Emory University, Inc. v. Neurocare, Inc. ( 2021 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-14160
________________________
D.C. Docket No. 1:17-cv-01721-SCJ
EMORY UNIVERSITY, INC.,
d.b.a. Emory University Hospital,
THE EMORY CLINIC, INC.,
Plaintiffs-Appellants,
versus
NEUROCARE, INC.,
Defendant-Appellee.
__________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(January 25, 2021)
Before WILSON, NEWSOM, and ANDERSON, Circuit Judges.
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ANDERSON, Circuit Judge:
We consider two discrete issues under Georgia law pertaining to an
indemnification obligation arising from a tragic death at a sleep disorder treatment
and diagnostics lab. Emory University, Inc. (“Emory University”) seeks
indemnification from Neurocare, Inc. (“Neurocare”), the lab services provider
whose technologists were found by a jury to be 60 percent at fault for the death of
Brandon Harris. The first issue is whether Emory University is entitled to
indemnification from Neurocare for this 60 percent liability incurred due to the
negligence of Neurocare’s technologists. Emory University asserts this right to
indemnity pursuant to the services contract as an “affiliate” of its wholly, indirectly
owned grandchild corporation, the express indemnitee and the hospital, Wesley
Woods Center of Emory University, Inc. (“Wesley Woods”). The second issue is
whether Emory University, even if it would otherwise be entitled to contractual or
common law indemnification, is barred from indemnity because it failed to assert
its distinct and separate corporate existence as a defense to liability in the
underlying wrongful death action. This second issue requires us to consider a line
of Georgia case law holding that indemnification is barred if the would-be
indemnitee had, but failed to assert, in the underlying suit a “defense available
which would have defeated the action.” GAF Corp. v. Tolar Constr. Co., 246 Ga.
411, 411, 271 S.E.2d 811, 812 (1980) (citation omitted).
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After careful review, and with the benefit of oral argument, we vacate the
district court’s grant of summary judgment in Neurocare’s favor and remand. We
conclude that Emory University is an “affiliate” of Wesley Woods, and that the
indemnification bar doctrine does not operate in the unique facts of this case.
I. BACKGROUND
A. The Parties, the Agreement, and the Amendment
A group of entities bearing the “Emory” name provided sleep disorder
diagnostic and treatment services. The most superior entity is Emory University,
which wholly owns and controls Emory Healthcare, Inc., which, in turn, wholly
owns and controls Wesley Woods. Emory University also wholly owns and
controls The Emory Clinic, Inc. (the “Emory Clinic”). Emory University Hospital
is an operating division of Emory University.
In June 2005, Emory University entered into a Sleep Diagnostic Services
Agreement (the “Agreement”) with Neurocare. Neurocare doing business as the
Center for Sleep Diagnostics, defined as “CONTRACTOR,” agreed “to provide
certain sleep diagnostic services to and under the direction of HOSPITAL,”
defined as Emory University doing business as Emory University Hospital.
Neurocare agreed to operate the Emory Sleep Lab located at Emory University
Hospital by, among other things, staffing technologists to conduct sleep studies,
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educating and training physicians and staff regarding the sleep lab, and preparing
sleep reports for physicians’ analysis.
Section 9.1 of the Agreement is an indemnification provision that reads,
CONTRACTOR agrees to indemnify, defend, save and hold harmless
forever HOSPITAL, its subsidiaries and affiliates, successors and
assigns, and its officers, directors, trustees, employees and agents from
and against any and all liability, loss, damage, claim, cause of action,
cost or expense (including reasonable attorney’s fees actually incurred
and Court costs), that is caused directly or indirectly by or as a result of
any intentional or negligent act or omission to act by CONTRACTOR
or its agents or employees providing service pursuant to this
Agreement. This section shall survive any expiration or termination of
this Agreement.
Section 9.3 reserves the right of each party to seek any common law
indemnification or contribution, in addition to the contractual basis in Section 9.1.
In May 2006, the parties executed an amendment to the Agreement (the
“Amendment,” and together with the Agreement, the “Amended Agreement”) in
light of the Emory Sleep Lab moving from Emory University Hospital to Wesley
Woods. The Amendment states,
[T]he contracting party in the Agreement, stated as “Emory University,
Inc., d/b/a Emory University Hospital (“HOSPITAL”) and the Emory
Clinic, Inc. (“CLINIC”)”, is hereby deleted and replaced with the
following language: “Wesley Woods Center of Emory University, Inc.
d/b/a Wesley Woods Geriatric Hospital (“HOSPITAL”) and the Emory
Clinic, Inc. (“CLINIC”) and Emory University, Inc. d/b/a Emory
University Hospital (“EMORY”).
