Cambridge Integrated Services v. Concentra Integrated Service

Filing

PUBLISHED OPINION FILED. [11-31032 Affirmed in Part ] Judge: JLW , Judge: JWE , Judge: LHS Mandate pull date is 10/17/2012 [11-31032]

Case: 11-31032

Document: 00512000584

Page: 1

Date Filed: 09/26/2012

IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
September 26, 2012

No. 11-31032

Lyle W. Cayce
Clerk

CAMBRIDGE INTEGRATED SERVICES GROUP, INCORPORATED,
Plaintiff-Appellant
v.
CONCENTRA INTEGRATED SERVICES, INCORPORATED,
Defendant-Appellee
______________________

Appeal from the United States District Court
for the Western District of Louisiana

Before WIENER, ELROD, and SOUTHWICK, Circuit Judges.
WIENER, Circuit Judge:
Plaintiff-Appellant

Cambridge

Integrated

Services

Group,

Inc.

(“Cambridge”) appeals the district court’s grant of Defendant-Appellee Concentra
Integrated Services, Inc.’s (“Concentra”) motion for summary judgment.
Cambridge and Concentra owed each other contractual duties of defense and
indemnification. Cambridge and a subsidiary of Concentra were later named as
defendants in a state court lawsuit. Concentra settled and obtained a release
that benefitted Cambridge to the extent of Concentra’s indemnification
obligation; however, Concentra rejected Cambridge’s tender of defense.
Cambridge filed suit in federal court seeking a declaratory judgment that

Case: 11-31032

Document: 00512000584

Page: 2

Date Filed: 09/26/2012

No. 11-31032
Concentra owed it contractual defense and indemnification for the costs that
Cambridge incurred in settling the state-court litigation. The district court
granted summary judgment in favor of Concentra, holding that the settlement
satisfied its duty to defend and indemnify Cambridge. We affirm in part and
reverse in part, and we remand for further proceedings.
I. Facts & Proceedings
A.

The Services Agreement
Cambridge is a third-party administrator of workers compensation claims.

Concentra provides services to administrators like Cambridge. Concentra and
Cambridge entered into a Services Agreement in which Concentra agreed to
review medical bills, recommend payments, and provide access to preferred
provider organization (“PPO”) discounts to Cambridge’s clients. Concentra also
agreed“to indemnify, defend and hold [Cambridge] harmless from and against
any and all claims ... including, reasonable attorneys’ fees and litigation expense
arising or resulting from any alleged act, error or omission, including any
intentional tort, willful misconduct, negligence or gross negligence by”
Concentra.1 Reciprocally, Cambridge agreed to defend and indemnify Concentra
for claims based on Cambridge’s alleged acts, errors, and omissions. In essence,
each party owed the other defense and indemnification only for claims based on
its own acts.
Paragraph 9.3(c) of the Services Agreement extended Concentra’s defense
and indemnification obligations to unclear allegations of wrongdoing:
If the alleged wrongful conduct cannot be determined from the
allegations as pleaded, CONCENTRA agrees to defend and
indemnify pursuant to the language in paragraph (a) above, of this

1

A separate provision reiterated that Concentra owed defense and indemnity for claims
against Cambridge “involv[ing] any alleged act, error or omission, including any intentional
tort, willful misconduct, negligence or gross negligence by” Concentra.

2

Case: 11-31032

Document: 00512000584

Page: 3

Date Filed: 09/26/2012

No. 11-31032
Agreement, until the conduct complained of is clarified during the
course of the litigation, at which time the defense and indemnity
obligation shall promptly be determined under paragraphs (a) and
(b) above; provided, however, in the event it is determined that
[Cambridge] is obligated to indemnify CONCENTRA, [Cambridge]
shall promptly reimburse CONCENTRA for fees and expenses
incurred by CONCENTRA up to the time of such determination.
B.

