Petition for Writ of Certiorari — Pacific Erectors, Inc. v. Brinderson-Newberg Joint Venture

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Supreme Court, U.S.

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IN THE DRAICE OF THE CLERK

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Supreme Court of the United States

October Term, 1992 _

BRINDERSON-NEWBERG JOINT VENTURE;

BRINDERSON CORPORATION; GUST K. NEWBERG

CORPORATION; FRANK J. LOSCAVIO;

BRINDERSON CONSTRUCTORS, INC.,

Respondents,

Vv.

PACIFIC ERECTORS, INC.; HARTFORD ACCIDENT

& INDEMNITY COMPANY,

Petitioners.

JOINT PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

JOINT PETITION FOR WRIT OF CERTIORARI

WILLIAM B. MOORE, Counsel of Record

ARNOLD R. HEDEEN

SCHWABE, WILLIAMSON,

FERGUSON & BURDELL

Pacific First Centre

1420 Fifth Avenue, #3400

Seattle, WA 98101-2339

WILLIAM I. CHERTOK

BRYAN CAVE

120 Broadway, Suite 500

Santa Monica, CA 90401-2305

Attorneys for Petitioners Pacific

Erectors, Inc.

and Hartford Accident & Indemnity Company

aBCD Lega! Printers. Seattie. Washington

QUESTIONS PRESENTED FOR REVIEW

is Where both a District Court and a

jury render a fact-dependent contract

interpretation with extrinsic evidence

offered by all parties and admitted ina

diversity case under instructions

consistent with the substantive law of the

forum state, may a reviewing court direct

entry of a verdict reinterpreting the

contract without regard for the extrinsic

evidence without abrogating F.R.Civ.P.

52(a), and the Federal Rules of Decision

Act, 28 U.S.C. § 1652 or impermissibly

impinging upon the "inviolate" guaranty of

trial by jury provided by the Seventh

Amendment and F.R.Civ.P. 38(a)?

as May a reviewing court exclude

evidence and direct entry of a verdict to

overturn a special jury finding of fraud

or misrepresentation decided pursuant to

unchallenged instructions because’ the

reviewing court made aie fact-dependent

finding, contrary to the findings of the

jury and the district court, that the

evidence established a mere "oral promise

directly at variance with the promise in

writing" without abridging, the Federal

Rules of Decision Act, 28 U.S.C. § 1652,

F.R.Civ.P. 52(a), or impermissibly

impinging upon the "inviolate" guaranty of

trial by jury provided by the Seventh

Amendment and F.R.Civ.P. 38(a)?

iii

PARTIES

Joint petitioners, defendants-

counterclaimants and appellees below, are

Pacific Erectors, Inc. and its surety,

Hartford Accident & Indemnity Company

(collectiveiy referred to as "Pacific").

Respondents, plaintiffs-

counterdefendants and appellants below,

are Brinderson-Newberg Joint Venture;

Brinderson Corporation; Gust K. Newberg

Corporation; Frank J. Loscavio; and

Brinderson Constructors, Inc.

(collectively referred to as

"Brinderson").

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW .. . i

og 8 nn a an a a a a a a a ea +o |

OPINIONS BELOW ..+s 2 © © © © @ 2 1

JUMAOWLCELUM + © © © es se © ew ee hel 2

CONSTITUTIONAL PROVISIONS, STATUTES

AND COURT RULES INVOLVED IN THE CASE _ 3

STATEMENT OF THE CASE .......« e« 4

How the Issue Arose and Was

Defined by the Parties .. 4

The Trial Evidence Considered by

Coe JURY « «© + 8 6 Hw US UC 10

The Instructions to the Jury .. 25

The Denial of Brinderson's Post

THREGs TES bk «x eee ee 27

The Directed Verdict by the

Court Of Appealge ..<««s. « 29

LAW AND ARGUMENT .........-. 32

A. The Respect Demanded by the

Constitution and F.R.Civ.P.

38 for Jury Determinations

of Fact and by the Federal

Rules of Decision Act for

California Substantive Law

Requires Reaffirmation of

the Jury's Exclusive Role

as Master of the Facts... 32

Exclusion of Evidence of

"Oral Statements" in Cases

of Contracts Ailegedly

Induced by Fraud or

MisrepresentationNullifies

California Substantive Law

and the Role of a Properly

Instructed Jury, Contrary

to the Federal Rules of

Decision Act, F.R.Civ.P.

38, and the Seventh

Amendment to the

Constitution

TABLE OF AUTHORITIES

CONSTITUTION

0.8. Conet. Ameng. Vis «2+ « © & 3,9

CASES :

AMPAT/Midwest v. Illinois Tool Works,

Inc., 896 F.2d 1035

vem Car. 2000) « 2 « tw eo ee ee 58

Admiral Builders Savings & Loan

Association v. South River

Landing, Inc., 66 Md. App. 124,

502 A.2d 1096 (1986) Co ee ee ae ee ee 35

Anderson v. City of Bessemer City, 470

U.S. 564, 84 L. Ed. 2a

518, 105 S. Ct.

4504 (2006) . 1. ss ws es) | SS, OT, OO

Bank of America v. Lamb Finance Co., 179

Cal. App. 2d 498,

3 Cal. Rpcr. 877 (1960) . «© «= 2 © 6 Ff

Basham v. Pennsylvania R.R. Co.,

372 U.S. 699, 10 L. Ed. 2d 80,

83 S. Ct. 965 (1963) os « & & % 7a, oF

Bell v. Exxon, 575 F.2d 714 (9th Cir.

eee) + «kee ak eee

Berg v. Hudesman, 115 Wn.2d 657, 801 P.2d

S24 TIOEs 4k fe es ek eee

Blackledge v. Allison, 431 U.S. 63,

S52 lL. BG. 26 136, 37 B&B. CE.

16es C100T) 6 <6 Vee eee ee

vii

Burgess v. Premier Corp., 727 F.2d 826

a Gas 2k - 6 as ee ee ee ee

Caper v. State Farm Mutual Insurance Co.,

758 F.2d 337 (8th Cir. 1985) .... 38

Chicago Burlington and Quincy R.R. Co. v.

City of Chicago,

166 U.S. 226, 17 &. Ct. 581,

41 L. Ed. 979 (1897) ie Gar eer er er 58

Chicago R&I and P&R and Denver and

Rio Grande Railroad,

143 U.S. 596, 12 S. Ct. 479,

36 bs OA. SIT (2000) « sw wit vente sw

Darner Motor Sales, Inc. v. University

Underwriters Insurance Co.,

140 Ariz. 383, 682

Pea Bee €2006) «© «© «© e+ © ee ew ee 35

Equitable Life Insurance Co. v. Halsey

Stuart & Co., 312 U.S. 410,

61 S. Ct. 623, 85 L. Ed. (1941) . . 60,61

In re Financial Securities Litigation,

729 F.2d 628 (9th Cir. 1984) Sa. er 45

Gee v. Tenneco, Inc., 615 F.2d 857 (9th

Cir. 1980) ins 2s eS & «© & eS oO 8 41

Interform v. Mitchell, 575 F.2d 1270 (9th

Cee. s goats ye nee 4 cee ee

Interpetrol Bermuda, Ltd. Vv. Kaiser

Aluminum International,

719 F.2d 992 (9th Cir. 1983) .... 45

Keating v. Stadium Mgt. Corp., 24 Mass.

App. Ct. 246, 508

N.E.2d 121 (1987) . <“-* «© * & *@ @ 2 ao

ete

viii

Kern Oil & Refining Company v Tenneco,

840 F.2d 730 (9th Cir. 1988) : es 44

Lavender v. Kurn, 327 U.S. 645, 90 L. Ed.

S26, 66 BS. Ch. 760 (2966) . «+ « «© « « 33

McKeon v. Santa Claus of California, Inc.,

230 Cal. App. 2d 359, 41 Cal. Rptr. 43

et as eae eS elk ke ee er | UE

Miller v. Safeco Title Insurance Co., 758

F.2d 364 (9th Cir. 1985) ...... 45

Morris v. Harbor Boat Building Co.,

112 Cal. App. 2d 882,

aa) Cue. wee Laeweey «+ 8 8 le hell lt 57

Nash v. Towne, 72 U.S. 689,

eee Se es! See re |

Pacific Gas & Flectric v. G. W. Thomas

Drayage & Rigging Com ny,

69 Cal. 2d 33, 6% <i... Rptr. 961,

442 P.2G G42 €i966) . « « «© 6 @ 35, 36

Petro-Venturers nc. v. Takessian, 967

¥.2G@ i337 €9GR Cit. 1992) . « » «© @ 45

Price v. Wells Fargo Bank,

261 Cal. Rptr. 735, 213 Cal. App.3d

465 (Cal. 1989) oe eee

Richardson v. Suzuki Motor Ltd., 868 F.2d

1226 (Fed. Cir. 1989) er ane

Slocum v. New York Life Insurance Co., 228

0.8. 364, 33 S.Ct. 523, 57 L. BA. $79

ype) earn

Standard Oil Company of California v.

Perkins, 347 F.2d 379

to a ee) re. |

TXO Production Corp. v. Alliance Resources

Coee,, 1998 Wie 266094 «st ew ce tt wh cw) «(USD

Transgo, Inc. v. Ajac Transmission Parts

Corp., 768 F.2d 1001

P9Gh Cir. 1006)... «se ss ee ee

Trident Center v. Connecticut General Life

Insurance Company, 847 F.2d 564

te CS ee |

United States v. Jackson,

390 U.S. 570, 20 L. EG. 2a 138 . an ea oe

Warner Construction Corp. v. City of Los

Angles, 2 Cal. 3d 285, 85 Cal. Rptr.

444, 466 P.2a 996 (1970) .... £36, 57

Wilson Arlington Company v. Prudential

Insurance Company,

912 F.2d 366 (9th Cir. 1990) y es « % 40

STATUTES

28 U.S.C. § 1291 . «© «© «© «© © 2 «©

a6 U.S.C. § 14292 . «© «© © we © we

U.S.C. § 1652 . « «© «© «© © © © «© ©

28 U.S.C. § 2101 . . «© «© «© «© «© «

Calif. Civ. Code § 1640 . . . .«« «

COURT RULES

F.R.Civ.P. 38

P.R.Civ.P. 52.2.2 © s+ s © © © ©

OTHER AUTHORITY

Restatement (Second) Contracts

5 2am 6 6% 6s «© & S 6 ee es

Restatement, Contracts, § 230

(1932) . eee &@ & © © 25) “68 ee

Restatement of Torts, §§ 529, 551.

Websters Third New International

Dictionary (1961 Bad.) « « « = «© s «

S. Williston, The Law of Contracts,

OU, ro ee eer

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term 1992

BRINDERSON-NEWBERG JOINT VENTURE;

BRINDERSON CORPORATION; GUST K. NEWBERG

CORPORATION; FRANK J. LOSCAVIO; BRINDERSON

CONSTRUCTORS, INC.,

Respondents,

Vv.

PACIFIC ERECTORS, INC.; HARTFORD ACCIDENT

& INDEMNITY COMPANY,

Petitioners.

JOINT PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

JOINT PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

The July 22, 1992 United States Court

of Appeals for the Ninth Circuit opinion

reversed a judgment entered on a jury

verdict by the United States District

Court for the Central District of

California. The opinion of the Ninth

Circuit is reported at 971 F.2d 272 (9th

Cir. 1992). Petitioner's Appendix ("Pet.

App."), pp. 1-57. By order filed October

22, 1992, the Ninth Circuit amended its

July 22, 1992 opinion and denied Pacific's

petition for rehearing and suggestions for

rehearing en banc. (Pet. App. pp. 58-114)

JURISDICTION

Pursuant to 28 U.S.C. § 2101(c), the

Supreme Court has jurisdiction to review

judgments of the United States Courts of

Appeal rendered pursuant to the

jurisdiction of the Courts of Appeal under

28 U.S.C. § 1291.

This joint petition is timely per

FRAP 41 and is submitted pursuant to Part

III Rules, U.S. Supreme Court.

CONSTITUTIONAL PROVISIONS, STATUTES AND

COURT RULES INVOLVED IN THE CASE

Amendment VII of the United States

Constitution provides as follows:

In Suits at common law, where

the value in controversy shall

exceed twenty dollars, the right

of trial by jury shall be

preserved, and no fact tried by

jury, shall be otherwise

reexamined in any Court of the

United States, than according to

the rules of the common law.

U.S. Const. Amend. VII.

F.R.Civ.P. 38(a) and (c) provide as

follows:

(a) Right Preserved. The right

of trial by jury as declared by

the Seventh Amendment to the

Constitution or as given by a

statute of the United States,

shall be preserved to the

parties inviolate.

Issues. In the demand a party

may specify the issues which the

party wishes so tried; otherwise

the party shall be deemed to

have demanded trial by jury for

all the issues~-so triable. :

F.R.Civ.P. 38(a), (c)*

F.R.Civ.P. 52 (a) provides in

pertinent part as follows:

Findings of fact, whether based

on oral or documentary evidence,

shall not be set aside uniess

clearly erroneous, and due

regard shall be given to the

opportunity of the trial court

to judge of the credibility of

the witnesses.

F.R.Civ.P. 52(a).

28 U.S.C. § 1652 provides as follows:

The laws of the several states,

except where the Constitution or

treaties of the United States or

Acts of Congress otherwise

require or provide, shall be

regarded as rules of decision in

civil actions in the courts of

the United States, in cases

where they apply. June 25,

1948, c. 646, 62 Stat. 944.

62 Stat. 944, 28 U.S.C. § 1652.

When from fraud, mistake or

accident, a written contract

fails to express the reasonable

intention of the parties, such

intention is to be regarded, and

erroneous parts of the writing

disregarded.

Calif. Civ. Code § 1640.

STATEMENT OF THE CASE

How the Issue Arose and Was Defined

by the Parties

Pacific, a structural steel erection

subcontractor, and Brinderson-Newberg

Joint Venture ("Brinderson"),’ the prime

contractor on a $67.599 million Steam

Plant construction project for the U.S.

Navy in Bremerton, Washington entered into

a $2.84 million subcontract for Pacific to

perform a portion of the work. Ex. 3086.”

During Pacific's performance of the

subcontract, a dispute arose concerning

the amount of work contractually

undertaken by Pacific on the project's

lunless otherwise indicated, "Brinderson"

collectively refers to the respondents Brinderson-

Newberg Joint Venture, Gust K. Newberg Corporation,

Brinderson Corporation and Brinderson Constructors,

Inc. Respondent Frank Loscavio is occasionally

referred to separately.

“Testimony is cited by Volume and page of the

Reporter's transcript. Exhibits are cited as

"Exh." and by trial exhibit numbers. Orders,

Judgments and pleadings are cited as "CR".

Flue Gas_ System.’ A "standstill"

agreement between the parties pictorially

depicted the parties' respective

interpretations regarding the disputed

work in color-coded drawings and reserved

determination of the scope of work

undertaken by Pacific in the subcontract,

primarily Articles 1.I and 33 § 16 for

litigation. (Exh. 2079; Exh. 2079; Vol.

2, p. 185). Those provisions provide as

follows:

Ra Statement of Work: This

subcontract covers the

furnishing of all plant, labor,

materials and equipment required

to perform pertinent portions of

Documents listed in the CONTRACT

SPECIFICATIONS, as applicable to

the work covered by this

subcontract.

“The PSNS Steam Plan project's Flue Gas

Cleaning System is an environmental pollution

control system for removing particulates and other

pollutants after the coal-fired smoke passes from

the steam plant's boilers to the stack and into the

atmosphere. The major components are described as

"scrubbers, bag houses, induction fans and

breeching and dampers.”

Specification Division:

A. Division Title

Section 15603 Flue Gas Cleaning

Equipment

Installation (Government Furnished

Property) - erect complete.

ARTICLE 33. In addition to the

foregoing it is further

understood and agreed that this

subcontract also includes the

furnishing and installation of

the below listed items

regardless of whether or not

they are in the above

specification sections, or shown

on the plans.

16. Subcontractor shall erect

complete the Government

Furnished Flue Gas System

including Bag Houses, Scrubbers,

I.D. Fans, Breaching and

Dampers, Steel Gratings and

appurtenances to make a complete

installation.

Webster's Third New International

Dictionary (1981 Ed.) p. 770 provides a

number of alternative meanings

for the

verb “erect" including the following:

(1): ;to put up (as a building

or machine) by the _ fitting

together of materials or parts;

cause to stand ready for use:

build <the settlers --ed walls

of field stones> <when the state

--S a new bridge> <a building --

ed in 1920); specif: to hoist

and bolt in place fabricated

parts of (a ship's structure)

before riveting or welding (2):

to fix in an upright position

(as statue, signpost, or

plaque): put up (-- a flagpole)

(--ed a marker over the grave).

(Emphasis supplied)

The contract interpretation issue at

trial centered on the content and meaning

of the phrase “erect complete" used in

reference to the Flue Gas System

components identified in Article 33.

paragraph 16, as the "Bag Houses,

Scrubbers, i1.D. (Induction) Fans,

Breeching and Dampers. . ." Did the

reference contemplate that Pacific would

perform the mechanical work of assembling

and installing the thousands of parts

comprising those components, "the whole

process ... . from the point of taking

it off the flat bed all the way through to

bolting it down in the final position so

it is ready to go" as Brinderson contended

in opening statement was the _ proper

interpretation? (Vol. 1, p. 141, 146).

Or was the phrase properly interpreted, as

Pacific contended, to require performance

of the structural steel supporting those

components and the "hoisting" or setting

into place of the identified prefabricated

Flue Gas System components with Pacific's

large erection crane? (Vol. 1, pp. 159).

By affirmative defense and

counterclaim, Pacific sought relief from

Brinderson and Brinderson's Mr. Loscavio,

contending that Mr. Loscavio had used the

intrinsic ambiguity in the’ contract

language he drafted to foist onto Pacific

an additional million dollars worth of

mechanical work that would otherwise be

accomplished at Brinderson's expense by

Brinderson's boilermakers and pipefitters

as part of Brinderson's prime contract

obligation. (CR 8).

Pursuant to F.R.Civ.P. 38(a)(c),

trial by jury was demanded by Brinderson

on all issues. (CR 16). Brinderson was

joined in this request by Pacific. (CR 9).

