Court Opinion

ID: 1495
Source: CourtListenerOpinion
Date Created: 2010-04-10 00:45:01+00
Date Added: 2024-06-11T16:41:59.321438
License: Public Domain

FILED
                                                          United States Court of Appeals
                                                                  Tenth Circuit

                                                                  April 9, 2010
                   UNITED STATES COURT OF APPEALS
                                                Elisabeth A. Shumaker
                                                                  Clerk of Court
                          FOR THE TENTH CIRCUIT

    MURUGESAN KANNAYAN,
    Individually,

             Plaintiff-Counter-
             Defendant,

    v.                                                 No. 09-6103
                                               (D.C. No. 5:08-CV-00300-D)
    DOLLAR PHONE CORPORATION, a                       (W.D. Okla.)
    New York corporation; DOLLAR
    PHONE INTERNATIONAL INC., a
    BVI corporation,

             Defendants-Counter
             Claimants-3rd Party
             Plaintiffs-Appellees,

    v.

    CHAD DOBBINS,

             Third-Party-Defendant-
             Appellant.

                          ORDER AND JUDGMENT *

*
       After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Before HARTZ, McKAY, and ANDERSON, Circuit Judges.

      Chad Dobbins appeals from the district court’s order denying his motion to

recover attorneys’ fees in an action brought against him by appellees Dollar

Phone Corporation and Dollar Phone International, Inc. (collectively “Dollar

Phone”). Exercising jurisdiction under 28 U.S.C. § 1291, and reviewing the

indemnity provision at issue de novo, 1 we affirm.

      Dollar Phone is a wholesale provider of telephone calling cards. In 2005, it

entered into sales agreements with two separate distributors of such cards, Time

Advisors, L.P. and Kannayan Family LLC (d/b/a “Spydernett”). The Time

Advisors agreement was signed by Dobbins on behalf of Time Advisors. The

Spydernett agreement was signed by Murugesan Kannayan, plaintiff and

counter-defendant below. Both agreements contained arbitration clauses and

cross-indemnification provisions.

      In November 2007, Dollar Phone filed a demand for arbitration against

Kannayan pursuant to the arbitration clause in the Spydernett agreement, claiming

that Spydernett’s account was in default. In response, Kannayan claimed he was

not personally a party to the Spydernett agreement, and he filed a state court

1
       “While we generally review a denial of attorneys’ fees for an abuse of
discretion, we review de novo any statutory interpretation or other legal analysis
underlying the district court’s decision concerning attorneys’ fees.” AeroTech,
Inc. v. Estes, 110 F.3d 1523, 1527 (10th Cir. 1997) (internal citation omitted).

                                        -2-
action against Dollar Phone seeking to enjoin the arbitration proceeding against

him in his individual capacity. Dollar Phone removed that action to federal court

based on diversity of citizenship and filed a counterclaim against Kannayan and a

third-party claim against Dobbins, seeking an order compelling both men to

participate in the arbitration proceeding. Dollar Phone alleged that Dobbins and

Kannayan were general partners of Time Advisors, and that Time Advisors and

Spydernett had commingled their accounts. Dollar Phone theorized that, as a

general partner of Time Advisors, Kannayan believed he was personally liable for

that entity’s debts, but that he did not believe he could be held personally liable

for Spydernett’s debts. Therefore, he used Spydernett’s funds to keep Time

Advisors’s account current, thereby causing Spydernett to default on its own

account.

      Finding no evidence of a general partnership between Dobbins and

Kannayan, the district court rejected the argument that Time Advisors or Dobbins

could be held liable for Spydernett’s debt. Thus, it concluded that the arbitration

clause in the Time Advisors agreement could not possibly cover Dollar Phone’s

collection action against Spydernett. The court therefore awarded summary

judgment to Dobbins, dismissing Dollar Phone’s action to compel arbitration.