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The Amendment also states, “In the event of a conflict between the terms of this
Amendment and the terms of the Agreement, the terms of this Amendment shall
govern. Except as set forth in this Amendment, all other provisions of the
Agreement shall remain unchanged and in full force and effect.”
The effect of the Amendment was as follows. The HOSPITAL—which was
the named indemnitee in the original Agreement—was Emory University doing
business as Emory University Hospital. When the Emory Sleep Lab was moved
from Emory University Hospital to Wesley Woods Geriatric Hospital, the
Amendment substituted Wesley Woods as the HOSPITAL. Thus, the named
indemnitee of the indemnification obligation in the Amended Agreement became
Wesley Woods. This meant that the Amended Agreement now provided that
Neurocare, which remained the CONTRACTOR and indemnitor, was obligated to
provide indemnification for Wesley Woods and its “subsidiaries and affiliates,
successors and assigns, and its officers, directors, trustees, employees and agents,”
for the same sorts of losses as in the original Agreement—those “caused directly or
indirectly by or as a result of any intentional or negligent act or omission to act by”
Neurocare “or its agents or employees providing service.”
B. The Underlying State Court Wrongful Death Action
In April 2011, several of the “Emory” entities and Neurocare were sued by
the administratrix of the estate of Brandon Harris in state court in DeKalb County,
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Georgia, for the alleged wrongful death of Mr. Harris during a sleep study at the
Emory Sleep Lab in January 2010. In particular, the defendants included Wesley
Woods doing business as Emory School of Medicine, the Emory Clinic, the Emory
Sleep Center, and Neurocare and its sleep technologists that worked in the lab, as
well as other entities and individuals, such as lab doctors.
This state case proceeded to trial in September 2015 but not before certain
parties were dismissed or otherwise removed from the case. Primarily, Emory
University entered the case on behalf of Wesley Woods and the other “Emory”
entities, except for the Emory Clinic. It is undisputed that, despite not being
formally dismissed, Wesley Woods had been replaced at trial by Emory
University, its grandparent corporation—that is, the corporation that wholly owned
and controlled Wesley Woods’s parent corporation, which wholly owned and
controlled Wesley Woods. It is undisputed that Emory University did not draw the
distinction between itself and Wesley Woods at trial. Emory University says it
proceeded as such as part of a trial strategy—i.e., in light of the well-known
“Emory” name and the potential for a negative reaction from jurors who might not
look favorably on Emory University’s using its separate corporate form as a way to
avoid responsibility for the death.
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In addition, Neurocare settled with the plaintiff before trial and, despite not
being formally dismissed as defendants, Neurocare and its sleep technologists did
not appear at or participate in trial and were considered to be nonparties.
On September 25, 2015, the jury returned a verdict in favor of the plaintiff.
The jury, in part, apportioned 60 percent of the fault to “Neurocare/sleep
technologists” as “nonparties.” 1 The jury also indicated on the verdict form: “We
find Emory liable for the negligence if any, of Neurocare/sleep technologists.”
In light of the jury verdict, the trial court entered judgment, which read in
relevant part,
The jury further assessed fault against Nonparties Neurocare/sleep
technologists and assigned fault of 60% . . . .
By special interrogatory, the jury found Defendant Emory University,
Inc., d/b/a Emory University Hospital liable for the negligence of the
Nonparties Neurocare/sleep technologists.
Pursuant to the jury’s allocation of fault, judgment is entered in favor
of the Plaintiff . . . and against Emory University, Inc., d/b/a/ Emory
University Hospital in the amount of $12,305,570.64, together with
post-judgment interest in the respective amount and court costs.
After this judgment was entered, Emory University and the Emory Clinic
settled with the plaintiff. The trial court entered a consent order dismissing with
1
The verdict form also allocated fault to others not at issue in this appeal. It indicated that
one percent of fault was attributed to a doctor, and 39 percent of fault was attributed to
“Emergency medical technicians” as “nonparties.”
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prejudice the state plaintiff’s claims against Emory University doing business as
Emory University Hospital, the Emory Clinic, and the remaining doctor
defendants.
While post-trial motions were briefed and filed, Emory University and the
Emory Clinic filed crossclaims against Neurocare to recover for the settlement
payment, including claims for contractual and common law indemnification. The
claims were voluntarily dismissed without prejudice on May 2, 2017.
C. Proceedings Before the District Court
Emory University and the Emory Clinic filed suit against Neurocare in
federal district court on May 12, 2017. The complaint included Emory
University’s claims for contractual and common law indemnification. Emory
University alleged that its indemnification rights were triggered because the
settlement payment with the plaintiff in the underlying suit was made due to the
judgment against it, and the judgment was based solely on “the derivative and
active negligence of Neurocare and its employee sleep technologists.” The
complaint also included an attorney’s fees and expenses claim.
