Valley Forge Insurance Company v. Hartford Iron & Metal Inc et al

Filing 449

OPINION AND ORDER: The court hereby GRANTS August Macks motion to dismiss based on improper venue 353 and DENIES AS MOOT August Macks motion tocompel arbitration 357 . Hartford Irons claims against August Mack,James Berndt, and Environmental Fi eld Services are DISMISSED without prejudice. Hartford Iron must bring these claims, if at all, in the U.S. District Court for the Southern District of Indiana or the Superior Court of Marion County. Signed by Judge Robert L Miller, Jr on 5/12/2016. (rmn)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
VALLEY FORGE INSURANCE
COMPANY,

)
)
)
PLAINTIFF,
)
)
VS.
)
)
HARTFORD IRON & METAL, INC.,
)
ET AL.,
)
)
DEFENDANTS.
)
______________________________________ )
HARTFORD IRON & METAL, INC.,
)
ET AL.,
)
)
THIRD-PARTY PLAINTIFFS,
)
)
VS.
)
)
CONTINENTAL INSURANCE CO.,
)
ET. AL,
)
THIRD-PARTY DEFENDANTS
)

CAUSE NO. 1:14-CV-6-RLM-SLC

OPINION and ORDER
Third-party defendants August Mack Environmental, Inc., Environmental
Field Services, and James A. Berndt1 have moved to dismiss third-party plaintiff
Hartford Iron’s claims against them or, in the alternative, to compel arbitration
of the claims.

EFS is an affiliate of August Mack, and Mr. Berndt is an August Mack employee. For
convenience, the court refers to all three moving third-party defendants as “August
Mack.”

1

The factual background of this dispute is complex and known to the
parties, so only the bare essentials are included here. Hartford Iron runs a
scrapyard that developed a series of environmental problems, most notably rain
water picking up chemicals from the scrap yard soil and flowing off the property
as contaminated stormwater. IDEM brought enforcement actions to make
Hartford Iron remediate the site, particularly the stormwater discharge problem.
Hartford Iron sought coverage from its liability insurer Valley Forge, and the two
eventually entered into two settlements obligating Valley Forge to pay for the
remediation and the defense of the regulatory actions; only the Second
Settlement Agreement is relevant here. Valley Forge hired August Mack as an
environmental contractor to do the actual remediation work. Remediation work
hasn’t gone smoothly, and Valley Forge eventually sued Hartford Iron on breach
of contract and various declaratory judgment claims. Hartford Iron filed 21 thirdparty claims against August Mack, blaming August Mack for shoddy work and
various other sorts of malfeasance in connection with the remediation of the
scrapyard.
Now before the court are August Mack’s motions to dismiss and to compel
arbitration. The motions argue generally that the third-party claims against
August Mack must be dismissed: (1) for improper venue, because the contract
applicable to the remediation work has a forum-selection clause; (2) because the
contract also has a mandatory arbitration clause, and Hartford Iron hasn’t
sought arbitration before filing suit; and (3) for failure to state a claim. The court
-2-

addresses the improper venue argument first, because if the forum selection
clause applies, it would be inappropriate for this court to resolve the other two
questions; disputes about the enforceability of the arbitration clause and about
the legal sufficiency of the third-party claims should be resolved by one of the
two courts specified by the contract.
Federal Rule of Civil Procedure 12(b)(3) permits motions to dismiss based
on improper venue. “A lack of venue challenge, based upon a forum-selection
clause, is appropriately brought as a Rule 12(b)(3) motion to dismiss.”
Continental Ins. Co. v. M/V Orsula, 354 F.3d 603, 606–607 (7th Cir. 2003)
(citations omitted). In resolving issues related to improper venue, the court isn’t
limited to the four corners of the complaint and can consider other evidence
submitted by the parties. See Buffet Crampon S.A.S. v. Schreiber & Keilwerth,
Musikinstrumente Gmbh, No. 3:09-CV-347RM, 2009 WL 3675807, at *4 (N.D.
Ind. Nov. 2, 2009). The court must take all allegations in the complaint as true
to the extent they aren’t contradicted by other evidence, and must resolve all
factual conflicts, and draw all reasonable inferences, in the non-movant’s favor.
See Turnock v. Cope, 816 F.2d 332, 333 (7th Cir. 1987) (superseded by statute
on other grounds). Ultimately, “[w]hen a defendant moves to dismiss for improper
venue pursuant to Rule 12(b)(3), the plaintiff bears the burden of proving that
venue is proper.” Carr v. ABC Fin., No. 1:08–CV–0318, 2009 WL 1615396, at *1
(S.D. Ind. June 9, 2009) (citations omitted). As the third-party plaintiff, Hartford
Iron bears the burden of showing that venue is proper in this district.
-3-

