Republic Services Procurement Incorporated v. TrueBlue Incorporated

• Court: District Court, D. Arizona
• Decided: September 10, 2019
• Docket: 2:19-cv-00300
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Republic Services Procurement No. CV-19-00300-PHX-JJT Incorporated, 10 ORDER Plaintiff, 11 v. 12 TrueBlue Incorporated, 13 Defendant. 14 15 At issue is Plaintiff Republic Services Procurement Incorporated’s Motion for 16 Partial Judgment on the Pleadings (Doc. 25, Mot.), to which Defendant TrueBlue 17 Incorporated filed a Response (Doc. 26, Resp.), and Plaintiff filed a Reply (Doc. 28, 18 Reply). The Court heard oral argument on the Motion on May 14, 2019 (Doc. 32, Tr.). 19 I. BACKGROUND 20 On February 20, 2011, Plaintiff and Defendant entered into a National Temporary 21 Labor Services Agreement (the “Agreement”) whereby Defendant would provide 22 temporary laborers at facilities affiliated with Plaintiff. (Doc. 1-1, Compl. ¶ 6.) The 23 Agreement includes the following provision: 24 [Defendant] agrees to defend, hold harmless and unconditionally indemnify [Plaintiff], [and Plaintiff’s] Affiliates . . . from and against all direct and 25 indirect losses, claims, demands, actions, causes of action, liabilities, suits, debts, costs, expenses . . ., penalties, fines, assessments and damages 26 (collectively, "Losses") [Plaintiff] may at any time suffer or sustain or become liable for by reason of any accidents, damages, violations, injuries, 27 illness or diseases . . . either to the employees or property or both of [Defendant] or [Plaintiff] . . . in any manner caused by, resulting or arising 28 from or related to: . . . Losses asserted against [Plaintiff] by or on behalf of [Defendant’s] Personnel . . . where such Losses are caused in whole or in part 1 by any actions of any third party or of [Defendant’s] Personnel; provided, however, that [Defendant] shall have no obligation to defend, hold harmless, 2 and indemnify for any Losses that are caused solely by the negligent actions or failures to act or strict liability of [Plaintiff] unless such Losses relate to a 3 claim against [Plaintiff] that if made against [Defendant] would have been covered by workers’ compensation insurance, even if the claimant alleges 4 that the Losses are caused by the negligent actions . . . of [Plaintiff]. 5 (Mot. Ex. 1 at 11–12.) The Agreement also provides that it “may be modified or 6 supplemented by the parties only if done in writing and signed by an authorized 7 representative of each party.” (Mot. Ex. 1 at 13.) 8 On August 17, 2015, Karen Newsuan, a laborer working under the Agreement, was 9 seriously injured at a Plaintiff-affiliated facility (the “Newsuan Injury”). (Compl. ¶¶ 13– 10 14.) Also on August 17, 2015, an authorized representative of Plaintiff at that facility 11 signed a work ticket (the “Work Ticket”) providing that Plaintiff “shall comply with all 12 applicable laws relating to health and safety.” (Resp. at 3–4.) The Work Ticket further 13 stated that Plaintiff would hold harmless Labor Ready, a subsidiary of Defendant, “from 14 any claims and all liability, caused or alleged to have been caused by [Plaintiff’s] breach 15 of this agreement.” (Resp. at 4.) Neither Labor Ready nor Defendant signed the Work 16 Ticket. (Tr. at 15.) 17 On August 18, 2015, Plaintiff tendered its defense concerning the Newsuan Injury 18 to Defendant and requested immediate defense and indemnification pursuant to the 19 Agreement. (Compl. ¶ 15.) Defendant refused to defend or indemnify Plaintiff. (Compl. 20 ¶ 16.) On August 8, 2017, Newsuan filed a complaint against Plaintiff for her personal 21 injuries (the “Newsuan Action”). (Compl. ¶ 18.) Plaintiff again requested that Defendant 22 defend and indemnify Plaintiff. (Compl. ¶ 20.) Defendant again refused. (Compl. ¶¶ 21– 23 22.) Newsuan also filed a workers’ compensation claim against Defendant. (Doc. 12, 24 Countercl. ¶ 37.) Defendant paid workers’ compensation benefits to Newsuan for her work- 25 related injuries. (Countercl. ¶ 39.) 26 On December 17, 2018, Plaintiff filed suit against Defendant in Arizona state court. 