Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04000/USCOURTS-cand-3_06-cv-04000-3/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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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: Cross-Motions for Summary

Judgment

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 are the parties’ cross-motions for summary

judgment. The court has considered the parties’ arguments fully, and for the reasons set forth below,

the court rules as follows.

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

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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 

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 . . . .

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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

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

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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. 

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. 

LEGAL STANDARD

Summary judgment is proper when the pleadings, discovery and affidavits show that there is

“no genuine issue as to any material fact and that the moving party is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(c). Material facts are those which may affect the outcome of the

case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is

genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving

party. Id. The party moving for summary judgment bears the burden of identifying those portions

of the pleadings, discovery and affidavits that demonstrate the absence of a genuine issue of material

fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 323 (1986). On an issue for which the opposing party

will have the burden of proof at trial, the moving party need only point out “that there is an absence

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of evidence to support the nonmoving party’s case.” Id.

Once the moving party meets its initial burden, the nonmoving party must go beyond the

pleadings and, by its own affidavits or discovery, “set forth specific facts showing that there is a

genuine issue for trial.” Fed. R. Civ. P. 56(e). Mere allegations or denials do not defeat a moving

party’s allegations. Id.; Gasaway v. Northwestern Mut. Life Ins. Co., 26 F.3d 957, 960 (9th Cir.

1994). The court may not make credibility determinations, and inferences to be drawn from the

facts must be viewed in the light most favorable to the party opposing the motion. Masson v. New

Yorker Magazine, 501 U.S. 496, 520 (1991); Anderson, 477 U.S. at 249.

The moving party may “move with or without supporting affidavits for a summary judgment

in the party’s favor upon all [claims] or any part thereof.” Fed. R. Civ. P. 56(a). “Supporting and

opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be

admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the

matters stated therein.” Fed. R. Civ. P. 56(e).

DISCUSSION

I. Defendant’s Liability in the Underlying Action

At the outset, Albertson’s argues Dean Foods unreasonably settled with the Underlying

Plaintiffs for unlawful conduct that occurred before the Dairy was transferred to Dean Foods. First,

Albertson’s contends that the applicable statute of limitations barred plaintiffs’ recovery for preClosing conduct at the Dairy and thus Dean Foods’ settlement for this conduct was inappropriate. 

Second, it argues that Dean Foods’ settlement for pre-Closing conduct was unreasonable because

Dean Foods could not be held liable for conduct that occurred during ASC’s ownership of the Dairy

under the law of successor liability. After reviewing the standard for evaluating whether an

indemnitee settled reasonably, the court will consider the merits of each argument. 

A. Evaluating Settlement

 The Agreement provides for the application of Utah law. The parties agree that the laws of

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California and Utah are consistent in requiring liability of the prospective indemnitee and the

prospective indemnitor to a third party. Albertson’s notes that “[a]s a general rule, an indemnity

contract does not cover losses for which the indemnitee is not liable to a third person or for which an

indemnitee improperly pays.” Peter Culley & Assoc. v. Superior Court, 10 Cal. App. 4th 1484,

1493 (1992). However, Albertson’s conveniently ignores the test for improper settlement by an

indemnitee. The Culley court further stated, “one acting in good faith in making payment under a

reasonable belief that it is necessary to his protection is entitled to indemnity or subrogation, even

though it develops that he in fact had no interest to protect.” Id. at 1493 (citations omitted). Stated

another way, the test is whether Dean, plaintiff’s insured, settled the underlying action reasonably

and in good faith. 

Defendant bemoans Dean’s defense of the underlying claim as insufficient and even argues

that Dean’s counsel committed malpractice in the Underlying Action. Even if this were true, the

examples of inadequate defense fall far short of the required indicia of bad faith on the part of Dean

in its settlement of the underlying claim. Also, defendant points to Dean’s arguments made in the

Underlying Action, suggesting these are admissions that it was not liable for pre-Closing conduct for

purposes of this action.3 These too fail to support defendant’s position. 

B. Statute of Limitations

Albertson’s argues that claims against ASC for discrimination and harassment were timebarred and, accordingly, it was not liable for any claims. Under this reasoning, Albertson’s is not

required to indemnify Dean Foods for claims that Dean erroneously settled. Federal argues that the

Underlying Plaintiffs’ claims against ASC were not time-barred because the alleged discrimination

and harassment that occurred before the Dairy was transferred to Dean Foods were part of a

continuing violation. According to this view, the claims in the Underlying Action based on

activities during ASC’s ownership of the Dairy were, therefore, validly settled by Dean Foods. 

The parties agree that the relevant statute of limitations for the Underlying Plaintiffs’ claims

for racial discrimination and harassment under California law is one year. See Cal. Gov’t Code §

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12960; Cal. Civ. Proc. Code § 340(3). Albertson’s argues that the statute of limitations for any

claims based on conduct during ASC’s ownership of the Dairy expired on March 1, 1999, one year

after the closing of the Agreement and the sale of the Dairy to Dean Foods. Because the Underlying

Plaintiffs filed their administrative complaints in May 2001and filed suit in July 2001, Albertson’s

contends that their claims for actions under Albertson’s ownership were time-barred in the

Underlying Action. 

The continuing violations doctrine is invoked “when an employee raises a claim based on

conduct that occurred in part outside the limitations period.” Richards v. CH2M Hill, Inc., 26 Cal.

4th 798, 812 (2001). In such cases, “an employer [is] liable for actions that take place outside the

limitations period if these actions are sufficiently linked to unlawful conduct within the limitations

period.” Id. The Richards three-part test evaluates whether to apply the continuing violations

doctrine to conduct that occurred outside of the relevant statute of limitations. Under Richards, an

employer’s failure to remedy a hostile work environment is a continuing violation if the employer’s

acts 1) are sufficiently similar in kind; 2) occurred with reasonable frequency; and 3) have not

acquired a degree of permanence. Id. at 823. 

Albertson’s seeks to add an additional requirement: that the Underlying Plaintiffs must

demonstrate that at least one of the alleged acts must have been committed by ASC during the filing

period. In support of this proposition, Albertson’s cites one sentence taken out of context from

Morgan v. Regents of Univ.of Cal., 88 Cal. App. 4th 52, 64 (2000). The complete rule in Morgan is

that a continuing violation can be established by showing “a company wide policy or practice” or “a

series of related acts against a single individual.” Id. at 64 (citing Green v. City of Los Angeles

County Superintendent of Schs., 883 F.2d 1472, 1480 (9th Cir. 1989)). Under Morgan, “a plaintiff

who shows that a policy and practice operated at least in part within the limitation period satisfies

the filing requirements.” Morgan, 88 Cal. App. 4th at 64. The Underlying Plaintiffs alleged, and the

record establishes, the ongoing environment of racist, hostile and discriminatory behavior—in the

form of acts and policies—that existed at the Dairy from at least 1989 until February 14, 2003. See,

e.g., SAC, Exh. B, ¶ 95 (“[H]arassment . . . is pursuant to a longstanding, deep-rooted policy and/or

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practice by the management of racial discrimination against African Americans.”); id. ¶ 98 (“The

acts complained of herein were either approved, condoned, or taken by one or more managing

agents . . . each of whom had the authority to make corporate policy and/or to direct a substantial

portion of defendant’s business.”); id. ¶ 110 (describing offensive acts as part of overarching

discriminatory policies). Morgan reiterates the rule that “[a] systematic policy of discrimination is

actionable even if some or all of the events evidencing its inception occurred prior to the limitations

period.” Morgan, 88 Cal. App. 4th at 64. It therefore does not make sense to read Morgan as

Albertson’s suggests, because this reading would make Morgan internally inconsistent—a bad act

within the limitations period cannot be both required and unnecessary.

Even if Albertson’s reading of Morgan was correct, the policies that were in effect prior to

the dairy’s transfer to Dean Foods certainly continued to have effect post-transfer. While Dean

Foods’ track record with respect to remedying the situation is by no means perfect, it is impossible

to imagine how any new owner could repair such a dysfunctional workplace immediately upon

transfer. Albertson’s again misapplies Morgan on this point—it cites Morgan’s recitation that “mere

‘continuing impact from past violations is not actionable.’” Morgan, 88 Cal. App. 4th at 64 (citing

Williams v. Owens-Illinois, Inc., 665 F.2d 918, 924 (9th Cir. 1982)). But on this point, Williams

and Morgan distinguished between promotions or placement and refusals to hire or decisions to fire. 

