Court Opinion

ID: 3050944
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:33:20.184212+00
Date Added: 2024-06-11T10:29:07.521571
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CONTRACTORS EQUIPMENT                     
MAINTENANCE CO., INC., a
Washington corporation, for the
use and benefit of the United
States of America,
                          Plaintiff,             No. 06-35310
                and
UNITED COASTAL INSURANCE                          D.C. No.
                                               CV-02-05006-RHW
COMPANY,                                           OPINION
                        Appellant,
               v.
BECHTEL HANFORD, INC., a
corporation,
             Defendant-Appellee.
                                          
        Appeal from the United States District Court
           for the Eastern District of Washington
      Robert H. Whaley, Chief District Judge, Presiding

                    Argued and Submitted
            October 16, 2007—Seattle, Washington

                      Filed January 24, 2008

    Before: Richard D. Cudahy,* Stephen Reinhardt, and
              Richard A. Paez, Circuit Judges.

                    Opinion by Judge Cudahy

   *The Honorable Richard D. Cudahy, Senior United States Circuit Judge
for the Seventh Circuit, sitting by designation.

                                1221
            UNITED COASTAL v. BECHTEL HANFORD          1223

                        COUNSEL

Marilyn S. Klinger (argued) and Hall R. Marston, Gerald D.
Kim, Sedgwick, Detert, Moran & Arnold LLP, Los Angeles,
California, for the appellant.

Michael P. Grace (argued) and David C. Groff, Marisa M.
Bavand, Linda Y. Chu, Groff Murphy Trachtenberg & Eve-
rard, PLLC, Seattle, Washington, for the defendant-appellee.
1224           UNITED COASTAL v. BECHTEL HANFORD
                              OPINION

CUDAHY, Circuit Judge:

   United Coastal Insurance Company (UCIC) appeals the
district court’s order granting Bechtel Hanford, Inc.’s (Bech-
tel’s) motion for judgment on a supersedeas bond. Bechtel
was awarded a judgment in 2004 against Acstar Insurance Co.
(Acstar) and P.W. Stephens Contractors, Inc. (PWS). Acstar
obtained a supersedeas bond from UCIC and appealed the
judgment against it. After we affirmed in part and reversed in
part, Bechtel moved to collect the entire 2004 judgment from
UCIC. The district court concluded that the supersedeas bond
covered the judgment against both Acstar and PWS and
granted Bechtel’s motion, ordering UCIC to pay the entire
underlying judgment. On appeal, UCIC claims that the bond
secured only Bechtel’s judgment against Acstar. We have
jurisdiction under 28 U.S.C. § 1291. We agree with UCIC that
the bond secures only Acstar’s obligations on the underlying
judgment and therefore reverse. Because Acstar’s liability has
been satisfied, we direct entry of judgment in favor of UCIC.

      FACTUAL AND PROCEDURAL BACKGROUND

   This case is the product of a breach of contract dispute in
an environmental remediation project. Bechtel contracted
with the United States Department of Energy (DOE) to per-
form environmental clean-up work at the Hanford Nuclear
Reservation in Washington.1 PWS entered a subcontract with
Bechtel to work under Bechtel’s prime contract with DOE
and obtained a performance bond from Acstar. When PWS
defaulted on the subcontract, Contractors Equipment Mainte-
nance Company, Inc., a second-tier subcontractor, sued Bech-
tel, PWS and Acstar. Bechtel subsequently filed cross-claims
against PWS and Acstar. On March 23, 2004, the district
  1
    The factual background of the underlying litigation is taken from the
district court’s Findings of Fact and Conclusions of Law (R. 272.)
                UNITED COASTAL v. BECHTEL HANFORD                    1225
court awarded Bechtel $282,611 against PWS for its breach
of contract and the same amount against Acstar on its perfor-
mance bond. The district court also found Acstar and PWS
jointly and severally liable for $296,554 in attorney’s fees,
$35,844.09 in costs and expenses and $95,989.35 in prejudg-
ment interest, and awarded Bechtel post-judgment interest as
provided by law.

