GE Capital Aviation Services, Inc., n/k/a GE Capital Aviation Services, LLC v. Pemco World Air Services, Inc., and Alabama Aircraft Industries, Inc.
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SUPREME COURT OF ALABAMA
OCTOBER TERM, 2011-2012
_________________________
1090350
_________________________
GE Capital Aviation Services, Inc., n/k/a GE Capital
Aviation Services, LLC
v.
Pemco World Air Services, Inc., and Alabama Aircraft
Industries, Inc.
Appeal from Dale Circuit Court
(CV-04-17)
On Application for Rehearing
MALONE, Chief Justice.
The opinion issued on December 2, 2011, is withdrawn, and
the following is substituted therefor.
1090350
GE
Capital
Aviation
Services,
Inc.,
now
known
as
GE
Capital Aviation Services, LLC ("GE Capital"), and Pemco World
Air
Services,
Inc.,
and
Alabama
Aircraft
Industries,
Inc.(hereinafter collectively referred to as "Pemco"), 1 all
national
and
industry,
international
have
fiercely
corporations
litigated
a
in
the
aircraft
commercial-contract
dispute since 2004 in which each party alleged breach-ofcontract and fraud claims against the other.
GE Capital and
Pemco each sought punitive damages in addition to compensatory
damages.
lasted
The
litigation culminated in a jury trial that
approximately
represented
by
three
experienced
weeks.
counsel.
The
parties
The
jury
were
ably
returned
a
verdict in favor of Pemco on all its claims, awarded Pemco
$2,147,129 in compensatory damages and $6,500,000 in punitive
damages, and returned a verdict in favor of Pemco on all of GE
Capital's counterclaims.
GE Capital appeals from that aspect
of the judgment entered on the jury verdict in favor of Pemco
1
Pemco World Air Services, Inc., filed the original
complaint. At some point after this action was commenced, the
Birmingham operation of Pemco was incorporated as
Alabama
Aircraft Industries, Inc.
The Dothan operation of Pemco
retained the name Pemco World Air Services, Inc. Because it
is unclear when the incorporation of Alabama Aircraft
occurred, we have treated the two companies as one entity. The
two companies have filed a joint brief before this Court.
2
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on its claims and from the trial court's order denying GE
Capital's postjudgment motions.
GE Capital does not appeal
from that aspect of the judgment in favor of Pemco on GE
Capital's counterclaims.
We reverse and remand.
I. Factual Background and Procedural History
GE
Capital
is
an
international
aircraft leasing and financing.
leader
in
commercial-
Pemco operates an aircraft-
maintenance and repair business used by several major national
and international airlines and is authorized by the Federal
Aviation
Administration
("FAA")
to
aircraft maintenance and repairs.
perform
all
types
of
This case deals with a
commercial dispute between these corporate entities involving
the administration of a detailed multi-million-dollar contract
negotiated and drafted over a period of months and executed by
principals of GE Capital and Pemco.
Maintenance
inspections
on
commercial
governed by the manufacturer of the aircraft.
a
routine
airworthy
maintenance
and
safe
required by the FAA.
inspection
until
the
is
next
to
make
aircraft
are
The purpose of
the
maintenance
aircraft
inspection
An inspection known in the aircraft
industry as an "8C check" is one of the most comprehensive
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maintenance inspections an aircraft can undergo.
The tasks
necessary to perform an 8C check are dictated by a manual
issued by the manufacturer of the aircraft, which contains
what the industry refers to as "routine task cards" specifying
the inspection and maintenance tasks that must be completed.
In addition to the routine tasks, both an 8C check and a check
of the structure of the aircraft known as an "ISIP check"
involve what the aircraft industry refers to as "nonroutine"
maintenance for which there is no task card but which arises
when an abnormal condition called a "discrepancy" is detected
during
an
inspection.
When
a
discrepancy
is
noted,
a
nonroutine card is generated, and FAA regulations require that
any "discrepancy" that may impact safety or airworthiness must
be repaired.
In the early 2000s, Pemco developed a proprietary process
it uses to convert Boeing 737 passenger aircraft into cargofreighter aircraft (a "P-to-F conversion").
Pemco obtained
the FAA's approval and authorization of its P-to-F conversion
process
and
secured
from
the
FAA
a
supplemental
type
certificate ("STC") allowing it to perform that conversion
work.
A P-to-F conversion requires gutting the interior of
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the aircraft and removing the seats, galley, lavatories, and
overhead bins, cutting a hole in the side of the aircraft and
installing a cargo door, installing a cargo-handling system,
and adding structural embellishments such as strengthening the
floor
of
the
aircraft,
among
other
tasks.
Pemco
spent
approximately two years and $4-5 million to obtain its P-to-F
conversion STC.
By late 2002, Pemco had performed 35 P-to-F
conversions on Boeing 737s.
During 2002, Frank Tucci, the president of Pemco's Dothan
operation, and Jim Lindberg, a senior vice president of GE
Capital, negotiated a contract under which Pemco would perform
maintenance and conversions on several Boeing 737s owned by GE
Capital that GE Capital had leased to passenger airlines. When
an airline's lease of an aircraft expired, it generally leased
newer aircraft and returned the older models to GE Capital. GE
Capital planned to have the older aircraft modified so they
could be leased to other companies as cargo freighters.
At
the time, Pemco operated the only facility in the world with
an STC for P-to-F conversions on Boeing 737s.
GE Capital was
an attractive customer to Pemco because GE Capital owned a
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large fleet of 737s and Pemco hoped it would be able to secure
repeat business with GE Capital.
During the contract negotiations, Lindberg informed Tucci
that GE Capital had contracted to lease two aircraft to TNT,
a Belgian freight-delivery company, each with a specified date
of
delivery.
For
that
conversion
and
performed
simultaneously
reason,
maintenance
work
and
GE
Capital
on
those
completed
wanted
two
as
the
aircraft
soon
as
possible.(Those two aircraft will hereinafter be referred to
as
"TNT-1"
aircraft.")
and
"TNT-2,"
or
collectively
as
"the
TNT
As to the TNT aircraft, GE Capital was interested
in having Pemco perform 8C and ISIP checks, together with the
P-to-F conversions.
