Burgett v. J.C. Penney Company, Inc. et al

Filing 47

ORDER denying 28 Motion to Dismiss. Signed by Judge S. Thomas Anderson on 5/13/14. (Anderson, S.)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
______________________________________________________________________________
BARBARA BURGETT,

)
)
Plaintiff,
)
)
v.
)
No. 13-2967-STA-dkv
)
J.C. PENNEY COMPANY, INC.,
)
ASA CARLTON, INC.,
)
RAFAEL ARREOLA,
)
LABOR READY CENTRAL, INC.,
)
JOHN DOES 1-5,
)
)
Defendants.
)
______________________________________________________________________________
ORDER DENYING DEFENDANT’S MOTION TO DISMISS
______________________________________________________________________________
Before the Court is Cross-Defendant Rafael Arreola’s Motion to Dismiss Cross-Plaintiff J.C.
Penney Company, Inc. (“J.C. Penney”)’s Amended Cross-claim (D.E. # 28) filed on March 7, 2014.
Cross-Plaintiff has filed a response in opposition to the Motion (D.E. # 37). For the reasons set forth
below, the Motion is DENIED.
BACKGROUND
Plaintiff Barbara Burgett alleges that on April 11, 2013, she was shopping in the J.C.
Penney’s store at the Wolfchase Galleria Mall in Memphis, Tennessee, at a time while the store was
undergoing a renovation. (Am. Compl. ¶¶ 23–24.) J.C. Penney’s had contracted with Defendant
ASA Carlton, Inc. (“ASA Carlton”) to perform the construction, and Carlton had sub-contracted with
Defendant Rafael Arreola (“Arreola”) to perform a portion of the project. (Id. ¶¶ 17–18.) According

1

to the Amended Complaint, as Plaintiff was shopping in the J.C. Penney’s store, building materials
fell as a result of Defendants’ negligence and struck her causing injuries. (Id. ¶ 25–27.)
On February 5, 2014, J.C. Penney’s filed a Cross-claim against ASA Carlton and Arreola
(D.E. # 15). The Cross-claim alleges that J.C. Penney and ASA Carlton were parties to a master
services agreement (“the agreement”) dated January 29, 2013, and that Arreola accepted the terms
of the agreement when he subcontracted with ASA Carlton. (Cross-Claim ¶¶ 1, 2.) The agreement
contained an indemnity clause in article 14 by which ASA Carlton agreed to “defend, indemnify, and
hold harmless” J.C. Penney from all “liabilities, damages, settlements, and claims for damages.” (Id.
¶ 3.) Article 14 of the agreement went on to provide a non-exhaustive list of claims covered by the
indemnity clause, including “injury to or death of persons, or damage to or destruction of property,
including property of Owner arising or resulting from the Work or from any actual or alleged acts,
omissions, or negligence Contractor any Subcontractor or any Person performing any portion of the
Work.” (Id.) The agreement further required that ASA Carlton maintain liability insurance, which
would cover its indemnity obligations under article 14, and would name J.C. Penney as an additional
insured. (Id. ¶ 4.)
J.C. Penney alleges that the events described in Burgett’s pleadings fall within the scope of
the master services agreement, thereby entitling J.C. Penney to indemnification from ASA Carlton
and Arreola (Id. ¶¶ 9, 10.) The Cross-Claim alleges that J.C. Penney tendered its defense to ASA
Carlton and that ASA Carlton has not accepted the tender. (Id. ¶ 11.) Therefore, the Cross-Claim
alleges that ASA Carlton and Arreola have breached the terms of the master services agreement. (Id.
¶ 12.)
In his Motion to Dismiss, Arreola argues that J.C. Penney’s Cross-claim fails to state a claim
2

