Appalachian Ins. Co. v. McDonnell Douglas Corp.

• Citation: 262 Cal.Rptr. 716,214 Cal.App.3d 1
• Decision Date: 29 August 1989
• Docket Number: No. D009875,D009875
• Court: California Court of Appeals
• Parties: , Prod.Liab.Rep. (CCH) P 12,297 APPALACHIAN INSURANCE CO. et al., Plaintiffs and Appellants, v. McDONNELL DOUGLAS CORPORATION et al., Defendants and Appellants.

Page 716

262 Cal.Rptr. 716

214 Cal.App.3d 1, Prod.Liab.Rep. (CCH) P 12,297

APPALACHIAN INSURANCE CO. et al., Plaintiffs and Appellants, v. McDONNELL DOUGLAS CORPORATION et al., Defendants and Appellants.

No. D009875.

Court of Appeal, Fourth District, Division 1, California.

Aug. 29, 1989.

Shaw, Pittman, Potts & Trowbridge, Phillip D. Bostwick, James B. Hamlin, David J. Cynamon, Evans Huber, Washington, D.C., Rintala, Smoot, Jaenicke & Brunswick, William T. Rintala and Robert A. Rees, Los Angeles, for plaintiffs and appellants.

Bryan, Cave, McPheeters & McRoberts, Thomas C. Walsh, John J. Hennelly, Jr., Steven L. Hogan, Jeffrey W. Morof, Curtis M. Dombek, Los Angeles, Adler, Kaplan & Begy, Larry S. Kaplan, Catherine E. Tinker, Richard F. Baylaender, Myra L. Markey, Chicago, Ill., McKenna, Conner & Cuneo, James J. Gallagher, Barbara J. Hensleigh, Los Angeles, Lord, Bissell & Brook, Victoria A. Cloninger, Terry W. Backus, Marc R. Greenberg, Hugh C. Griffin, Diane I. Jennings and Renita Sterling, Chicago, Ill., for defendants and appellants.

KREMER, Presiding Justice.

This case involves the failure of a telecommunications satellite owned by Western Union Telegraph Company to reach the desired orbit. Western Union sought to launch its satellite, Westar VI, into orbit from the Space Shuttle. To reach the desired orbit from the Space Shuttle, Western Union used an upper stage rocket it purchased from McDonnell Douglas Corporation. McDonnell Douglas subcontracted with Morton Thiokol and Hitco to manufacture elements of the upper stage rocket. Due to a failure of this rocket, the Westar VI satellite was left in an orbit unsuitable for telecommunication purposes.

Western Union's insurers paid Western Union $105,000,000 for the satellite, treating it as a total loss. Five of the insurers--Appalachian Insurance Company, Commonwealth Insurance Company, Industrial Indemnity, Mutual Marine Office, Inc. and Northbrook Excess & Surplus Insurance Company (hereafter collectively referred to as Appalachian)--sued McDonnell Douglas, Morton Thiokol and Hitco for negligence and strict products liability. ¹ The trial court initially granted summary adjudication against Appalachian on its strict liability cause of action and thereafter granted summary judgment in favor of the defendants on the basis the McDonnell Douglas/Western Union contract contained exculpatory clauses barring the causes of action.

On appeal, Appalachian contends summary judgment should not have been granted because the contract provisions are ambiguous, unconscionable, against public interest, do not reflect the parties' true agreement and unlawfully disclaimed strict products liability. Appalachian also contends it should have been granted leave to amend to plead an express warranty from Morton Thiokol. We disagree and therefore affirm.

The defendants also appeal, contending the trial court should have granted summary judgment based on the statute of limitations and on the negligence cause of action because the loss suffered was only "economic." We conclude the statute of limitations did not bar the suit and therefore affirm that ruling. As to the negligence cause of action, since the contract protected the defendants from liability based on negligence, we need not reach this issue. Finally, McDonnell Douglas appeals the trial court's denial of an award of attorney's fees. We conclude the court did not err in denying attorney's fees and therefore affirm that ruling.

FACTS

In order for a telecommunications satellite to function effectively, it must be placed into a "geosynchronous orbit." A geosynchronous orbit is an orbit in which a satellite remains stationary vis-a-vis a particular location on the earth. This orbit is approximately 22,000 miles above the equator.

Prior to 1981, NASA launched commercial satellites by NASA's "Delta" rocket, a three-stage, expendable launch vehicle which could lift a satellite into a geosynchronous orbit. Each Delta carried only one satellite. In the 1970s, NASA decided to phase out expendable rockets and to launch all satellites from the Space Shuttle. The Space Shuttle could carry up to four satellites at a time but was not designed to reach the geosynchronous orbit. Instead, the Space Shuttle orbited at an altitude of 150-160 nautical miles (a "parking orbit"). To launch satellites from the Space Shuttle's parking orbit into higher orbits, each satellite needed its own upper stage rocket.

