United States District Court,

E.D. Pennsylvania.

The BENCHMARK GROUP, INC., Plaintiff,

v.

PENN TANK LINES, INC., Defendant.

Civil Action No. 07-2630.

 

April 8, 2009.

 

MEMORANDUM

 

BUCKWALTER, Senior District Judge.

 

Currently pending before the Court is a Motion for Summary Judgment by Defendant Penn Tank Lines, Inc. For the following reasons, the Motion is granted in its entirety.

 

I. FACTUAL BACKGROUND

 

Plaintiff The Benchmark Group (“Benchmark”) was formed in 1998 and engages in two lines of business, investment banking and succession planning. (Pl’s Opp. Mot. Summ. J., Ex. A, Raymond Dep. (“Raymond Dep.”), 11:21-12:18, Aug. 18, 2008.) Stephen Raymond is the Managing Director of Benchmark. (Id. at 11:7-20.)Dean Spear is the President and sole owner. (Pl.’s Me0m. Opp. Mot. Summ. J., Ex. B., Spear Dep. (“Spear Dep.”), 5:13-18, Aug. 22, 2008.)

 

Defendant Penn Tank Lines, Inc. (“Penn Tank”) is a motor carrier corporation operating in the highly specialized “tank truck” segment of the trucking industry, and provides transportation services related to the movement of petroleum based products and building materials. (Def.’s Mot. Summ. J., Ex. 28, 7.) It is owned by Jack McSherry, Jack Williams, and Richard Redecker. (Pl.’s Opp. Mot. Summ. J., Ex. D, Stephen McSherry Dep. (“S. McSherry Dep.”), 5:19-25, Aug. 19, 2008.) Stephen McSherry, Jack McSherry’s son, is the chief financial officer. (Id. at 4:22-25 .)

 

Plaintiff and Defendant entered into a Retainer and Representation Agreement on August 1, 2002, providing that Penn Tank would pay Benchmark a retainer fee in the amount of $5,000 per month, in return for Benchmark’s services in identifying both potential suitors of and acquisition targets for Penn Tank. (Def.’s Mot. Summ. J., Ex. 4.) The primary purpose of the agreement was for Benchmark to represent Penn Tank in the sale of the company, and to find, identify, and secure a transaction. (Spear Dep. 14:5-13.) In addition to the retainer fee, Penn Tank also contracted to pay Benchmark a success fee “upon the closing of a successfully concluded [t]ransaction,” which would be calculated based on the total consideration received for the transaction. (Def.’s Mot. Summ. J., Ex. 4.)

 

Pursuant to that agreement, Benchmark put together an Offering Memorandum on Penn Tank. (Pl.’s Opp. Mot. Summ. J., Ex. C, Jack McSherry Dep. (“J. McSherry Dep.”), 17:9-16, Aug. 21, 2008.) During the 2002-2003 period, Benchmark contacted both private equity investors and strategic purchasers to obtain a potential investment in or purchase of Penn Tank. (Raymond Dep. 30:11-19.) Nonetheless, Benchmark was unsuccessful in finding an interested buyer or investor. (J. McSherry Dep. 18:18-21, 19:10-16; Raymond Dep. 31:25-32:3.) By May 2003, Penn Tank was having trouble meeting payroll and monthly bills, and, as such, Penn Tank and Benchmark amicably ended the retainer agreement. (J. McSherry Dep. 18:22-19:4; Raymond Dep. 31:22-24.)

 

Between May 2003 and December 2005, Raymond of Benchmark “touched base” with Penn Tank intermittently to see if Penn Tank had further need for Benchmark’s services. (Raymond Dep. 33:16-34:19.) In January 2006, Raymond spoke with Jack McSherry regarding a potential deal with a competitor. (Id. at 35:21-33:15.)According to McSherry, Benchmark convinced Penn Tank that Penn Tank’s performance was good enough to “test the waters and see what the company could bring, whether it was a majority interest, a minority interest, or whatever.”(J. McSherry Dep. 22:4-9.) This contact culminated in a meeting of Spear, Raymond, and the McSherrys on January 25, 2006. (Id. at 24:6-9; Raymond Dep. 36:54-7.) Raymond recalled Jack McSherry being “in no hurry” to do a deal, but still interested in a recapitalization that would give him liquidity for both personal purposes and company growth. (Id. at 37:17-23.)As McSherry did not want to get into another retainer situation, Benchmark agreed to do the work without a fee and get paid “on the back end” if it was able to find a buyer and close a deal that McSherry wanted. (Spear Dep. 28:4-17.) The compensation calculation was purportedly outlined in the prior agreement. (Raymond Dep. 39:21-40:6.) According to Raymond and Spear, Jack McSherry said he wanted a minimum of five times the value of Penn Tank’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”).(Id. at 46:8-20; Spear Dep. 76:17-77:23.) Further, McSherry required good chemistry with the investor, continuity for the business, and an assurance that he had an equity stake going forward. (Raymond Dep. 46:21:-47:3.)

 

Following the meeting, Benchmark began updating and rewriting the Penn Tank Offering Memorandum. (Spear Dep. 31:2-32:19.) Notably, however, no contract was prepared to memorialize any of the verbal agreements. (Raymond Dep. 40:7-40:18; Spear Dep. 28:23-29:2.) Spear assumed that the old agreement was still operative and had never been terminated, meaning that if Benchmark found a buyer on terms acceptable to the client, it was going to get paid under the formula of the success fee in the prior agreement. (Spear Dep. 29:4-21.) Spear further understood that Benchmark was assuming a risk that it would get no fee whatsoever if it could not get a deal that McSherry wanted. (Id. at 28:18-22.)McSherry, on the other hand, believed that Benchmark was simply assessing the worth of the company in the market, as opposed to actually accomplishing the taking in of an equity partner. (J. McSherry Dep. 53:21-54:6.)

 

Around the time that Benchmark was soliciting Penn Tank, National Penn Bank (“the Bank”) was doing the same with respect to taking over Penn Tank’s banking services from Bank of America. (Def.’s Mot. Summ. J., Ex. 14.) On January 17, 2006, Kirk Soxman, Bruce Smith, and Jon Swearer of National Penn Bank met with Steve McSherry and Jack McSherry to discuss the history, business, and banking needs of Penn Tank. (Id.) The Bank completed a cash management analysis and sought information regarding Penn Tank’s financial goals. (Id . Ex. 15.) On May 4, 2006, the Bank provided a letter setting forth proposed terms for extending a $2 million line of credit to Penn Tank in order to refinance some of Penn Tank’s equipment. (Id . Ex. 16.) The letter was for discussion purposes only and not a commitment to lend. (Id.)

 

Pursuant to the January 2006 verbal agreement, Benchmark engaged in a targeted analysis of companies that might meet McSherry’s criteria and, by the fall of 2006, had a list of less than a dozen private equity groups. (Raymond Dep. 55:2-56:13.) On June 13, 2006, Raymond wrote to Jack McSherry about some items scheduled for their June 16, 2006 meeting, and informed Penn Tank about a private equity investment firm, named the Weatherly Group-a company that had originally expressed interest in Penn Tank in 2003 and which was a candidate for a recapitalization deal. (Def.’s Mot. Summ. J., Ex. 17; Raymond Dep. 57:11-18; 58:10-59:4.) Multiple conversations ensued between Penn Tank and the Weatherly Group, culminating in both a verbal and a written letter of intent, which Benchmark turned over to Penn Tank. (Raymond Dep. 59:9-63:9; Pl.’s Opp. Mot. Summ. J ., Ex. F.) Ultimately, the McSherrys met with Benchmark and the Weatherly Group on June 16, 2008, but Penn Tank was not as excited about the written proposal, which called for an asset sale, as the verbal proposal, which called for a valuation and purchase of stock. (Raymond Dep. 63:14-64:15.)

 

In the meantime, discussions continued between Penn Tank and National Penn Bank. On June 28, 2006, Steve McSherry e-mailed Kirk Soxman both to update him about Penn Tank’s potential movement of its banking lines and to inquire about possibly obtaining some capitalization from the Bank, which would provide liquidity in the business, while maintaining both internal structure and internal family succession. (Def.’s Mot. Summ. J., Ex. 18.) Steve noted, however, that he was simply “reaching out for feedback” and that nothing might transpire during the first year of the banking relationship. (Id.) On July 14, 2006, Steve McSherry met with Kirk Soxman and Bruce Smith to discuss the consolidation of Penn Tank’s sister company, Genesis, into Penn Tank, as well as Jack McSherry’s plans to create trusts for his children. (Id.; Def.’s Mot. Summ. J., Ex. 19.) The “desk-top appraisal” of the company showed considerable equity in the company’s equipment. (Id.) On August 21, 2006, Soxman provided Penn Tank with a Proposed Term Sheet for a credit facility of up to $12,073,762.08, consisting of a revolving loan commitment of up to $5,000,000.00, L/C line of $2,000,000.00, leasing line of $3,000,000.00, and for a refinance of the existing term loan of $2,073,762.08. (Def.’s Mot. Summ. J., Ex. 20.) This proposal would provide liquidity to allow distribution of cash to shareholders. (Def.’s Mot. Summ. J., Ex. 21, Soxman Dep. (“Soxman Dep.”), 115:3-116:23, Sep. 8, 2008.) Penn Tank delayed on the proposal, however, to avoid penalties from early termination with Bank of America. (S. McSherry Dep. 13:5-23.)

 

Penn Tank had a second meeting with Benchmark and the Weatherly Group in the fall of 2006. (Raymond Dep. 62:21-63:13.) Weatherly gave a proposed valuation of $33 million for an asset deal, which was at least five times EBITDA, possibly better. (Id. at 66:18-20; 67:3-12.) The valuation for the stock deal was below five times EBITDA. (Id. 67:13-22; Def.’s Mot. Summ. J., Ex. 24.) Eventually, the Weatherly proposal “died on the vine” without any formal rejection by Penn Tank. (Raymond Dep. 67:23-68:9.) Penn Tank did not accept the offer because Jack McSherry did not feel that they were serious and noted that the stock deal was valued lower than an asset deal. (J. McSherry Dep. 57:22-5:13.) Raymond conceded that Penn Tank did not owe Benchmark any success fee in connection with the Weatherly transaction because the deal did not close. (Raymond Dep. 68:10-17.)

 

In the fall of 2006, Benchmark began communications with Linx Partners on behalf of Penn Tank. (Id. at 70:14-17.)Following a meeting between Penn Tank and Linx Partners, on October 26, 2006, Linx provided a written proposal to purchase Penn Tank’s stock at $23 to $26 million, which was considerably below the parameters of five times EBITDA that Jack McSherry had originally outlined. (Id . at 75-80; Def.’s Mot. Summ. J., Ex. G.) In addition, Jack McSherry was not comfortable with Peter Hicks, Linx’s Managing Partner, and would “never get into bed with [him].” (J. McSherry Dep. 62:7-19.) After the meeting, Penn Tank had no further interest in Linx, and Benchmark understood that. (Id. at 62:24-63:2.)Benchmark did not even forward Linx’s written indication of interest to the McSherrys and, instead summarized it in an e-mail. (Def.’s Mot. Summ. J., Ex. 34.)

 

By October 30, 2006, Benchmark provided a revised, updated Confidential Offering Memorandum to Penn Tank. (Def.’s Mot. Summ. J ., Ex. 28.) Raymond knew that Benchmark would not be compensated for this book. (Raymond Dep. 49:22-50:2.) He noted that this document was very similar to the original Offering Memorandum prepared back in 2002, but that there was new material, including updated financial information, updated customer information, and information about specific employees. (Id. at 50:15-51:22.)Spear, however, commented that the book presented a different landscape, different company, and different performance, and, thus, was essentially a new book. (Spear Dep. 31:2-16.)

 

In December 2006, Benchmark sought to introduce Penn Tank to another private equity group by the name of Crystal Ridge Partners (“Crystal Ridge”). (Def.’s Mot. Summ. J., Ex. 39.) At this point, Jack McSherry was becoming more “reticent” about selling a majority equity position in the company because his second son was coming into the business in January. (J. McSherry Dep. 73:11-15.) If, however, there was a “wow factor” out there, he would be willing to take another look at it. (Id. at 73:15-17.)Up to this time, McSherry understood that Benchmark was willing to work without compensation until they found a proper offer. (Id. at 74:8-21.)As such, a meeting between Benchmark, Penn Tank, and Crystal Ridge was scheduled on December 14, 2006, with John “Jack” Baron, the Managing Partner of Crystal Ridge, and Brian Toolan, Managing Director of Crystal Ridge. (Def.’s Mot. Summ. J., Ex. 39.) During the meeting Crystal Ridge asked Raymond for additional information about Penn Tank, the majority of which was provided by Penn Tank. (Raymond Dep. 132:6-18.)

 

Via an e-mail dated January 12, 2007, McSherry asked Benchmark to explore Crystal Ridge’s “appetite for a minority stake in the new company.”(J. McSherry Dep. 96-97:16.) Both Spear and Raymond, however, indicated the unlikelihood of any company they were talking to being interested in a minority position. (Id. at 98:15-25; Raymond Dep. 99:2-22.) Jack McSherry recalled that, during the time period between September and December 2006, he told Benchmark that bank financing or refinancing was an option as an alternative to taking on an equity investment. (J. McSherry Dep. 43:20-44:7, 44:24-45:21.) Nonetheless, Raymond, Spear, and the McSherrys planned to meet again with Crystal Ridge on January 30, 2007. (Def.’s Mot. Summ. J., Ex. 46.) At that point, Crystal Ridge had given a verbal commitment that if they could buy into and understand a growth plan, they would propose an offer figure between a five and six multiple of Penn Tank’s EBITDA. (Id. Ex. 47.) This figure “tweaked” Jack McSherry’s interest and brought him closer to the “wow” number. (J. McSherry Dep. 119:14-20.)

 

After a series of meetings, Crystal Ridge gave Benchmark a written proposal, offering $31,500,000 for Penn Tank, which was five times the EBITDA for calendar year 2006. (Pl.’s Opp. Mot. Summ. J., Ex. H.) Notably, the Crystal Ridge letter of intent was unsigned and explicitly stated that it was neither a binding agreement or offer. (Id.) John R. Baron of Crystal Ridge further testified that even if the letter had been signed, it would not have obligated Crystal Ridge to close on the transaction, since the deal was subject to many conditions precedent in the valuation of due diligence, obtaining financing, and equity investment. (Def.’s Mot. Summ. J., Ex. 57, Baron Dep. (“Baron Dep.”), 20:5-21:23, Sep. 5, 2008.) As a general practice, Crystal Ridge typically issued six to ten letters of interest or letters of intent a year and, on average, closed on only two. (Id. at 82:10-16.)

 

Up until this time, there was no written agreement between Benchmark and Penn Tank Lines for the fees to be paid to Benchmark. Given the pending Crystal Ridge offer, the parties sought to reduce their January 2006 verbal understanding to writing. Spear and Raymond prepared an agreement (the “Agreement”), dated February 7, 2007, indicating that Benchmark would provide various services in connection with the marketing, negotiation, and ultimate sale of all or a significant part of Penn Tank. Penn Tank, for its part, agreed to:

 

retain Benchmark as its exclusive agent to render the Services; to provide Benchmark with all relevant information; to advise Benchmark promptly of all contacts and proposals from prospective purchasers; to use commercially reasonable efforts to cooperate with Benchmark in its providing the Services; to provide Benchmark access to and the cooperation of [Penn Tank]’s employees and agents whose assistance is requested by Benchmark; and to provide Benchmark with all financial and other information requested by it for the purpose of rendering the Services.

 

(Pl’s Opp. Mot. Summ. J., Ex. I.) In addition, the Agreement stated that Benchmark would be reimbursed as follows:

Success Fee.[Penn Tank] agrees to pay Benchmark a success fee (the “Success Fee”) in U.S. dollars payable in cash or wire transfer upon the closing of a Transaction. Pursuant to this Paragraph 7, the Success Fee shall be calculated based on the total amount of the consideration cumulatively paid and delivered in a Transaction, including but not limited to, payments made subsequent to the closing (“Total Consideration”). Total Consideration paid to [Penn Tank], its affiliates or shareholders shall include, but is not limited to, the following: moneys or cash; the fair market value of any securities issued (including, without limitation, any joint venture interest delivered to, or retained by, [Penn Tank] ); real or personal property; the principal amount of any promissory note or other debt instruments; the principal amount of any liabilities or obligations to financial institutions assumed…. Total Consideration shall not include compensation for the fair value of future services to be rendered by management shareholders. [Penn Tank] and Benchmark agree that any fee payable hereunder with respect to a Transaction will be computed as if all the then outstanding equity interests of [Penn Tank] on a fully diluted basis (including options) were acquired in such Transaction at a price per share or unit equal to the price paid per share or units of the equity interest in such Transaction.

 

• For a Transaction with Total Consideration less than or equal to $25 million, the Success Fee shall be 2% of the Total Consideration.

 

• For a Transaction with Total Consideration greater than $25 million[,] the Success Fee shall be $500,000 plus 5% of the Total Consideration in excess of $25 million.

 

The Success Fee is due and payable on the date of Closing. In the event that the terms of the financing commitment permit delayed or staged drawdowns of funds (i.e., working capital or capital expenditure lines) by the Company, Benchmark’s full Success Fee shall be due and payable on the date of Closing, whether or not any funds are fully or partially drawn down by the Company at such Closing.

 

(Id.) Finally, the Agreement provided for Benchmark to be reimbursed for reasonable out-of-pocket expenses upon invoice of Penn Tank by Benchmark, “if approved in advance.” (Id.) Jack McSherry indicated that he wanted to include a provision for a fee structure on a minority deal. (Def.’s Mot. Summ. J., Ex. 51.) Via an Addendum Letter, dated February 22, 2007, Benchmark agreed to credit the Total Success Fee by fifty percent of the Success Fee attributable to the “rollover equity,” which “is defined as the amount of equity that the current shareholders invest in a newly formed company to recapitalize Penn Tank Lines.”(Pl.’s Opp. Mot. Summ. J., Ex. I.) McSherry still questioned the fee structure if somebody only bought 49% of the Penn Tank. (Def.’s Mot. Summ. J., Ex. 54.) Without any clear resolution of this issue, however, both parties signed the Agreement and Addendum Letter on February 23, 2007. (Pl.’s Opp. Mot. Summ. J., Ex. I.)

 

Only after the Agreement was executed did Benchmark show Penn Tank the Crystal Ridge proposal. (J. McSherry Dep. 87:12-88:2; Def.’s Mot. Summ. J., Ex. 56.) Upon review of the Crystal Ridge letter of intent, Penn Tank identified to Benchmark seven issues that it wanted to address with Crystal Ridge, all of which Benchmark agreed to raise. (Pl.’s Opp. Mot. Summ. J., Ex. J.) Although Steve McSherry believed Benchmark managed to successfully resolve each of the seven issues to Penn Tank’s satisfaction, (S. McSherry Dep. 105:23-113:2.), both Raymond and Baron indicated that all of these issues would still be subject to future negotiations between the parties and no resolution was included in any written letter of intent. (Raymond Dep. 180:12-187:6; Baron Dep. 65-75.) In addition, as noted by Raymond, Benchmark purportedly got Crystal Ridge to verbally raise the offer by a million dollars. (Id. 107:17-23; Raymond Dep. 113:8-114:2.) Baron noted, however, that if there had been any agreement to raise the price, it would have likely been reflected in a new letter of intent. (Baron Dep. 83:7-25.)

 

On March 8, 2007, Jack McSherry contacted Kirk Soxman and Bruce Smith of Penn National Bank to inform them that he recently received a letter of intent from Crystal Ridge for roughly five times EBITDA, with McSherry retaining 37%. (Def.’s Mot. Summ. J., Ex. 65.) McSherry explained that he had “pretty much decided he wants to do something internally relative to a liquidity event. He wants to see the business continue in the family and exercising the [Crystal Ridge offer] would have a high likelihood of that not happening.”(Id.) Soxman interpreted McSherry’s statements to mean that he had yet to make a definitive decision. (Soxman Dep. 120:23-121:17.)

 

Although Jack McSherry ultimately believed the Crystal Ridge offer was a fair offer as a majority deal, (J. McSherry Dep. 127:20-128:5), he continued to vacillate on what to do. (Raymond Dep. 109:16-17.) Both Raymond and Spear recall Jack McSherry indicating to them that Benchmark did a great job to get him what he wanted and that he would pay or give a “fee” to Benchmark regardless of whether he went through with the deal or not. (Spear Dep. 59:14-60:13; Raymond Dep. 109:10-110:19.) McSherry did not specify what type of compensation he meant or what type of fee he felt he owed. (Id.) At no point, however, did McSherry feel legally obligated to pay. (J. McSherry Dep. 150:16-20.)

 

In mid to late March, Benchmark informed Baron that Jack McSherry was not excited about signing the deal, and encouraged Baron and McSherry to have dinner and discuss whether or not McSherry was still interested. (Baron Dep. 94:17-95:5.) The two met on April 4, 2007, at which time McSherry indicated that he was not sure that he wanted to go with a majority sale, and may instead want to pursue either a minority deal or bank financing. (Id. at 95:6-96:12.)The following day, Baron wrote to several of his colleagues that he believed the odds were 50/50 that McSherry would close the deal with Crystal Ridge and felt that there was a “better shot at a minority deal.”(Def.’s Mot. Summ. J., Ex. 72.)

 

On April 9, 2007, Steve McSherry, with his father’s express permission, gave the confidential Offering Memorandum prepared by Benchmark to National Penn Bank. (Id. Ex. 73; S. McSherry Dep. 14:11-15:23.) With the Offering Memorandum in hand, Soxman began preparing an Underwriting Analysis for National Penn Bank’s Commercial Credit Committee seeking approval of several new loan facilities to Penn Tank, totaling up to $15 million, which would allow Penn Tank to make a $6 million distribution to shareholders. (Soxman Dep. 58:2-21.) The Underwriting Analysis copied verbatim much of the language from the confidential Offering Memorandum. (Soxman Dep. 41:5-25; Pl.’s Opp. Mot. Summ. J., Ex. M.) Additionally, the Underwriting Analysis specifically referenced the Benchmark-negotiated Crystal Ridge offer, as follows: “[Penn Tank] has been approached by numerous equity sponsors and currently has an offer from Crystal Ridge Partners for 5.25 x EBITDA. This is considered a very good offer for the industry and equates to an enterprise value of $32 MM.” (Pl.’s Opp. Mot. Summ. J., Ex. M, 15.) The application to the Credit Committee was submitted on April 11, 2007, and approved on April 13, 2007. (Def.’s Mot. Summ. J., Ex. 74.) National Penn Bank sent the McSherrys a commitment letter on April 16, 2007.(Id. Ex. 75.)

 

Upon receipt of National Penn Bank’s term sheet, Jack McSherry sent a copy of the competing proposal to Benchmark, who in turn forwarded it to Crystal Ridge. (Id. Exs. 76-77.) Raymond and Jack McSherry met on April 23, 2007 to discuss this outstanding proposal, at which time McSherry indicated that he did not want to sell a majority interest in the company and asked whether Crystal Ridge would make a proposal to become a minority investor in Penn Tank Lines. (Raymond Dep. 100:10-25.) Through further negotiations, Benchmark persuaded Crystal Ridge to submit a new, written proposal, dated April 25, 2007, for the purchase of a minority interest in Penn Tank. (Pl.Opp.Mot.Summ. J., Ex. K.) This offer called for Crystal Ridge to invest $7.5 million in Penn Tank in exchange for convertible preferred stock in the company. (Id.)

 

On May 11, 2007, Penn Tank, upon evaluation of both National Penn Bank’s proposal and the Crystal Ridge offer, e-mailed Crystal Ridge to formally turn down their offer and thank them for their time. (Def.’s Mot. Summ. J., Ex. 79.) Jack McSherry advised Soxman of his intent to move Penn Tank’s banking business to National Penn Bank.

