Brewer Environmental Industries, LLC et al v. Matson Terminals, Inc. et al
Filing
69
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' 55 MOTION FOR JUDGMENT ON THE PLEADINGS OR FOR SUMMARY JUDGMENT: On the basis of the foregoing, Defendants Matson Terminals, Inc. and Matson Navigation Company, Inc.'s Motion for J udgment on the Pleadings or for Summary Judgment, filed on June 17, 2011, is HEREBY GRANTED IN PART AND DENIED IN PART. The Motion is DENIED as to Plaintiff's First Cause of Action (Equitable Subrogation) and GRANTED as to Plaintiff's Secon d Cause of Action (Equitable Indemnity). The case is currently set for trial on February 28, 2011, and the parties informed the Court at the hearing that there has been no discovery pending the Court's ruling on the Motion. The parties are to co ntact Magistrate Judge Chang's chambers within fourteen days of the date of this order to schedule a trial re-setting conference. IT IS SO ORDERED." Signed by District JUDGE LESLIE E. KOBAYASHI on October 31, 2011. (bbb, )< hr>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
SEABRIGHT INSURANCE COMPANY,, )
)
Plaintiff,
)
)
vs.
)
)
MATSON TERMINALS, INC.,
)
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.
and Matson Navigation Company, Inc.’s (collectively “Matson” or
“Defendants”) Motion for Judgment on the Pleadings or for Summary
Judgment (“Motion”), filed on June 17, 2011.
Plaintiff Seabright
Insurance Company (“Seabright” or “Plaintiff”) filed its
memorandum in opposition on September 29, 2011, and Matson filed
its reply on September 19, 2011.
on September 29, 2011.
This matter came on for hearing
Appearing on behalf of Matson were Brett
Tobin, Esq., and John Lacy, Esq., and appearing telephonically on
behalf of Seabright was Richard Wootton, Esq.
After careful
consideration of the Motion, supporting and opposing memoranda,
and the arguments of counsel, Matson’s Motion is HEREBY GRANTED
IN PART AND DENIED IN PART for the reasons set forth below.
Motion is DENIED as to Plaintiff’s First Cause of Action
The
(Equitable Subrogation) and GRANTED as to Plaintiff’s Second
Cause of Action (Equitable Indemnity).
BACKGROUND
Plaintiff seeks reimbursement of attorneys’ fees and
costs that it paid on behalf of its insured, Brewer Environmental
Industries (“Brewer”), in a workers’ compensation matter.
Plaintiff filed its original Complaint for breach of contract on
April 16, 2010 against Matson and Brewer.
On April 28, 2011,
this Court granted in part and denied in part Defendants’ motion
for judgment on the pleadings, dismissing with prejudice the
breach of contract claim as to Seabright and Brewer, and the
equitable indemnity claim as to Brewer.
2011 Order”).]
[Dkt. no. 46 (“April 28,
The Court granted Seabright leave to amend its
Complaint as follows:
Plaintiffs raise the issue of “equitable
subrogation” for the first time in their
Memorandum in Opposition. [Mem. in Opp. at 16.]
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.
2
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
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.
[Id. at 40-41.]
Seabright filed its First Amended Complaint on May 20,
2011, alleging two separate causes of action: (1) equitable
subrogation; and (2) equitable indemnity.
The facts alleged are
similar to those listed in the original Complaint.
Briefly, on
November 10, 2004, longshormen Kyle Soares suffered an
aggravation and worsening of a pre-existing degenerative disc
disease of his lower back while working for and employed by
Plaintiff’s insured, Brewer.
[First Amended Complaint at ¶ 5.]
The injury occurred in the course and scope of Mr. Soares’
employment as a covered employee under § 902(3) of the Longshore
and Harbor Workers’ Compensation Act, 33 U.S.C. § 901 et seq.
(“LHWCA” or the “Act”).
[Id.]
Brewer was covered under a Seabright insurance policy
3
for claims brought by its employees under the LHWCA, and
Seabright timely initiated payment of compensation benefits to
Mr. Soares for medical expenses associated with his injury.
at ¶ 6.]
[Id.
Plaintiff alleges that the policy contractually
required it to provide legal representation to Brewer in any
legal action arising from a claim for compensation made by an
employee of Brewer.
[Id.]
On January 31, 2005, Brewer and Defendants entered into
an Asset Purchase Agreement (“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 ¶ 9.]
Paragraph 5.3 of the Agreement provides that
Defendants shall:
indemnify, defend and hold harmless [BREWER] 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
[BREWER] 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.
[Id. at ¶ 10 (alteration in original).]
The “Cut-off Time” of
the Agreement was defined as January 31, 2005 at 11:59 p.m., and
Mr. Soares was designated a “Property Employee” in Schedule 1.27
of the Agreement.
[Id. at ¶ 11.]
became an employee of Defendants.
4
After January 31, 2005, Soares
On June 10, 2005, Mr. Soares filed his first claim for
compensation under the LHWCA against Brewer and Seabright for his
November 10, 2004 injury.
[Id. at ¶ 13.]
During his employment
with Defendants, he suffered a further aggravation and worsening
of his lower back degenerative disc disease.
[Id. at ¶ 12.]
On
February 21, 2006, Mr. Soares filed a second claim for
compensation for “cumulative trauma.”
[Id. at ¶ 13.]
Brewer tendered the defense and indemnity for Mr.
Soares’ “cumulative trauma” claims to Defendants on June 5, 2006,
but Defendants refused to acknowledge liability, and Seabright
paid compensation, medical benefits, and the costs and fees of
defending Brewer.
[Id. at ¶ 14.]
Following a full hearing before the federal Office of
Workers’ Compensation Programs, Administrative Law Judge (“ALJ”)
Gerald Etchingham held that Mr. Soares’ back injury worsened as a
result of his work for Defendants, and that Defendants were the
“last responsible employer” pursuant to the LHWCA.
16.]
[Id. at ¶
Brewer and Defendants both disputed full liability for
Mr. Soares’ claims before the ALJ.
The ALJ ordered Defendants to
reimburse Seabright and Brewer for compensation and medical
expenses paid to Soares for the time period after he began
working for Defendants on January 31, 2005.
[Id.]
Seabright alleges that it has paid in excess of
$139,527.04 in legal fees and costs in defense of Brewer in
5
connection with Mr. Soares’ claims pursuant to the insurance
policy.
