Avalon Care Center-Federal Way, LLC v. Brighton Rehabilitation, LLC

FILED
United States Court of Appeals
Tenth Circuit
December 15, 2014
UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
AVALON CARE CENTER-FEDERAL
WAY, LLC,
Plaintiff,
Nos. 13-4126 & 14-4012
v. (D.C. No. 2:10-CV-01038-BSJ)
(D. Utah)
BRIGHTON REHABILITATION,
LLC,
Defendant Third-Party Plaintiff
Counterclaim Defendant-
Appellee,
v.
AEGIS THERAPIES, INC.,
Third-Party Defendant
Counterclaimant-Appellant.
ORDER AND JUDGMENT *
Before BRISCOE, KELLY, and BACHARACH, Circuit Judges.
* This order and judgment does not constitute binding precedent, except
under the doctrines of law of the case, res judicata, and collateral estoppel. But,
the order and judgment may be cited for its persuasive value consistent with Fed.
R. App. P. 32.1 and 10th Cir. R. 32.1.
This appeal involves indemnity. A physical therapy service (Brighton
Rehabilitation, LLC) agreed to help patients at a health-care facility (Avalon Care
Center-Federal Way, LLC). The physical therapy service subcontracted its
obligations to another company (Aegis Therapies, Inc.). At each step, the party
undertaking the responsibility agreed to indemnity: Aegis would indemnify
Brighton for Aegis’s “acts” and “omissions,” and Brighton would indemnify
Avalon. Our appeal involves Aegis’s indemnification of Brighton.
Aegis’s and Brighton’s promises of indemnity were triggered when a 96-
year-old woman, Ms. Kathleen Miller, suffered injuries while being helped by an
Aegis employee. Ms. Miller was injured and sued Avalon. Avalon tendered a
defense of the Miller lawsuit to Brighton, which refused and tendered a defense to
Aegis, which also refused. Left on its own, Avalon settled with Ms. Miller and
sued Brighton for the settlement amount, prejudgment interest, attorneys’ fees,
and costs. Brighton reacted by suing Aegis based on its promise of indemnity.
The district court granted summary judgment to Brighton on virtually all
claims, ordering Aegis to indemnify Brighton for its legal expenses and the
amounts Brighton had to pay Avalon. Aegis appeals.
In the appeal, we must address two issues:
! The triggering term “Act” and reimbursement of Brighton for the
settlement. The indemnity clause required Aegis to indemnify
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Brighton from losses and liabilities directly or indirectly caused by
Aegis’s “act.” Brighton incurred liability based on a claim involving
Aegis’s role in helping Ms. Miller move in her wheelchair. Thus, we
must ask: Does helping Ms. Miller in a wheelchair constitute an
“act”? We conclude it does. As a result, Aegis must indemnify
Brighton for its losses and liabilities resulting directly or indirectly
from Aegis’s performance under its contract with Brighton. These
losses and liabilities included the amount Brighton had to reimburse
Avalon for its settlement with Ms. Miller.
! The triggering term “Omission” and reimbursement of Brighton for
prejudgment interest and legal expenses incurred by both Brighton
and Avalon. The indemnity clause covered Brighton’s losses and
liabilities not only for Aegis’s “acts,” but also for its “omissions.”
Aegis failed to defend Brighton, and we must ask: Does Aegis’s
failure to provide a defense constitute an “omission” under the
indemnity clause? We conclude it does. This omission created losses
and liabilities for Brighton, requiring it to incur legal expense, to pay
prejudgment interest to Avalon, and to pay Avalon for its attorneys’
fees and costs. As a result, Brighton is entitled to indemnity for these
losses and liabilities.
With our conclusions on these two issues, we affirm the award of summary
judgment to Brighton.
