Capitol Environmental Services v. North River Insurance Company , 484 F. App'x 770 ( 2012 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-1326
CAPITOL ENVIRONMENTAL SERVICES, INCORPORATED,
Plaintiff - Appellant,
v.
NORTH RIVER INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. T. S. Ellis, III, Senior
District Judge. (1:10-cv-00792-TSE-TCB)
Argued: May 17, 2012 Decided: June 28, 2012
Before NIEMEYER and GREGORY, Circuit Judges, and HAMILTON, 1
Senior Circuit Judge.
Affirmed by unpublished opinion. Judge Gregory wrote the
opinion, in which Judge Niemeyer joined.
ARGUED: Stephen Anthony Horvath, BANCROFT, MCGAVIN, HORVATH &
JUDKINS, PC, Fairfax, Virginia, for Appellant. Margaret F.
Catalano, CARROLL, MCNULTY & KULL, LLC, Basking Ridge, New
Jersey, for Appellee. ON BRIEF: Melissa H. Katz, Wesley D.
Allen, BANCROFT, MCGAVIN, HORVATH & JUDKINS, PC, Fairfax,
Virginia, for Appellant. Heather E. Simpson, CARROLL, MCNULTY &
1
Because Senior Judge Hamilton did not participate in oral
argument due to illness, this decision is filed by a quorum of
the panel, pursuant to 28 U.S.C. § 46(d).
KULL, LLC, Basking Ridge, New Jersey; Craig J. Franco, ODIN,
FELDMAN & PITTLEMAN, PC, Fairfax, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
GREGORY, Circuit Judge:
Capitol Environmental Services, Inc. (“Capitol”) argues
that the district court erred in granting summary judgment in
favor of The North River Insurance Company (“North River”)
because the settlement agreement between Capitol and Earth Tech,
Inc. (“Earth Tech”) included the contractual indemnity claim
dismissed as moot by the Florida state courts. We disagree. We
hold that because Capitol could never be held liable for any
damages to Earth Tech on a theory of contractual indemnity after
Earth Tech was made whole on its breach of contract claim, North
River has no duty to indemnify Capitol for the damages covered
by the settlement agreement.
I.
Capitol is a waste-disposal company that had been hired as
a contractor by St. Marks Refinery for waste disposal. Capitol
in turn hired Earth Tech as a subcontractor to provide
hazardous-waste transportation and disposal services. Capitol
also subcontracted with Freehold Cartage, Inc. (“FCI”) to pick
up and transport waste from St. Marks Refinery to the disposal
facility.
On September 25, 2002, as FCI employee Peter Blash was
backing a semi-tractor-trailer into the St. Marks Refinery, his
tractor-trailer lay across Virginia State Road 363, and Annette
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Carey collided into the tractor-trailer, resulting in injuries
to her and her husband. The tractor-trailer was angled over the
center line of the road so that its headlights pointed in
Carey’s lane, which caused a glare that distracted her from the
trailer ahead in her lane. Earth Tech was responsible for
providing flagmen to direct traffic at the site. Several
witnesses testified that an Earth Tech flagman “jumped” in front
of her vehicle, causing her to swerve and hit the tractor-
trailer.
Carey filed suit in state court in Florida against Peter
Blash, FCI, and Earth Tech for her injuries and her husband’s
loss of consortium. Earth Tech and FCI each paid $250,000 in
2006 to extinguish their respective liabilities in the action.
Earth Tech filed a third-party complaint against Capitol,
alleging, inter alia, breach of contract, contractual indemnity,
and common-law indemnity.
On March 29, 2007, the Second Judicial Circuit for Wakulla
County, Florida, granted Earth Tech’s motion for partial summary
judgment against Capitol, holding that Capitol breached the
subcontract because it failed to purchase adequate insurance to
cover Earth Tech’s subcontract work. The court subsequently
granted Capitol’s motion for summary judgment on the common-law
indemnity charge but denied it as to the contractual indemnity
claim. The trial court sua sponte severed the contractual
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indemnity claim, and the breach of contract claim went to a jury
to determine damages. The jury awarded $585,525 to Earth Tech
on February 6, 2008, for the breach of contract claim.
On July 13, 2007, Capitol filed a declaratory judgment
action against North River in the United States District Court
for the Eastern District of Virginia seeking defense and
indemnification according to North River’s policy held by
Capitol. The district court found that it would be premature to
award summary judgment on the indemnification claim because the
record was “insufficiently developed” because Florida courts had
“not yet ruled on whether Capitol breached its duty to indemnify
Earth Tech.” Capitol Envt’l Servs., Inc. v. North River Ins.