Defendants continue to refuse to reimburse Seabright for
the legal fees and costs incurred in defending Brewer.
[Id. at
¶¶ 17-18.]
In their First Cause of Action (“Equitable
Subrogation”), Seabright alleges that, under its insurance policy
with Brewer, it is contractually required to pay all attorneys’
fees and costs incurred by Brewer in connection with Mr. Soares’
claim.
Seabright alleges it is subrogated to the rights and
claims of Brewer against Defendants for all attorneys’ fees and
costs expended on behalf of Brewer, for which Brewer would have
been entitled to recover from Defendants.
[Id. at ¶¶ 20-21.]
In their Second Cause of Action (“Equitable
Indemnity”), Seabright alleges that, as a result of Defendants’
failure and refusal to pay Mr. Soares’ compensation and to accept
the tender of Brewer’s defense, Seabright has expended legal fees
and costs on behalf of Brewer, and continues to expend
significant legal fees and costs asserting this claim against
Defendants, for which Seabright is equitably entitled to
[Id. at ¶¶ 23-26.]
indemnification from Defendants.
I.
Matson’s Motion
Matson moves for judgment on the pleadings or for
summary judgment on the grounds that: (1) Plaintiff’s equitable
state law claims are preempted by the LHWCA and must be
6
dismissed; (2) Plaintiff’s claims are not properly pled; and
(3) the American Rule bars Plaintiff’s claims for attorneys’ fees
and the “wrongful act” exception does not apply.
A.
LHWCA Preemption
Matson argues that Seabright’s claims are barred
because they are preempted by the LHWCA as matters of express
preemption as well as conflict preemption.
[Mem. in Supp. of
Motion at 6-7.]
1.
Express Preemption
According to Matson, the LHWCA’s exclusivity provision,
which limits employer liability, amounts to an express preemption
of Plaintiff’s claims.
Section 905 of the LHWCA expressly states
that “[t]he liability of an employer prescribed in section 4
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.”
U.S.C. § 905(a).
33
Matson argues that Congress has placed an
express limitation on the kinds of claims that can be
brought relating to longshore injuries.
[Mem. in Supp. of Motion
at 8.]
Matson acknowledges that courts allow certain types of
state-law claims to be raised, but argues that the weight of
authority limits such instances to cases wherein the plaintiff
7
alleges an independent contractual duty that has been breached.
[Id. at 8-9. (citing cases).]
Matson notes that this Court
previously cited to the case of Johnson v. National
Steel & Shipbuilding Co., 742 F. Supp. 1062 (S.D. Cal. 1990), for
the proposition that third-party claims against employers are not
always barred by the LHWCA.
Even Johnson, however, acknowledged
that generally only “third party actions based on contractual
indemnity are not barred by the statute.”
F. Supp. at 1066).]
[Id. at 9 (citing 742
According to Matson, under the prevailing
view, Seabright’s claims are barred by § 905(a), unless it can
demonstrate a contractual duty that brings the claims outside
the LHWCA context.
Based on this Court’s earlier ruling that “§ 905(a) can
be overcome where the action is ‘on account of’ an independent
duty owed by the employer to the third party[,]” Matson asserts
that this Court found that the exclusivity provision of § 905(a)
did not bar Seabright from bringing its claim.
Matson requests
that the Court revisit that position in light of the following
new circumstances brought by the new posture of the case and the
amended claims.
[Id. at 9.]
First, Seabright has now limited its claims to
attorneys’ fees and costs by removing any allegation of
outstanding compensation benefits.
Additionally, this Court
ruled that Seabright cannot base its equitable indemnity claims
8
upon the Agreement between Matson and Brewer.
Instead, Matson
contends that Seabright can only make claims stemming from the
rights assigned to it under Brewer’s insurance policy.
This
Court also ruled that any such assigned rights are limited to the
rights Brewer possessed at the time of the issuance of the
insurance policy.
Matson argues that the legal fees incurred by
Seabright arose out of the agency proceeding under the LHWCA.
If
those fees are deemed to be “on account of” that claim, they are
barred by the LHWCA.
If they are not “on account of” the injury,
Seabright must allege an independent duty to support the claim.
Matson argues that Seabright failed to do so in the First Amended
Complaint.
[Id. at 10.]
Next, Matson asserts that this Court’s analysis in the
prior order was limited to the claim of equitable indemnity.
Matson claims it could locate no authority allowing for an
equitable subrogation claim for attorneys’ fees in LHWCA cases.
While some cases such as Johnson speak of implied rather than
contractual indemnity, none appear to allow for equitable
subrogation.
In sum, Matson argues that, to the extent these
claims arise under the LHWCA, they are expressly preempted.
To
the extent they are outside of the LHWCA, Seabright must allege
an independent duty to support the remedy it seeks, which it has
not done.
[Id. at 11.]
9
2.
Conflict Preemption
Even if the LHWCA does not expressly preempt
Plaintiff’s claims, Matson argues that the claims are preempted
because they conflict with the purposes of the LHWCA.
The LHWCA
was designed to strike a balance between the
concerns of the longshoremen and harbor workers on
the one hand, and their employers on the other.
Employers relinquished their defenses to tort
actions in exchange for limited and predictable
liability. Employees accept limited recovery
because they receive prompt relief without the
expense, uncertainty, and delay that tort actions
entail.
[Id. at 13 (citing Morrison-Knudsen Constr. Co. v. Dir., Office
of Worker’s Comp. Programs, 461 U.S. 624, 635-36 (1983)).]
Matson argues that § 905(a)’s exclusivity clause limits
employer liability to a single agency proceeding, which makes
sense in light of the provision in § 904(b) that “[c]ompensation
shall be payable irrespective of fault as a cause of injury.”
[Id. (quoting 33 U.S.C. § 904(b)).]
Matson contends that the
LHWCA is a compromise in which employers essentially concede
liability, even in the absence of fault, but only if it comes in
exchange for a predictable limitation on the amount of that
liability.
Allowing claims to be brought in other forums, like
this one, takes away that predictable limitation and upsets the
balance as well as the efficiency of a uniform compensation
scheme.
[Id.]
Matson asserts that the LHWCA extends this balance even
10
further by expressly addressing attorneys’ fees in § 928 and only
allowing them to be paid “to the attorney for the claimant.”
According to Matson, the intent to limit attorneys’ fees to the
claimant alone is also clear from the legislative history of the
1972 amendments to the LHWCA: both the Senate and House Reports
make clear that attorneys’ fees may only be awarded to a
successful claimant and that “[a]ttorneys fees may not be
assessed against employers (or carriers) in other cases.”
[Id.
at 14 (quoting S. Rep. No. 92-1125, at 70 (1972) and H.R. Rep.
No. 92-1441, at 215 (1972))].
Matson argues that the object of
such a limitation is to maintain the balance by limiting
potential liability and creating a predictable regime while also
allowing a claimant, and only a claimant, to make sure his
compensation is not decreased by having to pay for litigation to
secure it.
[Id.]
According to Matson, the current suit represents a
transparent attempt to circumvent the limitations of the LHWCA,
where compensation was fully paid.
The LHWCA prevented Seabright
from getting a fee award in the agency action, so it brought
its claims here instead.
If allowed to go forward, there would
be nothing preventing parties from seeking in actions under state
law that which the LHWCA statutory scheme expressly forbids.
This would defeat the protections for employers which are
built into the statutory bargain, thus leaving them with no
11
defense to liability and no predictable limitation in exchange.
It would also defeat the efficiency gains of having a uniform
compensation system, instead opening issues up to ancillary
litigation in multiple forums.
B.
[Id. at 15.]
Plaintiff’s Claims Are Insufficiently Pled
Matson next argues that Plaintiff fails to state claims
that are plausible on their face, rather than mere conclusory
statements.
First, with respect to the equitable subrogation claim,
Matson contends that any assignment of rights from Brewer to
Seabright must be based solely on the insurance policy and not on
the Agreement.
Further, any assignment of rights is limited to
the rights Brewer possessed at the time the policy was issued,
and here, Brewer did not possess any rights against Matson at the
time the insurance policy was issued because the parties had not
yet negotiated the Agreement.
[Id. at 16-17.]
To the extent Brewer arguably had any right to recover
attorneys’ fees from Matson, that right would have been based on
the Agreement, to which Seabright was not a party.
Outside of
the Agreement, Matson argues that Brewer had no rights at all
because the LHWCA forbids the awarding of attorneys’ fees as
between employers.
[Id. at 17 (citing 33 U.S.C. § 928(a)).]
Matson asserts that, under the doctrine of equitable subrogation,
Seabright might be allowed to step into Brewer’s shoes, “but
12
only as those shoes existed at the time of the issuance of the
insurance policy — which indisputably occurred prior to Soares’
injury and prior to negotiation of the [Agreement].”
[Id.]
At
that time, Brewer had no right of recovery against Matson for
attorneys’ fees, and, as a result, Seabright necessarily also
lacks any right of recovery.
Matson argues that Seabright cannot
allege any set of facts under which it has a right of equitable
subrogation entitling it to an award of attorneys’ fees.
[Id.]
As to equitable indemnity, Matson notes that this Court
instructed Plaintiff to plead and prove that: (1) he or she
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 defendant, the obligation ought to be discharged
by the latter.
Matson recognizes that this Court found that the
prior Complaint alleged sufficient factual matter to support a
claim for equitable indemnity, but it brings the current Motion
on the basis that the alleged facts in the First Amended
Complaint are not the same as those alleged in the original
Complaint.
Namely, Seabright has removed its allegations related
to the $1,700 in compensation benefits, which it previously
alleged it was owed by Matson.
the analysis entirely.
Matson argues this change alters
[Id. at 17-19.]
The first element of equitable indemnity is that the
claimant must allege that he or she discharged an obligation
13
to a third party, but, unlike with any compensation benefits,
which would have been paid to Mr. Soares, the attorneys’ fees,
which are the sole basis for this suit, were never paid to
Mr. Soares or any third party (unless Seabright’s attorneys are
deemed to be a third party).
Even if Seabright’s attorneys were
deemed to be a third party, Matson argues it was never liable to
them for anything.
Further, the third element, that of balancing
the competing obligations, does not make sense in this context
and is likely not applicable on these facts — essentially an
effort at fee-shifting after a dispute.
Matson posits that, to
find otherwise would be to say that, in any case, a party could
circumvent the American Rule by claiming a right to attorneys’
fees on a theory of equitable indemnity.
Matson urges the court
to dismiss both causes of action for failure to state a claim.
[Id. at 19-20.]
C.
No Exception to the American Rule
Finally, Matson argues that there is no exception to
the American Rule that each party must pay its own legal fees
applicable here.
Matson points to the Court’s previous order in
which it acknowledged that the LHWCA does not authorize
fee-shifting, and argues that Seabright is left to rely on an
equitable exception.
[Id. at 20.]
The “wrongful act” exception arises in cases where the
acts of the defendant cause the plaintiff to litigate with a
14
third party.
In order for this exception to apply, a party 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; (2) that the litigation was with a third party, not with
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, since
remote, uncertain, and contingent consequences do not afford a
basis for recovery.
[Id. at 21-22 (citing Lee v. Aiu, 85 Hawai‘i
19, 32-33, 936 P.2d 655, 668-69 (1997)).]
Matson states that the Hawai‘i Supreme Court has
applied the “wrongful act” exception only in cases involving
tortious interference with contractual relations,
misrepresentation, and fraud, none of which are involved in this
case.
Matson argues that Seabright cannot meet the elements for
the exception here because Mr. Soares injured his back on
November 10, 2004 while working for Brewer, at which time he was
a covered employee under the LHWCA, and the insurance policy
between Brewer and Seabright was in effect.
On June 10, 2005,
Mr. Soares filed a claim for compensation under the LHWCA against
Brewer and Seabright for his November 10, 2004 injury and no
15
claim was filed against Matson until February 21, 2006.
Mr. Soares continued to press his initial claim against Brewer
and Seabright throughout the agency proceeding.
Finally,
Mr. Soares himself consistently testified that he did not sustain
any specific injury after November 2004, and that his back
condition remained unchanged from November 2004 until his last
day of work on May 21, 2005.
[Id. at 22.]
As to the first requirement, in this case, the incident
which precipitated Seabright’s involvement in the matter was an
injury sustained by Mr. Soares months before Matson was involved.
Beyond that, even after Mr. Soares had worked for Matson, he
still filed a claim solely against Brewer and Seabright, and he
never stopped pursuing that claim, nor was it ever dismissed.
