Appalachian Insurance v. McDonnell Douglas Corp.

ed the defendants from liability based on negligence, we need not reach this issue. Finally, McDonnell Douglas appeals the trial court’s denial of an award of attorney’s fees. We conclude the court did not err in denying attorney’s fees and therefore affirm that ruling.

Facts

In order for a telecommunications satellite to function effectively, it must be placed into a “geosynchronous orbit.” A geosynchronous orbit is an orbit in which a satellite remains stationary vis-á-vis a particular location on the earth. This orbit is approximately 22,000 miles above the equator.

Prior to 1981, the National Aeronautics and Space Administration (NASA) launched commercial satellites by NASA’s Delta rocket, a three-stage, expendable launch vehicle which could lift a satellite into a geosynchronous orbit. Each Delta carried only one satellite. In the 1970’s, NASA decided to phase out expendable rockets and to launch all satellites from the space shuttle. The space shuttle could carry up to four satellites at a time but was not designed to reach the geosynchronous orbit. Instead, the space shuttle orbited at an altitude of 150-160 nautical miles (a parking orbit). To launch satellites from the space shuttle’s parking orbit into higher orbits, each satellite needed its own upper stage rocket.

In 1976, McDonnell Douglas proposed to develop such an upper stage rocket for satellites, at its own expense, if NASA agreed not to fund development of a competing system. NASA agreed but did not obligate itself to purchase any hardware from McDonnell Douglas nor promise not to purchase similár hardware or services from other companies. NASA also retained the right to set a ceiling on the price McDonnell Douglas could charge for the upper stage rocket and related launch services.

McDonnell Douglas’s upper stage rocket, a power assist module (PAM), had two key components: (1) airborne support equipment, consisting principally of a spin table, cradle, sun shield and related control electronics and hardware designed to hold the satellite in the space shuttle’s cargo bay from liftoff to the parking orbit; and (2) a Star 48 motor manufactured by Morton Thiokol which is attached to a satellite prior to liftoff. The nozzle or exit cone of the Star 48 motor was manufactured by Hitco under a subcontract with Morton Thiokol.

Western Union initially contacted both NASA and Arianespace, a French based company of the European Space Agency, to launch its Westar VI satellite. The Ariane rocket was an expendable launch vehicle capable of

space shuttle’s cargo bay. The upper stage rocket, scheduled to burn for 85 seconds to boost Westar VI into an orbit which would intersect with the geosynchronous orbit, failed when the Star 48 motor’s exit cone, or nozzle, disintegrated about 4 seconds after ignition. Thereafter, the motor nozzle assembly was expelled and the motor extinguished itself. The short burn of the upper stage rocket caused Westar VI to go into a low elliptical orbit around the earth with a maximum altitude of only 655 nautical miles. In this orbit, Westar VI was useless for telecommunication purposes.

Western Union made a claim against its insurance companies for a total loss of the satellite. The insurers paid Western Union about $105 million on the claim.

About three weeks after the space shuttle mission, Hughes Aircraft Corporation (which had manufactured Westár VI) briefed NASA about the possibility of retrieving the satellite. On September 7, 1984, an agreement was reached by Hughes and the majority insurers of Westar VI to retrieve the satellite. In November 1984, Westar VI was retrieved from its improper orbit and brought to Hughes Aircraft Company.

On January 17, 1986, Appalachian filed suit in the Orange County Superior Court against McDonnell Douglas, Morton Thiokol and Hitco, alleging causes of action for negligence and strict liability. On February 14, McDonnell Douglas filed for a petition to remove the case to federal court. Thereafter, on February 18, Appalachian voluntarily dismissed the federal court action and filed a new complaint, containing minor modifications, in the Orange County Superior Court. In federal court, McDonnell Douglas filed a motion to strike or vacate Appalachian’s dismissal. The federal court denied the motion, noting that removal had been improper.

Discussion

Appalachian’s Appeal

Summary Judgment Review

The aim of the summary judgment procedure is to discover whether the parties possess evidence requiring the fact-weighing procedures of a trial. (Chern v. Bank of America (1976) 15 Cal.3d 866 , 873 [ 127 Cal.Rptr. 110 , 544 P.2d 1310 ]; Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842 , 851 [ 94 Cal.Rptr. 785 , 484 P.2d 953 ].) “[T]he trial court in ruling on a motion for summary judgment is merely to determine

whether such issues of fact exist, and not to decide the merits of the issues themselves.” (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092 , 1107 [ 252 Cal.Rptr. 122 , 762 P.2d 46 ].) In reviewing the propriety of a summary judgment, the appellate court must resolve all doubts in favor of the party opposing the judgment. (Palma v. US. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171 , 183 [ 203 Cal.Rptr. 626 , 681 P.2d 893 ].) The reviewing court conducts a de novo examination to see whether there are any genuine issues of material fact or whether the moving party is entitled to summary judgment as a matter of law. (Lichty v. Sickels (1983) 149 Cal.App.3d 696 , 699 [ 197 Cal.Rptr. 137 ].) While “[s]ummary judgment is a drastic procedure, should be used with caution [citation] and should be granted only if there is no issue of triable fact” (Brose v. Union-Tribune Publishing Co. (1986) 183 Cal.App.3d 1079 , 1081 [ 228 Cal.Rptr. 620 ]), it is also true “[j]ustice requires that a defendant be as much entitled to be rid of an unmeritorious lawsuit as a plaintiff is entitled to maintain a good one.” (Larsen v. Johannes (1970) 7 Cal.App.3d 491 , 507 [ 86 Cal.Rptr. 744 ].) “A defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiff’s asserted causes of action can prevail. [Citation.]” (Molko v. Holy Spirit Assn., supra, 46 Cal.3d at p. 1107.)

