Opinion ID: 1037568
Heading Depth: 2
Heading Rank: 1

Heading: Indemnification of IAP

Text: It is undisputed that Section 8.3(e) of the SPA is not facially ambiguous; therefore it must be construed according to its plain meaning. See Bailey v. Fish & Neave, 868 N.E.2d 956, 959 (N.Y. 2007). Section 8.3(e) governs Johnson Controls’ duty to indemnify IAP for specified “Damages.” “Damages” are defined in the agreement as “all demands, claims, actions or causes of action, assessments, losses, damages and liabilities” arising from certain events.10 Thus, Section 8.3(e), as amended by Amendment No. 1, provides that “[Johnson Controls] agrees to indemnify and hold harmless [IAP] . . . from and against all . . . losses[] . . . actually incurred by”11 IAP “arising out of or relating to”12 the Fluor dispute, for which “[t]he maximum exposure in settling this issue for RMS is approximately $26 million.”13 It bears emphasis that the parties in amending the SPA’s indemnification provision through Amendment 10 R.251-2 at 55 (SPA). 11 Id. 12 R.1-3 at 4 (Amendment No. 1). 13 Id. at 7. 9 Case: 12-10793 Date Filed: 08/14/2013 Page: 10 of 38 No. 1 explicitly contemplated “settling [the Fluor dispute] for RMS.”14 Under the amended Section’s plain language, IAP is entitled to indemnification from Johnson Controls for the actual losses it sustained because of the Fluor dispute, including those incurred by settling the Fluor dispute “for RMS.”15 Johnson Controls submits that it does not owe IAP indemnification because RMS, not IAP, had liability as a result of the Fluor dispute. Although Johnson Controls is correct that only RMS, and not IAP, was liable to Fluor because of the cost overruns associated with the Air Force project, it is incorrect in concluding that this absence of liability relieves it of its duty of indemnification. Johnson Controls did not undertake to indemnify IAP only for liability incurred as a result of the Fluor dispute. Rather it agreed to indemnify IAP for a host of damages, including losses actually incurred. The district court found that IAP suffered actual losses as a result of RMS’s litigation and ultimate settlement with Fluor.16 At summary judgment, Johnson 14 Id. (emphasis added). 15 Id. 16 R.292 at 8. For example, IAP produced evidence that, in accordance with GAAP, IAP and RMS file consolidated financial statements, in which reductions in RMS’s value appear as losses to IAP. R.251-48 at 2-3. 10 Case: 12-10793 Date Filed: 08/14/2013 Page: 11 of 38 Controls produced no evidence disputing this fact.17 Its only argument on appeal is that because IAP and RMS are separate legal entities, IAP cannot be liable for RMS’s debts. However, the absence of legal liability does not preclude finding that IAP suffered actual losses, which the SPA specifically provides for, as a result of the Fluor dispute. Indeed, in order to give effect to the parties’ agreement, including Amendment No. 1, we cannot accept Johnson Controls’ argument that IAP is precluded from suffering actual losses as a result of the Fluor dispute because IAP and RMS are distinct legal entities. Were this sufficient to preclude IAP from incurring an actual loss, Amendment No. 1 would be meaningless. Under New York law, actual loss must be given its “plain and ordinary meaning.” White v. Cont’l Cas. Co., 9 N.Y.3d 264, 267, 878 N.E.2d 1019, 848 N.Y.S.2d 603 (N.Y. 2007). IAP presented evidence that it suffered real, tangible losses as a result of the Fluor dispute. As the district court noted, Johnson Controls chose not to challenge or rebut this evidence, see R.292 at 8, and so has forfeited its opportunity to do so. 17 See R.292 at 8 (noting that Johnson Controls produced no evidence in response to IAP’s evidence that it sustained actual losses). 11 Case: 12-10793 Date Filed: 08/14/2013 Page: 12 of 38 However, we note that IAP has incurred actual losses. The shared balance sheet reflects more than mere accounting practices between IAP and RMS; it reflects the reality of the ownership structure whereby IAP funded RMS’s settlement with Fluor and the associated attorneys’ fees. First, IAP incurred monetary losses by funding RMS’s litigation. Second, RMS is IAP’s wholly-owned subsidiary; in short, RMS itself is one of IAP’s assets. When RMS’s net worth was reduced because of expenses incurred in negotiating, litigating and ultimately settling with the Air Force and with Fluor, IAP suffered a cognizable monetary loss--its asset (RMS) was diminished in value. The SPA as amended by Amendment No. 1 clearly contemplates indemnifying IAP’s “settling this issue for RMS.”18 The district court found that, based on uncontroverted evidence, IAP incurred actual losses in doing just that. Thus, the SPA, as amended, covers the losses IAP actually incurred because of the Fluor dispute. 18 R.1-3 at 7 (emphasis added) (Amendment No. 1). We do not require Johnson Controls to indemnify RMS, but rather, in accordance with the terms of Amendment No.1, to indemnify IAP for losses incurred by IAP because of RMS’s dispute with Fluor. There is a difference between requiring Johnson Controls to indemnify RMS and requiring it to indemnify IAP for losses that RMS’s actions caused IAP to suffer, which was the purpose of Amendment No. 1. 12 Case: 12-10793 Date Filed: 08/14/2013 Page: 13 of 38