Granite State Ins. Co. v. Smart Modular Technologies, Inc., 94-16078

• Citation: 76 F.3d 1023
• Decision Date: 14 February 1996
• Docket Number: No. 94-16078,94-16078
• Parties: , 43 Fed. R. Evid. Serv. 1115, 96 Cal. Daily Op. Serv. 1003, 96 Daily Journal D.A.R. 1673 GRANITE STATE INSURANCE COMPANY, Plaintiff-Appellant, v. SMART MODULAR TECHNOLOGIES, INC., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1023

76 F.3d 1023

34 Fed.R.Serv.3d 1045, 43 Fed. R. Evid. Serv. 1115,

96 Cal. Daily Op. Serv. 1003,

96 Daily Journal D.A.R. 1673

GRANITE STATE INSURANCE COMPANY, Plaintiff-Appellant, v. SMART MODULAR TECHNOLOGIES, INC., Defendant-Appellee.

No. 94-16078.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 7, 1995.

Decided Feb. 14, 1996.

David C. Phillips, Goldstein & Phillips, San Francisco, California, for plaintiff-appellant.

James M. Wagstaffe, Cooper, White & Cooper, San Francisco, California, and Joseph Kouri, Bononi & Kouri, Palo Alto, California, for defendant-appellee.

Appeal from the United States District Court for the Northern District of California, Barbara A. Caulfield, District Judge, Presiding.

Before: WALLACE and THOMPSON, Circuit Judges, and SEDWICK, District Judge. ^*

DAVID R. THOMPSON, Circuit Judge:

Smart Modular Technologies, Inc. (SMT) and Samsung Semiconductor Inc. (Samsung) entered into an agreement for SMT to build Single Inline Memory Modules (SIMM boards) for Samsung. A component of the SIMM board was a dynamic random access memory chip (DRAM). Samsung owned the DRAMs and delivered them to SMT for SMT to use in building the boards. Samsung retained title to the DRAMs while they were in SMT's possession.

The present dispute arises out of the theft of over $1 million worth of DRAMs from SMT's facility. Samsung's insurer, Granite State Insurance Company (Granite), paid Samsung for the loss and then sought recovery from SMT, asserting its subrogation rights to Samsung's claims for breach of contract and negligence. During a jury trial, the district court granted SMT's motion for judgment as a matter of law. The district court ruled that SMT's affirmative defenses of waiver and equitable estoppel precluded Granite's breach of contract and negligence claims. Granite appeals.

We have jurisdiction under 28 U.S.C. § 1291, and we affirm. We conclude SMT's defense of equitable estoppel precludes Granite from pursuing its claims for breach of contract and negligence. We do not consider SMT's defense of waiver.

I FACTS

Beginning in April or May of 1989, and using DRAMs furnished by Samsung as a component, SMT began assembling SIMM boards for Samsung. Samsung would submit a request for a price quote. SMT would quote a price, and if Samsung accepted that price, Samsung would issue a purchase order. The purchase order contained the terms of the agreement. If the purchase order was accepted by SMT, a work order would follow which provided instructions for building the SIMM boards.

The first purchase order received by SMT from Samsung was in June 1989, for $1,000. That purchase order did not contain accountability language (explained below), but did contain a risk of loss clause on the back side. ¹

SMT became a qualified vendor for Samsung in August 1989. The August 2, 1989 purchase order was for $68,800 and contained the risk of loss clause on the back and the accountability language on the front. The accountability language stated, "[SMT] will be accountable for all DRAMs issued and will return all DRAMs to Samsung in either module, scrap, or unused form."

After receiving the August purchase order, SMT's president, Ajay Shah (Shah) contacted Samsung's purchasing manager, Steven Frevert (Frevert) because Shah was concerned the accountability clause could result in SMT being held financially responsible for the DRAMs while in SMT's possession. Discussions (addressed in more detail below) regarding insurance coverage of the DRAMs then commenced between Samsung and SMT and with their respective insurance carriers.

The next four purchase orders ² also contained the accountability language on the front of the purchase orders and the risk of loss clause on the back. The September 13, 1989 purchase order did not contain the accountability language, but the accountability Frevert reviewed Samsung's insurance policy with individuals employed by Samsung's Finance and Treasury Department (Finance Department) and determined the Samsung policy covered the DRAMs while in SMT's possession. Frevert told this to Shah.

language is included in the September 15 and 20, 1989 purchase orders.

SMT's financial officer, Krishnan Shah (Krishnan), asked for written confirmation from Samsung. On September 14, 1989, Y.Q. Kim, the manager of Samsung's Finance Department, sent a facsimile to SMT confirming that "all Samsung Semiconductor, Inc. product held in your facility for assembly is currently insured under our Marine Cargo Policy."

The accountability language was deleted from the purchase orders beginning on November 1, 1989, and continuing until the date of the theft of the DRAMs. ³

On the evening of February 2, 1990, burglars disabled SMT's alarm system and stole approximately $1.2 million of Samsung's DRAMs. The purchase orders issued after the theft expressly required SMT to obtain insurance "to cover any Samsung devices on consignment."

