Hanover Insurance Company v. Plaquemines Parish Government

Filing 747

ORDER AND REASONS granting 500 Motion for Partial Summary Judgment. Southeast Engineers, LLC's liability to Sizeler, Thompson, Brown Architects and XL Specialty Insurance Company is limited to $50,000.00, and Sizeler's claim for attorney's fees and defense costs is DISMISSED WITH PREJUDICE. Signed by Judge Jane Triche Milazzo. (ecm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
HANOVER INSURANCE COMPANY

CIVIL ACTION

VERSUS

NO. 12–1680

PLAQUEMINES PARISH GOVERNMENT

SECTION "H"(5)

ORDER AND REASONS
Before the Court is a Motion for Partial Summary Judgment (Doc. 500).
For the following reasons, the Motion is GRANTED. Southeast Engineers,
LLC's liability to Sizeler, Thompson, Brown Architects and XL Specialty
Insurance Company is limited to $50,000.00, and Sizeler's claim for attorney's
fees and defense costs is DISMISSED WITH PREJUDICE.
BACKGROUND
In 2008, Defendant Plaquemines Parish ("the Parish") hired Catco
General Contractors to construct a community center in Boothville, LA. Plaintiff
Hanover Insurance Company issued a performance bond for the project. Due to
several disputes regarding the quality of the completed work, the Parish refused
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to tender the final payment on the construction contract to Catco. Catco in turn
refused to pay certain subcontractors on the project. Those subcontractors filed
claims with Hanover seeking amounts due on the subcontracts. Hanover paid
those claims and instituted the instant litigation. Hanover claims that the
Parish wrongfully withheld the final payment from Catco, resulting in several
hundred thousand dollars in various claims against it.
On May 29, 2013, in response to Hanover's Complaint, the Parish asserted
a counterclaim against Hanover and a third-party demand against Catco and
several other entities who were involved in the design of the community center.
The Parish's counterclaim and third-party demand allege that Catco failed to
complete the construction according to specifications. On June 21, 2013, in
response to the Parish's counterclaim, Hanover filed a third-party demand
against several of the subcontractors involved in the construction of the
community center. Since then most of the subcontractors involved in the design
and construction of the community center have been added to this litigation.
There are now more than 30 parties and dozens of claims.
Presently before the Court are Sizeler, Thompson, Brown Architects'
("Sizeler") claims against Southeast Engineers, LLC ("Southeast"). The Parish
hired Sizeler to create the architectural drawings for the community center.
Sizeler, in turn, hired Southeast to provide structural engineering services for
the project. The Parish has asserted claims against Sizeler and Sizeler's insurer
XL Speciality Insurance Company ("XL") for breach of contract and negligence,
alleging that Sizeler failed to properly design the community center. In response
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to the Parish's claim against it, Sizeler has sued Southeast. Sizeler alleges that
Southeast is responsible for some or all of Sizeler's alleged liability to the Parish
because Southeast failed to properly perform the services required under its
contract with Sizeler. XL has also asserted a claim against Southeast. XL
alleges that, if it is forced to pay damages to the Parish in its capacity as
Sizeler's insurer, it is subrogated to Sizeler's claim against Southeast.
In this Motion, Southeast moves the Court to enforce a provision of its
contract with Sizeler that purports to limit Southeast's liability to Sizeler in the
event that Southeast breaches the contract. Southeast also contends that this
provision necessarily limits XL's subrogation claim. Sizeler argues that the
contract is unenforceable and XL argues that, as a nonparty to the contract, the
contract's terms cannot be enforced against it.
LEGAL STANDARD
Summary judgment is appropriate "if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law."1 A genuine issue of fact exists only
"if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party."2
In determining whether the movant is entitled to summary judgment, the

1

Fed. R. Civ. P. 56(c) (2012).

2

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

3

Court views facts in the light most favorable to the non-movant and draws all
reasonable inferences in his favor.3 "If the moving party meets the initial burden
of showing that there is no genuine issue of material fact, the burden shifts to
the non-moving party to produce evidence or designate specific facts showing the
existence of a genuine issue for trial."4 Summary judgment is appropriate if the
non-movant "fails to make a showing sufficient to establish the existence of an
element essential to that party’s case."5 "In response to a properly supported
motion for summary judgment, the non-movant must identify specific evidence
in the record and articulate the manner in which that evidence supports that
party’s claim, and such evidence must be sufficient to sustain a finding in favor
of the non-movant on all issues as to which the non-movant would bear the
burden of proof at trial."6 "We do not . . . in the absence of any proof, assume
that the nonmoving party could or would prove the necessary facts."7
Additionally, "[t]he mere argued existence of a factual dispute will not defeat an
otherwise properly supported motion."8
LAW AND ANALYSIS

3

Coleman v. Houston Indep. Sch. Dist., 113 F.3d 528 (5th Cir. 1997).

