Dwight's Discount Vacuum Cleaner City, Inc. v. The Scott Fetzer Company, Kirby Company Division

Citations: 860 F.2d 646; 1988 WL 117944Docket: 87-1939

Court: Court of Appeals for the Fifth Circuit; January 30, 1989; Federal Appellate Court

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Defendant Scott Fetzer Company, operating under the Kirby Company Division, appeals a jury verdict and judgment that found it liable for violations of the Texas Deceptive Trade Practices and Consumer Protection Act, awarding plaintiff Dwight's Discount Vacuum Cleaner City $28,470, plus $2,000 in additional damages and $89,000 in attorneys' fees. The Court of Appeals for the Fifth Circuit reverses this judgment, rendering a decision in favor of Kirby.

Dwight's Discount Vacuum Cleaner City, owned by Dwight Krzywonski, sells Kirby vacuum cleaners, acquiring them from distributors who violate their agreements with Kirby, which only permits direct in-home sales. Dwight's has persuaded distributors to ignore these agreements through deceptive practices, including erasing serial numbers and misrepresenting warranty card information.

In June 1986, Carol Weeks, a Kirby distributor, breached her agreement by ordering 120 vacuum cleaners to sell to Dwight's for a profit, despite Kirby's prohibition against dual distributorships. Dwight's arranged payment through two cashier's checks totaling $37,740. When Kirby learned of this transaction, it sought to reclaim the vacuum cleaners, contacting the warehouse to prevent their release due to the contested title.

After halting shipment of vacuum units, Weeks received a termination letter from her superiors at Kirby, which cited her attempted sale of 120 vacuums to Dwight's and her sudden office vacating as reasons for the termination of the distribution agreement. Subsequently, Kirby initiated lawsuits against both Weeks and Dwight's in Washington and Ohio, while Dwight's counter-sued Kirby in Texas, claiming tortious interference, conversion, and violations of the Texas Deceptive Trade Practices Act (DTPA). Kirby's motion for a change of venue in Texas was denied, and a writ of mandamus to the Fifth Circuit was also refused. In October 1986, Kirby deposited $28,740—received from the Bank of Spokane for the vacuums—into the Washington court's registry.

Before the Texas trial, Kirby filed a counterclaim against Dwight's for tortious interference regarding the distributorship agreement. Weeks returned $9,000 to Dwight's, representing her payment for the vacuums. At trial, the jury found no interference by Kirby concerning Dwight's contract with Weeks and no conversion of property, but determined that Kirby engaged in unconscionable acts under the Texas DTPA, awarding Dwight's $28,740 in actual damages and $89,000 in attorneys' fees. The jury ruled in favor of Kirby on the counterclaim but awarded no damages, leading to a judgment for Dwight's totaling $119,740.

Kirby is appealing the judgment, arguing that Dwight's is not a consumer under the DTPA, or, if it is, that Kirby did not commit unconscionable acts. Kirby preserved its objections to the evidence's sufficiency through a motion for judgment notwithstanding the verdict, which the court reviews by considering all evidence favorably toward the opposing party. The court clarified that a mere scintilla of evidence is inadequate to form a jury question and that substantial evidence must conflict to warrant a jury's consideration. Under this standard, the evidence did not support a conclusion that Kirby's actions were unconscionable as defined by the DTPA.

Section 17.50 of the Texas Deceptive Trade Practices and Consumer Protection Act (DTPA) allows consumers to pursue actions for actual damages caused by unconscionable actions or courses of action. A "consumer" is defined as an individual, partnership, or corporation that seeks or acquires goods or services through purchase or lease. The plaintiff must demonstrate consumer status based on their relationship to the transaction rather than a contractual relationship with the defendant. In this case, Kirby argues that Dwight's failed to plead consumer status, potentially barring recovery under the DTPA; however, the court assumes for argument that Dwight's met the consumer test.

The critical issue is whether a judgment notwithstanding the verdict (n.o.v.) should have been granted based on Kirby's alleged unconscionable actions under the DTPA. Kirby contends that none of his actions meet the statute's definition of "unconscionable action," which involves taking advantage of a person's lack of knowledge, ability, or experience to a grossly unfair degree, or resulting in a significant disparity between the value received and the consideration paid. The Texas Supreme Court has established that "unconscionable action" must be assessed by an objective standard, requiring a grossly noticeable unfairness. A mere slight disparity in value is insufficient to classify as unconscionable; a glaring and flagrant disparity is necessary for such a finding.

Texas law emphasizes interpreting the Deceptive Trade Practices Act (DTPA) based on legislative intent, considering the historical context and the goals of the statute, particularly to protect consumers from deceptive practices. In this case, the jury found Kirby's conduct to be "unconscionable," but the evidence did not support this conclusion. Dwight's, a company familiar with the Kirby distribution system, was deemed capable and experienced, indicating it was not unfairly disadvantaged by Kirby's actions. The record showed that Dwight's had substantial knowledge and experience in the vacuum cleaner business, negating claims of exploitation by Kirby.

Furthermore, Dwight's contended there was a gross disparity between the value received and the amount paid (approximately $38,000). Kirby argued that Dwight's received value through the title of goods, regardless of the vacuums being in legal custody. The Texas Supreme Court's precedent indicates that such value disparities should be assessed at the time of purchase. Given that the wholesale price of the vacuums was significantly lower than the retail value Dwight's anticipated, and acknowledging the legal uncertainties surrounding the sale, the court concluded that the evidence did not support Dwight's claims under the DTPA.

The "gross disparity" test reflects a fraud-related recovery measure, indicating that a consumer may receive a product of lower quality than expected or may be completely defrauded. During the trial, both Dwight's and Weeks acknowledged that Weeks returned his $9,000 profit to Dwight's. Additionally, the $28,740 initially sent to Kirby has been deposited with the Superior Court of Spokane County, Washington, pending the resolution of the related case. The court is currently holding both the funds and the shipment of vacuum cleaners and accessories until the legal dispute is settled, leaving uncertainty about whether Dwight's has actually lost the vacuum cleaners.

Dwight's further contends that even if it breached its contract with Kirby, Kirby improperly filed a counterclaim, asserting that a gross disparity still exists. This argument is deemed unfounded and contrary to fair dealing principles. Ultimately, the evidence does not support the jury's finding that Kirby acted unconscionably under the Texas Deceptive Trade Practices Act (DTPA). The definition of "unconscionability" under the statute indicates that Kirby did not exploit superior bargaining power or create a significant imbalance between the consideration paid and the value received. Consequently, the district court's judgment is reversed, and it is ordered that Dwight's receive no recovery.