NORFOLK SOUTHERN RAILWAY COMPANY

Filing 39

RECOMMENDED RULING signed by MAG/JUDGE P. TREVOR SHARP on 11/9/2009 that Plaintiff's Motion for Summary Judgment (Docket No. 27 ) be granted in part and denied in part and that Defendant's Motion for Summary Judgment (Docket No. 29 ) be granted in part and denied in part, as set out above. Judgment should be entered in favor of Norfolk Southern in the amount of $37,468.03. (Lee, Lisa)

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF NORTH CAROLINA

N O R F O L K SOUTHERN RAILWAY C O ., P l a i n t i f f, v. T I M E C COMPANY, INC., D efe n d a n t.

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R E C O M M E N D A T I O N OF UNITED STATES MAGISTRATE JUDGE T h is matter comes before the Court on cross motions for summary judgment. (Docket N o s . 27, 29.) The parties have fully briefed the issues. (Docket Nos. 28, 30, 31-34.) The C o u rt held oral argument on these motions on October 22, 2009, and both motions are now re a d y for ruling. For the reasons stated herein, the Court concludes that each motion should b e granted in part and denied in part and that Plaintiff should recover from Defendant the s u m of $37,468.03. F A C T U A L AND PROCEDURAL BACKGROUND T h is action involves a contract dispute based upon an indemnity agreement executed b e tw e e n Plaintiff Norfolk Southern Railway Co. ("Norfolk Southern") as indemnitee and D e f en d a n t TIMEC Company ("TIMEC") as indemnitor. Plaintiff's Complaint alleges one C la im for Relief for breach of contract. (Docket No. 1, Complaint ("Compl.") at 4-5.)

P lain tiff alleges that Defendant breached the indemnity agreement by refusing to pay certain c o s ts and expenses which arose in a separate action. (Id. at 4.) Plaintiff claims that it s u f f e re d damages due to this alleged breach in the amount of $94,807.23. (Id.) This amount inclu d es the settlement amount paid to Roger L. Holt, an employee of Defendant's s u b c o n tra c to r of $35,000 in addition to $2,468.03 in litigation costs and attorney's fees in the a m o u n t of $57,339.20. (Id. at 3-4.) This Court has jurisdiction pursuant to 28 U.S.C. § 1 3 3 2 (a ). (Id. at 1-2.) M r. Holt initiated an action in North Carolina state court (Guilford County Superior C o u rt, No. 06 CVS 4949) on March 21, 2006, alleging that he was injured due to the n e g lig e n c e of Plaintiff and Defendant. (Id. at 3.) On June 8, 2007, Plaintiff Norfolk S o u th e rn settled at mediation with Mr. Holt, obtaining a release in exchange for the lump s u m payment of $35,000 paid on August 21, 2007.1 (Id.) T h e incident giving rise to Mr. Holt's injury occurred on March 26, 2003, at an R.J. R e yn o ld s industrial facility in Winston-Salem, N.C. (Id. at 2.) As part of the work at that f a cility, Defendant was in the process of dismantling a boiler which would be transported by ra il to one of Defendant's customers in Montana. (Id.) Defendant loaded boiler parts onto ra ilc a rs owned and spotted at the site by Plaintiff. (Id.) Plaintiff and Defendant had entered in to an indemnification agreement on March 12, 2003 to facilitate this activity. (Id., Ex. A.)

Defendant settled its claims with Mr. Holt prior to mediation for a lump sum of $17,500. (Docket No. 30, Def.'s Mem. of Law in Supp. of Mot. for Summ. J. at 3 n.1.) -2-

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I n this indemnification agreement, Defendant agreed to "indemnify and save harmless [ P la in t if f ] . . . from and against any and all claims, demands, losses, suits, judgments, e x p e n se and liability resulting from injury to or death of any person or persons . . . and d a m a g e to or loss of any property . . . arising or in any manner growing out of the presence o f [Defendant] . . . on or about [Plaintiff's] property regardless of any negligence of [ P lain tiff ]." 2 (Compl. at 2-3 & Ex. A; Docket No. 30 at 3-4.) On March 26, 2003, Mr. Holt w a s injured when he lost control of a railcar owned by Plaintiff and located at the R.J. R e yn o ld s facility. (Compl. 1 at 3.) When Mr. Holt released the brake on the railcar, it began tra v e lin g downhill and crashed into an R.J. Reynolds building. (Id.) D IS C U S S IO N

A.

