ANDREA K. JOHNSTONE, 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).
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.
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);
By virtue of having defaulted, A-1 and All Terrain concede the following facts.
P.C. Hoag is a New Hampshire corporation that provides arborist services. Man Lift is a Wisconsin
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."
The aerial lift started malfunctioning soon after P.C. Hoag received it.
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,
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 . . . ."
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."
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,"
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.
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.
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.
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."
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.
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."
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."
P.C. Hoag's motion for default judgment should accordingly be granted as to Count V, the breach of contract claim.
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.
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 focused. The court accordingly concludes that P.C. Hoag has abandoned any claim for equitable relief as part of this action.
P.C. Hoag may nevertheless recover damages if it has stated a viable claim under RSA 382-A:2-608. "Once a valid revocation of acceptance has been made, the proper measure of damages is found in RSA 382-A:2-711."
Turning to the complaint, the court has little trouble concluding that P.C. Hoag has stated a claim under RSA 382-A:2-608. To prevail under that statute, the buyer of a good must prove: (1) that there was a nonconformity that substantially impaired the value of the good; (2) that the buyer accepted the good without having discovered the nonconformity; (3) that acceptance was reasonably induced either by the difficulty in discovering the nonconformity before acceptance or by the seller's assurances; (4) that revocation of acceptance occurred within a reasonable time after the buyer discovered or should have discovered the nonconformity; (5) that revocation occurred before any substantial change in the condition of the good not caused by its own defects; and (6) that the buyer provided due notice of revocation to the seller. RSA 382-A:2-608(1), (1)(b), (2);
In sum, the court recommends that the district judge enter default judgment against A-1 and All Terrain on Count VI to the extent it seeks incidental and consequential damages, as defined by RSA 382-A:2-715.
While an entry of default judgment constitutes an admission of liability, a plaintiff must still prove damages against the defendant unless the amount is "for a sum certain or a sum that can be made certain by computation . . . ." Fed. R. Civ. P. 55(b)(1);
P.C. Hoag seeks three categories of damages: lost profits, debt service, and costs to repair the aerial lift's defects. None of these categories are sums certain, as they are not ascertainable from the pleadings and depend on the actual losses/costs incurred by P.C. Hoag due to the defects in the aerial lift. The court therefore conducted a damages hearing pursuant to Rule 55(b)(2).
Before turning to the damages themselves, the court will briefly address the scope of its damages analysis and the governing law. At the outset, the court concludes that it need only conduct a single damages analysis per category of damages sought. As discussed below, each category of damages falls within the UCC's definition of either incidental or consequential damages. And, as previously mentioned, incidental and consequential damages are available under all of the claims on which the court recommends an entry of default judgment.
Incidental damages include "expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach." RSA 382-A:2-715(1). Among other things, incidental damages are "intended to provide reimbursement for the buyer who incurs reasonable expenses in connection with the handling of rightfully rejected goods or goods whose acceptance may be justifiably revoked . . . ."
Consequential damages include "any loss resulting from general or particular requirements and needs of which the seller at the time of contract has reason to know and which could not reasonably be prevented by cover or otherwise . . . ." RSA 382-A:2-715(2)(a). Under New Hampshire law, three requirements must be met in order for consequential damages to be recoverable: (1) they must be reasonably foreseeable; (2) they must be ascertainable; and (3) they must be unavoidable.
As to the first requirement — foreseeability — consequential damages are limited "to those reasonably foreseeable at the time of the contract."
The second requirement limits consequential damages "to recompense for the reasonably ascertainable consequences of the breach."
Finally, a party may only recover consequential damages "if the loss could not reasonably be prevented by cover or otherwise."
The court turns first to P.C. Hoag's request for lost profits. Under New Hampshire law, lost profits are a form of consequential damages.
