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AGRICULTURE INSURANCE CO., INC. v. ACE HARDWARE CORP.

United States District Court, Southern District of New York


January 17, 2003

AGRICULTURAL INSURANCE COMPANY, INC., AS ASSIGNEE OF THE CAUSE OF ACTION OF ROBERT T. TREADWAY, JR., PLAINTIFF
v.
ACE HARDWARE CORPORATION AND BUTLER CONSTRUCTION COMPANY, DEFENDANTS. HARDWARE CORPORATION AND BUTLER CONSTRUCTION COMPANY, DEFENDANTS/THIRD-PARTY PLAINTIFFS V. SCHWOB & SAGE BUILDING CORPORATION, THIRD-PARTY DEFENDANT.

The opinion of the court was delivered by: Robert F. Ward, United States District Judge

OPINION

On September 24, 2102, third-party defendant Schwob & Sage Building Corporation "Schwob") moved pursuant to Fed.R.Civ.P. 56 for summary judgment against defendants/third-party plaintiffs Ace Hardware Corporation "Ace") and Butler Construction Company ("Butler"), seeking a dismissal of the third—party complaint. Three days later, or September 27, 2002, Ace and Butler moved for summary judgement against Schwob. For the reasons hereinafter stated, both defendants/third-party plaintiffs' and third—party defendant's motions are denied.

BACKGROUND

On January 6, 1997, plaintiff Agricultural Insurance Company Inc.'s assignor, Robert T. Treadway, Jr. ("Treadway"), was injured during his employment when he fell from an elevated height at a construction site during the building of a Retail Support Center in Wilton, New York. The injury to Treadway occurred when the steel beam on which he was standing and working collapsed.

The premises were owned by Ace. Ace hired Butler as its general contractor pursuant to a contract executed on October 28, 1996 (hereinafter "prime contract"). Butler in turn hired Treadway's employer, Schwob, to perform steel erection work related to the construction of the building, pursuant to a subcontract executed on November 21, 1996 (hereinafter "subcontract").

In December of 1998, Treadway commenced an action against defendants/third-party plaintiffs Ace and Butler in the Supreme Court of the State of New York. Approximately one month later, plaintiff Agricultural Insurance Company, Inc., as Assignee of Treadway ("Agricultural"), filed an Amended Complaint against Ace and Butler in the Southern District of New York. The Amended Complaint alleges, inter alia, negligence and violations of N.Y. Labor Labor Law §§ 200, 240(1), and 240(6). Ace and Butler commenced a third-party action on August 28, 2001, by filing a third—party action against Schwob, seeking, inter alia, contractual indemnification pursuant to the subcontract between Butler and Schwob. On August 12, 2002, this Court granted plaintiff Agricultural's motion for partial summary judgment on the issue of liability against defendants/third—party plaintiffs for violations of N.Y. Labor Law § 240(1).

In the instant action, defendants/third-party plaintiffs (hereinafter "third-party plaintiffs") seek summary judgment against third-party defendant Schwob and allege the following: (1) Ace and Butler did not direct or control the work Treadway was performing at the time of the accident; (2) Schwob's contractual responsibility renders Schwob solely responsible for Treadway's safety; and (3) Schwob's failure to provide temporary bracing is the sole proximate cause of the accident.

Third-party defendant Schwob, on the other hand, moves for summary judgment against Ace and Butler and argues the following: (1) the indemnification provision in the subcontract is void and unenforceable under N.Y. General Obligations Law § 5-322.1; and (2) because there is no valid indemnification provision in effect between Butler and Schwob, a contractual indemnification claim against Schwob is precluded by the exclusivity provision of the New York Workers' Compensation Law.

DISCUSSION

I. Summary Judgment Standard

The summary judgment standard is well-known. Summary judgment is proper when it is clear from the pleadings, depositions, answers to interrogatories, admissions, and affidavits "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court must determine "whether the evidence presents a sufficient disagreement to require submission to [the factfinder] or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). In making this determination, the Court "must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor" Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 572 (2d Cir. 1993).

