Title: Nationwide Retirement Solutions, Inc. v. PEBCO,Inc.
Citation: N/A
Docket Number: 1120806
State: Alabama
Issuer: Alabama Supreme Court
Date: March 28, 2014

REL:03/28/2014
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2013-2014
____________________
1120806
____________________
Nationwide Retirement Solutions, Inc.
v.
PEBCO, Inc.
Appeal from Jefferson Circuit Court
(CV-07-4052)
MOORE, Chief Justice.
Nationwide Retirement Solutions, Inc. ("NRS"), appeals
from a judgment of the Jefferson Circuit Court awarding PEBCO,
Inc., $1,074,027.50 in attorney fees and $29,132.01 in
expenses. We reverse and remand.
1120806
I. Facts and Procedural History
In November 2007, participants in the State of Alabama
Public 
Employees 
Deferred 
Compensation 
Plan 
("the 
Plan") 
filed
a class action against Nationwide Life Insurance Company
("NL"), 
NRS, 
the 
Alabama 
State 
Employees 
Association 
("ASEA"),
and PEBCO, Inc.,  alleging breach of fiduciary duty,
1
conversion, and breach of contract in the administration of
the Plan.  On November 4, 2010, the parties filed a
2
"Stipulation of Settlement," which the trial 
court 
approved in
its final order entered on April 27, 2011. Pursuant to the
settlement, NL and NRS (hereinafter sometimes referred to
collectively as "Nationwide") paid $15.5 million to the
participants in the Plan and $2.9 million in attorney fees to
settle class claims against all defendants, including ASEA and
PEBCO.  In its findings of fact, the trial court stated: "ASEA
3
is being permitted to retain more than $12 million in
PEBCO ("Public Employees Benefits Corporation") is a
1
wholly owned for-profit subsidiary of ASEA.
In 
their 
amended 
class-action 
complaint 
filed 
on 
December
2
2, 2008, the plaintiffs substituted a wantonness count for the
conversion count.
AON Investment Consulting, Inc., a consultant to
3
Nationwide, paid $500,000 into the settlement, making the
total reimbursement to the participants $16 million.
2
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sponsorship payments that it allegedly received unlawfully,
and ASEA is receiving full release from any liability." 
The settlement also barred all future claims by ASEA and
PEBCO against Nationwide except for indemnification for
attorney fees and costs based on a 2004 administrative-
services agreement ("the agreement"). The agreement, which
provided for "an annual sponsorship fee to PEBCO of at least
$1.2 million," contained an indemnification clause: "NRS
agrees to indemnify and hold harmless ASEA and PEBCO, their
respective managers, officers, directors, employees, agents
and attorneys for an action taken against any of them arising
as a result of NRS's failure to perform its duties under this
Agreement."  Nationwide refused to pay PEBCO's costs of
4
litigating the class action as part of its settlement payment.
PEBCO in turn refused to surrender its claim for fees and
costs in exchange for Nationwide's shouldering the complete
financial burden of the settlement.
NL was not a party to the agreement, a fact the trial
4
court later recognized by dismissing NL from this action. At
times, however, in discussing the agreement, the trial court
referred to Nationwide (the collective term it used for NL and
NRS) as a party to the agreement or, after NL's dismissal, to
NRS as "Nationwide."
3
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A day before the parties filed their "Stipulation of
Settlement," Nationwide moved for an order barring ASEA and
PEBCO from  filing any indemnification claims. The trial court
granted the order except for claims for attorney fees and
costs. "[I]n light of Nationwide's substantial contributions
to the settlement," the court wrote in an order dated February
11, 2011, "it is fair and reasonable that ASEA and PEBCO be
barred from pursuing any claims against Nationwide for
reimbursement, indemnification, or contribution other than
claims for attorney fees and costs ...." The trial court then
stated that if ASEA and PEBCO filed a cross-claim for fees and
costs within 30 days, it would sever that claim for separate
adjudication. See Rule 21, Ala. R. Civ. P. ("Any claim against
a party may be severed and proceeded with separately."). The
trial court's ruling expressly disclaimed any opinion on the
merits of the potential cross-claim. "The Court does not reach
the issue of whether the settlement in any way bars or defeats
any such claim by ASEA and PEBCO. Nor does the Court make any
decision with respect to the actual merits, defenses or
viability of any such claim, if filed."
