Kansas City Power & Light Co. v. United States ( 2018 )

In the United States Court of Federal Claims
No. 15-348C
(Filed: December 13, 2018)
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KANSAS CITY POWER & LIGHT CO., *
*
Plaintiff, *
*
Motion for Judgment on the Pleadings;
v. *
RCFC 12(c); RCFC 12(b)(6);
*
Indemnification; Duty to Defend
THE UNITED STATES, *
*
Defendant. *
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William L. Yocum, Kansas City, MO, and Roy Bash, Denver, CO, for plaintiff.
Amanda L. Tantum, United States Department of Justice, Washington, DC, for defendant.
OPINION AND ORDER
SWEENEY, Chief Judge
Plaintiff Kansas City Power & Light Co. (“KCP&L”) seeks reimbursement of its
expenses associated with settling a wrongful death lawsuit. KCP&L alleges that it is entitled to
recoup those costs from defendant because the United States General Services Administration
(“GSA”) breached its contractual obligation to defend and indemnify KCP&L with respect to the
settled claims. Currently before the court is defendant’s motion for judgment on the pleadings
pursuant to Rule 12(c) of Rules of the United States Court of Federal Claims (“RCFC”).1 For the
reasons discussed below, the court denies defendant’s motion.
1
In addition to seeking dismissal under RCFC 12(c), defendant nominally moves for
partial summary judgment on KCP&L’s request for payment of its defense costs in the wrongful
death lawsuit. Defendant, however, presents no argument premised on the summary judgment
standard; instead, defendant frames its analysis under the RCFC 12(c) standard. The court,
therefore, construes the “motion for partial summary judgment” as a request for dismissal under
RCFC 12(c) and analyzes the issues accordingly.
I. BACKGROUND
A. Contracted Services
On August 19, 2005, the GSA entered into a contract with KCP&L for the latter to
deliver electric utility service to the Hardesty Federal Complex in Kansas City, Missouri.2
Pursuant to that agreement, KCP&L would supply electrical service to the GSA at the point of
delivery from September 15, 2004, to September 14, 2009.3 In addition, the GSA agreed to
indemnify KCP&L for activities related to its work supplying electrical service. Specifically, the
GSA was obligated to
indemnify, save harmless and defend [KCP&L] against all claims, demands, cost
or expense, for loss, damage or injury to persons or property, in any manner
directly or indirectly connected with, or growing out of the distribution or use of
the electric service by the [GSA] at or on the [GSA]’s side of the point of
delivery.
Compl. Ex. 6 at 21. KCP&L alleges that, pursuant to this contract, it provided the GSA with
electrical service to, among other places, Building 13—an electrical vault in the Hardesty
Federal Complex.
B. Underlying Litigation
While KCP&L was providing electrical service to the Hardesty Federal Complex, David
Eubank—a GSA employee—sustained fatal injuries in Building 13. He suffered those injuries
as he was, allegedly, working with equipment related to electrical service on the GSA’s side of
the point of delivery. Following Mr. Eubank’s death, his widow (the “Eubank claimant”) filed a
2
The facts in Part I are derived from the (1) complaint and its exhibits in this case;
(2) complaint in the underlying wrongful death case, Eubank v. Kansas City Power & Light Co.,
No. 0716-CV07429 (Mo. Cir. Ct.); and (3) orders in the state and federal iterations of the Eubank
case, id.; Eubank v. Kansas City Power & Light Co., No. 07-0861-CV-W-GAF (W.D. Mo.). See
Rocky Mountain Helium, LLC v. United States, 841 F.3d 1320, 1325-26 (Fed. Cir. 2016)
(explaining what records can be considered when evaluating a motion to dismiss); Pucciariello v.
United States, 116 Fed. Cl. 390, 401 (2014) (noting that the contents of a complaint in another
case can be reviewed without converting a motion to dismiss into a motion for summary
judgment); see also A & D Auto Sales, Inc. v. United States, 748 F.3d 1142, 1147 (Fed. Cir.
