Court of Appeal of Louisiana,

Fifth Circuit.

CERTIFIED CLEANING & RESTORATION, INC.

v.

LAFAYETTE INSURANCE COMPANY, Earl J. Doucet, Turf Club Inc., Express Food Deli Inc. d/b/a The Edge Bar and Grill, Gammon Enterprises, LLC and Stephen D. Gammon.

 

No. 10–CA–948.

June 14, 2011.

 

On Appeal from the Twenty–Fourth Judicial District Court, Parish of Jefferson, State of Louisiana, No. 648–117, Division “J”, Honorable Stephen J. Windhorst, Judge Presiding.

Kevin C. O’Bryon, Attorney at Law, New Orleans, LA, for Plaintiff/Appellee.

 

Raymond A. Pelleteri, Jr., Alexander R. Saunders, Attorneys at Law, New Orleans, LA, for Defendant/Appellant.

 

Mitchell J. Hoffman, Michael R. Allweiss, Serena E. Pollack, Attorneys at Law, New Orleans, LA, for Defendant/Appellee.

 

Panel composed of Judges JUDE G. GRAVOIS, MARC E. JOHNSON, and HILLARY J. CRAIN, Pro Tempore.

 

MARC E. JOHNSON, Judge.

Defendants, Danna Doucet, Dane Doucet, Dianne Doucet Matthews (“Doucets”), and Lafayette Insurance Company, appeal the judgment of the trial court finding them vicariously liable for damages caused by a fire started by Gammon Enterprises while it performed roofing work. For the reasons that follow, we reverse.

 

FACTS & PROCEDURAL HISTORY

This lawsuit was filed by Certified Cleaning & Restoration, Inc. (“Certified Cleaning”), against various defendants for payment for work it performed on property located at 3400 Hessmer Ave. in Metairie. Certified Cleaning alleged it was hired by Express Food Deli, Inc., d/b/a The Edge Bar & Grill (“The Edge”), to make emergency repairs to the premises due to fire and smoke damage caused by roofing work performed by Stephen Gammon and Gammon Enterprises, L.L.C. (collectively “Gammon”). Certified Cleaning claimed it had not been fully paid for its services performed between November 22, 2006 and December 4, 2006, which totaled $45,992.59.

 

The property at issue was owned by Earl Doucet, who had leased the property to Turf Club, Inc. (“Turf Club”) in November 1997. Turf Club then subleased the premises to The Edge in April 2003. In 2006, Mr. Doucet hired Gammon to perform roofing repairs to the building on the property. While performing roofing repairs on November 21, 2006, Gammon accidentally started a fire causing damage to the building. Unfortunately, Gammon’s liability insurance had lapsed at the time of the accident.

 

Mr. Doucet died after the lawsuit was filed and his heirs, Danna Doucet, Dane Doucet, and Dianne Doucet Matthews, were substituted as parties-defendants.

 

Gammon submitted a proposal for the roofing repairs to Mr. Doucet in April 2006 and performed the repairs in November 2006.

 

Vincent Maenza, Jr., president of The Edge, testified that Mr. Doucet’s son, Dane, came to the property the day of the fire and told him to do whatever was necessary to get the property back into working condition and to get back into business. Mr. Maenza subsequently contacted Certified Cleaning and arranged for Certified Cleaning to clean the fire and smoke damage caused by the fire.

 

Daniel Haag, owner of Certified Cleaning, testified he entered into a contract with Mr. Maenza to provide cleaning services to the damaged building. Mr. Haag never spoke to any of the Doucets. Mr. Haag further testified he agreed to hold Mr. Maenza personally liable for only $7,000 of the total charges, with the intent to collect the balance from the responsible party or insurance company. Mr. Haag stated the total invoice for Certified Cleaning’s services was $45,992.59, of which only $7,000 had been paid. Certified Cleaning subsequently sued the Doucets and their liability insurer, Lafayette Ins. Co.; Turf Club ; The Edge; and Gammon, for the recovery of the balance. The Edge filed a cross-claim against the Doucets, Lafayette Ins. Co., and Gammon for damages resulting from the fire including loss income, loss of business, out-of-pocket expenses, and payment of undue rent. Additionally, the Doucets and Lafayette Ins. Co. filed a cross-claim against Gammon for contribution. This lawsuit was consolidated with a subsequent lawsuit filed by Certain Underwriters at Lloyd’s London, (“Underwriters”), The Edge’s insurer, for subrogation, in which it sought to recover money it paid to The Edge as a result of the fire.

 

All claims against Turf Club were dismissed without prejudice prior to trial.