27 Defendant then removed the action to this Court. (Doc. 1.) In the Complaint, Plaintiff raises 28 three claims against Defendant: (1) breach of duty to defend and breach of express 1 contractual indemnity (“Count One”); (2) breach of contractual obligation to procure 2 insurance for Plaintiff and its affiliates (“Count Two”); and (3) declaratory relief (“Count 3 Three”). (Compl. ¶¶ 32–33, 38, 44.) Defendant filed a Counterclaim raising claims for 4 subrogation and breach of the covenant of good faith and fair dealing. (Countercl. ¶¶ 49, 5 55.) Plaintiff now moves for partial judgment on the pleadings as to Count One and Count 6 Three of the Complaint and Defendant’s counterclaims. (Mot. at 2.) Defendant voluntarily 7 dismissed its subrogation counterclaim but still maintains that Plaintiff breached the 8 covenant of good faith and fair dealing. (Resp. at 17.) 9 II. LEGAL STANDARD 10 Federal Rule of Civil Procedure 12(c) permits a party to move for judgment on the 11 pleadings “[a]fter the pleadings are closed but within such time as not to delay the trial.” 12 In reviewing a Rule 12(c) motion, “all factual allegations in the complaint [must be 13 accepted] as true and construe[d] . . . in the light most favorable to the non-moving party.” 14 Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). 15 A motion for judgment on the pleadings should only be granted if “the moving party 16 clearly establishes on the face of the pleadings that no material issue of fact remains to be 17 resolved and that it is entitled to judgment as a matter of law.” Hal Roach Studios, Inc. v. 18 Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989). “Interpretation of a 19 contract is a matter of law,” United States v. King Features Entm’t, Inc., 843 F.2d 394, 398 20 (9th Cir. 1988), and thus is susceptible to a motion for judgment on the pleadings. Judgment 21 on the pleadings under Rule 12(c) is warranted “only if it is clear that no relief could be 22 granted under any set of facts that could be proved consistent with the allegations.” 23 Deveraturda v. Globe Aviation Sec. Servs., 454 F.3d 1043, 1046 (9th Cir. 2006) (internal 24 citations omitted). 25 A Rule 12(c) motion is functionally identical to a Rule 12(b)(6) motion to dismiss 26 for failure to state a claim, and the same legal standard applies to both motions. Dworkin 27 v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). Specifically, a complaint— 28 or in this instance, a counterclaim—must include “only ‘a short and plain statement of the 1 claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice 2 of what the . . . claim is and the grounds upon which it rests.’” Bell Atl. Corp. v. Twombly, 3 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); see also Fed. 4 R. Civ. P. 8(a). A dismissal for failure to state a claim can be based on either (1) the lack of 5 a cognizable legal theory or (2) insufficient facts to support a cognizable legal claim. 6 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). “While a complaint 7 attacked by a Rule 12(b)(6) motion does not need detailed factual allegations, a plaintiff’s 8 obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels 9 and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” 10 Twombly, 550 U.S. at 555 (citations omitted). The complaint must thus contain “sufficient 11 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” 12 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). 13 III. ANALYSIS 14 Plaintiff argues that Defendant “owes and has breached its duty to defend,” (Reply 15 at 3), and further argues that “the Agreement created a broad and clear indemnity obligation 16 for claims such as [the Newsuan Action].” (Mot. at 8.) Defendant, however, argues that the 17 “Work Ticket modified and/or supplemented the Agreement,” (Resp. at 6), such that 18 Defendant “has no duty to defend or indemnify [Plaintiff].” (Resp. at 8.) Defendant further 19 argues that “even under the terms of the Agreement, [Defendant] does not have a duty to 20 defend or indemnify [Plaintiff].” (Resp. at 9.) 21 A. The Work Ticket did not Modify the Agreement. 