As an initial matter, the court concludes that P.C. Hoag has met the first and third of these requirements here. Based on the allegations in the complaint and the evidence presented at the damages hearing, A-1 and All Terrain reasonably should have foreseen at the time of the sale that if the aerial lift malfunctioned, P.C. Hoag would suffer lost profits. And while there is no evidence that P.C. Hoag actually replaced the aerial lift until spring or summer of 2016, the court cannot conclude, based on the record before it, that this delay was unreasonable. Mr. Hoag testified that the aerial lift was custom built for P.C. Hoag and that it took four months to manufacture. This testimony supports a reasonable inference that the aerial lift was not an easy item to substitute or replace. Additionally, there is evidence in the record that P.C. Hoag actively sought repairs of the aerial lift until March 2016, when, according to Mr. Hoag, the aerial lift was finally fixed. Thus, there is no indication that P.C. Hoag was dilatory in seeking to remedy the aerial lift's defects. In light of these facts, P.C. Hoag has established that lost profits were reasonably foreseeable and unavoidable up until that date.
Whether P.C. Hoag has established the second requirement for consequential damages — that the damages be ascertainable — is a more difficult question. P.C. Hoag seeks lost profits in the amount of $215,369.18.
At the outset, the court concludes that P.C. Hoag has sufficiently established the $75 per hour rate. At the hearing, Mr. Hoag testified that P.C. Hoag charged $75 per hour when the lift was in use. There being no contrary evidence in the record, this testimony sufficiently establishes $75 per hour as the operative hourly rate.
Although more speculative, there is also sufficient evidence in the record to support a 69.63% profit margin. Mr. Hoag testified that he arrived at this number by considering the costs associated with using the aerial lift (such as insurance, maintenance, upkeep, and operation costs), the fact that the lift is a "self-contained system," and his familiarity with the profit margins P.C. Hoag historically earned for charges related to machines. While Mr. Hoag certainly could have provided more detail as to the specifics of this calculation, the court is cognizant that consequential damages need not be proved "to the degree of mathematical certainty . . . ."
P.C. Hoag's assumption that it would have been able to bill 5,000 hours during the operative period had the aerial lift functioned properly is more problematic. This number is itself based on two separate contentions: (1) that P.C. Hoag would have been able to utilize the aerial lift for approximately 1,000 billable hours per year, and (2) that defects in the aerial lift caused P.C. Hoag to lose profits over a five-year period. The court will consider each of these contentions in turn.
P.C. Hoag bases its estimate that it would have been able to bill 1,000 hours per year on several factors. First, Mr. Hoag testified at the hearing that P.C. Hoag was able to bill approximately 590 hours per year with its previous bucket truck,
This estimate leaves several things to be desired. For one, P.C. Hoag presented no evidence that there was a demand for 1,000 hours per year of aerial lift services, regardless of whether P.C. Hoag had the capacity to use the aerial lift for that amount of time. Similarly, none of P.C. Hoag's extrapolations take into consideration seasonal ebbs and flows in the use of the aerial lift. Yet at the same time, there was little direct evidence presented that use of the lift would have remained constant on a month-by-month basis. Further, only one of the months cited actually involved the use of the aerial lift, and there was no direct evidence as to how the rental aerial lift provided by Man Lift and the replacement aerial lift purchased by P.C. Hoag compared functionally to the subject lift. Evidence addressing one or more of these areas would have left the court less reticent to accept P.C. Hoag's 1,000-hour-per-year estimate at face value.
Still, when balancing these shortcomings against the evidence in the record, the court concludes that P.C. Hoag has just barely pushed its 1,000-hour-per-year estimate beyond the realm of mere speculation. Indeed, when taking the evidence presented in its totality, and considering it in light of the New Hampshire Supreme Court's instruction that consequential damages need not be proved with mathematical certainty, the court concludes that it is more likely than not that P.C. Hoag would have been able to bill somewhere in the realm of 1,000 hours per year with the aerial lift had it functioned properly. The court will accordingly use this value, which equates to 83.33
The court turns, then, to P.C. Hoag's contention that the defects in the aerial lift caused P.C. Hoag to lose profits over a five-year period. This contention is not supported in the record. P.C. Hoag specifically seeks lost profits for 2012, 2013, 2014, 2015, and 2016.