Initially, the moving party must show that there is "an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 1986. Once the moving party has carried its burden under Rule 56, the nonmoving moving party must set forth "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The nonmoving moving party is required on introduce evidence beyond the mere pleadings to show that there is an issue of material fact concerning "an element essential to that party's case, and on which that party will bear one burden of proof at trial." Celotex, 477 U.S. at 322.

II. Third-Party Plaintiffs Ace and Butler's Motion for Summary Judgment Against Third-Party Defendant Schwob
A. Direction and Control of Treadway's Work

Third—party plaintiffs Ace and Butler agrue that they are entitled to summary judgement because they did not supervise or control Treadway's work at the time of the accident and there is no evidence that then were negligent. They claim that Schwob alone directed and controlled Treadway's work and Schwob's contractual obligations render Schwob solely responsible for Treadway's safety. In response, Schwob asserts that third-party plaintiffs supervised and controlled Treadway's work, but failed to exercise reasonable care in performing their contractual obligations relating to their supervisory and safety duties.

Contractual indemnification is not permitted "where the owner or contractor supervised or controlled the worksite or where its own negligence contributed to the harm." Amato v. Rock—McGraw, Inc., 746 N.Y.S.2d 150, 152 (1st Dep't 2002); see also Mangana v. Am. Stock Exchange, Inc., 651 N.Y.S.2d 494, 496 (1st Dep't 1996). In the instant case, genuine issues of material fact exist concerning which party directed and controlled Treadway's work at the time of the accident.

According to the crime contract between Ace and Butler, Butler was responsible "for initiating, maintaining and providing supervision of safety precautions and programs in connection with the Work." (DiDomenico Aff. Ex. C § 6.1). The prime contract was incorporated into the subcontract between Butler and Schwob pursuant to § 2.1 of the subcontract. (DiDomenico Aff. Ex. 2 § 2.1). In addition, Ronald Pearia [Butler's Senior Project Manager] testified that Bill Lawrence [Butler's General Superintendent], John Burkman [Butler's Safety Superintendent], Bill Mahoney [Ace's assistant to Lawrence], and Frank Plisowski [Butler's Erection Superintendent] were at the job site on a regular basis and were responsible for "initiating, maintaining and providing supervision of safety precautions," in accordance with § 6.1 of the prime contract. (Prisco Aff. Ex. E at 40-45). Plisowski also testified that he was at the job site on a daily basis and that he spent approximately 75 percent of his time at the site near the erection of the building. (Prisco Aff. Ex. D at 25, 97).

Moreover, section 11.10 of the subcontract specifically required Schwob to perform its work under Ace and Butler's direction and control, as it provided:

The work is to be performed and furnished under the direction of and to the satisfaction of Contractor [Butler] and Customer [Ace]. The decision of Customer [Ace] or one Customer s [Ace's] representative as to the meaning and intent of the plans and specifications shall be final and binding upon Subcontractor [Schwob], to the extent said decision is final and binding on Contractor [Butler]. (DiDomenico Aff. Ex. D § 11.10).
Furthermore, the subcontract required Schwob to "strictly comply with all requirements of the Butler Construction Safety Program." (Didomenico Aff. Ex. D § 11.16). Section 2.1 of the Safety Program obligated Butler to do the following, inter alia:

• enforce Butler's safety policy and discharge anyone who willfully disregards it;
• require all prime subcontractors to abide by the Butler's safety policy and and document any violation for future reference; and
• monitor safety activities and take the necessary action to correct unsatisfactory performance. (DiDomenico Aff. Ex. K at 10-11).
With respect to steel erection of the building, Butler's Construction and Erection Superintendent was required, inter alia, to do the following:

• be accountable and responsible for safety program on assigned project job site in compliance with the Butler construction Safety Program Guidelines;
• instruct all project workers in safe practices through weekly "tool box" meetings and do safety training on new work processes before they begin; and
• require all subcontractors to adhere to the Butler Construction Safety Program. Id. at 19-21).
When viewing the evidence in the light most favorable to Schwob, a jury may reasonably conclude that Butler was, at a minimum, partly responsible for directing or controlling the work Treadway was performing at the time of the accident.

