Memorandum of Decision Re: Indemnity and Contribution

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re EUREKA SOUTHERN RAILROAD                                       No. 1-86-1979 CO., INC.,      Debtor. ___________________________/ JERRY E. GREGG, Trustee,      Plaintiff,    v.                                                                                           A.P. No. 91-1055 HOME INSURANCE OF ILLINOIS, et al.,      Defendants. _____________________________/ UNITED SHORTLINE, INC. ASSURANCE SERVICES, N.A.,      Cross-claimant,    v. THE CANTON AGENCY, INC.,      Cross-defendant. _______________________________/
Memorandum of Decision

I. Introduction
     Debtor Eureka Southern Railroad Co. filed its petition for relief under the railroad reorganization proceedings in 1986. At all relevant times, it was an operating railroad under the supervision and control of Jerry E. Gregg, the trustee appointed pursuant to section 1163 of the Bankruptcy Code.      In 1990, Gregg sought to renew the railroad's liability insurance. He called on its broker, cross-defendant Canton Agency, to find it a policy. Canton could not place the risk, so it turned to another broker, Alexander & Alexander, which in turn contacted defendant and cross-claimant United Shortline, Inc. ("USI"), also an insurance broker, to place the risk. On June 15, 1990, USI issued a binder, or temporary insurance contract, certifying that the Home Insurance Co. of Illinois would insure Eureka Southern for one month. On July 13, 1990, USI issued a certificate of insurance stating that the Home Insurance Co. would insure Eureka Southern from June 15, 1990 until June 15, 1991.      USI did not actually submit its request to Home for a policy covering Eureka Southern until June 19, 1990. After several exchanges of information and various requests, Home Insurance finally declined to cover Eureka Southern on July 5, 1990. USI never informed anyone that there was no insurance coverage.      On August 28, 1990, Eureka Southern suffered a derailment and consequent financial loss. It filed a claim with Home through its brokers; on October 12, 1990, USI informed Eureka Southern by letter that Home had denied coverage. Gregg filed suit on behalf of the railroad against Home Insurance and USI. USI filed a counterclaim and the cross-claim against Canton here at issue. USI seeks indemnity or contribution from Canton for the settlement it has reached with Eureka Southern.      Now before the court is Canton's motion for summary judgment. USI has responded by arguing that there are disputed issues of fact, that the motion is premature, and that Canton should be sanctioned for bringing it. The court finds each and every argument raised by USI to be spurious and meritless. For the reasons stated below, it will grant Canton's motion in full and deny the request for sanctions.

II. Prematurity

     USI's argument that this motion is premature is without doubt the most disingenuous the court has ever heard. Trial of this matter was originally set for September 14, 1992. On motion of Canton, the cross-claim was severed and ordered to be tried separately. USI vehemently fought to go to trial with Canton, and as late as August 21, 1992, was seeking reconsideration of the court's order. For it to argue now that it needs more time for discovery is yet another example of the pettifoggery which has typified USI's litigation conduct since this case began.

III. Indemnity
     There is no material issue of fact as to the matters recited in the introduction above. It is beyond dispute that USI misrepresented that there was insurance coverage to both Canton and Gregg, and did not tell either that there never truly was any coverage. Given this clear wrongdoing, there is no way it can recover on an indemnity theory. Indemnity is only available to a party who, without active fault on his part, has been compelled by reason of the negligence of another to pay damages for which he is only secondarily liable. 5 Witkin, Summary of California Law (9th Ed.), Torts, section 89. All of the active wrongdoing in this case was done by USI. If Canton had been found liable to the railroad, it could have sought indemnity from USI because USI was the primary wrongdoer. USI has no right whatsoever to indemnity from Canton.

III. Contribution

     USI has no right of contribution against Canton because they are not joint defendants. 5 Witkin, Summary of California Law (9th Ed.), Torts, section 85. Even if the statute did not apply, contribution is an equitable remedy not available to one guilty of active, primary negligence or active wrongdoing. Ramirez v. Redevelopment Agency, 4 Cal.App.3d 397, 401 (1970). In any event, the argument presupposes a causal connection between the alleged negligence of Canton and the railroad's damages or USI's liability which is entirely absent.

IV. Assignment of Rights from Eureka Southern

     USI argues that as part of its settlement with Eureka Southern it obtained an assignment of Eureka Southern's rights against Canton. If this is so, it is meaningless. As noted above, USI was the primary wrongdoer. Canton clearly has a right of indemnity against USI for anything it might be found to owe to Eureka Southern.

V. Conclusion

     There is no triable issue of fact. USI was the sole cause of Eureka Southern's losses. Even if the court were to find that anything raised in USI's papers could be considered negligence on the part of Canton, and even if the court could find some sort of causal relationship between such negligence and the damages, the primary wrongdoing was on USI's part and there would still be no right to indemnity or contribution, nor would an assignment of Eureka Southern's rights against Canton entitle USI to recover anything from Canton. Accordingly, Canton's motion for summary judgment will be granted and USI's cross-claim against it will be dismissed, with prejudice. Canton shall recover its costs of suit. Needless to say, USI's request for sanctions will be denied.      Counsel for Canton shall submit a form of order granting its motion and an appropriate form of judgment.

Dated: January 26, 1993                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy