Opinion
99 Civ. 9065 (LAK)
January 26, 2000
Stephanie L. Sgambati, STOCKMAN WALLACH LENTZ GAMELL, LLP, for Plaintiff.
John P. Mastropietro, HOLLANDER, STRAUSS MASTROPIETRO, LLP, for Defendants.
MEMORANDUM OPINION
This is an action to recover on indemnification agreements issued in contemplation of the issuance of surety bonds. Defendants Zanis Construction Corporation ("Zanis") and Dimitrios and Ekaterini Feretzanis move to dismiss the complaint pursuant to FED. R. CIV. P. 12(b)(6). Plaintiff Star Insurance Company ("Star") cross-moves for summary judgment as against all defendants.
Although movants seek relief pursuant to Rule 12(b)(6), their motion is accompanied by an affidavit of their counsel. The Court explicitly excludes the moving affidavit from consideration and declines to convert the motion by these defendants into a motion for summary judgment. See FED. R. CIV. P. 12(b).
FACTS
The material facts may be stated simply.
The second amended complaint alleges that defendants executed one or both of two General Agreements of Indemnity in favor of Star in consideration of Star issuing certain surety bonds. Defendant Edward Esbin Sons, Inc. ("EES"), as principal, and Star, as surety, executed and delivered a number of bonds to a variety of obligees on which Star in due course sustained losses said to aggregate $138,952.38. Star here seeks to recover the amount of the losses thus sustained and other relief against not only EES, but Zanis, Edward Esbin Sons, Inc./Zanis Construction Corp., a joint venture (the "JV"), Nabett Contracting Corp. ("Nabett"), Aquamate Heating Corp. ("Aquamate"), Betty Court Realty, Ltd. ("Betty"), Impulse Plumbing Corp. ("Impulse"), eight members of the Esbin family, the Feretzanises, and James and Christine DiPalma. The two General Agreements of Indemnity are on very similar forms, but neither the forms themselves nor the parties are identical. Both, however, contain Michigan governing law clauses.
THE FIRST AGREEMENT
The first begins with the recital that it "represents an Agreement between Star" and EES, Nabett, Aquamate, Betty, "and all subsidiaries, affiliated companies and/or related entities" and six of the Esbins individually "hereinafter referred to as the Indemnitors (which term as used herein includes the undersigned Principal) for the purposes of indemnifying [Star] in connection with and as part of the consideration for any Bond . . . which [Star] from time to time may issue . . . ." The indemnification clause provides in relevant part that "[i]n consideration of the execution and delivery by [Star] of a Bond . . . on behalf of the Principal, Indemnitors shall . . . hold harmless [Star] from and against any and all liability, loss, claims, demands, costs, damages, attorney's fees, and expenses . . . which [Star] may sustain or incur by reason of or in consequence of the execution and delivery by [Star] of any Bond on behalf of Principal . . . ." The scope clause further provides that "[t]he Indemnitors agree that the duty hereunder to indemnify [Star] . . . [a]pplies to each and every Bond Issued or procured for Principal, whether contracting alone or as a joint venture of any kind . . . ." Immediately before the signatures, the agreement contains the following clause:
"IT IS HEREBY AGREED AND SO STIPULATED that the term PRINCIPAL/INDEMNITOR shall include any and all of the subsidiaries, affiliated partnerships, joint ventures or corporations of [EES] now in existence or hereafter created, whether partially or wholly owned and controlled, as fully as if the names of such subsidiaries, affiliated partnerships, joint ventures, or corporations appeared as PRINCIPAL/INDEMNITOR in said General Agreement of Indemnity, for which Star . . . now is or hereafter becomes Surety."
The first agreement was signed by EES as Principal/Indemnitor and by six of the Esbins individually as individual indemnitors. Betty and Aquamate signed as third party indemnitors. Finally, Nabett executed a form attachment to the agreement as Principal/Indemnitor.
THE SECOND AGREEMENT
The second agreement began with the recital that it "represents an Agreement between Star . . . and" JV, EES, Zanis, Nabett, Impulse, Betty, eight individual Esbins, James and Christine DiPalma, and the Feretzanises. The indemnification and scope clauses are substantially identical to those in the first agreement. The clause immediately before the signatures is as follows:
"IT IS HEREBY AGREED AND SO STIPULATED that the term PRINCIPAL/INDEMNITOR shall include any and all of the subsidiaries, affiliated partnerships, joint ventures or corporations of [JV] now in existence or hereafter created, whether partially or wholly owned and controlled, as fully as if the names of such subsidiaries, affiliated partnerships, joint ventures, or corporations appeared as PRINCIPAL/INDEMNITOR in said General Agreement of Indemnity, for which Star . . . now is or hereafter becomes Surety."
The second agreement was signed by the JV as Principal/Indemnitor and by all of the individual defendants as indemnitors. In addition, each of EES, Betty, Zanis, Nabett, and Impulse signed a separate form which states: "To be attached to an [sic] form part of General Agreement of Indemnity dated July 30th 1996, between [Star] and" JV. Immediately below that language are the printed words "PRINCIPAL/INDEMNITOR:" To the right of those words are typed the names of EES, Betty, Zanis, Nabett and Impulse, each on the appropriate form. Each of these forms was executed on behalf of the respective companies.
