Brewer Environmental Industries, LLC et al v. Matson Terminals, Inc. et al
Filing
46
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' 30 MOTION FOR JUDGMENT ON THE PLEADINGS OR FOR SUMMARY JUDGMENT: "On the basis of the foregoing, Defendants' Motion for Judgment on the Pleadings or for Summary Judgment, file d on January 24, 2011, is HEREBY GRANTED IN PART AND DENIED IN PART. The Motion is GRANTED insofar as the Court DISMISSES WITH PREJUDICE Plaintiffs' breach of contract claim and equitable indemnity claim as to Plaintiff Brewer, and Plaintiffs 39; breach of contract claim as to Seabright. The Motion is DENIED insofar as Plaintiff Seabright seeks unreimbursed compensation and medical benefits, plus interest owed, as well as attorneys' fees and legal costs incurred in defending Brewer, plus interest owed, through its equitable indemnity claim. The Court GRANTS Seabright leave to amend its Complaint as specifically permitted by this Order. IT IS SO ORDERED.". Signed by District JUDGE LESLIE E. KOBAYASHI on April 28, 2011. ( bbb, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
BREWER ENVIRONMENTAL
INDUSTRIES, LLC dba BEI LLC,
BEI HOLDINGS, INC., BREWER
ENVIRONMENTAL INDUSTRIES
HOLDINGS, INC. and SEABRIGHT
INSURANCE COMPANY,
)
)
)
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
)
MATSON TERMINALS, INC. and
)
MATSON NAVIGATION COMPANY,
)
INC.,
)
)
Defendants.
_____________________________ )
CIVIL NO. 10-00221 LEK-KSC
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’
MOTION FOR JUDGMENT ON THE PLEADINGS OR FOR SUMMARY JUDGMENT
Before the Court is Defendants Matson Terminals, Inc.’s
(“Matson”) and Matson Navigation Company, Inc.’s (collectively,
“Defendants”) Motion for Judgment on the Pleadings or for Summary
Judgment (“Motion”), filed on January 24, 2011.
Plaintiffs
Brewer Environmental Industries, LLC, doing business as BEI LLC,
BEI Holdings, Inc., Brewer Environmental Industries Holdings,
Inc. (collectively, “Brewer”), and Seabright Insurance Company
(“Seabright”) (all collectively, “Plaintiffs”), filed their
memorandum in opposition to the Motion on March 7, 2011.
Defendants filed their reply on March 11, 2011.
This matter came
on for hearing on April 4, 2011.
Richard Wooten, Esq., appeared
by telephone on behalf of Plaintiffs.
on behalf of Defendants.
John Lacy, Esq., appeared
After careful consideration of the
Motion, supporting and opposing memoranda, and the arguments of
counsel, the Court HEREBY GRANTS IN PART AND DENIES IN PART
Defendants’ Motion for the reasons set forth below.
BACKGROUND
I.
Factual History
On November 10, 2004, non-party Kyle Soares injured his
back while working for Brewer as a longshoreman.
¶ 6.]
[Complaint at
Soares’ injury occurred in the course and scope of his
employment as a covered employee under the Longshore and Harbor
Workers’ Compensation Act, 33 U.S.C. § 901 et seq. (“LHWCA”).
[Id. at ¶ 6 (citing 33 U.S.C. § 902(3)).]
At the time of the
injury, Brewer was covered by Seabright under a workers’
compensation insurance policy1 (“Insurance Policy”) for claims
brought by its employees under the LHWCA.
[Id. at ¶ 7.]
Following a medical release by his treating physician, Soares
returned to work on January 3, 2005.
[Id. at ¶ 15.]
On January 31, 2005, Brewer and Defendants entered into
1
The Insurance Policy is attached to Defendants’ Separate
and Concise Statement of Facts in Support of its Motion for
Judgment on the Pleadings or for Summary Judgment (“CSOF”) as
Exhibit A to the Declaration of Counsel. [Filed 1/24/11 (dkt.
no. 31-3).] According to the Insurance Policy, the coverage was
effective beginning December 1, 2003. [Insurance Policy at
SEA.SOA 0142.]
2
an Asset Purchase Agreement2 (“Agreement”) whereby Brewer agreed
to sell and Defendants agreed to purchase HT&T Stevedoring, a
business providing stevedoring services on the island of Hawai`i.
[Id. at ¶ 10.]
The Agreement contains an indemnity provision
which provides, in relevant part:
Purchaser shall indemnify, defend, and hold
harmless Seller from and against any and all loss,
damage, claim, cost and expense and any other
liability whatsoever (including, without
limitation, reasonable attorneys’ fees, charges
and costs) incurred by Seller by reason of any
claim, demand or litigation relating to the
Property Employees which arise from any act,
omission, occurrence or matters that take place
after the Cut-off Time.
[Agreement at ¶ 5.3.]
The “Cut-off Time” for the Agreement was
January 31, 2005 at 11:59 p.m.
[Agreement at 1, ¶¶ 1.11, 1.5.]
As a “Property Employee”, Soares became Defendants’ employee
effective February 1, 2005.
II.
[Id. at ¶¶ 1.27, 5.2.]
Procedural History
On June 10, 2005, Soares filed a claim with the Office
of Workers’ Compensation Programs, United States Department of
Labor (“OWCP”), for compensation under the LHWCA against Brewer
and Seabright for his November 10, 2004 injury.
16.]
[Complaint at ¶
In accordance with the Insurance Policy, Seabright timely
paid Soares his compensation benefits and covered his medical
expenses.
[Id. at ¶ 7.]
2
The Agreement is attached to Defendants’ CSOF as Exhibit B
to the Declaration of Counsel. [Dkt. no. 31-4.]
3
On February 21, 2006, Soares filed a second claim with
the OWCP for compensation against Defendants for “cumulative
trauma”.
[Id. at ¶ 16.]
Plaintiffs tendered the defense and
indemnity for Soares’ “cumulative trauma” claims to Defendants on
June 5, 2006, but Defendants refused to acknowledge liability.
Seabright paid for Soares’ compensation benefits and medical
expenses, and covered the attorneys’ fees and costs of defending
Brewer.
[Id. at ¶¶ 17-18.]
United States Department of Labor Administrative Law
Judge (“ALJ”) Gerald Etchingham held a hearing on the “cumulative
trauma” claim on November 29, 3007.
On June 13, 2008, ALJ
Etchingham issued his Decision and Order Awarding Benefits
(“Administrative Order”).3
[Admin. Order at 1-2.]
ALJ
Etchingham concluded that Soares’ back injury worsened as a
result of his work for Defendants, and that Defendants were
liable as the last responsible employer.
As a result, ALJ
Etchingham ordered Defendants to pay all disability compensation
and medical benefits due to Soares.
He further ordered
Defendants to reimburse Plaintiffs for compensation and medical
expenses paid by Seabright to Soares for the time period after he
began working for Defendants on February 1, 2005.
The issue of
attorneys’ fees was not before ALJ Etchingham and he did not rule
3
The Administrative Order is attached to Defendants’ CSOF
as Exhibit C to the Declaration of Counsel. [Dkt. no. 31-5.]
4
on the matter.
[Id. at 27-28.]
According to the Complaint, “Defendants have failed and
refuse to reimburse Plaintiffs in full for the compensation,
medical expenses, and benefits it paid after Soares began working
for Defendants in 2005[,]” as well as for the legal fees and
costs incurred in defending Brewer against Soares’ claims.
[Complaint at ¶ 20.]
Both parties now appear to agree, however,
that Defendants reimbursed Seabright for the “post-January 31,
2005 benefits” provided by Seabright to Soares.4
[Mem. in Opp.
at 2; Mem. in Supp. of Motion at 5.]
