Summary
concluding that tenant's agreement to indemnify landlord for "`any expenses incurred by landlord for costs, expenses, attorney's fees, or any judgment rendered against landlord arising out of or occasioned by tenant's occupancy or possession of the premises or the use of the premises by the tenant, other than through the negligence of landlord'" encompassed CERCLA liability under Iowa law, and noting that there was "no restrictive language which limit[ed] the indemnification agreement to certain types of liabilities"
Summary of this case from Halliburton Energy Services, Inc. v. NL IndustriesOpinion
No. C94-1015 MJM
July 19, 1999
ORDER
On March 29, 1999, this matter was largely resolved by the dismissal of the plaintiffs' claims with prejudice. (Doc. #172). All that was left to resolve was the pending cross-claim by the defendants, Daniel Wolfe and Margaret Wolfe, against the other defendant, Midwest Pipe Coating, Inc., in which the Wolfes seek indemnification from Midwest for any judgment rendered against the Wolfes as well as attorney's fees and costs. Because no judgment was rendered against the Wolfes, that claim is now moot. However, the Wolfes' claim for attorney's fees and costs is still ripe because of the costs the Wolfes incurred in defending the lawsuit by the Smithsons and the Konradys.
Midwest now moves for summary judgment on the Wolfes' cross-claim for attorney's fees and costs. (Doc. #175). The Wolfes argue they are entitled to indemnification of their attorney's fees and costs under the lease agreement between the Wolfes and Midwest, which provides:
10. Hold Harmless. Tenant agrees to hold landlord harmless, and to indemnify and reimburse landlord for any expenses incurred by landlord for costs, expenses, attorney's fees, or any judgment rendered against landlord arising out of or occasioned by tenant's occupancy or possession of the premises or the use of the premises by the tenant, other than through the negligence of landlord.
Midwest argues that it is not required to pay the Wolfes attorney's fees and costs because (1) the "hold harmless" provision expressly excludes "the negligence of the landlord;" (2) the Wolfes failed to tender the defense to Midwest; (3) the Wolfes acquiesced in Midwest's use of the premises which gave rise to the plaintiffs' claims; (4) the "hold harmless" provision was not intended to cover environmental claims; and (5) the Wolfes failed to raise their claim for indemnification in prior litigation over the clean up of the property. The court will address each of these arguments below. The court has jurisdiction pursuant to 28 U.S.C. § 1367.
Having dismissed the federal claims from this case, this court has the discretion to decline to exercise jurisdiction over the cross-claims between Midwest and the Wolfes. See 28 U.S.C. § 1367(c)(3). However, the court declines to do so because of the extensive proceedings to date in this court and the close relationship between the cross-claims and the plaintiffs' federal claims.
Standard of Review
The court will grant summary judgment only if the record, when viewed in the light most favorable to the non-moving party, shows there is no genuine issue of material fact for trial and that the moving party is entitled to judgment as a matter of law. ARE Sikeston Ltd. Part. v. Weslock Nat'l, Inc., 120 F.3d 820, 827 (8th Cir. 1997) (citing Fed.R.Civ.P. 56(c)). Accordingly, the court will view the facts contained in the record in the light most favorable to the Wolfes to determine whether Midwest is entitled to judgment as a matter of law.Analysis 1. Res Judicata
As an initial matter, the court will address Midwest's argument that a 1986 lawsuit between the Wolfes and Midwest bars litigation over the pending cross-claim. In the earlier lawsuit, the Wolfes alleged that Midwest failed to "clean up
. . . debris and other waste materials" when it vacated the premises, and was awarded $950 for clean up costs. Midwest argues that the Wolfes "could have raised the issue of coal tar enamel in its prior action but chose not to do so." The Wolfes respond that they "could not possibly have brought their indemnification claim against Midwest Pipe in the earlier lawsuit because that claim was not ripe at that time."
