Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04000/USCOURTS-cand-3_06-cv-04000-6/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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UNITED 

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DISTRICT 

COURT

For the Northern District of California

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UNITED 

STATES 

DISTRICT 

COURT

U

For the Northern District of California

NITED 

STATES 

DISTRICT 

COURT

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

FEDERAL INSURANCE COMPANY

Plaintiff,

v.

ALBERTSON’S INC. AND AMERICAN

STORES COMPANY,

Defendants.

_____________________________________/

No. C 06-04000 MHP

MEMORANDUM & ORDER

Re: Motion for Reconsideration

On June 23, 2006 plaintiff Federal Insurance Company (“Federal”) filed this complaint

against defendants Albertson’s Inc. and American Stores Company (“ASC”), seeking contractual

indemnification and equitable subrogration in connection with an agreement between the defendants

and plaintiff’s insured. The parties subsequently stipulated to the dismissal of Federal’s cause of

action for equitable subrogation. Now before the court is defendant’s motion for reconsideration of

this court’s order of partial summary judgment in favor of Federal. The court has considered the

parties’ arguments fully, and for the reasons set forth below, the court rules as follows.

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BACKGROUND1

Plaintiff Federal is an Indiana corporation and has its principal place of business in New

Jersey. Defendant ASC is a Delaware corporation with its principal place of business in Utah. 

Defendant Albertson, Inc. is a Delaware corporation and has its principal place of business in Idaho. 

Albertson’s is the successor in interest to defendant ASC, which it acquired subsequent to the events

in this case. The dispute in this case involves the interpretation of a Dairy Services Facilitation

Agreement (“Agreement” or “FA”) between Federal’s insured, Dean Foods Company (“Dean” or

“Dean Foods”) and ASC. 

I. The Sale of the Dairy and Facilitation Agreement

 Dean Foods and ASC entered into the Agreement on January 30, 1998, whereby Dean Foods

acquired from ASC certain dairy assets, including the San Leandro dairy processing plant (“the

Dairy”) involved in the present dispute. The sale closed on March 1, 1998 (“Closing Date”). At

issue in the instant action are several provisions of the Agreement addressing ASC’s obligations to

indemnify Dean Foods for certain employment-related liabilities. 

In section 3.5 of the Agreement, ASC provides certain representations and warrantees

regarding employment matters: 

c. Except as set forth on Schedule 3.5 attached hereto, there is no unfair labor

practice, charge or complaint pending or, to the best of ASC’s knowledge,

threatened against or otherwise affecting ASC or its Affiliates with respect to

the Employees. 

d. Except as set forth on Schedule 3.5, there is no labor strike, slowdown, work

stoppage, dispute, lockout or other material labor controversy in effect, or to the

best of ASC’s knowledge, threatened against ASC or its Affiliates with respect

to the Employees. 

e. Except as set forth on Schedule 3.5, ASC has received no notice of its or its

Affiliates material violation of any law, regulation or order relating to the

employment of the Employees.

Facilitation Agreement, Joint App, Exh. B. at 10. Section 8.1 requires ASC to indemnify Dean

under certain circumstances including those associated with 

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a. any breach of any representation or warranty, or any breach of any covenant or

obligation . . . .

b. the use, ownership, and possession of the Assets, occupancy of the Facilities,

excepted as provided in Sections 5.1 and 5.2, employment of Employees prior

to the Closing Date . . . .

Id. at 23. Two other provisions relevant to the instant dispute include section 10.2 (“Survival of

Representations and Warranties”) and section 5.1d(v) concerning the assumption of certain

responsibilities related to employees’ claims. The survival clause limits ASC’s obligations for

breach of representations and warranties to one year from the Closing Date. 

Section 10.2 Survival of Representations and Warranties 

Any and all representations and warranties set forth herein or in any Schedule or Exhibit

(including but not limited to any such representations, warranties or statements made in

or in connection with any amendment) shall constitute representations and warranties

under this Agreement. All representations and warranties made under this Agreement

shall be made or deemed to be made at and as of the date hereof and as of the Closing

Date. Unless otherwise provided herein, all representations and warranties made or

deemed to be made under this Agreement shall survive the Closing Date for a period of

one (1) year, regardless of any investigations or inquiries made by any part, and shall not

be waived by the Closing or by operation of law. 

Id. at 27-28. The agreement contains a further provision relating to Dean Foods’ responsibilities for

employee’s claims. Section 5.1(d) (Dean Employee Liabilities) states that “Dean shall be

responsible for any benefits for, and claims arising after the Closing Date on behalf of, any

Transferred Employee in accordance with the plans, programs or policies of Dean, if any, applicable

to such Transferred Employees after the Closing Date.” Id. at 16. 

Under section 5.1a of the Agreement, Dean agreed to employ all of the existing Dairy

employees as of the closing date of the Agreement. Id. at 15. As a result, Dairy employees March J.

Williams, Lamarre Rouse, Duray Carr, Donyale Harvey, Lamott Gatson, and Juan Avila

(“Underlying Plaintiffs2

”) became employees of Dean as of the closing date of the Agreement. 