S u m m a r y Judgment Standard S u m m a r y judgment is appropriate only when no genuine issue of material fact exists.

S h e a ly v. Winston, 929 F.2d 1009, 1011 (4th Cir. 1991). A genuine issue of fact exists if the e v id e n c e presented could lead a reasonable fact-finder to return a verdict in favor of the nonm o v i n g party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A court c o n sid e rin g a motion for summary judgment must view all facts and draw all reasonable in f e re n c e s from the evidence before it in a light most favorable to the non-moving party. Id.

The copies of this agreement in the record are barely legible. However, there is no disagreement as to any material terms of the agreement. -3-

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a t 255. The proponent of summary judgment "bears the initial burden of pointing to the a b se n c e of a genuine issue of material fact." Temkin v. Frederick County Comm'rs, 945 F.2d 7 1 6 , 718 (4th Cir. 1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). If the m o v an t carries this burden, then the burden "shifts to the non-moving party to come forward w ith facts sufficient to create a triable issue of fact." Id. at 718-19 (citing Anderson, 477 U .S . at 247-48). A mere scintilla of evidence supporting the non-moving party's case is insu ff icien t to defeat a motion for summary judgment. See, e.g., Shaw v. Stroud, 13 F.3d 7 9 1 , 798 (4th Cir. 1994); see also Anderson, 477 U.S. at 248 (non-moving party may not rest u p o n mere allegations or denials.) B. W h e th e r the Indemnification Provision is Void as Against Public Policy U n d e r North Carolina law, the elements of a claim for breach of contract are the e x is te n c e of a valid contract and breach of the terms of that contract. Poor v. Hill, 138 N.C. A p p . 19, 530 S.E.2d 838, 843 (2000). TIMEC's only argument against the validity of the in d e m n ity agreement being sued upon is that the indemnity provision is void because it is a g a in s t public policy. If the agreement is found by the Court to be valid, there is also an iss u e regarding the extent of recoverable damages under the agreement. T h e first issue raised by the parties is whether the indemnification provision contained w ith in the parties' agreement is void as against North Carolina public policy expressed in N .C . Gen. Stat. § 22B-1. (Docket No. 28, Pl.'s Br. in Supp. of Mot. for Summ. J. at 6; D o c k e t No. 30 at 5-7.) Section 22B-1 generally invalidates provisions of construction -4-

in d e m n i ty agreements3 which purport to indemnify or hold harmless the promisee against lia b ility for personal injury or damage to property proximately caused by or resulting from th e negligence, in whole or in part, of the promisee. N.C. Gen. Stat. § 22B-1 (1996). That s e c tio n declares that such a provision is "against public policy and is void and u n e n f o rc e ab le ." (Id.) However, section 22B-1 also provides that the section "shall not affect an insurance contract, workers' compensation, or any other agreement issued by an insurer, n o r shall this section apply to promises or agreements under which a public utility as defined in G.S. 62-3(23) including a railroad corporation as an indemnitee." Id. Section 62-3(23) d e f in e s "public utility" as a person owning or operating in the state equipment or facilities f o r such activities as producing electricity and distributing water. N.C. Gen. Stat. § 623 (2 3 )( a ) (Supp. 1998). The parties disagree on the effect of this exception for railroad corporations. Plaintiff N o rf o lk Southern argues that the exception applies and that the statute therefore does not v o id any portion of the parties' agreement. (Docket No. 28 at 6.) Defendant TIMEC c o n te n d s that the exception for railroad corporations should not apply because "both parties a re acting as two private corporate entities performing a contract for profit" and no public s e rv ic e was involved. (Docket No. 30 at 6-7.)

