Hartford Fire Insurance v. P & H Cattle Co. , 248 F. App'x 942 ( 2007 )

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
September 26, 2007
FO R TH E TENTH CIRCUIT
Elisabeth A. Shumaker
Clerk of Court
HARTFORD FIRE INSURANCE
C OM PA N Y ,
Plaintiff-Counter-
Defendant-Appellee,
v. No. 07-3010
(D.C. No. 05-CV-2001-DJW )
P & H CATTLE COM PANY, IN C.; 451 F. Supp. 2d 1262 (D. Kan. 2006)
EM PORIA LIVESTO CK SALES,
INC.; OLM A V. PEAK; VELM A M .
PEA K ; A M B Y SC OTT PEA K ;
VIRG INIA L. M ORR IS;
CH RY SANNE M . HA SELHOR ST,
Trustees of the Olma V. Peak and
Velma M . Peak Irrevocable Trust;
OLM A V. PEAK AND VELM A M .
PEAK IRREV OC AB LE TRUST,
Defendants-Counter-
Claimants-Appellants,
and
TIM REECE, doing business as
Reece Cattle Company,
Defendant-Cross-
Defendant.
OR D ER AND JUDGM ENT *
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
(continued...)
Before PO RFILIO, A ND ER SO N, and BALDOCK , Circuit Judges.
Appellants P & H Cattle Company, Inc.; Emporia Livestock Sales, Inc.;
Olma V. Peak; Velma M . Peak; the Olma V. Peak and Velma M . Peak Irrevocable
Trust; and Amby Scott Peak, Virginia L. M orris, and Chrysanne M . Haselhorst,
Trustees, (collectively the Peaks), appeal the district court’s grant of summary
judgment in favor of Hartford Fire Insurance Company on its contractual
indemnity claim. W e have jurisdiction under 28 U.S.C. § 1291 1 and we affirm.
Pursuant to the Packers and Stockyards Act, 1921, 7 U.S.C. § 204, Hartford
issued a bond listing itself as surety and P & H Cattle as the principal (P & H
Bond). P & H Cattle, Emporia Livestock Sales, Olma Peak, and Velma Peak
(collectively Indemnitors) subsequently executed a General Indemnity Agreement
(GIA) with Hartford. Hartford defended and ultimately settled a claim under the
P & H Bond by Aaron W ilkie (W ilkie Claim) for $75,000. Hartford then filed
this action seeking indemnification under the GIA for the settlement amount and
*
(...continued)
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
1
In a separate order the district court certified its aw ard of summary
judgment in favor of Hartford on its contractual indemnity claim as a final
judgment under Fed. R. Civ. P. 54(b).
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its attorney’s fees and costs expended in defending and settling the W ilkie Claim,
as w ell as its attorney’s fees and costs in bringing this action. The district court
granted H artford summary judgment on its contractual indemnity claim against
the Indemnitors and awarded Hartford its requested relief.
In this appeal, the Peaks raise three claims of error: (1) the district court
lacked jurisdiction over this action under 28 U.S.C. § 1332(a) because the amount
in controversy did not exceed $75,000; (2) Hartford’s losses in defending and
settling the W ilkie Claim are not recoverable under the terms of the GIA; and
(3) Hartford cannot recover attorney’s fees or costs under the GIA. The facts, as
they relate to these claims on appeal, are not disputed and are set forth in detail in
the district court’s decision. See Hartford Fire Ins. Co. v. P & H Cattle Co.,
451 F. Supp. 2d 1262, 1265-71 (D. Kan. 2006). W e will not repeat them here,
except as they relate to the arguments raised by the Peaks.
Standards of Review
The Peaks initially claim that the district court did not have subject-matter
jurisdiction under § 1332. “The ultimate question of whether diversity
jurisdiction exists is a mixed question of law and fact to be reviewed de novo,
with any factual findings of the district court reviewed for clear error.” Elliott
Indus. Ltd. P’ship v. BP Am. Prod. Co., 407 F.3d 1091, 1105 (10th Cir. 2005).
