Hemond v. Frontier Commc’ns of Am., Inc., No. S0991 -09 CnC (Grearson, J., Oct. 18, 2012)

[The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION

Chittenden Unit Docket No. S0991-09 CnC

MICHAEL HEMOND and

TRACEY HEMOND

Plaintiffs

v.

FRONTIER COMMUNICATIONS OF AMERICA, INC., f/k/a CITIZENS COMMUNICATIONS COMPANY, d/b/a CITIZENS ENERGY SERVICES, VERMONT ELECTRIC POWER COMPANY, INC., STANTEC CONSULTING, INC., STANTEC CONSULTING CORPORATION, STANTEC CONSULTING SERVICES, INC., f/k/a DUFRESNE HENRY, NAVIGANT CONSULTING, INC., TURNER ELECTRIC CORPORATION, TURNER ELECTRIC, LLC, GRAYBAR ELECTRIC COMPANY, INC.

Defendants

RULING ON NAVIGANT’S MAY 1, 2012 MOTION FOR SUMMARY JUDGMENT

Navigant’s motion in this personal injury case inv olves questions of contractual indemnity. The following introductory background i s necessary to put the present motion

in context. Plaintiff Michael Hemond suffered elec trocution injury on September 28, 2006 when, while working as a lineman for the Vermo nt Electric Cooperative, Inc. (VEC), he operated Switch 14E at the electrical sub station in Richford, Vermont. In 2009, Mr. Hemond and his wife brought this suit aga inst the above-named defendants alleging, among other things, negligence in their r espective roles in the design, manufacture, installation, and construction of the substation, the selection and use of switches in the substation, the planning and implem entation of electrical switching operations, and related consulting, advising, and s upervising work.

Although Mr. Hemond’s injury occurred while he was working for VEC, the allegedly negligent acts occurred some years before then, at which time Citizens Communications Company (Citizens) 1 owned the utility assets at issue and employed Mr. Hemond. Citizens contracted with Navigant Consulti ng Group, Inc. (Navigant) to provide design and engineering services with regard to Citizens’ work on the substation,

which included installation of Switch 14E.

1 Now Frontier Communications of America, Inc.2

In December 2010, Citizens sought summary judgment on the grounds that it was entitled to the defense of the workers’ compensatio n exclusivity bar. The Court (Katz, J.) denied that motion at a hearing on June 15, 2011, a nd in its December 22, 2011 ruling (Grearson, J.) denied Citizens’ motion to reconside r and its alternative motion to take an interlocutory appeal. In an Entry Order filed on F ebruary 3, 2012, the Supreme Court granted Citizens’ motion for permission to appeal t he December 22, 2011 decision denying Citizens’ motion for reconsideration. 2

Meanwhile, a mediation in February 2011 resulted in a settlement between plaintiffs and Turner, Navigant, VELCO, Graybar, an d Stantec. Citizens participated in the mediation, but left after several hours, and wa s not a party to the settlement. See Shahi Aff. ¶ 3 (filed June 1, 2012). On February 7 , 2011, Citizens filed cross-claims for indemnification against its co-defendants, includin g a claim against Navigant for implied indemnification. Having settled with all of the de fendants except for Citizens, plaintiffs moved for their voluntary dismissal on February 25, 2011. Citizens took the position that

its co-defendants should not be dismissed from the case entirely because it had filed cross-claims against them. Each of the co-defendan ts filed motions seeking dismissal or summary judgment on Citizens’ claims for indemnific ation against them. Each of those motions has now been granted.

In the midst of Citizens’ cross-claims seeking ind emnification from its codefendants, Navigant filed its own cross-claim for indemnification against Citizens on March 3, 2011. The cross-claim alleges that Citize ns’ contract with Navigant contains an express provision that requires Citizens to indemni fy Navigant for any and all liability— including attorney’s fees—that may arise in connect ion with work performed pursuant to the contract. Noting that it has paid a sum to pla intiffs to settle plaintiffs’ claims against Navigant, and incurred attorney’s fees in connectio n with the action, Navigant seeks a judgment against Citizens on the basis of the indem nification language in the contract. Citizens answered Navigant’s cross-claim, denying t hat Navigant is entitled to indemnity from Citizens, and asserting a variety of affirmati ve defenses. 3

On May 1, 2012, Navigant filed a motion for summar y judgment on its March 3, 2011 cross-claim. Citizens opposes the motion, arg uing that the Court lacks jurisdiction to decide it because of the interlocutory appeal cu rrently before the Supreme Court. Without waiving its jurisdictional argument, Citize ns also opposes the motion on its merits. Navigant has not filed a reply memorandum. The Court begins with the jurisdictional question.