2014) (reviewing the denial of a dismissal under RCFC 12(b)(6) and noting that the court may
review of “matters incorporated by reference or integral to the claim, items subject to judicial
notice, [and] matters of public record” (quoting 5C Charles Alan Wright & Arthur R. Miller,
Federal Practice & Procedure § 1357 (3d ed. 2004))).
3
The “point of delivery” was defined as “[t]he point at which [KCP&L’s] conductors
and/or equipment (other than [KCP&L’s] meter installation) make electrical connection with the
[GSA’s] installation . . . .” Compl. Ex. 6 at 8.
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lawsuit in state court (the “Eubank action”) against KCP&L in which she pleaded negligence and
loss-of-consortium claims stemming from the incident in Building 13.
After being served with the complaint, KCP&L brought two GSA employees into the
proceeding as third-party defendants. The United States substituted itself for the GSA
employees, and removed the case to federal court. Shortly thereafter, the United States was
dismissed from the case. Subsequently, KCP&L alleges that it reached a settlement with the
Eubank claimant after the GSA refused to defend KCP&L in the underlying proceeding.
KCP&L alleges that it paid (1) $2,250,000.00 to the Eubank claimant as part of the settlement
and (2) $1,756,138.14 in legal fees, court costs, and expenses (collectively, “litigation expenses”)
to defend itself in the Eubank action.
C. Procedural History
On April 6, 2015, KCP&L filed its complaint in the instant case, seeking to recover what
it paid in connection with the Eubank action.4 KCP&L pleads two claims: Count I - contractual
indemnity and Count II - breach of contract. With regard to the contractual indemnity claim,
KCP&L alleges that the GSA was obligated to indemnify KCP&L for its expenses in the Eubank
action because the claims in that case were connected to the distribution of electrical service on
the GSA’s side of the point of delivery. As for the breach-of-contract claim, KCP&L pleads that
the GSA failed to comply with its contractual obligation to defend and indemnify KCP&L in the
Eubank action. For each claim, KCP&L avers that it is entitled to recover the litigation expenses
and settlement costs it incurred in resolving the Eubank claimant’s claims.
After KCP&L filed its complaint and the parties completed some discovery, defendant
filed the instant motion for judgment on the pleadings. The motion is now fully briefed. The
parties did not request oral argument, and the court deems oral argument unnecessary. Thus,
defendant’s motion is now ripe for adjudication.
II. STANDARD
A motion for judgment on the pleadings “is designed to provide a means of disposing of
cases when the material facts are not in dispute between the parties and a judgment on the merits
can be achieved by focusing on the content of the competing pleadings . . . .” 5C Wright &
Miller, supra, § 1367 (footnote omitted) (discussing Federal Rule of Civil Procedure 12(c)). The
“legal standard applied to evaluate a motion for judgment on the pleadings is the same as that for
a motion to dismiss.” Peterson v. United States, 68 Fed. Cl. 773, 776 (2005); see id. (noting that
courts “have routinely construed a motion to dismiss for failure to state a claim filed after the
answer as a motion for judgment on the pleadings”). Thus, judgment on the pleadings “is
4
KCP&L previously sued the United States in this court for claims arising from the
Eubank action. The United States moved to dismiss that complaint, and the parties subsequently
filed a joint stipulation of dismissal without prejudice because KCP&L had failed to exhaust its
administrative remedies. Following that dismissal, KCP&L submitted a certified claim and
request for a final decision to the GSA contracting officer, who denied the claim on January 27,
2015.
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appropriate where there are no material facts in dispute and the [movant] is entitled to judgment
as a matter of law.” N.Z. Lamb Co. v. United States, 40 F.3d 377, 380 (Fed. Cir. 1994). When
the government moves the court for judgment on the pleadings, “each of the well-pled
allegations in the complaint[ ] is assumed to be correct, and the court must indulge all reasonable
inferences in favor of the plaintiffs.” Atlas Corp. v. United States, 895 F.2d 745, 749 (Fed. Cir.
1990). The court’s ruling “is based on the substantive merits of the claims and defenses as
alleged in the non-movant’s pleadings.” J.M. Huber Corp. v. United States, 27 Fed. Cl. 659, 662
(1993).
