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American Family Mutual Insurance Co. v. H.O.L.I.E. of Greenfield Avenue, Inc.

Supreme Court of Wisconsin

June 28, 2018

American Family Mutual Insurance Company, State Auto Insurance Company of Wisconsin, Property and Casualty Insurance Company of Hartford, Fay Walters and Farmers Insurance Exchange, Plaintiffs,
v.
H.O.L.I.E. of Greenfield Avenue, Inc., Dennis Kleinhans, Dorothy Grabowski, Virginia Werner, Mernlyn Goodrich, Theodore Kolodzyk, Judith Gorski, Linda Sutton, as the personal representative of the Estate of Mary Sutton and Alice Carey, Involuntary-Plaintiffs,
v.
Cintas Corporation No. 2, Defendant-Third-Party Plaintiff-Appellant-Cross-Respondent, The Travelers Indemnity Company of Connecticut, Defendant-Third-Party Plaintiff-Co-Appellant,
v.
Becker Property Services LLC, Third-Party Defendant-Respondent-Cross-Appellant-Petitioner.

          Oral Argument Date: January 11, 2018

          Circuit Court Milwaukee county L.C. No. 2014CV3930 John J. DiMotto Judge

          Not Participating: Attorneys

          For the defendant-respondent-cross-appellant-petitioner, there were briefs filed by Patryk Silver, Esq., Aaron R. Berndt, Esq., Joshua B. Cronin, Esq., and Borgelt, Powell, Peterson, and Frauen, S.C., Milwaukee. There was an oral argument by Patryk Silver, Esq.

          For the defendant-third-Party plaintiff-appellant-cross respondent, there was a brief filed by Lars E. Gulbrandsen, Jeffrey 0. Davis, Leila N. Sahar, and Quarles & Brady LLP, Milwaukee. There was an oral argument by Lars E. Gulbrandsen.

          DANIEL KELLY, J.

         ¶1 Becker Property Services LLC ("Becker") and Cintas Corporation No. 2 ("Cintas") executed a contract containing indemnification and choice-of-law provisions. A dispute arose over whether the contract entitles Cintas to indemnification for damages caused by its own negligence. To answer that question, we must also resolve a threshold dispute: As between Wisconsin and Ohio, which law provides the rule of decision?

         ¶2 We hold that Ohio's law governs the parties' contract, and that Becker must defend and indemnify Cintas, even for damages caused by its own negligence. Consequently, we affirm the court of appeals, but (as we discuss below) on other grounds.[1]

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         ¶3 A 2013 fire at Valentino Square (a senior living facility) caused approximately $900, 000 in property damage after the facility's fire-suppression sprinkler system allegedly failed. Valentino Square's owner had contracted with Becker to manage the property. In that capacity, Becker had contracted with Cintas[2] in 2012 to perform certain services, including regular inspections of the fire-suppression system (the "Contract"). The fire-suppression system allegedly failed because water in the system accumulated, froze, and then burst the pipes.

         ¶4 Plaintiffs (the owner of Valentino Square, several tenants, and the property insurers) sued Cintas, claiming the fire-suppression system's pipes would not have burst but for Cintas's negligent performance of its duties, or its breach of the Contract's implied warranty that it would perform its duties in a workmanlike manner. Cintas tendered the defense of the matter to Becker pursuant to the Contract's indemnity clause.

         ¶5 When Becker rejected the tender, Cintas impleaded it as a third-party defendant. Cintas sought indemnification for any damages for which it may be held liable to the plaintiffs, the costs of defense (including attorney's fees), and the costs of enforcing the indemnification provision (including attorney's fees) .

         ¶6 Cintas moved for summary judgment on its claim that Becker breached its obligation to defend and indemnify. Cintas asserted that Ohio law should provide the rule of decision by virtue of the Contract's choice-of-law provision. Becker filed a cross-motion for summary judgment, arguing that the Contract does not require it to defend or indemnify Cintas for its own negligence. Specifically, it argued that under Wisconsin law, contracts purporting to indemnify a party for its own negligence require a heightened level of clarity to be enforceable (the "strict construction" rule).[3] According to Becker, the strict construction of indemnification provisions is a public policy important enough to defeat the Contract's choice-of-law clause.