I. Appellate Jurisdiction
Though the parties do not question jurisdiction, we must always assure
ourselves of our jurisdiction. See United States v. Torres, 372 F.3d 1159, 1160
(10th Cir. 2004). We have jurisdiction over final orders, 1 but the finality of the
district court’s order is in question because Brighton states that the court failed to
rule on a claim involving attorneys’ fees as damages. Brighton is incorrect
1
28 U.S.C. § 1291.
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because the district court has decided this claim. Brighton requested an award of
attorneys’ fees as the prevailing party, later moving to amend the judgment to seek
some of the attorneys’ fees as part of the damage award. The district court denied
this part of the request and stated that the judgment constituted a final order.
Because the district court entered a final order, we have appellate jurisdiction.
II. Summary Judgment
With appellate jurisdiction, we review the district court’s award of summary
judgment to Brighton. We uphold the award of summary judgment, concluding
that Aegis’s indemnity obligation was triggered by its “act” (in moving Ms. Miller
in her wheelchair) and “omission” (in failing to provide a defense to Brighton).
Thus, the district court properly concluded that the indemnity clause covered the
funds that Brighton had paid its attorneys and Avalon.
A. Our Standard of Review
Our review is de novo. Holmes v. Colo. Coal. for Homeless Long Term
Disability Plan, 762 F.3d 1195, 1199 (10th Cir. 2014). We apply the same
standard applicable in district court: Viewing the evidence in the light most
favorable to Aegis, we must decide whether there is a genuine issue of material
fact. SEC v. Thompson, 732 F.3d 1151, 1156-57 (10th Cir. 2013).
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B. The Amount Brighton Reimbursed Avalon for Its Settlement:
Aegis’s “Act”
Avalon settled by paying Ms. Miller, but later recouped the payment from
Brighton. We conclude that Brighton is entitled to indemnity for this payment to
Avalon.
Under the contract, Aegis must indemnify Brighton for “any and all
liability, loss, costs, and expenses . . . incurred directly or indirectly from any acts
. . . of Aegis . . . from any cause arising from or relating to Aegis’ performance
under [the] Agreement.” Appellant’s App. at 95 (emphasis added). This clause
applies because the claim against Avalon grew out of an “act” that is covered by
the contract: helping to move Ms. Miller in a wheelchair. Because her injury (and
resulting suit against Avalon) grew out of Aegis’s “act,” Aegis must indemnify
Brighton for the amount that it had to pay Avalon.
The parties agree that we should apply Washington law to interpret the
indemnity clause. Under Washington law, we give words their ordinary meaning.
See Cambridge Townhomes, LLC v. Pac. Star Roofing, Inc., 209 P.3d 863, 871
(Wash. 2009). The operative word in the indemnity clause — “act” — commonly
means to “take action” or “do something.” New Oxford American Dictionary 15
(3d ed. 2010) (primary definition of “act”). Helping someone in a wheelchair
constitutes an “act” under any common definition.
Aegis argues that
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! the “act” would trigger indemnity only if Aegis was culpable, and
! Aegis did nothing wrong in helping Ms. Miller in her wheelchair.
We disagree with Aegis’s gloss on the definition: The term “act” does not require
culpability.
Aegis argues that it didn’t cause the injury because Ms. Miller caused her
own injury. But, the indemnity clause covered losses and liabilities resulting
“directly or indirectly” from Aegis’s acts. Thus, if Aegis “acted,” it had to
indemnify Brighton for its indirect losses. If Ms. Miller injured herself, her fault
might have been a contributing cause. But, helping Ms. Miller move in her
wheelchair would have remained an indirect cause; thus, Brighton would be
entitled to indemnity even if Ms. Miller had contributed to the accident.
Under any ordinary usage of the term “act,” the indemnity clause would
cover what Aegis did in helping to move Ms. Miller in her wheelchair. That effort
constitutes an “act,” whether culpable or not. See Cambridge Townhomes, LLC v.
Pac. Star Roofing, Inc., 209 P.3d 863, 871 (Wash. 2009) (holding that a similar
indemnity clause, covering all claims involving “services,” was not limited to tort
actions).
In seeking to overcome the ordinary meaning of the term “act,” Aegis points
to two other contract provisions and to two Washington cases. These provisions
and cases do not justify disregard for the common understanding of the term “act.”
