Opinion
Cause No. EV99-0119-C-M/S
May 26, 2000.
James P Casey Ziemer Stayman Weitzel Shoulders P O Box 916 Evansville, IN 47706-0916
Ronald R Allen Fine Hatfield P O Box 779 Evansville, IN 47705
Donald E Knebel Barnes Thornnburg 1313 Merchants Bank Bldg 11 S Meridiann St. Indianapolis, IN 46204
James M Lewis Barnes Thornburg 600 1st Source Bank Center 100 North Michigan South Bend, IN 46601
ORDER ON MOTION TO DISMISS
This matter comes before the Court on a motion to dismiss filed by Third-Party Defendant, ILPEA, Inc. ("ILPEA"), against Third-Party Plaintiff, GenCorp, Inc. ("GenCorp"). In it, ILPEA seeks dismissal of the Third-Party Complaint GenCorp filed on September 15, 1999, on grounds that the sublease agreement it entered with GenCorp does not require it to indemnify GenCorp against an action by the owner of the leased premises, Stagg Industrial Development Corporation ("Stagg"). Rather, ILPEA argues, the indemnity provision in the sublease agreement only requires it to indemnify GenCorp for actions brought by third parties, and Stagg is not a third party within the meaning of the agreement.
The underlying action in which ILPEA was impleaded, is between Stagg, an Indiana corporation, and GenCorp, an Ohio corporation. Comp. ¶ 1-2. Stagg is the owner of certain real property located at 605 West Eichell Avenue, Evansville, Indiana (the "Leased Premises"), which property has been leased to defendant GenCorp since 1961 under the terms of various written lease agreements. Id. ¶¶ 2-3; Ans. ¶¶ 2-3. During that period of time, GenCorp used and occupied at least part of the Leased Premises for purposes of manufacturing and distributing vinyl products. Comp. ¶ 5; Ans. ¶ 5. From June of 1998 to April of 1999, GenCorp subleased the premises to third-party defendant ILPEA. Third-Party Comp. ¶ 7, Ex. 1. It is not clear from the pleadings whether GenCorp continued to use or occupy a portion of the Leased Premises during the term of the sublease.
Stagg and GenCorp have a history of disputes about remediation of "environmental conditions and alleged damages to the structural, mechanical and electrical components and systems of the Leased Premises." Comp. ¶ 6; Ans. ¶ 6. These disputes preceded the sublease agreement with ILPEA. Certain of the disputes were resolved pursuant to the 1998 Lease Extension and Agreement ("Lease Agreement") and a 1999 Settlement Agreement. Comp., Exs. C, D, respectively. The Lease Agreement allowed for GenCorp to sublease the premises to ILPEA. According to Stagg, GenCorp subsequently "caused or allowed to be caused by GenCorp's sublessee certain additional damages to the Leased Premises, including, but not limited to, damage that can variously be described as mechanical, structural, electrical and environmental." Comp. ¶ 7.
Both the Lease Agreement and the sublease were to expire on April 30, 1999, by which time GenCorp was to have completed an environmental investigation, to determine the extent of any "environmental conditions" that existed at the Leased Premises. Comp. Ex. C, ¶ 4(G). GenCorp was also supposed to submit a work plan to the Indiana Department of Environmental Management ("IDEM") as part of a voluntary remediation plan. Id. Under the terms of the Lease Agreement, GenCorp had agreed to undertake such remediation and to obtain a corresponding covenant not to sue from IDEM by the "Punch List Completion Date." Id. The Punch List, which was attached to the Lease Agreement, contained a list of tasks GenCorp had agreed to perform before turning the Leased Premises over to Stagg at the end of the lease term. Id., ¶ 4(H). It represented a partial resolution of their dispute. The Punch List Completion Date was sixty days after the sub-lessee vacated the Leased Premises. See Comp., Ex. C, Lease Ext. and Agrmt., Att. 2 "Evansville Punch List." In general, the items on the Punch List did not relate to the environmental conditions at the Leased Premises.
According to Stagg, GenCorp did not fully perform the tasks on the Punch List and remains liable for them despite the settlement memorialized in an agreement dated January 11, 1999. Comp. ¶ 8. GenCorp is also liable, Stagg asserts, for remediation of the environmental conditions at the Leased Premises. Id. In addition, Stagg claims that after the date of the settlement additional damage was caused to the Leased Premises while ILPEA subleased the property from GenCorp, and GenCorp is liable for repairing that damage as well. Comp. ¶¶ 9-10. Because GenCorp has not timely performed the environmental remediation or completed the other repairs, Stagg argues, GenCorp has breached the terms of the Lease Agreement and the Settlement Agreement. Id. ¶ 13. These alleged breaches make the property uninhabitable and unmarketable. Id. Stagg seeks a preliminary and permanent injunction ordering GenCorp to "specifically and immediately perform its obligations with regard to the environmental remediation of the Leased Premises." Id., Prayer for Relief. It also seeks compensation for lost rents and profits, diminution of fair market value, the physical damage to the Leased Premises, and punitive and liquidated damages. Id.
Along with its answer to Stagg's complaint, defendant GenCorp filed a Third-Party Complaint against its sub-lessee, ILPEA, in which it asserts claims pursuant to the terms of their sublease agreement. According to GenCorp, the additional damages to the Leased Premises occurred while ILPEA occupied the premises and were caused by its use and occupancy thereof. Third-Party Comp. ¶ 10; Comp. ¶ 7. Article V of the sublease agreement obligated ILPEA to operate the Leased Premises in a "careful manner" and not cause any damage thereto. Third-Party Comp. ¶ 8; Id, Ex. 1 § 5.02. Upon vacating the premises, ILPEA was required to leave the property in as good a condition as it was when ILPEA entered the sublease. Third-Party Comp., Ex. 1 § 5.02. GenCorp alleges that on May 21, 1999, it forwarded a list of the alleged post-settlement damages to ILPEA and demanded ILPEA remedy the problems. Id. ¶ 11. ILPEA refused to do so. Id. ¶ 12. As a result, GenCorp had to remedy the damages itself at its own expense; it presented those expenses to ILPEA for reimbursement and ILPEA rejected the demand. Id.
Dissatisfied with GenCorp's efforts to remediate the environmental, structural, mechanical and electrical problems on the Leased Premises, Stagg filed its Complaint for Damages, Specific Performance and Injunctive Relief in the Vanderburgh County Superior Court on July 15, 1999. The complaint named GenCorp as the only defendant. GenCorp removed the action to federal district court based on diversity jurisdiction on August 9, 1999. It then filed its Third-Party Complaint on September 15, 1999, which resulted in the pending motion to dismiss for failure to state a claim filed by ILPEA on November 4, 1999. Having been fully briefed on the issues, the Court turns to a discussion of that motion.
In assessing the propriety of a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6), the Court accepts as true all well-pleaded factual allegations in the complaint and the inferences reasonably drawn from them. Jackson v. E.J. Brach Corp., 176 F.3d 971, 977 (7th Cir. 1999). Dismissal is appropriate only if it is clear that the plaintiffs can prove no set of facts consistent with the allegations in the complaint that would entitle them to relief. Scott v. City of Chicago, 195 F.3d 950, 951 (7th Cir. 1999). However, the Court need not ignore facts set out in the complaint that undermine the plaintiffs' claims, Homeyer v. Stanley Tulchin Assoc., 91 F.3d 959, 961 (7th Cir. 1996), nor is the Court required to accept the plaintiffs' legal conclusions. Fries v. Helsper, 146 F.3d 452,456 (7th Cir.), cert. denied 525 U.S. 930 (1998).