 

Trial was held on June 1, 2009. After taking the matter under advisement, the trial court rendered a judgment on April 30, 2010. The trial court found Gammon caused the fire on the property and, therefore, was liable under La. C.C. art. 2315. The trial court also found Gammon was an employee of Mr. Doucet and not an independent contractor. As such, it found the Doucets vicariously liable for the negligence of Gammon. The trial court also found the Doucets independently liable for the negligence of Mr. Doucet as a property owner/lessor in hiring Gammon, which did not have a contractor’s license or liability insurance. The trial court further found Lafayette Ins. Co. liable under the commercial liability and property policy it issued to Mr. Doucet for the property at issue.

 

Accordingly, the trial court rendered judgment in favor of Certified Cleaning against The Edge, Gammon, the Doucets, and Lafayette Ins. Co., in solido, in the amount of $45,992.59 plus interests from the date of the invoice. Additionally, the trial court rendered judgment in favor of The Edge against Gammon, the Doucets, and Lafayette Ins. Co., in the amount of $90,680.48, for damages The Edge incurred as a result of the fire. The trial court further rendered judgment in favor of Underwriters against Gammon, the Doucets, and Lafayette Ins. Co. for $47,775.17, which was the amount Underwriters paid The Edge for damages related to the fire under the insurance policy it issued to The Edge. The Doucets and Lafayette Ins. Co. appeal the judgment.

 

The trial court gave The Edge a credit for the $7,000 it had already paid to Certified Cleaning and ruled The Edge was entitled to indemnity from the Doucets and Lafayette Ins. Co. because of the handwritten agreement between Certified Cleaning and Mr. Maenza that The Edge would only be liable for $7,000 of the charges.

 

Underwriters paid its insurance policy limits of $50,000 minus the deductible owed by The Edge.

 

ISSUES

Appellants raise the following issues on appeal. Appellants first contend the trial court erred in finding the Doucets vicariously liable for the negligence of Gammon. Specifically, the Doucets maintain the evidence showed Gammon was an independent contractor and not an employee of Mr. Doucet and, thus, they are not liable for Gammon’s negligence under the theory of vicarious liability. Appellants next contend that to the extent the trial court found the Doucets independently liable for negligently hiring Gammon, it erred. And, finally, appellants argue that the mutual waiver clause in the commercial lease between Mr. Doucet and the Turf Club precludes liability of the Doucets.

 

LAW & ANALYSIS

Vicarious Liability

The concept of vicarious liability is codified in La. C.C. art. 2320, which provides that employers are responsible for the damage caused by their employees in the exercise of the functions for which they are employed. However, vicarious liability does not apply when an independent contractor relationship exists. Angle v. Dow, 08–224, p. 4 (La.App. 5 Cir. 8/19/08), 994 So.2d 46, 48. The distinction between employee and independent contractor status is a factual determination that must be made on a case-by-case basis, which is subject to a manifest error standard of review. Id.; J4H, L.L.C. v. Derouen, 10–319, p. 8 (La.App. 1 Cir. 9/10/10), 49 So.3d 10, 15.

 

In determining whether an independent contractor relationship exists, courts must consider the following factors: (1) whether there is a valid contract between the parties; (2) whether the work being done is of an independent nature, such that the contractor may employ a non-exclusive means in accomplishing it; (3) whether the contract calls for specific piecework as a unit to be done according to the independent contractor’s own methods, without being subject to control and direction of the principal, except as to the result of the services rendered; (4) whether there is a specific price for the overall undertaking agreed upon; and (5) whether the duration of the work is for a specific time and not subject to termination or discontinuance at the will of either side without a corresponding liability for its breach.   Hickman v. Southern Pacific Transport Company, 262 La. 102, 262 So.2d 385, 390–91 (La.1972); Honeycutt v. Deutschmann, 07–211, p. 4 (La.App. 5 Cir. 1/22/08), 976 So.2d 753, 755.

 

Vicarious liability mandates strict construction. Roberts v. State, Through Louisiana Health and Human Resources Administration, 404 So.2d 1221, 1225 (La.1981). In Roberts, the Louisiana Supreme Court stated that the single most important factor to consider in determining whether a party is an independent contractor or an employee is “the right of an employer to control the work of the employee.” Id.

 

The trial court applied the Hickman factors and concluded that Gammon was an employee of Mr. Doucet and not an independent contractor. The trial court found that no contract existed between Gammon and Mr. Doucet for the roofing services. It also determined that Mr. Doucet ultimately had the right of control over the project and that Gammon would have had to perform as requested if Mr. Doucet had exerted his authority. The trial court also found work on the roof was not set for a specific time and could be terminated at will by Mr. Doucet. The trial court relied on the fact that Gammon did not continue working on the roof after the fire and did not seek payment of the balance remaining.

 

We find the trial court was manifestly erroneous in its conclusion that Gammon was an employee of Mr. Doucet. The record shows Mr. Doucet and/or Danna Doucet contacted Gammon and asked him for an estimate to repair the roof. Gammon prepared a written proposal in April 2006 outlining the repairs to be made and estimating the repair costs to be $12,000. A few months later, Danna Doucet contacted Gammon and told him that his father, Mr. Doucet, was satisfied with the proposal and that they would like the job to be done as soon as possible. Gammon began the job in November 2006.