As to four other aircraft GE Capital
planned to lease to Chinese companies ("the China aircraft"),
it was interested in having Pemco perform a different kind of
conversion known as a "quick-change" or "QC" conversion.
In
a QC conversion, the aircraft is modified so it can be used
either as a passenger aircraft or a cargo freighter, depending
on the configuration of modular units the owner or lessee of
the aircraft can install or remove depending on the owner's or
the lessee's particular needs.
In addition, GE Capital had an
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option to send four more aircraft to Pemco for work.
The TNT
aircraft are the subject of the dispute before this Court.
As the negotiations concluded, Pemco prepared its bid for
the maintenance work and the P-to-F conversion to be performed
on TNT-1.
Pemco determined the estimate for its maintenance
bid by reviewing the requisite routine task cards from the
manual for the aircraft, obtaining from the Pemco databases
the overall hours it had expended in conducting 8C and ISIP
maintenance checks for other companies, and calculating the
ratio of nonroutine tasks to routine tasks associated with
those inspections.
Pemco also took into consideration the age
of the aircraft and its history with its previous operator but
did not ask to inspect the aircraft or request any information
generated by GE Capital.
Pemco initially planned to bid the
nonroutine work at a ratio of 1.5:1, estimating that it would
spend 1.5 hours on nonroutine work for every hour of routine
work, but it lowered that bid to a ratio of 1.3:1. 2
2
Pemco
GE Capital alleges that Pemco's management decided to
lower the ratio to 1.3:1 to generate a more competitive bid.
Pemco alleges that after discussions between Ronald Aramini,
the president of Pemco's Birmingham operation, and Christopher
Damianos, GE Capital's senior vice president and manager,
Pemco lowered the ratio to 1.3:1 at Damianos's request. A
resolution of these factual allegations, however, is not
necessary to our decision in this matter; therefore, we need
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1090350
determined the estimate for its conversion bid by examining
historical data and its previous P-to-F conversions on Boeing
737s.
Pemco bid $2,587,440 to perform the work on TNT-1,
which included a fixed price of $2,100,000 for the P-to-F
conversion, $287,510 for routine and requested maintenance,
and $199,930 for nonroutine maintenance not to exceed 25 hours
per item.
Tucci and Lindberg, on behalf of Pemco and GE Capital,
respectively, executed the Aircraft Modification Agreement
("the agreement") on January 15, 2003, in which Pemco agreed
to perform maintenance and P-to-F conversions on as many as 10
GE
Capital
aircraft.
On
the
same
day,
Tucci
signed
an
amendment to the agreement containing Pemco's bid for the work
to be done on TNT-1.
That amendment was made a part of
Exhibit A to the agreement. 3
The agreement also contained
several provisions regarding additional maintenance GE Capital
requested
or
that
became
necessary
as
the
result
discrepancies revealed by Pemco's inspection of TNT-1.
of
The
not address this issue.
3
A subsequent amendment regarding TNT-2 was also made a
part of Exhibit A. That amendment is discussed later in this
opinion.
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1090350
language in the agreement was drafted and/or approved by each
party's experienced and able counsel.
Section
1
of
the
agreement
specified
the
work
to
be
performed:
"A. Workscope. [Pemco] shall perform or cause to
be performed the Modification as set forth in the
attached Aircraft Statement of Work (Exhibit A).
Exhibit A shall be amended by [Pemco] and [GE
Capital] for each Aircraft to delineate such
Aircraft's specific comprehensive workscope and
schedule.
[Pemco]
shall
provide
all
labor,
equipment, [Pemco] standard tooling and facilities
necessary
and
required
to
accomplish
the
Modification.
It
shall
also
provide
the
Modification Materials as set forth in the Aircraft
Statement of Work (Exhibit A) to accomplish such
Modification.
"B. Regulatory Compliance. The Services and
Modification performed under this agreement shall be
performed in accordance with the standards of the
airline industry and applicable FAA and JAA (to the
extent not in conflict with the FAA)[ 4 ] regulations
and in a good and workmanlike manner."
Section 5 of the agreement dealt with items requested by
GE Capital:
"[GE
Capital]
may
request,
by
written
notification, additional Services concurrent with or
in conjunction with the services and maintenance
described in Exhibit A ('[GE Capital's] Requested
Items').
Subject
to
availability
of
parts,
materials, and labor, [Pemco] shall provide such
additional services, and a written Additional
4
The JAA is the European equivalent of the FAA.
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1090350
Service Request describing the additional Services
to be accomplished, and the associated schedule
impact (if any), and the price to be paid shall be
prepared, reviewed and signed by both [GE Capital]
and [Pemco], at which time such Additional Service
Request shall become binding upon the parties and
incorporated into this Agreement as an amendment
thereto."
Section 6 of the agreement dealt with nonroutine items.
It
stated:
"[Pemco]
shall
promptly
notify
the
Designated
Representative of the discovery of all Discrepancies which are
Non-routine Items."
The
claims
in
Pemco's
complaint
and
GE
Capital's
counterclaims principally revolve around (1) nonroutine items
not included in any fixed-price items set forth in Exhibit A
to the agreement and (2) additional services requested by GE
Capital.
Section 7 of the agreement provided for these items
as follows:
"A. For Non-routine Items not included in any
fixed price item set forth in Exhibit A, and for [GE
Capital's] Requested Items, [GE Capital] and [Pemco]
shall either (1) negotiate in good faith a fixed
price or (2) elect to accomplish such Items on a
time and material basis in accordance with Exhibit
B or as mutually agreed.
"B. [Pemco] will be under no obligation to
proceed on any [GE Capital] Requested Item or
Non-routine Item until agreement is reached. It is
understood that any excessive delay in reaching such
agreement may cause a delay in the redelivery date.
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1090350
[Pemco] shall not accomplish Services on the basis
of a verbal request.
"C. For all Services being provided by [Pemco]
to [GE Capital] on a time and material basis,
[Pemco]
shall
provide
each
Work
Day
to
the
Designated Representative at his on-site office or
internal mail box a daily print-out of all labor
hours charged on each [GE Capital] Requested Item
and each Non-Routine Item described above for the
previous work day.
