CSX Transp., Inc. v. City of Fayetteville

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA15-1286

Filed: 17 May 2016

Cumberland County, No. 14 CVS 1826

CSX TRANSPORTATION, INC., Plaintiff,

v.

CITY OF FAYETTEVILLE and PUBLIC WORKS COMMISSION OF THE CITY OF
FAYETTEVILLE, a/k/a FAYETTEVILLE PUBLIC WORKS COMMISSION,
Defendants.

CITY OF FAYETTEVILLE, Third-Party Plaintiff,

v.

TIME WARNER CABLE SOUTHEAST, LLC, Third-Party Defendant.

Appeal by plaintiff from order entered 28 May 2015 by Judge Tanya T. Wallace

and order entered 8 June 2015 by Judge Beecher R. Gray in Cumberland County

Superior Court. Heard in the Court of Appeals 27 April 2016.

Millberg Gordon Stewart PLLC, by Frank J. Gordon and B. Tyler Brooks, for
plaintiff-appellant.

Hutchens Law Firm, by J. Scott Flowers and Natasha M. Barone, for
defendants-appellees.

TYSON, Judge.

CSX Transportation, Inc. (“CSX”) appeals from order granting summary

judgment in favor of defendants City of Fayetteville and the Public Works
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Commission (“PWC”) on whether the parties’ contractual agreement required PWC

to indemnify CSX for its own negligence, and denying CSX’s motion for partial

summary judgment on its contractual indemnity claim. CSX also appeals from order

granting summary judgment in favor of PWC on CSX’s claim for indemnification. We

reverse the trial court’s order granting summary judgment in favor of PWC, grant

CSX’s motion for partial summary judgment on its contractual indemnity claim, and

remand.

I. Factual Background

In 1951, PWC entered into a contract (“the Crossings Agreement”) with

Atlantic Coast Line, CSX’s predecessor-in-interest, which allowed PWC, as licensee,

to install aerial power lines over a section of railroad tracks. The Crossings

Agreement includes an indemnification provision, which states:

The Licensee will indemnify and save harmless the
Railroad Company, its successors and assigns, from and
against all loss, cost, damage and expense, and from and
against any and all claims or demands therefor, on account
of injury to person or property, which may be incurred by
the Railroad Company by reason of the construction,
maintenance, use or operation of the said conductors, wires
or supports, or by reason of the exercise of any of the
privileges conferred by this license or agreement.

It is not disputed that CSX, as successor-in-interest to the Atlantic Coast Line, has

the right to enforce the 1951 agreement.

The Crossings Agreement requires all power lines installed by PWC to be

maintained at an elevation of at least twenty-seven or twenty-eight feet above the top

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of the railroad tracks, depending on the line’s voltage. Pursuant to the Crossings

Agreement, PWC installed utility poles on both sides of the railroad tracks running

adjacent to 3024 Clinton Road, in Fayetteville, North Carolina, and connected two

aerial lines between these poles.

On 14 March 2011, CSX employee Donald Herring (“Mr. Herring”) was

operating a crane on the railroad tracks and struck one or more of the power lines

crossing over the tracks. By the time Mr. Herring realized his crane would not pass

under the power lines, it was too late for him to stop.

The parties’ briefs present conflicting evidence of whether the height of PWC’s

lines complied with the elevation requirements contained in the Crossings

Agreement. A CSX investigation concluded PWC’s lines were hanging lower than

required by the Crossings Agreement. CSX alleged in its complaint the power lines

were hung no higher than eighteen feet, seven inches.

Conversely, PWC’s engineer measured one of the power lines as twenty-seven

feet, seven inches above the tracks. PWC also hired an independent electrical

engineer who opined that the height of the power lines was in compliance with the

Crossings Agreement.

The collision caused a power surge of electrical current into equipment owned

by a third party, CenturyLink, through a “common ground” which connected PWC’s

and CenturyLink’s lines. The power surge caused extensive damage to CenturyLink’s

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equipment, including underground wiring and an above-ground utility pedestal.

CenturyLink repaired its property and issued demands on CSX to pay for damages

to CenturyLink’s property purportedly caused by the power surge. CSX settled the

CenturyLink claim by paying $118,000.00 in March 2013.

