Oakview Treatment Centers of Kansas v. Garrett

• Decision Date: 08 June 1999
• Docket Number: No. CIV. A. 98-2164-KHV.,CIV. A. 98-2164-KHV.
• Citation: 53 F.Supp.2d 1184
• Parties: OAKVIEW TREATMENT CENTERS OF KANSAS, INC., Plaintiff, v. James W. GARRETT, Sr. and Bonita J. Garrett, Defendants.
• Court: U.S. District Court — District of Kansas

53 F.Supp.2d 1184

OAKVIEW TREATMENT CENTERS OF KANSAS, INC., Plaintiff, v. James W. GARRETT, Sr. and Bonita J. Garrett, Defendants.

No. CIV. A. 98-2164-KHV.

United States District Court, D. Kansas.

June 8, 1999.

Reid F. Holbrook, Holbrook, Heaven & Osborn, P.A., Kansas City, KS, Thomas S. Busch, Kurt S. Brack, Holbrook, Heaven & Osborn, P.A., Merriam, KS, for plaintiff.

Mark G. Flaherty, J. Bradley Leitch, Sonnenschein, Nath & Rosenthal, Kansas City, KS, for defendants.

MEMORANDUM AND ORDER

VRATIL, District Judge.

This matter comes before the Court on Defendants' Motion For Summary Judgment (Doc. # 40) filed April 6, 1999 and Plaintiff's Motion For Summary Judgment (Doc. # 47) filed April 14, 1999. Plaintiff alleges that defendants breached an indemnification agreement between the parties. For the reasons stated below, defendants' motion is denied and plaintiff's motion is sustained in part and denied in part.

Facts

The following facts are either uncontroverted or viewed in the light most favorable to the nonmoving party.¹

On February 5, 1991, Garrett & Associates, Inc. (GAI) filed an involuntary bankruptcy petition against Bernard Glannon. GAI, along with defendants James W. Garrett, Sr. and Bonita J. Garrett, approached Oakview Treatment Centers of Kansas, Inc. (Oakview) about joining the petition. In May of 1991, defendants executed an indemnification agreement in favor of Oakview.² Consequently, on May 7, 1991, Oakview joined the involuntary bankruptcy petition against Glannon. On May 15, 1991, Maxim, Inc. also joined the petition.

The indemnification agreement states, in its entirety, as follows:

The undersigned shall indemnify, protect, defend, and save harmless Oakview Treatment Centers of Kansas, Inc. a Kansas Corporation and its affiliates (Indemnitee) from and against any and all claims, demands, liabilities, and costs arising from damage or injury, actual or claimed, of whatever kind or character, arising out of Indemnitee's participation as a petitioning creditor in a certain case before the United States Bankruptcy Court for the District of Kansas at Topeka styled In Re: Bernard D. Glannon Case No. 91-40230-7. Upon notice from Indemnitee, the undersigned shall defend the Indemnitee in any action or proceeding brought thereon, including all attorney's fees and expenses. Without limiting the generality of the above, it shall be the responsibility of the undersigned to indemnify the Indemnitee in relationship to any contingent liabilities, whether known or unknown, affecting this indemnification.

The Honorable John Flannagan, United States Bankruptcy Judge for the District of Kansas, tried the involuntary bankruptcy case from April 27 to May 1, 1992. On May 4, 1992, he dismissed the involuntary petition because the petitioning creditors had failed to prove that Glannon was generally not paying his debts as they became due. Judge Flannagan also found that GAI had filed the petition in bad faith and that Oakview had joined in bad faith. Judge Flannagan specifically found that before Oakview joined the bankruptcy proceeding, it had received a letter from Glannon's counsel, warning that the bankruptcy had been filed for an improper purpose, advising that Glannon had defenses, and noting the consequences of joinder if the bankruptcy court found that the petition had been filed in bad faith. Judge Flannagan also noted that Oakview had violated the automatic stay provision of the Bankruptcy Code by trying to extract a payment from Glannon when the bankruptcy case was pending and the automatic stay was in effect, and that Oakview had failed to bill Glannon for the debt on which it based its claim in the bankruptcy and had acquiesced in his attempts to have the debt paid by insurance. Although Judge Flannagan dismissed the bankruptcy petition, he retained jurisdiction over Oakview to determine whether it should be liable for damages which Glannon suffered as a result of its bad faith actions. He specifically ordered that GAI, Oakview and their attorneys show cause why damages and sanctions should not be awarded against them.