The Trial Evidence Considered by the

Jury

From the start of the seven week

trial, Brinderson presented testimony in

its opening case of precontract

discussions between Mr. Loscavio_ and

Pacific representatives. Brinderson's Mr.

Loscavio testified on direct examination

that he told Pacific "You've got this Flue

Gas System. I want you to erect it

complete. You got it from where the Flue

Gas System starts. . . which is the boiler

flue .. . to where it goes to the chimney

which is at the other end of the Flue Gas

System." (Vol. 2., p. 136, 140-141)}.*

“Early in its case, Brinderson also presented

testimony suggesting that where Pacific contracted

to "erect complete" work included in other

specification sections, it contracted to accomplish

all the work specified in those sections. (Vol. 6,

pp. 89-92). The Brinderson witness acknowledged

his testimony was intended to suggest that Pacific

was also supposed to "do everything in [the Flue

Gas specification] section 15603 from the "back of

the boilers to the base of the stack.” (Vol. 6, p.

98). This was consistent with Brinderson's

contentions in opening statement that Pacific was

to do all work associated with the Flue Gas System,

"the whole process from that point of taking it off

the flat bed all the way through to bolting it down

in final position so it is ready to go.” (Vol. 1,

p.- 141). On cross examination, however, the

Brinderson witness was forced to acknowledge that

the suggestion that the term "erect complete” meant

all work in a particular specification section was

to be accomplished by Pacific would be

“misleading.” (Vol. 6, 92-93, 99-100). By the

Court of Appeals acknowledgment "that certain

mechanical work beyond welding and bolting

components into place falls outside the scope of

erect complete,” the Court of Appeals opinion Pet.

App. p. 41 rejected the heart of Brinderson's

interpretation as presented at trial, implicitly

confirmed the substance of Pacific's alternative

interpretation, and most important tacitly

acknowledged that a fact-dependent inquiry for the

jury was required to give substance and meaning to

the bare words of the contract. (Pet. App. p. 41).

The Court of Appeals, however, designated

Brinderson the "prevailing party,” an issue

dispositive of liability for the attorney fees

which by the time the trial was concluded had

become more than $3 million--a more significant

monetary issue than Brinderson's entire claim--

essentially substituting a "prevailing party” more

to the liking of the Court of Appeals than to the

first jury or perhaps now a second jury.

Mr. Loscavio testified that after he

prepared the contract, he reviewed it with

Pacific “line by line” including tne

extensive boilerplate which included the

reference to the work of a subcontractor

"customarily performed in this line of

work.” (Vol. 2, p. 151; Vol. 13A, p. 55)).

Pacific's case included cross

examination,’ documents and other

testimony affirmatively establishing that

a far narrower undertaking was

*The District Court at start of trial

announced a strict limitation of cross examination

to the scope of Brinderson's direct. Brinderson

counsel acknowledged that Brinderson's case in

chief included parol evidence: "During my direct

examination of Mr. Loscavio, I asked him and

elicited answers regarding his contract

negotiations with Pacific ... I wanted to stick

with who said what to whom." (Vol. 3, p. 34). In

this state of the record, the Court of Appeals took

undue liberty to reverse on the basis of

"prejudicial parol evidence” consisting of “oral

promises” (Pet. App. p. 19) and to assert in the

teeth of the record that "after reviewing the

record, it is clear that Brinderson never opened

the door for the admission of the most prejudicial

parol evidence - Brinderson's alleged oral promise

to interpret the contract according to [what the

Court of Appeals characterized as] Pacific's

strained interpretation.” (Pet. App. p. 19).

contemplated by the parties for Pacific to

accomplish with respect to the Flue Gas

System.

The vast bulk of Pacific's evidence,

as shown by the record, did not consist of

oral recollections of what was said at

precontract negotiations. None of it was,

in the Ninth Circuit's oxymoron,

"important and prejudicial parol evidence

[of] Pacific's allegation that Brinderson

made an oral promise to interpret the

contract in a way that limited Pacific's

obligations under the contract." (Pet.

App. p. 19). Rather, Pacific's evidence

consisted of proof of related facts that

Brinderson did not and could not

reasonably understand Pacific was’ to

perform "the whole process" so the Flue

Gas System "was ready to go."

The following evidence, primarily

document-based or from Brinderson's files

and ignored by the Court of Appeals

confirmed Pacific's interpretation of the

subcontract:

ie Brinderson's detailed,

handwritten "tab sheet" that Mr. Loscavio

testified "lists" and "specifically

itemized" all of Pacific's subcontract

work® and which Brinderson's counsel

*Brinderson's "Tab" or "Scope" Sheet, Trial

Exhibit 1040, set forth each item of "Flue Gas

Steel" that Pacific was to "erect complete." Vol.

12(A), pp. 91-95; Vol. 17, pp. 75-76. Mr. Loscavio

testified as follows at deposition read into the

record at trial regarding the detailed list:

A. I'm saying to you that the nature of the

negotiations was verbal. We were going down

through a bid tabulation, an itemized list,

making sure they had the scope.

Q. What was discussed at the meeting other than

general terms and you say "we made a deal."

Specifically, what was discussed at the

meeting?

A. ° k rice.

Q. What scope of work was discussed?

A. ° ~ t in their

subcontract.

Q. Did you have a subcontract prepared at that

date [July 29, 1985 meeting]?

A. = at

lists what's _in their subcontract.

Q. Just so I understand your testimony, you went

down your tab sheet, asked whether or not

they had certain work, understood their work

to include responsibilities set forth on tab

sheet ?

portrayed in opening statement as

describing all the work that Pacific was

to accomplish under its subcontract’ in

fact "lists" and "itemized" only the Flue

That's the work in their subcontract. We

went through that specifically itemized item.

And this tab sheet fairly reflects the

subcontract you prepared?

It reflects the deal, the discussion. And we

1 nt th h_ these drawings.

What was the tab sheet prepared for?

What we were buying. What the scope we were

buying was.

Was that something you prepared yourself

without any relation to the work that they

did?

A. It was the work that we are buying that

we are going to subcontract.

Q. Was the tab sheet prepared from their

subcontract bid quotation?

It was pre ed Brinderson on the sco of

work w which we e going to subcontract

which is how it is always done. (Vol. 18,

pp. 5-21).

’Brinderson's counsel's opening statement to

the jury included the following representation:

At the July 29 meeting. . ., Mr.

Loscavio had the handwritten list of

things to do. And he went down that

list with Mr. Willard and Mr. Richotte

line by line to make sure they were

agreeing they would do this work. At

the bottom of that list and you will

see it, it says $2.8 million. And one

of the central purposes of that July 29

meeting was to make sure that Pacific

was agreeing to do all those things for

that price. (Vol. 1, p. 131).

Gas System structural support steel work

-- work which Pacific performed without

dispute. (Vol. 19, pp. 181, 182).

2. Four months after the

subcontract to Pacific, Brinderson let

another subcontract for "complete"

performance of specification §15603 Flue

Gas System work to be accomplished by

another specialty subtrade between "the

boiler flue .. . to where it goes to the

chimney." (Exh. 1488; V. 6, pp. 98-100].

: 2 A detailed, color coded bar

graph work schedule was’ prepared by

Pacific and Brinderson at aé_— special

Saturday meeting shortly after the

subcontract was executed. None of the

million dollars worth of disputed Flue Gas

System mechanical work was depicted on the

mutually prepared schedule as_ within

Pacific's scope of work. (Exh. 1431, V. 6,

pp. 106-110, V. 17, pp. 29°33, 123-141, V.

19, pp. 4-8)

4. The prime contract required that

Brinderson submit to the Navy a detailed

written description of the work

subcontracted to Pacific (Government Form

DD1566; Exh. 2066). This document was

submitted to Brinderson by Pacific and by

Brinderson to the Navy immediately after

the contract was Signed. The completed

form submitted by Brinderson to the Navy

does not include any of the disputed Flue

Gas System work. (Ex. 2066, Vol. 3, pp.

141, 142).

$. Although Pacific subcontracted

to “erect complete" work specified in

other specification sections,® Pacific

performed only work customarily performed

®sSpecification "Section 05500 Metal

Fabrication - erect complete” and “Section 14510

Coal Handling System - erect complete." (Ex.

3086).

by ironworkers in those specification

sections and Brinderson forces performed

all of the "mechanical" work within those

sections. (Vol. 6, pp. 89-92, 138, Vol.

15A, pp. 5-7]}).

6. The written bid quotation

letters provided to Brinderson by Pacific

did not include the disputed Flue Gas

System work. Pacific had never estimated

the disputed work, it had not quoted it to

Brinderson or any of the dozen other

prospective prime contract bidders for the

project, and it had never before nor since

performed that mechanical work. (Exhs.

1054, 2038, 1063; V. 7, pp. 24, 130-131).

ur Two witnesses testified Mr.

Loscavio told them during subcontract

negotiations that Brinderson would be

performing all of the mechanical work on

the project. (Vol. 4, Pp. 1513 Vol. 18,

pp. 168-173).

8. The Flue Gas System mechanical

work requires the skills of boilermakers

and pipefitters tradelines. Pacific

employed only ironworkers and operating

engineers. (Vol. 5, pp. 53, 54).

9. The mechanical contractors,

including Brinderson that estimated the

Flue Gas System work required three to

four weeks to prepare their estimates from

more than 800 pages of detailed Flue Gas

System drawings. (Exhs. 2008, 2012; Vol.

15B, pp. 63-72, 74, #75, 102-104).

Brinderson did not "supply" these drawings

to Pacific as required by Article 1 of the

subcontract, and Pacific was provided no

access to these drawings, except when Mr.

Loscavio selected and displayed several

during a 10-15 minute review to show

Pacific ware the large Flue Gas System

subassemblies could be rigged for erection

by Pacific's 125-ton crane. (Vol. 7, pp.

144, 145). Mr. Loscavio acknowledged that

such a limited drawing review time was

insuffi- cient for Pacific to have

estimated the work. (Vol. 13A, p. 48;

Vol. 12B, pp. 189-190).

10. The reasonable dollar value of

the work Pacific did estimate, bid and

perform on the Project without dispute was

$2.84 million. (Vol. 17, p. 863 Vol. 5,

pp. 127-130; Exhs. 2067, 3086). The

disputed Flue Gas System mechanical work

was estimated by Brinderson to cost

$936,584 without overhead and profit and

to require 3,200 man days. (Ex. 2008;

Vol. 13A, p. 79; Vol. 15B, pp. 63-72). At

the time the project was bid, it was

estimated by six national specialty

mechanical contractors to cost’ from

$1.35 million to $2 “i tkbee. (Exh. 2012).

Brinderson claimed at trial that it

expended nearly $900,000 in direct costs

in performing that work with its own

boilermakers and pipefitters. (Exh. 3556;

Vol. 9, 4-29).

11. Pursuant to Brinderson's

request, Pacific prepared and handed to

Mr. Loscavio immediately before the sub-

contract was executed a Pay Value Schedule

which, as provided by the subcontract,

stated the true value of each phase of the

work Pacific contracted to perform. (Exh.

2067; Vol. 5, pp. 127-130; Vol. 17, pp.

88, 97, 106, 107). Pacific's Schedule of

Values valued its Flue Gas System work --

support steel -- at only $238,807 and 618

man days to complete. (Vol. 5, p. 1343

Vol. 17, Dp. 98). Pacific's Schedule of

Values did not indicate Pacific was

undertaking the Flue Gas System mechanical

work. (Vol. 17, p. 99).

From this evidence, without regard to

the parties differing recollections of

precontract discussions reflected in the

testimony, the jury was’ entitled to

conclude that the parties' $2.84 million

subcontract did not include the disputed

Flue Gas System mechanical work and that

the subcontract was not mutually

understood to include that work.

Since the Ninth Circuit's reversal

was based on "prejudicial" "oral promises

at variance with the promise in writing,"

Pacific's evidence in response to Mr.

Loscavio's testimony regarding his

recollection of the pre-contract

discussions deserves particular scrutiny.

Pacific presented three witnesses. One of

those witnesses was at the time of the

pre-contract discussions a Brinderson

employee working with Mr. Loscavio and

responsible for civil subcontract buy out.

(Vol. 12A, pp. 58-59). Even though he was

in the same room and only a few feet away,

he testified he could not hear the

conversation between Mr. Loscavio and the

Pacific representatives regarding the Flue

Gas System. (Vol. 12A, pp. 97).

Of the remaining two witnesses to

this meeting, one was a principal in

Pacific and the other a former employee

who at the time of trial had no financial

interest or stake in the outcome of the

dispute. (Vol. 17, Be BOR}. Their

testimony was specific and_ provided

content to the pre-contract discussions

with Mr. Loscavio concerning the line-by-

line contract review.’

*Pacific's witnesses testified that Mr.

Loscavio went through the contract line by line to

agree on the meaning of the words Loscavio used in

the contract. (Vol. 5, pp. 135, 136). Pacific

witnesses questioned Mr. Loscavio's intended

meaning of the words "erect complete” next to the

title of specification section 14501 "Coal Handling

System." Pacific witnesses told Mr. Loscavio that

Pacific was not erecting the Coal Handling System

in its complete state. Pacific told Mr. Loscavio

that Pacific was only performing the work which it

bid. (Vol. 17, p. 111). Pacific witnesses

testified that in explaining the meaning of the

words "erect complete" Mr. Loscavio referred

Pacific to Article l(a) of the subcontract and told

Pacific that Pacific was simply obligated to

perform the work it bid and quoted. (Vol. 17, pp.

111-113; Ex. 3886).

Pacific also sought confirmation of Mr. Loscavio's

intended meaning for Pacific's scope of work in

section 15603, the heart of the dispute. (Vol. 7,

pp. 148, 154-155; Vol. 17, pp. 115-116). Pacific

witnesses told Mr. Loscavio that Pacific was not

installing the Flue Gas Cleaning equipment and that

Pacific was only to erect structural support steel.

(Vol. 5, p. 148). Again, in explaining the meaning

of “erect complete” Mr. Loscavio said that the

title of specification section 15603--"Flue Gas

Cleaning Equipment Installation (Government

Furnished Property)"--was simply the title of the

specification section. He specifically told

Pacific that Pacific was not performing that work.

(Vol. 5, p. 148, Vol. 7, p. 155). Mr. Loscavio

represented that Brinderson was simply requiring

Pacific to perform the work it normally performed

in its line of work and the work which it bid to

Brinderson and that is all the language was

intended to mean. Mr. Loscavio said sections 15602

and 15603 could not be written identically because

Pacific was also performing the "picks and sets” of

the Flue Gas System subassembly. (Vol. 7, p. 156;

Vol. 5, pp. 148, 149). Mr. Loscavio told Pacific

that the work in 15603 “is what you bid to me. . .

It is on your proposal... You bid that

particular work." (Vol. 7, p. 156).

Pacific also sought confirmation of Mr. Loscavio's

intended meaning of the language used in Article

33, paragraph 16. (Vol. 7, pp. 160, 161). Mr.

Loscavio confirmed that Pacific was not erecting

the entire Flue Gas System and said “We have

already discussed that on the previous page,”

involving section 15603. Mr. Loscavio stated that

the language of the subcontract did not mean

Pacific was erecting the entire Flue Gas System and

in fact meant Pacific was only obligated to do the

Ee a ee

Pe rer bocafuslle bedi

eee ee ee

Ne Cotes ae. et pth er RS tel a hi iS

The Instructions to the Jury

The case was submitted to the jury

under comprehensive instructions of law

[Vol. 24, pp. 16-47 (Instructions) ], none

of which were challenged by Brinderson on

appeal as misstating the applicable law.?°

work it customarily performed and bid to

Brinderson. (Vol. 7, p. 161). Mr. Loscavio said

Article 33, paragraph 16 included items that

Pacific agreed to pick and set at the second

meeting and on several occasions told Pacific

during the parties' line-by-line review that the

subcontract merely described the work Pacific had

bid to Brinderson. (Vol. 7, pp. 161, 162).

1°The unchallenged instructions included the

following:

(a) In order to form a binding contract, the

parties to it must consent or, in other

words, mutually assent to the contract.

Mutual assent is determined by the words and

acts of the parties. The parties’

unexpressed intentions or understandings are

not relevant to your determination as to

whether mutual assent exists or not. (Vol.

24, p. 29).

(b) If the subcontract or provision of the

subcontract is unclear and the parties

actually attach different meanings’ to

particular words of the subcontract, the

words at the time they signed the subcontract

are to be interpreted in accordance with the

meaning attached to them by one of the

parties, if at the time the agreement was

made that party did not know or have reason

to know any different meaning attached by the

other party, and the other party knew or had

In addition, a special interrogatory

requested by Brinderson was’ submitted

concerning whether Mr. Loscavio had

fraudulently induced Pacific's entry into

the contract. (Pet. App. pp. 168-172; CR

579, Jury Verdict).

reason to know the meaning attached by the

first party (Vol. 24, pp. 33-34).

(Cc) In determining the meaning of the

subcontract, you may consider all of the

circumstances leading up to the signing of

the subcontract on August 16, 1985, including

the negotiations and statements of the

parties during all three meetings and the

object, nature and subject matter of the

subcontract. (Vol 24, p. 33).

(da) When parties have put an agreement in

writing, that writing may not be varied or

contradicted by evidence of oral or other

written statements that were made before the

written contract was signed. Thus, you may

not consider oral or written evidence for the

purpose of contradicting, subtracting from,

or adding to or varying the terms of the

written agreement. (Vol. 24, p. 31).

(e) Words of a contract may also be interpreted

by reference to trade usage, e.g., how they

are used in the construction business.

However, a party who seeks to define language

in the contract by means of trade usage must

show either that the other party was actually

aware of the usage or that there was a well-

defined usage generally adopted by those

engaged in the business to which the contract

relates. (Vol. 24, pp. 30, 31).

Those instructions allowed Brinderson

full sway to persuade the jury of the

theory adopted by the Court of Appeals

that Pacific's evidence should be

disregarded as a mere "oral promise at

variance with the promise in writing."

See footnote 10(d), supra.

The jury returned a verdict

specifically finding that Pacific had not

breached the contract.

The jury also specifically answered

the special interrogatory with a finding

that Brinderson and Mr. Loscavio had

procured the contract by fraud or

misrepresentation. (Pet. App. pp. 168-

172; CR 579, Jury Verdict).

