Opposition Brief — DELTA AIR LINES, INC. v. V. MCDONNELL (Nos. 74-1138, 74-1175)

TABLE OF CONTENTS

Page

TABLES OF CORTE Bw wcncdeencccees ieee i

TADLE OF AU Tepe 0 es + ao oc hae ceskces ii

fio gy (8 1b beg | | Sp pemnn NON ery ape salary lar at 1

STATEMENT OF THE CASE..-.-.......-------- 1

I. Pertinent Accident Facts Omitted

From Delta’s Petition_....._...___-- MAN AE 2

II. The Contract Documents............__---- 5

III. Delta’s Position As A Contracting

PONE. ona nnd vn oenaen eee ee 8

IV. The History Of The Contract

jo PT rt i Past aT 11

REASONS FOR DENYING DELTA’S PETITION_-17

I. Federal Aviation Regulations And

Aviation Safety Are Not Affected

By The Warranty Article And

Bucuipntery CHIR... anise cave aneusocu 17

II. The Decision Below Is Correct And

Conforms To California Law_______..__._-- 23

GCORGCIL AISI oc vvacecieccesteee eee 28

CERTIFICATE OF SERVICE________.___-_---- 29

APPENDIX A—The Warranty Article_--------- a-1

APPENDIX B—Delta Air Lines, Inc. v. Douglas

Aircraft Company, Inc.,

231 Cal. App. 2d 95, 47

Cal.Rptr. 518 (1965) _.........- b-1

i

PONY II 0 OO OLD Awe whee oN be

TABLE OF AUTHORITIES

Cases: Page

All-Co Drainage & Building Products, Inc. v.

Umstead Enterprises, Inc., 123 Ga.App. 244,

Be ED inc kdccdcncacawscasscuus 27

Andrews Motors Co. v. Clement, 127 Ga.App.

, & 7 Ft EG fe... Renee earepeenes 26

Artukovich v. Pacific States Coast Iron Pipe

Co., 78 Cal.App. 1, 176 P.2d 962, 965 (1947) ___.25

Brown v. Five Points Parking Center, 121

Ga.App. 819, 175 S.E.2d 901 (1970)__...______-- 26

Delta Air Lines, Inc. v. Douglas Aircraft

Company, Inc., 231 Cal.App. 2d 95, 47

Cal.Rptr. 518 (1965). .......---- 3, 18, 21, 23, 27, 28

Dowman-Dozier Mfg. Co. v. Central of Georgia

Ry., 29 Ga.App. 187, 114 S.E. 815 (1922)______ _.26

Erie R.R. v. Tompkins, 304 U.S. 64 (1941)_______- 28

Hawes v. Central of Georgia Ry., 117 Ga.App.

EE ee I BE CE akan od ook ednwnwanass 26

Hischemoeller v. National Ice and Cold Storage

Company of California, 46 Cal.2d 318, 294

ee aaron coe eens cowcucecuels ane 25

King v. Smith, 47 Ga.App. 360, 170 S.E. 546

PE oda das do tetnd eanwcuwecweee senate 26

Louisville & Nashville R.R. v. Atlantic Co.,

66 Ga.App. 791, 19 S.E.2d 364 (1942). _________- 26

Rogers-Farmer Metro Chrysler-Plymouth, Inc.

v. Barnett, 125 Ga.App. 494, 188 S.E.2d 122

Ce abled ba acu ate coe Se meticks au ower 26

TABLE OF AUTHORITIES (Continued)

Page

Stephens v. Southern Pacific Co., 190 Cal. 86,

SP, Gee Cove exihakocncdaunbaecceRes cael 21

Tunkl v. Regents of the University of California,

312 Cal.Rptr. 33, 383 P.2d 441 (1963)__._.__.21, 25

Statutes:

California Civil Code § 1668__._._._______--- 24, 25, 27

Ga. Code Ann. § 109A-2-719___......---.-------- 27

Regulations:

i Fot § 2 eee be ones wae 24

Miscellaneous:

Disclaimers of Warranty In Consumer Sales,

77 Harv. L. Rev. 318 (1968) _.....-..-..------- 26

ill

oe

IN THE

Supreme Court of the United States

OCTOBER TERM, 1974

No. 74-1175

DELTA AJR LINES, INC.,

Petitioner,

v.

McDONNELL DOUGLAS CORPORATION,

Respondent.

BRIEF OF McDONNELL DOUGLAS CORPORATION

IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

INTRODUCTION

Respondent McDonnell Douglas Corporation

(“MDC”) respectfully submits this Brief in opposition

to the petition for writ of certiorari filed by petitioner

Delta Air Lines, Inc. (‘Delta’), and for the reasons

stated herein urges this Honorable Court to deny

Delta’s petition.

STATEMENT OF THE CASE

Delta has not supplied the Court with a full and cor-

rect statement of the case. For this reason MDC is

setting forth below its own statement of the case.

1

wee euouenensees

TE ae POrS A a RR AB 2

2

I. Pertinent Accident Facts Omitted From Delta’s

Petition.

In its petition Delta refrained from mentioning sev-

eral pertinent facts concerning the accident in question.

First, at the non-jury trial held in the District Court

with respect to the validity and applicability of the

warranty article and exculpatory clause contained in

the Aircraft Purchase Agreement, the parties agreed

that the evidence indicated that the cause of the nose

landing gear collapse was an incorrectly installed com-

ponent part of the nose landing gear assembly. 350

F.Supp. 739.! Therefore, the type of alleged “defect” in

question is one of the “defects in workmanship” ex-

pressly mentioned in the warranty article, and with

respect to which the warranty article expressly provides

certain remedies and limitations. (The warranty article

is attached as Appendix A.)

