Neustrom v. Union Pacific R. Co.

• Decision Date: 21 September 1998
• Docket Number: 97-3077 and 97-3209,Nos. 96-3266,s. 96-3266
• Citation: 156 F.3d 1057
• Parties: 98 CJ C.A.R. 5147 Terry NEUSTROM, Plaintiff, v. UNION PACIFIC RAILROAD COMPANY, Defendant-Third-Party Plaintiff-Appellee, v. ASPLUNDH TREE EXPERT COMPANY, Third-Party Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1057

156 F.3d 1057

98 CJ C.A.R. 5147

Terry NEUSTROM, Plaintiff, v. UNION PACIFIC RAILROAD COMPANY, Defendant-Third-Party Plaintiff-Appellee, v. ASPLUNDH TREE EXPERT COMPANY, Third-Party Defendant-Appellant.

Nos. 96-3266, 97-3077 and 97-3209.

United States Court of Appeals, Tenth Circuit.

Sept. 21, 1998.

As Amended on Denial of Rehearing Nov. 30, 1998.

Patrick E. McGrath, of Wallace, Saunders, Austin, Brown & Enochs, Overland Park, Kansas, for Appellant Asplundh Tree Expert Company.

Ronald W. Fairchild, of Fairchild, Haney & Buck, Topeka, Kansas, for Appellee Union Pacific Railroad Company.

Before PORFILIO and EBEL, Circuit Judges, and BRETT, ^* District Judge.

EBEL, Circuit Judge.

In this contractual indemnification case, appellant Asplundh Tree Expert Company ("Asplundh") appeals the district court's grant of summary judgment to Union Pacific Railroad Company ("Union Pacific") on Union Pacific's claim that it was indemnified by Asplundh for injuries sustained by Union Pacific employee Terry Neustrom ("Neustrom") and the district court's order for Asplundh to reimburse Union Pacific for its settlement with Neustrom. Asplundh also appeals the district court's order that Asplundh pay pre-judgment interest, Union Pacific's costs, and attorneys' fees. We affirm all of the district court's rulings with the exception of the grant of attorneys' fees, which we vacate and remand for a finding of reasonableness.

Background

In 1987, Union Pacific and Asplundh entered into a contract under which Asplundh agreed to spray chemical defoliants along Union Pacific's "Central Region" railroad lines. Under the agreement, Union Pacific was required to provide a spraying train as well as "personnel to supervise the movement of contract spray equipment over its lines." The actual spraying of defoliant was conducted by Asplundh personnel from a spraying car owned by Asplundh, employing equipment operated and supervised by Asplundh personnel.

On June 27, 1991, defoliant spraying was scheduled along the main line tracks between Junction City and Salina, Kansas. The only person on the spraying train that day licensed to spray chemicals was Asplundh spray supervisor Charles Shetron ("Shetron"). In order for the spray train to leave the Junction City train yard and make its way onto the main track, it was necessary for someone to line and reline some track switches. Neustrom, a brakeman employed by Union Pacific, was assigned this job. After switching the tracks, Neustrom approached the train to get back on it, only to find himself engulfed in defoliant. He experienced burning in his throat, tightness in his chest, and difficulty breathing. Neustrom was subsequently diagnosed as suffering from Reactive Airway Dysfunction Syndrome (RADS) and underwent a lengthy series of treatments for that disorder.

Neustrom sued Union Pacific under the Federal Employer's Liability Act (FELA), 45 U.S.C. § 51 et seq., for failing to provide him with a safe working environment. In his complaint, Neustrom alleged that Union Pacific and Asplundh negligently caused his injuries, and asked for one million dollars in damages. After Asplundh refused Union Pacific's tender to take over defense of the suit, Union Pacific filed a Third Party Complaint against Asplundh based on the indemnity provision of the contract. That provision read, in its entirety:

The Contractor [Asplundh] shall indemnify and hold harmless the Railroad Company [Union Pacific], its affiliates, their officers, agents, employees, against and from any and all liability, loss, damage, claims, demands, costs and expenses of whatsoever nature, including court costs and attorneys' fees, arising from or growing out of any injury to or death of persons whomsoever (including officers, agents and employees of the Railroad Company, of the Contractor and of any subcontractor, as well as other persons) or loss of or damage to property whatsoever (including property of or in custody of the Railroad Company, the Contractor or any subcontractor as well as other property). The right to indemnify shall accrue when such injury, death, loss or damage occurs from any cause and is associated in whole or in part with the work performed under this agreement, a breach of the agreement or the failure to observe the health and safety provisions of the agreement or any activity or omission arising out of performance or nonperformance of this agreement. However, the Contractor shall not indemnify the Railroad Company when the loss is caused by the sole negligence of the Railroad Company.

To the extent that it lawfully may do so, the Contractor waives any and all defenses under workers' compensation or industrial insurance acts to so indemnify the Railroad Company.