On April 16, 2010, Plaintiffs filed their Complaint
asserting two causes of action.
Plaintiffs’ first claim alleges
that Defendants breached Paragraph 5.3 of the Agreement by
failing to defend and indemnify Plaintiffs.
Plaintiffs’ second
claim alleges that they are entitled to equitable indemnity.
Under both claims, Plaintiffs seek: (1) payment of $1,700.00 in
LHWCA compensation and medical benefits, including interest; and
4
Defendants claim that they paid the compensation and
medical benefits ordered by ALJ Etchingham. Defendants also
claim that they reimbursed Seabright for the benefits it paid to
Soares. [Mem. in Supp. of Motion at 5.] Plaintiffs contend that
Matson’s insurance company, Signal Mutual Indemnity Association,
Ltd. (“Signal”), made such payments on behalf of Matson. [Mem.
in Opp. at 2.] Copies of Signal’s checks to Seabright and its
accompanying correspondence are attached to Plaintiffs’ Separate
Concise Statement in Opposition to Defendant’s [sic] Motion for
Judgment on the Pleadings or for Summary Judgment as Exhibit B to
the Declaration of Steven Wiper. [Filed 3/07/11 (dkt. no. 358).]
5
(2) $139,527.04 in attorneys’ fees and costs.
[Complaint at ¶¶
21-32.]
In the instant Motion, Defendants request judgment on
the pleadings or, in the alternative, summary judgment.
Defendants argue that: (1) Plaintiffs lack standing; (2) the
LHWCA, as the exclusive remedy in this case, does not provide for
the recovery of attorneys’ fees and court costs; and (3) the
American Rule bars the recovery of attorneys’ fees and expenses.
In their Memorandum in Opposition to the Motion,
Plaintiffs refute Defendants’ standing argument, contending that
Seabright has standing as both an intended third-party
beneficiary and an assignee under the Agreement.
Plaintiffs then
rebut Defendants’ claim that the LHWCA provides the exclusive
remedy in this case, arguing that the exclusive remedy provision
applies to tort liability but not contract claims.
Finally,
Plaintiffs argue that they are entitled to reimbursement for
their expenditures, including attorneys’ fees and costs, under
the doctrines of equitable indemnity and equitable subrogation.
In their Reply, Defendants refute Plaintiffs’ arguments
that Seabright is a third-party beneficiary and assignee under
the Agreement and contend that Plaintiffs’ equitable claims are
barred by the LHWCA or otherwise inapplicable.
6
DISCUSSION
I.
Applicable Law
“When a contract is a maritime one, and the dispute is
not inherently local, federal law controls the contract
interpretation.”
Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 22-23
(2004) (citing Kossick v. United Fruit Co., 365 U.S. 731, 735, 81
S. Ct. 886 (1961)).
Where a maritime contract’s interpretation
implicates local interests, however, it “beckon[s] interpretation
by state law.”
Ct. 886).
Id. at 27 (citing Kossick, 365 U.S. at 735, 81 S.
As explained by the Ninth Circuit:
[A] contractual claim gives rise to Section 1333
admiralty jurisdiction when the underlying
contract is “maritime in nature.” Norfolk S. Ry.
Co. v. James N. Kirby, 543 U.S. 14, 26, 125 S. Ct.
385, 160 L. Ed.2d 283 (2004). To make this
determination, we must examine a contract to
determine “whether the principal objective of a
contract is maritime commerce.” Id. at 25, 125 S.
Ct. 385. In adopting this framework, the Supreme
Court rejected the longstanding “spatial approach”
to determining the maritime nature of contracts.
Id. at 24-25, 125 S. Ct. 385. The Court instead
held that a “conceptual approach” was needed
because modern maritime commerce “is often
inseparable from some land-based obligations.”
Id. at 25, 125 S. Ct. 385. The conceptual
approach acknowledges this modern reality by
examining whether the contract references
“maritime service or maritime transactions.” Id.
at 24, 125 S. Ct. 385 (quoting N. Pac. S.S. Co. v.
Hall Brothers Marine Ry. & Shipbuilding Co., 249
U.S. 119, 125, 39 S. Ct. 221, 63 L. Ed. 510
(1919)).
ProShipLine Inc. v. Aspen Infrastructures Ltd., 609 F.3d 960, 967
(9th Cir. 2010).
7
Where a court finds that a contract is a maritime one,
the court must then determine whether the parties’ dispute is
inherently local.
As explained by the Supreme Court in Norfolk
Southern Railway:
[N]ot “every term in every maritime contract can
only be controlled by some federally defined
admiralty rule.” Wilburn Boat Co. v. Fireman’s
Fund Ins. Co., 348 U.S. 310, 313, 75 S. Ct. 368,
99 L. Ed. 337 (1955) (applying state law to
maritime contract for marine insurance because of
state regulatory power over insurance industry).
A maritime contract’s interpretation may so
implicate local interests as to beckon
interpretation by state law. . . . [W]hen state
interests cannot be accommodated without defeating
a federal interest . . . then federal substantive
law should govern.
543 U.S. at 27 (some citations omitted).
The instant case involves two contracts: a contract for
the sale of a stevedoring business and a workers’ compensation
insurance policy issued to a stevedoring company.
The first
contract, the Agreement, is fundamentally “maritime in nature.”
It concerns the sale of a company that is in the business of
loading and unloading vessels in a port.
See Simon v.
Intercontinental Transp. (ICT) B.V., 882 F.2d 1435, 1443 (9th
Cir. 1989) (“Stevedoring contracts are maritime because of their
connection to the sea and to maritime commerce.”).
The dispute,
however, appears to be inherently local: it concerns the right to
obtain reimbursement for payments made and costs incurred in a
workers’ compensation case.
The Agreement is a contract for the
8
sale of a Hawai`i company, HT&T Stevedoring, from two Hawai`i
companies, Plaintiffs Brewer Environmental Industries, LLC, doing
business as BEI LLC, and BEI Holdings, Inc., to another Hawai`i
company, Defendant Matson Terminals, Inc.5
[Agreement at 1.]
Moreover, Paragraph 12.10 of the Agreement provides that the
contract “shall be construed under and be governed by the laws of
the State of Hawaii[,]” and there is no indication that applying
such law in this case would defeat a federal interest.
The Court
therefore FINDS that Hawai`i state law applies to claims arising
from the Agreement.
While the second contract, the Insurance Policy,
specifically concerns a maritime employer’s liability for workers
injured in the course of their maritime employment, [Insurance
Policy at SEA.SOA 0147-48 (detailing the policy’s “Maritime
Coverage Endorsement”),] disputes arising from insurance policies
are generally governed by state law, Wilburn Boat Co. v.
Fireman’s Fund Ins. Co., 348 U.S. 310, 313-14 (1955) (explaining
that state regulatory power over maritime contracts “has always
been particularly broad in relation to insurance companies and
the contracts they make”).
As the Ninth Circuit explained in
Aqua-Marine Constructors, Inc. v. Banks, “disputes over maritime
insurance contracts may be governed by state law, in the same
5
Matson Navigation Company, Inc. is listed as a “Parent”
rather than a “Purchaser”. [Agreement at 1.] Its state of
incorporation is not listed in the Agreement.
9
manner as non-maritime insurance contracts, as long as the state
law does not clearly conflict with federal maritime law.”
110
F.3d 663, 667-68 (9th Cir. 1997) (citing Askew v. American
Waterways Operators, Inc., 411 U.S. 325, 341, 93 S. Ct. 1590,
1600, 36 L. Ed. 2d 280 (1973)).
In the instant case, neither of
the parties have asserted, and the Court has failed to discern,
any direct conflict between Hawai`i contract law and federal
maritime law.
The Court therefore FINDS that Hawai`i state law
also applies to claims arising from the Insurance Policy.
II.
Judgment on the Pleadings
Defendants have moved for judgment on the pleadings.
Federal Rule of Civil Procedure 12(c) provides that “[a]fter the
pleadings are closed - but early enough not to delay trial – a
party may move for judgment on the pleadings.”
In considering a
Rule 12(c) motion, a court must accept as true all factual
allegations in the complaint and construe them in the light most
favorable to the non-moving party.
Fleming v. Pickard, 581 F.3d
922, 925 (9th Cir. 2009) (citation omitted).
A motion for
judgment on the pleadings should be granted when there are no
disputed issues of material fact and the moving party is entitled
to judgment as a matter of law.
Id. (citation omitted).
Following the Supreme Court decision’s in Ashcroft v.
Iqbal, 129 S. Ct. 1937 (2009), courts have applied the Iqbal
standard for Federal Rule of Evidence 12(b)(6) motions to Rule
10
12(c) motions.
See, e.g., Peelua v. Impac Funding Corp., Civil
No. 10-00090 JMS/KSC, 2011 WL 1042559, at *2 (D. Hawai`i Mar. 18,
2011) (“Following Iqbal, courts have applied Iqbal to Rule 12(c)
motions.” (citations omitted)); Point Ruston, L.L.C. v. Pac. Nw.
Reg’l Council of the United Bhd. of Carpenters & Joiners, 658 F.
Supp. 2d 1266, 1273 (W.D. Wash. 2009) (“The standard applied on a
Rule 12(c) motion is essentially the same as that applied on a
Rule 12(b)(6) motion[.]” (citation omitted)).
To survive a
motion to dismiss under Iqbal, “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’”
Iqbal, 129 S. Ct. at
1949 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570,
127 S. Ct. 1955 (2007)).
The tenet that the court must accept as
true all of the allegations contained in the complaint “is
inapplicable to legal conclusions.”
Id.
Accordingly,
“[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”
(citing Twombly, 550 U.S. at 555, 127 S. Ct. 1955).
Id.
Rather, “[a]
claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.”
(citing Twombly, 550 U.S. at 556, 127 S. Ct. 1955).
Id.
Factual
allegations that only permit the court to infer “the mere
possibility of misconduct” do not constitute a short and plain
11
statement of the claim showing that the pleader is entitled to
relief as required by Federal Rule of Civil Procedure 8(a)(2).
Id. at 1950.
“Dismissal without leave to amend is improper unless it
is clear that the complaint could not be saved by any amendment.”
Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009)
(citation and quotation marks omitted).
“But courts have
discretion to deny leave to amend a complaint for futility[.]”
Johnson v. American Airlines, Inc., 834 F.2d 721, 724 (9th Cir.
1987) (citation and quotation marks omitted).
Finally, if on a motion for judgment on the pleadings,
“matters outside the pleadings are presented to and not excluded
by the court, the motion must be treated as one for summary
judgment under Rule 56.”
Fed. R. Civ. P. 12(d).
Since no such
matters are presented in the instant case, the Court treats
Defendants’ Motion solely as a request for judgment on the
pleadings.
II.
Standing
As preliminary matter, Defendants argue that Plaintiffs
lack standing.
Defendants contend that, because standing is the
“‘threshold question in every federal case[,]’” Plaintiffs’
“fail[ure] to meet that threshold” warrants judgment on the
pleadings in Defendants’ favor.
[Mem. in Supp. of Motion at 6-7
(quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)).]
A.
Brewer
12
Defendants argue that Brewer lacks standing because it
has not alleged any harm or suffered an injury in fact.
Defendants explain that “there is not a single allegation of a
particularized harm suffered by any of the Brewer plaintiffs[,]”
[id. at 7-8,] and “the monetary amounts which Plaintiffs are
seeking[] were expended solely by Seabright” [id. at 7].
Defendants explain that a plaintiff “‘must have suffered an
injury in fact - an invasion of a legally protected interest
which is (a) concrete and particularized and (b) actual or
imminent, not conjectural or hypothetical.’”
[Id. (quoting Lujan
v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)).]
Defendants
contend that, since Brewer is not among the injured, as required
by the injury-in-fact test, Brewer lacks standing to sue
Defendants.
[Id. at 8.]
Plaintiffs have not addressed this
argument.
The law on standing is clear: “[i]n order to invoke the
jurisdiction of the federal courts, a plaintiff must establish
‘the irreducible constitutional minimum of standing,’ consisting
of three elements: injury in fact, causation, and a likelihood
that a favorable decision will redress the plaintiff’s alleged
injury.”
Lopez v. Candaele, 630 F.3d 775, 785 (9th Cir. 2010)
(quoting Lujan, 504 U.S. at 560-61, 112 S. Ct. 2130) (some
citations omitted).
To demonstrate injury in fact, a plaintiff
“must show that [it] is under threat of suffering ‘injury in
13
fact’ that is concrete and particularized” rather than
“conjectural or hypothetical[.]”
129 S. Ct. 1142, 1149 (2009).
Summers v. Earth Island Inst.,
Explained another way, “Art[icle]
III [of the United States Constitution] requires the party who
invokes the court’s authority to ‘show that he personally has
suffered some actual or threatened injury as a result of the
putatively illegal conduct of the defendant[.]’”
Valley Forge
Christian Coll. v. Ams. United for Separation of Church & State,
Inc., 454 U.S. 464, 472 (1982) (quoting Gladstone, Realtors v.
Village of Bellwood, 441 U.S. 91, 99, 99 S. Ct. 1601, 1608, 60 L.
Ed. 2d 66 (1979)).
“[T]he ‘injury in fact’ test requires more than an
injury to a cognizable interest.
It requires that the party
seeking review be himself among the injured.”
Lujan, 504 U.S. at
563 (internal quotation marks and citation omitted); see also id.
at 561 n.1 (“By particularized, we mean that the injury must
affect the plaintiff in a personal and individual way.”); Warth
v. Seldin, 422 U.S. 490, 501 (1975) (“[T]he plaintiff . . . must
allege a distinct and palpable injury to himself, even if it is
an injury shared by a large class of other possible litigants.”).
The party invoking federal jurisdiction “bears the burden of
establishing standing[,]” including an injury in fact.
Lopez,
630 F.3d at 785.
The only injury that Plaintiffs have pled in the
14
instant case is the unreimbursed payment of compensation,
benefits, attorneys’ fees, and costs stemming from Soares’
cumulative trauma claim.
Both counts in the Complaint allege
that “Plaintiffs have expended, and continue to expend,
significant legal fees and costs asserting [their] claim[s]
against Defendants for reimbursement of the compensation, medical
benefits and defense fees and costs[.]”
(emphasis added).]
[Complaint at ¶¶ 27, 31
Plaintiffs subsequently clarify in each
count, however, that such fees and costs were paid exclusively by
Seabright.
[Id. at ¶¶ 26, 30 (“SEABRIGHT has paid on behalf of
BREWER a sum in excess of $1,700.00 in [LHWCA] compensation and
medical benefits . . . [and] expended a sum in excess of
$139,527.04 in legal fees and costs to defend BREWER against Mr.
Soares’ claims[.]”).]
Seabright’s expenditures do not
demonstrate a clear injury to Brewer.
The Court therefore FINDS
that Brewer lacks standing to bring either the breach of contract
or the equitable indemnity claims.
The Court further FINDS that
the amendment of such claims would be futile.
Accordingly, the
Court DISMISSES WITH PREJUDICE Brewer’s breach of contract and
equitable indemnity claims.
B.
Seabright
1.
Third-Party Beneficiary Status
Defendants contend that Seabright lacks standing
because it is neither a party to the Agreement nor an intended
15
third-party beneficiary.
First, Defendants note that the
Agreement is between Matson and Brewer, and a “well-established
rule in cases involving contract claims is that ‘third parties do
not have enforceable contract rights.’”
[Mem. in Supp. of Motion
at 8 (quoting Ass’n of Apartment Owners of Newton Meadows v.
Venture 15, Inc., 167 P.3d 225, 262 (Haw. 2007) (citing Pancakes
of Hawaii, Inc. v. Pomare Props. Corp., 944 P.2d 97, 106 (Haw.
App. 1997))).]
While Defendants acknowledge that intended
third-party beneficiaries are an exception to this rule, they
argue that Seabright is not an intended third-party beneficiary.
Defendants contend that, where the status of a third party is in
dispute, the “burden is on the plaintiff to show that the
contracting parties intended to confer such a benefit and that
burden requires ‘a virtual express declaration to overcome the
presumption that the parties contracted only for themselves.’”
[Id. at 9 (quoting Ass’n of Apartment Owners, 167 P.3d at 265).]
Defendants argue that the Agreement not only lacks such a
declaration, but that Paragraph 12.8 of the Agreement provides
for exactly the opposite: “the [Agreement] explicitly states that
it does not confer any benefits to third parties.”
(emphasis in original).]
[Id.
As a result, Defendants contend that
Seabright lacks standing and its claims should be dismissed.
[Id. at 11.]
Plaintiffs argue that Seabright is an intended third-
16
party beneficiary of the Agreement.
Plaintiffs argue that the
rights of intended third-party beneficiaries may be express or
“‘implied from the circumstances.’”
[Id. at 11 (quoting
Remington Typewriter Co. v. Kellogg, 19 Haw. 636, 640 (1909))
(emphasis added by Plaintiffs).]
According to Plaintiffs, the
“circumstances” in the instant case imply that Seabright is an
intended third-party beneficiary of the Agreement’s indemnity
provision.
[Id. at 11-12.]
Plaintiffs submit that, since Brewer
and Matson were required to have workers’ compensation insurance
by the LHWCA, [id. at 4-5,] the indemnity provision covering
“reasonable attorney’s fees, charges and costs” was necessarily
intended for their benefit [id. at 12].
“Generally, ‘third parties do not have enforceable
contract rights.
The exception to the general rule involves
intended third-party beneficiaries.’”
Ass’n of Apartment Owners
of Newtown Meadows ex rel. its Bd. of Dirs. v. Venture 15, Inc.,
115 Hawai`i 232, 269, 167 P.3d 225, 262 (2007) (quoting Pancakes
of Hawai`i, Inc. v. Pomare Props. Corp., 85 Hawai`i 300, 309, 944
P.2d 97, 106 (App. 1997)) (emphasis in original).
An intended
third-party beneficiary has standing to enforce contract
provisions from which it is intended to benefit.
Id. at 270, 167
P.3d at 263 (citations omitted).
The party claiming to be an intended third-party
beneficiary bears the burden of proving that status.
17
Id. at 271,
167 P.3d at 264 (citations omitted).
Even where the parties are
aware that a contract – or, in this case, a provision in a
contract – is designed to benefit others, “it is not enough that
the parties know, expect[,] or even intend that such people may
benefit or that they are referred to in the contract.”
Id. at
272, 167 P.3d at 265 (internal quotation marks and citations
omitted) (alteration in original).
Rather, there must be
evidence that the contracting parties intended to confer a direct
benefit on the third party.
Id.
While the rights of a third party beneficiary can arise
from a promise that is “implied from the circumstances,” Jou v.
Nat’l Interstate Ins. Co. of Hawaii, 114 Hawai`i 122, 131, 157
P.3d 561, 570 (Haw. Ct. App. 2007) (citation and internal
quotation marks omitted), the circumstances in this case do not
merit such a finding.
The disputed contract provision, Paragraph
5.3, refers exclusively to the “Purchaser,” Defendant Matson
Terminals, Inc.,6 and the “Seller,” Plaintiffs Brewer
Environmental Industries, LLC, doing business as BEI LLC, and BEI
Holdings, Inc.
[Agreement at 1, 12 ¶ 5.3 (“Purchaser shall
indemnify, defend, and hold harmless Seller from and against any
and all loss, damage, claim, cost and expense and any other
liability whatsoever (including, without limitation, reasonable
6
As explained in footnote 5, supra, Matson Navigation
Company, Inc. is listed not as the “Purchaser” but rather the
“Parent”. [Agreement at 1.]
18
attorneys’ fees, charges and costs) incurred by Seller . . .
.”).]
The indemnity provision mentions neither Seabright in
particular nor insurance companies in general.
Hawai`i courts
are loathe to find intended third-party beneficiary status absent
a clear recognition of the third party and the conferred benefit.
See Laeroc Waikiki Parkside, LLC v. K.S.K. (Oahu) Ltd. P’ship,
115 Hawai`i 201, 215 n.15, 166 P.3d 961, 975 n.15 (2007) (finding
no third party beneficiary status in part because “the Agreement
does not indicate that the [contracting parties] agreed between
themselves to bestow a benefit upon the [third parties] . . .”
(internal quotation marks omitted)); see also Pancakes of Hawaii,
85 Hawai`i at 309, 944 P.2d at 106 (finding no third party
beneficiary status where “nothing in the terms of the lease or in
the record indicates [that the third parties] would benefit in
any way from the lease agreement”).7
The Agreement, furthermore, contains an express
provision stating that the contracting parties do not intend to
7
The Court is not persuaded by Plaintiffs’ argument that
Laeroc Waikiki Parkside and Pancakes of Hawaii are inapposite
because they do not involve “stevedoring companies and their
respective workers’ compensation insurers, a contract for the
sale of a stevedoring operation, the transfer of longshore
workers, or a contractual cross-indemnity obligation for injuries
to those longshore workers.” [Mem. in Opp. at 15-16.] The Court
has determined that the contracts at issue in this case implicate
local interests and therefore beckon interpretation by Hawai`i
state law. See Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 27
(2004). The Court is aware of no authority suggesting that such
law is inapplicable merely because the instant contracts involve
matters relating to stevedoring companies.
19
confer any rights to third parties.
Paragraph 12.8 of the
Agreement provides:
Third Parties. Nothing in this Agreement, express
or implied, is intended to confer upon any person,
other than the Parties and their respective heirs,
executors, personal representatives, successors
and assigns, any rights or remedies under or by
reason of this Agreement. Nor is anything in this
Agreement intended to relieve or discharge the
obligation or liability of any third person to any
Party, nor shall any provision herein be construed
so as to give any third person any right of
subrogation or action over against [sic] any
Party.
Paragraph 12.8 disclaims the parties’ intent to confer, either
expressly or by implication, any rights to others.
In Laeroc
Waikiki Parkside, the Hawai`i Supreme Court cited a similar
contract provision disclaiming third parties as evidence that the
contracting parties did not intend to confer any rights to
alleged intended third-party beneficiaries.
115 Hawai`i at 215
n.15, 166 P.3d at 975 n.15.
The Court is not persuaded by Plaintiffs’ argument that
the indemnity provision necessarily applied to Seabright because
the LHWCA required Brewer to have workers’ compensation
insurance.
Plaintiffs insist that 33 U.S.C. § 932 of the LHWCA
“requires stevedore/employers such as Brewer and Matson/BIS to
obtain workers’ compensation insurance[.]”
[Mem. in Opp. at 5.]
As Plaintiffs argue in the opening lines of their Memorandum in
Opposition:
[A]s a matter of federal law, [the LHWCA,] both
20
Brewer and Matson were required to obtain workers
[sic] compensation insurance covering injury
claims by the longshoremen/employees. Thus, any
indemnity dollars that either Brewer or Matson
might seek from, or pay to, the other under the
indemnity provision in connection with an employee
claim would, by law, necessarily be borne in the
first instance by their respective [LHWCA]
insurers.
[Id. at 1-2 (emphasis in original).]
In support of this
argument, Plaintiffs quote the first part of § 932(a), which
provides that “[e]very employer shall secure the payment of
compensation under the chapter – (1) By insuring and keeping
insured the payment of such compensation with any stock company
or mutual company or association, or with any other person or
fund . . .” as authorized by § 932(a)(1)(A)-(B).
While employers like Brewer and Matson may satisfy §
932(a)’s “security for compensation” requirement by obtaining
insurance, § 932(a)(2) offers employers an alternative option.
Under § 932(a)(2), employers may secure payment of compensation
by “furnishing satisfactory proof to the Secretary [of Labor] of
his financial ability to pay such compensation and receiving an
authorization from the Secretary [of Labor] to pay such
compensation directly.”
In other words, an employer may provide
proof of its own financial ability to pay compensation in lieu of
purchasing insurance.
See Simon v. Intercontinental Transp.
(ICT) B.V., 882 F.2d 1435, 1143 n.3 (9th Cir. 1989) (“A stevedore
may meet the security requirement either by insuring or by
21
furnishing proof of ability to pay compensation directly.”
(citing 33 U.S.C. § 932(a))); see also Boating Indus. Ass’ns v.
Marshall, 601 F.2d 1376, 1378 (9th Cir. 1979) (“The LHWCA
requires employers whose employees are engaged in ‘maritime
employment’ to secure the payment of compensation provided for by
the [LHWCA] either through insurance or by proof of financial
ability to act as a self-insurer.” (footnote omitted)).
The
contracting parties, therefore, need not have intended to
implicate Seabright – or any insurer for that matter – in
assenting to the Agreement’s indemnity provision.
Even assuming, arguendo, that Brewer was obligated to
carry workers’ compensation insurance in accordance with §
932(a)(1) due to an inability to adequately self-insure under §
932(a)(2), the Court is not convinced that the contracting
parties intended for Seabright to be an intended third-party
beneficiary under the Agreement.
Since the LHWCA does not
specify the manner in which insurance under § 932(a)(1) must be
provided, employers like Brewer are free to enter into policies
in which they must pay a certain amount of compensation and
benefits before triggering coverage.
See, e.g., Leblanc v. W-
Indus. of La., LLC, Civil Action No. 07-1495, 2009 WL 911014, at
*3 (E.D. La. Apr. 1, 2009) (explaining that under the LHWCA, an
employer can self-insure in whole or in part) (citing 33 U.S.C. §
932).
In such cases, an indemnity provision such as the one in
22
Paragraph 5.3 need not automatically confer intended third-party
beneficiary status to an employer’s insurer in order to carry
meaning.
In summary, the Agreement contains no “virtual express
declaration to overcome the presumption that the parties
contracted only for themselves.”
Ass’n of Apartment Owners of
Newton Meadows, 115 Hawai`i at 272, 167 P.3d at 265 (citation and
quotation marks omitted).
Plaintiffs, moreover, fail to identify
any language in the indemnity provision that makes any reference
to Seabright.
While at least one party, Brewer, was aware that
Seabright served as its workers’ compensation insurer when the
parties entered into the Agreement, it is not enough that the
parties – or, in this case, a single party – knew, expected, or
even intended that Seabright may benefit from the indemnity
clause.
See id.
Thus, there is no evidence that the parties
intended to directly benefit Seabright.
The Court therefore
FINDS that Seabright does not have standing to bring the breach
of contract or equitable indemnity claims as an intended thirdparty beneficiary.
2.
Assignee Status
Plaintiffs argue that Seabright also has standing to
bring the instant claims because of its status as a Brewer
“assign”.
Plaintiffs argue that “Seabright certainly is an
‘assign’ of Brewer with regard to the ‘Property Employees’
23
indemnity provision” because “[t]he standard workers’
compensation policy that Brewer obtained from Seabright includes
a provision by which Brewer contractually assigned its rights to
Seabright to recover from third-parties [sic] any payments made
under the policy.”
[Mem. in Opp. at 14 (citation omitted).]
Plaintiffs reason that, due to this assignment, Seabright is
entitled to any recovery rights subsequently acquired by Brewer,
including the indemnity rights conferred by Matson to Brewer
under the Agreement.
[Id. at 14-15.]
Defendants reject Plaintiffs’ assignment argument,
contending that Seabright is not a Brewer assignee under the
Agreement by virtue of the Insurance Policy.
[Reply at 10.]
Defendants argue that the Agreement’s failure to mention
Seabright, even though the Insurance Policy was in effect when
Matson and Brewer entered into the Agreement, is evidence that
the parties did not intend to assign Brewer’s indemnity rights to
Seabright.
Moreover, Defendants argue that “Brewer had no
contract rights to assign at the time the insurance policy was
issued” because its rights acquired under the Agreement did not
yet exist.
[Id. at 10-11.]
Although the Hawai`i courts have yet to examine the
assignment issue presently before this Court, the Hawai`i Supreme
Court has consistently invoked the Restatement (Second) of
Contracts in analyzing matters of contract law.
24
See, e.g., Jou
v. Dai-Tokyo Royal State Ins. Co., 116 Hawai`i 159, 168-69, 172
P.3d 471, 480-81 (2007) (adopting the Restatement (Second) of
Contract’s guidelines for determining when a party is an intended
third-party beneficiary); Found. Int’l, Inc. v. E.T. Ige Constr.,
Inc., 102 Hawai`i 487, 497-98, 78 P.3d 23, 33-34 (2003)
(embracing the Restatement (Second) of Contract’s standard for
settling misunderstandings as to a contract term).
This Court,
therefore, turns to the Restatement (Second) of Contracts for
guidance on the assignment of contract rights.
Section 317(1) of the Restatement (Second) of Contracts
provides, in relevant part: “[a]n assignment of a right is a
manifestation of the assignor’s intention to transfer it by
virtue of which the assignor’s right to performance by the
obligor is extinguished in whole or in part and the assignee
acquires a right to such performance.”
Contractual rights may be
assigned unless:
(a) the substitution of a right of the assignee
for the right of the assignor would materially
change the duty of the obligor, or materially
increase the burden or risk imposed on him by his
contract, or materially impair his chance of
obtaining return performance, or materially reduce
its value to him, or
(b) the assignment is forbidden by statute or is
otherwise inoperative on grounds of public policy,
or
(c) assignment is validly precluded by contract.
25
Restatement (Second) of Contracts § 317(2).8
The Restatement (Second) of Contracts also provides for
the assignment of future rights.
Under the Restatement (Second)
of Contracts § 321(2), parties may assign future rights where the
assignment concerns “right[s] expected to arise under a contract
not in existence . . . .”
In such cases, the “purported
assignment . . . operates only as a promise to assign the right
when it arises and as a power to enforce it.”
Id.
In the instant case, Brewer obtained a workers’
compensation insurance policy from Seabright with coverage
effective beginning December 1, 2003.
SEA.SOA 0148.]
[Insurance Policy at
Plaintiffs insist that a policy provision
entitled “Recovery From Others” operated as an assignment of
recovery rights from Brewer to Seabright.
[Mem. in Opp. at 14.]
The provision states: “We have your rights, and the rights of
persons entitled to the benefits of this insurance, to recover
our payments from anyone liable for the injury.
You will do
everything necessary to protect those rights for us and to help
us enforce them.”
[Insurance Policy at SEA.SOA 0137.]
8
This
In examining the validity of an assignment in AIG Hawaii
Ins. Co. v. State Farm Ins. Co., No. 27789, 2008 WL 4539335, at
*4 (Haw. Ct. App. Oct. 8, 2008), the Intermediate Court of
Appeals quoted verbatim § 317 of the Restatement (Second) of
Contracts. Since AIG Hawaii Insurance Co. is an unpublished
dispositional order dated after July 1, 2008, the Court cites the
case for its persuasive, but not precedential, value. See Haw.
R. App. P. 35(c)(2).
26
provision appears to be a valid assignment of presently-held
rights under § 317(1) and not an assignment of future rights
under § 321(2).
Brewer clearly manifests an intent to transfer
to Seabright its rights to recover its payments from those liable
for injuries, but there is no mention of future rights, let alone
“right[s] expected to arise under a contract not in existence . .
. .”
§ 321(2).
Since none of the parties dispute this assignment and
it does not appear to implicate any of the limitations imposed by
§ 317(2), the key issue is: can an assignment of rights be
applied prospectively so as to include similar rights acquired by
the assignor at a later time?
In other words, do the indemnity
rights conferred by Matson to Brewer in the Agreement
automatically transfer to Seabright due to Brewer’s earlier
assignment of recovery rights?
Under Hawai`i law, “[a]n assignment operates to place
the assignee in the shoes of the assignor, and provides the
assignee with the same legal rights as the assignor had before
assignment.”
Fireman’s Fund Ins. Co. v. AIG Hawai`i Ins. Co.,
109 Hawai`i 343, 349, 126 P.3d 386, 392 (2006) (citations,
quotation marks, and emphasis omitted) (alteration in original).
As a result, under Fireman’s Fund Insurance, Brewer transferred
to Seabright its rights as they existed prior to the assignment.
Brewer’s subsequently-acquired indemnity rights were not a part
27
of that transfer and therefore cannot be enforced by Seabright.
The Court is unaware of any Hawai`i cases that have expanded this
principle to include legal rights that the assignor acquired
after the assignment.
Based on the foregoing, the Court FINDS that Brewer
assigned its recovery rights to Seabright as they existed at the
time the parties entered into the Insurance Policy.
The Court
further FINDS that the assigned recovery rights do not extend to
the indemnity rights conferred by Matson to Brewer in the
Agreement.
The Court therefore CONCLUDES that Seabright lacks
standing to pursue its breach of contract claim because it has no
enforceable contract rights against Matson, but Seabright has
standing as an assignee to pursue its equitable indemnity claim
to the extent that the claim stems from the rights assigned by
Brewer to Seabright under the Insurance Policy.
Since amendment
of Seabright’s breach of contract claim would be futile, the
Court DISMISSES the claim WITH PREJUDICE.
3.
Alternative Grounds
Plaintiffs have not articulated any alternative bases
for standing for Seabright to bring its equitable indemnity
claim.
Since the party invoking federal jurisdiction has the
burden of establishing standing, see Lujan v. Defenders of
Wildlife, 504 U.S. 555, 561 (1992), the Court FINDS that
Seabright has standing to assert its equitable indemnity claim
28
only insofar as the equitable indemnity claim arises from the
rights assigned to it by Brewer under the Insurance Policy.
III. Applicability of the LHWCA’s Exclusive Remedy Provision
Defendants argue that, even if the Court finds that
Plaintiffs have standing, their claims are barred by the LHWCA,
which serves as the “exclusive remedy in cases brought as a
result of longshore injuries.”
[Mem. in Supp. of Motion at 12.]
In support of this argument, Defendants cite § 905(a) of the
LHWCA, which provides in relevant part: “The liability of an
employer prescribed in section 904 of this title shall be
exclusive and in place of all other liability of such employer to
the employee, his legal representative . . . and anyone otherwise
entitled to recover damages from such employer at law or in
admiralty on account of such injury or death . . . .”
§ 905(a).
33 U.S.C.
Defendants note that, “[w]hile courts have held that
certain third party [sic] claims can survive, ‘only contractbased indemnity could overcome the “on account of” language of §
905(a).’”
[Reply at 12 (quoting Zapico v. Bucyrus-Erie Co., 579
F.2d 714, 722 (2d Cir. 1978)) (some citations omitted).]
Defendants contend, therefore, that Seabright’s claims are barred
“unless it can demonstrate a contractual duty of indemnity that
brings the claims outside the LHWCA.”
[Id. at 13.]
Plaintiffs argue that the § 905(a) exclusive remedy
provision does not apply because they are seeking to enforce
29
Matson’s contractual duty to Seabright.
[Mem. in Opp. at 17.]
Plaintiffs insist that, while § 905(a) “limits a stevedore
employers’ [sic] exposure for tort damages ‘on account of’ an
employee’s injury or death[,]” it “is not a license for a
stevedore to breach its contractual obligations to third-parties
[sic].”
[Id. at 18.]
In support of this position, Plaintiffs
cite several district court decisions finding that § 905 may be
overcome when the action is based on the breach of an independent
duty.
[Id. at 17-18 (citing Burnett v. A Botacchi S.A. de
Navegacion, 882 F. Supp. 1050, 1053 (S.D. Fla. 1994); Inland Oil
& Transport Co. v. City of Mount Vernon, 624 F. Supp. 122, 125
(S.D. Ind. 1985); Passman v. Rigging Int’l Inc., 1999 U.S. Dist.
LEXIS 9046, *9 (E.D. Pa. 1999)).]
Neither party has cited authority applying § 905(a)’s
exclusivity provision to facts analogous to those presented here,
nor has the Court found any decisions by the Ninth Circuit that
are particularly on point.
The scope of § 905(a)’s exclusivity
provision was examined, however, by the District Court for the
Southern District of California in Johnson v. National Steel &
Shipbuilding Co., 742 F. Supp. 1062 (S.D. Cal. 1990).
In
assessing whether § 905(a) permitted third parties to bring
claims against LHWCA employers, the court explained:
Section 905(a) states that the liability of the
employer “shall be exclusive . . . to the
employee, his legal representative, husband or
wife . . . and anyone entitled to recover damages
30
from such employer at law or in admiralty on
account of such injury or death . . . .” 33
U.S.C.A. § 905(a) (emphasis added). The majority
of cases have reasoned that nonvessel third party
actions based on contractual indemnity are not
barred by the statute because they do not arise
“on account of” the injury or death of the
employee, the actions are on account of the
express or implied indemnity contract between the
employer and the third party. See, e.g. Pippen,
661 F.2d at 386-87; Zapico v. Bucyrus-Erie Co.,
579 F.2d 714, 721-22 (2nd Cir. 1978); Horton, 616
F. Supp. at 131; Holden v. Placid Oil Co., 473 F.
Supp. 1097, 1099-1100 (E.D. La. 1979).
Johnson, 742 F. Supp. at 1066 (alterations in original).
The
court’s finding in Johnson conforms with Plaintiffs’ position
that § 905(a) can be overcome where the action is “on account of”
an independent duty owed by the employer to a third party.
The Hawai`i Supreme Court made a similar finding in
Kamali v. Hawaiian Electric Co., 54 Haw. 153, 504 P.2d 861
(1972), where the court examined whether the exclusive liability
provision of Hawaii’s Workers’ Compensation Law, Hawai`i Revised
Statutes Chapter 386, precluded a third-party claim for
indemnity.
