Opinion ID: 387302
Heading Depth: 1
Heading Rank: 3

Heading: scope of the exculpatory clause and propriety of summary judgment

Text: 23 Varig contends that Judge McGovern failed to follow proper rules of contract construction in holding that the exculpatory clause exempted Boeing from liability for post-delivery negligence. Varig further urges that even if the court were correct in its reading of the exculpatory clause, under California law the question of the parties' intent with respect to that clause was a question of fact for the jury. Such an issue, it is argued, precludes summary judgment.
24 Varig included in its complaint a cause of action based upon Boeing's alleged negligent failure to warn of the fire hazard following delivery of the aircraft. Varig contends that post-delivery negligence is not excused by the exculpatory clause. In making this claim, plaintiff is forced to confront the broad language of the clause: (B)uyer hereby waives ... any obligation or liability of Boeing arising from tort .... Under California law, upon which Varig relies, (i)f the language used be broad enough, an actor may disclaim liability for negligence of any type. 2 Delta Airlines, Inc. v. Douglas Aircraft Co., 238 Cal.App.2d 95, 101, 47 Cal.Rptr. 518, 522 (1965). Accord, Tokio Marine v. McDonnell Douglas Corp., 617 F.2d 936, 940 (2d Cir. 1980) (applying California law, language broad enough to include claim for post-delivery negligence). 25 Varig argues that two of the provisions of the Boeing-Seaboard contract, each excusing Boeing from liability incurred after delivery, would be redundant if the exculpatory clause were intended to cover post-delivery negligence. It argues that the exculpatory clause by implication applies only to negligent acts committed prior to delivery of the aircraft. We disagree. 26 Nothing on the face of the contract contravenes Judge McGovern's conclusion that the phrase buyer ... waives ... any obligation ... arising from tort ... means what it says. The two provisions relied upon by Varig have no bearing on the scope of the clause. The first relates to patent infringement, a subject unrelated to post-delivery negligence. The second requires a subsequent purchaser to indemnify Boeing for any claims arising from flight training by Boeing employees. This provision is not superfluous because it requires the subsequent purchaser to indemnify Boeing against suits by third parties. The exculpatory clause merely protects Boeing from suit by the subsequent purchaser. 27 Varig further advances the presence of a third contract provision as indicating a limit on the exculpatory clause. This provision requires Boeing to issue regular service bulletins covering design changes in its 707 aircraft. We see no logic in the argument that this requirement indicates an intent to limit the scope of the exculpatory clause.
28 In granting summary judgment without considering evidence of the parties' intent beyond the four corners of the contract, Judge McGovern apparently relied on the special master's conclusion that such evidence was barred under Washington's parol evidence rule. The law in Washington is that the intent of the parties is irrelevant when the terms of a contract are unambiguous. Grant County Constructors v. E. V. Lane Corp., 77 Wash.2d 110, 459 P.2d 947, 954 (1969). See Barclay v. City of Spokane, 83 Wash.2d 698, 521 P.2d 937, 938-39 (1974). We have held the exculpatory clause unambiguous. Thus, if the district court properly held Washington law controlling, there is no merit to plaintiff's argument that summary judgment was improper because the intent of the parties presented a question of fact for the jury. Varig contends, however, that California law is controlling and that under the decisions of that state, the intent of the parties created a question of fact. 3 29 We agree with the district court that Washington law should determine the relevance of Boeing's and Seaboard's intent. Varig argues that information revealing Boeing's and Seaboard's understanding of the exculpatory clause is crucial to its case. This is so because, in agreeing to adopt the exculpatory provision, Varig maintains that it released Boeing from potential liability only to the extent contemplated by Boeing and Seaboard. In light of this reasoning, it is difficult to perceive plaintiff's rationale for looking to California's parol evidence rule. 30 Boeing and Seaboard agreed that their contract would be governed by Washington law. Especially where a party to a contract is represented by counsel, we may attribute to it knowledge of the law. Boeing and Seaboard intended, therefore, that if they were successful in drafting an unambiguous document, the face of that document would be the sole source of information regarding their agreement. Varig does not contend that it renegotiated the exculpatory provision. Rather, it argues that the scope of the provision it adopted is identical to that provision's original scope. We can only understand the original scope of the exculpatory provision by respecting the original parties' intent that it be governed by Washington law. 31 We have previously noted the lack of ambiguity in the exculpatory clause. By its plain terms, it was broad enough to encompass claims arising out of post-delivery negligence. We thus find no error in the district court's refusal to permit factual inquiry into Boeing's and Seaboard's intent.