The Peaks’ remaining two claims of error address the district court’s grant of
summary judgment in favor of Hartford. “We review the district court’s grant of
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summary judgment de novo, applying the same legal standard used by the district
court. W e also review the district court’s interpretation of [a contract] de novo.”
Old Republic Ins. Co. v. Durango Air Serv., Inc., 283 F.3d 1222, 1225 (10th Cir.
2002) (citation omitted). And we review de novo the district court’s
interpretation of Kansas law. See Reynolds v. Sch. Dist. No. 1, 69 F.3d 1523,
1536 (10th Cir. 1995).
Diversity Jurisdiction
In its complaint, Hartford alleged federal court jurisdiction existed under
§ 1332. W here there is diversity of citizenship of the parties, § 1332(a) gives
district courts original jurisdiction over “all civil actions w here the matter in
controversy exceeds the sum or value of $75,000, exclusive of interest and costs.”
Hartford’s complaint sought a total sum in excess of $117,000, including the
$75,000 settlement amount on the W ilkie Claim, plus attorney’s fees, costs, and
interest. Nonetheless, the Peaks argue that, under Kansas law, attorney’s fees and
costs are not recoverable under the GIA, and without the additional sums for
attorney’s fees, costs and interest, the amount in controversy was only $75,000.
Therefore, they assert that the district court should have dismissed Hartford’s
claim for lack of subject-matter jurisdiction.
This argument ignores altogether the district court’s basis for concluding
there was jurisdiction under § 1332. The court summarized the “legal certainty
rule” for determining whether the amount-in-controversy requirement is satisfied:
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“Under the legal certainty rule, pleading damages in excess of the amount in
controversy requirement in the complaint is sufficient to satisfy the jurisdictional
requirement unless it appears to a legal certainty that the plaintiff in good faith
cannot claim that amount.” Hartford Fire Ins., 451 F. Supp. 2d at 1272 (citing
St. Paul M ercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938)).
Rather than addressing application of the legal certainty rule, the Peaks instead
argue the merits of their contention that Kansas law precludes recovery of
attorney’s fees and costs under the GIA. Their argument aptly illustrates the lack
of legal certainty regarding that very question. W e conclude that the district court
correctly determined that Hartford’s prayer for judgment in an amount exceeding
$75,000 was sufficient to meet the jurisdictional requirement under § 1332(a).
Interpretation of the GIA
The Peaks contend that the terms of the GIA do not provide for
indemnification of the loss sustained by Hartford in defending and settling the
W ilkie Claim because none of the Indemnitors were involved in the underlying
transaction that gave rise to that claim. Some background is necessary to
understand this argument. As described by the district court, the specifics of the
W ilkey transaction were as follow s:
On February 14, 2001, Aaron W ilkey d/b/a A & W Cattle
Company (“W ilkey”) sold 225 head of fat cattle for $186,780.39,
which were shipped from the Hy-plains Feedyard to Iowa Beef
Processors in Emporia, Kansas for slaughter. The cattle were
ultimately purchased by Holmes Livestock, who issued a check in the
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amount of $186,780 payable to Tim Reece. Upon receiving the
check from Holmes Livestock, Tim Reece’s wife endorsed the check
and sent it to W ilkey’s bank. The check was dishonored for payment
due to insufficient funds.
Hartford Fire Ins., 451 F. Supp. 2d at 1267. After failing to receive payment for
his cattle, W ilkey made a claim under the P & H Bond, which listed “Tim Reece
DBA Reece Cattle Company” as an “other registrant[]” and “CLEAREE.” See
Aplee. Supp. App. at 89, 95. 2 Hartford denied the claim and W ilkey then filed an
action against P & H Cattle, as principal, and Hartford, as surety, to recover on
the P & H Bond.
Hartford initially resisted the W ilkey Claim on the basis that P & H Cattle
did not act as a clearing agency under Clause 3 in the W ilkey transaction. But
Hartford ultimately concluded there was a substantial risk that it and P & H Cattle
could be held liable on the P & H Bond, even though P & H Cattle was not aware
2
“Other registrants” could be added to Clause 3 of the P & H Bond by rider.
