Balcor Equity v. Caligo Limited ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BALCOR EQUITY PROPERTIES XVIII, 
Plaintiff-Appellee,
v.  No. 99-1568
CALIGO LIMITED,
Defendant-Appellant.

BALCOR EQUITY PROPERTIES XVIII, 
Plaintiff-Appellant,
v.  No. 99-1604
CALIGO LIMITED,
Defendant-Appellee.

Appeals from the United States District Court
for the District of South Carolina, at Greenville.
Henry M. Herlong, Jr., District Judge.
(CA-97-1494-6-20)
Argued: October 31, 2000
Decided: December 19, 2000
Before WIDENER, WILKINS, and LUTTIG, Circuit Judges.
Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.
2 BALCOR EQUITY PROPERTIES v. CALIGO LTD.
COUNSEL
ARGUED: W. Howard Boyd, Jr., GIBBES, GALLIVAN, WHITE &
BOYD, P.A., Greenville, South Carolina, for Appellant. James Wil-
liam Logan, Jr., LOGAN, JOLLY & SMITH, L.L.P., Anderson,
South Carolina, for Appellee. ON BRIEF: Luanne Lambert Runge,
GIBBES, GALLIVAN, WHITE & BOYD, P.A., Greenville, South
Carolina, for Appellant. Michael T. Smith, LOGAN, JOLLY &
SMITH, L.L.P., Anderson, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Caligo Limited (Caligo) appeals, and Balcor Equity Properties
XVIII (Balcor) cross-appeals. The district court granted summary
judgment to Balcor on Balcor’s indemnification claim against Caligo
arising out of a July 4, 1994 fire and granted summary judgment to
Caligo on Balcor’s remaining claims. We affirm in part, reverse in
part, and remand.
I.
In early June 1994, Caligo began an industrial cleaning project in
Greer, South Carolina. Caligo staffed the project in part with employ-
ees from outside the Greer area and housed these employees in apart-
ments leased from Balcor. Caligo rented and signed leases for several
apartment units, including Units 161 and 166.
The form leases signed by Caligo stated in pertinent part:
2. PREMISES. IN CONSIDERATION of the promises
and agreements contained in this Lease, We are hereby
BALCOR EQUITY PROPERTIES v. CALIGO LTD. 3
pleased to lease You and You hereby agree to lease from Us
the apartment unit described in Item 4 on the reverse side
(together with the existing fixtures, carpeting, draperies and
appliances and any household furniture and furnishings pro-
vided by Us), this apartment unit together with any such
contents provided by Us is hereafter called the "Premises."
...
10. DAMAGE AND LOSS. . . . You agree to carry
insurance covering all Your property located in the Premises
and to indemnify Us from any damage or loss We may sus-
tain because of any fire or the extinguishing of such fire
originating in the Premises which damages Our Property.
J.A. 2056, 2062 (emphasis added). The terms "fire" and "originating"
were not defined in the lease.
During the evening of July 4, some Caligo employees residing in
Units 161 and 166 were discharging fireworks onto the ground from
their outside balconies. The employees subsequently began shooting
bottle rocket and Roman Candle fireworks at each other. Shortly
afterward, the wooden deck of Unit 164—which was not leased by
Caligo but which was situated between Units 161 and 166—caught
on fire, and the resulting blaze caused more than $1,000,000 in dam-
age to the complex. The police and fire departments concluded that
no criminal activity had occurred since shooting the fireworks within
the city limits was lawful and the fire was accidental. Although inves-
tigators could not determine who discharged the firework that caused
the fire, the parties stipulated that it was one of the Caligo employees
residing in Unit 161 or 166.
Balcor had purchased fire insurance coverage for the apartment
complex from four different carriers. After the fire, the carriers jointly
paid Balcor $991,796.41, which represented Balcor’s claimed dam-
ages less its $100,000 deductible. Balcor then instituted this action,
claiming that Caligo was liable for the conduct of its employees in
discharging the fireworks and seeking to recover damages in the full
amount of the loss caused by the fire. Balcor alleged, inter alia,
breach of contract, negligent supervision, and negligent retention.
4 BALCOR EQUITY PROPERTIES v. CALIGO LTD.
One claim within the breach of contract action was that Paragraph 10
of the lease entitled Balcor to indemnification for its loss. Caligo gen-
erally denied Balcor’s claims and also asserted, as is relevant here,
that the action was barred by S.C. Code Ann. § 38-75-60 (Law. Co-
op. 1989), which precludes suits by insurers against tenants for dam-
age to leased real or personal property unless the damage is caused
intentionally or recklessly.
Caligo moved to join Balcor’s insurance carriers as involuntary
plaintiffs. See Fed. R. Civ. P. 19(a). After the carriers stipulated that
they would be bound by the judgment, the district court denied the
joinder motion. The district court also struck Caligo’s § 38-75-60
defense, ruling that the statute did not apply to Balcor’s suit.