 

A valid and enforceable contract requires capacity, consent, a certain object, and a lawful cause. The court must find there was a meeting of the minds of the parties to constitute the requirement of consent. Arias v. Albe, 04–26, p. 7 (La.App. 5 Cir. 5/26/04), 876 So.2d 179, 182. The record shows all four elements were met. Thus, there was a valid contract between Gammon and Mr. Doucet for the roofing work.

 

Additionally, the record clearly demonstrates that neither Mr. Doucet nor any of his sons controlled Gammon’s work. Danna Doucet testified that he did not give Gammon any directions for the job and did not believe his father did either. Although Danna stated his father had probably given direction to contractors over the years, there was no evidence Mr. Doucet did so in this case. We note that a principal can give direction regarding the result of the services to be rendered without changing the relationship from that of an independent contractor to an employee. See Hickman, supra. Stephen Gammon repeatedly testified that he received no instruction from Mr. Doucet regarding how to do the roof repairs. Mr. Gammon further stated that no one told him or his workers what to do and that he alone instructed his workers on what to do. Mr. Gammon explained that he provided the tools and trucks to do the job and even had a trash trailer on site. The record shows Gammon performed the roofing repairs without input from Mr. Doucet, and that Mr. Doucet exercised no control over the methods Gammon used to repair the roof. Given these attendant facts and circumstances, Gammon was an independent contractor, and we find the trial court was manifestly erroneous in concluding Gammon was an employee of Mr. Doucet.

 

The parties all agree that the fire was caused by the negligence of Gammon. A principal is not liable for the offenses committed by an independent contractor while performing its contractual duties unless (1) the work undertaken by the independent contractor is inherently or intrinsically dangerous, or (2) the person for who the work is performed gives express or implied authorization to an unsafe practice or has the right to or exercises operational control over the method and means of performing the work. Villaronga v. Gelpi Partnership Number 3, 536 So.2d 1307, 1310–11 (La.App. 5th Cir.1988), writs denied, 540 So.2d 327 (La.1989) and 540 So.2d 329 (La.1989). There is nothing in the record to indicate the roofing repairs were inherently or intrinsically dangerous. Additionally, the record does not reflect that the Doucets gave express or implied authorization to an unsafe practice or had the right to exercise operational control over the method and means of performing the work.

 

Accordingly, we find the trial court erred in finding the Doucets vicariously liable for the negligence of Gammon.

 

Negligent Hiring

In their appellee briefs, appellees contend that even if this Court reverses the trial court’s finding of vicarious liability, the Doucets are still independently liable for negligent hiring. The judgment shows that the trial court not only found the Doucets vicariously liable but also found them “independently liable for Earl Doucet’s fault for his failure to act reasonably as a property owner/lessor when he hired Gammon.” In their reply brief, appellants assert the trial court’s imposition of negligence on a theory of negligent hiring was dependent on its erroneous finding of an employer-employee relationship between the Doucets and Gammon. Appellants alternatively argue that even if the judgment is construed to impose liability for the negligent hiring of an independent contractor, the trial court erred because the evidence did not show the Doucets knew or should have known Gammon was irresponsible.

 

One who hires an irresponsible independent contractor may be independently negligent. Hemphill v. State Farm Ins. Co., 472 So.2d 320, 324 (La.App. 3rd Cir.1985). To determine whether a principal is negligent for hiring an irresponsible independent contractor, the court must consider the principal’s knowledge at the time of the hiring. Perkins v. Gregory Mfg. Co., 95–1396, p. 7 (La.App. 3 Cir. 3/20/96), 671 So.2d 1036, 1040, writ denied, 96–971 (La.5/31/96), 673 So.2d 1039.

 

In Perkins, Boise Southern Corporation contracted with Kim Johnson Trucking Company to harvest timber on one of its properties. The trucking company then hired the plaintiff as a tree trimmer. The plaintiff was subsequently injured and filed suit against various defendants. Among other assertions, the plaintiff claimed Boise was negligent in hiring the trucking company because it did not investigate the trucking company’s safety procedures and training. After determining the trucking company was an independent contractor, the Third Circuit concluded there was no evidence to support a finding of negligent hiring by Boise. The court noted that Boise had previously contracted with the trucking company with good results and there was nothing in the record to show negligent hiring practices on the part of Boise.

 

In Hemphill, supra, the court also determined there was insufficient evidence of negligent hiring. In Hemphill, C.L. Harvey hired Robert Cloer to haul oilfield engines. Cloer’s employee, Salter, was driving the truck and trailer when he was involved in a multi-vehicle collision. The evidence showed Salter had consumed alcoholic beverages before driving and had an expired driver’s license. Additionally, Harvey had never met or had prior business dealings with Cloer or Salter.

 

In the resulting lawsuit, Harvey was alleged to be the employer of Cloer and Salter and, therefore, vicariously liable for their negligence. Harvey was also alleged to be independently liable for negligently hiring Cloer and Salter. The court first concluded that Cloer was an independent contractor and, therefore, Harvey was not vicariously liable for damages caused by Cloer or Salter. The court then found no independent negligence on behalf of Harvey under the theory of negligent hiring. The court noted that despite the fact Cloer and Salter had been drinking before meeting with Harvey, there was nothing to show that Harvey knew or should have known of Cloer and Salter’s drinking. The court also stated that even though Salter had an expired driver’s license and even if this information had been known to Harvey, such information was insufficient in and of itself to find Harvey independently negligent.

 

In the present case, we likewise find no evidence of negligent hiring and, thus, conclude the trial court was manifestly erroneous in its determination that the Doucets were independently liable. The record shows the Doucets had used Gammon on prior roofing jobs and there was no indication of any problems with the prior work. In fact, Gammon had worked on the roof at issue prior to Hurricane Katrina in 2005. Again, there was no indication of any mishaps with the work.

 

According to Danna Doucet, the proposal Mr. Gammon submitted indicated that he was fully insured, and Danna testified that he relied on that information to assume Gammon was insured. Mr. Gammon testified that at the time he submitted the proposal, he was insured but the insurance had lapsed by the time the fire occurred. There was no evidence in the record regarding when Gammon’s insurance lapsed. Mr. Gammon also admitted that at the time of the fire he did not possess a contractor’s license. He explained that he had obtained a temporary contractor’s license after Hurricane Katrina but then did not follow up and obtain the license.

 

Based on these facts, we find the trial court erred in finding the Doucets negligently hired Gammon. Gammon had performed several roofing jobs for the Doucets prior the one at issue without incident. Gammon was insured at the time of the bid for the job and there was no evidence as to when the insurance lapsed. There is no indication that the Doucets knew or should have known Gammon was not insured at the time of hiring. Further, in this case, the mere fact Mr. Gammon did not possess a contractor’s license at the time of the incident is not, in and of itself, sufficient to find the Doucets independently negligent in hiring Gammon. Therefore, we find the trial court erred in finding the Doucets independently liable under the theory of negligent hiring.

 

Because we find the Doucets are not vicariously liable or liable under the theory of negligent hiring, we need not address the issue of the mutual waiver clause in the lease.

 

DECREE

For the foregoing reasons, we reverse that portion of the trial court’s April 30, 2010 judgment finding the Doucets vicariously liable and independently liable for negligent hiring. Appellees are to bear the costs of this appeal.

 

REVERSED

 

United States District Court,

N.D. Iowa,

Eastern Division.

HORMEL FOODS CORPORATION, Plaintiff,

v.

CRYSTAL DISTRIBUTION SERVICES, Defendant.

 

No. 9–2011 EJM.

May 27, 2011.

 

Jacob D. Bylund, Jennifer Ellen Williams Zwagerman, Kimberly J. Walker, Ryan P. Howell, Faegre & Benson, LLP, Des Moines, IA, for Plaintiff.

 

Jason M. Steffens, Simmons PerrineMoyer Bergman PLC, Cedar Rapids, IA, John F. Horvath, Horvath & Lieber, PC, Chicago, IL, for Defendant.

 

ORDER

EDWARD J. McMANUS, District Judge.

This matter is before the court on plaintiff’s resisted Motion for Partial Summary Judgment, and on defendant’s resisted Motion for Summary Judgment as to All Counts of the Complaint and on Defendant’s Fifth, Ninth, and Tenth Affirmative Defenses, both filed June 1, 2010. Briefing concluded on August 9, 2010. Defendant’s motion granted in part and denied in part, plaintiff’s motion denied.

 

Plaintiff Hormel Foods Corporation (Hormel), a Delaware corporation with its principal place of business in Minnesota, brings this action seeking damages from defendant Crystal Distribution Services (Crystal), an Iowa corporation with its principal place of business in Iowa. The amount in controversy exceeds $75,000. The court has jurisdiction pursuant to 28 USC § 1332.

 

Hormel and Crystal were parties to a Warehouse Agreement (Agreement) providing for Crystal’s storage of Hormel’s food products at a Crystal warehouse in Waterloo, Iowa. In the summer of 2008, flooding damaged Hormel’s stored food products. Hormel’s claims are as follows:

 

Count 1: Breach of Contract (indemnification): Hormel claims the Agreement required Crystal to indemnify Hormel for loss due to Crystal’s negligence, and that Crystal failed to do so, in breach of the Agreement.

