UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
December 23, 2004
CELEBRITY CRUISES INC., AND FANTASIA CRUISING INC., PLAINTIFFS,
ESSEF CORP., PAC-FAB, INC., AND STRUCTURAL EUROPE N.V. (F/N/A SFC), DEFENDANTS.
The opinion of the court was delivered by: James C. Francis IV United States Magistrate Judge
MEMORANDUM AND ORDER
Celebrity Cruises Inc. and Fantasia Cruising Inc. (collectively, "Celebrity) brought this action against Essef Corporation, Pac-Fab, Inc., and Structural Europe, N.V. (collectively, "Essef"), seeking compensation and indemnification for losses incurred as the result of an outbreak of Legionnaires' Disease aboard Celebrity's cruise vessel, the Horizon. Celebrity now moves for partial summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, seeking to recover from Essef amounts that it has paid to passengers who became ill on the Horizon. Essef, too, moves for partial summary judgment, arguing principally that Celebrity is unable to sustain its claims for certain lost profits and diminished business enterprise value. For the reasons that follow, Celebrity's motion is denied, while Essef's motion is denied without prejudice to renewal in conjunction with the parties' anticipated motions to preclude expert testimony.
The current motions must be viewed against the backdrop of the related cases brought by passengers who contracted Legionnaires' Disease on the Horizon and who sued both Celebrity and Essef. The passenger plaintiffs alleged that they became ill when legionella bacteria flourished in the whirlpool spa aboard the vessel both because the filter, which was designed and distributed by Essef, failed to perform properly, and because Celebrity failed to provide appropriate chemical treatment for the water.
The parties consented to proceed before me pursuant to 28 U.S.C. § 636(c) and agreed to determination of all liability issues in a single bellwether trial. Specifically, the parties stipulated to the following procedure:
a. A jury shall try the Silivanches' case in its entirety as a "bellwether" case. . . . The sequence of such trial, and the effect of the jury's findings therein, are described in paragraphs b. through g. below.
b. The jury shall first try the liability issues arising from the Silivanches' claims against the Celebrity Defendants and the Essef Defendants and the Celebrity Defendants' claims against the Essef Defendants.
c. If the jury finds that one or both of the Celebrity Defendants and one or more of the Essef Defendants are liable on the Silivanches' claims, then the jury shall next determine the Celebrity Defendants' and the Essef Defendants' respective liability on those claims and whether, and to what extent, the Essef Defendants shall indemnify the Celebrity Defendants for damages sustained by the Silivanches.
d. Assuming the jury finds any of the Celebrity Defendants or Essef Defendants liable on the Silivanches' claims, the jury shall next determine which of those defendants, if any, is liable for punitive damages on those claims and the amount of punitive damages to be paid by the defendants found so liable.
e. Thereafter, the jury shall determine the amount of compensatory damages due in the Silivanches' case.
f. The findings of the jury in the Silivanches' case concerning (i) the liability of the Celebrity Defendants and the Essef Defendants, (ii) those Defendants' respective degree of fault and (iii) those Defendants' liability for punitive damages shall be binding on all Plaintiffs . . ., the Celebrity Defendants and the Essef Defendants.
g. In the event that the jury in the Silivanches' case concludes that one or more of the Celebrity Defendants or Essef Defendants is liable on the Silivances' claims, then the trials of the related cases (except those that may settle) shall proceed separately in the sequence determined by the Court and shall be limited to the issues of proximate cause and compensatory damages.
Stipulation and Order dated May 25, 2000 (the "Bellwether Order"), ¶ 4). The jury found both Celebrity and Essef liable to the passengers and allocated fault 70% to Essef and 30% to Celebrity. (Special Verdict Form - Liability (the "Verdict Form"), ¶¶ 1-6 & 14, attached as Exh. E to Declaration of James M. Hazen dated Aug. 31, 2005 ("Hazen Decl.")). The jury further found the Essef defendants liable to Celebrity for fraud, negligence, failure to warn, strict liability, breach of express and implied warranties, and negligent misrepresentation. (Verdict Form, ¶¶ 7-13). With respect to Celebrity's claims, it assigned fault among the Essef defendants 30% to Essef Corporation, 30% to Pac-Fab, Inc., and 40% to Structural Europe, N.V. (Verdict Form, ¶ 15). The jury subsequently assessed punitive damages of $7,000,000 against Essef, awarding $4,200,000 to the passenger plaintiffs and $2,800,000 to Celebrity and awarded compensatory damages to the Silivanches. Thereafter, the remaining passenger damage claims were tried or settled, judgments were entered, and Celebrity's damage claims against Essef were severed. Essef filed a notice of appeal from the judgments that incorporated the bellwether determinations and Celebrity cross-appealed, but the appeals were dismissed by the Second Circuit as untimely. Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355 (2d Cir. 2003). In its opinion, the court characterized the jury verdict as finding, in part, "that Essef had an obligation to indemnify Celebrity in full." Id. at 359.