Pursuant to Samsung's insurance policy, Granite paid Samsung approximately $1.2 million to compensate it for the theft of its DRAMs. Granite then asserted its subrogation rights and brought this action against SMT, alleging claims for breach of contract and negligence. ⁴

The district court denied SMT's summary judgment motions. Trial commenced before a jury. After SMT and Granite presented their cases-in-chief, the district court granted SMT's motion for judgment as a matter of law, relying on Federal Rule of Civil Procedure 50(a). Granite timely appeals.

II DISCUSSION

The district court found Samsung had waived Granite's subrogation rights to recover on its breach of contract and negligence claims. As an alternative and only as to Granite's negligence claim, the district court found that, based on Samsung's conduct, Granite was equitably estopped from recovering on its negligence claim.

We may affirm the district court's judgment on any ground supported by the record. Trimble v. City of Santa Rosa, 49 F.3d 583, 584 (9th Cir.1995). We conclude the defense of equitable estoppel applies to both the breach of contract claim and the negligence claim, and that the defense bars both claims. Accordingly, we do not consider whether Samsung waived Granite's subrogation rights. Because we do not address the waiver issue, we also do not consider Granite's argument that Frevert did not have actual or ostensible authority to waive Granite's subrogation rights.

A. Characterization of Equitable Estoppel Defense

The first question we consider is whether the issues raised by SMT's equitable estoppel defense are issues to be resolved by the court or the jury. Our decision of this question requires an analysis of whether the defense of equitable estoppel was historically tried in courts of equity; if so, the defense is one for the court to decide except as to any common issues which may exist between Granite's legal claims for breach of contract and negligence and SMT's equitable defense. Dollar Sys. v. Avcar Leasing Sys., 890 F.2d 165, 170 (9th Cir.1989).

1. Equity Versus Common Law Jurisdiction

In a diversity action, federal law governs whether a party is entitled to a jury A litigant is not entitled to have a jury resolve a disputed affirmative defense if the defense is equitable in nature. Adams, 876 F.2d at 709. A defense is equitable in nature if it could have been asserted in a court of equity, or in a court of law after the passage of the Law and Equity Act of 1915. ⁵ 5 James W. Moore, Moore's Federal Practice p 38.11 (2d ed. 1995); see also Adams, 876 F.2d at 709; In re U.S. Fin. Sec. Litig., 609 F.2d 411, 422 (9th Cir.1979), cert. denied, 446 U.S. 929, 100 S.Ct. 1866, 64 L.Ed.2d 281 (1980); Liberty Oil Co. v. Condon Nat'l Bank, 260 U.S. 235, 242-43, 43 S.Ct. 118, 120-21, 67 L.Ed. 232 (1922).

                trial and if so, on what issues.  Adams v. Johns-Manville Corp., 876 F.2d 702, 709 (9th Cir.1989).   The characterization of the issues "as legal or equitable for purposes of whether a right to jury trial is indicated must be made by recourse to federal law."  Simler v. Conner, 372 U.S. 221, 222, 83 S.Ct. 609, 610-11, 9 L.Ed.2d 691 (1963)
                

"The doctrine of equitable estoppel is pre-eminently the creature of equity." 3 John N. Pomeroy, Equity Jurisprudence § 802 (Spencer W. Symons 5th ed. 1941). The defense is intended to promote "equity and justice of the individual case by preventing a party from asserting his rights under a general technical rule of law, when he has so conducted himself that it would be contrary to equity and good conscience...." Id. (citation omitted). The defense was originally available only in courts of equity. 2 Fred F. Lawrence, Equity Jurisprudence §§ 1044, 1046 (1929).

We conclude that because the defense of equitable estoppel was originally available only in courts of equity, it is equitable in nature and, therefore, except for any issues which may be common to Granite's legal claims, SMT's equitable estoppel defense presents issues to be resolved by the court.

2. Whether Common Issues Exist

Neither party disputes that Granite's claims for breach of contract and negligence are legal claims. In Beacon Theatres v. Westover, 359 U.S. 500, 510-11, 79 S.Ct. 948, 956-57, 3 L.Ed.2d 988 (1959), the Supreme Court concluded a party does not lose the right to a jury trial on legal issues when legal and equitable claims are joined in the same action. The Supreme Court later clarified that the right to a jury trial on legal issues may not be infringed "by trying the legal issues as incidental to the equitable ones or by a court trial of a common issue existing between the claims." Ross v. Bernhard, 396 U.S. 531, 537-38, 90 S.Ct. 733, 737-38, 24 L.Ed.2d 729 (1970). "Thus, where there are issues common to both the equitable and legal claims, 'the legal claims involved in the action must be determined prior to any final court determination of [the] equitable claims.' " Dollar, 890 F.2d at 170 (quoting Dairy Queen, Inc. v. Wood, 369...