Opinion
No. 6171–13.
05-08-2014
SUNOCO, INC., Sunoco, Inc. (R & M) and Atlantic Refining & Marketing Corp., Plaintiffs, v. JMR DEVELOPMENT COMPANY, LLC, Defendant.
John P. Englert and Ruth A. Rauls, of counsel, Saul Ewing LLP, Princeton, NJ, for Plaintiffs. Margaret J. Gillis and Christopher M. McDonald, of counsel, Whiteman Osterman & Hanna LLP, Albany, NY, for Defendant.
John P. Englert and Ruth A. Rauls, of counsel, Saul Ewing LLP, Princeton, NJ, for Plaintiffs.
Margaret J. Gillis and Christopher M. McDonald, of counsel, Whiteman Osterman & Hanna LLP, Albany, NY, for Defendant.
Opinion
RICHARD M. PLATKIN, J.
Defendant JMR Development Company, LLC (“JMR”) moves pursuant to CPLR 3211(a)(1) for dismissal of the complaint filed in this indemnification action by plaintiffs Sunoco, Inc. (“Sunoco”), Sunoco, Inc. (R & M) (“Sunoco R & M”) and Atlantic Refining & Marketing Corp. (“Atlantic R & M”).
BACKGROUND
From 1969 to 1985, Atlantic Richfield Company (“ARCO”) operated a retail gasoline station at 80 Nott Terrace, Schenectady, New York (“the Property”) pursuant to a certain lease agreement (“Lease”). On or about September 30, 1985, ARCO assigned the Lease to Atlantic R & M, which is alleged to be a wholly-owned subsidiary of Sunoco and an affiliate of Sunoco R & M. In or about 1986, JMR acquired the Property, subject to the Lease.
On or about January 29, 2008, JMR and Atlantic R & M entered into a lease termination agreement (“Lease Termination Agreement” or “Agreement”), which included the following release and indemnification provisions:
3. In consideration of its receipt of $20,000 from Tenant, the receipt and sufficiency of which is hereby acknowledged, Landlord, for itself and for its agents, attorneys, successors and assigns, intending to be legally bound hereby, does hereby RELEASE and FOREVER DISCHARGE Tenant, its parent, subsidiaries, affiliates, past and present directors, officers, employees, shareholders, agents, attorneys, successors and assigns (hereinafter individually and collectively referred to as the “Releasees”), from any and all debts, claims, demands, damages, losses, liabilities, rights, actions, causes of action, expenses, contracts, promises, judgments, awards, attorney fees, suits of any kind whatsoever, accrued or contingent, liquidated or unliquidated, known or unknown, and foreseen or unforeseen, in law or in equity (hereinafter collectively referred to as “the Claims”), which Landlord has or may claim to have against any of the Releasees, jointly and/or severely, from the beginning of the world up to the date of the execution of this Release, or which Landlord may now or may hereafter have by reason of any matter, cause or thing whatsoever which has occurred or which has been done, or suffered to be done, up to the time of the execution of this Release including, without limitation, any and all claims arising directly or indirectly from or in any way related to or connected with said Lease. Landlord hereby represents and warrants to the Releasees that it has not heretofore assigned or transferred or purported to assign or transfer any of the Claims to any person, firm, corporation, or other legal entity.
4. By executing this Agreement, Landlord agrees to indemnify and hold harmless Releasees from any and all claims, demands causes of action, and attorney fees that may be incurred or suffered by Releasees as a result of any breach or nonperformance by Landlord under this Release or as a result of the assertion of any Claim (as defined above) by anyone at anytime.
On or about the same date, JMR conveyed the Property to Union Graduate College (“Union”). By the summer of 2008, Union allegedly began incurring investigation and remediation costs arising from petroleum contamination on the Property. On or about July 16, 2010, Union filed a Navigation Law action against ARCO and Sunoco in Supreme Court, Schenectady County (the “Union Action”). On or about November 22, 2010, Sunoco tendered to JMR a demand for defense and indemnification under the Agreement, which JMR refused. In May 2013, Sunoco R & M and Atlantic R & M were joined as defendants in the Union Action.
In addition, JMR commenced an action in this Court against the law firm of Carter, Conboy, Case, Blackmore, Maloney & Laird, P.C. (“Firm”). In an amended complaint filed on or about May 7, 2013, JMR alleges that the Firm committed legal malpractice with respect to advice given in connection with the Agreement. Specifically, JMR complains that the Firm was negligent in failing to “know the meaning and import of the release and indemnification provision in the lease termination agreement....”