2 The interlocutory appeal in the Supreme Court is d ocketed No. 2012-006. As of this writing, the Supr eme Court has not decided the appeal.

3 The affirmative defenses Citizens asserts are: (1) failure to state a claim; (2) no express or implie d indemnification; (3) independent negligence; (4) ac quiescence; (5) “[t]he denials and defenses of Citi zens to the allegations against it by the plaintiffs . . . and . . . Navigant’s defenses to plaintiffs’ com plaint”; (6) Navigant’s liability, if any, was not adjudicated b y virtue of its settlement; (7) voluntary payment; (8) unreasonable settlement; (9) workers compensation e xclusivity bar; (10) lack of consent; (11) waiver o r failure to properly reserve or preserve the claim; (12) to the extent any settlement with plaintiffs w as paid by Navigant’s insurer, lack of privity or standing. Answer at 2–3 (filed Mar. 17, 2011).3 I. Jurisdiction 4

In Vermont, “when a proper notice of appeal from a final judgment or order of the lower court is filed the cause is transferred to [t he Supreme] Court, and the lower court is divested of jurisdiction as to all matters within the scope of the appeal .” Kotz v. Kotz

, 134 Vt. 36, 38 (1975) (emphasis added). Citizens a sserts that Navigant’s claim for indemnification is generally within the scope of th e pending appeal, and that Citizens has specifically raised the worker’s compensation exclu sivity bar as a defense to Navigant’s

claim.

The Court fails to see how the worker’s compensati on exclusivity bar could be a defense to Navigant’s indemnification claim. If th e bar applies, it would immunize Citizens against plaintiffs’ claims. But it would not immunize Citizens agains t Navigant’s claim, since Navigant’s claim is not one for a wor kplace injury, but rather for

contractual indemnification. The cases that Citize ns cites in its September 4, 2012 filing are inapposite. New England Telephone & Telegraph Co. v. Central Ve rmont Public Service Corp. is more persuasive. See 391 F. Supp. 420, 427 (D. Vt. 1975) (holding that the exclusivity provision of Vermont’s Worker’s Com pensation Act did not preclude an indemnification action by a tortfeasor against an e mployer because an express contractual obligation creates an independent duty owed by the employer to the third party, and because a contrary holding “would be to fail to giv e effect to the intent of the contracting parties”).

Citizens also maintains that Navigant’s cross-clai m is more generally within the scope of the appeal. Of course it is not enough to say that the cross-claim arises out of Mr. Hemond’s injury and the events preceding it—the scope of the appeal does not involve every legal issue spawned by the facts of t his case. But Citizens asserts that it has raised affirmative defenses to Navigant’s contr actual indemnity claim that depend on the outcome of the appeal: voluntary payment, unrea sonable settlement, and Citizens’ defenses to the plaintiffs’ claim. The problem wit h that assertion is that Citizens does not explain how the defenses it mentions involve the wo rkers compensation exclusivity bar. The Court therefore concludes that Navigant’s claim for contractual indemnification against Citizens—and Citizens’ defenses to that cla im—are not within the scope of the appeal pending with the Supreme Court, and that thi s Court retains jurisdiction to rule on Navigant’s summary judgment motion.

II. Merits—Contractual Indemnity

A. Background

The following facts are undisputed except where no ted. Citing the affidavit of its Associate General Counsel Dawn M. Cassie, Navigant asserts that it acquired “REED Consulting Group (‘REED’)” in 1997, and that follow ing the acquisition of REED,

4 The court has considered and appreciates the parti es’ supplemental briefing on the jurisdictional que stion.4

Navigant on occasion did business under the name “N avigant Consulting Inc./Reed.” Navigant’s Ex. 2 ¶¶ 2, 4 (filed May 1, 2012). Citi zens asserts that Ms. Cassie “fails to specify whether Navigant Consulting Inc./Reed was a registered factitious business name.” Citizens’ SUMF in Opp’n ¶ 5 (filed June 1, 2012).

It is undisputed that, in a letter dated July 23, 1 999 and printed on “Navigant Consulting, Inc.” letterhead, Victor Blanchet, Jr. offered to Citizens the consulting services of “Navigant Consulting Inc./Reed (NCI/Ree d).” Navigant’s Ex. 1-1 (filed May 1, 2012). Specifically, the offer was to supply “o n-going technical and professional support for [Citizens’] Vermont Electric Division.” Id . The letter recited the understanding that Citizens had requested that Euge ne Shlatz would provide those

services. Id . The July 23 letter makes no reference to the Ric hford Substation upgrade, although it does state the following: “We anticipat e that Citizens will require Mr. Shlatz’s services for up to two to three days per week, and that much of his time would be spent on site in Newport, Vermont.” Id . On July 26, 1999, Citizens’ Vice President and General Manager Gary Kellogg accepted the offer by signing the July 23 letter. Id

.

Citizens suggests, without citing anything in the r ecord, that “REED Consulting Group” is not the same as “Reed Consulting Group, I nc.,” and that the former has nothing

to do with this case. The Court does not see how t hat fact, even if true, supports Citizens’ assertion—again without any citation to the record— that Navigant was not a party to the July 23 letter. See Citizens’ SUMF in Opp’n ¶ 2 (“ [D]isputed as to the assertion that Navigant was the contracting party.”). The eviden ce is that Navigant occasionally did business under the name “Navigant Consulting Inc./R eed.” Whatever happened between Navigant and any Reed entity, and regardless of whe ther Navigant registered “Navigant Consulting Inc./Reed” as a trade name, that evidenc e amply supports the conclusion that Navigant was a party to the July 23 letter. Citize ns has not offered any evidence to the

contrary.

The July 23 letter included the following statemen t: “Our work would be performed under NCI/REED’s Standard Terms and Condi tions, which are attached.” Id

. Navigant asserts that those terms and conditions ar e spelled out in a document entitled “REED CONSULTING GROUP TERMS AND CONDITIONS,” which is included along with the July 23 letter in Navigant’s Exhibit 1-1. Citizens contends that there is no

evidence to establish that this document was the do cument referred to in the July 23 letter, noting that it is not signed or initialed b y Mr. Kellogg, and is not titled

“NCI/REED Standard Terms and Conditions” as the Jul y 23 letter mentioned. The Court agrees that the document was not signed or initiale d by Mr. Kellogg, and that the

document is not entitled “NCI/REED Standard Terms a nd Conditions.” But Citizens has not come forward with affirmative evidence stating that the document is not the correct one, nor has it supplied a document that it thinks is the true statement of the terms and

conditions.

The Court concludes that Ms. Cassie’s affidavit is sufficient evidence to establish

that the document included in Exhibit 1-1 is the do cument referenced in the July 23 letter.

The Court also notes that the evidence is that Navi gant had acquired REED Consulting5

Group, so it makes sense that Navigant’s and REED’s terms would be the same. In any case, Citizens has not supplied any evidence to dis pute Navigant’s evidence on this point.

The document entitled “REED CONSULTING GROUP TERMS AND CONDITIONS” referenced in the July 23 letter includes the follo wing provision:

Responsibility Statement – REED agrees that the services provided for herein will be performed in accordance with recogni zed professional consulting standards for similar services and that adequate personnel will be assigned for that purpose. If, during the perfo rmance of these services or within one year following completion of the assi gnment, such services shall prove to be faulty or defective by reason of a failure to meet such standards, REED agrees that upon prompt written not ification from you prior to the expiration of the one-year period foll owing the completion of the assignment of any such fault or defect, such fa ulty portion of the services shall be redone at no cost to you up to a maximum amount equivalent to the cost of the services rendered und er this agreement. The foregoing shall constitute REED’s sole liability wi th respect to the accuracy or completeness of the work and the activi ties involved in its preparation. In no event shall REED, its agents, e mployees, or others providing materials or performing services in conne ction with work on this assignment be liable for any direct, consequen tial or special loss or damage, whether attributable to breach of contract, tort, including negligence or otherwise; and except as herein provi ded, you release, indemnify, and hold REED, its agents, employees, or others providing materials or performing services in connection with work on this assignment harmless from and against any and all li ability including costs of defense settlement and reasonable attorney’s fee s, therefor.