This brings the court to the last assumption embedded in P.C. Hoag's lost profits calculation: that during the operative period, the aerial lift was inoperable except for the 870 hours that P.C. Hoag concedes the lift was in use. Upon generous review of the record, the court concludes that there is no evidence to support this contention.
P.C. Hoag could conceivably have proved the time the aerial lift was inoperable in a couple of ways. For instance, P.C. Hoag could have presented evidence affirmatively demonstrating that it only used the aerial lift for 870 hours during the relevant period. Such evidence, depending on how it was presented, could plausibly support an inference that the lift was inoperable for all but that period of time. Beyond a single reference by Mr. Hoag that he conducted a "calculation," however, P.C. Hoag has provided no guidance as to how the 870-hour number was reached. Thus, the evidence in the record does not support an inference that the aerial lift was only in use for 870 hours during the period in question.
Alternatively, P.C. Hoag could present evidence proving the total time in which it could not use the aerial lift due to the lift's defects. P.C. Hoag presented some evidence to this effect at the damages hearing. But even construed liberally, this evidence does not establish that the aerial lift was out of commission for nearly as long as P.C. Hoag contends. Indeed, the court can only identify four periods, totaling thirteen-and-one-half months, for which there is evidence that the aerial lift was not functional due to its defects.
The first period in which there is evidence that the aerial lift was inoperable is August 2013.
The aerial lift was next out of commission between October 2013 and January 13, 2014. Mr. Hoag testified that for a month of that time the machine in Wisconsin undergoing repairs to cracking on the framework of its tracks. He testified that the aerial lift was returned in early November 2013, but that P.C. Hoag was unable to use it for the rest of 2013 and into 2014, seemingly due to electrical issues. According to an invoice from Valladares Transportation & Repair, Inc., ("Valladares"), the machine was functioning again as of January 13, 2014.
The next period in which there is evidence that the aerial lift was unavailable is a three-day period in February 2014. This is demonstrated by a February 7, 2014 invoice from Valladares, indicating that the aerial lift would not start as of Monday, February 3, 2014, due to a faulty starter, but that Valladares would replace the starter on Wednesday.
The evidence in the record demonstrates that the aerial lift was next inoperable between July 2 and August 6, 2014.
The last period in which there is evidence that the aerial lift was not functioning is from July 2015 until March 2016. P.C. Hoag has submitted an invoice and a bill of lading that, when taken together, suggest that the aerial lift was at the premises of All Access Equipment ("All Access") in Wilmington, Massachusetts, from July of 2015 until August 19, 2015.
Other the above periods, P.C. Hoag has submitted no evidence of lost profits.
Using this number, the court can calculate the total lost profits that P.C. Hoag has demonstrated it sustained due to the aerial lift's defects. To do so, the court: first multiplies the total number of months in which profits were lost (13.5) by the average number of hours per month that P.C. Hoag would have been able to bill for the aerial lift (83.33); then multiplies that product by the hourly rate P.C. Hoag charged for use of the aerial lift ($75); and finally multiplies that product by P.C. Hoag's profit margin when using the aerial lift (69.53%). Based on this calculation, the court concludes that P.C. Hoag has proved that it lost $58,663.59 in profits due to defects in the aerial lift.
P.C. Hoag next seeks to recover debt service payments made pursuant to the financing agreement for the aerial lift during the period the aerial lift was unusable. Though there does not appear to be any controlling authority or case law from this district on point, other courts have indicated that debt service payments can be recovered as incidental damages under the UCC.
P.C. Hoag seeks approximately $90,000.00 in debt service damages.
In the court's view, any recovery for debt service must be limited to the period in which P.C. Hoag has proved that the aerial lift was inoperable. This is consistent with the underlying premise of P.C. Hoag's request,
Finally, the court turns to P.C. Hoag's request to recover the costs it incurred repairing the defects in the aerial lift. This request falls under the umbrella of incidental damages, as defined by the UCC.
P.C. Hoag specifically seeks repair costs totaling approximately $36,000.00. In support of this request, P.C. Hoag submitted into evidence a chart summarizing the expenses it alleges it incurred related to the aerial lift.
P.C. Hoag also submitted into evidence certain invoices that it alleges support the entries in the chart.
As an initial matter, the court declines to accept the chart as substantive evidence of the repair costs incurred by P.C. Hoag. To the extent the Federal Rules of Evidence apply in the context of a damages hearing,
Cross referencing the chart with the invoices submitted into evidence, the court concludes that P.C. Hoag has not provided documentation for several of the line item entries. These are the entries dated February 6, 2013, March 11, 2013, July 28, 2013, January 25, 2014, August 26, 2014, and December 31, 2014. P.C. Hoag accordingly should not recover damages related to those entries.
P.C. Hoag similarly should not recover for the entry dated November 22, 2016. The sole documentation for this entry is a credit card statement identifying an $800.00 payment to CCG LLC Appraisal in Summerfield, Florida. Doc. no. 42-1 at 13. This document does not provide the court with sufficient detail to conclude that this expense was incurred to repair some defect in the aerial lift. Accordingly, P.C. Hoag has not demonstrated that the November 22, 2016 line item can be attributed to defects in the aerial lift.
P.C. Hoag has provided documentation, and thus sufficiently proved, the remaining entries in the chart. These are the line items dated March 19, 2013, May 21, 2013, December 17, 2013, February 4, 2014, March 11, 2014, August 5, 2015, August 10, 2015, August 24, 2015, September 17, 2015, October 26, 2015, November 4, 2015, November 30, 2015, January 13, 2016, February 1, 2016, all three entries for February 8, 2016, all three entries for June 13, 2016, June 28, 2016, July 18, 2016, August 1, 2016, both entries for October 25, 2016, November 22, 2016, December 5, 2016, and January 25, 2016. Totaling these entries, the court calculates that P.C. Hoag is entitled to $35,734.61 in damages for repair costs.
In sum, the court concludes that P.C. Hoag has proved that it is entitled to recover $58,663.59 in lost profits, $25,816.45 in debt service, and $35,734.61 in repair costs, equaling $120,214.65 in total damages. P.C. Hoag concedes, however, that this amount must be offset by the amount for which it settled its claims against Man Lift. P.C. Hoag has represented in its motion for default judgment and supporting affidavit that it settled those claims for $90,000.00. The court accordingly recommends that the district judge award P.C. Hoag damages in the amount of $30,214.65 for its claims against A-1 and All Terrain.
P.C. Hoag seeks to recover the costs it incurred litigating this matter. P.C. Hoag has not, however, provided the court with any indication as to what those costs might be. The court therefore recommends that the district judge deny P.C. Hoag's request for costs, without prejudice to P.C. Hoag filing a timely bill of costs as provided by Local Rule 54.1.
Based on the foregoing, the court recommends that P.C. Hoag's motion for default judgment be denied as to Counts I and IV and granted as to Counts III, IV, V, and VI. Default judgment should be entered against A-1 and All Terrain on P.C. Hoag's claims for breach of express warranties, breach of implied warranties, breach of contract, and revocation of acceptance. The court further recommends that P.C. Hoag be awarded damages in the amount of $30,214.65, representing damages for lost profits, debt service, and repair costs, less the amount for which P.C. Hoag settled its claims with Man Lift. Finally, the court recommends that the district judge deny P.C. Hoag's request for costs, without prejudice to P.C. Hoag filing a timely bill of costs as provided by Local Rule 54.1.
Any objections to this Report and Recommendation must be filed within fourteen days of receipt of this notice.
Doc. no. 1-1 ¶ 7.