Clause 3 provided that the bond was “applicable” and “remain[ed] in full force
and virtue”
[i]f the said Principal, acting as a clearing agency responsible for the
financial obligations of other registrants engage[d] in buying
livestock, . . . or if such other registrants, shall [fail to] (1) pay when
due to the person or persons entitled thereto the purchase price of all
livestock purchased by such other registrants for their own account
or for the accounts of others [or] (2) safely keep and properly
disburse all funds coming into the hands of such Principal or such
other registrants for the purpose o[f] paying for livestock purchased
for the accounts of others.
Aplee. Supp. App. at 89.
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of and did not participate in the transaction with W ilkey. Hartford settled the
W ilkey Claim for $75,000. It then filed this action against the Peaks, seeking
recovery under the GIA of the settlement amount and its costs and attorney’s fees
expended in defending the W ilkey Claim.
The Indemnitors filed a counterclaim against Hartford, asserting that
Hartford was negligent in settling the W ilkey Claim. Further, in response to
Hartford’s summary judgment motion, the Indemnitors contended they were not
liable under the GIA because the W ilkey Claim was not a valid claim on the
P & H Bond. But the district court concluded that Hartford was not required to
show that the bond claim was valid in order to enforce the GIA . Hartford Fire
Ins., 451 F. Supp. 2d at 1281-82. It held that Hartford need only show that it
acted reasonably in settling the W ilkey Claim, and it concluded that Hartford had
demonstrated its conduct was reasonable. Id. at 1279. The court also granted
summary judgment in Hartford’s favor on the Indemnitors’ negligence
counterclaim. Id. at 1285–86.
On appeal, the Peaks do not identify any error in the district court’s ruling
that Hartford acted reasonably in settling the W ilkey Claim. Nor have they
appealed the district court’s dismissal of the Indemnitors’ negligence claim
against Hartford. But they argue that Hartford cannot recover under the G IA
because none of the Indemnitors was aware of or participated in the transaction
with W ilkey. They rest their argument on Section II of the agreement, which
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provides, in relevant part: “This Agreement applies to all Bonds executed by the
Surety (1) on which any Indemnitor either acts solely or as a member of a
partnership or a joint venture, or (2) in connection with which any Indemnitor
acts as a silent partner or a silent joint venturer.” Aplee. Supp. App. at 100.
Before ruling on Hartford’s summary judgment motion, the district court asked
the parties for additional briefing on whether this section limits or qualifies the
GIA’s applicability to “all Bonds” executed by Hartford. Focusing solely on the
underlying transaction with W ilkey, the Peaks argued that the GIA does not
provide indemnification for the W ilkey Claim because none of the Indemnitors
acted solely in that transaction, or acted in that transaction as a partner or joint
venturer, silent or otherwise, with Tim Reese. The Peaks quoted the language of
Section II and asserted that its plain meaning is clear. But they provided no basis
for reasonably interpreting it in the manner that they propounded.
Hartford disagreed with the Peaks’ interpretation, contending that Section
II does not address the Indemnitors’ activity, or lack thereof, in any underlying
transaction. Hartford argued that it could recover under the GIA for sums it
expended in connection with the W ilkey Claim because P & H Cattle acted solely
in procuring the P & H Bond from Hartford. Therefore, Hartford contended that
the P & H Bond falls within the application of the G IA because, under Section II,
the agreement applies not only to Bonds issued at the request of an Indemnitor
acting solely, but also when they request Bonds as a member of a partnership or
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joint venture. Thus, Hartford argued that Section II not only does not limit the
Indemnitors’ liability under the GIA, but actually expands the definition of which
Bonds are covered. Hartford contended that its construction of Section II is
consistent with the four corners of the GIA, addressing various other provisions
of the agreement.
The district court considered the meaning of the w ord “acts” in Section II,
noting the parties’ differing interpretations and the consequence of each with
regard to whether H artford could recover on its claim. Hartford Fire Ins.,
451 F. Supp. 2d at 1277. The court construed “‘acts’ to mean the indemnitor’s
acts of procuring a bond from the surety” and illustrated why its interpretation
was consistent with other provisions of the GIA . Id. at 1277-78. Then,
concluding that it could reasonably infer that one of the Indemnitors acted to
procure the P & H Bond on behalf of P & H Cattle, it held that the GIA applied to
that bond. Id. at 1278.
