Hemond v. Frontier Commc'ns of Am., Inc.

Hemond v. Frontier Commc’ns of Am., Inc., No. S0991-09 CnC (Grearson, J., Oct. 18, 2012)
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STATE OF VERMONT
SUPERIOR COURT CIVIL DIVISION
Chittenden Unit Docket No. S0991-09 CnC
MICHAEL HEMOND and
TRACEY HEMOND
Plaintiffs
v.
FRONTIER COMMUNICATIONS OF
AMERICA, INC., f/k/a CITIZENS
COMMUNICATIONS COMPANY,
d/b/a CITIZENS ENERGY SERVICES,
VERMONT ELECTRIC POWER COMPANY, INC.,
STANTEC CONSULTING, INC., STANTEC
CONSULTING CORPORATION, STANTEC
CONSULTING SERVICES, INC., f/k/a
DUFRESNE HENRY, NAVIGANT CONSULTING, INC.,
TURNER ELECTRIC CORPORATION, TURNER
ELECTRIC, LLC, GRAYBAR ELECTRIC COMPANY, INC.
Defendants
RULING ON NAVIGANT’S MAY 1, 2012 MOTION FOR SUMMARY JUDGMENT
Navigant’s motion in this personal injury case involves questions of contractual
indemnity. The following introductory background is necessary to put the present motion
in context. Plaintiff Michael Hemond suffered electrocution injury on September 28,
2006 when, while working as a lineman for the Vermont Electric Cooperative, Inc.
(VEC), he operated Switch 14E at the electrical substation in Richford, Vermont. In
2009, Mr. Hemond and his wife brought this suit against the above-named defendants
alleging, among other things, negligence in their respective roles in the design,
manufacture, installation, and construction of the substation, the selection and use of
switches in the substation, the planning and implementation of electrical switching
operations, and related consulting, advising, and supervising work.
Although Mr. Hemond’s injury occurred while he was working for VEC, the
allegedly negligent acts occurred some years before then, at which time Citizens
Communications Company (Citizens)1 owned the utility assets at issue and employed Mr.
Hemond. Citizens contracted with Navigant Consulting Group, Inc. (Navigant) to
provide design and engineering services with regard to Citizens’ work on the substation,
which included installation of Switch 14E.
1
Now Frontier Communications of America, Inc.
In December 2010, Citizens sought summary judgment on the grounds that it was
entitled to the defense of the workers’ compensation exclusivity bar. The Court (Katz, J.)
denied that motion at a hearing on June 15, 2011, and in its December 22, 2011 ruling
(Grearson, J.) denied Citizens’ motion to reconsider and its alternative motion to take an
interlocutory appeal. In an Entry Order filed on February 3, 2012, the Supreme Court
granted Citizens’ motion for permission to appeal the December 22, 2011 decision
denying Citizens’ motion for reconsideration.2
Meanwhile, a mediation in February 2011 resulted in a settlement between
plaintiffs and Turner, Navigant, VELCO, Graybar, and Stantec. Citizens participated in
the mediation, but left after several hours, and was not a party to the settlement. See
Shahi Aff. ¶ 3 (filed June 1, 2012). On February 7, 2011, Citizens filed cross-claims for
indemnification against its co-defendants, including a claim against Navigant for implied
indemnification. Having settled with all of the defendants except for Citizens, plaintiffs
moved for their voluntary dismissal on February 25, 2011. Citizens took the position that
its co-defendants should not be dismissed from the case entirely because it had filed
cross-claims against them. Each of the co-defendants filed motions seeking dismissal or
summary judgment on Citizens’ claims for indemnification against them. Each of those
motions has now been granted.
In the midst of Citizens’ cross-claims seeking indemnification from its co-
defendants, Navigant filed its own cross-claim for indemnification against Citizens on
March 3, 2011. The cross-claim alleges that Citizens’ contract with Navigant contains an
express provision that requires Citizens to indemnify Navigant for any and all liability—
including attorney’s fees—that may arise in connection with work performed pursuant to
the contract. Noting that it has paid a sum to plaintiffs to settle plaintiffs’ claims against
Navigant, and incurred attorney’s fees in connection with the action, Navigant seeks a
judgment against Citizens on the basis of the indemnification language in the contract.