Litigation of Celebrity's claims against Essef proceeded, and I granted Celebrity's motion to amend and supplement its complaint to include damages for "(1) all costs incurred as a result of the passengers' claims, including awards paid and attorneys' fees; (2) lost revenues, profits, and business opportunities, and (3) loss of business enterprise value." Celebrity Cruises Inc. v. Essef Corp., No. 96 Civ. 3135, 2004 WL 2591950, at *1 (S.D.N.Y. Nov. 15, 2004).
Following the close of discovery, the parties filed the instant motions. Celebrity contends that it is entitled to partial summary judgment requiring Essef to indemnify it for the monies that it has paid out to the passenger plaintiffs in settlement or as the result of judgments obtained by those plaintiffs. Celebrity has submitted evidence that it paid $1,622,804 to passengers in satisfaction of judgments and $741,400 to settle passenger claims.*fn1 Thus, it seeks summary judgment in the total amount of $2,364,204.
In its motion for partial summary judgment, Essef has refined one of the arguments that it initially advanced in opposing Celebrity's motion to amend and supplement its complaint. At that time, Essef contended that Celebrity should not be permitted to seek damages for lost profits or for diminished business enterprise value because any such award would be speculative. Now, on summary judgment, Essef maintains that Celebrity has failed to proffer evidence sufficient to support such damages except, perhaps, with respect to lost profits prior to 1995.
A. Summary Judgment Standard
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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." Fed. R. Civ. P. 56(c); accord Marvel Characters, Inc. v. Simon, 310 F.3d 280, 285-86 (2d Cir. 2002); Andy Warhol Foundation for the Visual Arts, Inc. v. Federal Insurance Co., 189 F.3d 208, 214 (2d Cir. 1999). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving party meets that burden, the opposing party must come forward with "specific facts showing that there is a genuine issue for trial," Fed. R. Civ. P. 56(e), by "a showing sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.
In assessing the record to determine whether there is a genuine issue of material fact, the court must resolve all ambiguities and draw all factual inferences in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Vann v. City of New York, 72 F.3d 1040, 1048-49 (2d Cir. 1995). But the court must inquire whether "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party," Anderson, 477 U.S. at 249 (citation omitted), and grant summary judgment where the non-movant's evidence is conclusory, speculative, or not significantly probative. Id. at 249-50. "The litigant opposing summary judgment may not rest upon mere conclusory allegations or denials, but must bring forward some affirmative indication that his version of relevant events is not fanciful." Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 101 (2d Cir. 1997) (internal quotations and citations omitted); accord Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (a nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts"); Goenaga v. March of Dimes Birth Defects Foundation, 51 F.3d 14, 18 (2d Cir. 1995) (non-movant "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible"). In sum, if the court determines that "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 587 (quoting First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 288 (1968)). B. Indemnification
Celebrity's central argument is that it is entitled to full indemnification from Essef because Essef failed at the bellwether trial to seek the jury's determination of Celebrity's comparative fault. Indeed, Essef itself cites this failure as one basis for its claim of legal malpractice against the attorneys who represented it in the prior proceedings. (Reply Declaration of James M. Hazen dated Nov. 4, 2005 ("Hazen Reply Decl."), Exh. C, ¶ 21). This analysis, however, assumes a critical predicate: that Celebrity's right to indemnification from Essef was established in the first instance. Absent such a determination, there would be no need to seek a finding of comparative fault.
It is beyond dispute that the jury found Essef liable to Celebrity on Celebrity's claims for negligence, failure to warn, strict liability, breach of express and implied warranty, negligent misrepresentation, and fraud. (Verdict Form, ¶¶ 7-13). There is also no doubt that the parties had agreed that Celebrity's claim for indemnification would also be adjudicated at the bellwether trial. (Bellwether Order, ¶ 4(c)). Yet, neither Celebrity nor any other party asked for a jury instruction with respect to indemnification or for a comparable question to be included in the jury verdict form. Consequently, the judgment entered in the bellwether case refers to findings of liability against Essef on Celebrity's tort claims but says nothing about indemnification. (Hazen Decl., Exh. F).
A finding that a third-party defendant is liable to a third-party plaintiff on substantive tort claims is not the equivalent of a finding that the third-party defendant must indemnify the third-party plaintiff for damages for which they may be jointly and severally liable. Indeed, a claim for indemnification is independent of any underlying claim that gave rise to the payment for which a party seeks indemnity:
The gravamen of an action for indemnity is that both parties, indemnitor and indemnitee, are subject to a duty to a third person under such circumstances that one of them, as between themselves, should perform it rather than the other. The classic situation giving rise to a claim for indemnity is where one, without fault on its own part, is held liable to a third party by operation of law (frequently statutory) due to the fault of another.
