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U.S. Bank, NA v. Recovery Services Northwest, Inc.

United States District Court, D. Nevada

February 17, 2017

U.S. BANK, NA, Plaintiff,
v.
RECOVERY SERVICES NORTHWEST, INC., d/b/a CUSTOM RECOVERY, et al., Defendants.

          ORDER (ECF NOS. 67, 74, 81, 82, 102, 105, 106, 109, 112, 113, 115, 119, 127, 137)

          ANDREW P. GORDON UNITED STATES DISTRICT JUDGE

         U.S. Bank, NA (“US Bank”) and Recovery Services Northwest, Inc. (“Custom”) entered into several agreements whereby Custom performed repossession services for U.S. Bank. Each agreement obligated Custom to (1) reimburse U.S. Bank for any costs or expenses it incurred as a result of Custom's (or its subcontractor's) repossessions, and (2) defend U.S. Bank should it ever be sued over something Custom or its subcontractors did. U.S. Bank was sued by one of its customers over a repossession. U.S. Bank then brought this separate case seeking reimbursement from Custom of its litigation costs incurred in that suit.

         US Bank now moves for summary judgment, arguing there is no triable issue as to either Custom's liability for U.S. Bank's litigation costs or the amount of those costs. Custom opposes on one narrow ground: It fulfilled its indemnification obligation by hiring U.S. Bank an attorney in the underlying action; thus, it cannot be liable for the expenses U.S. Bank incurred when it decided to hire its own attorney.

         The undisputed evidence shows that U.S. Bank incurred litigation costs as a direct result of Custom's subcontractor's repossession, so Custom is liable whether or not it provided U.S. Bank with an attorney. This is reason enough to find Custom liable as a matter of law.

         But there are at least two other independent reasons that Custom is liable under the parties' agreements. First, U.S. Bank had the express right to hire its own counsel and bill Custom for the fees under the agreement that was in effect at the relevant time. Second, Custom breached its duty to defend by failing to provide U.S. Bank with an adequate defense.

         In short, under multiple theories, any of which is enough on its own, there is no genuine dispute that Custom is liable for the litigation expenses that U.S. Bank incurred in the underlying case. That leaves only damages. Custom does not oppose U.S. Bank's evidence or its damage calculations, so there is no triable issue of fact left for a jury. I therefore grant summary judgment in favor of U.S. Bank. Custom has also filed its own motion for summary judgment, a motion for judicial estoppel, and motions challenging two of Magistrate Judge Foley's orders. None of Custom's motions has any merit, so I deny them.

         I. BACKGROUND

         A. U.S. Bank hires Custom to repossess cars, and the two parties enter into an indemnification agreement.

         In 2008, U.S. Bank entered into a contract with Custom calling for Custom to repossess cars for U.S. Bank. This 2008 agreement also obligated Custom to “defend, indemnify and hold [US Bank] harmless” for all “costs and expenses (including reasonable attorney's fees)” relating to Custom's repossessions (or any of its subcontractors' repossessions).[1] This obligation was “notwithstanding any other provision” in the agreement.[2] However, if U.S. Bank was sued for one of Custom's repossessions, Custom had the right to “control . . . [the] defense and settlement negotiations” in the case.[3]

         B. U.S. Bank is sued because Custom's subcontractor allegedly botches a repossession of a BMW, and Custom takes over U.S. Bank's defense.

         In June of 2011, U.S. Bank was sued for claims arising from Custom's repossession services. Custom's subcontractor repossessed a BMW from one of U.S. Bank's customers and a fight broke out. The BMW's owner sued U.S. Bank, the subcontractor, and the subcontractor's employee.