In 1976, McDonnell Douglas proposed to develop such an upper stage rocket for satellites, at its own expense, if NASA agreed not to fund development of a competing system. NASA agreed but did not obligate itself to purchase any hardware from McDonnell Douglas nor promise not to purchase similar hardware or services from other companies. NASA also retained the right to set a ceiling on the price McDonnell Douglas could charge for the upper stage rocket and related launch services.

McDonnell Douglas's upper stage rocket, a power assist module (PAM), had two key components: (1) airborne support equipment, consisting principally of a spin table, cradle, sun shield and related control electronics and hardware designed to hold the satellite in the Space Shuttle's cargo bay from liftoff to the parking orbit; and (2) a Star 48 motor manufactured by Morton Thiokol which is attached to a satellite prior to liftoff. The nozzle or exit cone of the Star 48 motor was manufactured by Hitco under a subcontract with Morton Thiokol.

Western Union initially contacted both NASA and Arianespace, a French based Later in 1982, Arianespace had a failure (its second in six launches). It rescheduled Western Union's launch date which caused Western Union to reconsider its decision to launch via Arianespace. At this point, Western Union felt more confidence in the Space Shuttle than Ariane, believing the Space Shuttle was better priced ³ and more reliable. By April 1983, Western Union had decided to use the Space Shuttle "because of economic reasons, and the advantages of the new program and the new vehicle [i.e., the Space Shuttle]."

                company of the European Space Agency to launch its Westar VI satellite.  The Ariane rocket was an expendable launch vehicle capable of [214 Cal.App.3d 9] placing a satellite into a geosynchronous orbit without the use of a PAM. 2  In 1981, Western Union entered a contract with Arianespace for a December 1983 launch on their Ariane rocket.  Subsequently Western Union relinquished its launch reservation with NASA
                

In December 1982, Western Union began negotiations with McDonnell Douglas for a PAM for its Westar VI satellite. Western Union had previously purchased PAMs from McDonnell Douglas for its Westar IV and Westar V satellites which were launched in 1982. In March 1983, Western Union signed a contract with McDonnell Douglas. The execution of the contract was conditioned on later incorporating an inter-party waiver clause NASA would require of Western Union in a Launch Services Agreement. As part of the contract between Western Union and McDonnell Douglas, McDonnell Douglas disclaimed any warranties and Western Union agreed to hold McDonnell Douglas harmless for any loss or damage and to obtain insurance to cover any potential loss.

In January 1984, after having terminated its agreement with Arianespace, Western Union signed a Launch Services Agreement with NASA for a launch on the Space Shuttle. Western Union drafted an inter-party waiver of liability for the McDonnell Douglas contract to comply with a condition in the NASA Launch Services Agreement and submitted the draft to McDonnell Douglas for its approval. McDonnell Douglas approved the draft and the waiver was incorporated, by amendment, into the parties' agreement as article 14.

On February 3, 1984, the Space Shuttle Challenger lifted off carrying Westar VI. About eight hours after liftoff, Westar VI was deployed from the Space Shuttle's cargo bay. The upper stage rocket, scheduled to burn for 85 seconds to boost Westar VI into an orbit which would intersect with the geosynchronous orbit, failed when the Star 48 motor's exit cone, or nozzle, disintegrated about four seconds after ignition. Thereafter, the motor nozzle assembly was expelled and the motor extinguished itself. The short burn of the upper stage rocket caused Westar VI to go into a low elliptical orbit around the earth with a maximum altitude of only 655 nautical miles. In this orbit, Westar VI was useless for telecommunication purposes.

Western Union made a claim against its insurance companies for a total loss of the satellite. The insurers paid Western Union about $105,000,000 million on the claim.

About three weeks after the Space Shuttle mission, Hughes Aircraft Corporation (which had manufactured Westar VI) briefed NASA about the possibility of retrieving the satellite. On September 7, 1984, an agreement was reached by Hughes and the majority insurers of Westar VI to retrieve the satellite. In November 1984, Westar VI was retrieved from its improper orbit and brought to Hughes Aircraft Company.

On January 17, 1986, Appalachian filed suit in the Orange County Superior Court

against McDonnell Douglas, Morton Thiokol and Hitco, alleging causes of action for negligence and strict liability. On February 14, McDonnell Douglas filed for a petition to remove the case to federal court. Thereafter, on February 18, Appalachian voluntarily dismissed the federal court action and filed a new complaint, containing minor modifications, in the Orange County Superior Court. In federal court, McDonnell Douglas filed a motion to strike or vacate Appalachian's dismissal. The federal court denied the motion, noting that removal had been improper.

DISCUSSION

APPALACHIAN'S APPEAL

I Summary Judgment Review

The aim of the summary judgment procedure is to discover whether the parties possess evidence requiring the fact-weighing procedures of a trial. (Chern v. Bank of America (1976) 15 Cal.3d 866, 873, ...