Under the doctrine of res judicata, or claim preclusion, "`a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.'" Schumaker v. Iowa Dep't of Transp., 541 N.W.2d 850, 852 (Iowa 1995) (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)). "Claim preclusion applies not only to matters actually determined in an earlier action but to all relevant matters that could have been determined." Id. (citing United States v. Gurley, 43 F.3d 1188, 1195 (8th Cir. 1994)). "Preclusion applies if the acts complained of and the recovery demanded in the second claim are the same or when the same evidence will support both claims." Id. (citing B B Asphalt Co. v. T.S. McShane Co., 242 N.W.2d 279, 286 (Iowa 1976)). "`[T]he doctrine of res judicata is based on the principle that a party may not split or try his claim piecemeal, but must put in issue and try his entire claim[.]'" Id.
Based on these principles, the issue before the court is whether the issue of indemnification for attorney's fees and costs was a "relevant matter that could have been determined" in the prior litigation, or, more specifically, whether the indemnification issue was constructively part of the Wolfes' prior cause of action because it involves the same evidence. Midwest has not cited any authority in which an indemnification lawsuit was precluded by an earlier lawsuit against the indemnitor for property damage unrelated to the claim for indemnification. Although the Wolfes could have asked in their 1986 lawsuit to have Midwest remove the coal tar enamel, it appears clear that they could not have asked for a declaration that Midwest was required to pay the Wolfes attorney's fees if a third party ultimately sued. The Iowa Supreme Court has held that trial courts should not address indemnification until underlying liability is established. West Bend Mut. Ins. Co. v. Iowa Iron Works, 503 N.W.2d 596, 601 (Iowa 1993). As the Wolfes argue, the indemnification claim was simply not ripe in the 1986 lawsuit. See Lewis v. Windsor Door Co., 926 F.2d 729, 734 n. 13 (8th Cir. 1991) (indemnification claims under Arkansas law not ripe for adjudication in the absence of a finding of underlying liability). Thus, the court concludes that the 1986 litigation does not preclude the Wolfes' cross-claim in this case.
2. Contract Interpretation
Two of Midwest's arguments raise issues of contract interpretation. Specifically, Midwest argues it is entitled to summary judgment under the contract because (1) indemnification is not available when costs arise due to "the negligence of the landlord" and (2) the parties did not contemplate indemnification for costs arising from environmental contamination. Neither argument persuades the court that Midwest is entitled to summary judgment.
Under Iowa law, indemnity provisions in a contract are reviewed under the same principles of contract interpretation as other contracts. Modern Piping, Inc. v. Blackhawk Automatic Sprinklers, Inc., 581 N.W.2d 616, 623 (Iowa 1998), overruled on other grounds by Wesley Retirement Servs., Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22 (Iowa 1999); Campbell v. Mid-America Constr. Co., 567 N.W.2d 667, 669 (Iowa Ct.App. 1997) (citing Bunce v. Skyline Harvestore Sys. Inc., 348 N.W.2d 248, 250 (Iowa 1984)). In interpreting a contract, a court should review the contract as a whole to "give effect to the intent of the parties." Campbell, 567 N.W.2d at 669-70. The intent of the parties should be determined by the plain language of the contract, unless that language is ambiguous. Id. Where contractual language is ambiguous, and where extrinsic evidence is necessary to interpret the contract, the Iowa Supreme Court has ruled that the court should submit special interrogatories to the jury on the relevant factual issues, but then determine the proper meaning of the contract as a matter of law. See Modern Piping, 581 N.W.2d at 623-24.
Midwest contends that the plaintiffs' allegations of the Wolfes' negligence are sufficient to defeat the Wolfes' claim for indemnification. The Wolfes respond that they are entitled to indemnification until they are found to be negligent. The court agrees with the Wolfes. The fact that the plaintiffs alleged negligence by the Wolfes does not mean that the Wolfes were negligent, or that the court should assume the Wolfes were negligent, for purposes of indemnification. In the insurance context, the duty to indemnify depends on the ultimate ruling on the facts as developed during the case. A.Y. McDonald Indus. v. Insurance Co. of N.A., 842 F. Supp. 1166, 1177 (N.D. Iowa 1993) (granting summary judgment in favor of insurer on duty to indemnify). By analogy, indemnification under the lease agreement depends on the facts as developed during the case, not as alleged by the plaintiffs. Midwest has not presented any evidence, let alone undisputed evidence, that the Wolfes were negligent. Accordingly, the court will not grant summary judgment to Midwest based on the "negligence of the landlord" provision in the contract.