The Denial of Brinderson's Post Trial

Motions

Brinderson filed post-trial motions

for a directed verdict and JNOV.

The District Court upheld the jury's

express and implied findings and reaffirm-

ed its earlier finding that the extrinsic

evidence considered by the jury did not

provide an interpretation "directly at

variance with the promise in writing but

rather provide[d] an interpretation, a

shading of words that this court prev-

iously concluded are susceptible to more

than one meaning." (Pet. App. p. 159; CR

648, Mem. of Dec. and Order Dismissing

Brinderson's Motion for JNOV and New

Trial). This was consistent with a

previous decision by another District

Court judge presiding over the case who

considered the issue on_ Brinderson's

F.R.Civ.P. 12(b)6 motion to dismiss.

(Pet. App. p. 140; CR 113 Pamela Rymer

;

Men. of Dec. and Order Denying

Brinderson's F.R.Civ.P. 12(b)6 Motion).

‘phen District Court Judge, now Ninth Circuit

Court of Appeals Judge, Pamela Rymer stated the

issue as follows in the Court's Memorandum of

Decision and Order denying Brinderson's F.R.Civ.P.

12(b)6 Motion:

"The meaning of certain provisions in

the contract signed by the parties on

August 16, 1985 by which [Pacific]

agreed to perform work for [Brinderson)]

on a construction project in Bremerton,

Washington lies at the heart of both

actions. Complaint, 4 3.4. [Pacific]

contends that it understood ‘the

subcontract obligated it to erect the

structural support steel and

miscellaneous steel for the Flue Gas

System frame and to pick and set with

its crane the large previously

assembled Flue Gas System

subassemblies." Complaint, @ 4.14.

{Brinderson] asserts that the plain

meaning of the contract is that

subcontractor was to install the Flue

Gas System so that it was in working

order."

Judge Rymer held as follows regarding the meaning

of the subcontract words "erect complete" and

"complete installation":

"Given the allegations of the

Complaint, subcontractor's

interpretation of the words ‘erect

. id_' te ins ion'

does oO. cont Tm - ain

fe) i a

surviv a__motio to

dismiss. Contractor provides no

authority for its view that ‘erect

complete’ and ‘complete installation'

can only logically mean having the

system finished and ready to _ go.

The Directed Verdict by the Court of

Appeals

The Ninth Circuit reversed, stating:

"We reverse the District Court's denial of

Brinderson's motion for a directed

verdict. . . on its contract claims and

Pacific's fraud and misrepresentation

claim." (Pet. App. pp. 56-57)

The Court of Appeals ruled: "The

determinative issue underlying both the

contract and fraud claims is the same:

Whether the contract is reasonably

susceptible of Pacific's proffered

interpretation of the agreement. (Pet.

App. p. 20) * * *

The contract language is not reasonably

susceptible of the meaning proffered by

Pacific. We find as a matter of law that

Accordingly, the motion to dismiss is

denied." (Emphasis added). (Pet. App.

p. 140).

Pe died S43

the contract is unambiguous and required

Pacific to erect both the structural and

miscellaneous steel and the FGS

components. .. ."

(Pet. App. p. 27).

The Ninth Circuit justified its

disregard of the interpretation found by

the jury and upheld by the District Court

by declaring, “Whether the written con-

tract is reasonably susceptible of a

proffered meaning is a matter of law that

is reviewed de novo." (Pet. App. p. 26).

Paradoxically the Court of Appeals then

went on to declare that "certain

mechanical work beyond welding and bolting

components into place falls outside the

scope of erect complete" and hence

"Pacific may limit its damages’ by

introducing evidence demonstrating that

certain work fell outside the scope of

Simply bolting and welding the FGS com-

ponents into place," the very issue that

had consumed most of the seven-week jury

trial. (Pet. Ap® p. 41-42).

Notwithstanding its remand for a new

fact-bound determination of damages, the

Court of Appeals declared that "Brinderson

ae entitled to attorney fees

incurred pursuant to these - contract

claims, including fees incurred on appeal

because it is "the prevailing party."

(Pet. App. p. 55-56).

ee ee ee

LAW_AND ARGUMENT

A. The Respect Demanded by the

Constitution and F.R.Civ.P. 38

for Jury Determinations of Fact

and by the Federal Rules of

Decision Act for California

Substantive Law Requires

Reaffirmation of the Jury's

Exclusive Role as Master of the

Facts

A long line of precedents from this

court conclude virtually unlimited

deference is demanded by the Seventh

Amendment of the Constitution to fact-

bound jury determinations. E.g. Basham v.

Pennsylvania R.R. Co., 372 U.S. 699, 10

L.Ed.2d 80, 83 S.Ct. 965 (1963); Lavender

v. Kurn, 327 U.S. 645, 90 L.Ed. 916, 66

S.Ct. 740 (1946); Slocum v. New York Life

Insurance Co., 228 U.S. 364, 33 S.Ct. 523,

57 L.Ed. 879 (1913). These rulings are

carried forward into F.R.Civ.P. 38(a)

which declares the jury's role in our

system of justice to be "inviolate."

If fact-bound jury determinations are

to possess at least the dignity that this

court recently held must be accorded

equivalent judge-made determinations under

F.R.Civ.P. 52(a), and jury trials of

contract actions under unchallenged

instructions are to be the "main event"

and not a mere "tryout", then this case

cries out for this Court to extend its

holding and reasoning in Anderson v. City

of Bessemer City, 470 U.S. 564, 84 L.Ed.2d

518, S29, 105 S. Ct. 1504 (1985) to

reaffirm and revitalize the jury's role in

our constitutional system of justice.

California, like many other

jurisdictions throughout’ the _ nation,

including several in the Ninth Circuit,

permits the fact finder (be it judge or

jury) to consider "extrinsic" evidence as

an aid to interpretation of seemingly

"unambiguous" words used in a contract.

a eileen ital

ee eee pee

ives seas

53 tas Sy st Sialanattli tin Nis W alia haWe,

Pacific Gas & Electric v. G.W. Thomas

Drayage & Rigging Company, 69 Cal. 2d 33,

69 Cal. Rptr. 561, 422 P.2d 641 (1968) .??

Darner Motor Sales, Inc. v. University

Underwriters Ins. Co. 140 Ariz. 383, 682

P.2ad 388 (1984); Admiral Builders Sav. &

Loan Ass'n v. South River Landing, Inc.,

66 Md.App. 124, 502 A.2d 1096 (1986);

Keating v. Stadium Mat. Corp., 24

Mass.App.Ct. 246, 508 N.E.2d 121 (1987).

These jurisdictions, like California,

specifically reject a judicial search for

"ambiguity" in the words of the contract

as a litmus test conditioning

admissibility of evidence of related facts

12Tn an earlier case, the Ninth Circuit has

also approved an inquiry beyond the face of the

contract for the fact finder. See Standarc 1

Company of California v. Perkins, 347 F.2d 379 v9th

Cir. 1965).

outside the four corners of the

contract.?

The holding in Pacific Gas & Electric

on this point was reaffirmed by

California's highest court en banc in

Warner Construction Corporation v. City of

Los Angeles, 2 Cal.2d 285, 85 Cal. Rptr.

444, 449, 466 P.2d 996, 1001 (1970):

The test of admissibility of

extrinsic evidence to explain

the meaning of a-—- written

instrument is not whether it

appears to the court to be plain

and unambiguous on its face, but

whether the offered evidence is

relevant to prove a meaning to

which the language of the

The Supreme Court of the State of Washington,

where the contract at bar was executed and

performed, recently reexamined the substantive law

of its state under the parol evidence rule, the

arguments pro and con_~ supporting judicial

imposition of "a single plain meaning,” and opted

decisively to follow the broader inquiry into

context endorsed by Pacific Gas & Electric v. G. W.

Thomas Drayage & Rigging Company, 442 P. 2d 641,

Supra."We reject the theory that ambiguity in the

meaning of contract language must exist before

evidence of the surrounding circumstances is

aceon Cases to the contrary are overruled.”

B Vv. sman, 115 Wn.2d 657 at 669, 801 P.2d

222 = 230 (1991), citing Fa cific Gas & Electric

Co. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d

33, 69 Cal. Rptr. 961, 442 P.2d 641 (1968).

Vad ie ROT Ha

ot AS

+90

instrument is reasonably

susceptible.

By declaring the subcontract

"unambiguous" and refusing to address

evidence outside the face of the contract

offered by all parties,’* the Court of

Appeals in this case gave ae barely

disguised back of its hand to definitive

opinions by Justice Traynor of the

“Basham v. Pennsylvania R.R. Co., supra, 372

U.S. 699, 83 S.Ct. 965, 10 L.Ed.2d at 82 quoted

approvingly:

Only when there is a complete absence

of probative facts to support the

conclusion [reached by the jury] does

reversible error appear. But where, as

here, there is an evidentiary basis for

the jury's verdict, the jury is free to

discard or disbelieve whatever facts

are inconsistent with the conclusion.

And the appellate court's function is

exhausted when that evidentiary basis

becomes apparent, it being immaterial

that the court might draw a contrary

inference or feel that another

conclusion is more reasonable.

(Emphasis added).

Even if the Court of Appeals, as it grudgingly

implied may be its duty, accepted all of Pacific's

evidence and inferences therefrom as "fact", its

holding without discussing some unspecified

evidence it labeled "prejudicial" and "inadmissible

parol” casually casts aside its constitutional duty

to sustain the verdict on the basis of the other

evidence in the record.

California Supreme Court. The Court of

Appeals abstract and hypothetical passing

reference that Pacific's evidence was to

be viewed as "fact" together with all

inferences drawn therefrom in its favor

trivialized by lip service this

fundamental limitation on appellate

review, a limitation mandated by the

Constitution in jury cases and previously

followed by all the Courts of Appeal

including the Ninth Circuit. B.¢.,

Transqo, Inc. v. Ajac Transmission Parts

Corp., 768 F.2d 1001 (9th Cir. 1985),

cert. denied, 106 S.Ct. 802 474 U.S. 1059,

8 L.Ed.2d 778 (1985); Richardson v. Suzuki

Motor Ltd., 868 F.2d 1226 (Fed. Cir.

1989), cert. denied, 110 S.Ct. 154, 493

U.S. 853, 107 L.Ed.2d 112 (1989); Caper v.

State Farm Mut. Ins. Co., 758 F.2d 337

(8th Cir. 1985).

There is nothing new or radical about

dispensing with a search for apparent

"ambiguity" as a condition for the

admission of otherwise relevant’ and

probative extrinsic evidence:

There must always be an

association between words and

external objects, and no matter

how definite a contract may

appear on its face, words must

be translated into things and

facts. Thus... the contract

in any event had to be appraised

in view of the - surrounding

circumstances known to the

parties at the time of its

executing and these reasonably

could be looked to _ without

violating the parol evidence

rule even though the contract

were not deemed ambiguous.

S. Williston, The Law of Contracts, § 609

(1959), citing Nash v. Towne, 72 U.S. 689,

18 L.Ed. 527 (1867); Chicago R&I and P&R

and Denver and Rio Grande Railroad, 143

U.S. 596, 12 S.Ct. 479, 36 L.Ed. 277

(1892); Restatement, Contracts, § 230

(1932).

Until this case, even judges

reluctant to afford juries a role in

contract interpretation and openly

critical of the California substantive law

have nonetheless recognized their

obligation in diversity cases to give

unstinting application to the parol

evidence rule as articulated in the State

of California. See Trident Center v.

Connecticut General Life Insurance

Company, 847 F.2d 564, 569 (9th Cir.

1988); see also Wilson Arlington Company

v. Prudential Insurance Company, 912 F.2d

366, 370 (9th Cir. 1990) ("The

introduction of extrinsic evidence [is

permitted in California] to demonstrate

the existence of ambiguity even when the

language of the contract is perfectly

clear.")

This unstinting application of the

substantive law of the forum state in a

diversity case is mandated by the Federal

Rules of Decision Act, 28 U.S.C. § 1652:

The task of a federal court ina

diversity action is to

approximate state law as closely

as possible in order to make

sure that vindication of the

state right is without

discrimination because of the

federal forum.

E.g., Gee v. Tenneccu, Inc., 615 F.2d 857,

861 (9th Cir. 1980).

Moreover, aS to evidence guia

barred by the parol evidence rule, the

substantive law in California recognizes

that a party that has “opened the door to

the admission of parol evidence

cannot .. . now complain." McKeon Vv.

Santa Claus of California, Inc., 230 Cal.

App. 2d 359, 363, 41 Cal. Rptr. 43 (1964);

- Burgess v. Premier Corp., 727 F.2d 826,

834 (9th Cir. 1984).

The Ninth Circuit's "find[ing] as a

matter of law that the contract is

, |

unambiguous and required Pacific to erect

both the structural and miscellaneous

steel and FGS components," together with

its holding that "certain mechanical work

beyond welding and bolting components into

place falls outside the scope of erect

complete," left off precisely where the

district court and the jury had begun

their deliberations to determine the

content and meaning of the phrase "erect

complete" three years earlier. The Court

of Appeals simply sent the case back to

the District Court and the jury to do all

over again what each had done before.

Although the Ninth Circuit never

specifically identified the objectionable

‘parol' evidence, it hinted that "the most

important and prejudicial parol evidence

is Pacific's contention [sic] that

Brinderson made an oral promise to

interpret the contract in a way that

ON ee ee ee

;

limited Pacific's obligation under the

contract." (Pet. App. p. 19).

No such allegation can be found any

place in the record.

Moreover, whether the evidence is

properly characterized "an oral promise

inconsistent with the promise in writing"

is a fact dependent determination to be

made by the jury and which was made by the

jury under the instructions which were not

challenged by Brinderson on appeal. See

fn.10(b) & (da), Supra, pp. 25-26.

The key justification to the Ninth

Circuit's heavy-handed intervention

overturning the jury's verdict after eight

weeks of testimony and evidence is its

assertion that a "matter of law. ...

reviewed de novo [is] presented." (Pet.

Close examination of the cases cited by the

Ninth Circuit do not support its conclusion. Two

of the cases were appeals from summary judgment

which are always reviewed de novo for the purpose

of fulfilling the reviewing court's duty to see

ea i

App. p. 26). In a decision decided just

390 days before the instant case and by the

same panel, the Ninth Circuit held:

When an appellate court

restricts its review’® of the

that the jury role of determining facts is

preserved "inviolate"; not for the purpose of

diminishing the jury's role. In the state case

cited, Banco de Brazil Latatian, the question

whether a contract is reasonably susceptible of a

meaning advanced by parol evidence was not

presented; the court merely ruled the question of

whether a writing is "integrated" is a matter if

law to be reviewed de novo. 285 Cal. Rptr. at 885-

886. No issue was presented in this case whether

the writing was integrated.

16By subtly restating earlier Ninth Circuit

cases holding the standard of review is dependent

upon whether the District Court's consideration of

interpretation issues was limited to the face of

the contract and principles of contract

interpretation to one that makes the standard of

review dependent on the apparent whim of the

reviewing court to so confine itself, the Ninth

Circuit essentially reserved an autocratic fiat to

redetermine winners and losers in every case of

contract interpretation. Compare Kern Oil &

Refining Company v Tenneco, 840 F.2d 730, 736 (9th

Cir. 1988), cert. denied, 102 L.Ed.2d 367 (1988),

which held that the determination of the applicable

standard of review is derived as follows:

When the District Court's decision is

based on an analysis of the contractual

language and application of the

principles of contract interpretation,

that decision is a matter or law and

reviewable de novo. When the inquiry

focuses on extrinsic evidence of

related facts, however, the trial

court's conclusion will not be reversed

liishiat apenaiacary

trial court's interpretation of

a contract to an analysis of the

language used in the contract,

the issue of interpretation is a

matter of law and freely

reviewable. * * *

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. Citing In re

Financial Securities Litigation,

729 F.2d 628, 631-32 (9th Cir.

1984).

Petro-Venturers, Inc. v. Takessian, 967

F.2d 1337 (9th Cir. 1992). By the simple

expedient of turning a blind eye to the

extrinsic evidence first deemed prima

facie persuasive by the District Court and

then weighed by the jury, the Ninth

unless they are clearly erroneous.

' (Emphasis added).

See also Interpetrol Bermuda, Ltd. v. Kaiser

Aluminum International, 719 F.2d 992, 998 (9th Cir.

1983); Miller v. Safeco Insurance Co., 758 F.2d 364

(9th Cir. 1985) ("the intent of the parties is

always a question of fact").

Circuit has disregarded in all such cases

the fundamental limitation on the

appellate role emphasized by this Court in

Anderson v. City of Bessemer City, 470

U.S. 564, 84 L.Ed.2d 518, 529, 105 S.Ct.

1504 (1985) when it declared that "the

trial on the merits should be 'the main

event’ .. . rather than a ‘try out on the

road.'" Id. at 529. After a seven-week

jury trial, it is more than understatement

to say of this case that "the parties to a

case on a appeal have already been forced

to concentrate their energies and

resources on persuading the trial judge

{and also a jury] that their account of

the facts is the correct one; requiring

them to persuade three more judges at the

appellate level is requiring too much."

Id.

Even where appellate questions are

presented which involve mixed elements of

law and fact, this Court has been at pains

to remind the Courts of Appeal that such

determinations are to be reviewed under

the "clearly erroneous" standard of

F.R.Civ.P. S2(a):

L DRR A Wt ssi add fe SAP ste ie ae tthe a at ag

If the district court's account

of the evidence is plausible in

| light of the record viewed in

its entirety, the Court of

Appeals may not reverse it even

though convinced that had it

been sitting as the trier of

fact, it would have weighed the

evidence differently. Where

there are two permissible views

of the evidence, the fact

finder's choice between them

cannot be clearly erroneous.

an, ee a ee

84 L.Ed.2d at 528.

Shots. da sith artling

When "variations in demeanor and

tone of voice that bear so

heavily on the listener's

understanding of and belief in

what was said," findings made in

a bench trial pursuant’ to

F.R.Civ.P. 52(a) demand even

: greater deference to’ those

findings.

Anderson v. City of Bessemer City, 470

U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518,

528-29.