The parties filed cross-motions for summary judgment. Neurocare sought
summary judgment arguing, inter alia, that Emory University was not entitled to
indemnity because it is not an “affiliate” of Wesley Woods; and even if it were, the
indemnification bar doctrine applies because Emory University failed to assert its
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enterprise liability defense—i.e., its defense that its separate corporate status
shielded it from the vicarious liability, which Wesley Woods incurred on the basis
of its ultimate authority and control of the Emory Sleep Lab and its technologist.2
The district court denied Emory University and the Emory Clinic’s motion
and granted Neurocare’s motion, entering judgment in its favor.3 Relying on
Emergency Professionals of Atlanta, P.C. v. Watson, 288 Ga. App. 473, 654
S.E.2d 434 (2007), and U.S. Lawns, Inc. v. Cutting Edge Landscaping, LLC, 311
Ga. App. 674, 716 S.E.2d 779 (2011), the district court concluded that Emory
University had failed to present evidence indicating that it would have still been
held liable in the underlying state case had it asserted a so-called “enterprise
2
All parties on appeal assume that Emory University’s liability flows through the vicarious
liability of Wesley Woods for the 60 percent liability at issue. See Appellants’ Br. at 27
(describing “the central question in this case” as “whether Emory University’s decision to
undertake Wesley Woods’ liability was a legitimate ‘defense strategy’ that prevents the operation
of the Indemnification Bar”); Appellee’s Br. at 41 (“Emory University’s contractual
indemnification claim hinges on whether it was Wesley Woods’s ‘affiliate’ under the Amended
[Agreement].”), 49–50 (“As it concedes, Emory University decided not to recognize the
formal distinction between it and Wesley Woods for purposes of the defense of this matter,
which in turn, allowed Emory University (not Wesley Woods) to be exposed to liability. . . . In
this way, Emory University’s liability arose out of its own decision to ignore its corporate form,
not from any negligence of Neurocare.” (citation omitted) (internal quotation marks omitted)).
3
The district court also entered summary judgment against the Emory Clinic on the Emory
Clinic’s breach of contract claim based on a Medical Director Agreement between Neurocare
and the Emory Clinic, which allegedly required Neurocare to maintain professional liability
insurance for one of the lab doctors who was also an underlying defendant. The Emory Clinic
does not challenge this decision. Any such claim by the Emory Clinic is deemed abandoned.
See Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1330 (11th Cir. 2004) (“[A] legal
claim or argument that has not been briefed before the court is deemed abandoned and its merits
will not be addressed.”).
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liability defense,” embracing its distinct corporate existence from, and lack of
responsibility for the actions of, Wesley Woods. Thus, assuming it had otherwise
established a right to indemnity, Emory University could not recover for
indemnification based on the underlying liability because a valid defense to
liability existed that had not been asserted. Emory University timely appealed.
II. DISCUSSION
Emory University argues it is entitled to indemnification and that the so-
called “indemnification bar” does not operate against it. This requires us to
consider (A) whether Emory University has a contractual right to indemnity as an
“affiliate” in the Amended Agreement, and (B) whether the indemnification bar
doctrine precludes indemnification.
A. Emory University is an “Affiliate” of Wesley Woods
Section 9.1 of the Agreement and the Amendment provide that Neurocare
“agrees to indemnify” Wesley Woods and its “affiliates” for liability and losses
“caused directly or indirectly by or as a result of any intentional or negligent act or
omission to act by” Neurocare. The parties dispute whether Emory University’s
relationship with Wesley Woods makes Emory University an “affiliate” under the
Agreement, as read with the Amendment, requiring indemnification.
It is undisputed that the word “affiliate” is not defined in the Amended
Agreement and that Georgia law governs its interpretation. “Under Georgia law,
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words in a contract generally bear their usual and common meaning and the usual
and common meaning of a word may be supplied by common dictionaries.” King
v. GenOn Energy Holdings, Inc., 323 Ga. App. 451, 455, 747 S.E.2d 15, 17 (2013)
(quoting Global Ship Sys. v. Cont’l Cas. Co., 292 Ga. App. 214, 215–216(1), 663
S.E.2d 826 (2008)); see Ga. Code Ann. § 13-2-2(2) (“Words generally bear their
usual and common signification . . . .”); see, e.g., Salinas v. Atlanta Gas Light Co.,
347 Ga. App. 480, 483, 819 S.E.2d 903, 906 (2018) (“[T]he arbitration clause at
issue expressly applied to GNG and its ‘affiliates,’ but affiliate is not defined
therein. We therefore look for the ‘usual and common signification’ of the word.”
(quoting Ga. Code Ann. § 13-2-2 (2))).
