641 F.2d 746 (9th Cir. 1981), 79-3167, S. A. Empresa De Viacao Aerea Rio Grandense v. Boeing Co.

Docket Nº:79-3167.
Citation:641 F.2d 746
Party Name:S. A. EMPRESA DE VIACAO AEREA RIO GRANDENSE (Varig Airlines), Plaintiff- Appellant, v. The BOEING COMPANY, Defendant-Appellee.
Case Date:April 06, 1981
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 746

641 F.2d 746 (9th Cir. 1981)

S. A. EMPRESA DE VIACAO AEREA RIO GRANDENSE (Varig

Airlines), Plaintiff- Appellant,

v.

The BOEING COMPANY, Defendant-Appellee.

No. 79-3167.

United States Court of Appeals, Ninth Circuit

April 6, 1981

Argued and Submitted Dec. 5, 1980.

Page 747

Phillip D. Bostwick, Shaw, Pittman, Potts & Trowbridge, Washington, D. C., for plaintiff-appellant.

Keith Gerrard, Perkins, Coie, Stone, Olsen & Williams, Seattle, Wash., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before FERGUSON and NORRIS, Circuit Judges, and PANNER, [*] District Judge.

FERGUSON, Circuit Judge:

This appeal arises out of the crash of a Boeing 707 airliner. The district court granted summary judgment in favor of Boeing, the defendant manufacturer. We hold that the court correctly resolved the choice of law issue and properly applied the governing law.

I. FACTS

On June 2, 1967, Boeing, a Delaware corporation with its principal place of business in the state of Washington, sold the subject aircraft to Seaboard World Airlines. A provision of the sales contract dictated that all disputes arising out of the contract were to be governed by Washington law. Article 6 contained the following disclaimer:

THE WARRANTIES PROVIDED IN THIS ARTICLE 6, THE OBLIGATIONS AND LIABILITIES OF BOEING HEREUNDER, AND THE RIGHTS AND REMEDIES OF BUYER HEREUNDER (i) ARE EXCLUSIVE AND IN

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SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, ALL OTHER WARRANTIES, GUARANTEES, OBLIGATIONS, LIABILITIES, RIGHTS AND REMEDIES, EXPRESS OR IMPLIES (sic), ARISING BY LAW OF OTHERWISE, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTY OF MERCHANTABILITY, ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, ANY IMPLIED WARRANTY OF FITNESS, AND ANY OBLIGATION OR LIABILITY OF BOEING ARISING FROM TORT, OR FOR LOSS OF USE, REVENUE OR PROFIT, OR FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES ....

(emphasis added).

The agreement further provided that:

In the event of the resale or lease of any Aircraft, all rights and benefits conferred under this Agreement upon Buyer with respect to such Aircraft shall inure to the benefit of such purchaser or lessee, as the case may be, but only if Buyer obtains from such purchaser or lessee an express agreement, in writing, to be bound by and comply with all applicable terms and conditions set forth in Article ( ) 6 ....

(emphasis added).

On August 2, 1968, following nine months of negotiations, Seaboard concluded a lease-back sale agreement with plaintiff Varig Airlines, a Brazilian corporation. This agreement contained the following provision:

Seaboard hereby sells, transfers and assigns to Varig, effective from and after delivery by Seaboard to Varig of the Aircraft, all of the rights and benefits conferred upon Seaboard under the Boeing Agreement with respect to the Aircraft. In consideration of the transfer of such rights and benefits, Varig hereby agrees to be bound by and comply with all applicable terms and conditions set forth in Article ( ) 6 ... of the Boeing Agreement.

(emphasis added).

Seaboard's chief negotiator stated that this assignment of warranty provision was originally drafted by Varig's attorney. The contract was executed in New York.

The aircraft was delivered to Varig in early 1969. On July 11, 1973, while the plane was en route from Brazil to Paris, a fire broke out in a restroom. The dense smoke that filled the plane forced a crash landing outside Paris. One hundred twenty-four persons died in the crash. The aircraft was destroyed. The Civil Aviation Department of France concluded that the probable cause of the accident was the restroom fire. Its report noted that the Boeing 707's trash receptacles did not conform to the Federal Aviation Administration's (FAA) Civil Air Regulation 4b.381(d) 1 in that the receptacles were not capable of preventing the development of a possible fire.

On July 8, 1975, Varig filed suit in the Central District of California to recover for loss of the aircraft. After six months of discovery, Boeing moved for a change of venue pursuant to 28 U.S.C. § 1404(a). Judge William P. Gray granted the motion and the case was transferred to the Western District of Washington, Walter T. McGovern, Chief Judge.

