FALLON ELECTRIC CO., INC. v. THE CINCINNATI INSURANCE COMPANY, Third-Party Plaintiff, v. RAVIN, INC.; Ralph P. Murovich; Darlene A. Murovich, Third-Party Defendants. COREY FOOD SERVICE EQUIPMENT, INC., v. THE CINCINNATI INSURANCE COMPANY, Third-Party Plaintiff, v. RAVIN, INC.; Ralph P. Murovich; Darlene A. Murovich, Third-Party Defendants.
Nos. 96-3559, 96-3560
United States Court of Appeals, Third Circuit
July 30, 1997
Argued June 13, 1997.
I would also urge the EPA to address these problems in the regulatory context. If the EPA and Congress satisfactorily address the referenced issues, we may be able to avoid a succession of expensive and burdensome litigations like this one. Judge Scirica joins in this concurrence.
Appeal of the CINCINNATI INSURANCE COMPANY, Appellant No. 96-3559.
Appеal of the CINCINNATI INSURANCE COMPANY, Appellant No. 96-3559.
Gerard J. Cipriani, Anthony W. Hinkle (Argued), Cipriani & Werner, Pittsburgh, PA, for Appellees Ravin, Inc., Ralph P. Murovich and Darlene A. Murovich.
Before: COWEN, ALITO and GARTH, Circuit Judges.
OPINION OF THE COURT
COWEN, Circuit Judge.
This is an appeal from the July 24, 1996, judgment of the district court awarding appellant Cincinnati Insurance Company (“CIC“) attorney‘s fees in the amount of $53,429.21 and exрenses of $1,417.00. CIC has appealed the amount of fees awarded by the district court and it requests an order directing an award of its attorney‘s fees incurred on this appeal. We will vacate the judgment of the district court and remand with instructions to enter judgment in favor of CIC in the amount of $87,752.24 in attorney‘s fees and $1,417.00 in expenses heretofore approved.
I.
In 1993, appellee Ravin, Inc. was awarded a general contract on a construction project located in Westmoreland County, Pennsylvania. Ravin, Inc. contracted with a number of subcontractors to perform various jobs. Ravin, Inc. obtained from CIC a labor and materials payment bond, under which CIC agreed to act as Ravin Inc.‘s surety and to make payments to the subcontractors in the event that Ravin, Inc. failed in its obligation to do so. In exchange, Ravin, Inc. and its owners, appellees Ralph and Darlene Murovich (collectively “Ravin“), executed an indemnity agreement that provided that they would
exonerate, indemnify and keep indemnified [CIC] from and against any and all liability for losses and expenses of whatsoever kind or nature, including the fees and disbursements of counsel, and against any and all said losses and expense which [CIC] may sustain or incur: (i) by reasоn of having executed or procured the execution of any Bond or Bonds; (ii) by reason of the failure of [Ravin] to perform or comply with the covenants and conditions of this Agreement; or (iii) in enforcing any of the covenants and conditions of this Agreement. [CIC] may pay or compromise any claim, dеmand, suit, judgment or expense arising out of such Bond or Bonds and any such payment or compromise shall be binding upon [Ravin] and included as a liability, loss or expense covered by this Indemnity Agreement, provided the same was made by [CIC] in the reasonable belief that it was liable for the amount disbursed, or that such payment or compromise was reasonable under all of the circumstances. In the event of any such payment or compromise by [CIC], an itemized statement thereof sworn to by any representative of [CIC] familiar with the facts, or the voucher or vouchers or other evidence of such payment or compromise shall be prima facia [sic] evidence of the facts and the amount of the liability of [Ravin] under this Agreement.
App. at 30 (emphasis added).
Fallon Electric Company and Corey Food Service Equipment, two of the subcontrac
CIC‘s counsel was present at trial but did not cross-examine any witnesses, relying on Ravin‘s counsel for that purpose. Before the trial was concluded, CIC and Ravin settled Fallon‘s and Corey‘s claims. CIC then sought $87,752.24 in attorney‘s fees and $1,417.00 in expenses from Ravin pursuant to the indemnity agreеment, incurred in defending Fallon‘s and Corey‘s suit, as well as actions brought by several other subcontractors that were then pending in state court.