After CSX compensated CenturyLink, it sought indemnification from PWC

pursuant to the indemnification provision within the Crossings Agreement. PWC

denied CSX’s claim for indemnification. On 11 March 2014, CSX filed a complaint

against PWC, and alleged claims for: (1) breach of contract/contractual indemnity; (2)

negligence/gross negligence; (3) common law indemnity; (4) trespass; (5) private

nuisance; and, (6) contribution. PWC responded by filing an answer, a counterclaim,

and a third-party complaint against Time Warner Cable Southeast, LLC (“Time

Warner”).

In April 2015, PWC and Time Warner filed motions for summary judgment,

and CSX filed a motion for partial summary judgment. The parties’ motions were

heard on 7 May and 12 May 2015 before the Honorable Tanya T. Wallace. The trial

court granted Time Warner’s motion for summary judgment and dismissed it from

the case. No party appealed from this ruling and order. The parties stipulate Time

Warner is not a party to this appeal.

On 28 May 2015, Judge Wallace entered a written order granting in part and

denying in part CSX’s motion for partial summary judgment. Judge Wallace

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concluded a genuine issue of material fact existed with regard to CSX’s claim for

indemnification, and denied CSX’s motion for summary judgment on this issue.

Judge Wallace granted CSX’s motion for summary judgment on PWC’s counterclaim,

and dismissed the counterclaim with prejudice.

That same day, Judge Wallace also entered a written order, which granted in

part and denied in part PWC’s motion for summary judgment. Judge Wallace ruled

as follows:

1. [PWC’s] Motion for Summary Judgment as to [CSX’s]
first claim for relief, Count One: Indemnification, is denied.

2. The Crossing[s] Agreement does not require [PWC] to
indemnify [CSX] for the negligence of [CSX] or its
employees. This issue is resolved as a matter of law.

3. [PWC’s] Motion for Summary Judgment as to all of
[CSX’s] remaining claims for relief is granted. [CSX’s]
claims for relief designated as Count Two:
Negligence/Gross Negligence; Count Three: Common Law
Indemnity; Count Four: Trespass; Count Five: Private
Nuisance; and Count Six: Contribution are hereby
dismissed with prejudice.

Judge Wallace denied PWC’s motion for summary judgment on CSX’s claim for

indemnification after she determined a genuine issue of material fact existed with

regard to CSX’s negligence.

On 18 May 2015, the day trial was scheduled to begin before the Honorable

Beecher Gray, CSX filed an admission of negligence. In light of CSX’s admission of

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negligence, PWC orally renewed its motion for summary judgment on CSX’s claim for

indemnification that same day.

Judge Gray granted PWC’s renewed motion for summary judgment based upon

Judge Wallace’s prior order, which had concluded as a matter of law PWC was not

required to indemnify CSX for CSX’s own negligence. This order was entered on 8

June 2015. CSX gave timely notice of appeal to this Court.

II. Issue

CSX argues the trial court erred by granting summary judgment in favor of

PWC. CSX contends the trial court incorrectly concluded that North Carolina law

does not allow a party to be indemnified for its own negligence.

III. Standard of Review

Summary judgment is proper where “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 any party is entitled to a

judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2015); see Draughon

v. Harnett Cnty. Bd. of Educ., 158 N.C. App. 208, 212, 580 S.E.2d 732, 735 (2003)

(citation omitted), aff’d per curiam, 358 N.C. 131, 591 S.E.2d 521 (2004).

“In a motion for summary judgment, the evidence presented to the trial court

must be . . . viewed in a light most favorable to the non-moving party.” Howerton v.

Arai Helmet, Ltd., 358 N.C. 440, 467, 597 S.E.2d 674, 692 (2004) (citations omitted).

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An issue is “genuine” if it can be proven by substantial
evidence and a fact is “material” if it would constitute or
irrevocably establish any material element of a claim or a
defense.

A party moving for summary judgment may prevail
if it meets the burden (1) of proving an essential element of
the opposing party’s claim is nonexistent, or (2) of showing
through discovery that the opposing party cannot produce
evidence to support an essential element of his or her
claim. Generally this means that on undisputed aspects of
the opposing evidential forecast, where there is no genuine
issue of fact, the moving party is entitled to judgment as a
matter of law. If the moving party meets this burden, the
non-moving party must in turn either show that a genuine
issue of material fact exists for trial or must provide an
excuse for not doing so.