Strict Construction Against the Drafter
The Peaks first argue that the district court erred in failing to strictly
construe the GIA against Hartford, as the drafter, because the GIA is both an
indemnity agreement and an adhesion contract. They contend that under this rule
of construction the district court had no option but to select the Peaks’
interpretation of the GIA. W e disagree. The rule requiring construction against
the drafter does not come into play unless and until a court reaches the conclusion
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that an agreement is ambiguous. See Mo. Pac. R.R. v. City of Topeka, 518 P.2d
372, 376 (Kan. 1974) (“Doubts arising from ambiguity or obscurity in the
language used [in the indemnity agreement] are to be resolved against the party
preparing the contract.”); St. Francis Hosp. & Sch. of Nursing, Inc. v. Eckman,
510 P.2d 175, 177 (Kan. 1973) (noting rule of construction applicable to adhesion
contracts applies only after finding vagueness or uncertainty in contract’s
meaning).
The Peaks do not argue that the GIA is ambiguous; indeed, they contend
that the language of Section II is clear. But they assert that the district court
concluded the G IA is ambiguous. W e find no such holding in the district court’s
decision. A nd w e note that it confined its analysis to the four corners of the GIA ,
as is appropriate in construing an unambiguous agreement. See H artford Fire
Ins., 451 F. Supp. 2d at 1277-78; see also Clark v. Wallace County C o-Op. Equity
Exch., 986 P.2d 391, 393 (Kan. Ct. App. 1999) (holding court must interpret
unambiguous contract within its four corners). M oreover, the court’s
acknowledgment of the parties’ differing interpretations does not constitute a
finding that the GIA is ambiguous. See Allied M ut. Ins. Co. v. M oeder, 48 P.3d 1,
4 (Kan. Ct. App. 2002) (“The fact that the parties do not agree over the meaning
of the terms does not in and of itself prove that the contract is ambiguous.”).
Thus, in the absence of a holding that the GIA is ambiguous, we conclude that the
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district court did not err in failing to construe the agreement strictly against the
drafter.
Construction of Unam biguous Term s
The Peaks argue in the alternative that the district court erred in construing
the unambiguous terms of the GIA. W e review the district court’s interpretation
of the agreement de novo. See Old Republic Ins. Co., 283 F.3d at 1225. The
parties agree that the GIA should be construed under Kansas law. In M issouri
Pacific Railroad, the Kansas Supreme Court made “a few observations as to
indemnity”:
The word is generally defined as an obligation resting on a party to
make good any loss another has incurred w hile acting at his request
or for his benefit; it is a right which inures to a person who has
fulfilled an obligation owed by him but which as between himself
and another person should have been discharged by the other. In
construing a contract of indemnity and determining the rights and
liabilities of the parties thereunder, the important question to be
determined is the intention of the parties, and effect should be given
to that intention if such can be done consistently with legal
principles.
518 P.2d at 375-76 (citation omitted). Furthermore, “[r]easonable rather than
unreasonable interpretations of contracts are favored.” Kan. State Bank & Trust
Co. v. DeLorean, 640 P.2d 343, 349 (Kan. Ct. App. 1982). And a court must
construe each section in the context of and consistent with the entire agreement,
rather than critically analyzing a single provision. See Zukel v. Great W .
M anagers, LLC, 78 P.3d 480, 484 (Kan. Ct. App. 2003). A court’s “job is to use
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comm on sense and not to strain to create an ambiguity in a written instrument
when one does not exist.” Allied M ut. Ins. Co., 48 P.3d at 4.
In this case, the district court looked first at the language of the initial
paragraph of the GIA . See H artford Fire Ins., 451 F. Supp. 2d at 1277. It
provides:
One or more of the undersigned, herein called Indemnitors, has
requested or may request Hartford Fire Insurance Company or any of
its insurance company affiliates, herein individually and collectively
called Surety, to furnish, procure or continue contracts of suretyship,
guaranty or indemnity, or other obligatory instruments, herein called
Bonds, on behalf of any one or more of the Indemnitors.
