Buffalo Sports Enterprises LLC v. Dalrada Financial Corporation et al
Filing
89
DECISION AND ORDER DENYING Plaintiff's 55 Motion for Summary Judgment. Signed by William M. Skretny, Chief Judge U.S.D.C. on 9/15/2011. (MEAL)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
BUFFALO SPORTS ENTERPRISES LLC,
Plaintiff,
v.
DECISION AND ORDER
04-CV-1029S
DALRADA FINANCIAL CORP., ET AL.,
Defendants.
I. INTRODUCTION
In this diversity action, Plaintiff Buffalo Sports Enterprises LLC (“Buffalo Sports”),
a New York corporation, brings suit against Defendants Source One Group, Inc.
(“SourceOne”) and its parent Dalrada Financial Corp. (“Dalrada”), both incorporated under
the laws of Delaware, claiming a breach of an agreement to indemnify Plaintiff for all costs
and expenses incurred as a result of claims arising from Defendants’ failure to act in
accordance with a client service agreement. Presently before this Court is Plaintiff’s
Motion for Summary Judgment.1 For the reasons discussed below, Plaintiffs’ motion is
denied.
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In support of its Motion for Sum m ary Judgm ent, Buffalo Sports filed a Rule 56.1 Statem ent, a
Mem orandum of Law, the Affidavit of Jack Turesky, the Affidavit of Kevin J. English, Esq., a Reply
Mem orandum , and a Second Reply Mem orandum (Docket Nos. 56, 57, 58, 59, 86). In opposition to
Buffalo Sports’ m otion, Dalrada and SourceOne filed a Rule 56.1 Statem ent with Exhibits, a Reply
Mem orandum of Law, a Supplem ental Mem orandum of Law in Response to Plaintiff’s Motion for
Sum m ary Judgm ent with Exhibits, a Reply Mem orandum of Law in Response to Plaintiff’s Supplem ental
Brief, the Declaration of Shawn P. Martin, Esq. and the Affidavit of Eric Kincaid. (Docket Nos. 63, 65, 81,
87).
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II. BACKGROUND
A.
Facts
Buffalo Sports, formerly known as the Buffalo Destroyers, was a franchise in the
Arena Football League. Plaintiff’s Rule 56.1 Statement (“Pl.’s Statement”), Docket No. 56,
¶¶ 1.) Buffalo Sports was incorporated under the laws of New York, with its principal place
of business in Buffalo, New York. (Id. at ¶ 8; Plaintiff’s Memorandum of Law (“Pl.’s Mem.”),
Docket No. 57, 14.) Defendant SourceOne is a Professional Employment Organization
providing workers’ compensation coverage, with its principal place of business in
Richmond, Virginia. (Pl.’s Statement ¶ 2, 7.) SourceOne, a Delaware corporation, is a
subsidiary of Dalrada, itself a Delaware corporation. (See id. at ¶ 27; Pl.’s Mem. 14.)
Buffalo Sports and SourceOne entered into a Client Service Agreement
(“Agreement”) on March 7, 2003, whereby SourceOne would provide insurance coverage
for Plaintiff’s employees, including its professional athletes. (Pl.’s Statement ¶¶ 3-4, 16.)
The Agreement provided that each party would indemnify the other for all costs and
expenses incurred by the other Party as a result of claims against one Party arising from
the other Party’s acts or failure to act. (Id. at ¶ 4.) The Agreement further provided that
each party would bear its own costs and expenses, including attorney fees, for defending
itself in any litigation in which Buffalo Sports and SourceOne were both named defendants.
(Affidavit of Jack Turesky, (“Turesky Aff.”), Docket No. 58, Ex. 1.)