4
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On March 21, 2011, a month before entering its final
order in the class action, the trial court ordered severance
of ASEA and PEBCO's claim for fees and directed the clerk of
the Jefferson Circuit Court to docket that claim as "a
separate and independent action," with ASEA and PEBCO as
plaintiffs and NL and NRS as defendants. The court also
directed ASEA and PEBCO to pay the filing fee. See Opinion of
the Clerk No. 45, 526 So. 2d 584, 586 n.1 (Ala. 1988) ("In
order to effectuate a 'true' severance, judges should
explicitly direct the clerk to docket a new civil action and
should explain how the new case should be styled."). In its
final order in the class action, the court noted that the
merits of the attorney-fees cross-claim "will be 
determined 
in
the severed case with Case No. CV-2007-004052.01."
On December 3, 2011, the trial court issued an order in
relation to the severed cross-claim. After noting that NL and
NRS "have never conceded that ASEA and PEBCO are entitled to
indemnification," 
the 
court 
stated 
without 
elaboration 
that 
it
"is satisfied that there should be indemnification." Because
NL was "not a party to the contract creating indemnification,"
i.e., the agreement, the court dismissed NL from the case,
5
1120806
stating that "[i]ndemnification should be by NRS to ASEA and
PEBCO." By this ruling, the trial court found that the
indemnification clause in the agreement required that NRS pay
the fees and costs incurred by ASEA and PEBCO in defending the
class action. On April 8, 2012, the court set the matter for
trial on June 19, 2012, on the issue of "indemnification of
attorneys' fees incurred by counsel for PEBCO, Inc., and the
Alabama State Employees Association directly related to the
underlying class action." A month after the two-day hearing,
the court dismissed ASEA as a party, leaving PEBCO as the sole
plaintiff. 
On February 15, 2013, the trial court issued an order on
"the appropriate amount of indemnification." Noting that NRS
"has contended, and still contends, that indemnification is
improper based on the language of the agreement and the
attending facts," the trial court stated that it "has held
hearings on that issue and by prior order has ruled that
indemnification is appropriate. The instant action was filed
to enforce indemnification." The court ordered NRS to pay
PEBCO $863,988.50 in attorney fees and $15,297.54 in expenses
for the class-action litigation, and $210,039 in 
attorney 
fees
6
1120806
and $13,834.47 in expenses for litigating the severed cross-
claim. NRS timely filed a notice of appeal to this Court.
II. Standard of Review
When the trial court hears oral testimony, the ore tenus
rule requires deference to its findings of fact. "The ore
tenus rule affords a presumption of correctness to a trial
court's findings of fact based on ore tenus evidence, and the
judgment based on those findings will not be disturbed unless
those findings are clearly erroneous and against the great
weight of the evidence." Allsopp v. Bolding, 86 So. 3d 952,
958 (Ala. 2011). Conclusions of law, however, are reviewed de
novo. "The ore tenus rule does not cloak a trial court's
conclusions of law or the application of the law to the facts
with a presumption of correctness." Id.
III. Analysis
The indemnification clause in the agreement states that
NRS would "hold harmless" PEBCO "for an action taken against
[it] arising as a result of NRS's failure to perform its
duties under this Agreement." (Emphasis added.) Without
question the class action that named PEBCO as a defendant was
"an action taken against" it. The dispositive question,
7
1120806
therefore, is whether the class action arose "as a result of
NRS's failure to perform its duties" under the agreement.