Aplee. Supp. App. at 100. This language broadly defines the term “Bonds,”
which is used throughout the GIA, to include numerous different types of
instruments. Further, such Bonds may be requested by any Indemnitor “on behalf
of any one or more of the Indemnitors.” The district court also considered the
second paragraph of the GIA . See H artford Fire Ins., 451 F. Supp. 2d at 1277-78.
That paragraph provides:
By the execution of this A greement, the Indemnitors expressly
warrant their material or beneficial interest in such Bonds, and in
consideration of the furnishing, procuring or continuing of such
Bonds, and other good and valuable consideration, the Indemnitors
hereby jointly and severally agree to the following[.]
Aplee. Supp. App at 100. This provision indicates that Hartford’s “furnishing,
procuring or continuing of such Bonds” is the consideration for the agreements
made by the Indemnitors in the G IA. One such agreement is in Section III:
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The Indemnitors will indemnify and hold the Surety harmless from
all loss, liability, damages and expenses including, but not limited to,
court costs, interest and attorney’s fees, w hich the Surety incurs or
sustains (1) because of having furnished any Bond. . . .”
Id. (emphasis added). This provision broadly defines the scope of the
Indemnitors’ liability to extend to all losses Hartford incurs “because of having
furnished any Bond.”
As the district court observed, see Harford Fire Ins., 451 F. Supp. 2d at
1278, other references in the GIA support the conclusion that it is intended to
cover all Bonds executed by Hartford, at the request of and on behalf of one or
more of the Indemnitors. For example, Section XV states, “This is a continuous
Agreement which remains in full force and effect as to every Bond issued by the
Surety.” A plee. Supp. App. at 101. Section XIV requires the Indemnitors to
immediately provide Hartford with written notice of any demand or action
“relating to any Bond.” Id. at 100. That section provides further that Hartford
“may adjust, settle or compromise any claim, demand, suit or judgment upon any
Bonds.” Id. at 101.
W e note as w ell that the GIA includes plainly-stated references to
underlying transactions, including provisions regarding actions by the
Indemnitors and others w ith respect to those transactions. Section I refers to
“Bonds required in connection with the performance of a contract.” Id. at 100.
Section VI refers to “the status and condition of work under any contracts being
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performed by any Indemnitor and the financial status of such contracts.” Id.
Section VII likewise refers to “[a]n Indemnitor’s abandonment, forfeiture or
breach of, or failure, refusal or inability to perform, a contract guaranteed by any
Bond.” Id. And Section X provides that the Indemnitors waive notice of
“[d]efaults under contracts or any acts w hich might result either in claims, or in
liabilities of the Surety under any Bonds.” Id.
Finally, we observe that the other provision in Section II of the G IA
expands, rather than limits, the Indemnitors’ liability. It provides that, “[i]f
[Hartford] procures the execution of Bonds by other sureties, or executes Bonds
with cosureties, the provisions of this Agreement shall inure to the benefit of such
other sureties or cosureties as their interests may appear.” Id.
Against this background, we consider what it means to “act” “on” or “in
connection with” a “Bond,” as those words are used in Section II. According to
the Peaks, acting on or in connection with a Bond refers to the Indemnitors’
actions in an underlying transaction that results in a claim under the Bond.
Therefore, under their construction, the GIA would only sometimes apply to the
P & H Bond, depending on whether an Indemnitor participates in the underlying
transaction that gives rise to a claim under that bond. P & H Cattle made
essentially the same argument in defending the W ilkey Claim, by asserting that
the P & H Bond did not cover the W ilkey Claim because P & H Cattle did not
participate in the W ilkey transaction. But, after determining there was a good
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chance that defense would not succeed, Hartford settled the W ilkey Claim. The
district court ruled in this action that Hartford acted reasonably in doing so.
Hartford Fire Ins., 451 F. Supp. 2d at 1279. As w e have indicated, the Peaks did
not appeal that ruling. Nonetheless, they seek to extend their argument regarding
lack of participation in the underlying transaction to the construction of the scope
of their liability to indemnify H artford under the GIA.