Hartford Iron’s claims are based on a written agreement through which
Valley Forge hired August Mack to remediate the scarp yard at Valley Forge’s
expense, but ultimately for Hartford Iron’s benefit. Hartford Iron wasn’t a party
to this agreement, but correctly identifies itself as a third-party beneficiary and
seeks to enforce the contract on that basis. As a third-party beneficiary to the
contract, Hartford Iron is bound by all the contract’s provisions – including any
valid and enforceable forum selection clause. See Hugel v. Corp. of Lloyd’s, 999
F.2d 206, 210 n.7 (7th Cir. 1993) (noting that “third-party beneficiaries of a
contract would, by definition, satisfy the ‘closely related’ and ‘foreseeability’
requirements” necessary to bind a non-party to a contract’s forum selection
clause); see also Cent. States, Southeast & Southwest Areas Pension Fund v.
Gerber Truck Serv., Inc., 870 F.2d 1148, 1151 (7th Cir. 1989) (“Third-party
beneficiaries usually take contracts as they find them.”); Hughes Masonry Co. v.
Greater Clark County School Bldg. Corp., 659 F.2d 836, 839 (7th Cir. 1981)
(holding that a party seeking to enforce a contract “cannot rely on the contract
when it works to its advantage, and repudiate it when it works to its
disadvantage”); TWH, Inc. v. Binford, 898 N.E.2d 451, 454 (Ind. Ct. App. 2008)
(holding that non-signatory seeking to enforce a contract was bound by the
contract’s arbitration provision, because one can’t “bring a claim under a
contract and disavow a term therein”).
Although several of Hartford Iron’s 21 claims against August Mack sound
in tort rather than contract, that doesn’t necessarily permit Hartford Iron to
-4-

escape a contractual forum selection clause. When a dispute is fundamentally
related to a contractual agreement, the terms of the contract – including a forum
selection clause – govern the dispute, even if the plaintiff brings claims sounding
in tort rather than contract law. See Am. Patriot Ins. Agency, Inc. v. Mut. Risk
Mgmt., Ltd., 364 F.3d 884, 889 (7th Cir. 2004) (holding that common law fraud
claims were still subject to forum selection clause because “the existence of
multiple remedies for wrongs arising out of a contractual relationship does not
obliterate the contractual setting, does not make the dispute any less one arising
under or out of or concerning the contract, and does not point to a better forum
for adjudicating the parties’ dispute than the one they had selected to resolve
their contractual disputes.”); Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209 (7th
Cir. 1993) (“Regardless of the duty sought to be enforced in a particular cause of
action, if the duty arises from the contract, the forum selection clause governs
the action.”). A close examination reveals that all of the third-party claims
against August Mack relate solely to August Mack’s conduct in remediating the
scrapyard site in accordance with its contractual duties.2

Count 21 of Hartford Iron’s third-party complaint, for example, alleges tort claims for
misrepresentation and concealment. All of August Mack’s alleged misrepresentations
and acts of concealment enumerated in the third-party complaint relate to the site
remediation process. Count 24 alleges defamation against August Mack employee
James Berndt, and Mr. Berndt’s allegedly defamatory statements were made to IDEM
or other parties involved in this dispute and concerned Hartford Iron’s conduct in the
remediation project. The other tort counts are all similarly grounded in the remediation
of the scrapyard, and therefore arise from and concern August Mack’s contract with
Valley Forge.

2

-5-

Accordingly, if the contract contains a forum selection clause and the
clause is otherwise enforceable, Hartford Iron may only bring suit in the specified
forum. August Mack points to a forum selection clause that unambiguously
disqualifies this court from hearing the case, but the parties dispute whether
that clause actually applies because they disagree about which documents
constitute the contract underlying Hartford Iron’s claims. Hartford Iron’s thirdparty complaint says that it seeks to enforce the “Master Services Agreement,”
which is a short letter from Valley Forge’s claim consultant to August Mack. The
MSA recites that Valley Forge is hiring August Mack to fulfill Valley Forge’s
obligations under the Settlement Agreement, and expressly incorporates as
binding on August Mack the “relevant terms” of the Settlement Agreement. It
then sets out the procedure by which August Mack will seek Valley Forge’s
approval for specific projects, and states that prices will be set according to a
separate August Mack fee schedule. Hartford Iron contends that this MSA – plus
the undefined “relevant terms” incorporated from the Settlement Agreement –
forms the entire contract of which it is a third-party beneficiary, and the letter
doesn’t include a forum selection clause.
August Mack insists that the MSA letter wasn’t the whole agreement; an
additional document dated the day after the initial letter also concerns the
relationship between Valley Forge and August Mack as it relates to the
remediation work. The first part of that document is another letter from Valley
Forge’s claim consultant to August Mack, and proposes four initial remediation
-6-