The complaint of the participants in the Plan alleged
breach of fiduciary duty, wantonness, and breach of contract
in the administration of the Plan -- all related to the
sponsorship payments mandated by the agreement. Thus, the
class action arose because of NRS's fulfillment of its
contractual duty to make sponsorship payments to PEBCO. As the
court stated in its findings of fact:
"These legal claims rest on factual allegations that
Nationwide made improper sponsorship payments to
ASEA and PEBCO to maintain Nationwide's position as
contract and service provider for the ... Plan, and
that 
these 
sponsorship 
payments 
injured 
Plan
participants because they resulted in higher fees
and lower returns than would have been the case
without the payments."
PEBCO 
argues 
that 
by 
fulfilling 
its 
contractual
obligation to make millions 
of dollars in sponsorship payments
to PEBCO, NRS breached the following portion of the agreement:
"NRS hereby agrees to utilize its best efforts and
to provide appropriate personnel to include NRS
legal counsel, where necessary:
"To 
assist 
ASEA 
and 
PEBCO 
in 
the
preparation 
of 
a 
Deferred 
Compensation 
Plan
and its attendant agreements together with
appropriate requests for rulings so that
all such documents meet the requirements,
8
1120806
in the opinion of the Attorney General of
the State of Alabama, of House Bill 91, the
Internal Revenue Service, the Securities
and Exchange Commission, and Alabama's
Statutes and Constitution."
(Emphasis added.) This section of the agreement does not
impose responsibility upon NRS for the ultimate legal
sufficiency of the Plan documents. Instead it requires only
that NRS "utilize its best efforts" "[t]o assist ASEA and
PEBCO" in preparing the Plan documents for the purpose of
meeting legal requirements. By its plain meaning, 
this section
does not impose on NRS responsibility for the legal
sufficiency of the Plan documents but, instead, imposes a duty
only to assist in the creation of those documents, using its
best efforts. An agreement to make a good-faith effort to
assist another is not the equivalent of a guarantee of
results.5
Furthermore, as stated above, the class action did not
arise out of an improper preparation of the Plan documents but
from the sponsorship payments mandated by the 
agreement. 
PEBCO
A best-efforts contract is one "in which a party
5
undertakes to use best efforts to fulfill the promises made
rather than to achieve a specific result .... Although the
obligor must use best efforts, the risk of failure lies with
the obligee." Black's Law Dictionary 366-67 (9th ed. 2009).
9
1120806
does not allege that NRS failed to assist it in preparing the
relevant Plan documents or the requests for rulings on those
documents. Indeed, the agreement, including its provision for
sponsorship payments, was a separate document from the 
funding
agreement for the Plan. The funding agreement was disclosed to
regulators, but the agreement was not. PEBCO cannot complain
that NRS failed to subject the agreement to the scrutiny of
regulators when, with PEBCO's assent, that agreement was
unknown to the regulators.6
One might argue that PEBCO is not entitled to
6
reimbursement for its own wrongdoing. "A person cannot
maintain a cause of action if, in order to establish it, he
must rely in whole or in part on an illegal or immoral act or
transaction to which he is a party." Hinkle v. Railway Express
Agency, 242 Ala. 374, 378, 6 So. 2d 417, 421 (1942). The
purpose of the Hinkle rule is to ensure that "'those who
transgress the moral or criminal code shall not receive aid
from the judicial branch of government.'" Oden v. Pepsi Cola
Bottling Co., 621 So. 2d 953, 955 (Ala. 1993) (quoting Bonnier
v. Chicago, B. & Q. R.R., 351 Ill. App. 34, 51, 113 N.E.2d
615, 622 (1953)). In the settlement of the class action 
neither NRS nor PEBCO was found to have acted illegally. As
the trial court stated:
"There has been no adjudication, finding of fact, or
other 
determination 
by 
any 
court 
that 
the
sponsorship payments, or any other act or omission
by any of the Defendants with respect to the ...