The former may suffer from the ongoing effects of systematic discrimination, the latter being onetime actions. Neither Morgan nor Williams is susceptible to Albertson’s interpretation. 

Furthermore, reading them in this way is inconsistent with Richards’ characterization of when the

continuing violations doctrine may be applied.

1. Sufficient Similarity

Richards requires that the employer’s ongoing acts be sufficiently similar before and after the

limitations period in order constitute a continuing violation. To support its claim that this prong has

been met, Federal provides depositions from two dairy employees, Michael C. Minchey, a pretransfer Dean Foods employee, and Terry Ray Perkins, a pre-transfer ASC employee. These

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declarants testify that no meaningful changes occurred at the Dairy following the transfer of the

Dairy to Dean. See Minchey Dec. ¶ 3; Perkins Dec. ¶ 3. Albertson’s does not contest the similarity

of acts that took place pre- and post-transfer; nor does it contest the similarity of the documented

pre-transfer acts to other pre-transfer acts. Rather, Albertson’s presents evidentiary objections,

which the court addresses below, to the declarations. Therefore, the court is satisfied that Federal

has established sufficient similarity. 

2. Reasonable Frequency

Richards also requires that the employer’s acts occur with reasonable frequency. Federal has

submitted and Albertson’s has not contested, for the purposes of the present motions, evidence of the

underlying allegations of racial discrimination and harassment. These include allegations of

unlawful conduct in each year from 1991 to 1996. Def’s Mot. at 29–30. The Second Amended

Complaint in the Underlying Action further details unlawful conduct alleged in each of the

subsequent years up until the time the suit was filed. See ,e.g., SAC, Joint App. Exh. B ¶ 71(f)

(allegations of swastika graffiti in 1997); ¶ 48(b)(e) (allegations of KKK graffiti in 1999 and

confederate flag graffiti in 2001). Accordingly, the court finds that the unlawful acts occurred with

reasonable frequency. 

3. Permanence

Failure to remedy a hostile environment can only constitute a continuing violation if the

employer’s acts have not yet achieved a degree of permanence. Permanence refers to the employers’

actions being of such a nature so as to sufficiently communicate to the employee that any further

efforts to end the employer’s conduct, or to informally remedy the environment, would be futile.

Richards provides two examples for how employers’ acts achieve permanence: 1) the conduct

constituting a hostile work environment ends; 2) the employee is put on notice that further efforts

would be futile. Id. at 824. Albertson’s offers theories for satisfying both of these prongs. 

First, Albertson’s asserts that by transferring the Dairy to Dean, ASC necessarily ended any

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wrongful conduct it engaged in with respect to the Dairy employees. It argues that Richards refers

to a single employer and, therefore, implicitly recognizes that a change in ownership of the employer

ends the unlawful conduct. Albertson’s claims that Richards “characterizes the continuing

violations doctrine as applying to a single employer, unlike this case . . .” Def.’s Opp. at 19. It is

hardly surprising that the Richards court established a rule respecting a single-employer scenario,

since that was the scenario before the court at that time. That court was not in a position to speak to

multi-employer scenarios. It is inaccurate to portray the Richards court as constructing a rule with

an eye toward limiting its application to scenarios which were not before it.

Albertson’s also contends that under Richards, because an employee’s resignation brings a

discriminatory course of conduct to an end, it must also be true that an employer’s “resignation” by

selling the business must also bring a discriminatory course of conduct to an end. See 26 Cal. 4th at

823 (describing how an employee’s resignation ends an unlawful course of conduct). Albertson’s

cites no case law, statute, or other authority to support this proposition nor is such a reading of

Richards warranted. The Richards analysis focuses on the discriminatory conduct of the employer,

not the machinations of corporate control. To the extent that Richards speaks to this issue, it

suggests that the termination of course of conduct occurs not when the ownership of a facility

changes hands but at the cessation of harassment. Were a change in ownership to have any bearing

on the Richards analysis in the abstract, the facts here would suggest otherwise. In this case, the

change in ownership brought no change in the composition of the workforce or management. 

