Neustrom v. Union Pacific

UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
TERRY NEUSTROM,
Plaintiff,
v.
UNION PACIFIC RAILROAD
COMPANY,
Defendant-Third-Party
Plaintiff-Appellee, Nos. 96-3266, 97-3077, 97-3209
v.
ASPLUNDH TREE EXPERT
COMPANY,
Third-Party Defendant-
Appellant.
ORDER
Filed November 30, 1998
Before PORFILIO and EBEL, Circuit Judges, and BRETT, * District Judge.
*
Honorable Thomas R. Brett, Senior District Court Judge, Northern District
of Oklahoma, sitting by designation.
Having considered the petition for rehearing and the response thereto, it is
hereby ORDERED that the petition for rehearing is DENIED.
The court has determined, however, that the opinion issued on September 21,
1998, should be AMENDED to include the following sentence at the end of the
decision:
The district court’s order awarding prejudgment interest on attorneys’
fees, costs, and expenses which were liquidated in amount as of October
1, 1995, is AFFIRMED.
The opinion is otherwise unchanged. A copy of the amended version is attached to
this order.
ENTERED FOR THE COURT
David M. Ebel
Circuit Judge
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F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
SEP 21 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
TERRY NEUSTROM,
Plaintiff,
v.
UNION PACIFIC RAILROAD
COMPANY,
Defendant-Third-Party
Plaintiff-Appellee, Nos. 96-3266, 97-3077, 97-3209
v.
ASPLUNDH TREE EXPERT
COMPANY,
Third-Party Defendant-
Appellant.
Appeal from the United States District Court
for the D. Kansas
(D.C. No. 94-1024-MLB)
Patrick E. McGrath, of Wallace, Saunders, Austin, Brown & Enochs, Overland Park,
Kansas, for Appellant Asplundh Tree Expert Company.
Ronald W. Fairchild, of Fairchild, Haney & Buck Topeka, Kansas, for Appellee
Union Pacific Railroad Company.
Before PORFILIO and EBEL, Circuit Judges, and BRETT, * District Judge.
EBEL, Circuit Judge.
In this contractual indemnification case, appellant Asplundh Tree Expert
Company (“Asplundh”) appeals the district court’s grant of summary judgment to
Union Pacific Railroad Company (“Union Pacific”) on Union Pacific’s claim that it
was indemnified by Asplundh for injuries sustained by Union Pacific employee Terry
Neustrom (“Neustrom”) and the district court’s order for Asplundh to reimburse
Union Pacific for its settlement with Neustrom. Asplundh also appeals the district
court’s order that Asplundh pay pre-judgment interest, Union Pacific’s costs, and
attorneys’ fees. We affirm all of the district court’s rulings with the exception of the
grant of attorneys’ fees, which we vacate and remand for a finding of reasonableness.
Background
In 1987, Union Pacific and Asplundh entered into a contract under which
Asplundh agreed to spray chemical defoliants along Union Pacific’s “Central
Region” railroad lines. Under the agreement, Union Pacific was required to
*
Honorable Thomas R. Brett, Senior District Court Judge, Northern District
of Oklahoma, sitting by designation.
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provide a spraying train as well as “personnel to supervise the movement of
contract spray equipment over its lines.” The actual spraying of defoliant was
conducted by Asplundh personnel from a spraying car owned by Asplundh,
employing equipment operated and supervised by Asplundh personnel.
On June 27, 1991, defoliant spraying was scheduled along the main line
tracks between Junction City and Salina, Kansas. The only person on the
spraying train that day licensed to spray chemicals was Asplundh spray supervisor
Charles Shetron (“Shetron”). In order for the spray train to leave the Junction
City train yard and make its way onto the main track, it was necessary for
someone to line and reline some track switches. Neustrom, a brakeman employed
by Union Pacific, was assigned this job. After switching the tracks, Neustrom
approached the train to get back on it, only to find himself engulfed in defoliant.
He experienced burning in his throat, tightness in his chest, and difficulty
breathing. Neustrom was subsequently diagnosed as suffering from Reactive
Airway Dysfunction Syndrome (RADS) and underwent a lengthy series of
treatments for that disorder.
