Nova v. Penske

Decision Date25 July 2008
Docket NumberNo. 68, September Term, 2007.,68, September Term, 2007.
Citation952 A.2d 275,405 Md. 435
PartiesNOVA RESEARCH, INC., et al. v. PENSKE TRUCK LEASING CO., L.P.
CourtCourt of Special Appeals of Maryland

David A. Skomba (Tamara B. Goorevitz and Colin Bell of Franklin & Prokopik, P.C., Baltimore), on brief, for respondent.

Argued before BELL, C.J.,* RAKER, HARRELL, BATTAGLIA, GREENE, ALAN M. WILNER (Retired, specially assigned), DALE R. CATHELL (Retired, specially assigned), JJ.

RAKER, J.

In this case requesting declaratory relief, we review the trial court's construction of a rental agreement between Penske Truck Leasing Co., L.P. (Penske) and Nova Research, Inc. (Nova). The question presented in this appeal is whether the contract provision for indemnification includes first party attorney's fees, where the contract language does not provide expressly for the recovery of attorney's fees. We are asked also to decide whether, subsequent to the declaratory judgment in favor of indemnification, Penske's applications filed for costs and expenses were submitted properly to the trial court pursuant to Maryland Code (1974, 2006 Repl. Vol.), § 3-412 of the Courts & Judicial Proceedings Article.1 We shall hold that Penske's applications were submitted properly, but that attorney's fees in the present action establishing the right to indemnification are not recoverable.

I.

In 2001, petitioner Nova contracted to rent a tractor and trailer from respondent, Penske, under two identical rental agreements. The agreements obligated Penske to provide liability protection in the form of supplemental liability insurance.2 The provision provides as follows:

"[Penske] shall, at its sole cost, provide liability protection for Customer and any operator authorized by Penske, and no others ... in accordance with the standard provisions of a Basic Automobile Liability Insurance Policy as required in the jurisdiction in which Vehicle is operated, against liability for bodily injury, including death, and property damage arising out of the ownership, maintenance, use and operation of Vehicle as permitted by this agreement, with limits as follows:

.... [P]rimary coverage of $100,000 each person, $300,000 each accident for bodily injury, including death, and $25,000 each accident for property damage."

The provision went on to state as follows:

"Customer shall indemnify, and hold harmless, Penske, its partners, and their respective agents, servants and employees, from and against all loss, liability and expense as a result of bodily injury, death or property damage caused by or arising out of the ownership, maintenance, use or operation of Vehicle, but, if `Penske Provides L.P.' is initialed or is otherwise applicable, and Customer is in compliance with its obligations to Penske under this Agreement, Customer's indemnification and hold harmless obligation hereunder shall be in excess of the liability protection expressly required to be provided by Penske under this Agreement."

An additional clause, entitled "Customer's Responsibilities; Refueling Service Charges; Breakdown Expenses," states further, in pertinent part, as follows:

"Customer shall: (A) indemnify, and hold harmless Penske, its partners, and their respective agents, servants and employees, from and against all loss, liability and expense caused or arising out of Customer's failure to comply with the terms of this Agreement."

The effect of these provisions is to provide insurance up to the provided for limits, but not beyond that, where Nova was in compliance with its obligations under the contract, but for Nova to indemnify and hold harmless Penske if Nova failed to comply with the agreement terms.

On May 24, 2002, the rental vehicle was involved in a fatal accident in Texas, where both vehicles involved were destroyed and both drivers killed. The State of Texas charged Penske with the expenses incurred in investigating the accident, as well as environmental cleanup and remediation costs. In December 2002, Nova's primary insurer, Fireman's Insurance Company, filed a declaratory judgment action in Texas, naming Nova and Penske as defendants, seeking to determine that Penske was obligated to provide liability insurance under the rental agreements. Within a week, Penske filed a request for declaratory relief against Nova and Fireman's Insurance in the Circuit Court for Prince George's County, Maryland, asserting that Nova had breached the agreement by using a non-permissive driver and asserting that Nova was obligated to indemnify Penske for any expenses incurred as a result of the accident. In June 2003, the Texas lawsuit was dismissed on the grounds of forum non conveniens. Penske was not a named party in a subsequent wrongful death suit filed against Nova in Texas.