Defendant contends and Plaintiff does not dispute that the removal of the boiler falls within the statute's description of such a construction agreement. (Docket No. 30 at 5; Docket No. 31, Pl.'s Br. in Resp. to Def.'s Mot. for Summ. J. at 4-5.) -5-

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T o the Court's mind, the most troubling aspect of Defendant's contention is that the p la in language of the statute does not condition the exception for a "railroad corporation" on th e requirement that the railroad's particular construction contract concern a public rather th a n private service. It is true that the statute also excludes public utilities as defined in s e c tio n 62-3(23). However, Defendant points to no statutory language which conditions the ap p lica tio n of the exception for public utilities on the requirement that the public utility's c o n stru c tio n contract concern a public rather than private service. With no language in the s ta tu t e creating such a requirement for either public utilities or railroad corporations, D e f en d a n t falls back upon an argument that case law decided before the enactment of section 2 2 B -1 suggests that public utilities may be treated as private entities when the contract at is s u e does not involve a public service. (Docket No. 30 at 7.) In Beachboard v. Southern Ry. Co., 16 N.C. App. 671, 193 S.E.2d 577 (1972), the ra ilro a d filed a third-party complaint against the owner of a railroad yard (where an employee o f the railroad was injured) for indemnification. The railroad yard owner had contracted to in d e m n if y the railroad "against any and all damage resulting from the negligence of" the o w n e r. Id. at 579. Both the railroad and the railroad yard owner were found to have been n e g lig e n t. Id. at 580. One argument of the railroad yard owner on appeal was that the i n d e m n i t y agreement was void against public policy because at the time in 1972 the "well e sta b lis h e d principle" was that a public service corporation or public utility could not c o n tra c t to escape liability from its own negligence occurring in the regular course of its -6-

b u s in e s s or in performing one of its duties of public service. Id. at 583. The court re c o g n iz e d this principle but found that the exculpatory clause of the contract at issue was e n f o rc e ab le notwithstanding public policy because the contract was "causal and private and in no way connected with its public service." Id. The railroad received the benefit of its in d e m n ity contract. It would be incongruous indeed to find that Plaintiff Norfolk Southern is not entitled to receive the benefit of its indemnity agreement against Defendant under the reasoning of B e a c h b o a r d which enforced such an indemnity agreement. It would be even more

u n re a so n a b le to do so now that section 22B-1 is in effect, voiding some indemnity a g re e m e n ts but by its terms not voiding provisions of agreements in which a railroad has c o n tra c te d to be indemnified for its own negligence. Beachboard does not advance

D e f e n d a n t's argument that the indemnity agreement between the parties should be found to b e void. D e f e n d a n t TIMEC also argues that if the drafters of section 22B-1 had intended to a llo w railroad corporations to be wholly exempt from the statute's reach, they would have " p la c ed an `and' instead of the [sic] `including' in the statute." (Docket No. 32, Def.'s Resp. to Pl.'s Mot. for Summ. J. at 4.) The word "including" suggests to TIMEC that the drafters " e m p h a s iz e d the addition of railroad corporations in the definition of `public utility.'" (Id.) T h is language, Defendant further argues, suggests that railroads should be wholly exempt f ro m the statute only if they are contracting publicly. (Id.) -7-