 

On May 16, 2007, Benchmark sent Jack McSherry a letter demanding a success fee, calculated based on the proposal contained in Crystal Ridge’s initial letter of intent, in the amount of $814,423. Specifically, the letter stated, in part:

 

In short, we delivered the price that exceeded the one that you wanted; we preserved family ownership and participation; and we achieved a structure that met your tax planning goals. We could not and would not have achieved this result for our client without significant effort, for which to date we have received no compensation and been paid no expenses. We would not have undertaken this effort had we not had a contract between us which provides that we be paid for our work if we delivered the results you asked us to deliver. We now seek payment for those results. The risk that we bore was that we would not deliver a buyer that met your needs-not that once we delivered that buyer after fifteen months of compensation-free work, you would suddenly change your mind.

 

* * *

 

We respect [your position to keep the business for your sons] on a personal level, and nobody can force you to sell your company if you do not want to sell it. That, however, does not displace our entitlement to a fee and your obligation to pay it. Notwithstanding your change of heart, Benchmark has done everything you have asked and delivered to PTL exactly what you assigned us to do. That result activates the payment provision of our contract dated February 7, 2007 and as amended on February 22, 2007 (the “Contract”), which entitles us to a Success Fee of 2% of the total consideration of the Transaction up to $25,000,000, and 5% of the total consideration in excess of $25,000,000, less a rollover credit as provided in the Contract’s amendment.

 

(Id., Ex. 80.)

 

Via letter dated June 4, 2007, Penn Tank, through its counsel, responded that:

 

[Benchmark’s] services were provided without any indication by [Penn Tank] or request by you as to what would be an acceptable price, structure, terms and conditions, and without any commitments, directives or parameters from or on behalf of my client. It was merely to determine whether there were Targets that would submit offers that would be considered for acceptance.

 

Your subsequent letter of May 16, 2007 claiming compensation in connection with the services you rendered based upon the Success Fee, as defined in the previous letter, is unsupported by any of the facts or legal principles. As stated in the previous paragraph, nowhere does the original letter state that my client had set the parameters for an acceptable offer. That letter also clearly states that the Success Fee is due and payable on the date of closing; thus meaning that if there is no acceptable offer and thus no closing, there is no Success Fee. It was based upon an arrangement that you solicited and persuaded my client to pursue.

 

(Id. Ex. 81.) At the close of the letter, Penn Tank rejected the claim for payment of the success fee, rescinded any prior verbal offer to reimburse expenses, and terminated the February 7, 2007 contract between the parties.(Id.)

 

II. PROCEDURAL HISTORY

 

Benchmark initiated this litigation against Penn Tank on June 22, 2007, claiming breach of contract (Count I), quantum meruit (Count II), and promissory estoppel (Count III). Penn Tank initially filed a motion to dismiss the entirety of the Complaint, which the Court, by way of Order dated January 30, 2008, denied with respect to the breach of contract count, but granted with respect to the claims under promissory estoppel and quantum meruit. The Benchmark Group, Inc. v. Penn Tank Lines, Inc., Civ. A. No. 07-2630, 2008 WL 282694 (E.D.Pa. Jan.30, 2008). Thereafter, in April 2008, Plaintiff sought leave to file an Amended Complaint. The Court permitted the requested expansion of the breach of contract count to include allegations of breach of the covenant of good faith and fair dealing, but declined to allow both the addition of an alternative quantum meruit claim and the pleading of a separate claim for breach of the covenant of good faith and fair dealing claim. The Benchmark Group, Inc. v. Penn Tank Lines, Inc., Civ. A. No. 07-2630, 2008 WL 2389463 (E.D.Pa. Jun.11, 2008). In connection with that Order, Plaintiff filed its Amended Complaint on June 26, 2008.

 

On October 20, 2008, Defendant filed the current Motion for Summary Judgment, seeking judgment on the entire Amended Complaint. Per the parties’ stipulations, Plaintiff responded on December 31, 2008, and Defendant filed its Reply Brief on January 27, 2009. Plaintiff submitted a Sur-reply Brief on February 26, 2009.

 

III. STANDARD OF REVIEW ON SUMMARY JUDGMENT

 

Summary judgment is proper “if 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 a judgment as a matter of law.”FED. R. CIV. P. 56(c). A factual dispute is “material” only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). For an issue to be “genuine,” a reasonable fact-finder must be able to return a verdict in favor of the non-moving party. Id.

 

On summary judgment, it is not the court’s role to weigh the disputed evidence and decide which is more probative, or to make credibility determinations. Boyle v. County of Allegheny, Pa., 139 F.3d 386, 393 (3d Cir.1998) (citing Petruzzi’s IGA Supermarkets, Inc. v. Darling-Del. Co. Inc., 998 F.2d 1224, 1230 (3d Cir.1993). Rather, the court must consider the evidence, and all reasonable inferences which may be drawn from it, in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citing U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987). If a conflict arises between the evidence presented by both sides, the court must accept as true the allegations of the non-moving party, and “all justifiable inferences are to be drawn in his favor.” Anderson, 477 U.S. at 255.

 

Although the moving party bears the initial burden of showing an absence of a genuine issue of material fact, it need not “support its motion with affidavits or other similar materials negating the opponent’s claim.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). It can meet its burden by “pointing out … that there is an absence of evidence to support the nonmoving party’s claims.” Id. at 325.Once the movant has carried its initial burden, the opposing party “must do more than simply show that there is some metaphysical doubt as to material facts.” Matsushita Elec., 475 U.S. at 586. “There must … be sufficient evidence for a jury to return a verdict in favor of the nonmoving party; if the evidence is merely colorable or not significantly probative, summary judgment should be granted.” Arbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir.1994), abrogated on other grounds, Showalter v. Univ. of Pittsburgh Med. Ctr., 190 F.3d 231 (3d Cir.1999).

 

IV. DISCUSSION

 

In the pending Motion for Summary Judgment, Defendant seeks dismissal of all claims raised in Plaintiff’s Amended Complaint. First, Defendant challenges Plaintiff’s claim to a success fee under the parties’ contractual Agreement. Second, Defendant asserts that Plaintiff has failed to produce any evidence of bad faith conduct by Penn Tank. Finally, Defendant avers that Plaintiff has no entitlement to attorneys’ fees. The Court considers each argument individually.

 

A. Whether Penn Tank Owes a Success Fee to Benchmark Under the Express Terms of the Agreement

 

Defendant’s first argument contends that, pursuant to the express terms of the Agreement between Penn Tank and Benchmark, Defendant owes no success fee to Plaintiff because no transaction closed. Plaintiff’s response is two-fold. Primarily, it asserts that its right to a commission or “success fee” was earned upon production of a ready, willing, and able buyer and was not expressly conditioned on the consummation of an actual sale. Alternatively, Plaintiff contends that even if the contract so had conditioned its right to a commission, Defendant unilaterally prevented the condition from occurring and, thus, is estopped from relying on it. Construing the contract pursuant to Pennsylvania law, the Court agrees with Defendant and, as such, grants summary judgment on this claim.

 

1. Whether the Closing of a Transaction is a Condition Precedent to Benchmark’s Right to a Success Fee.

 

As a threshold matter, “[t]he task of interpreting a contract is generally performed by a court, rather than by a jury…. [t]he goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument.” Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (Pa.1983) (internal citations omitted).“The intent of the parties is to be ascertained from the document itself when the terms are clear and unambiguous.” Hutchison v. Sunbeam Coal Corp. ., 513 Pa. 192, 519 A.2d 385, 390 (Pa.1986). Thus, “a contract that is unambiguous on its face must be interpreted according to the natural meaning of its terms, unless the contract contains a latent ambiguity, whereupon extrinsic evidence may be admitted to establish the correct interpretation.” Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 96 (3d Cir.2001). Notably, however, “a claim of latent ambiguity must be based on a ‘contractual hook’: the proffered extrinsic evidence must support an alternative meaning of a specific term or terms contained in the contract, rather than simply support a general claim that the parties meant something other than what the contract says on its face.”Id.“In other words, the ambiguity inquiry must be about the parties’ ‘linguistic reference’ rather than about their expectations.”Id.; see also Whole Enchilada, Inc. v. Travelers Prop. Cas. Co. of Am., 581 F.Supp.2d 677, 689 (W.D.Pa.2008) (“The polestar of our inquiry … is the language of the insurance policy…. [A]n ambiguity does not exist simply because the parties disagree on the proper construction.”(internal quotations omitted)). In cases where the wording is ambiguous, relevant extrinsic evidence should be considered to resolve the ambiguity. 12th Street Gym, Inc. v. Gen. Star Indem., 980 F.Supp. 796, 801 (E.D.Pa.1997).“When such evidence does not resolve the dispute, the policy provision is to be construed in favor of the insured and against the insurer as the drafter of the agreement.”Id. (citations omitted).

 

Pennsylvania’s general and well-established rule for interpreting a brokerage contract provides that a broker becomes entitled to his commission “when he or she presents a purchaser who is ready, willing and able to purchase the property upon terms satisfactory to the seller.” Zitzelberger v. Salvatore, 312 Pa.Super. 402, 458 A.2d 1021, 1022 (Pa.Super.1983) (citing inter alia In re Dixon’s Estate, 426 Pa. 561, 233 A.2d 242, 244 n. 2 (Pa.1967)). It is equally well-settled, however, that the parties have the right to create their own contract terms modifying this general rule. Shumaker v. Lear, 235 Pa.Super. 509, 345 A.2d 249, 251 (Pa.Super.1975). Thus, “[i]f the parties expressed their intention to make the commission contingent or conditional, such as by requiring an actual sale, … the broker does not earn his commission until the condition or contingency has been satisfied.”Id. (citing Sork v. Rand, 422 Pa. 512, 222 A.2d 890 (Pa.1966)); see also Dixon, Appellant v. Andrew Title & Mfg. Co., 238 Pa.Super. 275, 357 A.2d 667, 669 (Pa.1976) (“If the agreement between the parties provides that the broker is not entitled to his commission until a condition is performed, then the broker has no claim to his commission until that condition is satisfied.”).“Whether a contract contains a condition, the nonfulfillment of which excuses performance, depends upon the intent of the parties to be ascertained from a fair and reasonable construction of the language used in light of all the surrounding circumstances when they executed the contract.” Feinberg v. Auto. Banking, 353 F.Supp. 508, 512 (E.D.Pa.1973) (citing WILLISTON ON CONTRACTS, § 666 (3d ed.1961); 8 P.L .E. CONTRACTS § 263 (1971)).

 

As noted above, the primary issue before the Court is whether the Agreement between the parties conditioned Benchmark’s entitlement to Success Fee upon the closing of a Transaction or whether Benchmark’s production of a ready, willing, and able buyer via the Crystal Ridge Letter of Intent was sufficient to earn payment. The Agreement states, in pertinent part:

 

[Penn Tank] agrees to pay Benchmark a success fee (the “Success Fee”) in U.S. dollars payable in cash or wire transfer upon the closing of a Transaction.Pursuant to this Paragraph 7, the Success Fee shall be calculated based on the total amount of the consideration cumulatively paid and delivered in a Transaction, including but not limited to, payments made subsequent to the closing (“Total Consideration”)….

 

* * *

 

The Success Fee is due and payable on the date of Closing. In the event that the terms of the financing commitment permit delayed or staged drawdowns of funds (i.e., working capital or capital expenditure lines) by the Company, Benchmark’s full Success Fee shall be due and payable on the date of Closing, whether or not any funds are fully or partially drawn down by the Company at such Closing.

 

(Pl’s Opp. Mot. Summ. J., Ex. I (emphasis added).) A plain reading of this provision clearly indicates that a Success Fee is due “upon the closing of a Transaction.”The language is unambiguous and no convoluted interpretation is either required or permissible. Benchmark, a sophisticated commercial entity, as well as the drafter of the Agreement, expressly conditioned its payment upon completion of a transaction. Absent such a transaction, the Agreement does not provide for any payment.

 

Notwithstanding the facial clarity of this language, Plaintiff contends, on two separate but complementary bases, that nothing in this provision creates any condition precedent to a success fee. First, it argues that, under the law, a broker’s right to a commission is not conditioned on consummation of an actual sale unless the parties’ contract unequivocally and unmistakably so provides. (Pl’s Opp. Mot. Summ. J. 12 (citing Freiwald v. Fid. Interstate Cas. Co., 185 Pa.Super. 190, 138 A.2d 146, 148 (Pa.1958) (although parties may enter an express agreement that a broker shall not be entitled to a commission unless a stipulated condition has been fulfilled, that condition “must be so stipulated categorically in unmistakable terms.”)).) It goes on to reason that the language of the Agreement in this case is not clear enough to create a contingency and, thus, cannot be considered by the Court as such.

 

While the basic legal premise of Plaintiff’s argument is correct-i.e. that a contract must show that the parties intended a condition-its analysis fails to recognize the fundamental principle that “[i]n making a promise expressly conditional, contracting parties need not use any particular words.” Nat’l Prods. Co. v. Atlas Fin. Corp., 238 Pa.Super. 152, 364 A.2d 730, 734 (Pa.Super.1975) (quoting RESTATEMENT (CONTRACTS) § 258 and cmt. a (1932)).“On the contrary, … an intention to make a promise conditional may be manifested by the general nature of a promise or agreement, as well as in more formal ways, and if so manifested the condition is express.”Id.; see also Allegheny County v. Maryland Cas. Co. 32 F.Supp. 297, 300 (E.D.Pa.1940) ( “ ‘Any words will create a condition which express, when properly interpreted, the idea that the performance of the promise is dependent on some other event. No particular form of words is necessary in order to create an express condition. Whether a promise is expressly conditional, and if so what is the nature of the condition, depend upon interpretation.’”) (quotations omitted). Although an act or event designated in a contract will not be construed as a condition precedent unless that clearly appears to have been the parties’ intentions, the court must apply general rules of contract interpretation and the intention of the parties is controlling. Beaver Dam Outdoors Club v. Hazleton City Auth., 944 A.2d 97, 103 (Pa.Commw.2008).

 

The language of the Agreement, which states that the success fee is due “upon the closing of a Transaction,” clearly mandates the closing of a transaction as a condition precedent to Benchmark’s entitlement to payment.See Feinberg, 353 F.Supp. at 513 (noting that contractual language providing broker a finder’s fee from borrower “upon receipt” of funds from the lender, and reference to payment “at settlement” contemplated that there would be a settlement and, thus, a consummated loan prior to the earning of a commission); L.B. Kaye Assoc., Ltd. v. Jews for Jesus, 677 F.Supp. 160, 164 (S.D.N.Y.1988) (“[L]anguage in a brokerage agreement [indicating that a commission is to be paid upon the closing of title] imports also the notion that closing of title is a condition precedent to the broker’s being entitled to a commission.”) (quoting Levy v. Lacey, 22 N.Y.2d 271, 292 N.Y.S.2d 455, 239 N.E.2d 378, 380 (N.Y.1968)). Plaintiff was not required to use specialized language and, in fact, no other reasonable construction of the disputed provision is logical under the plain meaning of the words

 

The Court’s interpretation is further bolstered by the context of the provision at issue. According to the Agreement, the Success Fee is calculated as a percentage of “total amount of the consideration cumulatively paid and delivered in a transaction, including but not limited to, payments made subsequent to the closing (‘Total Consideration’).” (Pl.’s Opp. Mot. Summ. J., Ex. I.) A logical interpretation of this statement would mean that if no cash, securities, or other “consideration” are exchanged between Penn Tank and any buyer, then the Total Consideration is zero. Any percentage of zero Total Consideration leaves a zero Success Fee.

 

Such a formula properly effectuates the intent of the parties, particularly in this case where the letter of intent issued by Crystal Ridge was neither a binding agreement or offer. (Pl.’s Opp. Mot. Summ. J., Ex. H.) The offer did not obligate either party to close on the transaction, as the deal was subject to many conditions precedent and the precise amount of the offer had yet to be finalized. (Baron Dep. 20:5-21:23, 65-75, 83:7-25.) The absence of any firm amount provides no clear basis on which to calculate any Success Fee. The fact that Plaintiff, as drafter of the contract, chose to base the amount of its compensation upon the Total Consideration changing hands, as opposed to some alternative formula, suggests that it intended a transaction to be a condition precedent to payment.

 

Finally, although we need not resort to extrinsic evidence, the Court’s legal interpretation finds support in the parties’ own statements regarding their intentions. Jack McSherry testified to his understanding that Benchmark’s compensation was “tied to the end transaction” and that he was “unequivocally told that [he] always had full control of [whether there would be a transaction.]” (J. McSherry Dep. 103:15-104:2.) Moreover, Dean Spear explained the fee arrangement between the parties as “[t]hat [Benchmark] would be willing to do it without a fee and that we would get paid on the back end if we were able to find a buyer and get a deal that [McSherry] wanted.”(Spear Dep. 28:12-17 (emphasis added).) He understood that he was “assuming a risk that [Benchmark] would get no fee whatsoever if [it] couldn’t get a deal that he wanted” (Id. at 28:18-22, 292 N.Y.S.2d 455, 239 N.E.2d 378 (emphasis added).) Spear did not interpret the Agreement to condition payment on finding a buyer that met specified terms. Finally, Stephen Raymond acknowledged that despite producing a ready, willing, and able buyer in the Weatherly Group, Penn Tank was not excited about the deal and thus did not owe Benchmark any success fee in connection with the Weatherly negotiations because “[t]he deal did not close.”(Raymond Dep. 63:14-68:17.) In short, the parties themselves understood the Agreement to mean exactly what it said-that Benchmark was not owed a fee unless a Transaction closed.

 

Plaintiff’s second-and interrelated-basis for its contrary interpretation of the Agreement is similarly unavailing. Plaintiff contends that the contract provision at issue merely specifies the timing of the payment, rather than attaching a condition to it. In support of this reading, Plaintiff cites to several cases interpreting purportedly similar provisions to reference timing as opposed to conditions precedent. First, in Freiwald v. Fid. Interstate Cas. Co., the Pennsylvania Superior Court considered a contract provision between the plaintiff broker and defendant seller that stated, “My charges in this matter will be $1,000 for services in this matter, which is to be shared with Abner Levy when received at the time offinal and satisfactory settlement for the proposed loan.” 185 Pa.Super. 190, 138 A.2d 146, 148 (Pa.1958) (emphasis added). The court found that this provision simply set forth the timing of the payment and did not stipulate a condition to be performed. Id . Similarly, in Fairbourn Commercial, Inc. v. Am. Housing Partners, Inc., a broker’s listing agreement stated, “[i]f, at any time, within said period, Fairbourn Commercial Inc. procures, or presents an offer to purchase said property from [Rochelle], at the price and upon the terms and conditions set forth herein, or at any other price or upon any other terms or conditions acceptable to me, I agree to pay a commission equal to $1,500.00 per lot. ” 68 P.3d 1038, 1041 (Utah App.2003), aff’d, 94 P.3d 292 (Utah 2004). The court found that this provision unequivocally bound defendant to pay a commission upon plaintiff’s procurement of a ready, willing, and able buyer. Id. at 1042-43.The defendant then attempted to argue that another provision of the contract-one stating that “[a]ll commissions shall be due and payable at closing”-created a condition precedent to payment. Id. at 1042.The court rejected this argument and found that this provision was nothing more than a timing provision that did not create a condition precedent to otherwise unambiguous language. Id. at 1042-43

 

Quite unlike these cases, however, the language in the current Agreement does not remotely lend itself to be interpreted as merely a timing provision. As noted above, the provision at issue indicates that Penn Tank will pay Benchmark a success fee “upon the closing of a Transaction.”Later, in the same section of the contract, the Agreement contains a separate timing clause, wherein it states “[t]he Success Fee is due and payable on the date of Closing.”(Pl.’s Opp. Mot. Summ. J., Ex. I.) It is well-established that in construing the terms of a contract, the court must read the contract in its entirety, giving effect to all of the contractual language if at all possible. Whole Enchilada, Inc. v. Truckers Prop. Cas. Co. of Am., 581 F.Supp.2d 677, 690 (W.D.Pa.2008).“ ‘No provision within a contract is to be treated as surplusage or redundant if any reasonable meaning consistent with the other parts can be given to it.’” AstenJohnson v. Columbia Cas. Co., 483 F.Supp.2d 425, 463 (E.D.Pa.2007) (quoting Sparler v. Fireman’s Ins. Co. of Newark, N.J., 360 Pa.Super. 597, 521 A.2d 433, 438 n. 1 (Pa.Super.1987). Therefore, to read the first clause of the Agreement as merely a timing provision would render the second clause wholly unnecessary and entirely meaningless. As this interpretation violates a fundamental principle of Pennsylvania contract law, the Court must instead read the first clause as setting forth an express condition precedent and the second as a stipulation as to the timing of the payment.

 

In short, the Agreement at issue is unambiguous on its face and must be interpreted according to the natural meaning of its terms. Guided by the rules of contract interpretation set forth under Pennsylvania law, the Court finds that the parties intended to condition Benchmark’s entitlement to a success fee on the closing of a transaction. Such a reading is supported not only by the plain language of the provision at issue, together with the surrounding language, but also by the parties’ own statements regarding their intent. Accordingly, the Court rejects Plaintiff’s claim that it was entitled to payment upon production of a ready, willing, and able buyer.

 

2. Whether Defendant is Estopped from Relying on the Failure of the Condition Because Defendant is the One Who Prevented It from Occurring

 

Plaintiff’s second argument in support of its claim to a success fee contends that even if the Agreement in this case had conditioned Benchmark’s right to a commission on the closing of a sale, it was Penn Tank’s arbitrary refusal to consummate the transaction that caused the condition to fail. Plaintiff goes on to reason that, under the applicable law, a party’s unilateral prevention of the performance of a condition in a contract estops that party from benefitting from that failure. Because Benchmark secured a proposal from Crystal Ridge that purportedly satisfied all of Penn Tank’s terms, Benchmark claims that Penn Tank cannot now avoid liability by arbitrarily walking away from the transaction.

 

“As a general rule, when one party to a contract unilaterally prevents the performance of a condition upon which his own liability depends, the culpable party may not then capitalize on that failure.” Apalucci v. Agora Syndicate, Inc., 145 F.3d 630, 634 (3d Cir.1998) (citing Pennsylvania law).“In other words, where a party to the contract prevents the other party from performing its part, the contract is breached.” ATF Trucking, L.L.C. v. Quick Freight, Inc., Civ. A. No. 06-4627, 2008 WL 2940795, at(E.D.Pa. Jul.29, 2008).

 

In order for a party to enforce an agreement, however, it must prove that it has performed all of its obligations under the contract. Id. Where, however, the contract does not define the parameters in which a party must allow the performance of the condition, that party has not acted in breach by preventing the condition from occurring. This principle was fleshed out in two factually-similar cases hailing from this Court. In Miller v. Corson, 321 F.Supp. 861 (E.D.Pa.1971), the defendant obtained plaintiff’s services in securing financing for his business. Id. at 862.Defendant told plaintiff that he needed approximately $250,000 to $300,000 in financing and indicated that he desired to keep the interest rate “as low as possible.” Id. No agreement was reached as to the specifics of a loan that would be acceptable to the defendant, either as to the amount, rate, terms of repayment, or security for the loan. Id. Further, there were no precise arrangements for payment of a commission, although the defendant agreed that a commission would be proper if an acceptable loan could be negotiated. Id. Thereafter, plaintiff arranged meetings with a lending institution who set forth various terms for a net loan of $225,000. Id. at 863.After several meetings, defendant advised that the proposal was unacceptable, but plaintiff still sought a commission for his services in effecting the commitment for the loan. Id.