In other words, in negotiating the Aircraft Purchase

Agreement the parties specifically agreed on the rights

and remedies and liabilities of each party in the event

of a defect such as the one involved here.

Second, there were no personal injuries of any type

in the incident in question, and contrary to Delta’s

innuendoes the rights of innocent passengers or the

public at large are in no way involved in this case and

will not be affected in the least by the outcome of this

case.

Third, MDC did not contend and does not now con-

tend that the warranty article and exculpatory clause

! Each party accuses the other of installing the part incorrectly.

Alternatively, MDC says that Delta should have discovered the

incorrect installation prior to the accident.

3

insulate MDC from passenger claims or any other

claims asserted by the public at large.

To the contrary, it has been the law of the land for

years that passengers and other members of the public

at large “are not parties to the contract and their rights

would not be compromised. They retain their rights to

bring a direct action against Douglas. . . .”” Delta Air

Lines, Inc. v. Douglas Aircraft Company, Inc., 231

Cal.App.2d 95, 47 Cal.Rptr. 518 (1965). (Copy of this

decision is attached as Appendix B for convenient

reference.)

Moreover, the aircraft purchase agreement does not

require Delta to indemnify MDC for passenger claims

filed because of MDC’s negligence.

This case therefore simply does not involve the

“public interest” repeatedly referred to by Delta in its

petition.

Fourth, contrary to Delta’s statements in its petition,

MDC does not contend that Delta has no remedy for

any alleged wrongdoing on MDC’s part. MDC contends

simply that any claim Delta may have is governed by

the terms of the warranty article negotiated and agreed

to by the parties.

Last, Delta has admitted that its damage claim

against MDC is composed of the following items

(R. 307, 593, 670):

sea LR ea

evs “Ee ed

4

Alleged Actual Repair Costs:

Labor $14,257.68

Overhead (150%

of Labor) 21,386.52

Expense Statements

Car Rental

Photographs

Parts and Materiais 28,577.53

Alleged Additional Estimated

Repair Costs on Nose Gear:

Parts, Materials and

Supplies $14,778.00

Labor—400 hours at

$4.38 1,752.00

Overhead 2,628.00

Contingent Additional

Costs of $30,000 if

Nose Gear Side Braces,

Piston, Drag Links and

Retract Strut are

Damaged Beyond

Repair 30,000.00

Alleged Ferry Flights (Ferry

Damaged DC-8 to Atlanta

from Jacksonville and

Another DC-8 to Jackson-

ville to Replace Damaged

Aircraft) :

Alleged Loss of Use:

TOTAL ALLEGED DAMAGES;

$65,064.32

$49,158.00

1,622.00

87,500.00

$203,344.32

5

From even a casual perusal of Delta’s itemization of

alleged damages it is obvious that Delta is not making

and has never made a legitimate claim under the terms

of the warranty article. To the contrary, Delta has

asserted a claim for damages outside the warranty

article.

II. The Contract Documents.

Examination of all of the relevant contract documents

is helpful in arriving at an understanding of the basic

issues involved in this case.

The Purchase Agreement in question was entered into

at Long Beach, California on November 18, 1964 and

in its original form related only to the so-called ‘“‘short”’

DC-8 aircraft, or Series 51 DC-8 aircraft. (R. 64) On

August 13, 1966, in Long Beach, California, the parties

executed Amendment No. 5 to the Purchase Agreement,

which amendment provided that additional DC-8 air-

craft, of the Series 61 or “‘stretched” variety, would be

delivered to Delta under the terms and provisions of the

November 18, 1964 Purchase Agreement. The accident

aircraft was one of the aircraft covered in Amendment

No. 5. (R. 109) The basic Purchase Agreement, exclu-

sive of the numerous exhibits, change orders, amend-

ments and side letter agreements, totaled 44 pages in

length, and the basic price of the accident aircraft,

excluding extra and other charges, was $8,479,833.00.

(R. 112)

Articles 2 and 7 and Exhibit “A” of the Purchase

Agreement provided that manufacture of the aircraft

would be according to detailed specifications submitted

by Delta. (R. 68, 82) In effect, the accident aircraft was

to be tailored to Delta’s particular needs and require- |

— ee az

Sota Niiew SOAS RRA ain ee OCA

6

ments, as outlined to MDC by Delta. Delta was given

in Article 3 of the Purchase Agreement the right to in-

spect any part of the manufacturing process and any

part of the aircraft itself during the manufacturing

process. Article 3 of the Purchase Agreement also gave

Delta the right to participate as an observer in MDC’s

own flight testing of the aircraft, and Article 3 specifi-

| cally required Delta to technically approve the aircraft

prior to actual delivery. Article 4 placed on MDC the

_ risk of any loss or damage to the aircraft prior to actual

delivery to Delta. (R. 69-75)

The Purchase Agreement also provided in Articles

' 13 and 14 that MDC would hold Delta harmless from

patent infringement or other similar claims. (R. 99)

Reciprocal hold harmless agreements were included in

Article 3 of the Purchase Agreement (R. 69) with

respect to liabilities that might be incurred during

flight testing.

Article 4 provided that niiiieidaibe and dite of

the aircraft would take place in California, and Article

17 provided: “This agreement shall be construed and

performance thereof shall be determined according to

the laws of the State of California, U.S.A.” And “entire

contract,” “parol evidence” and “‘merger’”’ clauses were

contained in Article 17 of the Purchase Agreement.

