United States Court of Appeals

For the Eighth Circuit

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No. 15-1739

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Feed Management Systems, Inc.

lllllllllllllllllllll Plaintiff - Appellant

v.

Comco Systems, Inc.; Comco Manufacturing, Ltd.

lllllllllllllllllllll Defendants - Appellees

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No. 15-1840

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Feed Management Systems, Inc.

lllllllllllllllllllll Plaintiff - Appellee

v.

Comco Systems, Inc.; Comco Manufacturing, Ltd.

lllllllllllllllllllll Defendants - Appellants

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Appeals from United States District Court 

for the District of Minnesota - Minneapolis

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 Submitted: November 17, 2015

 Filed: May 23, 2016

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Before SMITH, BYE, and BENTON, Circuit Judges.

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SMITH, Circuit Judge.

In July 2008, Feed Management Systems, Inc. (FMS) and Comco Systems, Inc.

("Comco") entered into an agreement ("Management Agreement"). Among other

things, the Management Agreement obligated Comco to broadly indemnify FMS as

well as reimburse FMS for reasonable costs and expenses, including attorneys' fees.

After Comco refused to indemnify FMS in a lawsuit involving non-parties Brilliant

Alternatives, Inc. and Robert Brill (collectively, "Brill"), FMS sued Comco for

reimbursement of attorneys' fees and other expenses that resulted from the lawsuit.

FMS and Comco filed cross-motions for summary judgment. The district court

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granted both motions in part. FMS and Comco each appeal. We affirm.

I. Background

Before entering into the Management Agreement, FMS and Comco each had

dealings with Brill. In January 2008, Comco entered into an agreement with Brill

("Comco–Brill Agreement") to acquire Brill's rights to certain software products

related to animal feed management and an international distribution network of sales

agents.During theComco–Brill Agreement negotiations, and after its execution,FMS

defended itself in litigation filed against it by Brill. Comco entered the Comco–Brill

This opinion is being filed by Judge Smith and Judge Benton pursuant to 8th

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Cir. Rule 47E.

The Honorable David S. Doty, United States District Judge for the District of 2

Minnesota. 

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Agreement, in part, to assume control of the litigation. In return for control over the

litigation and the acquisition of Brill's above-listed rights, Comco agreed to market

and distribute the software and pay Brill royalties and a contractor fee.

In exercising its control over the ongoing litigation between FMS and Brill,

Comco took over settlement negotiations with FMS from Brill. During the

negotiations, FMS and Comco discussed the potential for a business relationship.

Ultimately, the settlement discussions resulted in the Management Agreement. As

part of the Management Agreement, Comco "appoint[ed] FMS . . . to render

management services to [Comco] pursuant to the terms of [the Management]

Agreement." These management servicesincluded (i) "billing, collecting, and paying

the agents which comprise the [d]istribution [n]etwork," and (ii) "providing work

direction to Brill . . . in order to enable Brill to fulfill [its] obligations under the

[Comco–Brill] Agreement." Unsurprisingly, because of its history with Brill, FMS

insisted on broad protections against any litigation that Brill might bring. To address

this concern, the Management Agreement required Comco to indemnify FMS

from and against any and all losses, costs, expenses, claims, damages

and liabilities whatsoever . . . to which [FMS] may become subject

under any applicable law, or any claim made by any third party, or

otherwise, to the extent they relate to or arise out of or in connection

with the performance of the Services contemplated by this Agreement

or the engagement of FMS pursuant to, and the performance by FMS of

the Services contemplated by, this Agreement.

Comco also agreed to reimburse FMS for "all reasonable costs and expenses

(including reasonable attorneys' fees and expenses . . . ) as they are incurred in

connection with the investigation of, preparation for or defense of any pending or

threatened claim for which [FMS] would be entitled to indemnification . . . or any

action or proceeding arising therefrom." FMS and Comco agreed that these provisions

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would survive the termination of the Management Agreement. On March 16, 2009,

FMS terminated the Management Agreement.

By this point, Comco had already severed its relationship with Brill and was

engaged in litigation initiated by Brill. After Comco reached a settlement with Brill

at the end of July 2009, Brill brought suit against FMS on August 27, 2009

("Brill–FMS Litigation"). Brill alleged that the Management Agreement was an

impermissible assignment of Comco's rights and obligations under the Comco–Brill

Agreement and that FMS engaged in intentional misconduct under the Management

Agreement.

Shortly after Brill filed its complaint against FMS, FMS tendered defense to

Comco pursuant to the indemnification provision of the Management Agreement.

Comco rejected FMS's tender, arguing that the claims that Brill asserted were outside

the scope of the indemnity provision. Specifically, Comco argued that the claims did

not relate to the performance of services listed in the Management Agreement and

enforcing indemnification would violate public policy because FMS was accused of

intentional misconduct. FMS responded to Comco's refusal, noting its disagreement

with Comco's position and reserving its right to seek indemnification and

reimbursement for defense costs and fees. Consequently, FMS sought coverage from

its insurer, Scottsdale Indemnity Company ("Scottsdale"). Scottsdale accepted the

tender on November 19, 2009. Scottsdale agreed to FMS's request that Bowman and

Brooke, LLP serve as lead counsel but required FMS to pay any amounts exceeding

the approved partner rate. 

While the Brill–FMS Litigation was ongoing, Cargill, Inc. ("Cargill")

purchased FMS and assumed control of the litigation after the merger. Cargill,

however, did not contribute to defraying the cost of the litigation. Instead, Cargill,

FMS, and FMS's Series A Stockholders "agreed to establish a joint defense fund to

provide for the defense and settlement of the [Brill–FMS] Litigation." To establish

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the joint defense fund, these companiesset aside $500,000 that would otherwise have

been paid to the Series A Stockholders. 

Nearly three years after the Brill–FMS Litigation began, FMS prevailed in

having all of Brill's claims dismissed on summary judgment, but the cost of the

defense wassubstantial. Bowman and Brooke alone billed $1,077,880.30. Three other

law firms also provided services. Nall & Miller, LLP served as local counsel, billing

a total of $10,667.56. Soffer Charbonnet Law Group, PLLC ("Soffer Charbonnet")

assisted FMS in seeking indemnification from Scottsdale and Comco and billed

$19,350.00. Lommen Abdo, P.A. billed $25,917.50 for representing the Series A

Stockholders during the Cargill merger. The total cost of the defense was

$1,133,815.36 in attorneys' fees, costs, and other expenses.

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At the end of January 2013, FMS sought reimbursement from Comco for the

full cost of the Brill–FMS Litigation. Comco maintained its position that it was not

required to indemnify or reimburse FMS under the Management Agreement because

of the nature of the claims that Brill asserted. Approximately two months later, FMS

brought this breach-of-contract suit against Comco. FMS and Comco filed crossmotionsfor summary judgment. The district court granted partialsummary judgment

in favor of both FMS and Comco, holding thatComco was obligated to (1) indemnify

FMS against claims brought by Brill, and (2) reimburse FMS for $87,350 in attorneys'

fees and other expenses but not the entire $1,133,815.36 that FMS claimed. FMS and

Comco each appeal the judgment of the district court. 

Together, FMS, the Series A Stockholders, and Scottsdale paid for the total

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cost ofthe Brill–FMS Litigation. Of the $1,088,547.86 billed by Bowman and Brooke

and Nall & Miller, FMS paid $68,000; Scottsdale paid $859,144.69; and the Series

A Stockholders paid $161,403.17. In addition, FMS paid the full amount billed by

Soffer Charbonnet, and the Series A Stockholders paid the full amount billed by

Lommen Abdo. In total, Scottsdale paid $859,144.69, the Series A Stockholders paid

$187,320.67, and FMS paid $87,350.

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II. Discussion

We review de novo the district court's decision on cross-motions for summary

judgment. Dunn v. Aamodt, 695 F.3d 797, 799 (8th Cir. 2012). Summary judgment

is appropriate when "there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The case is

before us on diversity jurisdiction, and by the terms of the Management Agreement,

Minnesota law governs. Under Minnesota law, "[t]he meaning of an indemnity

clause, like the construction of any other written contract, is a question of law." Art

Goebel, Inc. v. N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997)

(citation omitted). 

A. Indemnification

Comco takes issue with the district court's determination that the Brill–FMS

Litigation is within the scope of the Management Agreement's indemnity provision.

Comco argues that it is only obligated "to indemnify FMS for claims that arise out of

(1) FMS's performance of 'services' under the Agreement, i.e., billing and paying

agents, and providing work direction for Brill, [or] (2) the engagement of FMS to

perform such services." According to Comco, neither category encompasses the

Brill–FMS Litigation. Building on this point, Comco further argues that it was not

obligated to indemnify FMS because Brill's claims in the Brill–FMS Litigation

alleged intentional misconduct. 

When interpreting a contract, Minnesota courts "look to its language to

determine the parties' intent." Savela v. City of Duluth, 806 N.W.2d 793, 796 (Minn.

2011) (citation omitted). "Where there is a written instrument, the intent ofthe parties

is determined from the plain language of the instrument itself." Travertine Corp. v.

Lexington-Silverwood, 683 N.W.2d 267, 271 (Minn. 2004) (citation omitted).

Minnesota courts assign unambiguous contract language its plain meaning and refrain

from rewriting, modifying, or limiting its effect by a strained construction. Id. 

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The indemnification provision in the Management Agreement states that

Comco will indemnify FMS

from and against any and all losses, costs, expenses, claims, damages

and liabilities whatsoever . . . to which [FMS] may become subject

under any applicable law, or any claim made by any third party, or

otherwise, to the extent they relate to or arise out of or in connection

with the performance of the Services contemplated by this Agreement

or the engagement of FMS pursuant to, and the performance by FMS of

the Services contemplated by, this Agreement.

As a preliminary matter, we do not find the language ambiguous. The

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indemnification provision covers any third-party claim that relates to, arises out of,

or is connected with the engagement or duties of FMS under the Management

Agreement. Although the language is broad, ambiguity does not inhere in breadth.

See Latterell v. Progressive N. Ins. Co., 801 N.W.2d 917, 921 (Minn. 2011)

(explaining that "just because contractual language is broad does not mean it is

ambiguous"). 

When the indemnity provision is applied to the Brill–FMS Litigation, the

claims asserted therein plainly fall within the ambit of the provision. Comco points

to five of Brill's claims in support of its argument:

1. FMS intentionally interfered with the contract and business

relationship between Brill and Comco by inducing Comco to terminate

Brill's contract with Comco;

2. FMS committed fraud at a meeting in August 2008 by intentionally

failing to disclose material facts;

It is unclear whether this is in dispute. In its brief, Comco refers to the

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language of the indemnity provision as both "ambiguous" and "clear and

unambiguous."

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3. FMS misappropriated business opportunities through issuance of its

own press releases;

4. FMS was unjustly enriched through receiving information from Brill

that was "not used by Comco" but instead used by FMS for personal

gain; and

5. Brill is an intended third-party beneficiary of the Comco-FMS

contract.

(Citations omitted and bold omitted.) Yet, on closer examination, all of these claims

related to, arose out of, or were connected "with . . . the engagement of FMS pursuant

to, and the performance by FMS of the Services contemplated by" the Management

Agreement. Sections 2(a) and 2(c) of the Management Agreement charged FMS with

"providing work direction toBrill as an independent contractorto [Comco]" and gave

FMS "exclusive discretion and authority to determine the manner in which it provides

Services pursuant to [the Management] Agreement."

In Brill's complaint, the intentional interference claim is based upon FMS

"gaining unfettered access to the [d]istribution [n]etwork" pursuant to the

Management Agreement. Likewise, the claims for fraud and unjust enrichment are

based upon occurrencesthat took place at a meeting held pursuant to the Management

Agreement. The misappropriated-business-opportunity claim is based upon actions

that FMS took that allegedly transferred benefits from Comco to FMS wrongfully

"pursuant to the . . . Management Agreement." Finally, the third-party beneficiary

claim asserts that Brill is an intended third-party beneficiary "of the . . . Management

Agreement." Brill's complaint allegations reveal that Brill's dispute arose from the

Management Agreement. 

We reject Comco's assertion that the plain language of the indemnity provision

excludes the Brill–FMS Litigation. Comco asks us to strictly construe the

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indemnification language because itshifts liabilityfor FMS's own misconduct. Under

a strict construction, Comco argues that the provision does not clearly and

unequivocally shift liability from FMS to Comco. Specifically, Comco contends that

the provision does not cover the Brill–FMS Litigation because it does not expressly

cover actions arising out of FMS's own misconduct. 

"When applying Minnesota law, we strictly construe indemnification

agreementsthatshift liability for the indemnitee's own negligence." Harleysville Ins.

Co. v. Physical Distribution Servs., Inc., 716 F.3d 451, 457 (8th Cir. 2013) (citation

omitted). Indemnification provisions that shift liability "are not favored by the law

and are not construed in favor of indemnification unless such intention is expressed

in clear and unequivocal terms, or unless no other meaning can be ascribed to it."

Nat'l Hydro Sys. v. M.A. Mortenson Co., 529 N.W.2d 690, 694 (Minn. 1995)

(quotation and citation omitted). "Notice is the mainspring of an enforceable

indemnification provision—to shift liability, an indemnification provision must'fairly

apprise[] [the indemnitor] of an obligation to indemnify [the indemnitee].'"

Harleysville, 716 F.3d at 457 (alterations in original) (quoting Yang v. Voyagaire

Houseboats, Inc., 701 N.W.2d 783, 791–92 n.5 (Minn. 2005)). 

Comco's urging notwithstanding, we decline to strictly construe the indemnity

provision. As the district court noted, "the provision did not actually shift liability for

misconduct by FMS . . . because FMS was not found liable for the conduct that Brill

alleged." Minnesota law directs courts to strictly construe indemnity provisions

"when the indemnitee . . . seeks to be indemnified for its own negligence," Nat'l

Hydro Sys., 529 N.W.2d at 694 (alteration in original) (quotation and citation

omitted), not when a complaint merely alleges such misconduct. See Seifert v.

Regents of Univ. of Minn., 505 N.W.2d 83, 85–86 (Minn. Ct. App. 1993) (holding

that allegation of negligence did not invalidate indemnity provision where the record

did not support a finding of negligence). An indemnity provision holds harmless an

indemnitee fromcertain actions and consequences. Unless clearly and unequivocally

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provided, Minnesota law excludes an indemnitee's own misconduct from the range

of actions and consequences covered. Importantly, it is the indemnitee's conduct that

triggers strict construction. The purpose behind strictly construing an indemnity

provision—preventing an indemnitor frombecoming an unwitting insurer—is absent

here. The record does not support a finding that FMS committed any of the

misconduct alleged by Brill. 

Even if we were to strictly construe the provision, our decision in Harleysville

forecloses Comco's argument. In Harleysville, we strictly construed a provision that

indemnified an indemnitee "from any and all claims, actions, or causes of action in

any way relating to personnel assigned to [the indemnitee], including, but not limited

to, personal injury." 716 F.3d at 458 n.9 (quotation and emphases omitted). We held

that this broad "provision gave [the indemnitor] clear notice of an obligation to

indemnify [the indemnitee] for future personal injury claims arising from [the

indemnitee's] negligence." Id. at 458. When confronted at oral argument with

Harleysville, counsel for Comco did not attempt to distinguish Harleysville or explain

why it did not apply. Instead, counsel asked that we reject the holding in Harleysville

as incorrectly decided. We do not find any meaningful distinction between the broad

indemnity provision at issue in Harleysville and the broad indemnity provision at

issue here, and thus, we are bound by the holding in Harleysville.

The district court correctly interpreted the indemnity provision as covering the

Brill–FMS Litigation. 

B. Reimbursement

FMS argues that the district court erred in limiting its recovery to the $87,350

that it paid out of pocket. FMS contends that the plain language of the Management

Agreement requires Comco to reimburse it for the entire $1,133,815.36 in fees, costs,

and expenses that resulted from the Brill–FMS Litigation. FMS further argues that

the district court erred in holding that it could not pursue recovery as "the real party

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in interest because its lossesinclude and exceed the amounts Scottsdale and the Series

A [Stockholders] contributed." Finally, FMS points to the subrogation provision in

its insurance policy with Scottsdale and its oral agreement to reimburse the Series A

Stockholders as evidence that it would not receive a windfall were it allowed to

recover the entire $1,133,815.36. 

The Management Agreement obligated Comco to "pay and reimburse, on

demand, [FMS] for all reasonable costs and expenses(including reasonable attorneys'

fees and expenses, which may be required to be paid in advance) as they are incurred

in connection with [any indemnified liability]." Comco breached this provision when

it rejected FMS's tender because the Management Agreement required Comco to pay

for FMS's defense costs "as they are incurred" or, if required, "in advance."

(Emphasis added.) 

"The rule of the common law is that where a party sustains a loss by reason of

a breach of contract, he is, so far as money can do it, to be placed in the same

situation, with respect to damages, as if the contract had been performed." Paine v.

Sherwood, 21 Minn. 225, 232 (1875) (quotation and citation omitted); see also

Kellogg v. Woods, 720 N.W.2d 845, 853 (Minn. Ct. App. 2006) (explaining that

"[t]he appropriate measure for breach-of-contract damages is the amount that will

place the nonbreaching party in the same position he would be in had the contract

been performed" (citation omitted)).Nevertheless, "it is well established in Minnesota

that in the case of a breach of contract the injured party must use reasonable diligence

to minimize his damages." Lanesboro Produce & Hatchery Co. v. Forthun, 16

N.W.2d 326, 328 (Minn. 1944) (citing Barron G. Collier, Inc. v. Women's Garment

Store, Inc., 189 N.W. 403, 404 (Minn. 1922); Barron G. Collier, Inc. v. Kindy, 178

N.W. 584, 585 (Minn. 1920); Wavra v. Karr, 172 N.W. 118, 120 (Minn. 1919)).

The amounts paid by Scottsdale and the Series A Stockholders are not damages

that FMS suffered as a result of Comco's breach. FMS makes much of the term

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"incur," arguing that it merely refers to a liability and not an actual payment. FMS

points out that although it did not pay for all of the expenses associated with the

Brill–FMS Litigation, it became liable for all of the expenses. As such, FMS seeks

damages for all expenses "incurred." This argument, however, ignores the measure

of damages resulting from a breach of contract. If Comco had not breached the

contract, FMS may be correct that the language ofthe Management Agreement would

entitle it to all reasonable fees, costs, and expenses resulting from the Brill–FMS

Litigation. But Comco did breach, and FMS, in accord with its legal duty, mitigated

its damages by tendering the defense to Scottsdale and arranging funding with the

Series A Stockholders.

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FMS attempts to escape this conclusion by arguing that it would not receive a

windfall were it to recover the entire $1,133,815.36. According to FMS, the

subrogation provision in its insurance policy with Scottsdale demonstratesthat FMS 6

has agreed to reimburse Scottsdale. However, FMS has provided no authority

suggesting that the general rules on damages are supplanted by the subrogation

FMS may have additional damages as a result of tendering its defense to

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Scottsdale (such as subsequently higher premiums), but it has not sought relief for

anything other than the full amount of fees, costs, and expenses resulting from the

Brill–FMS Litigation. 

FMS's insurance policy with Scottsdale contains the following subrogation

6

provision:

In the event of any payments under this Policy, Insurer shall be

subrogated to the extent of such payment to all of the Insureds' rights of

recovery against any person or entity. The Insureds shall execute all

papers required and shall do everything that may be necessary to secure

and preserve such rights, including the execution of such documents as

are necessary to enable Insurer effectively to bring suit or otherwise

pursue subrogation in the name of the Insureds, and shall provide all

other assistance and cooperation which Insurer may reasonably require. 

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agreement. After mitigating its damages, FMS paid $87,350 out-of-pocket. Thus

FMS's award of $87,350 places it "in the same situation, with respect to damages, as

if the contract had been performed." Paine, 21 Minn. at 232; see also Am. Sur. Co.

v. State Farm Mut. Auto. Ins. Co., 142 N.W.2d 304, 306 (Minn. 1966) (finding that

insured "was not damaged by [insurer-]defendant's refusal to defend in violation of

its obligations under the policy" because insured's second insurer "was required [to

defend] under its own policy"); Concord Hosp. v. N.H. Med. Malpractice Joint

Underwriting Ass'n, 694 A.2d 996 (N.H. 1997) (refusing to award more than out-ofpocket expenses to a hospital after one of its insurers refused to pay litigation

expenses).7

FMS also argues that it will not benefit from a windfall because it has orally

agreed to reimburse the Series A Stockholders for their contribution to the joint

defense fund. FMS overlooks the fact that it cannot recover from Comco what

rightfully belongs to the Series A Stockholders. "Because a corporation and its

stockholders are separate entities," FMS's ability to successfully sue on behalf of the

Series A Stockholders is dubious at best. See Singer v. Allied Factors, Inc., 13

N.W.2d 378, 380 (Minn. 1944) (citations omitted). 

The district court correctly limited FMS's recovery fromComco to the $87,350

FMS paid out of pocket. 

FMS relies on a line of Minnesota cases holding that if an "insured retains 7

some interest in the cause of action, the suit may be brought in his name. If he makes

recovery, he has the right to reimburse himself for his loss and expenses and then

hold the balance of his recovery in trust for the insurer." Blair v. Espeland, 43

N.W.2d 274, 276 (Minn. 1950) (citations omitted); see also Lines v. Ryan, 272

N.W.2d 896, 904 (Minn. 1978) (same); Flor v. Buck, 248 N.W.2d 743, 744 (Minn.

1933) (same). Those casesinvolved injured partiesthat had received judgments. This

is a contract case, not a tort case. FMS has not demonstrated that Minnesota would

similarly allow double-recoveries for contract disputes. 

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III. Conclusion

Accordingly, we affirm the judgment of the district court.

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