Court Opinion

ID: 803340
Source: CourtListenerOpinion
Date Created: 2012-06-28 19:19:50+00
Date Added: 2024-06-11T18:00:07.910334
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 11-1326

CAPITOL ENVIRONMENTAL SERVICES, INCORPORATED,

                Plaintiff - Appellant,

           v.

NORTH RIVER INSURANCE COMPANY,

                Defendant - Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.   T. S. Ellis, III, Senior
District Judge. (1:10-cv-00792-TSE-TCB)

Argued:   May 17, 2012                        Decided:   June 28, 2012

Before NIEMEYER and      GREGORY,   Circuit   Judges,    and   HAMILTON, 1
Senior Circuit Judge.

Affirmed by unpublished opinion.       Judge       Gregory     wrote   the
opinion, in which Judge Niemeyer joined.

ARGUED:   Stephen Anthony Horvath, BANCROFT, MCGAVIN, HORVATH &
JUDKINS, PC, Fairfax, Virginia, for Appellant.      Margaret F.
Catalano, CARROLL, MCNULTY & KULL, LLC, Basking Ridge, New
Jersey, for Appellee.    ON BRIEF:  Melissa H. Katz, Wesley D.
Allen, BANCROFT, MCGAVIN, HORVATH & JUDKINS, PC, Fairfax,
Virginia, for Appellant. Heather E. Simpson, CARROLL, MCNULTY &

     1
       Because Senior Judge Hamilton did not participate in oral
argument due to illness, this decision is filed by a quorum of
the panel, pursuant to 28 U.S.C. § 46(d).
KULL, LLC, Basking Ridge, New Jersey; Craig J. Franco, ODIN,
FELDMAN & PITTLEMAN, PC, Fairfax, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

                                2
GREGORY, Circuit Judge:

       Capitol        Environmental       Services,      Inc.   (“Capitol”)       argues

that the district court erred in granting summary judgment in

favor    of     The    North     River    Insurance      Company    (“North      River”)

because the settlement agreement between Capitol and Earth Tech,

Inc.    (“Earth       Tech”)   included     the       contractual   indemnity      claim

dismissed as moot by the Florida state courts.                      We disagree.      We

hold that because Capitol could never be held liable for any

damages to Earth Tech on a theory of contractual indemnity after

Earth Tech was made whole on its breach of contract claim, North

River has no duty to indemnify Capitol for the damages covered

by the settlement agreement.

                                            I.

       Capitol is a waste-disposal company that had been hired as

a contractor by St. Marks Refinery for waste disposal.                           Capitol

in     turn    hired      Earth    Tech     as    a    subcontractor        to   provide

hazardous-waste transportation and disposal services.                            Capitol

also subcontracted with Freehold Cartage, Inc. (“FCI”) to pick

up and transport waste from St. Marks Refinery to the disposal

facility.

       On     September    25,    2002,    as    FCI    employee    Peter    Blash   was

backing a semi-tractor-trailer into the St. Marks Refinery, his

tractor-trailer lay across Virginia State Road 363, and Annette

                                             3
Carey collided into the tractor-trailer, resulting in injuries

to her and her husband.                The tractor-trailer was angled over the

center     line    of     the       road    so    that    its    headlights       pointed    in

Carey’s lane, which caused a glare that distracted her from the

trailer     ahead    in    her       lane.        Earth     Tech    was    responsible      for

providing     flagmen       to       direct       traffic    at     the    site.       Several

witnesses testified that an Earth Tech flagman “jumped” in front

of   her    vehicle,      causing          her    to   swerve     and     hit    the   tractor-

trailer.

      Carey filed suit in state court in Florida against Peter

Blash, FCI, and Earth Tech for her injuries and her husband’s

loss of consortium.                 Earth Tech and FCI each paid $250,000 in

2006 to extinguish their respective liabilities in the action.

Earth      Tech    filed        a    third-party         complaint        against      Capitol,

alleging, inter alia, breach of contract, contractual indemnity,

and common-law indemnity.

      On March 29, 2007, the Second Judicial Circuit for Wakulla

County, Florida, granted Earth Tech’s motion for partial summary

judgment     against       Capitol,         holding       that     Capitol      breached    the

subcontract because it failed to purchase adequate insurance to

cover Earth Tech’s subcontract work.                             The court subsequently

granted Capitol’s motion for summary judgment on the common-law

indemnity charge but denied it as to the contractual indemnity

claim.       The    trial       court       sua    sponte    severed       the    contractual

                                                  4
indemnity claim, and the breach of contract claim went to a jury

to determine damages.              The jury awarded $585,525 to Earth Tech

on February 6, 2008, for the breach of contract claim.

       On     July    13,    2007,   Capitol        filed     a   declaratory      judgment

action against North River in the United States District Court

for     the       Eastern     District    of       Virginia       seeking     defense     and

indemnification           according      to    North      River’s     policy       held    by

Capitol.          The district court found that it would be premature to

award summary judgment on the indemnification claim because the

record was “insufficiently developed” because Florida courts had

“not yet ruled on whether Capitol breached its duty to indemnify

Earth Tech.”          Capitol Envt’l Servs., Inc. v. North River Ins.

Co., 536 F. Supp. 2d 633, 645-46 (E.D. Va. 2008).                                 The court

noted, “North River has a duty to indemnify Capitol in the Earth

Tech    action       only    if   Capitol      demonstrates        that     it    was   found

liable to Earth Tech for bodily injury actually covered by the

North River policy.”              Id. at 645.         Accordingly, the court said,

if Capitol’s liability arose out of Earth Tech’s negligence,

that would give rise to Capitol’s liability to Earth Tech only

under a breach of contract theory, which in turn would not be

covered by North River’s policy.                   Id.

       The parties agreed in a joint stipulation that the Florida

court       was     the     appropriate       forum      to   resolve       the   remaining

contractual indemnity claim between Earth Tech and Capitol, but

                                               5
that in the event that the Florida court did not consider the

indemnity claim, the parties would return to Virginia federal

court to resolve the issue.

       Capitol      sought         a      trial         for     the    severed        contractual

indemnity     claim      in       the   Florida         court,    which       the    trial       court

denied.      The    court         dismissed         the       contractual      indemnification

claim as moot, finding that any damages that would be awarded to

Earth Tech on this claim would be duplicative of the damages

awarded for breach of contract.

       On   May    28,     2008,        the    Circuit         Court     of   Wakulla       County,

Florida, entered final judgment on the breach of contract claim

in   favor   of     Earth         Tech,    and       Capitol      appealed      to        the    first

district     court       of       appeal       in       Florida,       which        affirmed         the

judgment,     but     added         prejudgment               interest    to        the    damages,

bringing the total final judgment to $889,152.72.                                    On November

30, 2009, the first district court of appeal affirmed the trial

court’s decision that the contractual indemnity claim was moot.

Neither     Capitol      nor      Earth       Tech      sought    appeal       to    the    Florida

Supreme Court.

       In August 2010, Capitol and Earth Tech entered a settlement

agreement, in which Capitol agreed to pay $769,087,68 to Earth

Tech   according      to      a    payment        schedule       in    satisfaction             of   the

judgment and “all claims and counterclaims asserted, or which

could have been asserted.”

                                                    6
      On    July     16,   2010,       Capitol       filed       a     second       declaratory

judgment action against North River in the eastern district of

Virginia, which action forms the basis for the instant appeal.

The district court denied Capitol’s motion for summary judgment

and granted North River’s on March 15, 2011, holding that North

River has no duty to indemnify Capitol.                           The court found that

the dismissal of the contractual indemnity claim on mootness

grounds constituted an adjudication on the merits under Florida

law   and   that     Earth      Tech     is    precluded         by    res    judicata        from

litigating     the    issue      again.         As   such,        Capitol       never    became

legally     obligated      to      pay    Earth      Tech      under      the       contractual

indemnity theory, and accordingly North River had no duty of

indemnification.             The       court       further        determined          that    the

settlement     agreement         between      Capitol       and       Earth    Tech     did   not

encompass the contractual indemnity claim because that claim had

already been extinguished according to a final decision of the

Florida state courts.

      Capitol filed a notice of appeal to this Court.

                                              II.

      On    appeal,    Capitol       argues        that    the       settlement       agreement

between      Capitol       and      Earth       Tech       includes           the     dismissed

contractual indemnity claim and that North River must indemnify

Capitol     for    this    claim       according          to   its      insurance       policy.

                                               7
Reviewing de novo the district court’s grant of summary judgment

for North River, see Higgins v. E.I. Dupont de Nemours & Co.,

863 F.2d 1162, 1167 (4th Cir. 1988), we affirm.

      North River’s policy covers “those sums that the insured

becomes legally obligated to pay as damages because of ‘bodily

injury’    or    ‘property     damage.’”             J.A.       243.      The    policy     also

includes a carve out:           North River is not obligated to pay for

damages assumed in a contract or agreement.                               But there is an

exception      to    the   exception:       there          is    coverage       for   “damages

. . .    [t]hat      the   insured   would       have       in     the    absence      of   the

contract or agreement.”              J.A. 243.              The settlement agreement

between Capitol and Earth Tech is an assumption of liability by

Capitol,       and   Capitol   would    have         had        that    liability      in   the

absence    of    the   agreement     (due       to    the       court    judgment     against

Capitol).       The parties agree that the judgment against Capitol

for breach of contract is not covered by the North River policy.

The     only    question     that    remains          is    whether        the    settlement

agreement       between      Capitol    and           Earth        Tech     included         the

contractual indemnity claim, which could be covered by the North

River policy.

      Capitol argues that because the settlement agreement covers

“all claims and counterclaims asserted, or which could have been

asserted” in the Earth Tech and Capitol law suit, the agreement

necessarily covers the claim for contractual indemnity despite

                                            8
the fact that the state appeals court had ordered judgment for

$889,152.72 on the breach of contract claim.                         Capitol’s argument

is unconvincing.

