Commercial Ins. Co. of Newark, N. J. v. Pacific-Peru Const. Corp., PACIFIC-PERU

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation558 F.2d 948
Docket NumberNo. 75-1790,PACIFIC-PERU,75-1790
PartiesCOMMERCIAL INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff-Appellee, v.CONSTRUCTION CORP. and the Hawaii Corporation, Defendants-Appellants. The HAWAII CORPORATION, Defendant, Third-Party Plaintiff-Appellant, v. AMERICAN INTERNATIONAL UNDERWRITERS CORPORATION, Third-Party Defendant-Appellee.
Decision Date10 August 1977

Terence J. O'Toole, Carlsmith, Carlsmith, Wichman & Case, Honolulu, Hawaii, argued, for defendants-appellants.

Peter G. Wheelon, Honolulu, Hawaii, argued, for plaintiff-appellee.

Appeal from the United States District Court for the District of Hawaii.

Before ELY, HUFSTEDLER and WRIGHT, Circuit Judges.

HUFSTEDLER, Circuit Judge:

Commercial Insurance Company of Newark, N. J. ("CIC"), a New Jersey corporation, obtained a summary judgment in its favor requiring Pacific-Peru Construction Corp. ("Pacific-Peru"), a Nevada corporation, and The Hawaii Corporation ("HC"), 1 a Hawaii corporation, to indemnify CIC pursuant to bonding, indemnity, and reinsurance contracts executed in connection with construction work performed in Peru. Federal jurisdiction was grounded on diversity. The district court granted summary judgment on two grounds: (1) CIC was entitled to indemnification because its right thereto was based on Peruvian judgments, the validity of which the district court could not go behind; and (2) a clause in the indemnity agreement requiring Pacific-Peru to deposit collateral security upon demand was specifically enforceable. We affirm the district court, applying contract principles, without reaching the question whether the Peruvian judgments were valid.

In 1966, Pacific-Peru entered a contract to build a public housing project in Peru for Asociacion Nacional Pro Vivienda Propriata De Los Servidores del Estado ("VIPSE"), a Peruvian organization of government employees. Pacific-Peru's construction contract with VIPSE required Pacific-Peru to obtain a construction bond in VIPSE's favor. Accordingly, Pacific-Peru signed a bonding agreement with El Pacifico Compania De Seguros Y Reaseguros ("El Pacifico"), as surety. El Pacifico is a Peruvian corporation, twenty percent of which is owned by an affiliate of American International Underwriters, Inc. ("AIU"). AIU, a New York corporation, was El Pacifico's foreign manager on the bond as well as CIC's agent. El Pacifico, in turn, required Pacific Construction, HC's predecessor and parent company of Pacific-Peru (hereinafter also referred to as "Pacific-Peru"), to sign an agreement promising to indemnify El Pacifico if El Pacifico became liable on the construction bond. El Pacifico then entered into a contract of reinsurance with CIC in which CIC agreed to reimburse El Pacifico for any liability El Pacifico incurred under the construction bond with Pacific-Peru.

From 1966 to 1969, Pacific-Peru substantially performed the construction contract and received progress payments for its work. A dispute arose between Pacific-Peru and VIPSE as to the monies still due appellant under the contract. After various settlement attempts had failed, the dispute went to arbitration in Peru pursuant to an arbitration clause in the construction contract. The arbitral tribunal found in favor of VIPSE after invalidating a wage escalation provision in the contract and concluding that there were construction defects in the project. The Supreme Court of Peru reversed the decision of the arbitral tribunal because it found that the tribunal had no jurisdiction to invalidate the wage escalation provision and because the award contained several "contradictions."

On remand to the same arbitral tribunal, Pacific-Peru challenged the tribunal for lack of impartiality. Appellants' challenge failed and once more, the tribunal found for VIPSE, although its award was approximately half that of its previous award. The Peruvian Supreme Court affirmed the award of the arbitral tribunal although it contained, according to appellants, the same contradictions and invalidated the same contract provision involved in the first award.

After Pacific-Peru refused to pay the award, and at VIPSE's request, a Peruvian judge attached El Pacifico's bond in spite of El Pacifico's argument that the bond did not cover the entire amount of the arbitral award. El Pacifico appealed the attachment order to the Superior Court of Peru which court affirmed the attachment award and held that the bond covered the entire award. 2 El Pacifico then tried to appeal the decision of the Superior Court, but the Superior Court held that its decision was not appealable. El Pacifico did not appeal the denial of the appeal to the Peruvian Supreme Court although appellants contend that Peruvian procedure would have permitted the appeal.