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Aegis relies on two other provisions in the contract with Brighton. One
provides indemnity from Brighton to Aegis; the other provision addresses
indemnity for specific kinds of claims, which involve quality of care and billing
errors. In Aegis’s view, these provisions reflect an intent to limit indemnity to
acts involving culpability. We disagree.
The Brighton-Aegis contract does contain reciprocal promises of indemnity.
Appellant’s App. at 95. Both provisions state that indemnity is triggered by acts
arising from or relating to the indemnitor’s contractual performance. Id. This
language makes sense regardless of whether the indemnitor was culpable: If the
loss arose from or related to that party’s contractual performance, indemnity is
triggered — regardless of whether the contractual performance was culpable.
Aegis also points to examples given in the indemnity clause, providing that
Aegis’s duty of indemnity would “include[]” losses involving billing errors and
violations of quality-of-care standards. Id. In Aegis’s view, the examples (billing
errors and quality-of-care violations) suggest that any other acts could trigger
indemnity only if they involved fault. But, these examples are prefaced by the
word “including,” which is a “term of enlargement.” Brown v. Scott Paper
Worldwide Co., 20 P.3d 921, 927 (Wash. 2001). If anything, the examples favor
Brighton, for the term “including” suggests that the parties intended to require
indemnity from Aegis at least in some instances when its acts would not involve
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violation of quality-of-care standards. Otherwise, the parties would have used the
word “means” instead of “including.”
Aegis also refers to two cases: Nunez v. American Building Maintenance
Company West, 190 P.3d 56 (Wash. Ct. App. 2008), and Parks v. Western
Washington Fair Association, 553 P.2d 459 (Wash. Ct. App. 1976). Aegis argues
that these cases limit indemnity to acts involving fault. We disagree.
Washington cases support the common-sense notion that an indemnity
clause requires fault when the clause says it requires fault. That was the case in
Nunez, where the indemnity clause said that it covered only losses “‘caused by
negligence, misconduct or other fault’” of the indemnitor. Nunez, 190 P.2d at 57.
No such limitation appears in our indemnity clause, so Nunez is inapplicable.
Parks indicates that Washington law may prohibit indemnity in the absence
of the indemnitor’s “control . . . over the instrumentality or conditions causing the
accident.” 553 P.2d at 462. There, someone slipped on a snow cone in a
grandstand and sued the association that maintained the property. Id. at 460. The
association then sought indemnity from the company that sold snow cones to
people in the grandstand. Id. The court disallowed indemnity because the seller
of the snow cones lacked any control over the conditions in the grandstand. Id. at
460-62.
Our situation is different. Aegis had control over the instrumentality
causing the harm, for Aegis was helping Ms. Miller move in her wheelchair.
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Aegis cannot avoid indemnity based on a lack of control and does not suggest
otherwise.
Neither Nunez nor Parks bears on our issue. Thus, we must apply the
ordinary meaning of the words used in the indemnity clause. Doing so, we
conclude that Brighton’s loss arose indirectly from Aegis’s act (helping Ms. Miller
in her wheelchair). That act led indirectly to Brighton’s duty to reimburse Avalon
for its settlement with Ms. Miller. Thus, Brighton was entitled to recoup this
money from Aegis.
C. Brighton’s Other Expenditures: Aegis’s “Omission”
Brighton had to indemnify Avalon not only for what it paid in settlement,
but also for Avalon’s attorneys’ fees and expenses and prejudgment interest on the
settlement amount. In addition, Brighton had to incur its own attorneys’ fees and
expenses. We conclude that Brighton is entitled to recoup all of these
expenditures from Aegis because of its “omission” (failure to provide a defense).
1. Aegis’s “Omission”
The indemnity clause covered not only “acts,” but also “omissions.”
Brighton alleges an “omission” by Aegis when it failed to provide a defense for
Avalon. 2 Avalon’s various expenditures were the indirect result of that omission.