In the Maryland declaratory judgment action, both parties filed motions for summary judgment. After a hearing, the Circuit Court for Prince George's County found that Nova breached the terms of the rental agreements and issued an Order on October 16, 2003, declaring, in part, as follows:

"[I]t is further ordered, adjudged and declared that Plaintiff Penske Truck Leasing Co., L.P., is entitled to full indemnification from the Defendant... for any claims arising out of said loss... and that Penske, having established its right to coverage and indemnity, is entitled to its costs and expenses in the subject action."

Nova filed a motion to alter or amend the judgment and Penske filed a request for Application for Costs and Expenses, seeking a total of $91,979.18, to cover the investigation of the accident, environmental clean up and remediation, attorney's fees in defense of the Texas action, and attorney's fees in the Maryland declaratory judgment action Penske brought against Nova and Fireman's. Nova then filed a third party complaint against Penske's insurer, Old Republic Insurance Company, and Penske filed a motion to dismiss the third party complaint. On March 8, 2004, the Circuit Court denied Penske's application for costs, struck the third party complaint, and denied Nova's motion to alter or amend the finding of summary judgment for Penske. Nova noted a timely appeal to the Court of Special Appeals contesting the trial court's grant of summary judgment. Penske filed a cross-appeal regarding the denial of its application for costs.

The Court of Special Appeals, in an unreported opinion, affirmed the declaratory judgment, but vacated the denial of the Application for Costs and Fee and remanded for further proceedings. On remand, Penske filed a Supplemental Application for Costs and Expenses, seeking an additional $84,162.46, which included additional investigation costs of the accident, the destruction of the tractor and trailer, and additional attorney's fees for both the Texas and Maryland litigation.

The trial court issued a written decision denying the application for costs and expenses. The Circuit Court observed that "[t]here is no argument as to whether Penske is entitled to indemnification arising out of the breach. The only issue is whether indemnification encompasses attorney's fees accumulated in anticipation of the wrongful death litigation." Treating Penske's application as a request for attorney's fees in a first party action, the Circuit Court determined that the American Rule applied and the contract indemnification clause did not serve as a fee-shifting provision. The court supported its reasoning by examining Shan Industries, LLC v. Tyco International (US), Inc., No. Civ. 04-1018, 2005 WL 3263866 (D.N.J. Nov. 30, 2005), an unreported federal district court order, where the district court found that an indemnification clause did not encompass attorney's fees in first party actions, and U.S. Fid. & Guar. Co. v. Braspetro Oil Servs. Co., 369 F.3d 34, 77 (2d Cir.2004). The Circuit Court found also that the insured exception to the American Rule in Bausch & Lomb v. Utica Mutual, 355 Md. 566, 735 A.2d 1081 (1999), did not apply to insurers or in first party liability cases.

Penske noted a timely appeal. The Court of Special Appeals reversed the decision of the trial court. First, the intermediate appellate court noted a distinction in Penske's application between the request for attorney's fees and the request for other consequential expenses arising out of the accident, "including property losses and the expenses of environmental cleanup and accident investigation." The Court of Special Appeals held that Penske was entitled to both. The court reasoned that, as to attorney's fees, the contract exception to the American Rule applied. As to the issue of other accident-related costs, the Court of Special Appeals held that there was no bar to Penske's recovery of these expenses.

We granted certiorari to address the following questions submitted by Nova:

"Is it desirable, or in the public interest, for this Court to address whether first party attorney's fees should be awarded as a matter of public policy in a suit for contractual indemnity when there is no fee shifting provision in the subject contract and without regard to the nature of whether the indemnity is first party damages or as a result of third party litigation.

"Is it desirable, or in the public interest, for this Court to define and determine the extent of continuing jurisdiction for `Applications' under Maryland's Declaratory Judgment Act, C&J P Art., and section 3-412. Further relief, and

a. Assuming that such jurisdiction exists, what rules, standards and procedural protections should a circuit court use with respect to Applications for `necessary and proper' further relief, and,

b. Whether the statute of limitations applies to Applications for further relief."

Nova v. Penske, 401 Md. 172, 931 A.2d 1095 (2007).

II.

Petitioner argues that the Court of Special Appeals erred in reading a fee shifting provision into the...

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