Neustrom sued Union Pacific under the Federal Employer’s Liability Act
(FELA), 45 U.S.C. § 51 et seq., for failing to provide him with a safe working
environment. In his complaint, Neustrom alleged that Union Pacific and
Asplundh negligently caused his injuries, and asked for one million dollars in
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damages. After Asplundh refused Union Pacific’s tender to take over defense of
the suit, Union Pacific filed a Third Party Complaint against Asplundh based on
the indemnity provision of the contract. That provision read, in its entirety:
The Contractor [Asplundh] shall indemnify and hold harmless
the Railroad Company [Union Pacific], its affiliates, their officers,
agents, employees, against and from any and all liability, loss,
damage, claims, demands, costs and expenses of whatsoever nature,
including court costs and attorneys’ fees, arising from or growing out
of any injury to or death of persons whomsoever (including officers,
agents and employees of the Railroad Company, of the Contractor
and of any subcontractor, as well as other persons) or loss of or
damage to property whatsoever (including property of or in custody
of the Railroad Company, the Contractor or any subcontractor as well
as other property). The right to indemnify shall accrue when such
injury, death, loss or damage occurs from any cause and is associated
in whole or in part with the work performed under this agreement, a
breach of the agreement or the failure to observe the health and
safety provisions of the agreement or any activity or omission arising
out of performance or nonperformance of this agreement. However,
the Contractor shall not indemnify the Railroad Company when the
loss is caused by the sole negligence of the Railroad Company.
To the extent that it lawfully may do so, the Contractor waives
any and all defenses under workers’ compensation or industrial
insurance acts to so indemnify the Railroad Company.
Union Pacific moved for summary judgment against Asplundh, seeking
indemnification from Asplundh for Neustrom’s claims against Union Pacific
under the contract. The district court granted Union Pacific’s motion. Thereafter,
Union Pacific entered into settlement negotiations with Neustrom and tendered
defense of Neustrom’s claim to Asplundh; Asplundh failed to take up that
defense. Union Pacific settled with Neustrom for $65,000, and filed a Motion to
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Assess Judgment against Asplundh with the district court. The district court
found in favor of Union Pacific, and assessed Asplundh the entire $65,000, plus
Union Pacific’s attorneys’ fees and costs, as well as prejudgment interest on both
the settlement amount and Union Pacific’s attorneys’ fees and costs incurred up to
October 1, 1995, for a total of $177,182.96.
In this consolidated appeal, Asplundh appeals the district court’s judgments
against it and moves to certify two questions to the Supreme Court of Kansas: (1)
whether as a matter of Kansas law Asplundh agreed to indemnify Union Pacific
for Union Pacific’s joint negligence; and (2) if so, whether such an agreement
violates Kansas public policy and is void on that ground.
Discussion
I. The Indemnification Agreement
A. Jurisdiction, Standard of Review, and Choice of Law
The district court had jurisdiction over Neustrom’s FELA claim under 28
U.S.C. § 1331 (federal question jurisdiction) and over the contractual
indemnification issue under 28 U.S.C. § 1367 (supplemental jurisdiction). This
court has jurisdiction under 28 U.S.C. § 1291. We review grants of summary
judgment de novo. See Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996).
“[T]he movant bears the burden of showing the absence of a genuine issue of
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material fact . . . . An issue of material fact is genuine if a reasonable jury could
return a verdict for the non-movant.” Id. (quotation omitted). The determination
of a contractual term is a question of law that this court reviews de novo. See
Carland v. Metropolitan Life Ins. Co., 935 F.2d 1114, 1120 (10th Cir. 1991).
The district court noted that neither party mentioned the issue of choice of law
question explicitly, but because both parties cited to Kansas law the court
“assum[ed] that there is no dispute that Kansas law applies.” Because the parties
proceed on the assumption that Kansas substantive contract law applies, we apply
that law without further analysis. See Missouri Pacific R.R. Co. v. Kansas Gas &
Elec. Co., 862 F.2d 796, 798 n.1 (10th Cir. 1988).
