Delta Air Lines, Inc. v. McDonnell Douglas Corp., 73-1799

• Decision Date: 31 October 1974
• Docket Number: No. 73-1799,73-1799
• Citation: 503 F.2d 239
• Parties: DELTA AIR LINES, INC., Plaintiff-Appellant-Cross-Appellee, v. McDONNELL DOUGLAS CORPORATION, Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 239

503 F.2d 239

DELTA AIR LINES, INC., Plaintiff-Appellant-Cross-Appellee, v. McDONNELL DOUGLAS CORPORATION, Defendant-Appellee-Cross-Appellant.

No. 73-1799.

United States Court of Appeals, Fifth Circuit.

Oct. 31, 1974, Rehearing Denied Dec. 17, 1974.

Frank F. Rox, Robert S. Harkey, Legal Div., Delta Air Lines, Inc., Hartsfield Atlanta, Atlanta, Ga., for plaintiff-appellant-cross-appellee.

J. Arthur Mozley, Atlanta, Ga., for defendant-appellee-cross-appellant.

Before BROWN, Chief Judge, and RONEY and GEE, Circuit Judges.

RONEY, Circuit Judge:

An aircraft purchased by Delta Air Lines, Inc. from McDonnell Douglas Corporation, the manufacturer, suffered damages when its nose gear collapsed during a landing in Jacksonville, Florida, because a component part was incorrectly installed. There were no personal injuries. Delta seeks to recover from McDonnell the expenses incurred in repair on four theories of liability: (1) negligence; (2) breach of implied warranties of merchantability and fitness for a particular purpose; (3) breach of express warranty; and, (4) strict liability in tort. The District Court dismissed the two counts sounding in negligence and strict liability on the ground that an exculpatory clause in the contract limited McDonnell's liability to contractual warranty provisions. Delta, in this interfocutory appeal, seeks review of the correctness of the Court's ruling in this regard. We affirm.

By cross-appeal McDonnell seeks review of the District Court's refusal to dismiss the counts based on express and implied warranties. The District Court reserved decision as to these two counts pending trial. Accordingly, there is no decision on the attempted cross-appeal for us to review at this time. Assuming without deciding that the allowance of an interlocutory appeal was not improvident under these circumstances, we will review the validity and effect of the exculpatory clause only insofar as it presents a defense against the counts for negligence and strict liability, the issues previously decided by the trial court.

The Purchase Agreement in question was signed at Long Beach, California, on November 18, 1964, and originally related only to the so-called 'short' DC-8 aircraft, or Series 51 DC-8 aircraft. On August 13, 1966, at Long Beach, California, the parties executed Amendment No. 5 to the Purchase Agreement, which amendment provided that additional DC-8 aircraft, of the Series 61 or 'stretched' variety, would be delivered to Delta under the terms and provisions of the November 18, 1964, Purchase Agreement. The accident aircraft was one of the aircraft covered by Amendment No. 5.

Article 4 of the Purchase Agreement stated the aircraft would be manufactured and delivered in California, and Article 17 provided: 'This agreement shall be construed and performance thereof shall be determined according to the laws of the State of California, U.S.A.' The Purchase Agreement also contained clauses which limited the agreements between the parties to the exact written terms of the contract.

At the time of the accident in question, Delta was operating the aircraft Douglas Finance Corporation, but the lease was contemplated by the parties and they had agreed that the lease agreement would not abrogate or modify under a lease agreement with McDonnell the provisions of the Purchase Agreement.

The Warranty Article in the Purchase Agreement, set forth in full in the margin, ¹ contained the following exculpatory clause:

(G) The warranty provided in this article and the obligations and liabilities of seller thereunder are in lieu of and buyer hereby waives all other warranties, guarantees or liabilities, express or implied arising by law or otherwise (including without limitation any obligation of seller with respect to consequential damages) and whether or not occasioned by seller's negligence and shall not be extended, altered or varied except by a written instrument signed by seller and buyer; provided that in the event the provision relieving seller from liability for its negligence should for any reason be ineffective, the remainder of this paragraph (G) shall remain in full force and effect.

