Opinion
No. CIV 04-619-PHX-RCB.
May 23, 2007
ORDER
Introduction
Currently pending before the court is a motion for reconsideration by defendant/third-party plaintiff, The Burlington Northern Santa Fa Railway Company ("BNSF"), brought pursuant to L.R. 7.1(g) (doc. 113). In accordance with this court's order of September 18, 2006, third-party defendant Chemical Lime Company of Arizona ("Chemical Lime") filed a response (doc. 126) to this motion and BNSF filed a reply (doc. 128). Having found oral argument unnecessary, the court rules as follows.
As explained in this court's September 18, 2006, order, the court retains jurisdiction despite the fact that plaintiff and BNSF have both timely filed Notices of Appeal. See Doc. 125 at 2-3.
Background
On May 18, 2006, this court granted summary judgment in favor of BNSF, and against plaintiff Steven Schrum. Doc. 110. Chemical Lime joined in BNSF's motion (doc. 72), and the court granted summary judgment in favor of Chemical Lime as well. Id.
In addition to moving for summary judgment as to plaintiff's claims, in its capacity as a third-party plaintiff BNSF filed a separate motion seeking summary judgment "on its indemnification claim against Chemical Lime[,]" as alleged in its third-party complaint. See Doc. 70 at 5. Chemical Lime also sought summary judgment on the indemnity issue, but contrary to BNSF, Chemical Lime argued that there were "no facts triggering any indemnity obligation" on its part. Doc. 68 at 1. This court denied as "moot" BNSF's and Chemical Lime's motions with respect to the issue of indemnification. Doc. 110 at 13. As directed by the court, on May 18, 2006, judgment was entered in this case in favor of defendant BNSF and against plaintiff Schrum. Doc. 111.
BNSF timely filed this motion for reconsideration, wherein it concedes that once the court found in BNSF's favor on the issue of liability, whether Chemical Lime "had a duty to indemnify BNSF for any judgment that might have been entered against it . . . became a non-issue[.]" Doc. 113 at 2. At the same time, however, BNSF is taking the position that because the duty to defend is separate and distinct from the duty to indemnify, the court should have addressed the duty to defend, which it did not. BNSF is requesting the court "reconsider" this "narrow issue." Id. at 3. More specifically, BNSF is requesting the court to "hold that Chemical Lime breached its duty to defend . . . when it denied BNSF's repeated tender of defense, and grant BNSF's summary judgment motion against Chemical Lime on th[at] duty." Id. (footnote omitted).
Discussion
I. Standard of Review
There is no express provision in the Federal Rules of Civil Procedure for a motion for reconsideration. See United States v. Comprehensive Drug Testing, Inc., 473 F.3d 915, 955 (9th Cir. 2006) (Thomas, J., dissenting). "Rather, such motions are creatures of local rule or practice." Id. In the present case, BNSF brought its motion for reconsideration pursuant to L.R. 7.2(g), see doc. 113 at 1. which, "[a]bsent good cause shown," requires the filing of such motions "no later than ten (10) days after the filing of the order that is the subject of the motion." L.R. 7.2(g). A timely motion such as this "is construed as a motion to alter or amend a judgment under Rule 59(e)." See Shapiro v. Paradise Valley Unified, 374 F.3d 857, 863 (9th Cir. 2004) (citations omitted).
"There are four grounds upon which a Rule 59(e) motion may be granted: 1) the motion is necessary to correct manifest errors of law or fact upon which the judgment is based; 2) the moving party presents newly discovered or previously unavailable evidence; 3) the motion is necessary to prevent manifest injustice; or 4) there is an intervening change in controlling law." Turner v. Burlington Northern Santa Fe R.Co., 338 F.3d 1058, 1063 (9th Cir. 2003) (internal quotation marks, citation and emphasis omitted). "Whether or not to grant reconsideration is committed to the sound discretion of the court." Navajo Nation v. Confederated Tribes of the Yakama, 331 F.3d 1041, 1046 (9th Cir. 2003) (citation omitted).
BNSF "urge[s]" reconsideration to "prevent an injustice" to it. Doc. 113 at 3. BNSF does not explicitly define this claimed "injustice." Evidently this "injustice" results from the fact that the court did not address the duty to defend in its decision granting summary judgment in favor of BNSF on the issue of liability. As the court noted in its September 18, 2006, Order, "`[t]he duty to defend . . . is not the same as the duty to indemnify[.]" Doc. 125 at 3 (quoting INA Ins. Co. v. North American v. Valley Forge Ins. Co., 722 P.2d 975, 982 (Ariz.Ct.App. 1986) (emphasis added)). Furthermore, the duty to defend "generally exists regardless of whether the insured is ultimately found liable." Id. (quoting INA Ins., 722 P.2d at 982 (emphasis added)). Thus it follows that "[t]he accrual of the obligation to provide a defense does not control the accrual of the obligation to indemnify." INA Ins., 722 P.2d at 982. Based upon these well settled principles, the court finds that to prevent manifest injustice, it is necessary to address the issue of whether Chemical Lime had a contractual duty to defend BNSF in this action brought pursuant to the Federal Employers' Liability Act ("FELA"), 45 U.S.C. § 51 et seq. This issue must be addressed because, as the foregoing shows, although granting summary judgment in BNSF's favor on the underlying merits rendered the indemnity issue moot, the same is not true of the duty to defend. What is more, Chemical Lime agrees that the court's prior order granting summary judgment in BSNF's favor did "not, in and of itself, dispose of BNSF's separate `duty to defend' claim." Doc. 126 at 2. Thus, reconsideration is appropriate here.