The Contractual Provisions

The trial court here ruled provisions in the contract between Western Union and McDonnell Douglas unambiguously precluded Western Union from suing McDonnell Douglas, Morton Thiokol or Hitco.

The fundamental canon of contract interpretation is the ascertainment of the parties’ intent. (Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751 , 761 [ 128 P.2d 665 ]; Ticor Title Ins. Co. v. Rancho Santa Fe Assn. (1986) 177 Cal.App.3d 726 , 730 [ 223 Cal.Rptr. 175 ].) The language of the instrument must govern its interpretation if it is clear and explicit. (Civ. Code, § 1638.) Generally, the words of a contract are to be understood in their ordinary and popular sense (Salton Bay Marina, Inc. v. Imperial Irrigation Dist. (1985) 172 Cal.App.3d 914 , 931 [ 218 Cal.Rptr. 839 ]; Civ. Code, § 1644; Code Civ. Proc., § 1861) unless a contrary intent is shown, such as a specialized meaning due to trade custom and practice or a prior course of dealing (see LaCount v. Hensel Phelps Constr. Co. (1978) 79 Cal.App.3d 754 [ 145 Cal.Rptr. 244 ]; Code Civ. Proc., § 1856, subd. (c)).

The interpretation of a written contract is solely a judicial function unless the interpretation turns on the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861 , 865 [ 44 Cal.Rptr.

767 , 402 P.2d 839 ]; Medical Operations Management, Inc. v. National Health Laboratories, Inc. (1986) 176 Cal.A,pp.3d 886, 891 [ 222 Cal.Rptr. 455 ].) Extrinsic evidence may be introduced when the terms of the contract are ambiguous. (Vega v. Western Employers Ins. Co. (1985) 170 Cal.App.3d 922 , 927 [ 216 Cal.Rptr. 592 ], disapproved on other grounds in Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287 [ 250 Cal.Rptr. 116 , 758 P.2d 58 ]; Code Civ. Proc., § 1856.)

A court must view the language in light of the instrument as a whole and not use a “disjointed, single-paragraph, strict construction approach.” (Ezer v. Fuchsloch (1979) 99 Cal.App.3d 849 , 861 [ 160 Cal.Rptr. 486 , 13 A.L.R.4th 1333 ].) If possible, the court should give effect to every provision. (Civ. Code, § 1641; White v. Dorfman (1981) 116 Cal.App.3d 892 , 897 [ 172 Cal.Rptr. 326 ].) An interpretation which renders part of the instrument to be surplusage should be avoided. (See Estate of Newmark (1977) 67 Cal.App.3d 350 , 356 [ 136 Cal.Rptr. 628 ]; Thackaberry v. Pennington (1955) 131 Cal.App.2d 286 , 297 [ 280 P.2d 165 ].)

The contract between Western Union and McDonnell Douglas contains two provisions addressing liability and allocation of loss. Appalachian concedes the first of these provisions, article 7, if enforceable, protects McDonnell Douglas from liability but argues it does not similarly protect McDonnell Douglas’s subcontractors, i.e., Morton Thiokol and Hitco.

Article 7 provides: “7. Warranties and Indemnities. [McDonnell Douglas] extends no warranty of any kind, express or implied, including any implied warranty of merchantability or suitability for purpose with respect to the PAM or with respect to services provided by [McDonnell Douglas] hereunder. Except as provided in Articles 13, 15, 16, and 17 of this Agreement, under no circumstances will [McDonnell Douglas] be liable to Purchaser under or in connection with this Agreement, under any tort, negligence, strict liability, contract or other legal or equitable theory, for incidental or consequential damages or for Purchaser’s cost of effecting cover. Purchaser shall indemnify and hold harmless [McDonnell Douglas], its officers, agents and employees from and against any and all liabilities, damages and losses, including costs and expenses in connection therewith, for death of or injury to any persons whomsoever and for the loss of, damage to or destruction of any property whatsoever, caused by, arising out of or in any way connected with the launch or operation of the PAM, Spacecraft, or Launch Vehicle unless resulting from the sole negligence or willful misconduct of [McDonnell Douglas], its officers, agents and employees. Purchaser hereby expressly waives and releases any cause of action or right of recovery which Purchaser may have hereafter against [McDonnell Douglas] for any loss or damage to the PAM, Spacecraft or Launch Vehicle, caused by, arising out of or in

any way connected with the launch or operation of the PAM, Spacecraft or launch vehicle. Purchaser shall obtain a waiver from any insurance carrier with which the Purchaser carries property insurance covering the PAM, Spacecraft and/or launch vehicle releasing its subrogation rights against [McDonnell Douglas], Purchaser shall furnish [McDonnell Douglas] with certificates, satisfactory to [McDonnell Douglas], evidencing its compliance with its insurance obligations under this Article 7. The indemnification provisions of this Article 7 shall not apply to liabilities, damages or losses suffered under the conditions set forth in Article 14.”

As Appalachian points out, article 7 does not expressly extend protection to subcontractors. Morton Thiokol acknowledges article 7 does not provide an explicit waiver applicable to subcontractors, but argues it was intended to benefit component suppliers: “Article 7 applies to the entire product, i.e., the PAM and its component parts. [Western Union] could have bargained for a warranty from [McDonnell Douglas] for the PAM and its component parts. Instead of paying an increased price, [Western Union] accepted a complete disclaimer.” Morton Thiokol relies on the Ninth Circuit cases of Aeronaves de Mexico, S.A. v. McDonnell Douglas (9th Cir. 1982) 677 F.2d 771 and Airlift Intern., Inc. v. McDonnell Douglas Corp. (9th Cir. 1982) 685 F.2d 267 . These cases are factually distinguishable and rest on the particular facts of the cases as the Ninth Circuit subsequently explained in Continental Airlines v. Goodyear Tire & Rubber Co. (9th Cir. 1987) 819 F.2d 1519 .