Amendment 5 incorporated the terms of the 1964 agreement, including the Warranty Clause, which terms were the subject of intensive negotiation. There was no substantial imbalance in the bargaining positions of the parties and the Warranty Clause was not dictated by McDonnell on a 'take it-- or leave it' basis. Due to the California Court of Appeal decision in Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., 238 Cal.App.2d 95, 47 Cal.Rptr. 518 (1965), rendered several months before the parties entered into the agreement in the instant case, Delta was aware that McDonnell Donnell would, under certain circumstances, agree to modification or elimination of the exculpatory clause, albeit for a price which Delta apparently did not wish to pay. See 238 Cal.App.2d at 103 n. 5, 47 Cal.Rptr. at 523 n. 5.

The parties agree with the proposition that in this diversity case, we must follow state law, ² including state conflict of law rules, ³ and that the Georgia conflicts rule provides that the law of the state where a contract is made and performed will govern the validity and interpretation of the contract except when the result is contrary to the public policy of the State of Georgia. ⁴ The Georgia state courts would apply California law in this case not only because the contract was made and performed in California, but also because the parties specifically agreed in the contract that California law would control. ⁵

The chief point of disagreement between the parties that we are called upon to settle concerns what a California court would do with this case. This disagreement centers around the precedent established by Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., 238 Cal.App.2d 95, 47 Cal.Rptr. 518 (1965), in the light of an earlier California Supreme Court case, Tunkl v. Regents of University of California, 60 Cal.2d 92, 32 Cal.Rptr. 33, 383 P.2d 441 (1963), and a California statute dealing with exculpatory clauses, Cal.Civ.Code 1668 (West 1972).

Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., supra, involved the validity, as between the same airline and the same manufacturer as the case at bar, of virtually identical warranty provisions in connection with an airplane accident also caused by a malfunctioning nose landing gear. The intermediate California Court of Appeal upheld the exculpatory clause in the contract as precluding a negligence suit brought by the airline against the manufacturer.

Faced with this strong indication of how a California court would decide this case, Delta makes essentially five arguments against that result, which we find unpersuasive. We address the arguments seriatim as presented in Delta's brief.

First, Delta contends that the exculpatory clause is in clear violation of the public policy of California as specifically set out in the statutes of that state because it would relieve McDonnell of responsibility for the violation of 21.165 of the Federal Aviation Administration (FAA) regulations requiring it to determine that the aircraft was in a condition for safe operation. California Civil Code 1668 makes it against the policy of the law for a contract to exempt anyone from responsibility for violation of the law. ⁶ Delta asserts that by delivering the plane with the nose gear part incorrectly installed, McDonnell violated the FAA regulation found at 14 C.F.R. 21.165 (1974), which provides in effect that an airplane manufacturer must determine that any airplaneproposed for certification is in a condition for safe operation. ⁷

Delta, however, confuses a negligence theory of action, under which violation of a law or a regulation may be evidence of negligence, see Steel v. Downs, 438 F.2d 310, 316 (8th Cir. 1971), with the liability that may be imposed by law. McDonnell is still answerable to the FAA and third parties for any responsibility established by the regulation, and any statutory right of action that might be given to Delta by FAA regulations has not been abrogated. But none of these causes of action are involved in an action based on common law negligence. We are unable to agree that the contract between two industrial giants fixing the dollar responsibility for McDonnell's alleged negligence would be void under California law, any more than would be an insurance contract which might be written for the same purpose.

Second, and along the same lines as the first argument, Delta contends that this case is distinguishable from Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., because in that case the court did not consider the issue raised here with respect to the violation of 21.165. The Douglas court, however, did reject an argument similar to the one asserted first by Delta, by finding that Douglas had not violated the regulations there in question. Delta argues that the clear inference from the case is that had such a violation been proved, the California Court would have held the exculpatory clause void under Section 1668. Since this case is at the pleading stage, Delta contends that it ought to be permitted to prove what it did not prove in the state case.

Although Delta is correct in contending that Douglas did not consider the issue raised here as to a FAA regulation violation, it is incorrect in asserting that the California Court conceded that if a violation of such a regulation had been shown the exculpatory clause would have been invalid under California law. The total comments in the opinion relating to this argument about Section 1668 leave no inference whatsoever as to how the court would have handled the argument had Douglas violated the regulations. See 47 Cal.Rptr. at 525. With the Douglas case providing no guidance, we feel our analysis of Delta's first point applies equally to this point, and Delta's argument fails.

Third,...