The parties filed cross-motions for summary judgment. Following
a hearing, the court granted judgment in favor of Balcor on its claim
based upon Paragraph 10 of the lease, concluding that Caligo had a
contractual duty to indemnify Balcor for the fire damage because, as
a matter of law, the fire originated in premises leased by Caligo, in
either Unit 161 or 166. The district court granted summary judgment
for Caligo on Balcor’s claims of negligent supervision and negligent
retention, reasoning that as a matter of law Caligo’s employees did
not intentionally harm Balcor as would be required to prove those
causes of action.
Caligo appeals, contending that the district court erred in granting
summary judgment to Balcor regarding Paragraph 10, in denying its
motion to join Balcor’s insurance carriers as involuntary plaintiffs,
and in striking its statutory defense. Balcor cross-appeals, maintaining
that the court erred in granting summary judgment against it on its
negligent supervision and negligent retention claims.
II.
A.
Caligo argues that the district court erred in granting Balcor’s
motion for summary judgment on Balcor’s breach of contract cause
of action based upon the provisions of Paragraph 10 of the lease. We
agree.
BALCOR EQUITY PROPERTIES v. CALIGO LTD. 5
Summary judgment is proper if, viewed in the light most favorable
to the nonmoving party, "the pleadings, depositions, answers to inter-
rogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law." Fed.
R. Civ. P. 56(c); see Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). We review an order granting sum-
mary judgment de novo. See Figgie Int’l, Inc. v. Destileria Serralles,
Inc., 190 F.3d 252, 255 (4th Cir. 1999).
In this diversity action, South Carolina contract law controls. See
Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938). Under South Carolina
law, words in a contract are given their usual and ordinary meaning
unless they are technical terms or the context requires a different
meaning. See Blakeley v. Rabon, 221 S.E.2d 767, 769 (S.C. 1976). If
a lease is subject to two reasonable constructions, the one more favor-
able to the lessee must be adopted, particularly when the lessor pre-
pared the lease. See Skull Creek Club Ltd. P’ship v. Cook & Book,
Inc., 437 S.E.2d 163, 165 (S.C. Ct. App. 1993).
Assuming arguendo that the lease is ambiguous, clearly one rea-
sonable construction of the lease is that the fire causing Balcor’s loss
was not a "fire originating" on the premises leased by Caligo. In the
context of Paragraph 10, a paragraph pertaining to fire damage to an
apartment complex, the most natural meaning to be given to "fire" is
a "destructive burning, as of a building." Funk & Wagnalls Standard
Dictionary 291 (1983). And, the most natural meaning of "originat-
ing" in this context is "com[ing] into existence."1 Id. at 557. Because
the apartment building did not begin to burn on Caligo’s premises, a
1
"Originate" has both a transitive meaning—"[t]o bring into existence;
create; initiate"—and an intransitive meaning—"[t]o come into existence;
arise." Id. at 557 (emphasis added). Although the district court apparently
applied the transitive meaning, the lease would appear to contemplate the
intransitive meaning as it refers to the fire itself originating rather than
something originating the fire. In the context of this case, contrary to
Balcor’s assertion that the fire originated on the balcony where the match
was struck that lit the fuse to the firework that eventually caught Unit
164 on fire, the fire actually originated on the balcony of Unit 164, where
the building first began to burn.
6 BALCOR EQUITY PROPERTIES v. CALIGO LTD.
reasonable construction of the lease is that the fire causing the dam-
age did not originate on Caligo’s premises. We therefore conclude
that the district court erred in granting summary judgment to Balcor.2
B.
Caligo also maintains that the district court erred in holding that
S.C. Code Ann. § 38-75-60 did not bar Balcor’s action. Section 38-
75-60 provides:
Notwithstanding any other provision of law, no insurer
has a cause of action against a tenant who causes damage to
real or personal property leased by the landlord to the tenant
when the insurer is liable to the landlord for the damages
under an insurance contract between the landlord and the
insurer, unless the damage is caused by the tenant intention-
ally or in reckless disregard of the rights of others.
S.C. Code Ann. § 38-75-60 (emphasis added). Caligo maintains that
the district court erred in failing to join the insurance carriers as invol-
untary plaintiffs and, regardless of the identity of the named plaintiff,
"the district court erred in failing to apply this statute by ignoring that
this is a subrogation action against a tenant brought by a landlord’s
insurers." Brief of Appellant/Cross-Appellee at 23.
Our function in this diversity case is to determine how the South
Carolina Supreme Court would decide this issue. See Doe v. Doe, 973
F.2d 237, 240 (4th Cir. 1992). When a statute is clear and ambiguous,
South Carolina courts give the statute its literal meaning. See Jones
v. S.C. State Highway Dep’t, 146 S.E.2d 166, 168 (S.C. 1966).
Section 38-75-60 is no defense against Balcor’s claims because the
statute unambiguously applies only to an insurer’s cause of action
2
Because we reverse the grant of summary judgment on this basis, we
do not address Caligo’s alternative argument that summary judgment for
Balcor was inappropriate because the lease obligated Caligo to reimburse
Balcor for damage from fires originating on Caligo’s premises only when
the damage was caused by Caligo’s lack of due care.
