulted party does not, however, “admit the legal sufficiency of those claims.” 10 James Wm. Moore, Moore's Federal Practice § 55.32[1][b] (3d ed. 2013). In other words, before entering default judgment, the court must determine whether the admitted facts state actionable claims. See Hop Hing Produces Inc. v. X & L Supermarket, Inc., No. 12-cv-1401- ARR-MDG, 2013 WL 1232919, at *2 (E.D.N.Y. Mar. 4, 2013); E. Armata, Inc. v. 27 Farmers Market, Inc., No. 08-cv-5212-KSH, 2009 WL 2386074, at *2 (D.N.J. July 31, 2009).

         II. BACKGROUND

         By virtue of having defaulted, A-1 and All Terrain concede the following facts.[1]

         P.C. Hoag is a New Hampshire corporation that provides arborist services. Man Lift is a Wisconsin[2] corporation that designs, manufactures, sells, markets, promotes, services, and repairs certain aerial lifts commonly used by arborists and other professionals working in the tree cutting and tree servicing industry. A-1 is a California corporation that solicits sales for Man Lift. All Terrain is a division of A-1.

         On or about November 25, 2012, P.C. Hoag entered into a contract to purchase an A70TDI (Track Drive Insulator) with Tree Care Package aerial lift (the “aerial lift”), which was designed by Man Lift (the “purchase and sale agreement”). A-1 and All Terrain negotiated this sale. Pursuant to the terms of the purchase and sale agreement, A-1 and All Terrain were required to provide the aerial lift “in a condition that fully complied with all applicable specifications for its intended purpose and [P.C. Hoag's] needs . . . .” Compl. (doc. no. 1-1) ¶ 6. The aerial lift “was to be free from all material defects and in good working and functioning condition and capable of performing as represented.” Id. To this end, A-1 and All Terrain expressly warranted to P.C. Hoag that the aerial lift “was designed and manufactured in a reasonable and workmanlike manner, . . . was fit for its intended use, was fit for its specific purpose, was free from latent and/or material defects, and would perform in a safe manner and within [P.C. Hoag's] expectations . . . .” Id. ¶ 22. P.C. Hoag agreed to pay $189, 097.00 to purchase the aerial lift.

         The aerial lift started malfunctioning soon after P.C. Hoag received it.[3] Defendants attempted to repair the aerial lift in New Hampshire on multiple occasions, but each time were unable to successfully remedy the malfunctions. P.C. Hoag shipped the aerial lift to defendants for repairs, but this, too, was unsuccessful. P.C. Hoag accordingly demanded, on several occasions, a revocation of acceptance of the aerial lift on the basis that it was a nonconforming product. Defendants refused to honor this request, resulting in P.C. Hoag initiating this action in state court. At the time the complaint was filed, the aerial lift was not operational.[4]

         III. DISCUSSION

         A. Liability

         P.C. Hoag's complaint comprises six counts: defective product (Count I), negligence (Count II), breach of express warranties (Count III), breach of implied warranties (Count IV), breach of contract (Count V), and revocation of acceptance (Count VI). As this matter was removed to this court solely on the basis of diversity jurisdiction, see doc. no. 1 at 2, each claim arises under state law.

         1. Defective Product and Negligence (Counts I and II)[5]

         The court turns first to Counts I and II. Both of these counts appear to assert products liability claims, with the former brought under a strict liability theory and the latter alleging negligence. As to strict liability, “New Hampshire follows the Restatement (Second) of Torts, § 402A . . . .” Bougopoulos v. Altria Grp., Inc., 954 F.Supp.2d 54, 58 (D.N.H. 2013) (citing Kelleher v. Marvin Lumber & Cedar Co., 152 N.H. 813, 824 (2005)). Under this doctrine, “one who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer.” Id. (quoting Kelleher, 152 N.H. at 824). In contrast, to prevail on a products liability claim based on negligence, a plaintiff “must demonstrate all that is required to prove [an] underlying negligence action.” Palmer v. Nan King Rest., Inc., 147 N.H. 681, 684-85 (2002) (citing 63 Am. Jur. 2d Products Liability § 206 (1996)).