B. The Contractual Language
Asplundh argues that the language of this indemnification provision is
unclear and over broad, and thus cannot support an interpretation that Asplundh
agreed to indemnify Union Pacific for its own negligence. Union Pacific
responds that the language in the indemnification provision is capable of only one
reading: that Asplundh agreed to indemnify Union Pacific for all claims arising
out of the spraying operations, including those arising in part from Union
Pacific’s own negligence, excepting only those claims based solely on Union
Pacific’s negligence.
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Under Kansas law, agreements in which one party agrees to indemnify
another for the indemnitee’s own negligence are disfavored and as such must be
expressed in “clear and unequivocal language.” Zenda Grain & Supply Co. v.
Farmland Indus., Inc., 894 P.2d 881, 887 (Kan. Ct. App. 1995) (quotation
omitted). “‘The general rule is that private contracts exculpating one from the
consequences of his own acts are looked upon with disfavor by the courts and will
be enforced only when there is no vast disparity in the bargaining power between
the parties and the intention to do so is expressed in clear and unequivocal
language.’” Belger Cartage Serv., Inc. v. Holland Const. Co., 582 P.2d 1111,
1119 (Kan. 1978) (quoting Kansas City Power & Light Co. v. United Tel. Co.,
458 F.2d 177, 179 (10th Cir. 1972)). Thus, we must first decide if there was a
vast disparity in bargaining power between Asplundh and Union Pacific; if there
was not, then we must ask if the indemnification clause at issue here clearly
expressed the intention of the parties that Asplundh would indemnify Union
Pacific for its own negligence.
“The policy of the law in general is to permit mentally competent parties to
arrange their own contracts and fashion their own remedies where no fraud or
overreaching is practiced. Contracts freely arrived at and fairly made are
favorites of the law.” Kansas City Structural Steel Co. v. L.G. Barcus & Sons,
Inc., 535 P.2d 419, 424 (Kan. 1975). As for the claim of unequal bargaining
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power, the Kansas Supreme Court has suggested that so long as “[n]one of the
parties . . . involved were neophytes or babes in the brambles of the business
world” the court will eschew declaring voluntarily entered-into indemnification
agreements void. Id. Such is the case here. This was not Asplundh’s first
railroad spraying contract, nor is there any evidence that Asplundh was a babe in
the woods of the railroad defoliant business. See generally Knowles v.
Burlington Northern R.R. Co. v. Asplundh Tree Expert Co., 856 P.2d 1352 (Kan.
Ct. App. 1993). Because there is no evidence of a vast disparity between
Asplundh and Union Pacific in terms of sophistication or bargaining power, we
reject Asplundh’s claim that the indemnification clause is void on the ground of
unequal bargaining power.
Next we turn to the question of whether the indemnification clause in this
contract evinced, in clear and unequivocal language, the intent of the parties that
Asplundh indemnify Union Pacific for its own negligence. Although under
Kansas law parties may contract for indemnification against their own negligence,
“broad and seemingly all-inclusive language” is not sufficient to overcome the
judicial disfavor of such agreements. Zenda Grain, 894 P.2d at 887 (quotation
omitted); see Johnson v. Board of County Comm’rs, 913 P.2d 119, 136 (Kan.
1996). Instead, the Kansas Courts of Appeals have advised those drafting
indemnification clauses specifically to address the issue of the indemnitees’
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negligence if they wish the clause to apply to negligent acts of the indemnitee.
See Zenda Grain, 894 P.2d at 888; Elite Professionals, Inc. v. Carrier Corp., 827
P.2d 1195, 1203 (Kan. Ct. App. 1992). The contractual language cited with
approval in Zenda Grain and Elite Professionals may be found in Corral v. Rollins
Protective Services Co., 732 P.2d 1260 (Kan. 1987). That clause read:
“The parties agree that if loss or damage should result from the
failure of performance or operation or from defective performance or
operation or from improper installation or servicing of the [Rollins]
System, that Rollins’ liability, if any, for the loss or damage thus
sustained shall be limited . . . and that the provisions of this
paragraph shall apply if loss or damage . . . results . . . from
negligence . . . of Rollins, its agents or employees.”
Id. at 1263. In Zenda Grain the Court of Appeals exhorted “[t]hose drafting hold
harmless clauses in the future” to look to the language of Corral “and follow it
carefully.” See Zenda Grain, 894 P.2d at 888.
