Republic Services Procurement Incorporated v. PeopleReady Incorporated

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] Republ ic Services Procurement ) No. CV-19-00299-PHX-SPL ) 9 Incorporated, ) [10] ) O R D E R Plaintiff, ) ) 11 vs. ) ) [12] PeopleReady Incorporated, ) 13 ) ) 14 Defendant. ) 15 Before the Court is Plaintiff’s Motion for Partial Judgment on the Pleadings 16 pursuant to Federal Rule of Civil Procedure (“Rule”) 12(c).1 (Doc. 21) 17 I. Background 18 This action arises from a National Temporary Service Agreement (the 19 “Agreement”) entered into by Republic Services Procurement Incorporated (“Plaintiff”) 20 and PeopleReady Incorporated (“Defendant”). (Doc. 1-2 at 3) On January 27, 2017, the 21 parties signed the Agreement, under which Defendant agreed to provide temporary laborers 22 at certain facilities owned and operated by Plaintiff and its affiliates. (Doc. 1-2 at 3) 23 Pursuant to the Agreement, Defendant sent Darius Mitchell to work at one of 24 Plaintiff’s facilities. (Doc. 1-2 at 5) On May 7, 2018, Mr. Mitchell fell from a moving truck, 25 causing severe injuries. (Doc. 1-2 at 5) The truck was owned and operated by Plaintiff’s [26] 27 1 Because it would not assist in resolution of the instant issues, the Court finds the pending motion is suitable for decision without oral argument. See LRCiv. 7.2(f); [28] Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 affiliate. (Doc. 1-2 at 5) On June 12, 2018, Mr. Mitchell filed a complaint against Plaintiff 2 in Massachusetts state court, alleging two negligence claims against Plaintiff (the “Mitchell 3 Case”). (Docs. 1-2 at 5; 22-1 at 30-32) Mr. Mitchell also filed a workers’ compensation 4 claims against Defendant, and Defendant paid the claim in full. (Doc. 22 at 12) 5 On July 19, 2018, Plaintiff presented the Mitchell Case to Defendant and requested 6 that Defendant defend and indemnify Plaintiff. (Doc. 1-2 at 5) Defendant refused. (Doc. 17 2 at 5) On December 21, 2018, pursuant to the Agreement’s choice-of-law clause, Plaintiff 8 filed this case in the Maricopa County Superior Court. (Docs. 1-2 at 2; 21-1 at 20) 9 Defendant petitioned to remove the case to this Court on January 17, 2019. (Doc. 1) 10 In the Complaint, Plaintiff alleges that Defendant breached its duty to defend, duty 11 to indemnify, and duty to procure insurance. (Doc. 1-2 at 6) In addition, Plaintiff requests 12 declaratory relief in the form of a judicial determination that Defendant has a contractual 13 duty to provide a defense and full indemnity in the Mitchell Case. (Doc. 1-2 at 7) In the 14 Answer, Defendant denies liability and lists forty-one affirmative defenses. (Doc. 10) In 15 addition, Defendant asserts two counterclaims. First, Defendant asserts that Plaintiff’s 16 negligence alone caused Mr. Mitchell’s injuries, and it is therefore entitled to recover the 17 workers’ compensation payment via subrogation. (Doc. 10 at 15) Second, Defendant 18 argues that Plaintiff breached its covenant of good faith and fair dealing by violating safety 19 laws on the date of Mr. Mitchell’s injuries. (Doc. 10 at 16) 20 On July 15, 2019, Plaintiff filed this Motion for Partial Judgment on the Pleadings 21 pursuant to Rule 12(c). (Doc. 21) Defendant responded on July 29, 2019, and Plaintiff 22 replied on August 5, 2019. (Docs. 22, 23) The Motion is fully briefed and ready for ruling. 23 II. Legal Standard 24 A district court reviews a Rule 12(c) motion under the same legal standard as Rule 25 12(b)(6). Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). 26 Therefore, all the factual allegations in the complaint—and any counterclaims asserted by 27 the defendant—are taken as true. See Id. However, a court is not required to accept as true 28 any legal conclusions that are not supported by factual allegations. Ashcroft v. Iqbal, 556 1 U.S. 662 , 678 (2009). The motion will be granted only if a court finds that no issue of fact 2 exists, and that the movant is entitled to judgment as a matter of law. Enron Oil Trading & 3 Transp. Co. v. Walbrook Ins. Co., Ltd., 132 F.3d 526, 529 (9th Cir. 1997). 4 Generally, a court may not consider documents outside the pleadings when ruling 5 on a Rule 12(c) motion. Fed. R. Civ. P. 12(d) (“If, on a motion under Rule 12(b)(6) or 6 12(c), matters outside the pleadings are presented to and not excluded by the court, the 7 motion must be treated as one for summary judgment under Rule 56.”). However, a court 8 may consider a document if it is central to a claim asserted in the pleadings. Knievel v. 9 ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). In addition, a document is not considered 10 “outside” the pleadings if the complaint specifically refers to the document and its 11 authenticity is not questioned. Id. 12 III. Discussion2 13 Plaintiff argues that there are no disputed facts in this case, and the Court’s decision 14 must turn on contract interpretation. (Doc. 21 at 2) The Court agrees. 