The Black’s Law Dictionary definition of “affiliate” has been adopted by the
Georgia Court of Appeals as supplying the usual and common meaning of the
term. See King, 323 Ga. App. at 455, 747 S.E.2d at 18; Harkins v. CA 14th Inv’rs,
Ltd., 247 Ga. App. 549, 550, 544 S.E.2d 744, 746 (2001). Black’s Law Dictionary
defined “affiliate” at the time the Agreement and Amendment were executed as a
“corporation that is related to another corporation by shareholdings or other means
of control; a subsidiary, parent, or sibling corporation.” Affiliate, Black’s Law
Dictionary (8th ed. 2004). The definition is the same in the current version of the
Dictionary. See Affiliate, Black’s Law Dictionary (11th ed. 2019). In particular,
in King v. GenOn Energy Holdings, Inc., the Georgia Court of Appeals found that
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the usual and common meaning of “affiliate” was supplied by the same definition,
then in the seventh edition of Black’s Law Dictionary, and held that there was an
affiliate relationship between a company and another, of which it owned 50
percent. 323 Ga. App. at 455, 747 S.E.2d at 18. “The two companies were thus
related, associated and in close connection based on this common ownership.” Id.
Even clearer than in King, the relationship at issue in our case clearly fits the
Black’s Law Dictionary definition of affiliate: Emory University owns 100 percent
of the entity that owns 100 percent of Wesley Woods. Thus, Black’s Law
Dictionary’s requirement of a relationship by way of “shareholdings or other
means of control” covers Emory University’s full ownership and control of Wesley
Woods. Indeed, the express reference to “parent,” when read with the
shareholding and control aspects of the definition, quite clearly includes the
grandparent-grandchild relationship at issue. Emory University is, therefore,
Wesley Woods’s affiliate.
Any further ambiguity in the term “affiliate,” as Neurocare argues is present,
is not with respect to the relationship in this case and is not a reason to impart any
alternate meaning than the one in Black’s Law Dictionary and King. Specifically,
Neurocare cites Salinas v. Atlanta Gas Light Co., a case in which the Georgia
Court of Appeals found the term—with respect to an indirect corporate
relationship—to be ambiguous in light of 20 varying definitions in the Georgia
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Code and differences among the Black’s Law Dictionary definition and other
courts’ interpretations. 347 Ga. App. 480, 483, 819 S.E.2d 903, 906 (2018). The
Salinas court held that Atlanta Gas Light Company and Georgia Natural Gas were
not affiliates. Id. at 485, 819 S.E.2d at 908. AGL Resources Inc. owned 100
percent of both Atlanta Gas Light and Georgia Natural Gas Company, which in
turn owned 85 percent of Georgia Natural Gas. Id. at 484, 819 S.E.2d at 907. This
indirect relationship between Atlanta Gas Light and Georgia Natural Gas was
insufficient as compared to a sibling relationship, said the court, which would have
brought the relationship within available definitions. Id. Given the ambiguity, the
contract had to be construed against the drafting party, which required adopting a
reading of the term “affiliate” that excluded Atlanta Gas Light.
Importantly, the Salinas court distinguished King by stating it was a case in
which the Georgia Court of Appeals “found the meaning of ‘affiliate’
unambiguous in [a] certain setting[]” and was distinguishable because it addressed
whether “the term ‘affiliate’ applied to a parent corporation and a corporation
owned in part by a subsidiary of the parent corporation, i.e., a grandchild
corporation.” Id. at 484 n.4, 819 S.E.2d at 907 n.4 (citing King, 323 Ga. App. at
455, 747 S.E.2d at 18). Thus, in distinguishing King, Salinas emphasized that
“affiliate” is not ambiguous as to grandparent-grandchild corporate relationships
and more generally when considering a direct lineage of ownership and control.
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Salinas, therefore, only further supports the conclusion that Emory University is an
affiliate.
Indeed, when read together, King and Salinas and the definitions examined
in those cases are united in their treatment of a relationship like the one between
Emory University and Wesley Woods. Both cases looked to Black’s Law
Dictionary, which clearly indicates a grandparent is an affiliate of a grandchild.