Ace and Butler, nevertheless, rely on New York case law which establishes that where an owner or general contractor is not negligent, and did not direct, control, or supervise the work on the subject project, it may recover contractual indemnification from a subcontractor whose negligence caused plaintiff's injuries. See, e.g., Connolly v. Brooklyn Union Gas Co., 562 N.Y.S.2d 718 (2d Dep't 1990); Lazzaro v. MJM Industries, Inc., 733 N.Y.S.2d 500 (2d Dep't 2001); Potter v. M.A. Bangiovanni, Inc., 707 N.Y.S.2d 689 (3d Dep't 2000); and Mangano v. Am. Stock Exchange, Inc., 651 N.Y.S.2d 494 (1st Dep't 1996. These cases, however, are distinguishable from the instant case because here, triable issues of facts do exist regarding third-party plaintiffs' negligence, as well as their supervision and control of Treadway's work.

B. Failure to Provide Temporary Bracing

Third-party plaintiffs argue that they are not liable because Schwob's failure to provide adequate temporary bracing was the sole proximate cause of the accident. They rely on the Accident Investigation Reports, the provisions of the Butler Construction Safety Program, and the findings of Dr. Vito J. Colangelo, Consultant at International Technomics Corp., and contend that Schwob was responsible for providing Treadway with proper safety equipment, including fall protection devices.

Schwob, on the other hand, points to the testimony of Frank Plisowski and asserts that Butler alone was responsible for approving the bracing plan that was used to erect the building, and had the authority to stop Schwob from constructing if Schwob had not submitted a bracing plan.*fn1 Moreover, Schwob offers affidavits of Scott Knepper, Vice President of Schwob Erection Services, and Dr. Richard Roberts, Professor at Lehigh University, and argues that the bracing plan did not require the use of any type of temporary bracing at the location of the accident. According to Schwob, the plan required temporary bracing only for the erection of the first four column lines to secure the building until the permanent bracing was installed. Treadway's accident, however, occurred near column line 15 of the building, where temporary bracing was not required by Butler.

Resolving all reasonable inferences against the moving party, this Court finds that there exist genuine issues of material fact as to whether the failure to provide adequate temporary bracing was the sole proximate cause of the accident and whether Schwob was solely responsible for Treadway's safety. Accordingly, third—party plaintiffs' motion for summary judgment against Schwob is denied.

III. Third-Party Defendant Schwob's Motion for Summary Judgment Against Third-Party Plaintiffs Ace and Butler
A. Choice of Law

Before reaching the merits of the claims as presented in Schwob's motion for summary judgment, a determination of which state law governs the controversy must first be made. The forum selection clause in the subcontract provides that Missouri law controls the instant action. (DiDomenico Aff. Ex. D § 15.2). Third-party defendant Schwob, however, argues that New York law governs the subcontract because New York has the most significant contract with the parties and the underlying transaction. Third-party plaintiffs do not disagree. In fact, Ace and Butler implicitly agree with Schwob's position, as evidenced by third-party plaintiffs' reliance on New York law to support their contentions.