against him. J.C. Penney alleges that ASA Carlton, the general contractor, and Arreola, the subcontractor, have breached the master services agreement’s indemnity clause. However, Arreola was
not a party to the agreement. Even if Arreola was a party to the agreement, the indemnity clause is
unenforceable under Tennessee law because the clause fails to clearly and unequivocally state that
Arreola will indemnify J.C. Penney for its own negligence. Count XII of Burgett’s Amended
Complaint alleges that J.C. Penney is liable for its own acts of negligence, and not vicariously liable
for the negligence of any other party. Under Tennessee law, an agreement to indemnify a party for
its own negligence must state such an intent in clear and unequivocal terms. Article 14 of the
agreement between J.C. Penney and ASA Carlton fails to state that ASA Carlton (or Arreola) agreed
to indemnify J.C. Penney for its own negligence. Additionally, the indemnity clause is void and
unenforceable under Tenn. Code Ann. § 62–6–123. That section provides that an indemnity
provision in a contract for construction services is void and unenforceable. Arreola argues then that
article 14 of the master services agreement falls within the scope of Tenn. Code Ann. § 62–6–123
and is void as a matter of law. Therefore, the Court should dismiss J.C. Penney’s Cross-claim
against Arreola for failure to state a claim.
In its response in opposition, J.C. Penney argues that Arreola’s Motion to Dismiss should be
denied. First, J.C. Penney asserts that Arreola bound himself by implication to the terms and
conditions of the master services agreement when he entered into the subcontract with ASA Carlton.
J.C. Penney adds that it believes discovery will show that Arreola expressly accepted the terms of
the master services agreement in his subcontract with ASA Carlton. In the alternative, J.C. Penney
contends that it was a third-beneficiary of the subcontract between Arreola and Carlton. J.C.
Penney’s goes on to argue that even if no express agreement for indemnity existed between J.C.
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Penney and Arreola, Arreola would still be bound to indemnify J.C. Penney’s under a theory of
implied indemnity. As for the enforceability of any agreement to indemnify, J.C. Penney argues that
Burgett has not alleged that J.C. Penney is liable for its own negligence but only vicariously liable
for the negligence of Arreola and the other workers performing the renovation at the store in April
2013.

As such, Tennessee law on indemnity clauses in construction contracts and the

indemnification of a party for allegations about its own negligence is not at issue here. Therefore,
the Motion to Dismiss should be denied.
STANDARD OF REVIEW
A defendant may move to dismiss a claim “for failure to state a claim upon which relief can
be granted” under Federal Rule of Civil Procedure 12(b)(6). When considering a Rule 12(b)(6)
motion, the Court must treat all of the well-pleaded allegations of the pleadings as true and construe
all of the allegations in the light most favorable to the non-moving party.1 However, legal
conclusions or unwarranted factual inferences need not be accepted as true.2 “To avoid dismissal
under Rule 12(b)(6), a complaint must contain either direct or inferential allegations with respect to
all material elements of the claim.”3 Under Rule 8 of the Federal Rules of Civil Procedure, a
complaint need only contain “a short and plain statement of the claim showing that the pleader is
entitled to relief.”4 Although this standard does not require “detailed factual allegations,” it does

1

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Saylor v. Parker Seal Co., 975 F.2d 252,
254 (6th Cir. 1992).
2

Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987).

3

Wittstock v. Mark a Van Sile, Inc., 330 F.3d 899, 902 (6th Cir. 2003).

4

Fed. R. Civ. P. 8(a)(2).
4

require more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of
action.”5 In order to survive a motion to dismiss, the plaintiff must allege facts that, if accepted as
true, are sufficient “to raise a right to relief above the speculative level” and to “state a claim to relief
that is plausible on its face.”6 “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.”7
ANALYSIS
The issue presented is whether J.C. Penney Cross-claim states a claim for indemnity
against Arreola. J.C. Penney alleges that it entered into a construction contract with ASA Carlton
(Cross-claim ¶ 1) and that ASA Carlton then entered into a separate subcontract with Arreola. (Id.
¶ 2.) The pleadings are clear that Arreola was not a party to the master services agreement between
J.C. Penney and ASA Carlton, though the Cross-claim does allege that Arreola “accepted the
provisions of” the master services agreement as part of the subcontract. (Id.) Even accepting the
well-pleaded fact allegations of the Cross-claim as true, the Court holds that the Cross-claim fails
to state a claim for direct breach of contractual indemnification against Arreola. In order to state a
claim for breach of contract under Tennessee law, J.C. Penney must allege (1) the existence of an
enforceable contract; (2) nonperformance amounting to a breach of the contract; and (3) damages

5

Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007). See also Reilly v. Vadlamudi, 680 F.3d 617, 622 (6th Cir. 2012) (quoting
Twombly, 550 U.S. at 555).
6

Twombly, 550 U.S. at 555, 570.

7

Iqbal, 556 U.S. at 678.
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caused by the breach of the contract.8 The Cross-claim alleges that Arreola was not a party to the
master services agreement but then alleges that Arreola has breached the master services agreement
and damaged J.C. Penney. The Cross-claim’s failure to allege the existence of an enforceable
contract between J.C. Penney and Arreola or that Arreola was a party to the master services
agreement between J.C. Penney and ASA Carlton is fatal to the allegation that Arreola has breached
the master services agreement.
In its briefing on the Motion to Dismiss, J.C. Penney argues alternative theories whereby
Arreola might still have an obligation to indemnify J.C. Penney. Specifically, J.C. Penney argues
(1) that Arreola impliedly assumed an obligation to indemnify J.C. Penney by entering into the
subcontract with ASA Carlton and (2) that J.C. Penney was a third-party beneficiary of Arreola’s
subcontract with ASA Carlton.9 With respect to the implied contract theory, the Cross-claim alleges
no facts to show how an implied contract between Arreola and J.C. Penney incorporating the terms
of the master services agreement would have arisen in this case. Tennessee law recognizes two