Under the Seventh Amendment, no less

can be required when two district judges

and a jury have (1) determined under the

evidence presented by all parties in a

seven-week trial that the contract in

question is reasonably "susceptible" to

the interpretation offered by Pacific,

(2) Pacific's interpretation was the

mutually understood interpretation, or

(3) at the very least, Mr. Loscavio should

have known that was Pacific's

understanding. See Interform v. Mitchell,

575 F.2d 1270, 1276 (9th Cir. 1978). See

fn. 10b, supra, p. 25.

Admission of “the precontract oral

discussions that the Ninth Circuit

declared to be "prejudicial" is also

endorsed by scholars at the American Law

Institute. Restatement (Second) Contracts

§ 214(c) provides that:

saiieasiadmitaida iii

si tas pee aisha RE

[A]greements and negotiations

prior to or contemporaneous with

the adoption of a writing are

admissible in evidence to

establish

* * *

whether or not integrated;

(Emphasis added)

Comment b to this section explains:

Words, written or oral, cannot

apply themselves to the subject

matter. The expressions and

general tenor of speech used in

negotiations are admissible to

show the conditions existing

when the writing was made, the

application of the words, and

the meaning or meanings of the

parties. Even though words seem

on their face to have only a

Single’ possible meaning, other

meanings often appear when the

circumstances are disclosed. In

cases of misunderstanding, there

must be inquiry into the meaning

attached to the words by each

party and into what each knew or

had reason to know.

Restatement (Second) Contracts § 214,

comment b.

By recasting the record to reflect

its preferences, by disregarding evidence

Supportive of the findings of both the

District Court and the jury and by

substituting its fact-dependent

conclusions for those of the District

Court and the jury, the Court of Appeals

set at naught settled principles of state

substantive law in diversity cases and did

violence to the traditional understandings

of the distinct roles performed by the

District Court, the jury and Courts of

Appeal as required by the Federal Rules of

Civil Procedure and the Seventh Amendment

of the Constitution.

B. Exclusion of Evidence of "Oral

Statements" in Cases of

Contracts Allegedly Induced by

Fraud or Misrepresentation

Nullifies California Substantive

w_and e Role o e

tructed Ju Cont to the

Federal Rules of Decision Act,

F.R.Civ.P. 38, and the Seventh

Amendment to the Constitution.

Is it beyond human experience to

suppose that a subcontractor who agreed to

OE ne OS A ad Net RS Loe 1 Nari adders

build the structural steel frame to

support large Flue Gas System components

and lift those components into place with

its heavy erection crane could be induced

by fraud or deceit to enter into a

contract that could plausibly be argued,

particularly to persons unfamiliar with

construction industry practice, to also

require thousands of man hours. of.

additional work customarily performed by

other trade lines to preassemble the parts

comprising those components, even though

that was not the parties' actual

understanding of the contract?

Under the evidence admitted by the

District Court and weighed by the jury,

the conclusion was reached that precisely

such a contract was drafted and induced by

Mr. Loscavio and Brinderson.

Given the unanimous jury conclusions

and the conclusion of two district judges

that considered the question, does the

substantive law of California bar relief

to the victim because (1) the written

contract contained a "merger clause"

disclaiming representations outside the

contract and (2) the victim failed ‘to

"insist" that the perpetrator rewrite the

contract??’

The Ninth Circuit opined that the

intermediate California Court of Appeals

case of Price v. Wells Fargo Bank, 261

Cal.Rptr. 735, 213 Cal.App.3d 465 (Cal.

1989) was "directly on point and requires

the exclusion of Pacific's parol evidence

because it contradicts the written

agreement." (Pet. App. p. 48).

Careful examination of the Price

decision, however, shows a factual mosaic

Phe Ninth Circuit held without citation to

California authorities, “Pacific should have

insisted that Brinderson's promises and

representations were put into the contract before

it was signed." (Pet. App. p. 45).

—

composed of undisputed facts at summary

judgment totally unlike that portrayed by

the disputed evidence in the case at bar:

1. A representation to the borrower

that Wells Fargo Bank would loan money "at

a better interest rate than Bank of

America".

2. At the time of the borrower's

application to Wells Fargo Bank, Bank of

America offered loans at a fixed 13% rate.

: At the time the borrower closed

the loan with Wells Fargo Bank, Bank of

America was no longer offering the 13%

rate.

4. The note signed by the borrower

did not state a 13% interest rate, but

rather stated a rate specified as "three

points above the prime rate".

5. No issue of interpretation was

asserted by the borrower.

6. No claim made that the borrower

was misled or did not understand from the

face of the contract the difference

between the 13% rate and a rate stated as

3% above the prime rate. Rather, the

borrower claimed it "had no choice" but to

enter into the loan agreement with Wells

Fargo.

Price explicitly confirmed California

law provides that if "to induce one to

enter into an agreement, a party makes an

independent promise without intention of

performing it, this separate false promise

constitutes fraud which may be proven to

nullify the main agreement". Id. at 745.

The Price court took pains to note

that no issue of interpretation was

presented in that case, and thus, "the

landmark decisions of the 1960's

liberalizing the parol evidence rule have

only oblique relevance. . .". Id. at 746.

Sa SRY AB A A Ue OO kt le a A NS SAL

Unless the mantra of "an oral promise

inconsistent with a promise in writing" is

a self-executing warrant to be invoked by

reviewing courts to nullify decisions not

to their liking, at least three factual

determinations are logically required:

First, what is the precise content of the

"promise in writing" which may well

involve questions of interpretation.

Second, what is the content of the

perceived "oral promise." Finally, is the

oral promise truly "inconsistent with the

promise in writing?" Plainly, it is

impossible to accomplish this inquiry if

all evidence of "oral statements" are

deemed "prejudicial" and "inadmissible" as

held by the Court of Appeals.

No issue is presented in this case

whether the jury was fully and

appropriately instructed on how to handle

these issues. The principal instruction

at the heart of the Court of Appeals

holding was requested by Brinderson and

given. See fn. 10(d), p. 25, supra.

Pacific's evidence was not deserving

of the Court of Appeal's repeated

denunciation that it was "an oral promise

conflicting with the language of an

integrated contract", particularly when

the Court of Appeals refused to even

discuss or disclose what the evidence was.

California law, as pronounced by

California's highest court, recognizes at

least three different situations where

affirmative relief may be granted for

fraud or misrepresentation "in

transactions which do not involve

fiduciary or confidential relations":

1. [A party) makes representations

but does not disclose facts

which materially qualify the

facts disclosed or which render

his disclosure likely to

mislead.

2. The facts are known or

accessible only to [the party

against whom recovery is sought]

and [that party] knows they are

not known to or _ reasonably

discoverable by [the other}

party.

3. The {party charged} actively

conceals discovery from the

[complaining party].

Warner Construction Corp. v. City of Los

Angles, supra, 2 Cal.3d 285, 85 Cal.Rptr.

444, 449, 466 P.2d 996, 1901 (1970).

In an earlier case, the Ninth

Circuit, applying California law and

precedents, declared in Bell vv. Exxon,

Supra, 575 F.2d 714 (9th Cir. 1978):

Although parol evidence is not

available to vary the express

terms of a written agreement, it

is admissible to show fraudulent

inducement to enter into a

contract. Bank of America v.

Lamb Finance Co., 179 Cal.App.2d

498, 3 Cal.Rptr. 877 (1960),

"and this is true even though

the contract recites that all

conditions and representations

are embodied therein." Morris

v. Harbor Boat Building Co., 112

Cal.App.2d 882, 888, 247 P.2d

589, 593 (1952), as it does in

this case.

es 2 @&

ig. at 7i5.

Fraud is a question of fact to

be determined at trial. It was

therefore inappropriate to

dispose of appellant's fourth

claim by summary judgment.

ia. at 7ié6. The holding by the Ninth

Circuit in Bell integrates the law in

California with holdings in other circuits

obligated to accord jury determinations

the respect demanded by the Seventh

Amendment in diversity cases.’*® See Judge

Easterbrook's opinion in AMPAT/Midwest v.

Illinois Tool Works, Inc., 896 F.2d 1035,

1042-43 (7th Cir. 1990), which eloquently

establishes the intrinsically factual

nature of such an inquiry.

18see Chicago Burlington and Quincy R.R. Co. v.

City of Chicago, 166 U.S. 226, 17 S.Ct. 581, 41

L.Ed. 979 (1897).

The Ninth Circuit's view of the

instant case, unsupported by citation,

that no relief for fraud or

misrepresentation was available to Pacific

because it could have "insisted" the

contract be written differently,

effectively nullifies the California law

of misrepresentation whenever a contract

is "integrated."

“Mcalif. Civ. Code § 1640 states that "when

from fraud, mistake or accident, a written contract

fails to express the reasonable intention of the

parties, such intention is to be regarded, and

erroneous parts of the writing disregarded."

Compare the observation of this Court in Blackledge

v. Allison, 431 U.S. 63, 52 L.Ed.2d 136, 148 n.6,

97 S. €t. 1621 (1977):

[E)ven a written contractual provision

declaring that the contract contains

the complete agreement of the parties,

and that no antecedent or extrinsic

representations exist, does not

conclusively bar subsequent proof that

such additional agreements exist and

should be given force. The provisions

denying the existence of such

agreements, of course, carries great

weight, but it can be set aside by a

court on the grounds of fraud, mistake,

duress "or on some ground that is

sufficient for setting aside other

contracts.”

More than 50 years ago, this court in

Equitable Life Ins. Co. v. Halsey Stuart &

Co., 312 U.S. 410, 61 S.Ct. 623, 85 L.Ed.

920 (1941), reversed a Court of Appeals

decision overturning a jury verdict. The

Court of Appeals believed the contractual

inducements were protected by a "hedge

clause" which stated "all statements

herein are official, or based upon

information which we regard as reliable,

and while we do not guaranty them, we

‘ourselves have relied upon them in the

purchase of this security."

This Court granted certiorari in

Equitable Life Ins. Co. based upon the

petitioner's assertion that the Court of

Appeals had failed "to follow state law in

its rulings [and] the questions presented

[are] of public importance because they

involve the relation of the federal courts

to the states." Id. at 85 L.Ed. 923.

This Court emphasized that’ the

instructions given by the trial court were

consistent with the law of the state and

"left the jury to apply to the evidence

the generally accepted doctrine adopted by

the American Law Institute, Restatement of

Torts, Vol. 3, §§ 529, 551 [including the

principle that]:

"A statement in a_ business

transaction which, while stating

the truth so far as it goes, the

maker knows or believes to be

materially misleading because of

his failure to state qualifying

matter is a fraudulent

misrepresentation."

Such a statement of a half truth

is as much a misrepresentation

as if the facts stated were

untrue.

85 L.Ed. at 930.

The time has come again for this

generation of the Supreme Court’ to

reaffirm the traditional balance allocated

by the Constitution and F.R.Civ.P. 38

between (1) the functions performed by a

jury properly instructed under the

principles of the applicable substantive

law, (2) the District Courts who have the

primary responsibility to contemporane-

ously determine admissibility of evidence

aided by timely and supported objections

from an aggrieved party, and (3) the Court

of Appeals whose duty it is to uphold the

division of authority made by the Federal

Rules of Civil Procedure and the Constitu-

tion of the United States. Just this tern,

this Court granted certiorari in the case

of TXO Production Corp. v. Alliance

Resources Corp., 1992 WL 266231, where a

jury with minimal instruction was given

unlimited discretion to award punitive (as

opposed to compensatory) damages,

restrained only by reviewing court's

notions of whether the losing party was

just "stupid" or "truly mean".

The case at bar presents the opposite

Side of the same coin. Here a properly

instructed jury gave careful consideration

to the extensive evidence offered by all

parties and made credibility determina-

tions and a breach of contract and fraud

finding adverse to Brinderson and Mr.

Loscavio, only to have its labors brushed

aside by a reviewing court which declined

to state the evidence opposed to its

holding by declaring after the fact some

of the evidence was "inadmissible."

By giso holding that whenever a

contract contains a "merger" clause the

factual determination of whether "an oral

promise inconsistent with the promise in

writing" becomes a question for the

reviewing court to determine "de novo",

and that no evidence was admissible and no

relief was available because Pacific

failed to "insist" the contract be

rewritten, the Court of Appeals charted

new legal ground contrary to the

California substantive precedents.

At best, the Court of Appeals

decision could be viewed as_ having

"contributed only negligibly to the

accuracy of fact determinations” [and at

a] huge cost*? in diversion of judicial

resources. "* More likely, and

indisputably "[{I]f all of Pacific's

evidence is accepted as fact and all

reasonable inferences are drawn in favor

of Pacific" as the court of Appeals

hypothetically implied was its duty (Pet.

App. p. 27), its decision bestowed upon a

20’ MJjechanical work beyond welding and bolting

components into place falls outside "erect

complete.” (Pet. App. p. 41).

2lphrough trial and before appeal, attorney

fees expended by the parties exceed $3 million

without regard to the cost of judges and jurors.

22anderson v. City of Bessemer City, 470 U.S.

564, 84 L.Ed.2d 518, 529, 105 S. Ct. 1504 (1985).

wrongdoer the fruits of its fraud or

misrepresentation, and literally "in the

process," it also imposed a death sentence

of ruinous attorney fees incurred in

Pacific's successful trial defense of

Brinderson's claims, claims even the Court

of Appeals acknowledged should not have

but did include "mechanical work."

The writ of certiorari should be

granted.

RESPECTFULLY SUBMITTED the 9th day of

December, 1992.

SCHWABE, WI wo

rene Sic

By: an,

“A. Bt Moore

Arnold R. Hedeen

Counsel of Record for

Joint Petitioners

No.

IN THE

Supreme Court of the United States

October Term, 1992

BRINDERSON-NEWBERG JOINT VENTURE;

BRINDERSON CORPORATION; GUST K. NEWBERG

CORPORATION; FRANK J. LOSCAVIO;

BRINDERSON CONSTRUCTORS, INC.,

_ Respondents,

PACIFIC ERECTORS, INC.; HARTFORD ACCIDENT

& INDEMNITY COMPANY,

Petitioners.

APPENDIX TO JOINT PETITION FOR WRIT OF

CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

APPENDIX TO JOINT PETITION FOR WRIT OF

CERTIORARI

WILLIAM B. MOORE, Counsel of Record

ARNOLD R. HEDEEN

SCHWABE, WILLIAMSON, FERGUSON & BURDELL

Pacific First Centre

1420 Fifth Avenue, #3400

Seattle, WA 98101-2339

WILLIAM I. CHERTOK

BRYAN CAVE

120 Broadway, Suite 500

Santa Monica, CA 90401-2305

Attorneys for Petitioners Pacific

Erectors, Inc.

and Hartford Accident & Indemnity Company

TABLE OF CONTENTS

Description Page

United States Court of Appeals

for the Ninth Circuit July 20,

1992. Opinion in Brinderson-

Newberg Joint Venture, et al.

v. Pacific Erectors, Inc., et

ai., 971 F.24 272 ‘Stn Cir. 1992) . 1-57

Order Amending Opinion and Denying

Petitions for Rehearing and

Suggestions for Rehearing.

Octomer 22, 1992 ..» set eveee 58-114

Memorandum of Decision and Order.

Judge Pamela Ann Rymer -

September 19, 1988 ....... 115-141

Memorandum of Decision and Order

Denying Brinderson's Motions for

Judgment Notwithstanding the

Verdict and For New Trial.

Judge Robert C. Bonner -

wanueary if, 1990 ... + « s« « « 142-367

General Verdict Form -

Octoper 23, 1989 ...+ eee» 168-172

BRINDERSON-NEWBERG JOINT VENTURE;

Brinderson Corporation; Gust K. Newberg

Corproation; Frank J. Loscavio;

Brinderson Constructors, Inc.,

Plaintiffs-counter-defendants-Appellants,

PACIFIC ERECTORS, INC.; Hartford Accident

& Indemnity Company, Defendants-counter-

claimants-Appellees.

BRINDERSON-NEWBERG JOINT VENTURE;

Brinderson Corporation; Gust K. Newberg

Corporation; Frank J. Loscavio;

Brinderson Constructors, Inc.,

Plaintiffs-counter-defendants-Appellees,

Vv.

PACIFIC ERECTORS, INC.; Defendant-

counter-claimant,

and

Hartford Accident & Indemnity

Company, Defendant-counter-

claimant-Appellant.

BRINDERSON-NEWBERG JOINT VENTURE;

Brinderson Corporation; Gust K. Newberg

Corporation; Frank J. Loscavio;

Brinderson Constructors, Inc.,

Plaintiffs-counter-defendants-Appellees,

PACIFIC ERECTORS, INC.; Defendant-

coutner-claimant, Appellant,

and

Hartford Accident & Indemnity

Company, Defendant-

counterclaimant.

Nos. 90-55308, 90-55372, 9055374,

90-55376 and 90-55378.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Jan. 10, 1992.

Decided July 20, 1992.

General contractor sued subcontractor

and subcontractor's surety for breach of

contract. The United States District

Court for the Central District of

California, Robert C. Bonner, J., allowed

jury to hear and consider parol evidence

NT AR Be PTY tee TF CK eM + sgt Neh. itede-—teete

about subcontractor's interpretation of

contract, directed verdict in favor of

Surety on general contractor's bad faith

claim, granted summary judgment in favor

of general contractor on surety's fraud

and misrepresentation claims, and denied

contractor's motion for JNOV in favor of

subcontractor on contractor's claims and

subcontractor's fraud clain. General

contractor and surety appealed. The Court

of Appeals, Wiggins, Circuit Judge, held

that: (1) parol evidence was inadmissible

under California law to interpret

completely integrated subcontract which

waS not susceptible of subcontractor's

interpretation; (2) Surety was. liable

under performance bond; (3) parol evidence

of fraud was inadmissible under California

law to contradict integrated subcontract;

and (4) general contractor could not

recover for bad faith investigation

against surety.

Affirmed in part; reversed in part

and remanded.

i. Evidence 397(2), 448

Under California law, parol evidence

analysis governing case is divided into

two initial inquiries: was writing

intended to be integration, i.e., complete

and final expression of parties'

agreement, precluding any evidence of

collateral agreements; and is agreement

susceptible of meaning contended for by

party offering evidence.

2. Evidence 448

Under California law, parol evidence

may be introduced to show meaning of

express terms of written contract.