BALCOR EQUITY PROPERTIES v. CALIGO LTD. 7
3
against a tenant. Indeed, had the South Carolina legislature intended
the statute to apply to landlords’ causes of action, the statute no doubt
would have stated, "no landlord or insurer has a cause of action"
instead of simply, "no insurer has a cause of action." Accordingly, we
reject Caligo’s contention that the statute is a defense to Balcor’s
cause of action.4
III.
On cross-appeal, Balcor maintains that the district court erred in
granting summary judgment to Caligo on Balcor’s negligent supervi-
sion and negligent retention claims. We disagree.
Generally, a person has no duty to protect another from harm
inflicted by a third person. See Rayfield v. S.C. Dep’t of Corr., 374
S.E.2d 910, 913 (S.C. Ct. App. 1988). In attempting to remove this
case from the scope of this general rule, Balcor relies on the principle
of South Carolina law that an employer may be liable for negligent
3
Nor would the statute have applied to Balcor’s claims had Balcor’s
insurance carriers been joined as involuntary plaintiffs. The statute at
most would have prevented the insurance carriers from stating a claim
against Caligo, but would have had no effect on Balcor’s cause of action.
Indeed, because we discern no prejudice to Caligo from the denial of its
joinder motion, we conclude that even if the district court erred in deny-
ing the motion, any error was harmless.
4
Vaughn v. A. E. Green Co., 287 S.E.2d 493 (S.C. 1982), on which
Caligo relies, does not dictate that the statute applies to landlords’ causes
of action. In Vaughn, a landlord’s insurance carriers sued the landlord’s
tenant in the landlord’s name after settling a fire loss claim with the land-
lord. See Vaughn, 287 S.E.2d at 494. The trial court granted summary
judgment to the tenant based on the conclusion that the insurer had failed
to create a genuine issue of material fact concerning whether the tenant’s
actions were reckless. See id. The South Carolina Supreme Court
reversed this holding, concluding that whether the tenant’s conduct was
reckless could not be determined at the summary judgment stage. See id.
Having reversed the grant of summary judgment on that ground, the
court did not decide—explicitly or implicitly, as Caligo contends—
whether the statute would be a defense against the suit if recklessness
was not proven. Because the court did not decide this issue, Vaughn does
not justify our disregarding the plain meaning of the statute.
8 BALCOR EQUITY PROPERTIES v. CALIGO LTD.
supervision and negligent retention if its employee, while acting out-
side the scope of his employment, intentionally harms another when
(a) the employee is upon premises in possession of the employer and
(b) the employer knows or has reason to know that he has the ability
to control his employee, and knows or should know of the necessity
and opportunity for exercising such control. See Brockington v. Pee
Dee Mental Health Ctr., 433 S.E.2d 16, 18 (S.C. Ct. App. 1993). In
granting summary judgment on the negligence claims, the district
court stated that Brockington "limit[s] such a cause of action to an
intentional harm." J.A. 176. Balcor neither disputes that conclusion
nor challenges the determination of the district court that there is no
evidence from which a factfinder reasonably could conclude that the
Caligo employees intended to cause any damage by their actions.
Rather, Balcor argues that the harm here was intentional because the
action that caused the damage, i.e., the shooting of the firework, was
intentional.
South Carolina negligent supervision and retention law is based
upon the Restatement (Second) of Torts. See Brockington, 433 S.E.2d
at 18. The Restatement defines "intent" to mean "that the actor desires
to cause consequences of his act, or that he believes that the conse-
quences are substantially certain to result from it." Restatement (Sec-
ond) of Torts § 8A (1965). Because Balcor does not even argue that
there is evidence from which a factfinder could conclude that those
shooting the fireworks intended to cause damage to the apartment
complex, the district court correctly granted summary judgment to
Caligo on these claims.5
5
Balcor also contends that even if Caligo had no common law liability
for its employees’ actions, paragraph 6 of the lease provides a basis for
liability. The relevant language states that Caligo "shall not permit the
Premises to be used in any unlawful manner or in any manner that may
in [Balcor’s] exclusive judgment be disturbing to another resident of the
Apartment Community or for any purposes which in [Balcor’s] judgment
may injure the reputation, safety or welfare of this Apartment Commu-
nity." J.A. 2056, 2062. Balcor also maintains that even if Caligo origi-
nally had no duty to act, it voluntarily assumed a duty to do so by
supervising its employees at the apartment complex. Because these argu-
ments were raised for the first time in Balcor’s reply brief, they are not
properly before this court. See Cavallo v. Star Enter., 100 F.3d 1150,
1152 n.2 (4th Cir. 1996).
BALCOR EQUITY PROPERTIES v. CALIGO LTD. 9
IV.
In sum, we hold that the district court erred in concluding as a mat-
ter of law that Balcor’s damages were the result of a "fire originating"
on the premises leased by Caligo and therefore in granting summary
judgment to Balcor on its indemnification claim; correctly ruled that
S.C. Code Ann. § 38-75-60 did not apply to Balcor’s claims; and cor-
rectly granted summary judgment against Balcor on its negligent
supervision and negligent retention claims.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED