Opinion
No. 01 C 342
November 24, 2003
MEMORANDUM OPINION AND ORDER
Plaintiff/counterdefendant, Security First Network Bank ("Security First"), has filed a motion to reconsider the court's Memorandum Opinion and Order ("opinion") of October 7, 2003, granting summary judgment against Security First in favor of defendants/counterplaintiffs The Northern Trust Company ("Northern Trust") and LaSalle Bank, N.A. ("LaSalle"). A motion for reconsideration serves the limited function to correct manifest errors of law or fact or to present newly discovered evidence. Rothwell Cotton Co. v. Rosenthal Co., 827 F.2d 246, 251 (7th Cir. 1987). The motion also serves a valuable function where the court "has patently misunderstood a party, or has made a decision outside the adversarial issues presented to the Court by the parties, or has made an error not of reasoning but of apprehension." Bank of Waunakee v. Rochester Cheese Sales, Inc., 906 F.2d 1185, 1191 (7th Cir. 1990) (quotation omitted).
Having reviewed the cases cited in Security First's motion to reconsider, the court denies Security First's motion, but provides the following additional opinion to clarify any misunderstanding regarding how it reached its conclusion. Security First argues that the court's opinion "relies solely on inapposite case law rejecting longstanding precedent stating that a party cannot be indemnified against its own negligence `unless the contract by express stipulation provides for such beyond doubt.'" (Mot. to Reconsider, at 7, citing Karsner v. Lechters Ill., Inc., 331 Ill. App.3d 474, 476-77, 771 N.E.2d 606, 608 (Ill.App.Ct. 2002).) Security First argues that section 2.2.3 of the 2000 Operating Rules of the National Automated Clearing House Association ("NACHA Rules") cannot be read to state explicitly and unequivocally that an Originating Depository Financial Institution ("ODFI") is responsible for those losses caused by a Receiving Depository Financial Institution's ("RDFI") own negligence. Security First argues that "nearly identical indemnity provision language" was held not to indemnify a party against its own negligence in Davis v. Marathon Oil Co., 64 Ill.2d 380, 356 N.E.2d 93 (Ill. 1976) and Kelly v. Marathon Oil, 676 F.2d 1388 (7th Cir. 1982). Furthermore, Security First contends that a more recent Seventh Circuit case, Freislinger v. Emro Propane Corp., 99 F.3d 1412 (7th Cir. 1996), misstates Illinois law.
The governing standard in this case was set forth by the Illinois Supreme Court in Westinghouse Electric Elevator Co. v. LaSalle Monroe Building Corp., 395 Ill. 429, 433, 70 N.E.2d 604, 607 (Ill. 1947):
An indemnity contract will not be construed as indemnifying one against his own negligence unless such a construction is required by the clear and explicit language of the contract, . . . or such intention is expressed in unequivocal terms.
In Freislinger, the Seventh Circuit held that Westinghouse does not require indemnity contracts to contain an express provision providing for the coverage of an indemnitee's own negligence in order for them to be enforceable. Instead, Westinghouse "contains only the more commonplace rule that indemnity provisions, when ambiguous, will not be interpreted in this way." 99 F.3d at 1420. Security First argues that the Seventh Circuit's interpretation of Westinghouse is "unwarranted" because "it simply reads out of the case law the requirement of `explicit language' or `an unequivocal expression of intent.'" (Reply Memo, in Support of Mot. to Reconsider, at 7.) The court disagrees. Security First concedes that the law does not require the indemnity contract to contain "an express provision stating that the indemnitee is indemnified against his or its own negligence." ( Id.) In the absence of such an express provision, Freislinger simply holds that the language of the contract governs unless it is ambiguous. 99 F.3d at 1420. The court fails to see how Westinghouse requires more than strict adherence to the unambiguous language or intent of the contract. See Chicago Housing Authority v. Federal Security, Inc., 161 F.3d 485, 487 (7th Cir. 1998) ("If the [indemnity provision] was not ambiguous, then it was the court's duty to enforce it.").
Thus, the starting point of the analysis is the language of the contract. NACHA Rule § 2.2.3 states
Each ODFI breaching any of the preceding warranties shall indemnify every RDFI . . . from and against any and all claim, demand, loss, liability, or expense, including attorneys' fees and costs, that result directly or indirectly from the breach of warranty or the debiting or crediting of the entry to the Receiver's account.
The indemnification provision broadly extends to any and all claims that result directly or indirectly from (1) the ODFI's breach of warranty or (2) the debiting or crediting of the entries in the Receiver's account. Basic principles of contract construction require that contract terms should be interpreted to avoid rendering other terms redundant or meaningless. See Contact Lenses Unlimited, Inc. v. Johnson, 176 Ill. App.3d 875, 879, 531 N.E.2d 928, 931 (Ill.App. 1st Dist. 1988). Thus, the words "or the debiting or crediting of the Receiver's account" must refer to something not covered by the language pertaining to the ODFI's breach. Since the RDFI, not the ODFI, is the party that "debit[s] or credit[s] . . . the entry to the Receiver's account," Rule § 2.2.3 clearly contemplates indemnification for losses which are the result of the acts or omissions of the RDFI in debiting or crediting the Receiver's account. See ACH Rules A(1) (Definitions of the Participants).
Security First argues that such an interpretation of NACHA Rule § 2.2.3 directly contravenes governing precedent established by Davis v. Marathon Oil Co., 64 Ill.2d 380, 356 N.R 2d 93 (Ill. 1976) and Kelly v. Marathon Oil, 676 F.2d 1388 (7th Cir. 1982). However, Davis and Kelley are inapposite here. First, the Illinois Supreme Court has stated that it serves "no useful purpose to attempt to analyze or reconcile the numerous cases interpreting indemnity clauses." Zadak v. Cannon, 59 Ill.2d 118, 121, 319 N.E.2d 469, 471 (1974). "The only guidance afforded is found in the accepted rule of interpretation which requires that the agreement be given a fair and reasonable interpretation based upon a consideration of all its language and provisions." Id. While these comments were not intended as a signal to courts to disregard clear precedent, they suggest that different language in indemnity clauses may lead to different results. Thus, unless the Illinois Supreme Court has considered the specific language of NACHA Rule § 2.2.3, there is no "controlling precedent." Security First has not cited any cases considering Rule § 2.2.3.
Second, the indemnity clauses in Davis and Kelley are substantially different from NACHA Rule § 2.2.3. The clause considered in Davis stated
[Marathon] shall not be liable for and [Davis] shall save and hold [Marathon] harmless from all claims of injury to or death of any person or persons and for damages to or loss of property attributable directly or indirectly to the operations of [Davis].Davis, 64 Ill.2d at 396, 356 N.E.2d at 101(emphasis added). A clause with nearly identical operative language was reviewed in Kelley:
[Kelley] hereby agrees that Marathon shall not be liable or responsible for, and [Kelley] shall save and hold Marathon harmless from and against any and all claims and damages of every kind for injury or death of any person or persons and for damages to or loss of any property, arising out of or attributable to, acts or omissions of [Kelley].Kelly, 676 F.2d at 1389 (emphasis added). These provisions explicitly cover only damages or losses resulting from the acts or omissions of the indemnitor (i.e. Davis or Kelley). There is no language in these provisions comparable to the final phrase of NACHA Rule § 2.2.3 extending coverage beyond the behavior of the indemnitor. Thus, the court denies Security First's motion to reconsider (#197).