Indeed, the FA itself provided for continued employment of all personnel. Agreement, § 5.1(a),

Joint App, Exh. A. at 15. Therefore, neither law nor the facts support a conclusion that unlawful

conduct ended upon the change in ownership.

 Second, Albertson’s argues that the Underlying Plaintiffs were put on notice that their further

efforts to stop the unlawful conduct would be futile. To support this contention, Albertson’s points

to the extensive and egregious nature of the discriminatory and harassing conduct and suggests that

no reasonable employee would continue to seek redress in the face of such conduct. Richards

indicates that futility occurs when the employer “mak[es] clear to the employee in a definitive

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manner that it will not be granting any such requests, thereby commencing the running of the statute

of limitations.” 26 Cal. 4th at 823-24. Harassing conduct, short of constructive discharge, is

insufficient to render an employee’s efforts at remediation futile. Id. The employer conduct in

Richards was also very extreme; however, the Richards court focused not on the nature of the

conduct but on the communications between employer and employee in analyzing futility. Id. at

824. There is no evidence before the court that the Dairy, under the ownership of either ASC or

Dean Foods, communicated to the Underlying Plaintiffs that it would not take steps to remedy the

harassment. To the contrary, Federal has provided evidence that there were some potential avenues

for addressing these grievances, including regular visits in the mid-1990s from monitors touring the

Dairy in response to a consent decree in a gender discrimination suit and, subsequently, regular

inspections by a Human Resources manager. UF ¶¶ 21–22. Thus, Albertson’s has failed to establish

permanence.

Having concluded that Federal has satisfied the Richards test, the court concludes that

application of the continuing violations doctrine is appropriate. The statute of limitations for

unlawful conduct during ASC’s tenure as owner of the Dairy did not commence until after the

underlying lawsuit was filed. Therefore, the court concludes that the statute of limitations would

not preclude a finding of liability for unlawful conduct which occurred during ASC’s ownership of

the Dairy.

C. Successor Liability

Defendant offers an additional basis for arguing that Dean Foods’ settlement of claims for

conduct that occurred during ASC’s ownership was unreasonable. Under this argument, Dean

Foods should not have settled claims based on pre-Closing conduct because Dean Foods could not

have been held liable for these actions. Albertson’s argues that there was no legal support for the

imposition of successor liability on Dean Foods in the Underlying Action. Federal contends that

Dean likely faced successor liability in the Underlying Action and so reasonably settled with the

Underlying Plaintiffs. Under California law, a successor corporation will generally not be liable for

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the tort liability of its predecessor without an assumption of liability, evidence of fraud or a merger

of the two companies. See, e.g., Franklin v. USK Corp., 87 Cal. App. 4th 615, 621 (2001). 

However, there is some case law to suggest that in a employment context, successor liability may be

imposed where there is substantial continuity of business operations, as have been established here.

See Slack v. Fair Havens, 522 F.2d 1091 (9th Cir. 1975) (imposing liability on successor corporation

for acts committed by predecessor corporation which violated Title VII, where the successor

corporation was found to be an alter ego of the owner of its predecessor). Therefore, the court finds

it reasonable for Dean Foods to have settled for pre-Closing conduct based on the possibility, albeit

limited, that it would be a successor to ASC’s liabilities in this regard.

In sum, the court concludes that the statute of limitations did not bar the Underlying

Plaintiffs’ claims based on pre-Closing conduct, and, therefore, Dean Foods’ settlement of those

claims was reasonable. Additionally, the potential for the imposition of successor liability, while

small, was a reasonable basis for settling those claims.

II. Contract Interpretation Issues 

In evaluating Federal’s claim for indemnification, the court must determine whether the

Underlying Action was covered by the Indemnification Clause. Albertson’s argues that the

Underlying Action involved only the representations and warranties concerning employment related

liabilities. It further argues that Dean Foods assumed the liability under section 5.1d(v). Finally, it

contends that the Indemnification Clause does not cover a voluntary settlement. 

A. Indemnification Clause

Federal argues that the Underlying Action was covered by the Indemnification Clause,

contained in section 8.1 of the Agreement. Albertson’s, in turn, argues that the Underlying Action

triggered the representations and warranties in section 3.5 and its applicable Survival Clause, section

10.2. 

