UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
decided: December 30, 1982.
JOY MANUFACTURING COMPANY, A CORPORATION APPELLANT IN NO. 81-2694
SOLA BASIC INDUSTRIES, INC., A CORPORATION, LINDBERG DIVISION OF SOLA BASIC INDUSTRIES, INC. AND GENERAL SIGNAL CORPORATION, A CORPORATION; SOLA BASIC INDUSTRIES, INC., A CORPORATION, LINDBERG DIVISION OF SOLA BASIC INDUSTRIES, INC., APPELLANT IN NO. 81-2695
APPEAL FROM THE UNITED STATE DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA -- PITTSBURGH.
Adams, Hunter and Becker, Circuit Judges.
Opinion OF THE COURT
HUNTER, Circuit Judge:
1. Joy Manufacturing Company ("Joy") brought this diversity action against Sola Basic Industries, Inc., Lindberg Division of Sola Basic Industries, Inc., and General Signal Corporation*fn1 to recover damages resulting from the failure of two heat treating furnaces purchased by Joy from the Lindberg Division of Sola Basic Industries.*fn2 The case was tried on the theories of breach of warranty and misrepresentation, and the jury returned a verdict in the amount of $7,968.31. Both parties filed timely appeals claiming various errors in the trial below. Because we find the district court erred in excluding certain evidence and in not allowing defendants to amend their pretrial statement, we will vacate the judgment and remand for a new trial.
2. In the mid-1970's Joy purchased two new heat treating furnaces from Lindberg for use in its Chain Plant Operation in Reno, Pennsylvania. The first was delivered on March 24, 1975 and, after assembly, was ready for normal operation in late May, 1975. The second was installed and ready for operation in July, 1976.
3. Both furnaces experienced operational difficulties*fn3 shortly after installation. These operational problems reoccured at approximately six to eight week intervals, resulting in substantial downtime for both furnaces. From 1975 to 1977, both Joy and Lindberg made various efforts to correct the furnace problems with little success. Finally in 1977 the hearths in both furnaces were replaced and, with minor exceptions, the furnaces have since operated properly. App. at 22a, 23a.
4. On March 23, 1979, Joy filed the instant action in the District Court for the Western District of Pennsylvania alleging breach of express and implied warranties, strict liability, negligence, and misrepresentation on the part of Lindberg. Joy sought damages in excess of $800,000.
5. In a pretrial notice dated April 23, 1979, the district court directed counsel for both parties to comply with the provisions of the Rule 5-II Pre-Trial Procedures of the District Court for the Western District of Pennsylvania. Under that rule each party is required to submit a "brief narrative statement of the material facts [to be offered] at trial." Plaintiffs must include "all damages claimed, the method of calculation, and how damages will be proven," and defendants must include all "defense[s] to the damage claims." W.D. Pa. R. 5-II(D). In its pretrial narrative, Joy discussed the factual background leading up to its filing of this action and repeated its claims of strict liability, breach of express and implied warranties, negligence, and misrepresentation. App. at 17a. Joy claimed specific damages for lost commercial heat treating, down-time, overtime, repair costs, and various other losses allegedly the result of Lindberg's actions. In their pretrial narrative, defendants disputed Joy's recitation of the facts and claimed that the furnaces were properly designed and manufactured, that no express warranties concerning quality of workmanship had been made, and that all implied warranties had been fulfilled.*fn4 App. at 186a.
6. The case proceeded to trial. During their cross-examination of Steven Baldwin, one of plaintiff's liability witnesses, defendants attempted to ask questions about a proposal form for Lindberg equipment sent by Lindberg to Joy. Joy's counsel objected on the ground that, if defendants were using that line of questioning to establish that there were terms in the contract different from those that plaintiff had "put in,"*fn5 defendants were advancing a theory which they had not raised in their pretrial narrative. App. at 200a-01a. Defendants claimed that questions about the proposal form were proper because the document contained a disclaimer of all warranties, including any warranties implied by law. App. at 205a.*fn6 After extended discussion at side bar, app. at 200a-09a, the court held that defendants could not address the subject of the disclaimer "because [they had] not listed it in [their] pretrial statement." App. at 205a. Defendants then requested permission to amend their pretrial statement prior to presentation of their case in chief in order to be able to raise the issue of disclaimer. The court denied the request. App. at 209a.