II. Duty to Defend
On October 15, 1991, The Atchison, Topeka and Santa Fe Railway Company entered into a "Contract for Industry Track" ("the 1991 ITA" or "the ITA") with Chemstar Lime Company. Doc. 128-2, exh. 1 thereto. Plainly neither BNSF nor Chemical Lime are named parties to that ITA. Yet, the crux of the present motion is whether Chemical Line has a duty to defend BNSF under that particular Agreement. Thus, the court assumes, as do the parties on this motion, that the rights and obligations of the 1991 ITA have been properly assigned and/or consented to thereunder.
At one point, BNSF was relying upon an ITA executed on June 12, 2002. See DSOF (doc. 127), exhs. C and D thereto. On this motion, however, BNSF is relying strictly upon the 1991 ITA, which stands to reason because plaintiff "was first diagnosed or treated for his claims on" February 2, 2002 claims, when the 1991 ITA still was in effect. See Doc. 69 at ¶ 15; and Doc. 101 at ¶ 15.
In response to BNSF's motion for summary judgment on the indemnification issue, in a footnote Chemical Lime correctly pointed out that neither it nor BNSF are named parties to the 1991 ITA. See Doc. 79 at 2, ¶ 1. Chemical Lime further noted that "[t]here is no evidence there is an assignment by Chemstar Lime Company to Chemical Lime Company, nor is there evidence of written consent by Santa Fe to an assignment," which that contract requires, "if any [such assignment] exists." Id. Despite those observations, Chemical Lime did not argue that the 1991 ITA does not govern here because neither it nor BNSF are named parties to that Agreement. Instead, Chemical Lime devoted the bulk of its response to arguing that the 1991 ITA's indemnity provision was not triggered because BNSF could not prove that Chemical Lime was negligent and that its negligence caused BNSF's liability to plaintiff under FELA. See Doc. 2-5.
What is more, in its motion for summary judgment Chemical Lime never asserted that the 1991 ITA did not apply because neither it nor BNSF are named parties thereto. Again, Chemical Lime focused on whether under the particular facts of this case the indemnity provision therein was triggered. See Doc. 68 at 5-7. Likewise, nowhere in its response to BNSF's motion for reconsideration does it raise the issue of whether the 1991 ITA applies to these particular parties. In fact, as Chemical Lines frames it, "[t]he question presented is whether the parties expressed an intention in [the ITA] that Chemical Lime owed BNSF a duty to defend claims even where the only alleged negligence was attributable to BNSF, Chemical Lime was not alleged to be negligent, and Chemical Lime's actions never caused any injury to the claimant." Resp. (doc. 126) at 4 (emphasis added). Thus, to the extent that at one point in this litigation Chemical Lime was suggesting that the 1991 ITA does not apply because neither it nor BNSF are named as parties thereto, evidently it has abandoned that position.
Pursuant to the 1991 ITA, BNSF operated a railroad track which served Chemical Lime's Nelson, Arizona plant. See Doc. 71, exh. 1 thereto at 1. BNSF claims that "[i]n return, Chemical Lime was required to defend and indemnify BNSF for any and all FELA claims arising out of conditions at the Plant or service under the [1991 ITA]." Doc. 113 at 3 (citations omitted). After being advised that plaintiff alleged that he had been injured while working at Chemical Lime's Nelson plant, on September 24, 2003, BNSF notified Chemical Lime of that claim. See Doc. 128-2, exh. 4 thereto at 34-35. Apparently because no response was forthcoming from Chemical Lime, on November 9, 2004, BNSF filed an amended answer and third-party complaint, seeking "indemnification for all losses, damage or expense suffered by [it] as a result of [Chemical Lime's] operation of the Nelson lime plant." Doc. 24, at 4 ¶ A. BNSF also sought to recover its "attorneys' fees incurred in defending the underlying action[.]" Id. at 4, ¶ B.
