     Case: 15-10087   Document: 00513442129        Page: 1   Date Filed: 03/29/2016




                       REVISED March 28, 2016

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT


                                    No. 15-10087
                                                                  United States Court of Appeals
                                                                           Fifth Circuit

                                                                         FILED
PERRY J. LUIG,                                                      March 28, 2016
                                                                    Lyle W. Cayce
             Plaintiff - Appellee                                        Clerk

v.

NORTH BAY ENTERPRISES, INCORPORATED,

             Defendant - Appellant




                Appeal from the United States District Court
                     for the Northern District of Texas


Before HIGGINBOTHAM, SOUTHWICK, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:
      North Bay Enterprises entered into a contract to purchase a helicopter
from Perry J. Luig. The parties dispute whether Luig breached the contract
by failing to deliver a helicopter that met the specifications of the purchase
agreement. Below, the district court effectively granted summary judgment in
favor of Luig by dismissing North Bay’s breach of contract counterclaim with
prejudice. The district court then denied North Bay’s motion to alter the
judgment or to amend its pleadings according to Federal Rules of Civil
Procedure 59(e). North Bay timely appealed. Because we find that the district
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court abused its discretion when denying North Bay’s 59(e) motion, we vacate
the denial of summary judgment and dismissal of North Bay’s counterclaim.
                                        I.
      On September 11, 2012, North Bay signed an Aircraft Purchase
Agreement to purchase Luig’s helicopter for $110,000.            According to the
Agreement, following a “pre-purchase inspection,” Luig would deliver the
helicopter “with all systems in an airworthy condition and a current Certificate
of Airworthiness,” and North Bay would accept the aircraft in an “as is where
is” condition. The airworthiness certificate that accompanied the Agreement
identified the helicopter as a type “47 G3B1.” North Bay asserts that the
aircraft was not a type 47 G3B1 due to removal of the turbo charger and other
modifications that occurred prior to the sale. Because the aircraft was to be
flown in the United States, it was also subject to Federal Aviation
Administration     regulations   and    airworthiness       directives,     including
Airworthiness Directive “80-04-04.” However, as noted by North Bay and the
district court, there was no evidence that the aircraft was in compliance with
the directive.   Compliance with Directive 80-04-04, including the proper
recording of compliance, is necessary to be legally airworthy. Following the
pre-purchase inspection and several repairs, Luig delivered the aircraft to
North Bay.
      After being alerted to North Bay’s concerns that the helicopter was not
airworthy, Luig filed a declaratory judgment action in state court. North Bay
removed Luig’s declaratory judgment action to federal court and asserted a
counterclaim for breach of contract.         North Bay then filed a motion for
summary judgment on its breach of contract counterclaim.                  In its brief
accompanying the motion, North Bay alleged that Luig breached the contract
because the airworthiness certificate specified a different type of helicopter and
because the helicopter was not airworthy given that it was not in compliance
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with Directive 80-04-04. North Bay did not brief any of the other elements of
the contract counterclaim.
      The district court denied North Bay’s motion for summary judgment and
effectively granted sua sponte summary judgment for Luig by dismissing
North Bay’s contract counterclaim and addressing Luig’s request for
declaratory relief.    The district court held that North Bay’s contract
counterclaim failed as a matter of law because North Bay did not reject or
revoke the helicopter, and under Texas law, “damages are only permitted
under a breach of contract cause of action when the seller has failed to deliver
the goods, the buyer has rejected the goods, or the buyer has revoked his
acceptance.” As for Luig’s declaratory relief, the district court found that the
“as is” provision contained in the Agreement did not disclaim the express
warranty that the helicopter was airworthy and that the helicopter was not
airworthy as a matter of law.
      North Bay then filed a motion to alter the judgment according to Federal
Rule of Civil Procedure 59(e), or in the alternative, to amend the counterclaim.
In its brief in support of this motion, North Bay argued that whether a buyer
rejected or revoked a good is an issue for the trier of fact and that a buyer “may
also revoke acceptance where goods are accepted without knowledge of a non-
conformity and acceptance was reasonably induced either by the difficultly of
discovery before acceptance or by the seller’s assurance.” As to this argument,
North Bay presented the following evidence for the first time in its motion to
alter the judgment: Achim K. Gartmann, the pilot who accepted the helicopter,
heard a noise on his way back to California. Upon returning to California, he
took the helicopter to an aviation repair shop to investigate the issue.
Following that meeting, he continued to investigate the noise and the
airworthiness of the helicopter, finding that nothing in the helicopter’s logs
showed compliance with Directive 80-04-04. North Bay emailed Luig about
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                                    No. 15-10087
the problem and proposed that North Bay make the helicopter compliant at
Luig’s expense. After receiving the estimated costs, Luig made a partial offer
of contribution with a deadline that expired. Luig then filed his declaratory
judgment action.
      Without acknowledging this newly presented evidence in its order, the
district court denied North Bay’s 59(e) motion to alter the judgment or to
amend its pleadings. On appeal, the parties do not dispute that the Agreement
was a valid contract or that Texas law governs the contract dispute. 1 Instead,
North Bay appeals the district court’s effective sua sponte grant of summary
judgment for Luig, without providing notice or allowing North Bay to respond,
and the denial of its 59(e) motion to alter the judgment or amend the
counterclaim to include a breach of warranty claim.
                                          II.
                                          A.
      North Bay challenges the district court’s dismissal of North Bay’s
counterclaim as improper. We treat this dismissal as a sua sponte grant of
summary judgment for Luig. A court may grant summary judgment for a
nonmovant only if the losing party is on notice and has the opportunity to come
forward with all its evidence. See Fed. R. Civ. P. 56 (f)(1), (3); Celotex Corp. v.
Catrett, 477 U.S. 317, 326 (1986). When a district court enters summary
judgment sua sponte without giving notice to the parties, we review the
decision for harmless error. Atkins v. Salazar, 677 F.3d 667, 678 (5th Cir.
2011). However, “a district court can ‘rectif[y] [this] initial procedural error’
by ruling on a motion for reconsideration.” Simmons v. Reliance Standard Life
Ins. Co. of Tx., 310 F.3d 865, 869 n.4 (5th Cir. 2002) (alterations in original)