15 Under Arizona contract law, when a contract is clear and unambiguous, then a court 16 must give effect to the contract as it is written. Grubb & Ellis Mgmt. Serv., Inc. v. 407417 17 B.C., L.L.C., 138 P.3d 1210, 1213 (Ariz. Ct. App. 2006). This fundamental principle of 18 contract law ensures that parties are free make contracts as they desire, and the courts will 19 not unjustifiably interfere in that process. See Mining Inv. Grp., LLC v. Roberts, 177 P.3d 20 1207, 1211 (Ariz. Ct. App. 2008). A court will not find an ambiguity in a contract merely 21 because the parties disagree on its meaning. Shanks v. Davey Tree Surgery Co., 845 P.2d 22 483, 486 (Ariz. Ct. App. 1992). 23 A. Plaintiff’s Claims: Breach of the Duties to Defend and Indemnify 24 Plaintiff maintains that the plain language of Section 14.1 in the Agreement 25 establishes a duty upon Defendant to defend and indemnify Plaintiff in the Mitchell Case, [26] 2 In support of their arguments, the parties attached several documents to the Motion 27 and Response. (Docs. 21-1, 22-1, 22-2, 22-3) The Court finds that the documents are central to Plaintiff’s claims and Defendant’s counterclaim. Therefore, the Court will 28 analyze the Motion under Rule 12(c). See Knievel, 393 F.3d at 1076 . 1 and that Defendant breached both duties. (Doc. 21 at 5, 8) In response, Defendant asserts 2 several arguments as to why Section 14.1 is inapplicable in this case and Plaintiff is not 3 entitled to the relief it seeks. (Doc. 22) 4 The duty to defend and the duty to indemnify are distinct. INA Ins. Co. of N. Am. v. 5 Valley Forge Ins. Co., 722 P.2d 975, 982 (Ariz. Ct. App. 1986). “The duty to defend arises 6 at the earliest stages of litigation and generally exists regardless of whether the insured is 7 ultimately found liable.” Id. Once a complaint alleges facts which may fall within the 8 parties’ indemnity provision, and the indemnitee tenders the claim to the indemnitor, the 9 duty to defend attaches. See Nucor Corp. v. Emp’rs Ins. Co., 296 P.3d 74, 86 (Ariz. Ct. 10 App. 2012 ). In contrast, “[t]he duty to indemnify depends on whether the indemnitee 11 engaged in actual, active wrongdoing.” INA Ins. Co., 722 P.2d at 982 . 12 Here, Section 14.1 of the Agreement states: 13 Indemnification by [Defendant]. [Defendant] agrees to defend, hold 14 harmless and unconditionally indemnify [Plaintiff] from and against all 15 Losses that [Plaintiff] may at any time suffer or sustain or become liable for 16 in any manner caused by, resulting or arising from or related to: (a) 17 [Defendant’s] breach of this Agreement, (b) negligent or intentional actions 18 or failures to act by [Defendant] or its Personnel or agents, (c) the work 19 performed by [Defendant], its Personnel or agents in relation to this 20 Agreement, or (d) Losses asserted against [Plaintiff] by or on behalf of any 21 [Defendant] Personnel or any of their family members, heirs or assigns 22 (“[Defendant] Personnel Losses”), where such [Defendant] Personnel Losses 23 are caused in whole or in part by any actions of any third party or of any 24 [Defendant] Personnel; provided, however, that [Defendant] shall have no 25 obligation to defend, hold harmless, and indemnify for any Losses that are 26 caused by: solely [] the negligent actions or failures to act; the gross 27 negligence or intentional misconduct as determined by a court of competent 28 jurisdiction or as reasonably agreed to between the parties; a breach of this 1 Agreement or applicable law; or strict liability of or by [Plaintiff] unless such 2 Losses relate to a claim against [Plaintiff] that if made against [Defendant] 3 would have been covered by workers’ compensation insurance, even if the 4 claimant alleges that the Losses are caused by the negligent actions or failures 5 to act or strict liability of [Plaintiff]. [Defendant’s] obligations under this 6 Agreement shall survive the expiration, termination or non-renewal of this 7 Agreement. 8 (Doc. 21-1 at 18) 9 We address each of Defendant’s arguments below. 10 1. The Work Ticket 11 Defendant argues that the terms of Section 14.1 were modified by a work ticket 12 signed by an authorized representative of Plaintiff on the date of Mr. Mitchell’s accident. 