Chemical Lime agrees that on three separate occasions "BNSF tendered defense of this matter" to it. See DSOF (doc. 127) at 7, ¶ 7 (citations omitted). This was done in a series of letters from BNSF's counsel to Chemical Lime's counsel. In a March 15, 2005, letter, BNSF advised Chemical Lime that more than a year before, on September 24, 2003, "BNSF [had] provided notice of Plaintiff's claim to Chemical Line[.]" Id., exh. E thereto. Among other things, at that time BNSF "placed Chemical Lime on notice that it may be liable to indemnify BNSF for Plaintiff's claim." Id. In that March 15, 2005, letter, BNSF expressly "renew[ed] its tender of defense to Chemical Lime and request[ed] that Chemical Lime indemnify [BNSF] for plaintiff's claims" herein. Id. BNSF continued, "Chemical Lime's failure to accept this tender may result in further obligation to pay," inter alia, "all costs of litigation[.]" Id.
BNSF followed up with a letter dated April 14, 2005, which included a copy of the 2002 ITA. See id., exhs. C and D thereto. BNSF advised Chemical Line that in its view under the terms of that Agreement, Chemical Lime had a duty to defend and indemnify BNSF in connection with this FELA action. Again, BNSF requested written notice of acceptance of that "tender" from Chemical Lime by "no later than April 19, 2005." Id., exh. C thereto.
Shortly thereafter, on April 28, 2005, responding to a request from Chemical Lime, BNSF sent Chemical Lime a copy of the 1991 ITA. See id., exh. B thereto. In that letter, BNSF stated its view that under Article 1, paragraphs 4, 7 and 8, Chemical Lime had a duty to defend and indemnify BNSF in connection with this FELA action. Id. To date, Chemical Lime has not accepted these purported tenders of defense by BNSF. In fact, in a letter dated July 19, 2005, BNSF "confirm[ed] that Chemical Lime . . . denied BNSF's tender of defense at th[at] time." Doc. 128-2, exh 4 thereto at 20. BNSF stated its "understand[ing] that Chemical Lime may revisit th[at] issue following plaintiff's deposition[.]" Id. Regardless, BNSF closed that letter by "not[ing] that [it] w[ould] continue to look to Chemical Lime to recover its continuing fees and costs incurred in the defense of this case."Id. A. 1991 ITA 1. Governing Law
At the outset it should be noted that the 1991 ITA expressly provides that "[a]ll questions arising" thereunder "shall be decided according to the laws of the State in which The Track is located." See Doc. 128-2, exh. 1 thereto at 7, art. III, ¶ 7. Because the subject track is located in Nelson, Arizona, Arizona law governs this dispute.
2. Contract Language
Chemical Lime's duty to defend arises from two particular provisions of the 1991 ITA, according to BNSF. First, BNSF is relying upon paragraph 4(b) which essentially requires Chemical Lime to "indemnify and hold harmless [BNSF] from any . . . claimed liability arising under" FELA, "[r]egardless of any . . . alleged negligence of [BNSF][.]" Id., exh. 1 thereto at 2, ¶ 4(b) (emphasis added). BNSF also is relying upon paragraph eight of Article I which broadly stated requires Chemical Lime "to assume the defense of any lawsuit, . . . brought against [BNSF] by any . . . individual, . . ., relating to any matter covered by this Agreement for which [Chemical Lime] has an obligation to assume liability for and/or save and hold harmless [BNSF]." Id., exh. 1 thereto at 5, ¶ 8 (emphasis added). Especially in light of the phrases "alleged negligence" and "claimed liability" in paragraph 4(b), BNSF asserts that "Chemical Lime clearly owed [it] a duty to defend . . . from the inception of this lawsuit." Mot. (doc. 113) at 4. Emphasizing that the duty to defend is separate and apart from the duty to indemnify, BNSF further asserts that Chemical Lime was required to defend it throughout this litigation, even though ultimately the court granted summary judgment in favor of BNSF and Chemical Lime on the issue of liability.
Hereinafter all references to paragraph 8 shall be read as referring to paragraph 8 of Article I.
Chemical Lime offers five different arguments as to why it does not have a duty to defend BNSF under the 1991 ITA. The court will address each in turn; but, as will be seen, in the end none of these arguments are availing.
a. Lack of Specificity
First, Chemical Lime responds that the only contractual indemnification provision directly pertaining to FELA claims, paragraph 4(b) does not specifically mention a duty to defend. Likewise, Chemical Lime points out that that paragraph does not "otherwise refer to payment of attorneys' fees and costs[.]" Resp. (doc. 126) at 5. In the absence of such explicit language, Chemical Lime maintains that it had no duty to defend this FELA action.