Co., 536 F. Supp. 2d 633, 645-46 (E.D. Va. 2008). The court
noted, “North River has a duty to indemnify Capitol in the Earth
Tech action only if Capitol demonstrates that it was found
liable to Earth Tech for bodily injury actually covered by the
North River policy.” Id. at 645. Accordingly, the court said,
if Capitol’s liability arose out of Earth Tech’s negligence,
that would give rise to Capitol’s liability to Earth Tech only
under a breach of contract theory, which in turn would not be
covered by North River’s policy. Id.The parties agreed in a joint stipulation that the Florida
court was the appropriate forum to resolve the remaining
contractual indemnity claim between Earth Tech and Capitol, but
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that in the event that the Florida court did not consider the
indemnity claim, the parties would return to Virginia federal
court to resolve the issue.
Capitol sought a trial for the severed contractual
indemnity claim in the Florida court, which the trial court
denied. The court dismissed the contractual indemnification
claim as moot, finding that any damages that would be awarded to
Earth Tech on this claim would be duplicative of the damages
awarded for breach of contract.
On May 28, 2008, the Circuit Court of Wakulla County,
Florida, entered final judgment on the breach of contract claim
in favor of Earth Tech, and Capitol appealed to the first
district court of appeal in Florida, which affirmed the
judgment, but added prejudgment interest to the damages,
bringing the total final judgment to $889,152.72. On November
30, 2009, the first district court of appeal affirmed the trial
court’s decision that the contractual indemnity claim was moot.
Neither Capitol nor Earth Tech sought appeal to the Florida
Supreme Court.
In August 2010, Capitol and Earth Tech entered a settlement
agreement, in which Capitol agreed to pay $769,087,68 to Earth
Tech according to a payment schedule in satisfaction of the
judgment and “all claims and counterclaims asserted, or which
could have been asserted.”
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On July 16, 2010, Capitol filed a second declaratory
judgment action against North River in the eastern district of
Virginia, which action forms the basis for the instant appeal.
The district court denied Capitol’s motion for summary judgment
and granted North River’s on March 15, 2011, holding that North
River has no duty to indemnify Capitol. The court found that
the dismissal of the contractual indemnity claim on mootness
grounds constituted an adjudication on the merits under Florida
law and that Earth Tech is precluded by res judicata from
litigating the issue again. As such, Capitol never became
legally obligated to pay Earth Tech under the contractual
indemnity theory, and accordingly North River had no duty of
indemnification. The court further determined that the
settlement agreement between Capitol and Earth Tech did not
encompass the contractual indemnity claim because that claim had
already been extinguished according to a final decision of the
Florida state courts.
Capitol filed a notice of appeal to this Court.
II.
On appeal, Capitol argues that the settlement agreement
between Capitol and Earth Tech includes the dismissed
contractual indemnity claim and that North River must indemnify
Capitol for this claim according to its insurance policy.
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Reviewing de novo the district court’s grant of summary judgment
for North River, see Higgins v. E.I. Dupont de Nemours & Co.,
863 F.2d 1162, 1167 (4th Cir. 1988), we affirm.
North River’s policy covers “those sums that the insured
becomes legally obligated to pay as damages because of ‘bodily
injury’ or ‘property damage.’” J.A. 243. The policy also
includes a carve out: North River is not obligated to pay for
damages assumed in a contract or agreement. But there is an
exception to the exception: there is coverage for “damages
. . . [t]hat the insured would have in the absence of the
contract or agreement.” J.A. 243. The settlement agreement
between Capitol and Earth Tech is an assumption of liability by
Capitol, and Capitol would have had that liability in the
absence of the agreement (due to the court judgment against
Capitol). The parties agree that the judgment against Capitol
for breach of contract is not covered by the North River policy.
The only question that remains is whether the settlement
agreement between Capitol and Earth Tech included the
contractual indemnity claim, which could be covered by the North
River policy.
Capitol argues that because the settlement agreement covers
“all claims and counterclaims asserted, or which could have been
asserted” in the Earth Tech and Capitol law suit, the agreement
necessarily covers the claim for contractual indemnity despite
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the fact that the state appeals court had ordered judgment for
$889,152.72 on the breach of contract claim. Capitol’s argument
is unconvincing.
First, the judgment for $889,152.72 made Earth Tech whole
for its injury. Even if judgment were somehow awarded against
Capitol under the contractual indemnity theory, Capitol would
owe no amount of money under such a theory because Earth Tech
has already recovered the full amount of its injury. At the
time of the settlement agreement, Capitol was not legally
obligated to pay Earth Tech damages under the contractual
indemnity theory. Capitol is not now -- nor will it ever be --
legally obligated to pay damages to Earth Tech under the
contractual indemnity theory. In any case, there has never been
a judgment against Capitol under the contractual indemnity
theory.