22 Under Arizona law,1 “a general principle of contract law is that where parties bind 23 themselves by a lawful contract and the terms of the contract are clear and unambiguous, 24 a court must give effect to the contract as written.” Estes Co. v. Aztec Const. Inc., 677 P.2d 25 939, 941 (Ariz. Ct. App. 1983). The mere fact that parties disagree about the meaning of a 26 contract does not make it ambiguous. Shanks v. Davey Tree Surgery Co., 845 P.2d 483 27 (Ariz. Ct. App. 1992). Rather, a contract is ambiguous “only if the language can reasonably 28 1 The Agreement specifies that Arizona law controls. (Mot. Ex. 1 at 12.) 1 be construed in more than one sense and the construction cannot be determined within the 2 four corners of the instrument.” J.D. Land Co. v. Killian, 762 P.2d 124, 126 (Ariz. Ct. App. 3 1988). Moreover, when interpreting a contract, the Court “presume[s] that the parties 4 intended to give the words employed their ordinary meaning.” Tucker v. Byler, 558 P.2d 5 732, 735 (Ariz. Ct. App. 1976). 6 Here, the Agreement’s modification provision is clear: “The Agreement may be 7 modified or supplemented by the parties only if done in writing and signed by an authorized 8 representative of each party.” (Mot. Ex. 1 at 13. (emphasis added).) Although an authorized 9 representative of Plaintiff signed the Work Ticket, neither Labor Ready nor Defendant 10 signed the Work Ticket. (Tr. at 14–15.) In accordance with the general principles of 11 contract law, the Court finds that the Work Ticket failed to modify the Agreement because 12 it was not “signed by an authorized representative of each party.” Therefore, the terms of 13 the Agreement control. 14 B. The Newsuan Action Falls Within the Scope of the Agreement. 15 Pursuant to the Agreement, 16 [Defendant] shall have no obligation to defend, hold harmless, and indemnify for any Losses that are caused solely by the negligent actions or failures to 17 act or strict liability of [Plaintiff] unless such Losses relate to a claim against 18 [Plaintiff] that if made against [Defendant] would have been covered by workers’ compensation insurance, even if the claimant alleges that the Losses 19 are caused by the negligent actions . . . of [Plaintiff]. 20 (Mot. Ex. 1 at 12.) Plaintiff argues that Defendant “owes and has breached its duty to 21 defend.” (Reply at 3.) Plaintiff further contends that Defendant “must indemnify [Plaintiff] 22 against any losses [Plaintiff] sustains that are related to [a] workers’ compensation claim,” 23 and because the Newsuan Action, if alleged against Defendant, “unquestionably would 24 have been covered by Arizona’s workers’ compensation scheme,” Defendant must 25 indemnify Plaintiff. (Reply at 3–4.) 26 Defendant, however, asserts that this provision only applies “to situations in which 27 [Defendant’s] workers’ compensation insurance proceeds are available to a claimant, but 28 a claimant has not made a workers’ compensation claim, and instead, has made a claim 1 against [Plaintiff].” (Resp. at 11.) Defendant argues that the provision “is not applicable 2 because [] Newsuan in fact did make a workers’ compensation claim against [Defendant] 3 and [Defendant] has paid [] Newsuan the maximum amount of workers’ compensation 4 insurance benefits available to her for the Newsuan Injury.” (Resp. at 11.) 5 The Court finds that the language of the Agreement is clear and unambiguous. 6 Under the Agreement, Defendant has the duty to defend and indemnify Plaintiff for losses 7 that “relate to a claim against [Plaintiff] that if made against [Defendant] would have been 8 covered by workers’ compensation insurance.” (Mot. Ex. 1 at 12.) Contrary to Defendant’s 9 suggestion, the applicability of this provision is not dependent on whether the injured 10 laborer has received workers’ compensation benefits from Defendant. Rather, in light of 11 the ordinary meaning of the phrase “relate to,” the provision applies to losses beyond those 12 that fit squarely within a workers’ compensation claim. Had the parties’ intended the 13 provision to apply more narrowly, the Agreement could have included language clearly 14 indicating that the provision is inapplicable if a claimant has received workers’ 15 compensation benefits from Defendant. As written, however, that qualification does not 16 exist. 