(R. 74, 106) .

It is pertinent to this case that in Paragraph No. 8

of Amendment No. 5 of the Purchase Agreement, the

parties on August 13, 1966 expressly agreed:

“By the execution hereof the parties hereto agree

that all of the terms of the purchase agreement shall

remain in full force and effect except as herein ex-

pressly changed, modified or supplemented, or

7

except insofar as the terms have been completed,

performed, or complied with prior to the date

hereof.” (Emphasis added.) (R. 118)

Amendment No. 5 in no way “changed, modified or sup-

plemented” the Warranty Article, exculpatory clause

and limitations of liability contained in the Purchase

Agreement, and in executing Amendment No. 5 on

August 13, 1966, the parties expressly stipulated and

agreed that the Warranty Article, including the excul-

patory clause and limitation of liabilities, would “‘re-

main in full force and effect.”

Pursuant to the provisions of Amendment No. 5 of

the Purchase Agreement, Delta exercised an option to

lease the accident aircraft for the first twelve (12)

months after delivery, or from January, 1969 to Jan-

uary, 1970. Of particular importance to the issues in-

volved in this litigation is the fact that in Paragraph

29 of the Lease Agreement Delta and MDC specifically

agreed (on January 16, 1969):

“This lease agreement does not modify or render

ineffective or inapplicable any provisions of purchase

agreement DAC 64-110-D, as amended, and its

other exhibits, including specifically Article 12 |the

warranty article] of the purchase agreement, except

as specifically provided herein.” (R. 136)

Thus, as late as January 16, 1969, Delta and MDC

re-affirmed their intent to be bound by the provisions

of the Warranty Article contained in the original Pur-

chase Agreement, including the exculpatory clause and

limitations of liability.

Delivery of the accident aircraft to Delta by MDC

took place on January 16, 1969 at Long Beach, Cali-

fornia and is evidenced by a “Packing Sheet” signed

a

by MDC and Delta in California on that date. (R. 146)

In signing the Packing Sheet and in accepting delivery

of the aircraft, Delta expressed its technical approval

of the aircraft and re-affirmed its contractual commit-

ment and intent to be bound by the terms and provi-

sions of the Warranty Article in the Purchase Agree-

ment, in the event of a defect in the aircraft. To be

precise, the Packing Sheet signed by Delta on January

16, 1969 contained the following express agreement:

“Delta hereby technically approves this aircraft

and waives all remedies as to the condition thereof,

including the remedy of rejection after delivery,

excepting only those remedies provided for in the

article of the above described purchase agreement en-

titled ‘Warranty’ and those items under attach-

ments A and B to this packing sheet and agrees

that said aircraft otherwise has been manufactured in

accordance with and physically conforms to the re-

quirements of said purchase agreement, as so amend-

ed, and the detailed specification DS-3016 as defined

therein. ... Receipt of the above identified air-

craft is hereby also acknowledged.” (R. 146)

From the foregoing it is obvious that the contract

documents in question were not “boilerplate” forms,

but were complex agreements which attempted to spell

out all of the rights and duties of the parties and which

contained detailed provisions specially tailored to fit

the individual needs and requirements of both parties

to the bargain.

Ill. Delta’s Position As A Contracting Party.

It is important to consider in some detail Delta’s

strength and bargaining power and position (a) at the

time the original contract was entered into (November

18, 1964), (b) at the time Amendment No. 5 adding

9

the accident aircraft was entered into (August 13, 1966

—at which time Delta re-affirmed its commitment to

be bound by the provisions of the Warranty Article)

and (c) at the time the Lease Agreement and Packing

Sheet were executed (January 16, 1969—at which time

Delta twice re-affirmed its intention to be bound by

the provisions of the Warranty Article).

Mr. Jack Hall, former Chief Counsel of Douglas Air-

craft Company (now a division of MDC), and other

witnesses testified at trial that during the period of

time in question Delta was a major airline and major

customer of MDC, and that Delta bought a lot of

equipment from MDC. The evidence also shows that

Delta was a valuable and important customer of MDC,

and one that MDC wanted to keep satisfied as much as

it could. (R. 942)

MDC’s Director of Commercial Contracts Adminis-

tration testified that during the years in question four-

engine commercial jets other than the DC-8 were avail-

able from competitors of MDC. The Boeing 707 and

Convair 880 aircraft were given as examples, and it

was pointed out that MDC lost some DC-8 sales to

airlines (including Delta) that purchased Convair 880’s,

Boeing 707’s and other four-engine jets manufactured

by MDC’s competitors. (Vening Depos., pp. 34-36)

Delta’s Vice-President admitted that Delta was the

only major airline that did not operate Boeing 727

(three engine) and 707 (four engine) jet aircraft and

other types of large jet aircraft; that most other major

airlines (TWA, Braniff, Pan Am, Eastern, National,

American, etc.) operated three and four-engine jets man-

ufactured by competitors of MDC; that many of Delta’s

major competitors did not operate the “stretched”

10

DC-8 in domestic service; and that many of Delta’s

major competitors operated jets manufactured by com-

petitors of MDC along routes identical with Delta’s

routes, in direct competition with Delta. (R. 1045-1060)

He also stated that Delta considered the large three

and four-engine jets manufactured by MDC’s competi-

tors to be safe aircraft, and that it would be possible

(but perhaps not as profitable) for Delta to operate

along its route system with the large three and four-

engine jets that were available from MDC’s competi-

tors. (R. 1049)

Delta’s Annual Reports for the years 1963-1969 are

in evidence and reveal that based on the accepted yard-

stick of revenue passenger miles Delta was the seventh

largest airline in the world in 1963. (R. 374) In 1966

Delta was the fifth largest commercial airline in the

United States. (R. 439) And in 1965 Delta boarded

1,000,000 passengers more than its nearest competitor.

(R. 414) Also, Delta’s witnesses testified that Delta had

shown profits for thirty years. (R. 1046, 1065)

Although Delta was the first commercial airline to

put the DC-8 four-engine jet manufactured by MDC

into commercial service, Delta was also the first air-

line to operate in commercial service the Convair 880

four-engine jet, manufactured by a competitor of MDC.

In this regard, it should be noted that Delta purchased

from a competitor of MDC at least 16 Convair 880

four-engine jet aircraft under purchase contracts that

did not contain exculpatory or limitation of liability

clauses relieving the manufacturer from liability to Delta

for the manufacturer’s own negligence. (R. 1000) And in

1963 and 1964 Delta actually operated more Convair

880 four-engine jets than DC-8 four-engine jets manu-

11

factured by MDC. It was not until 1965 that Delta

operated as many DC-8 four-engine jets as Convair

880 four-engine jets. (R. 423)

This evidence establishes that genuine competition

existed among the manufacturers of large three and

four-engine jets during the period of time in question,

that Delta occupied an important and strong position

in the field of commercial aviation, that Delta was by

no means an economic weakling, that large passenger-

carrying jets other than the “stretched’’ DC-8 were

available to Delta and could have been purchased by

Delta,? and that Delta was under no “compulsion” to

purchase the aircraft in question.

IV. The History Of The Contract Negotiations.

In its petition Delta carefully made no mention at

all of the negotiations that culminated in the contract,

warranty article and exculpatory clause in question. A

review of such negotiations is essential to proper de-

termination of this case.

With respect to the manner in which MDC aircraft

purchase agreements in general are negotiated, the

Branch Manager of Commercial Contracts for MDC

explained:

“A. ... you have got to look a little bit at how

a purchase agreement is negotiated. Normally the

sales department approaches a customer and there

—there is quite a bit of negotiation—I think you

could call it back and forth—before any document

is really—purchase agreement is written. Once

certain parameters, I guess you would call them,

have been established, we are requested to pre-

2 Under purchase agreements that did not exculpate the seller

from liability for negligent manufacture.

SpE VO aE Dp EEE OR A ap ADS OM

pare a draft of an agreement as a part of a total

proposal for any given number of aircraft. This is

normally where we [the MDC contract department]

get into the picture. From that point on, we are

generally a part of the negotiations, and once the

terms of any given agreement are settled and

arrived at, it’s our responsibility to get them on

paper, and we normally present them to the cus-

tomer, although this is not a hard and fast rule

either, if somebody like a vice president of sales

may take the final draft of a purchase agreement

to the customer, and I think what I am trying to

say is that the negotiation may go across several levels

of authority and responsibility in both companies.”

(Maas Depos., pp. 20-21)

The MDC Manager of Commercial Contracts testi-

fied that all aircraft purchase agreements are unusual

and that none of them are identical. He also explained

that the purchase of commercial aircraft such as the

one involved in this case was the subject of much nego-

tiation and that most generally both the buyer and the

seller employed negotiating teams composed of repre-

sentatives from their respective contract, legal, sales and

engineering departments. (Zimmerman Depos., p. 15)

He further testified that MDC developed a form of

a purchase agreement that was presented to potential

customers as a basis for kicking off negotiations con-

cerning the purchase of aircraft, but that such“initial

form of agreement was modified greatly through nego-

tiations between the various teams representing the

buyer and seller. (Zimmerman Depos., pp. 10 and 24)

The following testimony is most illustrative of the ne-

gotiating process:

“Q. ...Mr. Zimmerman, the phrase ‘contract

negotiations,’ and the phrase ‘negotiating contracts

and negotiators,’ and ‘negotiating team’ has been

13

mentioned during your examination. Would you

explain for the Court and possibly the jury what

contract negotiations are with respect to purchase

of aircraft, and is it like buying a pair of shoes

from a department store? Is it that type of nego-

tiation?

“A. No.

“Q. Well would you just explain it fully?

“A. Each negotiation is unique in that there is

an offering of an airplane at a related price to a

specification with an assigned delivery schedule.

Basically that’s what sells the airplane, coupled,

of course, with the technical studies it gives with

it, the seat amount cost and those kinds of engi-

neering studies, performance. The customer or

potential buyer is then convinced that this fulfills

a capacity for him or requirement for him. He

enters into negotiations for the then related terms

and conditions for the contract, the so-called what

we might say as boiler plate, if there could be such

a term, and basically what you do, you present

him with a contract consisting of standard terms

and conditions, as standard as you can have them,

and the basis upon which you negotiate, and you

start from the front of the contract, and it is a back

and forth trade-off type of consideration that takes

place in terms of time, anywhere from a few days to

several weeks:

“Q. And sometimes during these negotiations are

these so-called standard provisions changed, deleted,

modified, or revised?

“A. They are sometimes all three, modified, changed

and revised.

“Q. Would that include also the warranty article

and the exculpatory clause that has been mentioned?

“A. They have been revised. They have been talked

about many times.

SDE

14

“Q. In the discussions with carriers?

“A. In the discussions with carriers.”

