Continental Airlines, Inc. v. Goodyear Tire & Rubber Co.

• Decision Date: 23 June 1987
• Docket Number: 86-6047 and 86-6195,Nos. 85-6367,85-6414,s. 85-6367
• Citation: 819 F.2d 1519
• Parties: CONTINENTAL AIRLINES, INC., Plaintiff-Appellant, v. GOODYEAR TIRE & RUBBER COMPANY, B.F. Goodrich Co., Cleveland Pneumatic, Inc. and Air Treads, Inc., Defendants-Appellees. McDONNELL DOUGLAS CORPORATION, Plaintiff-Appellee v. CONTINENTAL AIRLINES, INC., Defendant-Appellant, and Goodyear Tire & Rubber Company, Cleveland Pneumatic, Inc., Sargent Industries, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1519

819 F.2d 1519

8 Fed.R.Serv.3d 459

CONTINENTAL AIRLINES, INC., Plaintiff-Appellant, v. GOODYEAR TIRE & RUBBER COMPANY, B.F. Goodrich Co., Cleveland

Pneumatic, Inc. and Air Treads, Inc.,

Defendants-Appellees.

McDONNELL DOUGLAS CORPORATION, Plaintiff-Appellee v. CONTINENTAL AIRLINES, INC., Defendant-Appellant, and Goodyear Tire & Rubber Company, Cleveland Pneumatic, Inc., Sargent Industries, Inc., Defendants-Appellees.

Nos. 85-6367, 85-6414, 86-6047 and 86-6195.

United States Court of Appeals,

Ninth Circuit.

Argued Feb. 5, 1987.

Submitted April 14, 1987.

Decided June 23, 1987.

Gregory A. Long, Los Angeles, Cal., for plaintiff-appellant.

Thomas C. Walsh, Joseph E. Gregorich, Robert W. King, Los Angeles, Cal., Darrell A. Forgey, San Diego, Cal., for defendants-appellees.

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

Before SNEED, FARRIS and NOONAN, Circuit Judges.

SNEED, Circuit Judge:

These cases arise in the aftermath of a serious accident involving a Continental Airlines DC-10 aircraft. We must decide, among other issues, whether an exculpatory clause in the contract of sale between Continental and the aircraft's manufacturer, McDonnell Douglas Corporation (MDC), bars certain of Continental's claims not only against MDC but also against various suppliers of the aircraft's component parts. The district court so held on summary judgment. We find, however, that material issues of fact pertaining to the component part companies' liability remain unresolved. We therefore affirm in part and reverse in part.

I. FACTS

In 1970, Continental agreed to buy a number of DC-10 airplanes from MDC. Their contract included a limited warranty in which MDC undertook certain servicing obligations and an exculpatory clause in which Continental waived "all other remedies" against MDC. The exact text of these provisions is discussed below.

On March 1, 1978, one of these DC-10s was nearing takeoff at Los Angeles International Airport when the two front tires of its left-side landing gear blew out. The pilot aborted the takeoff, but the uncushioned landing gear tore through the tarmac and broke away from the plane. In doing so it ruptured the left wing's fuel tank, which burst into flame. The emergency escape slides failed, apparently due to the heat of the ensuing fire. Some passengers evacuated through the copilot's window;

others jumped from the exits. Four died, and over seventy suffered injuries. The plane was destroyed

II. PROCEEDINGS

In December of 1979, Continental filed two suits, one state and one federal. In state court, Continental sued MDC and Sargent Industries, supplier of the escape slides. In federal court, Continental sued Goodyear and B.F. Goodrich, each of which had supplied one of the two blown-out tires. Continental later filed a second federal action against Air Treads, which had retreaded the Goodyear tire. In each suit, Continental sought damages for the lost airplane and indemnity against liability to passengers.

MDC sought a federal forum. It tried initially to remove the state case, but the district judge, after finding no federal question and no diversity because Sargent and Continental were both California citizens, remanded the case to the state court. MDC then instituted a federal declaratory judgment action. It named Continental, Sargent, Goodyear and Goodrich as defendants, basing jurisdiction on diversity. At Continental's request, all three federal actions were consolidated. Proceedings in Continental's remanded case continued independently in state court.

In early 1985, MDC sought summary judgment in its federal action. At the same time, Continental moved to dismiss or stay MDC's federal action in favor of the state litigation. The district court denied Continental's motion and granted partial summary judgment in favor of MDC. It held that MDC's exculpatory clause was enforceable under California law and effective against Continental's negligence and strict liability claims as to loss of the aircraft. The judgment did not reach Continental's fraud or breach-of-warranty theories of recovery, or its passenger indemnification claims. In September, 1985, the district court also granted partial summary judgment to the parts manufacturers on the basis of its holding that MDC's exculpatory clause also barred any action against them for damage to the airplane. Once again the issue of passenger indemnity was left open. On a motion by MDC and the parts manufacturers shortly before the state trial was to begin, the district court certified these partial summary judgments as final for appeal under Fed.R.Civ.P. 54(b).