         ¶7 The circuit court denied Cintas's motion and granted Becker's. It agreed that the strict-construction rule embodied a public policy so important that the parties cannot be allowed to contract around it. It then concluded that the Contract's indemnification clause did not satisfy that rule. It said the Contract "does not have any specific and express statement ... to the effect that Cintas gets coverage for its own negligent acts," and it does not convey that "the purpose and unmistakable intent of the parties in entering into the contract was for no other reason than to cover losses occasioned by the indemnitee's own negligence." However, the court added that, if Ohio law had applied instead, the indemnification provision would have been sufficient to require Becker to indemnify Cintas for its own negligence. Consequently, the circuit court dismissed Cintas's third-party complaint against Becker.

         ¶8 The court of appeals reversed. It held that, even under Wisconsin law, the Contract required Becker to defend and indemnify Cintas for its own negligence and for the breach of implied warranty claim.[4] We granted Becker's timely petition for review, and now affirm.

         II. STANDARD OF REVIEW

         ¶9 The circuit court decided this matter on cross-motions for summary judgment. We review the disposition of such motions de novo, applying the same methodology the circuit courts apply. Green Spring Farms v. Kersten, 136 Wis.2d 304, 315, 401 N.W.2d 816 (1987); see also Borek Cranberry Marsh, Inc. v. Jackson Cty., 2010 WI 95, ¶11, 328 Wis.2d 613, 785 N.W.2d 615 ("We review the grant of a motion for summary judgment de novo, . . . .") . First, we "examine the pleadings to determine whether a claim for relief has been stated." Green Spring Farms, 136 Wis.2d at 315. Then, "[i]f a claim for relief has been stated, the inquiry . . . shifts to whether any factual issues exist." Id. Summary judgment is appropriate only "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." Wis.Stat. § 802.08(2) (2015-16); see also Columbia Propane, L.P. v. Wis. Gas Co., 2003 WI 38, ¶11, 261 Wis.2d 70, 661 N.W.2d 776 (citing Wis.Stat. § 802.08(2) (2001-02)).

         ¶10 The only dispute before us is the proper interpretation of a contract. This presents a question of law, which we review de novo. Deminsky v. Arlington Plastics Mach., 2003 WI 15, ¶15, 259 Wis.2d 587, 657 N.W.2d 411');">657 N.W.2d 411 ("Interpretation of a contract is a question of law which this court reviews de novo."); see also Drinkwater v. Am. Family Mut. Ins. Co., 2006 WI 56, ¶14, 290 Wis.2d 642, 714 N.W.2d 568 ("This choice-of-law determination is a question of law subject to independent appellate review."); Beilfuss v. Huffy Corp., 2004 WI.App. 118, ¶6, 274 Wis.2d 500, 685 N.W.2d 373 ("Whether . . . the choice of forum clause and choice of law clause are enforceable requires interpretation of the employment agreement. Interpretation of a contract is a question of law which this court reviews de novo.").

          III. DISCUSSION

         ¶11 Before we can determine the enforceability of the Contract's indemnification provision, we must know which state's law to apply. Therefore, we begin with whether we must honor the parties' agreement that Ohio's law controls the interpretation of their Contract. We will then determine whether the Contract requires indemnification for Cintas's own negligence and the breach of implied warranty claim. A. Choice of Law

         ¶12 The parties agree that the Contract subjects itself to Ohio's law;[5] they disagree over whether we should enforce that provision. Becker says doing so would obviate and bring to naught one of Wisconsin's important public policies, viz., the strict construction of indemnification promises.[6] Cintas says a rule of construction cannot embody a public policy so important that it could nullify the parties' choice of controlling law. For the following reasons, we agree with Cintas.