It is the independent duty which the wrongdoer owes to prevent the other from becoming vicariously liable, and cast in damages, to the injured party that is the predicate for the indemnity action, and it is not necessary that the indemnitee establish that the indemnitor has ever owed, or currently owes, it a separate duty apart from the duty to indemnify.
City of New York v. Lead Industries Association, Inc., 222 A.D.2d 119, 125, 644 N.Y.S.2d 919, 922-23 (2d Dep't 1996) (citations omitted).
A claim for indemnity may arise from an express agreement by one party to hold the other harmless for claims brought by other persons. See Gabriel Capital, L.P. v. NatWest Finance, Inc., 137 F. Supp. 2d 251, 268 (S.D.N.Y. 2000). There is no suggestion that there was any such agreement between Essef and Celebrity in this case.
The right to indemnification may also be implied "based upon the law's notion of what is fair and proper between the parties and its purpose is equitable distribution of the loss." Lead Industries, 222 A.D.2d at 128, 644 N.Y.S.2d at 925. However, this requires a finding that the party seeking indemnity is not blameworthy. "Under New York law a claim for common law indemnity is barred where the party seeking indemnification was itself at fault, and both tortfeasors violated the same duty to the plaintiff." Gabriel Capital, 137 F. Supp. 2d at 269; see also RSL COM U.S.A. v. Sollinger, No. 99 Civ. 9705, 2000 WL 1863761, at *3 (S.D.N.Y. Dec. 20, 2000); Rosado v. Proctor & Schwartz, Inc., 66 N.Y.2d 21, 24-25, 494 N.Y.S.2d 851, 854 (1985) ("A party who has settled and seeks what it characterizes as an indemnification thus must show that it may not be held responsible in any degree."); Trustees of Columbia University in the City of New York v. Mitchell/Giurgola Associates, 109 A.D.2d 449, 453, 492 N.Y.S.2d 374, 375 (1st Dep't 1985) ("Since the predicate of common law indemnity is vicarious liability without actual fault on the part of the proposed indemnitee, it follows that a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefit of the doctrine."). Similarly, "admiralty courts have recognized a right to indemnity, as distinguished from contribution, in a person who has responded in damages for a loss caused by the wrong of another. This right has been recognized in two general classes of cases: those in which the person seeking indemnification was without fault; and those in which such person was passively negligent, but the primary cause of the loss was the active negligence of another." Federal Marine Terminals, Inc. v. Burnside Shipping Co., 394 U.S. 404, 420 (1969) (quoting Davis v. American President Lines, 106 F. Supp. 729, 730 (N.D. Cal. 1952)). In the bellwether case, while the jury allocated responsibility for the passenger plaintiffs' damages between Celebrity and Essef, it was never asked to determine whether Celebrity was "without fault" or if it was passively negligent. Absent such findings, the jury could not, and did not, render a verdict on Celebrity's claim for indemnification.*fn2
The relevant waiver, then, was not Essef's, but Celebrity's for failing to pursue its indemnification claims at the bellwether trial. Celebrity is therefore not entitled to summary judgment.
This conclusion is not altered by the fact that the Second Circuit interpreted the jury verdict in the bellwether trial differently. See Silivanch, 333 F.3d at 359. To be sure, any pronouncement of the Circuit is entitled to respectful consideration even when, as here, it is dicta. But there is no indication that the Circuit conducted any analysis of the claims that were decided in the bellwether trial. Nor is there any reason for it to have done so: it was merely reciting the history of the proceedings prior to dismissing the appeal and cross-appeal as untimely.*fn3
C. Lost Profits and Diminished Enterprise Value Essef's motion for summary judgment dismissing certain of Celebrity's claims for lost profits and diminished enterprise value is better deferred. Both parties have indicated an intention to move to preclude some or all of its opponent's expert witnesses pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). It will be far more efficient to determine whether Celebrity has sufficient evidence to support its damage claims after it has been established what evidence is admissible. Therefore, Essef's motion is denied with leave to renew following a decision on the Daubert motions. At that time, the parties will be provided an opportunity to supplement the submissions they have already made.
For the reasons set forth above, Celebrity's motion for partial summary judgment awarding it the amounts that it has paid to certain passenger plaintiffs pursuant to judgment or settlement is denied. Essef's motion for partial summary judgment precluding Celebrity from introducing evidence of certain lost profits and diminished enterprise value is denied without prejudice to its being renewed following determination of the Daubert motions.
JAMES C. FRANCIS IV UNITED STATES MAGISTRATE JUDGE