STEELE WARRICK v. MICROGENICS CORPORATION (2024)

MEMORANDUM AND ORDER

Microgenics Corporation (“Microgenics”) and Thermo Fisher Scientific Inc. (“TFSI”) (collectively, the “Microgenics Defendants”) move to dismiss crossclaims for contractual and common-law indemnification and contribution brought by Defendants Corey Bedard, Anthony Annucci, James O'Gorman, and Richard Finnegan (collectively, the “DOCCS Defendants”). For the following reasons, that motion is granted in part and denied in part.

I. BACKGROUND

In the underlying action, Plaintiffs allege that while they were under Department of Corrections and Community Supervision (“DOCCS”) custody, Microgenics Defendants failed to adhere to the relevant professional standards in performing their contractual obligations involving the inmate urinalysis drug-testing program. Consequently, Plaintiffs received false positive drug test reports and suffered undeserved discipline. In a putative class action, Plaintiffs sued the Microgenics Defendants, as well as eight current and former DOCCS employees.

On April 26, 2023, as against the DOCCS Defendants, this Court dismissed Plaintiffs’ Eighth Amendment claim but held that Plaintiffs stated a substantive due process claim against five DOCCS Defendants — Annucci, O'Gorman, Kelly, Finnegan and Bedard — for which they were not entitled to qualified immunity. See Steele-Warrick v. Microgenics Corp. (Steele-Warrick I), 671 F.Supp.3d 229, (E.D.N.Y. 2023).¹ Then, as against the Microgenics Defendants on June 12, 2023, the Court dismissed Plaintiffs’ Eighth Amendment claim but denied Microgenics Defendants’ motion to dismiss as to Plaintiffs’ negligence, New York General Business Law § 349, and § 1983 claims for substantive due process. See Steele-Warrick v. Microgenics Corp. (Steele-Warrick II), 677 F. Supp. 3d 107 (E.D.N.Y. 2023), reconsideration denied, No. 19CV6558FBVMS, 2024 WL 245301 (E.D.N.Y. Jan. 23, 2024).

In response to Plaintiffs’ Third Amended Complaint, DOCCS Defendants filed crossclaims against Microgenics Defendants for indemnification and contribution.² DOCCS Defendants allege that pursuant to DOCCS contract Number CC161458 (the “Contract”) in which Microgenics agreed to provide the at-issue drug-testing products and services, Microgenics Defendants also agreed to indemnify DOCCS Defendants for Plaintiffs’ claims. Microgenics Defendants move to dismiss.

II. DISCUSSION

The sole issue before the Court is whether DOCCS Defendants have stated a claim for contractual indemnification. Motions to dismiss crossclaims are analyzed under the same standard as other motions to dismiss. Royal Host Realty, LLC v. 793 Ninth Ave. Realty, LLC, 192 F. Supp. 3d 348, 350, 353 (S.D.N.Y. 2016). On a Rule 12(b)(6) motion, the Court assumes the complaint's factual allegations, but not legal conclusions, to be true. See Pension Ben. Guar. Corp. ex rel. St. Vincent Cath. Med. Centers Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717 (2d Cir. 2013). To survive. the complaint must include enough facts to state a claim to relief that is facially plausible, see Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), i.e., the plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The proper interpretation of the contract is a question of law for the court. See Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 439 (2d Cir. 1995).

A. Which Indemnification Provision is Operative

The Court must first determine which contractual provision governs. The Contract contains indemnification clauses in both the body of the Contract itself and in Appendix B and has an “order-of-priority” or “order-of-precedence” clause that provides that, in the “event of any conflict between the terms of this Agreement and the terms of it[s] Appendices,” Appendix B takes priority.

The Contract's indemnification provision provides:

The Contractor ․ agrees to indemnify and hold harmless the People of the State of New York and NYS Department of Corrections and Community Supervision, their agents, officers and employees, from any and all third-party claims, suits, causes of action and losses of whatever kind and nature, arising out of or in connection with its performance of any contract resulting from this solicitation, including negligence, active or passive or improper conduct of the Contractor, its officers, agents, subcontractors or employees, or the failure by the Contractor, its officers, agents, subcontractors or employees to perform any obligations or commitments to the State or third parties arising out of or resulting from any contract resulting from this solicitation. The CONTRACTOR's duty to indemnify shall cover direct, indirect, special and consequential damages. Such indemnity shall not be limited to the insurance coverage herein prescribed.

Appendix B, in turn, provides:

Contractor shall be fully liable for the actions of its agents, employees, partners or Subcontractors and shall fully indemnify and save harmless the Authorized Users from suits, actions, damages and costs of every name and description relating to personal injury and damage to real or personal tangible property caused by any intentional act or negligence of Contractor, its agents, employees, partners or Subcontractors, without limitation; provided, however, that the Contractor shall not indemnify for that portion of any claim, loss or damage arising hereunder due to the negligent act or failure to act of the Authorized Users.

Elsewhere, Appendix B defines Authorized Users as:

Agencies, or any other entity authorized by the laws of the State of New York to participate in NYS centralized contracts (including but not limited to political subdivisions, public authorities, public benefit corporations and certain other entities set forth in law), or the State of New York acting on behalf of one or more such Agencies or other entities, provided that each such Agency or other entity shall be held solely responsible for liabilities or payments due as a result of its participation.

In sum, while the Contact contains a broad indemnification provision that covers both the DOCCS and its employees — and thus DOCCS Defendants — Appendix B has a narrower indemnification provision, covering the DOCCS, but not its employees, and precluding indemnification for “any claim, loss or damage arising hereunder due to the negligent act or failure to act of the Authorized Users.”

The critical issue is whether the two provisions conflict within the meaning of the order-of-precedence provision. If the provisions do conflict, as Microgenics Defendants urge, only Appendix B is operable — which does not cover DOCCS employees — and DOCCS Defendants’ crossclaims can be dismissed as a matter of law. If the Court finds otherwise, DOCCS Defendants state a claim for contractual indemnification.

The Court finds that DOCCS Defendants have stated a claim because the Contract's indemnification provision encompassing DOCCS Defendants is operable. Microgenics Defendants’ proffered reason — that Appendix B conflicts with the Contract and thus entirely extinguishes the Contract's indemnification provision — stretches the contractual language and principles governing contract interpretation past their breaking points.

As a beginning principle, courts must avoid reading conflicts between provisions where they can reasonably do so. See Cruden v. Bank of New York, 957 F.2d 961, 976 (2d Cir. 1992) (“[T]he entire contract must be considered, and all parts of it reconciled, if possible, in order to avoid an inconsistency.”); Alpha Cap. Anstalt v. Real Goods Solar, Inc., 311 F. Supp. 3d 623, 629 (S.D.N.Y. 2018) (“The courts should construe a contract in a manner that avoids inconsistencies and reasonably harmonizes its terms.”) (quoting Gessin Elec. Contractors, Inc. v. 95 Wall Assocs., LLC, 74 A.D.3d 516, 903 N.Y.S.2d 26 (1st Dep't 2010)). Where there is no conflict or inconsistency between provisions, “there is no reason to resort to [the order-of-precedence clause] tiebreaker.” Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 439 (2d Cir. 1995).

Here, the Court need not read a conflict into the two provisions because Appendix B is entirely silent as to the indemnification obligations vis-à-vis DOCCS employees. Put differently, while Appendix B limits indemnification for the DOCCS by providing that Microgenics Defendants “shall not indemnify for that portion of any claim, loss or damage arising hereunder due to the negligent act or failure to act of the Authorized Users,” i.e., DOCCS, it does not speak to indemnification for DOCCS employees. Indeed, Microgenics Defendants concede as much: “an employee of DOCCS, such as Defendant Bedard or Defendant Annucci, is not an ‘Authorized User’ subject to the indemnification provision.” Thus, because Appendix B is entirely consistent with indemnification as to DOCCS Defendants, it does not conflict, and the Court refuses to render nugatory the entire indemnification provision in the Contract.

Indeed, Microgenics Defendants effectively urge the Court to assume that the parties negated the provision governing DOCCS employees through silence. Were the Court to adopt such a reading, it would impermissibly place its thumb on the scale in favor of finding conflict between the subject provisions.

To the extent there are inconsistencies between the two provisions regarding DOCCS — an issue not before the Court — the Court believes that it could “reasonably harmonize” them by construing Appendix B as modifying the specific provision of the Contract governing indemnification of DOCCS, rather than nullifying the entire Contract provision. See Alpha Cap. Anstalt, 311 F. Supp. 3d at 629. In other words, Appendix B modifies the Contract by precluding indemnification of DOCCS due to its negligence or failure to act; it does not, however, invalidate or supersede the entire Contract provision, especially the indemnification duties Appendix B does not address.

This construction is consistent with New York contract law, which requires courts to “avoid construing a contractual provision in a manner that renders contractual language meaningless or superfluous,” Eastman Kodak Co. v. STWB Inc., 232 F. Supp. 2d 74, 91 (S.D.N.Y. 2002), and “adopt an interpretation of a contract which gives meaning to every provision of the contract, with no provision left without force and effect.” Loctite VSI Inc. v. Chemfab New York Inc., 268 A.D.2d 869, 701 N.Y.S.2d 723, 725 (2000). The Court therefore declines to adopt a reading that would render the entire Contract indemnification provision superfluous.