Matson argues that it had nothing to do with Seabright becoming
involved in the dispute and Mr. Soares’ consistent position meant
that Seabright’s involvement in defending that claim was required
throughout.
According to Matson, the undisputed facts establish
that the “wrongful act” exception does not apply to this case,
and the American Rule bars Plaintiff’s attempt to recover
attorneys’ fees.
II.
[Id. at 22-23.]
Plaintiff’s Opposition
Plaintiff argues in opposition that the only issue
properly before the Court is Matson’s challenge to Plaintiff’s
equitable subrogation claim.
Plaintiff characterizes Matson’s
16
Motion as arguing that, because Plaintiff paid the attorney’s
fees and costs to defend Mr. Soares’ claim instead of Brewer,
Matson may walk away from its wrongful refusal to defend Brewer.
[Mem. in Opp. at 1-2.]
A.
Law of the Case
Plaintiff first argues that this Court has already made
specific findings on most of the issues raised by the instant
Motion, but Matson has not stated any grounds for ignoring the
law of the case and asking the Court to reconsider its previous
holding.
Plaintiff acknowledges that a district court has
discretion to entertain a subsequent summary judgment motion when
new facts have been discovered that change the basis upon which
the court previously denied summary judgment.
B.
[Id. at 8-9.]
Equitable Subrogation
Plaintiff argues that it states a claim for equitable
subrogation under state law because it is an insurer, it paid a
loss or claim for its own insured, and, therefore, it becomes
equitably subrogated to the rights of the insured against the
third-party who is responsible for the loss.
[Id. at 9 (citing
State Farm Fire & Cas., Co. v. Pac. Rent-All, Inc., 90 Hawai‘i
315, 328, 978 P.2d 753, 766 (1999)).]
Plaintiff argues that
Matson’s failure to defend Brewer against Mr. Soares’ claim
forced Brewer, its insured, to incur a loss in the form of
attorneys’ fees and costs for defending the claim.
17
Plaintiff
claims that it steps into the shoes of Brewer, who has a
contractual right to recover fees from Matson under the
Agreement.
[Id.]
According to Plaintiff, when it and Brewer tendered
Brewer’s defense to Matson in June 2006, Matson wrongfully denied
the tender, Brewer was forced to incur attorneys’ fees and costs,
and Brewer would have paid those fees and costs out of its own
pocket, had it not purchased insurance from Plaintiff.
Brewer
would have had the right to pursue a breach of contract claim
against Matson to recover those attorneys’ fees and costs.
Plaintiff, having paid the attorneys’ fees and costs incurred by
Brewer, is subrogated to Brewer’s contractual rights against
Matson.
[Id. at 11.]
Plaintiff attempts to rebut Matson’s argument that,
because Brewer purchased the insurance policy before Brewer
signed the Agreement or incurred attorneys’ fees, it has no right
of subrogation.
It contends that an insurer’s right of equitable
subrogation always arises from a loss that occurred after the
insurer issues a policy to its insured; insurers do not issue
polices covering losses that have already occurred.
Plaintiff
argues that there is no rule that the insurer’s subrogation
rights depend upon the insured having entered into the contract
with a third-party or sustaining a loss prior to the insurer
issuing the policy.
[Id. at 12-13.]
18
Plaintiff asserts that its right to recover Brewer’s
attorneys’ fees is greater than Matson’s right to escape
liability because: (1) the ALJ confirmed Brewer and Plaintiff’s
position when they tendered the defense to Matson; (2) Matson
entered the Agreement to pay fees and costs, and now seeks to
walk away from that obligation without consequences; (3)
Plaintiff bore the fees at issue only because Brewer purchased
insurance for its own benefit; and (4) if Plaintiff is left
holding the bag, Matson will get the benefit of Brewer’s
insurance.
C.
[Id. at 13.]
Equitable Indemnity
Plaintiff next argues that it has stated a valid claim
for equitable indemnity, in accord with the Court’s April 28,
2011 Order.
To the extent the Court determined that it is a
disputed issue of material fact for trial whether Plaintiff can
show that the equities favor shifting to Matson the fees and
costs it paid on behalf of Brewer, Matson has not offered any
additional facts to resolve the issue of fact.
[Id. at 14.]
Plaintiff also argues that the “wrongful act” exception
to the American Rule applies because it seeks repayment of fees
it paid on behalf of Brewer to defend Mr. Soares’ claim from 2006
onward, when it and Brewer tendered the defense to Matson
pursuant to the Agreement’s indemnity provision.
Matson
wrongfully breached the Agreement, requiring Plaintiff to incur
19
the costs of litigating the claim through hearing.
[Id. at 15-
16.]
D.
LHWCA Preemption
With respect to preemption, Plaintiff argues that, in
Smith v. United States, 980 F.2d 1379 (1993), the Eleventh
Circuit held that an employer was liable to an indemnitee not
only for damages paid to an injured employee, but also for
attorneys’ fees and expenses.
Smith reasoned that such suit was
not barred by LHWCA § 905(a) because it was based on a contract
of indemnity, and not on account of the worker’s injury.
16 (citing 980 F.2d at 1381).]
[Id. at
Here, Plaintiff’s claims are on
account of the Agreement’s express contractual indemnity
provision, which it is entitled to enforce as it steps into the
shoes of its insured.
It argues that this case is on account of
Matson’s independent duty to indemnify, not on account of
Mr. Soares’ injury.
[Id. at 16-17.]
Plaintiff also argues that its equitable claims do not
conflict with the purpose of the LHWCA, and that its claims are
not based on the LHWCA.
It posits that the predictability of the
LHWCA has already been satisfied; Mr. Soares brought his claim,
it went to hearing, and he received an award paid by Matson, the
last responsible employer.
Plaintiff argues that § 905(a) is not
a license for stevedoring companies to breach their contractual
obligations to third-parties.
[Id. at 18-19.]
20
In summary, Plaintiff argues that it would be
inequitable to allow Matson to escape its contractual obligation
to pay Brewer’s attorneys’ fees.
III. Defendants’ Reply
In its reply, Matson argues that Plaintiff seeks pure
fee-shifting “based on a nonexistent tie to an unestablished
contractual right of another deriving from a contract which a
court has already definitively ruled Plaintiff has no stake
in[.]”
[Reply at 1.]
Matson states that it is not ignoring this
Court’s previous order, or seeking reconsideration, rather, it is
responding to an amended complaint with new facts and a new
claim.