         US Bank notified Custom of the lawsuit, but Custom did not immediately take up U.S. Bank's defense. So while Custom decided what to do, U.S. Bank hired its own counsel to defend it. U.S. Bank's counsel successfully litigated a portion of the lawsuit.[4] Custom later decided it would defend U.S. Bank and took over the defense. Custom-through a subcontractor's insurer-substituted in Eugene Wait as U.S. Bank's counsel.[5]

         At this point Custom washed its hands of U.S. Bank's case. Custom admits that it had no involvement, whatsoever, in managing Wait or ensuring that he provided an adequate defense for U.S. Bank.[6] Custom viewed its obligation to provide a defense as fulfilled once it hired an attorney.

         C. The parties enter into a new indemnification agreement mid-litigation and U.S. Bank becomes unhappy with Custom's defense.

         A few months after Wait took over the defense, U.S. Bank and Custom entered into a new agreement that “supersede[d] and replace[d]” the 2008 agreement.[7] This 2011 agreement similarly obligated Custom to pay any losses U.S. Bank suffered as a result of Custom's repossessions.[8] But the 2011 agreement took away Custom's exclusive right to control the defense of any lawsuits and gave U.S. Bank the right to retain its own counsel at any time at Custom's expense.[9]

         Over the following ten months, U.S. Bank became increasingly dissatisfied with Wait's representation-and for good reason. Wait never disclosed any witnesses for U.S. Bank in the case.[10] He did not inform U.S. Bank about important case events.[11] He did not allow U.S. Bank to review any draft pleadings or motions before they were filed.[12] Wait filed an answer on U.S. Bank's behalf without ever actually showing it to U.S. Bank (or, for that matter, telling U.S. Bank that an amended complaint had been filed in the case).[13] Wait then told U.S. Bank, his own client, that U.S. Bank could not provide him with instructions related to its own defense.[14]

         D. U.S. Bank substitutes new counsel in and wins on summary judgment.

         US Bank told Custom that it was concerned about Wait's representation, but Custom admits it did nothing in response.[15] It did not contact Wait or the insurer to investigate U.S. Bank's complaints about its defense.[16] When the other defendants in the case-who were also represented by Wait-started receiving sanctions because of Wait's representation, U.S. Bank fired him and hired its own counsel.[17] U.S. Bank's new counsel took over the case, resolved outstanding discovery issues, and won a summary judgment motion that removed U.S. Bank from the case without any liability.[18]

         Wait continued to represent U.S. Bank's co-defendants. He lost his motions for summary judgment filed on behalf of the other defendants, and several more sanctions were entered against the remaining defendants for failing to timely provide discovery responses, failing to comply with the court's orders, and failing to produce documents.[19] The court at one point noted that Wait “engaged in unnecessary gamesmanship, which [resulted] in noncompliance with [the court's] order.”[20] The court imposed liability against the remaining defendants, who ended up settling for $300, 000 along with an assignment of malpractice claims against Wait.[21]

         II. ANALYSIS

         A. Summary judgment standard

         Summary judgment is appropriate when the pleadings and discovery, “together with the affidavits, if any, show there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”[22] For summary judgment purposes, the court views all facts and draws all inferences in the light most favorable to the nonmoving party.[23]

         If the moving party demonstrates the absence of any genuine issue of material fact, the burden shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.”[24] The nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.”[25] She “must produce specific evidence, through affidavits or admissible discovery material, to show” a sufficient evidentiary basis on which a reasonable fact finder could find in her favor.[26]

         A party must support or refute the assertion of a fact with admissible evidence.[27] As the summary judgment procedure is the pretrial functional equivalent of a directed-verdict motion, it requires consideration of the same caliber of evidence that would be admitted at trial.[28] Thus, it is insufficient for a litigant to merely attach a document to a summary judgment motion or opposition without affirmatively demonstrating its authenticity.

         B. There is no triable issue of fact remaining as to whether Custom is liable for U.S. Bank's litigation expenses in the underlying lawsuit.