The state court correctly held that these judgments, because certified as final, were res judicata for purposes of the state jury trial. Nevertheless, Continental pursued and prevailed on its fraud/breach-of-warranty claims for damage to the aircraft. That judgment is on appeal in the higher California courts. During the trial, moreover, the parties settled all the passenger indemnification claims. Only the loss of the airplane--worth some $30 million--remains at issue.

III. ISSUES

Continental appeals the partial summary judgments on various jurisdictional and substantive grounds. Our discussion will proceed as follows. First we consider whether complete diversity existed below; whether the district court should have abstained; and whether the 54(b) certification was proper. Turning to the merits, we then address whether the exculpatory clause is enforceable in favor of MDC to the extent that the district court ruled, and finally whether it is enforceable to the same extent in favor of the tire companies.

IV. DIVERSITY JURISDICTION OVER MDC'S DECLARATORY JUDGMENT ACTION

As noted above, when MDC attempted to remove Continental's state case, the district court correctly remanded for lack of diversity. Yet MDC then brought essentially the same action before the same district court in the form of a declaratory judgment suit, premising jurisdiction on diversity. The parties did not raise this apparent

jurisdictional defect, but we are obliged to consider it sua sponte.

MDC's federal complaint pleaded Continental, Sargent, Goodyear, and Goodrich as defendants. With the parties thus aligned, there was complete diversity. But as this circuit has stated:

The courts, not the parties, are responsible for aligning the parties according to their interests in the litigation. If the interests of a party named as a defendant coincide with those of the plaintiff in relation to the purpose of the lawsuit, the named defendant must be realigned as a plaintiff for jurisdictional purposes.

Dolch v. United Cal. Bank, 702 F.2d 178, 181 (9th Cir.1983) (citations omitted) (realigning party and vacating for lack of jurisdiction). The critical question here is Sargent's proper alignment; as we have said, Continental and Sargent were both California citizens. ¹ Sargent's alignment with MDC would destroy complete diversity.

Sargent, properly aligned, does belong with MDC. Sargent's strongest contention below was that MDC's exculpatory clause barred Continental's claims against the parts manufacturers. Indeed, the district court so held. MDC took the same position because if Continental had been able to recover against Sargent, Sargent could have sought indemnity against MDC. Thus both manufacturers had an identical interest in proving the validity and scope of MDC's exculpatory clause. Indeed Sargent filed papers below supporting MDC's winning summary judgment motion, and the two parties arranged to be represented by the same counsel on this appeal.

Thus, with respect to the primary matter in dispute, see Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69, 62 S.Ct. 15, 16, 86 L.Ed. 47 (1941), Sargent was in reality MDC's co-party against Continental. ² Diversity in MDC's action was therefore lacking. This does not, however, render MDC's judgment void. Despite earlier case law to the contrary, it is now settled in this circuit that practicality prevails over logic and that we may dismiss a dispensable, non-diverse party in order to perfect retroactively the district court's original jurisdiction. ³

Sargent is dispensable because the only claims to which it was party involved passengers' injuries, and these claims have all been settled. Indeed in its brief Sargent explicitly disclaims any further interest in this litigation. We therefore dismiss it now under Fed.R.Civ.P. 21.

V. DISMISSAL OR STAY OF FEDERAL PROCEEDINGS

Continental insists that the district court abused its discretion by failing to dismiss or stay the federal proceedings in favor of the state litigation commenced earlier. We disagree.

If there were before us only MDC's declaratory judgment action, Continental would have a stronger claim. Federal courts are ordinarily said to have special jurisdictional discretion in such actions in order to prevent parties from using the Declaratory Judgment Act--as MDC has clearly done here--to circumvent the removal statute or to create a race to judgment. See Transamerica Occidental Life Ins. Co. v. DiGregorio, 811 F.2d 1249, 1253 (9th Cir.1987). MDC's action, however, is not the only one before us. Continental's two federal actions are also before us, and they are not declaratory in nature.

With MDC's declaratory suit, the district court consolidated--at Continental's own motion--the airline's suits against the tire companies. These were ordinary coercive suits, as to which Continental never requested abstention. See Excerpt of Record (E.R.) vol. 36, tab "288 of 1" (motion to stay or dismiss directed only to MDC's complaint). Because the district court's resolution of those suits necessarily involved an adjudication of the validity and scope of MDC's exculpatory clause--the very relief that MDC prayed for--it would have served no purpose to abstain in the declaratory action.

We would confront a different situation had Continental initially sought...