 In Utah, as elsewhere, “[i]f the language within the four corners of the contract is

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unambiguous, the parties’ intentions are determined from the plain meaning of the contractual

language, and the contract may be interpreted as a matter of law.” WebBank v. Am. Gen. Annuities

Serv. Corp., 54 P.3d 1139, 1145 (Utah 2002). The Agreement required ASC to indemnify Dean

against all covered liabilities, as defined in the Agreement,4 associated with 

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 . . . .

The plain language of section 8.1(b) suggests that the Underlying Action for employment

discrimination and harassment for conduct prior to the closing date triggers ASC’s obligation to

indemnify Dean Foods. In response, Albertson’s argues that section 8.1(a) and 8.1(b) are mutually

exclusive and that where an action triggers one, it cannot trigger both provisions. Such an argument

is unsupported in the case law, and Federal does not attempt to support it. The Indemnification

Clause is a distinct contractual obligation from the representations and warranties contained in

section 3.5, thus the two provision should be interpreted to exist independently. Federal is correct

that the Underlying Action would likely also trigger ASC’s duty to indemnify Dean Foods for a

breach of representations and warranties. ASC made explicit representations and warranties in

section 3.5 of the Agreement that there was “no unfair labor practice, charge or complaint pending

or, to the best of ASC’s knowledge against or otherwise affecting ASC or its Affiliates with respect

to the Employees.” Exh. B at 10. This provision might serve as an additional basis for Federal’s

indemnification claims, but the plain language of the Agreement does not require that it be the

exclusive basis for doing so. Thus, the court finds that the Underlying Action is covered by section

8.1(b).

Next, Albertson’s argues that its obligations under the Indemnification Clause are limited by

the Survival Clause which appears in section 10.2 of the Agreement. Section 10.2 provides in

relevant part:

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

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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. 

Exh. B at 28. The Survival Clause, by its own language, refers explicitly to representations and

warranties in section 8.1(a) and not to the broad indemnification provision in section 8.1(b). As

noted above, the provisions for indemnity and for breaches of warranties and representations are

separate and distinct. The court finds the plain meaning of the FA unambiguous, and the extrinsic

evidence and authority cited by defendant uses language distinguishing representations and

warranties from indemnification provisions. Defendant cites several practitioner’s guides to

establish that the Survival Clause applies to both indemnification rights and representations and

warranties. See, e.g., Richard A. Goldberg & Justine F. Jones, Negotiating the Purchase

Agreement, 1350 PLI/Corp 371, 426 (2003). However, an examination of the quoted passages

belies this conclusion. The treatises refer to indemnification rights and representations and

warranties independently, rather than conflating the two, as defendant would have this court do. 

Therefore, the survival clause limits the duration of only representations and warranties to one year

and does not limit the indemnification rights. 

B. Section 5.1d(v)

Albertson’s contends that Dean Foods assumed liability for pre-Closing employment matters

and points to section 5.1d(v) to support its argument. That section entitled “Dean Employee

Liabilities” provides 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.” Exh. B at

16. Albertson’s advances the absurd argument that Dean is liable for the “policy” of racial

discrimination and harassment against employees per the terms of section 5.1d(v). The court must

determine whether section 5.1d(v) can bear this reading. It cannot. 

Construing policy to include discrimination and harassment begun during ASC’s ownership

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of the Dairy is a perversion of the plain language of the provision. There are additional reasons for

rejecting Albertson’s argument. First, section 5.1d read in context is limited to employee benefits,

wages and salaries. Section 5.1d(i) requires Dean to pay all salaries and wages after the closing date. 

The section immediately preceding 5.1d(v) addresses Dean’s responsibility for withholding all

amounts required by law; the succeeding provision addresses workman’s compensation. Agreement,

§§ 5.1d(i),(iv),(vi), at Exh. B at 16. Therefore, it is implausible that section 5.1d(v), buried amongst

provisions addressing the minutiae of wage and salary compliance, expands Dean’s liability in the

way suggested by Albertson’s. Moreover, the presumption against indemnity agreements holding

one liable for another’s acts supports this reading. “In general, the common law disfavors agreements

that indemnify parties against their own negligence because one might be careless of another’s life

and limb, if there is no penalty for carelessness. Because of this public safety concern, we strictly

construe indemnity agreements against negligence.” Hawkins v. Peart, 37 P.3d 1062, 1066–67 (Utah

2001) (internal citation and quotation marks omitted). Here, this presumption supports Federal’s

reading of the provision. Accordingly, the court concludes that Dean Foods did not assume the

liability for the Underlying Action.