As the Ninth Circuit explained in Continental Airlines v. Goodyear Tire & Rubber Co., supra, 819 F.2d at page 1528: “The reasoning in Aeronaves proceeded in this fashion. The court pointed out that the airline already had received from [McDonnell Douglas] over $400,000 worth of free servicing under its warranty provisions. To permit recovery by the airline from the parts suppliers for consequential damages would enable the parts suppliers thereafter to sue [McDonnell Douglas] for indemnity. The consequence would be that the airline would in effect circumvent the exculpatory clause and reap a ‘windfall’ of free repairs plus consequential damages. The crux of the matter, as Aeronaves saw it, was that the airline (by way of the exculpatory clause) had waived its consequential damage remedies in return for [McDonnell Douglas’s] promise to provide valuable servicing of the component parts that allegedly caused the accident. The airline should not be permitted ‘to have its cake and eat it too.’ The situation in Airlift appears to have been the same.

“As Continental points out, however, the contractual provisions in this case differ in a significant respect. In Aeronaves, ‘the warranty provisions . . . explicitly extended] to components of the aircraft manufactured by

entities other than [McDonnell Douglas], regardless of who supplied the design specifications.’” (Citations omitted.)

Thus, the holdings of the Aeronaves and Airlift cases derived from (1) express language in an exculpatory clause which extended exculpation to component manufacturers and (2) on the existence of a servicing agreement for the seller’s benefit. In the case here, there is no such express language in article 7 nor is there a similar servicing agreement extended to Western Union.

Article 7, however, is not the only exculpatory clause in the contract. The contract also contains article 14 which provides, in pertinent part: “14.2 Purchaser and [McDonnell Douglas] (the Parties) will respectively utilize their property and employees in STS Operations in close proximity to one another and to others. Furthermore, the parties recognize that all participants in STS Operations are engaged in the common goal of meaningful exploration, exploitation and uses of outer space. In furtherance of this goal, the parties hereto agree to a no-fault, no-subrogation, inter-party waiver of liability pursuant to which each party agrees not to bring a claim against or sue the other party, NASA, or other NASA customers and agrees to absorb the financial and any other consequences for Damage it incurs to its own property and employees as a result of participation in STS Operations during Protected STS Operations, irrespective of whether such Damage is caused by NASA, Purchaser, [McDonnell Douglas], or other NASA customers participating in the STS Operations, and regardless of whether such Damage arises through negligence or otherwise. Thus, the Parties, by absorbing the consequences of damage to their property and employees without recourse against each other, NASA, or other NASA Customers participating in STS Operations during Protected STS Operations, jointly contribute to the common goal of meaningful exploration of outer space.

“14.3 The parties agree that this common goal will also be advanced through extension of the inter-party waiver of liability to other participants in STS Operations. Accordingly, the parties agree to extend the waiver as set forth in Paragraph 14.2 above to their respective contractors and subcontractors at every tier, as third party beneficiaries, whether or not such contractors or subcontractors causing damage bring property or employees to a United States Government Installation or retain title to or other interest in property provided by them to be used, or otherwise involved, in STS Operations. Specifically, the parties intend to protect these contractors and subcontractors from claims, including ‘products liability’ claims, which might otherwise [be] pursued by the Parties, or the respective contractors or subcontractors of the Parties, or other NASA customers or the contractors

or subcontractors of other customers. Moreover, it is the intent of the parties that each will take all necessary and reasonable steps in accordance with Paragraph 14.5 below to foreclose claims for Damage by any participant in STS Operations during protected STS Operations, under the same conditions and to the same extent as set forth in Paragraph 14.2 above, except for claims between Purchaser and its other contractors or subcontractors and claims between [McDonnell Douglas] and its contractors and subcontractors.

“14.4 The parties intend that the inter-party waiver of liability set forth in Paragraph 14.2 and 14.3 above be broadly construed to achieve the intended objectives.

“14.5 Purchaser and [McDonnell Douglas] will each require the following to agree to the waiver of liability set forth in Paragraph 14.3 above: (i) all persons and entities to whom it assigns all or part of its right to Launch and Associated Services; (ii) any person or entity to whom it has sold or leased or otherwise agreed, prior to the completion of NASA’s launch services for a particular Payload, to provide all or any portion of its Payload or Payload services; (iii) all its prime contractors; and (iv) all its subcontractors who will have persons or property involved in STS Operations during Protected STS Operations.

“14.6 Words or phrases capitalized but not defined in this Article 14, shall have the meaning attributed to such words or phrases in the NASA/Purchaser Launch Services Agreement for WESTAR VI.

“14.7 In the event NASA and Purchaser should modify any of the provisions entitled ‘Damages to Persons or Property involved in STS Operation,’ [the inter-party waiver] [McDonnell Douglas] and Purchaser agree to modify this Article 14, to conform to such modification.”

