Commerce & Industry Insurance v. Grinnell Corp.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 01-30373

COMMERCE AND INDUSTRY INSURANCE COMPANY,

Plaintiff

versus

GRINNELL CORPORATION, Etc.; ET AL.,

Defendants,

-------------------------------------------

IAN DAVID MCAUSLIN, Etc.; ET AL.,

Plaintiffs,

INDEMNITY MARINE ASSURANCE CO. LTD.; SPHERE DRAKE INSURANCE PLC;
LONDON & EDINBURGH INSURANCE CO. LTD.; COMMERCIAL UNION ASSURANCE
PLC; TERRA NOVA INSURANCE CO. LTD.; THE YORKSHIRE INSURANCE CO.
LTD.; CORNHILL INSURANCE PLC; OCEAN MARINE INSURANCE CO. LTD.;
SKANDIA MARINE INSURANCE COMPANY (U.K.) LTD.; AXA MARINE & AVIATION
INSURANCE (U.K.) LTD.

Plaintiffs-Appellants

versus

GRINNELL CORPORATION, Etc.; ET AL.

Defendants

CITY OF NEW ORLEANS, Individually and doing business as City of New
Orleans Fire Department

Defendant-Appellee

--------------------
Appeal from the United States District Court
for the Eastern District of Louisiana
--------------------

February 1, 2002

Before DUHÉ, WIENER, and BARKSDALE, Circuit Judges.

WIENER, Circuit Judge:
 Plaintiffs-Appellants are insurance companies (collectively,

“the Insurance Companies”) which brought a subrogation suit

against, inter alia, Defendant-Appellee City of New Orleans (“the

City”) to recover payments that they had made to their insured for

losses incurred in a warehouse fire. The Insurance Companies now

appeal the district court’s grant of the City’s motion for summary

judgment based on Louisiana’s discretionary function immunity

statute, La. R.S. 9:2798.1 (“R.S. 9:2798.1").1 Concluding that the

Insurance Companies successfully raised genuine issues of material

fact on the first prong of the test used to determine whether R.S.

9:2798.1 applies, we reverse the grant of summary judgment and

remand the case for further proceedings consistent with this

opinion.

I. Facts and Proceedings

West Coast Liquidators (“WCL”) operated a vast warehouse in

eastern New Orleans and used it as a distribution center to serve

the retail outlets of MacFrugal’s Bargains-O-Closeouts, Inc.

(“MacFrugal’s”) in the southeastern United States. Early on the

morning of March 21, 1996, WCL employees called the New Orleans

Fire Department (“NOFD”) after discovering a fire in the portable

storage racks in the warehouse. The heat-activated sensors for the

automatic sprinkler system were located on the high ceiling, more

than 50 feet above the portable shelves where the fire had started.

This allowed the fire grow and spread for some 20 minutes before

1
LA. REV. STAT. ANN. § 9:2798.1 (West 1997).

2
the temperature at the ceiling rose sufficiently to activate the

sprinkler system.

The result was a five-alarm fire. Four engines and ladder

trucks were dispatched initially, but a total of 17 engine

companies ultimately participated. In the course of fire-

suppression efforts, the NOFD called on the local electrical

utility company, New Orleans Public Service, to turn off all power

to the building, after first confirming that doing so would not

deactivate the sprinkler system. The NOFD later ordered the power

restored, but did so without first either having the electrical

system checked by an electrical engineer or obtaining a permit.

During the course of its continuing fire-suppression efforts

following its declaration that the fire was “under control,” the

NOFD ordered the automatic sprinkler system turned off in an effort

to reduce the water damage to merchandise in the areas of the

warehouse that were unaffected by the fire. In addition, the NOFD

commander at the scene ordered that the large bay doors of the

warehouse be opened to ventilate the building, notwithstanding a

wind velocity in excess of 20 miles per hour.

The firefighters continued their fire-suppression activities,

finally declaring the fire “out” at 11:54 a.m. and thereafter

conducting “overhaul” activities —— the search for still-smoldering

materials or “hot spots” that were not completely extinguished and

could re-ignite. In this search, however, they did not inspect the

upper levels of the 65-foot fixed racks (which covered the majority

of the warehouse), but confined their search to the shorter

3
portable racks. Six minutes after declaring the fire out —— just

before noon —— the NOFD returned responsibility for the facility to

WCL employees and departed, leaving one engine and a company of

four firefighters as a fire watch. When the NOFD left, the bay

doors were still open and the automatic sprinkler system was still

off.

At 2:20 p.m., the fire rekindled in the upper level of the

fixed racks, over 275 feet away from the area of the first fire.