 

Count 2: Breach of Contract (insurance/bond): Hormel claims the Agreement required Crystal to provide a warehouseman’s legal liability insurance policy or a bond covering all risks of loss, regardless of the nature of the risk or cause of loss, and that Hormel failed to do so.

 

Count 3: Breach of Contract (to maintain facilities): Hormel asserts the Agreement required Crystal to maintain its facilities in good condition and repair, and to indemnify Hormel against any loss or damage to goods stored in the facility. Hormel claims Crystal failed to maintain the facilities in not taking steps to prevent the backup of water into the basement of its storage facility, to Hormel’s damage.

 

Count 4: Negligence: Hormel claims Crystal was negligent in its duty of care to Hormel as required in the Agreement and in the dealings of warehousemen, resulting in the loss of Hormel’s food products.

 

Crystal’s Counterclaims are as follows:

 

Counterclaim Count 1: Breach of Contract: Crystal claims Hormel breached the terms of the warehouse receipts issued for storage of Hormel’s food products by failing to pay Crystal the cost of disposing of the products, approximately $98,767.45 for transportation, labor, and landfill charges.

 

Counterclaim Count 2: Account Stated: Crystal claims it invoiced Hormel $98,767.45 for disposal costs of the products, has demanded payment thereon, and Hormel has failed to pay.

 

Counterclaim Count 3: Quantum Meruit (Alternative Counterclaim): Crystal claims it disposed of the products for Hormel and to Hormel’s benefit, with the expectation of compensation from Hormel, and seeks $98,767.45 from Hormel for the unpaid disposal costs.

 

Defendant Crystal seeks summary judgment on all claims in plaintiff’s Complaint, as well as on its Fifth, Ninth, and Tenth Affirmative Defenses.

 

First, Crystal seeks summary judgment on Counts 1 and 3, asserting that those counts raise claims for indemnification. Crystal asserts that under Iowa law, an indemnification clause does not apply to claims between parties to an agreement, but rather only obligates the indemnitor to protect the indemnitee against claims made by persons not a party to the provision. Crystal therefore asserts that since Hormel is not seeking damages in Counts 1 or 3 for any claim made by a third party, it is entitled to summary judgment. Alternatively, as to Count 3, Crystal asserts there is no evidence that loss occurred due to its failure to keep facilities in good condition and repair, and therefore it is entitled to summary judgment on Count 3. Crystal further asserts that to the extent the Count 3 indemnification claim is based upon paragraph 16 of the Agreement, the Agreement is ambiguous and should be read against drafter Hormel, such that the provision pertains only to loss resulting from Crystal’s failure to keep facilities in good repair, rather than any loss. Crystal urges this construction is consistent with paragraphs 3 and 12 of the Agreement. Additionally, Crystal asserts that maintenance of facilities in good order and repair is undefined, should be given its ordinary meaning, and there exists no evidence that the backup of water in the warehouse was the result of Crystal’s failure to keep the facility in good order and repair.

 

Crystal seeks summary judgment on Count 2, which is based upon the requirement in paragraph 28 of the Agreement that Crystal “maintain a warehouseman’s legal liability policy covering all risks of loss or shall provide satisfactory bond … covering all risks of loss.” In support, Crystal asserts it complied by providing a warehouseman’s legal liability policy, and that Hormel’s risk manager admitted the policy was in compliance with the Agreement. Alternatively, Crystal asserts that it is undisputed that obtaining a warehouse liability policy covering “all risks of loss” is impossible as no such policy exists, and therefore Crystal is entitled to summary judgment based upon impossibility of performance.

 

Crystal seeks summary judgment on Count 4 (and on its Tenth Affirmative Defense), asserting that the claims in Count 4 are based upon an alleged failure to conform to a standard of care required in the Agreement, there is no allegation of any damages separate from loss of product, and therefore Count 4 is barred by the economic loss doctrine.

 

Crystal seeks summary judgment on its Fifth Affirmative Defense, asserting that pursuant to Sec. 9(d) of its warehouse receipt, Crystal’s liability, if any, is limited in accordance with the provisions of the warehouse receipt’s terms and conditions.

 

Crystal seeks summary judgment on its Ninth Affirmative Defense, asserting that it is not liable for any consequential damages pursuant to the provisions of Sec. 9(f) of its warehouse receipt providing “[i]n no event shall [Hormel] be entitled to incidental, special, punitive, or consequential damages.”

 

Finally, Crystal asserts that any damages Hormel recovers under Counts 1, 2, or 3, must be reduced by insurance and other payments received. In support, Crystal urges that Hormel received $3,016,126 from insurers on a $4,016,126 claim on its loss in this matter, that the insurance payment is a collateral source payment under Iowa law, and that Iowa’s collateral source rule does not apply to breach of contract actions. Accordingly, Crystal urges that any damages awarded Hormel must be reduced by payments received from its insurers, and any other source.