13 (Doc. 22 at 7) Defendant asserts that, per the terms of the work ticket, it had no duty to 14 defend or indemnify Plaintiff. (Doc. 22 at 7-9) The express terms of Section 16.3 allowed 15 for a modification of the contractual terms only when “done in writing and signed by an 16 authorized representative of each party.” (Doc. 21-1 at 20) Citing Barrett v. Duzan, 559 17 P.2d 693 , 695-96 (Ariz. Ct. App. 1976), Defendant argues that “the terms of the [] 18 Agreement cannot limit the parties’ ability to modify the contract in the future, even where 19 it purports to do so.” (Doc. 22 at 8) Defendant’s argument is misplaced. In Barrett, the 20 Arizona Court of Appeals explained that a contractual modification would be upheld when 21 the parties enter into a subsequent agreement with new terms and new consideration. See 22 id. Here, Defendant does not assert that the different terms under the work ticket were 23 accompanied by new consideration. Even assuming the work ticket was signed by an 24 authorized representative, it is clear that only one signature is on the work ticket. (Doc. 2225 3 at 5) Therefore, the work ticket could not constitute a modification of terms, and Section 26 14.1 governs the Defendant’s duties of defense and indemnity under the contract. 27 2. Workers’ Compensation Exception 28 Next, Defendant argues that the workers’ compensation exception at the end of 1 Section 14.1 only applies to situations in which Defendant’s workers’ compensation 2 insurance proceeds are available to the employee, but the employee has not made a 3 workers’ compensation claim, and instead, has filed a lawsuit against Plaintiff. (Doc. 22 at 4 11-12) Defendant argues that the provision is not applicable because Mr. Mitchell did make 5 a workers’ compensation claim against Defendant and Defendant paid the claim. (Doc. 22 6 at 11-12) Defendant further argues that interpreting the contract otherwise would render 7 the rest of Section 14.1 meaningless. (Doc. 22 at 13-14) 8 Contrary to Defendant’s argument, the Court finds that the language of the 9 Agreement is clear and unambiguous. The Agreement states that Defendant has the duty 10 to defend and indemnify Plaintiff for losses that “relate to a claim against [Plaintiff] that if 11 made against [Defendant] would have been covered by workers’ compensation insurance, 12 even if the claimant alleges that the Losses are caused by the negligent actions or failures 13 to act or strict liability of [Plaintiff].” (Doc. 21-1 at 18) If the parties intended to make the 14 duties to defend and indemnify dependent on whether the injured employee had received 15 workers’ compensation benefits, then the parties were free to include such language in the 16 Agreement. 17 Additionally, Defendant’s assertion that Plaintiff’s interpretation of the workers’ 18 compensation exception would render the rest of Section 14.1 meaningless is also 19 unavailing. Defendant argues that Plaintiff’s interpretation would require Defendant to 20 defend and indemnify Plaintiff anytime an employee sent by Defendant was injured on the 21 job. (Doc. 22 at 13) Plaintiff gives at least one example as to why this argument fails: if a 22 worker was injured due to Plaintiff’s sole negligence while acting outside the scope of his 23 or her employment, then Section 14.1 would not apply because workers’ compensation 24 benefits would not be available to that employee. (Doc. 21 at 9) Therefore, the plain 25 language of Section 14.1 controls, and the Court finds that the workers’ compensation 26 exception is applicable to the Mitchell Case. 27 3. Material Breach of the Agreement 28 Finally, Defendant asserts that Plaintiff materially breached the contract first by 1 violating multiple safety laws on the date of Mr. Mitchell’s accident,3 and therefore, the 2 material breach excuses Defendant from any further duty to perform under the contract. 3 (Doc. 22 at 13) Defendant cites to Section 5.7 of the Agreement, which states “[b]oth 4 [Defendant] and [Plaintiff] warrant that it shall ensure that it and all Personnel comply with 5 all Applicable Laws pursuant to this Agreement.” (Doc. 22-1 at 9) 6 “A material breach occurs when a party fails to do something required, which is so 7 important to the contract that it defeats the very purpose of the contract.” Mill Alley 8 Partners v. Wallace, 341 P.3d 462, 465 (Ariz. Ct. App. 2014). Normally, whether a breach 9 is material is a question of fact. See Found. Dev. Corp. v. Loehmann’s, Inc., 788 P.2d 1189 , 10 1197-98 (Ariz. 1990) (describing factors to be considered by a trier of fact in determining 11 the materiality of a contractual breach). However, when it is clear that a reasonable jury 12 could not return a verdict in the defendant’s favor, the question need not be submitted to a 13 jury. See Long v. Int’l Paper Co., No. 88-6721, 1990 WL 56832 , at *2 (9th Cir. Apr. 30, 14 1990). 15 The Court finds that any citation issued to Plaintiff, on its own, could not constitute 16 a material breach of the Agreement. First, the fundamental purpose of the Agreement 17 encompassed Defendant providing temporary laborers to perform various tasks at 18 Plaintiff’s facilities. Although any negligence on the part of Plaintiff may have made the 19 working environment more dangerous, any such negligence did not prevent the parties 20 from fulfilling the essence of the contract. 