Laboratory Corp v. Clinical Laboratory ( 1997 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
LABORATORY CORPORATION OF
AMERICA HOLDINGS, INCORPORATED,
formerly known as Roche
Biomedical Laboratories,
Incorporated,
Plaintiff-Appellee,
v.
No. 97-1175
CLINICAL LABORATORY CONSULTANTS,
INCORPORATED,
Defendant-Appellant,
and
FABIO E. GUTIERREZ, M.D.,
Defendant.
LABORATORY CORPORATION OF
AMERICA HOLDINGS, INCORPORATED,
formerly known as Roche
Biomedical Laboratories,
Incorporated,
Plaintiff-Appellant,
v.
No. 97-1219
CLINICAL LABORATORY CONSULTANTS,
INCORPORATED,
Defendant-Appellee,
and
FABIO E. GUTIERREZ, M.D.,
Defendant.
Appeals from the United States District Court
for the Eastern District of Virginia, at Richmond.
Robert R. Merhige, Jr., Senior District Judge.
(CA-95-658-3)
Argued: July 7, 1997
Decided: September 5, 1997
Before WILKINSON, Chief Judge, and WILKINS and
HAMILTON, Circuit Judges.
_________________________________________________________________
Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: Brewster Stone Rawls, BREWSTER S. RAWLS &
ASSOCIATES, P.C., Richmond, Virginia, for Appellant. John Henry
OBrion, Jr., COWAN & OWEN, Richmond, Virginia, for Appellee.
ON BRIEF: John B. Nicholson, BREWSTER S. RAWLS & ASSO-
CIATES, P.C., Richmond, Virginia, for Appellant.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Laboratory Corporation of America Holdings, Incorporated, for-
merly Roche Biomedical Laboratories, Incorporated (Roche), brought
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this indemnification action against Clinical Laboratory Consultants,
Incorporated (CLC) to recover payments made by Roche in settle-
ment of a medical malpractice action. Following a bench trial, the dis-
trict court granted judgment to Roche and awarded attorneys' fees
incurred in the indemnification action against CLC. However, the
court refused to allow Roche to recover legal fees expended in
defending the underlying malpractice action. CLC appeals the judg-
ment of the district court in favor of Roche on the indemnification
claim and the award of attorneys' fees. Roche cross appeals the
refusal of the district court to award attorneys' fees it incurred in
defending the malpractice action. We affirm in part, reverse in part,
and remand.
I.
Roche's claim for indemnification arose out of a medical malprac-
tice action initiated in Virginia state court by Nancy Benson against
numerous defendants, including Roche; two of Roche's laboratory
technicians; and Dr. Fabio Gutierrez, a pathologist employed by CLC.
Roche provided pathology services for various health care practition-
ers in Richmond, Virginia. Ordinarily, physicians sent pap smear tests
to Roche for analysis by a technician. Abnormal specimens, however,
required further review by a board-certified pathologist. Roche
entered into a written agreement with CLC whereby CLC agreed to
supply such pathology services. Additionally, CLC agreed
to defend and indemnify and hold Roche Biomedical harm-
less from any and all liability to all persons, due to bodily
injuries, including death, and/or damage to all property, aris-
ing directly or indirectly from [CLC's] own negligence or
wrongful act [sic] or the negligence or wrongful acts of its
agents and employees.
J.A. 24.
Shortly before Benson's malpractice action went to trial, she
accepted a comprehensive settlement offer of $1.75 million that was
extended on behalf of all defendants. Roche contributed $750,000 to
the settlement amount, as did Benson's treating physicians. Dr.
Gutierrez contributed $250,000. CLC, although not a defendant in the
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malpractice action, signed the settlement agreement. The agreement
provided that "the fact of settlement and the amounts Roche and
Gutierrez have agreed to contribute to settlement of the lawsuit shall
not waive or affect in any manner the rights, if any exist, of Roche
or CLC ... to seek full indemnification and/or contribution from the
other pursuant to" their written agreement. J.A. 373.
Roche then filed this action seeking indemnification from CLC and
Dr. Gutierrez in the amount of $750,000, plus attorneys' fees incurred
in the defense of Benson's lawsuit and in the prosecution of this
action for indemnification. The district court determined that because
CLC had received appropriate notice of the underlying claim and had
been given a meaningful opportunity to defend against it, Roche was
required only to prove potential liability, i.e. , "that its settlement was
reasonable and in good faith." J.A. 276 (internal quotation marks
omitted). Concluding that the settlement in fact was reasonable and
in good faith, the district court awarded Roche the full amount it con-
tributed to the Benson lawsuit plus the attorneys' fees that it incurred
in recovering this amount from CLC. However, the court refused to
award any attorneys' fees incurred by Roche in defending against
Benson's malpractice claims, reasoning that Roche had to incur legal
fees in any event to defend its two employees.
II.
With respect to the grant of judgment in favor of Roche on its
indemnification claim, CLC raises two issues on appeal. First, CLC
asserts that the district court erred in determining that CLC had notice
of and an opportunity to defend Benson's malpractice claim and, as
a result, that Roche was required to prove only that its settlement of
the claim was reasonable and was made in good faith rather than that
Roche was actually liable to Benson. See Jennings v. United States,
374 F.2d 983, 985-87 (4th Cir. 1967); see also Atlantic Richfield Co.
v. Interstate Oil Transp. Co., 784 F.2d 106, 111 (2d Cir. 1986). Spe-
cifically, CLC contends that Roche should be required to make a
showing of actual liability because it did not afford CLC sufficient
notice or an opportunity to defend against Benson's malpractice
action. We disagree. CLC clearly had notice of Benson's claim
against Roche since Dr. Gutierrez was also a defendant in the mal-
practice action. Furthermore, CLC directly participated in the settle-
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ment negotiations, was represented by counsel for Dr. Gutierrez
during the negotiations, and actually signed the settlement agreement.