Citizens answered Navigant’s cross-claim, denying that Navigant is entitled to indemnity
from Citizens, and asserting a variety of affirmative defenses.3
On May 1, 2012, Navigant filed a motion for summary judgment on its March 3,
2011 cross-claim. Citizens opposes the motion, arguing that the Court lacks jurisdiction
to decide it because of the interlocutory appeal currently before the Supreme Court.
Without waiving its jurisdictional argument, Citizens also opposes the motion on its
merits. Navigant has not filed a reply memorandum. The Court begins with the
jurisdictional question.
2
The interlocutory appeal in the Supreme Court is docketed No. 2012-006. As of this writing, the Supreme
Court has not decided the appeal.
3
The affirmative defenses Citizens asserts are: (1) failure to state a claim; (2) no express or implied
indemnification; (3) independent negligence; (4) acquiescence; (5) “[t]he denials and defenses of Citizens
to the allegations against it by the plaintiffs . . . and . . . Navigant’s defenses to plaintiffs’ complaint”; (6)
Navigant’s liability, if any, was not adjudicated by virtue of its settlement; (7) voluntary payment; (8)
unreasonable settlement; (9) workers compensation exclusivity bar; (10) lack of consent; (11) waiver or
failure to properly reserve or preserve the claim; (12) to the extent any settlement with plaintiffs was paid
by Navigant’s insurer, lack of privity or standing. Answer at 2–3 (filed Mar. 17, 2011).
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I. Jurisdiction4
In Vermont, “when a proper notice of appeal from a final judgment or order of the
lower court is filed the cause is transferred to [the Supreme] Court, and the lower court is
divested of jurisdiction as to all matters within the scope of the appeal.” Kotz v. Kotz,
134 Vt. 36, 38 (1975) (emphasis added). Citizens asserts that Navigant’s claim for
indemnification is generally within the scope of the pending appeal, and that Citizens has
specifically raised the worker’s compensation exclusivity bar as a defense to Navigant’s
claim.
The Court fails to see how the worker’s compensation exclusivity bar could be a
defense to Navigant’s indemnification claim. If the bar applies, it would immunize
Citizens against plaintiffs’ claims. But it would not immunize Citizens against
Navigant’s claim, since Navigant’s claim is not one for a workplace injury, but rather for
contractual indemnification. The cases that Citizens cites in its September 4, 2012 filing
are inapposite. New England Telephone & Telegraph Co. v. Central Vermont Public
Service Corp. is more persuasive. See 391 F. Supp. 420, 427 (D. Vt. 1975) (holding that
the exclusivity provision of Vermont’s Worker’s Compensation Act did not preclude an
indemnification action by a tortfeasor against an employer because an express contractual
obligation creates an independent duty owed by the employer to the third party, and
because a contrary holding “would be to fail to give effect to the intent of the contracting
parties”).
Citizens also maintains that Navigant’s cross-claim is more generally within the
scope of the appeal. Of course it is not enough to say that the cross-claim arises out of
Mr. Hemond’s injury and the events preceding it—the scope of the appeal does not
involve every legal issue spawned by the facts of this case. But Citizens asserts that it
has raised affirmative defenses to Navigant’s contractual indemnity claim that depend on
the outcome of the appeal: voluntary payment, unreasonable settlement, and Citizens’
defenses to the plaintiffs’ claim. The problem with that assertion is that Citizens does not
explain how the defenses it mentions involve the workers compensation exclusivity bar.
The Court therefore concludes that Navigant’s claim for contractual indemnification
against Citizens—and Citizens’ defenses to that claim—are not within the scope of the
appeal pending with the Supreme Court, and that this Court retains jurisdiction to rule on
Navigant’s summary judgment motion.
II. Merits—Contractual Indemnity
A. Background
The following facts are undisputed except where noted. Citing the affidavit of its
Associate General Counsel Dawn M. Cassie, Navigant asserts that it acquired “REED
Consulting Group (‘REED’)” in 1997, and that following the acquisition of REED,
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The court has considered and appreciates the parties’ supplemental briefing on the jurisdictional question.
3
Navigant on occasion did business under the name “Navigant Consulting Inc./Reed.”
Navigant’s Ex. 2 ¶¶ 2, 4 (filed May 1, 2012). Citizens asserts that Ms. Cassie “fails to
specify whether Navigant Consulting Inc./Reed was a registered factitious business
name.” Citizens’ SUMF in Opp’n ¶ 5 (filed June 1, 2012).
It is undisputed that, in a letter dated July 23, 1999 and printed on “Navigant
Consulting, Inc.” letterhead, Victor Blanchet, Jr. offered to Citizens the consulting
services of “Navigant Consulting Inc./Reed (NCI/Reed).” Navigant’s Ex. 1-1 (filed May
1, 2012). Specifically, the offer was to supply “on-going technical and professional
support for [Citizens’] Vermont Electric Division.” Id. The letter recited the
understanding that Citizens had requested that Eugene Shlatz would provide those
services. Id. The July 23 letter makes no reference to the Richford Substation upgrade,
although it does state the following: “We anticipate that Citizens will require Mr. Shlatz’s
services for up to two to three days per week, and that much of his time would be spent
on site in Newport, Vermont.” Id. On July 26, 1999, Citizens’ Vice President and
General Manager Gary Kellogg accepted the offer by signing the July 23 letter. Id.
Citizens suggests, without citing anything in the record, that “REED Consulting
Group” is not the same as “Reed Consulting Group, Inc.,” and that the former has nothing
to do with this case. The Court does not see how that fact, even if true, supports Citizens’
assertion—again without any citation to the record—that Navigant was not a party to the
July 23 letter. See Citizens’ SUMF in Opp’n ¶ 2 (“[D]isputed as to the assertion that
Navigant was the contracting party.”). The evidence is that Navigant occasionally did
business under the name “Navigant Consulting Inc./Reed.” Whatever happened between
Navigant and any Reed entity, and regardless of whether Navigant registered “Navigant
Consulting Inc./Reed” as a trade name, that evidence amply supports the conclusion that
Navigant was a party to the July 23 letter. Citizens has not offered any evidence to the
contrary.
The July 23 letter included the following statement: “Our work would be
performed under NCI/REED’s Standard Terms and Conditions, which are attached.” Id.
Navigant asserts that those terms and conditions are spelled out in a document entitled
“REED CONSULTING GROUP TERMS AND CONDITIONS,” which is included
along with the July 23 letter in Navigant’s Exhibit 1-1. Citizens contends that there is no
evidence to establish that this document was the document referred to in the July 23
letter, noting that it is not signed or initialed by Mr. Kellogg, and is not titled
“NCI/REED Standard Terms and Conditions” as the July 23 letter mentioned. The Court
agrees that the document was not signed or initialed by Mr. Kellogg, and that the
document is not entitled “NCI/REED Standard Terms and Conditions.” But Citizens has
not come forward with affirmative evidence stating that the document is not the correct
one, nor has it supplied a document that it thinks is the true statement of the terms and
conditions.
The Court concludes that Ms. Cassie’s affidavit is sufficient evidence to establish
that the document included in Exhibit 1-1 is the document referenced in the July 23 letter.
The Court also notes that the evidence is that Navigant had acquired REED Consulting
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Group, so it makes sense that Navigant’s and REED’s terms would be the same. In any
case, Citizens has not supplied any evidence to dispute Navigant’s evidence on this point.
The document entitled “REED CONSULTING GROUP TERMS AND CONDITIONS”
referenced in the July 23 letter includes the following provision:
Responsibility Statement – REED agrees that the services provided for
herein will be performed in accordance with recognized professional
consulting standards for similar services and that adequate personnel will
be assigned for that purpose. If, during the performance of these services
or within one year following completion of the assignment, such services
shall prove to be faulty or defective by reason of a failure to meet such
standards, REED agrees that upon prompt written notification from you
prior to the expiration of the one-year period following the completion of
the assignment of any such fault or defect, such faulty portion of the
services shall be redone at no cost to you up to a maximum amount
equivalent to the cost of the services rendered under this agreement. The
foregoing shall constitute REED’s sole liability with respect to the
accuracy or completeness of the work and the activities involved in its
preparation. In no event shall REED, its agents, employees, or others
providing materials or performing services in connection with work on
this assignment be liable for any direct, consequential or special loss or
damage, whether attributable to breach of contract, tort, including
negligence or otherwise; and except as herein provided, you release,
indemnify, and hold REED, its agents, employees, or others providing
materials or performing services in connection with work on this
assignment harmless from and against any and all liability including costs
of defense settlement and reasonable attorney’s fees, therefor.