On May 5, 1976, Judge McGovern appointed a special master to rule on discovery matters. Boeing then moved for summary judgment on the basis of the exculpatory clause incorporated from the Boeing-Seaboard contract into the Seaboard-Varig agreement. In response to this motion, Varig sought discovery concerning the nature and extent of the exculpatory provision. Because Boeing objected to the requested discovery, Varig brought the matter before the special master. Varig also sought, under Fed.R.Civ.P. 56(f), to have the hearing on the summary judgment motion continued for one month so that the requested discovery could be obtained. The

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special master denied Varig's discovery request because it was directed to information inadmissible under Washington's parol evidence rule. However, a continuance was granted to permit Varig's negotiator on the purchase to submit an affidavit raising an issue of fact. Judge McGovern affirmed the ruling.

On January 14, 1977, Judge McGovern granted Boeing's motion for summary judgment. No final judgment was entered. Judge McGovern granted Varig's motion to have the case retransferred to the Central District of California on January 18, 1978. Judge Gray thereupon issued an order to show cause why the summary judgment should not be set aside. After the issues were briefed and argued, Judge Gray entered an order reaffirming the summary judgment. Final judgment was entered on February 9, 1979, pursuant to Fed.R.Civ.P. 54(b). This appeal followed.

II. GOVERNING LAW

Plaintiff raises five issues on appeal. With respect to four, it is urged that the district court erred in applying Washington instead of California law. Because they are of central importance, we first examine the applicable choice-of-law rules.

When a change of venue occurs pursuant to 28 U.S.C. § 1404(a), "(t)he transferee district court must be obligated to apply the state law that would have been applied if there had been no change of venue." Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S.Ct. 805, 820, 11 L.Ed.2d 945 (1964). In diversity cases, federal courts must apply the conflict-of-law principles of the forum state. Sarlot-Kantarjian v. First Pennsylvania Mortgage Trust, 599 F.2d 915, 917 (9th Cir. 1979). Thus, Judge McGovern was required to confront all conflict-of-law questions as if he were sitting in California.

California does not apply a mechanical test to choice-of-law questions. Rather, it employs the "governmental interest analysis." Under this approach, California law will be applied unless the foreign law conflicts with California law and California and the foreign jurisdiction have significant interests in having their law applied. Strassberg v. New England Mutual Life Ins. Co., 575 F.2d 1262, 1263-64 (9th Cir. 1978); Offshore Rental Co. v. Continental Oil Co., 22 Cal.3d 157, 163, 148 Cal.Rptr. 867, 870-71, 583 P.2d 721 (1978). Where significant interests conflict, the court must assess the "comparative impairment" of each state's policies. Strassberg, supra, at 1264; Offshore Rental Co., supra, 22 Cal.3d at 164-65, 148 Cal.Rptr. at 872-73, 583 P.2d at 726-27. The law applied will be that of the state whose policies would suffer the most were a different state's law applied. Strassberg, supra, at 1264; Offshore Rental Co., supra, 22 Cal.3d at 164-65, 148 Cal.Rptr. at 872-73, 583 P.2d at 726-27. A separate choice-of-law inquiry must be made with respect to each issue in a case. Beech Aircraft Corp. v. Superior Court of Los Angeles, 61 Cal.App.3d 501, 518, 132 Cal.Rptr. 541, 550 (1976).

The preceding rules apply regardless of whether the dispute arises out of contract or tort. Strassberg, supra, at 1264. An exception applies, however, in the case of contracts with choice-of-law provisions. California will apply the substantive law designated by the contract unless the transaction falls into either of two exceptions:

1) the chosen state has no substantial relationship to the parties or the transaction, or

(2) application of the law of the chosen state would be contrary to a fundamental policy of the state.

Sarlot-Kantarjian v. First Pennsylvania Mortgage Trust, supra, 599 F.2d 915 (9th Cir. 1979) (citation omitted). See Gamer v. duPont Walston, Inc., 65 Cal.App.3d 280, 286, 135 Cal.Rptr. 230, 235 (1976); Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal.App.3d 987, 995 n.6, 101 Cal.Rptr. 347, 352 n.6 (1972). Under the second exception, where application of a choice-of-law provision would result in the contravention of California's public policy, the provision will be ignored to the extent necessary to preserve public policy. See Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20

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Cal.App.3d 668, 673, 97 Cal.Rptr. 811, 814 (1971); Foreman v. George Foreman Associates, Ltd., 517 F.2d 354, 357 (9th Cir. 1975) (dictum).

III. SCOPE OF THE EXCULPATORY CLAUSE AND PROPRIETY OF SUMMARY JUDGMENT

  1. Post-Delivery Negligence

    Varig contends that Judge McGovern failed to follow proper rules of contract construction in holding that the exculpatory clause exempted Boeing from liability for post-delivery negligence. Varig further urges that even if the court were correct in its reading of the exculpatory clause, under California law the question of the parties' intent with respect to that clause was a question of fact for the jury. Such an issue, it is argued, precludes summary...

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