Union Pacific moved for summary judgment against Asplundh, seeking indemnification from Asplundh for Neustrom's claims against Union Pacific under the contract. The district court granted Union Pacific's motion. Thereafter, Union Pacific entered into settlement negotiations with Neustrom and tendered defense of Neustrom's claim to Asplundh; Asplundh failed to take up that defense. Union Pacific settled with Neustrom for $65,000, and filed a Motion to Assess Judgment against Asplundh with the district court. The district court found in favor of Union Pacific, and assessed Asplundh the entire $65,000, plus Union Pacific's attorneys' fees and costs, as well as prejudgment interest on both the settlement amount and Union Pacific's attorneys' fees and costs incurred up to October 1, 1995, for a total of $177,182.96.

In this consolidated appeal, Asplundh appeals the district court's judgments against it and moves to certify two questions to the Supreme Court of Kansas: (1) whether as a matter of Kansas law Asplundh agreed to indemnify Union Pacific for Union Pacific's joint negligence; and (2) if so, whether such an agreement violates Kansas public policy and is void on that ground.

Discussion

I. The Indemnification Agreement

A. Jurisdiction, Standard of Review, and Choice of Law

The district court had jurisdiction over Neustrom's FELA claim under 28 U.S.C. § 1331 (federal question jurisdiction) and over the contractual indemnification issue under 28 U.S.C. § 1367 (supplemental jurisdiction). This court has jurisdiction under 28 U.S.C. § 1291. We review grants of summary judgment de novo. See Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir.1996). "[T]he movant bears the burden of showing the absence of a genuine issue of material fact.... An issue of material fact is genuine if a reasonable jury could return a verdict for the non-movant." Id. (quotation omitted). The determination of a contractual term is a question of law that this court reviews de novo. See Carland v. Metropolitan Life Ins. Co., 935 F.2d 1114, 1120 (10th Cir.1991). The district court noted that neither party mentioned the issue of choice of law question explicitly, but because both parties cited to Kansas law the court "assum[ed] that there is no dispute that Kansas law applies." Because the parties proceed on the assumption that Kansas substantive contract law applies, we apply that law without further analysis. See Missouri Pacific R.R. Co. v. Kansas Gas & Elec. Co., 862 F.2d 796, 798 n. 1 (10th Cir.1988).

B. The Contractual Language

Asplundh argues that the language of this indemnification provision is unclear and over broad, and thus cannot support an interpretation that Asplundh agreed to indemnify Union Pacific for its own negligence. Union Pacific responds that the language in the indemnification provision is capable of only one reading: that Asplundh agreed to indemnify Union Pacific for all claims arising out of the spraying operations, including those arising in part from Union Pacific's own negligence, excepting only those claims based solely on Union Pacific's negligence.

Under Kansas law, agreements in which one party agrees to indemnify another for the indemnitee's own negligence are disfavored and as such must be expressed in "clear and unequivocal language." Zenda Grain & Supply Co. v. Farmland Indus., Inc., 20 Kan.App.2d 728, 894 P.2d 881, 887 (1995) (quotation omitted). " 'The general rule is that private contracts exculpating one from the consequences of his own acts are looked upon with disfavor by the courts and will be enforced only when there is no vast disparity in the bargaining power between the parties and the intention to do so is expressed in clear and unequivocal language.' " Belger Cartage Serv., Inc. v. Holland Const. Co., 224 Kan. 320, 582 P.2d 1111, 1119 (1978) (quoting Kansas City Power & Light Co. v. United Tel. Co., 458 F.2d 177, 179 (10th Cir.1972)). Thus, we must first decide if there was a vast disparity in bargaining power between Asplundh and Union Pacific; if there was not, then we must ask if the indemnification clause at issue here clearly expressed the intention of the parties that Asplundh would indemnify Union Pacific for its own negligence.

"The policy of the law in general is to permit mentally competent parties to arrange their own contracts and fashion their own remedies where no fraud or overreaching is practiced. Contracts freely arrived at and fairly made are favorites of the law." Kansas City Structural Steel Co. v. L.G. Barcus & Sons, Inc., 217 Kan. 88, 535 P.2d 419, 424 (1975). As for the claim of unequal bargaining power, the Kansas Supreme Court has suggested that so long as "[n]one of the parties ... involved were neophytes or babes in the brambles of the business world" the court will eschew declaring voluntarily entered-into indemnification agreements void. Id. Such is the case here. This was not Asplundh's first railroad spraying contract, nor is there any evidence that Asplundh was a babe in the woods of the railroad defoliant business. See generally Knowles v. Burlington Northern R.R. Co. v. Asplundh Tree Expert Co., 18 Kan.App.2d 608, 856 P.2d 1352 (1993). Because there is no evidence of a vast disparity...