C. Voluntary Settlements

Almost as an aside, Albertson’s argues that its obligation to indemnify Dean does not obtain

because the settlement between Dean Foods and the Underlying Plaintiffs was voluntary. 

Albertson’s provides no support for its contention that voluntariness is the test for triggering

indemnification. As Albertson’s notes, the Utah Supreme Court considers settlement sufficient to

require indemnification in an analogous context. See Benjamin v. Amica Mut. Ins. Co., 140 P.3d

1210, 1216 (Utah 2006) (“The duty to indemnify depends upon liability, i.e., an insurer’s obligation

to pay a judgment or settlement.”) (emphasis added and citations omitted). The court rejects this

argument. 

In sum, the court concludes that the Underlying Action was covered by the indemnification

provision of the Agreement. At this stage, the parties have not presented arguments as to the precise

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amount of Albertson’s indemnity obligations, and the court has not addressed that issue. Federal’s

motion for partial summary judgment is GRANTED. Albertson’s motion for summary judgment is

DENIED.

III. Evidentiary Issues

Defendants have raised several evidentiary issues which the court will address in turn. 

A. Request for Judicial Notice

Albertson’s asks the court to take judicial notice of two documents filed with the SEC in

order to establish that Dean Foods is a publicly traded company in 1998. The court has not

considered this evidence in its disposition of the current dispute and, therefore, it need not consider

the request for judicial notice. 

B. Evidentiary Objections

Defendants raise objections to two declarations submitted by plaintiffs: that of Michael C.

Minchey and Terry Ray Perkins. 

Defendants object to the Minchey declaration for two reasons. They argue that Minchey

lacked personal knowledge of the facts discussed in his declaration, and they contest the relevance

of Minchey’s declaration. While Minchey was never employed by ASC, he was the plant manager

of the Dairy immediately after it was acquired by Dean Foods. Minchey Dec. ¶¶ 1–2. In this

capacity, he had personal knowledge of any changes made––personnel, products, workforce—by

Dean Foods after acquiring the Dairy. Thus, he can validly testify to whether such changes were

made or whether, as he testified, the products, processes, and workforce “were substantially the

same” under Dean Foods as they had been under ASC’s ownership. Id. ¶ 3. The court has

addressed the relevance of the Minchey declaration in its analysis of the parties’ statute of

limitations arguments. 

They also present the argument that Perkins, as Plant Foreman, may have been a union

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employee and not a member of the Dairy management. According to this logic, Perkins would not

have the requisite personal knowledge under Rule 602 of the Dairy’s operations and workforce to

testify on their nature. Perkins was an employee with supervisory responsibilities and as such had

personal knowledge of the composition of the work force and supervisory personnel. Perkins Dec.

¶¶ 2–3. The relevance of Perkins’ declaration has been addressed previously. Therefore, the

defendants’ objections to both declarations are OVERRULED.

CONCLUSION

Plaintiff’s motion for partial summary judgement is GRANTED. Defendant Albertson’s

motion for summary judgment is DENIED.

IT IS SO ORDERED.

Dated: May 11, 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. Defendant appears to employ Dean’s denials of liability in the underlying action to suggest that

Dean was not actually liable to the plaintiffs for the underlying settlement and thus that the

settlement was improper. This claim is without merit, as Dean’s denial in the underlying claim was

central to its defense. Furthermore, the substantial settlement of those claims leads the court to

presume that Dean was liable. This presumption is not rebutted here by reference to Dean’s denials

of liability in its pleadings.

4. Covered Liabilities are defined by the FA as:

all debts, losses, claims (including pursuant to [the indemnity agreement]), damages,

costs, demands, . . . payments, liabilities of every type and nature . . . together with any

reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees

. . . ) incurred in connection with any of the foregoing (including, without limitation,

reasonable costs and expenses incurred . . . preparing or defending any pending or

threatened action). 

Agreement, § 1.1, Exh. B at 2.

ENDNOTES

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