Starobin v. Randolph Computer Corp.
| Decision Date | 14 July 1988 |
| Docket Number | No. 86 Civ. 1856 (LBS).,86 Civ. 1856 (LBS). |
| Citation | 689 F. Supp. 323 |
| Parties | Israel STAROBIN and Ida Starobin, Plaintiffs, v. RANDOLPH COMPUTER CORPORATION, Randolph Capital Corp., Bancal Leasing Co., Inc., Bank of California, National Association, The Travelers Corp., and Rockford Safety Equipment Co., Defendants. BANCAL LEASING CO., INC., Bank of California, National Association, Third-Party Plaintiff, v. INSTRUMENT SYSTEMS CORPORATION and Niagara Machine & Tool Corporation, Third-Party Defendants. INSTRUMENT SYSTEMS CORPORATION, Second Third-Party Plaintiff, v. LIGHTRON OF CORNWALL, INC., Second Third-Party Defendant. BANCAL LEASING COMPANY, INC., Bank of California, National Association, Third Third-Party Plaintiffs, v. LIGHTRON OF CORNWALL, INC., Third Third-Party Defendant. |
| Court | U.S. District Court — Southern District of New York |
Julien & Schlesinger P.C., New York City, Stuart A. Schlesinger, Jeffrey A. Lichtman, of counsel, for plaintiffs.
Stroock & Stroock & Lavan, New York City, Brian M. Cogan, Roland G. Riopelle, of counsel, for Randolph Computer Corp., Randolph Capital Corp. and The Travelers Corp.
Frederick A. Murphy Associates, Goshen, N.Y., Sheila Rosenrauch, of counsel, for Bancal Leasing Co. and Bank of California, National Assn.
Kral, Clerkin, Redmond & Ryan, New York City, Bennett Lofaro, of counsel, for Lightron of Cornwall, Inc.
Garbarini, Scher & DeCicco P.C., New York City, Christopher Hough, of counsel, for Instrument Systems Corp.
Gordon & Silber, New York City, Peter T. Neill, of counsel, for Niagara Mach. & Tool Works Corp.
This is a third-party suit for indemnification for attorneys' fees, growing out of a products liability action. The Plaintiff, Israel Starobin, was allegedly injured by a power press in October 1985. He brought suit in July 1986 against Randolph Computer Corp. ("RCC") and Bank of California ("BanCal"), financiers whom he believed to have been prior owners of the machine under a lease/purchase agreement with Instrument Systems Corp. ("ISC"). RCC, which had in 1971 entered into the leases with ISC, in 1973 contracted to transfer to BanCal all or substantially all assets of its subsidiary, Randolph Capital Corp., including these leases. See Deposition of Nathan Snyder, former Executive Vice President of RCC, Ex. F to Affidavit of Roland G. Riopelle, Attorney for RCC, dated Jan. 26, 1988, at 25; Agreement between RCC and BanCal, dated March 19, 1973, Ex. 2 to Snyder Dep. ISC used and ultimately purchased the equipment designated in the leases, and in 1980 sold that equipment to its former subsidiary, the now bankrupt Lightron of Cornwall, Inc., Plaintiff's employer at the time of the accident.
After spending more than a year in the pursuit and defense of the underlying action, the parties discovered that the power press involved in the incident was not among the pieces of equipment covered by the leases in question, and was in no way connected with RCC or BanCal. The suit was dismissed by stipulation. Defendants RCC and BanCal sought sanctions against the Plaintiff under Rule 11, and this Court denied that motion in an Opinion dated April 26, 1988.
RCC and BanCal now assert that, although they bear no liability to Plaintiff under the leases, the action arose under the leases and so the indemnification clause in the leases should apply to the attorneys' fees incurred in the action. Therefore, according to RCC and BanCal, ISC is liable for those fees.
ISC replies that, since the machine at issue was not connected with the leases, the indemnification provision in the leases is irrelevant. ISC further argues that this Court does not have subject matter jurisdiction over this third-party action; that it was not the intent of the parties that the indemnification provision survive the lease term; and that it was not the intent of the parties to require ISC to indemnify anyone who was not a party to the lease. (This last argument is directed against BanCal, which was not a party to the leases, but rather obtained its interest in them by assignment from RCC.)
As an alternative to indemnification by ISC, RCC and BanCal also assert claims against each other for indemnification under provisions of their own agreement.
