268 F.3d 829 (9th Cir. 2001), 99-35913, DP Aviation v Smiths Industries

Docket Nº:99-35913, 00-35029
Citation:268 F.3d 829
Party Name:DP AVIATION, a Washington general partnership consisting of M.C. Pietromonaco, Inc. and Microm, Inc., Washington corporations; M.C. PIETROMONACO, INC., a Washington corporation; MICOM, INC., a Washington corporation, Plaintiffs-Appellees, v. SMITHS INDUSTRIES AEROSPACE AND DEFENSE SYSTEMS LTD, a foreign corporation, Defendant-Appellant.
Case Date:September 28, 2001
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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268 F.3d 829 (9th Cir. 2001)

DP AVIATION, a Washington general partnership consisting of M.C. Pietromonaco, Inc. and Microm, Inc., Washington corporations; M.C. PIETROMONACO, INC., a Washington corporation; MICOM, INC., a Washington corporation, Plaintiffs-Appellees,

v.

SMITHS INDUSTRIES AEROSPACE AND DEFENSE SYSTEMS LTD, a foreign corporation, Defendant-Appellant.

Nos. 99-35913, 00-35029

United States Court of Appeals, Ninth Circuit

September 28, 2001

Argued and Submitted February 12, 2001

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John T. Petrie and Susan Rae Fox, Ryan, Swanson & Cleveland, PLLC, Seattle, Washington; and Evan L. Schwab, Dorsey & Whitney, LLP, Seattle, Washington, for the plaintiffs-appellees.

Thomas M. Kittredge and Karen Pieslak Pohlmann, Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania; and Patrick C. Sheldon, Fain Sheldon Anderson & VanDerhoef, PLLC, Seattle, Washington, for the defendant-appellant.

Appeal from the United States District Court for the Western District of Washington; Thomas S. Zilly, District Judge, Presiding. D.C. No. CV-97-01623-TSZ.

Before: Reinhardt, Wardlaw, and Gould, Circuit Judges.

RONALD M. GOULD, Circuit Judge:

This case concerns a monetary dispute over the award of incentive fees, or commissions, pursuant to a representation agreement. Appellees DP Aviation, M.C. Pietromonaco, Inc., and Micom, Inc. (collectively, "DPA") alleged that Appellant Smiths Industries Aerospace and Defense Systems, Ltd. ("SIADS") breached its representation agreement with DPA by refusing to pay incentive fees on products supplied by SIADS to The Boeing Company ("Boeing"). Following trial, judgment, and supplemental judgment, the district court awarded DPA unpaid incentive fees, underpaid incentive fees for a class of products manufactured by SIADS's Harowe division ("Harowe Products"), and prejudgment interest at twelve percent in accord with Washington law. SIADS appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm the district court's award to DPA of the unpaid incentive fees and the award of prejudgment interest at twelve percent on the unpaid incentive fees, but vacate its award of underpaid incentive fees on the Harowe Products.

FACTS AND PROCEDURAL HISTORY

DPA is a Washington-based general partnership. SIADS is a subsidiary of Smiths Industries, PLC ("SIPLC") (formerly Smiths Industries LTD. ("SILTD")).

In 1974, DPA, then known as SP & Associates ("SP&A") (a partnership with principals Michael Pietromonaco and John Still), became the exclusive representative in Washington State for the sale of avionics parts by Smiths Industries Incorporated ("SIINC"), a Florida corporation and a wholly owned subsidiary of SILTD. By the terms of the 1974 Agreement, SP&A assisted SIINC in procuring business with Boeing, and, in return, SP&A was compensated with a $ 50,000 annual retainer fee and incentive fees based on the amount of business gained. In 1978, the 1974 Agreement was modified by another agreement that provided for a similar representation arrangement.

In 1980, DPA and SIINC executed an agreement ("1980 Agreement") establishing DPA as the exclusive sales representative within Washington State for certain products manufactured by SIINC and SIADS. The 1980 Agreement was negotiated by Michael Pietromonaco ("Pietromonaco") and his partner, John Dugan ("Dugan"), on behalf of DPA and by SIINC's director of marketing, David Richardson ("Richardson"), on behalf of SIINC.

The 1980 Agreement provided that DPA would be paid incentive fees of "2% of the aggregate amount of sales in the Territory"

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of "Products which constituted New Business" as defined by the 1980 Agreement.1 The 1980 Agreement was terminable ninety days after either party gave notice of termination. Paragraph 7 provided in part:

Notwithstanding termination of this Agreement, incentive fees shall continue to be paid after Termination date on all shipments of Products for which orders were received and accepted before the Termination Date.

Richardson and Pietromonaco testified at trial that they understood "orders" in paragraph 7 to mean a contract or commitment to supply product, not a purchase order. Under this interpretation of "orders," DPA would be entitled to a two percent commission on all "New Business" generated before the "Termination Date" even if the commitments or contracts between SIINC or SIADS and Boeing continued after termination.

