Court Opinion

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Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-15-1994

Kruzits v. Okuma
Precedential or Non-Precedential:

Docket 94-1328

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Recommended Citation
"Kruzits v. Okuma" (1994). 1994 Decisions. Paper 186.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/186

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                   UNITED STATES COURT OF APPEALS

                       FOR THE THIRD CIRCUIT
                            ____________

                           NO. 94-1328
                            ____________

                CHARLES SEAN KRUZITS and MARY KRUZITS

                                 v.

                     OKUMA MACHINE TOOL, INC.;
                      HELLER FINANCIAL, INC.;
                           GOSIGER, INC.

                                 v.

           VINCENT W. VISCO, d/b/a VISTEK INDUSTRIES,
                               Third-Party Defendant

                                 Heller Financial, Inc., Appellant
                            ____________

          Appeal from the United States District Court
            for the Eastern District of Pennsyvlania
                      D.C. No. 93-cv-03512
                          ____________

                     Argued September 19, 1994
      Before:    GREENBERG, ROTH, and ROSENN, Circuit Judges
                      Opinion Filed November 15, l994
                            ____________

DAVID J. GRIFFITH, ESQUIRE
MICHELE DANIELE, ESQUIRE (Argued)
Harvey, Pennington, Herting & Renneisen, Ltd.
1835 Market Street, 29th Floor
Eleven Penn Center
Philadelphia, PA 19102
  Attorneys for Appellant, Heller Financial, Inc.

CHARLES W. CRAVEN, ESQUIRE (Argued)
Marshall, Dennehey, Warner, Coleman & Goggin
1845 Walnut Street, 18th Floor
Philadelphia, PA 19103
  Attorneys for Appellee, Vincent Visco
                           ____________

                        OPINION OF THE COURT
ROSENN, Circuit Judge.

           Charles Sean Kruzits, an employee of Vincent M. Visco

d/b/a/ Vistek Industries ("Vistek"), filed a strict products

liability action against Okuma Machine Tool, Inc., manufacturer

of a lathe which Kruzits alleges caused him personal injuries,

and Heller Financial, Inc. ("Heller"), in the Court of Common

Pleas of Philadelphia County.    Heller financed the purchase of

the lathe and holds title to it for the sole purpose of

perfecting its security interest.     The defendants subsequently

removed the case to the United States District Court for the

Eastern District of Pennsylvania.

           In the district court, Heller filed a third-party

complaint against Vistek seeking indemnification and defense

under the terms of their lease agreement.     Vistek moved for

judgment on the pleadings.    The district court granted Vistek's

motion.   Heller appeals.1   We reverse.

                                 I.

           Kruzits, an employee of Vistek, sustained injuries in

the course of his employment while operating a lathe manufactured

by Okuma Machine Tool, Inc.    He sued Heller and several other

1
 . Heller filed its notice of appeal before the district court
certified its order as final under Federal Rules of Civil
Procedure Rule 54(b). Thereafter, Vistek filed a motion to
dismiss the appeal for lack of jurisdiction. This court denied
Vistek's motion because the district court has certified its
order as final under Rule 54(b) and because there is no
indication that hearing this appeal will prejudice Vistek's
rights. See Richerson v. Jones, 551 F.2d 918, 921-923 (3d Cir.
1977).
defendants for compensation for his injuries.   Heller, who merely

financed the lathe but exercised no operational control over it,

took title to it, and leased it to Vistek pursuant to the

security lease agreement.