Dobbins then moved for his attorneys’ fees under the indemnity provision of the

Time Advisors agreement, § 3.5, which provides as follows:

                                          -3-
      Provider hereby indemnifies and agrees to hold [Distributor]2 its
      officers, directors, shareholders, employees, agents . . . (the
      ‘Indemnified Parties’) harmless from and against any claim, liability,
      damage, cost, and expense, including . . . attorneys’ and expert
      witness fees, incurred by any of the Indemnified Parties directly
      arising out of or in connection with the failure to comply with any
      regulatory obligations or any other obligations contained herein.

Aplt. App. at 117.

      Consistent with its summary judgment ruling, the district court denied

Dobbins’s motion for attorneys’ fees because it concluded the Time Advisors

agreement “had no connection to Dollar Phone’s third-party action against him.”

Aplee. Supp. App. at 3. Essentially, the court would not allow Dobbins to benefit

from the indemnity clause of the Time Advisors agreement and simultaneously

avoid application of its arbitration clause. Dobbins argues this was unfair,

pointing out that if Dollar Phone had prevailed, it likely would have been entitled

to its attorneys’ fees under the cross-indemnification provision, § 3.3. He claims

he should not be penalized for defeating Dollar Phone’s misguided attempt to

compel his participation in the arbitration proceeding. And he notes that other

jurisdictions, primarily California, guard against this unfair result by awarding

attorneys’ fees to the prevailing party on a contract claim even if the party

2
      Due to a typographical error, § 3.5 erroneously states that the provider
agrees to indemnify itself instead of the distributor. The district court
acknowledged the error, noting that read literally, “the provision is nonsensical.”
Aplee. Supp. App. at 3.

                                         -4-
successfully argues that the contract is inapplicable. See, e.g., Hsu v. Abbara,

891 P.2d 804, 808 (Cal. 1995) (applying Cal. Civ. Code § 1717).

      We do not disagree with Dobbins’s general hypothesis that Dollar Phone

would have been entitled to recover its fees had it prevailed; nor his assertion that

in certain jurisdictions, he would be entitled to his fees notwithstanding the

general inapplicability of the Time Advisors agreement. But unlike California,

Oklahoma has not enacted legislation or otherwise recognized a doctrine that

enforces an attorneys’ fees provision in an otherwise inapplicable contract. 3

Thus, while we recognize the potential inequity that results from the district

court’s interpretation, we cannot say it was legally incorrect.

      The cardinal rule when interpreting an indemnity clause, as with all

contractual provisions, is “to ascertain the intention of the parties and to give

effect to that intention if it may be done consistently with legal principles.” Luke

v. Am. Surety Co. of N.Y., 114 P.2d 950, 951-52 (Okla. 1941). Section 3.5 is no

model of clarity. But in our view, most reasonably construed, it expresses Dollar

Phone’s intent to indemnify Time Advisors in the event of its own failure to

3
       We note that Cal. Civ. Code § 1717 “was enacted to establish mutuality of
remedy where a contractual provision makes recovery of attorney’s fees available
for only one party, and to prevent oppressive use of one-sided attorney’s fees
provisions.” Hsu, 891 P.2d at 809 (internal quotation marks and brackets
omitted). The Time Advisors agreement contained cross-indemnity provisions
(§§ 3.3 & 3.5), allowing both sides to recover attorneys’ fees in the event of a
breach by the other party. Dobbins has not addressed whether, in light of the
specific policy considerations underlying § 1717, as set forth in Hsu, it would
apply under the circumstances of this case.

                                          -5-
comply with its regulatory or contractual obligations. Under this natural and

logical interpretation, the agreement harmoniously provides for the recovery of

attorneys’ fees by both parties if such fees were incurred in connection with the

other party’s breach. By contrast, Dobbins’s interpretation, unsupported by any

Oklahoma cases, would permit the recovery of attorneys’ fees in any lawsuit

between the parties so long as an allegation is made under the contract, no matter

how frivolous. The district court committed no error in rejecting this expansive

construction. Its judgment is therefore AFFIRMED.

                                                    Entered for the Court

                                                    Stephen H. Anderson
                                                    Circuit Judge

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