It is true that the duty to defend is determined based on the facts as they appear "at the outset of the case." Id. However, this case is about indemnification, not the duty to defend. Moreover, even on the duty to defend issue, courts must accept the initial allegations of the insured defendant to determine whether there is potential coverage. See McAndrews v. Farm Bureau Mut. Ins. Co., 349 N.W.2d 117, 119 (Iowa 1984). In this case, the Wolfes have denied negligence. Therefore, the duty to defend line of cases provides no support for Midwest's argument.
Similarly, the court rejects Midwest's argument that the indemnification provision does not cover costs related to environmental contamination. The Wolfes contend that the indemnification clause was intended to cover all acts by Midwest on the property, regardless of the particular nature of the property damage. The broad language of the lease agreement — which promises indemnification for costs and attorney's fees incurred by the Wolfes "arising out of or occasioned by [Midwest's] occupancy or possession of the premises or the use of the premises by [Midwest]" — supports Midwest's position. See Joslyn Mfg. Co. v. Koppers Co., Inc., 40 F.3d 750, 754-55 (5th Cir. 1994) (where indemnification agreement shows intent by the lessee to indemnify the lessor "for all liability arising in connection with the occupancy or use of the land," parties intended to cover liability under CERCLA even though CERCLA was not yet enacted at the time the agreement was made).
The case on which Midwest relies, Interstate Power Co. v. Kansas City Power Light Co., 909 F. Supp. 1241 (N. D. Iowa 1993) (O'Brien, J.), is not to the contrary. In Interstate Power, the question was whether a seller was entitled to indemnification of CERCLA claims, even though the seller contributed to the contamination. Id. at 1265. After a trial, the court held that the seller was not entitled to indemnification because the indemnification provisions did not expressly mention CERCLA or general environmental liability, nor did they provide indemnification for all possible claims. Id. at 1265-68. Although there was some broad indemnification language, there was also restrictive language which suggested, by implication, that the indemnification agreement was not intended to protect the seller from liability for environmental contamination to which it contributed. Id. at 1271.
In this case, the indemnification provision contains broad language intended to protect the Wolfes, as landowners, from the actions of the tenant on its property. There is no restrictive language which limits the indemnification agreement to certain types of liabilities. The Wolfes are not seeking indemnification for its own acts of negligence. For these reasons, the court finds that Midwest is not entitled to summary judgment on the basis of the language in the indemnification provision of the lease agreement.
3. Alleged Failure to Tender Defense
Midwest next argues that the Wolfes did not tender the defense of the lawsuit to Midwest. According to Midwest, tendering the defense is a condition precedent to indemnification for attorney's fees. The Wolfes respond that (1) their attorney "tendered to Mr. Becker, as attorney for Midwest Pipe, that Midwest Pipe take over and assume the defense of the claims brought against the Wolfes," (Bitter Aff. ¶ 1), and (2) they did not pursue the tender further at the time because Mr. Becker told the Wolfes' attorney, in the presence of the Wolfes, "Joe, can your clients and you wait until we settle up with the Smithsons and Konradys and then we'll deal with you." (D. Wolfe Dep. at 8).