Appalachian argues its suit is permitted by the “except” clause in paragraph 14.3. We disagree. That clause excepts “claims between [Western Union] and its other contractors and subcontractors . . . .” (Italics added.) Morton Thiokol and Hitco were not “other” contractors or subcontractors of Western Union; they were a contractor and subcontractor of McDonnell Douglas. As such, they were specifically extended protection by paragraph 14.3’s language stating: (1) the interparty waiver of liability was extended to each parties’ “respective contractors and subcontractors” and (2) the parties’ intent was to protect “these contractors and subcontractors from claims, including ‘products liability’ claims, which might otherwise [be] pursued by the Parties . . . (Italics added.) To adopt Appalachian’s argument would render this language, which lies at the heart of paragraph 14.3,

As a general rule, a written contract, having been deliberately executed, is presumed to correctly express the parties’ intentions, (California Trust Co. v. Cohn (1935) 9 Cal.App.2d 33 , 40 [ 48 P.2d 744 ].) “The presumption is not conclusive and may be overcome by satisfactory evidence which shows that the written instrument is not in conformity with the true agreement of the parties.” (Ibid.) Civil Code section 3399 allows reformation of a contract when, through mistake, it fails to express the true agreement of the parties. “[The] mistake may be the mutual error of both parties to the contract, or the oversight of one party which the other knew or suspected at the time of entering the agreement.” (American Home Ins. Co. v. Travelers Indemnity Co. (1981) 122 Cal.App.3d 951 , 961 [ 175 Cal.Rptr. 826 ].)

When reformation is sought, “the Court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be.” (Civ. Code, § 3401; First American Title Ins. & Trust Co. v. Cook (1970) 12 Cal.App.3d 592 , 598 [ 90 Cal.Rptr. 645 ].) Thus, “[t]he fact that the parties used the very words which they intended to use is not always sufficient cause for refusing relief of this character. There may be no mistake as to the words used or to be used, and at the same time there may have been a mutual mistake as to some other matter of fact affecting the meaning or application of the words, and by reason thereof the contract may not truly express the real intention of both parties, and in that case it may be revised and reformed at the instance of the aggrieved party and enforced accordingly, although the words were carefully chosen. [Citations.]” (F.P. Cutting Co. v. Peterson (1912) 164 Cal. 44 , 47-48 [ 127 P. 163 ]; see also Holmes v. Anderson (1928) 90 Cal.App. 276 [ 265 P. 1010 ].)

Since reformation is an equitable remedy, it may be denied if the mistake was the result of “ ‘ “the want of that degree of care and diligence which would be exercised by persons of reasonable prudence under the same circumstances . . . (Fraters G. & P. Co. v. Southwestern C. Co. (1930) 107 Cal.App. 1 , 6 [ 290 P. 45 ]; see also Miller v. Lantz (1937) 9 Cal.2d 544 , 548 [ 71 P.2d 585 ] [reformation denied to defendant who failed to explain long delay in discovering the alleged defect in the writing, why he was precluded from reading or fully comprehending the meaning of the contract and language used and his cross-complaint showed only a unilateral mistake]; Roller v. California Pacific Title Ins. Co. (1949) 92 Cal.App.2d 149 , 154 [ 206 P.2d 694 ] [“We are inclined to the view, therefore, that where the failure to familiarize one’s self with the contents of a written contract prior to its execution is traceable solely to carelessness or negligence, reformation as a rule should be denied.” (italics omitted)]; Taff v. Atlas Assur. Co. (1943) 58 Cal.App.2d 696 , 702 [ 137 P.2d 483 ] [“The reformation of [an insurance policy] on the ground of mistake without the exercise of reason

stitutes the actual agreement, commercial practicalities dictate that unbar-gained-for terms only be denied enforcement where they are also substantively unreasonable. No precise definition of substantive unconscionability can be proffered. Cases have talked in terms of ‘overly harsh’ or ‘one-sided’ results. One commentator has pointed out, however, that, ‘. . . unconscionability turns not only on a “one-sided” result, but also on an absence of “justification” for it[,]’ which is only to say that substantive unconscionability must be evaluated as of the time the contract was made. The most detailed and specific commentaries observe that a contract is largely an allocation of risks between the parties, and therefore that a contractual term is substantively suspect if it reallocates the risks of the bargain in an objectively unreasonable or unexpected manner. But not all unreasonable risk reallocations are unconscionable; rather, enforceability of the clause is tied to the procedural aspects of unconscionability such that the greater the unfair surprise or inequality of bargaining power, the less unreasonable the risk reallocation which will be tolerated.” (Id. at pp. 486-487, citations and fn. omitted.)

Appalachian contends the “procedural element” of unconscionability exists here because, Appalachian asserts, McDonnell Douglas “had an absolute monopoly on the sale of the PAM-D, which was essential for the launch of any commercial satellite in the United States,” used that monopoly power to require all customers to accept the exculpatory clause which insulated McDonnell Douglas from liability and left Western Union with “no ‘meaningful choice’ other than to accept [McDonnell Douglas’s] contractual terms.” The record does not support these conclusions.

It is true that at the time Western Union sought to launch its Westar VI satellite, McDonnell Douglas was the only company supplying upper stage rockets for the space shuttle. To that extent, McDonnell Douglas had a monopoly. But, McDonnell Douglas did not have “an absolute monopoly” on the means of launching a telecommunications satellite into a geosynchronous orbit; owners of telecommunications satellites had the option of launching their satellites into geosynchronous orbit via the Ariane rocket of the European Space Agency. An Ariane launch did not require the purchase of an upper stage rocket from McDonnell Douglas. Here, Western Union, in fact, initially contracted with Arianespace to launch the Westar VI into geosynchronous orbit. Western Union terminated that contract, not because Arianespace was unavailable, but because Western Union decided the space shuttle presented a more reliable and cheaper option. Thus, contrary to Appalachian’s contention, McDonnell Douglas had no monopoly vis-a-vis the means of launching satellites into geosynchronous orbits.

Appalachian contends McDonnell Douglas used oppressive negotiating practices and cites evidence of NASA’s concerns about McDonnell Douglas’s contracting practices.