The motion to dismiss standard essentially means that if any set of facts, even hypothesized facts, could be proven consistent with the complaint, then the complaint must not be dismissed. Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1995), cert. denied, 116 S.Ct. 1044 (1996). Moreover, a complaint need not spell out every element of a legal theory to provide notice of the claim to the defendant. Scott, 195 F.3d at 951. After passage of the Federal Rules of Civil Procedure in 1938, parties were no longer bound by the rules of code pleading, which required the pleading of facts that, if true, would establish each element of a cause of action. See Hemenway v. Peabody Coal Co., 159 F.3d 255, 261 (7th Cir. 1998). Instead, a "district court has a duty to consider whether a plaintiff's allegations could provide relief under any available legal theory." Sidney S. Arst Co. v. Pipefitters Welf. Educ. Fund, 25 F.3d 417, 421 (7th Cir. 1994). Plaintiffs "receive the benefit of imagination, so long as the hypotheses are consistent with the complaint." Sanjuan, 40 F.3d at 251 (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
The relevant dispute implicated by the pending motion to dismiss is that between GenCorp and ILPEA about whether ILPEA is required to defend and indemnify GenCorp in the original action by Stagg. ILPEA points to the provision of the sublease agreement requiring such defense and indemnification and argues that the provision does not relate to an action between the Prime Landlord (Stagg) and the Landlord (GenCorp). See Third-Party Comp., Ex. 1 at 1. Upon review of the sublease, the Court finds that ILPEA is correct. Article VII of the Sublease provides in relevant part:
[ILPEA] shall, at its sole cost and expense, defend [GenCorp] and [Stagg] from any and all claims, demands, actions or causes of action by a third party, at law or in equity (a "Claim") which result or arise out of any use or occupancy by [ILPEA] of the Premises or any act or omission of [ILPEA] . . . with respect to the Premises and indemnify and hold [GenCorp] harmless from all damages, liabilities, losses, costs, judgments . . . imposed upon or incurred by [GenCorp] as a result of any such Claim. . . ."Id. § 7.01 (emphasis added).
The Court has emphasized the two key terms in this provision that defeat GenCorp's attempt to state a claim of contractual indemnity against ILPEA. First, the provision specifically requires ILPEA to defend both GenCorp and Stagg against any and all claims by a third party. Although the term "third party" is not defined in the sublease agreement, the usual and ordinary meaning of that term refers to "one not a party to an agreement, a transaction, or an action but who may have rights therein." BLACK'S LAW DICTIONARY, (6th Ed. 1990). In construing contracts, courts are to give words and terms their "ordinary legal significance," unless the contract as a whole makes clear that the parties intended another meaning. George S. May Internat'l Co. v. King, 629 N.E.2d 257, 262 (Ind.Ct.App. 1994). In this case, the parties to the sublease are GenCorp and ILPEA, making Stagg a third party to that contract under the ordinary meaning of the term. However, it is clear the parties to the sublease meant to exclude Stagg from the class of persons meeting the ordinary definition of third party. This is revealed by the fact that Stagg is specifically identified as one of the beneficiaries of the provision's requirement that ILPEA provide a defense against claims by third parties. One cannot be both a third party and a party entitled to a defense against third parties.
In defense of its interpretation of the indemnification provision, GenCorp argues that the first clause specifically refers to Stagg and GenCorp as beneficiaries of a defense by ILPEA, but the second clause, relating to indemnity, only refers to GenCorp. In other words, GenCorp separates the two clauses and argues that the one requiring ILPEA to indemnify GenCorp contemplates an action by Stagg against GenCorp. This argument is addressed with reference to the second emphasized phrase in the quote from § 7.01, "such Claim." GenCorp asserts that a claim is "any and all claims, demands, actions . . . by a third party," and that because indemnification does not inure to Stagg's benefit, Stagg should be considered among the class of third parties against whom ILPEA must indemnify GenCorp. The flaw in GenCorp's logic is that the word "Claim" is defined in the first clause to include any and all claims by a third party that are brought against Stagg or GenCorp. The second clause has no clear meaning without reference to the first clause, for that is the antecedent for the term "such" claim. Thus, the second clause could not be interpreted to allow indemnification of GenCorp against a "claim" brought by Stagg, because, by definition, a claim can only be an action against Stagg.