Although the court has not found any Iowa cases directly addressing the issue, the general rule is that an indemnitee is not required to provide notice, let alone tender a defense, to the indemnitor under an indemnification contract, unless the contract itself requires notification or a tender of defense. See Fontenot v. Mesa Petroleum Corp., 791 F.2d 1207, 1221 (5th Cir. 1986) ("Where the indemnity agreement does not require notice, the courts will not infer a notice requirement as a condition precedent to a right to recover on the indemnity contract."); Premier Corp. v. Economic Research Analysts, 578 F.2d 551, 554 (4th Cir. 1978) (relying on "the general rule that notice is unnecessary unless the contract of indemnification requires it"). In this case, there is nothing in the indemnification agreement which required the Wolfes to notify Midwest.
Even assuming that notice was required, courts have held that actions "short of a formal tender of defense are sufficient to discharge the indemnitee's duty of notice." Compana Sud Americana De Vapores, S.A. v. I.T.O. Corp., 940 F. Supp. 855, 869 (D. Md. 1996). For example, where both the indemnitor and the indemnitee are named as co-defendants in the lawsuit for which the indemnitee seeks indemnification, no additional notification other than the pleadings is required because "additional notification . . . would have been superfluous." Dexter Corp. v. Whittaker Corp., 926 F.2d 617, 621 (7th Cir. 1991). As Judge Posner explained in Dexter, "[the indemnitor] was there, defending itself, alongside [the indemnitee], and if it wanted to assert its contractual right to take over [the indemnitee's] defense as well it could have easily done so." Id. This reasoning is equally applicable here. Midwest knew from the pleadings that the Wolfes were seeking indemnification, and could have readily asked to defend the Wolfes under the indemnification provisions of the lease.
Nonetheless, Midwest argues that under Iowa law, the Wolfes were required to tender the defense of the case to Midwest before they may recover under the indemnification provision. Midwest relies on Rauch v. Senecal, 112 N.W.2d 886 (Iowa 1962), in which the court held that if a defendant is required to "defend against the action of another, . . . and defends solely and exclusively the act of such other party," he may recover costs and attorney's fees if he tenders the defense to the other party and is refused. Id. at 888 (quotations omitted). In Rauch, there was no indemnification agreement between the parties. Rather, one defendant sought indemnification of attorney's fees from a co-defendant simply because it claimed that the co-defendant was solely responsible for the negligence alleged by the plaintiff. The Iowa Supreme Court refused to allow indemnification because the plaintiff had alleged that both defendants were negligent; thus, the court held that both defendants were responsible to defend themselves in the lawsuit. Id. at 888-89. In this case, by contrast, the Wolfes rely on an express indemnification agreement which does not require them to tender the defense to Midwest. Rauch is thus inapplicable to the present case. Accordingly, the Wolfes were not required to tender the defense to Midwest.
4. Acquiescence
Finally, Midwest argues that the Wolfes acquiesced in Midwest's use of the premises which gave rise to the plaintiffs' claims; thus, Midwest argues, the Wolfes are not entitled to indemnification of their costs and attorney's fees. As an initial matter, the court questions whether the doctrine of acquiescence applies in this case where indemnification is governed by an express indemnification contract. See Burlington Northern, Inc. v. Hughes Bros., Inc., 671 F.2d 279, 286 (8th Cir. 1982) (raising same question); Payne Plumbing Heating Co. v. Bob McKiness Excavating Grading, Inc., 382 N.W.2d 156, 159-60 (Iowa 1986) (separate analysis for contractual and non-contractual theories of indemnification). Even assuming the doctrine applies, the acquiescence defense requires Midwest to show that the Wolfes were well aware of the dangerous conditions on their property, yet did not take any corrective action or ask Midwest to take any corrective action. See Pennsylvania R.R. Co. v. Erie Ave. Warehouse Co., 302 F.2d 843, 848-49 (3rd Cir. 1962). The Wolfes argue they did not know the coal tar enamel on their property was dangerous. Under these circumstances, the court finds there is, at the least, a genuine factual dispute which precludes summary judgment. Accordingly, Midwest is not entitled to summary judgment on the basis of acquiescence.
ORDER
For the foregoing reasons, the motion by defendant Midwest Pipe Coating, Inc. for summary judgment (Doc. # 175) is DENIED.