1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-15-1994

Kruzits v. Okuma

Precedential or Non-Precedential:

Docket 94-1328

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Recommended Citation

"Kruzits v. Okuma" (1994). 1994 Decisions. Paper 186.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/186
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ____________ 

 NO. 94-1328 

 ____________ 

 CHARLES SEAN KRUZITS and MARY KRUZITS 

v. 

 OKUMA MACHINE TOOL, INC.; 

 HELLER FINANCIAL, INC.; 

 GOSIGER, INC. 

v. 

 VINCENT W. VISCO, d/b/a VISTEK INDUSTRIES, 

 Third-Party Defendant 

 Heller Financial, Inc., Appellant 

 ____________ 

 Appeal from the United States District Court 

 for the Eastern District of Pennsyvlania 

 D.C. No. 93-cv-03512 

 ____________ 

 Argued September 19, 1994 

 Before: GREENBERG, ROTH, and ROSENN, Circuit Judges

 Opinion Filed November 15, l994 

 ____________ 

DAVID J. GRIFFITH, ESQUIRE 

MICHELE DANIELE, ESQUIRE (Argued) 

Harvey, Pennington, Herting & Renneisen, Ltd. 

1835 Market Street, 29th Floor 

Eleven Penn Center 

Philadelphia, PA 19102 

 Attorneys for Appellant, Heller Financial, Inc. 

CHARLES W. CRAVEN, ESQUIRE (Argued) 

Marshall, Dennehey, Warner, Coleman & Goggin 

1845 Walnut Street, 18th Floor 

Philadelphia, PA 19103 

 Attorneys for Appellee, Vincent Visco 

 ____________ 

 OPINION OF THE COURT 
ROSENN, Circuit Judge. 

 Charles Sean Kruzits, an employee of Vincent M. Visco 

d/b/a/ Vistek Industries ("Vistek"), filed a strict products 

liability action against Okuma Machine Tool, Inc., manufacturer 

of a lathe which Kruzits alleges caused him personal injuries, 

and Heller Financial, Inc. ("Heller"), in the Court of Common 

Pleas of Philadelphia County. Heller financed the purchase of 

the lathe and holds title to it for the sole purpose of 

perfecting its security interest. The defendants subsequently 

removed the case to the United States District Court for the 

Eastern District of Pennsylvania. 

 In the district court, Heller filed a third-party 

complaint against Vistek seeking indemnification and defense 

under the terms of their lease agreement. Vistek moved for 

judgment on the pleadings. The district court granted Vistek's 

motion. Heller appeals.1 We reverse. 

I. 

 Kruzits, an employee of Vistek, sustained injuries in 

the course of his employment while operating a lathe manufactured 

by Okuma Machine Tool, Inc. He sued Heller and several other 

 

1. Heller filed its notice of appeal before the district court 

certified its order as final under Federal Rules of Civil 

Procedure Rule 54(b). Thereafter, Vistek filed a motion to 

dismiss the appeal for lack of jurisdiction. This court denied 

Vistek's motion because the district court has certified its 

order as final under Rule 54(b) and because there is no 

indication that hearing this appeal will prejudice Vistek's 

rights. See Richerson v. Jones, 551 F.2d 918, 921-923 (3d Cir. 

1977). 
defendants for compensation for his injuries. Heller, who merely 

financed the lathe but exercised no operational control over it, 

took title to it, and leased it to Vistek pursuant to the 

security lease agreement. 