 

The court noted that “[n]o objective guidelines were established to define exactly what terms would be acceptable to [the defendant],” and “an open-ended agreement whereby [plaintiff] would earn a commission by producing a commitment letter for a loan regardless of the terms of the proposed loan [was] highly unlikely.”Id. at 864.It recognized the general rule that “where a broker finds a customer ready, willing, and able to enter into a transaction on the terms proposed by the principal, he cannot be deprived of his right to a commission by reason of the transaction failing because of some fault of the principal.”Id. Nonetheless, it deemed this principal inapposite since, in the cases applying it, “there was a prior agreement between the borrower and the broker which set certain standards for the terms of the loan sought.”Id. at 864-65.In the present case, there were no “previously agreed upon guidelines relating to what terms would fall within the realm of acceptability.”Id. at 865.Accordingly, the court held that “[t]he defendants had the option to reject any proposed loan arrangement so long as their rejection was in good faith and not capricious.”Id.

 

Similarly, in Feinberg v. Auto. Banking Corp., 353 F.Supp. 508 (E.D.Pa.1973), the defendant was a consumer finance business that contacted plaintiff, a broker, to assist it in finding financing with a suitable lender. Id. at 509-10.Plaintiff found a lender who was willing to loan $300,000 at a six percent interest, and told defendant that it would add a finder’s fee of two percent over the life of the loan. Id. at 510.When defendant indicated that this finder’s fee was not acceptable, the deal was renegotiated so that the loan amount would be $350,000 at 6% interest, and the finder’s fee would be $50,000. Id. Plaintiff, defendant, and the lender agreed to this arrangement. Id. After several weeks of efforts by defendant and the lender to arrive at a formal note purchase agreement, they were unable to agree to the terms and the loan transaction was abandoned. Id. at 510-11.Nonetheless, plaintiff sought payment of his finder’s fee on the grounds that he found a lender “ready, willing and able” to lend. Id.

 

 

The court held that “absent a showing of an agreement to the contrary or a showing of bad faith on the part of the [defendant], the [defendant’s] promise to pay [plaintiff] was conditional upon [the defendant’s] satisfaction with the terms of the note purchase agreement.”Id. at 513.Citing to Miller, it remarked that “the test is not whether the person ought to be satisfied but whether he is satisfied, there being, however, this limitation that any dissatisfaction must be genuine and not prompted by caprice or bad faith.”Id. It went on to reason that “[n]ot only is there a lack of evidence of an agreement to the contrary, but there are indications that [plaintiff] understood that the obligation would and could not come about until after the loan had been actually consummated.”Id. As the court deemed the defendant’s refusal to go through with the loan transaction justified and in good faith, it declined to hold that plaintiff was entitled to a finder’s fee. Id.

 

The case at bar is closely akin to these two referenced cases. Benchmark had been actively working with and seeking out a buyer for Penn Tank since January 2006. Although there had been verbal discussions about what Penn Tank was generally looking for in a buyer, no clearly defined terms as to what constituted an acceptable buyer had been agreed upon or specified.0When the parties ultimately signed the written Agreement in February 2007, they again neither specified any requirements for what would suffice as an acceptable buyer nor identified any defined parameters under which Benchmark would operate.1Once the written Agreement was signed it became the “entire agreement of the parties with respect to the subject matter,” which “supersede[d] all previous agreements.” (Pl.’s Opp. Mot. Summ. J., Ex. I.) As such, any purported prior, verbal understanding as to what constituted an acceptable proposal was rendered a nullity by the absence of such terms in the written instrument.

 

The glaring omission of such terms from the Agreement meant that the test for satisfaction of the condition was not whether Penn Tank should have been satisfied, but rather whether it was satisfied. Surely, Penn Tank did not enter into “an open-ended agreement whereby [Benchmark] would earn a commission by producing a commitment letter for a[n] [investor] … regardless of the terms.” Miller, 321 F.Supp. at 864. Thus, [t]he defendants had the option to reject any proposed loan arrangement so long as their rejection was in good faith and not capricious.” 2 Id . at 865.Ultimately, Defendant did not prevent Plaintiff from performing the contract; rather Plaintiff failed to satisfactorily perform by producing a buyer that was satisfactory to Defendant. Contrary to Plaintiff’s argument, Defendant’s failure to allow occurrence of a condition required for payment of the success fee was not a breach of contract.

 

3. Conclusion as to Benchmark’s Contractual Entitlement to a Success Fee

 

The plain contractual language, bolstered by extrinsic evidence, clearly conditioned Plaintiff’s entitlement to a success fee upon the closing of a Transaction-an event which did not occur. The mere fact that Defendant was unilaterally responsible for the failure of the closing does not constitute a breach of contract since the Agreement set forth no requirements under which Defendant was required to act. Accordingly, the Court grants summary judgment in favor of Defendant on this portion of the Complaint.

 

 

B. Whether Penn Tank Breached the Implied Duty of Good Faith and Fair Dealing

 

Defendant next moves to dismiss Plaintiff’s claim for breach of the covenant of good faith and fair dealing. “In Pennsylvania, a covenant of good faith and fair dealing is implied in every contract .” Temple Univ. Hosp., Inc. v. Group Health, Inc., Civ. A. No. 05-102, 2006 WL 146426, at(E.D.Pa. Jan.12, 2006) (quoting Lyon Fin. Servs. v. Woodlake Imaging, LLC, Civ. A. No. 04-3334, 2005 WL 331695, at(E.D.Pa. Feb. 9, 2005)). The duty of good faith has been defined as “honesty in fact in the conduct or transaction concerned.”RESTATEMENT (SECOND) OF CONTRACTS § 205 cmt. a (1981). Examples of bad faith can include “evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.” Somers v. Somers, 418 Pa.Super. 131, 613 A.2d 1211, 1213 (Pa.Super.1992) (quoting RESTATEMENT (SECOND) OF CONTRACTS § 205 cmt. d). Courts use this good faith duty as “an interpretive tool to determine the parties’ justifiable expectations in the context of a breach of contract action.” Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 91-92 ((3d Cir.2000). Although the precise contours of a party’s duty under the covenant vary with the context, good faith generally entails “ ‘faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.’” Curley v. Allstate Ins. Co., 289 F.Supp.2d 614, 617 (E.D.Pa.2003) (quoting RESTATEMENT (SECOND) § 205 cmt. a).

 

Notably, “Pennsylvania law does not … recognize an independent claim for breach of the implied covenant of good faith and fair dealing.” Lyon, 2005 WL 331695, at *8. “The duty of good faith is not divorced from the specific clauses of the contract and cannot be used to override an express contractual term.” Northview Motors, 227 F.3d at 91;see also Seal v. Riverside Fed. Sav. Bank, 825 F.Supp. 686, 699 (E.D.Pa.1993) (“[T]he implied duty of good faith cannot defeat a party’s express contractual rights by imposing upon that party specific obligations that it is entitled, by express contract, to resist.”). Therefore, a party is generally precluded from maintaining separate claims for breach of contract and breach of the covenant of good faith and fair dealing where both causes of action arise out of the same conduct by the defendant. Northview Motors, 227 F.3d at 91-92; Morgan Truck Body, LLC v. Integrated Logistics Solutions, LLC, Civ. A. No. 07-1225, 2008 WL 746827, at(E.D.Pa. Mar. 20, 2008). As the Third Circuit has explained, “[t]he covenant of good faith and fair dealing involve[s] an implied duty to bring about a condition or to exercise discretion in a reasonable way’ ” so that “implied covenants and any express terms of a contract are necessarily mutually exclusive-one can invoke implied terms only when there are no express terms in the contract relating to the particular issue.” USX Corp. v. Prime Leasing Inc., 988 F.2d 433, 438 (3d Cir.1993) (internal quotations omitted) (emphasis in original).“The law will not imply a different contract than that which the parties have expressly adopted.” Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 388 (Pa.1986). Thus, in order to plead a cause of action for breach of the covenant of good faith, whether it is an express or implied covenant, a plaintiff must allege facts to establish that a contract exists or existed, including its essential terms, that defendant failed to comply with the covenant of good faith and fair dealing by breaching a specific duty imposed by the contract other than the covenant of goodfaith andfair dealing, and that resultant damages were incurred by plaintiff. Sheiman Provisions, Inc. v. Nat’l Deli, LLC, Civ. A. No. 08-453, 2008 WL 2758029, at(E.D.Pa. Jul. 15, 2008) (emphasis in original).

 

In its Opposition to the Motion for Summary Judgment, Benchmark argues that Penn Tank violated the duty of good faith and fair dealing by: (1) concealing its true agenda from Benchmark; (2) stringing Benchmark along for fourteen months when Penn Tank had no intention of consummating a sales transaction; (3) failing to notify Benchmark that Penn Tank was applying for bank loans as an alternative to the sales transaction for which Penn Tank had retained Benchmark; (4) surreptitiously using the Confidential Offering Memorandum in pursuit of the loans that Penn Tank was seeking in order to avoid its obligation to Benchmark; and (5) refusing to consummate a transaction that satisfied all of its terms, while contending that consummation of the transaction was a condition precedent to Benchmark’s entitlement to a success fee. (Pl.’s Opp. Mot. Summ. J. 23.) The Court addresses each of these claims.

 

1. Penn Tank’s Concealment of Its True Agenda from Benchmark, Stringing Benchmark Along Without Intention to Consummate a Sales Transaction, and Refusal to Consummate a Transaction that Satisfied All of Its Terms while Refusing to Pay Benchmark a Success Fee

 

Plaintiff first contends that the McSherrys were never serious about selling Penn Tank and were instead just using Benchmark to see if they could obtain a high valuation for their company without payment for Benchmark’s services. (Id. at 20.)Once Penn Tank had the fruits of fourteen months of Benchmark’s services, including both the Crystal Ridge letter of intent and the Offering Memorandum, Penn Tank was able to use them to obtain credit approval from National Penn Bank. (Id. at 21.)Such actions, it claims, constitute bad faith dealing.

 

Penn Tank’s argument is misplaced on several grounds. First and foremost, Plaintiff’s allegations attempt to alter the unequivocal terms of the contract between the parties. As repeatedly described above, the Agreement between the parties expressly conditioned the Success Fee on the closing of a transaction, without setting forth any alternate formula for payment of a fee in the event a transaction did not occur. Were the Court to now find that Penn Tank acted in bad faith either by not proceeding with the letter of intent from Crystal Ridge or by not paying Benchmark upon the production of that letter of intent, the Court would effectively be reading into the Agreement a provision that a success fee was owed upon the production of a ready, willing, and able buyer. Such a reading is particularly inaccurate in light of the absence of any previously agreed upon guidelines relating to acceptability and or any contractual obligation on Defendant to close a deal. Had the parties intended such a result, it would, or should have been explicitly stated in the contract. As noted above, “[t]he law will not imply a different contract than that which the parties have expressly adopted.” Hutchison, 519 A.2d at 388.

 

Even were the Court to find-purely for argument’s sake-that Defendant had some additional obligation imposed by the implied covenant, Plaintiff fails to produce any substantive evidence that: (1) Penn Tank’s refusal to consummate the transaction with Crystal Ridge was in bad faith or motivated by ill-intent; (2) Penn Tank concealed its true agenda from Benchmark; or (3) Penn Tank interfered with Benchmark’s expectation or purpose of the contract. Indeed, Benchmark’s sole-and somewhat attenuated-effort to establish that Penn Tank unfairly used Benchmark without any intention of consummating a deal consists of citation to snippets of Jack McSherry’s statements and testimony as follows:

 

•In an e-mail from McSherry to Jack Williams, another Penn Tank shareholder, McSherry stated that in his upcoming meeting with Benchmark in January of 2006, he wanted to put together some financial statements to “water [Benchmark’s] tongues.” (Pl.’s Opp. Mot. Summ. J., Ex. T.)

 

•“I was always reticent in giving up a majority equity position in the company. Was I interested in seeing what it was worth? Yes.” (J. McSherry Dep. 21:6-9.)

 

• McSherry wanted to “test the waters” to see how much the company was worth. (Id. at 21:23-22:19, 519 A.2d 385.)

 

•“I agreed to let [Benchmark] explore,” but “[t]o my knowledge, I never engaged them.” (Id. at 39:25-40:11, 519 A.2d 385.)

 

•“[T]he purpose for the work that Benchmark was doing was to find out what the [company] was worth … in the event of a buyout … [a]s opposed to actually accomplishing the taking in of an equity partner.” (Id. at 53:21-54:3, 519 A.2d 385.) 3

 

•“I think the whole reason that we’re sitting here is because I never knew what I really wanted to accomplish.” (Id. at 60:7-9, 519 A.2d 385.)

 

•“I had been dealing with National Penn Bank personally since 1995. I didn’t think I had to have a conversation with [Benchmark] about what I was talking to the banking about our company, no.” (Id. at 65:22-66:2, 519 A.2d 385.)

 

• By the end of February, McSherry was not interested in selling the company in the absence of a wow number, which was in excess of six times EBITDA. (Id. at 91:3-92:5, 519 A.2d 385.)

 

At first blush, and taken in isolation, this evidence implies some potential bad faith dealing on the part of Penn Tank. Closer scrutiny, however, reveals that the majority of these statements were taken out of a context that actually tells quite a different story. First, Jack McSherry’s testimony indicates that Penn Tank did not seek out Benchmark’s services; rather it was Benchmark that solicited Penn Tank’s business and encouraged it to start looking at potential investors. In a January 24, 2006 e-mail to Steve McSherry and Jack Williams, Jack McSherry stated:

 

I’ve got a meeting with Benchmark here on January 25th…. I’ve stayed in touch with the one fellow Steve Raymond and he’s the one that called me about Keenan. Anyway there [sic] courting us now since they know we are doing much better. I’m just going to listen, not engage them.

 

(Pl.’s Opp. Mot. Summ. J., Ex. T.) He further testified, at his deposition, as follows:

Q. Did there come a time when you had an interest in selling a portion of the company, majority-I’m not confining myself to your giving up a majority interest in the company.

 

A. I believe that I was convinced by Benchmark that our performance was good enough that we should test the waters and see what the company could bring, whether it was a majority interest, a minority interest, or whatever.

 

(J. McSherry Dep. 21:24-22:9.)

 

Moreover, on repeated occasions, McSherry explained that he told Benchmark, from the outset, of his hesitance in selling the company. Nonetheless, Benchmark was willing to forego its retainer fee in order to encourage McSherry to look into finding out the worth of his company and potentially sell it.

 

Q. Okay. And your view was to let Benchmark do this because you had an idea that the company was worth more than that SES evaluation and you wanted to see exactly how much that was. Is that a fair statement?

 

A. Yes.

 

Q. And in your mind, was that the only purpose for which you allowed Benchmark to go forward and do its work?

 

A. To test the waters, yes.

 

Q. And that didn’t change between January of ’06 until, let’s say, the end of February? That was always your purpose, is that correct, this testing the waters, as you call it?

 

A. It was more like I was-it was more like I was egged on to find this out. It was not that I was soliciting somebody out there to buy the company. It was more like, we think you’re doing well, you ought to take a look at what your company is worth, let us market it to you, it’s not going to cost you anything.

 

Q. And who said that to you, let us market it to you, it’s not going to cost you anything?

 

A. I can’t recall if it was-it was Dean Spear or Steve Raymond, which are the only two I talked to at Benchmark.

 

(Id. at 22:10-23:14, 519 A.2d 385 (emphasis added).)

Q. In your view, from conversations which you had with the people at Benchmark, did you believe they understood, as of December 31 st, 2006, that you were not interested in selling a majority position in the company?

 

A. I had always expressed that interest to them.

 

(Id. at 54:21-55:4, 519 A.2d 385.)

Q. Was there a minimum number that you had set in your mind that would be a satisfactory number for you to do any kind of deal, as far as enterprise value is concerned.

 

A. I don’t think I had any one set number in mind. If a large multiple came in, as some trucking companies are traded, seven, eight, nine, as I said earlier to you, everybody has a price.

 

Q. Sort of an offer you can’t refuse?

 

A. A wow factor, a shut-up number.

 

(Id. at 58:14-24, 519 A.2d 385.)

A. I think the whole reason that we’re sitting here is because I never knew what I really wanted to accomplish.

 

Q. Okay. Did [Benchmark] have any instructions from you as to what they should try to accomplish?

 

A. I don’t believe so.

 

(Id. at 60:7-13, 519 A.2d 385.)

Q. Did you believe at that point that [Benchmark was] entitled to compensation of any kind for the work they had done up through November of 2006?

 

A. As I said earlier, I was surprised that they hadn’t come to me and asked me for a monthly fee on an ongoing basis.

 

Q. And why were you surprised?

 

A. When a company spends time and they’re not sure they’re going to get a transaction fee, I would have thought they would have pushed for a monthly fee, because I was somewhat, as I told you, reticent about where I really wanted to go.

 

Q. Did you consider-so I guess one of the reasons you were surprised is because you felt they were somewhat exposed in having done all this work and possibly never having-never getting paid for the work. Is that one of the reasons you were surprised?

 

A. I think your characterization of a lot of work is incorrect.

 

Q. All right. Don’t say a lot of work, let’s just say work.

 

A. Work.

 

Q. Is that a fair statement?

 

A. Companies don’t do things for nothing.

 

Q. And you were surprised because they had done work up to that point without having any understanding of how they were going to get paid; is that what you’re saying.

 

A. I was surprised, but I understood why they didn’t ask.

 

Q. Okay. And from your experience, what was your understanding as to why they didn’t ask.

 

A. If they had asked for a fee, I would have shut the whole thing down.

 

(Id. at 68:12-70:7, 519 A.2d 385.)

Q. And is it your testimony that the reason you’re going forward and having a third group become involved is because Benchmark is asking you to do this?

 

A. Yes.

 

Q. So you really don’t have any interest in finding out what a third group thinks?

 

A. You’re relating this to early December of ’06?

 

Q. Uh-huh. Yes.

 

A. I was becoming more reticent, even more so in early December, about a majority equity position in the company, because my second son was coming into the business in January, but if there was a wow factor out there, I was willing to take another look at it.

 

* * *

 

Q. And I don’t mean you used the word wow. I mean, you know, you could use the Godfather’s expression of an offer you couldn’t refuse. Did you tell them that that’s what you were … looking for?

 

A. In fact, I used that exact term. If there’s an offer out there I can’t refuse, I’ll take a look at it.

 

Q. And Dean Spear and Steve Raymond, throughout 2006, said that they were willing to work on that basis without-without compensation, understanding that they were going to have to find an offer that you couldn’t refuse?

 

A. Fees were not discussed through 2006, that I can recall.

 

Q. So you told them either exactly or words to the effect that if you find me an offer I can’t refuse, that’s when I would do a deal, but in the context of such a conversation, no fees were discussed; correct?

 

A. I believe that to be correct.

 

(Id. at 72:24-74:21, 519 A.2d 385.)

 

Finally, McSherry testified that he always believed that whether or not to close on a Transaction was entirely in his discretion and, if he opted not to do so, he was not accountable for any fees to Benchmark:

 

Q. And did you at that time anticipate that if you had gone with your recap of the companies’ equipment, plural, companies’ equipment, to secure liquidity, that they would be entitled to any compensation for the work they had done and for the work that they were going to do to get you to a point where you’d see a Crystal Ridge offer?

 

A. I always felt that their compensation was tied to the end transaction.

 

Q. And you controlled-at this time, you controlled whether there would be a transaction; correct?

 

A. I was unequivocally told that I always had full control of that.

 

Q. Of whether there would be a transaction?

 

A. Yes.

 

Q. Who told you that?

 

A. Benchmark, both parties.

 

(Id. at 103:7-104:2, 519 A.2d 385.)

Q. Okay? You weren’t interested in selling the business as of the end of February, 2007. Is that a fair statement?

 

A. February? Yes.

 

Q. End of February. Is that a fair statement?

 

A. I think that’s a fair statement.

 

Q. Did you tell anyone from Benchmark that that was your position in or around January or February 207, that that was your position?

 

A. No. I was-my interest was still piqued.

 

Q. You wanted to see what the offer would be?

 

A. Correct.

 

Q. And that was for purposes of understanding what your company was worth, as opposed to because you were dying to sell it. Is that a fair characterization? Or sell a portion of it.

 

A. I was not dying to sell it, but when you start putting seven zeros on the back of things, you stop and think about what you really want.

 

(Id. at 91:23-92:23, 519 A.2d 385.)

 

Even more telling for summary judgment purposes than McSherry’s own testimony, however, is that of Benchmark employees Raymond and Spear. Each testified that McSherry was hesitant to sell the company; that they solicited Penn Tank’s business, not the other way around; and that they were willing to go forward with only the potential of a large payout. Raymond indicated as follows:

 

Q. Am I correct that Benchmark then contacted Penn Tank Lines again in January of 2006?

 

A. Yes.

 

Q. And who on behalf of Benchmark made that contact?

 

A. I did.

 

* * *

 

Q. And what led you to contact Penn Tank Lines at that time?

 

A. It was a major competitor by the name of Keenan Advantage, told from one private equity group to another.

 

(Raymond Dep. 32:21-33:11.)

Q. Do you remember what Jack told you he wanted to do with the business?

 

A. I can’t quote Jack verbatim, but I recall that he said he was in no hurry to do a deal but still interested in doing a recapitalization deal. He was looking for liquidity for his personal purposes and also to continue to grow the company.

 

(Id. at 37:17-23, 519 A.2d 385 (emphasis added).)

Q. Was it your belief that there was an understanding between Benchmark and Penn Tank Lines about how Benchmark would be compensated for any advice or services that it provided to Penn Tank Lines at that time? And we’re talking about the first half of 2006?

 

A. Jack made it clear in our discussions that he was not interested in renewing the retainer as part of compensation?

 

* * *

 

Q. During the same time period, that January through June 2006, first half of 2006, was there any discussion about payment of a commission or a success fee to Benchmark for any services that would be performed for Penn Tank Lines?

 

A. Yes, in the context of the same discussions.

 

Q. And what was discussed?

 

A. Jack agreed to pay us as was outlined in the prior engagement.

 

(Id. at 38:17-40:6, 519 A.2d 385.)

 

Likewise, Spear testified, as follows:

 

A. I recall that we [McSherry and Spear] discussed [at the January 2006 meeting], you know the marketplace and their [Penn Tank’s] recent performance if they wanted us to go forward and put our toe in the water, we would be happy to do that. Jack was-made it clear he really wasn’t wanting to get into another retainer situation, but since we felt reasonably comfortable that the marketplace was better and his performance was better, we agreed we already had an agreement and an understanding in place that would compensate us for our work and it was clear.

 

Q. What was said by you, if anything, about the fee arrangement to Mr. McSherry?

 

A. That we would be willing to do it without a fee and that we would get paid on the back end if we were able to find a buyer and get a deal that he wanted.

 

Q. You knew that you were assuming a risk that you would get no fee whatsoever ifyou couldn’t get a deal that he wanted; is that correct?

 

A. That’s correct.

 

* * *

 

Q. You understood-it was your belief that in January of ’06, before you met again with Penn Tank Lines, that Penn Tank Lines had an exclusive arrangement with your company?

 

A. It was my understanding, without, again, reviewing the agreement, that we had an understanding that if we found a buyer that was going to be on terms that were acceptable to the client, that we were going to get paid under the formula of our success fee in our prior agreement.

 

(Spear Dep. 27:23-29:21 (emphasis added).)

A. [I]f[McSherry] was going to give up control of his business, it had to be with a group that he had confidence andfaith in, that was going to help him go forward, and be comfortable that the minority position the family held was going to be reasonably protected, and that the new-the new organization and the new group that owned the majority was going to have similar shared values as he had.”