III. ANALYSIS
Defendant moves to dismiss KCP&L’s claims on the theory that the GSA was not
obligated to defend and indemnify KCP&L in the Eubank action. Defendant’s arguments, as a
general matter, concern the breadth of the contractual indemnification provision (which includes
a duty-to-defend component). The scope of that provision is a matter of contract interpretation,
see United States v. Seckinger, 397 U.S. 203, 209-10 (1970); cf. Deprenyl Animal Health, Inc. v.
Univ. of Toronto Innovations Found., 297 F.3d 1343, 1349 (Fed. Cir. 2002) (“[D]etermining
whether . . . claims fall within the scope of the arbitration clause is a question of contract
interpretation.”), which is governed by federal law, Prudential Ins. Co. of Am. v. United
States, 801 F.2d 1295, 1298 (Fed. Cir. 1986) (“It is well settled that contracts to which the
government is a party . . . are normally governed by federal law, not by the law of the state where
they are made or performed.”). When “existing federal law is not determinative,” the court
“tak[es] into the account” the “best in modern decision and discussion,” id., which involves
“looking to general . . . contract law principles as they are embodied in state law
pronouncements,” Ginsberg v. Austin, 968 F.2d 1198, 1200 (Fed. Cir. 1992).
A. Indemnification
Defendant first moves to dismiss that portion of KCP&L’s complaint premised on the
GSA’s duty to indemnify. Defendant argues that the GSA was not required to indemnify
KCP&L in connection with the Eubank action or, in the alternative, was not obligated to
indemnify KCP&L for its litigation expenses. With respect to its broader argument, defendant
asserts that the GSA was not contractually required to indemnify KCP&L for claims premised on
KCP&L’s negligence—such as those pleaded in the Eubank action—because those claims are
not within the scope of the indemnification provision. Relying on expressions of state law,
defendant contends that the contract does not reflect that the parties intended KCP&L to be
absolved of liability for its negligence.
The use of an indemnification provision to shift liability for one’s own negligence to the
indemnitor is an unusual and extraordinary measure. E.g., Jacobs Constructors, Inc. v. NPS
Energy Servs., Inc., 264 F.3d 365, 372 (3d Cir. 2001). As such, under federal law, “a contractual
provision should not be construed to permit an indemnitee to recover for his own negligence
unless the court is firmly convinced that such an interpretation reflects the intention of the
parties.” Seckinger, 397 U.S. at 211. In Seckinger, the United States Supreme Court (“Supreme
Court”) explained that contracting parties must “clearly and unequivocally” indicate their
intention to shift the risk to the indemnitor, id. at 215, but are not required to “include an
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‘indemnify and hold harmless’ clause or . . . explicitly state that indemnification extends to
injuries occasioned by the indemnitee’s negligence,” id. at 212 n.17; see also Gibbs v. United
States, 599 F.2d 36, 41 (2d Cir. 1979) (“[W]e would find attractive the view that only such an
explicit reference could support indemnification for the indemnitee’s negligence . . . . But
Seckinger . . . makes clear that such explicit reference is not required.”).
To assess whether the necessary intent is evident from the contract, the court relies on
Seckinger and its progeny because the former is binding precedent and the latter, by virtue of
interpreting binding precedent, is more persuasive than the decisions cited by KCP&L and
defendant addressing approaches used in various states. When interpreting Seckinger, “courts
[have] concluded that [the Supreme Court] strongly implied that ‘indemnify and hold harmless’
language . . . provides evidence of a mutual intent to indemnify the indemnitee against his own
negligence.”5 Rhoades, 986 F. Supp. at 868. Indeed, the Supreme Court’s explanation in
Seckinger that “hold harmless” language is not necessary to find the requisite intent raises the
clear inference that a clause which does in fact utilize “hold
harmless” language indicates the intent of the parties for the
indemnity to operate despite negligence by the indemnitee. This is
to say, if neither “hold harmless” language or an express
disclaimer is required, the negative inference arises that the
presence of either is a strong indication that indemnity is intended
in spite of or regardless [of] negligence on the part of the
indemnitee.