tasks for August Mack to begin: coordinating with the prior environmental
consultant, reviewing documents, performing an introductory visit to the site,
and establishing “scope for stormwater management activities.” This letter states
that all work on these projects will be performed “in accordance with the terms
and fees agreed to in the Master Services Agreement executed [the prior day] and
the Valley Forge Conditions attached to this proposal.” The second part of the
document is the referenced Terms and Conditions, which include detailed
provisions on the nature of the contract and how it is to be enforced and
interpreted.
Two parts of the Terms and Conditions are relevant here. Under the
heading “Agreement,” the document provides that:
This agreement is governed by the following terms and conditions in the
order of precedence: a) The December 12, 2012 Master Service Agreement
(MSA); b) these Terms and Conditions; and c) August Mack’s Proposal
recently accepted by the Client (the Proposal, the MSA and these Terms
and Conditions shall be collectively referred to as the “Agreement”). This
Agreement constitutes the entire agreement between the parties and shall
supersede all prior oral or written communications.
The other relevant provision is the forum selection clause on which August Mack
bases its motion. The clause provides that any litigation brought in connection
with the agreement shall be brought in either the district court for the Southern
District of Indiana or in the Superior Court of Marion County.
Accordingly, the chief point of contention between Hartford Iron and
August Mack is whether the Terms and Conditions are part of the contract on
which Hartford Iron is suing, such that the forum selection clause binds Hartford
-7-

Iron. Hartford Iron takes the position that the second letter and the Terms and
Conditions don’t apply, because Hartford Iron’s third-party complaint against
August Mack referenced and attached only the MSA, not the additional
documents executed later. Because the second letter referred only to four initial
tasks, Hartford Iron believes the Terms and Conditions only modified the MSA’s
provision as to those four tasks – and because those tasks aren’t the basis for
any of Hartford Iron’s claims against Valley Forge, the MSA without the Terms of
Service governs this dispute.
Hartford Iron’s interpretation is inconsistent with Indiana contract law and
with the plain terms of the documents. “When interpreting a contract, our
paramount goal is to ascertain and effectuate the intent of the parties.” First Nat.
Bank & Trust v. Indpls. Pub. Hous. Agency, 864 N.E.2d 340, 350 (Ind. Ct. App.
2007). Whether multiple executed documents are separate agreements or parts
of the same contract turns on whether the parties intended them to be separate
agreements or parts of a unitary whole. The most important indicia of the parties’
intent on this point is whether the different writings involve different
consideration. See Heritage Dev. of Ind., Inc. v. Opportunity Options, Inc., 773
N.E.2d 881, 891 (Ind. Ct. App. 2002) (“The usual test of the severability of a
contract is the entirety or divisibility of the consideration”). Judged from this
perspective, the MSA standing alone can’t be a contract unto itself because the
consideration exchanged necessarily depends on future agreements; the MSA
merely states that Valley Forge will pay August Mack’s usual fees (with particular
-8-

modifications) for each part of the remediation if Valley Forge approves future
project proposals. If Valley Forge never approved a proposal, it would never owe
August Mack anything. Future agreements (in the form of proposals accepted by
Valley Forge) are clearly contemplated and indeed are necessary, because
without them Valley Forge has incurred no binding obligation and thus offered
no consideration to support the contract. This is powerful evidence that the
parties intended the MSA to be simply a framework which, when combined with
the details embodied in future proposals, would constitute the full enforceable
contract.
In addition to the severability of consideration, “the intention of the parties
is to be ascertained from the whole instrument viewed in connection with the
conditions when the contract was made.” Cricket Ridge, LLC v. Wright, 880
N.E.2d 1271, 1275 (Ind. Ct. App. 2008). Temporal proximity and identity of
parties and subject matter are important factors in deciding whether different
writings should be construed as a unitary whole. See Peoples Bank & Trust Co.
v. Price, 714 N.E.2d 712, 717 (Ind. Ct. App. 1999). Although the MSA and the
subsequent letter regarding the first few tasks weren’t executed on the same day,
they were dated only one day apart. And the parties and subject matter of the
two writings is identical; both concern Valley Forge hiring August Mack to
remediate the Hartford Iron site.
It would make little sense for multiple separate contracts to govern the
myriad of individual steps, tasks and projects associated with the remediation,
-9-