21 Additionally, although the parties agreed to follow applicable laws under Section 22 5.7, the Agreement defined “Losses” as “any civil or criminal fine, excise tax, penalty or 23 assessment levied by any local, state or federal governmental entity, of any nature 24 whatsoever.” (Doc. 21-1 at 4) Section 14.1 specifically covers any “Losses as defined in 25 the agreement.” Including losses arising from civil or criminal penalties shows that the 26 parties intended for Plaintiff to be covered under the Agreement even if Plaintiff received [27] 3 The United States Department of Labor Occupational Safety and Health 28 Administration issued a citation to Plaintiff due to Mr. Mitchell’s accident. (Doc. 22-1) 1 the citation, and so, it could not constitute a material breach of the contract. Therefore, 2 Defendant is not excused from its duty to perform under the Agreement. 3 B. Defendant’s Counterclaim: Good Faith and Fair Dealing4 4 Plaintiff argues that Defendant’s counterclaim should be dismissed because it 5 directly contradicts the express language in the Agreement. (Doc. 21 at 14) In response, 6 Defendant argues that Plaintiff breached the covenant of good faith and fair dealing by 7 knowingly violating several safety laws and standards which created an unsafe 8 environment for Mr. Mitchell. (Doc. 22 at 17-18) Defendant further argues that Plaintiff 9 may be held liable for breaching the implied covenant even when the Agreement addresses 10 the subject matter. (Doc. 22 at 17-18) 11 In Arizona, the covenant of good faith and fair dealing is implied in every contract. 12 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension 13 Tr. Fund, 38 P.3d 12 , 28 (Ariz. 2002). “[T]he initial inquiry consists of an objective 14 finding, i.e., whether the [party] acted unreasonably, [and] the second inquiry focuses on 15 the [party’s] conduct and whether the [party] knew that its conduct was unreasonable or 16 acted with such reckless disregard that such knowledge could be imputed to it.” Deese v. 17 State Farm Mut. Auto. Ins. Co., 838 P.2d 1265, 1268 (Ariz. 1992). Although a contract 18 may expressly address issues affecting a party’s alleged violation of the implied covenant, 19 the parties’ written agreement does not automatically prevail over the implied covenant. 20 See Bike Fashion Corp. v. Kramer, 46 P.3d 431, 436 (Ariz. Ct. App. 2002). In that way, a 21 party can breach the covenant of good faith and fair dealing even if the contract speaks to 22 the same or a related subject matter. Id. However, just because a party breaches an express 23 covenant in an agreement, the party does not automatically breach the covenant of good 24 faith and fair dealing. See Rawlings v. Apodaca, 726 P.2d 565, 573 (Ariz. 1986). 25 Here, Defendant alleges in the counterclaim that Plaintiff knowingly violated safety [26] 27 4 Defendant also asserted a counterclaim for subrogation. (Doc. 10 at 15) Defendant agreed to waive the subrogation counterclaim, so the Court will not address the issue. (Doc. 28 22 at 18) 1 | laws and standards, which directly resulted in Mr. Mitchell’s injuries. (Doc. 10 at 16-17) 2| Because Plaintiff has not shown that Defendant’s claim fails as a matter of law, the Court 3) will not grant Plaintiff's requested relief. The Court will, however, limit Defendant’s 4| potential recoverable damages to the amount of Mr. Mitchell’s workers’ compensation claim. In addition to the amount paid under the claim, Defendant attempts to recover 6 | damages “to the extent that [Plaintiff] is demanding that [Defendant] defend and indemnify 7 | [Plaintiff] against the Mitchell Action even though the Mitchell Action and the Mitchell 8 | Injury were caused by the breaches of [Plaintiff], its affiliates, and its employees.” (Doc. 9| 17) As discussed extensively above, Defendant is under a contractual duty to defend and indemnify Plaintiff pursuant to Section 14.1 of the Agreement. Defendant cannot 11 | sidestep those duties by asserting a claim for breaching the covenant of good faith and fair 12| dealing. 13 | Accordingly, 14 IT IS ORDERED that Plaintiff's Motion for Partial Judgment on the Pleadings 15 | (Doc. 21) is granted in part and denied in part. The parties shall move forward with 16 | discovery solely with respect to Plaintiff's claim related to Defendant’s failure to procure 17 | insurance; the determination of damages as to all of Plaintiff's claims; and Defendant’s 18 | Counterclaim II. 19 Dated this 17th day of January, 2020. [20] 21 Ae 22 United States District Addge