Grubb & Ellis Management v. 407417 B.C.

• Decision Date: 27 July 2006
• Docket Number: No. 1 CA-CV 05-0316.,1 CA-CV 05-0316.
• Citation: 213 Ariz. 83,138 P.3d 1210
• Parties: GRUBB & ELLIS MANAGEMENT SERVICES, INC., a Delaware corporation, Cross-Claimant/Counter-Cross-Defendant/Appellee, v. 407417 B.C., L.L.C., an Arizona limited liability company, Cross-Defendant/Counter-Cross-Claimant/Appellant.
• Court: Arizona Court of Appeals

138 P.3d 1210

213 Ariz. 83

GRUBB & ELLIS MANAGEMENT SERVICES, INC., a Delaware corporation, Cross-Claimant/Counter-Cross-Defendant/Appellee, v. 407417 B.C., L.L.C., an Arizona limited liability company, Cross-Defendant/Counter-Cross-Claimant/Appellant.

No. 1 CA-CV 05-0316.

Court of Appeals of Arizona, Division 1, Department E.

July 27, 2006.

Sacks Tierney P.A. By Mark D. Dillon, Scottsdale, Attorneys for Appellee.

Robert S. Porter, Phoenix, Attorney for Appellant.

OPINION

HALL, Judge.

¶ 1 This appeal arises from a dispute between 407417 B.C., L.L.C. (Landlord) and its real estate agent Grubb & Ellis Management Services, Inc. (Grubb & Ellis), co-defendants in a lawsuit filed by a lessee of Landlord's commercial property. Landlord and Grubb & Ellis filed cross-claims for indemnification against one another. The trial court granted Grubb & Ellis's claim but denied Landlord's claim. We affirm.

FACTS AND PROCEDURAL HISTORY

¶ 2 Landlord is an Arizona company that owns a one-story office building in Phoenix that it leases to several tenants. Grubb & Ellis is a licensed real estate corporation that has managed Landlord's Phoenix property since 1998 pursuant to the parties' Commercial Property Management Agreement (the Management Agreement) by performing such services as operating, maintaining, servicing, improving, and leasing the premises.

¶ 3 Sometime in March 2001, Rafaela Gutierrez began negotiating an agreement with Grubb & Ellis's real estate sales agent, Matthew Dubasik (Dubasik) to lease part of the Landlord's building for use as a commercial childcare center. Gutierrez inquired whether the premises had sufficient parking. Dubasik informed Gutierrez that she could use an adjacent dirt lot located south of the premises for parking and for a playground area because it was also owned by Landlord. By the end of March 2001, Gutierrez and Landlord signed a lease agreement (the Lease) prepared by Dubasik. Section 2.6.1 of the Lease obligated Landlord to provide Gutierrez "the parking facilities required by applicable law."

¶ 4 After the Lease was signed, Gutierrez was not able to obtain a certificate of occupancy from the City of Phoenix necessary for commercial operation of the premises because the premises did not have adequate paved parking; only thirty-three of the required forty-seven parking spaces were paved.¹ Gutierrez informed Dubasik of this problem sometime in the summer of 2001 and claimed that he had assured her that Landlord was taking responsibility for paving the south lot to bring the premises into compliance with the City's requirements. Landlord, however, denied authorizing Grubb & Ellis to incur any expenses associated with improvements or remodeling of the premises for tenant's use. Gutierrez filed a complaint against Landlord, Grubb & Ellis, and Dubasik alleging claims for breach of express warranty, breach of contract, unjust enrichment, professional negligence, negligent misrepresentation, and fraudulent inducement.

¶ 5 Grubb & Ellis cross-claimed against Landlord alleging that Landlord was contractually obligated to indemnify Grubb & Ellis and its employee, Dubasik, and hold them harmless pursuant to the indemnity agreement in section 3.4 of the Management Agreement, which provides:

3.4 Indemnity. Except for [Grubb & Ellis's] gross negligence or willful misconduct, [Landlord] agrees to indemnify and save [Grubb & Ellis] and its employees, officers or directors, completely harmless in respect to any action, cause of action, suit, debt, cost, expense, claim, or demand whatsoever brought by any third person whomsoever, at law or in equity, in connection with the Property or the performance by [Grubb & Ellis] of any and all of its obligations under this Agreement, including without limitation, any damage or injury whatsoever to any employee or other persons or property arising out of the use, administration or control of the Property or any other assets of [Landlord] during the term of this Agreement. It shall be the responsibility of [Grubb & Ellis] to comply with all applicable state or federal labor laws.

Landlord filed a counter-cross-claim against Grubb & Ellis and Dubasik alleging that they had failed to perform their obligations under the Management Agreement by misrepresenting to Gutierrez the availability of parking and that, as a matter of common-law indemnity, Landlord was entitled to reimbursement for all of its litigation expenses as well as any judgment awarded Gutierrez for which it may be liable.

