Court Opinion

ID: 149422
Source: CourtListenerOpinion
Date Created: 2010-06-24 16:25:29+00
Date Added: 2024-06-11T17:24:10.726817
License: Public Domain

FILED
                                                          United States Court of Appeals
                                                                  Tenth Circuit

                                                                 June 24, 2010
                      UNITED STATES COURT OF APPEALS
                                                   Elisabeth A. Shumaker
                                                                  Clerk of Court
                                   TENTH CIRCUIT

 UNITED RENTALS NORTHWEST,
 INC.,

          Plaintiff - Appellant,
                                                        No. 08-2225
                                            (D.C. No. 1:08-CV-00050-RLP-CG)
 v.
                                                         (D.N.M.)
 YEAROUT MECHANICAL, INC.,

          Defendant - Appellee.

                              ORDER AND JUDGMENT *

Before HENRY and O’BRIEN, Circuit Judges, and EAGAN, ** District Judge.

      Plaintiff - Appellant United Rentals Northwest, Inc. (United Rentals)

appeals the district court’s decision to grant Defendant - Appellee Yearout

Mechanical, Inc.,’s (Yearout) motion to dismiss. The district court ruled that

United Rentals could not seek indemnification from Yearout because the

indemnification provision contained in the parties’ equipment rental agreement

      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      **
       The Honorable Claire V. Eagan, United States District Judge for the
Northern District of Oklahoma, sitting by designation.
was unenforceable under N.M. S TAT . A NN . § 56-7-1. We certified a question of

law to the New Mexico Supreme Court and, based on the answer to the certified

question, we affirm the decision of the district court.

                                    Background

      United Rentals is an equipment rental company based in Oregon, and

Yearout operates a mechanical contracting service in New Mexico. Yearout

rented a scissor lift from United Rentals on March 1, 2006, and used the scissor

lift to perform duct work at the Eclipse Aviation Hanger at the Albuquerque

International Airport. The rental agreement, referred to as the “Rental Out

Contract,” included an indemnification provision:

      INDEMNITY/HOLD HARMLESS. TO THE FULLEST EXTENT
      PERMITTED BY LAW, CUSTOMER AGREES TO INDEMNIFY,
      DEFEND AND HOLD [UNITED RENTALS] HARMLESS FROM
      AND AGAINST ANY AND ALL LIABILITY, CLAIM, LOSS,
      DAMAGE OR COSTS (INCLUDING, BUT NOT LIMITED TO,
      ATTORNEYS’ FEES, LOSS OF PROFIT, BUSINESS
      INTERRUPTION OR OTHER SPECIAL OR CONSEQUENTIAL
      DAMAGES, DAMAGES RELATING TO BODILY INJURY,
      DAMAGES RELATING TO WRONGFUL DEATH) CAUSED BY
      OR IN ANY WAY ARISING OUT OF OR RELATED TO THE
      OPERATION, USE, MAINTENANCE, INSTRUCTION,
      POSSESSION, TRANSPORTATION, OWNERSHIP OR RENTAL
      OF THE EQUIPMENT, INCLUDING WHENEVER SUCH
      LIABILITY, CLAIM, LOSS, DAMAGE OR COST IS FOUNDED,
      IN WHOLE OR IN PART, UPON ANY NEGLIGENT OR
      GROSSLY NEGLIGENT ACT OR OMISSION OF [UNITED
      RENTALS] OR THE PROVISION OF ANY ALLEGEDLY
      DEFECTIVE PRODUCT BY [UNITED RENTALS]. THIS
      INDEMNITY PROVISION APPLIES TO ANY CLAIMS
      ASSERTED AGAINST [UNITED RENTALS] BASED UPON
      STRICT OR PRODUCT LIABILITY CAUSES OF ACTION OR

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      BREACH OF WARRANTY.

Appellant’s App. at 24. On April 1, 2006, two Yearout employees were killed in

an accident when the scissor lift fell over. The personal representatives of the

deceased employees sued United Rentals and JLG, Industries, Inc., the

manufacturer of the scissor lift, under theories of strict liability, negligence, loss

of consortium, and negligent infliction of emotional distress. United Rentals

settled the claims against it for an undisclosed amount.

      United Rentals filed this lawsuit seeking indemnification from Yearout

pursuant to the indemnification provision of the Rental Out Contract. Yearout

filed a motion to dismiss the lawsuit asserting that the indemnification provision

was unenforceable under § 56-7-1. Yearout argued that the rental agreement was

a construction contract within the meaning of § 56-7-1 and was unenforceable

under New Mexico law. United Rentals responded that § 56-7-1 did not apply to

equipment leases, even for construction equipment, because such agreements do

not relate to the construction, maintenance, or alteration of real property. The

district court determined that the indemnification provision was unenforceable

under § 56-7-1, and granted the motion to dismiss.

                                  Standard of Review

      We review a district court’s decision to grant a motion to dismiss de novo.

Christy Sports, LLC v. Deer Valley Resort Co., Ltd., 555 F.3d 1188, 1191 (10th

Cir. 2009). This is a diversity case arising out of New Mexico and we must apply

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the substantive law of New Mexico. See Pompa v. American Family Mut. Ins.

Co., 520 F.3d 1139, 1143 (10th Cir. 2008). This Court reviews a district court’s

construction of a state statute under a de novo standard of review. Breaux v.

American Family Mut. Ins. Co., 554 F.3d 854, 863 (10th Cir. 2009).

                                     Discussion

      United Rentals challenges the district court’s decision that the

indemnification agreement in the Rental Out Contract was unenforceable under §

56-7-1. First, United Rentals argues that an equipment lease does not relate to the

construction, alteration, repair, or maintenance of real property and the Rental

Out Contract is not similar to the other types of agreements listed in § 56-7-1(E).