Hawai`i Revised Statutes § 386-5 provides:
The rights and remedies herein granted to an
employee or the employee’s dependents on account
of a work injury suffered by the employee shall
exclude all other liability of the employer to the
employee, the employee’s legal representative,
spouse, dependents, next of kin, or anyone else
entitled to recover damages from the employer, at
common law or otherwise, on account of the injury,
except for sexual harassment or sexual assault and
infliction of emotional distress or invasion of
privacy related thereto, in which case a civil
action may also be brought.
31
The court in Kamali concluded that although
the language of HRS § 386-5 seems to limit all
liability on the part of an employer, we are of
the opinion that the exclusive liability provision
precludes only those actions which arise ‘on
account’ of the employee’s injury. A third party
claim for indemnity is not based on the employee’s
injury but is for reimbursement based upon
contract or some other independent duty existing
between indemnitor and indemnitee.
54 Haw. at 159, 504 P.2d at 865 (citing Ryan Stevedoring Co. v.
Pan-Atlantic Steamship Corporation, 350 U.S. 124, 76 S. Ct. 232,
100 L. Ed. 133 (1955)).
Since Seabright’s equitable indemnity claim arises “on
account of” an independent third-party indemnity obligation
allegedly owed by Matson to Seabright, the Court FINDS that the
LHWCA’s exclusive remedy provision does not bar Seabright from
bringing that claim.
IV.
Equitable Indemnity
Seabright’s surviving claim seeks equitable
indemnification.
In their Complaint, Plaintiffs assert that they
are entitled to equitable indemnification because of Defendants’
failure to reimburse Seabright for its payments to Soares.
[Complaint at ¶¶ 30-31.]
Plaintiffs argue that “[w]ithout
reference to the [Agreement], Seabright . . . has a right of
equitable indemnity directly against Matson[.]”
[Mem. in Opp. at
16 (citing Complaint at page 7; Hydo-Air Equipment, Inc. v. Hyatt
Corp., 852 F.2d 403, 406 (9th Cir. 1988)).]
32
Defendants contend that Seabright’s equitable
indemnification claim is not actionable because indemnity claims
are fundamentally about fault – a non-issue in the instant case.
[Reply at 13-14.]
Defendants argue that “[t]his case involves a
ruling based on the Last Responsible Employer doctrine under the
LHWCA,” and that the “statutory scheme of the LHWCA is predicated
on assigning liability ‘irrespective of fault as a cause for the
injury.’”
[Id. at 14 (quoting 33 U.S.C. § 904(b)).]
Defendants
note, furthermore, that ALJ Etchingham found that “‘neither
employer has persuaded me that it is more likely than not that
the opposing employer is liable as the responsible party.’”
[Id.
(quoting Admin. Order at 27) (emphasis added by Defendants).]
According to the Hawai`i Supreme Court, indemnification
is available when “‘two persons are liable in tort to a third
person for the same harm and one of them discharges the liability
of both[.]’”
Brooks v. Dana Nance & Co., 113 Hawai`i 406, 416,
153 P.3d 1091, 1101 (2007) (quoting Restatement (Second) of Torts
§ 886B(1)).
Under those circumstances, the person discharging
the liability “‘is entitled to indemnity from the other if the
other would be unjustly enriched at his expense by the discharge
of the liability.’”
Id. (quoting Restatement (Second) of Torts §
886B(1)) (emphasis omitted).
The Court was unable to identify any Hawai`i
jurisprudence on claims of equitable indemnity.
33
When a federal
court is confronted with a novel issue of state law, the court
must attempt to predict how the state’s highest court would
decide the issue.
See Ariz. Elec. Power Coop., Inc. v. Berkeley,
59 F.3d 988, 991 (9th Cir. 1995) (citation omitted).
The Court
therefore turns to more general authorities relied on by the
Hawai`i Supreme Court in evaluating issues of indemnity.
One
such authority is American Jurisprudence, see, e.g., Hawaiian
Ins. & Guar. Co. v. Higashi, 67 Haw. 12, 13, 675 P.2d 767, 769
(1984), which explains that indemnity can be based on: “(1) an
express contract; (2) a contract implied-in-fact; or (3)
equitable concepts arising from the tort theory of indemnity,
often referred to as a contract implied-in-law[,]” 41 Am. Jur. 2d
Indemnity § 2 (footnote omitted).
For an equitable indemnity
claim to succeed, a claimant “must plead and prove that: (1) he
or she has discharged a legal obligation owed to a third party;
(2) the defendant was also liable to the third party; and (3) as
between the claimant and the defendant, the obligation ought to
be discharged by the latter.”
Id. at § 20 (footnote omitted).
Nearly identical requirements have been adopted by the Nevada
Supreme Court, Rodriguez v. Primadonna Co., 216 P.3d 793, 801
(Nev. 2009) (citation omitted), the Oregon Supreme Court, Stovall
v. State ex rel. Oregon Dep’t of Transp., 922 P.2d 646, (Or.
1996) (citation omitted), and the Court of Appeals of Arizona, MT
Builders, L.L.C. v. Fisher Roofing, Inc., 197 P.3d 758 (Ariz. Ct.
34
App. 2008).
The Court also turns to the Ninth Circuit for guidance
on the doctrine of equitable indemnity.
As explained by the
Ninth Circuit, “[t]he principle of implied equitable indemnity is
designed to prohibit one from profiting by his own wrong at the
expense of one who is either free from fault or negligent to a
lesser degree.”
Hydo-Air Equip., 852 F.2d at 406 (citing
Santisteven v. Dow Chemical Company, 506 F.2d 1216, 1219 (9th
Cir. 1974)).
The “ultimate goal” is to do “what is fair or
just[,]” and “implied equitable indemnity may be entirely proper
if it is simply fairer to shift the burden of loss.”
Id.
(citations omitted).
Although ALJ Etchingham assigned liability without
designating one party more at fault than the other, the Court is
not persuaded that such a finding prevents Seabright from
claiming equitable indemnity in the instant case.
The Ninth
Circuit instructs courts not to apply strict standards in
reviewing equitable indemnity claims and explains that such
claims may be viable beyond “well-defined situations involving
joint tortfeasors, principal and agent, or employer and
employee.”
Id. at 405-06.
Whether Seabright can satisfy the
elements of equitable indemnity given ALJ Etchingham’s findings
is a disputed issue of material fact that counsels against
dismissal of the claim.
See Fleming v. Pickard, 581 F.3d 922,
35
925 (9th Cir. 2009).
Defendants argue that, even if Plaintiffs’ equitable
indemnity claim survives, Plaintiffs are prohibited from seeking
attorneys’ fees and legal costs by the American Rule.
Supp. of Motion at 12.]
[Mem. in
Defendants argue that “[i]t is well-
established that as a general matter, under the ‘American Rule’
each party pays for its own legal fees and expenses.”
[Reply at
14 (citing Perdue v. Kenny A., 130 S. Ct. 1662, 1671 (2010))
(emphasis in original).]
They explain that, while 33 U.S.C. §
928(a) of the LHWCA allows employee-claimants to recover costs
and fees associated with their claim, there is no such statutory
authorization for employers.
[Mem. in Supp. of Motion at 13
(citing Medrano v. Bethlehem Steel Corp., 23 BRBS 223, 226
(1990)).]
Plaintiffs have not addressed this argument.
According to the Hawai`i Supreme Court, “[n]ormally,
pursuant to the ‘American Rule,’ each party is responsible for
paying his or her own litigation expenses.
This general rule,
however, is subject to a number of exceptions: attorney’s fees
are chargeable against the opposing party when so authorized by
statute, rule of court, agreement, stipulation, or precedent.”
