Goodwin v. George Fischer Foundry Systems, Inc.

• Decision Date: 26 August 1985
• Docket Number: No. 84-7241,84-7241
• Citation: 769 F.2d 708
• Parties: John GOODWIN, Jr., Lois Goodwin, the Mead Corporation, Plaintiffs-Appellees, v. GEORGE FISCHER FOUNDRY SYSTEMS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 708

769 F.2d 708

John GOODWIN, Jr., Lois Goodwin, the Mead Corporation Plaintiffs-Appellees, v. GEORGE FISCHER FOUNDRY SYSTEMS, INC., Defendant-Appellant.

No. 84-7241.

United States Court of Appeals Eleventh Circuit.

Aug. 26, 1985.

James E. Clark, Birmingham, Ala., for defendant-appellant.

Stephen D. Heninger, Birmingham, Ala., for Goodwins.

Tony G. Miller, Cathy S. Wright, Birmingham, Ala., for Mead Corp.

Appeal from the United States District Court for the Northern District of Alabama.

Before KRAVITCH, CLARK and PECK, ^* Circuit Judges.

CLARK, Circuit Judge:

I. FACTS

In this diversity case, appellant, George Fischer Foundry Systems, Inc. (GFFS), appeals from a ruling by the district court dismissing its counterclaim seeking contractual indemnity. GFFS sought indemnity for its loss or liability to John Goodwin, Jr. from his employer, The Mead Corporation (Mead). Goodwin suffered severe burns arising out of the use of a Fischer converter furnace, sold by GFFS to Mead. Mead intervened in this case, and aligned itself with Goodwin, to recover workmen's compensation benefits paid by Mead to Goodwin, its injured employee.

GFFS claims to be expressly and contractually entitled to indemnity from Mead, pursuant to a sublicense agreement executed between GFFS and Mead in 1975. The agreement among other things provided that:

Sublicensee hereby agrees to indemnify GFFS harmless of, from and against and to defend any and all claims, demands, losses, liabilities, damages and lawsuits for loss or damage to property or death or injury to persons arising out of the use of the process or equipment by a sublicensee.

Another section of the sublicense agreement stated, "This agreement is made in and shall be governed by the laws of the state of Michigan." At the time that the sublicense agreement was executed, the prevailing law in Michigan, as in all of the states other than New Mexico, permitted recovery under an express contract of indemnity between employer and a third party sued, as here, by the injured employee.

Plaintiff, John Goodwin, Jr., sustained his injury in May of 1977, while working on the premises of his employer, Mead, and while using, in the process of his work, a converter furnace manufactured by GFFS. He was severely burned when the machine exploded. He filed this action on April 3, 1978 against GFFS in the circuit court for the Tenth Judicial Circuit of Alabama. In September of 1979, Mead, as plaintiff-intervenor, filed a complaint in intervention, maintaining that pursuant to its obligations under the Alabama Workmen's Compensation Act, as Goodwin's employer, it had paid him substantial workmen's compensation benefits on account of his injury sustained during his employment and demanding judgment reimbursing it for the amount of compensation already paid by Mead to Goodwin. GFFS then filed a counter-claim against Mead on the basis of the indemnity sublicense agreement set forth above. The case was subsequently removed to the United States District Court for the Northern District of Alabama at the request of the defendant. After the case was removed to federal court, Mead filed an answer to the counter-claim of GFFS for indemnity which was treated by the court as a motion to dismiss. The basis of this motion was a case decided by the Supreme Court of Alabama on March 10, 1978, Paul Krebs & Assocs. v. Matthews & Fritts Construction Company, Inc., 356 So.2d 638 (Ala.1978). In Paul Krebs & Assocs., the Alabama Supreme Court held that an employer's statutory immunity from suit under the Workmen's Compensation Act on account of injury to employees protects an employer from liability to third parties seeking indemnity under contractual provisions for claims arising out of injuries sustained by employees of the employer/indemnitor.