 

Hormel seeks partial summary judgment, asserting that there exists no disputed issue of material fact as to Crystal’s breach of the Agreement (1) to indemnify Hormel against all risks of loss by provision of insurance or bond, (2) to keep and maintain facilities in good condition and repair, (3) to keep the warehouse clean and sanitary, and (4) to store Hormel’s refrigerated product at or below 35 degrees Fahrenheit.

 

Fed.R.Civ.P. 56(c) provides that summary judgment shall be entered if the “pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any, show that there is not a genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” In deciding whether to grant a motion for summary judgment, the district court must view the evidence in favor of the party opposing the motion and give him the benefit of all reasonable inferences. Kegal v. Runnels, 793 F.2d 924, 926 (8th Cir.1986). However, parties opposing a summary judgment motion may not rest merely upon the allegations in their pleadings. Buford v. Tremayne, 747 F.2d 445, 447 (8th Cir.1984). The opposing parties must resist the motion by setting forth specific facts showing that there is a genuine issue of material fact for trial. Id., (citing Fed.R.Civ.P. 56(e) and Burst v. Adolph Coors Co., 650 F.2d 930, 932 (8th Cir.1981)).

 

Green v. St. Louis Housing Authority, 911 F.2d 65, 68 (8th Cir.1990).

 

At the outset, it is undisputed that Iowa law applies. The question of whether a party is liable for indemnity is a matter for the court to determine as a matter of law. Cochran v. Gehrke, Inc ., 293 FS2d 986, 995–996 (ND IA 2003) (citations omitted).

 

As noted, Crystal seeks summary judgment on Counts 1 and 3, urging that those claims are brought upon indemnification provisions in the Agreement, specifically, paragraphs 12 and 16.

 

Paragraph 12 provides: [Crystal] shall indemnify and save Hormel harmless from and against any and all claims for loss or damage to product which results from the negligence of [Crystal].

 

Paragraph 16 provides [Crystal] recognizes that it will be storing food product and agrees that it will keep and maintain its facilities in good condition and repair and shall indemnify Hormel against any loss or damage to goods that may be stored in said facilities.

 

In Estate of Pearson ex re. Latta v. Interstate Power and Light Co., 700 NW2d 333 (Iowa 2005), reviewing a clause where a customer agreed to indemnify a company for injury to person or property arising out of the customer’s use of the company’s service, the Court noted that “[t]he common meaning of ‘indemnify’ is to ‘reimburse (another) for a loss suffered because of a third party’s or one’s own act or default.” Id. at 344 (citation omitted). However, where the Agreement expressly and unambiguously provides that Crystal shall indemnify Hormel against product loss arising from Crystal’s own acts (Agreement, para.12), i.e., between the parties to the Agreement, the court finds the indemnification provision is not, as urged by defendant, limited to claims brought by persons not a party to the Agreement. See NevadaCare, Inc. v. Department of Human Services, 783 NW2d 459, 471 (Iowa 2010) (discussing whether indemnification provision applies to claims between parties, or only to third party claims, holding party to contract cannot use an indemnity clause to shift attorney fees between the parties unless the language of the contract shows an intent to clearly and unambiguously do so). See also McNally & Nimergood v. Neumann–Kiewit Constructors, Inc., 648 NW2d 564, 570–573 (Iowa 2002) (indemnification contract will not be construed to permit indemnitee to recover for its own negligence unless intention of parties is clearly and unambiguously expressed).

 

As the court concludes the Agreement expressly and unambiguously provides for application to claims brought by a party to the contract, rather than only third parties, Crystal’s motion shall be denied as to Counts 1 and 3 on this point.

 

Crystal further asserts that to the extent the Count 3 indemnification claim is based upon paragraph 16 of the Agreement, the Agreement is ambiguous and should be read against drafter Hormel, such that the provision pertains only to loss resulting from Crystal’s failure to keep facilities in good repair, rather than any loss.

 

The test for ambiguity is an objective inquiry as to whether the language is fairly susceptible to two or more interpretations. Iowa Fuel & Minerals, Inc. v. Iowa State Bd. Of Regents, 471 NW2d 859, 863 (Iowa 1991). In light of the record, the court agrees that paragraph 16 is ambiguous, and can be read to require indemnification for loss due to failure to keep facilities in good condition and repair, or can be read to require indemnification against any loss, without regard to the condition of facilities. Applying the rule that where ambiguities exist, they are strictly construed against the drafter (here Hormel), see id., upon the record it is the court’s view that paragraph 16 of Agreement must be read to pertain to loss resulting from failure to maintain the facilities in good condition and repair, rather than any loss. The court concludes there exists a disputed issue of material fact as to whether loss arose from Crystal’s failure to maintain the facilities in good condition and repair, and therefore Crystal’s motion for summary judgment on Count 3 shall be denied on this point.

 

Upon the foregoing, defendant’s Motion for Summary Judgment on Counts 1 and 3 shall be denied.

 

Next, Crystal seeks summary judgment on Count 2, urging that Hormel admitted Crystal complied with paragraph 28 of the Agreement in procuring an appropriate certificate of insurance, or alternatively, that compliance was impossible, as no policy exists that would cover all risks of loss.

 

Paragraph 28 of the Agreement provides in part: “Crystal shall maintain a warehouseman’s legal liability policy covering all risks of loss or shall provide satisfactory bond to Hormel, covering all risks of loss.”

 

It is the court’s view that disputed issues of fact exist precluding the entry of summary judgment on Count 2.

 

Crystal seeks summary judgment on Count 4 and its Tenth Affirmative Defense, urging that Hormel alleges a cause of action for negligence therein, that the duties claimed arise under the Agreement, and therefore the claim is barred by the economic loss doctrine. Hormel resists, urging that it sustained direct physical damages to products that were in defendant’s care.

 

“The economic loss doctrine was conceived to prevent litigants with contract claims from litigating them inappropriately as tort claims.” Van Sickle Const. Co. v. Wachovia Commercial Mortg., Inc ., 783 NW2d 684, 693 (Iowa 2010). Discussing the economic loss doctrine, the Iowa Court of Appeals observed that “a plaintiff cannot maintain a claim for purely economic damages arising out of a defendant’s negligence.” Rozeboom Dairy, Inc. v. Valley Dairy Farm Automation, Inc., 2011 WL 662338,(Iowa App.2011) (citations omitted). In considering the distinction between tort and contract, the court observed that in making that distinction, where the only damage was a loss of the benefit of the bargain or to the product itself, the court has consistently found the proper remedy to be in contract. Conversely, where the product was dangerous to the user and caused injuries extending to property other than the product itself, recovery in tort has been allowed. Id. at 6.

 

In light of the foregoing authorities, it is the court’s view that where, as here, the parties had a contract wherein defendant was to warehouse products for plaintiff, and the damage for defendant’s claimed failure in the provision of the service was to the product itself, the negligence claim in Count 4 is barred by the economic loss doctrine. The nature of plaintiff’s claim in Count 4 is unfulfilled expectations in the provision of a service, see paragraph 42. of plaintiff’s Complaint, the remedy for which lies in contract, rather than tort. See Audio Odyssey, Ltd. v. US, 243 FS2d 951, 964 fn.6 (SD IA 2003)(“lowa has consistently held the remedy for unfulfilled expectations of service … rest in contract, not in tort law.”). Accordingly, defendant’s motion shall be granted as to Count 4 and its Tenth Affirmative Defense.

 

Next, defendant seeks summary judgment on its Fifth Affirmative Defense, asserting that its liability, if any, is limited pursuant to Section 9(d) of the warehouse receipts, the form of which Crystal asserts provides:

 

Section 9—Liability and Limitation of Damages

 

(d) In the event of loss, damage or destruction of goods for which company is legally liable, storer declares that company’s liability shall be limited to the lesser of the following: (1) The actual cost to storer of replacing or reproducing the lost, damaged and/or destroyed goods together with transportation costs to the warehouse, (2) the fair market value of the lost, damaged and/or destroyed goods on the date storer is notified of loss, damage or destruction, (3) 50 times the monthly storage charge applicable to such lost, damaged and/or destroyed goods, (4) $.50 per pound for said lost, damaged and/or destroyed goods provided, however that within a reasonable time after receipt of this warehouse receipt, storer may, upon written request increase company’s liability on all or part of the goods in which case an increased charge will be made based upon such increased valuation; further provided that no such request shall be valid unless made before loss, damage or destruction to any portion of the goods has occurred.

 

Additionally, defendant seeks summary judgment on its Ninth Affirmative defense, asserting that plaintiff cannot recover consequential damages pursuant to Section 9(f) of the warehouse receipts, the form of which Crystal asserts provides as follows:

 

Section 9—Liability and Limitation of Damages

 

(f) The company’s liability referred to in Section 9(d) shall be the storer’s exclusive remedy against company for any claim or cause of action whatsoever relating to loss, damage, and/or destruction of goods and shall apply to all claims including inventory shortage and mysterious disappearance claims unless storer proves by affirmative evidence that company converted the goods to its own use. Storer waives any right to rely upon any presumption of conversion imposed by law. In no event shall Storer be entitled to incidental, special, punitive, or consequential damages.

 

In support, defendant asserts the Agreement expressly incorporates the terms and conditions of the warehouse receipts. Plaintiff resists, urging that a reference in the Agreement to a warehouse receipt is insufficient to incorporate the receipt, the receipt was not fully set out in the Agreement, the receipts did not exist when the Agreement was executed, the warehouse receipt form urged by Crystal was not consistently used, and that Crystal has not produced warehouse receipts for all products received from Hormel Foods.