Here we have a contractual indemnification clause that specifically
addresses Union Pacific’s negligence. Asplundh argues that because the term
negligence in this clause is modified by the adjective “sole,” it remains
ambiguous whether Asplundh agreed to indemnify Union Pacific for any other
kind of negligence. As a result, Asplundh claims, we must hold that the
indemnification clause fails to evince, in clear and unequivocal terms, an intent
on Asplundh’s part to indemnify Union Pacific for joint negligence. We decline
Asplundh’s invitation to do so.
-9-
Under Kansas law:
Unambiguous contracts are enforced according to their plain,
general, and common meaning in order to ensure the intentions of the
parties are enforced. The intent of the parties is determined from the
four corners of an unambiguous instrument, harmonizing the
language therein if possible. Ambiguity does not appear . . . [unless
it is] genuinely uncertain which of two or more meanings is the
proper meaning.
Hall v. JFW, Inc., 893 P.2d 837, 840 (Kan. Ct. App. 1995) (internal citations
omitted). Asplundh’s suggested reading does not harmonize the language
contained in the indemnification clause. Asplundh agreed to hold Union Pacific
harmless “against and from any and all liability, loss, damages, claims, demands,
costs and expenses of whatsoever nature” arising from injury or death to any
person caused by the spraying operations, with the exception of Union Pacific’s
“sole negligence.” The “sole negligence” provision carves out from the otherwise
inclusive indemnification the lone circumstance where the indemnity clause does
not apply, and that is when the injury or death was caused solely by Union
Pacific’s negligence. This shows that the parties clearly focused on negligence,
including Union Pacific’s negligence. The “sole negligence” phrase directly
implies that all other kinds of negligence, e.g., joint negligence, are included
within the meaning of the phrase “any and all liability, loss, damages, claims,
demands, costs and expenses of whatsoever nature.” Any other reading would
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make the “sole negligence” language of the clause meaningless and superfluous. 1
See Restatement (Second) of Contracts § 203(a) (1979) (“[A]n interpretation
which gives a reasonable, lawful, and effective meaning to all the terms [of an
agreement] is preferred to an interpretation which leaves a part unreasonable,
unlawful, or of no effect.”) (quoted in United States v. Brye, 146 F.3d 1207, 1211
(10th Cir. 1998)).
Our holding in this case is supported by our opinion in Titan Steel Corp. v.
Walton, 365 F.2d 542 (10th Cir. 1966) (applying Utah law). In that case Titan
agreed “to indemnify, protect and defend [the other parties] against all claims,
suits, losses, damages and costs . . . on account of such injury or damage, except
when caused by the sole negligence of [the other parties].” Id. at 548. This court
found that this provision “clearly and unequivocally expresses the intention of the
parties” that the indemnitees would be protected against their own joint
1
Asplundh attempts to argue that Union Pacific’s liability to Neustrom was
not negligence, but rather “statutory liability under FELA.” This argument avails
Aplundh little, because a FELA action is an action for negligence. See 45 U.S.C.
§ 51 (“Every common carrier by railroad while engaging in [interstate commerce]
. . . shall be liable in damages to any person suffering injury while he is employed
by such carrier . . . for such injury or death resulting in whole or in part from the
negligence of any of the officers, agents, or employees of such carrier, or by
reason of any defect or insufficiency, due to its negligence, in its . . . equipment.”)
(emphasis added); Metro-North Commuter R.R. Co. v. Buckley, 117 S. Ct. 2113,
2116 (1997) (characterizing FELA as “a statute that permits a railroad worker to
recover for an ‘injury . . . resulting . . . from’ his employer’s negligence”)
(quoting 45 U.S.C. § 51).
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negligence. Id. at 549. We are persuaded by our decision in Titan Steel to hold
that the nearly identical language of the indemnity provision before us satisfies
the requirement that the intention of the parties be expressed in clear and
unequivocal terms as required by Kansas law. 2 Thus, we hold that the
indemnification clause before us here evinces an unequivocal intent on the part of
Asplundh to indemnify Union Pacific for its own joint negligence.