3. Federal Courts 776

Whether written contract is

reasonably susceptible of proffered

meaning so as to permit admission of parol

evidence is matter of law that is reviewed

de novo.

4. Evidence 450(5)

Language of subcontract for installa-

tion of pollution control system at coal -

fired power plant was not reasonably sus-

ceptible of meaning proffered by

subcontractor so as to permit admission of

parol evidence under California law;

Subcontractor's proffered interpretation

of contract stretched contractual language

beyond reasonable limits and violated most

applicable rules of contract construction.

S. Evidence 448

Under California law, language of in-

strument must be reasonably susceptible of

proffered meaning before parol evidence

may be introduced.

6. Damages 120(3)

Subcontractor could limit its damages

for its alleged breach of contract by

introducing evidence demonstrating that

certain work fell outside scope of

parties' agreement

7s Principal and Surety 136

General contractor was entitled to

recover under subcontractor's performance

bond, where subcontractor was liable for

breach of contract.

8. Evidence 434(1)

Under California law, parol evidence

cannot be introduced to show fraud or mis-

representation if parol evidence

contradicts language of integrated

agreement; for parol evidence of fraud or

misrepresentation to be admissible under

California law, it must tend to establish

some independent fact or representation,

some fraud in procurement of instrument or

some breach of confidence concerning its

use, and not promise directly at variance

with promise of writing.

9. Evidence 434(8)

California law holds parties

responsible for signing integrated

contracts and will allow parol evidence of

fraud only to the extent it does not

contradict integrated contract.

10. Fraud 36

Under California law, subcontractor's

Signing of integrated contract precluded

fraud claim based on general contractor's

alleged promise to interpret contract in a

way that contradicted plain language of

contract.

11. Evidence 434(8)

Integrated contract is given legal

Significance under California law, and

subcontractor cannot introduce parol

evidence of fraud if evidence contradicts

integrated contract.

12. Evidence 434(10)

Parol evidence of false

representations by general contractor that

it would interpret contract to limit

subcontractor's scope of work so as to

induce surety to issue performance bond

was not admissible to vary terms of

integrated subcontract under California

law.

13. Principal and Surety 136

Surety for subcontractor had no duty

to conduct thorough investigation of

general contractor's claim once surety

understood subcontractor's interpretation

of contract and genuine dispute over

liability existed, and surety had ever.N-

right to await outcome of liability

Gispute between general contractor and

subcontractor before paying on

subcontractor's performance bond; although

subcontractor's and surety's in-

terpretation of contract was incorrect,

interpretation was not so unreasonable as

to be mere pretext for avoiding further

investigation so as to permit contractor

to recover pursuant to bad faith claim

against surety.

14. Costs 194.32, 252

Under California law, general

contractor as prevailing party in dispute

with subcontractor was entitled to

attorney fees incurred in pursuing breach

of contract claims, including fees

incurred on appeal, as well as fees

incurred in defending fraud,

misrepresentation, and other claims to ex-

tent fees were incurred litigating issues

common to contract claims. West's Ann.

Cal.Civ.Code §§ 1717.

15. Costs 194.32

Under California law, general

contractor as prevailing party was not

entitled to attorney fees incurred in

pursuing its bad faith claim against

surety for subcontractor, where issues in

bad faith claim were not common to

contract action against subcontractor.

West's Ann.Cal.Civ.Code §§ 1717.

John D. Alkire, Perkins Coie, Michael

Himes, Seattle, Wash., for appellants

Brinderson-Newberg Joint Venture,

Brinderson Corp., Gust K. Newberg Corp.,

Frank J. Loscavio, and Brinderson

Constructors, Inc.

William B. Moore and Arnold R.

Hedeen, Ferguson & Burdell, Seattle, Wash.

for appellee Pacific Erectors, Inc. and

William I. Chertok, Bryan Cave, Los

Angeles, Cal., for appellee Hartford Acc.

and Indem. Co.

Appeal from the United States

District Court for the Central District of

California.

Before POOLE, WIGGINS, and LEAVY,

Circuit Judges.

WIGGINS, Circuit Judge:

OVERVIEW

This appeal stems from a _ contract

dispute between a general contractor,

Brinderson-Newberg Joint Venture (Brinder-

son), a subcontractor, Pacific Erectors

(Pacific) and the bonding company that

issued Pacific's performance bond,

Hartford Accident & Indemnity Company

(Hartford). Brinderson appeals’- the

district court's denial of Brinderson's

motions for a directed verdict and for

JNOV. Brinderson argues that a directed

verdict or JNOV was necessary because the

jury verdicts on Brinderson's' contract

claim and Pacific's fraud claim were

dependent on inadmissible parol evidence.

Brinderson also appeals the directed

verdict eliminating Brinderson's bad faith

claim against Hartford, and Hartford

cross-appeals the district court's grant

of summary judgment in favor of Brinderson

on Hartford's fraud and misrepresentation

claims and an adverse directed verdict on

Hartford's implied covenant tort claim.

The district court had diversity

jurisdiction over this contract dispute

under 28 U.S.C. §§ 1332 (1988). A timely

notice of appeal was filed after the entry

of ‘stent and this court has

jurisdiction pursuant to 28 U.S.C. §§ 1291

(1988).

BACKGROUND

In May 1985, the United States Navy

awarded Brinderson a contract to construct

a coal-fired power plant at the Puget

Sound Naval Shipyard in Bremerton,

Washington. In June 1985, Brinderson

entered into negotiations with Pacific,

one of the subcontractors who had

submitted a low bid for certain erection

work. Part of these negotiations focused

on the erection of the Flue Gas System

(FGS), a large pollution control system.

As part of its $1.54 million precontract

bid, Pacific offered to erect the support

steel for the FGS for $257,000.

Brinderson, however, wanted Pacific to

erect the large steel FGS components along

with the support steel.

The negotiations between Brinderson

and Pacific took place in three meetings,

the first in late June 1985, the second on

July 29, 1985, and the third on August 16,

1985. Many of the relevant '§ facts

concerning the negotiations are disputed.

Brinderson claims that Pacific agreed to

erect the FGS as part of an agreement to

increase Pacific's scope of work and bid

price. Although Pacific admits that the

scope of its work and the corresponding

contract price were increased as part of

the negotiations,’ it emphatically denies

that the FGS components were included in

the agreement. Pacific alleges that

Brinderson never indicated that the FGS

components were to be erected by Pacific

and that Brinderson only asked. that

Pacific "pick and set" the FGS components.

After the second meeting, Brinderson

drafted a contract reflecting the parties'

agreement and sent a copy to Pacific for

review. Article l(e)I.A., section 15603

of the contract required Pacific to "erect

‘pacific attempts to downplay the fact that

the scope of work and contract price were increased

during the negotiations. Pacific suggests that the

final scope of work and contract price were

approximately the same as the scope and price in

Pacific's original bid, demonstrating that Pacific

never agreed to erect the FGS components. This

characterization turns on Pacific's internal

estimates and its bids to other contractors.

Although it does help to explain Pacific's

subjective intent, this characterization of the

negotiations ignores that Pacific's original bid to

Brinderson was for $1.54 million and included less

work than the final contract for $2.84 million.

Between Brinderson and Pacific, the scope and

compensation for Pacific's work was increased

during the negotiations.

complete" the FGS equipment. Article 33,

paragraph 16 of the contract stated that

Pacific "shall erect complete the

Government Furnished Flue Gas_ System

including Bag Houses, Scrubbers, I.D.

Fans, Breeching and Dampers, Steel

Gratings and appurtenances to make a

complete installation." Pacific reviewed

these provisions along with the other

parts of the contract in preparation for

the final negotiations and signing of the

contract on August 16, 1985. Hartford

also reviewed the contract and issued a

performance bond for Pacific on August 13,

1985.

At the August 16 meeting, Pacific and

Brinderson reviewed the contract line by

line and negotiated a number of changes or

clarifications concerning Pacific's scope

of work. Both parties remember that

Pacific requested that Brinderson change

article 1(e)I.A. section 15603 and article

33, paragraph 16 to limit Pacific's work

on the FGS components to picks and sets.

Brinderson contends that it refused to

make the change because it expected

Pacific to erect the components and that

Pacific agreed to erect the FGS

components. Pacific and Hartford contend

that no change was made because Brinderson

assured Pacific that the language only

required picks and Bets for the FGS

components and that article l(a) limited

the scope of work to jobs that Pacific

customarily performed. According to

Pacific and Hartford, Brinderson claime?

that it just did not want to take the time

to write the pick and set agreement into

the contract. Pacific signed the Contract

at the end of the Aumist 16 meeting.

Pacific admits that it understood the

effect of the integration clause in the

contract and that the contract was a

completely integrated agreement.

Brinderson and Pacific performed

under the contract until the summer of

1986, when a dispute arose concerning the

erection of the FGS components.

Brinderson claimed that Pacific was

required to erect the components under the

contract. Pacific contended that it was

only required to pick and set’ the

components while Brinderson erected the

components. Brinderson points out that

Pacific started to erect the FGS

components and then suddenly stopped,

Suggesting that Pacific knew it was

obligated to erect the FGS components.

There is some evidence, however, tending

to show that Pacific performed part of the

disputed work on the assumption that

Brinderson would pay extra work

compensation for erecting the FGS compo-

nent.

Brinderson made a claim on_ the

performance bond on September 22, 1986.

Hartford made a limited investigation of

Brinderson's claim, determined that a

genuine _ existed concerning’ the

interpretation of the contract, and

refused to pay Brinderson's claim on the

bond until liability was established. The

dispute eventually resulted in

Brinderson's contract claims against

Pacific and Hartford, Pacific's fraud

Claim against Brinderson, Hartford's fraud

and implied covenant tort claims against

Brinderson, and Brinderson's claim that

Hart. ford conducted its investigation in

bad faith.* At trial, the district court

“although other claims existed in this litiga-

tion, they are not relevant to the issues on

appeal.

allowed the jury to hear Pacific's

allegations that Brinderson promised to

interpret the contract to limit Pacific's

work to picks and sets on the FC&4.

Brinderson objected to this evidence,

arguing that it violated the parol

evidence rule.

DISCUSSION

The primary issue in this appeal is

the admission of parol evidence over the

objections of Brinderson. The most

important and prejudicial parol evidence

is Pacific's allegation that Brinderson

made an oral promise to interpret the

contract in a way that limited Pacific's

obligations under the contract. This

parol evidence was used to support both

(1) Pacific's defense to’ Brinderson's

contract claim and (2) Pacific's fraud

claim against Brinderson. The contract

provides, and the parties agree, that

California law governs the _ parties'

claims. Brinderson argues that

California, law on the parol evidence rule

required the exclusion of the parol

evidence and that the district court erred

in allowing the jury to consider the parol

evidence. As is explained in more detail

below, the determinative issue underlying

both the contract and fraud claims is the

same: Whether the contract itself is

reasonably susceptible of Pacific's

proffered interpretation of the agreement.

2s Brinderson's Contract Claim

The contract required Pacific to

"erect complete" the FGS. Pacific

interpreted the phrases "erect complete"

and "make a complete installation" to mean

that the con. tract required Pacific to

complete the structural and miscellaneous

steel, such as _ steel gratings and

appurtenances, but required only pick and

sets for the components of the FGS. Under

Pacific's understanding, Pacific only had

to complete the work to the extent that it

had customarily completed similar work as

a subcontractor. In other words, Pacific

was required to “erect complete" only a

portion of the FGS, not the entire system.

To advance its interpretation of the

contract, Pacific introduced parol

evidence at trial alleging that, before

the contract was signed, Brinderson orally

assured Pacific that the phrases "erect

complete" and "make a complete

installation" only meant that Pacific had

to complete the structural and

miscellaneous steel work for the FGS.

Brinderson denies making such representa-

tions and contends it was clear that

Pacific was required to erect and install

the entire FGS. Brinderson argues that

the district court erred by allowing the

jury to hear and consider this parol

evidence.

A. The Law

[1] Under California contract law,

the parol evidence analysis governing this

case is divided into two initial

inquiries: "1) was the writing intended to

be an integration, i.e. a complete and

final expression of the parties'

agreement, precluding any evidence of

collateral agreements [citation]; and 2)

is the agreement susceptible of the

meaning contended for by the party offer-

ing the evidence?" Gerdlund v. Electronic

Dispensers Int'l, 190 Cal.App.3d 263, 235

Cal.Rptr. 279, 282 (Ct.App.1987) (citing

Masterson v. Sine, 68 Cal.2d 222, 65 Cal.

Rptr. 545, 436 P.2d 561 (Cal.1968) and

Pacific Gas & Elec. Co. v. G. W. Thomas

Drayage & Rigging Co., 69 Cal.2d 33, 69

Cal.Rptr. 561, 442 P.2d 641 (1968)); see

also Banco Do Brasil v. Latian, Inc., 234

Cal.App.3d 973 285 Cal.Rptr. 870, 886

(Ct.App. 1991) (applying the same test),

review denied, (Jan. 23, 1992), cert.

denied, - U.S. 112 S.Ct. 2967, 119 L.Ed.2ad

588 (1992).

The first inquiry is easily resolved.

All the parties agree that the written

contract is a completely integrated

agreement. Thus, parol evidence of terms

not specifically included in the written

contract is not admissible. Masterson, 65

Cal.Rptr. at 547, 436 P.2d at 563. In

this regard, California follows the great

weight of authority on the application of

the parol evidence rule. See, eg.,

Restatement (Second) of Contracts §§

213(1)-(2) (1979). This rule discourages

interested witnesses to a contract from

committing fraud, perjury, or

unintentional invention by making state-

ments that the contract did not actually

represent the agreement of the parties.

The parol evidence rule also discourages

sympathetic juries from releasing parties

from bad bargains. Masterson, 65

Cal.Rptr. at 548, 436 P.2d at 564.

[2] However, California also

recognizes one of the broad exceptions to

the parol evidence rule. Because "[n]o

contract should ever be interpreted and

enforced with a meaning that neither party

gave it," 3 Arthur L. Corbin, Corbin on

Contracts §§ 572B (rule no. 2) (West

Supp.1991), parol evidence may be

introduced to show the meaning of the

express terms of the written contract.

See, eg., Pacific Gas & Elec., 442 P.2d at

643-45, 69 Cal.Rptr. 563-565.

To avoid completely eviscerating the

parol evidence rule, however, there must

be reasonable harmony between the parol

evidence and the integrated contract for

the evidence to be admissible. Thus, the

parol evidence issues in this case turn on

the second inquiry—whether the written

contract is susceptible of the meaning

that Pacific gives to it. "The test of

admissibility of extrinsic evidence to

explain the meaning of a written

instrument is... whether the offered

evidence is relevant to prove a meaning to

which the language of the instrument is

reasonably susceptible." Gerdlund, 235

Cal.Rptr. at 288 (quoting Pacific Gas_&

Elec., 442 P.2d at 644, 69 Cal.Rptr. 564);

Banco Do Brasil, 285 Cal.Rptr. at 891.

The precise issue is whether the

terms "erect complete" and "make a

complete installation," when read _ iin

context with the rest of the contract, are

reasonably susceptible of the meaning

Pacific attempts to advance through its

parol evidence. "If the court finds after

considering this preliminary evidence that

the language of the contract is not

reasonably susceptible of [the proffered]

interpretation and is unambiguous,

extrinsic evidence cannot be received for

the purpose of varying the terms of the

contract." Brobeck, Phleger & Harrison v.

Telex Corp., 602 F.2d 866, 871 (9th Cir.)

(applying California law), cert. denied,

444 U.S. 981, 100 S.Ct. 483, 62 L.Ed.2d

407 (1979Y

B. Standard of Review

[3] Whether the written contract is

reasonably susceptible of a proffered

meaning is a matter of law that is

reviewed de novo. See, e.g., United States

v. King Features Entertainment, 843 F.2d

394,t698 (9th Cir. 1988) ("Interpretation

of a contract is a matter of law,

including whether the contract is

ambiguous."); Brobeck, 602 F.2d at 871

("Under California law, the determination

of whether a written contract is ambiguous

is a question of law that must be decided

by the court."); Banco Do Brasil, 285

Cal.Rptr. at 885-86 (whether a contract is

reasonably susceptible of a meaning

advanced by parole evidence is a question

of law reviewed de novo).

C. The Contract Is Not Susceptible of

Pacific's Interpretation

(4) The contract language is not

reasonably susceptible of the meaning

proffered by Pacific. We find as a matter

of law that the contract is unambiguous

and required Pacific to erect both the

structural and miscellaneous steel and the

FGS components.

Even if all of Pacific's evidence is

accepted as fact and all reasonable

inferences are drawn in favor of Pacific,

Pacific merely shows that the parties

orally agreed before the contract was

signed that they would both interpret the

phrases "erect complete" and "make a

complete installation" to mean something

else, despite the plain language of the

contract itself. If Pacific did indeed

make such an oral agreement with Brinder-

son, it did so at its own peril because

the completely integrated contract negates

any such agreement. The law recognizes

the written integrated contract as the

final word on the actual agreement of the

parties and requires that the contract

itself be reasonably susceptible of

Pacific's proffered meaning.

Article 33, paragraph 16 of the

contract sets forth the work that is

expressly included in the contract:

Subcontractor shall erect

complete the Government

Furnished Flue Gas System

including Bag Houses, Scrubbers,

I.D. Fans, Breeching and

Dampers, Steel Gratings and

appurtenances to make a complete

installation.

By Pacific's own admission, the

normal meaning of “erect complete" and

"make a complete installation" in the

construction industry includes field

assembly, picking and setting, and bolting

and welding the relevant components into

permanent position. Pacific argues that,

the phrase "erect complete" applies only

to the steel gratings and appurtenances,

while the phrase "pick and set" applies to

the FGS components. Simply put, the

language of article 33, paragraph 16 is

not susceptible of such a construction.

Pacific's construction of the

contract rests primarily upon article 1(a)

which states

the work includes the following:

(a) Any item of labor, service,

and/or material reasonably

inferred by the plans and/or

specifications or customarily

furnished by a_ subcontractor

performing work in this line;

(emphasis added). Pacific argues that

this language limited the scope of its

contractual obligations to work Pacific

had customarily performed. This

construction of the contract is

implausible for four reasons.