A.
[Id. at 4.]
LHWCA Preemption
Matson maintains that the Agreement is no longer part
of this case because the Court dismissed all breach of contract
claims and determined that Plaintiff has no rights under the
Agreement as either a third-party beneficiary or assignee.
Further, with respect to Seabright’s remaining equitable claims,
the Court limited those to claims that stem solely from the
rights assigned by Brewer to Seabright under the insurance policy
as they existed at the time the parties entered into the policy,
which indisputably pre-dated the Agreement.
In sum, Matson
argues that Seabright cannot rely on the Agreement as the source
of any of its claims.
[Id. at 3-4.]
21
It also argues that the LHWCA bars these state-law
claims because they are not based on an independent contractual
duty.
“[O]nly when the plaintiff can point to an actual duty in
contract that is separate from the incident causing injury can
the case proceed.”
[Id. at 5.]
Matson distinguishes the cases
relied upon by Plaintiff as requiring a separate and independent
duty, in contract or tort, to avoid preemption.
[Id. at 5-7.]
Matson argues that, because this case is now entirely
about attorneys’ fees, its preemption claims are stronger.
Section 928(a) of the LHWCA limits any fee-shifting to employees
only, with no allowance for shifting of fees as between employers
or their insurers.
Matson argues that, to allow Seabright to
seek in this action what it was forbidden from seeking in the
administrative action would directly conflict with the careful
policy balance created by the LHWCA.
B.
[Id. at 8-9.]
Equitable Claims
Plaintiff’s equitable indemnity claim fails because
Plaintiff does not allege the required elements identified in the
Court’s April 28, 2011 Order.
In its initial Complaint,
Seabright’s equitable indemnity claim focused on the $1,700 in
compensation Seabright felt it was due for payments it made to
Mr. Soares.
In the First Amended Complaint, Plaintiff removed
the claim for reimbursement and now seeks only attorneys’ fees,
which changes the analysis.
The framework for analyzing a claim
22
for equitable indemnity requires a plaintiff to “plead and prove
that: (1) he or she 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 defendant, the obligation ought
to be discharged by the latter.”
2011 Order at 34).]
[Id. at 10 (quoting April 28,
Without any compensatory payment to a third
party (i.e., Mr. Soares), Seabright cannot satisfy the first
element.
With respect to the third element, Seabright cannot
establish that the obligation ought to be discharged by Matson.
Matson argues that this is not the type of fact pattern that the
doctrine of equitable indemnity was designed to address.
[Id. at
10-11.]
Matson next argues that Plaintiff’s equitable
subrogation claim fails because the insured, Brewer, did not
suffer any loss.
There was no finding of fault in the LHWCA
proceedings, and Matson fully paid its share of Mr. Soares’
compensation.
[Id. at 11.]
Further, the doctrine of equitable
subrogation only allows an insurer to step into the shoes of the
insured as they exist, meaning that it can exercise no greater
rights than the insured had.
Even assuming that Brewer obtained
a right to attorneys’ fees based on the Agreement, those rights
post-dated the insurance policy and Brewer opted not to include
Seabright in the Agreement.
[Id. at 12-13.]
23
STANDARDS
I.
Judgment on the Pleadings
Federal Rule of Civil Procedure 12(c) provides,
“[a]fter the pleadings are closed - but early enough not to delay
trial-a party may move for judgment on the pleadings.”
Civ. P. 12(c).
Fed. R.
In considering a Rule 12(c) motion, the 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).
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.
Prior to Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), the
Ninth Circuit recognized that Rule 12(c) motions are virtually
identical to Rule 12(b)(6) motions, and applied the same standard
of review to both motions.
Dworkin v. Hustler Magazine, Inc.,
867 F.2d 1188, 1192 (9th Cir. 1989) (holding that Rule 12(c) and
Rule 12(b)(6) motions differ in time of filing but are otherwise
“functionally identical,” and applying the same standard of
review).
Following Iqbal, courts have applied Iqbal to Rule
12(c) motions.
See e.g., 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).
24
Accordingly, pursuant to Iqbal, “[t]o survive a motion
to dismiss, 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 (2007)); see also Weber v.
Dep’t of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008).
This tenet - that the court must accept as true all of the
allegations contained in the complaint - “is inapplicable to
legal conclusions.”
Iqbal, 129 S. Ct. at 1949.
Accordingly,
“[threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”
(citing Twombly, 550 U.S. at 555).
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).
Id. at 1949
Factual allegations that only
permit the court to infer “the mere possibility of misconduct” do
not show that the pleader is entitled to relief as required by
Rule 8.
Id. at 1950.
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).
25
II.
Summary Judgment
Pursuant to Federal Rule of Civil Procedure 56(a), a
party is entitled to summary judgment “if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
Summary judgment must be granted against a
party that fails to demonstrate facts to establish
what will be an essential element at trial. See
Celotex [Corp. v. Catrett], 477 U.S. [317,] 323
[(1986)]. A moving party has both the initial
burden of production and the ultimate burden of
persuasion on a motion for summary judgment.
Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210
F.3d 1099, 1102 (9th Cir. 2000). The burden
initially falls on the moving party to identify
for the court “those portions of the materials on
file that it believes demonstrate the absence of
any genuine issue of material fact.” T.W. Elec.
Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809
F.2d 626, 630 (9th Cir. 1987) (citing Celotex
Corp., 477 U.S. at 323). “A fact is material if it
could affect the outcome of the suit under the
governing substantive law.” Miller [v. Glenn
Miller Prods., Inc.], 454 F.3d [975,] 987 [(9th
Cir. 2006)].
When the moving party fails to carry its
initial burden of production, “the nonmoving party
has no obligation to produce anything.” In such a
case, the nonmoving party may defeat the motion
for summary judgment without producing anything.
Nissan Fire, 210 F.3d at 1102-03. On the other
hand, when the moving party meets its initial
burden on a summary judgment motion, the “burden
then shifts to the nonmoving party to establish,
beyond the pleadings, that there is a genuine
issue for trial.” Miller, 454 F.3d at 987. This
means that the nonmoving party “must do more than
simply show that there is some metaphysical doubt
as to the material facts.” Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986) (footnote omitted). The nonmoving
party may not rely on the mere allegations in the
pleadings and instead “must set forth specific
26
facts showing that there is a genuine issue for
trial.” Porter v. Cal. Dep’t of Corr., 419 F.3d
885, 891 (9th Cir. 2005) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)).
