Kammerer v. Western Gear Corp.

635 P.2d 708, 96 Wash. 2d 416, 1981 Wash. LEXIS 1267

• Court: Washington Supreme Court
• Decided: October 29, 1981
• Docket: 47594-6
• Status: Published

Opinions

Dolliver, J.

Defendant Western Gear, a Washington corporation, manufactures offshore oil drilling rigs. In May 1972, after negotiations in California, Western Gear entered into a licensing agreement with plaintiffs Archer W. Kammerer, Sr., Archer W. Kammerer, Jr., and Jean K. Lamphere to manufacture certain oil drilling equipment called heave compensators covered by five Kammerer patents. Plaintiffs are all residents of California.

Heave compensators are used in offshore drilling to counteract the effect of wave action. Western Gear made an initial payment and was to pay a $10,000 royalty for each heave compensator sold.

During the next 3 years, Western Gear sold a number of heave compensators but made no further payments to the Kammerers. In 1975, Western Gear attempted to purchase the Kammerer patents without first informing the Kammerers of the amount of royalties already owed. The Kammerers, upon learning Western Gear had already made and sold a number of heave compensators, demanded the royalties then due be paid. Western Gear refused, whereupon the Kammerers terminated the licensing agreement and sued Western Gear for breach of the patent licensing agreement, seeking both compensatory and punitive damages. The complaint was subsequently amended to allege fraud as well as breach of the license agreement.

During pretrial discovery, the plaintiffs moved under CR 37 to compel discovery of a number of documents previously withheld by Western Gear on grounds of attorney-client privilege. Western Gear agreed to an in camera inspection by the court of the documents requested. At that time Western Gear also conceded that it might have to call its attorneys as witnesses to events occurring during negotiations. The parties stipulated that the motion to compel production of documents should be decided on the basis that Western Gear would call its attorneys. Following its in camera review of the documents, the trial court allowed discovery of all of the documents requested because of the possibility that one of the attorneys involved might be called as a witness. The ruling was for discovery purposes only, and did not constitute a ruling on the claim of privilege or the admissibility of the documents at the time of trial.

At trial, Western Gear decided not to call its attorneys. Documents discovered by the Kammerers were introduced over Western Gear's objection that the documents were privileged. The case was tried to a jury which found that the compensators sold were covered by the Kammerer patents and awarded plaintiffs contract damages of $137,460. The jury also found that Western Gear fraudulently induced the Kammerers to enter into the agreement without intending to perform, and awarded the Kammerers compensatory damages in the amount of $250,000 and punitive damages of $350,000. The trial judge refused to enter both the $250,000 compensatory damages award and the $137,460 award for contract damages because he considered these awards to be duplicative. Judgment was entered based upon the award for fraud and punitive damages in the amount of $600,000. Both parties appealed. The Court of Appeals affirmed the judgment. Kammerer v. Western Gear Corp., 27 Wn. App. 512, 618 P.2d 1330 (1980). Western Gear petitioned for review which was accepted.

The first issue is whether defendant waived its attorney-client privilege in a pretrial stipulation, thus allowing the discovery of privileged documents. The stipulation states, in relevant part:

Plaintiffs' pending motions for production of documents involving questions of privilege and for terms will be decided by the Court subsequent to hearing on August 28, 1978, and will be decided by the Court on the basis that Richard W. Seed and James S. Somberg will be witnesses for Western Gear at the time of trial. It is understood, however, that defendant is not required to call them as witnesses at trial.

Upon reviewing the stipulation, the trial court ruled the documents were discoverable including those later to be found privileged. The Court of Appeals agreed.

RCW 5.60.060(2) states that an attorney shall not be examined as to any communications or advice by him to his client without consent of the client. CR 26(b)(1) provides that "Parties may obtain discovery regarding any matter, not privileged, which is relevant. . .". However, offering an attorney's testimony concerning matters learned in the course of his employment waives the attorney-client privilege. 8 J. Wigmore, Evidence § 2327, at 637-38 (rev. ed. 1961), cited in State v. Vandenberg, 19 Wn. App. 182, 575 P.2d 254 (1978); Martin v. Shaen, 22 Wn.2d 505, 156 P.2d 681 (1945). Furthermore, such a waiver cannot be delayed until the trial itself. Phipps v. Sasser, 74 Wn.2d 439, 445 P.2d 624 (1968).