Plan, was unlawful or otherwise improper. Defendants
have steadfastly denied any wrongdoing and the
Parties to the proposed Settlement have agreed that
nothing in the Stipulation of Settlement shall be
construed to be an admission of wrongdoing."
10
1120806
Finally, Alabama does not permit a party to be
indemnified for defending against claims premised on its own
allegedly wrongful actions. In Jack Smith Enterprises v.
Northside Packing Co., 569 So. 2d 745 (Ala. Civ. App. 1990),
the Court of Civil Appeals noted that "there is considerable
authority holding that an indemnitee is precluded from
recovering attorney fees where the indemnitee has been
required to defend accusations which encompass his own
separate wrongful acts." 569 So. 2d at 746. The Court of Civil
Appeals then concluded that "indemnification, including
attorney fees, is allowed where one is defending claims
predicated solely upon another defendant's negligence;
however, where one is defending for his own benefit, an award
of attorney fees will not be allowed." 569 So. 2d at 746. This
Court subsequently adopted that reasoning. Stone Bldg. Co. v.
Star Elec. Contractors, Inc., 796 So. 2d 1076, 1092 (Ala.
2000).7
Because the merits of the class action are not at issue in
this cross-claim seeking indemnification by one defendant
against another, and because NRS has not argued that indemnity
should be denied on grounds of illegality, we do not further
examine this question.
A party may be entitled to indemnification for its own
7
negligence if the 
contract 
expressly so provides. However, the
11
1120806
The 
class-action 
claims 
unquestionably 
encompassed
PEBCO's own allegedly wrongful acts. PEBCO defended 
those 
acts
for its own benefit. Therefore, it may not now seek
indemnification for its costs of defense in the class action.
Further, as to the attorney fees and expenses PEBCO incurred
litigating its claim for indemnification in the severed
action, this Court has stated that indemnification for
attorney fees "'does not extend to services rendered in
establishing the right of indemnity.'" Stone Bldg., 796 So. 2d
at 1091 (quoting Jack Smith Enters., 569 So. 2d at 746). Thus,
PEBCO is not entitled to "fees on fees" for litigating in the
severed action its claim for indemnification of fees in the
class 
action. 
See 
also 
Southeast 
Envtl. 
Infrastructure, 
L.L.C.
v. Rivers, 12 So. 3d 32, 52-53 (Ala. 2008) (following Stone in
denying fees for establishing the right to indemnification).  
8
IV. Conclusion
indemnity provision in the agreement contains no such
language. See 
Brown 
Mech. Contractors, Inc. v. Centennial Ins.
Co., 431 So. 2d 932, 945-46 (Ala. 1983). 
Although 
the 
agreement 
does 
contain 
a 
provision 
expressly
8
stating that the prevailing party in an action alleging breach
of the agreement "shall be entitled to recover its litigation
expenses, including a reasonable attorney's fee," PEBCO is no
longer the prevailing party.
12
1120806
PEBCO was a defendant in the class action not "as a
result of NRS's failure to perform its duties under [the]
Agreement" but precisely because NRS did perform its duty to
make the allegedly wrongful sponsorship payments to PEBCO.
Because NRS did not fail to perform those duties under the
agreement that ultimately gave rise to the class action, it
did not, as a matter of law, breach the indemnification clause
in the agreement. Insofar as PEBCO argues that NRS had a
contractual obligation to steer it away from any legal
pitfalls, the agreement states only that NRS shall use its
"best efforts" to "assist" PEBCO in that effort. Finally, as
a matter of law, Alabama does not permit a party to seek
indemnification for defending against its own allegedly
wrongful acts.
We reverse the judgment of the trial court that awarded
attorney fees and expenses to PEBCO for the costs it incurred
in defending against the class action and in litigating its
entitlement to fees in the severed cross-claim action. We
remand this case for the entry of a judgment consistent with
this opinion.
REVERSED AND REMANDED.