As the Insurance Companies put it, “[w]ithout any sprinkler system,

and with the wind blowing through the open doors, the fire quickly

spread and destroyed the warehouse and its contents.”

The first fire was determined to have resulted from arson, but

the cause of the later fire is disputed. Materials ignited by the

first fire might have re-ignited, or the second fire might have

resulted from the re-energizing of the electrical power rails

following the first fire. In any event, the Insurance Companies

paid the full claim submitted by their insured for the loss of the

merchandise in the warehouse, then filed this subrogation suit to

recover their payments from the parties the Insurance Companies

allege were actually responsible for the loss —— including the

City, which the Insurance Companies insist was vicariously liable

for the acts of NOFD personnel.

The Insurance Companies alleged that the NOFD’s negligent

actions and omissions included: (1) attempting to restore

electrical power before an electrical inspection had been

conducted, in violation of code and policy; (2) turning off the

4
sprinkler system without posting personnel with two-way radios at

the sprinkler valves, in contravention of a specific regulation;

(3) opening the large bay doors before the fire was declared out,

despite wind velocities of 21 mph; (4) failing to “overhaul” any of

the upper level racks even though they had been subjected to

intense heat; and (5) departing the scene “under these conditions”

within six minutes after declaring the fire out, without leaving

adequate personnel and equipment for a fire watch.

The City filed a motion for summary judgment based on its

contract with WCL, but that motion was ultimately denied in

response to the Insurance Companies’ motion for reconsideration.

The City then filed a second motion for summary judgment, this one

based on two Louisiana statutes that immunize the City and its

employees from civil suits for damages based on allegations of acts

negligently taken in the course of their duties: (1) R.S. 9:2798.1

(forbidding the imposition of liability on public entities or their

employees when they perform policymaking or discretionary acts

within the course and scope of their lawful powers and duties), and

(2) R.S. 9:2793.1 (denying a cause of action against a public

entity for damage caused by remedial acts reasonably taken to abate

a public emergency). The district court granted this second motion

for summary judgment, ruling that the City was immune from suit

under R.S. 9:2798.1.2 The district court denied the Insurance

2
The district court determined that it was “unnecessary to
consider the application of public emergency immunity conferred
by Section 9:2793.1,” after the court decided that the
firefighters’ decisions were grounded in policy considerations,
thus earning immunity under 9:2798.1.

5
Companies’ motion for reconsideration or relief from judgment, or,

in the alternative, certification of the judgment as final for

immediate appeal. After all other defendants in the case were

dismissed through settlement, voluntary dismissal, or summary

judgment, the Insurance Companies’ appeal of summary judgment in

the City’s favor became ripe.

II. Analysis

A. Standard of Review

We review a grant of summary judgment de novo, applying the

same standard as the district court.3 A motion for summary

judgment is properly granted only if there is no genuine issue as

to any material fact.4 An issue is material if its resolution

could affect the outcome of the action.5 In deciding whether a

fact issue has been created, we must view the facts and the

inferences to be drawn therefrom in the light most favorable to the

nonmoving party.6

The standard for summary judgment mirrors that for judgment as

a matter of law.7 Thus, the court must review all of the evidence

3
Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380
(5th Cir. 1998).
4
Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986).
5
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
6
See Olabisiomotosho v. City of Houston, 185 F.3d 521, 525
(5th Cir. 1999).
7
Celotex Corp., 477 U.S. at 323.

6
in the record to which the parties invite the court’s attention,8

but make no credibility determinations or weigh any evidence.9 In

reviewing all the evidence, the court must disregard all evidence

favorable to the moving party that the jury is not required to

believe, and should give credence to the evidence favoring the

nonmoving party as well as that evidence supporting the moving

party that is uncontradicted and unimpeached.10

We also review the district court’s interpretation of state

statutes de novo, “resolving questions of Louisiana law ‘the way

the Louisiana Supreme Court would interpret the statute based upon

prior precedent, legislation, and relevant commentary.’”11

B. Discretionary Function Immunity and the Berkovitz Test

Article XII, Section 10 of Louisiana’s Constitution provides:

(A) No Immunity in Contract and Tort. Neither the state,
a state agency, nor a political subdivision shall be
immune from suit and liability in contract or for injury
to person or property.
...
(C) Limitations.... Notwithstanding Paragraph (A)...,
the legislature by law may limit or provide for the
extent of liability of the state, a state agency, or a
political subdivision in all cases, including the
circumstances giving rise to liability and the kinds and
amounts of recoverable damages. [Emphasis ours.]