In a diversity case, the federal court must follow the substantive law of the forum state, including its choice of law rules. Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 137 (2d Cir. 1991). Because this action was commenced in New York, New York's choice of law rules apply in determining whether Missouri or New York law governs the subcontract. Although New York recognizes the "choice of law principle that parties to a contract have a right to choose the law to be applied to their contract, this freedom of choice on the part of the parties is not absolute." S. Leo Harmonay, Inc. v. Binks Mfg. Co., 597 F. Supp. 1014, 1221 (S.D.N.Y. 1984) (internal citation omitted). Rather, New York follows the "substantial relationship" approach, as stated in Restatement (Second) of Conflicts of Law § 187:

(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied . . . unless either
(a) the chosen state has no substantial relationship or the parties . . . 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 . . . ." See Leo Harmony, 597 F. Supp. at 1025.
The New York Court of Appeals has addressed the "substantial relationship" approach and held that while the parties' choice of law is to be given "heavy weight," the law of the state with the "most significant contacts" is to be applied. Haag v. Barnes, 9 N.Y.2d 554, 559-60 (N.Y. 1961); see also Leo Harmony, 597 F. Supp. at 1025.

Applying the "significant contacts" rest to the instant action, this Court finds that the subcontract must be governed by New York law because Missouri does not have a substantial relationship to the parties or the controversy at issue. Rather, New York has the most significant contacts with the parties and the underlying transaction. For example, the place of the performance of Treadway's work was in New York; Ace, Butler, and Schwob are all licensed to conduct business in New York; Treadway sustained his injuries in New York and has received benefits from the New York Workers' Compensation system; Treadway was treated at a New York hospital following the accident and underwent rehabilitation at a center in New York; plaintiff brought suit in New York asserting violations of New York law; Ace and Butler filed their contractual indemnification claim against Schwob in the Southern District of New York. Base on these significant contacts, the subcontract is to be governed by New York law.

B. Butler's Indemnification Provision in the Subcontract

Third-party defendant Schwob argues that an indemnification agreement that requires a subcontractor to indemnify a general contractor, even when the general contractor's own negligent conduct was a contributing cause of accident, is void as against public policy and therefore unenforceable under N.Y. General Obligation Law § 5-322.1.*fn2 The indemnification provision of the subcontract states, on pertinent part:

To the fullest extent permitted by law, Subcontractor will defend indemnify, and hold Customer, Customer s Representative, Contractor and Butler Manufacturing Company and all of their agents and employees harmless from all claims, demands, damages, losses, expenses, and liability, statutory or otherwise, of whatsoever kind or nature, including out not limited to reasonable attorney's fees and expenses, for any bodily injury, sickness, disease or death, or damage to or destruction or property including the loss of use thereof (hereinafter collectively "loss") arising out of or resulting from the performance of the Work by Subcontractor or any of its materialmen or subcontractors, even if the loss was partially caused by the negligence of Customer, Customer's Representative, Contractor or Butler Manufacturing Company unless the loss was occasioned by the sole negligence of Customer, Costomer's Representative, Contractor or Butler Manufacturing Company. (DiDonenico Aff. Ex. D § 11.22).
Schwob relies, inter alia, on Itri Brick & Concrete Corp. v. Aetna Gas. & Sur. Co., 89 N.Y.2d 786 1997), and argues that where a contract requires a subcontractor to indemnify a general contractor for its own negligence, the indemnification agreement is entirely unenforceable. In Itri, the agreements provided that the subcontractor must indemnify the general contractor even if the general contractor causes the injury in whole or part. Itri, 89 N.Y.2d at 794. Specifically, the agreements in that case contemplated "full indemnification, even in cases where the general contractor is found to be negligent, and contain no language limiting the subcontractor's obligation to that permitted by law or to the subcontractor's negligence." Id. at 795. As a result, the Itri court concluded that the indemnification agreements were unenforceable under General Obligations Law § 5-322.1. Id. at 790.