         ¶13 There is no doubt that, generally speaking, parties are free to choose the law governing their contracts. Jefferis v. Austin, 182 Wis. 203, 205, 196 N.W. 238 (1923) ("That parties to a contract may expressly or impliedly agree that the law of a jurisdiction . . . shall control is beyond question."). But there is a caveat: They may not use their freedom to escape "important public policies of a state whose law would be applicable if the parties['] choice of law provision were disregarded." Bush v. Nat'1 Sch. Studios, Inc., 139 Wis.2d 635, 642, 407 N.W.2d 883');">407 N.W.2d 883 (1987).

         ¶14 Therefore, our task is to decide whether our practice of strictly construing indemnification provisions embodies a public policy so important that parties may not avoid it. While we have previously said that" [a] precise delineation of those policies which are sufficiently important to warrant overriding a contractual choice of law stipulation is not possible, "[7] we have at least described some of the characteristics by which we might recognize them. They are policies that "make a particular type of contract enforceable," or that "make a particular contract provision unenforceable," or that "protect a weaker party against the unfair exercise of superior bargaining power by another party." Id. at 643. Courts (not necessarily ours) have seen those characteristics in, for example, usury laws, unconscionability doctrines, fair dealership laws, prohibitions on covenants not to compete, and statutes of frauds. Id. at 643 & n.l.[8]

         ¶15 Our strict construction rule contains none of the characteristics indicative of a policy that should trump a choice-of-law provision. The rule does not address the enforceability of a type of contract, or a type of contract provision. And it applies without respect to the parties' relative bargaining power. The rule's function is simply to ensure the parties actually intended for the indemnitee to be indemnified not just for the negligence of others for which it might be responsible, but for the indemnitee's own negligence as well. See, e.g., Hastreiter v. Karau Bldgs., Inc., 57 Wis.2d 746, 748, 205 N.W.2d 162 (1973) ("The rule relied on by the tenant [i.e., strict construction of indemnification agreements that indemnify the indemnitees for their own negligence] is a rule of construction. The purpose of the construction of an agreement is to ascertain the intent of the parties.") . As such, this is a rule of caution, not prohibition.

         ¶16 If a cautionary rule of construction were enough to nullify a choice-of-law provision, we would unnecessarily impair "certainty and predictability in contractual relations." See Bush, 139 Wis.2d at 642; see also Thurner Heat Treating Co. v. Memco, Inc., 252 Wis. 16, 24, 30 N.W.2d 228 (1947) ("It is the policy of the law not only to encourage the embodiment of specific and material provisions in a contract, but in the interest of certainty and fair dealing, to require a plain and fair statement of terms."). Every law, whether statutory or common, is-at some level-an embodiment of policy. Because spotting the "important" public policies amongst all the rest is an inexact endeavor, we do well to keep that category narrowly focused. If it were to expand beyond its essential kernel, certainty and predictability in contractual relations would erode in like measure because parties would find it increasingly difficult to know which provisions or contracts a court might preempt. Expanding the "important" category far enough to reach our rule of strict construction would make virtually any contract provision potentially subject to the public policy caveat. And that would leave parties perennially wondering whether we will honor their choice-of-law decisions. We decline Becker's invitation to do so, and hold that our practice of strictly construing indemnification provisions is not so important that it will defeat a contract's choice-of-law provision.

         ¶17 We should not honor the choice-of-law provision, Becker said, for the additional reason that doing so would allow Cintas to escape Wisconsin's public policy that indemnification provisions of this sort must be conspicuous. Even if Becker is right about the conspicuousness requirement (a subject we do not address), it provided no argument capable of invoking the "important public policy" exception to the rule that choice-of-law clauses are enforceable. Because every state law embodies a public policy, it is in the very nature of choice-of-law clauses that they substitute one state's policies for another. And still we enforce them. Under this exception, it is only when such clauses obviate an "important public policy" that we set them aside. Becker did not say why the conspicuousness requirement (if requirement it be) rises from the ranks of workaday public policies to join the elites that are so important we do not allow parties to contract around them. It provided no argument, no examples, no analogies-it did not even call this policy "important," much less provide a basis upon which we could declare it to be so. We will not develop an argument on Becker's behalf when Becker itself has chosen not to advance one. See Clean Wis., Inc. v. Pub. Serv. Comm'n of Wis., 2005 WI 93, ¶180 n.4O, 282 Wis.2d 250, 700 N.W.2d 768');">700 N.W.2d 768 ("We will not address undeveloped arguments.").