On January 28, 1974, a Peruvian judge ordered El Pacifico to pay the award promptly, in absence of which liability would be doubled. El Pacifico complied with the Peruvian judge's order and on February 11, 1974, CIC, pursuant to its reinsurance agreement, reimbursed El Pacifico for the amount of the award.

CIC then filed this diversity action in the district court in Hawaii seeking indemnification from Pacific-Peru under the indemnity agreements and the reinsurance contract. HC filed a third-party complaint against AIU, alleging that AIU wrongfully caused El Pacifico to pay VIPSE the amount of the arbitral award. 3 The district court dismissed HC's complaint for lack of personal jurisdiction.

The principal burden of the appellants' argument on appeal is that the district court erred in recognizing the Peruvian judgments. They argue that the Peruvian judgments were invalid because they were rendered by biased tribunals; they were not final because El Pacifico failed to take an appeal from the decision denying its appeal from the attachment order; the Peruvian award violated United States' public policy in prejudicing a United States national; the Peruvian trial was unfair; and because Peru does not extend full reciprocity to American judgments. Appellants further contend that since the Peruvian judgments were invalid, El Pacifico suffered no "actual liability" under its surety bond, but was merely a volunteer. Accordingly, they argue, neither El Pacifico nor its successor was entitled to indemnification.

We have no occasion to make an exotic excursion into the law of Peruvian judgments. Assuming, arguendo, that the district court should not have accepted the Peruvian judgments at face value (see Hilton v. Guyot (1895) 159 U.S. 113, 16 S.Ct. 139, 40 L.Ed. 95; Restatement (Second) of Conflicts of Laws § 98 (1971); British Midland Airways Ltd. v. International Travel, Inc. (9th Cir. 1974) 497 F.2d 869, 871), that fact does not provide a defense to CIC's right to indemnification. The indemnification right, rather, turns on the interpretation of the contracts signed between El Pacifico and Pacific-Peru. CIC's right is firmly grounded on these contracts, and summary judgment was proper.

First, we look to Hawaii's conflicts of laws rules to determine what law governs our interpretation of the bond and indemnity agreements. (See Klaxon Co. v. Stentor Electric Manufacturing Co., Inc. (1941) 313 U.S. 487, 62 S.Ct. 1284, 86 L.Ed. 1757.) Hawaiian law does not provide an appropriate conflicts rule; accordingly, we apply general choice of law principles to determine which state's law governs our process of contract interpretation. (See Dashiell v. Keauhou-Kona Co. (9th Cir. 1973) 487 F.2d 957, 960 (Absent Hawaii law, the Restatement (Second) on Conflicts of Laws provides guidance as to general conflicts principles.).) Under Section 188 of the Restatement (Second) of Conflicts of Laws (1971), "the local law of the state which . . . has the most significant relationship to the transaction" applies to questions of contract interpretation absent an effective choice of law by the parties. Section 188(2) states the criteria in determining the significance of the relationship: (1) the place of contracting, negotiating, and performance of the contract; (2) the location of the subject matter of the contract; and (3) the domicile, nationality, place of incorporation, and place of business of the parties. The contacts in this case point to the application of either Hawaiian or Peruvian law. HC, Pacific-Peru's parent corporation and third-party plaintiff, is a Hawaiian corporation; the bond and indemnity agreements were executed in Hawaii; CIC and AIU are United States corporations; El Pacifico is a Peruvian corporation; VIPSE's construction project is located in Peru; and El Pacifico performed on its bond pursuant to a Peruvian judgment. None of the parties has indicated that any state's or nation's law other than Hawaii's is applicable to this case.

We choose to apply the law of Hawaii. None of the parties, pursuant to Rule 44.1 of the Federal Rules of Civil Procedure, gave written notice of an intent to raise an issue concerning the law of a foreign country. We are, therefore, under no obligation to attempt to apply Peruvian law. (See Bartsch v. Metro-Goldwyn-Mayer Inc. (2d Cir. 1968) 391 F.2d 150, 155, n.3; 5 Moore's Federal Practice P 44.1.03, p. 1655 (2d ed. 1977).) We apply the principle of the Restatement (Second) of Conflicts: "(W)here either no information, or else insufficient information, has been obtained about the foreign law, the forum will usually decide the case in accordance with its own local law . . .. The forum will usually apply its own local law for the reason that in this way it can best do justice to the parties . . .. When both parties have failed to prove the foreign law, the forum may say that the parties have acquiesced in the application of the local law of the forum. . . ." (Restatement (Second) of Conflicts of Laws § 136, comment h, at pp. 378-79 (1971); id. at § 6(2)(g), p. 10.)

As reinsurer of El Pacifico's surety obligations, CIC's claim is derivative from El Pacifico's right to...

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