The Gunderson Case and the Focus Settlement
In 2004, Cambridge and FOCUS Healthcare Management Inc. (“Focus”),

a subsidiary of Concentra, were among a number of parties named as defendants
in Clark A. Gunderson, M.D., et al. v. F.A. Richard & Associates, Inc., et al., a
suit filed in the state district court of Calcasieu Parish, Louisiana (“Gunderson”).
The Gunderson plaintiffs, a proposed class of medical providers, alleged that the
defendants imposed PPO reductions on workers compensation payments without
complying with the notice requirements of Louisiana’s Any Willing Providers
Act.2 Cambridge was also a named defendant in related proceedings filed in
Louisiana’s Office of Workers’ Compensation (“OWC”) by members of the
Gunderson class.3
In January 2007, Focus and Concentra settled with the Gunderson
plaintiffs for $12 million (“the Focus Settlement”). Although Cambridge was not
a party to the Focus Settlement and did not participate in negotiating it, the
Gunderson plaintiffs also released their claims for “Liability” against Cambridge.
The Focus Settlement defined the liability released by the plaintiffs as follows:

2

La. Rev. Stat. § 40:2203.1.

3

The Gunderson plaintiffs also asserted claims arising from workers compensation
payments made by Cambridge but reviewed by contractors other than Concentra or its
subsidiary.

3

Case: 11-31032

Document: 00512000584

Page: 4

Date Filed: 09/26/2012

No. 11-31032
With respect to the Related Parties,4 the term “Liability” shall mean
and refer to all claims and liabilities of the Related Parties arising
out of the Episode, regardless of whether the claims, liabilities,
and/or resulting damages are not yet known or manifested or
whether such claims, liabilities, and/or resulting damages are
known or unknown, asserted or unasserted, but only to the extent
that Focus, Concentra, and/or Broadspire is liable to the Related
Parties for contribution, indemnity, or by contract as a result of the
Episode and specifically does not include the Independent Liability
of the Related Parties under La. R.S. 40:2201, et seq. and La. R.S.
23:1021, et seq.
(emphasis in original).5
The Gunderson plaintiffs did not, however, release their claims against
Cambridge for any “Independent Liability,” defined as follows:
The term “Independent Liability” shall mean and refer to any and
all liability of a Related Party, other than that for which Focus,
Concentra, and/or Broadspire is liable through indemnification,
contribution, or contract.
Finally, Paragraph 8.6 of the Focus Settlement prohibited the Gunderson
plaintiffs from settling with Cambridge without obtaining a release of
Cambridge’s claims against Concentra:

4

The parties to this appeal agree that Cambridge is a Related Party.

5

The “Episode” is defined to “mean and refer to and include each and every event,
circumstance, and/or situation upon which allegations have been made or could have been
made for underpayment, penalties, recovery of damages, or other relief or remedy, arising out
of the alleged violations of one or more of the requirements of La. R.S. 40:203.1 and/or the
Louisiana Workers’ Compensation Law, La. R.S. 23:1021, et seq., during the period from
January 1, 2000 through the Effective Date as a result of the use of a PPO owned, operated,
or contracted with Focus or Concentra.”