E v e n if the Court assumes that the drafters of section 22B-1 intended, by the use of th e word "including," to exempt railroad corporations only to the extent that they qualified a s a "public utility" under section 62-3(23), it does not follow that use of the public or private c o n tra c tin g test proposed by Defendant TIMEC is proper. Rather, North Carolina cases show that whether an enterprise is a "public utility" under section 62-3(23) is determined under a d if f ere n t standard. In State ex rel. Utilities Comm'n v. Southern Bell Tel. & Tel. Co., 93 N.C. A p p . 260, 377 S.E.2d 772 (1989), the court of appeals found that the "publishing of Yellow P a g e s advertisements" was not part of the telephone company's public utility business. See 3 7 7 S.E.2d at 775-76. However, the North Carolina Supreme Court reversed because the c o u rt of appeals' "interpretation of the public utility function [was] far too narrow." State e x rel. Utilities Comm'n v. Southern Bell Tel. & Tel. Co., 326 N.C. 522, 527, 391 S.E.2d 487, 4 9 0 (1990). The court found that Southern Bell's "public utility function" included all f u n c tio n s "required to provide adequate service to the subscribers." Id. In turn, a part of this f u n c tio n of providing adequate service was ensuring that its listings in its yellow pages a d v e rtis e m e n ts were proper. Id. at 491. P la in tif f Norfolk Southern is a "common carrier by rail" and in this case supplied railca rs to Defendant TIMEC so that it could load parts of a boiler onto the cars for transport b y rail to another state. (Compl. at 1-2.) Similar to the phone company's "public utility f u n c tio n " in Southern Bell, Norfolk Southern's public utility function is to provide adequate s e r v i c e to its customers in transporting goods by rail. In order to ensure safe and reliable -8-

tra n sp o rta tio n of goods by rail, Norfolk Southern must ensure that the goods are properly lo a d e d onto the railcars. Mr. Holt was injured while engaged in the general activity of lo a d in g the railcars. (Compl. ¶ 7; Docket No. 8, Answer ¶ 7.) Therefore, the Court finds that th is activity falls within Norfolk Southern's public utility function. See Southern Bell, 391 S .E .2 d at 491. A c c o rd in g ly, even if railroad corporations are exempt from section 22B-1 only to the e x te n t that they are engaged in a public utility function, Plaintiff Norfolk Southern is exempt in this case. The primary goal of statutory construction is to give effect to the intent of the le g is la tu re . Kaplan v. Prolife Action League, 123 N.C. App. 720, 475 S.E.2d 247, 250 (1 9 9 6 ). Here, it is clear that the intent of the legislature was to exempt from the application o f section 22B-1 the type of construction indemnity agreement entered into between Plaintiff a n d Defendant. Therefore, the parties' indemnity agreement is not void as against public p o lic y, and Norfolk Southern is entitled to enforce it against TIMEC. Plaintiff's Motion for Summary Judgment should be granted on the question of the v a lid ity of the contract, and Defendant's motion should be denied on this issue. C. W h e th e r Attorney's Fees are Recoverable under the Contract A s part of its damages, Norfolk Southern seeks to recover $57,339.03 in attorney's f e es it paid in the Holt litigation. TIMEC argues first that in North Carolina a party must h a v e a statutory right to recover attorney's fees in a lawsuit and that Plaintiff has no such rig h t. Defendant relies upon two cases which involve the right to recover attorney's fees -9-

p u rsua n t to lease agreements which contain a provision allowing the recovery of attorney's f e e s in the successful enforcement of the underlying contract. See Stillwell Enters., Inc. v. In te r s ta te Equip. Co., 300 N.C. 286, 266 S.E.2d 812 (1980); WRI/Raleigh, L.P. v. Shaikh, 1 8 3 N.C. App. 249, 644 S.E.2d 245 (2007); Docket No. 30 at 7-8. Nonetheless, these cases d o not speak to the enforcement of a provision said to allow the recovery of attorney's fees in an indemnity agreement.4 Because Defendant does not provide any authority for the p rop o sition that enforcement of such a provision in an indemnity agreement would require a separate statutory basis, this argument is not persuasive. D e f en d a n t next contends that Plaintiff's recovery of attorney's fees should not be a llo w e d because such recovery of fees is not expressly listed in the indemnification ag ree m en t. (Docket No. 30 at 8-9). In construing a contract of indemnity, the Court's p rim a ry purpose is to construe the contract to cover all losses, damages, and liabilities which re a s o n a b ly appear to have been within the contemplation of the parties. Dixie Container C o rp . v. Dale, 273 N.C. 624, 160 S.E.2d 708, 711 (1968). The contract "cannot be extended to cover any losses `which are neither expressly within its terms nor of such character that

