L.K. Comstock & Co., Inc. v. United Engineers & Constructors Inc.

• Decision Date: 08 September 1989
• Docket Number: No. 87-2502,87-2502
• Citation: 880 F.2d 219
• Parties: L.K. COMSTOCK & COMPANY, INC., a New York Corporation; A. & M. Electric Company, also known as A. & M. Comstock, a New Mexico Corporation, Plaintiffs-Appellants, v. UNITED ENGINEERS & CONSTRUCTORS INC., a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 219

880 F.2d 219

14 Fed.R.Serv.3d 348

L.K. COMSTOCK & COMPANY, INC., a New York Corporation; A. &

M. Electric Company, also known as A. & M.

Comstock, a New Mexico Corporation, Plaintiffs-Appellants, v. UNITED ENGINEERS & CONSTRUCTORS INC., a Delaware

Corporation, Defendant-Appellee.

No. 87-2502.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 15, 1988.

Decided July 21, 1989.

As Amended Sept. 8, 1989.

David G. Lane, Venable, Baetjer and Howard, McLean, Va., for plaintiffs-appellants.

James A. Teilborg, Bruce A. Pelkey, Teilborg, Sanders & Parks, P.C., Phoenix, Ariz., for defendant-appellee.

Arthur E. Schwartz, Alexandria, Va., for the amicus curiae, Nat. Soc. of Professional Engineers.

Gerard W. Ittig, Robert H. Rubenstein, Kasimer & Ittig, Washington, D.C., Charles J. Wisch, Goldstein & Philips, San Francisco, Cal. and James W. Polk, West Sacramento, Cal., for the amici curiae, Nat. Elec. Contractors Ass'n, Inc. and Associated Gen. Contractors of California, Inc.

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

Before HUG, TANG and BOOCHEVER, Circuit Judges.

TANG, Circuit Judge:

I. Factual Background

In order to comply with a New Mexico air quality control regulation, the Arizona Public Service Company ("APS") arranged for the construction of a particulate removal project ("PRP"). Specifically, on or about April 1, 1979, APS entered into a contract with general contractor United Engineers & Constructors, Inc. ("UE & C") in which UE & C agreed to construct the PRP.

UE & C then set out to arrange for subcontractors. A & M Electric Co. and L.K. Comstock & Co., Inc. formed a joint venture, A & M/Comstock ("A & M/C"), to submit a bid to UE & C. On July 13, 1981, UE & C entered into a subcontract with A & M/C whereby the latter was to install the electrical systems in the PRP. The subcontract is a lengthy document which also incorporates various appendices and attachments. The subcontract provides that Arizona law is to apply.

On June 23, 1982, UE & C cancelled the subcontract, claiming that A & M/C had failed to use its "Best Efforts" to complete the work in time to meet the PRP completion date. On June 24th, UE & C replaced A & M/C with another electrical subcontractor, Gardner-Zemke.

II. Procedural History

On July 2, 1982, A & M/C filed a Complaint against UE & C in district court seeking damages for UE & C's alleged breaches and for wrongful cancellation of the subcontract. UE & C filed a counterclaim seeking damages for A & M/C's alleged breaches. A & M/C's Motion for Partial Summary Judgment was denied and the matter proceeded to trial.

The parties stipulated that the proceedings would be bifurcated, with the liability issues considered in one trial, and the damages issues considered in a second trial, if necessary. After a bench trial on the liability issues, the district court ruled that UE & C's cancellation of the subcontract was proper and that UE & C was entitled to recover from A & M/C the excess costs of reprocurement associated with the hiring of Gardner-Zemke. The parties later stipulated that judgment should be entered in favor of UE & C in the amount of $1,950,000 (including attorney's fees) plus interest, subject to the outcome of this appeal. We have jurisdiction under 28 U.S.C. Sec. 1291.

III. Standards of Review

The "clearly erroneous" standard applies to findings of fact. F.R.Civ.P. 52(a); Cataphote Corp. v. DeSoto Chem. Coatings, Inc., 356 F.2d 24 (9th Cir.), cert. denied, 385 U.S. 832, 87 S.Ct. 71, 17 L.Ed.2d 67 (1966). Issues of law are reviewed de novo. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).

The question of what standard of review applies to contract matters is not always so clearcut because "[t]he interpretation of a contract and the determination as to its breach are a mixed question of fact and law." Libby, McNeill, and Libby v. City Nat'l Bank, 592 F.2d 504, 512 (9th Cir.1978). In general, factual findings as to what the parties said or did are reviewed under the "clearly erroneous" standard while principles of contract interpretation applied to the facts are reviewed de novo. Id.