Furthermore, when parties use or refer to the same term in two different clauses, courts should presume they intend for the term to have the same meaning in both clauses. See King, 629 N.E.2d at 260-61 (court must apply "plain and obvious meaning of the language of the entire contract," presuming all provisions have a purpose and reconciling conflicting provisions). given that the second clause refers to the first to explain the relevant claim against which ILPEA is required to indemnify GenCorp, it incorporates the term "by a third party." The Court has already found that the term "third party" in the first clause excludes Stagg. Because that term excludes Stagg, the relevant claims in the second clause can only be claims by third parties other than Stagg.
GenCorp argues in the alternative that the parties' use of the term "third party" creates an ambiguity in the contract that requires consideration of extrinsic evidence, making dismissal under Rule 12(B)(6) inappropriate. That argument fails. There is no ambiguity in the contract because the plain language yields the meaning of the term. For an ambiguity to exist, the court must determine that reasonably intelligent people could find the disputed term or provision susceptible to differing constructions with opposing consequences. See Thomson Cons. Elec. v. Wabash Valley Ref. Rem'l, Inc., 682 N.E.2d 792, 794 (Ind. 1997); Samar, Inc. v. Hofferth, 726 N.E.2d 1286, 1290 (Ind.Ct.App. 2000). Nevertheless, a term or provision is not ambiguous "simply because a controversy exists between the parties concerning the proper interpretation of the terms." Samar, 726 N.E.2d at 1290. GenCorp's unique interpretation of "third party" does not create an ambiguity. Instead, the only construction that makes sense in the context of the indemnification provision as a whole is that Stagg is not among those potential plaintiffs the parties intended as "third parties," for purposes of defense and indemnity.
In the event its contractual indemnity argument fails, GenCorp argues that its complaint states a claim for common law indemnity. Under Indiana law, "[t]he right to indemnity may be implied at common law only in favor of one whose liability to a third person is solely derivative or constructive, and only against one who has by his wrongful act caused such derivative or constructive liability to be imposed upon the indemnitee." Indianapolis Power and Light v. Snodgrass, 578 N.E.2d 669, 671 (Ind. 1991). The Indiana Supreme Court also stated that, unless "an adequate express contract" provides for indemnity, "a party seeking indemnification from another must be free of fault." Id.
This language sets a standard for common law indemnity that GenCorp cannot meet. First, there are no allegations in GenCorp's Third-Party Complaint that ILPEA is the sole cause of all of the damage Stagg seeks to have remediated. In fact, GenCorp has attached to its complaint exhibits that include a copy of the complaint filed by Stagg against GenCorp, along with copies of all exhibits attached thereto. Third-Party Comp., Ex. 2. Those attachments include copies of the Lease Agreement entered between GenCorp and Stagg on June 30, 1998, that contains the previously-mentioned Punch List, and a copy of the Settlement Agreement dated January 11, 1999. Id. Contained in those documents is a chronicle of the dispute between GenCorp and Stagg about remediation of environmental, mechanical, structural and electrical harm at the Leased Premises, and the settlement reached to resolve the dispute. As a result, the pleadings establish that at least some of the harm Stagg wants remediated preceded ILPEA's entry into the Leased Premises, and arose during the time that only GenCorp used and occupied the property.
