7th Circuit: German company lacks evidence to support yacht-related damages

A German company has failed to convince the 7th Circuit Court of Appeals that it should be awarded more than $1 million in damages for a yacht it purchased from an Indiana boat manufacturer. 

Erich Schwaiger, a German businessman, purchased a yacht and custom-built lift from Indiana boat manufacturer Porter, Inc. for $1 million through Porter’s German dealer Poker-Run-Boats. The contract between the parties required that the boat be “CE certified,” or authorized for operation in the European Union. Porter, which was not a party to the signed contract, did not build the boat to meet those requirements.

The EU requires that boats’ exhaust expulsion be below the water line, creating less noise than those that procure exhaust above the water line. But when Schwaiger’s order was in process, Florida-based company International Nautic received the order from Poker-Run-Boats and noted that it called for the yacht to come with a switchable exhaust system, which would allow the operator to choose to divert exhaust both ways.

Porter caught the mistake and explained the conflict, and International Nautic authorized Porter to proceed with manufacturing the boat with the originally designed exhaust system. Schawaiger later used the boat in Germany, but eventually opted to sell the boat due to complaints about problems with the boat’s engines and steering column, among others.

When the boat didn’t sell, Schwaiger’s company, SelectSun, filed a complaint against Porter and International Nautic. The Florida company shuttered in 2015, resulting in default judgment for SelectSun. Likewise, Poker-Run-Boats ceased operations sometime after the litigation commenced.

Although Porter did not sign the contract, SelectSun sought to hold it liable for breach of contract under a theory of agency based on apparent authority. SelectSun highlighted the damage to the yacht that Schwaiger experienced, as well as the boat’s not being CE certified, as part of its claims that Porter had breached express and implied warranties and likewise violated the Magnuson-Moss Warranty Act. Finally, SelectSun advanced a claim of unjust enrichment, seeking damages of more than $1 million for the yacht, its lift and related financing costs.

Indiana Northern District Court Chief Judge Theresa Springmann entered judgment in Porter’s favor, determining SelectSun’s breach of contract claims failed because Porter was neither a party to the contract nor could be bound to its terms by a theory of apparent authority. She also emphasized that Schwaiger’s all-or-nothing approach to damages — “insisting on recovering the full purchase price of the boat instead of the more discrete repair costs” — left him outside of the scope of relief available under Indiana law.

The district court lastly rejected the unjust enrichment claim, finding Porter received no benefit at SelectSun’s expense.

“On appeal SelectSun devotes substantial effort to challenging the district court’s determination that Poker-Run-Boats and International Nautic did not act with the apparent authority requisite to bind Porter to the October 2012 contract for the yacht. In much the same way, SelectSun spills meaningful ink arguing that it offered ample evidence to prove that Porter breached its express and implied warranties by failing to manufacture the watercraft to be CE certified,” 7th Circuit Judge Michael Scudder wrote Tuesday.    

“Along the way, in advancing both contentions, however, SelectSun devotes little to no attention to explaining what we see as a plain failure of proof under Indiana law — establishing damages to a reasonable certainty — that independently defeats both its breach of warranty and breach of contract claims against Porter,” Scudder continued. “It is on this alternative ground that we affirm the district court’s judgment in Porter’s favor.”

The 7th Circuit noted SelectSun’s evidence at trial fell “well short of its burden in proving damages on either its breach of warranty or breach of contract claims.” Under Indiana warranty law, the 7th Circuit noted SelectSun needed to present evidence of damages as to the cost of repairing the boat, replacing it or proving its fair market value. Additionally, under Indiana contract law, the company needed to offer a reasonable calculation of damages resulting from the breach that was “supported by evidence in the record” and not on “the mere basis of conjecture or speculation.”

Instead, the 7th Circuit said SelectSun essentially argued the yacht was literally worthless based on its all-or-nothing approach to damages. The court determined SelectSun had no evidentiary ground to stand on to challenge the finding that any warranty damages would not exceed $2,000 as clearly erroneous.

“On this evidentiary record, we conclude that SelectSun did not meet its burden of proving damages to a reasonable certainty on either its breach of contract or warranty claims,” Scudder concluded. “Not only did SelectSun decline to present affirmative evidence as to the cost of specific damage or the current value of the boat, it failed to rebut Porter’s evidence that the boat could be made CE compliant for only $2,000. While Indiana law affords some flexibility in proving damages, a plaintiff must come forward with an estimate rooted in evidence and demonstrated to a reasonable certainty.”

The case is SelectSun GmbH v. Porter, Inc., d/b/a Thunderbird Products, 18-3149.

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