¶ 6 Subsequently, Grubb & Ellis and Dubasik were dismissed from Gutierrez's lawsuit so that the only issue at trial pertained to Landlord's liability. Specifically, the jury was asked to decide whether Landlord "breached a material term of the Lease Agreement by not providing [Gutierrez] with the parking spaces required by applicable law to enable [Gutierrez] to obtain a certificate of occupancy" and/or whether Landlord "breached the duty of good faith and fair dealing" implied in every contract. The jury rendered a verdict in favor of Gutierrez finding that Landlord had breached its contract with Gutierrez and that she sustained damages in the amount of $180,000.00. The trial court awarded Gutierrez attorneys' fees in the amount of $41,600.00 and costs totaling $4,357.24.

¶ 7 Following the trial of Gutierrez's claims, pursuant to the parties' pretrial stipulation, Landlord and Grubb & Ellis submitted briefs on their respective indemnification claims for the trial court's resolution. The trial court denied Landlord's claim for common-law indemnification from Grubb & Ellis for the judgment and attorneys' fees and costs awarded Gutierrez and for Landlord's own attorneys' fees and costs. However, it granted Grubb & Ellis's claim for contractual indemnification from Landlord for attorneys' fees and costs incurred by Grubb & Ellis in defending against Gutierrez's claims. Landlord timely appealed. We have jurisdiction pursuant to Arizona Revised Statutes (A.R.S.) sections 12-120.21(A)(3) and 2101(B) (2003).

DISCUSSION

¶ 8 Landlord raises two issues on appeal: (1) whether the trial court erred when it required Landlord to indemnify Grubb & Ellis pursuant to the parties' express indemnity agreement; and (2) whether the trial court erred when it denied Landlord's claim for implied indemnification from Grubb & Ellis.

I.

¶ 9 Landlord offers three rationales in support of its claim that the trial court erred when it construed section 3.4 of the parties' Management Agreement as requiring Landlord to contractually indemnify Grubb & Ellis.

¶ 10 First, Landlord contends that despite the indemnity provision in the parties' Management Agreement, public policy prohibits Grubb & Ellis from seeking indemnity from Landlord for its professional negligence. This argument is not supported by Arizona case law, which permits a party to protect itself contractually by shifting liability for its faults to another via the mechanism of indemnity. See, e.g., Wash. Elem. Sch. Dist. No. 6 v. Baglino Corp., 169 Ariz. 58, 61, 817 P.2d 3, 6 (1991) (stating that "contracts indemnifying a party against his own negligence do not violate public policy").²

¶ 11 Second, Landlord argues that the indemnity provision in the parties' Management Agreement was not intended to indemnify Grubb & Ellis for its negligence. Rather, according to Landlord, the purpose of the provision was to indemnify Grubb & Ellis for "normal premises" liability.

¶ 12 Interpretation of a contract is a question of law that we review de novo. Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 324, 842 P.2d 1335, 1337 (App.1992). A general principle of contract law is that when parties bind themselves by a lawful contract the terms of which are clear and unambiguous, a court must give effect to the contract as written. Estes Co. v. Aztec Constr., Inc., 139 Ariz. 166, 168, 677 P.2d 939, 941 (App. 1983); see also INA Ins. Co. v. Valley Forge Ins. Co., 150 Ariz. 248, 252, 722 P.2d 975, 979 (App.1986) ("When there is an express indemnity contract, the extent of the duty to indemnify must be determined from the contract."). Furthermore, indemnity provisions "are strictly construed and generally will not protect an indemnitee against its own negligence unless the indemnitor's obligation to do so is expressed in clear and unequivocal terms." Baglino, 169 Ariz. at 61, 817 P.2d at 6.

¶ 13 A contract clause that does not specifically address what effect the indemnitee's negligence has on the indemnitor's obligation to indemnify is referred to as a "general" indemnity agreement. Pioneer Roofing Co. v. Mardian Constr. Co., 152 Ariz. 455, 474, 733 P.2d 652, 671 (App.1986). Under such an agreement, an indemnitee is usually "entitled to indemnification for a loss resulting in part from an indemnitee's passive negligence, but not active negligence."³ Id. (emphasis omitted). For example, an agreement to "indemnify and hold [indemnitee] harmless of and from any and all liability incurred by it for any reason whatsoever" has been construed as a general indemnity clause that does not protect an indemnitee against its own active negligence notwithstanding the agreement's broad language. Royal Props., Inc. v. Ariz. Title Ins. & Trust, 13 Ariz.App. 376, 378, 476 P.2d 897, 899 (1970); see also 41 Am.Jur.2d Indemnity § 18 (2000) ("[M]ere general, broad, and seemingly all-inclusive language is not sufficient to impose liability for an indemnitee's own negligence."). Similarly, an agreement to "protect and indemnify [an indemnitee] from any claims, liability, or losses suffered by anyone wholly or partially through the negligence of [indemnitor]" has been construed as a general indemnity clause because it does not address the effect of the indemnitee's negligence on the indemnitor's obligation to indemnify. Estes, 139 Ariz. at 167-68, 677 P.2d at 940-41.

¶ 14 In contrast, a "specific" indemnity agreement addresses what effect the indemnitee's negligence has on the...