Bank One, N.A., v. Echo Acceptance Corp.

522 F.Supp.2d 959

BANK ONE, N.A., Plaintiff, v. ECHO ACCEPTANCE CORPORATION, et. al., Defendants.

No. 04-CV-318.

United States District Court, S.D. Ohio, Eastern Division.

November 26, 2007.

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John Wolcott Zeiger, Matthew Scott Zeiger, Steven Walter Tigges, Zeiger Tiges Little & Lindsmith LLP, Columbus, OH, Damon Meeks, III, T. Wade Welch & Associates, Houston, TX, for Plaintiff.

Russell Allen Kelm, Cynthia L. Dawson, Joanne W. Detrick, Law Offices of Russell Kelm-2, Columbus, OH, T. Wade Welch, Joseph Boyle, Ross W. Wooten, Ricardo R. Olsen, T. Wade Welch & Associates, Houston, TX, for Defendants.

OPINION & ORDER

ALGENON L. MARBLEY, District Judge.

I. INTRODUCTION

This matter is before the Court on Defendants' Motion for Summary Judgment. Plaintiff Bank One brought a breach-of-contract action against Defendants Echo Acceptance Corporation ("EAC") and EchoStar Communications Corporation ("E CC") (collectively "Defendants") seeking indemnification of $13 million in damages, legal costs, and expenses that Bank One paid to settle a 1998 class action. For the reasons set forth below, the Court DENIES Defendants' Motion for Summary Judgment.

II. BACKGROUND

On August 24, 1994, Bank One and EAC entered into a Private Label Revolving Credit Plan Agreement (the "Credit Agreement") through which Bank One provided financing for EAC's satellite-dish customers. Under the agreement, EAC sold home satellite systems and offered its customers a Bank One credit card to finance the purchase. The credit card bore the name of both Bank One and EAC. Because EAC's sales force explained the terms and conditions of the financing to satellite purchasers, Bank One insisted on a broad indemnification clause in the Credit Agreement to protect itself against any misrepresentations by EAC's dealers. Thus, the Credit Agreement included the following paragraph:

EAC agrees to indemnify Bank One and to hold Bank One harmless from and against any and all actions, lawsuits, complaints, liabilities, claims, damages and expenses (including, without limitation, reasonable fees and disbursements of counsel) suffered, sustained, incurred, paid, or required to be paid by Bank One, whether filed or claimed by consumers or instrumentalities of the federal or state governments, arising out of or resulting from (i) the breach, incorrectness, or incompleteness of any representation, warranty, or covenant made by EAC in this Agreement or in any other instrument delivered pursuant hereto; (ii) its actions under the Plan and in conducting its business; (iii) any failure on EAC's part to comply with any local, state or federal statute, law or regulation with regard to the validity and legality of EAC's business; (iv) any and all aspects Of EAC's business including, but not limited to, the selection, use and operation of sales agreements used in conjunction with a transaction with cardholders. This indemnity shall not apply to any actions of EAC taken at the request of Bank One, or to any action following approval by, or at the direction of Bank One.

Credit Agreement § 23(A). In addition, Bank One protected its interests by contracting with ECC, EAC's parent company, to guarantee EAC's performance of the indemnity provision. Bank One had an identical arrangement with two other home satellite distributors, Consumer Satellite Systems ("CSS") and Home Cable Concepts ("HCC").

In 1998, approximately 73,000 creditcard holders, 55,000 of which had bought satellite equipment from EAC's dealers, brought a class action in Tennessee state court against Bank One arising from the financing of home satellite purchases. Specifically, plaintiff's alleged that distributors, including EAC, used deceptive, fraudulent, and misleading sales tactics to encourage customers to purchase home satellite equipment with Bank One's financing. But plaintiff's did not name either EAC, ECC, or any of their subsidiaries as defendants in the class action.

Rather, plaintiffs in Hunter imputed EAC's actions to Bank One on a theory of respondent superior liability and brought the following claims: negligent investigation of consumer complaints, negligent monitoring of sales, negligent design of a financial product, negligent implementation and monitoring of financial product, negligent supervision and training of sales agents, and unjust enrichment. (Third Am. Class Action Compl.) ("Third Amended Complaint"). The Hunter court certified these claims on October 9, 2001. (Order of Final Class Certification).