           In the district court, Heller filed a third-party

complaint against Vistek, alleging that, under the terms of its

lease agreement, Vistek should defend and indemnify Heller in the

underlying action.   Vistek moved for judgment on the pleadings

contending that the language of the indemnity provision in the

lease agreement was not specific enough to overcome the immunity

which Vistek, as Kruzits' employer, asserted pursuant to the

Pennsylvania Workers Compensation Act ("PWCA"), 77 P.S. §

481(b).2

           The district court granted Vistek's motion for judgment

on the pleadings, holding that the PWCA precluded Heller from

seeking indemnity from Vistek.   The court accepted Vistek's

2
 .   Section 481(b) of the Pennsylvania Workmen's Compensation
Act provides that:

                In the event injury or death to an
           employee [sic] is caused by a third party,
           then such employee [sic]. . . may bring [an]
           action at law against such third party, but
           the employer . . . shall not be liable to a
           third party for damages, contribution, or
           indemnity in any action at law, or otherwise,
           unless liability for such damages,
           contributions or indemnity shall be expressly
           provided for in a written contract entered
           into by the party alleged to be liable prior
           to the date of the occurrence which gave rise
           to the action. Pa. Stat. Ann. tit. 77,
           §481(b) (1974).
argument that the indemnity provision in the lease agreement was

not specific enough to overcome Vistek's employer's immunity

under the PWCA.     The court rejected Heller's contention that

Illinois law should govern the interpretation of the indemnity

clause because of a choice of law provision in the lease

agreement.3   The court concluded that Pennsylvania law should

apply because Pennsylvania had a significant interest in the

underlying action which justified ignoring the contractual choice

of law provision.

          This appeal only considers the issue of whether Heller

can successfully bring Vistek into the underlying action as a

third party defendant.

                                 II.

          This court exercises plenary review over district court

orders granting a motion for judgment on the pleadings pursuant

to Fed. R. Civ. P. 12(c). See e.g., Jablonski v. Pan American

World Airways Inc., 863 F.2d 289, 290 (3d Cir. 1988).     Under Rule

12(c), we will not grant judgment on the pleadings "unless the

movant clearly establishes that no material issue of fact remains

to be resolved and that he is entitled to judgment as a matter of

law." Id. (quoting Society Hill Civic Association v. Harris, 632
F.2d 1045, 1054 (3d Cir. 1980) (citation omitted).

                                  A.

3
 . The choice of law provision of the security lease provides,
in pertinent part, that: "this lease will be governed by the
internal law and decisions . . . of the State of Illinois,
including all matters of construction, validity, enforceability,
and performance."
          We must determine: first, whether Pennsylvania or

Illinois law controls the interpretation of the indemnity clause

of the lease agreement; and second, whether the indemnity clause

is enforceable under the applicable law.

          A federal court exercising diversity jurisdiction must

apply the choice of law rules of the forum state. Klaxon Co. v.

Stentor Electric Mfg. Co., 313 U.S. 487, 497 (1941); American Air

Filter Co. v. McNichol, 527 F.2d 1297, 1299 n. 4 (3d Cir. 1975).

Accordingly, we apply Pennsylvania choice of law rules in this

case.

          Pennsylvania courts generally honor the intent of the

contracting parties and enforce choice of law provisions in

contracts executed by them.   Smith v. Commonwealth Nat. Bank, 557

A.2d 775, 777 (Pa. Super. 1989), appeal denied, 569 A.2d 1369

(Pa. 1990).   Pennsylvania courts have adopted section 187 of the

Restatement, Second, Conflict of Laws which provides that:
               (1) The law of the state chosen by the
          parties to govern their contractual rights
          and duties will be applied if the particular
          issue is one which the parties could have
          resolved by an explicit provision in their
          agreement directed to that issue.

               (2) The law of the state chosen by the
          parties to govern their contractual rights
          and duties will be applied, even if the
          particular issue is one which the parties
          could not have resolved by an explicit
          provision in their agreement directed to that
          issue, unless either

               (a) the chosen state has no
               substantial relationship to the
               parties or the transaction and
               there is no other reasonable basis
               for the parties' choice, or
               (b) application of the law of the

               chosen state would be contrary to a

               fundamental policy of a state which

               has a materially greater interest

               than the chosen state in the

               determination of the particular

               issue . . . .