II. The Underlying Suit

In May 2001 the aforementioned employees filed administrative complaints against Dean

Foods, alleging racial discrimination and harassment under California law. On July 13, 2002, the

Underlying Plaintiffs filed suit in Alameda County Superior Court against Dean Foods as well as

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certain of its employees (“Underlying Action”). The Underlying Plaintiffs are all African-American

or Mexican-American men who had been employed at the Dairy since the early to mid 1990s. Their

complaint alleged racially discriminatory and harassing conduct at the Dairy since 1990. The

alleged conduct included ethnic slurs, name calling, administering discipline in a discriminatory

manner, racially based violence, and the use of threatening symbols including “KKK” graffiti, a

swastika, and bullet casings at the Diary. In their complaint and in their deposition testimony, the

Underlying Plaintiffs provided evidence of the harassing and discriminatory conduct from 1990 to

2000. 

III. Procedural History

The Underlying Plaintiffs filed suit against Dean but not against ASC. Federal defended

Dean in the Underlying Action pursuant to Dean’s insurance policy. Dean provided ASC notice of

the Underlying Action and Dean’s claim for indemnity under the Agreement on two occasions in

February 2002. On April 25, 2002 ASC informed Dean that it would not defend Dean or indemnify

it in the Underlying Action. On June 20, 2002 ASC and Dean entered into a Joint Defense

Agreement for the purposes of defending the lawsuit. Joint App. Exh. E. 

In February 2003 Federal and Dean entered into a Settlement Agreement and Release in

which Dean assigned its rights to indemnification under the FA to Federal. On February 14, 2003

Federal and Dean reached a settlement with the Underlying Plaintiffs for a sum of $3,300,000. 

Albertson’s and ASC did not contribute to the settlement. Federal brought suit in this court on June

28, 2006 seeking contractual indemnification and equitable subrogation under the Agreement. The

parties subsequently agreed to dismiss the equitable subrogation claim.

On March 5, 2007 the court heard the parties’ motions for summary judgment and then

issued an order granting partial summary judgment to Federal and denying ASC’s motion for

summary judgment. In doing so, the court rejected ASC’s contention that any claims against it in

the Underlying Action were time-barred because those claims may have survived under the doctrine

of continuing violations and, to a lesser extent, in the form of successor liability. The court

concluded that Federal had reasonably settled with the Underlying Plaintiffs for claims of unlawful

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discrimination that occurred during ASC’s ownership of the Dairy. The court also determined that

Federal’s settlement with the Underlying Plaintiffs was covered by the indemnification provision of

the Agreement, and, therefore, that ASC must indemnify Federal. 

On May 29, 2007 the United States Supreme Court issued an opinion in Ledbetter v.

Goodyear Tire & Rubber Co., Inc., 550 U.S. at —, 127 S.Ct. 2162 (2007). Ledbetter construed

narrowly the statute of limitations for filing an EEOC charge based on discrete discriminatory acts,

in particular pay decisions. In light of Ledbetter, ASC sought leave to file a motion for

reconsideration of this court’s order of partial summary judgment. The court granted the requested

leave and asked the parties to address whether Ledbetter applied to contexts outside discriminatory

pay decisions. The court has considered the parties’ arguments carefully and denies the motion for

reconsideration for the following reasons. 

DISCUSSION

In its previous order, the court’s task was to evaluate whether Federal, acting on behalf of its

insured Dean, reasonably settled the Underlying Action for claims during ASC’s ownership of the

Dairy. For that purpose, the court engaged in a two-step inquiry: first, were the Underlying

Plaintiffs’ claims against ASC time-barred; and second, did Federal reasonably settle the claims

against ASC? The court analyzed ASC’s liability under the continuing violations doctrine in

accordance with Richards v. CH2M Hill, 26 Cal. 4th 798, 812 (2001) and Morgan v. Regents of

Univ. of Cal., 88 Cal. App. 4th 52, 64 (2000). In doing so, the court rejected ASC’s reading of

Morgan to require that at least one act of discriminatory conduct occur within the statute of

limitations in order for ASC to be liable under the continuing violations theory. The court also

observed that there was evidence in the record sufficient to establish that the discriminatory conduct

occurred within the statute of limitations. After analyzing the four factors set out in Richards, the

court concluded that application of the continuing violations doctrine was appropriate and, therefore,

that the Underlying Plaintiffs’ claims against Alberton’s were not time-barred. The present motion

asks the court to reconsider its previous ruling in light of Ledbetter. 

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The motion is not well taken. First of all, the underlying action in this case was brought and

litigated in state court under California law. There were no federal claims. Thus, California law

was the law that this court considered and is the law that must be applied in this order. California

has a well-developed body of law dealing with “continuing violations” as articulated in Richards and

Morgan. The court in Morgan did discuss the Ninth Circuit’s opinion in Williams v. Owens-Illinois,

Inc., 665 F.2d 918, 924 (9th Cir. 1982), in aiding its explication of the continuing violations

doctrine. However, it is clearly California law that applies to this court’s analysis. And, this court

finds no California cases adopting Ledbetter.

