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Mitsui Sumitomo Insurance USA, Inc. v. Denham-Blythe Company, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

March 21, 2019

MITSUI SUMITOMO INSURANCE USA, INC. as subrogee of ASAHI BLUEGRASS FORGE CORPORATION, Plaintiff,
v.
DENHAM-BLYTHE COMPANY, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Joseph M. Hood Senior U.S. District Judge

         This matter comes before the Court on Defendant Denham-Blythe Company, Inc's (“Denham-Blythe”) Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6) [DE 20] and Defendant BlueScope Buildings North America, Inc.'s (“BlueScope”) Motion for Judgment on the Pleadings [DE 28]. Having considered the matter fully, and being otherwise sufficiently advised, the undersigned will grant Defendant Denham-Blythe's Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6) [DE 20] and deny Defendant BlueScope's Motion for Judgment on the Pleadings [DE 28].

         FACTUAL AND PROCEDURAL BACKGROUND

         This case arises from a January 31, 2011 design-build contract (“the Contract”) between Asahi Bluegrass Forge Corporation (“Asahi”) and Denham-Blythe for the construction of a 68, 000 square foot manufacturing facility (“the Building”). [DE 20-1, at 2]. “As part of its obligations as general contractor, Denham-Blythe contracted with several Contractors to complete the design and construction process[, ]” including BlueScope, Varco Pruden Buildings (“Varco”) (a division of BlueScope), and Arrow Metals and Coatings, Inc. (“Arrow”). [DE 29, at 2].

         “Denham-Blythe and Asahi utilized AIA Document A141 - 2004 Standard Form of Agreement Between Owner and Design-Builder, with modifications specific to this job, for the Contract.” [DE 20-1, at 2 (citing [DE 20-2])]. The Contract defines a “Contractor” as follows:

§ A.1.1.4 CONTRACTOR
A Contractor is a person or entity, other than the Architect, that has a direct contract with the Design-Builder to perform all or a portion of the construction required in connection with the Work. The term "Contractor" is referred to throughout the Design-Build Documents as if singular in number and means a Contractor or an authorized representative of the Contractor . . . .

[DE 29, at 2-3 (citing [DE 23-1, at 14])]. On March 2, 2012, the roof of the Building was damaged by severe winds and was subsequently repaired by Denham-Blythe. [DE 20-1, at 2]. Again, on March 1, 2017, the roof of the Building sustained damage from severe winds, and Denham-Blythe completed both the temporary repair work and permanent repair work. Id.

         After the roof was damaged on March 1, 2017, Asahi submitted property damages claims to its insurer, Plaintiff Mitsui Sumitomo Insurance USA, Inc. (“Mitsui”). Id. “According to the Complaint, Mitsui Sumitomo made payments to Asahi in response to the claims in the amount of $1, 315, 092.00 under policy PKG3126694 (hereinafter referred to as ‘the Policy') with effective dates of October 1, 2016 through October 1, 2017.” Id. (citing [DE 20-3]). On February 22, 2018, Mitsui, as subrogee of Asahi, filed its Complaint [DE 1] against Denham-Blythe, BlueScope, Varco, and Arrow asserting subrogation rights against Defendants for the amounts paid to repair the property damage caused by the 2017 severe winds. [DE 1]. Mitsui's claims against Denham-Blythe include negligence, breach of contract, breach of warranty of workmanlike services, and negligent misrepresentation. Id. Mitsui's allegations against BlueScope and Varco include negligence, negligent misrepresentation, breach of warranty of workmanlike service, and breach of contract and third-party beneficiary. Id. On April 13, 2018, Denham-Blythe filed the present Motion to Dismiss [DE 20], and on February 15, 2019, BlueScope filed the present Motion for Judgment on the Pleadings [DE 28] requesting Mitsui's claims against BlueScope and Varco be dismissed. BlueScope's Motion for Judgement on the Pleadings [DE 28] is nearly identical to Denham-Blythe's Motion to Dismiss [DE 20]. The only substantial difference between the two Motions [DE 20; DE 28] is that BlueScope's Motion [DE 28] omitted Denham-Blythe's argument that the claim is barred by the dispute resolution clauses in the contract.

         STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(b)(6) provides that a complaint may be attacked for failure “to state a claim upon which relief can be granted.” To survive a Rule 12(b)(6) motion to dismiss, a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A motion to dismiss is properly granted if it is beyond doubt that no set of facts would entitle the petitioner to relief on his claims.” Computer Leasco, Inc. v. NTP, Inc., 194 Fed.Appx. 328, 333 (6th Cir. 2006). When considering a Rule 12(b)(6) motion to dismiss, the court will presume that all the factual allegations in the complaint are true and draw all reasonable inferences in favor of the nonmoving party. Total Benefits Planning Agency v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). “The court need not, however, accept unwarranted factual inferences.” Total Benefits Planning Agency, 552 F.3d at 434 (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)).

         “The standard of review for a judgment on the pleadings [pursuant to Federal Rule of Civil Procedure 12(c)] is the same as that for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).” Roger Miller Music, Inc. v. Sony/ATV Publishing, LLC, 477 F.3d 383, 389 (6th Cir. 2007).

         DISCUSSION

         A. DEFENDANT DENHAM-BLYTHE'S MOTION TO DISMISS PURSUANT TO RULE 12(B)(6)

         In support of dismissal, Defendant Denham-Blythe argues the following: (1) “Kentucky law recognizes the sacred right to contract;” (2) “[t]he claim is barred by the waiver of subrogation clause contained in the design build contract between Denham-Blythe and Asahi Bluegrass Forge Corporation;” (3) “[t]he insurance policy issued by Plaintiff to Asahi Bluegrass Forge Corporation granted Asahi the right to waive subrogation;” and (4) “[t]he claim is barred by the dispute resolution clauses in the contract.” [DE 20-1, at 1].

         1. KENTUCKY LAW AND THE RIGHT TO CONTRACT

         Denham-Blythe correctly asserts, “Kentucky Courts have long honored the freedom to contract[, ]” and “The Kentucky Supreme Court has affirmed this principle many times.” [DE 20-1, at 4].[1]“Generally, the doctrine of freedom to contract prevails and, in the absence of ambiguity, a written instrument will be enforced strictly according to its terms.” Mullins v. N. Kentucky Inspections, Inc., No. 2009-CA-000067-MR, 2010 WL 3447630, at *1 (Ky. Ct. App. Sept. 3, 2010) (citing Frear v. P.T.A. Industries, Inc., 103 S.W.3d 99, 106 (Ky. 2003)); see also Commonwealth v. L. G. Wasson Coal Mining Corp., Ky., 358 S.W.2d 347 (1962) (“In considering the legality of Contract B, we recognize the sacred right to contract without undue interference.”). In Mullins, the Supreme Court of Kentucky recited Jones v. Hanna, 814 S.W.2d 287, 289 (Ky. Ct. App. 1991) as follows:

“[C]ontracts voluntarily made between competent persons are not to be set aside lightly. As the right of private contract is no small part of the liberty of the citizen, the usual and most important function of courts is to enforce and maintain contracts rather than to enable parties to escape their obligations on the pretext of public policy or illegality. If the legality of the contract can be sustained in whole or in part under any reasonable interpretation of its provisions, courts should not hesitate to decree enforcement.”

Mitsui, 2010 WL 3447630, at *1 (quoting Jones, 814 S.W.2d at 289).

         “The terms of an unambiguous contract cannot be varied by extrinsic evidence.” Luttrell v. Cooper Industries, Inc., 60 F.Supp.2d 629, 631 (E.D. Ky. Oct. 27, 1998) (citing O.P. Link Handle Co. v. Wright, 429 S.W.2d 842 (Ky. 1968)). “Thus, a court may not consider parol evidence when interpreting a contract unless the contract is ambiguous.” Luttrell, 60 F.Supp.2d at 631 (citing Schachner v. Blue Cross and Blue Shield of Ohio, 77 F.3d 889, 893 (6th Cir. 1996)). “Contract language is not ambiguous unless it is subject to two reasonable interpretations.” Id; see also Hazard Coal Corp. v. Knight, 325 S.W.3d 290, 298 (Ky. 2010) (quoting Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002) (“‘A contract is ambiguous if a reasonable person would find it susceptible to different or inconsistent interpretations.'”)). “The determination that a contract suffers from ambiguity must be based upon the common, plain meaning of the language of the contract.” Luttrell, 60 F.Supp.2d at 631 (citing Kentucky-West Virginia Gas Co. v. Browning 521 S.W.2d 516 (Ky. 1975)). In Luttrell, the Court, finding it “is not required to read a contract in a vacuum, ” stated the following:

“A contract is to be construed as a whole so as to ascertain and give effect to the true intent of the parties, and the circumstances under which the contract was executed and the conduct of the parties thereafter can be considered by the Court in determining what their intention was, without it becoming a violation of the parol evidence rule.”