  On April 22, 2004, Acstar and PWS filed a Notice of
Appeal, which stated that:

      Defendants Acstar Insurance Company and P.W.
      Stephens Contractors, Inc. appeal to the United
      States Court of Appeals for the Ninth Circuit the
      judgment entered by the United States District Court,
      Eastern District of Washington, on March 23, 2004
      ....

Pursuant to Fed. R. Civ. P. 62(d), Acstar obtained a superse-
deas bond from UCIC to stay the judgment.2 Whether that
bond secures the judgment against Acstar alone or against
both Acstar and PWS is the issue presented here. A Notice of
Filing Undertaking to Stay Enforcement of Money Judgment
Pending Appeal was filed on June 9, 2004 and the superse-
deas bond was attached as Exhibit 1 to the filing. The notice
provided:

      [A]n undertaking is being filed on behalf of Defen-
      dant Acstar Insurance Co., the original of which is
  2
    Fed. R. Civ. P. 62(d) was amended recently as part of the general
restyling of the Federal Rules to make them easier to understand. The ver-
sion in effect when Acstar obtained a supersedeas bond from UCIC pro-
vided: “When an appeal is taken the appellant by giving a supersedeas
bond may obtain a stay subject to the exceptions contained in subdivision
(a) of this rule. The bond may be given at or after the time of filing the
notice of appeal or of procuring the order allowing the appeal, as the case
may be. The stay is effective when the supersedeas bond is approved by
the court.”
1226         UNITED COASTAL v. BECHTEL HANFORD
    attached hereto as Exhibit 1, to stay the money Judg-
    ment for Bechtel Hanford, Inc. against P.W. Ste-
    phens Contractors, Acstar Insurance Co. and
    Contractor’s [sic] Equipment Maintenance Co.
    entered by the Court on May 23, 2004.

On appeal, Acstar challenged the district court’s award of
damages as well as attorney’s fees, costs and prejudgment
interest. We affirmed the judgment against Acstar on its per-
formance bond but vacated the award of attorney’s fees, costs
and interest. We also determined that as the prevailing party,
Bechtel was entitled to costs under Fed. R. Civ. P. 54(d). Con-
tractors Equip. Maint. Co. v. Bechtel Hanford, Inc., 150 F.
App’x 585 (9th Cir. 2005). PWS did not challenge the judg-
ment against it and remained liable for its breach of contract
damages as well as fees, costs and prejudgment interest.

   After our decision, Bechtel moved to recover the 2004
judgment from UCIC pursuant to the supersedeas bond. The
district court granted Bechtel’s motion and entered judgment
in favor of Bechtel. After the court’s decision, Acstar paid
Bechtel its portion of the 2004 judgment and Bechtel
acknowledged that the payment satisfied Acstar’s own obliga-
tion under the judgment. On appeal from the district court’s
judgment, UCIC contends that the supersedeas bond covered
only Acstar’s liability and that UCIC is not liable for the out-
standing obligations of PWS, which is the only portion of the
2004 judgment that remains unsatisfied.

                 STANDARD OF REVIEW

   We review a decision to execute a bond de novo. Nintendo
of Am., Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032, 1036
(9th Cir. 1994). A supersedeas bond is a contract. Nat’l Bank
of Wash. v. Equity Investors, 86 Wash.2d 545, 546 P.2d 440,
444 (1976) (en banc). Hence, we apply contract review princi-
ples and review de novo the district court’s interpretation of
              UNITED COASTAL v. BECHTEL HANFORD             1227
the bond. Confederated Tribes of Siletz Indians v. Oregon,
143 F.3d 481, 484 (9th Cir. 1998).