Lowe v. Bradford, 305 N.C. 366, 369, 289 S.E.2d 363, 366 (1982) (citations and

internal quotation marks omitted). This Court reviews a trial court’s summary

judgment order de novo. Sturgill v. Ashe Mem’l Hosp., Inc., 186 N.C. App. 624, 626,

652 S.E.2d 302, 304 (2007), disc. review denied, 362 N.C. 180, 658 S.E.2d 662 (2008).

IV. Analysis

A. Indemnification

Both parties stipulated during oral argument that North Carolina law permits

a party to be indemnified for its own negligence, but disagree on the application of

this principle to the facts here.

CSX argues: (1) that portion of Judge Wallace’s 28 May 2015 order, which

granted summary judgment in favor of PWC as a matter of law on the issue of

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whether the Crossings Agreement required PWC to indemnify CSX for its own

negligence; and, (2) Judge Gray’s subsequent order, which granted summary

judgment in favor of PWC on CSX’s claim for indemnification are based upon a

misapprehension of North Carolina indemnity law. We agree.

In its 28 May 2015 order, the trial court stated:

The Court further finds that, with regard to the issue of
whether the indemnification agreement contained in the
subject contract between the Parties . . . requires [PWC] to
indemnify [CSX] for the negligence of [CSX] or [CSX]’s
employees, there is no genuine issue of material fact and
[PWC is] entitled to judgment as a matter of law.

....

2. The Crossing[s] Agreement does not require [PWC] to
indemnify [CSX] for the negligence of [CSX] or its
employees. This issue is resolved as a matter of law.

North Carolina courts have long upheld the validity and enforcement of

indemnification provisions in contracts, whereby one party is required to reimburse

another for claims paid to a third party. Our Supreme Court explained the purpose

of indemnity provisions, and our courts’ role in interpreting these provisions, as

follows:

An indemnity contract obligates the indemnitor to
reimburse his indemnitee for loss suffered or to save him
harmless from liability. Our primary purpose in
construing a contract of indemnity is to ascertain and give
effect to the intention of the parties, and the ordinary rules
of construction apply. The court must construe the
contract as a whole and an indemnity provision must be
appraised in relation to all other provisions.

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Schenkel & Shultz, Inc. v. Hermon F. Fox & Assocs., P.C., 362 N.C. 269, 273, 658

S.E.2d 918, 921 (2008) (citations and internal quotation marks omitted).

Our Supreme Court has expressly recognized the right of a party to

contractually provide for indemnification against its own negligence. Gibbs v.

Carolina Power & Light Co., 265 N.C. 459, 467, 144 S.E.2d 393, 400 (1965). The

Court emphasized “[f]reedom of contract is a fundamental basic right” and held an

indemnity clause which would allow defendant-company to be indemnified for its own

negligence was valid and enforceable. The Court reasoned “[i]f the indemnity clause

does not provide defendant indemnity against claims of the character of plaintiff’s

claim, it has no meaning or purpose. The indemnity applies to claims based on

defendant’s negligence for there is no other class of claims for which defendant would

be responsible to [third-party’s] employees[.]” Id. at 466, 144 S.E.2d at 399

(distinguishing exculpatory contracts, “whereby one seeks to wholly exempt himself

from liability for the consequences of his negligent acts, and contracts of indemnity

against liability imposed for the consequences of his negligent acts[]”).

This Court also unequivocally recognized the right of contracting parties to

provide for indemnification for one’s own negligence. Cooper v. H.B. Owsley & Son,

Inc., 43 N.C. App. 261, 266-67, 258 S.E.2d 842, 846 (1979) (holding general contractor

was required to indemnify crane owner for crane owner’s own negligence pursuant to

indemnification provision in contract); Beachboard v. S. Ry. Co., 16 N.C. App. 671,

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679, 193 S.E.2d 577, 582-83 (1972) (holding language of indemnity provision in

contract obligated paper company to indemnify railroad where both railroad and

paper company were found to have been negligent), cert. denied, 283 N.C. 106, 194

S.E.2d 633 (1973).

In Beachboard, a railroad employee was injured while working in a paper

company’s rail yard and sued his employer, the railroad, for his on-the-job injury.

The railroad sought indemnification from the paper company pursuant to a

contractual indemnification provision. The paper company contended the

indemnification provision in its contract with the railroad was solely limited to

instances in which the paper company was negligent, and because the railroad had

“also been found guilty of negligence in this case, [the paper company] ha[d] no

obligation to indemnify it.” Id. at 679, 193 S.E.2d at 582. We expressly rejected the

paper company’s argument because “[t]o adopt [the paper company’s] interpretation

effectively robs the indemnity clause of nearly all meaning.” Id.