7. In its presentation of evidence on damages plaintiff recalled Steven Baldwin. He had earlier testified on direct about his familiarity with Joy's heat treating operation, app. 42a-45a, his familiarity with the purchase of two furnaces from Lindberg, app. at 46a, and his familiarity with problems Joy had experienced with the furnaces, app. at 47a, 50a-57a.*fn7 In the course of plaintiff's questioning, counsel for Joy asked Baldwin for his estimation of the percentage of losses incurred by Joy that were attributable to the hearth failures. Over objection, Baldwin testified that 90% of the general labor expenses,*fn8 90% of the labor costs related to downtime,*fn9 90% of the labor variance,*fn10 and all of the overtime costs,*fn11 were attributable to the hearth problems of the Lindberg furnaces.*fn12
8. On cross-examination, defendants' counsel questioned Baldwin about the source of his estimates. He first testified that he received the information needed to complete those calculations " from the records of Joy Manufacturing and my personal knowledge." App. at 101a. Upon further questioning, however, Baldwin testified that he had only received a summary of the records, app. at 135a, and that he was not sure what records had been used in preparation of that summary, app. at 136a. He further testified that, to his knowledge, Joy did not keep records which specified the reason a furnace was down on a particular date. App. at 140a. The court then asked the witness:
THE COURT: Are you saying, Mr. Baldwin, you cannot connect down time to any particular reason?
THE WITNESS: That is correct. A particular reason was that this part broke on the furnace or this was wrong -- no.
[COUNSEL FOR LINDBERG]: Your Honor, I would move that this testimony of down time damages be stricken as being purely speculative and conjectural.
THE COURT: I am going to strike that testimony.
[COUNSEL FOR JOY]: I don't think that is what he said. I think he said he can't testify from the records. He testified from his personal observations.
THE COURT: Mr. Baldwin, do you remember, in your mind, every day and how much down time there was and the reason for it?
THE WITNESS: No. That is absurd.
THE COURT: He doesn't remember it in his mind, and there is nothing in the records to substantiate it, and I do strike the testimony dealing with down time.
App. at 141a. The court went on to strike Baldwin's testimony as to labor variance, overtime, the amount of heat treating required to be subcontracted out by Joy, and the amount of lost commercial heat treating. App. at 142a-43a. The only damage evidence the court allowed Joy to introduce consisted of invoices totaling $7,968.3l. The jury awarded that amount to Joy.
A. Lindberg's Motion to Amend its Pretrial Narrative
9. Lindberg argues that the trial court abused its discretion by not allowing defendants to amend their pretrial statement during trial. The court held that defendants were precluded from raising the issue of whether all implied warranties had been disclaimed under the proposal sent by Lindberg to Joy. App. at 205a, 209a.*fn13 The trial court based its ruling on the statement made by Lindberg in its pretrial narrative that Lindberg had never made any express warranties to Joy and that all implied warranties had been fulfilled.*fn14
10. Defendants' pretrial narrative was filed with the court in accordance with W.D. Pa. R. 5-II(D) (2). Rule 5-II(D) (5) (d) states:
Failure to fully disclose in the pretrial narrative statement or at the pretrial conference, the substance of the evidence proposed to be offered at trial, will result in the exclusion of that evidence at trial unless the parties otherwise agree or the court otherwise orders.
The purpose of this rule is to simplify issues, to expedite the disposition of cases, and to avoid unnecessary delays once a trial had begun. See Ely v. Reading Company, 424 F.2d 758, 763-64 (3d Cir. 1970).
11. We previously have held that it is within the trial court's discretionary power to allow for amendment of a pretrial narrative, E.C. Ernst, Inc. v. Koppers Co., 626 F.2d 324, 331 (3d Cir. 1980), and absent clear abuse of discretion, our interference with the use of that discretion should be minimal. Ely v. Reading Company, 424 F.2d at 763-64. Our decisions identify four principal criteria for making and evaluating that discretionary judgment: (1) the prejudice or surprise in fact to the nonmoving party, (2) the ability of that party to cure the prejudice, (3) the extent to which the waiver of the rule would disrupt the orderly and efficient trial of the case, and (4) bad faith or willfulness on the part of the movant. Berroyer v. Hertz, 672 F.2d 334, 338 (3d Cir. 1982); see Meyers v. Pennypack Woods Home Ownership Association, 559 F.2d 894, 904-05 (3d Cir. 1977).*fn15 Applying these factors to the instant case, we are constrained to hold that the trial court abused its discretion in not allowing Lindberg to amend its pretrial narrative.