                        DISCUSSION

   [1] State law governs the interpretation of surety bonds. See
Mai Steel Serv., Inc. v. Blake Constr. Co., 981 F.2d 414, 420
(9th Cir. 1992). In Washington, surety contracts are subject to
the rules governing simple contracts, Nat’l Bank of Wash.,
546 P.2d at 444, and “the touchstone of the interpretation of
contracts is the intent of the parties.” Scott Galvanizing, Inc.
v. Nw. EnviroServices, Inc., 120 Wash.2d 573, 844 P.2d 428,
432 (1993) (en banc). Washington follows the objective mani-
festation theory of contracts under which a court focuses on
the “objective manifestations of the agreement, rather than on
the unexpressed subjective intent of the parties” to ascertain
intent. Hearst Commc’ns, Inc. v. Seattle Times Co., 154
Wash.2d 493, 115 P.3d 262, 267 (2005) (en banc). See also
Allstate Ins. Co. v. Peasley, 131 Wash.2d 420, 932 P.2d 1244,
1246 (1997) (en banc) (noting that if “the language in an
insurance policy is clear and unambiguous, the court must
enforce it as written and cannot modify the contract or create
ambiguity where none exists”). In interpreting surety con-
tracts, like other contracts, courts focus on the language of the
agreement. See King Equip. Co. v. R. N. & L. Corp., 1
Wash.App. 487, 462 P.2d 973, 975 (Ct. App. 1969) (“[T]he
liability of a surety is measured by the terms of his agree-
ment.”).

   Where the meaning of specific contractual terms is unclear,
a court may consider extrinsic evidence, such as “(1) the sub-
ject matter and objective of the contract, (2) all the circum-
stances surrounding the making of the contract, (3) the
subsequent acts and conduct of the parties, and (4) the reason-
ableness of respective interpretations urged by the parties.”
Hearst, 115 P.3d at 266 (citing Berg v. Hudesman, 115
Wash.2d 657, 667, 801 P.2d 222 (1990) (en banc)). While
extrinsic evidence may be used to ascertain the meaning of
1228          UNITED COASTAL v. BECHTEL HANFORD
particular words in a contract, it is not to be used to “ ‘show
an intention independent of the instrument’ or to ‘vary, con-
tradict or modify the written word.’ ” Id. at 267 (quoting Hol-
lis v. Garwall, Inc., 137 Wash.2d 683, 695-96, 974 P.2d 836
(1999) (en banc)). “[T]he subjective intent of the parties is
generally irrelevant if the intent can be determined from the
actual words used.” Id.

   The starting point of our analysis, therefore, is the language
of the bond. We turn to the supersedeas bond, which provides:

    [W]e, Defendant/Appellant Acstar Insurance Co.
    (“Acstar”), an entity incorporated in the State of
    New York, as Principal and ______, an entity incor-
    porated in the State of ______, as Surety, are held
    and firmly bound to Defendant Bechtel Hanford,
    Inc., Appellee under this instrument, for the purpose
    of satisfying the Money Judgment, plus any costs,
    fees, and statutory interest in the above-captioned
    case, in the amount of, and not to exceed, One Mil-
    lion Four Hundred Twenty One Thousand Nine
    Hundred Ninety Six Dollars and Eighty Cents
    ($1,421,996.80), we bind ourselves, our successors
    and assigns, jointly and severally.

       WHEREAS, on the 23rd day of March 2004, in
    the above-captioned matter, Defendant Bechtel Han-
    ford was awarded judgment against Acstar and
    Defendant P.W. Stephens Contractors in the total
    amount of $710,998.40;

      WHEREAS, Acstar has filed a Notice of Appeal
    sufficient to appeal that judgment, among other
    orders of the trial court, to the United States Court
    of Appeals for the Ninth Circuit;

       NOW, THEREFORE, the condition of this obliga-
    tion is such that if Acstar shall pay all costs, fees,
                UNITED COASTAL v. BECHTEL HANFORD                    1229
      disbursements and judgments incurred by reason of
      said appeal proceeding, then this obligation shall be
      null and void and released, but otherwise to remain
      in full force and effect, provided, however, that the
      maximum liability for the Surety shall not exceed the
      sum of $1,066,497.65.3

   [2] In a surety contract, the surety agrees to answer for the
debts of the principal. 74 Am.Jur.2d Suretyship § 3 (1974). If
the contract names a particular principal, the surety’s obliga-
tions are limited to those of the named principal. See, e.g.,
State ex rel. Reitmeier v. Oakley, 129 Wash. 553, 225 P. 425,
428 (1924). The bond at issue here clearly names only Acstar
as the principal and Acstar alone executed the bond as princi-
pal. Thus, the bond states that Acstar has filed a Notice of
Appeal and provides that “if Acstar shall pay all costs, fees,
disbursements and judgments incurred by reason of said
appeal, then this obligation shall be null and void.” It makes
no mention of an appeal by PWS of a judgment against it.
PWS is not a party to the surety contract. Thus, UCIC can be
liable only for Acstar’s obligations. Tucker v. Brown, 20
Wash.2d 740, 150 P.2d 604, 658 (1944) (en banc) (“The
surety cannot be held liable unless the principal is liable.”).