17 Consistent with that interpretation, the Court finds that the Newsuan Action falls 18 within the scope of the Agreement. In the Newsuan Action, Newsuan alleges that she was 19 injured while working at a facility affiliated with Plaintiff. (Mot. at 4.) Losses arising 20 therefrom thus “relate to a claim against [Plaintiff] that if made against [Defendant] would 21 have been covered by workers’ compensation insurance.”2 (Mot. Ex. 1 at 12.) 22 1. Defendant Breached Its Duty to Defend Plaintiff in the Newsuan Action. 23 24 Under Arizona law, the duty to defend and the duty to indemnify are distinct. INA 25 Ins. Co. of N. Am. v. Valley Forge Ins. Co., 722 P.2d 975, 982 (Ariz. Ct. App. 1986). The 26 Court turns first to the duty to defend. In Arizona, “[t]he duty to defend arises at the earliest 27

28 2 Indeed, the fact Newsuan received workers’ compensation benefits from Defendant for the Newsuan Injury reinforces this finding. 1 stages of litigation and generally exists regardless of whether the insured is ultimately 2 found liable.” Nat’l Fire Ins. Co. of Hartford v. James River Ins., 162 F. Supp. 3d 898, 913 3 (D. Ariz. 2016) (quoting INA Ins. Co. of N. Am., 722 P.2d at 981). The duty to defend 4 applies if the complaint alleges facts that come within the coverage of an indemnity 5 provision. See Kepner v. W. Fire Ins. Co., 509 P.2d 222, 224 (Ariz. 1973); see also A 6 Tumbling-T Ranches v. Flood Control Dist. of Maricopa Cty., 204 P.3d 1051, 1056 (Ariz. 7 Ct. App. 2008) (applying insurance principles of indemnity and defense in a non-insurance 8 commercial context). As previously stated, the Newsuan Action comes within the coverage 9 of the Agreement. Accordingly, the Court finds that Defendant breached its duty to defend 10 Plaintiff. 11 2. Defendant Must Indemnify Plaintiff for Losses Incurred in the Newsuan Action. 12 13 The Court also finds that Defendant must indemnify Plaintiff for losses incurred in 14 the Newsuan Action. The Agreement provides that Defendant’s indemnity obligation 15 applies when Plaintiff incurs losses relating to a claim against Plaintiff that “if made against 16 [Defendant] would have been covered by workers’ compensation insurance, even if the 17 claimant alleges that the Losses are caused by the negligent actions . . . of [Plaintiff].” (Mot. 18 Ex. 1 at 12.) Even if Plaintiff’s negligence caused the Newsuan Injury, Plaintiff’s 19 negligence would have no effect on Defendant’s indemnity obligations given the clear and 20 unequivocal terms of the Agreement.3 See Grubb & Ellis Mgmt. Servs., Inc. v. 407407 B.C., 21 L.L.C., 138 P.3d 1210, 1214 (Ariz. Ct. App. 2006) (“[A] ‘specific’ indemnity agreement 22 . . . imposes upon indemnitor an obligation to indemnify for any type of damage, even 23 though also caused by the negligence of indemnitee.”). 24

25 3 Defendant also argues that Plaintiff’s interpretation of the Agreement “violates public policy” because it “shield[s] [Plaintiff] from all liability, regardless of [Plaintiff’s] 26 intentional, reckless, and illegal acts.” (Resp. at 11.) Because, as the Court discusses below, Defendant has only made allegations of negligence, this argument is unpersuasive. Under 27 Arizona law, “contracts indemnifying a party against his own negligence do not violate public policy” as long as “the indemnitor’s obligation to do so is expressed in clear and 28 unequivocal terms.” Wash. Elementary Sch. Dist. No. 6 v. Baglino Corp., 817 P.2d 3, 6 (Ariz. 1991). 1 C. Defendant Fails to Allege a Plausible Implied Covenant of Good Faith and Fair Dealing Counterclaim. 