In Culinary and Serv. Employees Union, AFL-CIO Local 555 v. Hawaii Employee Benefit Admin., Inc., 688 F.2d 1228 (9th Cir.1982), we stated that if "the district court relies upon extrinsic evidence to interpret an ambiguous contract, that interpretation is a factual determination reversible only if the district court's construction is clearly erroneous or if the court applied an incorrect legal standard." Furthermore, In re U.S. Fin.Sec.Litig., we held that

[t]he determination of whether contract language is ambiguous is a matter of law.... When the interpretation includes a review of factual circumstances surrounding the contract, the principles of contract interpretation applied to those facts present issues of law which this court can freely review. Libby. When the inquiry extends beyond the words of the contract and focuses on related facts, however, the trial court's consideration of extrinsic evidence is entitled to great deference and its interpretation of the contract will not be reversed unless it is clearly erroneous. Culinary.

729 F.2d 628, 632 (9th Cir.1984).

More recently, in Kern Oil & Ref. Co. v. Tenneco, we again discussed the standard of review for contract cases:

Our standard of review in matters of this kind is not simple. Our position is as follows: "When the district court's decision is based on an analysis of the contractual language and an application of the principles of contract interpretation, that decision is a matter of law and reviewable de novo. When the inquiry focuses on extrinsic evidence of related facts, however, the trial court's conclusions will not be reversed unless they are clearly erroneous. The question of waiver of a contractual right is also a question of fact and subject to the clearly erroneous standard."

840 F.2d 730, 736 (9th Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 378, 102 L.Ed.2d 367 (1988) (citations omitted).

It is clear that when a district court interprets a contract without using extrinsic evidence, the standard of review is de novo. But:

[w]hen the inquiry focuses on extrinsic evidence of related facts, ... the trial court's consideration of extrinsic evidence will not be reversed unless they are clearly erroneous.

Kern Oil, 840 F.2d at 736. Thus, if the contract interpretation includes a review of factual extrinsic evidence, the findings of fact themselves are reviewed under the "clearly erroneous" standard, Libby, 592 F.2d at 512, but the principles of contract law applied to those facts are reviewed de novo. U.S. Financial Securities, 729 F.2d at 632.

IV. Is the District Court's Decision "Procedurally

Inadequate?"

A & M/C argues that the judgment of the district court should be vacated and remanded because its decision is "procedurally inadequate." To support this contention, A & M/C makes two arguments: that the district court's findings are skeletal and conclusory, and that the district court's "wholesale adoption" of the prevailing party's proposed findings was improper.

A. Alleged Skeletal and Conclusory Nature of District Court Findings

In Unt v. Aerospace Corp., we observed that

[t]he district court's findings certainly are not well done. They consist mainly of mere conclusions, preceded only by an unhelpful chronology of events. They do not articulate sufficient bases for the trial court's [conclusion].

765 F.2d 1440, 1444 (9th Cir.1985). But we nevertheless upheld the district court findings, noting that "despite the factual shortcomings, the basis for the court's decision is clear. The record gives substantial and unequivocal support for the ultimate conclusion ..." Id. Although A & M/C criticizes the district court's findings in the instant case, the alleged shortcomings are not nearly as egregious as those described in Unt, a case in which the district court's findings and conclusions were affirmed.

B. District Court's Verbatim Adoption of UE & C's Proposed Conclusions

A & M/C also argues that the decision of the district court should not be affirmed because its "conclusions of law" were generally taken verbatim from UE & C's Proposed Conclusions of Law. To support its position, A & M/C points to the case of Photo Elecs. Corp. v. England, 581 F.2d 772 (9th Cir.1978).

It is true that in Photo Elecs., we stated that the practice of "wholesale adoption" of the prevailing party's findings "has been disapproved," but we did conclude that the practice may be permissible in cases involving highly technical issues. 581 F.2d at 776-77.

The fact that the trial judge has adopted proposed findings does not, by itself, warrant reversal. But it does raise the possibility that there was insufficient independent evaluation of the evidence and may cause the losing party to believe that his position has not been given the consideration it deserves. These concerns have caused us to call for more careful scrutiny of adopted findings.

Photo Elecs., 581 F.2d at 777 (footnote and citations omitted); see also Kern Oil, 792 F.2d at 1386. Indeed, "[t]he verbatim adoption of findings suggested by a party is not automatically objectionable ... so long as those findings are supported by the record." Unt v. Aerospace Corp., 765 F.2d 1440, 1444-45 (9th Cir.1985). When the district court's conclusions are adopted from the prevailing party's suggestions, even though the appellate court is to engage in "careful scrutiny," the "clearly erroneous" standard still applies. Photo Elecs., 581 F.2d at 777.

Although the parties dispute the extent to which the district court adopted UE & C's proposed findings verbatim, even A & M/C acknowledges that the district court's conclusions do deviate somewhat from the suggestions of UE & C. This in itself indicates that the district court did not ...