   Bechtel’s argument that the bond secures the liability of
both Acstar and PWS hinges on its position that Acstar was
obligated to satisfy the judgment of PWS and, therefore,
UCIC is similarly bound. This argument is unavailing. Bech-
tel argues that the recital (“WHEREAS”) paragraphs, when
read together, show that Acstar assumed PWS’ liability on the
underlying judgment. It points to the first recital paragraph,
which states that on March 23, 2004, Bechtel was awarded
judgment against Acstar and PWS. The second recital para-
graph states that “Acstar has filed a Notice of Appeal suffi-
cient to appeal that judgment.” Bechtel contends that because
  3
   Although the name of the Surety and its state of incorporation were left
blank, UCIC executed the supersedeas bond as surety.
1230          UNITED COASTAL v. BECHTEL HANFORD
the first recital mentions PWS, we must read the second
recital paragraph to mean that Acstar appeals the judgment
against both it and PWS. However, the passing reference to
PWS in the first recital paragraph is not evidence that Acstar,
as principal, and UCIC, as surety, intended to assume the lia-
bility for PWS’ portion of the 2004 judgment. Rather, the
paragraph merely states the important fact that created
Acstar’s need for a bond. See Northern State Constr. Co. v.
Robbins, 76 Wash.2d 357, 457 P.2d 187, 192 (1969) (noting
that recitals “do not constitute a promise or condition which
would amount to a contractual element of the agreement”);
Rains v. Walby, 13 Wash.App. 712, 537 P.2d 833, 836 (App.
Ct. 1975) (observing that “recitals supply only background for
the paragraphs which set forth the bargain that the parties
struck on the date of execution of the contract[ ]”).

    [3] Bechtel also points out that Acstar held itself bound “for
the purpose of satisfying the Money Judgment . . . in the
above-captioned case.” The case caption includes both PWS
and Acstar; therefore, according to Bechtel, the bond must
secure the judgment against both PWS and Acstar. This argu-
ment is unpersuasive as well. Reading the reference to the
title of the underlying judgment as obligating Acstar to satisfy
PWS’ liability on the underlying judgment is a far fetch.
There is simply nothing in the bond that establishes that
Acstar was liable for PWS’ portion of the judgment. Acstar’s
debts do not include PWS’ debts and thus, we cannot hold
UCIC liable to assume PWS’ liability on the underlying judg-
ment.

   [4] Although we believe the bond clearly secures only the
obligations of the principal, Acstar, we briefly note the extrin-
sic documents the district court used to interpret the bond.
One of these is the Notice of Appeal, which states that Acstar
and PWS appeal the 2004 district court judgment. The district
court concluded that the appeal was filed on behalf of both
Acstar and PWS and as a result, the supersedeas bond was
filed to stay the judgment against both parties. But the mere
              UNITED COASTAL v. BECHTEL HANFORD             1231
fact that both Acstar and PWS indicated their intent to appeal
does not change the scope of the surety contract between
Acstar and UCIC. PWS may have indicated its intent to
appeal but it is not a principal on the bond. The district court
also relied on the Notice of Filing Undertaking, which states
that “an undertaking is being filed on behalf of Defendant
Acstar Insurance Co . . . . to stay the money Judgment for
Bechtel Hanford, Inc. against P.W. Stephens Contractors,
Acstar Insurance Co. and Contractor’s [sic] Equipment Main-
tenance Co.” But it is clear that the undertaking is filed “on
behalf of” Acstar alone, not PWS. Although the notice recites
the title of the 2004 judgment, the notice does not alter the
scope of the bond. Nor could it, for a party to a contract can-
not alter the contract without the other party’s consent. See
Union Pac. R.R. Co. v. Chi., Milwaukee, St. Paul & Pac. R.R.
Co., 549 F.2d 114, 118 (9th Cir. 1976) (“One party cannot
unilaterally modify a contract without the consent of the other
party . . . .”) (citing Hanson v. Puget Sound Navigation Co.,
52 Wash.2d 124, 323 P.2d 655 (1958)); Jones v. Best, 134
Wash.2d 232, 950 P.2d 1, 5 (1998) (en banc) (noting that
mutual assent is required to modify a contract).

