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United States District Court, S.D. New York

May 6, 2004.


The opinion of the court was delivered by: HAROLD BAER, Jr., District Judge


Plaintiff Allianz Insurance Company ("Allianz") moves for summary judgment against defendants/third-party plaintiffs, Dominic Cavagnuolo and Angela Cavagnuolo (collectively "the Cavagnuolos"), who cross-move for summary judgment against Allianz. The Cavagnuolos also move for leave to amend their answer to add a cross claim against Andrea Maiorano. For the reasons set forth below, Allianz's motion is granted and the Cavagnuolos' cross-motion is denied. The Cavagnuolos' motion for leave to amend their answer is also denied. I. BACKGROUND*fn1

On January 17, 1998, Dominic Cavagnuolo and his mother, Angela Cavagnuolo, entered into a written lease agreement ("the Lease") with the Mercedes Benz Credit Corporation ("MBCC") to lease a 1998 Mercedes Benz model ML-320 automobile from David Michael Motor Car Corporation in Freehold, New Jersey. Pursuant to paragraph 16 of the Lease, the Cavagnuolos obtained liability insurance with Allstate Insurance Company ("Allstate") in the amount of $100,000 per person.

  On October 7, 1998, Mr. Cavagnuolo asked Andrea Maiorano to pick up the leased vehicle from where it was parked and drive it to Mr. Cavagnuolo's place of business so it could be used by Ms. Cavagnuolo. En route, Maiorano struck and injured a pedestrian, Paul Gagliano, who was crossing the street at the corner of Fulton and Gold Streets in Manhattan. Gagliano filed suit ("the Gagliano lawsuit") in New York State Supreme Court, Kings County against Maiorano and Ms. Cavagnuolo and subsequently amended his complaint to add Mr. Cavagnuolo and MBCC as additional defendants. Frank Merlino, Allstate's in-house counsel, filed an answer on behalf of all defendants, although Allstate later assigned MBCC separate counsel, Lester, Schwab, Katz & Dwyer LLP. The Gagliano lawsuit was ultimately settled for the amount of $260,000. Of that sum, Allstate paid $100,000 on behalf of the Cavagnuolos and Maiorano, the full extent of their insurance coverage. Allianz agreed to pay the remaining $160,000 on behalf of MBCC.

  On March 10, 2003, Allianz filed the instant action to obtain common law and contractual indemnification from the Cavagnuolos and Maiorano under the terms of the Lease, which provides that the Cavagnuolos would pay all of the "costs and expenses, including attorneys' fees," associated with "any claims, losses, injuries, expenses, or costs related to the use, maintenance, or condition of the vehicle." Lease ¶ 23. On July 2, 2003, the Cavagnuolos instituted a third-party action against Allstate, Merlino, Robert Tusa, and the Law Offices of Robert Tusa f/k/a the Law Offices of Frank Merlino, in which they asserted malpractice and negligence claims and sought indemnification in the event that Allianz prevailed on its claims. Allianz now moves for summary judgment, contending that the indemnification clause entitles MB'CC, and Allianz and its subrogee, to be repaid for the $160,000 MBCC expended to settle the Gagliano lawsuit, as well as costs, disbursements, and legal fees, for a total of $217,933.99. The Cavagnuolos cross-move for summary judgment on the grounds that the indemnification clause is against public policy and thus unenforceable. Alternatively, the Cavagnuolos seek a fairness hearing to determine whether the Gagliano lawsuit was settled for an appropriate sum. The Cavagnuolos also seek leave to amend their answer to add a cross-claim against Maiorano, who has not yet appeared in the instant lawsuit.


 A. Standard of Review

  Pursuant to Federal Rule of Civil Procedure ("Fed.R. Civ. P.") 56(c), a district court must grant summary judgment if the evidence demonstrates that "there is no genuine issue as to any material fact and [that] the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). "Summary judgment is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to `secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1).