Over the course of the Agreement eight of Plaintiff’s players were injured and sought
relief in Workers Compensation proceedings commenced against Buffalo Sports and
Liberty Mutual Insurance Company (“Liberty Mutual”), the insurance company through
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which SourceOne had obtained insurance coverage for Plaintiff. (Pl.’s Statement ¶¶ 20-21,
31.) The Workers’ Compensation Board ultimately concluded that Liberty Mutual was
obligated to pay the injured claimants. (See Defendant’s Supplemental Memorandum of
Law in Response to Plaintiff’s Motion for Summary Judgment (“Defs.’ Supp. Resp.”),
Docket No. 81, 2-3.) Although the decision held Liberty Mutual solely responsible, Plaintiff
incurred costs defending itself in the proceeding. (Plaintiff’s Second Reply Memorandum
of Law in Response to Defendant’s Supplemental Memorandum of Law (“Pl.’s Second
Reply”), Docket No. 86, 6-7.) Plaintiff now seeks indemnification of these costs from
Defendant SourceOne and Dalrada. (Id.)
B.
Procedural History
Plaintiff commenced this action on September 22, 2004 by filing a complaint in the
New York Supreme Court, Erie County against SourceOne and Dalrada, alleging a breach
of contract. (Notice of Removal, Docket No. 1, Ex. A.)2 The action was subsequently
removed to the United States District Court for the Western District of New York on
December 23, 2004. (Id.)
On June 23, 2006 Plaintiff filed a motion for summary judgment on its breach of
contract claim against SourceOne and Dalrada Financial Corp. (Pl.’s Mem 15.) In the
same motion, Plaintiff sought a stay pending the resolution of the Workers’ Compensation
proceeding, then ongoing. (Id. at 19.) This Court granted a stay on August 10, 2006.
(Docket No. 64.) The case was ordered reopened on March 11, 2009, following the
2
Plaintiff’s original suit also nam ed Hilb, Rogal & Hobbs as defendant, against whom SourceOne
and Dalrada filed cross-claim s. That defendant was dism issed with prejudice on March 18, 2009. (Docket
No. 75.)
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conclusion of that proceeding. (Docket No. 73.)
Based on the decision by the Workers’ Compensation Board and its affirmance by
the Appellate Division, Plaintiff withdrew from its motion for summary judgment the part
claiming a breach of the insuring agreement. (Pl.’s Second Reply 3-4.) Plaintiff continues
to seek summary judgment on defendants’ obligation to indemnify Plaintiff for costs
incurred in defending the Workers’ Compensation proceeding. (Id.)
III. DISCUSSION
A.
Choice of Law
At the outset, this Court addresses Plaintiff’s contention that New York’s substantive
law should be applied to resolve this dispute. (Pl.’s Mem. 13-15.) Determining the
controlling substantive law requires application of New York’s choice of law rules.
Schwartz v. Liberty Mut. Ins. Co., 539 F.3d 135, 151 (2d Cir. 2008) (quoting Booking v.
Gen. Star Mgmt. Co., 254 F.3d 414, 419 (2d Cir. 2001). New York applies the “center of
gravity” or “grouping of contacts” analysis to determine the applicable law in a contract
dispute. Beth Isr. Med. Ctr. v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d
573, (2d Cir. 2006) (quoting Allstate Ins. Co. v. Stolarz, 81 N.Y. 2d 219, 226 (1993). The
factors considered under this analysis include: “the place of contracting, negotiation and
performance; the location of the subject matter of the contract; and the domicile of the
contracting parties.” Id. (quoting Allstate Ins. Co., 81 N.Y. 2d at 227). Here, application
of the aforementioned factors leads to the conclusion that New York’s substantive law
applies to the present dispute. The Agreement was negotiated in New York. The athletes
to be insured were also located in New York. Finally, the Workers’ Compensation
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proceeding, the conclusion of which was necessary to fully resolve the present matter, took
place in New York.
This Court notes that the Agreement did contain a choice-of-law clause stating that
California law be applied in interpreting the Agreement. (Pl.’s Mem 14.) New York courts
will enforce a choice-of-law clause so long as the chosen law bears a reasonable
relationship to the parties or the transaction. Burns v. Del. Charter Guarantee & Trust Co.,
No. 10 Civ. 4535, 2011 WL 2314835, at *6 (W.D.N.Y. June 8, 2011) Here there are no
contacts between California and the present litigation aside from the choice-of-law clause
itself. Furthermore, Defendants have neither disputed Plaintiff’s argument that New York
law should govern, nor brought the clause to the Court’s attention. In the context of choice
-of-law clauses, this constitutes a waiver. Schwimmer v. Allstate Ins. Co., 176 F.3d 648,
650 (citing Cargill, Inc. v. Charles Kowsky Res., Inc., 949 F.2d 51, 55 (2d Cir. 1991).