The Peaks’ proposed interpretation improperly looks at Section II in
isolation, rather than in harmony with the rest of the agreement. See Zukel,
78 P.2d at 484. As we have noted, they failed to analyze in the district court why
their interpretation is reasonable and consistent with the other terms of the GIA .
Nor do they make any effort to do so on appeal. They also provide no
explanation why Hartford would accept liability as surety under a Bond requested
by and for the benefit of one or more Indemnitors, yet limit its ability to obtain
indemnification from the Indemnitors under the GIA for claims on that Bond that
it reasonably settles.
W e conclude that the GIA applies to all Bonds executed by Hartford at the
request of one or more of the Indemnitors, whether an Indemnitor acts alone, or as
a member, silent or otherwise, of a partnership or joint venture, in making a
request to Hartford to furnish, procure, or continue a Bond. The Indemnitors
agreed under the GIA to make good the losses Hartford incurred because of
having furnished a Bond at their request. Therefore, this interpretation of Section
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II is also consistent with the general meaning of indemnity as “an obligation
resting on a party to make good any loss another has incurred while acting at his
request or for his benefit.” M o. Pac. RR., 518 P.2d at 375. W e conclude that it is
the only reasonable interpretation.
Recovery of Attorney’s Fees and Costs Under the GIA
The Peaks’ third and final claim of error is that the district court wrongly
concluded that Hartford could recover attorney’s fees and costs under the GIA .
Section III of the agreement provides for that recovery:
The Indemnitors will indemnify and hold the Surety harmless from all loss,
liability, damages and expenses including, but not limited to, court costs,
interest and attorney’s fees, which the Surety incurs or sustains
(1) because of having furnished any Bond, or (2) because of the failure of
an Indemnitor to discharge any obligations under the Agreement, or (3) in
enforcing any of the provisions of this A greement.
Aplee. Supp. App. at 100 (emphasis added). The district court held that Hartford
was entitled to recover its attorney’s fees and costs incurred in defending and
settling the W ilkey Claim and in enforcing the GIA in this action. Hartford Fire
Ins., 451 F. Supp. 2d at 1286. But the Peaks contend that the provision for
recovery of attorney’s fees and costs in the GIA is null and void under a prior
version of Kan. Stat. Ann. § 58-2312. At the time the GIA was executed in 1993,
§ 58-2312 provided in relevant part (emphasis added):
Hereafter it shall be unlawful for any person or persons, company,
corporation or bank, to contract for the payment of attorney’s fees in
any note, bill of exchange, bond or mortgage; and any such
contract or stipulation for the payment of attorney’s fees shall be null
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and void; and that hereafter no court in this state shall render any
judgment, order or decree by which any attorney’s fees shall be
allowed or charged to the maker of any promissory note, bill of
exchange, bond, mortgage, or other evidence of indebtedness by
way of fees, expenses, costs or otherw ise. . . .” 3
The question is w hether the previous version of this statute applied to
indemnity agreements. The district court concluded it did not, relying on the
reasoning in In re Dvorak, 176 B.R. 929 (Bankr. D . Kan. 1994). See H artford
Fire Ins., 451 F. Supp. 2d at 1283-84. In Dvorak the court distinguished
indemnity agreements from the agreements listed in § 58-2312. See 176 B.R. at
934. Similar to this case, the indemnitee in Dvorak was the surety on a bond for
which the indemnitor was the principal. The court held that the bond and the
indemnity agreement were distinct and the indemnity agreement could not be
“characterized as a bond.” Id. It also reasoned that an indemnity agreement is
not a “note” because it is not “an unconditional promise to pay a fixed amount of
money.” Id. And it concluded that an indemnity agreement is not “an evidence
of indebtedness” because, “[a]t the time the indemnity agreement is entered into,
there is no debt.” Id.
W e have found no Kansas authority directly on point and therefore we must
predict how Kansas courts would decide the question whether the former version
3
The statute was amended in 1994, deleting this language and adding new
language permitting provisions in credit agreements for the recovery of certain
costs of collection, but the amended version has not been applied retroactively.