 

Under the doctrine of incorporation by reference, one document becomes part of another simply by reference as if the former is fully set out in the latter.   Hofmeyer v. Iowa District Court for Fayette County, 640 NW2d 225, 228 (Iowa 2001). Whether the other document is incorporated by reference is a question of law, requiring clear and specific reference as a prerequisite to incorporation by reference. Id.

 

It appears undisputed that the Agreement expressly referred to warehouse receipts in paragraphs 11, 20, and 32. Paragraph 11 provides in part: “[T]o the extent any terms of this Agreement conflict with any language contained on Crystal’s warehouse receipts or other documents, the terms and conditions of this Agreement shall control.” Paragraph 20 provides in part: “Immediately upon receipt of shipments, Crystal shall issue … a warehouse receipt listing case count … and properly noting any damages….” Paragraph 32 provides in part: “To the extent that any discrepancy between the terms … in this Agreement and those contained in any Agreement provided by the warehouse are in conflict, the terms … contained … in this Agreement shall control.” In addition to the express reference to warehouse receipts in the Agreement, in particular paragraph 11, Crystal urges that it is undisputed that the warehouse receipt forms have been substantially unchanged, including as to liability for loss as a function of the monthly storage rate or per pound, since the inception of the Agreement, and that there is no disputed issue of material fact as to whether the warehouse receipts are in conflict with the Agreement.

 

It appears there exists a disputed issue of fact as to the content of the specific warehouse receipts sought to be incorporated by reference, and therefore the motion for summary judgment on Crystal’s Fifth and Ninth Affirmative Defenses shall be denied.

 

Finally, Crystal asserts that any damages Hormel recovers under Counts 1, 2, or 3 must be reduced by insurance and other payments it received, and that the collateral source rule is inapplicable in this matter.

 

The collateral source rule provides that a plaintiff’s recovery of damages against a tort defendant are not reduced by sums the plaintiff receives from collateral sources. Midland Mutual Life Ins. Co. v. Mercy Clinics, Inc., 579 NW 2d 823, 828 (Iowa 1998). For the reasons discussed in Midland Mutual, it is the court’s view that the application of the collateral source rule in this action for breach of contract on Counts 1, 2, and 3, would contravene the compensatory principle of damages in contract actions, by permitting a damage award to the nonbreaching party in excess of that necessary to compensate it for the claimed breach. Id. at 830. Accordingly, Crystal’s motion for summary judgment shall be granted as to the inapplicability of the collateral source rule.

 

In sum, upon the foregoing, Crystal’s Motion for Summary Judgment shall be denied as to Counts 1, 2, and 3, granted as to Count 4 and Crystal’s Tenth Affirmative Defense, denied as to Crystal’s Fifth and Ninth Affirmative Defenses, and granted as to the inapplicability of the collateral source rule.

 

Turning to plaintiff’s Motion for Partial Summary Judgment, plaintiff states that while there exists a disputed issue of fact as to the amount of damages, plaintiff seeks summary judgment as to liability on its claim that defendant breached paragraph 28 of the Agreement by failing to indemnify plaintiff either by warehousemen’s legal liability insurance or bond for all risks of loss, that defendant breached paragraph 16 of the Agreement by failing to maintain the warehouse facilities in good condition and repair and by failing to indemnify plaintiff against any loss , that defendant breached paragraph 18 of the Agreement by failing to keep the facilities in clean and sanitary condition, and breached paragraph 30 of the Agreement to maintain Hormel product at 35 degrees Fahrenheit or lower (as set forth in Appendix C to the Agreement). Plaintiff further seeks summary judgment on defendant’s counterclaims for the cost of product disposal, asserting that Counterclaims 1 (breach) and 2 (account stated) are based upon non-binding warehouse receipts, and Counterclaim 3 (quantum meruit) is based upon an assertion of expectation of compensation outside the amounts provided for in the Agreement, and that Hormel was not obligated to pay for any service in excess of the Agreement.

 

As noted earlier herein, it is the court’s view that paragraph 16 of the Agreement must be read to pertain to loss resulting from failure to maintain the facilities in good condition and repair, rather than any loss.

 

It is the court’s view that there exist disputed issues of material fact precluding entry of summary judgment as to the matter of breach of paragraphs 16, 18, 28, and 30 of the Agreement, as well as defendant’s counterclaims.

 

It is therefore

 

ORDERED

 

1. Defendant Crystal’s Motion for Summary Judgment denied as to Counts 1, 2, and 3, granted as to Count 4 and Crystal’s Tenth Affirmative Defense, denied as to Crystal’s Fifth and Ninth Affirmative Defenses, and granted as to the inapplicability of the collateral source rule.

 

2. Plaintiff’s Motion for Partial Summary Judgment denied.