Ex. 1-1 ¶ 7.

In a letter dated May 30, 2001, Mr. Shlatz wrote t o Andrew Letourneau at Citizens indicating that “Navigant Consulting Inc. (NCI) is pleased to offer its services to provide technical and economic consulting assistanc e to support a Certificate of Public Good (CPG)” for “the HK Webster and Troy Street sub stations located in Richford, Vermont.” Ex. 1-2. The letter goes on to say that “Navigant proposes to perform these tasks under Navigant’s existing services contract.” Id . In a letter dated June 7, 2001, Mr. Letourneau replied to Mr. Shlatz, writing: “I have reviewed your proposal regarding the Richford and HK Webster Section 248 Project and fin d the content and estimate to be acceptable. You are hereby authorized to begin wor k as outlined in your letter dated May 30, 2001.” Shlatz Dep. 63:17–21, Aug. 23, 2010 Ex. 76.

As mentioned above, Mr. Hemond’s injury occurred i n Richford on September 28, 2006. Navigant was served with the complaint i n this case on August 19, 2009, and entered an appearance through counsel shortly after September 1, 2009. Navigant twice tendered the defense of this lawsuit to Citizens, a nd demanded that Citizens defend and6

indemnify Navigant, the first time within a month o f service of the complaint. Citizens refused to undertake the defense and provide indemn ification.

After tender of the defense, Navigant entered into settlement discussions with the plaintiffs. Those discussions culminated in a medi ation session on February 1, 2011, and a settlement agreement was executed between the pla intiffs and all defendants except Frontier on or about February 2, 2011. 5 Pursuant to the settlement agreement, Navigant paid to plaintiffs the sum of $225,000. Cassie Aff . ¶ 16 (filed May 1, 2012).

Paul Frank + Collins, P.C. (PFC) has represented N avigant throughout this proceeding. PFC has billed Navigant for attorney’s fees and for costs in connection with defending the suit. Navigant expects that PFC will bill it for further fees and expenses in

its continued defense of Citizens’ cross-claim. Th ere is no evidence as to whether Navigant’s insurer has been paying or will pay PFC’ s bills.

B. Analysis

Navigant asserts that it is entitled to summary ju dgment on its cross-claim against

Citizens for indemnification because Citizens has e xpressly agreed to indemnify Navigant for the fees and costs billed to Navigant in this action. Citizens maintains that summary judgment is not appropriate because: (1) th ere are disputes about who the contracting entity was, the applicable agreement, a nd its terms; (2) an exception within the indemnification provision applies; and (3) summ ary judgment is precluded by defenses Citizens has raised that require factual a djudication. The Court takes up each of Citizens’ arguments in turn.

1. Whether Factual Disputes Preclude Summary Judgm ent

Citizens asserts that there are factual disputes o ver whether: (1) Navigant was the entity that contracted with Citizens; (2) the terms in the “REED CONSULTING GROUP TERMS AND CONDITIONS” were part of the agreement wi th Citizens; and (3) whether those terms applied to the services that Navigant p rovided with respect to the Richford

substation.

As described above, the Court has concluded that N avigant has come forward with evidence to support its contentions that Navig ant was the entity that contracted with Citizens, and that the terms in the “REED CONSULTIN G GROUP TERMS AND CONDITIONS” were part of the agreement with Citizen s. The Court has also concluded that Citizens has failed to come forward with any e vidence that would create a dispute on those points.

5 Citizens disputes the facts in this paragraph, ass erting that Navigant has failed to support them wit h reference to any evidence. It is true that Navigan t did not cite anything in the record for these ass ertions. However, these facts are well established in the re cord as well as prior court rulings. E.g., Ruling on Motions to Reconsider at 2 (filed Dec. 22, 2011) (“ The parties participated in mediation in early Febr uary 2011, the result of which was that Plaintiffs reach ed a settlement with defendants Turner, Navigant, VELCO, and Stantec.”).7

That leaves Citizens’ third basis for claiming tha t there is a factual dispute. Citizens asserts that the July 23, 1999 letter pred ates any planning for the Richford Substation upgrade, and does not (and cannot) refer to any such work. Citizens invites comparison to the May 30, 2001 letter from Mr. Shla tz, which does specifically refer to the substation project in Richford. Citizens maint ains that the May 30, 2001 letter’s reference to “Navigant’s existing services contract ” does not identify which contract it is referring to.