First, article 1(a) is phased in the

disjunctive and requires Pacific to

perform work inferred by the

specifications "or" work inferred by

customary practices of subcontractors who

perform such work. Pacific cannot refuse

to perform work inferred by the

specifications by claiming that Pacific

did not customarily perform such work. To

limit the scope of work to jobs Pacific

customarily performed, article 33 would

have to be phrased in the conjunctive, re-

quiring Pacific to perform work only if

inferred by the specifications and

"“Customarily furnished by a subcontractor

performing work in this line." Fairly

read, article 1(a) requires Pacific to

perform any "customarily furnished" work

in addition to the work explicitly set out

in the contract.

Moreover, even if the word "or" could

be read as "and," the scope of the work

would not be limited to work that Pacific

customarily performs, but to work

"customarily furnished by a subcontractor

performing work in this line." By agreeing

to “erect complete" the FGS, Pacific

agreed to perform work customarily

performed by contractors who "erect

complete" similar structures. In other

words, the work that is "customarily

furnished by a subcontractor performing

work in this line" can only be evaluated

by comparing the work that Pacific agreed

to perform in the contract with similar

work performed by subcontractors in that

line. Whether Pacific had customarily

performed similar work is irrelevant to

whether Pacific agreed to perform certain

work under the contract.

Second, Pacific's interpretation of

article 1(a) violates a fundamental rule

of contract interpretation because it

would render other portions of the

contract meaningless. It is well settled

that a contract should be interpreted so

as to give meaning to each of its

provisions: "Since an agreement is

interpreted as a whole, it is assumed in

the first instance that no part of it is

superfluous." Restatement (Second) of

Contracts §§ 203(a) cmt. b (1979); see

Cal.Civ.Code §§1641 (West 1985);

Continental Mfg. Corp. v. Underwriters at

Lloyds London, 185 Cal.App.2d 545, 8

Cal.Rptr. 276, 278 (Dist.Ct.App.1960) ("It

is a cardinal rule in interpretation of

contracts that the contract is to be taken

by its four corners and so construed as to

give effect to every part of it, if

possible."); Brobeck, 602 F.2d at 872

(contracts should be interpreted to be

"internally consistent"); Restatement of

Contracts §§ 235(c) (1932) ("A writing is

interpreted as a whole"). If article 1(a)

is interpreted to be a limitation on the

scope of work, it would conflict with

article l(e) and render it meaningless.

Article l1(e) is actually entitled

"Scope of Work" and states that the

"Subcontractor agrees to make the entire

project complete in every respect insofar

as this subcontract is concerned ... in

strict accordance with the Plans and

Specifications ... and Submittals as

approved by the Owner." Under article

1(e)1.A. section 15603, Pacific is re-

quired to "erect complete" the _ FGS.

Pacific's interpretation of article 1(a)

would render this language’ useless.’

Moreover, Pacific's interpretation

conflicts with the detailed description of

included work set forth in article 33,

paragraph 16, and renders that provision

meaningless.

*The requirements of section 1503 are stated

succinctly: "Flue Gas Cleaning Equipment In-

stallation (Government Furnished Property) - erect

complete”

Third, Pacific's interpretation

stands the usual rules of interpretation

on their head by arguing that a general

provision governs more specific

provisions. It is well settled that

"(w)jhere there is an inconsistency between

general provisions and specific

provisions, the specific provisions ordi-

narily qualify the meaning of the general

provisions." Restatement of Contracts §§

236(c) (1932); see also Autry v. Republic

Prods., 30 Cal.2d 144, 180 P.2d 888, 893

(1947) (a specific provision is

controlling over any general provision) ;

Restatement (Second) of Contracts §§

203(c) & cmt. e (1979). Thus, even if

article 1(a) could be viewed as ambiguous

and therefore inconsistent with’ the

specific descriptions of work in article

33, paragraph 16, and article l(e)I.A.,

the more specific descriptions requiring

Pacific to "erect complete" the FGS must

control.

Fourth and finally, "[w]here written

provisions are inconsistent with printed

provisions, an interpretation is preferred

which gives effect to the written

provisions." Restatement of Contracts §§

236(e) (1932); see also Cal.Civil Code §§

1651 (West 1985); American City Bank v.

Zetlen, 253 Cal. App.2d 548, 61 Cal.Rptr.

311, 315 (Dist.Ct.App. 1967); Restatement

(Second) of Contracts §§ 203(d) cmt. f

("in cases of inconsistency a handwritten

or typewritten term inserted in connection

with the particular transaction ordinarily

prevails"). Article 1(a) is a boilerplate

provision that is part of the printed

form, while articles 1(e)I.A. and 33 are

specific, typewritten additions to the

standard form.

Indeed, Pacific does little to show

how the contract itself is reasonably

susceptible of Pacific's proffered

interpretation. Pacific argues that the

language of article li1(e) is ambiguously

broad and should be _ ignored. This

argument is meritless because the language

cited by Pacific is carefully defined by

the operative language in article I(e)I.A.

and article 33, paragraph 16. Pacific's

argument that specification section 15603

requires or envisions an erecting

contractor and an installing contractor

borders on the absurd. Specification

section 15603 says nothing about requiring

a separate erecting and installing

contractor. Finally, Pacific's argument

that paragraphs 6 and 16 of article 33 are

both limited to support steel is

unpersuasive because it ignores that para-

graph 6 refers to boiler support steel‘

while paragraph 16 refers to the specific

FGS components.

At bottom, Pacific's argument is that

its construction of article 1(a) and the

rest of the contract is reasonable because

Brinderson promised that the contract

would be interpreted in such a manner.

This is not the issue before the court the

issue is whether the contract itself is

susceptible of Pacific's proffered

interpretation.

{5} If strained interpretations are

accepted as reasonable, the parol evidence

rule will be completely eviscerated, and

integrated contracts will be

“The requirements of article 32, paragraph 6

are stated as follows: "Unload and erect all

{Government Furnished Property] and Riley Stoker

furnished boiler support steel, stairs and grating

as shown including punching as necessary." All

parties agree that this language required Pacific

to "erect complete” only the boiler support steel,

stairs and grating.

unenforceable. Parties would always be

able to introduce parol evidence by

arguing that they are advancing an

alternative interpretation of the

contract, despite the language of the

integrated contract itself. Thus,

California requires that the language of

the instrument is reasonably susceptible

of the proffered meaning before parol

evidence may be introduced. Pacific Gas &

Elec., 442 P.2d at 64, 69 Cal.Rptr. 564;

Gerdlund, 235 Cal.Rptr. at 283.

Pacific's proffered interpretation

stretches the contractual language beyond

reasonable limits and violates most

applicable rules of contract construction.

Therefore, we find (1) that the district

court erred in allowing the jury to hear

parol evidence supporting Pacific's

proffered interpretations’ and (2) that as

a matter of law Pacific's work under the

contract included the field assembly,

picking and setting, and bolting and

weldings, of the FGS components’ into

permanent position.

D. The Trial On Damages

[6] Because the contract is not

susceptible of Pacific's proffered

interpretation, the only issue remaining

°Pacific argues that some evidence should be

admitted regardless of the parol evidence rule

because Brinderson "opened the door" for the

evidence. After reviewing the record, it is clear

that Brinderson never opened the door for the

admission of the most prejudicial parol evidence-

Brinderson's alleged oral promises to interpret the

contract according to Pacific's strained

interpretation. Thus, Pacific's "opened the door"

argument is inapposite.

This “opened the door” argument placed Brin-

derson in a very awkward catch-22 position at

trial. If Brinderson addressed Pacific's allega-

tions on direct, Pacific would claim that Brin-

derson ‘opened the door" and waived any parol

evidence objection on appeal. On the other hand,

if Brinderson avoided opening the door and merely

tried to rebut Pacific's allegations, it would

appear to the jury that Brinderson was trying to

hide something. The record indicates that

Brinderson chose the latter course and limited the

scope of direct examination.

is the amount of damages. In the trial on

damages, the parties are bound by the

representation they have made to this

court. For example, the course of

performance under specification section

14501 should be helpful in determining

damages. Both parties agree that go erect

complete" normally includes the field

assembly, picking and setting, and bolting

and welding of the relevant components

into permanent position, but that certain

mechanical work beyond welding and bolting

components into place falls outside the

scope of erect complete. Indeed, Brin-

derson's Reply Brief admits that Pacific

"erected complete" the Coal Handling Sys-

tem and coal bunkers even though Brinder-

son still had to perform certain

mechanical work. Thus, on remand, Pacific

may limit its damages by introducing

evidence demonstrating that certain work

fell outside the scope of simply bolting

and welding the FGS components into place.

II. Hartford's liability on the

Performance Bond

{7] Brinderson sued Hartford on its

performance bond obligation. Hartford ad-

mits that, if Pacific is liable under the

contract, Hartford is liable under the

performance bond. Thus, Brinderson is

entitled to payment under the performance

bond issued by Hartford.

III. Pacific's Fraud and

Misrepresentation Claims

{8} Pacific's jury verdict on its

fraud and misrepresentation claims is also

tainted by the jury's consideration of

inadmissible parol evidence. Under

California law, parol evidence cannot be

introduced to show fraud or

misrepresentation if the parol evidence

contradicts the language of an integrated

contract: "[I]f the false promise relates

to the matter covered by the main

agreement and contradicts or varies the

terms thereof, any evidence of the false

promise directly violates the parol

evidence rule and is inadmissible." Price

v. Wells Fargo Bank, 213 Cal.App.3d 465,

261 Cal. Rptr. 735, 745 (Ct.App.1989)

(quoting Bank of America Nat'l Trust &

Sav. Ass'n v. Lamb Finance Co., 179

Cal.App.2d 498, 3 Cal.Rptr. 877, 880

(Dist.Ct.App.1960)). For parol evidence of

fraud or misrepresentation to be

admissible under California law, "it must

tend to establish some independent fact or

representation, some fraud in the

procurement of the instrument or some

breach of confidence concerning its use,

and not a promise directly at variance

with the promise of the writing." Id,

(quoting Bank of America Nat'l Trust &

Sav. Ass'n v. Pendergrass, 4 Cal.2d 258,

48 P.2d 659, 661 (1935)) (emphasis added).

(9) As with the "meaning" exception

to the parol evidence rule discussed

above, the purposes of the rule will be

undermined unless there is some limit to

the fraud/misrepresentation exception.

Thus, California holds parties responsible

for signing integrated contracts and will

allow parol evidence of fraud only to the

extent it does not contradict the

integrated contract.

[10} Pacific's fraud and

misrepresentation claims rest on

Brinderson's alleged promise to interpret

the contract as limiting Pacific's

obligations to work Pacific had

customarily performed despite the explicit

language in article l1(e)1.A., section

15603 and article 33, paragraph 16. Be-

cause the integrated contract itself is

not reasonably susceptible of such an

interpretation, Pacific's parol evidence

contradicts the plain language of the

contract. Thus, Pa6éhes signing of the

contract precludes a fraud claim based on

the alleged promise to interpret the

contact in a way that contradicts the

plain language of the contract.

[11] Even if Pacific's allegations

are true, article 24 of the contract

specifically states that "the parties

shall not be bound by, or liable for, any

statement, representation, promise, or

agreement not specifically set forth in

this subcontract." Thus, Pacific should

have insisted that Brinderson's promises

and representations were put into the

contract before it was signed. An inte-

grated contract is given legal

Significance under California law, and

Pacific cannot introduce parol evidence of

fraud if the evidence contradicts the

integrated contract. Pendergrass, 48 P.2d

at 661; Price, 261 Cal.Rptr. at 745-46.

Pacific errs by suggesting that Price

casts doubt on the continuing validity of

the Pendergrass rule and allows parol evi-

dence of fraud in the inducement even if

such evidence conflicts with the signed

contract. In fact, just the opposite is

true. First, Price makes it clear that

Pendergrass is "the governing law." 261

Cal. Rptr. at 746. According to Price,

the Pendergrass rule “is based on an

entirely defensible decision favoring the

policy considerations underlying the parol

evidence [rule] over those supporting a

fraud cause of action." Id. We agree with

this analysis.

Second, Price explicitly recognizes

that, while the parole evidence rule in

general does not bar evidence of fraud in

the inducement, the Pendergrass rule does

preclude proof of such promissory fraud if

it contradicts an integrated agreement. Id-

at 745 (Pendergrass resolves "a conflict

between the [parol evidence] rule and

promissory fraud relating to the principal

terms of an agreement"); see also id. at

746 ("Pendergrass compromises the policies

of tort law, but a contrary rule would

compromise those of the parol evidence

rule"). Indeed, Price involved the same

type of fraud in the inducement as Pacific

alleges here-an oral promise conflicting

with the language of an integrated agree-

ment. The court applied the Pendergrass

rule and held that the parol evidence was

inadmissible because it contradicted the

written agreement. Just as summary

judgment was appropriate in Price, judg-

ment in favor of Brinderson is appropriate

here because the evidence of the alleged

fraud is inadmissible under California

law.

The Price decision is directly on

point and requires the exclusion of

Pacific's parol evidence because it

contradicts the written agreement. The

contract itself is not reasonably

susceptible of Pacific's interpretation

and is thus inconsistent with Brinderson's

alleged oral promise. Therefore, we

reverse the fraud verdict and remand the

case for entry of judgment in favor of

Brinderson.

IV. Hartford's Fraud and

Misrepresentation Claims

Hartford cross-appeals by arguing

that the district court erred in granting

summary judgment in favor of Brinderson on

Hartford's fraud and negligent misrepre-

sentation claims. The district court's

grant of summary judgment is reviewed de

novo. We review the evidence in the light

most favorable to Hartford to determine

whether a genuine issue of material fact

exists. See Jewel Cos. v. Pay Less Drug

Stores Northwest, 741 F.2d 1555, 1559 (9th

Cir. 1980.

[12] Hartford's theory is that

Brinderson made false representations that

Brinderson would interpret the contract to

limit Pacific's scope of work and that

these representations in turn induced

Hartford to issue the performance bond.

Because the contract is not reasonably

susceptible of Pacific's interpretation,

this theory is precluded as a matter of

law. As in the discussion of Pacific's

fraud claim above, the parol evidence that

Hartford relies upon to avoid summary

judgment would be inadmissible.

Therefore, we affirm the district court's

grant of summary judgment against

Hartford's fraud and misrepresentation

claims.°®

V. Brinderson's Bad Faith Claim

Against Hartford

[13] Brinderson argues that the

district court erred in granting

Hartford's motion for a directed verdict

against Brinderson's bad faith claim.

Brinderson contends that an insurer has a

duty to investigate a claim under

California law, even if a genuine issue

°Hartford also appeals the directed verdict

against its implied covenant claim, but argues that

t@e best result is that both Hartford and

Brinderson are barred under Wallis v. Superior

Court, 160 Cal.App.3d 1109, 207 Cal.Rptr. 123

(Ct.App.1984) and Okun v. Morton, 203 Cal. App.3d

805, 250 cCal.Rptr. 220 (Ct. App.1988) from

converting their contract actions into tort

actions. We agree with Hartford that its implied

covenant tort action is barred by Wallis and Okun,

and the district court did not err in granting a

directed verdict against Hartford's ciaim.

However, we do not decide whether Brinder-

son's tort claim is also barred under Wallis and

Okun because we rule against this tort claim on

other grounds.

regarding liability for the claim already

exists. Hartford replies that there is no

duty to investigate if the insurer already

has a good faith reason to dispute

liability. Thus, the issue is whether art

insurer has a duty to conduct a thorough

investigation of a claim if a genuine

issue concerning the insurer's liability

exists. This issue turns on the proper

application of California law and is

reviewed de novo. See United States v.

McConney, 728 F.2d 1195, 1201, 1204 (9th

Cir.) (en banc) (questions of law and

application of law is reviewed de novo),

cert. denied, 469 U.S. 824, 105 S.Ct. 101,

83 L.Ed.2d 46 (1984).

Although Brinderson's argument is

tenable, Hartford's position is the better

interpretation of the law. Brinderson

relies primarily on Egan v. Mutual of

Omaha Ins. CO.» 24 Cal.3d 809, 169

Cal.Rptr. 691, 620 P.2d 141 (Cal.1979),

cert. denied, 445 U.S. 912, 100 S.Ct 1271,

63 L.Ed.2d 597 (1980), for the proposition

that failure to conduct a_—e thorough

investigation of a claim is a violation of

the insurer's obligation of good faith,

even if the insurer has a good faith

reason to dispute liability for the clain.

The Egan court did state that "an insurer

cannot reasonably and in good faith deny

payments to its insured without thoroughly

investigating the foundation for its

denial." Id. at 146. However, this

statement is much broader than the actual

holding of Egan. The insurer in Egan

denied the claim without a_ thorough

investigation and without any good faith

reason to believe that it was not liable

for the claim. Indeed, the court's

statement in Egan was in response to the

insurer's argument ‘that an insurer

violates th[e] covenant [of good faith}

only if it wrongfully denies a claim

knowing it has no reasonable basis for

doing so." Id. at 144. Thus, Egan is

inapposite when an insurer does not con-

duct a more thorough investigation because

the insurer already has good reason to

dispute liability.

Franceschi v. American Motorists Ins.

Co., 852 F.2d 1217, 1220 (9th Cir.1988),

was a case much more like this one than

Egan. In Franceschi, much like the

present case, the insurer refused to pay a

Claim because a genuine issue existed

concerning interpretation of the contract

terms and liability. Although the

insurer's interpretation of the contract

was incorrect, this court found as a

matter of law that @he insurer did not

violate its duty of good faith. PIA,»

court can conclude as a matter of law that

an insurer's denial of a claim is not

unreasonable, even if the court concludes

the claim is payable under the policy

terms, so long as there existed a genuine

issue as the insurer's liability." Id.

(citing Safeco Ins. Co. of Am. v. Guyton,

692 F.2d 551, 557 (9th Cir.1982) (applying

California law)).

We think Franceschi provides’ the

better approach to the case at bar. Once

Hartford understood Pacific's

interpretation of the contract and a

genuine dispute over liability existed,

Pacific was under no further duty to

investigate Brinderson's claim on the

bond. As Brinderson concedes, Hartford

had every right to await the outcome of

the liability dispute before paying on the

performance bond.