  In determining whether there is a genuine issue of material fact, a court must resolve all ambiguities and draw all inferences against the moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam); Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir. 1987). However, the mere existence of disputed factual issues is insufficient to defeat a motion for summary judgment. Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11-12 (2d Cir. 1986). The disputed issues of fact must be "material to the outcome of the litigation," id. at 11, and must be backed by evidence that would allow "a rational trier of fact to find for the non-moving party," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts." Id. With respect to materiality, "substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248.

 B. Choice of Law

  In diversity actions such as this, when conflicts exist between the rules of two states, the Court applies choice-of-law rules of New York, the forum state. Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 496 (1941). It is firmly established under New York law, that where a case involves a contract with a clear choice-of-law provision, "[a]bsent fraud or violation of public policy, a court is to apply the law selected in the contract as long as the state selected has sufficient contacts with the transaction." Hartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd., 230 F.3d 549, 556 (2d Cir. 2000). Here, as the Cavagnuolos note, the Lease has a specific choice-of-law provision. Paragraph 25 of the Lease, titled "Applicable Law" (bold and italics removed), provides: "The laws of the state in which the Lessor (Dealer) has its principle place of business will govern this Lease and any disputes that may arise from it." The Cavagnuolos leased the Mercedes from a car dealership located in Freehold, New Jersey, thus indicating that the parties determined that New Jersey law would apply to any disputes arising from their agreement.

  "New York courts generally defer to the choice of law made by the parties to a contract." Cargill Inc. v. Charles Kowskv Res., Inc., 949 F.2d 51, 55 (2d Cir. 1991). Moreover, the "parties' intention and the place of the making of the contract are to be given heavy weight in determining which jurisdiction has the most significant contacts." Mechanic v. Princeton Ski Shop, Inc., No. 91 Civ. 6740, 1992 WL 397576, at *3 (S.D.N.Y. Dec. 30, 1992). These two factors counsel for the application of New Jersey law. While the parties rely heavily on New York law in the motion and cross-motion submissions, they have presented neither arguments or case law for the application of New York law.*fn2 I see no reason to apply New York law where the relevant contract was entered into in another state, it provides for the application of the law of another state, and none of the parties to the contract are New York residents.*fn3 Instead, as the parties agreed in the contract, New Jersey law applies.

 C. Indemnification Clause

  Allianz argues that the Lease contains an unambiguous indemnification clause that requires the Cavagnuolos to reimburse Allianz as subrogee of MBCC for the total amount of expenses and legal fees associated with their operation of the vehicle. The Cavagnuolos assert in both their opposition to Allianz's motion for summary judgment and their own cross-motion that this clause is void as against public policy because it is manifestly unfair and solely the result of the disproportionate bargaining power between the parties to the contract. For the following reasons, I conclude that there is no issue of material fact and the indemnification clause must be enforced as written.

  Paragraph 23 of the Lease, signed by the Cavagnuolos, reads: "If you are subjected to any claims, losses, injuries, expenses, or costs related to the use, maintenance, or condition of the vehicle, I will pay all of your resulting costs and expenses, including attorneys' fees."*fn4 This language is clear and unambiguous. See Allianz Ins. Co. v. Lerner, 296 F. Supp.2d 417, 423 (E.D.N.Y, 2003) (rejecting defendant's argument that identical contractual language was ambiguous). The Cavagnuolos argue that this language is impermissible under New Jersey law because it was not the product of a meaningful bargain.*fn5 According to the Cavagnuolos, New Jersey law provides that a contract may be set aside where it is either unconscionable or the product of unequal bargaining power. While there is an established line of cases standing for precisely this proposition, the facts of this case are inapposite. Moreover, the Court's "power to declare a contractual provision void as against public policy `must be exercised with caution and only in cases that are free from doubt.'" Briarglen II Condo. Ass'n, Inc. v. Township of Freehold, 330 N.J. Super. 345, 355-56 (App. Div. 2000) (quoting Saxton Contr. & Mgmt. Corp. v. Masterclean of N.C., Inc., 273 N.J. Super 374, 377 (Law Div. 1992), aff'd, 273 N.J. Super 231 (1994)).