The district court reviewed testimony from the trial in order to determine the amount of attorney‘s fees and expenses CIC should be awarded. At trial, CIC introduced testimony regarding thе attorney‘s fees and expenses it incurred. Ravin conducted a short cross-examination of CIC‘s witness. See App. at 171-74. However, Ravin did not introduce any evidence to demonstrate that the fees were incurred unreasonably, in bad faith, or through fraud, or that CIC acted unreasonably in paying the fees.
On July 24, 1996, the district court awarded CIC expenses in the requested amount of $1,417.00. However, it awarded CIC attorney‘s fees in the amount of only $53,429.21, some $34,000 less than the sum requested by CIC. The district court concluded that the excess amount of attorney‘s fees sought by CIC was not incurred out of reasonable necessity. CIC appeals. Ravin hаs not cross-appealed.
II.
The district court exercised diversity jurisdiction pursuant to
III.
The parties agree that the indemnity agreement is governed by Pennsylvania law. CIC argues that the district court erred by imposing a reasonableness requirement on the amount of attorney‘s fees, especially in light of the “prima faci[e] evidence” language in the indemnity agreement. App. at 30. In addition, Ravin offers two reasons that the judgment of the district court should be reversed or modified in its favor. We will address these issues in turn.
A.
Pursuant to Pennsylvania law, in construing an indemnity agreement, as with any other contract, the сourt must determine the intentions of the parties. See Brotherton Constr. Co. v. Patterson-Emerson-Comstock, Inc., 406 Pa. 400, 178 A.2d 696, 697 (1962); Fulmer v. Duquesne Light Co., 374 Pa.Super. 537, 543 A.2d 1100, 1104 (1988). Such intentions should be ascertained primarily by looking to the language used in the agreement. See Brotherton, 178 A.2d at 697; Emery v. Metzner, 191 Pa.Super. 440, 156 A.2d 627, 630 (1959).
CIC argues that, in light of the “prima faci[e] evidence” language in the indemnity agreement, the district court erred in imposing on CIC the burden of proving that the attorney‘s fees it sought were incurred out of reasonable necessity. We agree.
The district court was correct that several courts have imposed on indemnitees the burden of proving the reasonable necessity of attorney‘s fees sought pursuant to indemnity аgreements. However, none of the cases cited involved indemnity agreements that contained the same “prima faci[e] evidence” language at issue here. See Love, 538 S.W.2d at 558; Redfern, 379 N.W.2d at 454-55; Perkins, 551 So.2d at 209; Sentry, 396 N.E.2d at 1072; Central Towers, 453 S.W.2d at 793-94; James, 888 P.2d at 668.
Although neither the Pennsylvania courts nor we have ruled on the issue of the effect of such language,1 various other courts havе. The opinions of these courts demonstrate that the “prima facie evidence” language at issue here shifts to the indemnitor the burden of proving the fees are excessive. How the indemnitor may prove that the fees may not be recovered is dependent upon the language of the indemnity agreement.
For example, in Transamerica Premier Ins. Co. v. Nelson, 110 Nev. 951, 878 P.2d 314, 318 (1994) (per curiam), the Nevada Supreme Court noted that the indemnity agreement there provided “that in any claim or suit, an itemized statement of expenses is prima facie evidence of the fact and extent of the liability of the indemnitor.” The indemnitor had agreed to reimburse the indemnitee “for all expenses incurred in good faith.” Id. at 316. The court held that the “good faith” language obviated any inquiry into the reasonableness of the costs incurred and required that the court consider “only whether the attorney‘s fees were incurred in good faith.” Id. at 317. The court stated: “When the parties contractuаlly agree that good faith is the standard, undertaking a determination of anything other than good faith is inappropriate.” Id. The court further concluded that the “prima facie evidence” language shifted to the indemnitor the burden of proving bad faith. See id. at 318.
Similarly, in United States Fidelity & Guar. Co. v. Napier Elec. & Constr. Co., 571 S.W.2d 644, 645 (Ky.Ct.App.1978), the indemnity agreement provided that the indemnitor would be liable to the surety
for all “liabilities, losses and expenses” incurred by [Surety], including all amounts paid by [Surety] “in good faith under the belief that: (1) Surety was or might be liable therefor; (2) Such payments were necessary or advisable to protect any of Surety‘s right or to avoid or lessen Surety‘s liability or alleged liability.”