particularly with regard to procedural matters like forum selection. Under
Hartford Iron’s interpretation, any claims about the initial site visit or the other
preliminary tasks would be subject to the Terms and Conditions – and thus to a
forum selection clause and an arbitration clause – while other similar tasks in
the remediation process wouldn’t. Hartford Iron hasn’t articulated any reason
that Valley Forge and August Mack would want to risk duplicative proceedings
by making some tasks subject to arbitration and a limited forum while other
tasks are not so limited.
Finally – and most importantly – the plain language of the Terms and
Conditions makes crystal clear that the parties intended the documents to be
construed together. The Terms and Conditions define “Agreement” to include the
MSA, the proposal, and the Terms themselves, and explicitly that that Agreement
“constitutes the entire agreement between the parties and shall supersede all
prior oral or written communications.” So even if the MSA constituted a contract
unto itself, it existed for less than a day before it was superseded by a new
contract comprising all the documents together. Because all of the conduct that
forms the basis of Hartford Iron’s claims took place after the date of the second
letter, the contract Hartford Iron seeks to enforce must be the later version
constituting the MSA, the proposal letter, and the Terms and Conditions.
Accordingly, Hartford Iron is bound by the Terms and Conditions in addition to
the MSA.

-10-

Hartford Iron also argues that even if the rest of the Terms and Conditions
apply to its claims against August Mack, the forum selection clause doesn’t. As
already noted, the MSA incorporates by reference the “relevant terms” of the
Settlement Agreement between Hartford Iron and Valley Forge, and the Terms
and Conditions state that the MSA takes precedence over the Terms themselves.
Accordingly, Hartford Iron argues, the “relevant” provisions of the Settlement
Agreement trump any conflicting provisions in the Terms and Conditions – and
the Settlement Agreement includes a different forum selection clause, which says
that disputes over the agreement shall be brought in an “Indiana court of
competent jurisdiction.” Because this court sits in Indiana and unquestionably
has jurisdiction over these claims, Hartford Iron believes this is the proper venue
for its claims.
For Hartford Iron’s argument to succeed, the forum selection clause of the
Settlement Agreement must be among the undefined “relevant terms”
incorporated into the MSA. Neither Hartford Iron nor August Mack suggest a
workable way for the court to determine which terms of the Settlement
Agreement the parties to the contract thought were “relevant” at the time the
MSA was executed. In any case, that thorny issue needn’t be resolved because
even if the forum selection clause of the Settlement Agreement is among the
terms incorporated into the MSA, it isn’t actually inconsistent with the forum
selection clause in the Terms and Conditions. Courts will favor a reading of a
contract that “harmonizes its provisions as opposed to one which causes the
-11-

provisions to be conflicting.” Peoples Bank & Trust Co. v. Price, 714 N.E.2d 712,
717 (Ind. Ct. App. 1999); see also Bicknell Minerals, Inc. v. Tilly, 570 N.E.2d
1307, 1316 (Ind. Ct. App. 1991). The forum selection clause in the Settlement
Agreement limits actions only to courts that are in Indiana and of competent
jurisdiction. The later forum selection clause in the Terms and Conditions merely
narrows that set of options to two specific courts (the Southern District of
Indiana and the Superior Court of Marion County). Both of the specific courts
permitted by the forum selection clause in the Terms and Conditions also satisfy
the forum selection clause in the Settlement Agreement, so the two provisions
can be read in harmony and both given effect by requiring that disputes
implicating the MSA be heard in one of the two specific courts named. In other
words, Hartford Iron and Valley Forge are free to bring suit against each other in
any Indiana court in accordance with their Settlement Agreement, but cases
involving August Mack’s more limited role in the whole controversy must be
heard in either the Southern District or Marion County.
Hartford Iron has two more arrows in its quiver, but both miss the mark.
First, it insists that even if the forum selection clause applies to these claims,
the court shouldn’t enforce the clause because doing so would be inefficient –
the claims against Valley Forge and the other insurers would proceed in this
forum, while the other claims would be heard in a parallel proceeding in another
court (and possibly in arbitration). That may be true, but Hartford Iron cites no
legal authority suggesting that a valid forum selection clause is to be ignored
-12-