Ex. 1-1 ¶ 7.
In a letter dated May 30, 2001, Mr. Shlatz wrote to Andrew Letourneau at
Citizens indicating that “Navigant Consulting Inc. (NCI) is pleased to offer its services to
provide technical and economic consulting assistance to support a Certificate of Public
Good (CPG)” for “the HK Webster and Troy Street substations located in Richford,
Vermont.” Ex. 1-2. The letter goes on to say that “Navigant proposes to perform these
tasks under Navigant’s existing services contract.” Id. In a letter dated June 7, 2001, Mr.
Letourneau replied to Mr. Shlatz, writing: “I have reviewed your proposal regarding the
Richford and HK Webster Section 248 Project and find the content and estimate to be
acceptable. You are hereby authorized to begin work as outlined in your letter dated May
30, 2001.” Shlatz Dep. 63:17–21, Aug. 23, 2010 Ex. 76.
As mentioned above, Mr. Hemond’s injury occurred in Richford on September
28, 2006. Navigant was served with the complaint in this case on August 19, 2009, and
entered an appearance through counsel shortly after September 1, 2009. Navigant twice
tendered the defense of this lawsuit to Citizens, and demanded that Citizens defend and
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indemnify Navigant, the first time within a month of service of the complaint. Citizens
refused to undertake the defense and provide indemnification.
After tender of the defense, Navigant entered into settlement discussions with the
plaintiffs. Those discussions culminated in a mediation session on February 1, 2011, and
a settlement agreement was executed between the plaintiffs and all defendants except
Frontier on or about February 2, 2011.5 Pursuant to the settlement agreement, Navigant
paid to plaintiffs the sum of $225,000. Cassie Aff. ¶ 16 (filed May 1, 2012).
Paul Frank + Collins, P.C. (PFC) has represented Navigant throughout this
proceeding. PFC has billed Navigant for attorney’s fees and for costs in connection with
defending the suit. Navigant expects that PFC will bill it for further fees and expenses in
its continued defense of Citizens’ cross-claim. There is no evidence as to whether
Navigant’s insurer has been paying or will pay PFC’s bills.
B. Analysis
Navigant asserts that it is entitled to summary judgment on its cross-claim against
Citizens for indemnification because Citizens has expressly agreed to indemnify
Navigant for the fees and costs billed to Navigant in this action. Citizens maintains that
summary judgment is not appropriate because: (1) there are disputes about who the
contracting entity was, the applicable agreement, and its terms; (2) an exception within
the indemnification provision applies; and (3) summary judgment is precluded by
defenses Citizens has raised that require factual adjudication. The Court takes up each of
Citizens’ arguments in turn.
1. Whether Factual Disputes Preclude Summary Judgment
Citizens asserts that there are factual disputes over whether: (1) Navigant was the
entity that contracted with Citizens; (2) the terms in the “REED CONSULTING GROUP
TERMS AND CONDITIONS” were part of the agreement with Citizens; and (3) whether
those terms applied to the services that Navigant provided with respect to the Richford
substation.
As described above, the Court has concluded that Navigant has come forward
with evidence to support its contentions that Navigant was the entity that contracted with
Citizens, and that the terms in the “REED CONSULTING GROUP TERMS AND
CONDITIONS” were part of the agreement with Citizens. The Court has also concluded
that Citizens has failed to come forward with any evidence that would create a dispute on
those points.
5
Citizens disputes the facts in this paragraph, asserting that Navigant has failed to support them with
reference to any evidence. It is true that Navigant did not cite anything in the record for these assertions.
However, these facts are well established in the record as well as prior court rulings. E.g., Ruling on
Motions to Reconsider at 2 (filed Dec. 22, 2011) (“The parties participated in mediation in early February
2011, the result of which was that Plaintiffs reached a settlement with defendants Turner, Navigant,
VELCO, and Stantec.”).
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That leaves Citizens’ third basis for claiming that there is a factual dispute.