This printout is to allow the
Designated Representative to monitor and review the
labor hours being charged. Labor hours shown on the
daily print-out that are not questioned as being
inaccurate or requiring information or clarification
by the Designated Representative within five (5)
Work Days after receipt of the daily print-out by
the Designated Representative's on-site office or
internal mail box shall be deemed approved by [GE
Capital] and [it] shall pay the recorded amount for
such labor hours."
Section 16 of the agreement provided for the on-site GE
Capital employees who would represent GE Capital at the Pemco
facility:
"A. [GE Capital] shall designate in writing to
[Pemco], one or more Designated Representatives who
shall carry out those functions described herein for
[GE Capital], including authorizing additional [GE
Capital]
Requested
Items
and
the
repair
of
Non-routine Items, authorizing and signing the
Additional Service Requests, accepting the Aircraft
upon
Redelivery,
and
carrying
out
the
other
functions
described
herein
on
behalf
of
[GE
Capital]. Each Designated Representative shall have
full authority to act on behalf of [GE Capital] to
carry out the functions described herein and [Pemco]
may rely on each Designated Representative for full
authority to bind [GE Capital] with respect to any
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1090350
decisions to be made under this Agreement.
A
Designated Representative shall be available during
the hours [Pemco] is performing Services on an
Aircraft on any Work Day.
"....
"C.
[Pemco]
will
allow
each
Designated
Representative access to work being performed
pursuant
to
this
Agreement.
A
Designated
Representative shall not interfere with work in
progress and will not give orders or directions to
any employees, agents or workers of [Pemco], and
will direct all communications directly to the
[Pemco] program manager specifically assigned to
this Agreement."
GE Capital sent six planes to Pemco under the agreement-the TNT aircraft and the China aircraft.
oversight
of
the
work
on
the
GE Capital assigned
China
aircraft
to
Hector
Castellanos and Bret Lenius, who served as the designated
representatives for the China aircraft.
Their counterparts on
the TNT aircraft were Kevin Foltz and James Ortiz, who served
as
the
designated
representatives
for
the
TNT
aircraft.
Although the same Pemco personnel worked with both teams of
designated representatives, the work proceeded smoothly on the
China aircraft, and the
issues that arose.
not
proceed
as
parties were able to resolve all
However, the work on the TNT aircraft did
well
and
gave
presented in this case.
12
rise
to
the
legal
disputes
1090350
TNT-1 arrived at Pemco's Dothan facility on January 16,
2003.
The tone for the working relationship between Ortiz and
the Pemco employees was set at the first meeting between them.
Various
Pemco
employees
testified
that
Ortiz
made
the
statement at the initial meeting that every company with which
he had been involved on behalf of GE Capital had tried to "rip
him off" and that he expected Pemco would try to do the same.
Ortiz testified that he did not make the statement and that
the Pemco employees must have been mistaken.
disagreements
immediately.
between
Ortiz
and
Pemco's
Predictably,
employees
arose
GE Capital alleges that Ortiz became concerned
about the quality of the workmanship of Pemco's employees and
that the work on TNT-1 quickly fell behind schedule.
Pemco
alleges that Ortiz was overly demanding and that working with
him was frustrating and difficult.
According to various Pemco
employees, Ortiz cursed them, called them derogatory names,
and made belittling comments.
In addition, those same Pemco
employees testified that Ortiz, contrary to Section 16.C. of
the agreement, ordered them to redo completed work, directed
them to do unnecessary work, and demanded that work be stopped
for days at a time.
The Pemco employees testified that Ortiz
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1090350
went so far as to go behind their inspectors and mark areas
where
there
were,
in
his
opinion,
discrepancies,
thus
generating many more nonroutine cards and many more hours of
work than Pemco had estimated when it calculated its bids for
the work on the TNT aircraft.
Pemco completed the maintenance and conversion on TNT-1
and delivered it to GE Capital on June 28, 2003, which was 56
days
past
the
promised
delivery
date.
Meanwhile,
arrived at Pemco's Dothan facility in April 2003.
TNT-2
On June 3,
2003, Tucci signed an amendment to the agreement containing
Pemco's bid for the work on TNT-2.
part of Exhibit A to the agreement.
That amendment was made a
Pemco based its bid for
TNT-2 on its experience with TNT-1, taking into account all
the difficulties it had experienced while working on TNT-1.
Pemco adjusted its bid by raising the fixed price for routine
maintenance, increasing the nonroutine ratio from 1.3:1 to
1.8:1, modifying the scope of the work to expressly cover some
of the extra work Ortiz insisted on for the P-to-F conversion,
seeking unsuccessfully to have Ortiz removed from the TNT-2
project, and exercising its right to assert its statutory
mechanic's lien, thus refusing to allow TNT-2 to leave the
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1090350
Pemco
facility
until
GE
Capital
had
paid
invoices for work on the TNT-2 project.
all
outstanding
Pemco bid a fixed
price of $3,181,629 for TNT-2, which included $2,100,000 for
the P-to-F conversion, $509,537 for routine and requested
maintenance, and $572,092 for nonroutine-maintenance hours
under the 25-hour threshold per item.
The parties experienced
the same problems with TNT-2 as they did with TNT-1.
Pemco
completed the work on TNT-2 and delivered it to GE Capital on
December
9,
2003,
delivery date.
which
was
101
days
past
the
promised
Each party blames the other for the delays and
increased costs associated with the work on the TNT aircraft.
Exhibit
B
pricing terms.
to
the
agreement
sets
out
the
payment
and
Paragraph 2(a) of the payment terms, a part of
Exhibit B, states:
"[Pemco] will submit monthly invoices to
[GE Capital] for completed [GE Capital] Requested Items and
Non-Routine Items and for substantiated material and vendor
services."
However, Pemco submitted its first invoice on TNT-
1 on April 16, 2003.
every
invoice
complained
that
unapproved work.
Pemco
Thereafter, the parties disagreed about
submitted.
Pemco's
invoices
GE
Capital
included
initially
charges
for
Later in the project, GE Capital complained
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1090350
that
Pemco's
invoices
included
labor
costs
regardless
of
whether the agreement permitted the charge, whether GE Capital
had requested or approved the work, and whether the increased
labor costs were caused by Pemco error or inefficiency.
GE Capital maintained that the invoices for the P-to-F
conversions included what Pemco called "over-and-above" and
"out-of-sequence" charges and that the maintenance invoices
included additional routine hours and unapproved nonroutine
overruns.