simply because it turns out to be inconvenient to one party. “[F]ederal courts are
friendly to the use of forum selection clauses to determine which federal district
court shall host a case,” and will generally be enforced absent compelling reasons
to the contrary. IFC Credit Corp. v. Aliano Bros. Gen. Contractors, 437 F.3d 606,
608 (7th Cir. 2006). Separating out the claims against August Mack likely won’t
result in complete duplication of efforts in parallel forums, because August Mack
is categorically different from the other twelve third-party defendants against
whom Hartford Iron brings claims. All the other third-party defendants are
insurance companies, and Hartford Iron’s claims against them relate to their
alleged obligations under insurance contracts. August Mack, on the other hand,
is the contractor performing actual remediation work on the ground, so the
evidence relevant to Hartford Iron’s claims against August Mack is unlikely to be
identical to the evidence relevant to the insurance disputes. August Mack agreed
to carry out the site remediation on the express understanding that it was
subjecting itself to suits over the project only in two particular courts. Though
there will certainly be some overlapping evidence and witnesses if the claims
against August Mack proceed in another forum, inefficiency alone doesn’t justify
robbing a party to a contract of its bargained-for rights.
Hartford Iron’s waiver argument fares no better. In addition to this case,
Hartford Iron sued August Mack in a parallel case in Marion County Superior
Court – one of the fora permitted under the clause. In that state court case,
Hartford Iron moved to stay the proceedings so that all disputes related to the
-13-

remediation could be decided in this court. August Mack joined in a response
brief prepared by another defendant, which agreed that a stay was “desirable.”
Hartford Iron takes the position that agreeing to a stay of the state case
amounted to waiver of any arguments based on the forum-selection clause.
To begin with, the argument is wholly undeveloped – it constitutes a single
sentence in Hartford Iron’s brief, and that sentence simply states without citation
to any legal authority that August Mack waived its objections to venue. This
deficiency alone justifies rejecting the argument; it isn’t the court’s role to make
Hartford Iron’s legal arguments for it. Regardless, an objection to venue is
generally waived only by waiting too long to raise the issue. See Fed. R. Civ. Pro.
12(h)(1) (providing that an improper venue defense under Rule 12(b)(3) is waived
by omitting it from a responsive pleading or motion). The record reflects that
August Mack promptly objected to having this case heard in the Northern
District of Indiana, moving to dismiss based on the forum selection clause on
the day its responsive pleading was due. August Mack clearly made its venue
objection within the limitations period listed in Rule 12(h)(1), and Hartford Iron
offers no reason to think that August Mack waited an unreasonably long time to
raise this issue.
Hartford Iron cites no authority for the proposition that simply agreeing
not to contest a motion to stay litigation in another forum waives rights
bargained for in a forum selection clause. Regardless, there is no reason to apply
the concept of waiver to such a situation. Hartford Iron apparently takes August
-14-

Mack’s decision not to contest the stay as an implicit agreement that the claims
should be heard in this court. But a defendant may agree to stay a parallel case
for a multitude of reasons other than conceding that the claims should be heard
elsewhere – including simply to delay, in hopes that the matter will settle before
the parties have to incur substantial litigation costs. The waiver argument would
be much stronger had August Mack joined in a motion to transfer, but agreeing
to a stay carries no suggestion that a party intends to relinquish its rights to a
particular venue under the terms of a contract. Under these circumstances,
August Mack can’t be said to have waived any objection based on the forumselection clause.
Because the forum selection clause in the Terms and Conditions applies
and is otherwise enforceable, this isn’t the proper venue for Hartford Iron’s thirdparty claims against August Mack and the court doesn’t reach August Mack’s
other arguments for dismissal. The proper court should decide whether
arbitration is mandatory, so the court’s conclusion that venue is improper
renders August Mack’s motion to compel arbitration moot.
The court hereby GRANTS August Mack’s motion to dismiss based on
improper venue (Doc. No. 353) and DENIES AS MOOT August Mack’s motion to
compel arbitration (Doc. No. 357). Hartford Iron’s claims against August Mack,
James Berndt, and Environmental Field Services are DISMISSED without
prejudice. Hartford Iron must bring these claims, if at all, in the U.S. District

-15-

Court for the Southern District of Indiana or the Superior Court of Marion
County.
SO ORDERED.
ENTERED: May 12, 2016

/s/ Robert L. Miller, Jr.
Judge
United States District Court

-16-