32 Varig's second argument urges an addition to the California choice-of-law rules outlined in section II, supra. Varig contends that if a contract provision is contrary to the public policy of California, a California court will refuse to enforce it, regardless of whether the generally appropriate governing law is California's or another state's. In light of this assertion, Varig contends that: (1) summary judgment is always inappropriate where there is a question concerning violation of California public policy, (2) summary judgment was improperly granted because Boeing attempted to exempt itself from liability for violations of law, contrary to the public policy of California, and (3) summary judgment was improperly granted because Boeing attempted to exempt itself from liability for fraud, contrary to the public policy of California. 33 Because we conclude that the public policy of California does not control the outcome of this appeal, we do not reach the first contention.
34 In opposition to the summary judgment, plaintiff relies upon the California rule that a choice-of-law provision will be ignored to the extent necessary to preserve California's public policy. See part II, supra. From California's willingness to ignore choice-of-law agreements, plaintiff attempts to derive the broader rule that the state will disregard the foreign law designated under its governmental interest analysis when application of that law would violate California's public policy. 35 Plaintiff has not cited a single case which supports this broader rule. We are obligated to follow California's choice-of-law rules. Sarlot-Kantarjian v. First Pennsylvania Mortgage Trust, supra, 599 F.2d at 917. When we confront a situation not yet met by the California Supreme Court, we must fashion the rule we believe that court would follow were it confronted with a similar situation. Takahashi v. Loomis Armored Car Service, 625 F.2d 314, 316 (9th Cir. 1980). 36 Application of plaintiff's suggested rule to the present case would have the effect of imposing California's public policy on litigants and events having no substantial contact with the state. Adoption of the principle would mean that no party to a contract in any of the 50 states could be certain that his bargain would be enforceable. If minimum contact with California existed, a party could be made to answer a complaint filed in California. Under the rule argued for, every allocation of risk between the contracting parties would have to withstand scrutiny under the public policy dictates of California. In reviewing the claim that summary judgment was improper because the contract exculpated Boeing from liability due to violations of law and fraud, we adhere to the California choice-of-law rules outlined in part II of this opinion.