Although there is an express contract of indemnity between GenCorp and ILPEA, it does not provide for indemnification of GenCorp against claims by Stagg. Therefore, to succeed on a claim of implied indemnity, GenCorp must be free of fault. This means that GenCorp's potential liability to Stagg must be solely caused by ILPEA's use and occupancy of the Leased premises. In light of the fact that some of the harm being disputed is alleged to be caused by GenCorp, it does not follow that the claim against which GenCorp seeks common law indemnification is one for which its liability would be solely derivative. According to the parties' case management plan, signed by counsel for GenCorp and approved by this Court on December 13, 1999, GenCorp states that "a portion of Stagg's claims against GenCorp arise from ILPEA's use and occupancy of the Premises. . . ." Case Mgt. Plan, § III (emphasis added). The Court notes that this language reinforces its finding that some, but not all, of Stagg's claims allegedly arise from ILPEA's use and occupancy. It also indicates that GenCorp does not allege that its liability would derive solely from ILPEA's alleged wrongful acts. In light of GenCorp's allegations and the acknowledged pre-sublease damage to the premises, the Court finds that GenCorp's complaint fails to state a claim for common law indemnity.
Approaching this issue from another direction, the fact that GenCorp and ILPEA reached an agreement on indemnification in the sublease agreement precludes application of an implied right of indemnity. See Brown v. Mid-American Waste Sys., Inc., 924 F. Supp. 92, 94 (S.D.Ind. 1996). When a contract exists between the parties that specifically addresses the same subject matter as would be addressed by an implied contract, such as common law indemnity, it would be improper for the Court to imply additional terms. Id. Courts "do not sit to improve the bargains that parties freely negotiated." Id. For this reason as well the Court finds that GenCorp fails to state a claim for relief under a common law indemnity theory.
Finally, GenCorp argues that even if it is not entitled to a remedy under a contractual or common law indemnity legal theory, it still may implead ILPEA in this action on the basis of other obligations in the sublease agreement. Primarily those obligations derive from the covenants, which required ILPEA to operate the premises "in a proper and careful manner," including the lawful disposal of waste materials, maintenance of the asbestos compliance program, compliance with all applicable laws, and operations that do not overburden the structural, electrical, plumbing, heating, sewer or other components of the premises. Third-Party Comp., Ex. 1, Sublease Agrmt. § 5.02. The sublease also imposed a duty on ILPEA to make all repairs or replacements necessitated by its use of the premises, and to surrender the premises in as good condition as when received. Id. In addition, ILPEA was obligated to abide by certain environmental covenants, such as a prohibition on the use, storage or handling of any hazardous materials on the premises. Id. § 5.03(a). Correspondingly, GenCorp reserved the right to require ILPEA to reimburse it for all expenses reasonably incurred while making repairs or replacements that ILPEA was obligated to make pursuant to the sublease, if after fifteen days' notice, ILPEA failed to perform those obligations. Id. § 5.05(a). It also reserved the right to enter the premises at any reasonable time to provide services or make inspections relating to compliance with the sublease or applicable laws. Id. § 5.05(b).
Other provisions in the sublease agreement established that for ILPEA to fail to conform to the requirements of any covenant, if the failure continues for twenty days after GenCorp has given notice of the failure, would be an event of default. See id. § 11.01(c). In the case of a default, GenCorp could at its option perform any obligation of ILPEA under the sublease that ILPEA had failed to perform and of which GenCorp had given ILPEA written notice, and the cost of that performance would be deemed additional rent, payable on demand. Id. § 11.02(a). GenCorp could also choose to terminate the sublease and reenter the premises, removing all of ILPEA's property, or it could simply enter the premises and take possession from ILPEA, without prejudicing other remedy it may have. Id. § 11.02(b)-(c). Any costs or expenses incurred by GenCorp when enforcing its rights or remedies under the sublease were to be paid as additional rent by ILPEA. Id. § 11.02.
In its complaint, GenCorp alleges that no later than May 21, 1999, it forwarded a list of deficiencies in the condition of the premises to ILPEA and asked ILPEA to remedy the damages. Third-Party Comp. ¶ 11. After ILPEA refused to comply with GenCorp's request, GenCorp undertook the repairs itself at its own expense, and demanded reimbursement by ILPEA. Id. ¶ 12. GenCorp alleges that ILPEA "ignored and later rejected such demands." Id. Accordingly, GenCorp claims to have suffered and to continue to suffer damages as a result of ILPEA's alleged defaults, and prays for relief in the form of damages equal to any sum recovered by Stagg from GenCorp "relating to alleged damage or waste occurring to the Premises during the ILPEA tenancy." Third-Party Comp. at 5, Prayer for Relief. Thus, GenCorp claims that ILPEA has breached the sublease agreement by refusing to respond to Stagg's demands for remediation and GenCorp's demand for reimbursement of the costs of remediating the problems. Id. ¶ 16.