Second, United Rentals states that the New Mexico legislature enacted an anti-

indemnification statute specifically concerning the enforceability of

indemnification agreements in equipment leases, N.M. S TAT . A NN . § 56-7-3, and

argues that it would have been unnecessary to pass § 56-7-3 if leases of

construction equipment were covered by § 56-7-1. Lastly, United Rentals claims

that decisions from the highest courts of other states with similar anti-

indemnification statutes show that the majority of states do not treat equipment

leases as construction contracts under construction anti-indemnification statutes.

      Under N.M. S TAT . A NN . § 56-7-1 (2005):

      [a] provision in a construction contract that requires one party to the
      contract to indemnify, hold harmless, insure or defend the other party
      to the contract, including the other party’s employees or agents,

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      against liability, claims, damages, losses or expenses, including
      attorney fees, arising out of bodily injury to persons or damage to
      property caused by or resulting from, in whole or in part, the
      negligence, act or omission of the indemnitee, its officers, employees
      or agents, is void, unenforceable and against the public policy of the
      state.

The statute defines a construction contract as:

      a public, private, foreign or domestic contract or agreement relating
      to construction, alteration, repair or maintenance of any real property
      in New Mexico and includes agreements for architectural services,
      demolition, design services, development, engineering services,
      excavation or other improvement to real property, including
      buildings, shafts, wells and structures, whether on, above or under
      real property.

Id. at § 56-7-1(E). The plain language of the statute does not expressly include an

equipment lease within the definition of the term “construction contract.” Section

56-7-1 defines an agreement “relating to construction, alteration, repair or

maintenance of any real property in New Mexico” as a construction contract, and

it goes on to provide a list of specific examples of types of agreements that

constitute construction contracts under the statute. None of the specific examples

is or could be construed as a lease of construction equipment. We determined

that the resolution of this appeal turned on an important and unsettled question of

state law and submitted the following certified question to the New Mexico

Supreme Court:

      Is a rental agreement for a scissor lift that was used to perform duct
      work at an airport hanger at the time of an accident a “construction
      contract” under N.M. Stat. § 56-7-1(E) (2005) such that a provision
      in that agreement that “requires one party to the contract to

                                         -5-
      indemnify, hold harmless, insure or defend the other party to the
      contract, including the other party’s employees or agents, against
      liability, claims, damages, losses or expenses, including attorney
      fees, arising out of bodily injury to persons or damage to property
      caused by or resulting from, in whole or in part, the negligence, act
      or omission of the indemnitee, its officers, employees or agents is
      void, unenforceable and against the public policy of the state.” Id. at
      § 56-7-1(A).

United Rentals Northwest, Inc. v. Yearout Mechanical, Inc., 573 F.3d 997, 1000

(10th Cir. 2009).

      The New Mexico Supreme Court determined that a rental agreement for

construction equipment falls within § 56-7-1 and an indemnification agreement in

such a rental agreement is unenforceable under New Mexico law. That court

construed § 56-7-1 as a broad limitation on the enforceability of an

indemnification agreement in any contract “relating to” construction. United

Rentals Northwest, Inc. v. Yearout Mechanical, Inc., No. 31,860, slip op. at 4

(N.M. June 17, 2010). However, the plain language of § 56-7-1 is susceptible to

more than one reasonable interpretation, and it was not clear if the statute was

intended to apply to rental agreements for construction equipment. The New

Mexico Supreme Court considered the legislative purpose behind the enactment

of New Mexico’s anti-indemnification statutes, and found that the legislature

“overrode competing public policies favoring the freedom to contract” and

recognized that holding wrongdoers liable for their own behavior served an

important deterrent function. Id. at 7. The court found no meaningful distinction

                                         -6-
between a rental agreement for construction equipment and an ordinary

construction contract, and found that § 56-7-1 does apply to a lease of

construction equipment. The New Mexico Supreme Court considered United

Rentals’ argument concerning the subsequent enactment of § 56-7-3 and judicial

decisions from other states with similar anti-indemnification statutes. Since § 56-

7-1 includes rental agreements for construction equipment, the court treated § 56-

7-3 as an extension of New Mexico’s anti-indemnification policy to all types of

rental agreements, not just leases of construction and mining equipment, and this

did not affect the clear legislative intent to include lease agreements for

construction equipment within the scope of § 56-7-1. Id. at 8-11. The New

Mexico Supreme Court also considered judicial decisions from other states and

acknowledged that some state courts have interpreted their own anti-

indemnification statutes more narrowly, but held that such a narrow interpretation

would be inconsistent with the intent of New Mexico Legislature when it enacted

§ 56-7-1. Id. at 11-12.

      Based on the New Mexico Supreme Court’s answer to the certified

question, we find that the district court’s decision to grant Yearout’s motion to

dismiss should be affirmed. The Rental Out Contract is clearly a rental agreement

for construction equipment and falls within the scope of § 56-7-1, as this statute

was interpreted by New Mexico Supreme Court in answer to this Court’s certified

question. United Rentals raised each of its arguments concerning statutory

                                          -7-
interpretation before the New Mexico Supreme Court, and those arguments were

rejected as grounds to exclude an indemnification agreement contained within a

lease of construction equipment from the scope of § 56-7-1. Thus, there are no

issues remaining for resolution in this appeal following the New Mexico Supreme

Court’s answer to this Court’s certified question, and the indemnification

agreement in the Rental Out Contract is unenforceable under New Mexico law.

      Therefore, we AFFIRM the judgment of the district court.

                                      Entered for the Court

                                      Claire V. Eagan
                                      District Judge

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