Itri, however, is inapposite to the case at bar. In the present case, the indemnification agreement explicitly states subcontractor's obligation is limited "[t]o the fullest extent permitted by law." (DiDomenico Aff. Ex. D § 11.22). Also, unlike the contract in Itri, which provided that the subcontractor shall hold the general contractor harmless from all liability "from any cause occasioned in whole or in part by any act or omission of the [general contractor] . . . whether or not it is contended that the [subcontractor] contributed thereto in whole or in part," Id. at 790, the Schwob subcontract provides that Schwob will indemnify the general contractor "from all claims . . . even if the loss was partially caused by the negligence of [general contractor] unless the loss was occasioned by one sole negligence of [general contractor]." (DiDonenico Aff. Ex. D § 11.22) (emphasis added). As such, the agreement in the instant case does not contemplate indemnification if the loss was caused solely by the general contractor's negligence.

An indemnification clause, similar to that in the Schwob subcontract, was recently found to have been enforceable by the First Department in Dutton v. Charles Pankow Builders, Ltd., 745 N.Y.S.2d 520 (1st Dep't 2002). In Dutton, the indemnification clause provided that:

to the fullest extent permitted by applicable law, the subcontractor will indemnify the general contractor for all liabilities arising out of personal injuries sustained in connection with the subcontractor's work regardless of whether [the general contractor is] partially negligent . . . exclud[ing] only liability created by the [general contractor's] sole and exclusive negligence. Dutton, 745 N.Y.S.2d at 521 (internal quotations omitted).
The court focused on the phrases limiting the subcontractor' a obligation to that permitted by law and excluding liability created by the general contractor's sole and exclusive negligence. According to the court, the provision was valid because it permitted partial, not full indemnification of the general contractor for personal injuries partially caused by its negligence. With regard to the phrase calling for indemnification of the general contractor "regardless" of its partial negligence, the Dutton court stated:

[although it is] reasonable to construe the exclusion for the contractor's sole negligence as applying only to situations where the general contractor is found solely at fault, not like here, where the general contractor was found partially at fault, it is just as reasonable to construe the "regardless" phrase as requiring indemnification even where the general contractor is partially negligent, but excluding that portion of the joint liability attributable to its negligence. As between these two reasonable constructions of the indemnification clause, we adopt the one that renders it legal and gives it effect. Id.
In the instant action, the indemnification provision also calls for partial, not full indemnification of the general contractor far personal injuries partially caused by its negligence. This Court, consistent with Dutton, construes the phrase calling for indemnification even if the loss was partially caused by Butler's negligence, as requiring indemnification, but excluding that percentage of the liability attributable to the general contractor's negligence. Thus, Ace and Butler are insulated from liability only to the extent that they are rot themselves negligent. See Wausau Bus. Ins. Co. v. Tuner Constr. Co., 143 F. Supp.2d 336, 342 (S.D.N.Y. 2001). Furthermore, as previously stated, the clause in the present action limits the subcontractor's obligation to "the fullest extent permitted by law." As such, the indemnification provision is enforceable and Schwob's motion for summary judgmet is denied.

C. New York Workers' Compensation Law § 11.

Schwob contends that since the indemnification provision in the contract is unenforceable, third—party plaintiffs' contractual indemnification claim fails. Moreover, Schwob argues that any claim for common-law indemnification is barred by the New York Workers' Compensation Law because Treadway was an employee of Schwob at the time of the accident and did not suffer "grave injury" pursuant to the Workers' Compensation Law.

The New York Workers' Compensation Law precludes third-party actions against a plaintiff's employer for indemnity or contribution "based upon liability for injuries sustained by an employee acting within the scope of his or her employment," unless the "employee has sustained a grave injury" or where the third—party claimant's right to contribution or indemnity is preserved in a written agreement prior to the accident. N.Y. Workers' Comp. Law § 11 (McKinney 1996); Potter v. M.A. Bongiovanni, 707 N.Y.S.2d 689 3d Dep't 2000).

In the instant case, there is a valid indemnification provision in effect between Butler and Schwob. Accordingly, third—party plaintiffs' contractual claim against Schwob is not precluded.

CONCLUSION

For the foregoing reasons, both defendants/third-party plaintiffs' and third-party defendant's motions for summary judgment are denied.

It is so ordered.


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