And while the Salinas found ambiguity due to various other definitions of the term,
those definitions largely support the same conclusion that Emory University is
Wesley Woods’s affiliate. That is, in each of the definitions that the Salinas court
examined, an affiliate included an entity exercising sufficient direct or indirect
ownership or control over the other entity. See Salinas, 347 Ga. App. at 483–84,
819 S.E.2d at 906–07 (“[Ga. Code Ann.] §§ 7-1-4 (a corporation or similar
organization is an ‘affiliate’ of a financial institution if, inter alia, the financial
institution controls the election of a majority of directors, trustees, or other persons
exercising similar functions at the corporation, or where the financial institution or
its shareholders own or control 50 percent of the shares of the corporation, or
where the corporation owns or controls 50 percent of the financial institution); 14-
2-1110 (1) (‘“Affiliate” means a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by or is under common control with a
specified person.’); 18-2-71(1) (B) (‘Affiliate’ has multiple definitions, including
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‘[a] corporation 20 percent or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote by the debtor or
a person who directly or indirectly owns, controls, or holds with power to vote 20
percent or more of the outstanding voting securities of the debtor[.] . . .’).”). The
other definitions of “affiliate” in the Georgia Code referenced, but not examined or
quoted, in Salinas also support the holding that the control and ownership of the
type in this case makes Emory University an affiliate of Wesley Woods. In fact,
nearly all use virtually the same language in defining an affiliate as an entity or
person that “controls, is controlled by, or is under common control” or is
“controlling, controlled by, or under common control” with another, sometimes
specifying that either direct or indirect control can qualify. 4 Thus, even using the
same definitions as the Salinas court, we must conclude there is no ambiguity in
the term with respect to Emory University’s inclusion. 5
4
See Ga. Code Ann. §§ 3-6-21.3(a)(1); 7-6A-2(2); 14-2-140 (adopting by direct citation
the definition in § 14-2-1110); 14-2-624 (same); 14-2-1131 (same); 33-1-25(b)(1); 33-13-1(1);
33-23-46(a)(1); 33-36-3(1); 33-38-4(2); 46-3-171(2.1); 46-4-152(1); 48-8-2; 46-3-62(1).
Another definition, not using this common language, embodies the same ownership and control
concepts. See id. § 26-4-119(c)(1) (defining “affiliate” in a pharmacy statute as a person which,
“either directly or indirectly through one or more intermediaries,” has “an investment or
ownership interest in a pharmacy,” “[s]hares common ownership with a pharmacy,” or has “as an
investor or ownership interest holder a pharmacy”).
5
The out-of-jurisdiction cases cited in Salinas do not create ambiguity in the meaning of
the term “affiliate” requiring a construction that would exclude Emory University. See 347 Ga.
App. at 484, 819 S.E.2d at 907.
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Neurocare’s argument that Emory University is not an affiliate because the
meaning of the term is “a subordinate, subsidiary, or member,” or “closely
associated with another typically in a dependent or subordinate position,” is
unpersuasive and contradicted by the weight of the authorities. First, the plain
language of the Amended Agreement contemplates the difference between
“affiliates” and the terms Neurocare uses by distinguishing and separating
“subsidiaries” from “affiliates” of Wesley Woods as eligible for indemnification.
Next, Neurocare quotes definitions from the American Heritage and Merriam-
Webster dictionaries in support of the argument that an affiliate is a subordinate,
but we are not writing on a clean slate with the term “affiliate” in Georgia. The
term has been the subject of several Georgia opinions, which have never used the
narrower definitions Neurocare cites to exclude a grandparent corporation. Indeed,
the Georgia Court of Appeals has only referenced Black’s Law Dictionary in
determining the meaning of the term “affiliate,” not any other dictionary. See
King, 323 Ga. App. at 455, 747 S.E.2d at 18 (citing Black’s Law Dictionary’s
definition of “affiliate” and no other dictionary); Salinas, 347 Ga. App. at 484, 819
S.E.2d at 907 (same); Harkins, 247 Ga. App. at 550, 544 S.E.2d at 746 (same).
Furthermore, the Georgia Code’s various definitions of the term almost always
include a “two-way” definition by defining an affiliate as either an entity that (a)
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“controls” another or (b) “is controlled by” another. See Salinas, 347 Ga. App. at
483–84, 819 S.E.2d at 906–07; supra note 4.
In addition, other courts, including our predecessor court, have rejected
similar “one-way” or “downstream” definitions of “affiliate” that exclude the
corporate parent or superior entities. See Braun v. Ins. Co. of N. Am., 488 F.2d
1066, 1067 (5th Cir. 1974) (“[T]he appellant contends that affiliate cannot refer to
an associate with a superior status. Alleging the existence of ambiguity regarding
the use of the word affiliate, the appellant asserts that the Court must construe the
contract provision most favorably to the assured. . . . We neither accept the
appellant’s viewpoint that the policy provision was ambiguous nor adopt the
appellant’s restrictive downstream definition of the word affiliate.”); Securus
Techs. Inc. v. Glob. Tel*Link Corp., 676 F. App’x 996, 999 (Fed. Cir. 2017)
(“Securus further contends that the plain, ordinary, and generally accepted
meaning of ‘affiliate’ does not include a corporate parent. . . . That argument does
not stand up against a review of the authorities pertinent to the [relevant contract],
. . . [including] the contemporaneous edition of Black’s Law Dictionary . . . .”).