Smith v. United States, 497 F.2d 500, 508 (5th Cir. 1974). Another important consideration is
whether the parties agreed that the indemnitor must provide indemnification for “all claims” or
some variation thereof. The inclusion of such language suggests that the parties intended for the
indemnitee to be indemnified for its negligence. E.g., Gibbs, 599 F.2d at 40; Capozziello v.
Brasileiro, 443 F.2d 1155, 1159 (2d Cir. 1971). Of particular import here, courts following
Seckinger have concluded that parties sufficiently indicate their intention to provide
indemnification for an indemnitee’s negligence when the contract includes a “hold harmless”
5
This pronouncement is supported by a significant body of case law. E.g., Gibbs, 599
F.2d at 40 (“[T]he clause contains the terms, ‘save harmless and indemnify,’ which, as Justice
Brennan indicated [in Seckinger], do help show an intent to encompass indemnification for the
indemnitee’s negligence.”); Pickett v. United States, 724 F. Supp. 390, 394 n.1 (D.S.C. 1989)
(“A fair inference to be from [the] language in Seckinger is that ‘hold harmless’ language, while
not necessary, would indicate an intent to allow indemnification for the indemnitee’s
negligence”); Zetek v. United States, 516 F. Supp. 1260, 1262 (E.D. Pa. 1981) (“While neither
the presence nor absence of [a hold harmless clause] is conclusive, the presence of such language
certainly warrants considerable weight in construing the parties’ intent.”). See generally
Rhoades v. United States, 986 F. Supp. 859, 864-66 (D. Del. 1997) (analyzing decisions in which
courts relying on Seckinger concluded that an indemnification provision covered the
indemnitee’s negligence).
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provision and coverage extends to “all claims.” Gibbs, 599 F.2d at 40;6 Smith, 497 F.2d at 507;
Rhoades, 986 F. Supp. at 868-89. The indemnification provision at issue in this case tracks the
language that other courts applying federal law have concluded reflects the necessary intent to
provide coverage for an indemnitee’s negligence. Specifically, the parties’ intention for KCP&L
to be indemnified for its own negligence can be gleaned from their inclusion, in the contract, of a
“save harmless” provision that applies to “all claims,” especially absent any countervailing
evidence. See, e.g., Gibbs, 599 F.2d at 40; Smith, 497 F.2d at 508; Zetek, 516 F. Supp. at 1263.
In other words, KCP&L can be indemnified for its own negligence so long as the other
conditions in the indemnification provision are satisfied. Therefore, contrary to defendant’s
argument, the fact that the Eubank claimant pleaded that KCP&L was negligent does not
foreclose KCP&L’s indemnification claim.
With respect to its narrower argument, defendant asserts that the GSA was not obligated
to indemnify KCP&L for its litigation expenses in connection with the Eubank action because
those expenses do not satisfy the contractual perquisites for indemnification. Specifically,
defendant takes the position that those expenses are not indemnifiable because they were not for
(1) a claim, demand, cost, or expense and (2) a loss, damage, or injury to persons or property.7
With regard to the first condition, defendant contends that KCP&L’s litigation expenses do not
qualify as a claim, demand, cost, or expense pursuant to the meaning courts afford those terms in
indemnification provisions. As to the second condition, defendant asserts that KCP&L paid its
litigation expenses to receive advice or obtain experts rather than for a loss, damage, or injury to
persons or property.
The critical question is: What must be shown to establish a right to indemnification of
litigation expenses? With regard to recouping attorney’s fees under an indemnification
provision, the “generally held view [is] that indemnification agreements contemplate payment
for attorney’s fees incurred in litigation with third parties concerning the matter indemnified
against, regardless of whether they say so.”8 E. C. Ernst, Inc. v. Manhattan Constr. Co. of Tex.,
6
In Gibbs, the United States Court of Appeals for the Second Circuit (“Second Circuit”)
proffered another basis for its conclusion: the indemnitor agreed to provide indemnification
“regardless of whether [the covered] claims . . . may be attributable to the fault, failure, or
negligence of the [indemnitee].” 599 F.2d at 40-41. This reason, however, was independent
from the Second Circuit’s determination that the “hold harmless” and “all claims” language
reflected the necessary intent. Id.; see also Zetek, 516 F. Supp. at 1263 (noting that the Second
Circuit in Gibbs provided two, independent reasons for its conclusion).