“A genuine dispute arises if the evidence is such
that a reasonable jury could return a verdict for
the nonmoving party.” California v. Campbell, 319
F.3d 1161, 1166 (9th Cir. 2003); Addisu v. Fred
Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000)
(“There must be enough doubt for a ‘reasonable
trier of fact’ to find for plaintiffs in order to
defeat the summary judgment motion.”).
On a summary judgment motion, “the nonmoving
party’s evidence is to be believed, and all
justifiable inferences are to be drawn in that
party’s favor.” Miller, 454 F.3d at 988
(quotations and brackets omitted).
Rodriguez v. Gen. Dynamics Armament & Technical Prods., Inc., 696
F. Supp. 2d 1163, 1176 (D. Hawai`i 2010) (some citations
omitted).
DISCUSSION
I.
Longshore and Harbor Workers’ Compensation Act Preemption
The Court first addresses Matson’s argument that
Plaintiff’s claims are preempted by the LHWCA.
The Act creates a
workers’ compensation scheme for certain maritime workers which
is exclusive of other remedies.
The Act states 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, husband or
wife, parents, dependents, next of kin, and anyone
otherwise entitled to recover damages from such
employer at law or in admiralty on account of such
injury or death, except that if an employer fails
to secure payment of compensation as required by
this chapter, an injured employee, or his legal
representative in case death results from the
injury, may elect to claim compensation under the
27
chapter, or to maintain an action at law or in
admiralty for damages on account of such injury or
death. In such action the defendant may not plead
as a defense that the injury was caused by the
negligence of a fellow servant, or that the
employee assumed the risk of his employment, or
that the injury was due to the contributory
negligence of the employee. For purposes of this
subsection, a contractor shall be deemed the
employer of a subcontractor’s employees only if
the subcontractor fails to secure the payment of
compensation as required by section 904 of this
title.
33 U.S.C. § 905(a).
Courts interpreting the “on account of” language
in § 905(a) have found a congressional intent to
abrogate all tort liability on the part of the
employer to the employee, or to a third party,
arising out of the employee’s injury. Where an
action is based on the breach of a separate and
independent duty owed by the employer to a third
party, however, § 905(a) may be overcome.
Burnett v. A. Bottacchi S.A. de Navegacion, 882 F. Supp. 1050,
1053 (S.D. Fla. 1994) (citations omitted); see also Carney v.
Marathon Oil Co., 632 F. Supp. 1037, 1042 (W.D. La. 1986)
(“[Section] 905(a) does not bar third-party indemnity claims
against LHWCA employers when there is a contractual (express or
implied) relationship between the employer and the third-party
upon which the indemnity claim is based[.]”).
A.
Equitable Indemnity
With respect to the equitable indemnity claim, Matson
argues that there is no contractual relationship between it and
Seabright, based on this Court’s earlier ruling that “the
assigned recovery rights [from Brewer to Seabright] do not extend
28
to the indemnity rights conferred by Matson to Brewer in the
Agreement.”
[April 28, 2011 Order at 28.]
The Court also ruled
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 . . . .”
[Id.]
In response, Plaintiff points again to the Agreement as
the source of Matson’s independent contractual duty to indemnify
it, which removes the claim from the reach of the Act’s
exclusivity provision.
It states that “the current action is not
based on the LHWCA, but on paragraph 5.3 (‘Indemnity’) of the
Agreement between Matson and Brewer.”
[Mem. in Opp. at 18.]
Plaintiff does not, however, identify any other source of
Matson’s duty to it sufficient to establish that its claims arise
on account of an express or implied contract or some other
independent duty existing between the indemnitor and intemnitee.
That is, Plaintiff fails to present the source of any other
obligation that could take the claim out from under the
preemptive shadow of the LHWCA.
The Motion is GRANTED with
respect to Plaintiff’s equitable indemnity claim.
B.
Equitable Subrogation
As to Plaintiff’s equitable subrogation claim, however,
the Court FINDS that Plaintiff does have an independent basis
29
upon which to seek its attorneys’ fees from Matson.
Briefly,
under this equitable doctrine, Plaintiff steps into the shoes of
its insured, Brewer, and may seek to enforce the terms of the
Agreement.
The Hawai‘i Supreme Court explained equitable
subrogation in State Farm Fire & Casualty Co. v. Pacific
Rent-All, Inc., as follows:
Regarding legal or equitable subrogation, The
Law of Liability Insurance, supra, § 23.02[2], at
23.8-13 states that
[a]n insurer’s right to legal or equitable
subrogation arises only when certain
requirements are met. First, the insurer
must have paid the loss. The right extends
to the extent of the amount actually paid and
the amount paid must have been paid to the
insured.
In addition, the amount paid by the
insurer must result in the insured’s being
made “whole.” The general rule is that the
subrogated insurer is entitled to no
subrogation, or to reduced subrogation, if
the result of full subrogation would be to
cause the insured to be less than fully
compensated for the loss, although some cases
hold to the contrary. . . .
. . . .
The second requirement for the existence
of the right to legal subrogation is that the
insurer must not have merely volunteered to
pay the loss, but must have been required to
pay based upon[, for example, operation of
law or a] . . . contract of insurance. . . .
Finally, since legal subrogation is
equitable in nature, the right will not be
enforced unless the rights of the party
30
seeking it are greater than the rights of
others.
(Footnotes omitted.) (Brackets added.)
90 Hawai‘i 315, 329 n.8, 978 P.2d 753, 767 n.8 (1999) (quoting 4
R. Long, The Law of Liability Insurance § 23.02[2], at 23.8-13
(1998)).
Because
subrogation involves “stepping into” the
shoes of another, when an insurer brings an
action against a tortfeasor based upon its
subrogation rights, the insurer’s rights flow
from the insured’s rights. The subrogated
insurer, known as the “subrogee,” can be
subrogated to and enforce only such rights as
the insured, known as the “subrogor,” has
against the party whose wrong caused the
loss. In a subrogation suit, a tortfeasor
may assert against the insurer any defense
which the tortfeasor could have asserted
against the insured.
The Law of Liability Insurance, supra, § 23.03[2],
at 23-13 to 23-14. Therefore, the general rule
provides that an insured may affect its insurer’s
subrogation rights because they are derivative,
i.e., the insurer’s subrogation rights rest upon
the viability of the insured’s claim against the
tortfeasor. Id. § 23.04[1], at 23-40.