Defendant relied upon additional cases at oral argument which pertain to the recovery of attorney's fees pursuant to consent order, Carswell v. Hendersonville Country Club, Inc., 169 N.C. App. 227, 609 S.E.2d 460 (2005), pursuant to consent judgment, Harborgate Prop. Owners Ass'n, Inc. v. Mountain Lake Shores Dev. Corp., 145 N.C. App. 290, 551 S.E.2d 207 (2001), and pursuant to an asset purchase agreement, Lee Cycle Ctr., Inc. v. Wilson Cycle Ctr., Inc., 143 N.C. App. 1, 545 S.E.2d 745 (2001). -10-

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it can reasonably be inferred that they were intended to be within the contract.'" Id. (quoting 4 2 C.J.S. Indemnity § 8 (1944).) T h e indemnity agreement between Norfolk Southern and TIMEC covers "all claims, d e m a n d s , losses, suits, judgments, expense and liability resulting from injury to or death of a n y person." (Compl., Ex. A.) The agreement does not expressly list attorney's fees as a re c o v era b le item. Therefore, attorney's fees are recoverable only if it can reasonably be in f e rr e d that the parties intended that they be within the contract. Dixie Container, 160 S .E .2 d at 711. D e f en d a n t TIMEC contends that as a knowledgeable and sophisticated corporation, P la in tif f Norfolk Southern should anticipate potential litigation over the wording of any c o n tra c t and could have simply added "attorney's fees" to the list of seven identified re c o v era b le items if intended that they be recoverable. (Docket No. 30 at 9.) That the parties d id not include "attorney's fees" is evidence that they did not intend to allow their recovery, a c c o rd in g to Defendant. P la in tif f first argues that the plain and ordinary meaning of "expense" and "liability," t e r m s which do appear in the contract, demonstrate an intent that attorney's fees be re c o v e ra b le . (Docket No. 31 at 8.) Plaintiff observes that "expense" is defined by Black's L a w Dictionary 658 (9th ed. 2009), as "an expenditure of money, time, labor, or resources to accomplish a result." (Id.) Also, "liability" is defined as "a financial or pecuniary o b lig a tio n ," according to Plaintiff. (Id.) -11-

P la in tif f does not cite any North Carolina case in which attorney's fees were found to be recoverable under an indemnity agreement covering only "expense" or "liability," and th e Court has not found such a case. Indeed, the North Carolina cases considering similar w o r d in g tend to show that such language is not sufficiently broad to cover attorney's fees. In Cooper v. H.B. Owsley & Son, Inc., 43 N.C. App. 261, 258 S.E.2d 842, 843 (1979), the co u rt found that an indemnity agreement listing "damages or losses of any kind whatsoever" w a s not sufficiently broad to cover attorney's fees. In Queen City Coach Co. v. Lumberton C o a c h Co., 229 N.C. 534, 50 S.E.2d 288, 289-90 (1948), the court found that an indemnity a g re e m e n t listing "any and all damages or loss" was not sufficiently comprehensive to in c lu d e reimbursement for attorney's fees. The Queen City court specifically rejected " n u m e ro u s decisions in other jurisdictions . . . in which attorneys' fees are held recoverable . . . as items of costs, and are also regarded as losses for which reimbursement is allowed." Id . at 289 (emphasis added). In addition, in Parker v. Lippard, 87 N.C. App. 43, 359 S.E.2d 492, 494, modified on r e h e a rin g , 87 N.C. App. 487, 361 S.E.2d 395 (1987), the court of appeals denied the re c o v e ry of attorney's fees as a "cost" or "expense" of resale following a bidder's default. T h e defendant appealed from an order assessing him with legal fees incurred by the executor o f an estate after defendant's default on his winning bid at the judicial sale of the estate. The lo w e r court's order included all attorney's fees incurred by the executor in both litigating d e f en d a n t's default and in conducting the resales of the property. The appellate court noted -12-