Pemco responded that GE Capital had caused delays
or interference that justified additional charges under the
agreement.
Pemco complained that GE Capital sought to avoid
its payment obligation in various ways, contended that a lack
of supporting documentation was the basis for its nonpayment,
and relied on extracontractual requirements that were never
part of the agreement for its nonpayment.
The parties also
dispute whether Ortiz received the daily reports of man-hours
worked the previous day.
Various Pemco employees testified at
trial that Ortiz received the reports daily; Ortiz testified
at trial that he hardly ever received them.
Another point of contention between the parties concerned
whether Pemco was required to obtain Ortiz's approval for all
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1090350
hours of labor worked on items beyond the 25-hour cap provided
in the fixed price for maintenance.
For each of the TNT
aircraft, GE Capital sent Pemco a document of approximately
28-30 pages titled "Delivery Workscope" that describes the
work necessary to prepare the aircraft for delivery to TNT.
The document addressing the requirements for TNT-1 is dated
December 13, 2002; the document addressing the requirements
for TNT-2 is dated April 30, 2003.
page
of
numerous
GE
Capital
Both documents contain a
"requirements."
Those
requirements include:
"2. The on-site Technical Representative[ 5 ]
assigned to this project will approve all nonroutine man-hour estimates prior to work starting.
During hours that the Technical Representative is
not on site please use the contact numbers that have
been supplied.
"3. Any non-routine hours that exceed the
'Technical Representative's' original approval must
be re-approved for the additional man-hours by the
'Technical Representative.' Please note, this means
prior to going over the estimated time. There will
be no exceptions [as] this is in the best interest
of both parties.
5
The parties do not tell us whether the person described
in the agreement as the "Designated Representative" is the
same as the person described in the GE Capital requirements as
the "Technical Representative," although that appears to be
the case.
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1090350
"4. Please inform all parties that each nonroutine [item] must have documentation regarding
parts replaced, worked [sic] performed to include
any work in progress...."
Although
GE
Capital's
requirements
were
not
included
as
exhibits to the agreement, it contends that those requirements
control.
Pemco
contends
that
the
agreement
controls,
specifically Section 7.C., which provides that any labor hours
provided to the designated representative that the designated
representative does not question within five work days "as
being inaccurate or requiring information or clarification"
are deemed approved.
The differences between Pemco's initial bids on the TNT
aircraft and its final invoices demonstrate how far apart the
parties' positions are in regard to invoicing.
On January 15,
2003, Pemco submitted its bid on TNT-1 for $2,587,440.
On
June 11, 2003, Pemco submitted a redelivery invoice for TNT-1
to GE
Capital for $4,919,964.75.
Pemco required that GE
Capital pay half of the redelivery invoice before it would
deliver TNT-1.
As to TNT-2, on June 3, 2003, Pemco submitted
its bid for $3,181,629.
Pemco submitted a final invoice for
TNT-2 to GE Capital for $5,293,129.21 and refused to allow
TNT-2 to leave its facility until GE Capital had paid all
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outstanding
invoices
on
TNT-2.
Even
though
GE
Capital
disputed many of the charges, it contends that it paid the
remaining invoices under protest in order to meet its delivery
obligation
for
TNT-2.
A
letter
from
a
corporate
representative for TNT to Pemco introduced at trial stated
that TNT characterized the TNT aircraft delivered to it as
having the "highest reliability" in its fleet.
In
alleging
January
that
2004,
Pemco
GE
had
Capital
sued
breached
the
Pemco
in
agreement
New
York,
and
had
fraudulently misrepresented or suppressed facts as to its
ability
to
complete
the
work
for
which
contracted and as to its billing practices.
both compensatory and punitive damages.
GE
Capital
had
GE Capital sought
Shortly thereafter,
Pemco filed a complaint against GE Capital in the Dale Circuit
Court alleging breach of contract.
Paragraph 10 of Pemco's
complaint alleges:
"At the request of [GE Capital], Pemco performed
work on a number of aircraft pursuant to the terms
and conditions of the Agreement. Pemco's work has
been accepted by [GE Capital], and [it] is obligated
under the terms of the Agreement to make payment for
the work completed. Pemco has submitted appropriate
invoices to [GE Capital] for the amounts due under
the Agreement, and the amounts are now past due."
Pemco sought only compensatory damages.
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GE Capital filed motions in Alabama and New York seeking
to
have
the
Alabama
action
dismissed,
but
both
courts
concluded that the litigation should proceed in Alabama.
In
October 2004, Pemco filed an amended complaint in the Alabama
action alleging fraudulent suppression and misrepresentation
in addition to breach of contract.
Pemco contended that GE
Capital had suppressed the predelivery condition of the TNT
aircraft, had demanded more than the industry-standard quality
of work required in the agreement, and had misrepresented that
it would require only the industry standard or had suppressed
its intention to require a higher standard.
punitive
damages
amended
complaint.
complaint,
it
as
also
well
as
When
compensatory
GE
asserted
Capital
Pemco sought
damages
answered
counterclaims
of
in
its
Pemco's
breach
of
contract, negligent and wanton misconduct, fraud, fraudulent
and/or negligent inducement to enter into the agreement, and
conversion.
In
addition,
GE
Capital
sought
a
judgment
declaring that it owed nothing further to Pemco for the TNT
aircraft.
GE Capital's counterclaims are identical to the
claims alleged in its New York complaint, and, as it did in
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its New York complaint, GE Capital sought both compensatory
and punitive damages.
Both
parties
actively
pursued
engaged in extensive discovery.
moved
for
a
summary
judgment
all
their
claims
and
In September 2006, Pemco
as
to
GE
Capital's
fraud
counterclaims, arguing that GE Capital could not satisfy the
element of reliance.
GE Capital did not file a summary-
judgment motion, but it opposed Pemco's motion, arguing that
all the parties' claims involved factual disputes that should
be submitted to a jury.
Both parties contended in the trial
court that it was possible for them to assert both breach-ofcontract and fraud claims arising from the same facts.
The case proceeded to a jury trial beginning on March 30,
2009.
GE Capital moved for a judgment as a matter of law
("JML") as to Pemco's claims at the close of Pemco's evidence,
and both parties moved for a JML at the close of GE Capital's
evidence and again at the close of all the evidence.