2
The concurrence points out that the contract also obligates Brighton to
indemnify Aegis for its losses incurred from “omissions . . . under this
Agreement.” Appellant’s App. at 95. The phrase “this Agreement” refers to
Brighton’s agreement with Aegis, not Avalon. Thus, Aegis has never argued
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The term “omission” means that “something . . . has been left out or
excluded.” New Oxford Am. Dict. 1223 (3d ed. 2010). Aegis made an “omission”
when it declined Brighton’s request to assume the defense of Avalon. 3
2. Brighton’s Damages from Aegis’s Omission
Aegis’s omission caused Brighton to suffer damages consisting of
prejudgment interest on the settlement amount, payment to Avalon for its
attorneys’ fees and expenses, and legal fees and expenses for Brighton.
a. Prejudgment Interest on the Settlement Amount
For example, Brighton had to pay Avalon the prejudgment interest on the
funds paid to Ms. Miller. These payments were the indirect result of Aegis’s
failure to provide a defense when requested by Brighton.
b. Avalon’s Attorneys’ Fees and Expenses
Brighton not only had to reimburse Avalon for the funds paid to Ms. Miller
and for prejudgment interest, but also had to pay Avalon for its attorneys’ fees and
(either in the district court or our court) that it can recoup or offset its losses from
Brighton as a result of Brighton’s “omission” in the Brighton-Avalon agreement.
3
The district court reasoned that the legal fees had resulted directly or
indirectly from Aegis’s “acts, errors or omissions.” Appellant’s App., vol. III at
536-37. This rationale led Aegis to argue that Brighton’s refusal to defend
Avalon constituted an intervening act severing the “causative link” between
Aegis’s alleged wrongdoing and Brighton’s damages. Appellant’s Opening Br. at
25. This argument could conceivably apply to Aegis’s “act” (pushing Ms. Miller
in her wheelchair), but not its “omission” (refusing Brighton’s request to assume
Avalon’s defense). Aegis’s omission came after Brighton had declined to defend
Avalon.
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expenses. Avalon would not have had to pay for attorneys’ fees and expenses if
Aegis had agreed to provide Brighton with a defense. Thus, Brighton’s duty to
reimburse Avalon for its attorneys’ fees and expenses constituted losses or
liabilities resulting indirectly from Aegis’s failure to provide a defense.
c. Brighton’s Own Attorneys’ Fees and Expenses
Brighton incurred expenses not only to reimburse Avalon, but also to pay
Brighton’s own attorneys’ fees and costs. Brighton would not have had to incur
these fees and costs if Aegis had provided a defense. Aegis’s failure to defend
Brighton, an “omission” under the indemnity clause, triggered the duty to
indemnify Brighton for its indirect losses. These losses included Brighton’s own
attorneys’ fees and costs. Thus, Brighton is entitled to recoup these fees and costs
from Aegis under the indemnity clause.
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3. Pre-Tender Attorneys’ Fees and Costs
Brighton incurred some of its attorneys’ fees and costs before tendering a
defense to Aegis. As noted above, Aegis argues that it should not have to pay
Brighton for any of its attorneys’ fees or expenses. In the alternative, Aegis
denies that it owes Brighton for the money it had spent in legal expenses before
asking Aegis for a defense. We reject Aegis’s alternative argument.
Resolution of the issue involves interpretation of the indemnity clause. As
discussed above, the parties agree that interpretation of the indemnity clause is
governed by Washington law. In Washington, Aegis would incur liability for
Brighton’s pre-tender attorneys’ fees and costs unless Aegis “show[ed] substantial
and actual prejudice” from the delay in tendering the defense. Nat’l Sur. Corp. v.
Immunex Corp., 256 P.3d 439, 448 (Wash. App. Ct. 2011). Aegis must prove that
the late tender “had an identifiable and material detrimental effect on its ability to
defend its interests.” Id. at 448.
Aegis objects to the district court’s resolution of this issue on summary
judgment, urging the presence of fact-questions that should be reserved for a jury.
But, Aegis presented no evidence of an identifiable, material detriment on its
ability to defend.