By this action, plaintiffs seek a declaration that the Agreement requires JMR to defend and indemnify them in the Union Action. In moving for dismissal under CPLR 3211(a)(1), JMR argues that this claim is conclusively defeated by the terms of the Agreement. With respect to indemnification, JMR contends that the term “Claim”, as used in paragraphs 3 and 4 of the Agreement, is limited to claims that JMR has (or may allege to have) against plaintiffs, and the term does not encompass the claims of a third party, such as Union. Relatedly, JMR argues that a “Claim” must have accrued prior to the January 29, 2008 execution of the Agreement, and the claim in the Union Action accrued after such date. Finally, JMR argues that the Agreement does not, in any event, impose a duty of defense.
ANALYSIS
“Under CPLR 3211(a)(1) dismissal is warranted if documentary evidence conclusively establishes a defense as a matter of law” (Haire v. Bonelli, 57 AD3d 1354, 1356 [3d Dept 2008], citing Beal Sav. Bank v. Sommer, 8 NY3d 318, 324 [2007];see Angelino v. Freedus, D.D.S., P.C., 69 AD3d 1203 [3d Dept 2010] ).
In interpreting the Lease Termination Agreement, the Court must be “guided by basic principles of contract interpretation which instruct that a contract should be construed to give effect to the parties' intent as gleaned from the four corners of the document itself, provided that its terms are clear and unambiguous” (Elmira Teachers' Assn. v. Elmira City School Dist., 53 AD3d 757 [3d Dept 2008] ). “[A] contract should be interpreted according to its plain and ordinary meaning and in such a manner as to give effect to all of its provisions” (id.; see TAG 380, LLC v. ComMet 380, Inc., 10 NY3d 507 [2008] ). In so doing, it is “important to read the document as a whole to ensure that excessive emphasis is not placed upon particular words or phrases” (South Rd. Assoc., LLC v. International Bus. Machs. Corp., 4 NY3d 272, 277 [2005] ). Whether an agreement is ambiguous is a question of law for the Court (see Van Wagner Adv. Corp. v. S & M Enters., 67 N.Y.2d 186, 191 [1986] ). The test of ambiguity is whether the language in question is “susceptible of two reasonable interpretations” (Essex Ins. Co. v. Pingley, 41 AD3d 774, 776 [2d Dept 2007).
While the release and indemnification provisions of the Agreement cannot be said to be a model of drafting clarity, the Court concludes, for the reason that follow, that they are susceptible to only one reasonable interpretation: that the term “Claims” is limited to claims that JMR has (or may claim to have) against plaintiffs that accrued prior to execution of the Agreement. Accordingly, the indemnification provisions of paragraph 4 of the Agreement do not extend to the Union Action, which involves the claims of a third party.
The Court begins, as it must, with the text of the Agreement. As pertinent here, JMR's obligation to indemnify under paragraph 4 is limited to “Claims”, a term defined in paragraph 3. “Claims” first appears following the enumeration of the various types of liabilities, debts and obligations encompassed by JMR's release, but prior to the language limiting the scope of the release to: (1) claims that JMR has (or may allege to have) against plaintiffs; and (2) claims that accrued prior to execution of the Agreement. As the defined term “Claims” precedes the language limiting the scope of the release (hereinafter “Limiting Language”), plaintiffs argue that the term “Claims” cannot be read to encompass the limitations.
While plaintiffs would have the better of the argument if the Court were to view the placement of the defined term “Claims” strictly in isolation, that would not be proper. “Particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby” (Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524 [1927] ). When the Agreement is read as a whole and due regard is given to the text, structure and purpose of the entire Agreement, the circumstances of the contracting parties and their reasonable expectations, it is apparent that the term “Claims” must be understood to incorporate the Limiting Language.
As interpreted by plaintiffs, paragraph 4 of the Agreement would subject JMR to an unlimited and open-ended indemnification obligation. By reading the Limiting Language out of the term “Claims”, JMR would be obliged to “to indemnify and hold harmless Releasees from any and all claims, demands causes of action, and attorney fees that may be incurred or suffered by Releasees ... as a result of the assertion of any” (¶ 4) “debts, claims, demands, damages, losses, liabilities, rights, actions, causes of action, expenses, contracts, promises, judgments, awards, attorney fees, suits of any kind ... in law or in equity” (¶ 3) “by anyone at any time”
(¶ 4). Thus, under plaintiffs' proposed interpretation, indemnification would not be limited to claims pertaining to the Lease, the Property, the Lease Termination Agreement and/or JMR, and there would no temporal limitation on the indemnification obligation.
When the entire Agreement is read as a whole and the circumstances of the contracting parties are considered, it is evident that the parties could not reasonably have intended such an interpretation. In connection with an agreement for the early termination of a lease and in exchange for modest stated consideration, the landlord (JMR) gave a release to the tenant (Atlantic R & M) and certain related parties (Sunoco and Sunoco R & M) that was limited to claims that the landlord may possess against the released parties and further limited to events predating the lease termination. In that connection, the landlord agreed to indemnify the released parties for claims arising from the landlord's breach of the termination agreement and “from any and all claims ... as a result of the assertion of any Claim (as defined [in the preceding release paragraph] ) by anyone at anytime” (¶ 4).