3

 Nonetheless, the court disposes of the notion that the

facts in the underlying case would come under the penumbra of Ledbetter.

The Supreme Court’s opinion in Ledbetter did not address directly the equitable doctrine of

continuing violations. Rather, the Ledbetter court considered whether a plaintiff’s claim for

employment discrimination under Title VII was time-barred when the discrete acts of pay

discrimination occurred outside the limitations but had an effect during the limitations period. The

court’s opinion specifically distinguished Ledbetter’s claims for discrete acts of pay discrimination

from hostile work environment claims:

Contrary to the dissent’s assertion . . . what Ledbetter alleged was not a single wrong consisting

of a succession of acts. Instead, she alleged a series of discrete discriminatory acts, see [citation

to briefs] (arguing that payment of each paycheck constituted a separate violation of Title VII),

each of which was independently identifiable and actionable, and [National R.R. Passenger

Corp. v. Morgan, 536 U.S. 101 (2002)] is perfectly clear that when an employee alleges “serial

violations,” i.e., a series of actionable wrongs, a timely EEOC charge must be filed with respect

to each discrete alleged violation. 536 U.S. at 113.

Ledbetter, 127 S.Ct. at 2175. Thus, Ledbetter, by its own terms, dealt with discrete acts of

discrimination. In doing so, the Court recognized the continuing vitality of Morgan, which

acknowledged, for the purposes of the statute of limitations, a dichotomy between claims for discrete

acts of discrimination and hostile work environment claims. Id.; Morgan, 536 U.S. at 109. Ledbetter

merely clarified that pay discrimination, in a specific context, fell into the former category. 

By contrast, Morgan did directly address the equitable doctrine of continuing violations and

reversed the Ninth Circuit’s application of the continuing violations doctrine to discrete acts of

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discrimination which occurred outside of the limitations period. 536 U.S. at 114. The analysis of the

continuing violations doctrine, however, did not end there. The Court emphasized that “hostile

environment claims are different in kind from discrete acts.” Id. at 115. “Thus, [w]hen the

workplace is permeated with discriminatory intimidation, ridicule, and insult, that is sufficiently

severe or pervasive to alter the conditions of the victim’s employment and create an abusive working

environment, Title VII is violated.” Id. at 116 (quotations and citation omitted). The Court went on

to conclude that the “[a] charge alleging a hostile work environment claim, however, will not be

time barred so long as all acts which constitute the claim are part of the same unlawful employment

practice and at least one act falls within the time period.” Id. at 122. 

Turning now to the instant motion, the Complaint in the Underlying Action set forth a

number of allegations of racial discrimination. For instance, the first claim for relief was for

harassment on the basis of race in violation of the California Fair Employment and Housing Act,

California Government Code sections 12900 et seq. See Compl., Exh. D, at 30. The Underlying

Complaint then describes various allegations of racial harassment including use of slurs and racial

jokes in the workplace, which the Underlying Plaintiffs alleged “has been pervasive in Dean Foods’

work place at all times since at least 1989.” Id. at 30–31. A review of the Underlying Complaint

indicates that almost all of the claims for relief contain allegations of discriminatory conduct and

awareness by the management. See, e.g., Id. at 38–40 (Fourth Claim for Relief, Failure to Prevent

Discrimination and Harassment on the basis of Race). These allegations would likely have

supported a hostile work environment theory. Ledbetter’s analysis, if even applicable under

California law, would not apply to these claims. Therefore, the court’s conclusion in its previous

order was correct, namely that the statute of limitations does not bar the Underlying Plaintiffs’

claims. 

Furthermore, the ultimate inquiry for the purposes of the action presently before the court is

whether Federal and Dean reasonably settled with the Underlying Plaintiffs for discriminatory

conduct that occurred during ASC’s ownership of the Dairy. Even if Ledbetter were to apply to the

statute of limitations in the Underlying Action, Federal and Dean could not have reasonably foreseen

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this development at the time of settlement in February 2003. More significantly, however,

California courts have not adopted or applied Ledbetter to cases arising under state law. Thus, it

may well be that even on facts similar to those in Ledbetter the California courts would rule

differently. 

CONCLUSION

Based on the foregoing, the motion for reconsideration is DENIED. 

IT IS SO ORDERED.

Dated: September 13, 2007 

MARILYN HALL PATEL

District Judge

United States District Court

Northern District of California

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1. All facts cited herein are taken from the complaint (“Complaint”) or the Joint Statement of

Undisputed Facts (“UF”) unless otherwise noted. 

2. One of the plaintiffs in the Underlying Action, Frank E. Martin III, was never employed by ASC. 

3. This court notes that while California courts generally apply United States Supreme Court

interpretations of analogous provisions of federal employment laws to California employment

statutes, Reno v. Baird, 18 Cal.4th 640, 647 (1998), there is no authority as of this date that

California courts will adopt this rather cramped interpretation of pay discrimination, given the sharp

dissent of four members of the Court. However, as noted above this order discusses the application

of Ledbetter to the facts of this case. 

ENDNOTES

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