Appalachian, in particular, cites a July 1983 letter from James Abraham-son, NASA’s association administrator for space flight, responding to McDonnell Douglas’s request for an increase in the ceiling price. In the letter, Abrahamson noted NASA had “received a series of major customer complaints about [McDonnell Douglas’s] contractual approach” and stated “it has become increasingly clear that there are significant incompatibilities between the NASA Launch Services Agreement and the [McDonnell Douglas] contract.” Abrahamson explained: “To insure there is no misunderstanding, I would like to emphasize that customer complaints are not directed at [McDonnell Douglas’s] performance, the PAM-D as a system, or [McDonnell Douglas’s] dedication and commitment to customer satisfaction. Both our customers and NASA are delighted with each of those important areas of performance. We are gratified that our partnership has worked so well for the Space Transportation System and our customers to this point.

“However, our new customers are gravely concerned with your contracting approach. They complain that there is no apparent willingness, on the part of [McDonnell Douglas], to undertake responsibilities normally agreed to in the aerospace payload industry; e.g., responsibility for hardware performance, for late delivery of the hardware, for acknowledging equity to the customer in the case of termination, and for granting access to technical information . . . .”

Abrahamson disapproved McDonnell Douglas’s requested increase in the ceiling price at that time, but added he “would be pleased to continue the discussion within the broader content of both price and an acceptable customer contractual approach . . . .”

This letter, however, does not tell the whole story. After the letter, as a result of pressure from NASA and Western Union, McDonnell Douglas gave additional concessions to Western Union. Thus, Western Union was not the victim of allegedly oppressive contracting practices by McDonnell Douglas; McDonnell Douglas responded to the complaints and yielded to the bargaining power of Western Union and NASA. Moreover, as to article 14, the record is clear this provision was neither drafted nor insisted upon by McDonnell Douglas, but was drafted by Western Union and agreed to by both parties.

As to the second factor of procedural element of unconscionability— “unfair surprise”—Appalachian does not assert any unfair surprise occurred here nor would the record support such an assertion. The record shows Western Union was well aware of article 7. It had dealt with similar provisions in earlier contracts with McDonnell Douglas and in this contract

would the buyer be in a better position than the manufacturer-seller to evaluate the performance characteristics of a machine.” (Id. at pp. 491-492.) Appalachian asserts this case fits within the guidelines of the A & M Produce case because “[i]t is beyond dispute that [McDonnell Douglas], Morton Thiokol and Hitco were in a better position than [Western Union] to prevent the exit cone failure that occurred in this case.”

Appalachian’s argument is overly simplistic. If unconscionability could be established merely by showing the manufacturer-seller’s superior ability to detect defects, then the general rule would be that disclaimers were unconscionable and illegal. Warranty disclaimers, however, are specifically authorized by the California Uniform Commercial Code (see Cal. U. Com. Code, § 2316) and the Supreme Court has held “no public policy opposes private, voluntary transactions in which one party, for a consideration, agrees to shoulder a risk which the law would otherwise have placed upon the other party.” (Tunkl v. Regents of University of California (1963) 60 Cal.2d 92 , 101 [ 32 Cal.Rptr. 33 , 383 P.2d 441 , 6 A.L.R.3d 693 ].)

Further, Appalachian’s reliance on our decision in A & M Produce is misplaced; Appalachian ignores the factual context of that case. A & M Produce involved the sale of a mass-produced product by “an enormous diversified corporation” to “a relatively small but experienced farming company” using a standardized preprinted form with a warranty disclaimer printed on the reverse side which was never read by the buyer. (A & M Produce Co. v. FMC Corp., supra, 135 Cal.App.3d 473 , 489-491.) In this factual context, we stated that “[I]t is patently unreasonable to assume that a buyer would purchase a standardized mass-produced product from an industry seller without any enforceable performance standards.” (Id. at p. 491.) We also observed: “Especially where an inexperienced buyer is concerned [the buyer here was venturing into a new area, was unfamiliar with the equipment and turned to the seller’s agent for recommendations as to what equipment was necessary], the seller’s performance representations are absolutely necessary to allow the buyer to make an intelligent choice among the competitive options available. A seller’s attempt, through the use of a disclaimer, to prevent the buyer from reasonably relying on such representations calls into question the commercial reasonableness of the agreement and may well be substantively unconscionable.” (Id. at p. 492.)

Here, the contract was not a standardized printed form for the sale of a mass-produced product; here the contract was negotiated. It involved specialized services and new technology developed in a “high risk business.” Western Union was not an inexperienced buyer who had to rely on McDonnell Douglas’s representations; Western Union was a large, sophisticated corporation experienced in launching telecommunications satellites. West

or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents.” (Id. at pp. 98-101, fns. omitted.)

Appalachian contends all six of the Tunkl factors are present in this case.

(1) Public Regulations

Appalachian argues this factor is satisfied “by the regulations that govern both domestic satellite owners’ use of communications satellites and the sale of upper stage boosters by domestic suppliers like [McDonnell Douglas].” Appalachian points to the regulations by the Federal Communications Commission (FCC) and state authorities on satellite communications for the protection of the public and NASA’s regulation of customer procurements of McDonnell Douglas’s upper stage rocket (e.g., the ceiling price on the PAM and launch related services).

Appalachian’s reliance on these regulations to meet the Tunkl criteria is misplaced. First, the NASA “regulations” are not legislative enactments or agency regulations, they are terms in a contract between NASA and McDonnell Douglas. The terms are related to the price of the upper stage rocket and launch related services and were added, not for the protection of the general public, but to insure NASA’s space shuttle would remain competitively priced with the Ariane rocket of the European Space Agency.

As to the state and FCC regulations cited by Appalachian, these relate to satellite transmissions rather than the sale of hardware and services for launching satellites.