4

Case: 11-31032

Document: 00512000584

Page: 5

Date Filed: 09/26/2012

No. 11-31032
The Class, each Class Member, and the PSC agree not to
compromise, settle, release, waive, forfeit, surrender, acquit,
dismiss, or discharge any claim against a Related Party, without
first obtaining an express, written agreement by which such Related
Party compromises, settles, releases, waives, forfeits, surrenders,
acquits, dismisses, and forever discharges any and all claims for
contribution, indemnity, subrogation, breach of contract, statutory
violation, and/or tort related to the Episode that it may have against
Focus, Concentra, and/or Broadspire.
The state court granted preliminary approval of the Focus Settlement in
January 2007.
The Focus Settlement did not result in Cambridge’s dismissal from
Gunderson or from any OWC proceedings. Cambridge took the position that (1)
it had contractually delegated the state-law notice duty to Concentra, (2) it
could seek indemnification from Concentra for any claims against it, and (3) the
Gunderson plaintiffs’ post-settlement claims had therefore been released.
Accordingly, Cambridge wrote to Concentra in January 2008, requesting
“written confirmation that Focus’s indemnity obligations specifically apply to the
Louisiana class action and OWC proceedings so that Cambridge can seek
appropriate orders dismissing it from these Louisiana litigations.” Concentra
declined to provide that confirmation. Early in February 2008, Cambridge
formally demanded defense and indemnification from Concentra with respect to
Gunderson and the OWC proceedings. Concentra refused to provide a defense
or indemnification.
The following month, Cambridge filed the instant declaratory judgment
action in the district court, seeking a holding that Concentra owed it defense and
indemnification for any future liability in Gunderson and in the OWC

5

Case: 11-31032

Document: 00512000584

Page: 6

Date Filed: 09/26/2012

No. 11-31032
proceedings.

Concentra sought and obtained a stay of this action, and

Gunderson proceeded against Cambridge.
C.

The Cambridge Settlement
Cambridge did not assert the Focus Settlement release as a defense in

Gunderson. Instead, in November 2009, Cambridge settled with the Gunderson
plaintiffs (“the Cambridge Settlement”).6

The Cambridge Settlement

incorporated Paragraph 8.6 of the Focus Settlement, but it also included
language appearing to reserve some claims against Concentra:
The Cambridge Interests agree to release [Concentra ] to the extent,
and only to the extent, that such release is required by Paragraph
8.6 of the Focus Settlement

Agreement with Plaintiffs.

The

Cambridge Interests retain all rights to assert claims outside of
Paragraph 8.6, including claims arising from [Concentra's] breach
of their contractual, tort, or indemnity obligations with respect to
the defense of the Gunderson matter, the OWC proceedings, or any
applicable arbitration proceedings.
In May 2010, Cambridge sought and obtained a lift of the stay in the
instant district court declaratory action and amended its complaint to pursue
damages for the amounts it spent defending and settling Gunderson. Concentra
responded by filing a motion for summary judgment, contending that the Focus
Settlement satisfied its defense and indemnification obligations to Cambridge
by releasing Cambridge from any possible liability for which indemnification
might be owed. Concentra asserted in the alternative that Cambridge had
released all claims for defense and indemnification in the subsequent Cambridge
Settlement.

6

Cambridge paid a total of $10,000,000 to settle Gunderson. Because Gunderson also
involved claims arising out of workers compensation payments which Concentra did not
review, Cambridge seeks only $5,000,000 of the total settlement amount from Concentra.

6

Case: 11-31032

Document: 00512000584

Page: 7

Date Filed: 09/26/2012

No. 11-31032
The district court granted Concentra’s motion for summary judgment,
holding that Concentra had satisfied its defense and indemnification duties
under the Services Agreement by negotiating the Focus Settlement and
obtaining, for the benefit of Cambridge, a release of all Liability for which
Cambridge could have received indemnification. Cambridge timely appealed.
II. Analysis
A.

Standard of Review
We review a district court’s grant of summary judgment de novo, applying

the same legal standards as the district court.7

Summary judgment is

appropriate when “there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”8 When reviewing a summary
judgment, we construe all the evidence and reasonable inferences in the light
most favorable to the nonmoving party.9 We are “not limited to the district
court’s reasons for its grant of summary judgment” and “may affirm the district
court’s summary judgment on any ground raised below and supported by the
record.”10
Concentra urges that because “state law governs issues in dispute, some
deference is due to the district court’s interpretation of the law of the state in
which it sits.”11 The Supreme Court’s opinion in Salve Regina College v. Russell
rejected that proposition.12 Thus, our more recent cases “afford no deference to
7

United States v. Caremark, Inc., 634 F.3d 808, 814 (5th Cir. 2011).