Both
parties argued that they were entitled to compensatory damages
and punitive damages.
Pemco argued for compensatory damages
of $2,147,129 and punitive damages of two to three times the
compensatory
damages;
GE
Capital
21
argued
for
compensatory
1090350
damages of $1,991,225 and punitive damages of $1,900,000.
The
verdict forms, prepared by GE Capital and agreed to by Pemco,
allowed the jury to return a verdict for either party. The
verdict form for Pemco's claims required the jury to make a
separate determination of liability as to each of Pemco's
claims--breach
of
contract,
fraudulent
fraudulent misrepresentation.
suppression,
and
It permitted the jury to return
a single compensatory-damages award for Pemco and to award
punitive
damages
appropriate.
was
similar,
determination
to
Pemco
requiring
of
to
the
liability
misconduct,
inducement
it
found
such
damages
The verdict form for GE Capital's counterclaims
counterclaims–-alleging
wanton
if
enter
jury
as
breach
fraud,
into
to
make
to
each
of
of
contract,
fraudulent
the
seeking a declaratory judgment.
agreement,
a
GE
separate
Capital's
negligent
and/or
and
negligent
conversion,
and
It permitted the jury to
return a single compensatory-damages award for GE Capital and
to award punitive damages to GE Capital if it concluded that
such damages were appropriate.
The jury returned a verdict in favor of Pemco on its
breach-of-contract, fraudulent-suppression, and fraudulent-
22
1090350
misrepresentation claims, awarding compensatory damages of
$2,147,129 and punitive damages of $6,500,000.
The jury also
returned
GE
a
verdict
counterclaims.
verdict.
in
favor
of
Pemco
on
Capital's
The trial court entered a judgment on the
GE Capital filed a postjudgment motion for a JML, a
new trial, and/or a remittitur.
The trial court denied the
motion, and GE Capital appealed.
II. Standard of Review
A. Motion for a JML
"When reviewing a ruling on a motion for a JML,
this Court uses the same standard the trial court
used initially in deciding whether to grant or deny
the motion for a JML.
Palm Harbor Homes, Inc. v.
Crawford, 689 So. 2d 3 (Ala. 1997).
Regarding
questions of fact, the ultimate question is whether
the nonmovant has presented sufficient evidence to
allow the case to be submitted to the jury for a
factual resolution. Carter v. Henderson, 598 So. 2d
1350 (Ala. 1992). The nonmovant must have presented
substantial evidence in order to withstand a motion
for a JML. See § 12-21-12, Ala. Code 1975; West v.
Founders Life Assurance Co. of Florida, 547 So. 2d
870, 871 (Ala. 1989).
A reviewing court must
determine whether the party who bears the burden of
proof has produced substantial evidence creating a
factual dispute requiring resolution by the jury.
Carter, 598 So. 2d at 1353. In reviewing a ruling
on a motion for a JML, this Court views the evidence
in the light most favorable to the nonmovant and
entertains such reasonable inferences as the jury
would have been free to draw.
Id.
Regarding a
question of law, however, this Court indulges no
presumption of correctness as to the trial court's
23
1090350
ruling. Ricwil, Inc. v. S.L. Pappas & Co., 599 So.
2d 1126 (Ala. 1992)."
Waddell & Reed, Inc. v. United Investors Life Ins. Co., 875
So. 2d 1143, 1152 (Ala. 2003).
B. Motion for a New Trial
"In discussing the standard of review in an
appeal from a judgment based on a jury verdict where
the trial court has denied a motion for a new trial,
this Court has stated:
"'"Jury verdicts are presumed correct,
and this presumption is strengthened by the
trial court's denial of a motion for a new
trial.
Therefore, a judgment based on a
jury verdict will not be reversed unless it
is 'plainly and palpably' wrong."'
"Tanksley v. Alabama Gas Corp., 568 So. 2d 731, 734
(Ala. 1990) (quoting Davis v. Ulin, 545 So. 2d 14,
15 (Ala. 1989))."
Petty-Fitzmaurice v. Steen, 871 So. 2d 771, 773 (Ala. 2003).
III. Analysis
A. Motion for a JML
We first address whether the trial court should have
granted GE Capital's motion for a JML as to Pemco's fraud and
breach-of-contract claims. 6
6
Although the agreement contains a provision stating that
it is to be construed in accordance with New York law, the
parties' tort claims are governed by Alabama law. Lifestar
Response of Alabama, Inc. v. Admiral Ins. Co., 17 So. 3d 200,
213 (Ala. 2009); Fitts v. Minnesota Mining & Mfg. Co., 581 So.
24
1090350
1. Fraudulent Misrepresentation
In
order
to
prove
a
claim
of
fraudulent
misrepresentation, Pemco needed to establish "(1) that [GE
Capital]
made
a
false
representation,
(2)
that
the
misrepresentation involved a material fact, (3) that [Pemco]
relied
on
the
misrepresentation,
misrepresentation damaged [Pemco]."
and
(4)
that
the
AmerUs Life Ins. Co. v.
Smith, 5 So. 3d 1200, 1207 (Ala. 2008).
This Court has held
that "for a plaintiff to state a fraud claim, he must show
that a misrepresentation induced him to act in a way that he
would
not
otherwise
have
acted,
that
is,
that
he
took
a
different course of action because of the misrepresentation."
Hunt Petroleum Corp. v. State, 901 So. 2d 1, 5 (Ala. 2004).
The dispositive question as to this issue is whether
Pemco proved the first element–-that GE Capital made a false
representation.
Pemco alleged in its amended complaint that
"[GE Capital] misrepresented that the inspection and
maintenance services required of Pemco would be an
ordinary 'industry standard' 8C and ISIP maintenance
check, when in reality [GE Capital's] intent was to
require
significantly
more
services,
and
the
correction of significantly more discrepancies, than
required under industry standards."
2d 819, 823 (Ala. 1991).
25
1090350
The
standard,
however,
was
not
misrepresented
in
the
agreement. The agreement clearly provided that all work to be
performed pursuant to it was to be "in accordance with the
standards
of
the
airline
regulations and in a good
Tucci,
president
of
industry
and
Pemco's
and
applicable
FAA
workmanlike manner."
operations
in
Dothan
...