At botton, Brinderson believes

Hartford investigated the claim in bad

faith because Hartford was willing to

adopt Pacific's interpretation of the

contract. We agree that Pacific's and

Hartford's interpretation of the contract.

is incorrect. As a matter of law,

however, the interpretation is not so

unreasonable as to be a mere pretext for

avoiding further investigation; a genuine

issue did exist concerning liability.

Therefore, we affirm the district court's

directed verdict on Brinderson's bad faith

claim against Hartford.

VI. Attorneys' Fees

[14, 15} Under the contract’ and

Cal.Civ. Code section 1717, the prevailing

parties on the contract and bond claims

are entitled to recover attorneys' fees.

Brinderson is therefore entitled to

attorneys' fees incurred pursuing these

contract claims, including fees incurred

on appeal. Brinderson is also entitled to

attorneys' fees incurred defending the

fraud, misrepresentation, and other claims

to the extent the fees were incurred

litigating issues common to the contract

claims. See Reynolds Metals Co. v.

Alperson, 25 Cal.3d 124, 158 Cal. Rptr. 1,

599 P.2da_ 83, 86 (1979). However,

Brinderson is not entitled to attorneys'

fees incurred in pursuing its bad faith

claim against Hartford because the issues

in this tort action are not common to the

contract action.

CONCLUSION

For the reasons stated above, we

affirm the district court's grant of

summary judgment against Hartford's fraud

and misrepresentation claims and _ the

directed verdicts on Hartford's implied

covenant ciaim and Brinderson's bad faith

claim. We reverse the district court's

denial of Brinderson's motion for a

directed verdict on its contract claims

and on Pacific's fraud and wmisrepre-

sentation claims. This case is remanded

for further proceedings consistent with

this opinion. Except as otherwise ordered

herein, each party will bear its own

costs.

AFFIRMED in part and REVERSED in

part.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRINDERSON-NEWBERG _) Nos. 90-55308

JOINT VENTURE; ) 90-55372

BRINDERSON )

CORPORATION; GUST K.) D.C. No.

NEWBERG CORPORATION; ) CV-87-7448-RB

FRANK J. LOSCAVIO; )

BRINDERSON ) ORDER AMENDING

CONSTRUCTORS, INC., ) OPINION AND

Plaintiffs-counter-) DENYING PETITIONS

defendants- FOR REHEARING AND

Appellants SUGGESTIONS FOR

REHEARING

PACIFIC ERECTORS,

INC.; HARTFORD

ACCIDENT & INDEMNITY

COMPANY,

)

¥. )

)

claimants-

)

Defendants-counter-)

)

Appellees. )

)

BRINDERSON-NEWBERG

JOINT VENTURE;

BRINDERSON

CORPORATION; GUST K.

NEWBERG CORPORATION ;

FRANK J. LOSCAVIO;

)

) No. 90-55374

)

BRINDERSON )

)

D.C. No.

CV-87-7448-RB

CONSTRUCTORS, INC.,

Plaintiffs-counter-

defendants-

Appellees

V e

PACIFIC ERECTORS,

INC.;

claimant

)

Defendant-counter- )

)

and )

)

HARTFORD ACCIDENT )

& INDEMNITY COMPANY, )

)

Defendant-counter- )

claimant-Appellant. )

)

BRINDERSON-NEWBERG

JOINT VENTURE;

BRINDERSON

CORPORATION; GUST K. Nos. 90-55377

NEWBERG CORPORATION; 90-55378

FRANK J. LOSCAVIO;

BRINDERSON D.C. No.

)

CONSTRUCTORS, INC., ) CV-87-7448-RB

- Plaintiffs-counter-)

defendants- )

Appellees )

)

Vv.

PACIFIC ERECTORS,

INC.;

Defendant-counter- )

claimant Appellant, )

)

and )

)

HARTFORD ACCIDENT )

& INDEMNITY COMPANY, )

)

Defendant-counter- )

claimant )

)

Appeal from the United States District

Court for the Central District

of California

Robert C. Bonner, District Judge,

Presiding

Argued and Submitted

January 10, 1992-Pasadena, California

Filed July 20, 1992

Amended October 22, 1992

Before: Cecil P. Poole, Charles Wiggins,

and Edward Leavy, Circuit Judges

Opinion by Judge Wiggins

SUMMARY

Civil Litigation and

Procedure/Evidence/Parties/Business

Law/Contracts/Construction

Affirming in part and reversing in

part a district court judgment, the court

of appeals held that California contract

law required the exclusion of parol

evidence in support of a contract and

fraud claim to interpret the terms of an

integrated construction contract, when the

contract itself was not reasonably

susceptible of the meaning advanced by the

parol evidence.

Pursuant to a government contract,

appellant Brinderson-Newberg Joint Venture

entered into a subcontract agreement with

appellee Pacific Erectors, Inc., a

subcontractor, for the installation of a

large pollution control system at a coal-

flied power plant at a naval shipyard in

Washington. The contract agreement

contained an integrated clause, and

required Pacific to "erect complete" and

"make a complete installation" of certain

components. Subsequently, a dispute arose

between Brinderson and Pacific, and the

bonding company that issued Pacific's

performance bond, Hartford Accident &

Indemnity Company, over the interpretation

and performance required of Pacific by

these terms. The district court allowed

the jury to hear and consider parol

evidence about Pacific's interpretation of

the contract agreement. Specifically,

Pacific introduced parol evidence at trial

alleging that, before the contract was

Signed, Brinderson orally assured Pacific

that the above terms only meant that

Pacific had to complete the structural and

miscellaneous steel work for the flue gas

system (FGS). Brinderson denied making

such representations and contended that it

was clear that Pacific was required to

erect and install the entire FGS.

Brinderson appealed the district court's

denial of its motions for a directed

verdict or JNOV on its contract and fraud

claims against Pacific on the basis that

the jury verdicts for Pacific were

dependent on the inadmissible parol

evidence. Brinderson also challenged the

Gistrict court's directed verdict

eliminating Brinderson's bad faith claim

against Hartford. Hartford cross-appealed

the district court's grant of summary

judgment in favor of Brinderson- on

Hartford's fraud and misrepresentation

claims and an adverse directed verdict on

Hartford's implied covenant tort claims.

[1] Under California contract law,

parol evidence of terms not specifically

included in an integrated, written

contract agreement is inadmissible. [2]

However, because no contract should ever

be interpreted and enforced with a meaning

that neither pay gave 4, parol evidence

may be introduced to show the meaning of

the express terms of the written contract.

[3] But to avoid eviscerating the parol

evidence rule, there must be reasonable

harmony between the parol evidence and the

- 64

integrated contract for the evidence to be

Admissible. Thus, in this case the issue

was whether the written contract, was

susceptible of the meaning that Pacific

gave to it. [4] That is, whether the terms

"erect complete" and "make a complete

installation," when read in context with

the rest of the contract, are reasonably

susceptible of the meaning Pacific

attempted to advance through its parol

evidence. [5] Here, the court found that,

as a matter of law, the construction

contract was unambiguous and applied

Pacific to erect both the structural and

miscellaneous steel and the FGS

components. [6) Pacific merely showed that

the parties orally agreed before the

contract was signed that they would both

interpret the phrases "erect complete" and

"make a complete installation" to mean

something else, despite the plain language

of the contract itself.

(7) The court determined that Pacific

could not refuse to perform work inferred

by the contract specifications by claiming

that it did not customarily perform such

work. [8] In addition, Pacific's

interpretation conflicted with the

detailed description of included work set

forth in the agreement, and rendered that

provision meaningless. [9] Also, Pacific

interpretation stood the usual rules of

interpretation on their head by arguing

that a general provisions governed more

specific provisions in the agreement. [10]

At bottom, Pacific's argument was that its

construction of the contract provision in

question and the rest of the contract was

reasonable because Brinderson had promised

that the contract would be interpreted in

such a manner. However, that was not the

issue before the court; the issue was

whether the contract itself was

susceptible of Pacific's proffered

interpretation. [11] Pacific's jury

verdict on its fraud and misrepresentation

claims w&s reversed and remanded for entry

of judgment in favor of Brinderson as also

tainted by the jury's consideration of

inadmissible parol evidence. [12] As with

the "meaning" exception to the parol

evidence rule discussed above, the

purocses of the rule would be undermined

unless there is some limit to the

fraud/misrepresentation exception. Thus,

California holds parties responsible for

Signing integrated contracts and will

allow parol evidence of fraud only to the

extent it does not contradict’ the

integrated contract.

{13} The court affirmed the district

court's grant of summary judgment’ on

Hartford's fraud and negligent misrepre-

sentation claims against Brinderson.

Because the contract was not reasonably

susceptible of Pacific's interpretation,

Hartford's theory that Brinderson's false

representations to Pacific induced

Hartford to issue the performance bond was

precluded as a matter of law. [14] Last,

the court affirmed the district court's

directed verdict on Brinderson's bad faith

claim against Hartford.

COUNSEL

John D. Alkire, and Michael Himes, Perkins

Coie, Seattle, Washington, for appellants

Brinderson-Newberg Joint Venture,

Brinderson Corporation, Gust K. Newberg

Corporation, Frank Je Loscavio, and

Brinderson Constructors, Inc. William B.

Moore and Arnold R. Hedeen, Ferguson &

Burdell, Seattle, Washington for appellee

Pacific Erectors, Inc. and William lI.

Chertok, Rogers & Wells, Los Angeles,

California, for appellee Hartford

Accident and Indemnity Company.

ORDER

The opinion filed on July 20, 1992,

is corrected as follows: On page 8670, in

the last paragraph, the text is corrected

to read: "Once Hartford understood

Pacific's interpretation of the contract

and a genuine dispute over liability

existed, Hartford was under no further

duty to investigate Brinderson's claim on

the bond."

The panel has voted to deny Pacific

Erectors and Hartford Accident and

Indemnity Company's separate petitions for

rehearing and to reject the suggestions

for rehearing en banc.

The full court has been advised of

the suggestions in rehearing en banc and

no active judge has requested a vote on

whether to rehear the matter en banc.

Fed.R. App.P. 35.

The petitions for rehearing are

DENIED and the suggestions for rehearing

en banc are REJECTED.

OPINION

WIGGINS, Circuit Judge:

OVERVIEW

This appeal stems from a contract

dispute between a general contractor,

Brinderson-Newberg Joint Venture

(Brinderson), a subcontractor, Pacific

Erectors (Pacific), and the _ bonding

company that issued Pacific's performance

bond, Hartford Accident & Indemnity

Company (Hartford). Brinderson appeals

the district court's denial of

Brinderson's motions for a _ directed

verdict and for JNOV Brinderson ania

that a directed verdict or JNOV was

necessary because the jury verdicts on

Brinderson's contract claim and Pacific's

fraud claim were dependent on inadmissible

parol evidence. Brinderson also appeals

the directed verdict eliminating

Brinderson's bad faith claim against

Hartford, and Hartford cross-appeals the

district court's grant of summary judgment

in favor of Brinderson on Hartford's fraud

and misrepresentation claims and an

adverse directed verdict on Hartford's

implied covenant tort claim.

The district court had diversity

jurisdiction over this contract dispute

under 28 U.S.C. § 1332 (1988). A timely

notice of appeal was filed after the entry

of judgment, and this court has

jurisdiction pursuant to 28 U.S.C. § 1291

(1988).

BACKGROUND

In May 1985, the United States Navy

awarded Brinderson a contract to construct

a coal-fired power plant at the Puget

Sound Naval Shipyard in Bremerton,

Washington. In June 1985, Brinderson

entered into negotiations with Pacific,

one of the subcontractors who had

submitted a low bid for certain erection

work. Part of these negotiations focused

on the erection of the Flue Gas System

(FGS), a large pollution control system.

As part of its $1.54 million pre-contract

bid, Pacific offered to erect the support

steel for the FGS for $257,000.

Brinderson, however, wanted Pacific to

erect the large steel FGS components along

with the support steel.

The negotiations between Brinderson

and Pacific took place in three meetings,

the first in late June 1985, the second on

Juiy 29, 1985, and the third on August 16,

1985. Many of the relevant’ facts

concerning the negotiations are disputed.

Brinderson claims that Pacific agreed to

erect the FGS as part of an agreement to

increase Pacific' scope of work and bid

price. Although Pacific admits that the

scope of its work and the corresponding

contract price were increased as part of

the negotiations,’ it emphatically denies

that the FGS components were included in

the agreement. Pacific alleges that

Brinderson never indicated that the FGS

components were to be erected by Pacific

and that Brinderson only asked that

Pacific "pick and set" the FGS components.

’Pacific attempts to downplay the fact that

the scope of work and contact price were increased

during the negotiations. Pacific suggests that the

final scope of work and contract price were

approximately the same as the scope and price in

Pacific's original bid, demonstrating that Pacific

never agreed to erect the FGS components. This

characterization turns on Pacific's internal

estimates and its bids to other contractors.

Althcugh it does help to explain Pacific's

subjective intent, this characterization of the

negotiations ignores that Pacific's original bid to

Brinderson was for $1.54 million and included less

work than the final contract for $2.84 million.

Between Brinderson and Pacific, the scope and

compensation for Pacific's work was increased

during the negotiations.

After the second meeting, Brinderson

drafted a contract reflecting the parties'

agreement and sent a copy to Pacific for

review. Article I (e)I.A., section 15(4)3

of the contract required Pacific to "erect

complete" the FGS equipment. Article 33,

paragraph 16 of the contract stated that

Pacific "shall erect complete the

Government Furnished Flue Gas’ System

including Bag Houses, Scrubbers, I.D.

Fans, Breeching and Dampers, Steel

Gratings and appurtenances to make a

complete installation." Pacific reviewed

these provisions along with the other

parts of the contract in, preparation for

the final negotiations and signing of the

contract on August 16, 1995. Hartford also

reviewed the contract and issued a

performance bond for Pacific on August 13,

1985.

At the August 16 meeting, Pacific and

Brinderson reviewed the contract line by

line and negotiated a number of changes or

clarifications concerning Pacific's scope

of work. Both parties remember that

Pacific requested that Brinderson change

article I(e)I.A. section 15603 and article

33, paragraph 16 to limit Pacific's work

on the FGS components to picks and sets.

Brinderson contends that it refused to

make the change because it expected

Pacific to erect the components and that

Pacific agreed to erect the FGS

components. Pacific and Hartford contend

that no change was made because Brinderson

assured Pacific that the language only

required picks and sets for the FGS

components and that article 1 (a) limited

the scope of work to jobs that Pacific

customarily performed. According to

Pacific and Hartford, Brinderson claimed

75 y

that it just did not want to take the time

to write the pick and set agreement into

the contract Pacific signed the contract

at the end of the August 16 meeting.

Pacific admits that it understood the

effect of the integration clause in the

contract and that the contract was a

completely integrated agreement.

Brinderson and Pacific performed

under the contract until the summer of

1986, when a dispute arose concerning the

erection of the FGS components.

Brinderson claimed that Pacific was

required to erect the components under the

contract. Pacific contended that it was

only required to pick and set’ the

components while Brinderson erected the

components. Brinderson points out that

Pacific started to erect the FGS

components and then suddenly’ stopped,

suggesting that Pacific knew it was

obligated to erect the FGS components.

There is some evidence, however, tending

to show that Pacific performed part of the

disputed work on the assumption that

Brinderson would pay extra work

compensation for erecting the FGS

components.

Brinderson made a claim on _ the

performance bond on September 22, 1986.

Hartford made a limited investigation of

Brinderson's claim, determined that a

genuine issue existed concerning the

interpretation of the contract, and

refused to pay Brinderson's claim on the

bond until liability was established. The

dispute eventually resulted in

Brinderson's contract claims against

Pacific and Hartford, Pacific's fraud

claim against Brinderson, Hartford's fraud

and implied covenant tort claims against

Brinderson, and Brinderson's claim that

Hartford conducted its investigation in

bad faith.® At trial, the district court

allowed the jury to hear Pacific's

allegations that Brinderson promised to

interpret the contract to limit Pacific's

work to picks and sets on the FGS.

Brinderson objected to this evidence,

arguing that it violated the _ parol

evidence rule.

DISCUSSION

The primary issue in this appeal is

the admission of parol evidence over the

objections of Brinderson. The most

important and prejudicial parol evidence

is Pacific's allegation that Brinderson

made an oral promise to interpret the

contract in a way that limited Pacific's

obligations under the contract. This

*although other claims existed in this

litigation, they are not relevant to the issues on

appeal.

parol evidence was used to support both

(1) Pacific's defense to Brindersons'

contract claim and (2) Pacific's fraud

claim against Brinderson. The contract

provides, and the parties ae, that

California law governs the _ parties'

claims. Brinderson argues that California

law on parol evidence rule required the

exclusion of the parol evidence and that

the district court erred in allowing the

jury to consider the parol evidence. As

is explained in more detail below, the

determinative issue underlying both the

contract and fraud claims is the same;

Whether the contract itself is reasonably

susceptible of Pacific's proffered

interpretation of the agreement.

E« Brinderson's Contract Claim

The contract required Pacific to

"erect complete" the _ FGS. Pacific

interpreted the phrases "erect complete"

and "make a complete installation" to mean

that the contract required Pacific to

complete the structural and miscellaneous

steel, such as steel gratings and

appurtenances, but required only pick and

sets for the components of the FGS. Under

Pacific's understanding, Pacific only had

to complete the work to the extent that it

had customarily completed similar work as

a subcontractor. In other words, Pacific

was required to "erect complete" only a

portion of the FGS, not the entire systen.

To advance its interpretation of the

contract, Pacific introduced parol

evidence at trial alleging that, before

the contract was signed, Brinderson orally

assured Pacific that the phrases "erect

complete" and "make a complete

installation" only meant that Pacific had

to complete the structural and miscella-

neous steel work for the FGS. Brinderson

denies making such representations and

contends it was clear that Pacific was

required to erect and install the entire

FGS. Brinderson argues that the district

court erred by allowing the jury to hear

and consider this parol evidence.

A. The Law

Under California contract law, the

parol evidence analysis governing this

case is divided into two initial

inquiries: "1) was the writing intended to

be an integration, i.e. a complete and

final expression of the parties’

agreement, precluding any evidence of

collateral agreements [citation]; and 2)

is the agreement susceptible of the

meaning contended for by the party

offering the evidence?" Gerdlund v.

Electronic Dispensers Int'l, 235 Cal.