  Instead, this indemnification provision must be read against the even more firmly established principle that contracts are enforced as they are written. Vasquez v. Glassboro Serv. Ass'n, Inc., 83 N.J. 86, 101 (1980). Further, a court cannot re-write a better contract for either party. Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960). These basic tenets of contract law apply with equal force to indemnification provisos. Ramos v. Browning Ferris Indus, of S. Jersey, Inc., 103 N.J. 177, 191 (1986) ("Indemnity contracts are interpreted in accordance with the rules governing the construction of contracts generally."). Indeed, New Jersey courts "have traditionally upheld contractual limitations of liability." Marbro, Inc. v. Borough of Tinton Falls, 297 N.J. Super. 411, 418 (Law Div. 1996). Therefore, "[p]arties to a contract may agree to limit their liability as long as the limitation is not violative of public policy." Moreira Constr. Co. v. Moretrench Corp., 97 N.J. Super. 391, 394 (App. Div. 1967), aff'd, 51 N.J. 405 (1968); see also Chem. Bank of N.J. Nat. Ass'n v. Bailey, 296 N.J. Super. 515, 526-27 (App. Div. 1997) ("It is fundamental that parties to a contract may allocate risk of loss by agreeing to limit their liability as long as the limitation does not violate public policy.").

  While public policy considerations cannot easily be defined, a contract invalidated on this ground must clearly cause injury to the public. Henningsen v. Bloomfield Motors, Inc., 32 N J. 358, 403-4 (1960). The New Jersey Supreme Court has found liability limitations void as against public policy only under significantly different circumstances from those present here. E.g., Vasquez, 83 N.J. 86, 104-5 (1980) (holding that employment contracts offered to migrant workers that provided for immediate eviction upon termination was unconscionable and against public policy); Shell Oil Co. v. Marinello, 63 N.J. 402, 408-9 (1973) (ruling that the lease and dealer agreement provisions that permitted Shell Oil Co. to unilaterally terminate a business relationship without cause on only ten days notice were grossly unfair and against public policy); Henningsen, 32 N.J. at 404 (invalidating a disclaimer of an implied warranty of merchantability because of the grossly disproportionate bargaining power and grave danger that a defective automobile presented to the purchaser and public). There may be broad public harm, at least in the volume of such clauses, but it is not discussed within the papers before me and so will not be considered.

  Similarly, while an argument to the effect that this was a contract of adhesion may have had some relevance, it too was omitted from the arguments presented and will not be considered. On this score, however, it is worth noting that the Cavagnuolos' lease of a current model Mercedes Benz*fn6 was not a consumer necessity nor "were [they] driven to accept the [lease] because of a monopolistic market or any other economic constraint." Rudbart v. N. Jersey Dist. Water Supply Comm'n, 127 N.J. 344, 356 (1992). Under the terms of the Lease, the Cavagnuolos agreed to pay MBCC $20,936.34 in monthly installments of $775.42 over a period of twenty-seven months. Clearly, the Cavagnuolos could have used this not insignificant sum to purchase or lease another vehicle with different terms. This situation does not bespeak grossly unfair bargaining power or economic compulsion, nor does it implicate the public interest in any significant manner. Any comparison of the Cavagnolos' situation to that of the migrant workers in Vazquez, who were immediately rendered unemployed and homeless upon termination of their employment contract, or the service station owner in Shell Oil Co., who invested years to build good will in his service station only to have his business contract abruptly terminated without cause, strains credulity. And while Henningsen involved the purchase of an automobile, which arguably parallels the Cavagnuolos' Lease, the contract provisions there — which sought to insulate the automobile manufacturer and the dealer from any liability for a defective motor vehicle — raised concerns of a wholly different character. In contrast, the indemnification provision here simply shifted liability to the parties who had primary responsible for the operation and maintenance of the motor vehicle, for which, by the way, they could have purchased more insurance if they chose to do so. Indemnification under these circumstances is entirely reasonable and consistent with common law principles. E.g., Interfaith Cmty. Org. v. Honeywell Int'l Inc., 263 F. Supp.2d 796, 871 (D.N.J. 2003) ("A party is entitled to common law indemnification where its liability is entirely constructive, vicarious, and not based on any fault of its own."); see also Vitty v. D.C.P. Corp., 268 N.J. Super. 447, 457 (App. Div. 1993) ("As between two parties, the one who is at fault should ordinarily bear the consequences of its negligence.").