CLC next asserts that Roche's settlement of Benson's claims was
not reasonable, contending that Roche had a strong defense on the
basis that it was not vicariously liable to Benson for the acts or omis-
sions of Dr. Gutierrez because he was an independent contractor of
Roche. After closely reviewing the record, we conclude that the dis-
trict court did not err in concluding that the settlement was reason-
able. A jury reasonably could have concluded that Roche exercised
sufficient control over the work of Dr. Gutierrez to be vicariously lia-
ble for his acts, given that he performed work at Roche's laboratory,
used Roche's equipment, reported his findings on Roche's forms, and
was empowered to revise various procedures performed at Roche's
laboratory. See Hadeed v. Medic-24, Ltd., 377 S.E.2d 589, 594-95
(Va. 1989). Furthermore, Roche's $750,000 contribution to the com-
prehensive settlement was reasonable in light of the fact that the pre-
siding judge and a mediator determined independently that the total
settlement value of the case was $1.75 million. 1 And, CLC approved
the settlement agreement, evidencing its belief that the amount was
reasonable.2
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1 CLC also argues that the amount of the settlement was unreasonable
because Virginia limits damages in medical malpractice actions against
health care providers to $1,000,000. See Va. Code Ann. § 8.01-581.15(Michie 1992). However, at the time of the settlement in 1995 it was not
clear that a clinical laboratory such as Roche would be protected by the
statutory cap. See Richman v. National Health Labs., Inc., 367 S.E.2d
508, 510-11 (Va. 1988) (holding that a clinical laboratory was not a
health care provider under the statutory definition of that term). Indeed,
the Supreme Court of Virginia has since clarified that the statutory cap
does not protect any individual or entity that is not a health care provider
as that term is defined by Virginia law. See Schwartz v. Brownlee, 482
S.E.2d 827, 831 (Va. 1997). Given the possibility that Roche would be
responsible for the full amount of any judgment in Benson's favor, its
decision to settle was not unreasonable.
2 We have carefully considered CLC's remaining argument challenging
the indemnification award and conclude that it is without merit.
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III.
Both parties challenge the ruling of the district court with respect
to attorneys' fees. CLC contends that the district court erred in award-
ing Roche attorneys' fees incurred in connection with this indemnifi-
cation action, asserting that absent an express agreement to the
contrary, attorneys' fees are recoverable only to the extent they are
incurred in the defense of a claim by a third party and not in the pros-
ecution of an action for indemnity. We disagree. An indemnitee who
is forced to bring an action against an indemnitor to enforce an
indemnification agreement may recover legal fees and costs incurred
in establishing its right to indemnification, provided the language in
the agreement is sufficiently broad to encompass the recovery of such
expenses. See Rappold v. Indiana Lumbermens Mut. Ins. Co., 431
S.E.2d 302, 304-05 (Va. 1993). Here, CLC agreed to indemnify
Roche "from any and all liability ... arising directly or indirectly from
... the negligence or wrongful acts of its agents and employees." J.A.
24. Because this language is broad enough to include the recovery of
legal fees incurred in enforcing the indemnification agreement, we
conclude that the district court properly awarded Roche its attorneys'
fees in this action. See id.In turn, Roche contends that the district court erred in concluding
that Roche was not entitled to recover the attorneys' fees it incurred
in defending against Benson's malpractice action because such fees
were unreasonable and excessive. We agree. In determining whether
a fee is reasonable, the court "should consider such circumstances as
the time consumed, the effort expended, the nature of the services
rendered, and other attending circumstances." Mullins v. Richlands
Nat'l Bank, 403 S.E.2d 334, 335 (Va. 1991). Here, the district court
refused to award even a portion of the attorneys' fees incurred by
Roche in connection with its defense of Benson's lawsuit for the sole
reason that Roche was obligated to pay legal fees in any event to
defend its employees. This fact alone, although it may justify a reduc-
tion of attorneys' fees, is not sufficient to defeat Roche's entire claim
for attorneys' fees resulting from the defense of Benson's claims as
a matter of law. Accordingly, we reverse this portion of the order of
the district court and remand for a determination, in light of all the
attendant circumstances, of whether Roche is entitled to recover attor-
neys' fees expended in connection with the underlying lawsuit. In
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making this determination, the district court should apportion the fees
between those incurred as a result of the allegations against Dr.
Gutierrez and those incurred in defense of Roche's employees, setting
off any amount that can be attributed to the defense of the two Roche
employees.
IV.
For the foregoing reasons, we affirm the judgment of the district
court on Roche's indemnification claim and the award of attorneys'
fees incurred by Roche in connection with this action. We reverse that
portion of the judgment relating to Roche's claim for attorneys' fees
connected with its defense of the underlying action and remand for a
proper determination of whether any such fees are recoverable.
AFFIRMED IN PART, REVERSED
IN PART, AND REMANDED
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