In Aegis’s view, the expense would have been less if Brighton had tendered
the defense earlier. With an earlier tender, Aegis states that it could have obtained
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cheaper counsel and pursued better strategies. But, in its opening brief, Aegis did
not refer to any evidence for these assertions.
Aegis again failed to identify any evidence in its reply brief. There, for the
first time, Aegis stated that Brighton might have been able to save litigation
expenses by filing a summary judgment motion against Ms. Miller. But even then,
the argument was not supported by any evidence. Aegis failed to even say what
Brighton could have argued in a summary judgment motion.
The absence of any evidence is fatal. Aegis’s assertion of prejudice rests on
surmise, and we cannot infer an identifiable, material detriment on Aegis’s ability
to defend its interests.
4. Mitigation of Damages
Aegis makes two mitigation arguments:
! Brighton should have tendered a defense to Avalon earlier, and
! Brighton incurred unnecessary legal expenses by retaining counsel to
protect its interests.
We reject both arguments.
a. Brighton’s Failure to Defend Avalon
Aegis’s first argument is that Brighton should have tendered a defense to
Avalon. Invoking the doctrine of avoidable consequences, Aegis argues that it
cannot incur liability resulting from Brighton’s breach of its contract with Avalon.
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This argument cannot be reconciled with the language in the indemnity clause or
Washington law on mitigation of damages.
Under Washington law, Brighton would ordinarily be unable to recover
damages that could have been reasonably avoided. See Ainsworth v. Progressive
Cas. Ins. Co., 322 P.3d 6, 18 (Wash. App. 2014). In Aegis’s view, Brighton could
have minimized its damages by tendering a defense to Avalon. This argument
ignores Paragraph 12.4 and Aegis’s own opportunity to mitigate the damages.
Paragraph 12.4 states that Brighton’s failure to defend Avalon would not
excuse Aegis’s duty to indemnify Brighton: “[I]n the event [Aegis] does not elect
to assume the defense of any claim, then any failure of [Brighton] to defend . . .
any claim . . . shall not relieve [Aegis] of its obligations hereunder.” Appellant’s
App. at 96. Through this language, the parties agreed that Aegis would continue
to incur a duty to indemnify Brighton even if Brighton breached its own duty to
defend Avalon. In this manner, Aegis and Brighton expressly modified the
common law duty to mitigate damages.
Aegis argues that Paragraph 12.4 simply preserved existing indemnity
obligations, pointing out that the paragraph refers to continuation of Aegis’s
“obligations hereunder.” The term “hereunder” means “as provided for under the
terms of this document.” New Oxford Am. Dict. 813 (3d ed. 2010). Brighton’s
suit against Aegis is based on Paragraph 12.2 in the same contract. Thus,
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Paragraph 12.4 unambiguously preserves Brighton’s right to obtain damages in the
event of a failure by either Brighton or Aegis to defend Avalon.
Aegis argues that this interpretation would “put the contract in contradiction
to Washington’s firmly settled doctrine of avoidable consequences.” Appellant’s
Opening Br. at 23. In Aegis’s view, this contradiction forces us to accept its
interpretation of Paragraph 12.4 because “there is no language in the contract
indicating the parties intended an abrogation of the doctrine of avoidable
consequences.” Id. at 25.
We believe Aegis’s argument is self-defeating. The parties’ intentions are
reflected most clearly through the language in the contract. See Washington v.
R.J. Reynolds Tobacco Co., 211 P.3d 448, 451-52 (Wash. App. 2009). As Aegis
states, Paragraph 12.4 conflicts with the common law duty to mitigate damages.
In this manner, the parties unambiguously showed their intent: When they agreed
to Paragraph 12.4, they showed their intent to modify the common-law duty to
mitigate damages. See Seabed Harvesting, Inc. v. Dep’t of Nat. Res., 60 P.3d 658,
662 (Wash. App. 2002).