  The Cavagnuolos' remaining arguments that Mr. Cavagnuolo did not read or understand the contract warrant only passing mention. It is firmly established under New Jersey law that "[a] party who enters into a contract in writing, without any fraud or imposition being practiced upon him, is conclusively presumed to understand and assent to its terms and legal effect." Rudbart, 127 N.J. at 353. Mr. Cavagnuolo acknowledged that he signed and initialed the Lease. (D. Cavagnuolo Dep. at 8:17-18, 9:2-13:2.) There is no issue of material fact with respect to the indemnification provision. It is valid and will be enforced as written.

 D. Fairness Hearing

  Alternatively, the Cavagnuolos claim that they are entitled to a fairness hearing on the reasonableness of the settlement of the Gagliano lawsuit. The Cavagnuolos base their arguments on Atlantic Cement Co., Inc. v. Fidelity & Casualty Co. of N.Y., 63 N.Y.2d 798, 802 (1984), a case in which the New York Court of Appeals affirmed the remission of the case for trial as to the reasonableness of the amount of settlement prior to any award of indemnification. See also Hamilton v. Khalife, 735 N.Y.S.2d 564, 567 (2d Dep't 2001) ("If the indemnification provision is enforceable . . . there must be a hearing to determine the reasonableness of the settlement."); Lubermens Mut Ins. Co. of the Kemper Group of Ins. Cos. v. Lumber Mut. Ins. Co., 538 N.Y.S.2d 542, 544 (1st Dep't 1989) ("Inasmuch as appellant did not participate in the defense of the third-party action or in the settlement, and as there was no jury verdict establishing the amount of damage[s]. . . appellant is also entitled to contest the reasonableness of the amount paid pursuant to the settlement agreement."). The Cavagnuolos overlook the fact that while the Gagliano lawsuit was filed in New York, pursuant to the choice of law provision, New Jersey law governs interpretation of the Lease and any dispute between the parties. Because the instant matter pertains to the amounts owed, if any, under the indemnification provision of the Lease, New York case law that establishes the right to a fairness hearing is inapposite.

  It is not clear that there exists a similar requirement for a fairness hearing under New Jersey law. New Jersey courts require a fairness hearing to approve and finalize any settlement of land-use litigation, e.g., Warner Co. v. Sutton, 274 N.J. Super. 464, 483 (App. Div. 1994), or class action law suits, Discover Bank v. Shea, 362 N.J. Super. 90, 91 (App. Div. 2003). Likewise, the Supreme Court of New Jersey has held that when an insurer wrongfully denies coverage, the court must determine whether the insured's settlement was reasonable and made in good faith in any ensuing enforcement action by the insured. Griggs v. Bertram, 88 N.J. 347, 368 (1982). There is some support for a similar assessment of reasonableness prior to an award of indemnification. E.g., Chem. Bank of N.J. Nat. Ass'n v. Bailey, 296 N.J. Super. 515, 524-25 (App. Div. 1997) (noting that indemnification for settlement payments requires, inter alia, that the amount of the settlement be reasonable). However, the few New Jersey cases that discuss such a hearing stem from a direct review in the state court system. See, e.g., Pep Boys v. Cigna Indem. Ins. Co. of N. Am., 300 N.J. Super. 245, 255 (App. Div. 1997) (reversing and remanding for a determination as to whether the amount of settlement was reasonable). These cases then are more in the realm of a remand than a hearing in the district court. Further, such a hearing would entail a review of a state court judgment and be barred by the Rooker-Feldman doctrine.