Chemical Lime makes a related textual argument. It points out that other provisions of the ITA expressly require it to "assume the defense of all . . . claims" set forth in those paragraphs, i.e. ¶¶ 6(a) and 6(b). See Doc. 128-2, exh. 1 thereto at 4, ¶¶ 6(a) and 6(b). Similarly, other provisions of the ITA expressly provide that Chemical Lime will reimburse BNSF "for all costs including . . . legal costs[.]" See id. at 4, ¶ 6. Without elaborating, Chemical Lime asserts that the omission of similar language from paragraph 4(b) "has legal significance." Resp. (doc. 126) at 6. In essence, then, it is Chemical Lime's position that paragraph 4(b) is limited to the duty to indemnify.
BNSF counters that Chemical Lime is ignoring the "plain terms" of the 1991 ITA, particularly paragraph 8. Reply (doc. 128) at 2. In arguing the Chemical Line has a duty to defend it under the ITA, BNSF engages in a two-step analysis. First, BNSF contends that Chemical Lime had a duty to indemnify it under paragraph 4(b) because plaintiff commenced this action against BNSF, and this action involves "claimed liability arising under" FELA for "condition[s] belonging to or under the control of [Chemical Lime][,]" i.e. plaintiff's inhalation of lime dust while servicing Chemical Lime's Nelson plant. See Doc. 128-2, exh. 1 thereto at 2, ¶ 4(b). And, according to BNSF, based upon the plain language of paragraph 4(b), that duty to indemnify existed "[r]egardless of any negligence of alleged negligence by [BNSF][.]" Id.
Second, as BNSF reads the ITA, that duty to indemnify in turn gave rise to a duty to defend. More specifically, because paragraph eight provides in relevant part that Chemical Lime "agrees to assume the defense of any lawsuit, . . . relating to any matter covered by this Agreement for which [Chemical Lime] has an obligation to assume liability for and/or save and hold harmless [BNSF][,]" and because BNSF believes Chemical Lime had such an obligation under paragraph 4(b), that triggers Chemical Lime's duty to defend under paragraph 8. Id. at 5, ¶ 8. Stated somewhat differently, when there is a duty to indemnify for "claimed [FELA] liability" under paragraph 4(b), BNSF asserts that a concomitant duty to defend attaches pursuant to paragraph 8. That duty includes payment by Chemical Lime of "all the costs incident to such defense including, but not limited to, attorneys' fees, [and] . . . litigation expenses[.]" See id.
BNSF has the stronger argument here. "[I]n construing a provision of a document, that provision must be read in connection with all other provisions of the instrument." Hiett v. Howard, 494 P.2d 1347, 1352 (Ct.App. 1972) (citations omitted) (emphasis added). Chemical Lime's construction of the ITA would require the court to ignore this basic tenet of contract construction by reading paragraph 4(b) in isolation. To be sure, when that paragraph is read alone, it does not mention a duty to defend; nor does it mention the payment of attorneys' fees or litigation expenses. Paragraph 4(b) must be read in conjunction with paragraph 8, however. When that is done, as previously explained, clearly Chemical Lime had a duty to defend BNSF in this action.
The fact, which Chemical Lime points out, that there are other provisions in the ITA which, unlike paragraph 4(b), expressly require it to assume BNSF's defense or pay for its "legal costs," does not change the court's view that Chemical Lime has a duty to defend here when paragraphs 4(b) and 8 are read together. Chemical Lime's position is not well-taken in this regard because like paragraph 4(b) there are other paragraphs, such as 2(b), 4(a) and 5(e), which do not specifically mention a duty to defend. As with 4(b), however, those paragraphs must be read in conjunction with the broad duty to defend found in paragraph 8. Such a reading is consistent with the preference for construing contracts so as to "give effect to all portions" thereof, as opposed to "an interpretation which leaves one or some parts without effect."See Tenet Healthsystem TGH, Inc. v. Silver, 52 P.2d 786, 790 (Ariz.Ct.App. 2003) (internal quotation marks and citation omitted); see also Johnson v. Pointe Community Ass'n, Inc., 73 P.3d 616, 622 (Ariz.Ct.App. 2003) (internal quotation marks and citation omitted) (Courts "will, if possible, interpret a contract in such a way as to reconcile and give meaning to all of its terms, if reconciliation can be accomplished by any reasonable interpretation.") Reading paragraph 4(b) as well as other similar paragraphs alone would violate this preference by rendering paragraph 8 superfluous. For all of theses reasons, the court does not find persuasive Chemical Lime's argument that because there is no explicit mention in paragraph 4(b) of a duty to defend, it did not have a duty to defend BNSF in this FELA action.
b. Paragraph 8
Despite the foregoing, Chemical Lime challenges BNSF's reliance upon paragraph 8 as a basis for finding a duty to defend. According to Chemical Lime, that paragraph does not apply here because the more specific terms of paragraph 4(b), which govern FELA claims, control over the more general terms of paragraph 8. Chemical Lime is correct that in contract interpretation "specific terms control the general." Gfeller v. Scottsdale Vista North Townhomes Ass'n., 969 P.2d 658, 660 (Ariz.Ct.App. 1998) (citation omitted). What Chemical Lime fails to take into account, however, is that that rule only comes into play when there is an inconsistency. See id.; and Pecarovich v. Allstate Ins. Co., 309 F.3d 652, 658 n. 10 (9th Cir. 2002) (internal quotation marks and citation omitted) ("It is well settled that [w]here there is an inconsistency between general provisions and specific provisions, the specific provisions ordinarily qualify the meaning of the general provisions.") As previously alluded to, there is no consistency between paragraphs 4(b) and 8. They can easily be read together to give effect to both provisions. Thus, there is no need to resort to this rule of construction. See Gfeller, 969 P.2d at 660 (rejecting argument that the more specific provision of CC Rs governed over a general provision where there was "no inconsistency" between the two).
Next, Chemical Lime asserts that paragraph 8 is not "triggered" because the duty to defend thereunder is limited to claims "`for which [it] has an obligation to assume liability'" pursuant to paragraph 4(b). Resp. (doc. 126) at 7 (quoting doc. 128-2, exh. 1 thereto at 5, ¶ 8). Chemical Lime continues; it had no liability under paragraph 4(b) because that paragraph "applies only where Chemical Lime `caused' the liability in some fashion." Id. Indeed, Chemical Lime goes so far as to assert that paragraph 4(b) "requires proof that there was a cause and effect between the claim and the damages." Id. (emphasis in original). Further, Chemical Lime reasons that given, inter alia, the court's grant of summary judgment in its favor because plaintiff could not "satisfy the causation element" of a FELA claim, Chemical Lime cannot be held liable under paragraph 4(b). See Doc. 110 at 12. Hence, in turn, there was no event triggering paragraph 8's duty to defend.
The weakness in this argument is that, once again, it would render certain language in the ITA "mere surplusage[.]" See Gfeller, 969 P.2d at 660. In particular, if paragraph 4(b) requires proof of causation to invoke the duty to defend, use of the qualifiers "alleged" and "claimed" in that paragraph would be meaningless. Further, because the duty to defend is broader than the duty to indemnify in that the former "generally exists regardless of whether the insured is ultimately found liable," it stands to reason that proof of causation is not necessarily required to establish a duty to defend. See Hauskins v. McGillicuddy, 852 P.2d 1226, 1234 (Ariz.Ct.App. 1992) (citation omitted).
Moreover, construing the ITA to require causation as a predicate to the duty to defend also would render meaningless paragraph 8's broad language:
Upon written notice from [BNSF], [Chemical Lime] agrees to assume the defense of any lawsuit, . . . brought against [BNSF] by any . . ., individual, . . ., relating to any matter covered by this Agreement for which [Chemical Lime] has an obligation to assume liability for and/or save and hold harmless [BNSF]. [Chemical Lime] shall pay all the costs incident to such defense including, but not limited to, attorneys' fees, investigators' fees, litigation expenses, settlement payments, and amounts paid in satisfaction of judgments. Any and all lawsuits . . . brought or threatened on any theory of relief available at law, in equity or under the rules of any administrative agency shall be covered by this Section including, but not limited to, the theories of intentional misconduct, negligence, breach of statute or ordinance, or upon any theory created by any statute or ordinance, state or federal.
Doc. 128-2, exh. 1 thereto at 5, ¶ 8 (emphasis added). This FELA "lawsuit" was "brought" against BNSF by an "individual" under a "theory created by [federal] statute[.]" See id. Thus, assuming for the moment that BNSF provided "written notice" of this lawsuit, Chemical Lime's duty to defend under paragraph 8 was triggered even without a finding of causation.
Additionally, Chemical Lime contends that paragraph 4(b) is not triggered here "because Plaintiff never alleged that Chemical Lime was negligent." Resp. (doc. 126) at 7. The plain language of the 1991 ITA demonstrates the flaw in this argument. There is nothing in that Agreement requiring plaintiff to allege that Chemical Lime was negligent as a precursor to its duty to indemnify and/or defend.
What is more, although in his complaint, which named only BNSF as a defendant, plaintiff did not allege that Chemical Lime was negligent, during his deposition he testified that he "believe[d] that the lime dust exposure and the coal and coke dust exposure from [C]hemical [L]ime is what . . . hurt [him] more than anything else." doc. 128-2, exh. 2 thereto at 64, 1. 11-13. And when asked if all of "those claims ar[os]e out of the exposures that occurred at the Chemical Lime plant[,]" plaintiff responded, "Yes." Id., exh. 2 thereto at 64: 4-17. In a similar vein, when asked whether he "believe[d] Chemical Lime [bore] any responsibility for [his] alleged injuries[,]" plaintiff replied, "Yes. I believe so." Id., exh. 2 thereto at 163: 1-3. Thus, plaintiff's theory of liability encompasses negligence by Chemical Lime.