4

Engstrom v. First Nat’l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995).

5

Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

6

John v. Deep E. Tex. Reg. Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th Cir.
2004) (internal citations omitted).
7

Badon v. R J R Nabisco, Inc., 224 F.3d 382, 394 (5th Cir. 2000) (quoting Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)).
8

Boudreaux v. Banctec, Inc., 366 F. Supp. 2d 425, 430 (E.D. La. 2005).

4

This Motion presents three questions for the Court's consideration: (1) is
the contract enforceable against Sizeler?; (2) if so, is the limitation of liability
provision enforceable against Sizeler?; and (3) if the limitation provision is
enforceable against Sizeler, can it also be enforced against XL? The Court will
consider each question in turn.
I. Is the Contract Enforceable Against Sizeler?
Sizeler contends that the contract between it and Southeast is
unenforceable because Lisa Quarls, the Sizeler associate who signed the
contract, lacked the authority to bind Sizeler to the contract's terms. Although
a corporation [such as Sizeler] is a juridical person with a personality distinct
from that of its members it only acts through its officers, employees, and other
agents."9 In deciding whether Quarls had authority to act on behalf of Sizeler,
this Court looks to Louisiana's law of mandate.10 "A mandate is a contract by
which a person, the principal, confers authority on another person, the
mandatary, to transact one or more affairs for the principal."11 Subject to certain
exceptions not applicable here, a contract of mandate generally need not be in
any particular form.12 Louisiana courts use the term agent and mandatary
interchangeably.13 "An agent's power or authority is composed of his actual
9

Kevin Associates, L.L.C. v. Crawford, 865 So. 2d 34, 41 (La. 2004).

10

La. Civ. Code art. 2989, et seq.

11

La. Civ. Code art. 2989.

12

La. Civ. Code art. 2993. See also La. Civ. Code art. 2997 (describing certain
transactions for which express authority is required).
13

See Blanchard v. Ogima, 215 So. 2d 902, 905 (La. 1968); Hopping v. Louisiana
Horticulture Comm'n, 509 So. 2d 751, 762 (La. App. 1 Cir. 1987).

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authority, express or implied, together with the apparent authority which the
principal has vested in him by his conduct."14 A principal is bound by all acts
done by an agent within the agent's authority.15
Sizeler argues that Quarls lacked actual authority to contract with
Southeast and that the doctrine of apparent authority no longer exists in
Louisiana. In support of the first argument, Sizeler has attached an affidavit
from one of Sizeler's principals stating that Quarls did not have authority to
execute the contract. At the summary judgment stage, the Court finds that this
is sufficient to establish a factual dispute as to whether Quarls had actual
authority. The Court must construe all disputed facts in favor of the nonmoving
party.16 Therefore the Court will assume, for the purposes of this Motion, that
Quarls lacked actual authority to execute the contract.
Sizeler's next argument, that apparent authority no longer exists in
Louisiana, is without merit. In support of this argument, Sizeler cites a single
Louisiana case, Holloway v. Shelter Mutual Insurance Company.17 The Holloway
Court observed that the apparent authority doctrine had been applied in
Louisiana for several decades, but concluded that the 1997 amendments to the
mandate articles in the Louisiana Civil Code had legislatively repealed the
doctrine.18 As far as this Court can tell, however, no other Louisiana court has
14

Boulos v. Morrison, 503 So. 2d 1, 3 (La. 1987).

15

Id.

16

Coleman, 113 F.3d at 528.

17

861 So. 2d 763 (La. App. 3 Cir. 2003)

18

Id. at 769–70.