Consequently, this Court will apply New York’s substantive law.
B.
Summary Judgment Standard
Summary Judgment is warranted when there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A
genuine issue of material fact exists "if the evidence is such that a reasonable jury could
return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Ford v. Reynolds, 316 F.3d 351, 354
(2d Cir. 2003). A fact is material if it "might affect the outcome of the suit under governing
law." Anderson, 477 U.S. at 248.
The party seeking summary judgment must first demonstrate the absence of any
disputed material facts. The opposing party is then required to “go beyond the pleadings”
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and “designate specific facts showing that there is a genuine issue for trial.” Celotex Corp.
v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Holcomb v. Iona
College, 521 F.3d 130, 137 (2d Cir. 2008). To carry this burden, the opposing 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, 586-87, 106 S.Ct. 1348,
89 L.Ed.2d 538 (1986), and it “may not rely simply on conclusory statements or on
contentions that the affidavits supporting the motion are not credible . . . or upon the mere
allegations or denials of the adverse party’s pleading,” Goenaga v. March of Dimes Birth
Defects Found., 51 F.3d 14, 18 (2d Cir. 1995) (internal quotation and citations omitted).
In assessing whether summary judgment is appropriate, the court’s obligation is to
view the evidence and the inferences drawn from the evidence “in the light most favorable
to the party opposing the motion." Adickes v. S.H. Kress and Co., 398 U.S. 144, 158-59,
90 S.Ct.1598, 1609, 26 L.Ed.2d 142 (1970). The court’s function is not “to weigh the
evidence and determine the truth of the matter but to determine whether there is a genuine
issue for trial." Anderson, 477 U.S. at 249. "Only when reasonable minds could not differ
as to the import of evidence is summary judgment proper." Bryant v. Maffucci, 923 F.2d
979, 982 (2d Cir. 1991).
C.
Plaintiff’s Motion for Summary Judgment
Plaintiff’s motion for summary judgment seeks only indemnification for costs
incurred in defending the Workers’ Compensation proceeding. (Pl.’s Second Reply 3-4.)
Plaintiff claims that Defendants failed to comply with ¶ 4.3 of the Agreement. (Id.) This
paragraph states
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Cooperation in Defense of Claims. The parties agree that except where conflicts
prevent the same, they shall render to each other such assistance as may
reasonably be expected and to cooperate in good faith with each other in order to
insure the proper and adequate defense of any claim . . . .
(Turesky Aff. Ex. 1.) Plaintiff claims it is entitled to recover costs based on the Agreement’s
indemnification provision. This provision reads in relevant part that
Each party agrees to indemnify the other party . . . up to $50,000 from and against
all . . . costs and expenses . . . incurred by the other Party, directly or indirectly, by
reason of, resulting from or relating to . . . (a) Claims against one party arising from
the other Party’s acts or failure to act and/or errors or omission in accordance with
. . . (ii) the terms and conditions of this Agreement . . . . Notwithstanding the
foregoing each Party shall bear its own costs and expenses (including attorney fees)
for defending itself in any litigation brought against it for which Client and
SourceOne are both named defendants, whereby creating a potential conflict of
interest.
(Turesky Aff. Ex. 1.)3
Defendants refer to the same provisions, but argue that 1) Plaintiff’s cannot show
that the indemnification provision applies because the Workers’ Compensation proceeding
3
The Court notes that the indem nification clause under which Plaintiff seeks recovery lim its the
recoverable am ount to $50,000. A federal court sitting in diversity lacks subject m atter jurisdiction where
the am ount in controversy is $75,000 or less. 28 U.S.C. § 1332(a)(1). However, the indem nification
clause also perm its “[t]he prevailing Party in any . . . m atter arising under this section . . . to recover from
the other Party all costs of such enforcem ent action including, without lim itation, reasonable attorneys’
fees, court costs and related expenses.” (Pl.’s Statem ent ¶ 4.) Moreover, even if, following resolution of
the W orkers’ Com pensation proceeding, Plaintiff had sought to recover $75,000 or less, where a district
court’s subject m atter jurisdiction was properly established at rem oval, it will be unaffected by postrem oval reductions in the am ount in controversy. Yong Qin Luo v. Mikel, 625 F.3d 772, 776 (2d Cir.