Chemical Lime further maintains that because its obligations arise, if at all, under a contract, as opposed to an insurance policy, it has no duty to defend unless it has a duty to indemnify. As a matter of policy, Chemical Lime maintains that a finding that it has a duty to defend here would improperly place its "obligations on par with that of an insurance company." Resp. (doc. 26) at 8. Chemical Lime selectively quotes from Regan Roofing Co. v. Superior Court, 29 Cal.Rptr.2d 413 (Ct.App. 1994) to support this argument. This argument is misplaced for several reasons. First, the Regan Roofing court was applying California law, not Arizona law. Not only that, the court in Regan Roofing was, in part, interpreting a California statute governing interpretation of indemnity agreements. No similar statute is at issue in the present case.
Second, a careful reading of Regan Roofing shows that the court there actually held that under California's unique statutory scheme for summary adjudication, it was "premature" for the lower court to decide whether the general contractor had a contractual duty to indemnify subcontractors where no determination had been made as to whether the latter were negligent. Id. at 419. The court there did not, despite Chemical Lime's assertion to the contrary, hold that a duty to defend is predicated upon a duty to indemnify.
Third, more recently the same court that decided Regan Roofing held, in essence, "that it is quite proper for an indemnity clause to put the indemnitor in the position of an insurer: liable without fault." Cal. Constr. L. Manual § 5:156 (6th ed.) (citing Centex Golden Const. Co. v. Dale Tile Co., 93 Cal.Rptr.2d 259 (Ct.App. 2000)). Therefore, the fact that Chemical Lime's obligations under the ITA potentially are comparable to those of an insurer is not a valid reason for disregarding the plain language of that Agreement.
c. Sole Negligence
"Under Arizona law, the general rule is that an indemnitee is not entitled to indemnification resulting from its active negligence." Market Finders Insurance Corp. v. Scottsdale Insurance Co., 2005 WL 2897527, at *2 (W.D. Ky. Nov. 1, 2005) (citation omitted). Thus, as Chemical Lime accurately states, "the intention to compensate the indemnitee for [its] own negligence must be expressed in clear and unequivocal terms."Weatherguard Roofing Co., Inc. v. D.R. Ward Construction Co., Inc., 152 P.3d 1227, 1231 (Ariz.Ct.App. 2007) (internal quotation marks and citation omitted). Chemical Lime is taking the position that paragraph 8 does not express the requisite "clear and unequivocal" intent that BNSF can be indemnified for its "sole negligence." Reply (doc. 126) at 9. In the absence of such intent, Chemical Lime further asserts that it has no duty to defend BNSF.
This argument, too, is misplaced. "In determining whether the general rule applies, the court must examine the all encompassing language of the agreement[,]" not just one paragraph, as Chemical Lime urges. See Market Finders, 2005 WL 2897527, at *2 (internal quotation marks and citation omitted). "If the language clearly and unequivocally indicates that one party is to be indemnified regardless of whether or not that injury was caused in part by that party, indemnification is required notwithstanding the indemnitee's active negligence." Market Finders, 2005 WL 2897527, at *2 (internal quotation marks and citation omitted). Examination of the entire agreement is necessary, and "mechanical application of [the general rule] should be avoided in determining the parties' intent because [r]elying exclusively on the active/passive distinction . . . may prevent an agreement from being enforced as the parties intended." Cunningham v. Goettl Air Conditioning, Inc., 980 P.2d 489, 493 (Ariz.Sup.Ct. 1999) ( en banc) (internal quotation marks and citation omitted). Thus, "there is no requirement that the term negligence actually be used, or that specific reference be made to liability arising out of the indemnitee's negligence." Weatherguard, 152 P.3d at 1231 (internal quotation marks and citation omitted). Rather, the Arizona Supreme Court "require[s] clarity, not [that] any particular word or phrase" be used "to protect an indemnitee against his own negligence." Id. (citation omitted).
Applying the foregoing standards to the 1991 ITA shows that the parties did "clear[ly] and unequivocal[ly]" express their intent that Chemical Lime had an obligation to indenmnify BNSF, notwithstanding BNSF's sole negligence. Paragraph 4(b) unambiguously states that "[r]egardless of any negligence or alleged negligence of [BNSF], [Chemical Lime] shall indemnify and hold harmless [BNSF] from any liability or claimed liability arising under [FELA][.]" Doc. 128-2, at 2, ¶ 4(b). Moreover, paragraph 7 could not be more clear in providing that "[i]t is the intention of the parties that [BNSF's] right to indemnity contained in Section 4(b), . . . shall be valid and enforceable against [Chemical Lime] regardless of negligence (whether active, passive, derivative, joint, concurring or comparative) on the part of [BNSF], its officers, agents and employes [sic]." Id., at 5, ¶ 7 (emphasis added). The broad and unambiguous language of the 1991 ITA leaves no doubt: Chemical Lime had an obligation to defend BNSF regardless of whether BNSF was solely negligent.
