Payless Shoesource v. Travelers Companies, Inc.

• Decision Date: 10 November 2009
• Docket Number: No. 08-3246.,08-3246.
• Court: U.S. Court of Appeals — Tenth Circuit
• Parties: PAYLESS SHOESOURCE, INC., Plaintiff-Counter-Defendant-Appellant, v. The TRAVELERS COMPANIES, INC., formerly known as The St. Paul Travelers Companies, Inc., Defendant-Counter-Claimant-Appellee.

585 F.3d 1366

PAYLESS SHOESOURCE, INC., Plaintiff-Counter-Defendant-Appellant, v. The TRAVELERS COMPANIES, INC., formerly known as The St. Paul Travelers Companies, Inc., Defendant-Counter-Claimant-Appellee.

No. 08-3246.

United States Court of Appeals, Tenth Circuit.

November 10, 2009.

Mark F. Rosenberg of Sullivan & Cromwell LLP, New York, N.Y. (Michael J. Abrams and R. Kent Sellers of Lathrop & Gage LLP, Kansas City, MO, with him on the briefs), for Plaintiff-Counter-Defendant-Appellant.

Stephen M. Kerwick of Foulston Siefkin LLP, Wichita, KS, for Defendant-Counter-Claimant-Appellee.

Before O'BRIEN, SEYMOUR, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

This is a dispute over the meaning of a misplaced modifier. Travelers doesn't disagree that a critical modifying clause in the insurance policy it issued may be misplaced as a matter of good grammar. It argues, though, that the meaning of the document remains clear and clearly excludes coverage for Payless's claim. Payless replies that the (mis)placement of the modifying clause precludes Travelers' interpretation or at least renders the insurance policy's meaning ambiguous. At summary judgment, the district court rejected Payless's arguments and entered judgment for Travelers. Payless now seeks to have that ruling undone. But while misplaced modifiers are syntactical sins righteously condemned by English teachers everywhere, our job is not to critique the parties' grammar, but only, if possible, to adduce and enforce their contract's meaning. Here, a punctuation peccadillo notwithstanding, the meaning of the parties' contract is unambiguous. By operation of the plain terms of the agreement, Payless has no claim for coverage against Travelers, and so we affirm.

I

This insurance coverage dispute is the offspring of an earlier state class action lawsuit, and some appreciation of that earlier lawsuit is essential to understanding the one now before us. In 2003, a group of present and former Payless employees filed a class action against the company in California state court. Known for the lead plaintiff, Lorena Delgado, the class action suit charged that Payless unlawfully required hourly employees to work "off the clock" without compensation and did various other things proscribed by the California Labor Code, the California Business & Professions Code, and state common law. When Payless learned of the Delgado suit, it notified its insurer, Travelers, and asked the company to cover its litigation costs, as well as any eventual liability Payless might incur. Travelers responded by denying coverage, asserting that the violations of law alleged in Delgado fell outside the bounds of the policy's terms.

It is this denial of coverage that gives rise to our current case. After some wrangling, Payless settled with the Delgado plaintiffs for approximately $2.45 million, including roughly $1.3 million for class members and $900,000 for their attorneys. Payless then sued Travelers in Kansas state court seeking to recoup these costs and its costs of defending the suit. Travelers removed the case to federal court, noting the parties' diversity of citizenship, and each party eventually filed for summary judgment. In a thorough opinion, the district court granted Travelers' motion, denied Payless's, and entered a final judgment for Travelers. Payless now appeals that judgment, asking us to hold that the parties' insurance contract requires judgment in its favor, or at least precludes entry of judgment for Travelers.

II

We review appeals from a district court's decision to grant summary judgment de novo, and will affirm only if, viewing the facts in the light most favorable to the non-movant, we discern no genuine dispute of material fact in need of resolution by a factfinder and conclude that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In making our Rule 56 assessment in this diversity suit, the parties agree that the substantive law we must apply is Kansas law.

The central battleground on which the parties pitch this appeal is Exclusion A.3 of Payless's Employment Practices Liability Policy. That exclusion states that:

The Insurer shall not be liable for Loss on account of any Claim made against any Insured ... for an actual or alleged violation of the Fair Labor Standards Act (except the Equal Pay Act), the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act of 1985, the Occupational Safety and Health Act, the Employee Retirement Security Act of 1974, any workers' compensation, unemployment insurance, social security, or disability benefits law, other similar provisions of any federal, state, or local statutory or common law or any amendments, rules or regulations promulgated under any of the foregoing; provided, however, this exclusion shall not apply to any Claim for any actual or alleged retaliatory treatment on account of the exercise of rights pursuant to any such law, rule or regulation.