8
See Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915 n.7
(5th Cir. 1992), cert. denied, 506 U.S. 832 (1992).
9
Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133,
150 (2000).
10
Id. at 151.
11
Stephens v. Witco Corp., 198 F.3d 539, 541 (5th Cir.
1999) (quoting Occidental Chemical Corp. v. Elliott
Turbomachinery Co., Inc., 84 F.3d 172, 175 (5th Cir. 1996)).

7
The legislature did provide for a limitation of liability in R.S.

9:2798.1, which states:

§ 2798.1. Policymaking or discretionary acts or
omissions of public entities or their officers or
employees
A. As used in this Section, “public entity” means and
includes the state and any of its branches, departments,
offices, agencies, boards, commissions,
instrumentalities, officers, officials, employees, and
political subdivisions and the departments, offices,
agencies, boards, commissions, instrumentalities,
officers, officials, and employees of such political
subdivisions.
B. Liability shall not be imposed on public entities or
their officers or employees based upon the exercise or
performance or the failure to exercise or perform their
policymaking or discretionary acts when such acts are
within the course and scope of their lawful powers and
duties.
C. The provisions of subsection B of this Section are not
applicable:
(1) To acts or omissions which are not reasonably
related to the legitimate governmental objective
for which the policymaking or discretionary
function exists; or
(2) To acts or omissions which constitute criminal,
fraudulent, malicious, intentional, willful,
outrageous, reckless, or flagrant misconduct.

Louisiana courts have noted repeatedly that the discretionary

function immunity provided by R.S. 9:2798.1 is “essentially the

same” as the discretionary function immunity provided within the

Federal Tort Claims Act (“FTCA”), in 28 U.S.C. § 2680(a).12 In

determining whether R.S. 9:2798.1 immunity applies in a particular

case, Louisiana courts turn consistently to Berkovitz v. United

12
See, e.g., Fowler v. Roberts, 556 So.2d 1, 15 (La.
1989); Taylor v. City of Shreveport, 653 So.2d 232, 240 (La. App.
2d Cir. 1995); Kniepp v. City of Shreveport, 609 So.2d 1163,
1165-66 (La. App. 2d Cir. 1992); Insley v. Titan Insurance Co.,
589 So.2d 10, 13 (La. App. 1st Cir. 1991).

8
States,13 the U.S. Supreme Court case that established the two-step

test for the applicability of § 2680(a). Berkovitz explains the

first step of the test as follows:

“[I]t is the nature of the conduct, rather than the
status of the actor that governs whether the
discretionary function exception applies in a given
case.” In examining the nature of the challenged
conduct, a court must first consider whether the action
is a matter of choice for the acting employee....
[C]onduct cannot be discretionary unless it involves an
element of judgment or choice.... Thus, the
discretionary function exception will not apply when a
federal statute, regulation, or policy specifically
prescribes a course of action for an employee to follow.
In this event, the employee has no rightful option but to
adhere to the directive. And if the employee’s conduct
cannot appropriately be the product of judgment or
choice, then there is no discretion in the conduct for
the discretionary function exception to protect.14

If, however, there is no statutory, regulatory, or procedural

policy directive dictating the employees’ course of conduct, then

—— but only then —— is the court to proceed to the second step of

the test:

[A]ssuming the challenged conduct involves an element of
judgment, a court must determine whether that judgment is
of the kind that the discretionary function exception was
designed to shield. The basis for the discretionary
function exception was Congress’ desire to “prevent
judicial ‘second-guessing’ of legislative and
administrative decisions grounded in social, economic,
and political policy through the medium of an action in
tort.” The exception, properly construed, therefore
protects only governmental actions and decisions based on
considerations of public policy.15

13
486 U.S. 531 (1988).
14
Id. at 536 (quoting United States v. Varig Airlines, 467
U.S. 797, 813 (1984)) (internal citations omitted) (emphasis
added).
15
Id. at 536-37 (quoting Varig, 467 U.S. at 814) (internal
citations omitted) (emphasis added).

9
Only if the discretionary act was grounded in social, economic, or

political policy, then, does the discretionary function exception

immunize the public entity (or employee) from suit; otherwise the

suit may go forward.