Based on these allegations and provisions of the sublease agreement, GenCorp has adequately put ILPEA on notice of its claim for breach of the lease contract, damages for which would correspond to the expenses incurred in repairing any damage to the premises caused by ILPEA's use and occupancy thereof. In addition, the parties have agreed to certain contractual remedies, such as the payment of attorney's fees and costs incurred by GenCorp when enforcing its rights. Third-Party Comp., Ex. 1, Sublease Agrmt. § 11.02. Although this alternative legal theory sounds in contract, it would provide a similar remedy to GenCorp as it would have gained through its indemnification claims, and certainly relates to the original action.
In reply, ILPEA argues first that GenCorp's breach of contract theory "presents a brand new argument not previously raised in or supported by the Third-Party Complaint." ILPEA's Reply at 6. Thus, ILPEA charges, GenCorp is attempting to amend its complaint through its brief in response to the motion to dismiss, which is not allowed. In essence, ILPEA claims it was not given adequate notice in the complaint of GenCorp's claim that ILPEA was in default of the sublease agreement, arguing that the "necessary pleading elements for alleging default" were not contained therein. Id. Having reviewed the Third-Party Complaint and its attachments, the Court is convinced that GenCorp satisfied the notice pleading requirements under the Federal Rules. ILPEA is incorrect that GenCorp's complaint must contain "necessary pleading elements," a practice that harkens back to pre-notice pleading days. Instead, the complaint need "contain only enough to allow the defendant to understand the gravamen of the plaintiff's complaint." Scott, 195 F.3d at 951. It does not need to "spell out every element of a legal theory to provide notice." Id. ILPEA argues that, despite the liberality of notice pleading, the complaint must "contain sufficient facts that do outline a cause of action." ILPEA's Reply at 3. According to ILPEA, neither a common law indemnity or breach of contract claim were asserted as part of GenCorp's complaint, nor were they "outlined . . . as causes of action." Id.
ILPEA misreads the notice pleading standard. According to the Seventh Circuit, a complaint "must at least set out facts sufficient to outline or adumbrate the basis of the claim." Kyle v. Morton High School, 144 F.3d 448, 456 (7th Cir. 1998) (citing Panaras v. Liquid Carbonic Indus. Corp, 74 F.3d 786, 792 (7th Cir. 1996)) (emphasis added). In other words, the complaint need not outline a "cause of action," or a specific legal theory, as long as it contains sufficient facts to put the defendant on notice of the basis of the claim. Here, GenCorp alleged the existence of a valid sublease agreement between itself and ILPEA, containing covenants that impose specific obligations on ILPEA. GenCorp also alleged specific conduct on the part of ILPEA that it claims breached those covenants and caused GenCorp to incur damages. Although the majority of GenCorp's allegations focused on facts that would support a claim under the contractual indemnity provision, there were enough allegations to give ILPEA fair notice of GenCorp's breach of contract claim and the grounds on which it rested. See Blanton v. City of Indpls., 830 F. Supp. 1198, 1201 (S.D.Ind. 1993). That is all the complaint must do to withstand a motion to dismiss under Rule 12(b)(6). Id.
For all of the reasons provided herein, ILPEA's motion to dismiss the Third-Party Complaint in its entirety is GRANTED, in part and DENIED, in part. With respect to GenCorp's breach of contract claim, the motion to dismiss is DENIED. However, because GenCorp failed to state a claim under a contractual or common law indemnity legal theory, the motion to dismiss is GRANTED with respect to the indemnity claims.