12. First, it is clear that any prejudice or surprise to Joy was minimal if it existed at all. In its original complaint Joy alleged breaches of both express and implied warranties by the defendants. Complaint para. 21. In its allegation of what constituted the contract between the parties, Joy claimed "defendants received and accepted the aforesaid purchase orders and agreed to supply furnaces conforming to that described in the aforesaid purchase orders and as described in their quotations." Complaint para. 10 (emphasis added). In its pretrial narrative Joy claimed that in June, 1974, Lindberg submitted to Joy a proposal containing "numerous express warranties." App. at 18a. Joy indicated that at trial it would "establish that Lindberg breached expressed warranties as to the quality and workmanship and capacity of the furnaces as set forth in written proposals made to Joy. . . ." App. at 24a. Although Lindberg claimed in its pretrial narrative to have made no express warranties and to have fulfilled all implied warranties, app. at 189a, the parties jointly filed a later pretrial stipulation which stated that "this is an action for . . . breach of express and implied warranties. . . ." Pretrial Stipulation at 1. Joy specifically identified as Plaintiff's Exhibit Number 38 the proposal form that Lindberg later tried to use in questioning Baldwin. Pretrial Stipulation at 7.*fn16 These facts show that plaintiff was not only aware of the document which contained the alleged waiver, but had originally relied on it as a basis for its claims of liability. Despite defendants' statement in their pretrial narrative, plaintiff continued throughout the pretrial process to claim breach of both implied warranty and express warranty, specifically, the breach of the express warranty made in Lindberg's proposal form.*fn17 Plaintiff could hardly claim surprise over the existence of the proposal form or the disclaimer which Lindberg contended it contained.
13. Second, plaintiff could have minimized any prejudice caused by allowing Lindberg to amend its pretrial narrative. Defendants sought leave to amend "prior to presentation of [their] case in chief." App. at 209a. This motion was made on August 12, 1981, the first full day of trial. It was not until August 20 that defendants began presentation of their case. Transcript of August 20 at 113. There is no indication that Joy could not have sought a continuance to prepare a response to Lindberg's claim of waiver.*fn18 If defendant's motion presented any possible prejudice, plaintiff would have been able to cure it. See Meyers v. Pennypack Woods, 559 F.2d at 905.
14. Third, allowing defendant to amend would not have disrupted the orderly and efficient trial of the case. Defendants' amendment really went to the terms of the contract between the parties, an issue both parties agreed was in dispute. Transcript of August 12 at 31-32. The determination of whether implied warranties existed at all is clearly relevant to the issue of breach of those warranties. It would not have disrupted the trial process to allow the defendants to argue that all implied warranties had been waived.*fn19
15. Fourth, there is no evidence of bad faith on the part of the defendants. Claims based on breach of the express warranty allegedly contained in Lindberg's proposal form had been made by plaintiff a year earlier. It was the same warranty which Lindberg relied on when raising the issue of disclaimer. There is nothing to indicate that the defendants purposefully or wilfully withheld their disclaimer argument until trial in order to prejudice the plaintiff.
16. Thus we hold it was an abuse of discretion for the trial judge not to allow Lindberg to amend its pretrial narrative to include the issue of disclaimer of implied warranties.
B. Baldwin's Damage Testimony
17. In its appeal Joy argues that the district court erred by excluding Baldwin's testimony concerning the percentage of Joy's losses attributable to hearth problems. The court concluded that Baldwin's lack of personal knowledge made his non-expert opinion about percentages "mere speculation" and "unbelievable." App. at 147a.*fn20 The court, therefore, held his testimony inadmissible.*fn21
18. In diversity cases, the admissibility of non-expert opinion testimony is governed by the Federal Rules of Evidence. See Pollard v. Metropolitan Life Insurance Co., 598 F.2d 1284, 1286 (3d Cir.), cert. denied, 444 U.S. 917, 62 L. Ed. 2d 171, 100 S. Ct. 232 (1979); Fed. R. Evid. 101.*fn22 Under the federal rules, opinion testimony by a lay witness is admissible if his opinion or inferences are (1) rationally based on the perception of the witness and (2) helpful to a clear understanding of his testimony or the determination of a fact in issue. Fed. R. Evid. 701; Teen-Ed, Inc. v. Kimball International, Inc., 620 F.2d 399, 403 (3d Cir. 1980). That rule reflects the modern trend to allow the admission of opinion testimony, provided that it is well founded on personal knowledge and susceptible to specific cross-examination. Teen-Ed, 620 F.2d at 403; 11 J. Moore, supra, § 701.02; 3 J. Weinstein & M. Berger, Weinstein's Evidence para. 701 (1981). In the instant case, Lindberg does not argue that Baldwin's estimates would not be helpful in understanding his other testimony or determining a fact in issue. See Teen-Ed, 620 F.2d at 403-04. Thus the admissibility of Baldwin's testimony under Rule 701 must rest on whether it was rationally based on his perceptions as plant supervisor for Joy.