In re Water Use Permit Applications, 96 Hawai`i 27, 29, 25 P.3d
802, 804 (2001) (citation and quotation marks omitted).
The only provision in the LHWCA authorizing the
recovery of attorneys’ fees is 33 U.S.C. § 928, which grants
36
employee-claimants, but not employers or their insurance
companies, the right to seek attorneys’ fees in limited
circumstances.
See Dyer, 563 F.3d at 1047 (“The LHWCA provides
that a successful claimant is entitled to recover attorney’s fees
from his or her employer in two situations: (1) when the employer
denies liability out-right . . . and (2) when the employer
accepts liability and pays or tenders some compensation, but a
controversy develops over additional compensation[.]” (citing
33 U.S.C. § 928(a) & (b))).
Regulations implementing § 928
essentially provide employee-claimants with the same form of
relief.
See id. (citing 20 C.F.R. § 702.134).
Since there are
no contractual agreements, party stipulations, or applicable
court rules regarding litigation expenses in the instant case,
such expenses can only be sought if an equitable exception
applies.
One such exception recognized by Hawai`i courts
concerns wrongful acts of a defendant that caused a plaintiff to
litigate with a third party.
As explained by the Hawai`i Supreme
Court in Lee v. Aiu:
where the wrongful act of the defendant . . . has
involved the plaintiff in litigation with
[another], or placed [the plaintiff] in such
relations with others as makes it necessary to
incur expenses to protect his [or her] interest,
such expenses, including attorneys’ fees, should
be treated as the legal consequences of the
original wrongful act, and may be recovered as
damages.
37
85 Hawai`i 19, 32-33, 936 P.2d 655, 668-69 (1997) (quoting
Uyemura v. Wick, 57 Haw. 102, 108-09, 551 P.2d 171, 176 (1976))
(some citations omitted) (some alterations in original).
Thus,
the Hawai`i Supreme Court concluded in Lee that, “where the
wrongful act of a defendant causes a plaintiff to engage in
litigation with a third party in order to protect his or her
rights or interests, attorney’s fees incurred in litigating with
that third party may be chargeable against the wrongdoer as an
element of the plaintiff’s damages.”
Id. at 33, 936 P.2d at 669
(citing Uyemura, 57 Haw. at 110, 551 P.2d at 176) (footnote
omitted).
The court cautioned, however, that an award of
attorneys’ fees and costs under this exception does not encompass
the costs necessary to establish the right to such an award.
Id.
at 33-34, 936 P.2d at 669-70.
In order to recover under this “wrongful act of a
defendant” exception, the party pursuing the attorneys’ fees must
establish four elements:
(1) that the plaintiff had become involved in a
legal dispute either because of a breach of
contract by the defendant, or because of
defendant’s tortious conduct, that is, that the
party sought to be charged with the fees was
guilty of a wrongful or negligent act or breach of
agreement; (2) that the litigation was with a
third party, not with the defendant from whom the
fees are sought to be recovered; (3) that the
attorneys’ fees were incurred in that third-party
litigation; and (4) whether the fees and expenses
were incurred as a result of defendant’s breach of
contract or tort, that they are the natural and
necessary consequences of the defendant’s act,
38
since remote, uncertain, and contingent
consequences do not afford a basis for recovery[.]
Id. (citations omitted) (alteration in original).
Although the Hawai`i Supreme Court has only applied
this exception in cases involving claims of tortious interference
with contractual relations, implied misrepresentations, and
fraudulent concealment, see Lee at 85 Hawai`i at 33, 936 P.2d at
669; Uyemura, 57 Haw. at 110, 551 P.2d at 176, this Court sees no
reason why it should not be available where a qualifying party
seeks equitable indemnity, see Ariz. Elec. Power Coop., 59 F.3d
at 991 (citation omitted).
Applying the exception to equitable
indemnity claims presents no clear conflict with existing state
law so long as the party seeking the exception can establish its
elements.
The Court therefore FINDS that, under this exception,
Seabright’s claim for attorneys’ fees and costs incurred in
defending Brewer is facially plausible.
See Ashcroft v. Iqbal,
129 S. Ct. 1937, 1949 (2009) (citation omitted).
In summary, the Court FINDS that the Complaint alleges
sufficient factual matter, accepted as true for the purposes of
the instant Motion, to support a claim for equitable indemnity,
and that disputed issues of material fact weigh in favor of
preserving the claim.
See id.; Fleming v. Pickard, 581 F.3d 922,
925 (9th Cir. 2009) (citation omitted).
The Court further FINDS
that Seabright’s ability to recovery its attorneys’ fees and
expenses incurred in defending Brewer is permissible to the
39
extent it can prove that the “wrongful act of a defendant”
exception, or another exception to the American Rule, applies.
V.
Equitable Subrogation
Plaintiffs raise the issue of “equitable subrogation”
for the first time in their Memorandum in Opposition.
Opp. at 16.]
[Mem. in
While Plaintiffs argue that they “specifically pled
Seabright’s right of subrogation in the complaint[,]” subrogation
is only referenced in passing in its “Facts” and “First Cause of
Action (Breach of Contract)” sections.
[Complaint at ¶¶ 13, 25
(“SEABRIGHT is additionally subrogated to the claims of BREWER,
under the aforementioned insurance policy issued by SEABRIGHT to
BREWER, and as a matter of law, for compensation benefits paid on
behalf of BREWER, as well as attorneys’ fees and costs expended
by SEABRIGHT on behalf of BREWER.”).]
Unlike Plaintiffs’
equitable indemnity claim (“Second Cause of Action (Equitable
Indemnity)”), equitable subrogation is not clearly pled as an
independent cause of action.
Although Federal Rule of Civil Procedure 8(a)(2)
requires only that a complaint include “a short and plain
statement of the claim showing that the pleader is entitled to
relief[,]” such a statement must sufficiently put the defendants
on fair notice of the claims asserted and the grounds on which
they rest.
See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007) (citation omitted).
The Court FINDS that Plaintiffs have
40
failed to plead equitable subrogation in a manner that provides
such notice.
The Court therefore DECLINES to review this claim.
The Court, however, GRANTS Seabright leave to amend its
Complaint for the limited purpose of pleading its equitable
subrogation claim.
The equitable subrogation claim must be based
on facts currently alleged in the Complaint, and Plaintiffs must
file their Amended Complaint no later than May 30, 2011.
CONCLUSION
On the basis of the foregoing, Defendants’ Motion for
Judgment on the Pleadings or for Summary Judgment, filed on
January 24, 2011, is HEREBY GRANTED IN PART AND DENIED IN PART.
The Motion is GRANTED insofar as the Court DISMISSES WITH
PREJUDICE Plaintiffs’ breach of contract claim and equitable
indemnity claim as to Plaintiff Brewer, and Plaintiffs’ breach of
contract claim as to Seabright.
The Motion is DENIED insofar as
Plaintiff Seabright seeks unreimbursed compensation and medical
benefits, plus interest owed, as well as attorneys’ fees and
legal costs incurred in defending Brewer, plus interest owed,
through its equitable indemnity claim.
The Court GRANTS
Seabright leave to amend its Complaint as specifically permitted
by this Order.
IT IS SO ORDERED.
41
DATED AT HONOLULU, HAWAII, April 28, 2011.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
BREWER ENVIRONMENTAL INDUSTRIES, LLC, ET AL. V. MATSON TERMINALS,
INC., ET AL; CIVIL NO. 10-00221 LEK-KSC; ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’ MOTION FOR JUDGMENT ON THE
PLEADINGS OR FOR SUMMARY JUDGMENT
42
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