In sum, the term “affiliate” in Section 9.1 of the Agreement embodies the
term’s well-established common meaning. That common meaning includes a
superior, grandparent corporation. In light of Emory University’s direct control
and entire ownership of Wesley Woods’s parent, which directly controls and owns
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Wesley Woods, Emory University is Wesley Woods’s affiliate. And because
Emory University was found liable due to the fault of Neurocare, Emory
University has a right to indemnity pursuant to the Amended Agreement.6
B. The Indemnification Bar Does Not Apply Here
The district court allowed Neurocare to avoid its indemnification
obligation—pursuant to both the Amended Agreement and the common law—
because Emory University did not assert its “enterprise liability” defense in the
underlying litigation. Emory University concedes that, as a distinct corporate
entity from Wesley Woods, it could have avoided liability with this defense, but as
part of a litigation strategy, it did not assert the defense. However, Emory
University’s assertion of the defense would have protected only Emory University;
it would not have protected Wesley Woods and, most significantly, it would not
6
Although also challenged by Neurocare, Emory University has established a common law
indemnification claim because the underlying state judgment was entered against it as a result of
the negligence of Neurocare and its agents. See Cutting Edge, 311 Ga. App. at 676, 716 S.E.2d
at 782–83 (“The duty to indemnify may arise by operation of law, independently of contract. If a
person is compelled to pay damages because of negligence imputed to him as the result of a tort
committed by another, he may maintain an action for indemnity against the person whose wrong
has thus been imputed to him.” (quoting Nguyen v. Lumbermens Mut. Cas. Co., 261 Ga. App.
553, 557(2), 583 S.E.2d 220 (2003))). In light of our conclusion with respect to contractual
indemnity, we need not discuss common law indemnity in more detail. However, with respect to
the claims for both common law and contractual indemnification, we reject Neurocare’s
argument that Emory University was found by the jury to be directly liable for its own
negligence. Neurocare’s argument is squarely contradicted by the plain language of both the
underlying jury verdict and judgment—i.e., Emory University was found liable for the
negligence of Neurocare’s sleep technologists. Although the one percent fault allocated to the
Emory Clinic’s employee, Dr. Schulman, may have represented direct liability for his own
negligent failure to supervise, that is not an issue on appeal.
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have provided any protection at all for Neurocare. Because both Wesley Woods
and Emory University have a right to indemnity from Neurocare, Emory
University’s assertion of the defense would simply have meant that Neurocare’s
indemnification obligation would have run to Wesley Woods instead of to Emory
University for the underlying liability. Of course, we know that Wesley Woods is
Neurocare’s express or named indemnitee pursuant to the Amended Agreement,
and it is clear that Wesley Woods would be similarly entitled to both contractual
and common law indemnification, like Emory University is now. Thus, Neurocare
suffered no adverse impact at all from Emory University’s strategic decision to
enter the case and replace Wesley Woods. Having suffered no adverse impact,
Neurocare cannot in this indemnification case now claim a benefit from the
strategic trial decision in the underlying case.
Under the unique circumstances of this case, we do not believe that the
“indemnification bar” under Georgia law operates. The bar is a narrow exception
to an otherwise proven claim for indemnification based in a string of Georgia
cases, starting with GAF Corp. v. Tolar Constr. Co., 246 Ga. 411, 411, 271 S.E.2d
811, 812 (1980). Those cases hold that generally, a would-be indemnitor is not
obligated to pay for liability arising from an action in which the would-be
indemnitee had available to it a defense that would have eviscerated the underlying
action, it having been held liable when it should not have been.
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We read these cases as only applying to the scenario in which the underlying
defense is a complete defense in that it would have defeated the underlying
action—that is, the entire action and any liability arising therefrom for which the
indemnitor would then be liable. See GAF, 246 Ga. at 411, 271 S.E.2d at 812(“[N]o indemnification or contribution can be recovered by the party cast against a
third party if the party cast had a defense available which would have defeated the
action but failed to assert it.” (emphasis added) (quoting Jones v. Wright, 258
So.2d 195, 197–98 (La. Ct. App. 1972) (“As a complete defense was available to
third party plaintiffs and this they failed to assert, they are not entitled to either
indemnification or contribution from the third party defendants.” (emphasis
added)))); U.S. Lawns, Inc. v. Cutting Edge Landscaping, LLC, 311 Ga. App. 674,
676, 716 S.E.2d 779, 782 (2011) (“At the summary judgment stage, the relevant
question is whether the evidence demands a finding that the indemnitee had a
defense to the underlying tort action that would have defeated liability.” (emphasis
added)); Emergency Pros. of Atlanta, P.C. v. Watson, 288 Ga. App. 473, 476, 654
S.E.2d 434, 437 (2007) (“[N]o indemnification or contribution can be recovered by
the alleged tortfeasor from a third party if the alleged tortfeasor had a defense
available which would have defeated the action but failed to assert it.” (emphasis
added)); Foster v. Nix, 173 Ga. App. 720, 727, 327 S.E.2d 833, 839 (1985) (“We
recognize that no indemnification may be recovered if the party had a defense
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which would have defeated the action but failed to assert it.” (emphasis added)).