(quoting indemnity аgreement). The agreement further provided that “vouchers or other evidence of payments or an itemized statement of payments sworn to by an officer of the surety shall be prima facie evidence of the fact and extent of the liability of the indemnitor to the surety.” Id. at 646. The court held that under suсh an agreement, “the indemnitor may successfully attack payments made by the surety only by pleading and proving fraud or lack of good faith by the surety.” Id.
In addition to the courts in Nelson, Napier Electric, and Higashi, several courts have noted that such a “prima facie evidence” clause in an indemnity agreement is valid and enforceаble. See, e.g., Continental Cas. Co. v. American Sec. Corp., 443 F.2d 649, 652-53 (D.C.Cir.1970) (per curiam); Transamerica Ins. Co. v. Bloomfield, 401 F.2d 357, 362 (6th Cir.1968) (applying Tennessee law); Carroll v. National Surety Co., 24 F.2d 268, 270 (D.C.Cir.1928); International Fidelity Ins. Co. v. United Constr., Inc., No. 91-2361, 1992 WL 111368, at *2-3 (E.D.Pa. May 15, 1992) (applying Pennsylvania law); Curtis T. Bedwell & Sons, Inc. v. International Fidelity Ins., No. 83-5733, 1989 WL 55388, at *3 (E.D.Pa. May 23, 1989) (same); Buckeye Union Ins. Co. v. Boggs, 109 F.R.D. 420, 423-24 (S.D.W.Va.1986) (applying West Virginia law); Commercial Union Ins. Co. v. Melikyan, 430 So.2d 1217, 1221 (La.Ct.App.1983). While these courts have declined to state the precise effect of such language, Ravin has not cited a single case for the proposition that the language has no effect whatsoever or that the effect of such language is anything other than that desсribed in Nelson, Napier Electric, and Higashi.
We conclude that the Pennsylvania courts would hold that a “prima facie evidence” clause in an indemnity agreement shifts to the indemnitor the burden of proving that the costs incurred were not recoverable. We further conclude that what an indemnitor must demonstrate to escape liability for attorney‘s fees depends upon the precise language used in the agreement. In Napier Electric, 571 S.W.2d at 646, and Nelson, 878 P.2d at 317-18, the Kentucky and Nevada courts held that the indemnitor must prove bad faith or fraud on the part of the indemnitee in order to avoid payment. However, this result followed from express language in the indemnity agreements in thоse cases providing that the indemnitees were bound only by a “good faith” standard. See Napier Electric, 571 S.W.2d at 645; Nelson, 878 P.2d at 316. Here, by contrast, the agreement provides that Ravin would be liable to indemnify CIC only for those payments “made ... in the reasonable belief that [CIC] was liable for the amount disbursed, or that such payment or compromisе was reasonable under all of the circumstances.” App. at 30 (emphasis added). Pursuant to the foregoing, the court should have placed on Ravin the burden of proving both that: CIC did not actually believe that it was liable for the attorney‘s fees disbursed, or that its belief in that respect was unreasonable; аnd CIC did not actually believe that the payment of such fees (as opposed to the incurrence of the fees) was reasonable under all the circumstances, or that its belief in that respect was unreasonable.2 A showing that CIC did not actually believe it was liable for the fees or that CIC did not actuаlly believe that the payment of such fees was reasonable under all the circumstances would be tantamount to a showing of bad faith or fraud.
The district court here expressly placed the burden on CIC of proving the reasonable necessity of the attorney‘s fees, and found that CIC had not met that burden. Sеe App. at 286. In refusing to reallocate the burden of proof in accordance with the foregoing, the district court impermissibly ignored the terms of the indemnity agreement.
Ordinarily, we would remand this matter for a determination of attorney‘s fees based on the proper standard. However, Ravin produced no evidence at trial, either directly or through cross-examination of CIC‘s witness, that would satisfy the burden it bore in overcoming CIC‘s prima facie case of entitlement. Ravin introduced no evi
B.
Ravin rеquests that we reverse or modify the judgment of the district court in Ravin‘s favor, contending that the district court erred in two respects. However, as we noted above, Ravin has conceded that it did not file a notice of cross-appeal pursuant to
IV.
The judgment of the district court will be vacated. The matter will be remanded to the district court with instructions to enter judgment in favor of CIC awarding it attorney‘s fees in the amount of $87,752.24 and expenses of $1,417.00.
Costs taxed against appellees.
COWEN, Circuit Judge.