 In the district court, Heller filed a third-party 

complaint against Vistek, alleging that, under the terms of its 

lease agreement, Vistek should defend and indemnify Heller in the 

underlying action. Vistek moved for judgment on the pleadings 

contending that the language of the indemnity provision in the 

lease agreement was not specific enough to overcome the immunity 

which Vistek, as Kruzits' employer, asserted pursuant to the 

Pennsylvania Workers Compensation Act ("PWCA"), 77 P.S. § 

481(b).2

 The district court granted Vistek's motion for judgment 

on the pleadings, holding that the PWCA precluded Heller from 

seeking indemnity from Vistek. The court accepted Vistek's 

 

2. Section 481(b) of the Pennsylvania Workmen's Compensation 

Act provides that: 

 

 In the event injury or death to an 

employee [sic] is caused by a third party, 

then such employee [sic]. . . may bring [an] 

action at law against such third party, but 

the employer . . . shall not be liable to a 

third party for damages, contribution, or 

indemnity in any action at law, or otherwise, 

unless liability for such damages, 

contributions or indemnity shall be expressly 

provided for in a written contract entered 

into by the party alleged to be liable prior 

to the date of the occurrence which gave rise 

to the action. Pa. Stat. Ann. tit. 77, 

§481(b) (1974). 
argument that the indemnity provision in the lease agreement was 

not specific enough to overcome Vistek's employer's immunity 

under the PWCA. The court rejected Heller's contention that 

Illinois law should govern the interpretation of the indemnity 

clause because of a choice of law provision in the lease 

agreement.3 The court concluded that Pennsylvania law should 

apply because Pennsylvania had a significant interest in the 

underlying action which justified ignoring the contractual choice 

of law provision. 

 This appeal only considers the issue of whether Heller 

can successfully bring Vistek into the underlying action as a 

third party defendant. 

II. 

 This court exercises plenary review over district court 

orders granting a motion for judgment on the pleadings pursuant 

to Fed. R. Civ. P. 12(c). See e.g., Jablonski v. Pan American 

World Airways Inc., 863 F.2d 289, 290 (3d Cir. 1988). Under Rule 

12(c), we will not grant judgment on the pleadings "unless the 

movant clearly establishes that no material issue of fact remains 

to be resolved and that he is entitled to judgment as a matter of 

law." Id. (quoting Society Hill Civic Association v. Harris, 632 

F.2d 1045, 1054 (3d Cir. 1980) (citation omitted). 

A. 

 

3. The choice of law provision of the security lease provides, 

in pertinent part, that: "this lease will be governed by the 

internal law and decisions . . . of the State of Illinois, 

including all matters of construction, validity, enforceability, 

and performance." 
 We must determine: first, whether Pennsylvania or 

Illinois law controls the interpretation of the indemnity clause 

of the lease agreement; and second, whether the indemnity clause 

is enforceable under the applicable law. 

 A federal court exercising diversity jurisdiction must 

apply the choice of law rules of the forum state. Klaxon Co. v. 

Stentor Electric Mfg. Co., 313 U.S. 487, 497 (1941); American Air 

Filter Co. v. McNichol, 527 F.2d 1297, 1299 n. 4 (3d Cir. 1975). 

Accordingly, we apply Pennsylvania choice of law rules in this 

case. 

 Pennsylvania courts generally honor the intent of the 

contracting parties and enforce choice of law provisions in 

contracts executed by them. Smith v. Commonwealth Nat. Bank, 557 

A.2d 775, 777 (Pa. Super. 1989), appeal denied, 569 A.2d 1369 

(Pa. 1990). Pennsylvania courts have adopted section 187 of the 

Restatement, Second, Conflict of Laws which provides that: 

 (1) The law of the state chosen by the 

parties to govern their contractual rights 

and duties will be applied if the particular 

issue is one which the parties could have 

resolved by an explicit provision in their 

agreement directed to that issue. 

 (2) The law of the state chosen by the 

parties to govern their contractual rights 

and duties will be applied, even if the 

particular issue is one which the parties 

could not have resolved by an explicit 

provision in their agreement directed to that 

issue, unless either 

 (a) the chosen state has no 

substantial relationship to the 

parties or the transaction and 

there is no other reasonable basis 

for the parties' choice, or 
 (b) application of the law of the 

chosen state would be contrary to a 

fundamental policy of a state which 

has a materially greater interest 

than the chosen state in the 

determination of the particular 

issue . . . . 

See e.g., Schifano v. Schifano, 471 A.2d 839, 843 n. 5 (Pa. 

Super. 1984) (citing with approval the Restatement, Second, 

Conflict of Laws). 

 In this case, paragraph 21 of the lease agreement 

specifically provides that the lease will be governed and 

construed in all respects by the internal laws and decisions of 

the State of Illinois. Accordingly, Heller contends that the 

choice of law provision in the lease agreement should be given 

effect under the conflict of law rules of Pennsylvania. In 

particular, Heller argues that, because the issue of indemnity 

was one which the parties could have and did resolve by an 

explicit provision in their agreement, pursuant to the 

Restatement, Second, the district court should have applied the 

law chosen by the parties in construing the indemnity clause. 

 Vistek, on the other hand, argues that the district 

court correctly applied Pennsylvania law because of 

Pennsylvania's strong public policy interest in enforcing its 
Workmen's Compensation Act.4 Vistek contends that Pennsylvania 

law should govern because the underlying action involved a 

Pennsylvania worker, the accident occurred in Pennsylvania and 

the indemnity claim was against a Pennsylvania employer. 

 Vistek is correct about the character of the underlying 

action and also that Pennsylvania has a strong interest in 

protecting the terms of the PWCA, but Vistek misconstrues the 

issue that this court must resolve. This case does not implicate 

the PWCA. The immunity of the employer (Vistek) under the PWCA 

does not affect the obligation of the lessee (also Vistek) to 

defend and indemnify the lessor (Heller) from any liability under 

the terms of its financial arrangement with Heller. 

 The agreement between Heller and Vistek is a freely 

negotiated financing contract between two commercial entities. 

Pennsylvania courts will only ignore a contractual choice of law 

provision if that provision conflicts with strong public policy 

interests. See e.g., Soxman v. Goodge, 539 A.2d 826 (Pa.Super, 

1988); Leidy v. Desert Enterprises, Inc., 381 A.2d 164 (Pa.Super, 

1977). 

 

4. Vistek also asserts on appeal that the lease agreement is 

unenforceable because no one from Heller signed it. In response, 

Heller argues that Vistek waived this issue by not raising it in 

the district court. Furthermore, Heller contends that a signed 

copy of the lease agreement does exist and has moved to 

substitute a signed copy of the lease agreement for the unsigned 

copy they initially provided. 

This court will not consider an issue raised for the first time 

on appeal absent a showing that a gross miscarriage of justice 

will otherwise result. Newark Morning Ledger Co. v. United 

States, 539 F.2d 929, 932 (3d Cir. 1976). Therefore, we reject 

Vistek's argument and deny Heller's motion as moot. 
 In this case, no strong public policy issues are 

infringed. This litigation has no effect on the employer's 

rights and obligations under the PWCA and Kruzitz makes no claim 

that the third party, Heller, caused his personal injury. On the 

other hand, Illinois, the chosen state, has "a substantial 

relationship to the parties." In the commercial world, where an 

Illinois company, such as Heller, finances purchases of 

commodities, machinery, and equipment in many, if not all, of the 

states in the nation, it is understandable and reasonable that 

Heller include choice of law provisions in its financial 

agreements to ensure that those agreements are governed by the 

law of its principal place of business rather than the laws of 

each and every state where its borrowers do business. We hold 

that under Pennsylvania choice of law rules, contractual choice 

of law provisions contained in a financial agreement that enables 

an employer to purchase plant equipment is binding on the 

parties. 

B. 

 Because the contractual choice of law provision is not 

superseded, Illinois law governs our interpretation of the 

indemnity clause. Vistek contends that the Illinois' courts 

would reject the choice of law provision and apply Pennsylvania 

law to the instant case because of Pennsylvania's strong interest 

in enforcing the PWCA. See e.g., Lyons v. Turner Constr. Co., 551 

N.E.2d 1062, 1066 (Ill.App. Ct. 1990) (court disregarded 

contractual choice of law provision because applying the chosen 

law was contrary to a fundamental state policy). As discussed 
above, this choice of law provision does not infringe on the PWCA 

or any other important Pennsylvania interest. Therefore, this 

court looks to Illinois law to determine the effect of the 

indemnity clause. 

 In general, Illinois courts will strictly construe 

indemnity clauses. Sorrentino v. Waco Scaffolding & Shoring Co., 

358 N.E.2d 1244 (Ill.App. Ct. 1976). However, "[i]n interpreting 

a contract for indemnity, [Illinois] courts must give the 

agreement a fair and reasonable interpretation based upon a 

consideration of the agreement as a whole." Allen v. 

International Harvester Co., 571 N.E.2d 773, 775 (Ill.App. Ct. 

1991) (citations omitted); Smith v. Clark Equipment Co., 483 

N.E.2d 1006, 1010 (Ill.App. Ct. 1985). The courts attempt to 

determine and then implement the intention of the parties. 

Higgins v. Kleronomos, 459 N.E.2d 1048, 1051 (Ill.App. Ct. 1984). 

 The courts look to see if the indemnity clause 

specifically and clearly provides for indemnification against the 

particular underlying claims. Sorrentino, 358 N.E.2d 1244; 

Westinghouse Elec. Elevator Co. v. La Salle Monroe Building 

Corp., 70 N.E.2d 604, 607 (Ill. 1946), superseded by statutes on 

other grounds, (court will not construe a contract to indemnify 

for personal injuries to indemnify against the indemnitee's 

negligence absent express contractual language). The Illinois 

court will enforce an indemnity clause if it is sufficiently 

clear and specific. Owens v. Midwest Tank and Mfg. Co., 549 

N.E.2d 774, 776 (Ill.App. Ct. 1989). 
 Here the indemnity clause of the security agreement 

plainly states: 

 13. Indemnity: [Vistek] does hereby 

assume liability for and does agree to 

indemnify, protect, save, and keep harmless 

[Heller] from and against any and all 

liabilities, losses . . . including attorneys 

fees, court costs and legal expenses of 

whatever kind or nature, imposed on, incurred 

by, or asserted against [Heller] in any way 

relating to or arising out of this Lease or 

the manufacture, purchase, ownership, 

delivery, lease, possession, use, operation, 

condition, return or other disposition of the 

equipment by [Heller] or [Vistek], . . . any 

claim arising out of strict liability in 

tort, and any taxes for which [Vistek] is 

responsible hereunder. . . . (Emphasis 

added). 

 Under Illinois law, this language is sufficient to 

require Vistek to defend and indemnify Heller. See e.g., Patton 

v. T.O.F.C., Inc., 398 N.E.2d 313 (Ill.App. Ct. 1979) (where the 

Appellate Court of Illinois enforced an indemnity clause which 

contained language referring indirectly to strict products 

liability claims). 

 The indemnity clause at issue in this case provides 

that Vistek will assume liability for any claims arising out of 

the use, operation or condition of the lathe and "any claims 

arising out of strict liability in tort." This clause contains a 

direct reference to strict products liability claims and Vistek 

must therefore indemnify Heller in the underlying action. 

III. 

 Therefore, we hold that under Pennsylvania choice of 

law rules, a choice of law clause in an equipment financing 
agreement between an employer and a third party is not preempted 

by the Pennsylvania Workmen's Compensation Act, notwithstanding 

the PWCA provisions granting immunity to an employer from 

indemnity suits by third parties for claims against those third 

parties arising out of an employee's injuries during the course 

of employment. We further hold that the indemnity clause is 

enforceable under Illinois law and that Vistek must indemnify 

Heller. 

 Accordingly, the judgment of the district court will be 

reversed and the case remanded with directions to reinstate 

Heller's third-party complaint and for such further proceedings 

as are consistent with this opinion.5

 Costs taxed against the appellee. 

__________________________ 

 

5. On remand, the district may want to consider Nath v. National 

Equipment Leasing Corp., 439 A.2d 633 (Pa. 1981) which held that 

a finance lessor who is not in the business of selling or 

marketing merchandise will not be liable in a strict products 

liability action.