         US Bank's motion for summary judgment outlines its relatively simple breach-of-contract theory and why no triable issues remain in this case: (1) the indemnification provisions in both the 2008 and 2011 agreements expressly state that Custom must pay for all of U.S. Bank's losses related to a lawsuit arising from Custom's repossession services, and (2) U.S. Bank was sued for Custom's repossession services and incurred attorney's fees and costs. U.S. Bank supports its motion with evidence establishing the terms of these agreements and the expenses it paid its attorneys.[29]

         Custom largely agrees with U.S. Bank's positions. Custom does not dispute that U.S. Bank incurred costs in defending against the underlying lawsuit, it does not dispute that the underlying lawsuit arose from Custom's repossession services, and it makes no real effort to dispute the extent of U.S. Bank's expenses. Instead, Custom relies on a single argument: the only agreement that U.S. Bank can sue under is the 2008 agreement-and Custom fulfilled its obligations under the 2008 agreement by providing U.S. Bank with an attorney.[30] Custom's argument fails for several reasons, each enough on its own to warrant judgment for U.S. Bank.

         1. U.S. Bank has established Custom's liability under the 2011 agreement.

         Custom repeatedly argues that the 2008 agreement governs U.S. Bank's claims, but I disagree. U.S. Bank sued under the 2011 agreement, and Custom provides no analysis or authority as to why U.S. Bank should be barred from doing so. The 2011 agreement expressly gives U.S. Bank the right to hire its own counsel and bill Custom for the costs. Custom argues that its obligations should be governed by the 2008 contract (which was in existence at the time the underlying lawsuit was filed) rather than the 2011 contract (which was in existence at the time U.S. Bank elected to hire new counsel). But Custom provides no authority for its argument either in the language of the contracts or under governing caselaw.[31]

         Nothing in the 2011 agreement suggests that the parties intended that it not apply to lawsuits that had already been filed at the time the 2011 agreement was signed. The language of the 2011 agreement suggests that the parties intended its terms to apply to all lawsuits, existing or future ones.[32] The agreement explicitly states that it “supersedes and replaces” the 2008 agreement in its entirety, suggesting that the parties wanted the 2011 agreement to govern all aspects of the parties' relationship.[33] The 2011 agreement also contains a merger clause stating that it “supersedes all prior” agreements and understandings between the parties “without limitation.”[34] The 2011 agreement uses broad language to obligate Custom to pay for “any” of U.S. Bank's losses related to “any third party claim.”[35] There is no language limiting Custom's obligations to only future cases, and there is no language limiting U.S. Bank's right to select its own counsel to only future cases. Custom provides no other reason to think that the parties meant to carve out an exception so that U.S. Bank's right to elect new counsel would not apply to ongoing lawsuits. Because Custom has failed to establish that the 2011 agreement does not govern the parties' dispute here-and because Custom solely relies on terms in the 2008 agreement to oppose U.S. Bank's motion-this is enough to rule in favor of U.S. Bank.[36]

2. U.S. Bank has established Custom's liability under the 2008 agreement.

         Even if I were to agree that U.S. Bank must base its breach of contract claim on the 2008 agreement alone, it would still be entitled to summary judgment for at least two independent reasons. First, regardless of whether Custom breached its duty to defend U.S. Bank, Custom breached its duty to indemnify U.S. Bank for its expenses resulting from Custom's acts, which included U.S. Bank's attorney's fees in the underlying litigation. Custom's obligation to indemnify and hold harmless U.S. Bank, and U.S. Bank's obligation to allow Custom to control the defense of its lawsuits, are two separate obligations.[37]

         Custom assumes that by complying with the duty to defend it has per se complied with its duty to indemnify, but not so. The duty to defend and the duty to indemnify are distinct.[38] The 2008 agreement states that “notwithstanding any other provision” in the agreement, Custom agreed to pay for all of U.S. Bank's “costs and expenses (including reasonable attorney's fees)” that arise from Custom's repossessions. Nothing in the agreement suggests that Custom's obligations to pay are contingent on U.S. Bank not interfering with Custom's right to control the defense. Perhaps Custom could have argued that U.S. Bank's damages should be offset by any damage U.S. Bank caused in breaching Custom's rights-but Custom never made that claim, either in its ...


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