The parties disagree as to whether diversity jurisdiction exists over this third-party claim. Irrespective of the existence of independent jurisdiction, the Court will exercise its ancillary jurisdiction under Rule 14 of the Fed.R.Civ.P. to determine who is responsible for attorneys' fees here. At issue are the applicability and meaning of indemnity clauses in the leases and agreements involved in the underlying case. As noted, the Court has previously determined that Rule 11 sanctions should not be applied against Plaintiff. The Court finds that judicial economy and convenience will be served by its retention of these indemnification claims, whether or not independent federal jurisdiction exists over them. See 6 C. Wright, A. Miller, and M. Kane, Federal Practice and Procedure, § 1444 at 234-37 (1971).
Under California law, which applies to the agreement transferring the leases from RCC to BanCal, "indemnity agreements are to be interpreted under the same rules governing other contracts with a view to determining the actual intent of the parties." Ralph M. Parsons Co. v. Combustion Equip. Assoc., 172 Cal.App.3d 211, 218 Cal.Rptr. 170, 176 (1985) (citing Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal.3d 622, 632-33, 532 P.2d 97, 104, 119 Cal.Rptr. 449, 456 (1975)). Where there is no conflicting extrinsic evidence as to the meaning of an indemnity agreement, its interpretation is a matter of law, to be determined by the court. See Parsons v. Combustion Equip., supra, 218 Cal.Rptr. at 179.
Under ¶ 1.B(ii)(a) of the agreement, BanCal agreed to assume "all liability of the lessor under the Leases ... accruing after Closing Date." In ¶ 15 the parties agreed, in relevant part, that:
every agreement, warranty or representation herein referred to shall survive the Closing Date and the consummation of the within transaction, and the party making any such agreement, representation or warranty agrees to indemnify and hold harmless any party for whose benefit such agreement, representation or warranty is made against any and all losses, damages, liabilities or expenses (including reasonable attorney's fees), resulting from any material breach of any such agreement, representation or warranty, including any such expense of enforcing or collecting indemnification.
The closing date for this transaction was in 1973, and BanCal must indemnify RCC against any liability accruing under the leases after that date. "All liability ... under the Leases" under ¶ 1.B(ii)(a) must, in the context of an agreement for the sale of all or substantially all assets of the division, and in the light of ¶ 15, be understood to include not only liability for injury but also liability for attorneys' fees occasioned by litigation over the leases.
Were we dealing with a more limited transaction, for example, the leasing of a single piece of equipment, one might plausibly contend that expenses relating to another piece of equipment was not a liability "under the leases" and therefore not assumed by Bancal. However the essense of this transaction indicates that the phrase "all liability ... under the Leases" was intended to transfer to Bancal financial responsibility for any matters relating to the leases, individually or collectively. Here, the error that gave rise to this controversy arose from the volume of the equipment covered by the leases and involved in the transaction. It is therefore reasonable to say that the expense incurred in defending this suit was a "liability ... under the Leases." It follows therefore that Bancal's refusal to assume such liability is a material breach of its agreement to do so and triggers the indemnity provision. The confusion over the machinery, and the institution of the suit, arose in 1985-1986, after the closing date of the agreement. Thus, under the terms of the agreement, BanCal must bear the cost of attorneys' fees incurred by RCC in defending this action and in seeking this indemnification.
BanCal's motion for summary judgment against RCC on BanCal's claim that RCC must indemnify BanCal under their agreement is denied. It is based upon ¶ 15 (), and upon ¶ 4(F), which reads in relevant part:
All items of Equipment are at least in the condition of repair and operation the lessor is required to maintain by the applicable leases (if any such obligation there be) and none are, to the knowledge of Randolph or Travelers sole shareholder of RCC at that time, unsuitable for their intended use or inoperable.
While these clauses could reasonably be construed as a promise by RCC to indemnify BanCal if any of the transferred equipment is in fact defective, they do not come into effect with respect to this action because the equipment alleged to be defective was never owned, leased out, or sold by RCC. (The power press that caused the injury of course was not part of the equipment covered by the agreement between RCC and BanCal, although the leases were covered by that agreement.)
Third-Party Defendant ISC asserts that under New York law, which applies to the leases, the claim for indemnification under the leases must be dismissed as moot since there is no basis for liability in the main action. The cases ISC cites to support this proposition are inapposite: they involve claims for indemnification that are in fact mooted by the lack of liability because the only claims asserted there are for amounts that would be paid out to...
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...744 (C.D.Cal.1989) (dispute among plaintiffs over responsibility for payment of their attorneys' fees); Starobin v. Randolph Computer Corp., 689 F.Supp. 323, 325-26 (S.D.N.Y.1988) (indemnification claim by defendant against third party defendant for attorneys' fees from underlying action). ......
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