In 1981, DPA and SILTD executed a new sales agreement ("1981 Agreement").2 The 1981 Agreement, like the 1980 Agreement, provided for DPA's representation on products produced by both SIINC and SIADS. The 1981 Agreement was negotiated by Pietromonaco for DPA and John Rivaz ("Rivaz"), director of planning for SILTD, on behalf of SILTD.

The provisions and much of the language of the 1980 and the 1981 Agreements are similar. Paragraph 5(c) of the 1981 Agreement, like paragraph 7 of the 1980 Agreement, provided:

Notwithstanding Termination of this Agreement, incentive fees of Section 5b shall continue to be paid after the Termination Date on all New Business for which orders were received and accepted up to ninety (90) days after the Termination Date.

Pietromonaco testified that he did not remember the meaning of "orders" in paragraph 5(c) being discussed in negotiations, but he believed that "orders" continued to mean commitments to purchase, not purchase orders. Rivaz of SILTD also testified that the meaning of "orders "was not discussed, but he understood "orders" to mean purchase orders.

Significantly, a separate provision discussing DPA's representation duties found in both the 1980 and 1981 Agreements used the term "purchase orders." Pietromonaco and Dugan both testified that the use of the separate terms" purchase order" and "order" in the 1980 Agreement was a deliberate choice to signify distinct concepts. Rivaz testified that the "purchase orders" section just "slipped through" from the 1980 Agreement to the 1981 Agreement.

The district court found the following changes from the 1980 to the 1981 Agreements to be material:3 (1) SILTD became a direct party to the 1981 Agreement; (2) the yearly retainer payment to DPA was phased out after two years; (3) the applicable law governing the agreement was changed from Florida law to English law; (4) a word in the definition of "New Business" was changed from "sales "to "orders"; (5) DPA was to be paid incentive

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fees on all New Business for ninety days after termination; and (6) commissionable "New Business" was expanded to include products and components manufactured and marketed by Smiths Industries Harowe Division in Malvern, Pennsylvania.

In 1985, in recognition of DPA's assistance in securing a commitment from Boeing to continue to purchase parts manufactured by SIADS from its Harowe Division, SIADS agreed to pay DPA one percent commissions on certain parts manufactured at Harowe. DPA would not have otherwise been entitled to incentive fees for these "Harowe Products "because SIADS sold these products to Boeing before 1981, and they did not qualify as "New Business" as defined by the 1981 Agreement.4

In the mid-1980's, Boeing altered its procurement practices and began using long-term requirements contracts called Special Business Provisions Agreements ("SBPs") to buy products from suppliers. In 1986, some of SIADS's commitments to supply Boeing with products from the Harowe Division were incorporated into a newly issued SBP. DPA continued to receive only the one percent commission that was agreed upon in 1985, not the two percent incentive fees provided by the terms of the 1981 Agreement.

In August 1997, SIADS gave notice of its intent to terminate the 1981 Agreement, effective three months later. SIADS also notified DPA that it did not intend to pay the two percent incentive fees for the remaining term of the long-term Boeing contracts that were covered by the 1981 Agreement.5

DPA filed a complaint in the Superior Court of Washington for King County against SIADS alleging breach of contract, claiming attorneys' fees under Washington wage statutes, and requesting a declaratory judgment arising from the termination of the 1981 Agreement. In its first claim, DPA asserted breach or anticipatory breach of contract because SIADS had "unequivocally indicated that it will refuse to pay Incentive Fee of 2% of the sale price of products for which a purchase order has not been received on or before February 4, 1998." In its claim for declaratory relief, DPA asserted that SIADS's "unequivocal refusal to continue paying a 2% Incentive Fee on the requirements contracts with Boeing is an anticipatory breach" and it further asked for "declaration that [SIADS] is obligated to pay 2% Incentive Fees on all net sales of orders placed with Boeing as a result of efforts of [DPA], whether purchase orders are issued before or after February 4, 1998."

SIADS removed DPA's claims to the United States District Court for the Western District of Washington based upon diversity jurisdiction. DPA filed a first

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amended complaint, adding claims for unjust enrichment and equitable estoppel. After discovery, the district court granted SIADS's motion for summary judgment on the equitable claims and on the Washington wage claims, but denied summary judgment on the contract and declaratory judgment claims.

The case was tried without a jury April 12-19, 1999. Trial testimony and evidence focused on the dealings between the parties before and after the execution of the 1981 Agreement and on the meaning of "orders" in paragraph 5(c) of the 1981 Agreement.

After trial, the district court issued its Findings of Fact and Conclusions of Law. The district court concluded that the parties intended "orders" in the 1981 Agreement not to be limited to...

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