880 F.2d 176 (9th Cir. 1989), 86-6683, Air-Sea Forwarders, Inc. v. Air Asia Co., Ltd.

Docket Nº:86-6683.
Citation:880 F.2d 176
Party Name:AIR-SEA FORWARDERS, INC., Plaintiff-Appellant, v. AIR ASIA COMPANY, LTD., and E-Systems, Inc., Defendants-Appellees.
Case Date:June 16, 1989
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 176

880 F.2d 176 (9th Cir. 1989)

AIR-SEA FORWARDERS, INC., Plaintiff-Appellant,

v.

AIR ASIA COMPANY, LTD., and E-Systems, Inc., Defendants-Appellees.

No. 86-6683.

United States Court of Appeals, Ninth Circuit

June 16, 1989

Page 177

[Copyrighted Material Omitted]

Argued and Submitted May 4, 1988.

As Amended Aug. 15, 1989.

Page 178

Matthew S. Steinberg, and Drew E. Pomerance, Inman, Weisz & Steinberg, Beverly Hills, Cal., for plaintiff-appellant.

James R. Jurecka, Bishton & Jurecka, Los Angeles, Cal., for defendants-appellees.

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

Before GOODWIN and HALL, Circuit Judges, and BELLONI, [*] District Judge.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Plaintiff-Appellant Air-Sea Forwarders, Inc. (Air-Sea), appeals the judgment not withstanding the verdict (j.n.o.v.) entered in favor of defendants-appellees Air Asia Company, Ltd. (Air Asia), and E-Systems, Inc. (E-Systems), with respect to Air-Sea's claim of bad faith denial of the existence of a contract, and its separate claim for attorney's fees. The jury had returned a $6,000,000 verdict in appellant's favor on the bad faith claim. The district court also entered conditional new trial orders on these two claims. Air-Sea additionally seeks review of the order granting a new trial on its breach of contract claim and, if this court declines to reinstate the jury verdicts, of the grant of a directed verdict as to its unfair business practices claim.

We reverse the district court's entry of judgments n.o.v. on the bad faith denial of existence of contract claim and the attorney's fees claim. However, we affirm the district court's conditional order for new trials on both these claims. Finally, we are without jurisdiction to review the district court's new trial order on the breach of contract claim, or its directed

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verdict on the unfair business practices claim. 1

I

Appellant is an international freight forwarder and licensed customshouse broker that is wholly owned by its president, Erwin Rautenberg. 2 Appellee Air Asia is a subsidiary of Appellee E-Systems, a defense contractor. Until its acquisition by E-Systems in 1975, Air Asia had been owned secretly by the Central Intelligence Agency (CIA). Air Asia operated an aircraft repair and maintenance facility in Taiwan, primarily to support the CIA's secret Southeast Asian air force, Air America.

Air-Sea began working as Air Asia's international freight forwarder and customshouse broker in 1950. Air Asia purchased goods and materials to support its Taiwanese operations through its office in Burbank, California. Air-Sea facilitated the export of Air Asia's goods to Taiwan, as well as the import of certain goods into the United States. In the interests of secrecy, however, Air Asia itself packed the goods destined for Taiwan. Air-Sea was not aware of Air Asia's CIA ownership.

Air Asia became concerned about the desire of California taxing authorities to levy the state's sales and use taxes on the value of goods passing through Air Asia's Burbank facility. As an agency of the United States, Air Asia was not subject to state taxation. Air Asia, however, did not want to reveal its true ownership just to avoid state taxation. In 1955, an opportunity arose for Air Asia to avoid California taxation without disclosing its true ownership; section 6387 was added to the California Revenue and Taxation Code. 3 For the first time, this section exempted from taxation goods purchased for use solely outside the state and delivered to an independent export packer. Thus, if an independent packer did Air Asia's packing, Air Asia would qualify for the section 6387 exemption.

In 1956, Air Asia approached Rautenberg with a proposal that Air Asia use Air-Sea as an independent export packer. Air-Sea had no experience with export packing, but Air Asia officials revealed to Rautenberg the CIA's role and requested his assistance. Pursuant to this ruse, Air Asia entered into a written packing agreement with Air-Sea in January 1957, obligating Air Asia to pay Air-Sea $230 a month for packing services. Air Asia and Air-Sea also entered into a written tenancy agreement, requiring Air-Sea to pay Air Asia $400 per month in rent for space in Air Asia's Burbank facilities. Air Asia's Burbank packing employees were transferred to Air-Sea's payroll and paid with Air-Sea checks. Air-Sea also assumed Air Asia's collective bargaining

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agreement with the Teamsters Union covering the packing employees.