         P.C. Hoag is not entitled to an entry of default judgment against All Terrain or A-1 under either products liability theory. Assuming without finding that P.C. Hoag has otherwise stated such claims, both are nonetheless barred by the economic loss doctrine. It is well established under New Hampshire law “that a plaintiff may not ordinarily recover damages for purely economic loss in tort or products liability claims.” Kelleher, 152 N.H. at 835 (citation omitted). “In the products liability context, economic loss is characterized as damage that occurs to the inferior product itself, through deterioration or non-accidental causes.” Id. (citation omitted). When the physical harm is so limited, a plaintiff is barred from recovering “the resulting loss due to repair costs, decreased value, and lost profits . . . .” Lockheed Martin Corp. v. RFI Supply, Inc., 440 F.3d 549, 554 (1st Cir. 2006) (quoting East Rover S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 870 (1986)).

         P.C. Hoag has failed to allege in its complaint that the defects in the aerial lift caused physical harm to any person or property other than the aerial lift itself. Though the complaint does allege that the aerial lift's defects caused “damages to other property, ” see doc. no. 1-1 ¶¶ 14, 20, nowhere does P.C. Hoag indicate what specifically those damages were, rendering those assertions the sort of conclusory statements that the court need not assume true for the purposes of its analysis, see 10A Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2688.1 (4th ed.) (noting that a “a party in default does not admit conclusions of law”); see also DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007); Black v. Lane, 22 F.3d 1395, 1407 (7th Cir. 1994). And even if the complaint did allege noneconomic harm recoverable under a products liability theory, P.C. Hoag has plainly abandoned that request, as its motion for default judgment solely seeks economic damages caused by harm to the aerial lift itself. See doc. no. 40-1 ¶ 2. Counts I and II are therefore barred by the economic loss doctrine.

         Accordingly, the court recommends that the district judge deny P.C. Hoag's motion to the extent it seeks an entry of default judgment against A-1 and All Terrain on Counts I and II.

         2. Breach of Express and Implied Warranties (Counts III and IV)

         In Counts III and IV, P.C. Hoag alleges that All Terrain and A-1 breached express and implied warranties with respect to the aerial lift. As this case involves the sale of a good, the Uniform Commercial Code (“UCC”) governs. See N.H. Rev. Stat. Ann. (“RSA”) § 382-A:2-102; see also RSA 382-A:2-105(1) (“‘Goods' means all things (including specially manufactured goods) which are moveable at the time of identification to the contract for sale . . . .”). Under the UCC, “express warranties can be created by promises or affirmations of fact which relate to the goods and become part of the contractual bargain.” Fassi v. Auto Wholesalers of Hooksett, 145 N.H. 404, 406 (2000) (citations omitted); see also RSA 382-A:2-313(1). The UCC contains two provisions related to implied warranties: RSA 382-A:2-314, which “generally provides that a seller impliedly warrants his goods are merchantable or generally fit for the ‘ordinary purposes' for which the goods are used, ” Xerox Corp. v. Hawkes, 124 N.H. 610, 616 (1984), and RSA 382-A:2-315, which provides for an implied warranty of fitness for a particular purpose “when the seller knows that the buyer is relying upon the seller's expertise in selecting goods to fulfill the buyer's particular requirements, ” id. Unless disclaimed or limited, “a breach of any of these warranties may give rise to a cause of action for incidental or consequential damages.” Id. (citation omitted); see also RSA 382-A:2-714; RSA 382-A:2-715.

         Here, P.C. Hoag has adequately alleged breach of express warranties on the part of A-1 and All Terrain. The complaint alleges that A-1 and All Terrain made several express warranties to P.C. Hoag regarding the quality and workmanship of the aerial lift, including that it would be free from material defects and fit for its intended use and specific purposes. There is no indication the record that A-1 or All Terrain ever disclaimed or limited these warranties.[6] And the complaint alleges that the aerial lift started to malfunction soon after P.C. Hoag received it and continued to malfunction despite defendants' attempts to repair it. When taken as true, these allegations are sufficient to sustain P.C. Hoag's claims under an express warranty theory.

