Summary
enforcing an indemnity agreement more than 20 years after it was executed
Summary of this case from Frontier Ins. Company in Rehabilitation v. M C MgmtOpinion
CIVIL ACTION NO. 3:00CV-99-H.
October 15, 2001
MEMORANDUM OPINION
Both sides have moved for summary judgment on the issue of Defendants' liability under an indemnity agreement. Both sides acknowledge that the issue is one which the Court can resolve as a matter of law.
On December 23, 1964, the parties executed an agreement (the "General Indemnity Agreement") which provided that Plaintiff would act as a surety to execute payment and performance bonds on behalf of Defendants' company, Skip Kirchdorfer, Inc. ("SKI"). In turn, Defendants agreed to indemnify Plaintiff "against any and all liability," including costs and attorneys' fees, arising out of the surety relationship. For the next twenty years, SKI obtained dozens of payment and performance bonds from American States through Garrett-Stotz, Inc., an insurance agency acting on behalf of Plaintiff and SKI.
In 1984, Plaintiff executed one of those payment bond and performance bonds in favor of the United States to secure performance of SKI's contractual obligation to renovate family housing units on an Air Force base in Florida. In 1985, the Air Force terminated the contract for default and hired another contractor to finish the work. Subsequently, the Air Force demanded that Plaintiff and SKI reimburse it for losses. The Air Force waited until 1995 to file a civil action. Despite vigorous opposition, the Air Force did obtain a judgment against Plaintiff in an amount exceeding $977,000. On appeal, the Eleventh Circuit held that the government's claim was barred by the six-year statute of limitations. See United States v. American States Ins. Co., 252 F.3d 1268 (11th Cir. 2001). Even though the original judgment has been reversed, the parties still have reason to contest the validity of the General Indemnity Agreement because Plaintiff seeks to recover expenses incurred defending the claim. Therefore, the Court must now determine whether the General Indemnity Agreement is valid and enforceable by American States against the Kirchdorfers.
At the time Plaintiff filed this action, the United States District Court for the Northern District of Florida had ruled in favor of the United States, and Plaintiff consequently sought reimbursement from Defendants for the amount of that judgment. That claim is now moot.
I.
Defendants argue first that the General Indemnity Agreement expired in December 1991, six years after the United States' cause of action accrued, and is therefore unenforceable today.
As Defendants observe, under Kentucky law "a contract which contains no time for performance — especially if it is one contracting for service to be performed — is an indefinite contract as to performance and may be terminated by either party at will, and whether or not it was so intended by the parties is to be gathered from all parts of the contract and the circumstances under which it was executed, as well as the purpose to be accomplished." United States v. Hardy, 916 F. Supp. 1373, 1381 (W.D.Ky. 1996) (quotation, citation omitted) (emphasis original). The parties actually agree on this point. The consequence is that the General Indemnity Agreement was terminable at will by either party. However, Defendants do not argue that they ever terminated the General Indemnity Agreement at will. Consequently, they must make a more convoluted argument. They say that, because Plaintiff did not think in 1995 that the United States had stated a timely claim, Plaintiff must also have assumed that Defendants' indemnify obligation had lapsed. Plaintiff's expectation, then, that it did not owe the United States, was also an expectation that Defendants would not owe Plaintiff. Thus, Defendants say, it was not the parties' intention that Defendants should indemnify Plaintiff for costs of defense arising from that action. The entire argument is premised on Mr. Kirchdorfer's affidavit and Plaintiff's view that the Air Force lawsuit was untimely filed. Defendants' argument suggests that the General Indemnity Agreement is automatically rescinded if and when an untimely or ultimately unsuccessful claim is asserted against Plaintiff.
