E.H. Ashley & Co., Inc. v. Wells Fargo Alarm Services, 90-1216

• Decision Date: 06 June 1990
• Docket Number: No. 90-1216,90-1216
• Citation: 907 F.2d 1274
• Parties: E.H. ASHLEY & CO., INC. and Willow Associates, Plaintiffs, Appellants, v. WELLS FARGO ALARM SERVICES, etc., Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1274

907 F.2d 1274

E.H. ASHLEY & CO., INC. and Willow Associates, Plaintiffs, Appellants, v. WELLS FARGO ALARM SERVICES, etc., Defendant, Appellee.

No. 90-1216.

United States Court of Appeals, First Circuit.

Heard June 6, 1990.

Decided July 16, 1990.

Dennis J. Roberts II with whom Roberts, Carroll, Feldstein & Peirce, Providence, R.I., was on brief, for appellants.

Matthew F. Medeiros with whom Neal J. McNamara and Flanders & Medeiros Inc., Providence, R.I., were on brief, for appellee.

Before BREYER, Chief Judge, COFFIN, Senior Circuit Judge, and CAMPBELL, Circuit Judge.

LEVIN H. CAMPBELL, Circuit Judge.

Plaintiffs-appellants, E.H. Ashley & Co., Inc. and Willow Associates (jointly, "Ashley"), have appealed from an order of the United States District Court for the District of Rhode Island on February 6, 1990, granting summary judgment in favor of defendant-appellee, Wells Fargo Alarm Services, a Division of Baker Protective Services, Inc. ("Wells Fargo").

In June 1985, Ashley contracted with Wells Fargo Services to obtain a burglar alarm system. The contract contained a limitation of liability clause. The clause stated that Wells Fargo was not an insurer and that it would not be liable for any of Ashley's "losses or damages ..., irrespective of origin, whether directly or indirectly caused by performance or nonperformance of obligations imposed by this contract or by negligent acts or omissions of Wells Fargo, its agents or employees." Under the clause, Ashley waived and released any rights of recovery against Wells Fargo and agreed that if Wells Fargo Alarm should be found liable for any losses or damages attributable to a failure of its systems or services in any respect, its liability would be limited to the annual charge paid by Ashley ($985) or $10,000, whichever is less.

In May 1988, a theft occurred at Ashley's place of business resulting in a claimed loss of $120,112, which claim was paid in full, less the $1,000 deductible, by Aetna Casualty and Surety Company ("Aetna"). Under the terms of the policy, Aetna was subrogated "to all rights of recovery for ... loss or expense against the persons, firms, corporations or estates which ... caused or contributed to" the loss--to the extent of Aetna's coverage of the loss. Aetna thereafter brought suit in the name of Ashley against Wells Fargo in Rhode Island Superior Court to recover the amount of its payment to Ashley. Aetna claimed that Ashley's loss was directly attributable to a defect in or negligent maintenance of the burglar alarm system installed by Wells Fargo and brought claims sounding in negligence and breach of contract.

Aetna claimed also that, as subrogee, it was not bound by the limitation of liability clause in its insured's contract with Wells Fargo. Alternatively, it argued that the limitation of liability clause was unconscionable and should, therefore, not be enforced against it.

In response to Wells Fargo's motion to dismiss for failure to state a claim upon which relief may be granted, the district court rejected Aetna's argument that its right of subrogation was not subject to the limitation of liability. It granted discovery, however, on the issue of unconscionability. Wells Fargo then moved for summary judgment; and the court ruled that, even viewing the facts in the light most favorable to Ashley, the contract was not unconscionable. It granted partial summary judgment to Wells Fargo, upholding the contract term limiting liability to $985. Wells Fargo then offered to pay Aetna that amount rather than litigate the issue whether it was liable at all under the contract. Accordingly, the judge issued an order conditioning its entry of partial summary judgment for Wells Fargo on Wells Fargo's payment of $985 to Aetna. Wells Fargo tendered the payment but Aetna refused to accept it.

Aetna then brought this appeal, asserting that the district court erred in granting Wells Fargo's motion for partial summary judgment for the reason that material Because we find that the grant of partial summary judgment against Aetna was proper, we affirm the decision of the district court.

questions of fact remain with respect to (1) whether the limitation of liability clause in the contract for burglar alarm services is void and unenforceable as to Aetna, Ashley's subrogee, and (2) whether the contract is void as an unconscionable contract of adhesion.