C. Kansas public policy
Asplundh next argues that even if we find that the indemnification
provision does evince a clear intent that Asplundh indemnify Union Pacific for its
own joint negligence, we should declare this provision void because it violates
Kansas public policy as embodied in Kansas statutes governing railroads. The
main thrust of Asplundh’s argument is that allowing a common carrier to enjoy
indemnification by third parties for its own negligence is tantamount to giving the
carrier a license to kill or maim, and that because of this the Kansas legislature
has enacted a statute preventing just such an eventuality.
Asplundh directs our attention to Kan. Stat. Ann. § 66-234, which reads:
2
Asplundh argues that the “clear and unequivocal term” requirement may
have different meanings in different jurisdictions. However, Asplundh does not
provide any authority for the proposition that the requirement differs between the
states of Kansas and Utah. To the contrary, we have previously applied the
general standards articulated in Titan Steel to a question involving an
indemnification clause in a contract governed by Kansas law. See Kansas City
Power & Light Co. v. United Tel. Co., 458 F.2d 177, 179 (10th Cir. 1972).
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Liability for negligence. Railroads in this state shall be liable for
all damages done to person or property, when done in consequence of
any neglect on the part of the railroad companies.
Asplundh insists that under this statute railroads cannot indemnify themselves for
their own negligence, and relies upon Sewell v. Atchison, T& S. F. Ry. Co., 96 P.
1007 (Kan. 1908), for support. However, Sewell does not stand for the
proposition that a railroad may not contractually obtain indemnification for its
liability for negligently injuring any person or property. Rather, Sewell, allowed
the enforcement of a contract between a railroad and an express company in
which the express company assumed the risk of injuries to its employees incurred
while riding the railroad’s trains and agreed to hold the railroad harmless. See id.
at 1009-10.
In addition to Sewell , Asplundh cites two other older Kansas cases,
namely Kansas Pacific Ry. Co. v. Peavey , 8 P. 780 (Kan. 1882), and Atchison, T.
& S.F. Ry. Co. v. Fronk , 87 P. 698 (Kan. 1906), in which the Kansas Supreme
Court held that railroads’ attempts to indemnify themselves against their own
negligence were void for public policy reasons. However, these two cases deal
with the railroads’ attempts to force employees to indemnify the railroads against
their own negligence. Indeed, as the Kansas Supreme Court later noted:
The cases of Kansas Pacific Ry. Co. v. Peavey, . . . [and] Railway
Co. v. Fronk, . . . are not in point, for the reason that they all
involved liability for injuries to employés, and it was held that
because of the interest which the state has in the lives, health, and
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safety of its citizens, the state may intervene in such contracts in the
interest of the public welfare, and that contracts with an employé
exempting the company from liability for injuries resulting from the
neglect of the company’s agents is void as against public policy . . . .
Griffiths Grain Co. v. St. Joseph & G.I. Ry. Co. , 146 P. 1134, 1135 (Kan. 1915)
(emphasis added). Thus, none of the “old” Kansas cases cited by Asplundh
support the proposition that a railroad may never contract for third party
indemnification for its own negligence. 3
Indeed, in Anderson v. Union Pacific R.R. Co., 790 P.2d 438, 440 (Kan. Ct.
App. 1990), the Kansas Court of Appeals specifically rejected the notion that
public policy as embodied in § 66-234 prevents railroads from contracting with
third parties for indemnity for their own negligence. Asplundh argues that
because Anderson focused on property damage and not on personal injury, that
holding does not apply to the facts of this case. What Asplundh in essence asks
us to do is to hold that third-party indemnification of railroads for negligent
property damage does not violate the statute, whereas indemnification for
personal injury does. This distinction flies in the face of § 66-234, where both
property damage and personal damage are mentioned in the statute, within one
3
Asplundh also quotes from two passages in American Jurisprudence as
support for its position that railroads and other common carriers may not contract
their negligence liability away to third parties. See Am. Jur. 2d Indemnity § 10
(1995); 14 Am. Jur. 2d Carriers § 554 (1964). However, American Jurisprudence
is a general compilation of cases. In this case, we are guided by specific Kansas
case law.