(Zimmerman Depos., pp. 23-24) (Emphasis added)

MDC’s Director of Commercial Contracts Adminis-

tration pointed out that Delta’s Legal Department

assisted Delta in negotiating aircraft purchase agree-

ments:

“Q. What type of personnel would compose the

negotiating team for an airline?

“A. Top management. Sometimes they bring their

lawyers and sometimes they don’t bring their law-

yers.” (Vening Depos., p. 29)

This evidence confirms that aircraft purchase agree-

ments, including the one at issue here, are the subject

of much negotiation and that the negotiating teams

are composed of high-level representatives from the

various departments of each company.

Turning now to the negotiations concerning the war-

ranty article and exculpatory clause in question, the

testimony adduced at the special non-jury trial estab-

lishes that the limitations of liability and exculpatory

clause in the Warranty Article were related to MDC’s

product liability insurance coverage and played an

important role in determining the total purchase price

of DC-8 aircraft. Inclusion of the clauses in the Pur-

chase Agreement created an economic limit on the

amount of MDC’s hull loss liability exposure, thereby

resulting in reduced product liability insurance pre-

miums, which reduction in insurance costs was passed

on to the customer as a lessening in the aircraft pur-

chase price. Conversely, if the clauses were deleted from

a purchase agreement through negotiations, the pur-

chase price of the aircraft had to be increased suffi-

15

ciently to compensate for the additional product lia-

bility insurance expense factor involved in the overhead

of producing the aircraft. (R. 946-968)

Several MDC witnesses testified that during contract

negotiations MDC advised prospective customers of

the relationship among the exculpatory clause and lim-

itations of liability on the one hand and MDC’s lia-

bility insurance costs and aircraft overhead costs on

the other hand. (R. 951, 1021) Delta witnesses admitted

that during negotiations on the Warranty Article in

question Delta was advised of the manner in which the

exculpatory clause and limitations of liability affect

MDC’s insurance program and the overall- costs or

overhead involved in producing DC-8 aircraft. (R.

1006, 1079)

MDC also presented positive evidence that the

clauses in question were open to negotiation and that

through negotiation the clauses were sometimes omitted

from purchase agreements, provided the customer paid

the increased overhead cost incurred by MDC having

to purchase additional product liability insurance.

For example, Mr. Vening of MDC testified that in a

DC-9 contract signed four months prior to the purchase

agreement in question TWA and MDC agreed to de-

lete the exculpatory clause in exchange for a $7,724.00

increase in the aircraft purchase price to offset the in-

creased overhead. (Vening Depos., pp. 13-23)

And Mr. John Carroll of MDC testified that during

negotiations with TWA and American Airlines on

DC-10 aircraft MDC agreed to delete the exculpatory

clause in exchange for a $15,000.00 per aircraft price

increase to offset the increased overhead cost incurred

16

by purchasing additional product liability insurance.

(R. 1024, 1037-38) [For reasons not relevant here TWA

ultimately decided not to purchase DC-10 aircraft.

American Airlines did purchase DC-10 aircraft without

the exculpatory clause, but instead of increasing the

aircraft purchase price MDC and American apparently

“traded off” on other contract provisions, to the benefit

of MDC. (R. 1042-43)] In the Trial Court Delta com-

plained that MDC never offered a specific price for the

deletion of the exculpatory clause, but MDC witnesses

explained (and Delta witnesses admitted) that Delta

never asked MDC for a specific price or cost figure for

the deletion. (R. 1080) To compute the cost for the

deletion, MDC would have to consult with its insurance

underwriters and brokers. (R. 1021-22) And Delta wit-

nesses admitted that MDC was never asked to consult

with its insurance underwriters regarding the cost of

deletion. (R. 1080) In fact, Delta’s Senior Vice President-

Legal testified at trial that Delta wanted the clauses deleted

“for nothing’”’ or for free. (R. 1081)

The evidence also establishes that Delta had full

knowledge of the import and meaning of the Warranty

Article and limitations of liability and exculpatory

clause prior to entering into the Purchase Agreement in

question. For example, in February, 1963, MDC’s legal

department wrote to Delta’s legal department and ex-

plained the significance of the exculpatory clause.

-— (R. 1040) Moreover, prior toentering into the Purchase

Agreement in question Delta was involved in litigation

‘with MDC concerning the validity and scope of an

exculpatory clause and limitations of liability identical

with the ones involved here. See Delta v. Douglas Air-

craft Company, supra. This case was tried in September,

17

1963,—more than a year prior to execution of the Pur-

chase Agreement in question here,—and the decision of

the California Court of Appeals was handed down on

November 9, 1965,—almost a full year prior to execu-

tion of Amendment No. 5 to the Purchase Agreement

(adding the accident aircraft).

Based on the foregoing evidence and other evidence

in the Record, it is clear that the contract terms in issue

were legitimately related to the overaif cost of DC-8

aircraft, that the terms were open to negotiation, and

that Delta was not “compelled” to accept or agree to

such terms.

In effect, the sole question confronting the parties

during the negotiations on the warranty article was an

economic one: which party will bear the risk of certain

types of economic loss occasioned by aircraft damage

resulting from a defect in the aircraft? Delta chose to

shoulder part of this economic risk in exchange for the

specific warranty obligations imposed upon MDC in the

warranty article and also in exchange for an aircraft

purchase price that reflected a credit because of MDC’s

decreased product liability exposure. Such an agree-

ment concerning econoguic loss risk shifting does not,

contrary to Delta’s suggestions, violate any “public

policy” or increase the risk of aircraft accidents or en-

courage “careless” manufacture of aircraft.

REASONS FOR DENYING DELTA’S PETITION

I. Federal Aviation Regulations and Aviation Safety

Are Not Affected By The Warranty Article and

Exculpatory Clause.

As its first reason for the grant of writ of certiorari,

and generally throughout its petition, Delta argues that

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any effort to require it to honor and abide by its own

solemn contractual commitments will in some way

“undermine” Federal Aviation Regulations and avia-

tion safety.

This argument is both absurd and totally unsup-

ported by any evidence.

Neither the exculpatory clause, the warranty article

nor any other provision of the aircraft purchase agree-

ment even purports to “exempt” or relieve MDC from

responsibility or liability to the F.A.A. or any other

governmental agency for a violation of F.A.A. regula-

tions or for any other “violation of law” or negligence.

The F.A.A. and other governmental agencies are not

prohibited by the exculpatory clause from imposing

either civil or criminal penalties upon MDC for a “vio-

lation of law’’. In short, the F.A.A. and the Federal

Aviation Regulations are not the least bit affected by

the contract between Delta and MDC.

It must also be conceded that the exculpatory clause

does not exempt or relieve MDC from responsibility or

liability to passengers or other private third parties for

a violation of F.A.A. regulations or for any other ‘“‘vio-

lation of law’ or negligence. As held in the earlier

Delta v. Douglas case, supra:

“The upholding of the exculpatory clause will

not adversely affect rights of future passengers.

They are not parties to the contract and their

rights would not be compromised. They retain

their right to bring a direct action against Douglas

for negligence.”

Moreover, the aircraft purchase agreement does not

require Delta to indemnify or hold harmless MDC from

any claims by passengers or other third parties.

19

Inasmuch as MDC admittedly has civil and criminal -

liability and responsibility both to the F.A.A. and: to

private third parties (i.e. the public at large) for any

“violation of law” or negligence, the interest of the

government and the public in aviation safety is in no

way “undermined” or affected euctipeiens by the Delta-

MDC contract.

We turn now to the point we consider to be most

important—namely, the exculpatory clause does not ex-

empt MDC from liability to Delta for a violation bf law or

for negligence.

The exculpatory clause simply does not say that if

MDC is negligent or violates the law Delta has no

remedy.

Nor does the exculpatory clause say that MDC has

no liability or responsibility whatsoever to Delta for a

violation of law or for negligence.

Instead, the exculpatory clause plainly says:

“(G) The warranty provided in this article and

the obligations and liabilities of Seller = are

in lieu of and Buyer hereby waives all other .

liabilities .

This TRE ‘ain does not constitute an “‘ex-

emption” of liability for violation of law.

To the contrary, the above-quoted language clearly

indicates that in the event of negligence or a “‘violation

of law”, MDC has specific responsibilities and liabilities

to Delta under the express terms of the warranty article.

In short, the exculpatory clause in reality is neither a

true “exculpatory” clause nor a true “risk-shifting” or

“disclaimer” clause. It is a risk-fixing clause, whereby

Delta and MDC agreed in advance upon Delta’s rights and

20

MDC’s alkidtions, responsibilities and liabilities in the

event of a “violation of law’ or other deficiéncy in per-

formance on the part of MDC.

And the terms of this private risk-fixing agreement

were voluntarily negotiated and agreed to by Delta in

exchange (a) for an aircraft purchase price favorable to

Delta, and (b) for the express written warranty obliga-

tions imposed on MDC.

These were not illusory or insubstantial considera-

tions for either party.

_ For example, in a DC-9 contract signed four months

before execution of the contract in question here, TWA

and MDC agreed to delete the exculpatory clause, but

the price of each aircraft was increased $7,724.00 to off-

set the increased overhead incurred by MDC having to

purchase additional product liability insurance. (Vening

depos. pp. 13-23).

And with respect to the substantial nature of the

_ warranty obligations imposed upon MDC in the event

of a “violation of law,” we point out that MDC has

already expended $2,141,000.00 on Melta DC-8 claims

alone under the warranty article (exclusive of MDC’s

overhead and warranty administration expenses). (R.

1036)

Thus, insofar as the F.A.A., the public and even Delta

are concerned, the object of the exculpatory clause is not

to “exempt” or excuse MDC from liability or responsi-

bility for a violation of law. To the contrary, the excul-

patory clause serves only to fic MDC’s obligations and

liabilities to Delta (and not to anyone else) i in the event

ofa violation of law.

21

Such a purely private risk-fixing agreement between

two competent and equal bargainers does not violate

the laws or policies of any state or of the United States

Government.

As held in Tunkl v. Regents of the University of Cali-

fornia, 32 Cal.Rptr. 33, 383 P.2d 441, 446 (1963):

“. . . obviously no public policy opposes private,

voluntary transactions in which one party, for a

consideration, agrees to shoulder a risk which the

law would otherwise have placed upon the other

party.”

See also Stephens v. Southern Pacific Co., 190 Cal. 86,

88, 41 P. 783, 784 (1895).

This Honorable Court is also referred to the holdings

of the earlier Delta v. Douglas case, supra:

“If the language used be broad enough, an actor

may disclaim liability for negligence of any type.

We cannot see, in the language herein involved and

above quoted, anything to limit the obviqus

breadth of the word ‘negligence’...

** *

“As we have pointed out above, the elements of

an adhesive contract and of inequality of bargain-

ing are here absent. Nor, although it is true that the

manufacture and operation of aircraft is a matter

of federal regulation, do we here have the kind of

‘public interest’ to which the above quotation

(from another case] refers...

** *

“_.. The fact that Delta is a regulated enterprise

and carries passengers has no relevance to the

present decision...

***

22

“In short, all that is herein involved is the ques-

tion of which of two equal bargainers should bear

the risk of economic loss if the product sold proved

to be defective. Under the contract before us, Delta

(or its insurance carrier if any) bears that risk in

return for a purchase price acceptable to it; had

the clause been remoyed, the risk would have fallen

on Douglas (or its ase carrier if any), but in

return for an increased price deemed adequate by

it to compensate for the risk assumed. We can see

no reason why Delta, having determined, as a

matter of business judgment, that the price fixed

justified assuming the risk of loss, should now be

allowed to shift the risk so assumed to Douglas,

which had neither agreed to assume it nor been

compensated for such assumption.”

Thus, we see that Delta’s suggestion that voiding of

the contractual terms in question would somehow in-

crease aviation safety is nothing more than a last-ditch

emotional appeal totally unsupported by evidence.

It is absurd to imply that a company such as McDon-

nell Douglas Corporation, which is engaged in the

manufacture and sale of all types of civil and military

aircraft and equipment to major airlines, other private

entities and the United States government, is anything

less than acutely safety-minded.

And if MDC should need any impetus towards

“safety-mindedness” (which it certainly does not), then

such impetus is amply provided by MDC’s obligations

and liabilities to the F.A.A., by MDC’s exposure to lia-

bility claims from the “public,” and by the severe fi-

nancial penalties imposed upon MDC by the terms of the

express warranties it has given to Delta, in the event of a

warranty breach.

Nothing further need be said about Delta’s “public

interest” and “safety” arguments.

23

II. The Decision Below Is Correct And Conforms To

California Law.

As its second reason for grant of a writ of certiorari,

Delta says that both the Courts below and the Cali-

fornia Court of Appeals in the earlier Delta v. Douglas

decision, supra, “refused to follow the law of Cali-

fornia.”

With respect to Delta’s argument that in the earlier

Delta case the California Court of Appeals “refused to

follow the law of California,’’” MDC believes the Cali-

fornia Court of Appeals is in a better position than Delta

is to interpret California law, and that the interpreta-

tions of California law made by the California Court of

Appeals in the earlier litigation are more authoritative

than Delta’s not unbiased opinions.

MDC also believes that if the decision in the earlier

case were erroneous, the California Court of Appeals

would not have denied Delta’s petition for rehearing

and the California Supreme Court would not have

denied Delta’s petition for certiorari in that case.

It is also worth noting that the scope and breadth of

the earlier Delta v. Douglas decision has never been re-

treated from or in any way modified or distinguished by

California courts, and that the earlier decision is today

what it was in 1965,—the law of California.

The earlier Delta v. Douglas decision is a comprehen-

sive and exhaustive judicial study of a warranty article

and exculpatory clause substantially identical with the

warranty article and exculpatory clause involved in the

case at bar. And the material facts of the earlier case

are identical in all respects with the material facts of

this case. The conclusion is inescapable, therefore, that

LEE ABO TL a

24

the earlier case is a binding precedent and that the war-

ranty article and exculpatory clause involved in this

case are valid and enforceable.

Delta’s argument that the Courts below refused to

follow California law is based on Delta’s premise that

since it is alleged MDC violated a Federal Aviation

Regulation (14 C.F.R. § 21.165) which required MDC

to “determine that each aircraft submitted for an air-

worthiness certification . . . is in a condition for safe

flight,” the proper application of California Civil Code

§ 1668 requires a ruling that the exculpatory clause is

void as being in violation of “public policy.”

In connection with this premise Delta incorrectly

characterizes the California statute as rendering void

any contract which relieves a party from liability for

violation of law. Delta then repeats the error by saying

that the contract in question here relieves MDC of any

liability for violation of law.

MDC wishes to set the record straight.

First, the California statute in question declares void

only those contracts which ‘have as their “object’”’ the

“exemption” of a person from responsibility or liability

for “violation of law.”

And second, the contractual agreements involved

here plainly do not have as their ‘‘object’’ the “‘exemp-

tion” of MDC from either responsibility or liability for

“violation of law.”’ If MDC should “violate the law”

or commit a negligent act, MDC would face both crimi-

nal and civil liability and responsibility to the F.A.A.,

liability and responsibility t to respond in damages to

any injured passenger or member of the public, and,

most important, liability to Delta according to the terms

eI ARES Hee A eral ise DOR AR iad STS HAT

Waites

Prec RAN!

25

of the warranty article voluntarily negotiated and agreed

to by the parties.

Clearly, therefore, California Civil Code § 1668 is not

applicable here.

A review of California decisions confirms that Cali-

fornia Civil Code § 1668 is not relevant here, and that

the District Court and Circuit Court decisions below

correctly conform to the law of California.

With respect to California’s public policy concerning

exculpatory clauses or contractual limitations of lia-

bility, attention is called to the ruling of the California

Supreme Court in a case Delta attempts to rely upon,

—Tunkl v. The Regents of the University of California,

60 Cal.2d 92, 383 P.2d 441, 446 (1963):

. no public policy opposes private, voluntary

transactions in which one party, for a considera-

tion, agrees to shoulder a risk which the law would

otherwise have placed upon the other party. .