Chemical Lime tries to avoid this result by pointing out that paragraphs 4(a) and 6(b) of the ITA specifically state that it does not have a duty to indemnify thereunder where BNSF is solely negligent. See id., at 2, ¶ 4(a) and at 4, ¶ 6(b). Contrasting those paragraphs with paragraph 8, which admittedly does not contain similar language, Chemical Lime argues in the alternative that the ITA is ambiguous and "presents a fact question as to what the parties truly intended." Resp. (doc. 126) at 9. This reasoning is specious.
The fact that paragraphs 4(a) and 6(b) clearly provide that Chemical Lime does not have a duty to indemnify for "claim[s] result[ing] from the sole negligence of [BNSF][,]" actually supports the contrary view. That is, that the parties knew how to express their intent to exclude claims arising from BNSF's sole negligence, and they did so in paragraphs 4(a) and 6(b), but not elsewhere. If the parties had intended a similar exclusion for claims coming within the purview of paragraph 4(b), they could just have easily used similar language, but they did not. Instead, as set forth above, the parties used contrary language, expressly stating their "intent" that Chemical Lime indemnify BNSF regardless of any type of negligence on the part of BNSF.See Doc. 128-2, at 5, ¶ 7. In light of the foregoing, the court finds no merit to Chemical Lime's argument that it has no duty to defend here because BNSF allegedly was solely negligent.
d. Conflict of Interest
Chemical Lime further posits that it has no duty to defend because there is "[a] clear divergence of interests" between it and BNSF; and under Arizona law a "duty to defend cannot exist in the face of such a conflict" between an indemnitee and an indemnitor. See Resp. (doc. 126) at 10 (emphasis in original) (citation omitted). From Chemical Lime's perspective, this claimed divergence arises because it was in its interest to argue that BNSF was negligent, whereas it was in BNSF's interest to argue the opposite — that Chemical Lime was negligent.
Chemical Lime fares no better with this conflict of interest argument. First of all, it ignores the fact that under FELA, BNSF, as plaintiff's employer, had a non-delegable duty to provide him with a safe place to work. See Haugen v. The Burlington Northern and Santa Fe Railway Co., 2001 WL 1852331, at *2 (W.D. Wash. Nov. 27, 2001) (citing, inter alia, Shenker v. Baltimore O.R. Co., 374 U.S. 1, 7-11 (1963)). Given that non-delegable duty, even if BNSF had established negligence on the part of Chemical Lime, BNSF could not have circumvented its liability to plaintiff under FELA. Indeed, given that non-delegable duty, it is easy to see why BNSF would seek to have Chemical Lime indemnify and defend it as part of the 1991 ITA.
What is more, BNSF and Chemical Lime did not have an actual conflict of interest. In fact, as BNSF accurately describes it, their interests were "unified[.]" Reply (doc. 128) at 8. Both Chemical Lime and BNSF had an interest "in proving that (a) BNSF did not cause plaintiff's injuries; (b) there were no problems at Chemical Lime's Plant; and (c) plaintiff's claims failed as a matter of law." Id. Indeed, so closely aligned were the interests of BNSF and Chemical Lime that the latter joined in BNSF's summary judgment motion, where BNSF (and hence Chemical Lime) ultimately prevailed. See Doc. 128-2, exh. 4 thereto. This joinder renders disingenuous Chemical Lime's assertion that it had a conflict of interest with BNSF.
Finally, Chemical Lime's primary authority,Bridgestone/Firestone North America Tire, L.L.C. v. A.P.S. Rent-A-Car Leasing, Inc., 88 P.3d 572 (Ariz.Ct.App. 2004), to the extent it is relevant at all, actually supports BNSF's position. In the first place Bridgestone is factually distinguishable in that the court was construing an Arizona statute governing indemnification rights of sellers and manufacturers in a product liability action. See A.R.S. § 12-684 (2003). The tire manufacturer in Bridgestone brought a declaratory judgment action against a rental car company. The manufacturer sought a ruling that it did not have duty to indemnify the car company under that statute for damages which had been awarded to the company's customers in a product liability action. The court recognized that under the common law and the Restatement (Second) of Judgments "a conflict of interest between an indmenitor and indemnitee might justify a properly notified indmenitor's refusal to assume the indemnitee's defense in the underlying action." Id. at 579. Nonetheless, because section 12-684 did "not include a conflict of interest exception or defense[,]" the court held "the conflict d[id] not render [the] tender of defense `improper' or otherwise negate [the indemnitee's] right to [statutory] indemnity[.]" Id. at 580 (emphasis added).