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word of one another. Therefore, we reject Asplundh’s argument that the
indemnification clause in its contract with Union Pacific is violative of § 66-234
and Kansas public policy. 4
D. Certification of Asplundh’s Questions
Asplundh urges us to certify to the Supreme Court of Kansas the questions
of whether the indemnification clause here clearly and unequivocally expressed
the parties’ intent for Asplundh to indemnify Union Pacific for its own
negligence, and whether such an indemnification of a railroad violates Kansas
public policy. It is well-established law in this circuit that “[c]ertification is
4
Asplundh also cites to the case of Hunter v. American Rentals, 371 P.2d
131 (Kan. 1962), for the proposition that a rental company may not indemnify
itself by private contract for its own negligence. The indemnification agreement
in Hunter can readily be distinguished from the one before us, for in Hunter the
rental company sought to require its own customer, an unsophisticated private
consumer, to indemnify the company from the rental company’s own negligence.
See id. at 132. The Supreme Court of Kansas found that such indemnification was
void because it violated American Rental’s duty of care to the public. See id. at
133. Allowing a rental company to enter into an indemnification agreement with
its own customer would mean that the customer “paid to place himself at the
mercy of and subject to the negligence and carelessness of the defendant's agent
in connecting the trailer to his automobile,” with no recourse to ensure that the
rental company complied with its duty toward the customer and the public. Id. at
134. By contrast, under the contract before us here, employees who find
themselves injured by Union Pacific’s sole or joint negligence may recover from
Union Pacific directly, with the only difference that if the injuries are caused by
Union Pacific’s joint negligence, Union Pacific may seek indemnification from
Asplundh for its liability. Because the indemnification clause before us does not
allow all negligent actors to ignore their duty to the plaintiff and the public, this
case is sufficiently removed from that of Hunter to render Hunter inapplicable
here.
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particularly appropriate where the legal question at issue is novel and the
applicable state law is unsettled.” Allstate Ins. Co. v. Brown, 920 F.2d 664, 667
(10th Cir. 1990). Asplundh does not point to any case law that would indicate
that the legal concept of clear and unequivocal expression of an intent to
indemnify a party for its own negligence is unsettled in Kansas. Moreover, as
discussed above, it is clear that under Kansas law railroads may contract for third-
party indemnification from liability for their own negligence. Therefore, we need
not certify these questions to the Supreme Court of Kansas in order to correctly
apply the law of that state.
II. Summary Judgment
Asplundh next argues that even assuming that the indemnification
agreement was clear and unequivocal and not violative of Kansas public policy,
the district court nonetheless erred in granting Union Pacific summary judgment
because controverted material facts remained. The material facts that Asplundh
alleges were controverted at the time of the court’s ruling include: (1) whether
Union Pacific was solely negligent in causing Neustrom’s injury and therefore not
entitled to indemnification under the contract; (2) whether Neustrom was actually
injured by the spray; and (3) whether Neustrom was completely at fault for being
in the vicinity of the spray.
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“Only disputes over facts that might affect the outcome of the suit under
the governing law will properly preclude the entry of summary judgment.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Furthermore, the
non-movant has a burden of doing “‘more than simply show[ing] there is some
metaphysical doubt as to the material facts.’” Ulissey v. Shvartsman, 61 F.3d
805, 808 (10th Cir. 1995) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986)). Rather, “the relevant inquiry is ‘whether the
evidence presents a sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter of law.’”
Bingaman v. Kansas City Power & Light Co., 1 F.3d 976, 980 (10th Cir. 1993)
(quoting Anderson, 477 U.S. at 251-52).
The indemnification agreement before us covers “any and all liability, loss,
damages, claims, demands, costs and expenses of whatsoever nature” excepting,
of course, when the claim is based upon Union Pacific’s sole negligence. It is
uncontested that Neustrom brought a claim against Union Pacific, and that Union
Pacific chose to settle that claim after offering the defense of that claim to
Asplundh. Thus, the only issue we must address is whether a jury could have
found that Union Pacific was solely negligent in causing Neustrom to be sprayed
with defoliant.