8

Fed. R. Civ. P. 56(a).

9

Amazing Spaces, Inc. v. Metro Mini Storage, 608 F.3d 225, 234 (5th Cir. 2010).

10

Aryain v. Wal-Mart Stores Tex. LP, 534 F.3d 473, 478 (5th Cir. 2008).

11

Villanueva v. CNA Ins. Cos., 868 F.2d 684, 685 (5th Cir. 1989).

12

499 U.S. 225, 234, 240 (1991) (holding that “appellate deference to the district court’s
determination of state law is inconsistent with the principles underlying this Court's decision
in Erie” and that a court of appeals “err[s] in deferring to the local expertise of the district

7

Case: 11-31032

Document: 00512000584

Page: 8

Date Filed: 09/26/2012

No. 11-31032
the district court’s determinations of issues of law of the state in which that
court’s chambers are located.”13
B.

Duty to Indemnify
“Under Louisiana law, indemnity provisions are construed in accordance

with general rules governing contract interpretation. When the terms of a
contract are unambiguous and lead to no absurd consequences, we interpret
them as a matter of law.”14 The district court held as a matter of law that the
terms of the Focus Settlement satisfied Concentra’s contractual duty to defend
and to indemnify Cambridge. We agree with respect to the duty to indemnify,
but we disagree with respect to the duty to defend.
Through the Focus Settlement, Concentra obtained a release of the
Gunderson plaintiffs’ claims against Cambridge for “Liability,” but not for
“Independent Liability.” We repeat for emphasis that, in the Focus Settlement,
Liability is defined as all claims for which Concentra owed Cambridge
indemnification; Independent Liability is defined as everything else. Thus, the
scope of the release was defined by and coextensive with Concentra’s duty to
indemnify Cambridge under the Services Agreement.

Any claim against

Cambridge for which it could have sought indemnification ceased to exist by
operation of the release and under res judicata, thus relieving Cambridge of any
liability for Concentra’s conduct.

We agree with the district court that

court”).
13

Bayou Steel Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 642 F.3d 506, 509
(5th Cir. 2011).
14

Liberty Mut. Ins. Co. v. Pine Bluff Sand & Gravel Co., 89 F.3d 243, 246 (5th Cir.

1996).

8

Case: 11-31032

Document: 00512000584

Page: 9

Date Filed: 09/26/2012

No. 11-31032
Concentra preemptively satisfied its duty to indemnify Cambridge by securing
the release from the Gunderson plaintiffs on Cambridge’s behalf.15
C.

Duty to Defend
The district court did not distinguish between Concentra’s duty to

indemnify and its duty to defend. But “[t]he duty to indemnify and the duty to
defend clearly are separate and distinct duties.”16 We conclude that summary
judgment was inappropriate with respect to the issue of Concentra’s duty to
defend Cambridge.
Concentra owed a duty to defend Cambridge against “any and all claims
... arising or resulting from” Concentra’s conduct. And, if the conduct alleged to
give rise to a claim could not be determined from the pleadings, Concentra’s duty
to defend continues “until the conduct complained of is clarified during the
course of the litigation.”17 By definition, all claims for Liability that were
released arose from Concentra’s conduct. Therefore, if any claims that had been
released were subsequently asserted against Cambridge, or if it was unclear
from the allegations whether the subsequently asserted claims had been
released, Concentra remained contractually obligated to provide Cambridge a
defense.
After the Focus Settlement, the Gunderson plaintiffs pursued claims that
they contended were for unreleased Independent Liability arising solely from
Cambridge’s own conduct. And, the Gunderson plaintiffs presumably would not

15

See La. Civ. Code art. 1854 (“Performance by the obligor extinguishes the
obligation.”).
16

Fed. Ins. Co. v. St. Paul Fire & Marine Ins. Co., 638 So. 2d 1132, 1137 (La. Ct. App.