Likewise, in Artukovich v. Pacific States Coast Iron

Pipe Co., 78 Cal.App. 1, 176 P.2d 962, 965 (1946), the

California Court of Appeals said:

“In California parties may agree by their con-

tract to the limitation of liability in the event of a

breach. ‘

And in Hischemoeller v. National Ice and Cold Storage

Company of California, 46 Cal.2d 318, 294 P.2d 433

(1956), the California Supreme Court upheld a limita-

tion of liability provision with this ruling:

“The facts in the present case disclose an ordi-

nary business transaction between businessmen.

There i is no suggestion of short dealings or unfair

practices on either side. Plaintiff bought what he

aa

PAST AE Sis LLL LILA DELL A ARNE Si AF

26

paid for, and paid for what he bought. There ap-

pears to be no good reason for denying defendant

the benefit of the limitation of liabilities set forth

in the contract.” 294 P.2d 433.

The law of California in this regard is in keeping

with the “majority rule” regarding risk-fixing and risk-

shifting agreements in a commercial (as opposed to

consumer) setting. See Disclaimers of Warranty in Con-

sumer Sales, 77 Harv. L. Rev. 318, 837 (1963), where

the author noted:

“A thwarting of the policies behind warranty

need not attend recognition of disclaimers in the

commercial world. ‘There the buyer may be just as

able to absorb and administer the inevitable risks

of the seller’s operations . . . There is common re-

course to insurance ... Buyers may even dictate

the design, and thus be in a position to prevent

the losses to which they are exposed. They are

more capable of protecting themselves by caution

and testing, and their own manufacturing processes

and quality control systems stand between the

object and ultimate users or bystanders.” (Em-

phasis added.)

Georgia law on this subject is identical with the law

of California. See Andrews Motors Co. v. Clement, 127

Ga.App. 745, 195 S.E.2d-249 (1972); Rogers-Farmer

Metro Chrysler-Plymouth, Inc. v. Barnett, 125 Ga.App.

494, 188 S.E.2d 122 (1972); Hawes v. Central of Georgia

Ry., 117 Ga.App. 771, 162 S.E.2d 14 (1968); Brown »v.

Five Poinis Parking Center, 121 Ga.App. 819, 821, 175

S.E.2d 901 (1970); Louisville & Nashville R.R. v. Atlan-

tie Co., 66 Ga.App. 791, 797-805, 19 S.E.2d 364 (1942);

King v. Smith, 47 Ga.App. 360, 364, 170 S.E. 546 (1933);

and Dowman-Dozier Mfg. Co. v. Central of Georgia Ry.,

29 Ga.App. 187, 114 S.E. 815 1922).

—_

0 A RY a le VIO Ie OES

27

Cf., Ga. Code Ann. § 109A-2-719, which clearly autho-

rizes contractual modifications or limitations of reme-

dies, and All-Co Drainage & Building Products, Inc. ».

Umstead Enterprises, Inc., 123 Ga.App. 244, 180 S.E.2d

244 (1971), in which the Georgia Court of Appeals

stated:

“The UCC clearly contemplates that the method

of computing a loss may be controlled by the agree-

ment, in addition to or in substitution of methods

provided by statute.”

(We do not mean to imply, however, that the UCC was

in effect in California when Delta and MDC agreed

upon the contractual terms in question here. See fn. 4

of the earlier Delta v. Douglas decision.)

For the reasons set forth above, Delta’s allegations

that “public policy” and California Civil Code § 1668

invalidate the exculpatory clause and limitations of lia-

bility contained in the aircraft purchase agreement are

unfounded.

el

SQN ARR —

ALAA NR ALTE

23

CONCLUSION

No statute, regulation or policy of the United States

Government or of any state prohibits Delta and MDC

from voluntarily agreeing—for a valuable considera-

tion—to fix and limit between themselves only the risk

of certain types of economic loss.

Delta’s contention that the “negligence” portion of

the exculpatory clause is violative of California public

policy is answered succinctly by the decision in the

earlier Delta v. Douglas case: “If the language used be

broad enough, an actor may disclaim liability for neg-

ligence of any type.”’ 238 Cal.App. 95, 101.

Consistent with the principles laid down by this

Honorable Court in Erie R.R. v. Tompkins, 304 U.S.

64 (1941), the Court below correctly ruled that the

contractual agreements in question were valid and en-

forceable under California law.

Delta’s petition for a writ of certiorari should be

denied.

Respectfully submitted,

McDonnell Douglas Corp.

OF COUNSEL:

SMITH, COHEN, RINGEL,

KOHLER & MARTIN

2400 First National Bank Tower

Atlanta, Georgia 30303

(404) 658-1200

29

CERTIFICATE OF SERVICE

I, J. ARTHUR MOZLEY, attorney for respondent

McDonnell Douglas Corporation and a member of the

Bar of the Supreme Cou the United States, do

hereby certify that on the day of April, 1975, I

served copies of the foregoing Brief upon all parties

required to be served, by mailing three true copies of

the foregoing Brief, correctly addressed and with the

required postage prepaid, to the following attorneys of

record for petitioner Delta Air Lines, Inc., in accordance

with Supreme Court Rule 33:

Frank F. Rox

Law Department

Delta Air Lines, Inc.

Hartsfield Atlanta International Airport

Atlanta, Georgia 30320

—and—

Robert Reed Gray

Hale, Russell & Stentzel

1001 Connecticut Avenue, NW?

Washington, D. C. mo

—and—

Robert S. Harkey

Law Department |

Delta Air Lines, Inc. ©

—\ Hartsfield Atlanta International Airport

Atlanta, Georgia 30320

this) YA day of April, 1975.