7
Defendant does not address the other conditions for indemnification, which further
restrict KCP&L’s right to indemnification to liabilities that are “directly or indirectly connected
with, or growing out of the distribution or use of the electric service by the [GSA] at or on the
[GSA’s] side of the point of delivery.” Compl. Ex. 6 at 21.
8
The court’s decision to follow this understanding of the law is buttressed by the fact
that other courts applying federal common law have also done so. See, e.g., In re Fitzgerald
Marine & Repair, Inc., 619 F.3d 851, 864 (8th Cir. 2010) (noting that, in the federal maritime
context, an indemnification provision includes an obligation to pay costs and fees).
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551 F.2d 1026, 1037 (5th Cir. 1977). Furthermore, indemnitees are generally permitted to
recover “reasonable and proper legal costs and expenses, even though not expressly mentioned.”
42 C.J.S. Indemnity § 24 (2018). Indeed, the “reimbursement of [litigation expenses] is
presumed to have been the intent of the draftsman unless the agreement explicitly says
otherwise.” Sweet v. United States, 63 Fed. Cl. 591, 599 (2005) (quoting Peter Fabrics, Inc. v.
S.S. Hermes, 765 F.2d 306, 316 (2d Cir. 1985));9 accord Warren Drilling Co. v. Equitable Prod.
Co., 621 F. App’x 800, 806 (6th Cir. 2015) (noting that “most jurisdictions . . . presume that
[litigation expenses] incurred in defending an indemnified claim are shifted to the indemnitor”).
The court finds the presumption that litigation expenses are indemnifiable be more persuasive
than the approaches in the authority discussed by defendant because the presumption “gives
effect to the very nature of indemnity, which is to make the party whole.” E. C. Ernst, 551 F.2d
at 1037.
In light of the above, defendant misses the mark by not engaging with the critical issue:
whether the parties explicitly stated that litigation expenses were not indemnified. See Sweet, 63
Fed. Cl. at 599. Defendant fails to point to any language in the contract explicitly excluding such
expenses, and the court also finds no provision to that effect. Moreover, defendant would not
prevail even if the court ventured beyond the lack of an explicit statement rebutting the
presumption that an indemnitee can recover its reasonable litigation expenses. First, the parties’
use of the phrase “all claims, demands, cost or expense” is consistent with language that other
courts have found to encompass litigation expenses. E.g., Natco Ltd. P’ship v. Moran Towing of
Fla., Inc., 267 F. 3d 1190, 1194 (11th Cir. 2001) (collecting examples). Second, the phrase “cost
or expense” would be meaningless if it did not reflect coverage for litigation expenses because
any other indemnifiable expenditures are already covered by the requirement that the GSA
indemnify KCP&L for “claims” or “demands.”10 The court, therefore, interprets the
indemnification provision as providing coverage for litigation expenses to avoid rendering
superfluous portions of the provision. See NVT Techs., Inc. v. United States, 370 F.3d 1153,
1159 (Fed. Cir. 2004) (“An interpretation that gives meaning to all parts of the contract is to be
preferred over one that leaves a portion of the contract useless, inexplicable, void, or
superfluous.”).
B. Duty to Defend
Defendant also seeks to dismiss that part of KCP&L’s complaint concerning the GSA’s
purported breach of its duty to defend KCP&L. Defendant first argues that the GSA was not
required to defend KCP&L in the Eubank action because the Eubank claimant pleaded claims
based on negligence, and negligence claims are not covered by the indemnification provision.
See also Nat’l R.R. Passenger Corp. v. Rountree Transp. & Rigging, Inc., 286 F.3d 1233, 1261
9
Although Sweet involved entitlement to attorney’s fees under a statute, the court in that
decision first addressed “well established” principles applicable to indemnification provisions.