         ¶18 Becker also argued that we should not enforce the choice-of-law provision because it is not conspicuous (that is, the provision is not set apart from the rest of the contract through a larger font, emphasis, or other mechanism designed to call a party's attention to it) . It cites no authority for the proposition, but asserts that if the choice-of-law provision obviates a law that requires part of the contract to be conspicuous, then the choice-of-law provision must itself be conspicuous. It says this must be so because "[t]he conspicuousness rule derives from the public policy requirement that the signer of a contract be unmistakably informed of the rights and duties at issue, in language that clearly and unequivocally communicates to the signer the nature and significance of the document being signed." The conclusion, however, does not follow from the premise. A conspicuous choice-of-law provision tells a contracting party nothing more about its indemnification obligations than an inconspicuous choice-of-law provision. It could be far and away the most conspicuous part of the contract and still it would merely tell the parties which state's law will control the contract. Its conspicuousness would hold no hint as to whether the selected state's laws are more or less favorable with respect to any given part of the contract.

         ¶19 We have never held that a contract's choice-of-law provision must be conspicuous, and we see no reason to do so today. Therefore, we will determine the enforceability and meaning of the Contract's indemnification provision using the law of the State of Ohio.

          B. Indemnification

         ¶20 Becker argues that, even under Ohio law, the indemnification provision is unenforceable because it is ambiguous.[9] The Contract says, in relevant part:

Purchaser [Becker], at its own expense, shall defend, indemnify and hold harmless Seller [Cintas] from any claim, charge, liability, or damage arising out of any goods or services provided by Seller hereunder, including any failure of the goods or services to function as intended. Purchaser acknowledges that Seller shall have no liability or responsibility for any loss or damage to persons or property resulting from any fire or equipment malfunction.

         Becker says this language does not plainly state that Becker must indemnify Cintas for damages arising from Cintas's own negligence.

         ¶21 Ohio says the purpose of scrutinizing a contract is to find and apply the parties' intent: "The cardinal purpose for judicial examination of any written instrument is to ascertain and give effect to the intent of the parties." Foster Wheeler Enviresponse, Inc. v. Franklin Cty. Convention Facilities Auth., 678 N.E.2d 519, 526 (Ohio 1997) . "The intent of the parties to a contract is presumed to reside in the language they chose to employ in the agreement." Id. (quoted source omitted); see also Worth v. Aetna Cas. & Sur. Co., 513 N.E.2d 253, 256 (Ohio 1987) ("The nature of an indemnity relationship is determined by the intent of the parties as expressed by the language used."). In applying that language, "common words appearing in a written instrument are to be given their plain and ordinary meaning unless manifest absurdity results or unless some other meaning is clearly intended from the face or overall contents of the instrument." Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, 150 (Ohio 1978).

         ¶22 With respect to any alleged ambiguity in contractual language, the rule in Ohio is that "quoties in verbis nulla est ambiguitas ibi nulla expositia contra verba fienda est." Lawler v. Burt, 7 Ohio St. 340, 349-50 (Ohio 1857) (quoted source omitted) . That is to say, "[i]n the absence of ambiguity, no exposition shall be made which is opposed to the express words of the instrument." Herbert Broom, A Selection of Legal Maxims, Classified and Illustrated 176 (1845); Alexander, 374 N.E.2d at 150 ("[W]here the terms in an existing contract are clear and unambiguous, this ...


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