Opinion ID: 775278
Heading Depth: 2
Heading Rank: 1

Heading: Interpretation of the 1981 Agreement

Text: 25 SIADS contends that the district court (1) erred in interpreting Washington State contract law; (2) improperly admitted extrinsic evidence in interpreting the 1981 Agreement; and (3) made clearly erroneous factual findings and erroneous legal conclusions based on these findings. We review the interpretation and meaning of contract provisions de novo. Mendler v. Winterland Prod., Ltd., 207 F.3d 1119, 1121 (9th Cir. 2000). When a district court uses extrinsic evidence to interpret a contract, we review the findings of fact for clear error and the principles of law applied to those facts de novo. United States ex rel. Lindenthal v. Gen. Dynamics Corp., 61 F.3d 1402, 1412 (9th Cir. 1995). We review the district court's admission of evidence for abuse of discretion. Lambert v. Ackerley, 180 F.3d 997, 1009 n. 12 (9th Cir. 1999) (en banc). 26 We first consider SIADS's contention that the district court misinterpreted Washington's contract law. 6 SIADS argues that Syputa v. Druck Inc., 90 Wn. App. 638, 954 P.2d 279 (Wash. Ct. App. 1998), mandates the conclusion that the term orders in the 1981 Agreement means purchase orders. We disagree. 27 In Syputa, a manufacturer of aircraft parts entered into a manufacturer's representation contract for assistance in securing contracts with Boeing. 954 P.2d at 280. The contract provided for a commission payable on all orders received. Id. at 281. Upon termination of the contract, plaintiff claimed commissions for all long-term contracts; defendant contended that it only owed commissions for purchase orders. The court found that orders referred to purchase orders, concluding that although [plaintiff] asserts that the parties mutually intended to define the placement of orders as meaning the placement of requirements contracts, the record is devoid of evidence that the parties mutually intended such a definition. Id. at 282 (emphasis in original). Finding the meaning of orders clear from the terms of the contract and citing the absence of contractual terms addressing post-termination commissions, the court affirmed the trial court's interpretation of orders to mean purchase orders. Id. at 282-83. 28 SIADS argues that, absent evidence of the parties' mutual intent to the contrary, Syputa requires the term orders in a manufacturer's representative contract to be interpreted as purchase orders and not long-term contracts. We disagree and conclude that Syputa does not establish such a presumption. The Syputa court engaged in a case-specific inquiry, finding that the contract: (1) does not provide specific terms addressing post-termination commissions; and (2) when discussing orders refers to specific products that are listed in the [contract] appendix. Id. at 282. The Syputa court's determination of the mutually intended meaning of orders there cannot control an assessment of the intention of the parties here. The language and structure of the 1981 Agreement and the extrinsic evidence relating to it support an interpretation of orders here different from that in Syputa. 29 Washington law holds that extrinsic evidence is admissible as to the entire circumstances under which the contract was made, as an aid in ascertaining the parties' intent. Berg v. Hudesman, 115 Wn.2d 657, 801 P.2d 222, 229 (Wash. 1990). In Berg, the Washington Supreme Court also expressly adopted the RESTATEMENT (SECOND) OF CONTRACTS 212, 214(c) (1981) to determine the intent of contracting parties. 801 P.2d at 229. Section 212 provides: 30 (1) The interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances, in accordance with the rules stated in this Chapter. 31 (2) A question of interpretation of an integrated agreement is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence. 32 Otherwise a question of interpretation of an integrated agreement is to be determined as a question of law. 33 801 P.2d at 229 (quoting RESTATEMENT (SECOND) OF CONTRACTS 212 (1981)). Berg also relied on comment b to that section, which provides, in part:Any determination of meaning or ambiguity should only be made in the light of the relevant evidence of the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations and statements made therein, usages of trade, and the course of dealing between the parties. 34 801 P.2d at 229 (quoting RESTATEMENT (SECOND) OF CONTRACTS 212 cmt. b). 35 Here, the meaning of the term orders is ambiguous and does not clearly point to purchase orders as in Syputa. The 1981 Agreement uses the term purchase orders in a separate contractual clause and uses orders when discussing payment of post-termination incentive fees. See Wilson Court Ltd. P'ship v. Tony Maroni's, Inc., 134 Wn.2d 692, 952 P.2d 590, 597 (Wash. 1998) (holding that a court must interpret [a contract] as a whole, giving reasonable effect to each of its parts). 36 Correctly recognizing that Syputa was not necessarily controlling, the district court properly assessed and weighed evidence pertinent to the parties' intentions. The district court assiduously examined the evidence of the parties' intent. The district court considered pre-and post-agreement extrinsic evidence to conclude that the parties mutually intended orders to refer to long-term contracts and commitments to supply. 37 We next consider SIADS's contentions that much of the trial testimony and evidence was inadmissible under Washington contract law. SIADS objected at trial to testimony of both Pietromonaco and Richardson regarding their understanding of the meaning of orders in the 1980 Agreement and Pietromonaco's testimony concerning orders in the 1981 Agreement on grounds that it represented the individuals' subjective intent and was not relevant to the meaning of orders in the 1981 Agreement. 38 The RESTATEMENT (SECOND) OF CONTRACTS 212, 214(c) (1981), adopted by the Berg court and set out in part above, permits the district court to determine the intent of contracting parties from extrinsic evidence including the relations of the parties, their prior negotiations, and their course of dealing. Berg also expressly approved of the method of determining contractual intent articulated in Stender v. Twin City Foods, Inc., 82 Wn.2d 250, 510 P.2d 221 (1973), Berg, 801 P.2d at 229, which instructs the court to consider, in addition to the language of the contract, extrinsic evidence, including the contract as a whole, the subject matter and objective of the contract, all the circumstances surrounding the making of the contract, the subsequent acts and conduct of the parties to the contract, and the reasonableness of respective interpretations advocated by the parties. Berg, 801 P.2d at 228 (quoting Stender, 82 Wn.2d at 254) (internal quotation marks omitted). See also Scott Galvanizing, Inc. v. Northwest EnviroServices, Inc., 120 Wn.2d 573, 844 P.2d 428, 432 (Wash. 1993). 