Defendant argues that the stipulation was specifically limited to testimony on nonprivileged matters, and that the trial court was advised of this. However, this came subsequent to the ruling of the trial court on this matter. We agree with the Court of Appeals:

The trial judge offered to deny the motion if Western Gear agreed not to call its attorneys. Western Gear would not do so. We conclude that Western Gear's intent to call its attorneys was sufficiently definite to constitute a waiver of attorney-client privilege.

Kammerer v. Western Gear Corp., 27 Wn. App. 512, 517, 618 P.2d 1330 (1980).

The second issue is whether privileged documents were admitted erroneously. Defendant contends two exhibits were admitted despite the fact they were conceded to be memoranda of a privileged meeting between representatives of Western Gear and its attorneys. One, exhibit 83, which does contain a statement by one of defendant's attorneys, was offered in evidence by Western Gear. It cannot now claim error. Sullins v. Sullins, 65 Wn.2d 283, 396 P.2d 886 (1964).

RCW 5.60.060(2) provides that the attorney-client privilege applies to communications and advice between attorney and client. The privilege extends to written communications from an attorney to his client. Victor v. Fanning Starkey Co., 4 Wn. App. 920, 486 P.2d 323 (1971).

The document in question here, exhibit 82, shows neither a communication from or advice by attorneys to Western Gear. It was prepared by a lay person, not a lawyer. As noted by the Court of Appeals, on its face it is nothing more than a memorandum between corporate employees transmitting business advice rather than a privileged communication between attorney and client.

Defendant's contention that Upjohn Co. v. United States, 449 U.S. 383, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981), applies to this case is not well taken. In Upjohn, the documents involved were communications from the corporation's counsel to corporation employees. That was not the situation here. It was not error to admit the exhibits.

The third issue is whether the trial court was required to apply the law of California to defendant's claim for puni: tive damages. Under the law of this state, punitive damages are not allowed unless expressly authorized by the legislature. Barr v. Interbay Citizens Bank, 96 Wn.2d 692 (1981); Steele v. Johnson, 76 Wn.2d 750, 458 P.2d 889 (1969); Maki v. Aluminum Bldg. Prods., 73 Wn.2d 23, 436 P.2d 186 (1968); Conrad v. Lakewood Gen. Hosp., 67 Wn.2d 934, 410 P.2d 785, 10 A.L.R.3d 1 (1966). Under the law of California, however, punitive damages may be awarded. Cal. Civ. Code, Exemplary Damages § 3294 (West).

In Barr v. Interbay Citizens Bank, supra, we held that the interest of Florida, which allows punitive damages, was subordinate to the interest of Washington which does not allow punitive damages unless expressly authorized by the legislature. As we noted in Barr at page 699, "The interest in Florida in providing an example for deterrence would not be furthered when the actual conduct and the acts which might warrant punitive damages were restricted to Nevada and Washington." (We held in Barr that the law in Nevada as to punitive damages was presumed to be the same as Washington.) The case before us is completely different. As the Court of Appeals stated:

[B]oth states have significant contacts with this controversy. Washington is the forum state. Western Gear is a Washington corporation and it manufactures its heave compensators at Everett, Washington, although a substantial part of its manufacturing capacity is in California. Western Gear representatives signed the license agreement in Washington, 1 day after the Kammerers signed in California. California was the site of all negotiations between the parties and the place where any fraudulent representations were made to the Kammerers. The Kammerers are residents of California. Payments of royalties were to be made in California and the initial $20,000 payment was made there. The parties also provided by their agreement that California law should govern their rights under the contract.