Id. at 329, 978 P.2d at 767.
Here, the insured’s claim against Matson is based on
the provision in the Agreement allowing for the payment of
Brewer’s attorneys’ fees.
Under the Agreement between Matson and
Brewer, Matson agreed to indemnify Brewer for its “reasonable
attorneys’ fees, charges and costs” incurred by Brewer “by reason
of any claim, demand or litigation relating to the Property
31
Employees,” which included Mr. Soares’ workers’ compensation
claim.
[First Amended Complaint ¶ 10.]
Thus, as subrogee,
Seabright may assert Brewer’s right to recover attorneys’ fees
under the Agreement.
The undated insurance policy indicates that the policy
period is from December 1, 2003 to December 1, 2004, whereas
Matson and Brewer did not enter into the Agreement until
January 31, 2005.
To the extent Matson argues that Seabright can
only seek to enforce Brewer’s rights at the time of the insurance
policy – and before the Agreement was effective – the Court
disagrees.
With respect to claims for equitable subrogation, the
authority cited above does not indicate that an insurer’s
subrogation rights are limited to those of the insured at the
time the parties contracted for the insurance policy.
In fact,
the parties have identified no authority limiting a subrogee’s
rights to those the subrogor had at the time the parties
contracted.
Rather, as stated supra, “the insurer’s rights flow
from the insured’s rights.
The subrogated insurer, known as the
‘subrogee,’ can be subrogated to and enforce only such rights as
the insured, known as the ‘subrogor,’ has against the party whose
wrong caused the loss.”
State Farm, 90 Hawai‘i at 329, 978 P.2d
at 767 (citation omitted).
The Court agrees with Plaintiff that
an insurer’s right of equitable subrogation always arises from a
loss that occurred after the insurer issues a policy of insurance
32
to its insured.
Further, Matson points to no rule stating that
the existence of the insurer’s subrogation rights against a
third-party must predate the relationship between the subrogee
and subrogor, which created the right of equitable subrogation.
As the State Farm decision explained, “the insurer’s
subrogation rights rest upon the viability of the insured’s claim
against the tortfeasor.”
Id. (citation omitted).
Matson does
not argue that Brewer would not have a viable claim and cannot
enforce the Agreement; here, Seabright’s rights rest upon the
viability of Brewer’s claim against Matson.
That is, the right
is “derivative,” and when equitable subrogation applies, the
subrogee has all the rights and claims of the subrogor with
respect to the loss.
See, e.g., In re Hamada, 291 F.3d 645, 649
(9th Cir. 2002) (“It is a derivative right, acquired by
satisfaction of the loss or claim that a third party has against
another. . . .
Thus, when the doctrine of subrogation applies,
the subrogee succeeds to the legal rights and claims of the
subrogor with respect to the loss or claim.”); Valley Forge Ins.
Co. v. Zurich Am. Ins. Co., No. C 09-02007 SBA, 2010 WL 3769378,
at *6-7 (N.D. Cal. Sept. 22, 2010) (“In the case of insurance,
subrogation takes the form of an insurer’s right to be put in the
position of the insured in order to pursue recovery from third
parties legally responsible to the insured for a loss which the
insurer has both insured and paid.
33
The right of subrogation is
derivative.
An insurer entitled to subrogation is in the same
position as an assignee of the insured’s claim, and succeeds only
to the rights of the insured.
The subrogated insurer is said to
‘stand in the shoes’ of its insured, because it has no greater
rights than the insured and is subject to the same defenses
assertable against the insured.
Thus, an insurer cannot acquire
by subrogation anything to which the insured has no rights, and
may claim no rights which the insured does not have.”
(citation
and quotation signals omitted)).
The Court acknowledges that it has located no case
involving an equitable subrogation claim for attorneys’ fees
resulting from a LHWCA dispute.
Nonetheless, the Court will not
grant summary judgment on preemption grounds in the absence of
authority indicating that equitable subrogation claims, such as
the one alleged here, are clearly barred by the Act.
Common
sense dictates here that, to find otherwise, would result in
grave inequity.
Essentially, Brewer would be forced to elect
between tendering to its insurer for coverage and defense costs
for which it has paid premiums under the insurance contract or
pursuing Matson on equitably indemnity.
It defies logic and
equity to provide Matson the windfall of avoiding any
responsibility for the costs of defense (i.e., its share of
attorneys’ fees), when it has been found liable for part of the
compensation award to Mr. Soares.
34
The Court FINDS, for purposes
of the instant Motion, that Matson has not established that
Plaintiff lacks the requisite independent right to seek recovery
of attorneys’ fees from Matson under an equitable subrogation
theory.
The Court, therefore, CONCLUDES that Plaintiff’s
equitable subrogation claim is not expressly or impliedly barred
by the LHWCA’s exclusivity provision, 33 U.S.C. § 905(a), and
DENIES the Motion on preemption grounds as to Plaintiff’s
equitable subrogation claim.
II.
Defendants’ Remaining Arguments
Defendants also argue that Plaintiff’s equitable claims
fail as a matter of law, and that the American Rule bars
Plaintiff’s attempt to recover attorneys’ fees in this case.
The
Court addresses each in turn.
A.
Equitable Subrogation
Matson argues that Plaintiff’s equitable subrogation
claim fails as a matter of law because Brewer never actually paid
its attorneys’ fees or suffered any loss, and because Seabright
cannot show a greater right to obtain recovery.
As to the first
argument, that the insurer paid the loss sustained by the
insured, in the context of attorneys’ fees, courts have allowed
insurers to maintain a claim for equitable subrogation where the
insurer itself, and not the insured, paid the attorneys’ fees
incurred in defense of its insured.
See, e.g., In re Spirtos,
103 B.R. 240 (Bkrtcy. C.D. Cal. 1989) (finding, under California
35
law, that the first element of equitable subrogation was
satisfied where the insurer “suffered a loss by virtue of paying
the attorney fees” after it accepted the tender of defense and
“paid the fees and charges incurred for this representation”).
In Lexington Insurance Co. v. Sentry Select Insurance
Co., the court rejected the defendant’s similar argument that the
plaintiff was unable to establish the “loss” element of its
equitable subrogation claim.
No. CV F 08-1539 LJO GSA, 2009 WL
1586938, at *13 (E.D. Cal. June 5, 2009).