8

Life Care Ctrs. of Am., Inc. v. Charles Town Assocs. Ltd. P’ship, LPIMC, Inc., 79 F.3d
496, 514 (6th Cir. 1996) (applying Tennessee law); see also Tipton v. Sparta Water Co., 57
S.W.2d 793, 795 (Tenn. 1933) (“Privity of contract is an essential element to an action founded
on a breach of contract.”).
9

The Court notes that the Cross-claim does not specifically plead these theories of relief.
However, “the Federal Rules of Civil Procedure do not require a plaintiff to plead legal theories.”
E.g. E.E.O.C. v. Peoplemark, Inc., 732 F.3d 584, 620 (6th Cir. 2013) (Carr, D.J., dissenting)
(citing Wright et al., 5 Fed. Prac. & Proc. Civ., § 1219 (3d ed. 2012); Vincent v. City Colleges of
Chicago, 485 F.3d 919, 923 (7th Cir. 2007) (“Civil Rule 8 calls for a short and plain statement;
the plaintiff pleads claims, not facts or legal theories.”). In this case, J.C. Penney has raised its
alternative theories in response to Arreola’s Rule 12(b)(6) Motion to Dismiss, and Arreola has
not exercised his right under the Local Rules of Court to file a reply brief, addressing the
alternative theories. Therefore, the Court will consider the merits of J.C. Penney’s arguments.
The Court would add that although not required under the Federal Rules, the better practice
would be to allege theories such as third-party beneficiary status or implied contract clearly and
unequivocally in the pleadings.
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kinds of implied contracts: contracts implied in fact and contracts implied in law.10 J.C. Penney
contends that a contract implied in law was created between J.C. Penney and Arreola when Arreola
subcontracted with ASA Carlton to perform part of the construction work at the J.C. Penney store.
“Contracts implied in law or quasi contracts are created by law without the parties’ assent and are
based upon reason and justice.”11 Indemnification can be implied when such an obligation is a
necessary element of the parties’ relationship but only if the party from whom indemnification is
sought breached a contract or engaged in some other related tortious conduct.12 Tennessee case law
suggests that “an implicit right of indemnification” is available only “where there is a direct
contractual relationship” and “an obligation to indemnify for negligent conduct in the performance
of the contract.”13 No such relationship existed between J.C. Penney and Arreola in this instance.
Arreola further argues that even if such a contract was made by operation of law, the indemnity
clause of the master services agreement is unenforceable.
The Court need not decide at this point whether the Cross-claim states a claim for breach of
implied contract. The Court holds that the Cross-claim plausibly alleges that J.C. Penney was an
intended third-party beneficiary of the subcontract between ASA Carlton and Arreola. Under
Tennessee law, contracts are generally presumed to be executed for the benefit of the parties to the

10

Freeman Indus., LLC v. Eastman Chem. Co., 172 S.W.3d 512, 524-25 (Tenn. 2005).

11

Id.

12

Lusk v. Jim Walter Homes, Inc., 648 S.W.2d 935, 939 (Tenn. 1983); First Am. Bank v.
Woods, 734 S.W.2d 622, 632 (Tenn. Ct. App. 1987) (implied contractual indemnity based on
negligence).
13

Woods, 734 S.W.2d at 632 (citing Lusk, 648 S.W.2d at 939).
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contract, not third parties.14 Put another way, “a stranger to a contract has no right to sue for its
breach, but an intended third-party beneficiary may enforce a contract provided the benefit flowing
from the contract to that party was intended, not merely incidental.”15 In order to show that J.C.
Penney is an intended third-party beneficiary, the Cross-claim must alleges facts showing (1) the
existence of a valid subcontract between ASA Carlton and Arreola; and (2) that the clear intent of
the subcontract was to benefit J.C. Penney.16
Construing the allegations of the Cross-claim in the light most favorable to J.C. Penney, the
Court finds that J.C. Penney has pleaded enough factual matter to allege that it was a third-party
beneficiary of the subcontract. The Cross-claim alleges that ASA Carlton subcontracted with
Arreola to perform a portion of the work at the J.C. Penney store. The Cross-claim further alleges
that as part of the subcontract, Arreola accepted the terms of the general contract, including the
indemnity clause. Although the Cross-claim does not recite the terms of the subcontract, the Crossclaim does include the general contract’s indemnity clause. According to the clause, ASA Carlton
agreed to “defend, indemnify, and hold harmless” J.C. Penney from all “liabilities, damages,
settlements, and claims for damages,” including claims for “injury to . . . persons, . . . arising or
resulting from the Work or from any actual or alleged acts, omissions, or negligence [of] Contractor