  "Under the Rooker-Feldman doctrine, lower federal courts lack subject matter jurisdiction over claims that effectively challenge state court judgments," based on comity and the firmly-established principle that only the Supreme Court can review a final decision of a state court. Kropelnicki v. Siegel, 290 F.3d 118, 128 (2d Cir. 2002). This doctrine is designed to protect the integrity of state court judgments, see Hachamovitch v. DeBuono, 159 F.3d 687, 696 (2d Cir. 1998), and must therefore be invoked "if adjudication of a claim in federal court would require the court to determine that a state court judgment was erroneously entered or was void," Kropelnicki, 290 F.3d at 129. New York State Supreme Court, Kings County did not enter a final judgment in the Gagliano lawsuit, but only because the parties entered into a stipulation discontinuing the action based on their settlement agreement. Nevertheless, a settlement agreement may constitute a final judgment for the purposes of the Rooker-Feldman doctrine. See Lombard v. Lombard, No. 00 Civ. 6703, 2001 WL 548725, at *4 (S.D.N.Y. May 23, 2001) (deciding that the court "lack[ed] subject matter jurisdiction to adjudicate plaintiff's claim that the Stipulation of Settlement should be declared null and void"); Delgado v. Chan, No. 97 Civ. 2251, 1997 WL 527876, at *4 (S.D.N.Y. Aug. 22, 1997) (holding that the Rooker-Feldman doctrine precluded any review of claims related to a state court judgment in an eviction proceeding that was entered pursuant to a settlement agreement). Moreover, the Cavagnuolos concede that the instant action arises out of the Gagliano lawsuit and that they were represented by counsel during the course of that litigation, although, as evinced in their third-party plaintiff claims, they certainly contest the adequacy of such representation. Any issues regarding the appropriateness of the settlement and the alleged malpractice of their counsel will have to await adjudication of the Cavagnuolos third-party negligence claims.

 E. Attorneys' Fees

  In addition to the $160,000 paid in the settlement of the Gagliano lawsuit, Allianz seeks reimbursement for $57,933.33 in legal fees. Of this amount, the Cavagnuolos do not contest the $3,450 that was paid to Lester, Schwab, Katz & Dwyer LLP for defending MBCC's interests in the underlying action, the Gagliano lawsuit. Instead, the Cavagnuolos argue that Allianz is not entitled to attorneys' fees arising out its prosecution of the instant action and even if it were, the amount of attorneys' fees should be based on a computation of hourly rates under the Lodestar method and not a contingent fee. The indemnification portion of the Lease provides that the Cavagnuolos would be liable for all "costs and expenses, including attorneys' fees" resulting from their use of the vehicle. Nevertheless, as the Cavagnuolos note, under New Jersey law, this provision permits Allianz to recover the costs associated with defending itself, not for attorneys' fees that accrue for services in connection with a suit upon the indemnity agreement itself. Johnson v. Johnson, 92 N.J. Super. 457, 463 (App. Div. 1966) (ruling that an indemnification provision that included an award of attorneys' fees did not entitle indemintor to attorneys' fees for prosecution of the indemnification action because it was not expressly provided for in the parties' agreement): see also Bethlehem Steel Corp. v. K. L. O. Welding Erectors. Inc., 132 N.J. Super. 496, 499-500 (App. Div. 1975) (holding that an indemnification agreement that encompassed "any and all loss or liability" included attorneys fees incurred in defending the underlying suit). Accordingly, Allianz is entitled to $3,450 in attorneys' fees.

 F. Leave to Amend

  Finally, the Cavagnuolos move for leave to amend their answer to add a cross-claim against Maiorano. Federal Rule of Civil Procedure 15(a) provides that "leave shall be freely given when justice so requires," but the district court has broad discretion in deciding whether to grant a motion to amend. The July 3, 2003 deadline for asserting claims or causes of action set forth and agreed to in the pre-trial scheduling order has long since passed and this case is scheduled for trial on May 25, 2004. Any such amendment would be an exercise in futility given that Maiorano has not even appeared in this action. Leave to amend is therefore denied.


  For the foregoing reasons, Allianz's motion for summary judgment is granted and it is awarded $163,450, representing the $160,000 paid to settle the underlying lawsuit and $3,450 in attorneys' fees. The Cavagnuolos' cross-motion and motion for leave to amend their answer are denied. The Clerk of the Court is instructed to close this and any open motions.


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