J.A. at 24-25 (emphasis added).

Travelers' argument for summary judgment proceeds in two movements. First, it submits that the language of this exclusion unambiguously precludes coverage not just for claims arising under the FLSA, as discussed in the exclusion's first clause, but also for claims involving violations of state laws that are "similar" to the FLSA, pursuant to the exclusion's final clause. Second, Travelers contends that the provisions of state law at issue in the Delgado suit are essentially state analogs to the FLSA and thus excluded from coverage because they are "similar." Payless, of course, vigorously contests both of these moves. In what follows, we consider in turn each of these steps and the parties' competing analyses of them.

A

Travelers begins by arguing that the only reasonable understanding of the plain language of Exclusion A.3 is that the "other similar provisions" phrase applies to and modifies all of the previously listed federal statutes. The policy thus does not require the indemnification of claims for the violation of any state or local law that is "similar" to any of the federal statutes previously mentioned. For its part, Payless contends this reading is anything but plain. At the very least, Payless argues, the "other similar provisions" clause might just as well modify only the clause immediately preceding it, rather than every preceding clause in the exclusion. Indeed, Payless submits, sound English grammar suggests that modifying clauses typically attach to the last antecedent, not earlier items, in a list. Applying this rule, Payless would have us read the contract to exclude from coverage only claims concerning violations of state laws that are similar to "workers' compensation, unemployment insurance, social security, or disability benefits law[s]," not those that are similar to any of the other listed federal statutes. In any event, Payless contends that any ambiguity about all this should be construed against Travelers, as the contract's drafter. And because Travelers only asserts that the allegedly violated state laws are similar to the FLSA (and not to federal workers' compensation, unemployment insurance, social security, or disability laws), Payless argues that the parties' contract guarantees coverage of its losses.

In interpreting a contract, our job is to ascertain and effectuate the parties' intentions whenever possible. See Ryco Packaging Corp. of Kan. v. Chapelle Int'l, Ltd., 23 Kan.App.2d 30, 926 P.2d 669, 674 (1996). Toward this end, under Kansas law we are obliged to ask in the first instance whether the contract, when viewed as a whole, is "clear and unambiguous." O'Bryan v. Columbia Ins. Group, 274 Kan. 572, 56 P.3d 789, 792 (2002). If it is, we are required to enforce the contract "in its plain, ordinary, and popular sense" as a matter of law. Id. Of course, if an ambiguity lurks in the parties' agreement, judgment as a matter of law may not be possible. But at the same time, we must take care to avoid "strain[ing] to create an ambiguity where, in common sense, there is none." First Fin. Ins. Co. v. Bugg, 265 Kan. 690, 962 P.2d 515, 519 (1998). After all, ambiguity exists "only ... where the meaning is genuinely uncertain" and only after we "give[ ] a reasonable and practical construction in light of the contract as a whole." Penncro Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151, 1155 (10th Cir.2007) (construing Kansas law). Applying these principles to the contract before us, we cannot say — at least not without some considerable straining — that the parties have left any uncertainty about their intentions. Several features of the agreement conspire to lead us to conclude that Payless's interpretation simply is not a plausible reading of the document.

First, in order for the "other similar provisions" clause plausibly to modify only the immediately preceding "workers' compensation" clause rather than all of the preceding clauses, as Payless suggests, one would expect a signal suggesting some connection between them. If, for example, the two clauses read "... or disability benefits law, and/or other similar provisions ...," Payless's interpretation might well be plausible. But the contract doesn't read that way. Without some such conjunction, the "other similar provisions" clause bears no more apparent relation to the immediately preceding "workers' compensation" clause than it does to any of the other preceding clauses.

Second, the "other similar provisions" clause is set off by a comma in much the same manner as every other separately enumerated item in the list, thus further indicating its independence from the "workers' compensation" clause. Lists commonly distinguish between separate items by the introduction of commas or semicolons, and that's exactly what we have here. Of course, if a comma or semicolon didn't separate the two clauses, Payless's suggestion that they...