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agreed with Holloway. Instead, every Louisiana appellate court, including the
circuit that decided Holloway, has applied the apparent authority doctrine after
the 1997 amendments without question.19

Moreover, Louisiana's leading

commentator on the subject concluded that the 1997 amendments actually
legislatively adopted the doctrine.20 Finally, the only federal court to consider
Holloway dismissed it as an anomaly.21 In this Court's view, there is simply no
doubt that the doctrine of apparent authority remains alive and well in
Louisiana.
"Apparent authority is a doctrine by which an agent is empowered to bind
his principal in a transaction with a third person . . . although the principal has
not actually delegated this authority to the agent."22 "In order for the doctrine
of apparent authority to apply, the principal must first act to manifest the
alleged mandatary's authority to an innocent third party. Then, the third party

19

See, e.g., Walton Const. Co. v. G.M. Horne & Co., 984 So. 2d 827, 835 (La. App. 1 Cir.
2008) (explicitly holding that apparent authority survived the 1997 amendments); Builders
Supply of Ruston, Inc. v. Qualls, 750 So. 2d 427, 431 (La. App. 2 Cir. 2000) (applying the
doctrine of apparent authority); Grabowski v. Smith & Nephew, Inc., 149 So. 3d 899, 913 (La.
App. 3 Cir. 2014) (same); Lifetime Const., L.L.C. v. Lake Marina Tower Condo. Ass'n, Inc., 117
So. 3d 109, 114 (La. App. 4 Cir. 2013) (same); Color Stone Int'l, Inc. v. Last Chance CDP, LLC,
986 So. 2d 707, 713 (La. App. 5 Cir. 2008) (same).
20

8 LA. CIV. L. TREATISE, BUSINESS ORGANIZATIONS § 33.08 ("As a result of the 1997
amendments, the current Civil Code does recognize apparent authority, and it does provide
explicitly that an agent who exceeds his authority is liable to the principal for any loss the
principal sustains as a result.").
21

Hendrickson v. Meeks Disposal Co., No. 08-2744, 2008 WL 4657268, at *2 n.2 (E.D.
La. Oct. 20, 2008).
22

Tedesco v. Gentry Dev., Inc., 540 So. 2d 960, 963 (La. 1989).

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must reasonably rely on the mandatary's manifested authority."23

The

manifestation of authority need not be express. Rather, "apparent agency arises
when the principal has acted so as to give an innocent third party a reasonable
belief that the agent had the authority to act for the principal."24 "One must look
from the viewpoint of the third party to determine whether an apparent agency
has been created."25 "The burden of proving apparent authority is on the party
seeking to bind the principal."26
The facts surrounding the execution of the contract at issue are
undisputed. Lisa Quarls, an associate architect employed by Sizeler, contacted
Southeast and requested engineering services for the community center project.
Southeast forwarded Quarls a proposal outlining the scope of Southeast's work,
the price of its services, and several terms and conditions associated with the
agreement. Quarls signed the contract, purportedly on behalf of Sizeler, and
returned it to Southeast. The contract required an initial payment of $7,081.43,
which Sizeler paid on the same day that Quarls executed the contract. As
Southeast performed work on the contract, Sizeler promptly paid its invoices.
Sizeler has alleged in this litigation that it had a contract with Southeast.27
Until it filed an opposition to this Motion, Sizeler never indicated to the Court
23

Jefferson Parish Hosp. Serv. Dist. No. 2 v. K & W Diners, LLC, 65 So. 3d 662, 668 (La.
App. 5 Cir. 2011).
24

Barrilleaux v. Franklin Found. Hosp., 683 So. 2d 348, 354 (La. App. 1 Cir. 1996).

25

Id.

26

Bamburg Steel Buildings, Inc. v. Lawrence Gen. Corp., 817 So. 2d 427, 432 (La. App.
2 Cir. 2002).
27

Doc. 68, pp. 5–7 (alleging that Sizeler had a contract with Southeast and asserting
a breach of contract claim against Southeast).

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or the parties that it thought the contract was unenforceable. Sizeler argues for
the first time in its opposition that Quarls lacked authority to bind Sizeler.
To prevail on its argument that Quarls had apparent authority to execute
the contract, Southeast must first prove that Sizeler acted in some way to
demonstrate that Quarls had authority to bind Sizeler to the contract's terms.28
Southeast has not provided any such evidence in connection with this Motion.
In fact, the Court has been presented with no evidence regarding the actions of
Sizeler before the contract was signed. Accordingly, the Court must conclude
that Southeast has failed to meet its burden to prove that Quarls had apparent
authority to execute the contract.
This conclusion is not, however, fatal to Southeast's Motion. Southeast
also argues that Sizeler ratified the contract. "Ratification is a declaration
whereby a person gives his consent to an obligation incurred on his behalf by
another without authority."29 Ratification may be either express or tacit.30
"Tacit ratification results when a person, with knowledge of an obligation
incurred on his behalf by another, accepts the benefit of that obligation."31 A
tacit ratification results when a principal of a corporation acquires knowledge
of an unauthorized contract and fails to repudiate it within a reasonable time.32
A principal may also ratify an unauthorized contract if he accepts benefits of the
28

Barrilleaux, 683 So. 2d at 354.