In Cooper, this Court analogized indemnification provisions to liability

insurance policies, which “have long been enforced by the courts.” Cooper, 43 N.C.

App. at 266, 258 S.E.2d at 846. Rejecting the defendant’s argument that it would be

against public policy to permit the plaintiff to be indemnified against its own

negligence, we noted “it is now the prevailing rule that a contract may validly provide

for the indemnification of one against, or relieve him from liability for, his own future

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acts of negligence[.]” Id. at 267, 258 S.E.2d at 846 (“[Defendant] contends that it is

against public policy to permit [plaintiff] to be indemnified against its own negligence

or against that of its employee for which it is responsible. We perceive, however, no

sound reason why this must be so.”).

More recently, this Court, citing Cooper, explicitly rejected the notion that

North Carolina does not permit the contractual indemnification of a party for its own

negligent acts. Malone v. Barnette, __ N.C. App. __, __, 772 S.E.2d 256, 260-61 (2015).

In Malone, this Court observed:

This Court has expressly held that North Carolina public
policy is not violated by an indemnity contract that
provides for the indemnification of a party against the
consequences of its own negligent conduct, particularly
when the agreement is made “at arms [sic] length and
without the exercise of superior bargaining power.” Cooper
v. H.B. Owsley & Son, Inc., 43 N.C. App. 261, 267, 258
S.E.2d 842, 846 (1979). We further noted that the
enforcement of such provisions “would have no greater
tendency to promote carelessness on the part of the
indemnitee than would enforcement against the insurer of
a policy of liability insurance” and recognized that “the
occasion for the indemnitee seeking indemnity would not
arise unless it had itself been guilty of some fault, for
otherwise no judgment could be recovered against it.” Id.
at 266-68, 258 S.E.2d at 846 (citation and brackets
omitted).

Malone, __ N.C. App. at __, 772 S.E.2d at 260 (footnote omitted); see also Kirkpatrick

& Assocs., Inc. v. Wickes Corp., 53 N.C. App. 306, 310, 280 S.E.2d 632, 635 (1981)

(citation omitted) (holding plaintiff’s admission of negligence did not bar its claim for

recovery based upon indemnity clause because “[d]efendant’s ultimate liability to

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plaintiff is in contract, not in tort[]”); Hargrove v. Plumbing and Heating Serv. of

Greensboro, Inc., 31 N.C. App. 1, 7, 228 S.E.2d 461, 465 (holding that indemnification

provision provided for full indemnity for all negligence, including any negligence on

the part of the indemnitee), disc. review denied, 291 N.C. 448, 230 S.E.2d 765 (1976).

Here, the trial court granted summary judgment in favor of PWC on the

grounds that CSX had admitted its negligence in causing or contributing to the

incident, which gave rise to CenturyLink’s claim, and this admission barred CSX

from receiving indemnification from PWC as a matter of law. As discussed supra,

this conclusion is contrary to well-established North Carolina law. The trial court’s

conclusion of law was incorrect and summary judgment entered upon this erroneous

conclusion was improper. The trial court’s 8 June 2015 order, which granted

summary judgment in favor of PWC as a result of CSX’s admitted negligence, is

reversed.

B. Enforceability of the Indemnity Provision

Both parties also stipulated at oral argument that the language of the

indemnity provision in the Crossings Agreement is not ambiguous and should be

interpreted by this Court as a matter of law. CSX contends the second phrase in the

indemnification provision, which requires indemnification where the injury is “by

reason of the exercise of any of the privileges conferred by this license or agreement[,]”

mandates indemnification for the situation at bar. CSX reasons the only “privilege[]

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conferred” by the agreement was to allow PWC to place power lines over the railroad

tracks. CSX argues if not for, or “but for,” the presence of the power lines above the

railroad tracks, which exist only as a result of PWC’s exercise of its privilege under

the license granted, CSX’s crane would not have hit PWC’s power lines and damaged

CenturyLink’s equipment.

“A contract that is plain and unambiguous on its face will be interpreted by the

court as a matter of law.” Schenkel & Shultz, 362 N.C. at 273, 658 S.E.2d at 921.