2 3 Plaintiff next argues that Defendant’s implied covenant of good faith and fair 4 dealing counterclaim fails as a matter of law because it “contradicts the Agreement’s 5 express indemnity obligation.” (Mot. at 14.) Defendant, however, contends that Plaintiff 6 “breached the implied covenant of good faith and fair dealing by knowingly violating 7 applicable safety laws and safety standards.” (Resp. at 17.) Defendant further argues its 8 counterclaim does not contradict the Agreement because “[t]he indemnity provision does 9 not address [Defendant’s] reasonable expectation that [Plaintiff] would follow applicable 10 safety laws and safety standards in operating its facilities.” (Resp. at 17.) 11 Under Arizona law, the covenant of good faith and fair dealing is implied in every 12 contract. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 13 Pension Trust Fund, 38 P.3d 12, 28 (Ariz. 2002), as corrected (Apr. 9, 2002). This implied 14 covenant “prohibits a party from doing anything to prevent other parties to the contract from 15 receiving the benefits and entitlements of the agreement.” Id. A party may “breach its duty 16 of good faith without actually breaching an express covenant in the contract.” Id. at 29. 17 The Court finds that Defendant failed to allege sufficient facts to raise a plausible 18 inference that Plaintiff breached the implied covenant of good faith and fair dealing. 19 Defendant alleges that Plaintiff “breached the implied covenant of good faith and fair 20 dealing by performing the Agreement in a way that caused unreasonable risk of physical 21 harm and injury to [Defendant’s] employees.” (Countercl. ¶ 55.) But Defendant alleges 22 no non-conclusory facts that suggest Plaintiff knew it was violating applicable safety laws, 23 and thus Defendant’s allegations are at most tantamount to an allegation of negligence. 24 Negligence alone is not sufficient to find bad faith liability; rather, Plaintiff must have 25 engaged in “conscious conduct.” Trus Joist Corp. v. Safeco Ins. Co. of Am., 735 P.2d 125, 26 133–34 (Ariz. Ct. App. 1986) (internal quotations omitted); see also Deese v. State Farm 27 Mut. Auto. Ins. Co., 838 P.2d 1265, 1268 (Ariz. 1992) (noting that bad faith is not proven 28 by negligence, but rather the act or omission must be intended). Defendant has failed to allege sufficient non-conclusory facts to plausibly trigger Arizona’s good faith and fair 2|| dealing law. 3 Moreover, the Agreement expressly provides that Defendant will defend and 4|| indemnify Plaintiff for losses related to claims like the Newsuan Action, “even if the 5 || claimant alleges that the Losses are caused by the negligent actions . . . of [Plaintiff]. (Mot. 6|| Ex. 1 at 12.) Because, as pled, Defendant’s counterclaim is grounded in negligence, it || contradicts the express terms of the Agreement. Bike Fashion Corp. v. Kramer, 46 P.3d 431, 434 (Ariz. Ct. App. 2002) (“The general rule is that an implied covenant of good 9|| faith and fair dealing cannot directly contradict an express contract term.”). Accordingly, Defendant’s counterclaim cannot survive a Rule 12(c) motion without any 11 || non-conclusory factual allegations to make a claim of breach of good faith and fair dealing at least plausible. See Twombly, 550 U.S. at 570. 13 If a defective claim can be cured, a claimant is entitled to amend the claim before it 14]| is dismissed. See Lopez v. Smith, 203 F.3d 1122, 1127-30 (9th Cir. 2000). Because it is 15 || possible that Defendant could allege non-conclusory facts from which the Court could || plausibly infer that Plaintiff knowingly or intentionally violated applicable safety laws, the Court grants Defendant leave to amend its Counterclaim. See id. If any such amendment 18 || fails to cure the defects in Defendant’s counterclaim for breach of the covenant of good || faith and fair dealing, the Court will dismiss the Amended Counterclaim with prejudice. 20 IT IS THEREFORE ORDERED granting Plaintiff’?s Motion for Partial Judgment on the Pleadings (Doc. 25). 22 IT IS FURTHER ORDERED granting Defendant leave to amend its Counterclaim 23 || in accordance with the provisions of this Order, if it so chooses. Defendant shall file any 24 || Amended Counterclaim no later than September 30, 2019. 25 Dated this 10th day of September, 2019. CN 26 “wok: 97 wefehlee— Unifga State#District Judge 28

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