In the instant case, the district court applied the first step

of the Berkovitz test and concluded that the firefighters’ actions

were not mandated by statute, regulation, or policy. The court

then proceeded to the second step of the Berkovitz test. At that

stage, the court considered the City’s proffered policy reasons for

the NOFD’s conduct at the fire, including the propositions that the

language of the City’s charter “reveals [that] the need for

discretion is based on competing concerns for the preservation of

life and safety and the protection of private property”; that the

superintendent of fires has discretion to respond to emergency

situations; that in responding to emergencies, the superintendent

must assign priorities to public safety and property, and face

situations in which concerns for human life or safety outweigh

concerns for preservation of property; and that, by implication,

these were the policy considerations “animating” the firefighters’

conduct at the warehouse fire. The district court rejected the

Insurance Companies’ argument that simply because their superiors

were vested with this discretionary authority did not mean that the

firefighters, working on an “operational” level, were also

expressly guided by these policies. In concluding that the

discretionary function immunity statute did apply, the court

summarized its findings:

10
 Here, the City advances legitimate policy concerns
similar to those articulated by the City of Shreveport in
[Kniepp v. City of Shreveport16]. Plaintiffs, however,
fail to raise a genuine issue of material fact that the
decisions made by NOFD regarding the MacFrugal’s fire are
not susceptible to the policy considerations animating
the broad grant of authority conferred on NOFD by the
charter.... In so concluding, this Court observes that
“[t]he sovereign authorities ought to be left free to
exercise their discretion and choose the tactics deemed
appropriate without worry over possible allegations of
negligence.” Therefore, the Court finds that NOFD’s
actions were grounded in policy.

The Insurance Companies argue that the district court erred in

concluding, at the summary judgment phase of the case, that (1) the

firefighters were not subject to directives, and (2) their

discretionary actions were in fact grounded in policy. As

explained in our de novo application of the Berkovitz test below,

we agree with the Insurance Companies that there is a genuine fact

question whether the firefighters’ conduct was dictated by statute

or fire department procedural policy. Consequently, the summary

judgment stage of the litigation is simply too early to determine

whether the City is entitled to discretionary function immunity

under R.S. 9:2798.1.

C. Application of the Berkovitz Test

Step One: Did a statute, regulation, or policy dictate the

firefighters’ course of action?

The Insurance Companies contend that particular regulations

and discrete NOFD fire policies dictated the procedures for the

firefighters to follow at the warehouse fire, and that the

16
609 So.2d 1163 (La. App. 2d Cir. 1992).

11
firefighters violated them. In particular, the Insurance Companies

insist that the firefighters were obligated (1) to have an

electrical engineer inspect the warehouse’s electrical system and

issue a permit before ordering the restoration of power to the

warehouse; and (2) to post personnel at each of the sprinkler

valves when the automatic sprinklers were deactivated and have the

firefighters remain at these posts until the automatic sprinkler

system was re-activated. Differing with the district court, we

conclude that the Insurance Companies have demonstrated the

existence of a genuine question of material fact: whether an

ordinance or fire department procedural policy dictated the

firefighters’ conduct with respect to restoring power to the

warehouse. Accordingly, we need not address the question whether

the firefighters’ conduct with respect to the deactivation of the

automatic sprinkler system may have been dictated by regulation,

statute, or procedural policy.

The Insurance Companies argue that the New Orleans building

code and fire department procedural policy imposed an obligation to

have an electrical engineer inspect the building and to obtain a

permit before the electricity could be turned on again. The New

Orleans building code applicable at the time of the fire provided

that no repair or alteration of electrical equipment shall be

commenced before obtaining an electrical inspection and a permit.17

17
Article 2716 of the New Orleans Amendments to the 1994
Standard Building Code stated that “[e]very Class ‘A’ certificate
holder proposing to install, repair or alter any electrical
equipment or wires designated to carry electricity at a potential
of forty-nine (49) volts or more for any purpose or service in or

12
In addition, Fire Captain Wayne Verges stated emphatically in his

deposition that it is the fire department’s procedural policy not

to restore power:

A. If I can reiterate, on that policy that we have, it
is our policy to, you know, have the electric shut
off to the building. And we’re not to re-energize,
you know, the building without —— well, we don’t
re-energize. NOPSI or Entergy or whatever,
whoever, you know, kills the power and they restore
it. Now, we’ll kill the power in times of life and
limb, you know, in danger, you know, prior to
Entergy arriving. But as far as re-energizing, we
don’t.
Q. In other words, as best you recall or understand
standard operating procedure to be within the Fire
Department, that once the electricity is eliminated
to the building by Energy or NOPSI, whichever, ——
A. Uh-huh (affirmatively).
Q. —— the Fire Department normally would not ask
Entergy to restore power? Is that what you’re
telling me?
A. Correct.
Q. And the reason for that policy is both for the
safety of the firemen who may be inside the
building, correct? That’s one reason?
A. Uh-huh (affirmatively).
Q. Correct?
A. Correct.
Q. And secondly is that the Fire Department doesn’t
know what damage may have been sustained by the
electrical system during the fire. Correct?
A. Correct.
[Emphasis ours.]