As in the construction of any contract, the court’s
primary purpose in construing a contract of indemnity is to
ascertain and give effect to the intention of the parties, and
the ordinary rules of construction apply. It will be
construed to cover all losses, damages, and liabilities which
reasonably appear to have been within the contemplation
of the parties, but it cannot be extended to cover any losses
which are neither expressly within its terms nor of such
character that it can reasonably be inferred that they were
intended to be within the contract.

Dixie Container Corp. v. Dale, 273 N.C. 624, 627, 160 S.E.2d 708, 711 (1968) (citations

and internal quotation marks omitted).

The language in the Crossings Agreement provides for indemnification for

damage “which may be incurred by the Railroad Company by reason of the

construction, maintenance, use or operation of the said conductors, wires or supports,

or by reason of the exercise of any of the privileges conferred by this license or

agreement.” (emphasis supplied).

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PWC forcefully argues “by reason of” does not mean “but for,” and is more akin

to a proximate causation requirement. PWC asserts it is only required to indemnify

CSX for injuries incurred “by reason of,” or caused by, the construction, maintenance,

use, or operation of PWC’s equipment. We disagree with this narrow interpretation.

See One Beacon Ins. Co. v. United Mech. Corp., 207 N.C. App. 483, 488, 700 S.E.2d

121, 124-25 (2010) (interpreting “arising from or relating to, and by reason of”

language in indemnity provision as synonymous with “stemm[ing] from”). If this

Court were to accept PWC’s interpretation of the indemnification provision, it would

“effectively rob[] the indemnity clause of nearly all meaning.” Beachboard, 16 N.C.

App. at 679, 193 S.E.2d at 582.

Moreover, there is a want of authority to support PWC’s assertion that “by

reason of” is synonymous with “caused by” or “proximately caused by.” Although “by

reason of” has never expressly been defined by North Carolina’s appellate courts, the

United States Court of Appeals for the First Circuit interpreted the phrase “by reason

of” in an indemnification provision and held: “[W]e consider the language

unambiguous: ‘by reason of’ means ‘because of,’ and thus necessitates an analysis at

least approximating a ‘but-for’ causation test.” Pac. Ins. Co., Ltd. v. Eaton Vance

Mgmt., 369 F.3d 584, 589 (1st Cir. 2004) (citing Black’s Law Dictionary 201 (6th ed.

1990); see also Webster’s Third New Int’l Dictionary 307 (1993) (defining “by virtue

of” to mean “by reason of”).

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The Crossings Agreement was an arm’s length, bargained-for exchange

between two equally sophisticated parties. The language in the indemnification

provision, which both parties concede is unambiguous, was granted as consideration

for, and as a result of, PWC’s power lines being installed and maintained over CSX’s

railroad tracks. This provision allows CSX to be indemnified for damages paid to

CenturyLink, because the damage was “by reason of,” or “by virtue of,” PWC’s

exercise of its privilege, i.e. hanging power lines above the railroad tracks.

In other words, but-for, or “stemm[ing] from,” PWC’s exercise of its privilege

and license pursuant to the Crossings Agreement, CenturyLink’s equipment would

not have been damaged as a result of CSX’s crane colliding with PWC’s power lines.

See One Beacon Ins. Co., 207 N.C. App. at 488, 700 S.E.2d at 124-25. Under the

agreement, CSX is entitled to indemnification from PWC, even though damages

resulted from CSX’s own negligence. On de novo review, CSX’s motion for partial

summary judgment on its claim for contractual indemnity is granted.

V. Conclusion

The trial court erroneously concluded CSX was barred from recovering

indemnification from PWC because of CSX’s admission of negligence in the harm

caused to CenturyLink.

That portion of Judge Wallace’s order entered 28 May 2015, which: (1) granted

summary judgment in favor of PWC on whether the Crossings Agreement required

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PWC to indemnify CSX for its own negligence as a matter of law; and, (2) denied

CSX’s motion for partial summary judgment on its contractual indemnity claim is

reversed. Upon de novo review, CSX’s motion for partial summary judgment on its

contractual indemnity claim is granted.

Judge Gray’s order entered 8 June 2015, following CSX’s admission of

negligence, which granted summary judgment in favor of PWC as to CSX’s claim for

indemnification is reversed. This cause is remanded to the trial court for further

proceedings and entry of judgment consistent with this opinion.

REVERSED AND REMANDED.

Judges CALABRIA and HUNTER, JR. concur.

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