Rpt. 279, 282 (CL App.-* 1987) citing

Masterson v. Sine, 436 P.2d 561 (Cal.

1968) and Pacific Gas & Elec. Co. v. G.W.

Thomas Drayage & Rigging Co., 442 P.2d 641

(Cal. 1968)); see also Banco Do Brasil v.

Latian, Inc., 285 Cal. Rptr. 870, 886

(Ct. App. 1991) (applying the same test),

review denied, 1992 Cal. LEXIS 302 (Jan.

23, 1992), cert. denied, 60 U.S.L.W. 3841

(U.S. Junc 15, 1992).

{1} The first inquiry is’ easily

resolved. All the parties agree that the

written contract is a completely

integrated agreement. Thus, parol

evidence of terms not specifically

included in the written contract is not

admissible. Masterson, 436 P.2d at 563.

In this regard, California follows the

great weight of authority on the

application of the parol evidence rule.

See, e.g., Restatement (Second) of

Contracts § 213(1)-(2) (1979). This rule

discourages interested witnesses to a

contract from committing fraud, perjury,

or unintentional invention by making

statements that the contract did not

actually represent the agreement of the

parties. The parol evidence rule also

discourages sympathetic juries from

releasing parties from bad _ bargains.

Masterson, 436 P.2d at 564.

[2] However, California also

recognizes one of the broad exceptions to

the parol evidence rule. Because "[n]o

contract should ever be interpreted and

enforced with a meaning that neither party

gave it," 3 Arthur L. Corbin, Corbin on

Contracts § 572B (rule no. 2) (West Supp.

1991), parol evidence may be introduced to

show the meaning of the express terms of

the written contract. See, e.g., Pacific

Gas & Rlec., 442 P.2d at 643-45.

[3] To avoid completely eviscerating

the parol evidence rule, however, there

must be reasonable harmony between the

petrol evidence and the integrated

contract for the evidence to be

admissible. Thus, the parol evidence

issues in this case turn on the second

injury whether the written contract is

susceptible of the meaning that Pacific

gives to it. "The test of admissibility

of extrinsic evidence to explain the

meaning of a written instrument is ...

whether the offered evidence is relevant

to prove a meaning to which the language

of the instrument is reasonably

susceptible." Gerdlund, 235 Cal. Rptr. It

283 (quoting Pacific Gas & Elec., 442 P.2d

at 644); Banco Do Brasil, 285 Cal. Rptr.

at 891.

[4] The precise issue is whether the

terms “erect complete" and make a complete

installation," when read in context with

the rest of the contract, are reasonably

susceptible of the meaning Pacific

attempts to advance through its parol evi-

dence. "If the court finds after

considering this preliminary evidence that

the language of the contract is not

reasonably susceptible of [the proffered]

interpretation and is unambiguous,

extrinsic evidence cannot be received for

the purpose of varying the terms of the

contract." Brobeck, Phleger & Harrison v.

v. Telex Corp., 602 F.2d 866, 871 (9th

Cir.) (applying California law), cert.

denied, 444 U.S. 981 (1979).

B. Standard of Review

Whether the written contract is

reasonably susceptible of a proffered

meaning is a matter of law that is

reviewed de novo. See, e.g., United States

v. King Features Entertainment,843 F.2d

394, 398 (9th Cir. 1988) ("Interpretation

of a contract is a matter of law,

including whether the contract is

ambiguous."); Brobeck, 602 F.2d at 871

("Under California law, the determination

of whether a written contract is ambiguous

is a question of law that must be decided

by the court."); Banco Do Brasil, 285 Cal.

Rptr. at 885-86 (whether a contract is

reasonably susceptible of a meaning

advanced by parole evidence is a question

of law reviewed de novo).

C. The Contract Is Not Susceptible

of Pacific's Interpretation

[5] The contract language is not

reasonably susceptible of the meaning

proffered by Pacific. We find as a matter

of law that the contract is unambiguous

and required Pacific to erect both the

structural and miscellaneous steel and the

FGS components.

[6] Even if all of Pacific's evidence

is accepted as fact and all reasonable

inferences are drawn in favor of Pacific,

Pacific merely shows that the parties

Orally agreed before the contract was

Signed that they would both interpret the

phrases “erect complete" and "make a

complete installation" to mean something

else, despite the plain language of the

contract itself If Pacific did indeed make

such an oral agreement with Brinderson, it

did so at its own peril because the

completely integrated contract negates any

such agreement. The law recognizes the

written integrated contract as the final

word on the actual agreement of the

parties and requires that the contract

itself be reasonably susceptible of

Pacific's proffered meaning.

Article 33, paragraph 16 of the

contract sets forth the work that is

expressly included in the contract:

Subcontractor shall erect

complete the Government

Furnished Flue Gas System

including Bag Houses, Scrubbers,

T.D. Fans, Breeching and

Dampers, Steel Gratings and

appurtenances to make a complete

installation.

By Pacific's own admission, the normal

meaning of "erect complete" and "make a

complete installation" in the construction

industry includes field assembly, picking

and settings, and bolting and welding the

relevant components into permanent

position. Pacific argues that the phrase

"elect complete" applies only to the steel

gratings and appurtenances, while the

phrase "pick and set" applies to the FGS

components. Simply put the language of

article 33; paragraph 16 i: not

susceptible of such a construction.

Pacific's construction of the

contract rests primarily upon article 1(a)

which states

the work includes the following:

(a) Any item of labor, service,

and/or material reasonably

inferred by the plans and/or

specifications or customarily

furnished by a_- subcontractor

performing work in this line;

(emphasis added). Pacific argues that

this language limited the scope of its

contractual obligations to work Pacific

had customarily performed. This

construction of the contract is

implausible for four reasons.

(7] First, article l(a) is phased in

the disjunctive and requires Pacific to

perform work inferred by the

specifications "or" work inferred by

customary practices of subcontractors who

perform such work. Pacific cannot refuse

to perform work inferred by the

specifications by claiming that Pacific

did not customarily perform such work. To

limit the scope of work to jobs Pacific

customarily performed, article 33 would

have to be phrased in the conjunctive,

requiting Pacific to perform work only if

inferred by the specifications and 44

customarily furnished by a subcontractor

performing work in this line." Fairly

read, article 1(a) requires Pacific to

perform any "customarily furnished" work

in addition to the work explicitly set out

in the contract.

Moreover even if line word "or" could

be read as "and," the scope of the work

would not be limited to work that Pacific

customarily performs, but to work

"customarily furnished by a subcontractor

performing work in this line." By agreeing

to “erect complete" the FGS, Pacific

agreed to perform work customarily

performed by contractors who "erect

complete" similar structures. In other

words, the work that is "customarily

furnished by a subcontractor performing

work in this line" can only be evaluated

by comparing the work that Pacific agreed

to perform in the contract with similar

work performed by subcontractors in that

line. Whether Pacific had customarily

performed similar work is irrelevant to

whether Pacific agreed to perform certain

work under the contract.

Second, Pacific's interpretation of

article 1(a) violates a fundamental rule

of contract interpretation because it

would render other portions of the

contract meaningless. It is well settled

that a contract should be interpreted so

as to give meaning to each of its

provisions: "Since an agreement is

interpreted as a whole, it is assumed in

the first instance that no part of it is

superfluous." Restatement (Second) of

Contracts § 203(a) cmt. b (1979); see Cal.

Civ. Code § 1641 (West 1985); Continental

Mfg. Corp. v. Underwriters at Lloyds

London, 8 Cal. Rptr. 276, 278 (Dist. Ct.

App. 1960) ("It is a cardinal rule in

interpretation of contracts that the

contract is to be taken by its four

corners and so construed as to give effect

to every part of it, if possible.");

Brobeck, 602 F.2d at 872 (contracts should

be interpreted to be "internally

consistent"); Restatement of Contracts

§ 235(c) (1932) ("A writing is interpreted

as aewhole"). If article l(a) is

interpreted to be a limitation on the

scope of work, it would conflict with

article 1(e) and render it meaningless.

[8] Article 1(e) is actually entitled

"Scope of Work" and states that the

“Subcontractor agrees to make the entire

project complete in every respect insofar

as this subcontract is concerned ... in

strict accordance with the Plans and

Specifications ... and Submittals as

approved by the Owner." Under article

1(e)I.A. section 15603, Pacific is

required to "erect complete" the FGS.

Pacific's interpretation of article 1(a)

would render this language’ useless.’

Moreover, Pacific's interpretation

conflicts with the detailed description of

included work set forth in article 33,

paragraph 16, and renders that provision

meaningless.

[9] Third, Pacific's interpretation

stands the usual rules of interpretation

on their head by arguing that a general

provision governs more specific

provisions. It is well settled that

"(w]jhere there is an inconsistency between

general provisions and specific

*The requirements of section 15603 are stated

succinctly: "Flue Gas Cleaning Equipment

Installation (Government Furnished Property) erect

complete". erect complete"

provisions, the specific provisions

ordinarily qualify the meaning of the

general provisions." Restatement of

Contracts. § 236(c) (1932); see also Autry

v. Republic Prods., 180 P.2d 888, 893

(Cal. 1947) (a specific provision is

controlling over any general provision) ;

Restatement (Second) of Contracts § 203(c)

& cmt. e (1979). Thus, even if article

1(a) could be viewed as-ambiguous and

therefore inconsistent with the specific

descriptions of work in article 33,

paragraph 16, and article l1(e)I.A., the

more specific descriptions requiring

Pacific to "erect complete" the FGS must

control.

Fourth and finally, "{w])here written

provisions are inconsistent with printed

provisions, an interpretation is preferred

which gives effect to the’ written

provisions." Restatement of Contracts

§ 236(e) (1932); see also Cal. Civil Code

SS 1651 (West 1985); American City Bank v.

Zetten, 61 Cal. Rptr. 31 1, 315 (Dist.

a App. 1967); Restatement (Second) of

Contracts § 203(d) cmt. f ("in cases of

inconsistency a handwritten or typewritten

term inserted in connection with the

particular transaction ordinarily

prevails"). Article 1(a) is a boilerplate

provision that is part of the printed

form, while articles l1(e)I.A. and 33 are

specific, typewritten additions to the

standard form.

Indeed, Pacific does little to show

how the contract itself is reasonably

susceptible of Pacific's proffered

interpretation. Pacific argues that the

language (of article 1(e) is ambiguously

broad and should be _ ignored. This

argument is meritless because the language

cited by Pacific is carefully defined by

the operative language in article 1(e)I.A.

and article 33, paragraph 16. Pacific's

argument that specification section 15603

requires or envisions an erecting

contractor and an installing contractor

borders on the absurd. Specification

section 15603 says nothing about requiring

a separate erecting and installing

contractor. Finally, Pacific's argument

that paragraphs 6 and 16 of article 33 are

both limited to support steel is

unpersuaSive because it ignores’ that

paragraph 6 refers to boiler support

steel’® while paragraph 16 refers to the

specific FGS components.

orThe requirements of article 33, paragraph 6

are stated as follows: "Unload and erect all

[Government Furnished Property] and Riley Stoker

furnished boiler support steel, stairs and grating

as shown including punching as necessary." All

parties agree that this language required Pacific

to “erect complete” only the boiler support steel,

stairs and grating.

[10] At bottom, Pacific's argument

is that its construction of article l(a)

and the rest of the contract is reasonable

because Brinderson promised that’ the

contract would be interpreted in such a

manner. This is not the issue before the

court; the issue is whether the contract

itself is susceptible of Pacific's

proffered interpretation.

If strained interpretations are

accepted as reasonable, parol evidence

rule will be completely eviscerated, and

integrated contracts will be

unenforceable. Parties would always be

able to introduce parol evidence by

arguing that they are advancing an

interpretation of the contract, despite

the language of the integrated contract

itself. Thus, California requires that

the language of the instrument is

reasonably susceptible of the proffered

meaning before parol evidence may be

introduced. Pacific Gas & Elec., 442 F.2d

at 644; Gerdlund, 235 Cal. Rptr. at 283.

Pacific's proffered interpretation

stretches the contractual language beyond

reasonable limits and violates’ most

applicable rules of contract construction.

Therefore, we find (1) that the district

court erred in allowing the jury to hear

parol evidence supporting Pacific's

proffered interpretations’* and (2) that

‘pacific argues that some evidence should be

admitted regardless of the parol evidence rule

because Brinderson “opened the door" for the

evidence. After reviewing the record, it is clear

that Brinderson never opened the door for the

admission of the most prejudicial parol evidence -

Brinderson's alleged oral promises to interpret the

contract according to Pacific's strained

interpretation. Thus, Pacific’s "opened the door"

argument is inapposite.

This “opened the door” argument placed

Brinderson in a very awkward catch-22 position at

trial. If Brinderson addressed Pacific's

allegations on direct, Pacific would claim that

Brinderson "opened the door” and waived any parol

evidence objection on appeal. On the other hand, if

Brinderson avoided opening the door and merely

tried to rebut Pacific's allegations, it would

appear to the jury that Brinderson was trying to

hide something. The record indicates that

as a matter of law Pacific's work under

the contract included the field assembly,

picking and setting, and bolting and

welding of the FGS components’ into

permanent position.

D. The Trial On Damages

Because the contract is not

susceptible of Pacific's proffered

interpretation, the only issue remaining

is the amount of damages. In the trial on

damages, the parties are bound by the

representation they have made to this

court. For example, the course of

performance under specification section

14501 should be helpful in determining

damages. Both parties agree that "erect

complete" normally includes the field

assembly, picking and setting, and bolting

and welding of the relevant components

Brinderson chose the latter course and limited the

scope of direct examination.

into permanent position, but that certain

mechanical work beyond welding and bolting

components into place falls outside the

scope of erect complete. Indeed,

Brinderson's Reply Brief admits’ that

Pacific “erected complete" the Coal

Handling System and coal bunkers’ even

though Brinderson still had to perform

certain mechanical work. Thus, on remand,

Pacific may limit its damages by

introducing evidence demonstrating that

certain work fell outside the scope of

Simply bolting and welding the _ FGS

components into place.

II. Hartford's Liability on

the Performance Bond

Brinderson sued Hartford on its

performance bond obligation. Hanford

admits that, if Pacific is liable under

the contract, Hanford is liable under the

performance bond. Thus, Brinderson is

100

entitled to payment under the performance

bond issued by Hartford.

III. Pacific's Fraud and

Misrepresentation Claims

[11] Pacific's jury verdict on its

fraud and misrepresentation claims is also

tainted by the jury's consideration of

inadmissible parol evidence. Under

California law, parol evidence cannot be

introduced to show fraud or

misrepresentation if the parol evidence

contradicts the language of an integrated

contract: "(If the false promise relates

to the matter covered by the main

agreement and contradicts or varies the

terms thereof, any evidence of the false

promise directly violates the parol

evidence rule and is inadmissible." Price

v. Wells Fargo Bank, 261 Cal. Rptr. 735,

745 (Ct. App. 1989) (quoting Bank of

America Nat'l Trust & Sav. Ass'n v. Lamb

101

Finance Co., 3 Cal. Rptr. 877, 880 (Dist.

Ct. App. 1960). For parol evidence of

fraud or misrepresentation to be

admissible under California law, "it must

tend to establish some independent fact or

representation, some fraud in the

procurement of the instrument or _ some

breach of confidence concerning its use,

and not a promise directly at variance

with the promise of the writing." Id.

(quoting Bank of America Nat'l Trust &

Sav. Ass'n v. Pendergrass, 48 P.2d 659,

661 (Cal. 1935)) (emphasis added).

[12] As with the "meaning" exception

to the parol evidence rule discussed

above, the purposes of the rule will be

undetermined unless there is some limit to

the fraud/misrepresentation exception.

Thus, California holds parties responsible

for signing integrated contracts and will

allow parol evidence of fraud only to the

102

extent it does not contradict’ the

integrated contract.

Pacific's fraud and misrepresentation

claims test on Brinderson's’ alleged

promise to interpret the contract as

limiting Pacific's obligations to work

Pacific had customarily performed despite

the except language in article 1l1(e)I.A.,

section 15603 and article 33, paragraph

16. Because the integrated contract

itself is not reasonably susceptible of

such an interpretation, Pacific's parol

evidence contradicts the plain language of

the contract. Thus, Pacific's signing of

the contract precludes a fraud claim based

on the alleged promise to interpret the

contact in a way that contradicts the

plain language of the contract.

Even if Pacific's allegations are

true, article 24 of the contract

specifically states that "the parties

103

shall not be bound by, or liable for, any

statement, representation, promise, or

agreement not specifically set forth in

this subcontract." Thus, Pacific should

have insisted that Brinderson's promises

and representations were put into the

contract before it was_ signed. An

integrated contract is given legal

Significance under California law, and

Pacific cannot introduce parol evidence of

fraud if the evidence contradicts the

integrated contract. Pendergrass, 48 P.2d

at 601; Price, 261 Cal. Rptr. at 745-46.

Pacific errs by suggesting that Price

casts doubt on the continuing validity of

the Pendergrass rule and allows parol evi-

dence of fraud in the inducement even if

such evidence conflicts with the signed

contract. In fact, just the opposite is

true. First, Price makes it clear that

Pendergrass is “the governing law." 261

104

Cal. Rptr. at 746. According to Price,

the Pendergrass rule "is based on an

entirely defensible decision favoring the

policy considerations underlying the parol

evidence [rule] over those supporting a

fraud cause of action." Id. We agree with

this analysis.

Second, Price explicitly recognizes

that, while the parol evidence rule in

general does not bar evidence of fraud in

the inducement, the Pendergrass rule does

preclude proof of such promissory fraud if

it contradicts an integrated agreement.

Id. at 745 (Pendergrass resolves "a

conflict between the [parol evidence] rule

and promissory fraud relating to the

principal terms of an agreement"); see

also id. at 746 ("Pendergrass compromises

the policies of tort law, but a contrary

rule would compromise those of the parol

evidence rule"). Indeed, Price involved

105 —

the same type of fraud in the inducement

as Pacific alleges here an oral promise

conflicting with the language of an

integrated agreement. The court applied

the Pendergrass rule and held that the

parol evidence was inadmissible because it

contradicted the written agreement. Just

as summary judgment was appropriate in

Price, judgment in favor of Brinderson.is

appropriate here because the evidence of

the alleged fraud is inadmissible under

California law.

The Price decision is directly on

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