29

La. Civ. Code art. 1843.

30

Frazier v. Harper, 600 So. 2d 59, 62 (La. 1992).

31

Id.

32

3 A's Towing Co. v. P & A Well Serv., Inc., 642 F.2d 756, 758 n.3 (5th Cir. 1981).

9

contract after acquiring knowledge of its existence.33
The Court has no difficulty concluding that Sizeler ratified the contract.
The contract provided that an initial payment of $7,081.43 was due upon signing
of the contract. Sizeler paid this exact amount on the same day that Quarls
signed the contract. This Court refuses to believe that the payment was a
coincidence. Instead, it is clear that Sizeler was fulfilling one of its obligations
under the agreement. The contract was signed on March 13, 2008 but Sizeler
did not question its enforceability until May 19, 2015. Sizeler does not argue
that it was unaware of the contract's existence before May of 2015. Rather, it
seems clear to the Court that Sizeler availed itself of the benefits of the contract
for seven years.

When Southeast sought to enforce a provision that was

unfavorable to Sizeler, Sizeler insisted that the contract was not binding on it.
This is precisely the situation that the ratification rule was created to prevent.
The Court holds that Sizeler's knowledge of the contract in 2008, combined with
its failure to repudiate it for more than seven years, results in the conclusion
that Sizeler has ratified the contract. Accordingly, the contract is enforceable
against Sizeler.
II. Is the Limitation of Liability Provision Enforceable Against
Sizeler?
Having found that the contract itself is enforceable, the Court turns now
to the specific provision at issue. Southeast asks the Court to enforce a provision
in the contract that limits its liability. The contract expressly invokes Louisiana
33

Id.

10

law. "According to the Louisiana Civil Code, '[i]nterpretation of a contract is the
determination of the common intent of the parties.'"34 In probing this intent, a
court looks first to the four corners of the contract.35 "When the words of a
contract are clear and explicit and lead to no absurd consequences, no further
interpretation may be made in search of the parties' intent."36 "Each provision
of a contract must be interpreted in light of the other provisions, and a provision
susceptible of different meanings must be interpreted with a meaning that
renders it effective rather than one which renders it ineffective."37 "When a
clause in a contract is clear and unambiguous, the letter of that clause should
not be disregarded under the pretext of pursuing its spirit, as it is not the duty
of the courts to bend the meaning of the words of a contract into harmony with
a supposed reasonable intention of the parties."38 The determination of whether
a contract is clear or ambiguous is a question of law.39 "When a contract can be
interpreted from the four corners of the instrument, the question of contractual
interpretation is answered as a matter of law, and summary judgment is
appropriate."40 If, on the other hand, the court makes a threshold finding that
34

Guidry v. Am. Pub. Life Ins. Co., 512 F.3d 177, 181 (5th Cir. 2007) (quoting La. Civ.
Code art. 2045).
35

See John Paul Saprir, LLC v. Yum! Brands, Inc., 106 So. 3d 646, 652 (La. App. 4 Cir.
2012) (citation omitted).
36

La. Civ. Code art. 2046.

37

Lis v. Hamilton, 652 So. 3d 1327, 1330 (La. 1995) (citations omitted).

38

Clovelly Oil Co., LLC v. Midstates Petroleum Co., LLC, 112 So. 3d 187, 192 (La. 2013).

39

La. Ins. Guar. Ass'n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 764 (La. 1994)
(citation omitted).
40

Mobil Exploration & Producing U.S. Inc. v. Certain Underwriters Subscribing to Cover
Note 95-3317(A), 837 So. 2d 11, 24 (La. App. 1 Cir. 2002) (citation omitted).