       First, the judgment for $889,152.72 made Earth Tech whole

for its injury.            Even if judgment were somehow awarded against

Capitol under the contractual indemnity theory, Capitol would

owe no amount of money under such a theory because Earth Tech

has already recovered the full amount of its injury.                                  At the

time    of    the    settlement         agreement,       Capitol      was     not    legally

obligated       to   pay    Earth        Tech       damages   under    the     contractual

indemnity theory.           Capitol is not now -- nor will it ever be --

legally      obligated      to     pay    damages       to    Earth    Tech       under     the

contractual indemnity theory.                   In any case, there has never been

a    judgment     against        Capitol    under       the     contractual        indemnity

theory.

       Second,       the     Florida       state        court      decision       that      the

contractual indemnity claim was moot was a final judgment on the

merits, and therefore the claim could not be reasserted against

Capitol.       Florida Rule of Civil Procedure 1.420(b) states that

any involuntary dismissal “other than a dismissal for lack of

jurisdiction         or    for     improper          venue    or    for      lack     of     an

indispensable party, operates as an adjudication on the merits.”

One Florida appellate court has observed that “[t]he reluctance

of   the     Florida      courts   to     decide       moot   questions      is     based    on

                                                9
policy reasons, not lack of jurisdiction.”                         Merkle v. Jacoby,

912 So. 2d 593, 594 (Fla. Dist. Ct. App. 2d Dist. 2005) (citing

Cook v. City of Jacksonville, 823 So. 2d 86 (Fla. 2002).                                Under

Florida law, even if a case would otherwise be moot, a court may

nonetheless      consider          the    merits    when    one        of    three    policy

exceptions applies:               “(i) when questions raised are of great

public importance, (ii) when the questions raised are likely to

recur,    or    (iii)    when      the    collateral      legal    consequences             that

affect    the    rights       of    a    party     flow    from    the       issue     to    be

determined.”          J.A. 445 (district court opinion) (citing Godwin

v.   State,     593    So.    2d    211,    212    (Fla.    1992)).           The    Florida

appellate court in Merkle reasoned that because the mootness

rule in Florida is policy-based, dismissal on mootness grounds

is not jurisdictional for purposes of Rule 1.420(b).                                See also

Semtek Intern. Inc. v. Lockheed Martin Corp., 513 U.S. 497, 501-

503 (2001) (discussing the history of the federal counterpart,

Rule 41(b)); Allie v. Ionata, 503 So. 2d 1237, 1241 (Fla. 1987)

(same) (holding that “[a] judgment on the merits precluding the

relitigation of the same cause of action is one based on the

legal rights and liabilities of the parties, as distinguished

from     one    based        on    technical       or     dilatory          objections       or

contentions,      or    on    mere       matters    of    form    or    of    practice       or

procedure.”).           Therefore,         under     Florida      law        the     mootness

                                             10
judgment was a valid and final decision on the merits at the

time of the settlement agreement between Capitol and Earth Tech.

      No court has ever held that Capitol is liable to Earth Tech

for damages under a theory of contractual indemnity.                       Because

the indemnity claim against Capitol had been dismissed as moot

and the settlement agreement did not resurrect it, Capitol was

not legally obligated to pay Earth Tech damages for indemnity.

The   North    River    policy     covers      only   claims   which   Capitol    is

“legally obligated to pay.”                 Therefore, North River does not

have a duty to indemnify Capitol under the insurance policy.

The district court was correct to conclude that “the settlement,

which     purported    to   settle    all    claims    between   Earth    Tech    and

Capitol,      cannot   be   said     to   have    encompassed    the     breach   of

contractual indemnity claim because, at the time the settlement

was consummated, that covered claim was already extinguished.” 2

J.A. 446-47.

      2
       Capitol also argues that the district court erred in
concluding that res judicata barred it from considering whether
Capitol was liable to Earth Tech under the contractual indemnity
claim. But neither res judicata nor claim preclusion can apply
under Florida law when, as here, the parties to the prior and
subsequent proceedings are not the same.     E.C. v. Katz, 731
So.2d 1268, 1270 (Fla. 1999) (deciding that there is no doctrine
of non-mutual collateral estoppel in Florida, contrary to
federal law).   “[U]nless both parties are bound by the prior
judgment, neither may use it in a subsequent action.” Stogniew
v. McQueen, 656 So.2d 917, 919 (Fla. 1995); Massey v. David, 831
So. 2d 226, 233 (Fla. App. 1st Dist. 2002). Nor does Florida’s
privity exception apply on these facts. See Sentry Ins. v. FCCI
(Continued)
                                          11
     For the foregoing reasons, we affirm the district court’s

grant of summary judgment for North River.

                                                        AFFIRMED

Mut. Life Ins. Co., 745 So.2d 349, 350 (Fla. 4th Dist. Ct. App.
(1999)) (applying res judicata where parties are not identical
because the insurance company’s and the insured’s “interests
were not antagonistic”).    Therefore, the Florida state court
decision that Earth Tech’s contractual indemnity claim was moot
does not bind Capitol in its instant litigation for indemnity by
North River.

     Nevertheless, this is a pyrrhic victory for Capitol
because, as already stated, under no circumstances can Capitol
be liable for damages to Earth Tech under the theory of
contractual indemnification after Earth Tech was made whole by
the award of damages on the breach of contract claim.

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