      1 The Agreement contains a choice-of-law provision contracting for Oklahoma law to
govern all actions. The district court applied Texas law because “both parties [brought]
claims under Texas law and neither invoke[d] Oklahoma law.”
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                                       No. 15-10087
(quoting Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 402 (5th Cir.
1998)).
       The district court dismissed North Bay’s contract counterclaim because
North Bay did not show that it had rejected or revoked the helicopter—an
element of Texas contract law not briefed by either party. The district court
did not give North Bay notice or the opportunity to respond. See Celotex, 477
U.S. at 326. We would typically review this action for harmless error, 2 see
Atkins, 677 F.3d at 678, but because the district ruled on North Bay’s 59(e)
motion for reconsideration, which gave North Bay the opportunity to present
all of its arguments and evidence in support of the contract counterclaim, the
procedural defect of the district court’s effective sua sponte grant of summary
judgment was cured, see Simmons, 310 F.3d at 869 n.4.
                                             B.
       North Bay also challenges the district court’s denial of its 59(e) motion.
“The applicable standard of review of the denial of the [moving party’s] motion
to alter, amend, and reconsider is dependent on whether the district court
considered the materials attached to the [moving party’s] motion, which were
not previously provided to the court.” Templet v. HydroChem, Inc., 367 F.3d
473, 477 (5th Cir. 2004). If the district court considers the moving party’s
evidence and still grants summary judgment, we review the decision de novo.
Id.    However, if the district court does not consider the evidence, the
appropriate standard of review is abuse of discretion. Id. “[I]n the absence of
any specific reference to these materials, we review the district court’s denial