11

the contract is ambiguous, an issue of material fact exists as to the intention of
the parties, and summary judgment is rarely appropriate.41
The applicable contract provision reads:
To the fullest extent permitted by law, Owner/Client
[Sizeler] and SE (1) waive against each other, and the
other's employees, officers, directors, agents, insurers,
partners, and consultants, any and all claims for or
entitlement to special, incidental, indirect, or
consequential damages arising out of, resulting from, or
in any way related to the Project, and (2) agree, that
SE's total liability to Owner/Client [Sizeler] under this
Agreement shall be limited to $50,000 or the total
amount of compensation received by SE, whichever is
greater.42
Southeast first argues that the contract clearly and unambiguously limits
its liability to Sizeler. The Court agrees. The contract explicitly provides that
Southeast "total liability to [Sizeler]" is limited to $50,000.43

Absent its

argument about Quarls's authority to execute the contract, Sizeler makes no
attempt to argue that this provision is legally unenforceable. Nor could it. As
one Louisiana court has explained, "it is well settled in our jurisprudence that
limitation of liability clauses . . . are valid and not against public policy."44
41

See Orleans Parish Sch. Bd. v. Lexington Ins. Co., 118 So. 3d 1203, 1212 (La. App. 4
Cir. 2013) (citation omitted).
42

Doc. 242–1, p. 5.
Southeast.

The contract defines "Owner/Client" as Sizeler and "SE" as

43

There is no dispute that the total amount received by Southeast under the contract
was less than $50,000. Accordingly, Southeast requests that the Court order that its liability
to Sizeler is limited to $50,000.
44

Isadore v. Interface Sec. Sys., 58 So. 3d 1071, 1074 n.4 (La. App. 3 Cir. 2011)
(collecting cases).

12

Therefore, the Court concludes that the limitation of liability provision is valid
and enforceable and that Southeast's total liability to Sizeler in this litigation is
limited to the sum of $50,000.45
Southeast's second argument is more specific. The contract provides that
Sizeler may not recover any "special, incidental, indirect, or consequential
damages." Southeast argues that this language necessarily precludes Sizeler's
claims for defense costs and attorney's fees. The Court agrees. It is clear that
the parties intended to waive any claims for indirect or consequential damages
incurred by Sizeler in the event that Southeast failed to perform. Thus, while
Sizeler may recover from Southeast any damages directly caused by Southeast's
failure to perform, it may not recover from Southeast any consequential damages
it sustained, including defense costs and attorney's fees. Accordingly, the Court
will grant Southeast's Motion on this issue.
III. Is the Limitation of Liability Provision Enforceable Against
XL?
Sizeler's insurer, XL, also asserts a claim against Southeast. XL claims
to be subrogated to Sizeler's rights against Southeast by virtue of the insurance
contract between XL and Sizeler. XL argues that, as a nonparty to the contract
between Sizeler and Southeast, it cannot be bound by its terms. XL's argument,
however, overlooks basic principles of subrogation.

45

Of course, it has not yet been established that Southeast is liable to any of the parties.
Sizeler, and any other party that has asserted a claim against Southeast, remains obligated
to prove that Southeast is liable to it.

13

"Subrogation is the substitution of one person to the rights of another."46
Subrogation can arise either by contract or by operation of law.47 XL alleges
that, if Sizeler is ultimately liable to the Parish and XL pays the Parish for
Sizeler's liability, then XL will be subrogated to Sizeler's claims against
Southeast. No party questions this claim. Indeed, Louisiana courts routinely
permit insurers to assert such claims.48 XL, however, claims that the rights it
acquires through subrogation are not limited by Sizeler's contract with
Southeast. XL is incorrect.
XL's argument that it is not bound by the limitation of liability clause
ignores an important principle of Louisiana subrogation law. "A subrogee
acquires no greater rights than those possessed by its subrogor and is subject to
all limitations applicable to the original claim of the subrogor."49 Accordingly,
any rights that XL acquires through subrogation are subject to the same
limitations that existed when those rights were owned by Sizeler. The Court has
already held that Sizeler's claim against Southeast is limited by the contract.
Pursuant to Louisiana subrogation law, that same limitation must also apply to
XL's subrogation claim. The Court, therefore, holds that the limitation of
liability clause is enforceable against XL.

46

A. Copeland Enterprises, Inc. v. Slidell Mem'l Hosp., 657 So. 2d 1292, 1296 (La. 1995).

47

La. Civ. Code art. 1825.

48

Gray Ins. Co. v. Old Tyme Builders, Inc., 878 So. 2d 603, 607 (La. App. 1 Cir. 2004).

49

Id.

14

CONCLUSION
For the foregoing reasons, Southeast's Motion for Partial Summary
Judgment is GRANTED. In the event that Sizeler and XL prevail on their
claims against Southeast, Southeast's liability to Sizeler and XL is limited to
$50,000, and Sizeler's claim for attorney's fees and defense costs is DISMISSED
WITH PREJUDICE.
New Orleans, Louisiana, this 15th day of July, 2015.
____________________________
JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE

15