The likelihood that this was the fire department’s procedural

policy is further strengthened by the deposition testimony of Larry

on any building or premises, shall file an application for a
permit with the Electrical Inspection Bureau of the Department of
Safety and Permits.... No work may be commenced until the permit
application is approved and the acceptance is acknowledged by the
Electrical Inspection Bureau, except when failure to commence the
work would be life threatening or the work is an emergency due to
a disaster or any uncontrolled event or occurrence.”

13
Chan, the City’s Chief Electrical Inspector, which was offered by

the Insurance Companies in support of their position:

Q. If power was terminated to that facility on the
morning of the fire at the request of the Fire
Department and Entergy in fact turned off the
power, is the normal practice or the proper
practice that prior to the facility being
reenergized [sic], that your department has to go
to that facility to give its approval before
Entergy can re-energize the property?
A. I would say that’s the normal practice.
Q. Okay. Normal practice. Is there any type of codal
requirement imposed by the City with respect to re-
energizing a property after the power to the
facility has been turned off as a result of a fire?
A. As I say, a normal practice is that it goes through
Department of Safety and Permits, the Electrical
Division. I don’t know if any other agencies has
[sic] the right or not to do the same.
Q. So you don’t know if the Fire Department has the
right to tell the utility company to turn on and
off the power? Is that what you’re saying?
A. Correct.
Q. If I were to tell you that the Fire Department
instructed that the power be turned off and then
turned back on again at those times that I
mentioned earlier, and if there was no one from
your department there, that would not be, to use
your words, the normal practice. Is that correct?
A. Correct. They normally order it off, but I —— I am
not aware of them putting it back on.
Q. What is the reason why you follow the normal
practice or what is the rationale for the normal
practice?
A. Well, in our department, I mean throughout the
years, I mean, as chief I just picked up from
practices that have been done, but it’s not just a
practice. The fact is that when power is off, they
are required to make an inspection to make sure
it’s safe to re-energize it. And when you file a
permit application, that’s got to come through us
and we’re the ones that have to approve it to
Entergy.
[Emphasis ours.]

In the face of these clear mandates from the building code and

long-established NOFD policy, continues the argument of the

Insurance Companies, NOFD firefighters ordered the power restored

14
without the requisite inspection, after they had ordered it turned

off in the first place.

With respect to the building code provision, the parties

disagree whether it applies during fire emergencies (the City

contends that it does not) and whether a fire emergency continued

to exist by the time that attempts were made to re-energize the

building (the City contends that there was). As for the NOFD

policy, the City challenges Chan’s deposition testimony by pointing

to other excerpts and arguing that Chan actually did not know how

a situation involving the NOFD’s re-energizing of a building should

be handled. As the Insurance Companies note, however, the City’s

contention is pregnant with its failure to address the testimony of

Captain Verges at all.

From the foregoing we conclude that the parties have joined on

at least three genuine issues of material fact: (1) Did the

building code provision that requires a permit before restoring

power to a building apply in fire emergencies; (2) was there still

a fire emergency at the time attempts were made to re-energize the

building; and (3) regardless of whether the ordinance applied, was

it NOFD policy to refrain from restoring power after having it

turned off during fire-suppression efforts. This, coupled with the

fact that at least one theory of the second fire’s rekindling

implicates the re-energizing of the building, forces us to conclude

that the district court erred when it determined at the summary

judgment stage that the firefighters’ conduct was not dictated by

statute, regulation, or policy.

15
 As the Berkovitz Court explained, the discretionary function

exception applies only when a court determines that (1) a statute,

regulation, or policy did not dictate the actor’s conduct, and (2)

the actor’s conduct was grounded in social, economic or public

policy. The Insurance Companies have demonstrated the existence of

a genuine issue of material fact with respect to the first step of

the Berkovitz inquiry. At this preliminary summary judgment phase

of this lawsuit, therefore, the district court cannot advance to

the second step of the Berkovitz test, and the City cannot be

afforded the immunity provided by R.S. 9:2798.1.18 Accordingly, we

reverse the district court’s summary judgment and remand the case

for further proceedings consistent with this opinion.19

REVERSED and REMANDED.

18
Denial of immunity under R.S. 9:2798.1 at the summary
judgment stage of this litigation does not, however, preclude the
possibility that the City could yet be found to be immune under
this statute after a complete finding of facts.
19
As we observed in note 2, supra, the district court
declined to reach the question whether the public emergency
immunity conferred by R.S. 9:2793.1 might apply, when it granted
summary judgment in the City’s favor based on R.S. 9:2798.1. We
express no opinion about whether R.S. 9:2793 may yet be found to
protect the City from suit or liability when further proceedings
are had in the district court.

16