It is true that the July 23, 1999 letter does not specifically refer to the substation project in Richford. But that does not mean that i ts terms do not apply to the Richford project. The July 23, 1999 letter indicated that N CI/Reed would provide “on-going technical and professional support for [Citizens’] Vermont Electric Division.” The terms of the agreement were plainly intended to apply to the on-going support, regardless of the particular project in which that support was offere d. Moreover, on the present record, the reference in the May 30, 2001 letter to “Navigant’s existing services contract” can only mean the July 23, 1999 letter. Citizens has not pr ovided any evidence suggesting that

there was some other services contract in force. F inally, to the extent the May 30, 2001 letter can be said to contain more specific provisi ons that might control over the more general provisions of the July 23, 1999 letter, the rule about specific contractual terms controlling over more general ones applies when the terms relate to the same matter. Trinder v. Ct. Attorneys Title Ins. Co. , 2011 VT 46, ¶ 19, 189 Vt. 492. In this case, the re are no terms regarding indemnity in the May 30, 200 1 letter, so the rule does not apply.

2. Whether an Exception to the Indemnification Pro vision Applies

Citizens notes that the indemnification provision includes the phrase “except as herein provided,” and argues that the exception app lies because it covers third-party liability claims like Mr. Hemond’s claim for neglig ence against Navigant. According to Citizens, “Navigant’s promise to provide profession al engineering services that met industry standards could be the basis for impositio n of liability on it by third parties such

as Mr. Hemond who were the foreseeable victims of N avigant’s breach.” Opp’n at 21 (filed June 1, 2012). Citizens also asserts that N avigant could not limit Mr. Hemond’s

remedies in a contract with Citizens. Id . Citizens says that it therefore “follows that th e way Navigant structured and wrote section 7, it cre ated an exception to the declaration therein of no liability for the work other than to fix it within a year.” Id

.

In indemnity cases, the Court interprets the langu age “to give effect to the intent of the parties as that intent is expressed in their writing.” Hamelin v. Simpson Paper (Vt.)

Co. , 167 Vt. 17, 19 (1997). The exception at issue is Citizens’ agreement that, “upon prompt written notification from you prior to the e xpiration of the one-year period following the completion of the assignment of any s uch fault or defect, such faulty portion of the services shall be redone at no cost to you . . . .” Here, the parties’ clear intent was that Navigant’s liability would be limit ed to the cost of redoing the faulty

services. The Court can discern no intent for Navi gant to be liable to any greater extent,8

even when third parties bring claims against Naviga nt. The indemnity provision does not limit any third parties’ claims, but shifts respons ibility to the indemnitor (Citizens).

3. Whether Citizens’ Other Defenses Preclude Summa ry Judgment

In its opposition, Citizens focuses on two of its affirmative defenses: voluntary payment of an unreasonable settlement, and Navigant ’s alleged lack of privity or standing by reason of payment to plaintiffs by Navigant’s in surer rather than Navigant itself. Opp’n at 22–23. The Court begins with the latter d efense.

Initially, although the “standing” concept is, at a general level, used to test whether a plaintiff possesses a sufficient interest in the action, using the standing doctrine in a case (like this one) involving only private cl aims is problematic. It can create “conceptual confusions [that] make unnecessary work ” and may cause incorrect conclusions regarding the Court’s subject matter ju risdiction, the availability of substitution to correct a real party in interest de fect, capacity, intervention, etc. Wright & Miller, et al., Federal Practice and Procedure: Jur isdiction § 3531 (3d ed.) (WL updated Apr. 2012). Neither does there really appear to be any lack of contractual privity on Navigant’s part, since the Court has concluded that there is no genuine dispute that Navigant and Citizens entered into the contract at issue.

Of course, if Navigant did have an insurer that pa id the settlement, costs, and fees, that insurer may be subrogated to any right Navigan t may have to indemnity from

Citizens. See Bank of the W. v. Valley Nat’l Bank of Ariz. , 41 F.3d 471, 480 (9th Cir. 1994). But the Court does not see how that fact wo uld relieve Citizens of any obligation it might have to indemnify Navigant. See Lesmark, Inc. v. Pryce , 334 F.2d 942, 945 (D.C. Cir. 1964) (fact that indemnitees carried lia bility insurance which covered the plaintiffs’ claims did not relieve the indemnitor o f its obligation to indemnify).

The court turns now to Citizens’ voluntary-payment defense. “To protect the indemnitor’s right to defend against liability, a v oluntary payment by an indemnitee, without notice to the person sought to be charged, may foreclose restitution.” DiGregorio v. Champlain Valley Fruit Co. , 127 Vt. 562, 566 (1969). Citizens’ attorney has stated in an affidavit that “Navigant did not p rovide notice to Citizens of its intention to settle.” Shahi Aff. ¶ 7. However, it is undisp uted that on two separate occasions Navigant called upon Citizens to defend the suit. Furthermore, Citizens admits that it was aware of the February 2011 mediation session th at resulted in the settlements, and was in fact present for at least part of that media tion. It is therefore irrelevant that Navigant did not provide further notice to Citizens of its intention to settle—once Citizens refused to defend and it became necessary for Navigant to defend itself, Navigant was entitled to proceed in good faith to r each a reasonable settlement. DiGregorio , 127 Vt. at 566 (citing Boston & Me. R.R. v. Howard Hardware Co. , 123 Vt. 203, 210 (1962)); accord Fashion House, Inc. v. K Mart Corp. , 892 F.2d 1076, 1094 (1st Cir. 1989) (noting that where indemnitor had notice of the plaintiff’s suit but declined to defend it, the indemnitor will be bound by any reas onable, good faith settlement the indemnitee might thereafter make).9

An indemnitee’s payment is “voluntary” if the inde mnitee is under no obligation to pay or where no interest of his is protected by the payment. Norfolk & Dedham Fire

Ins. Co. v. Aetna Cas. & Sr. Co. , 132 Vt. 341, 344 (1974); see also Peerless Cas. Co. v.

Cole , 121 Vt. 258, 263 (1959) (payment of settlement pr ior to any judgment was voluntary because the plaintiff was not under any c ompulsion to effect the settlements made). Here, no judgment compelled Navigant to pay the plaintiffs, so in that sense Navigant’s payment was voluntary. In order to ensu re that Navigant’s payment was not voluntary in the sense that it was facing no exposu re to legal liability at all, Navigant must prove its potential liability. See One Beacon Ins., LLC v. M & M Pizza, Inc. , 8 A.3d 18, 23 (N.H. 2010) (where indemnitor receives notic e and opportunity to defend, indemnitee needs only to show potential liability); see also Grand Trunk W. R.R., Inc. v. Auto Warehousing Co. , 686 N.W.2d 756, 763 (Mich. Ct. App. 2004) (“[T]he indemnitee who has settled a claim need show only potential liability if the indemnitor had notice of the claim and refused to defend.”); Camp, Dresser & McKee, Inc. v. Paul N. Howard

Co. , 853 So.2d 1072, 1080 (Fla. Dist. Ct. App. 2003) ( “Only if the indemnitor is not given notice and an opportunity to assume responsib ility for the claim must the settling

indemnitee show that it was actually liable to the plaintiff.” (emphasis added)).

On the present record, and in the absence of a rep ly memorandum from Navigant, the Court cannot determine whether Navigant has pro ven its potential liability to the plaintiffs. The Court therefore also cannot at pre sent make a determination about the reasonableness of the settlement. Consequently, it is premature to rule on whether Citizens’ defense of voluntary payment precludes Na vigant’s recovery on its contractual indemnity claim.

III. Conclusion

The Court concludes that the pending appeal before the Supreme Court does not deprive this Court of jurisdiction to decide the co ntractual indemnity issue. However, for the reasons discussed above, and because Citizens h as asserted several other defenses to Navigant’s contractual indemnification claim that h ave not been discussed at all, the Court concludes that Navigant is not entitled to su mmary judgment.

ORDER

Navigant’s motion for summary judgment (filed May 1, 2012) is denied

Dated at Burlington this ___ day of October 2012.

______________________________ Brian Grearson Superior Court Judge