   In fact, the context of the earlier appeal supports our read-
ing of the bond. In addition to having appealed the district
court’s award of damages, Acstar had appealed the award of
attorney’s fees, costs and prejudgment interest, which were
awarded jointly and severally against Acstar and PWS. On
that appeal, we affirmed the award of damages against Acstar
but reversed the district court’s award of fees, costs and inter-
est. Acstar has since discharged its liability on its performance
bond. All that remains outstanding is PWS’ liability for fees,
costs and interest. As principal on the bond, Acstar would be
required to reimburse UCIC if UCIC had paid Bechtel with
respect to the obligation secured by the bond. See Honey v.
Davis, 131 Wash.2d 212, 930 P.2d 908, 911, amended, 937
P.2d 1052 (1997) (en banc); Leuning v. Hill, 79 Wash.2d 396,
486 P.2d 87, 89-90 (1971) (en banc). It simply makes no
sense that Acstar would appeal the district court’s award of
1232         UNITED COASTAL v. BECHTEL HANFORD
fees, costs and interest against it while simultaneously obli-
gating itself through assumption of PWS’ liability to pay
those costs even if it prevailed in its appeal.

   Finally, we note that the parties dispute whether the bond
was approved and whether it stayed the entire judgment. The
district court did not issue an order approving the bond or
staying the judgment. At oral argument, counsel for Bechtel
asserted that when the clerk accepted the bond, that act consti-
tuted “approval” sufficient to satisfy Fed. R. Civ. P. 62(d).
While there appears to be some support for Bechtel’s argu-
ment, see Houston Fire & Cas. Ins. Co. v. Ivens, 323 F.2d
112, 113 (5th Cir. 1963) (per curiam); Phansalkar v. Ander-
sen Weinroth & Co., 211 F.R.D. 197, 199-200 (S.D.N.Y.
2002), we find that resolution of this question is not required.
The district court concluded that the entire judgment, includ-
ing the judgment against PWS, had been stayed by the filing
of the bond. Even if we accept that determination, the district
court’s conclusion cannot alter the scope of the surety con-
tract between UCIC and Acstar. See Hansen Serv. v. Lunn,
155 Wash. 182, 283 P. 695, 698 (1930) (“The liability of the
guarantor cannot be enlarged beyond the strict intent of his
contract.”); Simpson Logging Co. v. Nw. Bridge Co., 76
Wash. 533, 137 P. 127, 129 (1913) (“[S]ureties and guaran-
tors are not to be held liable beyond the express terms of their
engagement.”) (citing Union Mut. Life Ins. Co. v. Hanford,
143 U.S. 187, 12 S. Ct. 437, 36 L. Ed. 118 (1892)). See also
Goldberg, Marchesano, Kohlman, Inc. v. Old Republic Sur.
Co., 727 A.2d 858, 861 (D.C. App. 1999) (finding that
although the entire judgment was stayed, the supersedeas
bond did not secure the judgment against both co-judgment
debtors). UCIC’s obligation is at issue in this appeal, and that
obligation is determined by the language of the supersedeas
bond. See Tucker, 150 P.2d at 658 (“The liability of a bonds-
man is always measured by the express terms of his covenant
. . . .”).

  [5] We are mindful of Bechtel’s concern at being unable to
collect a portion of its underlying judgment from PWS, which
             UNITED COASTAL v. BECHTEL HANFORD           1233
is now defunct. But the bond agreement clearly describes
Acstar alone as the principal and Acstar alone executed the
bond as principal; thus, UCIC’s obligations as surety are lim-
ited to Acstar’s liability on the underlying judgment, which
has been discharged.

 REVERSED with directions to enter judgment in favor of
UCIC.