2010).
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found that SourceOne had not breached its obligations; and 2) SourceOne was a named
party in the Workers’ Compensation proceeding and therefore each party was required to
bear its own costs.
Summary judgment is inappropriate where the dispute hinges on the meaning of an
ambiguous term. Fed. Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 567 (2d Cir. 2011)
(citing Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 695 *2d Cir. 1998). However,
whether contractual language is ambiguous is a question of law to be decided by the court.
Compagnie Finaciere de CIC et de L’Union Europeenne v. Merrill Lynch, Pierce, Fenner
& Smith Inc., 232 F.3d 153, 158 (2d Cir. 2000). Indemnity clauses, specifically, “must be
strictly construed so as not to read into [them] any obligations the parties never intended
to assume.” BNP Paribas Mortgage Corp. v. Bank of America, N.A., No. 09 Civ. 9783,
2011 WL 1210208, at *36 (S.D.N.Y. Mar. 23, 2011) (quoting Haynes v. Kleinewfers &
Lembo Corp., 921 F.2d 453, 456 (2d Cir. 1990). A plaintiff seeking to recover under a
contractual indemnification clause must show a specific intent to allow recovery under that
clause. Id.
Here, the disputed provision provides that parties will have to bear their own costs
in the event that both are named defendants in the same dispute. The provision explains
that this avoids the potential for conflicts of interest. Neither side disputes the meaning of
this provision. Nor do the parties argue that the Workers’ Compensation proceeding does
not constitute litigation. Instead, the parties disagree over whether OneSource was a
named defendant in the Workers’ Compensation proceeding. This dispute does not
appear to be over the meaning of terms, so much as about the factual circumstances of
the case. Because neither party contends that the contract is ambiguous, and on the basis
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of this Court’s own review of the indemnification clause’s language, this Court finds that the
contract language is not ambiguous and it can proceed to consider whether summary
judgment is warranted. See Schiavone v. Pearce, 79 F.3d 248, 252 (2d Cir. 1996) (citing
Mellon Bank N.A. v. United Bank Corp. of N.Y., 31 F.3d 113, 115 (2d Cir. 1994).
New York’s Workers’ Compensation System requires employers to pay benefits to
workers who are injured in the course of employment by requiring employers to carry
insurance coverage for their workers. Liberty Mut. Ins. Co. v. Hurlbut, 585 F.3d 639, 641
(2d Cir. 2009). One of the ways employers obtain coverage, is by purchasing it from an
approved insurance carrier. Id. A worker who suffers injury can then present a claim for
compensation to his employer. McKinney’s Workers’ Compensation Law § 20. Bringing
a claim within New York’s Worker Compensation system is the worker’s only remedy- an
employee may not bring a separate suit against his employer. Liberty Mut. Ins. Co., 585
F.3d at 641. Because the interests of the employer and the insurer may conflict, the
employer’s insurance carrier may be made a party to the proceeding, giving it the
opportunity to dispute the employee’s claim, and have the matter resolved by a Workers’
Compensation Law Judge (“WCLJ”). See Hurlbut, 585 F.3d at 642. Appeals are heard
by a three-member Board panel, from which further appeal may be available to the full
Board. Id. Judicial review is also possible in the New York State Supreme Court,
Appellate Division, Third Department. Id.
Here, the parties dispute whether SourceOne was a named defendant in the
Workers’ Compensation proceeding. Plaintiff presents the Court with a copy of the cover
page from its own Brief to the New York Supreme Court, which heard the appeal from the
proceeding. (Pl.’s Second Reply Ex. B.) This page clearly shows SourceOne not listed as
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a Defendant. (Id.) However, Plaintiff’s submission of its own cover page is hardly
conclusive, especially where, as here, a defendant has alleged that briefs from the other
parties show the opposite. (See Defs.’ Reply 4.)