See Ryco Packaging Corp. v. Chapelle Int’l, Ltd., 926 P.2d 669, 678-80 (K an. Ct.
App. 1996).
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of § 58-2312 applied to indemnity agreements. See U nited States v. DeGasso,
369 F.3d 1139, 1145 (10th Cir. 2004) (“If the state supreme court has not
interpreted a provision of the state’s statutory code, the federal court must predict
how the court would interpret the code in light of state appellate court opinions,
decisions from other jurisdictions, statutes, and treatises.” (quotation and brackets
omitted)). The Peaks point to In re Woerner, 19 B.R. 708, 712 (Bankr. D. Kan.
1982), which held that § 58-2312 applied to indemnity agreements. The Woerner
court concluded, without rationale, that “a promise by the principal to indemnify
the surety at the time the surety pays monies to the principal’s creditor” was
“clearly” a promissory note or evidence of indebtedness. Id. W e find the
reasoning in Dvorak more persuasive on that point.
They also argue that § 58-2312 precludes H artford’s recovery of attorney’s
fees and costs because the loss Hartford seeks to recover for is based upon a
bond. Hartford counters that the attorney fee provision it sought to enforce is in
the GIA, rather than the P & H Bond. W e agree with Hartford that § 58-2312
nullified provisions for the payment of attorney’s fees and costs “in” bonds, but
did not broadly prohibit the recovery of attorney’s fees and costs otherwise
related to bond claims. Cf. Wingrove v. People’s Nat’l Bank, 275 P. 150, 150-51
(Kan. 1929) (upholding jury verdict awarding attorney’s fees under settlement
agreement related to mortgage foreclosure, despite prohibition in § 58-2312).
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Finally, the Peaks argue that the prior version of § 58-2312 applied to the
GIA because it is a surety or guaranty agreement, rather than an indemnity
agreement. W e agree that § 58-2312 applied to surety and guaranty agreements.
See Iola State Bank v. Biggs, 662 P.2d 563, 575 (Kan. 1983) (concluding
obligations of sureties and guarantors are substantively the same and holding that
guaranty agreement involving unconditional promise to pay sum certain upon
default of principal fell within terms of § 58-2312). But we disagree that the G IA
is a surety or guaranty agreement. The Kansas Supreme court described a surety
or guaranty relationship as “a contractual relation resulting from an agreement
whereby one person, the surety [or guarantor], engages to be answerable for the
debt, default, or miscarriage of another, the principal.” Id. at 574 (quotation
omitted). M oreover, a surety’s or guarantor’s “obligation to the creditor or
promisee of the principal is said to be direct, primary, and absolute; in other
words, he is directly and equally bound with his principal.” Id. at 575 (quotation
omitted). Although the Peaks point out that neither Olma Peak nor Velma Peak
signed bond agreements with Hartford, they do not explain why that fact makes
the GIA a guaranty or surety agreement. It shows only that there is no principal
and surety relationship between them and Hartford in a separate bond agreement.
And they identify no sense in which Olma Peak or Velma Peak stand in the role
of surety or guarantor of a principal’s obligations under the GIA.
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As noted by the Kansas Supreme Court in Iola State Bank, indemnity
agreements are distinguishable from surety and guaranty agreements because
“[a]n indemnitor agrees to make whole the indemnitee who in turn had to pay the
obligee.” Id.; see also M o. Pac. R.R., 518 P.2d at 375 (“[Indemnity] is generally
defined as an obligation resting on a party to make good any loss another has
incurred while acting at his request or for his benefit.”) The GIA is clearly an
indemnification agreement. Furthermore, although the Kansas Supreme Court did
not directly hold in Iola State Bank that the previous version § 58-2312 was
inapplicable to indemnity agreements, the fact that it expressly distinguished them
from surety and guaranty agreements in that precise context leads us to conclude
that it would so hold. Therefore, we reject the Peaks’ claim that the district court
erred in aw arding H artford its attorney’s fees and costs under the GIA.
Conclusion
The judgment of the district court is AFFIRMED.
Entered for the Court
Stephen H. Anderson
Circuit Judge
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