 

(Id. at 79:18-80:3, 519 A.2d 385 (emphasis added).) 4

 

Taken cumulatively, the plain import of this testimony reveals that Benchmark, recognizing the relatively high worth of Penn Tank, repeatedly courted its business in order to obtain a potentially high success fee in connection with a negotiated transaction. Benchmark understood that McSherry was hesitant and not fully committed to selling his company. Thus, in order to encourage a reticent McSherry to at least entertain offers, Benchmark posited an enticing proposal-it would do the leg work without a retainer fee so long as it would profit from any successful sale. By doing so, its principals knowingly took a risk that its failure to consummate that transaction would vitiate its entitlement to compensation. Although Benchmark operated under some broadly defined parameters in its search for a buyer, it never made any attempt, despite knowing of McSherry’s uncertainty, to detail in writing the precise qualifications of an acceptable buyer, or to enumerate an alternative formula for payment if the transaction did not close. Instead, cognizant that McSherry was hesitant and would not work with Benchmark if he believed himself obligated in any fashion, Benchmark repeatedly led him to understand that it was not seeking any compensation unless he closed on a deal that it negotiated, and that the closure on a deal was entirely up to him.

 

Benchmark now asks the Court to imply into the contract a provision it could not have included itself without risking the loss of Penn Tank’s business. This we decline to do. Nothing in the deposition testimony and exhibits presented by Plaintiff remotely suggests that McSherry acted in bad faith or enticed Benchmark into gratuitously performing services on which he had no intention of acting. Given this stark absence of a genuine issue of material fact, the Court rejects this portion of Plaintiff’s bad faith claim.

 

2. Penn Tank’s Failure to Notify Benchmark that It Was Applying for Bank Loans as an Alternative to a Sales Transaction

 

Additionally, Benchmark alleges that Penn Tank applied for bank loans as an alternative to the sales transaction, yet never disclosed this information to Benchmark. These actions, according to Plaintiff, were in direct violation of numerous provisions of the contract, which, inter alia, required Penn Tank “to provide Benchmark with all relevant information,”“to advise Benchmark promptly of all contacts and proposals from prospective purchasers,” and “to use commercially reasonable efforts to cooperate with Benchmark.”(Pl.’s Opp. Mot. Summ. J. 22.)

 

Again the Court finds no evidence of bad faith. As a primary matter, none of the above cited provisions addresses the situation at hand. The requirement that Penn Tank provide Benchmark with “all relevant information” and use “commercially reasonable efforts to cooperate with Benchmark” are too vague and amorphous to be enforced by this Court. Gen. Elec. Co. v. N.K. Ovalle, 335 Pa. 439, 6 A.2d 835 (Pa.1935) (“[a] contractual promise cannot be judicially enforced unless it is sufficiently definite to enable the court to ascertain the intention of the parties to a reasonable degree of certainty.”). Even were the Court to read them broadly, the terms “relevant information” and “cooperate with Benchmark,” in context, appear to apply to information about Penn Tank, which would help Benchmark market the company, not information about Penn Tank’s negotiations regarding its banking lines. Finally, although Penn Tank was required to advise Benchmark of all contacts and proposals from prospective purchasers, National Penn Bank was not a purchaser and, thus, would not fall within the realm of this provision.

 

Moreover, the evidence supplied by the parties does not show any bad faith on the part of Penn Tank. Although Penn Tank was talking with National Penn Bank as early as June of 2006, the discussions concerned only the Bank’s taking over of Penn Tank’s banking lines from Bank of America. In the last few months of 2006, Penn Tank was speaking with National Penn Bank only about the possibility of the Bank taking over Penn Tank’s banking lines and providing a new credit line when its current structure with Bank of America was finished. (S. McSherry Dep. 66:3-67:7.) The discussions with National Penn Bank in connection with refinancing some of Penn Tank’s debt and providing some liquidity did not earnestly begin until early March of 2007. (Id. at 13:5-23, 6 A.2d 835.) As Stephen McSherry explained, Penn Tank simply saw the bank option as an alternative path to obtaining what it did not feel it could achieve from the Crystal Ridge deal. (Id. at 33:11-24, 6 A.2d 835.) Nothing in the evidence supports Plaintiff’s theory that Penn Tank was simply stringing Benchmark along for fourteen months with the intention of using Benchmark’s efforts to obtain alternate financing.

 

3. Penn Tank’s Use of the Offering Memorandum

 

Finally, Plaintiff argues that Defendant’s “surreptitious” use of the Offering Memorandum prepared by Benchmark in order to purse loans from National Penn Bank constituted bad faith dealing. Specifically, Plaintiff notes that the Agreement between the parties stated that, “[a]ny financial advice or opinions rendered by Benchmark in connection with this Agreement or a Business Combination may not be disclosed publicly in any manner without Benchmark’s prior written approval.”(Def.’s Mot. Summ. J., Ex. I.) Yet, on April 9, 2007, Steve McSherry, without consulting Benchmark, gave a copy of the Offering Memorandum to National Penn Bank, portions of which were later incorporated into the loan approval application to the Bank. As the Offering Memorandum was clearly labeled “confidential,” Plaintiff contends that Penn Tank’s provision of that Offering Memorandum to the bank, in order to secure loans in alternative to a Benchmark-brokered sales transaction, violated the implied covenant of good faith.

 

The Court, however, again finds no breach of contract or bad faith dealing in Penn Tank’s actions on two grounds. First, as noted above, the Agreement prohibited only disclosure of “[a]ny financial advice or opinions rendered by Benchmark in connection with this Agreement or a Business Combination.”(Pl.’s Opp. Mot. Summ. J., Ex. I.) Steve Raymond unequivocally testified that the Offering Memorandum did not contain any financial advice or opinions rendered by Benchmark:

 

Q. Well, let me ask you to look through the offering memorandum and identify for me any financial advice that is contained in the offering memorandum that was rendered by Benchmark.

 

A. This is no financial advice contained in this. I don’t have to look at that to tell you that.

 

Q. Could you look in the offering memorandum and tell me if there are any opinions rendered by Benchmark?

 

A. The question was: Were there any opinions in this document by Benchmark? There were no opinions of Benchmark in that document.

 

(Raymond Dep. 144:14-145:2.) This testimony is confirmed by the Offering Memorandum itself, which plainly stated that it was prepared by Benchmark solely from materials and information supplied to Benchmark by Penn Tank, and included statements, estimates, and projections provided by Penn Tank and not verified by Benchmark. (Def.’s Mot. Summ. J., Ex. 28.) 5

 

Moreover, the evidence reveals that although the loan approval request incorporated some of the information and verbatim statements from the Offering Memorandum, the Bank already had multiple sources of information about Penn Tank prior to receipt of the Memorandum and used it primarily for verification. (Soxman Dep. 75:11-78:13.) As Defendant aptly notes, “[i]nformation about Penn Tank Lines provided by Penn Tank Lines to Benchmark did not become the property of Benchmark merely by being included in the Offering Memorandum.”(Def.’s Mot. Summ. J. 32 n. 15.) Ultimately, the loan was approved based on the Bank’s own independent analysis. (Id. at 73:6-74:25, 6 A.2d 835 .) Accordingly, Plaintiff fails to establish that the Bank loan was obtained through Benchmark’s work product.

 

4. Conclusion as to Bad Faith

 

As noted above, on summary judgment, the moving party may meet its burden by showing an absence of evidence to support the nonmoving party’s claim. Celotex v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Defendant has both pointed to an absence of evidence to support Plaintiff’s claim and produced its own evidence substantiating its theory of the case. Plaintiff has not carried its contrary burden of creating a genuine issue of material fact as to bad faith; there is no conflict or dispute in the evidence. As Plaintiff has failed to provide this Court with any basis on which to let this issue go to a jury, the Court must grant summary judgment in Penn Tank’s favor.

 

C. Whether Benchmark Can Recover “Costs of Collection” Including Attorneys’ Fees

 

In the final portion of its Motion for Summary Judgment, Penn Tank seeks dismissal of Benchmark’s request for attorneys fees under the Agreement. Specifically, the Agreement provides as follows:

 

PTL agrees to hold harmless and indemnify Benchmark, its affiliates and their respective directors, officers, shareholders, employees, agents and controlling persons (hereinafter “Indemnified Party(s)”), from and against any and all losses, claims, damages, liabilities, demands, causes of action, claims for injunctive relief, suits, obligations and costs, and any reasonable attorney fees (one legal counsel) hereinafter “Indemnifiable Claims”) arising out of any services, indemnifiable claims. or transactions rendered under this Agreement, unless caused by the willful misconduct or negligence of the Indemnified Party(s). In the event of a claim, and upon request by the Indemnified Party(s), PTL agrees to either assume the defense of the Indemnified Party(s) for all reasonable attorney fees and litigation costs as they are incurred.

 

(Pl’s Opp. Mot. Summ. J., Ex. I.) Plaintiff responds by arguing that the plain language of this provision does not carve out an exception for attorneys’ fees incurred in a lawsuit between the contracting parties and, as such, under prevailing jurisprudence, the provision must be deemed to apply to a litigation between Benchmark and Penn Tank.

 

Pennsylvania law allows for the recovery of attorneys’ fees “from an adverse party to a cause only when provided for by statute, or when clearly agreed to by the parties.” Fidelity-Philadelphia Trust Co. v. Phila. Transp. Co., 404 Pa. 541, 173 A.2d 109, 113 (Pa.1961).“Pennsylvania courts require that an indemnity agreement be strictly construed against the party asserting it and that if an agreement is ambiguous it is to be construed ‘most strongly’ against the party who drafted it.” Exelon Generation Co., LLC v. Tugboat DORIS HAMLIN, Civ. A. No. 06-244,2008 WL 2188333, at(E.D.Pa. May 27, 2008) (citing Kiewit Eastern Co., Inc. v. L & R Const. Co., Inc., 44 F.3d 1194,1202-3 (3d Cir.1995).“The intent to indemnify for the particular claim must be clear from the terms of the agreement. Id. (citations omitted).

 

The parties dispute whether the above indemnification provision applies only to third party claims against Benchmark or whether it extends to first party disagreements between Penn Tank and Benchmark.6The Court, however need not resolve this issue, as we find that the plain language of the indemnification provision precludes an award of attorneys’ fees to Benchmark. As noted above, the provision requires indemnification of, inter alia, loss, damages, and attorneys fees arising out of services rendered under the Agreement “unless caused by the willful misconduct or negligence of the Indemnified Party(s) [Benchmark].” (Pl.’s Opp. Mot. Summ. J., Ex. I.) Any losses suffered by Benchmark in this case have resulted directly from its own failure, as both a negotiator and the party drafting the Agreement, to bargain for payment of a success fee or other compensation in the event that no transaction is consummated by Penn Tank. To read the provision any other way would permit Benchmark to recover in any lawsuit brought by it against Penn Tank regardless of the underlying merits. Accordingly, the Court denies this claim.

 

V. CONCLUSION

 

In sum, the Court finds no genuine issue of material fact precluding entry of summary judgment in this case. On its face, and as a matter of law, the Agreement at issue neither required Defendant to close on a transaction nor provided for payment to Benchmark upon production of a ready, willing, and able buyer. Moreover, Plaintiff cannot circumvent its failure to negotiate any such provision into the Agreement by reliance on the covenant of good faith and fair dealing. Even if it could, it has failed to substantiate its claim for breach of this implied covenant with any evidentiary support upon which a jury could return a verdict in its favor. Finally, the plain language of the Agreement forecloses an award of attorneys’ fees to Penn Tank. Therefore, the Court grants summary judgment in favor of Benchmark and against Penn Tank.

 

An appropriate order follows:

 

ORDER

 

AND NOW, this 8th day of April 2009, upon consideration of the Motion for Summary Judgment by Defendant Penn Tank Lines, Inc., (Docket No. 31), Plaintiff The Benchmark Group, Inc.’s Response (Docket No. 35), Defendant’s Reply Brief (Docket No. 37), and Plaintiff’s Sur-reply Brief (Docket No. 39), and upon conducting oral argument on this Motion on March 26, 2009, it is hereby ORDERED that Defendants’ Motion for Summary Judgment is GRANTED.

 

JUDGMENT IS ENTERED in favor of Defendant Penn Tank Lines, Inc. and against Plaintiff The Benchmark Group, Inc.

 

This case is CLOSED.

 

The factual history is compiled from an examination of both parties’ Statements of Facts and their accompanying exhibits. To the extent a fact is disputed, the Court highlights the dispute by referencing each party’s evidence.

 

Defendant points to its Exhibit 42 for the fact that Jack McSherry asked Raymond to explore Crystal Ridge’s “appetite for a minority stake in the new combined company.”Most likely due to mere clerical error, Exhibit 42 is an unrelated memorandum from the Weatherly Group.

 

In its Sur-reply Brief, Plaintiff characterizes this rule as a “presumption” that an event is not a condition unless the parties’ intent to make it so is specified in clear and unmistakable language. (Pl.’s Sur-reply Br. 2.) In reality, the rule is that, “[w]hile the parties to a contract need not utilize any particular words to create a condition precedent, an act or event designated in a contract will not be construed as constituting one unless that clearly appears to have been the parties’ intention.” Acme Mkts., Inc. v. Fed. Armored Exp., Inc., 437 Pa.Super. 41, 648 A.2d 1218, 1220 (Pa.Super.1994). Accordingly, a party seeking to prove the existence of condition precedent need not necessarily rebut any presumption, but must merely show, under general rules of contract interpretation, that the parties intended to include a condition precedent in their contract. While seemingly semantical in nature, this distinction places a lower burden on the proving party.

 

Plaintiff’s citation to cases from New York and Florida courts finding different language sufficient to create conditions precedent to a commission does not operate to the exclusion of the language used by the parties in the Agreement at issue. (See Pl.’s Opp. Mot. Summ. J. 13 n. 3.)

 

Via a lengthy footnote in its Opposition, Plaintiff attempts to mitigate the import of Raymond’s statement on the grounds that (1) Raymond is not an officer, owner, or director of Benchmark, but rather an independent contractor; (2) the grounds and conditions under which Benchmark would be entitled to a commission are questions of law on which Raymond has no specialized background; and (3) Plaintiff has never contended that it would be entitled to a fee upon the mere production of any purchaser, only upon production of a purchaser that met the requirements initially described by Penn Tank. (Pl.’s Opp. Mot. Summ. J. 14 n. 4.)

 

Aside from the fact that the Court cites Raymond’s testimony only to bolster an already obvious reading of the Agreement’s language, Plaintiff’s efforts to distance itself from Raymond are misplaced. Raymond signed the addendum to the Agreement as Benchmark’s Managing Director, thereby indicating his authority to act and speak for Benchmark. (Def.’s Mot. Summ. J., Ex. 49.) Further, it is irrelevant that Raymond has no specialized legal knowledge. The Court is attempting to discern the parties’ intent in drafting the Agreement as they did-a matter about which Raymond is qualified to speak, as he and Dean Spear prepared the February 7, 2007 Agreement together. (Raymond Dep. 91:13-92:16.) Finally, although Plaintiff takes the position that it had to find a purchaser that met the requirements described by Penn Tank in order to earn its success fee, those requirements were never memorialized in any written agreement, despite the fact that Benchmark had been working on behalf of Penn Tank for over a year prior to the drafting of the Agreement at issue.

 

Contrary to Plaintiff’s interpretation of this Court’s Memorandum and Order of January 30, 2008 denying Penn Tank’s Motion to Dismiss, the Court did not squarely reject Penn Tank’s argument that the closing of a Transaction was a condition precedent to payment of a Success Fee. Rather, in light of the allegations of bad faith by Benchmark, which formed part of the breach of contract count, the Court simply declined to dismiss the breach of contract claim at such an early stage of the litigation. Benchmark Group, Inc. v. Penn Tank Lines, Inc., Civ. A. No. 07-2630, 2008 WL 282694, at(E.D.Pa. Jan.30, 2008).

 

Plaintiff also cites to Finno Dev., Inc. v. Smedes Realty, Civ. A. No. 0101636875, 2001 WL 420584 (Conn.Super.Apr.11, 2001), wherein a broker’s contract provided that the “listing agent shall be paid a 5% real estate commission by the seller directly within 72 hours from the date of closing.”Id. at *1. The court held that this provision “does not, by its terms, condition the payment of the commission on the closing being concluded. Instead, paragraph 8(c) simply establishes the time for the commission to be paid, i.e., within 72 hours of the closing.”Id.

 

Plaintiff’s Sur-reply Brief engages in a lengthy discussion of why a provision might be repeated in a contract. It theorizes that drafters of contracts might intentionally repeat the same provision in slightly varying terms to make certain that the provision will be enforced and the parties’ intentions will be effectuated. (Pl.’s Sur-reply Br. 4.) Additionally, it hypothesizes that provision might be repeated by “simple oversight” or “because the contract was pieced together from a series of previous forms and drafts rather than systematically composed as a whole from beginning to end.”(Id. at 5.) Plaintiff ultimately concludes that the two provisions at issue are not wholly redundant-the first gives timing information together with proper forms of payment, while the second only deals with the timing of the payment. Given this, Plaintiff argues that the Court should not re-write the contract simply to avoid some surplusage.

 

Notably, however, Plaintiff cites absolutely no case law to support this new theory of contract interpretation, which stands at odds with the general principle that “in construing a contract a court should give meaning to all its words and phrases and adopt a construction that avoids surplusage.” In re Marques, 358 B.R. 188, 198 (Bankr.E.D.Pa.2006). Likewise, Plaintiff cites to no evidentiary support for its proposition that the parties intended such surplusage to remain in the contract, or that the surplusage was a matter of mere error. Indeed, it is Plaintiff, not Defendant, who now asks this Court to disregard the Pennsylvania rules of contract interpretation and modify the plain meaning of the contract under the guise of interpretation. See Wineburg v. Wineburg, 816 A.2d 1105, 1108 (Pa.Super.2002) (“[A] basic tenet of contract law is that when the language of a contract is clear and unambiguous its meaning must be determined by an examination of the content of the contract itself. Therefore, it is axiomatic that this Court must construe the contract only as written and may not modify the plain meaning under the guise of interpretation.”). The Court finds no ambiguity in the Agreement at issue.

 

In light of this finding, the Court declines to address the parties’ dispute as to whether Benchmark had, in fact, produced such a buyer via the Crystal Ridge letter of intent. The Court, however, notes Benchmark’s concession at oral argument that the Crystal Ridge deal was subject to due diligence and many other contingencies, which might not have occurred even if Penn Tank had committed to the deal.

 

0. The exhibits in this case establish that even the parties could not verbally agree on what terms, if any, were required for Penn Tank to go forward with a transaction. Raymond recalled McSherry mentioning, in January 2006, that he wanted a minimum of five times EBITDA, “good chemistry with the investor,” “continuity for the business,” and to make sure that his son Steven had an equity stake going forward. (Raymond Dep. 46:19-47:2.) That’s all he could recall. (Id. at 47:3.)Later, in his deposition, Raymond added to these parameters and indicated that he told Crystal Ridge that McSherry also wanted a deal that would allow him to participate in the company as both equity holder and operating partner and that would allow him to take some liquidity now and participate in the up side as the company was sold in the future. (Id. at 87:11-17.)

 

Spear indicated that he knew Benchmark would only get a fee if it found a buyer and got a deal that McSherry wanted. (Spear Dep. 28:1417.) Without any specifics, Dean explained that Penn Tank and Benchmark “had an understanding that if we found a buyer that was going to be on terms that were acceptable to the client, that we were going to get paid under the formula of our success fee in our prior agreement.”(Id. at 29:15-21.)Later, he noted that McSherry had “made it clear that he was not willing to do anything under five times EBITDA, so they had to at least be able to be at a, you know, 31 plus million-dollar valuation.”(Id. at 72:15-19.)Finally, Spear indicated his understanding that “if [McSherry] was going to give up control of his business, it had to be with a group that he had confidence and faith in, that was going to help him go forward, and be comfortable that the minority position the family held was going to be reasonably protected, and that the new-the new organization and the new group that owned the majority was going to have similar shared values as he had.”(Id . at 79:18-80:3.)

 

Jack McSherry stated that although he was effectively looking for a “wow factor” or an offer he could not refuse, he never translated what that meant in terms of a multiple of EBITDA to either Spear or Raymond. (J. McSherry Dep. 73:18-75:13.) He indicated that he had never specifically identified his number as five times EBITDA, and never had any specific number in mind. (Id . at 79:11-80:25, 89:2-90:25.)

 

Finally, Stephen McSherry could not recall any discussions prior to August of 2006 wherein his father indicated that five times EBITDA would be a number that he would be willing to consider. (S. McSherry Dep. 37:19-38:22.) He reiterated that his father stated that any proposal had a wow factor to it for him to walk away from the company. (Id. at 101:3-19.)

 

Even reading all of this evidence in the light most favorable to Plaintiff, the Court must conclude that the parties had no meeting of the minds in their oral agreement as to the precise requirements for an acceptable buyer-meaning no contract on that issue was formed. See Brisbin v. Superior Valve Co., 398 F.3d 279, 293 (3d Cir.2005) (a legally binding contract requires a meeting of the minds). The repeated references to five times EBITDA only suggested that McSherry would not do business with any lower number, not that he would definitively do business when that number was reached.

 

1. This omission is particularly telling since the parties had already been working together under a verbal agreement for fourteen months. Had there been previously agreed upon verbal terms of acceptability for a proposed buyer which were crucial to determining when Benchmark would earn its Success Fee, the Agreement would have, under the most basic theories of contractual drafting, included them.

 

2. Plaintiff argues that Defendant did indeed act in bad faith. The Court addresses that claim in the next section of this Opinion.

 

3. This statement was actually made by counsel during the deposition, but was fully adopted by McSherry.

 

4. Plaintiff also cites to the following testimony by Spear:

 

Q. You knew in January that-you had gotten an E-mail from Jack McSherry in which he said we’re leaning towards doing equipment refinancing. How did you understand that?

 

A. We went over that this morning. I basically explained to him when I called him, I said, what’s up, what’s this all about, okay, we have a-I believe we’re going to have a very favorable offer to meet your terms and parameters, and if you want me to stop in the direction I’m going because you now want to go in another direction, let me know so I don’t waste my time.

 

And he said, no, I just had, you know, some issues of, you know, I’m having some thoughts, and I want you-I’m not going to do that. If you’re going to get me the deal I want, I’m going to go forward with that deal. Please don’t stop, go forward. That’s not going to be an issue.

 

(Spear Dep. 119:23-120:18.) Nothing in this testimony is inconsistent with McSherry’s repeated position that, although he was “not dying to sell” the company, he would have considered doing so with the right offer. As of January 2007, he simply had not yet made that decision. (J. McSherry Dep. 92:20-23.)

 

5. Dean Spear testified that the Offering Memorandum was created by taking the extensive information provided by Penn Tank and molding it into a shortened book of information “aimed at trying to present Penn Tank Lines in the most favorable setting to a potential buyer.”(Spear Dep. 169:3-170:17.) In his view, the Offering Memorandum constituted Benchmark’s professional opinion based on its expertise in the business of marketing companies. (Id.) Notably, however, when pressed, Spear could not identify any specific financial advice or opinions rendered by Benchmark that were contained within the Memorandum. (Id. at 171:11-175:7.)

 

6. The Court notes that the most recent jurisprudence from and within the Third Circuit does not limit the scope of such a broadly worded indemnification provision to third party claims, but rather extends it first party claims between the contracting parties. SBA Network Servs., Inc. v. Telecom Procurement Servs., Inc., 250 Fed. Appx. 487, 492 (3d Cir.2007); Waynesborough Country Club of Chester County v. Diedrich Niles Bolton Architects, Inc., Civ. A. No. 07-155, 2008 WL 4916029, at *4-5 (E.D.Pa. Nov.12, 2008).

 

E.D.Pa.,2009.

Benchmark Group, Inc. v. Penn Tank Lines, Inc.

— F.Supp.2d —-, 2009 WL 943515 (E.D.Pa.)

 

END OF DOCUMENT

United States District Court, E.D. Tennessee.

Edward Dean ARMSTRONG, Jr., et al.

v.

UNITED STATES FIRE INSURANCE COMPANY, et al.

and

United States Fire Insurance Company, et al.

v.

World Trucking, Inc., et al.

Nos. 2:07-CV-104, 2:08-CV-55.

 

March 27, 2009.

 

MEMORANDUM OPINION

 

J. RONNIE GREER, District Judge.

 

In these judgment declaratory actions, all parties have moved for summary judgment or judgment as a matter of law. Currently pending before the Court is the motion of Edward D. Armstrong, Jr., et al. (the “Armstrong plaintiffs) for summary judgment, [Doc. 177], the motion for summary judgment filed by William and Karen Harmon, (the “Harmon plaintiffs”) [Doc. 179], the motion for summary judgment filed by Valerie Carlson, (“Carlson”), [Doc. 181], North River Insurance Company’s (“North River”) motion for judgment as a matter of law, [Doc. 183], the motion for judgment as a matter of law filed by United States Fire Insurance Company (“U.S.Fire”), [Doc. 185], and the motion of XTRA, Inc. and XTRA Lease, LLC (jointly referred to as “XTRA”) for summary judgment. [Doc.84]. Responses and replies have been filed, and the Court heard oral argument on the motions on February 17, 2009. The motions are now ripe for disposition.For the reasons which follow, the Carlson, Harmon plaintiffs’ and Armstrong plaintiffs’ motions will be denied and the motions of North River, U.S. Fire and XTRA will be granted.

 

The defendants have filed a motion to dismiss the motions for summary judgment without prejudice or alternatively, to abate the motions, [Doc. 224], arguing, as they have in other pleadings, that a judgment must be entered in the tort cases in favor of plaintiffs before these motions are ripe for disposition. They now suggest that the tort action should proceed to judgment before a resolution of this case. They make the argument despite having orally represented to this Court that the declaratory judgment action should be resolved and the personal injury actions stayed and despite the fact that they have admitted, for the purpose of this case, facts alleged in the tort action which clearly entitle plaintiffs to a judgment in their favor in those cases.

 

I. Factual and Procedural Background

 

On March 7, 2004, Nasko Nazov (“Nazov”) was operating a tractor-trailer rig northbound on Interstate 81 in Greene County, Tennessee when he drove, apparently at a high rate of speed, into the rear of vehicles which were stopped as the result of an unrelated traffic accident. As a result of the collision, Edward Dean Armstrong, III, his wife, Melissa Carlson Armstrong, and his two minor children, Brittany Nicole Armstrong and Edward Dean Armstrong, IV, occupants of one of the automobiles, were killed. Also struck was an automobile driven by William Harmon and occupied by his wife, Karen Harmon, who suffered serious personal injury as a result of the collision.

 

At the time of the accident, Nazov was an employee of World Trucking Inc. and/or World Trucking Express, Inc. (jointly referred to as “World Trucking”), which was the lessee of the tractor-trailer. Marjan Milev (“Milev”) owned the tractor involved in the collision and XTRA was the owner and lessor of the trailer involved in the collision.Dobrin Zahariev Dobrikov and Stanislava Z. Dobrikov are the owners of World Trucking.

 

It appears that the trailer was actually leased by XTRA Lease, LLC; however, for the purposes of the motions before the Court, this fact is irrelevant.

 

Thereafter, three separate diversity lawsuits were filed in this Court: Valerie Carlsonv. World Trucking, Inc., Nasko Nazov and Marjan Milev, No. 2:05-CV-44;Edward Dean Armstrong, Jr., Kathy Lynn Chesney, and Susan Kay Smith Armstrong v. World Trucking, Inc., World Trucking Express, Inc, Nasko Nazov, Marjan Milev, Dobrin Zahariev Dobrikov and Stanislava Z. Dobrikov, No. 2:05-CV-62; and William Harmon and Karen Harmon v. World Trucking, Inc., World Trucking Express, Inc, Nasko Nazov, Marjan Milev, Dobrin Zahariev Dobrikov and Stanislava Z. Dobrikov, No. 2:05-CV-65.XTRA, the owner and lessor of the trailer involved in the collision, is not a defendant in any of these lawsuits.

 

Valerie Carlson is the mother and next of kin of Melissa Carlson Armstrong, deceased, and the administrator of her estate.

 

Edward Dean Armstrong, Jr. and Kathy Lynn Chesney are the sole survivors, parents and next of kin of Edward Dean Armstrong, III, deceased, and Susan Kay Smith Armstrong is the sole survivor, mother and next of kin of Brittany Nicole Armstrong and Edward Dean Armstrong, IV, deceased.

 

At oral argument on these motions, the Armstrong plaintiffs’ attorney admitted that they had no good faith basis for naming XTRA as a defendant.

 

Collectively, these lawsuits will be referred to as the “tort cases.” The tort cases were reported settled ; however, the plaintiffs have refused to complete those settlements and dismiss the tort cases because, they allege, they discovered the insurance policy which is the subject of this lawsuit after entering into those settlement agreements. The tort cases, therefore, remain pending, although they have been stayed pending resolution of these declaratory judgment actions.

 

Based on documents filed in the tort cases, all plaintiffs in the tort cases agreed to a total settlement of $1,000,000.00 with World Trucking, the policy limits of the applicable liability insurance coverage carried by World Trucking. The plaintiffs agreed to an equal division of the liability insurance proceeds. In addition, the Armstrong plaintiffs have available additional uninsured motorist benefits of $400,000.00. [See Docs. 66, 67 in case No. 2:05-CV-44].

 

On March 9, 2007, U.S. Fire and North River filed a declaratory judgment action in the United States District Court for the District of New Jersey which named as defendants World Trucking, Inc., World Trucking Express, Inc. and XTRA Corporation. The subject of the New Jersey declaratory judgment action is a liability policy issued by U .S. Fire to XTRA Corporation and an umbrella liability policy issued by North River to XTRA Corporation. U.S. Fire sought a declaration from that court that U.S. Fire has no duty to defend or indemnify World Trucking, Inc. and/or World Trucking Express, Inc. for the claims in the tort cases filed in this Court and for a declaration that World Trucking, Inc. and World Trucking Express, Inc. are not additional insureds under the U.S. Fire policy. North River seeks a declaration from the Court that North River has no duty to indemnify World Trucking, Inc. and/or World Trucking Express, Inc. for the claims made by the plaintiffs in the underlying tort cases and a declaration that World Trucking, Inc. and World Trucking Express, Inc. are not additional insurers under the North River policy.

 

On May 9, 2007, the Armstrong plaintiffs filed a complaint for declaratory judgment in this Court against U.S. Fire, North River, Nazov, Milev, World Trucking, the Dobrikovs, XTRA, Carlson and the Harmon plaintiffs. The declaratory judgment action filed in this Court involves the same policies issued by U.S. Fire and North River to XTRA which are referenced in the New Jersey declaratory judgment action. The Armstrong plaintiffs seek a declaration of the Court that U.S. Fire and North River have a duty to indemnify the defendants in the tort cases for the use and benefit of the plaintiffs in those tort cases and that Nazov, Milev, World Trucking, Inc. and World Trucking Express, Inc. are additional insureds under the insurance policies issued by U.S. Fire and North River.

 

On February 13, 2008, the United States District Court for the District of New Jersey sua sponte transferred venue of the New Jersey action to this Court, where it was consolidated with the action filed by the Armstrong plaintiffs.

 

II. The Insurance Policies at Issue

 

A. The U.S. Fire Policy

 

Policy # 1380265299 was issued by U.S. Fire to XTRA Corporation  for the policy period from December 1, 2003, to October 1, 2004. The policy provides Commercial Auto (Business or Truckers) Coverage with liability limits of $1,000,000.00 for any one accident or loss. The policy provides liability coverage and obligates U.S. Fire to “pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto’ “. U.S. Fire Policy, Sec. II, A.

 

XTRA Corporation is the same entity as XTRA, Inc. The policy contains a “named insured endorsement” which lists a number of entities as additional insureds on the policy, including XTRA Leasing, Inc., the entity which apparently owned the trailer involved in the collision on March 7, 2004.

 

The policy contains the following provisions relevant to the issues in this case:

 

I.. Who is an Insured

 

The following are “insureds”:

 

a. You for any covered “auto”.

 

b. Anyone else while using with your permission a covered “auto” you own, hire or borrow …

 

This clause of the policy contains five exceptions which are not suggested by any party to have any application to this case.

 

Id., Sec. II, A, 1.

 

“Insured” means any person or organization qualifying as an insured in the Who Is An Insured provision of the applicable coverage….

 

Id., Sec. V, G.

“Auto’ “ means a land motor vehicle, “trailer” or semi-trailer designed for travel on public roads but does not include “mobile equipment”.

 

Id., Sec. V, B.

“Trailer” includes semitrailer.

 

Id., Sec. V, P.

5. Other Insurance

 

a. For any covered “autos” you own, this Coverage Form provides primary insurance. For any covered “auto” you don’t own, the insurance provided by this Coverage Form is excess over any other collectible insurance. However, while a covered “auto” which is a “trailer” is connected to another vehicle, the Liability Coverage this Coverage Form provides for the “trailer” is:

 

(1) Excess while it is connected to a motor vehicle you do not own.

 

(2) Primary while it is connected to a covered “auto” you own.

 

Id., Sec. IV, 5, a.

 

The U.S. Fire policy contains two endorsements which are relevant to this case. The policy contains an “Endorsement No. CO-013 which provides: “IT IS AGREED THAT THE LESSEES OF VEHICLES, LEASED TO THEM BY THE NAMED INSURED, ARE NOT AN INSURED UNDER THIS POLICY.”The policy also contains an “ENDORSEMENT FOR MOTOR CARRIER POLICIES OF INSURANCE FOR PUBLIC LIABILITY UNDER SECTIONS 29 AND 30 OF THE MOTOR CARRIER ACT OF 1980,” commonly known as an MCS-90 endorsement. The MCS-90 endorsement reads as follows:

 

The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, within the limits stated herein, as a motor carrier of property, with Sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Highway Administration (FHWA) and the Interstate Commerce Commission (ICC).

 

In consideration of the premium stated in the policy to which this 6 endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. Such insurance as is afforded, for public liability, does not apply to injury to or death of the insured’s employees while engaged in the course of their employment, or property transported by the insured, designated as cargo. It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or for the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured. However, all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect as binding between the insured and the company. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.

 

It is further understood and agreed that, upon failure of the company to pay any final judgment recovered against the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the company to compel such payment.

 

The limits of the company’s liability for the amounts prescribed in this endorsement apply separately, to each accident, and any payment under the policy because of any one accident shall not operate to reduce the liability of the company for the payment of final judgments resulting from any other accident.

 

B. The North River Policy

 

North River issued policy # 553-085033-4 to XTRA for the policy period from October 1, 2003, to October 1, 2004. The policy is a Commercial Umbrella Policy with limits of liability for each occurrence, and in the aggregate, of $15,000,000.00. The North River policy identifies the U.S. Fire policy as “underlying” automobile liability insurance and contains an “Automobile Limitation” endorsement which provides:

 

With respect to “Bodily Injury” or “Property Damage” arising out of the ownership, maintenance, operation, use, loading or unloading of any “Automobile”, this policy is limited to the coverage provided to you in the “Underlying Insurance”.

 

If coverage is not provided by such policies, coverage is excluded from this policy.

 

The North River policy’s insuring agreement provides liability coverage on behalf of the “Insured” for sums which the “Insured” is “legally obligated to pay as damages” for “Bodily Injury” or “Property Damage” occurring during the policy period and caused by an “Occurrence”. North River policy, Sec. I, A. The term “Insured” includes the “Named Insured” (XTRA) and “any person who has [XTRA’ S] permission to use an ‘Automobile’ owned by [XTRA], loaned to [XTRA], or hired for use by [XTRA], and any person or organization legally responsible for the use of that ‘Automobile’ “; …Id., Sec. III, B, 1 and C, 3. “Automobile” is defined as “a land motor vehicle, trailer or semitrailer designed for travel on public roads, …”Id., Sec. IV. “Occurrence” includes an automobile accident. Id.

 

The North River policy does not contain a provision similar to that contained in endorsement CO-013 in the U.S. Fire policy; however, it does contain the “Automobile Limitation” set forth above, thus incorporating the exclusion of endorsement CO-013 to the extent it limits coverage under the U.S. Fire policy. The North River policy does not explicitly contain a form MCS-90 endorsement.

 

III. Standard of Review

 

Summary judgment is proper where “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law.”Fed.R.Civ.P. 56(c). In ruling on a motion for summary judgment, the Court must view the facts contained in the record and all inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Nat’l Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir.2001). The Court cannot weigh the evidence, judge the credibility of witnesses, or determine the truth of any matter in dispute. Anderson v. Liberty Lobby, Inc., 477 U .S. 242, 249 (1986).

 

The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To refute such a showing, the non-moving party must present some significant, probative evidence indicating the necessity of a trial for resolving a material factual dispute. Id. at 322.A mere scintilla of evidence is not enough. Anderson, 477 U.S. at 252;McClain v. Ontario, Ltd., 244 F.3d 797, 800 (6th Cir.2000). This Court’s role is limited to determining whether the case contains sufficient evidence from which a jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 248-49; Nat’l Satellite Sports, 253 F .3d at 907. If the non-moving party fails to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof, the moving party is entitled to summary judgment. Celotex, 477 U.S. at 323. If this Court concludes that a fair-minded jury could not return a verdict in favor of the non-moving party based on the evidence presented, it may enter a summary judgment. Anderson, 477 U.S. at 251-52; Lansing Dairy, Inc. v. Espy, 39 F.3d 1339, 1347 (6th Cir.1994).

 

The party opposing a Rule 56 motion may not simply rest on the mere allegations or denials contained in the party’s pleadings. Anderson, 477 U.S. at 256. Instead, an opposing party must affirmatively present competent evidence sufficient to establish a genuine issue of material fact necessitating the trial of that issue. Id. Merely alleging that a factual dispute exists cannot defeat a properly supported motion for summary judgment. Id. A genuine issue for trial is not established by evidence that is “merely colorable,” or by factual disputes that are irrelevant or unnecessary. Id. at 248-52.

 

There are no genuine factual disputes in this case, as the parties agree on the relevant underlying facts. The issue for the Court is a legal one, making the case appropriate for disposition by summary judgment or judgment as a matter of law.

 

Judgment as a matter of law is appropriate where, after a party has been fully heard on an issue, “there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue.”Fed.R.Civ.P. 50(a). In making this determination, the court must view the evidence in the light most favorable to the nonmovant. Diamond v. Howd, 288 F.3d 932, 935 (6th Cir.2002).

 

IV. Choice of Law

 

Jurisdiction in these cases is invoked under 28 U.S.C. § 1331, with all parties seeking a declaratory judgment under the Declaratory Judgment Act, 28 U.S.C. § 2201 et seq. The parties agree that the Court must apply state law on questions of policy interpretation and scope of coverage of the policies at issue, and they agree that the Court must apply the choice of law of the state in which it sits. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941); Eric R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Under Tennessee law, the substantive rights of parties to an insurance contract are governed by the laws of the state contemplated by the parties. Absent an enforceable choice of law clause in the policy, the parties are presumed to have intended to apply the laws of the state in which the contract was entered into. Standard Fire Ins. Co. v. ChesterO’Donley & Assoc., 972 S.W.2d 1, 5 (Tenn.Ct.App.1998). Consequently, with respect to insurance contracts without enforceable choice of law clauses, Tennessee courts apply the substantive law of the state where the policy was issued and delivered. Id.

 

The tort plaintiffs, in their briefs in support of their motion, appear to assume, without discussion, that it is Tennessee’s substantive law which applies to these cases. U.S. Fire and North River, on the other hand, argue that both policies “were issued to XTRA Corporation at 200 Nyala Farms Road, Westport, Connecticut,” [Doc. 223, p. 4], and argue that Connecticut law applies to these cases.0At oral argument on the pending motions, counsel for the Armstrong plaintiffs suggested that it might be Missouri or New Jersey law which applies, because XTRA has offices in those states. In a supplemental filing, [Doc. 250], the Armstrong plaintiffs now assert that Arizona is the state of delivery of the policies at issue and that this Court should apply Arizona law on the issues governed by state law in these cases. In support of their position, the Armstrong plaintiffs have attached to their supplemental filing letters produced during discovery which purport to establish that the policies were delivered to XTRA in Phoenix, Arizona. 1

 

0. When questioned at oral argument about what proof in the record establishes that the policies were delivered to XTRA in Connecticut, counsel for U.S. Fire and North River directed the Court to the declaration pages of the U.S. Fire policies which list XTRA’s mailing address as 200 Nyala Farms Road, Westport, CT. 06880.

 

1. A review of the letters offered by the Armstrong plaintiffs is support of their argument that Arizona law should apply establishes, at best, only that the North River policy was delivered in Arizona. (Doc. 250-6). The February 9, 2004, letter dealing with the U.S. Fire policy establishes only that it was mailed to XTRA’s insurance agent in Needham, Massachusetts. (Doc. 250-5).

 

The evidence in the record on the issue of where the policies at issue were delivered is scant and insufficiently developed to establish clearly the state of delivery of the policies. For reasons more fully discussed below, however, it is unnecessary for the Court to decide which state’s law to apply because there is no real difference in the relevant laws of the states involved and application of the laws of either Tennessee, Connecticut or Arizona would produce the same result. A court need not make a choice of law if, in fact, there is not a real difference or conflict between the relevant laws of the states involved and should apply the forum state’s law if it is not in conflict with that of other jurisdiction involved. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 816 (1985). In fact, a conflict between the laws of the states at issue is a necessary predicate to deciding which state’s laws should govern the issues presented in the case. Hataway v. McKinley, 830 S.W.2d 53, 57 (Tenn.1992). Because the result is the same on the issues governed by state law in these cases, regardless of whether the Court applies Tennessee, Connecticut or Arizona law, the Court will apply Tennessee law.

 

The parties agree that state law does not apply on one issue in the case. Federal law applies to the operation and effect of the MCS-90. John Deere Ins. Co. v. Nueva, 229 F.3d 853 (9th Cir.2000) (citing Planet Ins. Co. v. Transport Indemnity Co., 823 F.2d 285, 288 (9th Cir.1987)); Canal Ins. Co. v. First General Ins. Co., 889 F.2d 604, 610 (5th Cir.1989), modified on other grounds 901 F.2d 45 (5th Cir.1980); see also Carolina Cas. Inc. Co. v. E.C. Trucking, 396 F.3d 837 (7th Cir.2005). Although it does not appear that the Sixth Circuit has addressed this precise question, no reason exists why the Sixth Circuit would not follow the established rule from other circuits. See, e.g., Kline v. Gulf Ins. Co., 466 F.3d 450, 453 fn. 5 (6th Cir.2006), (citing cases from the Third and Fifth Circuits for the general rule that “an MCS-90 is to be interpreted under federal law” and suggesting that the Sixth Circuit would follow the rule, at least in cases where the MCS-90 is incorporated into the policy for purposes of “compliance with federal regulations”-i.e. required by the Motor Carrier Act.)

 

V. Pending Motions

 

For purposes of clarity, the Armstrong, Harmon and Carlson plaintiffs in the tort actions will be referred to in the following analysis as “plaintiffs”, and U.S. Fire, North River and XTRA will be referred to as “defendants,” unless the context indicates otherwise.

 

A. Plaintiffs’ Motions For Summary Judgment

 

Plaintiffs argue that the U.S. Fire policy provides coverage to Nazov, Milev, and World Trucking as permissive users of the trailer leased from XTRA, notwithstanding endorsement CO-013, which excludes from coverage lessees of vehicles, and without reference to what plaintiffs see as the “broadening provisions” of the MCS-90. According to plaintiffs, the trailer owned by XTRA is a covered auto which was contractually in the possession of World Trucking, thus making the operator and driver of the trailer permissive users under the terms and conditions of the policy and establishing coverage. Plaintiffs argue that the endorsement CO-013, which provides “that the lessees of vehicles, leased to them by the named insured, are not insureds under this policy,” does not operate to limit permissive user coverage because “vehicle” is not defined in the policy and is ambiguous. Because the term is a technical one which cannot be given its “plain, ordinary and popular” meaning, its meaning is uncertain and should be “construed against the insurance company and in favor of the insured.”Plaintiffs also argue that the endorsement Co-013 is against public policy.

 

Alternatively, plaintiffs maintain that the MCS-90 endorsement operates to negate the CO-013 endorsement because the CO-013 endorsement “constitutes a condition or limitation that attempts to alter the underlying policy and relieve U.S. Fire from liability.”[Doc. 178, p. 18]. Plaintiffs rely primarily on decisions of the Ohio and Virginia Supreme Courts in Lynch v. Yob, 768 N.E.2d 1158 (Ohio 2002) and Heron v. Transportation Cas. Ins. Co., 650 S.E.2d 699 (Va.2007) and decisions of the Ninth and Tenth Circuits in John Deere Ins. Co. v, Nueva, 229 F.3d 853 (9th Cir.2000), cert. denied, 534 U.S. 1127 (2002) and Adams v. Royal Indem. Co., 99 F.3d 964 (10th Cir.1996) as authority for the proposition that the MCS-90 eliminates any limiting clauses in the underlying policy, such as the CO-013 endorsement, which restrict the scope of coverage. Any other interpretation of the MCS-90 would frustrate the purpose of the MCS-90, according to the plaintiffs. Furthermore, plaintiffs argue, the MCS-90 endorsement is triggered to provide coverage despite the fact that the injured parties have available to them other insurance coverage in excess of the statutory financial responsibility limit, citing Carolina Cas. Ins. Co. v. Yeates, 533 F.3d 1202 (10th Cir.2008), reh’g en bancgranted, 545 F3d 915 (10th Cir.2008); Green v. Royal Indem. Co., 1994 WL 267749 (S.D.N.Y.1994), Hamm v, Canal Ins. Co., 10 F.Supp.2d 539 (M.D.N.C.1998) and Kline v. Gulf Ins. Co., 466 F.3d 450 (6th Cir.2006).

 

As for the North River policy, plaintiffs argue that it is a “following form” policy which provides coverage for any loss covered under the U.S. Fire policy. Because World Trucking, Nazov and Milev are insureds under the U.S. Fire policy, they are also insureds under the North River policy.

 

B. U.S. Fire’s Motion For Summary Judgment

 

U.S. Fire argues initially that World Trucking, Nazov and Milev are not insureds under the U.S. Fire policy because “[t]heir names do not appear on the declarations page, nor do they appear on the named insured endorsement page.”[Doc. 186, p. 7] U.S. Fire also argues that the endorsement CO-013 expressly excludes lessees, such as World Trucking, from coverage under the policy. U.S. Fire also maintains that, even if World Trucking, Nazov and Milev were insureds under the policy, they have not complied with certain conditions of coverage and are, therefore, not entitled to recover under the policy.

 

Secondly, U.S. Fire asserts that the MCS-90 endorsement attached to the U.S. Fire policy does not cover the lessee of a trailer, relying on Del Real v. United States Fire Ins. Crum and Forster, 64 F.Supp.2d 958 (E.D.Cal.1998), aff’d, 188 F.3d 512 (9th Cir.1999)(Table). Based on Del Real, U.S. Fire argues that the lessee of the trailer and the driver of the tractor cannot be insureds under the U.S. Fire policy and U.S. Fire therefore has no obligation to indemnify any of the defendants in the underlying tort actions. Additionally, U.S. Fire argues that the MCS-90 is inapplicable to XTRA because XTRA is not a for-hire motor carrier and the MCS-90 is only implicated when an insured is carrying goods for-hire and is therefore subject to the financial responsibility requirements of the Motor Carrier Act.2Once again U.S. Fire relies on Del Real and also cites Castro v. Budget Rent-A-Car System, Inc., 65 Cal.Rptr.3d 430, 164 Cal.App. 4th 1162, (Cal.Ct .App.2007) and Amerisure Mutual Ins. Co. v. Carey Transportation, Inc., 2007 WL 29235 (Mich.Ct.App.2007).

 

2. Although XTRA and U.S. Fire argue that XTRA is not a for-hire carrier and have submitted an affidavit in support of its motion for summary judgment which states that “XTRA Lease is in the business of leasing trailers to motor carriers” and that “XTRA does not transport property for compensation,” they never explain why the MCS-90 is attached to the policy, except for a passing reference that it has been attached because XTRA operates 123 “service trucks .” The Motor Carrier Act requires the MCS-90 for “for-hire motor carriers operating motor vehicles transporting property in interstate or foreign commerce.”49 C.F.R. § 387.1. The Court need not decide whether XTRA is a for-hire carrier.

 

Lastly, U.S. Fire argues that the $1,000,000.00 insurance coverage carried by World Trucking satisfies the financial responsibility obligation of the federal regulations and thus the public policy considerations behind the federal regulations are satisfied. Because the for-hire carrier, World Trucking, “provides a level of compensation that meets the federal regulations,” the public policy considerations behind the MSC-90 requirement do not justify “rewriting the policy.” [Doc. 186, pp. 15-16].

 

C. North River’s Motion For Summary Judgment

 

North River makes and adopts the same arguments made by U.S. Fire and also asserts that North River could not, under any circumstances, provide coverage under its policy if the U.S. Fire policy provides no coverage. In addition, North River argues that, even if the U.S. Fire policy provides coverage, it does not necessarily follow that the North River policy does also, as plaintiffs argue. North River maintains that its policy is not a “follow form” policy, but rather that the North River policy “contains its own insuring agreement, conditions, definitions, exclusions, and endorsements.”[Doc. 184, p. 8]. Thus, the North River policy must be analyzed according to its own terms, conditions and exclusions. North River argues that its policy has no MCS-90 endorsement nor any provision which would incorporate the MCS-90 from the U.S. Fire policy. Lastly, North River maintains that, even if its policy provides coverage, it has no duty to indemnify until the U.S. Fire coverage is exhausted.

 

D. XTRA’s Motion For Summary Judgment

 

XTRA largely repeats and expands upon the arguments made by U.S. Fire and North River. XTRA does make one argument, however, not addressed by U.S. Fire or North River. XTRA relies on Federal Motor Carrier Safety Administration (“FMCSA”) “regulatory guidance” to support its argument that the MCS-90 does not extend coverage to permissive users such as World Trucking in this case. XTRA implicitly suggests that the agency guidance would likely change the result in John Deere v. Nueva and Lynch v. Yob and is controlling authority.

 

VI. Analysis and Discussion

 

A. Are World Trucking, Nazov and Milev “insureds” under the U.S. Fire basic policy, without regard to the endorsements?

 

As an initial matter, the Court will address the question of whether World Trucking, Nazov and Milev are insureds under the U.S. Fire policy without consideration of either the CO-013 or MCS-90 endorsements. If the answer to this initial question is “no,” then the Court’s inquiry ends. No defendant, however, makes any serious or substantial argument that the tort defendants do not fall within the definition of insured in the policy.

 

The U.S. Fire policy provides that XTRA and “anyone else” who uses a covered auto with permission of XTRA is an insured under the policy. U.S. Fire policy, Sec. II, A, 1 (emphasis added). “Auto” is defined under the policy to specifically include “trailer” or “semitrailer.” Id. Sec. IV, B. The policy clearly defines “covered auto” as any auto, including a trailer, owned by XTRA. Id. Sec. I.

 

No defendant disputes ownership of the trailer involved in the March 7, 2004, accident by XTRA. Nor does any party seriously dispute that the trailer was being operated on March 7 by World Trucking with the permission of XTRA pursuant to the terms of their lease agreement.3Thus, World Trucking, Nazov and, potentially, Milev were permissive users of a covered auto at the time of the March 7 accident and clearly insureds under the terms of the basic U.S. Fire policy.

 

3. U.S. Fire and North River in their response to plaintiffs’ motions for summary judgment, make the rather disingenuous argument that no proof has been offered that “Nazov or Milev were permissive users of the trailer. There is nothing that shows that their identity was ever disclosed to XTRA prior to the accident.”[Doc. 223, p. 8]. It borders on sheer nonsense for these insurance companies to make the argument that World Trucking might be a permissive user but not World Trucking’s driver employee. In addition, they point to no legal authority or provision of the lease which would require a corporate lessee to disclose the identity of its driver or other person authorized by the lessee to use the trailer to the lessor. The lease agreement appears only to require prior approval by the lessor in the event of a sub-lease or assignment of the agreement. Milev, the owner of World Trucking, is potentially an insured under the terms of the policy because of the allegations in the underlying tort action of corporate irregularities which would allow plaintiffs to pierce the corporate veil. In any event, it is not necessary for the Court to resolve the question of whether Milev somehow fits the definition of a permissive user under the policy.

 

B. What is the effect of the endorsement CO-013 on the U.S. Fire policy?

 

The U.S. Fire policy includes endorsement CO-013 which reads as follows: “It is agreed that the lessees of vehicles, leased to them by the named insured, are not an insured under this policy.”Endorsement CO-013 clearly operates to exclude from the definition of insured under the policy the lessees of vehicles leased to them by XTRA. At first blush, the endorsement would clearly seem to operate to exclude the tort defendants, as lessees of the trailer, from the definition of an insured. The policy, however, does not contain a definition of “vehicle” or “vehicles” and plaintiffs argue that the term is ambiguous and lends itself to more than one meaning and should, thus, be construed against the insurance company.

 

As noted above, the policy defines the term “auto” as “a land motor vehicle, ‘trailer’ or ‘semitrailer’ designed for travel on public roads but does not include ‘mobile equipment.’ “ “Mobile equipment” is defined as various types of land vehicles, including bulldozers and other land vehicles designed for off road use, vehicles on crawler treads, vehicles maintained primarily to provide mobility to permanently mounted cranes, shovels, loaders and the like, road graders, scrapers or rollers or other permanently attached equipment and other vehicles maintained primarily for purposes other than the transportation of persons or cargo. In view of these definitions, plaintiffs argue that “vehicles could mean mobile equipment since the term is used to describe examples of property excluded from coverage, or, perhaps the term was used in lieu of land motor vehicles-its meaning is uncertain.” [Doc. 178, p. 12] (Internal quotation marks omitted).

 

An insurance policy is ambiguous if it is capable of more than one reasonable construction. See Harkavy v. Phoenix Ins. Co., 417 S.W.2d 542, 546 (Tenn.1967). Where policy language is ambiguous, Tennessee law requires that the language be construed in favor of the insured. Id. at 546; Spears v. Commercial Ins. Co. of Newark, New Jersey, 866 S.W.2d 544, 550 (Tenn.App.1993). A provision in a policy limiting or reducing coverage is to be construed strongly against the insurance company. Sturgill v. Life Ins. Co. of Georgia, 465 S.W.2d 742, 745 (Tenn.App.1970). Exclusions in insurance policies must be strongly construed against the insurance company and in favor of the insured. See Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 886 (Tenn.1991); Travelers Ins. Co. v. Aetna Cas. & Sur. Co., 491 S.W.2d 363, 367 (Tenn.1973). These clauses should not, however, “be so narrowly construed as to defeat their evident purpose.” Tomlinson v. Bituminous Cas. Corp., 117 F.3d 1421, 1997 WL 397248 (6th Cir.1997) (unpublished) (applying Tennessee law).

 

This Court finds no ambiguity in the word “vehicles.” While the definitions, viewed together, suggest that the word “vehicles” has a broader meaning perhaps than the word “auto” 4 and that the term “auto” has a broader meaning than “trailer,” it is clear that the word “vehicle” includes both autos and trailers. Plaintiffs’ efforts to create ambiguity is unconvincing. As a matter of common sense and ordinary usage, the word “vehicles” as used in endorsement CO-013 includes the trailer involved in the March 7 accident. The clear language of the endorsement compels the conclusion that the tort defendants, as lessees of the trailer at issue, are excluded by operation of the endorsement from the class of insureds under the policy.

 

4. See, e.g. U.S. Fire policy, Sec. I, C, which suggests that only certain types of vehicles are insured in the definition of “autos.”

 

Plaintiffs originally made a second argument with respect to the endorsement CO-013. Citing Commercial Union Ins. Co. v. Universal Underwriters, Inc., 442 S.W.2d 614 (Tenn.1969) and McManus v. State Farm, 463 S.W.2d 702 (Tenn.1971), they argued that the endorsement is not permitted by Tennessee law and void because it violates the public policy of Tennessee. Plaintiffs have now apparently abandoned that argument and argue, instead, that Arizona law applies and the endorsement is void because it violates the public policy of Arizona.5Defendants respond that neither the law of Tennessee nor the law of Arizona would invalidate the lessee exclusions in the U.S. Fire policy.

 

5. At oral argument, counsel for the Armstrong plaintiffs conceded that later decisions of the Tennessee courts have likely resolved this issue in defendants’ favor. Defendants characterize plaintiffs’ argument that Arizona law applies to this case as “a futile attempt to find a jurisdiction they hope will be sympathetic to their effort to invalidate the lessee exclusions in the U.S. Fire policy “and blatant forum shopping.” While the Court does not so hold, plaintiffs’ rapidly changing position certainly gives that appearance.

 

On this issue, the Court is constrained to agree with defendants. Even if Tennessee law applies to the interpretation of the lessee exclusions of the U.S. Fire policy, it clearly is not void. Commerical Union did, in fact, deal with the validity of a provision in a contract of insurance limiting coverage of permissive drivers. Based on Tennessee’s then existing financial responsibility statutes, the supreme court held the provision void in view of the public policy expressed by the legislature in the Financial Responsibility Act. Commercial Union, 442 S.W.2d at 617. The almost identical question was again considered by the Tennessee Supreme Court just two years later in McManus.Once again, the policy provision in question excluded coverage for a permissive user of the insured auto. The supreme court, however, held the provision “not void” and largely overruled Commercial Union. McManus, 463 S.W.2d at 705.

 

Any lingering question about the continued viability of Commercial Union on the question was resolved in Purkey v. American Home Assurance Co., 173 S.W.3d 703 (Tenn.2005). In a case dealing with certified questions of law from the northern division of this Court, the Tennessee Supreme Court addressed the question of whether provisions in an automobile liability insurance policy excluding coverage for bodily injury to household or family members of the insured were void as against Tennessee law or public policy as expressed in the financial responsibility law, Tennessee Code Annotated §§ 55-12-101 thru 140 (2004). The supreme court examined the interplay between Tennessee Code Annotated § 5-12-122, which requires that motor vehicle liability policies “shall insure the person named therein, and any other person using any such motor vehicle or motor vehicles with the express or implied permission of such named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of such motor vehicle …” and Tennessee Code Annotated § 56-7-121 (2000), which provides that “[n]otwithstanding and other provision of law to the contrary, an insurer may exclude coverage pursuant to a contractual agreement; …” Finding that Tennessee Code Annotated § 56-7-121 gives broad authority for exclusionary clauses in insurance policies, the court found this provision to “trump all others.” The court held that “family or household exclusions in automobile liability insurance policies do not violate Tennessee law or public policy.” Id. at 709.The court’s reasoning in Purkey applies with equal force to the policy under consideration here.

 

Plaintiffs likewise misconstrue Arizona law in arguing that the lessee exclusion would be invalid under that state’s statutory and case law. The plaintiffs cite “Section 28-1170(B)(2) of Arizona’s version of the Uniform Motor Vehicle Safety Responsibility Act” as requiring liability insurance policies to cover any person “using the motor vehicle … with the express or implied permission of the named insured.”Defendants respond that plaintiffs rely on a now repealed statute. Defendants are incorrect. Section 28-1170(B)(2) has not been repealed but has been recodified at ARS § 28-4009 and provides that an “owner’s motor vehicle liability policy shall insure the person named in the policy as the insured and any other person, as insured, using that motor vehicle or vehicles with the express or implied permission of the named insured …”ARS § 28-4009(A)(2)(2009).

 

Plaintiffs also correctly state that the requirements of the section, commonly known as the “omnibus clause,” is read by law into every motor vehicle liability policy in Arizona and overrides competing restrictive endorsements. Principal Casualty Ins. Co. v. Progressive Casualty Ins. Co., 172 Ariz. 545, 838 P.2d 1306 (1992). That, however, does not compel a finding that the lessee exclusions in the U.S. Fire policy is void and against Arizona public policy.

 

One obvious reason is that the trailer owned by XTRA is not a “motor vehicle” as that term is defined in the Arizona Financial Responsibility Act. “Motor vehicle” is defined as “a self-propelled vehicle …” ARS 28-4001(3)(2009).6Clearly, the trailer is not self-propelled. Secondly, even if the trailer could be considered a motor vehicle, Arizona’s financial responsibility requirements do not apply to a motor vehicle that is “subject to the requirements of a provision of law requiring insurance or other security on certain types of vehicles.”ARS § 28-4003(2)(2009). Thus, because of the federal financial responsibility requirements, Arizona’s requirements would not apply to the trailer. Lastly, the Arizona public policy is met if a liability insurance policy with limits of $15,000.00 for bodily injury or death of any one person in any one accident, or, in the case of bodily injury or death of two or more persons, $30,000.00, is available. Here, the $1,000,000.00 in coverage provided by World Trucking far exceeds the applicable Arizona limits of coverage.

 

6. In this sense, the Arizona statute differs from the Tennessee statute. “Motor vehicle” is defined in the Tennessee Financial Responsibility Act as a “self-propelled vehicle that is designed for use upon the highway, including trailers and semitrailers designed for use with motor vehicles …”Tenn.Code Ann. § 55-12-102(6).

 

C. Does the MCS-90 Endorsement Negate the Limitation or Exclusion of Endorsement CO-013?

 

Although the parties have raised other issues, this really is the crucial question at the core of this litigation. If the MCS-90 negates the CO-013 endorsement, then the tort defendants are insureds under the U.S. Fire policy; if not, there is no coverage. Any consideration of the effect of the MCS-90 in the policy necessarily requires a review of the history and purposes of the MCS-90 endorsement.

 

1. The History and Purpose of the MCS-90

 

The Motor Carrier Act of 1980, 49 U.S.C. § 10101 et seq., and the regulations promulgated thereunder require certain interstate motor carriers to obtain an insurance policy containing “a special endorsement … providing that the insurer will pay within policy limits any judgment recovered against the insured motor carrier for liability resulting from the carrier’s negligence, whether or not the vehicles involved in the accident is specifically described in the policy.” Illinois Central Railroad Co. v. Dupont, 326 F.3d 665, 666 (5th Cir.2003). The legislation was, in part, intended to address abuses that had arisen in the industry which threatened public safety, including the use by motor carriers of leased or borrowed vehicles to avoid financial responsibility for accidents that occurred while goods were being transported in interstate commerce. Empire Fire & Marine. Ins. Co. v. Guaranty Nat’l. Ins. Co., 868 F.2d 357, 362 (10th Cir.1989).

 

In response to the passage of the Motor Carrier Act, the Secretary of Transportation promulgated a motor carrier endorsement form known as the MCS-90. See 49 C.F.R. 387.15 (2009). The endorsement is to be attached to the truckers’ liability policy issued to a motor carrier “for the purpose of providing notice to the general public that all criteria of section 30 [the financial security requirements] have been met.”Minimum Levels of Financial Responsibility for Motor Carriers, 46 Fed.Reg. 30974, 30978 (June 11, 1981) (codified at 49 C.F.R. pt. 387). The required language of the form endorsement is set forth in the regulation.

 

“It is well-established that the primary purpose of the MCS-90 is to assure that injured members of the public are able to obtain judgment from negligent authorized interstate carriers.”John Deere, 229 F.3d at 857;see also49 C.F.R. § 387.1 (“The purpose of these regulations is … to assure that motor carriers maintain an appropriate level of financial responsibility for motor vehicles operated on public highways.”) In order to accomplish this purpose, the endorsement “makes the insurer liable to third parties for any liability resulting from the negligent use of any motor vehicle by the insured, even if the vehicle is not covered under the insurance policy.” T.H.E. Ins. Co. v. Larson Intermodal Services., Inc., 242 F.3d 667, 671 (5th Cir.2001). The MCS-90 endorsement applies “regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere.”49 C.F.R § 387.15.

 

The insurer is not without recourse when it is obligated to provide coverage under an MCS90 endorsement. When the insurer is required to make a payment it would not have made but for operation of the endorsement, the insurer may recover such payments from the insured. 49 C.F.R. § 387.15, Illustration I (“The insured agrees to reimburse the company for any payment made by the company … for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in [the MCS-90] endorsement.”).

 

2. The Effect of the MCS-90 on the U.S. Fire Policy

 

The effect of the MCS-90 on the U.S. Fire policy presents a significant question about which the parties strenuously disagree. The precise issue does not appear to have been considered by the Sixth Circuit and both parties cite several state and federal court cases from other circuits which they believe support their view of the case. As noted above, the plaintiffs rely primarily on two state supreme court decisions and a duo of federal circuit court of appeals cases, while the defendants find support for their position in a California district court decision, affirmed by the Ninth Circuit, and several federal circuit court of appeals cases.

 

In Adams v. Royal Indem. Co., 99 F.3d 964 (10th Cir.1996), the Tenth Circuit considered a factual scenario very similar to the one in this case. Adams was seriously injured in an accident involving a tractor-trailer and obtained a substantial state court judgment against the driver of the tractor-trailer.7Adams then sued Royal, the insurer of both the lessee of the trailer, who had in turn leased the trailer to the driver of the tractor-trailer involved in the accident, and the lessor of the trailer. The district court granted summary judgment in favor of Royal on grounds that the trailer was not a “covered auto” under the policy and the driver of the tractor-trailer was not an insured under either policy. The district court concluded that the MCS-90 applicable to both policies did not extend coverage to the driver because the driver could not be considered an insured.

 

7. Adams had obtained a default judgment against the driver of approximately $ 1 million but had been unsuccessful in collecting the judgment. Although the court’s opinion does not explicitly say so, it is apparent that there was no insurance of any kind available to compensate Adams, except for the lessee’s Royal policy.

 

The Tenth Circuit affirmed the district court’s finding that the trailer was not a covered auto under either policy. The Tenth Circuit also agreed with the district court that the MCS-90 did not extend coverage to the driver on the lessor’s Royal policy. The circuit court, however, held that the MCS-90 modified the definition of insured under the lessee’s Royal policy so that Royal was liable to Adams on the policy.

 

Both Royal policies defined an insured as including a permissive user, which the driver was, in language almost identical to the language of the U.S. Fire policy here. Also, as with the policy at issue here, “auto” was defined to include a trailer. Both policies had a schedule of covered autos; neither listed the trailer involved in the Adams accident and the policies explicitly provided that only listed autos for which a premium had been paid were covered autos. The lessee’s policy, however, had a handwritten notation in the schedule of covered autos of “any trailer,” while the lessor’s policy had a typed notation of “any undescribed trailer while singularly attached.”Both policies, as noted above, had the ICC mandated MCS-90 endorsement.

 

Adams argued that both basic policies provided coverage because the “omnibus clause” defined an insured as anyone “using with your permission a covered auto you own, hire or borrow.”Both the district court and the Tenth Circuit disagreed because the policy schedule of covered autos applied only to “owned vehicles” and neither the lessee nor the lessor owned the trailer involved in the Adams accident. Adams, 99 F.3d at 967. The Tenth Circuit noted that both policies contained a separate schedule of covered autos hired or borrowed, which was blank. As a result, neither policy insured the trailer involved in the accident.

 

The Tenth Circuit framed the issue in Adams as “whether [the driver] can be considered an “insured” under either policy after the policy is modified by the [MCS-90] endorsement, thereby triggering an obligation for Royal to satisfy Adams’ judgment against [the driver].”Id. at 969 (emphasis in original). In answering that question, the Tenth Circuit noted that Adams was “a member of the general public, which is precisely the group that is intended to be protected by the [MCS-90] endorsement.”Id. The Tenth Circuit explicitly disagreed with the district court finding that the definition of insured in the basic policy, which did not include the driver of the tractor-trailer because he was not using a covered auto, could not be expanded by the MCS-90, which did not include its own definition of insured. Thus, the Tenth Circuit held that the MCS-90 “endorsement precludes a policy from limiting the definition of an insured to one who owns, hires or borrows only specifically described motor vehicles because such a limited definition would subvert the purpose of the ICC endorsement of requiring coverage on all regulated vehicles regardless of whether or not they are listed in the policy specifically.”Id. at 970 (emphasis in original). The MCS-90, according to the Tenth Circuit, “must be read to eliminate the limiting clause that coverage applies only to covered autos.”Id. at 971.

 

Of particular interest was the Tenth Circuit’s rejection of the district court’s reliance on Empire Indem. Ins. Co. v. Carolina Cas. Ins. Co., 838 F.2d 1428 (5th Cir.1988), “for the proposition that the [MCS-90] does not modify a policy which defines the insured as a person driving a covered vehicle when the insured is not driving a covered vehicle.”Id. at FN 9. The Tenth Circuit noted that Empire involved a dispute among several insurers about who ultimately was liable to pay a judgment rather than a claim by a member of the public who sought to invoke the MCS-90 to collect a judgment from an insurer. Thus, the Tenth Circuit made a distinction between cases where an injured member of the public seeks recovery because of the endorsement and cases where there are disputes among insurers over ultimate liability. Id. (citing Industrial Indemnity Co. v. Truax Truck Line, Inc., 45 F .3d 986, 991 (5th Cir.1995)).

 

The Tenth Circuit summarized its decision as follows:

 

We consider our interpretation to be consistent with the purpose of the endorsement. By deleting the policy requirement that an insured is defined in terms of described autos, the insurer assumes the role mandated by Congress and the ICC of protecting the public from interstate truckers who either themselves utilize, or give permission to others to utilize, uninsured vehicles which they own, hire, or borrow, but which are not listed in their insurance policies. This ICC endorsement is mandatory and any insurer who wishes to insure entities for public liability resulting from the operation, maintenance, or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 must do so knowing that there are government mandates restricting their ability to limit coverage, and they can presumably set their premiums accordingly …

 

Id. at 971-72.8

 

8. The Tenth Circuit made it clear, therefore, that the MCS-90 operates to expand coverage beyond that provided in the basic policy, at least in situations where the insured under the policy is defined in terms of described autos.

 

In John Deere Ins. Co.v. Nueva, 229 F.3d 853 (9th Cir.2000), the Ninth Circuit considered the same question under similar facts. John Deere Insurance Company brought a declaratory judgment action seeking a declaration that it had no duty under a liability policy it had issued to indemnify permissive users of the insured’s semitrailer involved in a traffic accident. In the underlying personal injury action, a tractor-trailer rear ended a bus operated by Nueva, resulting in personal injuries to Nueva. The driver and owner of the tractor were uninsured. The owner of the trailer was insured by John Deere. At the time of the accident, the owner had agreed to sell the trailer to the owner of the tractor but had not yet transferred title. The John Deere policy included the federally mandated MCS-90.

 

The insurance policy defined an insured as the named insured (the owner of the trailer) and anyone else using a “covered auto” with the insured’s permission. Only those autos specifically scheduled in the policy were covered autos. The trailer was not listed in the schedule of covered autos; thus, the driver and owner of the tractor-trailer were permissive users of a non-covered vehicle and not insureds under the policy’s express terms. The Ninth Circuit framed the question as “whether a federally mandated endorsement to an insurance policy creates a duty on the part of an insurer to indemnify a permissive user of an auto not covered by the underlying policy for injuries he negligently caused to members of the public.” Id., at 854.

 

Noting that the “purpose of the MCS-90 is to assure that injured members of the public are able to obtain judgment from negligent authorized interstate carriers,” Id. at 857 (citing Harco Nat. Ins. Co. v. Bobac Trucking, Inc., 107 F.3d 733 (9th Cir.1997)), the court found that the appellants, injured members of the public, “are precisely the group meant to be protected by the MCS-90” and made a distinction between cases where injured members of the public seek indemnity under an MCS-90 and the case were two insureds or an insurer and its insured are seeking to determine their rights pursuant to the policy. Id. at 857.

 

John Deere took a position very similar to the one taken by the defendants in this case, i.e., that the MCS-90 only negates the “covered auto” limitation with regard to the named insured. In rejecting John Deere’s argument, the Ninth Circuit stated:

 

The critical language in the endorsement is the provision which states that “the insurer agrees to pay … any final judgment recovered against the insured for public liability …regardless of whether or not each motor vehicle is specifically described in the policy[.] ” (Emphasis added). This language indicates that whatever limitation a policy expresses regarding coverage extending only to “covered” or “specified” autos, this limitation ceases to operate when an injured member of the public seeks indemnification on behalf of the “insured”. See Empire, 868 F.2d at 362 (The MCS-90 “negates any inconsistent limiting provisions in the insurance policy to which it is attached[.]”). Furthermore, a policy containing the MCS-90 “cannot explicitly limit liability to those vehicles specifically described therein, nor can it indirectly so limit coverage by attempting to define who is an insured in terms of specifically described vehicles.” Adams, 99 F.3d at 970;See also Canal 889 F.2d at 610 (recognizing that the MCS-90 reads excess and other-insurance clauses out of the policy as against injured members of the public.)

 

John Deere asks us to read the use of the word “insured” in the endorsement as referring only to its named “insured,” Sahota. In other words, John Deere maintains that the MCS-90 only negates the “covered auto” limitation with regard to the named insured, and would not impact its obligations regarding permissive users. However, we decline to limit the endorsement in this manner. Under John Deere’s proffered interpretation, the MCS-90 negates the express provision in part(a) of the “WHO IS AN INSURED” section of the policy which limits coverage to only “covered autos.” This is so because without the endorsement, Sahota would not be an “insured” under the policy if he caused injury while driving a non-covered auto. It is the endorsement that would transform him into an “insured”. Thus, it is inescapable that the effect of the MCS-90 endorsement is to modify the policy’s definition of an “insured.” …

 

… the MCS-90 negates the limitation that only users of “covered autos” are “insureds”. Therefore, we conclude that under the policy before us, John Deere cannot avoid indemnifying [the driver and operator/lessee] by relying on the policy’s narrow definition of “insured” which attempts to limit that status to permissive users of solely “covered autos”. See Adams, 99 F.3d at 970.

 

Id. at 859.

 

As noted above, plaintiffs’ also rely on recent decisions of the highest state courts in Ohio and Virginia. In Lynch v. Yob, 95, 768 N.E.2d 1158 (Ohio 2002), the Ohio Supreme Court relied on the holdings in Adams and John Deere to resolve a question of whether a policy of liability insurance covering a leased trailer involved in an accident provided coverage to an injured party under an MCS-90 endorsement “even though the operator of the rig was not an insured under the terms of the trailer’s main policy, and even though there is no claim that the trailer owner was negligent.” Id. at 1159.

 

The facts in Lynch were very similar to those in the underlying tort actions. An accident involving a tractor-trailer and an automobile took the lives of the automobile’s driver and a passenger. The tractor-trailer was driven by an employee of the tractor’s owner. The tractor was insured by AIG with a policy limit of $1 million. The trailer’s owner was also insured by AIG with a policy limit of $2.5 million. Neither the tractor owner nor the driver were insureds under the AIG policy on the trailer. Thus, no coverage was available under the basic policy; however, the policy included an MCS-90 endorsement. The trial court held that the MCS-90 provided coverage up to the $2.5 million policy limit. The intermediate court of appeals reversed the judgment of the trial court and held that AIG had no obligation to indemnify the owner and driver of the tractor. More specifically, the court of appeals held that the MCS-90 was not triggered unless there was liability on the part of an insured under the basic AIG policy. The Ohio Supreme Court reversed the Ohio Court of Appeals.

 

Applying federal law to interpret the MCS-90 endorsement, the Ohio Supreme Court adopted the reasoning of the Adams and John Deere decisions to find coverage available under the trailer policy’s MCS-90 endorsement. Id. On appeal, AIG argued that Adams and John Deere were “distinguishable from this case because those cases involved underlying policies that limited coverage to specifically described vehicles, while this case involves a fundamentally different underlying policy limitation, that “truckers” other than employees of the named insured are not covered while using the trailer.”Id. at 1163.AIG further argued “that the MCS-90 endorsement operates to negate exclusions from coverage but cannot transform noninsured parties into insureds.”Id. The Ohio Supreme Court rejected AIG’s argument as too restrictive a reading of John Deere and Adams and held:

 

… The case sub judice involves a permissive user of a noncovered vehicle, the leased trailer at issue, and so the rule of John Deere Ins. Co. v. Nueva and Adams is fully applicable. That rule that emerges from those cases is that the MCS-90 endorsement should be read to eliminate any limiting clauses in the underlying policy restricting the scope of coverage. See Adams, 99 F.3d at 971; John Deere Ins. Co. v. Nueva, 229 F.3d at 859.

 

We find that although there may be some factual differences between the case sub judice and the two federal appellate decisions (for example, that there is coverage available on the tractor in this case while there was not in John Deere Ins. Co. v. Nueva and Adams ), the reasoning of those two cases fully applies to our determination.

 

Id. at 1163.

 

In Heron v. Transportation Cas. Ins. Co., 650 S.E.2d 699 (Va.2007), ER Transport Services, Inc. (“ER”) was registered with the FMCSA as an interstate motor carrier and was insured by a liability insurance policy issued by Transportation Casualty Insurance Company (“TCI”) which contained an MCS-90 endorsement. ER’s employee, driving a tractor-trailer owned by ER, collided with an automobile operated by Craig K. Heron. As a result of the collision, Craig K. Heron and Alma P. Heron died, and their daughter suffered serious personal injuries.

 

TCI filed a declaratory judgment action seeking a court declaration that the policy issued by TCI provided no coverage for the accident and that TCI had no obligation to pay any judgment rendered against ER or its driver. Because the driver had a bad driving record, the TCI policy explicitly excluded him as a covered driver. The parties agreed that there was no coverage unless coverage was provided by the MCS-90 endorsement. TCI argued that the MCS-90 only applies to accidents which occur in the course of transportation in interstate commerce, and not the accident in question, which occurred exclusively in intrastate commerce.

 

The Virginia Supreme Court found coverage by applying simple, state law contract rules to the interpretation of the MCS-90, finding that the plain language of the MCS-90 provided that the insurer would pay any final judgment against the insured (ER) resulting from negligence in the operation or use of motor vehicles subject to the requirements of the Motor Carrier Act of 1980. The parties had stipulated that ER was the owner of a vehicle that was subject to the financial responsibility requirements of the Motor Carrier Act, and was subject to a claim and potential judgment for damages resulting from negligence in the operation of that vehicle. On the stipulated facts, the Court rejected TCI’s claims that the MCS-90 endorsement only applies to accidents that occur in the course of transportation in interstate commerce. It was, therefore, not necessary for the Supreme Court to consider the federal statute or regulations that motivated the parties to adopt the MCS-90.

 

As noted above, U.S. Fire and North River rely heavily on Del Real v. United States Fire Ins. Crum & Forster, 64 F.Supp.2d 958 (E.D.Cal.1998), aff’d 188 F.3d 512, 1999 WL 626619 (9th Cir.1999) (unpublished opinion). In Del Real, plaintiffs in an automobile accident case obtained a state court judgment against the owner of the tractor and driver of a tractor-trailer at fault in the subject accident. They then sued in federal court seeking to recover the unpaid portion 9 of the judgment against two insurance policies issued by U.S. Fire to the owner-lessor of the trailer involved in the accident. The insurance policies contained the federally mandated MCS-90 endorsement identical to the endorsement in the instant case. The U.S. Fire Policies excluded leased autos from coverage under the policy where other insurance coverage was available, as was the case there. Plaintiffs claimed that coverage was available because the tractor owner and driver were covered by the MCS90 endorsement in the U.S. Fire policy.

 

9. The total amount of the damage award was $2,059,539. The trucking company’s insurer paid its policy limits of $750,000.00, leaving an unpaid amount of $1,309,539.

 

The district court held that plaintiffs could not recover under the MCS-90 endorsement for two reasons. First, the driver and owner of the tractor were not “insureds” under the MCS-90 endorsement and the endorsement obligates the insurer only to pay “any final judgment recovered against the insured.”The district court found the policy ambiguous as to whether the term “insured” is limited to the named insured or also includes lessees or other permissive users. Because the language of the MCS-90 endorsement is mandated by federal regulation, the court held that the definition of “insured” found in the policy was not conclusive. Id. at 964.

 

The Court then concluded that the term “insured” in the endorsement was not intended to include lessees of the insured’s equipment because it was illogical to conclude that the named insured agreed to reimburse the insurer for loss caused by its lessee (the insured agreed in the MCS90 to reimburse the insurer for any payment made under the endorsement that the insurer would not have been obligated to make under the policy except for the endorsement), and it was equally illogical that the lessee had knowingly agreed to reimburse for payments made under the endorsement. Thus, reasoned the district court, reference to “insured” in the MCS-90 endorsement means the named insured.Id . The Ninth Circuit affirmed “for the reasons set forth” in the distict court’s memorandum. Del Real v. U.S. Fire, 188 F.3d 512 (9th Cir.1999).

 

XTRA, on the other hand, relies not only on Del Real but also on cases from the Third, Fifth, Eighth and District of Columbia Circuits for the proposition “that in order to secure insurance benefits pursuant to an MCS-90 endorsement (formerly an “ICC endorsement”), an injured party must first secure a judgment against the named insured in the insurance policy. See National Mut. Ins. Co. v. Liberty Mut. Ins. Co., 196 F.2d 597 (D .C.Cir.), cert. denied, 344 U.S. 819 (1952); Wellman v. Liberty Mut. Inc. Co., 496 F.2d 131 (8th Cir.1974); White v. Excaliber Ins. Co., 599 F.2d 50 (5th Cir.), cert. denied, 444 U.S. 965 (1979); and Carolina Cas. Ins. Co. v. Ins. Co. of N. America, 595 F.2d 128 (3d Cir.1979).

 

National Mutual v. Liberty Mutual involved a dispute between two insurance companies. The victim of an automobile accident recovered judgment against Mench, the owner/driver of a trailer truck. Mench was insured by National Mutual but the judgment was never satisfied. The victim brought suit in United States District Court against National Mutual. Under the terms of the National Mutual policy, National Mutual’s liability did not begin until all other available insurance had been exhausted, i.e., National Mutual’s policy provided “excess” insurance. At the time of the accident, the trailer truck was under lease to Elliott Brothers Trucking Company and was being driven by Mench on Elliott’s business. Elliott was insured by Liberty Mutual. National Mutual, believing itself not liable because the Liberty Mutual coverage was available to Mench, lodged a third party complaint against Liberty Mutual and Elliott. The district court dismissed the third party complaint.

 

The District of Columbia Circuit held that the third party complaint was not authorized by the Federal Rules of Civil Procedure because it rested on the theory that the third party defendants were liable to the victim of the accident, not to the third party plaintiff (National Mutual). The court also held that the third party complaint could not be read as claiming that Liberty Mutual and Elliott were liable to National Mutual on the basis of subrogation because “there is no basis for subrogation in the present case.”Id. at 598.The court found that no subrogation right arose “simply because Mench was driving the vehicle on [Elliott’s] business at the time” of the accident.Id. at 599.The court also examined the Liberty Mutual policy because “[t]here might be subrogation if Mench were covered as an insured” under the Liberty Mutual policy. Id. Mench, however, was not an insured under the Liberty Mutual policy because the owner of the vehicle was excluded from the definition of the term “insured.” Id. The court also determined that the “ICC endorsement” [predecessor of the current federally mandated MCS-90] did not change that result. The court stated:

 

The endorsement was required by the Interstate Commerce Act, 49 U.S.C.A. § 315, for the protection of members of the public; it doubtless would have enured to the benefit of [the auto accident victim], had she chosen to sue Elliott Bros. But it hardly serves to shift Mench’s liability from his own insurer to Elliott Bros.’ insurer. Nor does it make Mench an ‘insured’ under the Liberty policy; that is still a matter governed by the express provisions of the body of the contract.

 

Id. at 600.(footnote omitted)

 

In Wellman v. Liberty Mutual, Roberta Wellman suffered serious personal injuries in an automobile collision with a truck driven by its owner, Mitchell. At the time of the accident, Mitchell was returning from delivering a load of cargo for Morgan, who had leased the tractor-trailer from Mitchell. On the return trip, Mitchell was hauling a load under contract with Illinois Machinery Transport, Inc. (IMT) without Morgan’s knowledge or approval. Wellman sued Morgan, Mitchell and IMT in Missouri state court and obtained a substantial default judgment against Mitchell and IMT. She voluntarily dismissed her claim against Morgan. Wellman then sued Liberty Mutual, Morgan’s liability insurance carrier in federal court in an effort to collect on the default judgment. Wellman, 496 F.2d at 132.

 

The district court held that the Liberty Mutual policies 0 afforded coverage to Mitchell and IMT and entered judgment for Wellman for the full amount of the default judgment. The Eighth Circuit reversed. The Eighth Circuit framed the issue as “whether the insurance policy covers owner-operator Mitchell and Broker-IMT.”Id. The Liberty Mutual policy provided “Comprehensive Automobile Liability Insurance” to Morgan. The policy obligated Liberty Mutual to pay all sums the insured became legally obligated to pay because of bodily injury or property damage “caused by an occurrence and arising out of the ownership, maintenance or use … of any automobile.”1Id. at 135.“Persons Insured” under the policy included the named insured (Morgan) and any person using an owned or hired automobile with the permission of Morgan “provided … his actual use thereof is within the scope of such permission.”Id. The policy explicitly provided that the owner of a hired automobile and any agent or employee of the owner were not insureds.Id.

 

0. Liberty Mutual had issued two policies to Morgan-a primary liability policy and an umbrella policy. The policies were co-extensive as to coverage provisions.

 

1. “Automobile” was defined as “a land motor vehicle, trailer, or semi-trailer designed for travel on public roads.” Wellman, 496 F.2d at 135, n. 5.

 

Based upon these basic provisions of the policy, the court determined that “Mitchell was, as a matter of law, operating the vehicle within the scope of the insured’s permission, and, under these circumstances, the ‘Persons Insured’ provision would cover him .” Id. at 136.The court further determined that “[t]he exclusion … of ‘the owner … of a hired automobile’ would not bar coverage to an owner-operator since he would be protected … as a user whose ‘actual operation … is within the scope of such permission.’ “ Id. The policy, however, also contained a “Truckmen-Form A” endorsement which modified the coverage to exclude from coverage as an insured “the owner or any lessee (of whom the named insured is a sub-lessee) of a hired automobile, or any employee of such owner or lessee … while the automobile is not being used exclusively in the business of the named insured and over a route the named insured is authorized to serve by federal or public authority …” Id. at 136-37.The endorsement further specifically provided that “a driver or other person furnished to the named insured with an automobile hired by the named insured shall be deemed not to be an employee of the named insured.” Id. at 137.The policy apparently did not contain an MCS-90 endorsement.

 

Based on these policy provisions, the Eighth Circuit held:

 

… Thus, an owner-operator, though he may be deemed a ‘statutory’ employee for liability purposes, is not classified as an employee of the insured for insurance purposes.

 

Here, Mitchell, as a non-employee under the policy, was operating and using the vehicle at the time of the accident on the business of IMT, a third party, not in the exclusive business of the named insured. As a result, the specific language of paragraphs (b)(1) and (d)(1) of ‘Truckmen-Form A,’ stipulating that the use of the hired automobile be ‘exclusively in the business of the named insured,’ requires that we construe the policy as affording no liability coverage to owner-operator, Mitchell, or to IMT.

 

Id.

 

The Eighth Circuit further held that ICC regulations which create a type of statutory employment under which a franchised carrier becomes responsible for the negligence of the owner-operator, at least when he is engaged in the activities of the carrier, see Cox v. Bond Transportation, Inc., 249 A, 2d 579, 589,cert. denied 395 U.S. 935 (1969), cannot be read into a policy to impose liability upon an insured in contravention of the precise terms of the policy. Wellman, 496 F.2d at 37.2

 

2. The Eighth Circuit emphasized, however, that the insurance coverage problem raised in Wellman would not arise where a plaintiff presses his suit against the ICC carrier whose permit numbers are carried on the truck at the time of the accident. The court specifically noted that Morgan could have been liable to Wellman in the original state court proceeding if Mitchell were proved negligent. Had Wellman obtained a state court judgment against Morgan, the result in the case would have been different for the insurance policy would clearly have covered Morgan as the “named insured” even though his liability was vicarious and statutorily derived. Wellman, 496 F.2d at 139.

 

White v. Excalibur Ins. Co., 599 F.2d 50 (5th Cir.1979) is another case dealing with the liability of a lessee’s insurer for acts of “statutory” employees. Superior Trucking Company (Superior), a licensed interstate motor carrier, entered into a lease agreement with Crawford under which Crawford agreed to supply Superior with trucks and drivers to be used in Superior’s business. The agreement purported to establish an employer-independent contractor relationship between Superior and Crawford. Wright and Lindsey were working for Crawford as drivers, hauling merchandise for Superior. While Lindsey was driving and Wright was asleep in the cab, their truck was involved in a collision. Wright was killed.

 

Wright’s mother brought a tort action against Lindsey and was awarded a judgment. She then sued Excalibur Insurance Company, Superior’s insurer, in an effort to collect the judgment. The district court held that Wright’s mother could not recover from Excalibur because Wright was, by virtue of federal law, a statutory employee of Superior. As such, Wright was not a beneficiary of the Excalibur policy issued in compliance with Georgia workmen’s compensation laws and his mother’s exclusive remedy against Superior was workmen’s compensation.

 

The district court further held that Wright’s mother could recover from Superior’s insurer under federal law only if she first obtained a judgment against Superior. The Fifth Circuit agreed, stating the issue in the case as “whether a driver, who during his rest period was killed by the tort of a fellow worker then actually operating the vehicle aboard which both were employed, may recover in tort from the carrier or whether his remedy is limited to [workmen’s] compensation.”Id. at 51.Because Wright was a statutory employee of Superior by virtue of 49 U.S.C. § 304(e), the Fifth Circuit agreed that Wright’s mother was barred by Georgia law from seeking a remedy apart from workmen’s compensation. The Fifth Circuit also rejected an argument by plaintiff that Superior was liable for her son’s death as a matter of substantive federal law implicit in 49 U.S.C. § 304(e), e.g., that federal law makes common carriers absolutely liable for all harm caused by operations in their leased vehicles. The court held, in relevant part, that the financial responsibility requirements of federal law relating to leased vehicles could not be read into a carrier’s insurance policy to hold an insurer liable to pay a judgment against a truck driver (but not against the motor carrier) for negligently causing the death of a fellow driver killed in an accident. Relying on Wellman, the court ruled that under 49 U.S.C. § 315 (now section 13906), “in order for [the insurer] to be liable under the policy filed by [the motor carrier] with the ICC, [the motor carrier] must first be adjudicated liable as a party.”Id. at 55.

 

Lastly, XTRA relies on Carolina Casualty Ins. Co. v. Ins. Co. of North America, 595 F.2d 128 (3d Cir.1979). The “pattern of facts” in the case, characterized by the Third Circuit as a “common one,” is fairly simple. An ICC-certified motor carrier (Refrigerated Transport) leased a truck; the lessor of the vehicle (Stanford) provided the driver (Wicker). The truck, while carrying goods for Refrigerated Transport and displaying the ICC placards of Refrigerated Transport, was involved in an accident. Injured members of the public (the Babcocks) sued Refrigerated Transport, Stanford and Wicker for damages. Stanford’s insurance carrier (Carolina Casualty) filed a separate declaratory judgment action against Refrigerated Transport’s insurance carrier (INA) seeking a declaration as to which insurance company had primary responsibility for defending and paying any settlement or judgment in the underlying tort action. Both insurance companies contended that their respective liability policies applied only as excess insurance and that the other’s policy was primary.

 

The Third Circuit characterized the case “as an action to determine where the ultimate financial responsibility for the injury rests” and not “a determination of the duty owed by a motor-carrier lessee and its insured to the injured public.” Id. at 137-38 (citing Allstate Ins. Co. v. Liberty Mutual Ins. Co., 368 F.2d 121, 125 (3d Cir.1976)). The Court noted that “where the case is concerned with responsibility as between insurance carriers,” and not with the federal policy of protecting the public, “I.C.C. considerations are not determinative” and “a court should consider the express terms of the parties’ contracts.” Id. at 138.Finding that neither federal motor carrier requirements nor the lease and insurance provisions pursuant thereto determinative of the respective duties of the insurers, the court turned to state law and the insurance contracts themselves to determine the allocation of financial responsibility. Id. The court concluded “that nothing in the federal motor carrier requirements, the trip lease, or the imputed ICC endorsement absolves Stanford and Carolina Casualty of any duty they might otherwise have to pay judgments entered against Stanford,” but remanded to the district court for further determination of the allocation issues between the two insurers. Id. at 144.

 

One additional case bears some mention. In Pierre v. Providence Washington Insurance Co., 784 N.E.2d 52 N.Y.(2002), a divided Court of Appeals of New York considered a factual scenario much like the one in the instant case. Plaintiff Pierre was injured when his vehicle was struck by a tractor-trailer driven by Harris. Harris’ employer owned the tractor and the trailer was owned by Blue Hen(“Blue Hen”), a federally registered motor carrier engaged in the business of transporting goods in interstate commerce. Harris’ employer had leased the trailer to Blue Hen and agreed to provide a driver. The lease agreement obligated Blue Hen to provide liability insurance. There was no dispute that the tractor-trailer was being operated at the time of the accident in the course of Blue Hen’s business.

 

The plaintiff, Pierre, sued Harris and his employer (the driver and owner of the tractor) and obtained a default judgment. Pierre learned, during the course of the personal injury litigation, that Blue Hen owned the trailer and that Providence had issued a truckers’ liability policy to Blue Hen for automobile accidents occurring during the course of Blue Hen’s business. Attached to the policy was the federally mandated MCS-90. Pierre then sued Providence seeking to collect his judgment. Providence defended on the basis that neither Harris nor his employer had notified Providence of the accident as required by the policy. Providence argued that the MCS-90 was “triggered only if the injured party obtains a judgment against the named insured who purchased the policy, in this case Blue Hen.” Id. at 57.

 

The Court of Appeals of New York described the regulatory and precedential background as follows:

 

The MCS-90 endorsement, a creature of federal regulation, must be interpreted according to federal law. Federal courts that have interpreted the endorsement in the context of claims brought by injured parties have consistently focused on the literal language of the endorsement and the underlying policy to determine its meaning (see Integral Ins. Co. v. Lawrence Fulbright Trucking, Inc., 930 F.2d 258 [2d Cir.1991] ). Appellate courts have also consistently held that an insurance company may be obligated to compensate an injured party under an MCS-90 endorsement even if the motor carrier who purchased the underlying policy was not the negligent party responsible for causing the injuries (id.; see also John Deere Ins. Co. v. Nueva, 229 F.3d 853 [9th Cir.2000], cert. denied 534 U.S. 1127, 122 S.Ct. 1063, 151 L.Ed.2d 967 [2000]; Campbell v. Bartlett, 975 F.2d 1569 [10th Cir.1992]; Lynch v. Yob, 95 Ohio St.3d 441, 768 N.E.2d 1158,cert. denied sub. nom. National Union Fire Ins. Co. of Pittsburgh v. Lynch, 537 U.S. 1097, 123 S.Ct. 695, 154 L.Ed.2d 648 [2002] ). In other words, the motor carrier who purchased the insurance-the so-called named insured”-need not have been negligent; all that is required is that the accident resulted from negligence and that a judgment was entered implicating the coverage provisions of the policy and endorsement.

 

Id.

 

The Court of Appeals relied heavily on John Deere Ins. Co. v. Nueva, Adams v. Royal Indemnity Co. and Campbell v. Bartlett, 975 F.2d 1569 (10th Cir.1992), a case where the court determined that a negligent truck driver was an insured within the terms of an MC S-90 endorsement, interpreting the term “insured” using the definition in the underlying liability policy. Focusing on the coverage provisions of the liability policy to which the MCS-90 endorsement was attached, the Court of Appeals held Pierre was entitled to payment under the endorsement, “regardless of whether the responsible party happened to have been the named insured who purchased the policy.”Id. at 59.The Court of Appeals held that such result was “the only result consistent with the public policy underpinnings of the endorsement: shifting the risk of loss in motor vehicle accidents involving tractor-trailers operated in interstate commerce by guaranteeing that an injured party will be compensated even if a condition in the liability policy would otherwise provide the insurance carrier with a valid defense.”Id .

 

The three dissenters in Pierre argued that the language of the MCS-90 could “only be understood in the statutory and regulatory context that created the form,” not by reference to the provisions of the underlying insurance policy. Id. at 63.The dissenter’s found it significant that the language of the MCS-90 is that of Congress and the Secretary of Transportation and was not chosen by Providence, but rather was imposed by the federal government. Id. The dissenters thus would have interpreted the MCS-90 to require the insurance company to only pay a judgment against the named insured-the registered motor carrier.

 

As set forth above, the basic U.S. Fire policy at issue in this case provides no coverage to World Trucking for the March 27 accident unless the MCS-90 requires such coverage. While the case law on the matter is far from clear and somewhat conflicting, there appear to be two basic approaches to the interpretation of the MCS-90. Depending upon which approach is used in this case, the outcome may be different.

 

One approach, with some variations in the case law, is to interpret the MCS-90 endorsement as any other policy endorsement and determine its meaning in the context of other policy provisions, applying the usual rules for interpretation of insurance contracts. This is clearly the approach used by the Heron, Pierre and Campbell courts. The other approach is to interpret the MCS-90 only in the context of the regulatory and statutory framework which mandates its existence. This is the approach followed by the dissenters in the Pierre case and, at least nominally, by the Ninth and Tenth Circuits in John Deere and Adams.

 

There seems to be little doubt that it is federal law, which governs the interpretation of the MCS-90 in this case. The endorsement is required by federal law, and its language is prescribed by a federal regulation. It is a well settled principle that “the meaning of words in a federal statute is a question of federal law.” Western Airlines, Inc. v. Board of Equalization of State of South Dakota, 480 U.S. 123 (1987). Thus, virtually all jurisdictions to consider the question have concluded that the interpretation of the MCS-90 is a matter of federal law. See, e.g ., John Deere, 229 F.3d at 856 (“Federal law applies to the operation and effect of ICC-mandated endorsements.”) (citing Planet Ins. Co. v. Transport Indem. Co., 823 F.2d 285, 288 (9th Cir.1987); Canal Ins. Co. v. First General Ins. Co., 889 F.2d 604, 610 (5th Cir.1989), modified on other grounds, 901 F.2d 45 (5th Cir.1990); Ford Motor Company v. Transport Idem. Co., 795 F.2d 538, 545 (6th Cir.1986) and In re Yale Express Sys., Inc., 362 F.2d 111, 114 (2d Cir.1966)).

 

One other principle is important as a threshold matter to the interpretation of the MCS-90 in this case. As noted above, the MCS-90 is a creature of federal law and its language is mandated by federal regulation. As such, the regulation has the force of law. The analysis of any regulation begins with the plain meaning of the regulation’s language. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235 (1989); United States v. Turkette, 452 U.S. 576 (1981). The language of a regulation must necessarily be interpreted in the context of its statutory origin. If the language, in its statutory context, is clear and unambiguous, it must then be applied in accordance with its plain meaning. See Smith v. United States, 508 U.S. 223 (1993); Kaiser Aluminum v. Bonjorno, 494 U.S. 827 (1990); Rubin v. United States, 449 U.S. 424 (1981). Even where the language is ambiguous, case law sets forth settled rules of construction and interpretation, including an analysis of the underlying statute’s structure and purpose. See United States v. Jackson, 759 F.2d 342, 344 (4th Cir.1985). Additionally, the Sixth Circuit has addressed the issue of the weight to be given to an administrative agency’s interpretation of its own regulations.

 

An administrative agency’s interpretation of its own regulations is entitled to substantial deference. Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965). We defer to an administrative agency’s interpretation of its own rule or regulation unless it is plainly erroneous or inconsistent with the regulation. Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945); Arctic Express, Inc. v. United States Dep’t of Transp., 194 F.3d 767, 771 (6th Cir.1999).

 

A.D. Transport Express, Inc. v. United States, 290 F.3d 761, 766 (6th Cir.2002).

 

In light of the above stated rules, the obvious beginning point for this Court’s analysis and interpretation of the MCS-90 attached to the U.S. Fire policy is the statutory and regulatory provisions which provide its context. The Secretary of Transportation has regulatory authority over transportation by motor carriers in interstate commerce. 49 U.S.C. § 13501. A commercial motor carrier may operate only if registered to do so and must be “willing and able to comply with … the minimum financial responsibility requirements established by the Secretary pursuant to section[ ] 13906 …”49 U.S.C. §§ 13901, 13902(a)(1)(D).

 

Section 13906 of Title 49, United States Code, requires a registered motor carrier to file “with the Secretary a bond, insurance policy, or other type of security approved by the Secretary” which is “sufficient to pay, not more than the amount of the security, for each final judgment against the registrant for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles …”49 U.S.C. § 13906(a)(1). The minimum level of financial responsibility for a motor carrier transporting property must be “at least $750,000.00.” 49 U.S.C. § 31139.

 

The implementing regulations are found in Part 387, Subpart A of the Code of Federal Regulations. Subpart A“prescribes the minimum levels of financial responsibility required to be maintained by motor carriers of property operating motor vehicles in interstate, foreign, or intrastate commerce,”49 C.F.R. § 387.1, and “applies to for-hire motor carriers operating motor vehicles transporting property in interstate or foreign commerce.”49 C.F.R. § 387.3. The regulations require proof of the required financial responsibility by one of three methods.

 

… The proof shall consist of-

 

(1) “Endorsement(s) for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980” (Form MCS-90) issued by an insurer(s);

 

(2) A “Motor Carrier Surety Bond for Public Liability under Section 30 of the Motor Carrier Act of 1980” (Form MCS-82) issued by a surety; or

 

(3) A written decision, order, or authorization of the Federal Motor Carrier Safety Administration authorizing a motor carrier to self-insure under § 387.309, provided the motor carrier maintains a satisfactory safety rating as determined by the Federal Motor Carrier Safety Administration….

 

49 C.F.R. § 387.7(d)(1)-(3). Thus, a motor carrier can establish proof of financial responsibility by the MCS-90, a surety bond or by self insurance.

 

Certain forms are prescribed by the regulations for the purpose of showing compliance with these financial responsibility requirements. Of relevance to this case is the form MCS-90 set forth in 49 C.F.R. § 387.15. That section provides that the endorsement used to establish proof of financial responsibility pursuant to 49 C.F.R. § 387.7(d)(1)must be in the form prescribed by the regulation and further requires that “[t]he endorsement … shall be issued in the exact name of the motor carrier.”Id. The MCS-90 form prescribed by section 387.15 contains the following provisions which have relevance to this case.

 

The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, within the limits stated herein, as a motor carrier of property, with sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Motor Carrier Safety Administration.

 

In consideration of the premiums stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere…. It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured….

 

49 C.F.R. § 387.15 (Illustration I).

 

Notably, the MCS-90 itself contains definitions for certain words used in the endorsement. These definitions include “accident,” “motor vehicle,” “bodily injury,” “environmental restoration,” “property damage,” and “public liability.” Id. Those same definitions appear in 49 C.F.R. § 387.5, which also includes various other definitions including that of “insured and principal,” which is defined to mean “the motor carrier named in the policy of insurance, surety bond, endorsement, or notice of cancellation, and also the fiduciary of such motor carrier.”49 C.F.R. § 387.5. Section 387.5 specifically provides that its definitions apply to all of Subpart A, which includes 49 C.F.R. § 387.15, which contains the required language of the MCS-90.

 

While stated in various ways, there is almost universal agreement that the purpose of the MCS-90 is to protect the public. See Empire Fire and Marine Insurance Company v. Guaranty National Insurance Company, 868 F.2d 357, 362-63 (10th Cir.1989) (“[T]he ICC endorsement [the predecessor of the MCS-90] … had its origin in the ICC’s desire that the public be adequately protected when a licensed carrier uses a leased vehicle to transport goods pursuant to an ICC certificate.”); Adams, 99 F.3d at 968 (“[T]he policy behind this ICC endorsement was to protect the public from uninsured regulated vehicles…. This ICC endorsement is designed to require ICCcertified carriers to insure against public liability for all their motor vehicles that are subject to the financial responsibility requirements of the Motor Carrier Act. By requiring all such described insurance policies to contain this ICC endorsement, the ICC prevents the possibility of that, through inadvertence or otherwise, some vehicles may be left off a policy to the detriment of the public.”); Canal Ins. Co. v. First General Ins. Co., 889 F.2d 604, 611 (5th Cir.1989) (noting that the “policy embodied in the statutes and regulations was to assure that injured members of the public would be able to obtain judgments collectible against negligent authorized carriers.”), mandate recalled and reformed, 901 F.2d 45 (5th Cir.1990); Travelers Ins. Co. v. Transport Ins. Co., 787 F.2d 1133, 1140 (7th Cir.1986) (stating the purpose of the ICC regulations “is to insure that an ICC carrier has independent financial responsibility to pay for losses sustained by the general public arising out of its trucking operations.”); John Deere, 229 F.3d at 857 (“It is well established that the primary purpose of the MCS-90 is to assure that injured members of the public are able to obtain judgment from negligent authorized interstate carriers.”); Kline v. Gulf Ins. Co., 466 F.3d 450, 456 (6th Cir.2006) (“The federal government balanced the need to compensate victims with the needs of industry and determined the appropriate minimum compensation for members of the public.”).

 

The MCS-90 endorsement attached to the U.S. Fire policy requires U.S. Fire, in language directly from 49 C.F.R. § 387.15, “to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles” subject to the requirements of the Motor Carrier Act of 1980. If “the insured” refers to World Trucking, then U.S. Fire is obligated to pay, up to its policy limits, any judgment obtained by the underlying tort plaintiffs against World Trucking. On the other hand, if “the insured” refers only to the named insureds under the policy, as U.S. Fire maintains, then U.S. Fire has no obligation to indemnify the underlying tort plaintiffs for any judgment obtained against World Trucking. That much is relatively clear. It is not so clear, however, who “the insured” is under the terms of the MCS-90.

 

As noted by several courts, the MCS-90 itself does not contain a definition of “the insured.” Title 49 C.F.R., Part 387, Subpart A, however, does include a definition of “the insured.” Likewise, the basic U.S. Fire policy also contains a definition of “the insured.” Thus, the Court is faced with its dilemma. Does the Court interpret the MCS-90 to determine the meaning of “the insured” by reading the MCS-90 in conjunction with the basic U.S. Fire policy? Or, does the Court interpret the meaning of “the insured” in the context of the statutory and regulatory framework and by reference to the definitions contained in the regulations? Based upon a review of the case law above, it appears that the highest state courts of Virginia and New York as well as the Tenth Circuit in Campbell have applied the former approach and all would likely hold that World Trucking is an insured within the meaning of the MCS-90. On the other hand, the Ninth and Tenth Circuits in John Deere and Adams purport to have interpreted the MCS-90 in the context of the federal statutes and regulations and these courts, too, would likely find World Trucking to be an insured under the MCS90.

 

To this Court, at least, it appears that the MCS-90 can only be interpreted in the context of the statutory and regulatory provisions from which it has emerged. For the reasons which follow, this Court concludes that the only sensible reading and interpretation of the MCS-90 is that “the insured” is the named insured, i.e.,“the motor carrier named in the policy of insurance” and the MCS-90 attached to the U.S. Fire policy obligates U.S. Fire to pay a judgment against XTRA or other named insureds, but not against World Trucking, which is not a named insured under the policy. In fact, it appears to the Court that 49 C .F.R. § 387.5’s definition of “insured,” which applies by its clear terms to all of Subpart A, including § 387.15, requires this result. In reaching this conclusion, this Court is mindful that two federal circuit courts of appeal appear to have come to a contrary conclusion. It also appears to this Court, however, that the Ninth and Tenth Circuits in John Deere and Adams may have reached the wrong conclusion when the MCS-90 is viewed in the context of the statutory and regulatory provisions.

 

As an initial matter, the language of the statute itself supports the interpretation that “the insured” in the MCS-90 refers to the motor carrier named in the policy of insurance. The statute requires that the insurance “be sufficient to pay, …for each final judgment against the registrant for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance or use of motor vehicles, …”49 U.S.C. § 13906(a)(1) (emphasis added). The italicized language of the statute clearly suggests that the purpose of the MCS-90 is to assure payment of a final judgment against the registered motor carrier, which in this case is XTRA, not World Trucking. Consistent with the statute, the regulation also provides that no common carrier may engage in interstate commerce, and no permit be issued, until the MCS-90 has been acquired “conditioned to pay any final judgment recovered against such motor carrier for bodily injuries to or the death of any person resulting from the negligent operation, maintenance or use of motor vehicles …”49 C.F.R. § 387.301(a). The same language is then carried forward to the MCS-90 which provides that the insurer “agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles …” In the context of these statutory and regulatory provisions, this Court concludes that “the insured” as used in the MCS-90 can only mean the motor carrier named in the policy of insurance.

 

Further support for this Court’s interpretation of the MCS-90 is found in the body of the MCS-90 itself. The term “the insured” 3 is used at various other places in the body of the MCS-90 and, read together, these clearly illustrate that “the insured” means the motor carrier named in the policy. For instance, the MCS-90 also provides that “[t]he insured agrees to reimburse the company for any payment made by the company on account of any accident, claim or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.”The Armstrong plaintiffs seem to acknowledge that this provision would require XTRA, the named insured, rather than World Trucking, to reimburse U.S. Fire for any payment made to the tort plaintiffs as a result of the MCS-90. Yet, if World Trucking is “the insured” referred to in the language quoted above, and if “the insured” is defined consistently throughout the MCS-90, it would seem that it would be World Trucking which “agrees” to repay U.S. Fire. Because World Trucking is not a party to the U.S. Fire insurance contract, it can hardly be argued that World Trucking has “agreed to reimburse the company.” One other example illustrates the illogical nature of the tort plaintiffs’ argument. The MCS-90 also provides that the endorsement may be cancelled “by the company or the insured.”It cannot even be reasonably argued that the reference to cancellation by “the insured” refers to anyone other than a named insured under the policy. Only a party to the insurance contract could effect cancellation, and it would be nonsensical to suggest that World Trucking would have any right to cancel the U.S. Fire policy.

 

3. The MCS-90 refers to “the insured,” not “an insured,” further suggesting the “the insured” means the named insured.

 

While it is true that the purpose of the MCS-90 is to protect the public, interpreting the MCS90 in the manner done by the Ninth and Tenth Circuits and advocated by the plaintiffs in this case goes far beyond anything that Congress intended by the enactment of the Motor Carrier Act. In this Court’s view, the financial responsibility requirements of the law were not intended by the Congress to create strict liability on the part of an insurance company to compensate any injured member of the public but rather to assure payment of at least the minimum level of financial responsibility to members of the public injured in an accident on account of negligence by a motor carrier. That is especially true where, as here, the congressional intent of providing injured members of the public at least the minimum level of financial compensation has been met because of the liability insurance carried by World Trucking. As the Sixth Circuit noted, the “purpose of the [MCS-90] endorsement is to give security for the protection of the public up to the limits prescribed.” Kline, 466 F.3d at 455 (citing 46 Fed.Reg. 30974) (emphasis in original). Further, the Sixth Circuit noted that “public policy considerations do not warrant additional compensation,” in circumstances such as here where the injured members of the public have available to them compensation in excess of the minimum federal requirement.4Id. Likewise, interpreting the MCS-90 as the tort plaintiffs suggest in this case “raises other policy concerns. The federal government balanced the need to compensate victims with the needs of industry and determined the appropriate minimum compensation for members of the public.”Id. at 456.Thus, to interpret the MCS-90 to afford coverage to the tort plaintiffs in this case distorts the congressional policy of requiring motor carriers to provide security for the protection of the public up to the limits prescribed by statute. Thus, this Court reluctantly concludes, to the extent they reach a contrary conclusion, that John Deere and Adams were wrongly decided and their holdings find no support under the plain language of the statute and regulations.5

 

4. As noted, supra, the tort plaintiffs have a total of $1.4 million of insurance coverage available to them. And, while that amount is clearly insufficient to adequately and completely compensate the tort plaintiffs for their horrible losses in this case, the amount nevertheless exceeds the minimum federal requirement.

 

5. This Court’s conclusion is buttressed by the way Congress has regulated the use of non-owned equipment used by motor carriers to ensure that the motor carrier is fully responsible for the vehicle’s operation. See49 U.S.C. §§ 10927, 11107. Under current law, the lessee of a leased trailer is required to “assume complete responsibility for the operation of the equipment for the duration of the lease,”49 C.F.R. § 1057.12(c)(1), and to maintain liability insurance on the equipment. Consistent with the current state of the law, XTRA’s lease agreement with World Trucking requires World Trucking to maintain $ 1 million in liability insurance coverage. See Transamerica Freight Lines, Inc. v. Brada Miller Freight Sys., Inc., 423 U.S. 28 (1975); Prestige Casualty v. Michigan Mutual, 99 F.3d 1340, 1343 (6th Cir.1996).

 

One additional factor influences this Court’s decision. On October 5, 2005, the FMSCA issued “regulatory guidance” setting forth the interpretation of the Department of Transportation with respect to the meaning of the term “the insured” in the MCS-90 form. See Regulatory Guidance for Forms Used to Establish Minimum Levels of Financial Responsibility of Motor Carriers (Regulatory Guidance), 70 Fed.Reg. 58065-01, (October 5, 2005). The Secretary of Transportation has delegated authority to the administrator of FMCSA to issue implementing regulations relating to financial responsibility requirements for motor carriers. 49 C.F.R. 1.73(f). FMCSA received a petition for rulemaking from several insurance companies and the American Insurance Association to amend and to clarify form MCS-90. The petitioners contended that changes were necessary in light of several federal and state court decisions, including John Deere, Lynch and Pierre which, they claimed, had misconstrued the form MCS-90. The primary change suggested by the petitioners was that the agency clarify that the word “insured” in the form MCS-90 means the “named insured.” FMCSA denied the petition for rulemaking on the basis that the petitioners’ concerns could be adequately addressed through formal agency guidance to be published in the Federal Register. Regulatory Guidance, 70 Fed.Reg. at 58065-58066. The FMCSA provides interpretive guidance through a question and answer format. The regulatory guidance reads as follows:

 

Sections Interpreted

 

Section 387.15 Forms

 

Question: Does the term “insured,” as used on Form MCS-90, Endorsement for Motor Carrier Policies of Insurance for Public Liability, or “Principal”, as used in Form MCS-82, Motor Carrier Liability Surety Bond, mean the motor carrier named in the endorsement or surety bond?

 

Guidance: Yes. Under 49 CFR 387.5, “insured and principal” is defined as “the motor carrier named in the policy of insurance, surety bond, endorsement, or notice of cancellation, and also the fiduciary of such motor carrier.”Form MCS-90 and Form MCS-82 are not intended, and do not purport, to require a motor carrier’s insurer or surety to satisfy a judgment against any party other than the carrier named in the endorsement or surety bond or its fiduciary.

 

Id.

 

As set forth above, an administrative agency’s interpretation of its own regulations is entitled to substantial deference, and this Court will defer to the agency interpretation unless it is plainly erroneous or inconsistent with the regulation. See A.D. Transport Express, 290 F.3d at 766. As noted by the Sixth Circuit in A.D. Transport, the Administrative Procedure Act, 5 U.S.C. § 553(b), specifically anticipates that an agency may issue interpretive rules and general statements of policy. As the Sixth Circuit noted:

 

An interpretive rule is a rule that clarifies or explains an existing law or regulation. Your Home Visiting Nurse Servs., Inc. v. Sec. of Health & Human Servs., 132 F.3d 1135, 1139 (6th Cir.1997). A rule is interpretive if it “merely explains ‘what the more general terms of the act and regulations already provide.’ “ Id. (quoting Powderly v. Schweiker, 704 F.2d 1092, 1098 (9th Cir.1983)).

 

Id at 768.Thus, FMCSA’s interpretation of the MCS-90, the language of which is mandated by the federal regulation, is entitled to deference. The agency’s interpretation of the regulation is neither plainly erroneous nor inconsistent with the regulation and is entirely consistent with this Court’s own reading of the regulation. This Court also notes that the FMSCA’s regulatory guidance was not available when Adams and John Deere were decided.

 

VII. CONCLUSION

 

For the reasons set forth above, the motion for judgment as a matter of law filed by North River, [Doc. 183], the motion for judgment as a matter of law filed by U.S. Fire, [Doc. 185], and the motion for summary judgment filed by XTRA, [Doc. 84] will be GRANTED and the motions for summary judgment filed by Carlson, [Doc. 181], the Harmon plaintiffs, [Doc. 179], and the Armstrong plaintiffs, [Doc. 177], will be DENIED. U.S. Fire, North River and XTRA are, therefore, entitled to a declaration that (1) World Trucking, Inc. and World Trucking Express, Inc., Nasko Nasov and Marjan Milev are not insureds under U.S. Fire Policy No. 1380265299 or North River Policy No. 553-085033-4, and (2) that World Trucking, Inc. and World Trucking Express, Inc. and their employees are not entitled to defense, indemnity or coverage for the claims asserted against them in Civil Action Nos. 2:05-CV-44, 2:05-CV-62 and 2:05-CV-65 currently pending in the United States District Court for the Eastern District of Tennessee.

 

A separate judgment will enter.

 

JUDGMENT ORDER

 

For the reasons set forth in the Memorandum Opinion this day passed to the Clerk for filing, it is hereby ORDERED that the motion of Edward D. Armstrong, Jr., et al. for summary judgment, [Doc. 177], the motion of William and Karen Harmon for summary judgment, [Doc. 179], and the motion of Valerie Carlson for summary judgment, [Doc. 181] are DENIED and case No. 2:07-CV104 is DISMISSED.

 

It is further ORDERED that the motion of United States Fire Insurance Company for judgment as a matter of law, [Doc. 185], the motion of North River Insurance Company for judgment as a matter of law, [Doc. 183], and the motion of XTRA, Inc. and XTRA Lease, LLC for summary judgment, [Doc. 84], are GRANTED and a declaratory judgment in favor of United States Fire Insurance Company, North River Insurance Company, XTRA, Inc. and XTRA Lease, LLC will enter.

 

Accordingly, it is ORDERED and DECLARED that World Trucking, Inc., World Trucking Express, Inc., Nasko Nazov and Majan Milev are not insureds under United States Fire Insurance policy No. 1380265299 or North River Insurance Company policy No. 553-085033-4, the insurance policies which are at issue in this case, and it is further ORDERED and DECLARED that World Trucking, Inc., World Trucking Express, Inc., Nasko Nazov and Marjan Milev, and their employees, are not entitled to defense, indemnity or coverage under United States Fire Insurance policy No. 1380265299 or North River Insurance Company policy No. 553-085033-4 for the claims asserted against them in civil action Nos. 2:05-CV-44, 2:05-CV-62 and 2:05-CV-65, currently pending in the United States District Court for the Eastern District of Tennessee.

 

Costs shall be allowed to United States Fire Insurance Company, North River Insurance Company, XTRA, Inc. and XTRA Lease, LLC pursuant to Fed.R.Civ.P. 54(d)(1).