Like section 12-684, the ITA does not include a conflict exception. Therefore, under the Bridgestone court's reasoning the purported existence of a conflict here does not obviate Chemical Lime's duty to defend under the ITA. In short, there is no merit to Chemical Lime's argument that it has no duty to defend BNSF because it supposedly has a conflict of interest with BNSF.
e. Tender
Chemical Lime's final attempt to avoid a duty to defend in this action is grounded in its belief that "BNSF never made an unequivocal offer to relinquish complete control of the defense." Resp. (doc. 126) at 12 (citation omitted). As Chemical Lime interprets the correspondence from BNSF, "[t]he most [BNSF] states was that it was looking to be `indemnified' and that it was `tendering' the case." Id. From Chemical Lime's perspective, this was not a "proper tender," and hence it had no duty to defend. See id.
BNSF retorts that it provided what was required under paragraph 8 of the ITA, which was "written notice[.]" See Doc. 128-2, exh. 1 thereto at 5, ¶ 8. That "written notice" took the form of four letters from BNSF's counsel to Chemical Lime's counsel detailed earlier in this Order. See id., exh. 4 thereto. When Chemical Lime refused to defend and indemnify BNSF, despite those requests to do so, BNSF filed a third-party complaint against Chemical Lime. See Doc. 24 at 4-5. Thereafter, counsel for both BNSF and Chemical Lime participated in this litigation, with "Chemical Lime's attorneys attend[ing] plaintiff's deposition and the depositions of [his] liability expert and treating physician." Reply (doc. 128) at 9. Consequently, BNSF is taking the position that "Chemical Lime has participated fully in this case and BNSF did all it was required to do to have Chemical Lime accept BNSF's tender of defense." Id. Lastly, BNSF notes that until now "Chemical Lime never objected to the form of BNSF's tender of defense." Id.
As with Chemical Lime's other arguments attempting to avoid its duty to defend under the 1991 ITA, this one fails too. As set forth above, the 1991 ITA required only "written notice." That Agreement did not specify what form the notice should take. Thus, to the extent Chemical Lime is asserting that the ITA requires something more than "written notice," it is wrong.
Nor does the case law to which Chemical Lime cites support its contention that something beyond the letter requests by BNSF, tendering a defense, was required here. The issue in the three cases upon which Chemical Lime is relying was the timeliness of the tenders of defense, not the sufficiency thereof. See Bloch v. Arrowhead-Puritas Waters, Inc., 798 F.2d 1238, 1240 (9th Cir. 1986) (internal quotation marks and citation omitted) (tender of defense "insufficient as a matter of law" where it was given "almost 20 months after the filing of [plaintiff's] action and after substantial discovery had been completed[,]" and thus "did not constitute notice as soon after the institution of the suit as to permit complete control of pretrial proceedings by" manufacturer of allegedly defective product); Litton Systems, Inc. v. Shaw's Sales and Service, Ltd., 579 P.2d 48, 52 (Ariz.Ct.App. 1978) (tender of defense sufficient where "notice . . . given as soon after the institution of suit as to permit complete control of pretrial proceeding by . . . indmenitor[,]" as was evidenced by the fact that indemnitor's local counsel attended depositions); and U.S. Wire Cable Corp. v. Ascher Corp., 167 A.2d 633, 637 (N.J.Sup.Ct. 1961) (letter to indmenitor "mak[ing] sufficient demand and at least impliedly . . . offer[ing] to surrender control of any portion of" the underlying action did not give "timely notice" where "it was given 17 days before actual trial and . . . when all [preliminary] proceedings . . . had been accomplished"). Thus, none of the three cases are instructive in terms of what, substantively, constitutes a proper tender of defense.
Moreover, as the record shows, on three separate occasions Chemical Lime did receive "written notice" from BNSF specifically stating that BNSF was tendering its defense of this action to Chemical Lime. See Doc. 128-2, exh. 4 at 21, 32 and 33. Thus, BNSF complied with the 1991 ITA in terms of providing written notice to Chemical Lime that BNSF wanted Chemical Lime to indemnify and defend it herein. For the reasons set forth herein,
It Is ORDERED that the motion for reconsideration by defendant/third-party plaintiff, The Burlington Northern Santa Fe Railway Company (doc. 113), is GRANTED; and
It is further ORDERED that the motion for summary judgment by defendant/third-party plaintiff, The Burlington Northern Santa Fe Railway Company with respect to its Third-Party Complaint (doc. 24) as against third-party defendant Chemical Lime Company of Arizona on the issue of the duty to defend is GRANTED and the Clerk shall enter judgment accordingly.
It is FURTHER ORDERED that within 30 days of the date of this Order BNSF shall file and serve a motion for attorneys' fees and costs, etc., consistent with this Order and with the 1991 ITA. Chemical Lime shall have 20 days from the date of service in which to file and serve its Response. BNSF shall then have ten days from the date of service of Chemical Lime's Response in which to file and serve a Reply, if any.