Opinion ID: 628267
Heading Depth: 3
Heading Rank: 4

Heading: Indemnity Agreements

Text: 49 Appellants maintain that fact issues remain concerning the enforceability of their indemnity agreements. 41 Relying on National Union Fire Insurance Co. v. Turtur, 892 F.2d 199 (2d Cir.1989), 42 they urge that where a surety receives an indemnity agreement from the investor in return for bonding the investor's obligations, and the separate subscription and indemnity agreements are executed contemporaneously, fraudulent inducement in the subscription agreement renders the indemnity agreement likewise fraudulently induced and thus unenforceable. Finding no basis for the foregoing proposition under federal or Louisiana law, 43 we reject it. 50 In Dealy, we held that an indemnity agreement is unenforceable due to fraud in the subscription agreement where the surety was a party to the fraud [as an aider or abettor] or a coconspirator in it. 911 F.2d at 1100. 44 We thus apply the reasoning of Dealy, and conclude that because appellants have failed to produce more than a scintilla of evidence of Home and Graham's involvement in the alleged fraud, see supra, federal law does not provide a defense. 51 Our analysis of Louisiana law produces the same result. Even if we construe the indemnity and subscription agreements as interdependent, 45 we conclude that appellants, at a minimum, must meet the requirements of La.Civ.Code.Ann. art 1956, which provides: Fraud committed by a third person vitiates the consent of a contracting party if the other party knew or should have known of the fraud. 46 Cf. Breaux v. Equity Group, 1989 WL 1764  2, 1989 U.S.Dist. LEXIS 235  5 (E.D.La.1989). 52 To satisfy article 1956, appellants must not only show that a reasonable jury could find the requisite knowledge based on the Duane Memo (and subsequent insertion of exculpatory language in the PPM), but, also, that error resulting from the alleged misrepresentations and material omissions contained in the PPM, and referenced in the Duane Memo, substantially influenced that consent. La.Civ.Code.Ann. art. 1955. Because the summary judgment record is lacking on evidence of reliance, see supra note 39, appellants' fraud defense fails. See In re J.M.P., 528 So.2d 1002, 1010 (La.1988) (stating that to vitiate consent on the ground of fraud, the party who asserts that the obligation is null must prove some type of causal relationship between his consent and the vice that influenced it). 47 53 Appellants next assert that even if the indemnity agreement is independent, rather than interdependent, and thus unaffected by fraud in the inducement of the subscription agreement, it does not obligate them to indemnify Home. A contract of indemnity is construed in accordance with the general rules governing contract interpretation--[w]hen the words of a contract are clear, unambiguous, and lead to no absurd consequences, the contract is interpreted by the court as a matter of law. Carter v. BRMAP, 591 So.2d 1184, 1188 (La.App. 1st Cir.1991) (emphasis in original). Agreements to indemnify are strictly construed and the party seeking to enforce such an agreement bears the burden of proof. Liem v. Austin Power, Inc., 569 So.2d 601, 608 (La.App. 2d Cir.1990). The indemnity agreement provides: 54 The [investor] will protect, indemnify, and save harmless [Home] from and against any and all liability, loss, costs, damages, fees of attorneys, and other expenses which [Home] may sustain or incur under or in connection with the Bonds hereunder, or in connection with this Agreement, for: 55 . . . . . 56 (c) all demands, liabilities, losses, charges and expenses of every kind, which [Home] may become liable to pay or have paid by reason of or in consequence of the execution by [Home] of the Bonds in favor of the [investor]. 57 The referenced bonds provide that [a] default occurs regardless of whether the Principal for any reason shall have no legal obligation to discharge his, her or its obligations under the Notes to the Obligee or the Permitted Assignee whichever holds the Note(s) which are guaranteed in part by the Surety . (Emphasis in original.) In the same paragraph, Home waives its defenses to payment. 48 58 In view of this language, we conclude that the indemnity agreement encompasses fraud; however, even if we accept appellants' assertion that the contract is ambiguous and thus look outside the contract to discern the parties' intent, appellants nonetheless fail to create a material fact issue. The first supplement to the PPM evidences Home's intent that the indemnity agreement impose an unconditional obligation on the investors. 49 Appellants, on the other hand, did not adduce evidence demonstrating their intent. Accordingly, uncontradicted evidence establishes that the indemnity agreements do not provide a defense to enforceability. See Carter, 591 So.2d at 1192 (granting summary judgment where nonmovant failed to raise a genuine issue of material fact as to the contract's proper interpretation). 59 We summarily dismiss appellants remaining two bases for nullifying their obligations. 50 First, appellants' reliance on codal suretyship arguments is misplaced. They seek to nullify the indemnity agreements, not their obligation to Home arising from Home's issuance of the bonds. 51 As stated in Commercial Union Ins. Co. v. Melikyan, 430 So.2d 1217, 1221 (La.App. 1st Cir.1983), a contract on indemnity is different from a contract on suretyship: 60 The contract of indemnity forms the law between the parties and must be interpreted according to its own terms and conditions.... [I]n an indemnity contract, the principal and indemnitors can be bound to the surety in any manner they elect in consideration of the surety issuing the bond covering the principal obligation. 52 61 Second, we reject appellants' attempt to void the indemnity agreements pursuant to Sec. 29(b) of the 1934 Act, 15 U.S.C. Sec. 78cc(b). 53 The indemnity agreements, standing alone, were not made or performed in violation of the securities laws. 54 See Regional Properties, Inc., 678 F.2d at 561 n. 16. 62 In sum, appellants failed to establish a material fact issue regarding the enforceability of the indemnity agreements. Accordingly, in view of their plain meaning, we conclude, as a matter of law, that the investors are obligated to Home, and thus affirm the summary judgment. In so doing, we complete our review of the summary judgment, and turn to appellants' contentions concerning the district court's post-judgment rulings.