California has an obvious interest in the protection of its citizens against fraud, which is enhanced when the negotiations on which the fraud claim is based occurred in California. California has an interest in deterring fraudulent activities by corporations having a substantial business presence within its borders. Washington has no interest in protecting persons who commit fraud. Western Gear asserts that differences in Washington and California law governing fraud suggest that Washington has a policy of greater caution in allowing judgments for fraud. Because we do not find any difference, material to this case, in the laws of the two states, we do not find any interest served by application of Washington law. Because Washington has no interests superior to or inconsistent with the interests of California in this controversy, application of the Restatement rule dictates that California law govern the Kammerers' claim for fraud.

Kammerer v. Western Gear Corp., 27 Wn. App. 512, 520-21, 618 P.2d 1330 (1980).

Defendant chose to go to California to negotiate its contract; the fraudulent representations were made in California; the parties agreed California law would apply. Where the most significant relationships were in California and where the conduct and acts as to the fraud and misrepresentation were accomplished in California that state has a specific interest to be furthered. We hold under these circumstances that a Washington court can award punitive damages under the law of California.

This result is in accord with O'Brien v. Shearson Hayden Stone, Inc., 90 Wn.2d 680, 586 P.2d 830 (1978), aff'd on rehearing, 93 Wn.2d 51, 605 P.2d 779 (1980). There we held the Washington usury law should not govern the rights of Washington residents all of whose "dealings, negotiations, and payments were conducted through defendant's Los Angeles office.'' O'Brien, at 688.

Defendant asserts O'Brien has, in effect, been overruled by Whitaker v. Spiegel, Inc., 95 Wn.2d 408, 623 P.2d 1147 (1981). The scope of this opinion, however, was narrowed by an amendment made subsequent to the briefing in this case. The opinion originally stated:

Rather, the legislature has directed that, in an action brought in Washington on an allegedly usurious transaction, Washington's usury law will apply, even if the loan was made outside Washington to a Washington resident.

Whitaker, at 414. The new language is:

Rather, the legislature has directed that, in an action brought in Washington on an allegedly usurious transaction, Washington's usury law will apply if the debtor was a resident of Washington at the time the loan was made, even if the loan was made outside the state.

Order Amending Opinion Upon Motion for Reconsideration, June 4, 1981; Whitaker v. Spiegel, Inc., 95 Wn.2d 661, 667-68, 623 P.2d 1147, 637 P.2d 235 (1981).

The distinction between Whitaker and this case is apparent: In Whitaker, the injured party was a resident of Washington. Here the plaintiffs were at all times residents of California. O'Brien has not been overruled and is controlling. Plaintiffs are entitled to punitive damages.

The fourth issue to be considered is whether Western Gear was estopped from offering evidence of patent invalidity.

This issue is fully covered in the opinion of the Court of Appeals and need not be restated here. In its petition for review, defendant calls our attention to Consolidated Kinetics Corp. v. Marshall, Neil & Pauley, Inc., 11 Wn. App. 173, 521 P.2d 1209 (1974). This case followed the decision of the United States Supreme Court in Lear, Inc. v. Adkins, 395 U.S. 653, 23 L. Ed. 2d 610, 89 S. Ct. 1902 (1969), that "in an action in a state court to recover patent royalties required to be paid pursuant to contract, the state court has jurisdiction to consider the issue of patent validity as a defense to the action." Consolidated Kinetics, at 177. It did not, however, change the rule that a licensee cannot be relieved of its obligation to pay royalties until after it affirmatively challenges patent validity. See PPG Indus., Inc. v. Westwood Chem., Inc., 530 F.2d 700 (6th Cir. 1976); Kraly v. National Distillers & Chem. Corp., 502 F.2d 1366 (7th Cir. 1974). Defendant did not challenge patent validity of the license agreement during the life of the agreement. The Court of Appeals was correct in refusing to allow Western Gear to defend against plaintiffs' claim for royalties by asserting patent invalidity.

The Court of Appeals is affirmed.

Rosellini, Utter, Williams, and Dimmick, JJ., and Cochran and Hamilton, JJ. Pro Tern., concur.