37 Plaintiff alleges that a proximate cause of the accident aircraft's crash was Boeing's failure to comply with a Federal Aviation Administration regulation. 4 Citing California law, plaintiff maintains that Boeing cannot exculpate itself from liability incurred due to a violation of federal regulations. It cites three Court of Appeal cases which support the proposition that pursuant to California Civil Code § 1668 (West 1973), 5 California courts will refuse to enforce an exculpatory provision that would insulate a party from the consequences of his violation of law. Of these cases, only Hanna v. Lederman, 223 Cal.App.2d 786, 36 Cal.Rptr. 150 (1963), deals with an exculpatory clause in a contract between two commercial entities. 38 In Hanna, a commercial tenant entered into a lease excusing the landlord from all damage to goods and merchandise from any cause. Citing Civil Code § 1668, the court held that the tenant's negligence action could not be barred if damage occurred as a proximate result of the landlord's violation of a municipal ordinance requiring sounding devices on sprinkler systems. Hanna might support the argument that, under California law, if plaintiff could prove that Boeing's alleged violation of law was a proximate cause of the crash, the exculpatory clause would be ignored. But see Delta Air Lines, Inc. v. McDonnell Douglas Corp., 503 F.2d 239, 244 (5th Cir. 1974), cert. denied, 421 U.S. 965, 95 S.Ct. 1953, 44 L.Ed.2d 451 (1975). Like the instant case, Hanna involved commercial entities, a contract which explicitly stated that the waiver was part of the consideration for the contract, and property damage, not personal injury. Id. at 788-789, 36 Cal.Rptr. 150. 39 Judge McGovern, sitting in Washington, found that under that state's law the general rule permitting exculpation for negligence, Hewitt v. Miller, 11 Wash.App. 72, 521 P.2d 244 (1974), would not be abrogated in the event that a negligent act also constituted a violation of law. Interpretations of local law by a district court sitting in the locality are entitled to great weight. They will not be disturbed unless clearly wrong. Leslie Salt Co. v. St. Paul Mercury Ins. Co., 637 F.2d 657, 659 (9th Cir. 1980). Though the Washington courts have not directly addressed this subject, closely related decisions support the conclusion reached by Judge McGovern. See, e. g., Ritter v. Shotwell, 63 Wash.2d 601, 388 P.2d 527, 530 (1964); Stegall v. Kynaston, 26 Wash.App. 731, 613 P.2d 1214, 1216 (1980). 40 Because, arguably, the laws of the two relevant jurisdictions differ, we must determine whether one state has a significant interest in having its law applied. See part II, supra. The policy underlying the California rule appears to be the protection of its citizens. Here, that policy is not impaired if Washington law controls. The victim in this instance, Varig Airlines, is not a citizen of California. Nor did it originally attempt to invoke the protection of California law. Further, despite Boeing's immunity from suit by Varig, nothing inhibits the operation of the regulation in question through suits brought by the estates of the deceased or sanctions imposed by the Federal Aviation Administration. See Delta Air Lines v. McDonnell Douglas Corp., 503 F.2d 239, 243-44 (5th Cir. 1974), cert. denied, 421 U.S. 965, 95 S.Ct. 1953, 44 L.Ed.2d 451 (1975); Delta Air Lines v. Douglas Aircraft Co., 238 Cal.App.2d 95, 47 Cal.Rptr. 518, 524 (1965). 41 Washington, by contrast, does have an interest in having its law observed. Boeing is a Washington-based corporation. In accordance with the policy of that state, it consciously allocated the risk associated with its contract with Seaboard and, through Seaboard, with Varig. The state of Washington has an interest in seeing that the legitimate expectations of the parties to the contract are not frustrated. 42 Because we find Washington law controlling, we find no error in the granting of summary judgment.
43 In the district court, Varig argued that the aircraft's alleged failure to conform to FAA regulations, when Boeing represented in its contract with Seaboard that the aircraft would conform, and Boeing's failure to warn Varig of the fire hazard once Boeing allegedly had knowledge of it, amounted to fraud. It maintained that California law controlled and that, under Civil Code § 1668, a California court will not enforce any contract provision that attempts to exculpate an actor from liability for fraud. 44 We find no merit in the argument that a subsequent failure to warn amounts to fraud under § 1668. Neither the case law nor the face of the statute supports this construction. 45 Plaintiff also argues that negligent misrepresentation falls within the strictures of California Civil Code § 1668. See Palmquist v. Mercer, 43 Cal.2d 92, 272 P.2d 26 (1974). Assuming, arguendo, that plaintiff is correct, the outcome of the case is unaffected because Washington, not California, law would apply in that case. 46 Judge McGovern found Washington law controlling and concluded that Washington treats negligent misrepresentation as mere negligence, not as fraud vitiating an exculpatory provision. See Brown v. Underwriters at Lloyd's, 53 Wash.2d 142, 332 P.2d 228, 233 (1958). Plaintiff has suggested no reason to question this conclusion. The competing interests of Washington and California with respect to this issue parallel those discussed in section 2, supra. For the reasons expressed there, we conclude that Judge McGovern was justified in applying Washington law. We therefore further conclude that plaintiff's claim under California Civil Code § 1668 raised no unresolved issue of fact. Thus, the granting of summary judgment was proper. See Lurie v. State of California, 633 F.2d 786, 788 (9th Cir. 1980).