Sweet, 63 Fed. Cl. at 599. Those principles are instructive here.
10
Other than litigation expenses, the court cannot identify (and defendant does not
suggest) any expenses that the GSA would be obligated to indemnify that would not be
categorized as payment for a “claim” or “demand.”
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(11th Cir. 2002) (explaining that the duty to defend depends on whether “the underlying facts
contained in the complaint can be fairly read to support a claim covered by the indemnification
provision”). The central premise of this argument is flawed because, as explained above, a claim
based on allegations that KCP&L was negligent is subject to indemnification if the other
conditions in the indemnification provision are satisfied. See supra Section III.A.
Defendant next argues that the GSA was not obligated to defend KCP&L because the
GSA and KCP&L had conflicting interests with regard to defending the Eubank action.
Defendant relies on the notion, expressed in the Restatement (Second) of Judgments, that an
“indemnitor cannot properly be called on to take control of the defense of an action” if there is a
conflict of interest between the indemnitor and indemnitee. Restatement (Second) of Judgments
§ 57 cmt. c (Am. Law Inst. 1982). Under the Restatement, there is a conflict of interest when
“the injured party’s claim may be upheld on different grounds, one of which is within the terms
of the indemnity obligation and the other of which is not.” Id. Defendant asserts that such a
conflict existed: if KCP&L’s liability in the Eubank action had been presented to a fact finder at
trial, KCP&L would have sought a finding that Mr. Eubank’s injury occurred at or on the GSA’s
side of the point of delivery (a necessary condition for indemnification), while the GSA would
have sought a finding that the injury occurred on KCP&L’s side. Because of that conflict,
defendant avers that the GSA was not obligated to provide KCP&L with a defense in the Eubank
action.
Defendant reads too much into the Restatement provision. The noted portion of the
provision does not stand for the proposition that an indemnitor has no obligation to provide a
defense when there is a conflict of interest between the indemnitor and indemnitee. Rather, the
indemnitor merely cannot be “called on to take control of the defense” when there is a conflict.
Id. (emphasis added). When a conflict of interest precludes the indemnitor from controlling the
defense, the indemnitor fulfills its obligation to provide a defense by hiring or paying for
separate counsel that is not acting pursuant to the indemnitor’s directions.11 See Metlife Capital
Corp. v. Water Quality Ins. Syndicate, 100 F. Supp. 2d 90, 96 (D.P.R. 2000) (explaining that,
when there is a conflict of interest, the party with the duty to defend generally hires independent
counsel and cedes control of the defense to that counsel); see also 14 Steven Plitt et al., Couch on
Insurance § 202:37 (3d ed. 2018) (“Although the insurer, pursuant to its duty to defend, may pick
up the ‘tab’ for the insured’s lawyer, the insurer must, unless insured consents, relinquish all
control over the lawyer once the insurer and insured turn out to have antagonistic interests.”).
Because the duty to defend persists despite a conflict of interest, defendant fails to demonstrate
that the GSA was relieved of its obligation to defend KCP&L because of a purported conflict of
interest that would arise while defending against the Eubank claimant’s claims.
11
This understanding also comports with common sense; defendant espouses a view that
would effectively render the duty to defend a nullity in most indemnification contexts. Indeed, if
an indemnitee is going to be found liable in the underlying proceeding, the indemnitor and
indemnitee will often have conflicting interests with regard to how liability is established. An
indemnitee’s goal in that situation is to be found liable on grounds covered by the
indemnification agreement, while the indemnitor’s ideal outcome is for liability to be established
for reasons not covered by the agreement.
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IV. CONCLUSION
In sum, defendant fails to establish as a matter of law that the GSA was not obligated to
defend or indemnify KCP&L in the Eubank action. Thus, the court DENIES defendant’s motion
for judgment on the pleadings. The parties shall file a joint status report by no later than
Thursday, January 10, 2019, suggesting further proceedings.
IT IS SO ORDERED.
s/ Margaret M. Sweeney
MARGARET M. SWEENEY
Chief Judge
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