Stuart, Bolin, Parker, and Wise, JJ., concur.
Murdock and Shaw, JJ., concur in the result.
13
1120806
SHAW, Justice (concurring in the result).  
Nationwide Retirement Solutions, Inc. ("NRS"), entered
into agreements with PEBCO, Inc. ("PEBCO"), and the Alabama
State 
Employees 
Association 
("ASEA") 
to 
administer 
a 
"Deferred
Compensation Plan" ("the Plan").  In connection with this
arrangement, NRS and PEBCO entered into an "Administrative
Services Agreement" ("the agreement") under which NRS made
"sponsorship payments" to PEBCO.  NRS, PEBCO, and  ASEA were
ultimately sued in the "Coker litigation" by the participants
in the Plan, who challenged the propriety of the sponsorship
payments.  The three ultimately settled that litigation. 
PEBCO now claims that NRS must, under the terms of an
indemnification clause in the agreement, indemnify PEBCO for
its attorney fees accumulated in the course of the Coker
litigation.
The indemnification clause at issue states: "NRS agrees
to indemnify and hold harmless ASEA and PEBCO ... for an
action taken against any of them arising as a result of NRS's
failure to perform its duties under this Agreement."  The
particular contractual duty under the agreement that NRS
14
1120806
allegedly failed to perform, found in section 7 of that
document, is stated as follows:
"NRS hereby agrees to utilize its best efforts and
to provide appropriate personnel to include NRS
legal counsel, where necessary:
"To 
assist 
ASEA 
and 
PEBCO 
in 
the
preparation 
of 
a 
Deferred 
Compensation 
Plan
and its attendant agreements together with
appropriate requests for rulings so that
all such documents meet the requirements,
in the opinion of the Attorney General of
the State of Alabama, of House Bill 91, the
Internal Revenue Service, the Securities
and Exchange Commission, and Alabama's
statutes and Constitution."
(Emphasis added.)  
On appeal, PEBCO argues that the above language imposes
a broad duty on NRS "to create a plan that complied with
Alabama law in a manner that did not expose ASEA and PEBCO and
their officials to any legal liability."  PEBCO's brief, at
20.  PEBCO appears to allege that the fact that the Coker
litigation occurred indicates that this duty was breached.
I see no support in section 7 for the broad duty proposed
by PEBCO. Instead, NRS agreed to use its "best efforts" to
"assist" PEBCO in preparing and gaining approval of the Plan
and the agreement. The existence of the Coker litigation
itself does not demonstrate that NRS failed to meet its duty. 
15
1120806
If NRS used its "best efforts" to "assist" PEBCO in both
preparing the Plan (and the agreement) and in requesting 
"rulings" to ensure that the Plan (and the agreement) met the
necessary "requirements," then it did not breach its duty even
if the Coker litigation resulted.  Conversely, if NRS failed
to provide its "best efforts" to "assist" PEBCO, then it would
have breached its duty even if the Coker litigation had not
occurred (or if PEBCO, ASEA, and NRS had been successful in
that litigation).  In other words, the proper focus is not on
the fact that the Coker litigation resulted, but whether NRS
breached its specified duty.
As noted in the main opinion, the trial court held in a
December 3, 2011, order that NRS was liable under the
agreement to indemnify PEBCO.  There is no explanation as to
how the above language of the agreement required such
indemnification under the facts of this case.  NRS claims that
"the record is completely void of any evidence that NRS failed
to utilize its best efforts or that it failed to assist ASEA
and PEBCO in the manner required by Section 7."  NRS's brief, 
at 25.  I see nothing in the arguments before us on appeal
16
1120806
establishing that NRS breached its duty under section 7 of the
agreement.   I thus concur in the result.
9
Indeed, there is some evidence in the record indicating
9
that the agreement was, at the direction of PEBCO, ASEA, or
their agents, not submitted to the scrutiny of regulatory
entities.  If this is true, then no "assistance" was required
of NRS.
17