14

Owner Operator Indep. Drivers Ass’n, Inc. v. Concord EFS, Inc., 59 S.W.3d 63, 68
(Tenn. 2001).
15

Id.; Moore Constr. Co ., Inc. v. Clarksville Dep’t of Elec., 707 S.W.2d 1, 9 (Tenn. Ct.
App. 1985); see also Davidson & Jones Dev. Co. v. Elmore Dev. Inc., et. al, 921 F.2d 1343 (6th
Cir. 1991).
16

Bricks, Inc. v. BNY Trust Co. of Missouri, 165 F. Supp. 2d 723, 726-27 (W.D. Tenn.
2001) (citing United Am. Bank of Memphis v. Gardner, 706 S.W.2d 639, 641 (Tenn. Ct. App.
1985)).
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any Subcontractor or any Person performing any portion of the Work.” (Cross-claim ¶ 3.)
Elsewhere in the master services agreement, ASA Carlton agreed to maintain liability insurance in
which J.C. Penney was named as an additional insured. (Id. ¶ 4.) Accepting as true the allegation
that the subcontract incorporated these terms of the master services agreement, the indemnity clause
and insurance clause of the general contract became part of the subcontract, and under Tennessee
law, both writings must be construed together.17 A reasonable inference from these allegations is
that Arreola agreed to indemnify J.C. Penney and maintain general liability insurance with J.C.
Penney as an additional named insured. The Court concludes then that these allegations plausibly
show J.C. Penney was a third-party beneficiary of the subcontract between Arreola and ASA Carlton
and that J.C. Penney has stated a claim against Arreola for breach of the subcontract.
Arreola has argued that even if some grounds for indemnification exist, the Court should not
enforce the indemnity clause of the master services agreement for its indefiniteness or as void under
Tenn. Code Ann. § 62–6–123. According to Arreola, Plaintiff’s Complaint alleges claims against
J.C. Penney for its own negligence and does not seek to hold J.C. Penney vicariously liable for the
negligence of ASA Carlton and Arreola. Arreola contends that any agreement to hold J.C. Penney
harmless for its own negligence is unenforceable under Tennessee law. J.C. Penney responds that
the Complaint does not state a claim against it for its own negligence but only for the underlying acts
of ASA Carlton and Arreola, and so Tennessee law would not preclude indemnification for these
claims. At this stage of the proceedings, the Court declines to reach the issue. The parties’
arguments call for the Court to construe as a matter of law the pleadings framed by Plaintiff when
17

Staubach Retail Servs.-Se., LLC v. H.G. Hill Realty Co., 160 S.W.3d 521, 525 (Tenn.
2005); T.R. Mills Contractors, Inc. v. WRH Enter., LLC, 93 S.W.3d 861, 870 (Tenn. Ct. App.
2002).
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Arreola’s Motion to Dismiss has only tested the pleadings of the Cross-claim.18 The Motion to
Dismiss is not directly addressed to Plaintiff’s pleadings, and as such Plaintiff has not responded in
any way to answer the arguments raised by J.C. Penney and Arreola about the nature of Plaintiff’s
allegations about J.C. Penney. Had J.C. Penney filed a Rule 12 motion of its own to test the
sufficiency of Plaintiff’s claims against it, Plaintiff would have had a full opportunity to address the
question, and the issue would be ripe for the Court’s consideration. Under the circumstances, the
Court declines to reach the issue here and will deny Arreola’s Motion to Dismiss on this question
without prejudice to raise it again in a subsequent dispositive motion.
CONCLUSION
The Court holds that J.C. Penney’s Cross-claim plausibly alleges that J.C. Penney is an
intended third-party beneficiary of Arreola’s subcontract with ASA Carlton. Therefore, Arreola’s
Motion to Dismiss is DENIED.
IT IS SO ORDERED.
s/ S. Thomas Anderson
S. THOMAS ANDERSON
UNITED STATES DISTRICT JUDGE
Date: May 13, 2014.

18

The Cross-claim alleges that Plaintiff’s claims against J.C. Penney fall within the scope
of claims covered by the master services agreement’s indemnity clause. (Cross-claim ¶¶ 9, 10.)
However, this is a legal conclusion, which the Court need not accept as true for purposes of Rule
12(b)(6).
10