Second, the Florida state court decision that the
contractual indemnity claim was moot was a final judgment on the
merits, and therefore the claim could not be reasserted against
Capitol. Florida Rule of Civil Procedure 1.420(b) states that
any involuntary dismissal “other than a dismissal for lack of
jurisdiction or for improper venue or for lack of an
indispensable party, operates as an adjudication on the merits.”
One Florida appellate court has observed that “[t]he reluctance
of the Florida courts to decide moot questions is based on
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policy reasons, not lack of jurisdiction.” Merkle v. Jacoby,
912 So. 2d 593, 594 (Fla. Dist. Ct. App. 2d Dist. 2005) (citing
Cook v. City of Jacksonville, 823 So. 2d 86 (Fla. 2002). Under
Florida law, even if a case would otherwise be moot, a court may
nonetheless consider the merits when one of three policy
exceptions applies: “(i) when questions raised are of great
public importance, (ii) when the questions raised are likely to
recur, or (iii) when the collateral legal consequences that
affect the rights of a party flow from the issue to be
determined.” J.A. 445 (district court opinion) (citing Godwin
v. State, 593 So. 2d 211, 212 (Fla. 1992)). The Florida
appellate court in Merkle reasoned that because the mootness
rule in Florida is policy-based, dismissal on mootness grounds
is not jurisdictional for purposes of Rule 1.420(b). See also
Semtek Intern. Inc. v. Lockheed Martin Corp., 513 U.S. 497, 501-
503 (2001) (discussing the history of the federal counterpart,
Rule 41(b)); Allie v. Ionata, 503 So. 2d 1237, 1241 (Fla. 1987)
(same) (holding that “[a] judgment on the merits precluding the
relitigation of the same cause of action is one based on the
legal rights and liabilities of the parties, as distinguished
from one based on technical or dilatory objections or
contentions, or on mere matters of form or of practice or
procedure.”). Therefore, under Florida law the mootness
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judgment was a valid and final decision on the merits at the
time of the settlement agreement between Capitol and Earth Tech.
No court has ever held that Capitol is liable to Earth Tech
for damages under a theory of contractual indemnity. Because
the indemnity claim against Capitol had been dismissed as moot
and the settlement agreement did not resurrect it, Capitol was
not legally obligated to pay Earth Tech damages for indemnity.
The North River policy covers only claims which Capitol is
“legally obligated to pay.” Therefore, North River does not
have a duty to indemnify Capitol under the insurance policy.
The district court was correct to conclude that “the settlement,
which purported to settle all claims between Earth Tech and
Capitol, cannot be said to have encompassed the breach of
contractual indemnity claim because, at the time the settlement
was consummated, that covered claim was already extinguished.” 2
J.A. 446-47.
2
Capitol also argues that the district court erred in
concluding that res judicata barred it from considering whether
Capitol was liable to Earth Tech under the contractual indemnity
claim. But neither res judicata nor claim preclusion can apply
under Florida law when, as here, the parties to the prior and
subsequent proceedings are not the same. E.C. v. Katz, 731
So.2d 1268, 1270 (Fla. 1999) (deciding that there is no doctrine
of non-mutual collateral estoppel in Florida, contrary to
federal law). “[U]nless both parties are bound by the prior
judgment, neither may use it in a subsequent action.” Stogniew
v. McQueen, 656 So.2d 917, 919 (Fla. 1995); Massey v. David, 831
So. 2d 226, 233 (Fla. App. 1st Dist. 2002). Nor does Florida’s
privity exception apply on these facts. See Sentry Ins. v. FCCI
(Continued)
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For the foregoing reasons, we affirm the district court’s
grant of summary judgment for North River.
AFFIRMED
Mut. Life Ins. Co., 745 So.2d 349, 350 (Fla. 4th Dist. Ct. App.
(1999)) (applying res judicata where parties are not identical
because the insurance company’s and the insured’s “interests
were not antagonistic”). Therefore, the Florida state court
decision that Earth Tech’s contractual indemnity claim was moot
does not bind Capitol in its instant litigation for indemnity by
North River.
Nevertheless, this is a pyrrhic victory for Capitol
because, as already stated, under no circumstances can Capitol
be liable for damages to Earth Tech under the theory of
contractual indemnification after Earth Tech was made whole by
the award of damages on the breach of contract claim.
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