The bar operates to relieve the indemnitor from payment and liability that should
never have existed.
Being a limited exception to indemnification, the bar does not extend to this
case—a scenario in which, had the defense in question been asserted in the
underlying action to protect Emory University, Neurocare’s indemnification
obligation would remain, and Neurocare would remain obligated to indemnify
Wesley Woods. The available defense would not have defeated the whole liability,
just that of a particular defendant, Emory University. Assertion of the available
defense would have had a net zero effect on the indemnitor, Neurocare. Neurocare
has offered no authority for the proposition that the indemnification bar doctrine
should operate in a situation where the indemnitee fails to assert a defense that
would have had no effect at all on the indemnitor’s obligation.
In other words, the defense which Emory University could have asserted, its
enterprise liability defense, would have had absolutely no effect on Neurocare’s
indemnity obligation given Wesley Woods’s continuing presence, even in the
absence of Emory University. Therefore, Emory University’s strategic move did
not increase Neurocare’s indemnification obligation; it remained because
Neurocare’s obligation to Wesley Woods remained. Nor did the move harm
Neurocare by, for example, precluding it from asserting its own defense in the
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underlying action to prevent a jury finding that Neurocare and its sleep
technologists were at fault.
Neurocare argues that the voluntary payment doctrine, a part of an
indemnification claim, requires us to focus on Emory University’s voluntary
assumption of the underlying litigation and voluntary payment through settlement.
Neurocare cites Progressive Electrical Services, Inc. v. Task Force Construction,
Inc., for the proposition that the voluntary payment doctrine is “not a defense” but
rather places the burden on the party seeking indemnification to prove “a legal
compulsion to pay.” 327 Ga. App. 608, 618, 760 S.E.2d 621, 629 (2014) (first
quoting John K. Larkins, Jr., Georgia Contracts: Law and Litigation § 10:18 (2d
ed. 2013); then quoting GAF Corp., 246 Ga. at 412, 271 S.E.2d at 811) (citing Ga.
Code Ann. § 13-1-13)). In addition to the plain language of the indemnification
bar case law focusing on “complete defenses” which would have “defeated the
action,” the purpose of indemnification and equitable considerations undermine
Neurocare’s interpretation of the indemnification bar in this context.
The purpose of indemnification is the “reimbursement, restitution, or
compensation . . . for loss, damage, or liability in tort”; that is, indemnity ensures
that payment rests with “the party who is primarily liable for reimbursement of
expenditures paid to a third party for injuries resulting from a violation of a
common-law duty” by that primary party. Old Republic Nat’l Ins. Co. v. Panella,
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319 Ga. App. 274, 276, 734 S.E.2d 523, 526 (2012) (footnotes omitted) (first
quoting Travelers Ins. Co. v. Ga. Power Co., 51 Ga. App. 579, 181 S.E. 111, 114
(1935); then quoting Indemnity, Black’s Law Dictionary (7th ed. 1999)). The
purpose is thus focused on avoiding unjust enrichment by way of attribution of
liability and the requirement to pay to the actual party at fault. See Barrios v. La.
Constr. Materials Co., 465 F.2d 1157, 1167 (5th Cir. 1972) (“The basis of
[indemnification] is not freedom from negligence of the indemnitee, but the
primary fault of the indemnitor.” (citation omitted)).
Georgia courts have suggested that a suit for indemnity implicates equitable
principles. See City of Atlanta v. Benator, 310 Ga. App. 597, 608, 714 S.E.2d 109,
118 (2011) (labeling a common law indemnity claim as a claim for “equitable or
common law indemnity”); Wilson v. Dodge Trucks, Inc., 238 Ga. 636, 637, 235
S.E.2d 142, 144 (1977) (describing “the general law on contribution and
indemnity” as based in “principles of law and equity”); see also Magnum Marine
v. Kenosha Auto Transp. Corp., 481 F.2d 933, 935 (5th Cir. 1973) (“The right [to
indemnification] is equitable in nature . . . .”). These equitable principles include
restitution and unjust enrichment, the bases for indemnity. See Panella, 319 Ga.
App. at 276, 734 S.E.2d at 526; see also Greyhound Lines, Inc. v. Cobb Cty., Ga.,
681 F.2d 1327, 1332 n.8 (11th Cir. 1982) (“[E]quity first used contribution and
indemnity to correct unjust enrichment. For instance, a party who had been
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required to satisfy a tort claim because his agent had injured someone could bring
an action against the agent on a theory of unjust enrichment. In this manner,
justice was done between the parties.”) (citing 1 George E. Palmer, The Law of
Restitution § 1.5(d) (1978)); Restatement (Second) of Torts § 886B cmt. c (Am. L.