The “public regulations” factor is intended to focus the court’s attention on the question of whether the exculpatory clause will adversely affect a public interest demonstrated by the presence of regulations. As the court explained in Delta Air Lines, Inc. v. Douglas Aircraft Co. (1965) 238 Cal.App.2d 95 [ 47 Cal.Rptr. 518 ], a case involving an exculpatory clause in a contract for sale of an aircraft: “The fact that Delta is a regulated enterprise and carries passengers has no relevance to the present decision. The upholding of the exculpatory clause will not adversely affect rights of future passengers [i.e., the general public affected by the regulations]. They are not parties to the contract and their rights would not be compromised. They retain their right to bring a direct action against [McDonnell] Douglas for negligence. [Citation.] Also, their right to bring an action against [McDonnell] Douglas for breach of implied warranty would not be interfered with because the passengers were not a party to the contract containing the exculpatory clause.” (Id. at p. 104, fn. omitted.)

Similarly, here, the rights of the public are not affected by the exculpatory clause in the Western Union/McDonnell Douglas contract. The rights of

the public as protected in the regulations cited by Appalachian are unaffected by the parties’ agreement that Western Union should obtain insurance to protect against potential loss rather than to look to McDonnell Douglas for a warranty.

(2) Practical Necessity

Appalachian argues: “[This factor] is present here because PAM-Ds provide a critical link in the establishment of domestic and international telecommunication systems. Common carriers like [Western Union] that launch commercial satellites provide vital communication services to the public, including the transmission of telephone, data transmission, and video (television) signals. The PAM-D is, of course, necessary for the launch of commercial satellites.”

Appalachian misapprehends the nature of this factor. This factor looks to services such as medical, legal, housing, transportation or similar services “which must necessarily be used by the general public.” (Hulsey v. Elsinore Parachute Center (1985) 168 Cal.App.3d 333 , 343 [ 214 Cal.Rptr. 194 ] [italics in original]; Okura v. United States Cycling Federation (1986) 186 Cal.App.3d 1462 , 1467 [ 231 Cal.Rptr. 429 ]; Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d 642 , 655 [ 191 Cal.Rptr. 209 ].)

The provision of hardware and service for space launches, obviously, is not similar to these basic, necessary services; it is not the type of service “which is often a matter of practical necessity for some members of the public.” (Tunkl v. Regents of University of California, supra, 60 Cal.2d 92 , 99.) Appalachian points out that it is not necessary that the service be of practical necessity to all members of the public; it is sufficient if it is of practical necessity to some members. Here, however, the provision of space hardware and launch services is of practical necessity to no individual member of the public; it is of “practical necessity” only to a few, very large commercial and governmental entities dealing in highly specialized fields such as telecommunications.

(3) Service is Open to Any Member of the Public

Appalachian argues: “The third Tunkl characteristic is present here because [McDonnell Douglas] was willing to sell the PAM-D to any public or private entity, so long as the potential customer could afford the prices charged for the PAM-D.”

Appalachian’s attempt to minimize the exclusivity of the sales of the upper stage rocket by characterizing it only as a matter of being able to afford the sales price is hardly a persuasive argument. The high price of obtaining the service, in and of itself, precludes nearly all members of the

to cover potential losses and would not make claims against each other) were the result of a voluntary agreement.

(6) Property Subject to Seller’s Control

Appalachian argues this factor is present here because the “. . . Westar [VI], in the critical period after deployment from the Space Shuttle, was solely and exclusively controlled by the PAM-D Star 48 motor.”

This argument is without merit. Once the satellite was placed in the space shuttle, McDonnell Douglas no longer had control; the satellite and the PAM were under NASA’s control. McDonnell Douglas did not suddenly regain control of Westar VI and the PAM by its deployment from the space shuttle.

Conclusion

We conclude, the exculpatory clauses here do not conflict with the public interest, but were the result of “private, voluntary transactions in which one party, for a consideration, agrees to shoulder a risk which the law would otherwise have placed upon the other party.” (Tunkl v. Regents of University of California, supra, 60 Cal.2d 92 , 101.) We find pertinent here to both Appalachian’s claim based on the public interest as well as its claim based on unconscionability the reasoning of the court in Philippine Airlines, Inc. v. McDonnell Douglas Corp. (1987) 189 Cal.App.3d 234 [ 234 Cal.Rptr. 423 ], a case involving the sale of an allegedly defective aircraft by McDonnell Douglas. The court there stated: “Each of these theories might be asserted in any action involving an allocation of risk, yet, as discussed, contractual allocations of risk in nonconsumer commercial settings are routinely upheld. The reason, we think, lies with our laws of negligence and products liability, and with the economic realities of the marketplace. It may be true, as PAL argues, that the ultimate consumer—here the passenger—is provided with a streamlined remedy against the carrier. Given, however, the realities of litigation, and the possibility that a carrier might have insufficient resources to cover what might be extensive liability should an aircraft malfunction, it would make little economic sense for a manufacturer to place on the market a defective product on the belief that it somehow would be insulated from the personal injury claims of passengers. Moreover, and aside from its potential liability to passengers, a manufacturer whose defective products caused its customers to be sued would not long remain in business. And a manufacturer such as [McDonnell Douglas] is still answerable to the Federal Aviation Commission. We are thus of the opinion that the argued ‘disincentive’ to produce a safe aircraft resulting

remedy for injuries to consumers injured by defective products when contractual theories were inadequate), it has been held strict liability cannot be contractually disclaimed in the consumer context. As the Supreme Court explained in Seely v. White Motor Co. (1965) 63 Cal.2d 9 , 17 [ 45 Cal.Rptr. 17 , 403 P.2d 145 ], “[strict] liability [cannot] be disclaimed, for one purpose of strict liability in tort is to prevent a manufacturer from defining the scope of his responsibility for harm caused by his products.” (See also Vandermark v. Ford Motor Co. (1964) 61 Cal.2d 256 [ 37 Cal.Rptr. 896 , 391 P.2d 168 ], [“Regardless of the obligations it assumed by contract, it is subject to strict liability in tort because it is in the business of selling automobiles, one of which proved to be defective and caused injury to human beings.”].)