Bank One, believing that the Hunter class action arose in part from EAC's breach of the Credit Agreement's covenant prohibiting deceptive sales practices,¹ demanded indemnification from EAC on five occasions. EAC refused Bank One's first request, stating that "it does not appear that EAC owes Bank One either an obligation of defense or indemnity on the claims being made against Bank One in Tennessee." Letter from T. Wade Welch to David Carpenter (June 10, 1998). EAC ignored Bank One's subsequent requests for indemnification and invitations to participate in the settlement process.

On July 19, 2002, Bank One entered into a settlement agreement under which it promised to pay up to $26 million in damages to approximately 73,000 class members, including $8.5 million in attorney's fees and $300,000 in various legal expenses. Thus far, Bank One has made approximately $13 million in payments, including $3.5 million in settlement payments to class members, $8.8 million in plaintiffs' fees and expenses, and $500,000 for its own legal fees. Bank One is now demanding indemnification from EAC for all funds paid.

On March 12, 2003, Bank One filed this case in the Franklin County Common Pleas Court, alleging that Defendants breached their duty to indemnify Bank One. Defendants removed the case to this Court based on diversity jurisdiction. Defendants have moved for summary judgment on the grounds that the Credit Agreement does not entitle Bank One to indemnification for the Hunter settlement.

III. STANDARD OF REVIEW

Summary judgment is proper if "there is no genuine issue as to any material fact [such that] the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c). But "summary judgment will not lie if the ... evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

In considering a motion for summary judgment, the court must construe the evidence in the light most favorable to the non-moving party. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505. Therefore, the movant has the burden of establishing that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Barnhart v. Pickrel, Schaeffer & Ebeling Co., 12 F.3d 1382, 1388-89 (6th Cir.1993). But the non-moving party "may not rest upon its mere allegations." Fed.R.Civ. P.56(e); see Celotex, 477 U.S. at 324, 106 S.Ct. 2548; Searcy v. City of Dayton, 38 F.3d 282, 286 (6th Cir.1994). The nonmoving party must present "significant probative evidence" to show that there is more than "some metaphysical doubt as to the material facts." Moore v. Philip Morris Cos., 8 F.3d 335, 339-40 (6th Cir.1993).

IV. ANALYSIS

Under Ohio law,² in order to prevail in a breach of contract action for indemnification of a settled claim, the indemnitee must prove that: (1) it gave the indemnitor proper and timely notice of the underlying action; (2) the contract requires indemnification for all or part of the settlement; and (3) the settlement was fair and reasonable. Globe Indemnity Co. v. Schmitt, 142 Ohio St. 595, 53 N.E.2d 790, 794 (1944).³

EAC contends that the contract does not entitle Bank One to indemnification for six reasons: (1) Bank One failed to give EAC timely and adequate notice of the Hunter class action; (2) Bank One failed to obtain EAC's written consent to the settlement agreement; (3) the Hunter class action arose from Bank One's negligent and intentional acts, for which EAC is not liable under the indemnity provision; (4) the Hunter settlement failed to disaggregate EAC's liability from that of other distributors and that of Bank One; (5) the indemnification obligation did not survive the expiration of the contract; and (6) the settlement did not extinguish the Hunter plaintiffs' claims against EAC.

A. NOTICE

EAC contends that Bank One did not give it proper notice of the Hunter class action. Both the Credit Agreement and Ohio law require prompt, written notice as a condition precedent of indemnification.⁴ See McLin v. Leigh, 74 Ohio App.3d 127, 598 N.E.2d 731, 740 (1991). Under Ohio law, notice must be delivered "within a reasonable time in light of all the surrounding facts and circumstances." American Employers Ins. Co. v. Metro Regional Transit Authority, 12 F.3d 591, 597 (6th Cir.1993) (citing Ruby v. Midwestern Indemn. Co., 40 Ohio St.3d 159, 532 N.E.2d 730, 732 (1988)). Prompt notice is required so that an indemnitor has a meaningful opportunity to investigate the claim, to determine the applicability of the indemnity provision, to join and control potential litigation, and otherwise to protect its interests. See Ormet Primary Aluminum Corp. v. Employers Ins. of Wausau, 88 Ohio St.3d 292, 725 N.E.2d 646, 655 (2000); see also Ruby, 532 N.E.2d at 732 (articulating the rationale for notice in the indemnification context).

The Hunter plaintiffs served Bank One with the original complaint on March 3, 1998. Five weeks later, on May 5, 1998, Bank One notified EAC of the Hunter class action and requested indemnification for any attendant liability. Bank One attached the original complaint and the preliminary motion for class certification...