Inst. 1979) (“The basis for indemnity is restitution, and the concept that one person
is unjustly enriched at the expense of another when the other discharges liability
that it should be his responsibility to pay.”).
Furthermore, the voluntary payment doctrine, which Neurocare urges, has
been analogized to section 13-1-13 of the Georgia Code (codifying a more
generally applicable voluntary payment doctrine). See Progressive Elec. Servs,
Inc., 327 Ga. App at 617–18, 760 S.E.2d at 628–29. And Georgia courts have
construed section 13-1-13 “in conjunction with . . . equitable principles.” See Gulf
Life Ins. Co. v. Folsom, 256 Ga. 400, 402, 349 S.E.2d 368, 370–71 (1986)
(discussing section 13-1-13 in the context of a claim for money had and received,
which “is founded on the equitable principle that no one ought to unjustly enrich
himself at the expense of another”); D & H Const. Co. v. City of Woodstock, 284
Ga. App. 314, 316, 643 S.E.2d 826, 829 (2007) (“[T]he Supreme Court of Georgia
held that the voluntary payment doctrine codified in OCGA § 13–1–13 must be
read in conjunction with other equitable principles.”).
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With the equitable goal of indemnification to attribute the underlying
liability to the proper party at fault by avoiding unjust enrichment and achieving
restitution, Neurocare cannot avoid indemnification based on any voluntariness of
Emory University’s entry in the underlying case. If the bar applied in this case,
Neurocare, not Emory University, would be unjustly enriched because Neurocare
would avoid the liability for its own negligence by passing it along to Emory
University, something it could not have done with Wesley Woods. The
enrichment of Neurocare at the expense of Emory University is not a proper
application of the indemnification bar. The bar was rooted in protection of the
indemnitor from payment that could have been avoided altogether; Neurocare
would not have been protected had Emory University asserted the defense at issue.
Instead, Neurocare’s indemnity obligation to pay would have been just shifted to
an affiliate, not eliminated.
The unjust nature of the result Neurocare urges is apparent from the notable
difference between the indemnification bar case law and the present case. The
Georgia cases addressing the indemnification bar largely involved some
carelessness on the part of the would-be indemnitee in failing to assert the
available underlying defense, with adverse consequences flowing to the
indemnitor. See GAF, 246 Ga. at 411, 271 S.E.2d at 812 (“[T]here is no question
here of Tolar’s having inadvertently waived its statute of limitation defense.”);
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Cutting Edge, 311 Ga. App. at 678, 716 S.E.2d at 784 (considering a failure to
timely answer and default and subsequent settlement); Watson, 288 Ga. App. at
476, 654 S.E.2d at 437 (considering a payment made pursuant to a default
judgment). In the present case, the enterprise liability defense was not asserted,
not because of any carelessness on Emory University’s part, but because Emory
University affirmatively chose to litigate on behalf of its wholly owned and
controlled subsidiary as a trial strategy. Having made the strategic decision to
defend its corporate grandchild, and having imposed no adverse consequences on
Neurocare, there is nothing in the case law involving indemnification or the
indemnification bar doctrine, or the purposes underlying that case law, that
indicates that Neurocare should be relieved of the indemnification obligation it
undertook. As noted above, even if Emory University had asserted its enterprise
liability defense as Neurocare urges, Neurocare nevertheless would have had the
same indemnification obligation to Wesley Woods. Emory University’s litigation
strategy did not affect Neurocare’s indemnity obligation. Cf. Med. Staffing
Network, Inc. v. Connors, 313 Ga. App. 645, 652, 722 S.E.2d 370, 376 (2012)
(“[T]he hospital focused its defense on minimizing the proportion of fault
attributed to Ogburn, [and] Medical Staffing identified no legal precedent that such
a defense strategy constitutes a waiver of a complete defense such that the
hospital’s liability to the Rowlands could be deemed a voluntary payment.”).
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Applying the Georgia case law to the unique facts of this case, we conclude
that the indemnification bar does not bar Emory University from recovering on its
indemnification claims.
III. CONCLUSION
For the foregoing reasons, we vacate the district court’s grant of summary of
summary judgment in favor of Neurocare and remand the case for further
proceedings not inconsistent with this opinion. 7
VACATED and REMANDED.
7
Emory University suggests that our decision, adopting as we do the gist of Emory
University’s position, also means that its own cross-motion for summary judgment should be
granted. However, that issue was not adequately briefed, and we prefer that the district court
address it in the first instance in the light of our decision in this appeal. But because our decision
does knock down the pillar on which the district court’s decision with respect to attorney’s fees
rested, that decision is vacated and should be reconsidered on remand.
27