When
who
negotiated the agreement on behalf of Pemco, testified at
trial, Pemco's counsel asked him:
"Q.
Did
you
have
any
discussions
in
your
conversations
with
Mr.
Lindberg[,
who
represented GE Capital in the negotiations,]
about what type of check you were going to have
or what standards were going to be applied, if
there's anything unusual from just a regular
industry standard?
"A.
No. Jim [Lindberg] wanted to get the airplanes
moving.
I believe they were parked in the
desert.
I don't want to get into [GE
Capital's]
business.
But
normally
when
airplanes are parked in the desert, people
aren't paying lease fees.
So Jim was in a
hurry to get the airplanes leased to TNT.
He
wanted me to get the checks done. He wanted to
get the conversions done.
And he
wanted to
get the airplanes moving."
Tucci testified that the term "basic industry check" referred
to the 8C and ISIP checks provided for
in the agreement.
Ronald Aramini, president of Pemco's operations in Birmingham,
also testified at trial, but he did not testify as to any
26
1090350
conversation he had had with a representative of GE Capital
about the standard of work to be performed.
GE Capital contends that in using the term "standards of
the airline industry" in the agreement, neither Lindberg nor
Tucci
was
referring
to
a
standard
Pemco
had
to
meet
in
performing the work; rather, it contends, the term referred to
the scope of the work agreed upon.
If GE Capital demanded
something more from Pemco than work performed "in accordance
with
the
standards
of
the
airline
industry,"
GE
Capital
argues, it may have breached the agreement, but it did not
make any misrepresentation.
Pemco argues that it presented sufficient evidence to
support
its
fraudulent-misrepresentation
evidence
indicating
agreement
because
misrepresentation.
that
of
GE
it
was
induced
Capital's
claim,
to
alleged
including
execute
the
fraudulent
As to pre-contract discussions about the
need for the P-to-F conversion and the maintenance work to be
performed quickly, Tucci testified in his direct examination
in response to questions from Pemco's counsel:
"Q.
Did you discuss with [Lindberg] what standards
were going to be applied in doing the 8C and
ISIP?
27
1090350
"A.
He wanted a basic industry check, what the
airlines would do to an airplane.
He wanted
the airplane made certified and airworthy and
moved on to his new customer.
"....
"Q.
If the--In doing even an 8C-check, a heavy
check, are you trying to go in and find
everything that may be wrong in any fashion
with the airplane?
"A.
No. You're not building a new airplane. You're
complying
with
the
requirements
of
the
8C-check."
Before
executed,
Pemco's
Tucci
maintenance
work
and
to
bid
was
submitted
Lindberg
be
done
discussed
because
and
the
the
the
agreement
scope
of
the
nonroutine-ratio
calculation for Pemco's bid would depend on that scope.
GE
Capital was aware, Pemco contends, that the ratio of routine
items to nonroutine items was significant.
Tucci testified at
trial in response to questions from Pemco's counsel that he
expressed his concern about the scope of the work because of
the provision in the agreement for simultaneous performance of
the maintenance work and the P-to-F conversion, but he said
Lindberg
responded
only
that
the
work
must
be
done
simultaneously to meet the promised delivery dates of the TNT
aircraft to TNT.
28
1090350
"Q.
Just so I make sure we understand, to do a lot
of the work, you initially take the landing
gear off and shore it up with some sort of
supports underneath the plane?
"A.
The landing gear was removed as a requirement
of the check.
"Q.
Oh, as part of the 8C or ISIP check?
"A.
Yes, sir.
See, the two jobs have to flow
together. It's very difficult. I did not want
to do the check with the conversion. It's just
so hard to coordinate all the work.
But [GE
Capital] had to have it done that way because
they wanted the airplane done in a very quick
time period so they could get the airplane to
their lease customer. So Jim basically told me
I had to do the two together, because he didn't
have the time to do the conversion and then go
do
the
check.
So
we
had
to
do
them
simultaneously.
"Q.
Did you tell Mr. Lindberg that you would rather
do them separately?
"A.
Yes.
"Q.
Okay. But
together?
"A.
Yes. He had to get the airplanes moving and on
lease."
Numerous
constantly
he
insisted
witnesses
demanded
that
for
that
Pemco
Pemco
they
testified
perform
work
contemplated under normal 8C and ISIP checks.
be
done
that
Ortiz
beyond
that
The scope of
the work Pemco agreed to perform on the TNT aircraft was
29
1090350
governed by the routine task cards applicable to
the
TNT
aircraft, but, Pemco alleges, because Ortiz imposed his own
standards, he increased the scope of the nonroutine work that
was generated.
Bill Wood, Pemco's quality-control manager,
testified about specific examples of Ortiz's demands for more
work than was required under the routine task cards, including
instances where, even though inspections had been performed
according to the cards, Ortiz ordered additional inspections.
Other witnesses testified about Ortiz's practice of marking
additional discrepancies in the TNT aircraft that generated
additional nonroutine repairs.
Pemco
and
GE
Capital,
two
large
national
and
international corporations, negotiated the agreement on equal
footing.
From our review of the record, it is clear that they
can be viewed as equals in fact and in the eyes of the law.
In addition, other corporate representatives and legal counsel
for each corporation were involved preparing the agreement.
The
extensive
negotiation
and
preparation
culminated
in
Tucci's and Lindberg's executing the agreement on behalf of
Pemco and GE Capital, respectively.
and unambiguous.
The agreement is clear
It sets out the scope of the work to be
30
1090350
performed by Pemco, the standard GE Capital expected for the
work
to
be
performed,
a
procedure
for
resolving
service
requests not spelled out in the agreement, and procedures for
payment for the work.
If Ortiz went beyond the standard for
which the parties contracted,
then there may have been a
breach of contract--an issue we do not here decide--but we see
no
evidence
conclude
of
that,
a
false
as
a
representation.
matter
of
law,
Consequently,
Pemco's
we
fraudulent-
misrepresentation claim should not have been submitted to the
jury.
2. Fraudulent Suppression
In order to prove a claim of fraudulent suppression,
Pemco needed to establish "(1) that [GE Capital] had a duty to
disclose an existing material fact; (2) that [GE Capital]
suppressed that existing material fact; (3) that [GE Capital]
had actual knowledge of the fact; (4) that [GE Capital's]
suppression of the fact induced [Pemco] to act or to refrain
from acting; and (5) that [Pemco] suffered actual damage as a
proximate result."
