Caldwell Tanks, Inc. v. Haley & Ward, Inc.

• Decision Date: 08 December 2006
• Docket Number: No. 06-1697.,06-1697.
• Citation: 471 F.3d 210
• Parties: CALDWELL TANKS, INC., Plaintiff, Appellee, v. HALEY & WARD, INC., Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

471 F.3d 210

CALDWELL TANKS, INC., Plaintiff, Appellee, v. HALEY & WARD, INC., Defendant, Appellant.

No. 06-1697.

United States Court of Appeals, First Circuit.

Heard November 8, 2006.

Decided December 8, 2006.

COPYRIGHT MATERIAL OMITTED

Warren D. Hutchison, with whom David J. Hatem, Jeffrey W. Hallahan, and Donovan Hatem, LLP, were on brief, for Appellant.

Charles E. Schaub, Jr., with whom Hinckley, Allen & Snyder LLP, Robert M. Connolly, Anne E. Gorham, Mark W. Leach, and Stites & Harbison, PLLC, were on brief, for Appellee.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

A federal jury ruled against Caldwell Tanks, Inc., the builder of a water tank, in an action it had instituted against Haley & Ward, Inc. (Haley), the engineer on the water tank project. Haley had counterclaimed for indemnification of its expenses in defending against the action brought by Caldwell, relying on a broadly worded indemnity agreement that ran from Caldwell as builder, to both the water tank owner, the Buzzards Bay Water District, and Haley as project engineer. The jury, which had been properly instructed, found for Haley on the counterclaim and awarded $175,000 to Haley, thus reimbursing Haley for defense costs that indemnitor Caldwell had forced it to incur.

The district court vacated the jury verdict for Haley on the counterclaim. See Caldwell Tanks, Inc. v. Tnemec Co., 417 F.Supp.2d 179, 182-83 (D.Mass.2006). The court held as a matter of law that under Massachusetts law there could be no indemnity from Caldwell to Haley unless the agreement specified an express intent to permit such indemnification in indemnitor-indemnitee litigation. Id. at 182. The court also recognized that its decision might well have been otherwise if Haley's defense costs had been incurred in response to a third-party claim against Haley for its work on the project. Id. at 182-83.

Haley appeals from the district court's judgment. To date, there are no Massachusetts appellate court decisions precisely on point. The question before us does not concern all disputes between indemnitors and indemnitees. It is limited to whether Massachusetts courts have adopted a rule that an indemnity agreement must contain an express statement — that the contract governs costs and attorney's fees incurred by an indemnitee in defense of unsuccessful claims brought by its indemnitor — in order to depart from the normal American rule that each party bears its own attorney's fees in litigation, win or lose. See Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 257, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975); Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967).

We hold that Massachusetts has not adopted any such rule, and so reverse. We have no need to address what special rules Massachusetts might apply to the construction of indemnity agreements in other fact settings.

I.

Pursuant to a contract dated August 29, 2000 (the Contract), Caldwell served as the general contractor on a project to construct a one-million-gallon elevated steel water tank for the Buzzards Bay Water District in Buzzards Bay, Massachusetts. Pursuant to a separate contract with the Water District, Haley served as project engineer.

On August 24, 2001, after the water tank had been erected, Haley and the Water District, among others,¹ attended a "test patch meeting" to determine whether the tank was ready to be painted. Tests performed at the meeting revealed the presence in certain areas of a black substance between the raw steel of the tank and the primer with which it had been coated. A number of attendees stated that they believed the substance to be mill scale, a substance that forms on steel during production, which Caldwell should have removed and which would interfere with the adhesion of the paint and primer to the tank. Thereafter, Haley stated to Caldwell that the tank surface did not meet the Contract specifications to which Caldwell had agreed. Haley requested that Caldwell remove the black substance and reprime the tank before it was painted. Eventually, Caldwell agreed to do so, without admitting liability.

On September 10, 2003, Caldwell sued Haley for negligent misrepresentation, claiming that Haley had failed to exercise reasonable care in determining and communicating to the involved parties that the black substance was mill scale.² In essence, Caldwell's suit alleged that the problem was not mill scale at all, and was not Caldwell's fault. Caldwell's argument was that the black substance had been caused by the primer that Haley had required Caldwell to use, and that in any event the substance did not compromise the integrity of the tank's surface coatings and therefore did not need to be removed.