       2 We recognize that “where the party against whom summary judgment is granted
moves for reconsideration under Fed. R. Civ. P. 59(e), but does not, in that motion, challenge
the procedural propriety of the summary judgment ruling, our court has reviewed the
asserted procedural irregularity, raised for the first time on appeal, only for plain error.”
Love v. Nat’l Med. Enters., 230 F.3d 765, 771 (5th Cir. 2000). However, North Bay raised this
procedural challenge in its 59(e) motion.
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                                  No. 15-10087
of the [moving party’s] Rule 59(e) motion for abuse of discretion, i.e., as if the
district court did not consider the additional materials.” Id. The district court
likely did not consider North Bay’s newly presented evidence when denying
the 59(e) motion; the court simply held that it perceived “no manifest errors of
law” to support a 59(e) motion to reconsider. Therefore, we review the district
court’s denial of North Bay’s 59(e) motion for abuse of discretion.
      There are several factors that the district court should have considered
when determining whether to grant North Bay’s 59(e) motion: (1) the probative
value of the evidence, (2) whether the evidence was available to North Bay at
the time of the summary judgement motion, (3) the reason that North Bay did
not present the evidence before summary judgment was effectively granted,
and (4) potential prejudice to Luig. See Templet, 367 F.3d at 478. The district
court denied North Bay’s motion to reconsider without acknowledging its
additional evidence, citing the fact that 59(e) is “an extraordinary remedy that
should be used sparingly,” and stating that evidence is not newly discovered if
the party “could have pursued discovery earlier by proper diligence or asked
the court for additional time but did not.” We disagree with the district court’s
analysis.
      Under Texas law, “damages are only permitted under a breach of
contract cause of action when the seller has failed to deliver the goods, the
buyer has rejected the goods, or the buyer has revoked his acceptance.” A.O.
Smith Corp. v. Elbi S.P.A., 123 F. App’x 617, 619 (5th Cir. 2005). Because
North Bay had not “assert[ed] that it rejected or revoked acceptance of the
helicopter” and the uncontested facts confirmed delivery and acceptance of the
helicopter, the district court found that North Bay’s contract counterclaim
failed as a matter of law. However, in its 59(e) motion, North Bay correctly
recognized that under Texas contract law a buyer may revoke acceptance of a
good if the good was accepted without knowledge of a nonconformity and
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“acceptance was reasonably induced either by the difficultly of discovery before
acceptance or by the seller’s assurance.” Toshiba Mach. Co., Am. v. SPM Flow
Control, Inc., 180 S.W.3d 761, 772 (Tex. App.—Fort Worth 2005, pet. granted,
judgm’t vacated w.r.m.). The buyer must revoke the good within a reasonable
time after discovering the grounds for revocation. Id.
      North Bay’s newly presented evidence is probative of a finding of
revocation under Texas contract law. North Bay presented evidence that when
it discovered that the helicopter may not be in compliance with Directive
80-04-04, North Bay contacted Luig and proposed a solution. See Emerson
Elec. Co. v. Am. Permanent Ware Co., 201 S.W.3d 301, 309 (Tex. App.—Dallas
2006, no pet.) (holding that when a buyer informed a seller of ongoing failures
and requested reimbursement, the seller was on notice of revocation). North
Bay also presented evidence that it did not use the helicopter following
discovery of noncompliance. See Trident Steel Corp. v. Wiser Oil Co., 223
S.W.3d 520, 527 (Tex. App.—Amarillo 2006, no pet.) (recognizing that a buyer’s
continued use of a good may preclude rejection or revocation, but holding that
the buyer must use the good with knowledge of the nonconforming nature to
preclude rejection under Texas law). Under Texas law, the evidence presented
by North Bay in its motion for reconsideration is probative as to whether North
Bay rejected or revoked the helicopter—the only grounds upon which the
district court dismissed North Bay’s counterclaim.
      The next factor the district court should have considered when
determining whether to grant the 59(e) motion—the reason North Bay did not
present the evidence of revocation with its original summary judgment
motion—also favors North Bay. This court has held that “an unexcused failure
to present evidence available at the time of summary judgment provides a valid
basis for denying a subsequent motion for reconsideration.” Templet, 367 F.3d
at 479. While the district court noted this principle, it did not recognize the
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                                  No. 15-10087
qualification that the failure to present the evidence be “unexcused.” Although
North Bay likely had access to the evidence presented in the 59(e) motion at
the time it filed its summary judgment motion, North Bay’s failure to present
the evidence was excusable because the district court did not give North Bay
the opportunity to present this evidence before effectively granting summary
judgment for Luig. In its brief in support of its summary judgment motion,
North Bay did not present any evidence regarding revocation or rejection, nor
did Luig argue that revocation or rejection did not occur in its brief in
opposition. Instead, the district court addressed the issue sua sponte, without
putting North Bay on notice of the issue or allowing North Bay the opportunity
to respond.
      Finally, Luig would not have been unfairly prejudiced by the district
court’s consideration of this evidence. Had the district court allowed North
Bay to respond to its proposed issuance of summary judgment, the evidence
would have been properly in front of the district court. Allowing the evidence
to be presented with the 59(e) motion would have only rectified that mistake.
Moreover, Luig has not alleged that he would be unfairly prejudiced if the case
was reopened, when presumably Luig would be given the opportunity to
present contradicting evidence.
      There are “two important judicial imperatives relating to [a 59(e)]
motion: 1) the need to bring litigation to an end; and 2) the need to render just
decisions on the basis of all the facts.” Templet, 367 F.3d at 479 (emphasis
added). Because North Bay presented probative evidence in its 59(e) motion,
and the district court failed to give North Bay an opportunity to respond before
it effectively granted sua sponte summary judgment for Luig by dismissing
North Bay’s counterclaim, the district court abused its discretion when it
denied North Bay’s motion to reconsider.


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                                No. 15-10087
                                     III.
      For the foregoing reasons, we REVERSE the district court’s denial of
North Bay’s 59(e) motion, VACATE the dismissal of North Bay’s contract
counterclaim and denial of summary judgment, and REMAND for the district
court to consider the merits of North Bay’s newly presented argument and
evidence. Because we vacate the judgment on these grounds, we do not reach
North Bay’s alternative argument that the district court abused its discretion
by denying it leave to amend its counterclaim.




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