The district court granted Mead's motion to dismiss the counter-claim. The district court stated:

The contract states that it "shall be construed and governed by the laws of the State of Michigan," which laws appear to enforce such indemnification provisions, workmen's compensation payments notwithstanding. It is undisputed that Alabama law, by judicial interpretation of Code of Alabama Sec. 25-5-53 (1975), fashions workmen's compensation as the exclusive remedy by any party against an employer, regardless of contract indemnity provisions to the contrary. Paul Krebs & Assocs. v. Matthews and Fritts Const., 356 So.2d 638 (Ala.1978). The question is whether Alabama public policy in this area is sufficiently strong to override the parties' choice of Michigan law. The chosen law will be refused only to protect a fundamental policy of Alabama, and only if Alabama has a materially greater interest than Michigan in the determination of the particular issue.... In this instance, Krebs and its progeny, by interpreting an ambiguous, and nationally anomalous, statutory provision as overriding explicit contractual indemnity clauses, exhibit a consistent policy on the part of Alabama in favor of workmen's compensation as the sole remedy against employers. The statute itself evinces intent on the part of the legislature to create an exclusive workmen's compensation scheme to govern suits against employers. Moreover, Alabama's interest in preserving this exclusive scheme is far greater than Michigan's remote relationship to this action. Compliance with local law is critical to an orderly and uniform system for compensating industrial accidents. The indemnity claim by GFFS fails as violative of a fundamental Alabama public policy and is due to be DISMISSED.

Record at 95-96 (citations omitted).

After trial was commenced, plaintiffs' claims against the several defendants were dismissed with prejudice pursuant to a settlement agreement by the parties. In the judgment of dismissal, the district court stated:

It is further ORDERED that this Court's order dismissing the counterclaim of defendant, George Fischer Foundry Systems, Inc., against the Mead Corporation hereby becomes final.

GFFS filed a notice of appeal from that order. Appellant raises the following issue on appeal:

Whether the district court's determination that the Alabama Workmen's Compensation Statute, as interpreted by the Supreme Court of Alabama in Paul Krebs & Assocs., creates a public policy in Alabama sufficiently storng to bar the indemnity provision of the sublicense agreement between GFFS and Mead, notwithstanding the legality of the indemnity provision under the laws of Michigan and the agreement between the parties to apply Michigan law to any dispute. ¹

II. THE LEGAL ISSUE IN CONTEXT

A. The Role of the Federal Court in Diversity Cases

At the outset, several introductory principles should be mentioned. Pursuant to the mandate of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) a federal court in a diversity case is required to apply the law of the state in which the federal court sits. This applies equally to the conflict laws prevailing in the state in which the court sits. Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Thus, a federal court sitting in diversity should, whenever possible, "reach the same result as the state court would reach in deciding the identical issue." See Trimper v. Nationwide Insurance Co., 540 F.Supp. 1188 (D.S.C.1982). Therefore, we are required, as was the district court, to function as an Alabama court in deciding the issue presented in this case.

B. The Law Regarding Indemnity Provisions

In every state except Alabama, ² indemnity provisions, such as the one at issue here, are enforceable. See Larson on Workmen's Compensation Sec. 76.43. The Paul Krebs & Assocs., supra, decision, which gave Alabama the distinction of being the only state to disallow indemnity provisions under these circumstances, itself overruled Eley v. Brunner-Lay Southern Corporation, Inc., 289 Ala. 120, 266 So.2d 276 (1972) which had followed the majority rule. In Paul Krebs & Assocs., the Alabama Supreme Court stated:

Squarely presented [in this case] is whether an employer's statutory immunity from suits on account of injury to employees under Sec. 25-5-53, 1975 Code protects the employer from suits by third parties seeking indemnity (under contractual provisions) from claims arising out of injuries sustained by employees of the same employer.

356 So.2d at 638. ³

The Alabama Supreme Court answered the question as one of pure statutory interpretation stating:

The statute says that no employer shall be held civilly liable for injuries to workmen injured in the course of his employment. To allow a third-party tort-feasor to recover over against the employer for injury to an employee would be to allow indirectly what is prohibited directly.

356 So.2d at 639. The court went on to say:

We believe our statute compels this result. Sec. 25-5-53 says that no employer (under the Workmen's Compensation Act) "shall be held civilly liable" for personal injuries to workmen. Krebs would have us engraft an exception to this language which would permit a civil suit against the employer where the employer agrees to indemnify a third-party tort-feasor sued for causing the injury to the employee. This writes into the legislation an exception which is not there.

356 So.2d at 640.

Several relevant facts must again be noted as we turn to the question of whether the Alabama Supreme Court's ruling in Paul Krebs & Assocs. is evidence of such a strong public policy that the indemnity provision contracted to by GFFS and Mead should not be applied. First, at the time the indemnity provision of the sublicense agreement was entered into such provisions were enforceable in Alabama. Additionally, at the time that Mr. Goodwin was injured, the provisions were still enforceable in Alabama. The parties agreed in their sublicense agreement that the law of Michigan would apply. There is no dispute that under the laws of Michigan such...