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In its brief on appeal, Asplundh asserts that “all persons” involved in the
spraying operation “were responsible for being attentive and watching for
potential safety hazards.” Accordingly, Asplundh appears to concede that both
Union Pacific and Asplundh personnel had a duty to watch the tracks and remain
on the lookout for bystanding personnel. Moreover, Asplundh’s spray operator
Shetron testified that he knew there would be a brakeman lining the switch who
would have to be positioned near the train. Asplundh admits that its personnel
were the only ones on the train who were licensed to handle and apply these
chemical defoliants, and that its employees had complete control over the “act of
pulling the trigger to distribute the herbicides.” Given the control enjoyed by
Asplundh personnel over the release of the chemical spray and the affirmative
duty of those personnel to remain on the lookout for bystanders, all of which was
freely admitted to this court by Asplundh, if a reasonable jury could find
negligence at all, it could not have found Union Pacific solely liable for the
spraying of Neustrom. Summary judgment on this issue was proper.
III. The Settlement
After obtaining summary judgment on the issue of indemnification, Union
Pacific settled with Neustrom for the sum of $65,000, and the district court
granted Union Pacific’s Motion to Assess Judgment against Asplundh. Asplundh
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claims that because (1) it had no right or duty under the provisions of the
indemnification agreement to defend the suit, and (2) the settlement was not
reasonable nor made in good faith, it was error on the part of the district court to
grant Union Pacific’s motion.
We first address Asplundh’s assertion that it had no right or duty to take
over defense of the suit when so offered by Union Pacific. This claim is
controlled by Missouri Pacific R.R. Co. v. Kansas Gas & Elec. Co., 862 F.2d 796(10th Cir. 1988) (applying Kansas law). In that case this court held that:
Where an indemnitor denies liability and refuses to assume the
defense of a claim under a contract of indemnity, the indemnitee,
without waiving its rights [to indemnification], may enter into a good
faith, reasonable and prudent settlement with the claimant.
Id. at 800. Thus, in order to trigger an indemnitor’s duty to cover a settlement,
the indemnitee need only show that it was under “potential liability . . . and that
the settlement amount was reasonably related to its employee’s injuries.” Id.(quotation omitted). Thus, we are left only with the question of whether Union
Pacific was subject to “potential liability” when it entered into the settlement with
Neustrom and whether the settlement was reasonably related to Neustrom’s
claimed injuries.
Asplundh attacks Union Pacific’s decision to enter into a settlement with
Neustrom by rearguing its position that Neustrom had no viable claim. This
argument ignores the fact that Union Pacific was at all times subject to potential
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liability, especially given that the obstacles to recovery facing FELA plaintiffs are
much lower than those facing most tort plaintiffs. See id. Union Pacific was
clearly under potential liability for this claim.
Next, we must turn to the question of whether the settlement amount was
reasonably related to Neustrom’s injuries, as found by the district court. We
review this finding of fact by the district court for clear error. See Hockett v. Sun
Co., 109 F.3d 1515, 1525-26 (10th Cir. 1997); Molett v. Penrod Drilling Co., 919
F.2d 1000, 1009 (5th Cir. 1990). Highly persuasive is the evidence on the record
that Asplundh’s own attorneys repeatedly indicated that $65,000 was a reasonable
settlement figure, especially given that in his complaint Neustrom asked for
nearly one million dollars to cover his medical expenses, pain and suffering, and
loss of income, both real and potential. The $65,000 for which Neustrom settled
was well below his calculated loss. For these reasons, the district court’s finding
that the settlement amount was reasonably related to Neustrom’s injuries was not
clearly erroneous.
IV. Attorneys’ Fees, Litigation Costs, and Prejudgment Interest
We review the district court’s decision to award prejudgment interest for
abuse of discretion. See Driver Music Co. v. Commercial Union Ins. Co., 94 F.3d
1428, 1433 (10th Cir. 1996). “The general rule is that an unliquidated claim for
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damages does not draw interest until liquidated.” In re Midland Indus., Inc., 703
P.2d 840, 842 (Kan. 1985).
A claim becomes liquidated when both the amount due and the date
on which it is due are fixed and certain, or when the same become
definitely ascertainable by mathematical computation. Where an
amount is due upon contract, either express or implied, and there is
no uncertainty as to the amount which is due or the date on which it
becomes due, the creditor is entitled to recover interest from the due
date.