Citizens asserts that the July 23, 1999 letter predates any planning for the Richford
Substation upgrade, and does not (and cannot) refer to any such work. Citizens invites
comparison to the May 30, 2001 letter from Mr. Shlatz, which does specifically refer to
the substation project in Richford. Citizens maintains that the May 30, 2001 letter’s
reference to “Navigant’s existing services contract” does not identify which contract it is
referring to.
It is true that the July 23, 1999 letter does not specifically refer to the substation
project in Richford. But that does not mean that its terms do not apply to the Richford
project. The July 23, 1999 letter indicated that NCI/Reed would provide “on-going
technical and professional support for [Citizens’] Vermont Electric Division.” The terms
of the agreement were plainly intended to apply to the on-going support, regardless of the
particular project in which that support was offered. Moreover, on the present record, the
reference in the May 30, 2001 letter to “Navigant’s existing services contract” can only
mean the July 23, 1999 letter. Citizens has not provided any evidence suggesting that
there was some other services contract in force. Finally, to the extent the May 30, 2001
letter can be said to contain more specific provisions that might control over the more
general provisions of the July 23, 1999 letter, the rule about specific contractual terms
controlling over more general ones applies when the terms relate to the same matter.
Trinder v. Ct. Attorneys Title Ins. Co., 2011 VT 46, ¶ 19, 189 Vt. 492. In this case, there
are no terms regarding indemnity in the May 30, 2001 letter, so the rule does not apply.
2. Whether an Exception to the Indemnification Provision Applies
Citizens notes that the indemnification provision includes the phrase “except as
herein provided,” and argues that the exception applies because it covers third-party
liability claims like Mr. Hemond’s claim for negligence against Navigant. According to
Citizens, “Navigant’s promise to provide professional engineering services that met
industry standards could be the basis for imposition of liability on it by third parties such
as Mr. Hemond who were the foreseeable victims of Navigant’s breach.” Opp’n at 21
(filed June 1, 2012). Citizens also asserts that Navigant could not limit Mr. Hemond’s
remedies in a contract with Citizens. Id. Citizens says that it therefore “follows that the
way Navigant structured and wrote section 7, it created an exception to the declaration
therein of no liability for the work other than to fix it within a year.” Id.
In indemnity cases, the Court interprets the language “to give effect to the intent
of the parties as that intent is expressed in their writing.” Hamelin v. Simpson Paper (Vt.)
Co., 167 Vt. 17, 19 (1997). The exception at issue is Citizens’ agreement that, “upon
prompt written notification from you prior to the expiration of the one-year period
following the completion of the assignment of any such fault or defect, such faulty
portion of the services shall be redone at no cost to you . . . .” Here, the parties’ clear
intent was that Navigant’s liability would be limited to the cost of redoing the faulty
services. The Court can discern no intent for Navigant to be liable to any greater extent,
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even when third parties bring claims against Navigant. The indemnity provision does not
limit any third parties’ claims, but shifts responsibility to the indemnitor (Citizens).
3. Whether Citizens’ Other Defenses Preclude Summary Judgment
In its opposition, Citizens focuses on two of its affirmative defenses: voluntary
payment of an unreasonable settlement, and Navigant’s alleged lack of privity or standing
by reason of payment to plaintiffs by Navigant’s insurer rather than Navigant itself.
Opp’n at 22–23. The Court begins with the latter defense.
Initially, although the “standing” concept is, at a general level, used to test
whether a plaintiff possesses a sufficient interest in the action, using the standing doctrine
in a case (like this one) involving only private claims is problematic. It can create
“conceptual confusions [that] make unnecessary work” and may cause incorrect
conclusions regarding the Court’s subject matter jurisdiction, the availability of
substitution to correct a real party in interest defect, capacity, intervention, etc. Wright &
Miller, et al., Federal Practice and Procedure: Jurisdiction § 3531 (3d ed.) (WL updated
Apr. 2012). Neither does there really appear to be any lack of contractual privity on
Navigant’s part, since the Court has concluded that there is no genuine dispute that
Navigant and Citizens entered into the contract at issue.
Of course, if Navigant did have an insurer that paid the settlement, costs, and fees,
that insurer may be subrogated to any right Navigant may have to indemnity from
Citizens. See Bank of the W. v. Valley Nat’l Bank of Ariz., 41 F.3d 471, 480 (9th Cir.