47 In the district court, Varig sought to recover on the ground that Boeing was strictly liable under California law for accidents proximately caused by defects in the aircraft. Before this court, Varig argues that summary judgment was improper because, under California law, strict liability in tort cannot be waived. 48 Although the California Supreme Court has not addressed this issue, the California Court of Appeal and three circuits of the United States Court of Appeals applying California law have held that the doctrine of strict liability does not apply between large corporate enterprises which have allocated risks by contract. Kaiser Steel Corp. v. Westinghouse Electric Corp., 55 Cal.App.3d 737, 746-48, 127 Cal.Rptr. 838, 844-45 (1976); Delta Air Lines, Inc. v. Douglas Aircraft Co., 238 Cal.App.2d 95, 47 Cal.Rptr. 518, 523-24 (1965); Tokio Marine & Fire Ins. v. McDonnell Douglas Corp., 617 F.2d 936, 939-40 (2d Cir. 1980); Scandinavian Airlines System v. United Aircraft Corp., 601 F.2d 425 (9th Cir. 1979); Delta Air Lines, Inc. v. McDonnell Douglas Corp., 503 F.2d 239 (5th Cir. 1974), cert. denied, 421 U.S. 965, 95 S.Ct. 1953, 44 L.Ed.2d 451 (1975). 49 Washington has not treated this question, but court decisions dealing with the validity of warranty disclaimers indicate that a like conclusion would be reached. See Berg v. Stromme, 79 Wash.2d 184, 484 P.2d 380 (1971); Testo v. Russ Dunmire Oldsmobile, Inc., 16 Wash.App. 39, 554 P.2d 349, 353 (1976). Because we perceive no conflict in the law of the two relevant jurisdictions, we examine this issue in light of the jurisprudence of the original forum state, in keeping with California's choice-of-law rules. See part II, supra. 50 Kaiser, supra, listed four factors to be considered in determining whether the concept of strict liability should be applied. In Scandinavian Airlines, supra, we looked to those factors in refusing to hold a corporate defendant liable: 51 (T)he doctrine of products liability does not apply as between parties who: (1) deal in a commercial setting; (2) from positions of relatively equal economic strength; (3) bargain the specifications of the products; and (4) negotiate concerning the risk of loss from defects in it. 52 601 F.2d at 429, quoting 55 Cal.App.3d at 738. 53 Varig argues that Judge McGovern did not have sufficient information on which to base a judgment that strict liability did not apply. With respect to factors one, two and four, this argument is without merit. The affidavits and documents before the court on the summary judgment motion revealed the size of the two corporations and the extent of their negotiations over the contract. They further evidenced that Varig had the option of purchasing the plane without agreeing to exculpate Boeing from liability. However, there was no evidence in the record that Varig bargain(ed) the specifications of the product. It is highly unlikely that there existed an opportunity to do so, as the plane was purchased second-hand. 54 A reading of the California and federal cases noted above indicates that bargaining the specifications of the product is not crucial to the conclusion that strict liability does not apply. As we made clear in Scandinavian Airlines, the primary policy implemented by strict liability is the equal distribution of risks between an individual buyer confronted with a non-negotiable contract and a commercial seller. 601 F.2d at 428. We concluded there that Scandinavian Airlines, unlike the individual consumers in the California Supreme Court's product liability cases, could allocate its risks of loss as well as could defendant United Aircraft. This conclusion applies with equal force to Boeing and Varig Airlines. See id. Therefore, on the record before it, without finding that Varig had bargained the specifications of the aircraft, the district court had sufficient information to grant summary judgment on the issue of strict liability.