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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1993
- **Citation:** 507 U.S. 914

## Text

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

i

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

i

ii
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").

iv

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 .. <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

9

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

10
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

11
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.

12

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).

13
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

14

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 ?

15

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).

16
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,

i

17
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).

18
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).

19

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.

20
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

21
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).

22

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.

a

23
(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

24

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

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25

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

26
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).

27

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.

28

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

:
i

;
=
2
a
3

29
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.

30

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).

1

Pe died S43

31
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-

32

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

33

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."

34

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,

35

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).

36
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

37

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.

38
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).

39
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).

40

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

41
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

, |

42
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

3
é
s
4
\
é

ON ee ee ee

:
7
4
;
F

43
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

44
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

45

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").

46
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

47

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
ei
Q

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.

48

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

49

[A]greements and negotiations
prior to or contemporaneous with
the adoption of a writing are
admissible in evidence to
establish

* * *
(c) the meaning of the writing,

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

50
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

51

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

52

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).

—

53

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.

54

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

55

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

56

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.

57

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

58

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).

59

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.”

Se

60

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.

61

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.

[5
x

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

62
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".

63

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

64
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).

65

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

i)

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,
Ve

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,

V.

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.

2
BRINDERSON-NEWBERG JOINT VENTURE;
Brinderson Corporation; Gust K. Newberg
Corporation; Frank J. Loscavio;
Brinderson Constructors, Inc.,
Plaintiffs-counter-defendants-Appellees,
Ve

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

3
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

4

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

5
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)

6

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

7
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.

8
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-

9
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

10
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.

11

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

12

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

13

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

14

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.

15

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

16
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

17

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

18
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.

19
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

20

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

21

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

22
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

as

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-

24
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

25

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

26

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

27

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,

28

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

29

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.

30

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

31

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

32

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

33
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.

34

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”

35

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

36
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.

37

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-

38
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.

39

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

40

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.

41
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

42

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

43
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 &

44
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

45

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

46

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

47

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

48
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

49
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

50
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.

51
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

52
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

53

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

54

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

56
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

57

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.

58
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

59
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 )
)

60

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

61
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

62
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

63

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

65
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

66

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

67
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.

68
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

69
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

70

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

71

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.

72
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.

73

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.

el

74

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_1785%3A1. Public record. Not legal advice.