         P.C. Hoag is also entitled to an entry of default judgment on its implied warranties claim. Under RSA 382-A:2-314(1), “a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.”[7] For goods to be merchantable, they must, among other things, “pass without objection in the trade under the contract description” and be “fit for the ordinary purposes for which such goods are used.” RSA 382-A:2-314(2)(a), (c). Similarly, under RSA 382-A:2-315,

[w]here the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is . . . an implied warranty that the goods shall be fit for such purpose.

         Absent any indication of a waiver or limitation, the allegations in the complaint, when assumed true, support a claim that A-1 and All Terrain breached the plain terms of both implied warranty provisions.

         The court accordingly recommends that the district judge grant P.C. Hoag's motion to the extent it seeks an entry of default judgment against A-1 and All Terrain on Counts III and IV.

         3. Breach of Contract (Count V)

         The court next considers P.C. Hoag's claim for breach of contract. Under New Hampshire law, “a breach of contract occurs when there is a failure without legal excuse to perform any promise which forms the whole or part of a contract.” BAE Sys. Info. & Elecs. Sys. Integration, Inc. v. SpaceKey Components, Inc., 941 F.Supp.2d 197, 213 (D.N.H. 2013), aff'd, 752 F.3d 72 (1st Cir. 2014) (brackets and internal quotation marks omitted) (quoting Axenics, Inc. v. Turner Constr. Co., 164 N.H. 659, 668 (2013)). A buyer who accepts a good, but then discovers a breach of the sale agreement, must notify the seller of the breach within a reasonable time of the discovery thereof. RSA 382-A:2-607(3)(a). A buyer that does so “may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.” RSA 382-A:2-714(1). These damages may include incidental and consequential damages under RSA 382-A:2-715. Id. 2-714(3).

         Here, P.C. Hoag alleges that A-1 and All Terrain were required, pursuant to the terms of the purchase and sale agreement, to provide the aerial lift “in a condition that fully complied with all applicable specifications for its intended purposes and [P.C. Hoag's] needs . . . .” Doc. no. 1-1 ¶ 6. P.C. Hoag further alleges that the contract required the aerial lift to be “free from all material defects and in good working and functioning condition and capable of performing as represented.” Id. But, according to P.C. Hoag, the aerial lift started malfunctioning soon after it was received. P.C. Hoag alleges that it informed defendants of these defects, and that defendants attempted to repair the aerial lift, but that the repairs were unsuccessful and the aerial lift continued to malfunction. Assuming the truth of these allegations, P.C. Hoag has adequately alleged that A-1 and All Terrain breached the purchase and sale agreement.

         P.C. Hoag's motion for default judgment should accordingly be granted as to Count V, the breach of contract claim.

         4. Revocation of Acceptance (Count VI)

         Lastly, the court considers Count VI. In this count, P.C. Hoag contends that it is “entitled to revocation of acceptance and rescission of the purchase and sale agreement, and to all of its general, special, and consequential damages in an amount to be proven at time of trial . . . .” Doc. no. 1-1 ¶ 39. Revocation of the acceptance of a good, formally known as rescission, is governed by RSA 382-A:2-608. Generally speaking, “[r]escission is an equitable remedy” under New Hampshire law. Cf. Faiella v. Green Tree Servicing LLC, No. 16-cv-088-JD, 2016 WL 4530452, at *1 (D.N.H. Aug. 29, 2016) (quoting Ellis v. Candia Trailers & Snow Equip., Inc., 164 N.H. 457, 462 (2012)). But under the UCC, a buyer need not choose between revocation of acceptance and the recovery of damages. See RSA 382-A:2-608 cmt. 1. Indeed, monetary damages are available under RSA 382-A:2-608 as allowed by RSA 382-A:2-711. See Beer v. Bennett, 160 N.H. 166, 174 (2010).

         The court declines to recommend that P.C. Hoag receive equitable relief under Count VI. Though requested in the complaint, P.C. Hoag has not sought such relief anywhere in its motion for default judgment or the affidavit attached thereto. Rather, the sole request in either document is for monetary damages related to economic harms allegedly caused by the defects in the aerial lift. The discussion at the damages hearing was similarly ...


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