In contrast, when a lawsuit over a defective product arises in a conmercial setting and involves only a business loss, the courts hold strict liability theory is not available; the parties are limited to normal commercial remedies (e.g., the California Uniform Commercial Code or their contracts). The cases reason strict liability theory should not apply to a commercial transaction because: commercial entities are not “ ‘in such a vulnerable position’ ” as are consumers (see Sumitomo Bank v. Taurus Developers, Inc. (1986) 185 Cal.App.3d 211 , 227 [ 229 Cal.Rptr. 719 ]; U. S. Financial v. Sullivan, supra, 37 Cal.App.3d 5 , 18-19); commercial entities can bargain for “a product designed to negotiable specifications and not furnished off the shelf’ (see Kaiser Steel Corp. v. Westinghouse Elec. Corp., supra, 55 Cal.App.3d 737 , 748); and because application of a strict liability theory “would improperly invade rules of law adopted by the Legislature in the California Uniform Commercial Code” when the California Uniform Commercial Code regulates “the various aspects of plaintiff’s purchase of [the product] from defendant, including liability for defects based on express and implied warranties” (Sacramento Regional Transit Dist. v. Grumman Flxible (1984) 158 Cal.App.3d 289 , 294-295 [ 204 Cal.Rptr. 736 ]).

Since liability for defective products when commercial entities and a business loss are involved is governed by the California Uniform Commercial Code which allows disclaimers of warranties (see Cal. U. Com. Code, §2316) and by the parties’ agreement, liability for defects may be disclaimed; the tort theory of strict liability does not apply and thus does not bar the disclaimer. The trial court properly ruled the disclaimers of strict liability in the Western Union/McDonnell Douglas contract were effective.

New Trial Motion

Appalachian contends the trial court erred in denying its motion for a new trial based on newly discovered evidence—a warranty from Morton

Cross Appeal

Negligence Cause of Action

The respondents contend the trial court erred in failing to additionally grant summary judgment as to Appalachian’s cause of action for negligence. The respondents advance various theories why a negligence cause of action does not lie here, including assertions that a manufacturer in a commercial relationship has no duty under a negligence theory to prevent a product from injuring itself; that there is no recovery in tort for purely “economic losses”; that recovery under a negligence theory requires damage caused by “a violent or calamitous occurrence”; and that applying California tort law to allow recovery here would violate various federal laws and international treaties relating to outer space. Regardless of the merit or lack of merit to these arguments, we need not address them since we have held Western Union specifically waived this claim in the contract it signed with McDonnell Douglas.

Statute of Limitations

The respondents contend the trial court erred in determining Appalachian’s action was not barred by the two-year statute of limitations of section 339, subdivision 1 of the Code of Civil Procedure.

Here, all parties agree the limitation period began to run on February 3, 1984, when the upper stage rocket failed to launch the Westar VI satellite into a geosynchronous orbit. On January 17, 1986, Appalachian filed a complaint against McDonnell Douglas, Morton Thiokol and Hitco seeking recovery based on negligence and strict liability in Orange County Superior Court. On February 14, 1986, McDonnell Douglas petitioned to remove the case to federal court on the ground, inter alia, that Appalachian’s complaint raised a federal question and Appalachian’s claims were preempted by federal law. On February 18, Appalachian, rather than petitioning for remand to the superior court, dismissed its action. McDonnell Douglas opposed the dismissal and filed a motion to strike or vacate Appalachian’s dismissal. The following day, February 19, 1986, Appalachian filed an action containing essentially the same allegations against McDonnell Douglas, Morton Thiokol and Hitco in Orange County Superior Court.

On March 24, 1986, the federal court ruled on McDonnell Douglas’s motion to strike or vacate Appalachian’s dismissal. In ruling against Me-

motor. The respondents contend: “What is involved in the instant case is not conversion of or damage to the satellite, but the intangible right to have the satellite in a particular orbit.” The respondents, therefore, assert the two-year limitation period of Code of Civil Procedure section 339, subdivision 1 applies. We need not resolve their dispute since, even assuming the shorter two-year statute applies, the trial court correctly found the action not barred. The trial court agreed with the respondents but applied the equitable tolling doctrine to the period when Appalachian’s case was pending in federal court. The respondents contend the court erred in applying the doctrine.

The “equitable tolling” doctrine is a judicially created doctrine designed to prevent unjust and technical forfeitures of the right to a trial on the merits when the purpose of the statute of limitations—timely notice to the defendant of the plaintiff’s claims—has been satisfied. (See Elkins v. Derby (1974) 12 Cal.3d 410 , 417-420 [ 115 Cal.Rptr. 641 , 525 P.2d 81 , 71 A.L.R.3d 839 ].) The doctrine was first applied by the California Supreme Court in Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399 [ 154 P.2d 399 ]. In Bollinger, the plaintiff filed a complaint against an insurance company but, after the limitations period contained in the plaintiff’s insurance policy had expired, the trial court erroneously granted a nonsuit on the ground the plaintiff’s action had been prematurely filed. Thereafter, when the plaintiff attempted to file a new complaint, the insurance company filed a demurrer, contending the complaint had been filed after the limitations period had expired. The trial court agreed, sustained the insurance company’s demurrer without leave to amend and dismissed the complaint. The Supreme Court reversed.