By following the ordinary term “claims” with the defined term “Claims”, it is apparent that the parties intended to incorporate the Limiting Language into the indemnification provision so as to constrain JMR's otherwise unqualified obligation to indemnify plaintiffs against any “claims” asserted “by anyone at anytime”. Plaintiffs' proposed interpretation would leave the use of “Claims” in paragraph 4 mere surplusage, a construction that is to be avoided (Beal Sav. Bank v. Sommer, 8 NY3d 318, 324 [2007] ). It would also lead to the absurd conclusion that JMR agreed to indemnify a large oil company and “its parent, subsidiaries, affiliates, past and present directors, officers, employees, shareholders, agents, attorneys, successors and assigns” for any liability to anyone at any time. Such an obligation could not have been within the reasonable expectations of the parties contracting for the early termination of a ground lease (see Currier, McCabe & Assoc., Inc. v. Maher, 75 AD3d 889, 891–892 [3d Dept 2010] ; Tougher Heating & Plumbing Co. v. State of New York, 73 A.D.2d 732, 733 [3d Dept 1979]Matter of Lipper Holdings v. Trident Holdings, 1 AD3d 170, 171 [1st Dept 2003] ).
Plaintiffs' expansive interpretation of “Claims” in paragraph 4 would also run counter to settled law holding that a contractual indemnity “obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed” (Lafleur v. MLB Indus., Inc., 52 AD3d 1087, 1088 [3d Dept 2008] [internal quotations and citations omitted]; see also Fresh Del Monte Produce N.V. v. Eastbrook Caribe A.V.V., 40 AD3d 415, 418 [1st Dept 2007] [“the scope of the indemnification ... must be unmistakably clear” [internal quotations omitted] ).
Additional support for defendant's reading of the Agreement is found in the last sentence of paragraph 3, by which JMR warranted and represented “that it has not heretofore assigned or transferred or purported to assign or transfer any of the Claims to any person, firm, corporation, or other legal entity.” As JMR could only transfer or assign claims that it “has or may claim to have”, the use of “Claims” here provides further evidence of the parties' intention to incorporate the Limiting Language into the defined term. Relatedly, the fact that JMR could have breached the warranty of paragraph 3 by transferring or assigning released Claims to a third party gives meaning and effect to the final words of paragraph 4, which require JMR to indemnify plaintiffs for covered claims brought “by anyone at anytime”. Thus, indemnification is available where JMR's breach of the release or any other provision of the Lease Termination Agreement subjects plaintiffs to liability, regardless of whether that liability is to plaintiff or a third party.
Based on the foregoing, the Court concludes that the interpretation of the indemnification obligation advanced by plaintiffs—that JMR assumed a perpetual, unlimited obligation to indemnify large oil companies from “all claims, demands causes of action, and attorney fees that may be incurred ... by anyone at anytime” in the context of an early termination of a ground lease—is not reasonable and could not have been intended. The only reasonable interpretation of the Agreement is the one proffered by defendant: that the use of the defined term “Claim” in paragraph 4 was intended to incorporate the Limiting Language of paragraph 3.
In reaching the foregoing conclusions, the Court has considered plaintiffs' reliance on JMR's complaint in the legal malpractice action, but finds that line of argument unavailing. The merits of the alleged malpractice were not passed upon by the Court in the prior motion practice, and it seems clear that the malpractice action was commenced by JMR as a contingent, protective measure in the event of an unfavorable ruling with regard to the defense and indemnification issues raised herein (see CPLR 214[6] ).
Accordingly, it is ORDERED that defendant JMR's motion to dismiss is granted; and it is further
The Court has considered the parties' remaining arguments and contentions, including the parties' dispute as to whether the Agreement imposes a duty of defense, but finds them unavailing or unnecessary to reach given the disposition ordered herein.
ORDERED that the complaint is dismissed in all respects.
This constitutes the Decision and Order of the Court. The original Decision and Order is being returned to counsel for defendant JMR Development Company, LLC; all other papers are being transmitted to the Albany County Clerk. The signing of this Decision and Order shall not constitute entry or filing under CPLR Rule 2220, and counsel is not relieved from the applicable provisions of that Rule.
Papers Considered:
Notice of Motion, dated February 28, 2014;
Affirmation of Margaret J. Gillis, Esq,. dated February 28, 2014, with attached exhibits A–C;
Defendant's Memorandum of Law, dated February 28, 2014;
Affirmation of Ruth A. Rauls, Esq., dated March 20, 2014, with attached exhibits A–D;
Plaintiffs' Memorandum of Law, dated March 20, 2014;
Reply Affirmation of Margaret J. Gillis, Esq,. dated March 27, 2014, with attached exhibits A–D;
Defendants' Reply Memorandum of Law, dated March 27, 2014.