Under New York’s Workers’ Compensation Law, only a party in interest can actively
participate in a workers’ compensation proceeding by presenting evidence and being
represented by counsel. See McKinney’s Workers’ Compensation Law § 20; Dorato v.
Blue Cross of W. N.Y., Inc., 163 F. Supp. 2d 203, 212 (W.D.N.Y. 2001). “Parties in interest
only include the employer, its workers’ compensation carrier, an appropriate special fund,
and the claimant or a legal representative.” Dorato, 163 F. Supp. 2d at 212 (citing
McKinney’s Workers’ Compensation Law § 22).
Looking to the proceeding itself, the WCLJ granted SourceOne the right to produce
witnesses. (Affidavit of Kevin J. English, Esq., Docket No. 59, Ex. 17.) Furthermore,
SourceOne did actually have legal representation before the Workers’ Compensation
proceeding. (Pl.’s Statement ¶ 33.) Although that attorney later resigned, had SourceOne
not been a defending party, it would not even have had the opportunity to present evidence
or witnesses. See Dorato, 163 F. Supp. 2d at 212.
Additionally, SourceOne was a party in interest before the proceeding as a listed
employer. The injured athletes brought claims against their employer, Buffalo Sports, and
the insurance provider Liberty Mutual. However, both SourceOne and Buffalo Sports were
listed as employers. (Defendants’ Reply Memorandum of Law in Response to Plaintiff’s
Supplemental brief (Defs.’ Reply), Docket No. 87, Ex. 1.) Both the WCLJ and the threemember board panel also found that SourceOne was one of the claimant’s employers.
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(Defs.’ Supp. Resp. Ex. 4, Ex. 5).4
Plaintiff’s memorandum supports the conclusion that SourceOne was a defending
party in interest. Plaintiff points out that one of the possible results of the Workers’
Compensation proceeding would have been for the Board to conclude that Buffalo Sports
had not insured its athletes. (Pl.’s Mem. 10-11.) This would have meant that SourceOne
would be liable to Buffalo Sports for not having obtained insurance as was contractually
required. (Pl.’s Mem. 10-11.)
This highlights the very concern accounted for in the indemnification clause. The
Agreement precludes resort to the indemnification clause where both parties are named
defendants because of the potential for a conflict of interest. The Workers’ Compensation
proceeding presented such a conflict.
Buffalo Sports had sought the services of
SourceOne to secure insurance coverage. SourceOne, in turn, had obtained coverage
through Liberty Mutual. In defending the proceeding, Buffalo Sports only needed to ensure
that some insurance provider was found at fault, whether it was Liberty Mutual,
SourceOne, or an earlier provider. (See Pl.’s Mem. 10-11). SourceOne, by contrast,
needed to avoid being found personally liable. Under these circumstances, the Agreement
did not require that SourceOne pay Plaintiff’s expenses or attorneys’ fees. See BNP
Paribas Mortgage Corp., 2011 WL 1210208, at *36.5 Because the indemnification clause
on which Plaintiff relies is inapplicable in the present circumstance, Plaintiff’s Motion for
4
But see Long v. Liberty Mut. Ins. Co., 866 N.Y.S.2d 433, 435-36 (N.Y. App. Div. 2008) (affirm ing
Board’s decision but finding that, although SourceOne was technically listed as an em ployer, there was no
em ployer-em ployee relationship).
5
The Court notes that ¶ 4.3, on which Plaintiff also relies, sim ilarly lim its its application to
situations where there is no conflict of interest. (Pl.’s Statem ent ¶ 4 (“The parties agrees that except
where conflicts prevent the sam e . . . .”))
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Summary Judgment must be denied.
IV. CONCLUSION
For the reasons stated above, Buffalo Sports’ Motion for Summary Judgment on its
indemnity claim is denied.
V. ORDERS
IT HEREBY IS ORDERED, that Plaintiff’s Motion for Summary Judgment (Docket
No. 55) is DENIED.
SO ORDERED.
Dated:
September 15, 2011
Buffalo, New York
/s/William M. Skretny
WILLIAM M. SKRETNY
Chief Judge
United States District Court
.
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