Opinion ID: 3032037
Heading Depth: 2
Heading Rank: 1

Heading: Validity of Jefferson Pilot’s Claim

Text: [1] Cossu argues that the bankruptcy court clearly erred by determining that Jefferson Pilot had a “claim” within the meaning of the Bankruptcy Code. The term “claim” is defined in 11 U.S.C. § 101(5), and includes a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured . . . .” The validity of a creditor’s claim is determined by the rules of state law, including all nonbankruptcy law that creates substantive claims “such as federal securities law or other federal antifraud laws.” Grogan v. Garner, 498 U.S. 279, 283-84 & n.9 (1991). The bankruptcy court found Jefferson Pilot had a contractual right to payment pursuant to an indemnity provision that was part of Jefferson Pilot’s Registered Representative Agreement. In the agreement, Cossu agreed to: indemnify and hold the Company harmless against any claims, demands, suits, expenses (including reasonable attorney fees and expenses), losses or other forms of liability that arise out of or by reason of any act or failure to act by the Registered Representative which is unauthorized, illegal, dishonest, improper, IN RE: COSSU 6263 or in breach of this agreement or the current compliance and supervisor manuals in effect. The bankruptcy court found that Cossu’s “selling away” activities were unauthorized, dishonest, improper and in violation of his agreement with Jefferson Pilot, and that the damages incurred by Jefferson Pilot — defense costs and settlement amounts — were caused by those actions, thus satisfying the requirements for indemnity pursuant to the agreement. [2] The bankruptcy court correctly determined that Jefferson Pilot had a bankruptcy claim against Cossu, pursuant to the above-quoted contractual indemnity provision. The court erred, however, in the amount it awarded to Jefferson Pilot on that claim based on the record before it. [3] As the party seeking indemnity, without a judgment ordering it to pay, Jefferson Pilot had the burden of demonstrating that it was actually or at least potentially liable on the underlying claim and that the settlement amount was reasonable. See 41 Am Jur. 2d Indemnity § 46. A party cannot make a voluntary payment to settle an action and then hold another responsible for that payment through indemnity. See S. Cal. Gas Co. v. Venture Pipe Line Const. Co., 309 P.2d 849, 852 (Cal. Ct. App. 1957) (holding a voluntary payment made by the indemnitee, without regard to its liability, is not recoverable); Morrissette v. Sears, Roebuck & Co., 322 A.2d 7, 9 (N.H. 1974) (same).3 [4] Although Jefferson Pilot introduced information regard- 3 At argument, the parties did not agree as to which state law applies to the indemnity claim. Although Cossu assumed California law applies, Jefferson Pilot properly noted that the registered representative agreement containing the indemnity provision indicates that New Hampshire law governs. In any event, the law on this point is the same in both jurisdictions. 6264 IN RE: COSSU ing the amounts it paid to settle the claims, it provided no evidence about the specific causes of action the claimants brought against Jefferson Pilot or what state or federal law applied to those actions. On this scant record, we cannot say that Jefferson Pilot demonstrated its actual or potential liability so as to sustain the indemnity claim with respect to the settlement amounts. See Carpetland of Northwest Ark., Inc. v. Howard, 803 S.W.2d 512, 514 (Ark. 1991) (upholding denial of indemnity claim where indemnitee made no showing that the settlement was made under legal compulsion, and noting that as a consequence “Carpetland’s exposure to a judgment, the advisability of reaching a settlement, or the reasonableness of the amount are not matters of record.”). [5] Nonetheless, Jefferson Pilot did introduce evidence that Cossu’s customers sued Jefferson Pilot because of Cossu’s actions and that it had to incur attorneys’ fees and costs to defend those actions. Under the indemnity provision, it appears these fees and costs could be recovered irrespective of liability in the underlying lawsuit. Moreover, Jefferson Pilot had alternatively asserted a claim against Cossu that was based on the assignment of claims it received from Cossu’s customers in some of the settlement agreements. This alternative right to payment was never addressed by the bankruptcy court because it sustained the indemnity cause of action. On remand, we leave it to the bankruptcy court to address these issues in the first instance.