19. The requirement of Rule 701 that lay opinion be rationally based on the perception of the witness reflects the general limitation embodied in Federal Rule of Evidence 602 that in order to testify on a subject a witness must have "personal knowledge of the matter." Teen-Ed, 620 F.2d at 403; 11 J. Moore, supra, § 701.10; 3 J. Weinstein & M. Berger, supra, para. 701.*fn23 We have previously stated:
We recognize initially the primary rule of evidence that a witness ought to state only those facts of which he has personal knowledge. "The law requires that he who deposes to a fact should have the means of knowing it." State v. Allen, 1 Hawks 9 (1820). . . . What the witness represents as his knowledge must be an impression derived from his own senses. And this impression must be gauged by the geographic proximity of the witness to the event, the length of time involved, and the existence of proper conditions for the exercise of powers of observation and perception.
United States v. Barber, 442 F.2d 517, 526 (3d Cir.), cert. denied, 404 U.S. 958, 30 L. Ed. 2d 275, 92 S. Ct. 327 (1971). That same analysis must be applied when deciding whether a witness's opinion is rationally based on his perception for the purpose of Fed. R. Evid. 701. The court is in essence requiring that the best evidence available -- first-hand knowledge versus second-hand knowledge -- be presented to the jury for use in its deliberation. 3 J. Weinstein & M. Berger, supra, para. 602.
20. We recognize that a trial court's determination of admissibility may be overturned only for clear abuse of discretion, Pollard v. Metropolitan Life Insurance Co., 598 F.2d 1284, 1286 (3d Cir.), cert. denied, 444 U.S. 917, 62 L. Ed. 2d 171, 100 S. Ct. 232 (1979); see Hill v. Nelson, 676 F.2d 1371, 1373 (11th Cir. 1981). We reluctantly hold, however, that the trial court clearly abused its discretion in striking Baldwin's testimony insofar as he, based on his personal knowledge, testified to the percentage of downtime due to hearth problems. The record reveals that Baldwin, in his position as Supervisor of Production Control, had extensive personal knowledge of Joy's plants, its on-going heat treating processes, and the two furnaces in question. Baldwin testified in great detail to the work done by Joy at its Reno plant. App. at 42a-46a. He testified that he was directly involved with the negotiations for the furnaces, app. at 46a; Transcript of August 12 at 36-39, with the purchase and installation of the furnaces, app. at 46a; Transcript of August 12 at 39-44, and with the operation of the furnaces on a day-to-day basis, app. at 46a, 47a, 48a, 75a. He testified that as supervisor he attended production meetings where problems with capacity at any work center, including the two furnaces, were discussed. App. at 47a.*fn24 He specifically testified about the hearth problems, app. at 50a, 52a-55a, 59a-60a, and about his observations of what was happening in heat treating on a day-to-day basis, app. at 46a, 75a.
21. This undisputed testimony indicates Baldwin had sufficient personal knowledge of Joy's heat treating facility to make an estimate of what amount of downtime was due to the hearth problems. His opinion was rationally based on his knowledge, as a personal observer, of Joy's furnace operation. His inability to state precisely why a furnace was inoperable at a particular time was the proper material for effective cross-examination rather than a basis to hold his testimony completely inadmissible.*fn25 See United States v. Jackson, 688 F.2d 1121, slip op. at 7 (7th Cir. 1982). As long as a witness' opinion is rationally based on his perception, that testimony is not barred by Fed. R. Evid. 701.
22. Because we conclude the district court erred in not allowing Lindberg to amend its pretrial narrative and in striking Baldwin's testimony on damages, we will vacate the district court's judgment and remand for a new trial on both liability and damages.*fn26