39 In In re Marriage of Schweitzer, 132 Wn.2d 318, 937 P.2d 1062 (Wash. 1997), the Washington Supreme Court explained that its earlier decision in Berg: 40 authorizes the use of extrinsic evidence only to elucidate the meaning of the words of a contract, and not for the purpose of showing intention independent of the instrument. We emphasized, it is the duty of the court to declare the meaning of what is written, and not what was intended to be written. We accordingly held in Berg that parol evidence cannot be used to add[]to, modify[], or contradict[]the terms of a written contract, in the absence of fraud, accident or mistake.Id. at 1066 (internal citations omitted) (alterations in the original). See also Hollis v. Garwall, Inc., 137 Wn.2d 683, 974 P.2d 836, 843 (Wash. 1999) (holding inadmissable evidence of a party's unilateral or subjective intent as to the meaning of a contract word or term). 41 The district court's detailed examination of evidence of the parties' intentions as manifested in the agreement's language cannot properly be considered to be a judicial redrafting of the written terms of the agreement, nor is this evidence of merely one party's subjective intent. With respect to the 1980 Agreement, Richardson testified to the same understanding of orders as the witnesses for DPA. Richardson testified that the contract language was a result of a discussion between the parties. The district court found that his testimony was credible and very helpful in determining the intent of the parties. 42 The district court found that evidence of the 1980 negotiations and subsequent agreement was relevant in interpreting orders in the 1981 Agreement. The district court found that the 1980 Agreement was used as a template for the 1981 Agreement and that Rivaz never disclosed a contrary intention to DPA during the 1981 negotiations. The district court did not abuse its discretion in determining relevance. See United States v. Bensimon, 172 F.3d 1121, 1130 (9th Cir. 1999). Although SIADS was not a party to the earlier agreement, SIADS and DPA undertook certain reciprocal obligations and rights pursuant to it. The 1980 Agreement: (1) made DPA the exclusive representative for the sale of products manufactured by both SIINC and SIADS; (2) obligated DPA to promote diligently sales of both SIINC and SIADS products; (3) obligated both SIINC and SIADS to pay DPA the two percent incentive fee; and (4) allowed SIADS the right, independent of SIINC, to terminate the agreement in the event that DPA represented a competitor or did not otherwise honor its obligations. 43 SIADS also contends that the district court improperly pierced the corporate veil and imputed the subsidiary SIINC's interpretation of orders in 1980 to its parent corporation, SILTD, in 1981. This argument is not persuasive and misconstrues the doctrine governing piercing the corporate veil. The district court did not hold SILTD liable for any obligation of a subsidiary such as SIINC. The district court did not impute knowledge or intent from SIINC to SILTD, nor pierce any corporate veil, but simply admitted relevant evidence of the facts surrounding the execution of the 1980 Agreement to assist its interpretation of the 1981 Agreement. Under Washington contract law, the district court properly considered such evidence of what is indisputably a related contract. 44 SIADS similarly challenges the admission at trial of internal memoranda and testimony of SIADS management concerning its understanding of the meaning of orders based on its actions in the 1990's on the grounds of relevancy and subjective intent. The challenged evidence includes: (1) an internal SIADS memorandum dated July 1995, stating that after termination DPA would also continue to be entitled to on-going commission on that captured business and noting that DPA's contract position is strong; (2) internal SIADS's documents showing that SIADS was aware of DPA's contrary interpretation of orders when SIADS agreed in 1994 and 1995 to amendments to the 1981 Agreement that continued to use the term but did not disclose a contrary interpretation of orders to DPA during negotiations; and (3) internal documents and testimony concerning SIADS's intention to enter into a new agreement with DPA to re-establish and clarify the contract. SIADS contends that the 1981 Agreement was executed more than ten years before these internal documents were circulated and dismisses this evidence as post hoc statements taken out of context of what some Smith PLC employees viewed as 'fair.' 45 We hold that the district court did not abuse its discretion in admitting the challenged evidence. This evidence was properly admissible because it is part of the relationship and course of dealing between the parties and is relevant in explaining how the parties interpreted the terms of the 1981 Agreement when entering into the agreement. 46 We further consider and reject SIADS's contention that the district court's factual findings relating to the extrinsic evidence were clearly erroneous. Significantly, the district court's finding that the 1980 Agreement was used as a template for creating the 1981 Agreement and that the meaning of orders was not materially changed is supported by the text of the agreements and the testimony of the negotiators. This key finding is not clearly erroneous. 47 SIADS also challenges many of the district court's findings of fact concerning the conduct and behavior of the parties after the execution of the 1981 Agreement. We reject this challenge to the district court's factfinding. This was a hard fought case with excellent representation and spirited advocacy on both sides. In the end, the district court as trier of fact was required to decide key facts pertinent to the interpretation of the agreement. More than one version of the evidence and the 1981 Agreement was presented in the witnesses's testimony on both sides. Despite its vigorous advocacy, SIADS has not established that the district court's findings were clearly erroneous. The district court's findings are supported by substantial evidence and it cannot be said that they are not plausible on this record. 7 To the extent that the district court made legal conclusions about the interpretation of the 1981 Agreement based on these findings, we find no error. 48 We hold that the district court correctly interpreted orders to mean long-term contracts and commitments to supply. We affirm the district court's award to DPA of the two percent unpaid incentive fees. 49