DISCUSSION

Summary judgment is permissible when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Our review of dispositions by summary judgment is plenary. Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir.1990). Like the district court, we must view the entire record in the light most favorable to the party opposing summary judgment, and indulge all reasonable inferences in that party's favor. Mack v. Great Atlantic and Pacific Tea Co., 871 F.2d 179, 181 (1st Cir.1989).

The movant for summary judgment must first aver an absence of evidence to support the opposing party's case. The burden then shifts to the nonmovant to establish the existence of at least one fact issue which is both "genuine" (i.e., can properly be resolved only by a finder of fact because it may reasonably be resolved in favor of either party) and "material" (i.e., affects the outcome of the suit). On issues where the nonmovant bears the burden of proof, he must reliably demonstrate that specific facts sufficient to create an authentic dispute exist. Garside, 895 F.2d at 48 (citing and quoting, inter alia, Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986), and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

Aetna alleges first of all that disputed issues of material fact remain with regard to the enforceability against the insurer (who has been subrogated to the rights of its insured) of a limitation of liability clause in a contract entered into by its insured. Aetna points, however, to no disputed issues of fact that bear on this question. Aetna's arguments instead challenge the legal conclusion of the district court that the limitation of liability clause in the contract between Ashley and Wells Fargo is enforceable against Aetna, the subrogee of Ashley's rights against Wells Fargo. The facts surrounding the formation of the contract are not in dispute. Accordingly, we treat this issue as an allegation that the district court erred in its legal ruling that the rights of a subrogee are limited by the rights of the subrogor.

The contention that Aetna, as subrogee of Ashley's rights under the contract, is not bound by the terms of the contract is frivolous. The law of Rhode Island governs the interpretation of the contract in question; and it is well settled in Rhode Island, as elsewhere, that an insurer, by a right of subrogation, steps into the shoes of the insured and can recover only if the insured could have recovered. The subrogee has no greater rights against a third party by virtue of its status as the insurer. Silva v. Home Indemnity Co., 416 A.2d 664, 666 (R.I.1980); Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 428 A.2d 1254, 1259 (1981); Insurance Co. of North America v. Carnahan, 446 Pa. 48, 284 A.2d 728, 729 (1971). Aetna has only the rights that it would have if it, rather than Ashley, had entered into the burglar alarm service contract with Wells Fargo. Aetna was on constructive notice of the provisions of the burglar alarm service contract because it occupies the shoes of its insured; and a party is presumed to know the contents of a document it signed. O. Ahlborg & Sons, Inc. v. Interior Systems, Inc., 528 A.2d 739, 742 (R.I.1987). Therefore, Aetna, as subrogee, cannot escape the limitation of liability clause in the service contract between its subrogor, Ashley, and Wells Fargo. St. Paul Fire & Marine Ins. Co. v. Guardian Alarm Co. of Michigan, 115 Mich.App. 278, 320 N.W.2d 244 (1982).

Aetna's second claim, that there are genuine issues of material fact as to whether the burglar alarm service contract is void as an unconscionable contract of adhesion--rendering erroneous the district court's grant of summary judgment--likewise cannot be sustained. In order to establish unconscionability, a party must prove that (1) there is an absence of "meaningful choice" on the part of one of the parties; and (2) the challenged contract terms are "unreasonably favorable" to the other party. Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C.Cir.1965); Leasing Service Corp. v. Graham, 646 F.Supp. 1410, 1418 (S.D.N.Y.1986) (indicia of unconscionability include disproportionate bargaining power, non-availability of alternatives, and illegal, oppressive, or unreasonable contract); Grady v. Grady, 504 A.2d 444, 446-47 (R.I.1986) (quoting Hume v. United States, 132 U.S. 406, 10 S.Ct. 134, 33 L.Ed. 393 (1889) ("a court w[ill] usually refuse to enforce a contract on the ground of unconscionability only when the inequality of the bargain was so manifest as to shock the judgment of a person of good sense and when the terms were so unreasonable that 'no man in his senses and not under delusion, would make on the one hand, and as no honest and fair man would accept on the other'....")). The party seeking to invalidate a contract on the ground of unconscionability bears the burden of demonstrating that the contract in question is unconscionable. Kerr-McGee Corp. v. Northern Utilities, Inc., 673 F.2d 323, 329 (10th Cir.1982).

On appeal, Aetna argues that it meets the first prong of the Walker-Thomas test for unconscionability--lack of meaningful choice--because Ashley was required by its insurer to enter into the contract or face either cancellation of its policy or skyrocketing rates, and because even if it had tried to purchase the same type of burglar alarm services from another vendor, it could not have...