Even without this qualification of the common law duty of mitigation, Aegis
cannot reduce the damage award based on Brighton’s breach of its contract with
Avalon. In Washington, “a plaintiff has no ‘duty’ to mitigate when the defendant
has equal opportunity to do so.” Walker v. Transamerica Title Ins. Co., 828 P.2d
621, 625 (Wash. App. 1992). When Brighton tendered a defense to Aegis, the two
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had equal opportunity to step in and defend Avalon. In these circumstances, Aegis
cannot invoke the mitigation doctrine to reduce Brighton’s award of damages.
b. Brighton’s Hiring of Counsel
Aegis also argues that Brighton acted unreasonably by retaining counsel to
protect its interests in the Avalon-Miller litigation. For this argument, we
consider the reasonableness of Brighton’s conduct. Cobb v. Snohomish Cnty., 935
P.2d 1384 (Wash. Ct. App. 1997).
Brighton did not act unreasonably in obtaining counsel. Brighton was sued
by Avalon, forced to defend itself because Aegis failed to step in. No fact-finder
could regard Brighton as unreasonable when it tried to protect its interests by
hiring counsel. Brighton needed legal assistance only because Aegis had failed to
provide a defense.
c. Summary
We conclude that Aegis cannot avoid its indemnity obligations based on a
failure to mitigate damages.
III. Attorneys’ Fees to Brighton as the Prevailing Party in District Court
The district court awarded attorneys’ fees to Brighton as the prevailing
party. In our appeal, Aegis asks not only for reversal, but also for vacatur of the
fee award if we reverse. But, we are affirming, not reversing. As a result,
Brighton remains the prevailing party in district court and we have no reason to
disturb the prior fee award. As a result, we uphold that award.
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IV. Conclusion
We conclude that we have jurisdiction, that the district court properly
awarded summary judgment to Brighton, and that the district court properly
awarded attorneys’ fees to Brighton as the prevailing party. As a result, we
affirm.
Entered for the Court
Robert E. Bacharach
Circuit Judge
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Nos. 13-4126 & 14-4012, Avalon v. Brighton
BRISCOE, Chief Judge, concurring.
I write only to address Aegis’s claim that it should not be responsible for paying
prejudgment interest on the settlement amount or for paying Avalon’s attorneys’ fees and
expenses. I agree with the majority’s conclusion that Aegis is liable for these costs, but
would not rely on the term “omission” in Section 12.2 to reach that result. The difficulty
with relying on the term “omission” to impose liability on Aegis is that Section 12.3,
which describes Brighton’s indemnification responsibilities under the contract, uses the
same language, requiring Brighton to indemnify Aegis from any “acts, errors or
omissions” of its own. Thus, if we read Aegis’s failure to defend as an omission under
Section 12.2, as the majority does, then we must also read Brighton’s failure to defend as
an omission under Section 12.3. Read in this way, these sections suggest that Aegis may
not in fact be responsible for the costs that resulted from Brighton’s “omission” (i.e., its
failure to defend Avalon), which would include, inter alia, Avalon’s attorneys’ fees and
expenses.1
Instead, I would read Section 12.2’s language requiring Aegis to indemnify
Brighton from “any and all . . . [l]osses . . . incurred directly or indirectly from any
1
As pointed out by the majority, Aegis has not argued that it can recoup its losses
because of Brighton’s “omission” (failure to defend) under the Brighton-Avalon
agreement. I raise this point only to highlight the problem with relying on Aegis’s
“omission” (failure to defend) when requiring Aegis to indemnify Brighton for what it
paid out in attorneys’ fees, expenses and prejudgment interest. Both Brighton and Aegis
failed to defend when called upon to do so. Consequently, both parties are guilty of
“omissions” under the terms of the Brighton-Aegis indemnity agreement.
acts . . . of Aegis” as being broad enough in scope to cover both the prejudgment interest
and Avalon’s attorneys’ fees and expenses. In other words, in my opinion, these costs,
which Avalon incurred when it was forced to defend against the lawsuit because Aegis
and Brighton refused to do so, are close enough in relation to the Miller lawsuit to fall
within the scope of a loss resulting indirectly from Aegis’s act of pushing Ms. Miller in
the wheelchair.
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