State Farm Fire & Cas. Co. v. Slade, 747
So. 2d 293, 323-24 (Ala. 1999).
31
1090350
The dispositive question as to this issue is whether
Pemco proved the second element–-that GE Capital suppressed a
material
existing
fact.
Pemco
alleged
in
its
amended
complaint:
"At meetings prior to the execution of the
Agreement, [GE Capital] representatives and agents
confirmed to Pemco that the maintenance checks would
be
'standard'
checks,
and
that
'standard'
inspections and cleaning were all that would be
required.
"[GE Capital] knew before contracting with Pemco
that the maintenance checks and inspections would
not be standard, but rather would be significantly
more detailed and rigorous than standard checks and
inspections.
[GE Capital] further knew that the
expected checks and inspections would generate more
'discrepancies,' and that the maintenance work
required of Pemco on the TNT aircraft would require
a ratio of at least 4:1 or 5:1, Non-routine Items to
Routine Items.
[GE Capital] knew that the ratio
would be significantly greater based upon it's [sic]
knowledge of the terrible condition of the aircraft
prior to delivery and [GE Capital's] knowledge that
[GE
Capital,]
through
its
on-site
agent
and
representative, James Ortiz ('Ortiz'), would require
more detailed inspections, and the correction of
more
'discrepancies,'
than
that
required
by
applicable
airline
industry
and/or
regulatory
standards. [GE Capital] knew, therefore, that Pemco
had substantially underbid the work.
"....
"Neither the terrible pre-delivery condition of
the aircraft or [GE Capital's ] knowledge that Ortiz
would require more detailed inspections and the
correction
of
more
'discrepancies'
than
that
32
1090350
required by applicable airline industry and/or
regulatory standards, were communicated to Pemco
prior to the execution of the Agreement. Instead,
[GE Capital] actively concealed those facts."
Pemco's
fraudulent-suppression
claim
is
based
on
its
allegation that GE Capital suppressed two material facts: (1)
the predelivery condition of the TNT aircraft and (2) the
standard of work it would require.
GE Capital maintains that
Pemco did not present any evidence at trial indicating that
the condition of the TNT aircraft or the standard of work was
material to Pemco's decision to execute the agreement or that
GE Capital suppressed either fact.
As to the predelivery condition of the TNT aircraft, GE
Capital points out that Pemco apparently did not address the
condition of the aircraft while negotiating the agreement.
If
the predelivery condition of the aircraft had been material,
GE Capital alleges, Pemco could have negotiated provisions
addressing it and/or sought to inspect the TNT aircraft before
executing the agreement or accepting delivery.
Pemco knew
that it was a standard practice in the aircraft industry to
store aircraft currently not
in
use in the Mojave Desert
because of the extremely low humidity, but it also knew that
when
aircraft
are
taken
out
of
33
desert
storage,
they
are
1090350
extremely dirty.
GE Capital employees testified that Pemco
was notified by GE Capital employees that the TNT aircraft
were
"filthy."
Pemco
employees
testified
that
Pemco's
practice in negotiating contracts for maintenance and P-to-F
conversions was to assume that an aircraft was in average
condition based on the age of the aircraft and its prior
operating history.
Those employees further testified that
such an assumption is necessary because it is difficult to
accurately evaluate the condition of an aircraft before it is
cleaned, towed into a hangar, and opened for inspection.
As to the standard of work to be performed by Pemco, GE
Capital contends that the agreement clearly specifies the
requisite standard and that it is only conjecture on Pemco's
part that GE Capital knew Ortiz would attempt to impose his
own standards or that it suppressed from Pemco any deviation
from the standard of work stated in the agreement.
As previously stated, the agreement formalized a multimillion-dollar transaction between two corporations on equal
footing.
The agreement clearly spells out the expectations
and obligations of each party.
Pemco's claims as to the
standard of work GE Capital expected from Pemco and what it
34
1090350
knew
about
evidence.
that
GE
Ortiz's
work
methods
is
mere
speculation,
not
We see no evidence presented to the jury indicating
Capital
suppressed
from
Pemco
any
material
fact.
Consequently, we conclude that, as a matter of law, Pemco's
fraudulent-suppression claim should not have been submitted to
the jury.
3. Breach of an Express Contract
In order to establish that a breach of contract occurred,
Pemco needed to prove: "'(1) the existence of a valid contract
binding
the
performance
parties
under
in
the
the
action,
contract,
nonperformance, and (4) damages.'"
(2)
(3)
[Pemco's]
[GE
own
Capital's]
Employees' Benefit Ass'n
v. Grissett, 732 So. 2d 968, 975 (Ala. 1998) (quoting Southern
Med. Health Sys., Inc. v. Vaughn, 669 So. 2d 98, 99 (Ala.
1995) (citations omitted)).
Accord, e.g., JP Morgan Chase v.
J.H. Elec. of New York, Inc., 69 N.Y.A.D.3d 802, 803, 893
N.Y.S.2d 237, 239 (2010).
As to the first element, it is undisputed that a valid
contract existed.
As to the second and third elements, Pemco
produced evidence from which the jury could have concluded
that Pemco proved its performance under the agreement, GE
35
1090350
Capital's nonperformance, and damage to Pemco as a result of
the breach.
Therefore, the trial court properly submitted
Pemco's breach-of-contract claim, based on an alleged breach
of the agreement, to the jury.
4. Breach of an Implied Contract
Pemco also argued to the jury that GE Capital was liable
under a theory of implied contract.
Pemco requested the
following jury instructions on the theory of implied contract,
which the trial court gave over GE Capital's objections:
"The promises to perform need not have been made
in express language. They may be implied from the
conduct of the parties. It is not enough that Pemco
hoped or expected that if it performed the services
of the contract, [GE Capital] would pay for the
services performed.
To find such a promise, you
must either find that [GE Capital], in express
language, agreed that, if Pemco performed services
under the contract, that [GE Capital] would pay for
the services performed, or that prior to performing,
Pemco made it clear--or the actions of the parties
made it clear that if Pemco performed the services,
it expected [GE Capital] to pay for the services
rendered,
and
that
[GE
Capital],
thereafter,
accepted performance or acted in such a way that
demonstrated acceptance of the performance of the
agreement. Substantial performance of a contract is
performance of all its important parts, but does not
require a full or exact performance of every slight
or unimportant detail.
"A contract in fact arises from inferences that
may be drawn from the facts and circumstances of the
case and the intention of the parties as indicated
36
1090350
by their conduct. When services are rendered at the
request of a recipient or under circumstances from
which it can fairly be inferred that both parties
expected the services would be compensated, there is
a contract implied in fact to pay for them."
GE Capital argues on appeal that Pemco's reliance on an
implied-contract theory to override the express terms of the
agreement is contrary to law.
This Court has held:
"We first note that under Alabama law, claims of
both an express and an implied contract on the same
subject matter are generally incompatible.
This
Court has recognized that where an express contract
exists between two parties, the law generally will
not recognize an implied contract regarding the same
subject matter.
Vardaman v. Florence City Bd. of
Educ., 544 So. 2d 962 (Ala. 1989); Hendrix, Mohr &
Yardley, Inc. v. City of Daphne, 359 So. 2d 792
(Ala. 1978); Robinson Lumber Co. v. Sager, 199 Ala.
675, 75 So. 309 (1917)."
Kennedy v. Polar-BEK & Baker Wildwood P'ship, 682 So. 2d 443,
447 (Ala. 1996).
Life
Ins.
Co.
of
Accord, e.g., Katz v. American Mayflower
New
York,
14
N.Y.A.D.3d
195,
202,
788
N.Y.S.2d 15, 20 (2004).
Pemco argues that even though the agreement provided a
sound basis for the jury verdict in its favor, the evidence
also revealed that the parties entered into agreements that
were
independent
of
the
agreement.
In
light
of
"this
evidence," Pemco argues, the trial court did not exceed its
37
1090350
discretion in instructing the jury on the theory of implied
contract. The evidence to which Pemco refers, however, is
evidence of express oral contracts, not implied contracts.
Pemco contends that the instructions it requested were proper
and
that
the
jury,
consistent
with
those
instructions,
correctly returned a verdict in its favor for breach of an
implied contract.
In reviewing the record in this case, this Court cannot
find
any
theory.
evidence
that
Moreover,
the
would
support
existence
of
an
the
implied-contract
agreement
makes
recovery on a theory of implied contract improper; therefore,
we conclude that the trial court erred in giving the jury
Pemco's requested charge regarding an implied contract and in
submitting that claim to the jury.
5. Disposition of GE Capital's Motion for a JML
We
conclude
that
Pemco
failed
to
offer
substantial
evidence showing that GE Capital made a false representation,
that it suppressed any material existing fact, or that would
support a breach-of-an-implied-contract theory.
Because, as
a matter of law, the evidence does not support a finding of
fraudulent misrepresentation, fraudulent suppression, or the
38
1090350
breach
of
an
implied
contract,
the
trial
court
erred
in
denying GE Capital's motion for a JML on both of Pemco's fraud
claims and its breach-of-an-implied-contract claim. Therefore,
those claims should not have been submitted to the jury, and
that portion of the trial court's order denying GE Capital's
motion for a JML as to Pemco's fraud and breach-of-an-impliedcontract claims is due to be reversed.
As
to
Pemco's
breach-of-an-express-contract
claim,
however, we conclude that Pemco offered substantial evidence
that GE Capital breached the agreement; therefore, the trial
court did not err in denying GE Capital's motion for a JML as
to Pemco's breach-of-an-express-contract claim, and that claim
was properly submitted to the jury.
B. Motion for a New Trial
We
next
address
whether
the
trial
court
should
have
granted GE Capital's motion for a new trial as to Pemco's
breach-of-contract claim.
The jury returned a verdict in this case finding for
Pemco on all of Pemco's claims against GE Capital.
the
breach-of-an-implied-contract
claim
was
Because
improperly
submitted to the jury, we have in this appeal–-as to the
39
1090350
verdict on the breach-of-contract claim--a "good count-bad
count" situation analogous to that in Aspinwall v. Gowens, 405
So. 2d 134 (Ala. 1981).
Waddell & Reed, 875 So. 2d at 1165-
66. See also Life Ins. Co. of Georgia v. Smith, 719 So. 2d 797
(Ala. 1998). We cannot assume that the verdict finding GE
Capital liable was based only on Pemco's breach-of-contract
claim that was properly submitted to the jury. Accordingly,
the judgment based on the jury verdict for Pemco on Pemco's
breach-of-contract claim must be reversed; we remand this case
for
a
new
trial
on
Pemco's
breach-of-an-express-contract
claim. 7
IV. Conclusion
We reverse the trial court's order denying GE Capital's
motion for a JML as to Pemco's fraud claims and its breach-ofan-implied-contract claim.
We also reverse the trial court's
order denying GE Capital's motion for a new trial.
We remand
the cause and direct the trial court to enter a JML in favor
7
Pemco argues on application for rehearing that, because
GE Capital drafted the verdict forms, the verdict should stand
on the basis of the doctrine of invited error, under which the
verdict may be presumed to rest on the "good count."
This
Court has so held on other occasions.
Here, however, GE
Capital did not "invite" the error as to the implied-contract
jury instructions, and it properly preserved that error for
appellate review.
40
1090350
of
GE
claim,
Capital
its
as
to
Pemco's
fraudulent-misrepresentation
fraudulent-suppression
claim,
and
its
implied-
contract claim and to enter an order granting GE Capital's
motion for a new trial as to Pemco's breach-of-contract claim
alleging a breach of the agreement.
Because we conclude that
the trial court should have granted a JML as to Pemco's fraud
and implied-contract claims and a new trial as to Pemco's
breach-of-contract claim, we pretermit consideration of the
other arguments made by the parties.
APPLICATION
OVERRULED;
OPINION
OF
DECEMBER
2,
2011,
WITHDRAWN; OPINION SUBSTITUTED; REVERSED AND REMANDED WITH
DIRECTIONS.
Woodall,
Stuart,
Bolin,
Parker,
Shaw,
concur.
Murdock, J., concurs in the result.
41
and
Wise,
JJ.,
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