The starting point of the Supreme Court’s analysis was Code of Civil Procedure section 355 which provided: “If an action is commenced within the time prescribed therefor, and a judgment therein for the plaintiff be reversed on appeal, the plaintiff, or if he die and the cause of action survive, his representatives, may commence a new action within one year after the reversal.” The Supreme Court traced the derivation of this statute through the New York Code of Civil Procedure back to the English Limitation Act of 1623. The court noted: “The wording of section 355 is reminiscent of the old English statutes that specified situations instead of formulating general rules. As presently worded it protects a plaintiff who has mistaken his remedy if he was awarded a judgment in the first instance and defeated on appeal. There is all the more reason to protect a plaintiff, as in the present case, who has not mistaken his remedy but through error of the trial court was not allowed to proceed to trial. The basic policy that underlies section 355 calls for relief in such a case.” (Bollinger v. National Fire Ins. Co., supra, 25 Cal.2d at pp. 409-410.)

The Bollinger court stated it was “not powerless to formulate rules of procedure where justice demands it” and “has shown itself ready to adapt rules of procedure to serve the ends of justice where technical forfeitures would unjustifiably prevent a trial on the merits. [Citations.]” (25 Cal.2d at p. 410.) The court cited as an example Wennerholm v. Stanford Univ. Sch. of Med. (1942) 20 Cal.2d 713 [ 128 P.2d 522 , 141 A.L.R. 1358 ], where the court had applied a new rule before it had been enacted by the Legislature to eliminate a technicality requiring a plaintiff to request leave to amend before seeking appellate review, even though the trial court had already sustained a demurrer without leave to amend. (Bollinger v. National Fire Ins. Co., supra, 25 Cal.2d at p. 410.) The court also cited the relation back doctrine where an amendment, sought after the limitations period has expired, “will be deemed filed as of the date of the original complaint so long as recovery is sought upon the same general set of facts [citation], recognizing that despite the new filing, the action is still the same.” (Ibid.)

The Supreme Court held the statute of limitations should not bar a trial on the merits in the Bollinger case because the plaintiff’s “action is in reality a continuance of the earlier action involving the same parties, facts, and cause of action,” the plaintiff had timely filed his action and diligently pursued it, the nonsuit was erroneous and unrelated to the merits and the defendant’s delay in bringing the motion contributed to the filing of the complaint beyond the limitations period. (25 Cal.2d at pp. 410-411.) The Bollinger court concluded: “Statutes of limitations are not so rigid as they are sometimes regarded. Under certain circumstances property rights or immunities may be acquired as a result of the running of the statutory period, but the period will be extended or tolled by the occurrence of certain events, which may be the subject of conflicting evidence, such as absence from the state or disability. [Citation.] It is established that the running of the statute of limitations may be suspended by causes not mentioned in the statute itself. [Citations.] It is settled in this state that fraudulent concealment by the defendant of the facts upon which a cause of action is based [citation] or mistake as to the facts constituting the cause of action [citations] will prevent the running of the period until discovery. Principles of equity and justice . . . are . . . controlling here. . . . It is sufficient to hold that the equitable considerations that justify relief in this case are applicable whether defendant violated a legal duty in failing to disclose its intention to set up this technical defense, or whether it is now merely seeking the aid of a court in sustaining a plea that would enable it to obtain an unconscionable advantage and enforce a forfeiture.” (Id. at p. 411.)

The Supreme Court in Addison v. State of California (1978) 21 Cal.3d 313 , 318-319 [ 146 Cal. Rptr. 224 , 578 P.2d 941 ], later explained: “The rule announced in Bollinger is a general equitable one which operates independently of the literal wording of the Code of Civil Procedure. . . . flj]

cumstances of this case where the federal court stated removal was improper and said it would have remanded the case to the superior court had Appalachian not already dismissed the action,, would result in the kind of technical and unjust forfeiture of a trial on the merits that the equitable tolling doctrine was designed to avoid. (See Bollinger v. National Fire Ins. Co., supra, 25 Cal.2d 399 , 410.)

We conclude the action here before us “is in reality a continuance of the earlier action.” {Id. at p. 410.) Appalachian’s complaint, whether governed by Code of Civil Procedure section 338, subdivision 3 or section 339, subdivision 1, was timely filed.

Ill

Attorney’s Fees

McDonnell Douglas contends the court erred in failing to award it attorney’s fees. McDonnell Douglas first argues it is entitled to attorney’s fees because Appalachian’s action was frivolous.

Code of Civil Procedure section 128.5, subdivision (a), authorizes a court to order a party to pay reasonable attorney’s fees “incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.” The statute defines “frivolous” as meaning “totally and completely without merit” or “for the sole purpose of harassing an opposing party.” (Code Civ. Proc., § 128.5, subd. (b)(2).)

Nothing in the record indicates Appalachian’s action was brought solely for the purpose of harassing McDonnell Douglas, Morton Thiokol or Hitco or to cause unnecessary delay. Nor was Appalachian’s action “totally and completely without merit.” Appalachian’s contentions the defendants were negligent, the Star 48 motor was defective and that the exculpatory clauses were unenforceable because they were ambiguous, did not reflect the parties’ true intent and were unconscionable were contentions with some, if minimal, merit given the clear failure of the Star 48 motor, McDonnell Douglas’s position as the sole supplier of the upper stage rocket for the space shuttle and the generally strict judicial review of exculpatory clauses.

Alternatively, McDonnell Douglas argues it is entitled to attorney’s fees pursuant to Civil Code section 1717. This section provides for an award of attorney’s fees to the prevailing party “[i]n any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce the provisions of that contract” shall be awarded. McDonnell Douglas, while acknowledging the contract does not contain an

Therefore, the indemnification provision of article 7, referring to “costs and expenses” does not apply; the contract itself reflects an intent not to award attorney’s fees under the conditions occurring here. Civil Code section 1717 does not authorize an award of attorney’s fees to McDonnell Douglas here.

Disposition

The judgment is affirmed.

Huffman, J., and Nares, J., concurred.