See e.g., Schifano v. Schifano, 471 A.2d 839, 843 n. 5 (Pa.

Super. 1984) (citing with approval the Restatement, Second,

Conflict of Laws).

          In this case, paragraph 21 of the lease agreement

specifically provides that the lease will be governed and

construed in all respects by the internal laws and decisions of

the State of Illinois.   Accordingly, Heller contends that the

choice of law provision in the lease agreement should be given

effect under the conflict of law rules of Pennsylvania.   In

particular, Heller argues that, because the issue of indemnity

was one which the parties could have and did resolve by an

explicit provision in their agreement, pursuant to the

Restatement, Second, the district court should have applied the

law chosen by the parties in construing the indemnity clause.

          Vistek, on the other hand, argues that the district

court correctly applied Pennsylvania law because of

Pennsylvania's strong public policy interest in enforcing its
Workmen's Compensation Act.4   Vistek contends that Pennsylvania

law should govern because the underlying action involved a

Pennsylvania worker, the accident occurred in Pennsylvania and

the indemnity claim was against a Pennsylvania employer.

            Vistek is correct about the character of the underlying

action and also that Pennsylvania has a strong interest in

protecting the terms of the PWCA, but Vistek misconstrues the

issue that this court must resolve.    This case does not implicate

the PWCA.   The immunity of the employer (Vistek) under the PWCA

does not affect the obligation of the lessee (also Vistek) to

defend and indemnify the lessor (Heller) from any liability under

the terms of its financial arrangement with Heller.

            The agreement between Heller and Vistek is a freely

negotiated financing contract between two commercial entities.

Pennsylvania courts will only ignore a contractual choice of law

provision if that provision conflicts with strong public policy

interests. See e.g., Soxman v. Goodge, 539 A.2d 826 (Pa.Super,

1988); Leidy v. Desert Enterprises, Inc., 381 A.2d 164 (Pa.Super,

1977).
4
 . Vistek also asserts on appeal that the lease agreement is
unenforceable because no one from Heller signed it. In response,
Heller argues that Vistek waived this issue by not raising it in
the district court. Furthermore, Heller contends that a signed
copy of the lease agreement does exist and has moved to
substitute a signed copy of the lease agreement for the unsigned
copy they initially provided.

This court will not consider an issue raised for the first time
on appeal absent a showing that a gross miscarriage of justice
will otherwise result. Newark Morning Ledger Co. v. United
States, 539 F.2d 929, 932 (3d Cir. 1976). Therefore, we reject
Vistek's argument and deny Heller's motion as moot.
             In this case, no strong public policy issues are

infringed.    This litigation has no effect on the employer's

rights and obligations under the PWCA and Kruzitz makes no claim

that the third party, Heller, caused his personal injury.       On the

other hand, Illinois, the chosen state, has "a substantial

relationship to the parties."    In the commercial world, where an

Illinois company, such as Heller, finances purchases of

commodities, machinery, and equipment in many, if not all, of the

states in the nation, it is understandable and reasonable that

Heller include choice of law provisions in its financial

agreements to ensure that those agreements are governed by the

law of its principal place of business rather than the laws of

each and every state where its borrowers do business.    We hold

that under Pennsylvania choice of law rules, contractual choice

of law provisions contained in a financial agreement that enables

an employer to purchase plant equipment is binding on the

parties.

                                  B.

             Because the contractual choice of law provision is not

superseded, Illinois law governs our interpretation of the

indemnity clause.    Vistek contends that the Illinois' courts

would reject the choice of law provision and apply Pennsylvania

law to the instant case because of Pennsylvania's strong interest

in enforcing the PWCA. See e.g., Lyons v. Turner Constr. Co., 551

N.E.2d 1062, 1066 (Ill.App. Ct. 1990) (court disregarded

contractual choice of law provision because applying the chosen

law was contrary to a fundamental state policy).    As discussed
above, this choice of law provision does not infringe on the PWCA

or any other important Pennsylvania interest.   Therefore, this

court looks to Illinois law to determine the effect of the

indemnity clause.