1994). But the Court does not see how that fact would relieve Citizens of any obligation
it might have to indemnify Navigant. See Lesmark, Inc. v. Pryce, 334 F.2d 942, 945
(D.C. Cir. 1964) (fact that indemnitees carried liability insurance which covered the
plaintiffs’ claims did not relieve the indemnitor of its obligation to indemnify).
The court turns now to Citizens’ voluntary-payment defense. “To protect the
indemnitor’s right to defend against liability, a voluntary payment by an indemnitee,
without notice to the person sought to be charged, may foreclose restitution.”
DiGregorio v. Champlain Valley Fruit Co., 127 Vt. 562, 566 (1969). Citizens’ attorney
has stated in an affidavit that “Navigant did not provide notice to Citizens of its intention
to settle.” Shahi Aff. ¶ 7. However, it is undisputed that on two separate occasions
Navigant called upon Citizens to defend the suit. Furthermore, Citizens admits that it
was aware of the February 2011 mediation session that resulted in the settlements, and
was in fact present for at least part of that mediation. It is therefore irrelevant that
Navigant did not provide further notice to Citizens of its intention to settle—once
Citizens refused to defend and it became necessary for Navigant to defend itself,
Navigant was entitled to proceed in good faith to reach a reasonable settlement.
DiGregorio, 127 Vt. at 566 (citing Boston & Me. R.R. v. Howard Hardware Co., 123 Vt.
203, 210 (1962)); accord Fashion House, Inc. v. K Mart Corp., 892 F.2d 1076, 1094 (1st
Cir. 1989) (noting that where indemnitor had notice of the plaintiff’s suit but declined to
defend it, the indemnitor will be bound by any reasonable, good faith settlement the
indemnitee might thereafter make).
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An indemnitee’s payment is “voluntary” if the indemnitee is under no obligation
to pay or where no interest of his is protected by the payment. Norfolk & Dedham Fire
Ins. Co. v. Aetna Cas. & Sr. Co., 132 Vt. 341, 344 (1974); see also Peerless Cas. Co. v.
Cole, 121 Vt. 258, 263 (1959) (payment of settlement prior to any judgment was
voluntary because the plaintiff was not under any compulsion to effect the settlements
made). Here, no judgment compelled Navigant to pay the plaintiffs, so in that sense
Navigant’s payment was voluntary. In order to ensure that Navigant’s payment was not
voluntary in the sense that it was facing no exposure to legal liability at all, Navigant
must prove its potential liability. See One Beacon Ins., LLC v. M & M Pizza, Inc., 8 A.3d
18, 23 (N.H. 2010) (where indemnitor receives notice and opportunity to defend,
indemnitee needs only to show potential liability); see also Grand Trunk W. R.R., Inc. v.
Auto Warehousing Co., 686 N.W.2d 756, 763 (Mich. Ct. App. 2004) (“[T]he indemnitee
who has settled a claim need show only potential liability if the indemnitor had notice of
the claim and refused to defend.”); Camp, Dresser & McKee, Inc. v. Paul N. Howard
Co., 853 So. 2d 1072, 1080 (Fla. Dist. Ct. App. 2003) (“Only if the indemnitor is not
given notice and an opportunity to assume responsibility for the claim must the settling
indemnitee show that it was actually liable to the plaintiff.” (emphasis added)).
On the present record, and in the absence of a reply memorandum from Navigant,
the Court cannot determine whether Navigant has proven its potential liability to the
plaintiffs. The Court therefore also cannot at present make a determination about the
reasonableness of the settlement. Consequently, it is premature to rule on whether
Citizens’ defense of voluntary payment precludes Navigant’s recovery on its contractual
indemnity claim.
III. Conclusion
The Court concludes that the pending appeal before the Supreme Court does not
deprive this Court of jurisdiction to decide the contractual indemnity issue. However, for
the reasons discussed above, and because Citizens has asserted several other defenses to
Navigant’s contractual indemnification claim that have not been discussed at all, the
Court concludes that Navigant is not entitled to summary judgment.
ORDER
Navigant’s motion for summary judgment (filed May 1, 2012) is denied
Dated at Burlington this ___ day of October 2012.
______________________________
Brian Grearson
Superior Court Judge
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