The plaintiff argued
in response that “payment on behalf of an insured is sufficient
to support a subrogation claim without showing that the insured
has suffered a loss.”
Id. at *13 (emphasis in original).
The
court agreed, quoting the following from Northwestern Mutual
Insurance Co. v. Farmers’ Insurance Group, 76 Cal. App. 3d 1031,
1044-1045, 143 Cal. Rptr. 415 (1978), and additional authorities:
It is not a prerequisite to equitable
subrogation that the subrogor suffered actual
loss; it is required only that he would have
suffered loss had the subrogee not discharged
the liability or paid the loss. Thus it is
that Continental Cas. Co. v. Zurich Ins. Co.,
supra., 57 Cal.2d at pages 35-38, 17 Cal.
Rptr. 12, 366 P.2d 455, Aetna Cas. & Surety
Co. v. Certain Underwriters, supra., 56 Cal.
App. 3d at page 801, 129 Cal. Rptr. 47,
Valentine v. Aetna Ins. Co., supra., 564 F.2d
at page 296-297, and Peter v. Travelers
Insurance Company, supra., 375 F. Supp. at
pages 1349-1350, all permitted recovery by
one insurance carrier against another on a
theory of equitable subrogation without any
showing that the insured had suffered any
loss.
36
See Troost v. Estate of Deboer, 155 Cal. App. 3d
289, 294, 202 Cal. Rptr. 47 (1984) (“Payment by
the insurance company does not change the fact a
loss has occurred.”); Smith v. Parks Manor, 197
Cal. App. 3d 872, 878-879, 243 Cal. Rptr. 256
(1987) (“The creation of the obligation by
execution of the settlement agreement was in
itself a sufficient loss to give rise to a mature
right of subrogation.”)
Id. at *14.
The Court agrees with the analysis in Lexington
Insurance Co. permitting recovery by an insurance carrier on a
theory of equitable subrogation, where it paid attorneys’ fees on
behalf of its insured.
With respect to Matson’s second argument, that
Seabright cannot show a greater right of recovery, the Court
finds that this is an issue of fact and that Matson has not met
its burden on summary judgment.
Matson maintains that there was
no finding of fault in the LHWCA proceeding, and that it fully
paid for its part of Mr. Soares’ compensation.
Plaintiff argues
that its right to recover is greater than Matson’s right to avoid
liability because: (1) the ALJ confirmed Brewer and Seabright’s
position when they tendered Brewer’s defense to Matson in June
2006; (2) Matson agreed to pay Brewer’s attorneys’ fees and now
seeks to avoid that obligation; (3) Seabright bore those fees and
costs only because Brewer purchased insurance for its own
benefit; and (4) if Seabright is left “holding the bag,” Matson
will effectively get the benefit of Brewer’s insurance.
Opp. at 13.]
[Mem. in
On balance, construing the facts in the light most
37
favorable to the non-moving party, the Court FINDS that a trier
of fact could reasonably conclude that Seabright’s right to
recover is greater than the rights of the third-party, Matson.
Finally, the Court observes that this equitable
doctrine has been applied liberally and flexibly.
The doctrine of [equitable] subrogation is not a
fixed and inflexible rule of law or of equity. It
is not static, but is sufficiently elastic to take
within its remedy cases of first instance which
fairly fall within it. Equity first applied the
doctrine strictly and sparingly. It was later
liberalized, and its development has been the
natural consequence of a call for the application
of justice and equity to particular situations.
Since the doctrine was first ingrafted on equity
jurisprudence, it has been steadily expanding and
growing in importance and extent, and is . . . now
broad and expansive and has a very liberal
application.
Han v. United States, 944 F.2d 526, 529 (9th Cir. 1991) (quoting
In re Estate of Johnson, 240 Cal. App. 2d 742, 744-45, 50 Cal.
Rptr. 147, 149 (1966) (alterations in original)); see also State
Farm Fire & Cas. Co., 90 Hawai‘i at 331, 978 P.2d at 769
(“Subrogation is a venerable creature of equity jurisprudence, so
administered as to secure real and essential justice without
regard to form. . . .
It is broad enough to include every
instance in which one party pays a debt for which another is
primarily answerable, and which, equity and good conscience,
should have been discharged by the latter[.]” (citation and
quotation marks omitted) (some alterations in original)).
light of this liberal construction, the Court FINDS that
38
In
Seabright has sufficiently plead its cause of action, and that
Matson is not entitled to judgment on the pleadings or summary
judgment at this point.
The Motion is DENIED as to Plaintiff’s
claim for equitable subrogation.
B.
American Rule
Finally, Matson argues that, even if Plaintiff’s
equitable claims survive, Plaintiff is prohibited from seeking
attorneys’ fees and legal costs by the American Rule, under which
each party pays for its own legal fees and expenses.”
Further,
while 33 U.S.C. § 928(a) allows employee-claimants to recover
costs and fees associated with their claim, there is no such
statutory authorization for employers.
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 American Rule does not bar Plaintiff’s action
seeking attorneys’ fees here, because, as set forth above,
Seabright is equitably subrogated to the rights of its insured
under the Agreement, which specifically provides for the recovery
39
of attorneys’ fees.
Thus, attorneys’ fees are chargeable against
the opposing party because they are authorized by agreement.
Based on this finding, the Court does not reach the issue of
whether the “wrongful act” exception to the American Rule applies
in this case.
Defendants’ Motion is DENIED with respect to this
issue.
CONCLUSION
On the basis of the foregoing, Defendants Matson
Terminals, Inc. and Matson Navigation Company, Inc.’s Motion for
Judgment on the Pleadings or for Summary Judgment, filed on
June 17, 2011, is HEREBY GRANTED IN PART AND DENIED IN PART.
The
Motion is DENIED as to Plaintiff’s First Cause of Action
(Equitable Subrogation) and GRANTED as to Plaintiff’s Second
Cause of Action (Equitable Indemnity).
The case is currently set
for trial on February 28, 2011, and the parties informed the
Court at the hearing that there has been no discovery pending the
Court’s ruling on the Motion.
The parties are to contact
Magistrate Judge Chang’s chambers within fourteen days of the
date of this order to schedule a trial re-setting conference.
IT IS SO ORDERED.
40
DATED AT HONOLULU, HAWAII, October 31, 2011.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
SEABRIGHT INS. CO. 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
41
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