This argument is at best confusing. The Court sees absolutely no logic in it. The General Indemnity Agreement, which provides that Defendants reimburse Plaintiff for its costs and expenses "in procuring or attempting to procure release from liability," clearly contemplates that Defendants are obligated to indemnify Plaintiff even as to costs arising from claims of questionable validity. No terms in the General Indemnity Agreement lend support to a construction that the indemnity requirements exclude the defense of government claims which are frivolous or late. Moreover, the Court is unable to infer from the parties' original intentions any such construction. Mr. Kirchdorfer's affidavit asserts only the belief that his personal liability would not extend to claims filed after the alleged passing of a limitations period. He makes no factual assertions tending to bolster that belief, however. Mr. Kirchdorfer's after-the-fact unilateral belief in these circumstances cannot alter an otherwise unambiguous contract. The contractual intentions the Court must contemplate are those in 1964, not those of 1984 or 1995. Those intentions were clear in 1964 and remained in effect unless terminated by either party.
II.
Defendants next argue that Plaintiff released them from all personal liability under the General Indemnity Agreement. Specifically, they claim that in 1978, William Kantlehner, an insurance agent working for Garrett-Stotz, Inc., assured them that if they increased SKI's capitalization, Plaintiff would no longer require Defendants to execute indemnity agreements. In his affidavit, Mr. Kirchdorfer says that (1) Mr. Kantlehner told him that the subsequent indemnity agreements superseded the General Indemnity Agreement and (2) because he no longer executed such agreements he would not be bound by the General Indemnity Agreement.
In order for Defendants to succeed on this point, Plaintiff's agent must have had apparent authority to represent and bind Plaintiff. Further, under Kentucky law, though "a written contract can be modified or abandoned by a subsequent oral agreement, the proof to support such an assertion must be clear and convincing." Dalton v. Mullins, 293 S.W.2d 470, 475 (Ky.App. 1956) (emphasis added). This standard means that "the evidence must not be vague, ambiguous, or contradictory, and must come from a credible source. It does not have to be undisputed or uncontradicted." Wehr Constructors, Inc. v. Steel Fabricators, Inc., 769 S.W.2d 51, 54 (Ky.App. 1988).
In this case, the only evidence is Mr. Kirchdorfer's own testimony about statements of an insurance agent, William Kantlehner, made some twenty-three years ago. Defendants offer no contemporaneous writing as corroborative evidence. Not surprisingly, Mr. Kantlehner denies making the statement. Moreover, he convincingly asserts that he had no actual authority to release a principal from individual liability under an indemnity agreement. While an agent's actual authority does not control the issue, in this instance it provides convincing evidence that Mr. Kantlehner was quite unlikely to have made such a statement or to have independently released Defendants from such an important obligation.
Careful review of Mr. Kirchdorfer's affidavit reveals assertions which fall well short of establishing an oral termination or amendment of the General Indemnity Agreement. In fact, Mr. Kirchdorfer's affidavit never asserts that Kantlehner made such a statement. Kirchdorfer relies upon Kantlehner's "representations" that subsequent indemnity agreements "substituted for and superseded the initial General Indemnity Agreement." These understandings actually suggest an oral modification of the subsequent indemnity agreements, which then replace the General Indemnity Agreement. In fact, none of the subsequent indemnity agreements contain language superceding or substituting for the General Indemnity Agreement. Mr. Kirchdorfer then says that he "understood from the substance and context of that discussion that by increasing the capitalization of Skip Kirchdorfer, Inc. [he] would no longer be bound to the Indemnification Agreements." The Court finds this a tellingly round-about method of arguing termination of the General Indemnity Agreement, particularly where that agreement was always terminable at will. In short, Mr. Kirchdorfer's "understanding" from the context of oral discussions and representations about the legal impact of various documents is far from clear and sufficient evidence to modify an otherwise clearly written agreement.
For all these reasons, the Court concludes that Defendants have fallen well short of the kind of clear and convincing evidence that might convince anyone that either American States or Defendants terminated the General Indemnity Agreement prior to imposition of liability related to the Air Force contract.
The Court will enter an order consistent with this Memorandum Opinion.
ORDER
Both parties have moved for summary judgment. The Court has filed a Memorandum Opinion setting forth its views. Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendants' motion for summary judgment is DENIED.
IT IS FURTHER ORDERED that Plaintiff's motion for summary judgment is SUSTAINED to the extent that it seeks a declaration that the General Indemnity Agreement is valid and enforceable.
The Court will schedule a conference to discuss any remaining aspects of the case.