Haley asserted a counterclaim for indemnification of its defense costs and any judgment rendered against it based on section 19.1 of the Contract, an indemnity clause that provides:

The CONTRACTOR [Caldwell] will indemnify and hold harmless the OWNER [the Water District] and the ENGINEER [Haley] and their agents and employees from and against all claims, damages, losses and expenses including attorney's fees arising out of or resulting from the performance of the Work, provided that any such claims, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property including the loss of use resulting therefrom; and is caused in whole or in part by any negligent or willful act or omission of the CONTRACTOR, and SUB-CONTRACTOR, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable.

The case was tried before a federal jury in the District of Massachusetts. Both Caldwell and Haley moved for directed verdicts. The motions were denied and the case was submitted to the jury. The district court instructed the jury on the indemnification counterclaim as follows:

[I]f you find that Haley & Ward is entitled to indemnification from Caldwell, you must determine how much that indemnification will be. Pursuant to the contract, indemnification is to include an amount for all claims, damages, losses and expenses arising out of or resulting from the Buzzards Bay project, including attorney's fees.

Caldwell did not object to these instructions. The jury returned a verdict for Haley as defendant on the negligent misrepresentation claim and for Haley as claimant on the indemnification counterclaim, and awarded Haley $175,000, the sum of its defense costs, in expenses.³ The jury did not, of course, address the question of whether if Caldwell had been successful in its suit against Haley the Contract entitled Haley to indemnification.

Caldwell then moved under Rule 50(b) for a judgment notwithstanding the verdict on Haley's indemnification counterclaim, arguing that under Massachusetts law indemnity clauses do not apply to inter se litigation unless they expressly state otherwise.⁴ The district court allowed the motion. Caldwell Tanks, 417 F.Supp.2d at 183. The court concluded that "there is no right to indemnification of claims between an indemnitor and indemnitee unless the contract expressly contemplates such entitlement." Id. at 182. It based this conclusion on its reading of cases applying Massachusetts law and its own reasoning that

[w]here indemnification is sought in the context of indemnitor-indemnitee litigation, courts generally require that the provision demonstrate a specific intent by the parties that the indemnity operate in that context.

In this case, although the subject indemnity is broad enough to encompass indemnification of a claim brought by Caldwell against Haley, the contract bears no explicit indicia that the parties intended that interpretation. Indeed, if the provision is deemed to entitle Haley to indemnification of claims brought by Caldwell, it would just as likely also apply to opposing claims brought by Haley against Caldwell, which would surely violate the principle that a party seeking to enforce its rights against a wrongdoer is nevertheless responsible for its own attorney's fees.

Id. The court in essence held that Massachusetts law has adopted a rule that for an indemnification clause to apply in disputes between indemnitors and indemnitees, the contract must bear "explicit indicia" that the parties intended such an interpretation. See id.

Haley appeals, arguing that Massachusetts law does not require explicit language to enforce indemnity agreements in inter se litigation, and that the indemnity clause of the Contract permits the recovery of its costs in this case.

II.

A district court may grant a Rule 50 motion only when "after examining the evidence and all reasonable inferences therefrom `in the light most favorable to the nonmovant,' it determines that `the evidence could lead a reasonable person to only one conclusion,' favorable to the movant." Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1556 (1st Cir.1994) (quoting Gallagher v. Wilton Enters., Inc., 962 F.2d 120, 124 (1st Cir.1992)); see also Fed.R.Civ.P. 50(a)(1) ("If . . . a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue, the court may determine the issue against that party and may grant a motion for judgment as a matter of law . . . ."). Since the court's ruling turned entirely on an issue of law, our review is de novo. Alvarez-Fonseca v. Pepsi Cola of P.R. Bottling Co., 152 F.3d 17, 23 (1st Cir.1998) ("We review de novo a district court's decision to grant a motion under Rule 50 for judgment as a matter of law.").

Under Massachusetts law, where material facts are not in dispute, interpretation of an indemnity clause is an issue of law. Post v. Belmont Country Club, Inc., 60 Mass.App.Ct. 645, 805 N.E.2d 63, 67 (2004). True...