          In general, Illinois courts will strictly construe

indemnity clauses. Sorrentino v. Waco Scaffolding & Shoring Co.,

358 N.E.2d 1244 (Ill.App. Ct. 1976).   However, "[i]n interpreting

a contract for indemnity, [Illinois] courts must give the

agreement a fair and reasonable interpretation based upon a

consideration of the agreement as a whole."   Allen v.

International Harvester Co., 571 N.E.2d 773, 775 (Ill.App. Ct.

1991) (citations omitted); Smith v. Clark Equipment Co., 483

N.E.2d 1006, 1010 (Ill.App. Ct. 1985).   The courts    attempt to

determine and then implement the intention of the parties.

Higgins v. Kleronomos, 459 N.E.2d 1048, 1051 (Ill.App. Ct. 1984).

          The courts look to see if the indemnity clause

specifically and clearly provides for indemnification against the

particular underlying claims.   Sorrentino, 358 N.E.2d 1244;

Westinghouse Elec. Elevator Co. v. La Salle Monroe Building
Corp., 70 N.E.2d 604, 607 (Ill. 1946), superseded by statutes on

other grounds, (court will not construe a contract to indemnify

for personal injuries to indemnify against the indemnitee's

negligence absent express contractual language).      The Illinois

court will enforce an indemnity clause if it is sufficiently

clear and specific.   Owens v. Midwest Tank and Mfg. Co., 549

N.E.2d 774, 776 (Ill.App. Ct. 1989).
          Here the indemnity clause of the security agreement

plainly states:
               13. Indemnity: [Vistek] does hereby
          assume liability for and does agree to
          indemnify, protect, save, and keep harmless
          [Heller] from and against any and all
          liabilities, losses . . . including attorneys
          fees, court costs and legal expenses of
          whatever kind or nature, imposed on, incurred
          by, or asserted against [Heller] in any way
          relating to or arising out of this Lease or
          the manufacture, purchase, ownership,
          delivery, lease, possession, use, operation,
          condition, return or other disposition of the
          equipment by [Heller] or [Vistek], . . . any
          claim arising out of strict liability in
          tort, and any taxes for which [Vistek] is
          responsible hereunder. . . . (Emphasis
          added).

          Under Illinois law, this language is sufficient to

require Vistek to defend and indemnify Heller.   See e.g., Patton

v. T.O.F.C., Inc., 398 N.E.2d 313 (Ill.App. Ct. 1979) (where the

Appellate Court of Illinois enforced an indemnity clause which

contained language referring indirectly to strict products

liability claims).
          The indemnity clause at issue in this case provides

that Vistek will assume liability for any claims arising out of

the use, operation or condition of the lathe and "any claims

arising out of strict liability in tort."   This clause contains a

direct reference to strict products liability claims and Vistek

must therefore indemnify Heller in the underlying action.

                              III.

          Therefore, we hold that under Pennsylvania choice of

law rules, a choice of law clause in an equipment financing
agreement between an employer and a third party is not preempted

by the Pennsylvania Workmen's Compensation Act, notwithstanding

the PWCA provisions granting immunity to an employer from

indemnity suits by third parties for claims against those third

parties arising out of an employee's injuries during the course

of employment.   We further hold that the indemnity clause is

enforceable under Illinois law and that Vistek must indemnify

Heller.

          Accordingly, the judgment of the district court will be

reversed and the case remanded with directions to reinstate

Heller's third-party complaint and for such further proceedings

as are consistent with this opinion.5

          Costs taxed against the appellee.

__________________________

5
 . On remand, the district may want to consider Nath v. National
Equipment Leasing Corp., 439 A.2d 633 (Pa. 1981) which held that
a finance lessor who is not in the business of selling or
marketing merchandise will not be liable in a strict products
liability action.