While Maxim also joined the involuntary petition, it had not attempted to extract a settlement from Glannon in violation of the automatic stay, failed to bill Glannon for the debt on which it based its claim in bankruptcy, or acquiesced in Glannon's efforts to obtain payment from a third party. Judge Flannagan found that Maxim did join the involuntary bankruptcy proceeding in the face of the previously mentioned letter from Glannon's counsel, warning of the circumstances of the filing, Glannon's defenses, and the consequences of joinder.³ Despite this finding, he did not hold that Maxim had joined the petition in bad faith.

On May 19, 1992, Oakview (through counsel David A. Welte of Polsinelli, White, Vardeman & Shalton) made written demand upon GAI and defendants to

indemnify and save harmless Oakview Treatment Centers of Kansas, Inc. from and against any claims, demands, liabilities, and costs arising from damage or injury arising out of Oakview's participation as a petitioning creditor in the captioned matter, as well as all other duties and obligations Garrett owes to Oakview pursuant to the terms and conditions of the Indemnification Agreement.

The letter did not itemize any expenses for which Oakview sought indemnification; indeed, at the time of the letter, Oakview had not yet incurred such expenses.⁴ The letter did specifically reference the fact that Judge Flannagan had scheduled a hearing on sanctions and damages, based on his finding that Oakview and GAI had filed the bankruptcy petition in bad faith.

On May 28, 1992, through counsel Michael B. Myers, defendants refused to indemnify Oakview for any costs or liability for any action taken by Oakview before or concurrently with the joining of the involuntary petition. Myers explained that the indemnification agreement did not cover such costs because Judge Flannagan had retained jurisdiction over Oakview based on its actions before it participated in the bankruptcy proceeding and not based on its participation in the proceeding. Myers stated

If you will review both the Journal Entry of May 4, 1992, and the actual transcript of the proceedings on that date you will find that the Judge found bad faith on the part of Oakview Treatment Centers for matters relating to actions they took before they joined as a petitioning creditor. Neither the Garretts personally nor Garrett & Associates, Inc. is obligated to indemnify and hold harmless Oakview for any action taken by Oakview before or concurrently with the joining of the involuntary petition.

As noted above, Judge Flannagan dismissed the involuntary petition on May 4, 1992. Eight months later, on January 20, 1993, Glannon filed a malicious prosecution action against Oakview and others, based on their filing of the petition. On November 25, 1996, attorney Reid F. Holbrook of Holbrook, Heaven & Osborn, P.A., made written demand that defendants and GAI reimburse it for attorneys' fees and costs which Oakview had incurred and for ongoing indemnification relating to other liabilities arising out of the Glannon bankruptcy.

Around April 23, 1997, GAI, Glannon, defendants, and various insurance companies and law firms entered into a settlement agreement which provided a partial settlement with Glannon in exchange for $382,500.00 paid by insurance. On September 30, 1997, Oakview and Glannon settled all claims involved in the show cause proceeding and malicious prosecution complaint. Twelve months later, on September 17, 1998, Judge Flannagan entered judgment in the show cause proceeding, assessing damages against GAI and James Garrett and sanctions against their attorneys.

The Mediplex Group, Inc. and Sun Healthcare Group, Inc., the former and current parent companies of Oakview, paid the expenses which Oakview claims it is entitled to recover under the indemnity agreement. Oakview is obligated to repay Sun Healthcare Group, however, for these expenses. Oakview therefore filed suit on April 10, 1998, seeking to recover the costs and expenses related to the show cause proceeding and malicious prosecution action.

Summary Judgment Standard

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir.1993). A factual dispute is material only if it might affect the outcome of the suit under the governing law. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. A genuine factual dispute requires more than a mere scintilla of evidence. Id. at 252, 106 S.Ct. 2505. The moving party bears the initial burden of showing that there is an absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir.1991). Once the moving party meets its burden, the burden shifts to the non-moving party to demonstrate that genuine issues remain for trial as to those dispositive matters for which it carries the burden of proof. Applied Genetics Int'l Inc. v. First Affiliated Securities, Inc., 912 F.2d 1238, 1241 (10th Cir.1990); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241.

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