In reality, Air Asia continued to do its own export packing. Air Asia's office manager in Burbank, Roy Herold, continued to supervise "Air-Sea's" packing employees. Air Asia created a bank account in Air-Sea's name through which it funded all expenses arising from the packing operation, including salaries and rent. Air Asia's bookkeepers signed checks on this bank account using their maiden names, and Air-Sea never deposited any of its own money into the account. In effect, Air Asia paid rent to itself and salaries to its own employees.

Rautenberg testified that he sought and obtained certain oral assurances from Air Asia in exchange for Air-Sea's participation in the packing sham. Most significantly, Air-Sea was to act as Air Asia's exclusive freight forwarder and customshouse broker and was not to be terminated without good cause. Rautenberg testified that this promise gave Air-Sea the incentive to participate in the packing scheme. He also testified that Air Asia promised to hold Air-Sea harmless for all expenses and liabilities arising from the packing arrangement, including attorney's fees incurred in enforcing the oral agreement.

While the parties had entered into certain written agreements in connection with the packing operation, no written agreement governed Air-Sea's supply of forwarding and brokering services. On August 1, 1966, the parties executed a written agreement purporting to govern Air-Sea's forwarding and brokering services. This agreement described the services Air-Sea was to perform and the rates it was to be paid. The agreement was renewable on an annual basis unless either party gave written notice of termination 30 days prior to the anniversary date. Finally, the agreement specified that it was the entire and only agreement between the parties.

Rautenberg had requested that the agreement contain a provision allowing termination only for good cause, but the final written agreement did not require good cause. Nonetheless, Rautenberg testified that Air Asia's president, Hugh Grundy, Burbank manager Herold, and others, repeatedly assured him that the 1966 written agreement would not supersede the 1956 oral agreement, especially the clause requiring good cause for termination.

On July 27, 1981, Air Asia notified Air-Sea that it had selected another freight forwarder and that Air-Sea's services were terminated effective August 27, 1981. Rautenberg sent Air Asia a telex on August 3, 1981, protesting the notice of termination for failing to be 30 days prior to the August 1, 1981, anniversary date. Rautenberg stated that the 1966 written agreement's termination provisions were "very much in effect."

II

Air-Sea filed this action on August 12, 1981, alleging that Air Asia had failed to provide notice of termination 30 days prior to August 1, 1981, as required by the 1966 written agreement. On May 5, 1982, Air-Sea filed a first amended complaint that alleged for the first time that the parties had a prior oral agreement requiring good cause for termination. It subsequently filed a second amended complaint upon which the case was tried.

The district court bifurcated the liability and damages phases of trial. On April 22, 1986, following the liability trial, the jury returned special verdicts. The jury found that the parties had entered into an oral agreement in 1956, which Air Asia violated in 1981 by terminating Air-Sea without just cause. The jury also concluded, however, that the 1966 agreement was intended to be a valid agreement constituting the only and entire agreement between the parties respecting freight forwarding and customshouse brokering services.

The district court entered an order on May 8, 1986, finding the jury's special verdict inconsistent and entering a j.n.o.v. on the breach of contract claim. The court found that the jury was mistaken as to the legal effect of the 1966 agreement and that the 1956 agreement was superseded as a matter of law. The court also stated that

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it would entertain a motion by Air Asia for the entry of j.n.o.v. on the bad faith claim and the attorney's fees claim.

Air-Sea immediately sought a writ of mandamus. On June 16, 1986, this court ordered the district judge to reconvene the jury to clarify the ambiguity in its special verdict. The jury then reversed two of its earlier verdicts, finding that the 1966 agreement was invalid and not intended to be the entire agreement of the parties.

Trial then proceeded on damages, and the jury returned verdicts for plaintiff of $6,000,000 in punitive damages on the claim for bad faith denial of contract, and $216,151.50 in compensatory damages for the underlying breach of contract.

Appellees filed a motion for a j.n.o.v., or in the alternative, a new trial, on all counts. On October 29, 1986, the district court granted appellees' motion for j.n.o.v. on the bad faith claim and the attorney's fees claim. The court also granted a new trial on the breach of contract claim.

III

This court reviews a j.n.o.v. under the same standard as applied by the district court. "J.n.o.v. is proper if the evidence construed in the light most favorable to the nonmoving party permits only one reasonable...

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