Luttrell, 60 F.Supp.2d at 631 (quoting Rudd-Melikian, Inc. v. Merritt, 282 F.2d 924, 928 (6th Cir.1960)). “‘If the language is unambiguous, the meaning of the language is a question of law, and the intent of the parties must be discerned from the words used in the instrument.'” Luttrell, 60 F.Supp.2d at 631 (quoting Taggart v. U.S. 880 F.2d 867, 870 (6th Cir. 1989)). “The court will not create an ambiguity where none exists.” Friction Materials Co., Inc. v. Stinson, 833 S.W.2d 388 (Ky. Ct. App. 1992)).

         Additionally, Denham-Blythe argues that under Kentucky law, contracts with exculpatory clauses are generally treated the same as any other contract. [DE 20-1, at 5 (citing Cumberland Valley Contractors, Inc. v. Bell County Coal Corp., 238 S.W.3d 644 (Ky. 2007))]. In Cumberland Valley Contractors, Inc., the Supreme Court of Kentucky found, “Recognizing the importance of freedom to contract, the courts of this Commonwealth have traditionally enforced exculpatory provisions unless such enforcement violates public policy.” Cumberland Valley Contractors, Inc., 238 S.W.3d at 650 (citing Cobb v. Gulf Refining Co., 145 S.W.2d 96, 99 (1940)). Citing Cumberland Valley Contractors, Inc., Denham-Blythe argues, “[I]t is clear that Kentucky courts will enforce the contractual terms absent some strong public policy to the contrary. There is no statutory or case law setting forth a public policy prohibiting or limiting wavier of subrogation clauses.” [DE 20-1, at 5 (citing Cumberland Valley Contractors, Inc., 238 S.W.3d at 650)].

         Mitsui neither disputes that Kentucky law honors the basic right to contract nor contends that a public policy prohibiting or limiting waiver of subrogation clauses exists. [DE 25]. Instead, as will be discussed further herein, Mitsui argues the Contract [DE 20-2] is ambiguous, so the Court should deny Denham-Blythe's Motion to Dismiss [DE 20] and allow the Parties to engage in discovery to determine the intent of the contracting parties. [DE 25, at 13-17].

         2. WHETHER THE CLAIM IS BARRED BY THE WAIVER OF SUBROGATION CLAUSE

         Denham-Blythe argues Mitsui admitted the Contract [DE 20-2] exists and is, therefore, bound by the terms of the Contract [DE 20-2] because “Mitsui Sumitomo claims [in its Complaint [DE 1, at 5]]that it is ‘legally, equitably, and contractually subrogated to the claims of Asahi' against Denham-Blythe due to the payments [Mitsui] made to its insured[, Asahi].” [DE 20-1, at 5-6]. Denham-Blythe asserts that waiver of subrogation clauses in construction contracts “‘effectively abrogate[e] any subrogation right of the owner's insurance against the contractor.'” [DE 20-1, at 6 (quoting Church Mut. Ins. Co. v. Palmer Constr. Co., Inc., 153 Fed.Appx. 805 (2005) (citing Commercial Union Ins. Co. v. Bituminous Cas. Corp., 851 F.2d 98, 101 (3d Cir. 1988)))]. In addition to citing Church Mut. Ins. Co., Denham-Blythe cites several Pennsylvania cases to support its argument that Mitsui, as subrogor, is bound to the same contractual language as the subrogee, Asahi. [DE 20-1, at 6 (citing Church, 851 F.2d 98; Allstate Ins. Co. v. Clark, 527 A.2d 1021, 1024 (Pa. Super. Ct. 1987); Bell v. Slezak, 812 A.2d 566, 574 n.8 (Pa. 2002); Chow v. Rosen, 812 A.2d 587, 590 (Pa. 2002))].

         Mitsui neither contests the subrogee/subrogor relationship nor argues a waiver of subrogation clause in a construction contract fails to abrogate an insurer's subrogation right. [DE 25]. Additionally, Mitsui does not claim its policy did not grant Asahi the right to waive subrogation. However, Mitsui contends that the waiver clause in the ...


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