that there was case authority for awarding "the expense of the sale" and that statutory a u th o rity authorized taxing the "costs of resale." 359 S.E.2d at 494. The court found, h o w e v e r, that attorney's fees were neither a cost nor an expense of resale, and required an e x p re s s authorization for attorney's fees. Id. B a se d upon these North Carolina cases, the Court finds that the indemnity agreement b e tw e e n Plaintiff and Defendant does not include indemnification for attorney's fees. The p a rties listed "expense and liability" which, as Plaintiff argues, come the closest to p o te n tia lly including attorney's fees. The use of such additional terms could be construed to suggest that the parties intended somewhat broader coverage than the courts found under th e language at issue in Cooper and Queen City Coach Co., but still not sufficiently broad to cover attorney's fees. In particular, the inclusion of "expense" in the agreement leads the C o u rt to conclude that the parties intended to include costs such as those in the underlying a c tio n amounting to $2,468.03.5 This amount includes mediation fees, transcripts fees, and f e es for copying, filing, couriers, phone charges and postage. (Docket No. 28 at 4 n.1.) Such ite m s of expense are not likely to result in a substantial amount of money being owed by the in d e m n if yin g party. Attorney's fees, on the other hand, may result in a substantial amount, e v e n exceeding liability, and therefore are not of "such character" as to be inferred to be

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Defendant does not argue against the recovery of these costs if the agreement is found to -13-

be valid.

i n t e n d e d by the parties. Dixie Container, 160 S.E.2d at 711. Therefore, as in Parker, the C o u rt finds that attorney's fees are not covered by the term "expense." In addition, the inclusion of "liability" and the absence of "damages" in the indemnity a g re e m e n t leads the Court to conclude that the parties intended "liability" to cover items s im ila r to damages, rather than for "liability" to extend to attorney's fees. As seen from C o o p e r and Queen City Coach Co., the listing of "damages" as a recoverable item does not in c l u d e attorney's fees. P la in tif f also relies on a Virginia Supreme Court case which found that attorney's fees w e re recoverable in an indemnity contract as part of the damages. Southern Ry. Co. v. Arlen R e a lty and Dev. Corp., 220 Va. 291, 257 S.E.2d 841 (1979). That court relied on the section o n Indemnity in Corpus Juris Secundum, which Plaintiff also relies upon. (Docket No. 31 a t 9.) However, the express rejection of such foreign authority on this question in Queen City C o a c h Co. shows that the law differs in North Carolina. North Carolina resists a broad in te rp re ta tio n of such contract provisions and favors a strict interpretation of provisions w h ic h might authorize the recovery of attorney's fees. Therefore, Plaintiff's reliance upon s u c h authority is misplaced in this case governed by North Carolina law. B e c au s e the Court has concluded that attorney's fees are not recoverable under the in d e m n ity agreement, there is no need to address the parties' remaining arguments regarding th e proper amount of these fees.

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In summary, the Court finds that the parties' contract must be construed such that a tto rn e y's fees are not recoverable by Plaintiff. The parties have not suggested that parol e v id e n c e exists which might be relevant to this determination. Plaintiff's Motion for S u m m a ry Judgment as to the recovery of attorney's fees should therefore be denied. D e f en d a n t's Motion for Summary Judgment should be granted only to deny the recovery of a tto rn e y's fees. Norfolk Southern is entitled to recover as indemnification from TIMEC the a m o u n t s of $35,000 for the settlement of claims and $2,468.03 in expenses. C o n c lu s io n F o r the foregoing reasons, IT IS RECOMMENDED that Plaintiff's Motion for S u m m a ry Judgment (Docket No. 27) be granted in part and denied in part and that D e f en d a n t's Motion for Summary Judgment (Docket No. 29) be granted in part and denied in part, as set out above. Judgment should be entered in favor of Norfolk Southern in the a m o u n t of $37,468.03.

/s/ P. Trevor Sharp United States Magistrate Judge

D a te : November 9, 2009

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