Id.Asplundh first asserts that the district court erred in awarding Union Pacific
prejudgment interest on its settlement with Neustrom because that settlement was
not liquidated until the court made its determination as to its reasonableness.
Union Pacific responds that as of September 26, 1995, the date that Union Pacific
settled with Neustrom, the amount of the settlement became liquidated as required
by Kansas law.
Once Union Pacific and Neustrom agreed upon a settlement amount,
barring a showing that the settlement was not reasonably related to the underlying
injury or that it was entered into in bad faith, the settlement amount became
liquidated for the purposes of assessing prejudgment interest. As discussed
above, Asplundh did not make such a showing. Thus, the district court did not err
in awarding Asplundh prejudgment interest on the settlement amount,
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commencing from the date the settlement became final. See Missouri Pacific, 862
F.2d at 801.
As for the attorneys’ fees issue, “[a]lthough generally we review a district
court’s award of attorneys’ fees for an abuse of discretion, we review its
application of the legal principles underlying the award de novo.” Towerridge,
Inc. v. T.A.O., Inc., 111 F.3d 758, 765 (10th Cir. 1997). “Under Kansas law, the
prevailing party in a lawsuit may recover attorneys’ fees where such is
specifically authorized by statute or contract.” Missouri Pacific, 862 F.2d at 801.
The contract between Union Pacific and Asplundh requires Asplundh to pay
Union Pacific’s attorneys’ fees “arising out of any injury or death of any person”
when such injury or death “occurs from any cause and is associated in whole or
part with the work performed under this agreement . . . or any activity . . . arising
out of . . . nonperformance of this agreement.”
In Missouri Pacific, this court was faced with substantially the same
question, i.e., whether a party’s contractual agreement to pay attorneys’ fees for
claims “arising out of or connected with” the party’s failure to keep the track
clear of obstacles included attorneys’ fees incurred in the course of enforcing the
agreement itself. See Missouri Pacific, 862 F.2d at 801. We held that it did. See
id. Thus, we must interpret the similar language in the contract before us here to
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encompass attorneys’ fees incurred during Union Pacific’s action to enforce the
agreement.
However, we agree with Asplundh that the calculation of the fees and costs
cannot stand because of the district court’s failure to make a finding that Union
Pacific’s attorney’s fees and costs were reasonable. The district court held that
because the indemnification provision does not require that attorneys’ fees be
“reasonable,” no such showing was required. To the contrary, under Kansas law,
a duty to act reasonably and in good faith must be read into every contract,
including the terms of indemnification clauses. See Hartford v. Tanner, 910 P.2d
872, 877-79 (Kan. Ct. App. 1996) (citing cases). As the Kansas Supreme Court
has noted, “‘if one exacts a promise from another to perform an act, the law
implies a counterpromise against arbitrary or unreasonable conduct on the part of
the promisee.’” Kansas Baptist Convention v. Mesa Operating Ltd. Partnership,
864 P.2d 204, 211 (Kan. 1993) (quoting Bonanza, Inc. v. McLean, 747 P.2d 792,
801 (Kan. 1987)) (further citation omitted). In holding that Union Pacific need
not show the reasonableness of its attorneys’ fees, the court ignored this well-
established rule of contract construction. Thus, absent a finding by the district
court that the fees and costs claimed by Union Pacific were reasonable, it was
error to assess those fees and costs against Asplundh. Therefore, we remand and
instruct the district court to determine the reasonable fees and costs incurred by
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Union Pacific in defending itself against Neustrom’s claim and in pursuing
indemnification from Asplundh.
Conclusion
For the reasons stated above, we AFFIRM the district court’s grant of
summary judgment to Union Pacific on the issue of indemnification, we AFFIRM
the district court’s assessment against Asplundh for the amount of Union Pacific’s
settlement with Neustrom, plus prejudgment interest and costs, and we VACATE
and REMAND the award of attorneys’ fees and legal costs with instructions that
the district court determine the reasonable costs and attorneys’ fees incurred by
Union Pacific. The district court’s order awarding prejudgment interest on
attorneys’ fees, costs, and expenses which were liquidated in amount as of
October 1, 1995, is AFFIRMED.
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