THE MOTION TO DISMISS
Zanis and the Feretzanises move to dismiss the action against them on the ground that they are parties only to the second indemnity agreement, that they therefore are obliged to indemnify Star only with respect to losses on bonds issued by the JV as principal, that all of the bonds upon which Star allegedly suffered losses were issued by EES as principal, and that they therefore have no obligation to Star with respect to those losses. Star rejoins that the movants are liable under the second indemnity agreement on the theory that (i) the indemnitors agreed to indemnify with respect to all bonds issued for Principal, (ii) Principal was defined as the JV and all of its "affiliated partnerships, joint ventures or corporations," and (iii) EES, as one of the partners in the JV, was among the JV's affiliated corporations and therefore a Principal within the meaning of the second indemnity agreement.
Star's argument is superficially appealing. It draws support from the fact that the word "affiliated" sometimes is used to connote little more than a direct relationship among the persons or entities in question. Indeed, although Star did not cite it, one Michigan case holds squarely that a joint venture of a corporate policyholder was the policyholder's "affiliate" within the meaning of a group insurance policy that excluded liability for loss sustained on aircraft owned by "any affiliate . . . of such Policyholder." But that argument does not win the day.
See, e.g., Killian v. United States, 368 U.S. 231, 254-57 (1961); Snite v. Life Ins. Co. of North Am., 73 Mich. App. 207, 210-11, 251 N.W.2d 300, 302 (1977); Frigid Food Prods., Inc. v. City of Detroit, 31 Mich. App. 402, 406, 187 N.W.2d 916, 918 (1971).
Snite, supra note 2.
In construing any contract, the goal is to give effect to the intention of the parties. In order to do so, the Court is obliged to give effect to all of the words of the agreement. And Star's argument takes the phrase "affiliated . . . corporation" out of context. The phrase appears in the definition of Principal/Indemnitor which, in relevant part, "include[s] any and all of the subsidiaries, affiliated partnerships, joint ventures or corporations of [JV] now in existence or hereafter created, whether partially or wholly owned and controlled . . . ."
See, e.g., Leon v. Detroit Harvester Co., 363 Mich. 366, 370, 109 N.W.2d 804, 806 (1961); Jackson v. British Am. Assur. Co., 106 Mich. 47, 63 N.W. 899 (1895); Murphy v. Seed-Roberts Agency, Inc., 79 Mich. App. 1, 8, 261 N.W.2d 198, 201 (1977).
Emphasis added.
The italicized phrase, under the principles of ejusdem generis and noscitur a sociis, limits the subsidiaries, affiliated partnerships, joint ventures or corporations of the JV included in the definition of Principal/Indemnitor to those that are partially or wholly owned and controlled by the JV. In other words, the only "affiliates" of the JV that are defined as principals are those that are partially or wholly owned and controlled by the JV.
See Strom v. Goldman, Sachs Co., No. 98-7090, 1999 WL 639844, *7 (2d Cir. Aug. 24, 1999).
Here, EES is not partially or wholly owned or controlled by the JV. Rather, it lies "upstream" of the JV. Accordingly, putting aside the effect of the form attachment signed on behalf of EES, it is not among the principals in respect of whom Zanis and the Feretzanises agreed to indemnify Star. But the form attachment is not so easily put aside.
As indicated above, the ultimate paragraph of the form agreement itself makes clear that the principal in respect of whom the indemnitors agreed to indemnify Star was the JV and its downstream "affiliates." But the form attachment signed on behalf of EES characterized EES as a "principal/indemnitor." In consequence, the form attachment perhaps was intended to modify the definition of principal/indemnitor contained in the body of the agreement itself. Unfortunately, neither side addressed the impact of the form attachments to the second agreement. Accordingly, the Court cannot say with the requisite level of certainty that plaintiff could prove no facts under the current complaint that would entitle it to relief. The motion to dismiss must be denied.
Star's Motion for Summary Judgment
Just as Zanis and the Feretzanises have not shown that the second agreement precludes recovery by Star, the uncertainty as to the effect of the form attachments precludes Star from having established that it is entitled to judgment as a matter of law. In addition, Star's reply memorandum states that it has reached a settlement in principle with all defendants except Zanis and the Feretzanises and so does not press its cross-motion for summary judgment against the settling defendants. Accordingly, Star's cross-motion for summary judgment is denied.
Star Reply Mem. 2.
CONCLUSION
For the foregoing reasons, the motion of defendants Zanis Construction Corporation and Dimitrios and Ekaterini Feretzanis and plaintiff's cross-motion for summary judgment both are denied in all respects.
In view of the reported settlement between plaintiff and all of the remaining defendants, the action is dismissed with prejudice and without costs as against all defendants other than Zanis Construction Corporation and Dimitrios and Ekaterini Feretzanis subject to the right of plaintiff or any of those defendants to reinstate the action in the event the settlement is not concluded by serving and filing, on or before February 26, 2000, a notice of reinstatement.
SO ORDERED.