1994).
17

Concentra argues that paragraph 9.3(c) of the Services Agreement was an “automatic
self-termination provision.” Concentra cites no authority for that proposition and does not
explain how the duty to defend could be extinguished before “the conduct complained of is
clarified during the course of the litigation.”

9

Case: 11-31032

Document: 00512000584

Page: 10

Date Filed: 09/26/2012

No. 11-31032
knowingly pursue claims that had been released. But Cambridge was not a
party to the Focus Settlement and thus was not bound to agree with the
Gunderson plaintiffs that it had any unreleased Independent Liability
whatsoever. Rather, just as the Gunderson plaintiffs were entitled to attempt
to prove any Independent Liability that they could based on Cambridge’s own
conduct, Cambridge was entitled to prove that the claims arose solely from
Concentra’s conduct and thus had been totally released.
When, on this record, we draw every reasonable inference in favor of
Cambridge, we cannot say as a matter of law that all of the claims asserted by
the Gunderson plaintiffs following execution of the Focus Settlement arose
exclusively from Cambridge’s conduct.18 In other words, the nature of those
plaintiffs’ post-settlement allegations was unclear: The release might have
served as a defense to some of those claims.19 As the matter thus remained to
be clarified through litigation, Concentra’s duty to defend was triggered. By
rejecting Cambridge’s tender, Concentra breached its duty to defend until the
conduct underlying those claims was “clarified during the course of the
litigation.” Accordingly, the district court erred as a matter of law when it
granted summary judgment to Concentra with respect to its duty to defend
Cambridge.
D.

The Cambridge Settlement Release
Although the district court granted summary judgment on an incorrect

basis, we may affirm such a judgment “on any grounds supported by the
18

At a state court hearing, for example, counsel for the Gunderson plaintiffs indicated
that the post-settlement claims needed to be clarified during the course of the litigation: “Now,
until you go case by case with each doctor and the bills and what happened and what didn’t
happen, we won’t know what else they may have done wrong, and they would be responsible
for under independent liability.”
19

The release would not have been a complete defense to all of the Gunderson plaintiffs’
claims because, as explained above, some of the class members received payments which had
not involved Concentra or its subsidiary.

10

Case: 11-31032

Document: 00512000584

Page: 11

Date Filed: 09/26/2012

No. 11-31032
record.”20 The district court did not reach Concentra’s alternative argument that
Cambridge released its claims for indemnification or breach of the Services
Agreement through the Cambridge Settlement.

A release in a written

settlement agreement is subject to the general rules of Louisiana contract
interpretation.21

“Interpretation of a contract is the determination of the

common intent of the parties.”22 As Louisiana law construes releases narrowly,
Concentra has the burden of proof “to establish the requisites for a valid
compromise, including the parties’ intent to settle the differences being asserted
in the action” to which the release is asserted as a defense.23
Paragraph 8.6 of the Focus Settlement contractually prohibited the
Gunderson plaintiffs from settling with Cambridge without also securing a
release of Cambridge’s claims against Concentra.

Paragraph 7(D) of the

Cambridge Settlement incorporates this requirement and releases Cambridge’s
claims against Concentra “to the extent, and only to the extent, that such release
is required by Paragraph 8.6 of the Focus Settlement Agreement.”

But

Paragraph 7(D) also states that Cambridge “retain[s] all rights to assert claims
outside of Paragraph 8.6, including claims arising from Focus, Concentra, or
Broadsphire’s [sic] breach of their contractual, tort, or indemnity obligations
with respect to the defense of the Gunderson matter, the OWC proceedings, or
any applicable arbitration proceedings.”
Paragraph 7(D) is in tension with itself. The first sentence expresses
Cambridge’s intent to release all claims against Concentra; the second sentence,
however, expresses an intent to retain an indemnification claim against

20

Lifecare Hosps., Inc. v. Health Plus of La., Inc., 418 F.3d 436, 439 (5th Cir. 2005).

21

Young v. Equifax Credit Info. Servs., Inc., 294 F.3d 631, 637 (5th Cir. 2002).

22

La. Civ. Code art. 2045.

23

See Young, 294 F.3d at 637.

11

Case: 11-31032

Document: 00512000584

Page: 12

Date Filed: 09/26/2012

No. 11-31032
Concentra. Construing Paragraph 7(D) narrowly, as is required by Louisiana
law, we find it internally inconsistent and ambiguous as to which claims
Cambridge intended to release. Accordingly, we cannot say that Concentra has
borne its burden to show that Cambridge’s present claims come within the ambit
of the release. The summary judgment cannot be affirmed on that basis.
As a drafter of the Cambridge Settlement, Cambridge is at least partially
responsible for the ambiguity in Paragraph 7(D). Perhaps it is problematic to
allow Cambridge to benefit from that ambiguity, but on these facts, the only
reason a release exists at all is because the original Focus Settlement
preemptively required the Gunderson plaintiffs to secure one. Cambridge was
not a party to the Focus Settlement and was under no independent contractual
obligation to release Concentra. If the release does not achieve all the results
that Concentra wanted, its remedy should lie against the Gunderson plaintiffs.
E.

Remand
Because we must remand on the issue of the duty to defend, Cambridge

is entitled to prove the quantum of damages caused by that breach, including
fees and costs of defense in Gunderson. It is impossible for us to tell from the
present record what those defense costs or other damages might have been. This
is particularly true because Concentra’s duty to defend would have lasted only
“until the conduct complained of is clarified during the course of the litigation.”
The district court is in the better position to address these fact-intensive issues
on remand.
Concentra raises other arguments in favor of affirming the summary
judgment, none of which avoid the need for a remand. First, Concentra claims
that the PPO discounts it recommended to Cambridge pursuant to the Services
Agreement, which were the subject of at least part of the claims in Gunderson,
were permissible under Louisiana law. But Cambridge’s suit is premised on
breach of the duty to defend under the Services Agreement.
12

Whether

Case: 11-31032

Document: 00512000584

Page: 13

Date Filed: 09/26/2012

No. 11-31032
Concentra’s conduct complied with Louisiana law may have been a defense to
the state-law claims in Gunderson, but that does not defeat Concentra’s duty to
assert that defense on Cambridge’s behalf.
Second, Concentra claims that Cambridge failed to mitigate its damages
when it did not assert the Focus Settlement release as a defense in Gunderson.
According to Concentra, if the Gunderson plaintiffs were indeed pursuing claims
for released Liability, then Cambridge had a complete defense and could have
mitigated all of its damages instead of settling the claims.24

But even if

Cambridge had successfully asserted the release as a defense, it still would have
incurred defense fees and costs that Concentra was contractually obligated to
provide, for the reasons explained above. Cambridge’s strategic decision to settle
instead of asserting the release might be relevant to a determination whether
Concentra is liable for any portion of the amounts that Cambridge paid to settle
the case, or whether Cambridge’s defense fees and costs could have been reduced
by promptly asserting the release as a defense.

It does not, however,

categorically defeat the claim for the damages Cambridge actually incurred in
litigating Gunderson after Concentra breached the Services Agreement by
rejecting the tender of defense. We leave the question of damages for the district
court to consider in the first instance on remand.
III. Conclusion
For the foregoing reasons, we affirm the summary judgment of the district
court dismissing Cambridge’s claims against Concentra for indemnification, but
we reverse the summary judgment with respect to Concentra’s duty to defend.
AFFIRMED IN PART, REVERSED IN PART AND REMANDED.

24

Conversely, if the release did not defeat any of the Gunderson plaintiffs’ claims
because those claims were for unreleased Independent Liability, then those claims fell outside
Concentra’s duty to defend and indemnify.

13