Having found that the Contract provides an operable indemnification provision covering DOCCS Defendants, the Court concludes that the claims in this action fall within that provision's ambit. This suit is plainly a third-party suit arising out of or in connection with Microgenics Defendants’ performance of the Contract, and the language encompassing “all” claims — significantly, with no carveout for damages caused by DOCCS Defendants’ own negligence — may encompass these § 1983 claims. See Gibbs-Alfano v. Burton, 281 F.3d 12, 15 (2d Cir. 2002) (construing similarly “broad” indemnification clause).

B. Whether § 1983 Permits Contractual Indemnification

The Court rejects Microgenics Defendants’ argument that contractual indemnification for § 1983 claims is unenforceable as against public policy. While indemnification for § 1983 claims may offend public policy in some cases, the Court cannot dismiss the crossclaim as a matter of law.

As the Second Circuit held in Gibbs-Alfano, contractual indemnification for § 1983 claims does not necessarily violate either New York or federal public policy. Id. at 23. To be sure, while courts must give effect to unmistakable intent of the parties to indemnify an indemnitee, see id. at 19, “[i]ndemnification agreements are unenforceable as violative of public policy only to the extent that they purport to indemnify a party for damages flowing from the intentional causation of injury.” Austro v. Niagara Mohawk Power Corp., 66 N.Y.2d 674, 676, 496 N.Y.S.2d 410, 487 N.E.2d 267 (1985). Thus, in the Second Circuit, indemnification provisions are unenforceable in the face of a “judgment of intentional conduct on the part of the [indemnitees].” Gibbs-Alfano, 281 F.3d at 21.

However, this rule does not necessarily bar indemnification of § 1983 claims. Here, the surviving claims against DOCCS Defendants — and for which they could conceivably seek indemnification — are substantive due process claims for their acting with “deliberate indifference.” See Steele-Warrick I, 671 F. Supp. 3d at 243. A defendant may act with deliberate indifference when their conduct “involves culpable recklessness.” Charles v. Orange Cnty., 925 F.3d 73, 87 (2d Cir. 2019) (quoting Cuoco v. Moritsugu, 222 F.3d 99, 107 (2d Cir. 2000)).

Thus, because DOCCS Defendants may ultimately be liable for § 1983 violations without an ultimate finding of “intent to cause injury” — the requisite intent to find an indemnification agreement unenforceable — the Court cannot dismiss the crossclaims as a matter of law. Pfizer, Inc. v. Stryker Corp., 348 F. Supp. 2d 131, 144 (S.D.N.Y. 2004) (“Indemnification agreements are enforceable where the damages are due to a party's grossly negligent, but not willful or intentional, conduct.”). Indeed, the Gibbs-Alfano court quoted with approval a Seventh Circuit case, Chicago Housing Authority v. Federal Security, Inc., 161 F.3d 485 (7th Cir. 1998), that found enforceable an indemnification provision encompassing allegations that the indemnitee was “deliberately indifferent” to misconduct. Gibbs-Alfano, 281 F.3d at 23 (quoting id. at 489).

The Court does not take lightly the profound public-policy considerations raised by indemnification in § 1983 suits, where the deterrence policy goals of § 1983 often conflict with the practical reality of widespread indemnification. See, e.g., Joanna C. Schwartz, Police Indemnification, 89 N.Y.U. L. Rev. 885. 890 (2014) (noting that police officers in misconduct suits are “virtually always indemnified”). And in some cases, courts have rejected indemnification against parties that plaintiffs did not sue for civil-rights violations. See, e.g., Bank v. City of Philadelphia, 991 F. Supp. 2d 523, 533 (E.D. Pa. 2014). And in one case on which Microgenics Defendants rely, the court rejected contractual indemnification for wage-and-hour claims because the defendant tried to shift liability to the plaintiff himself, thus defeating the purpose of the statute. See Gustafson v. Bell Atl. Corp., 171 F. Supp. 2d 311, 317, 328 (S.D.N.Y. 2001). But those policy concerns are less acute here, where Plaintiffs bring § 1983 claims against both Microgenics and DOCCS Defendants for factually intertwined misconduct. In sum, because there is no present danger of shifting financial responsibility for constitutional violations to an uninvolved party, the Court cannot conclude that the indemnification provision is against public policy.

C. Whether DOCCS Defendants Have Stated a Claim Against TFSI

Finally, the Court declines to dismiss TFSI from the contractual indemnification crossclaim. Microgenics Defendants argue that TFSI should be dismissed because Microgenics, rather than TFSI, was party to the Contract. However, TFSI is the parent corporation of Microgenics, and New York law holds that parents may be liable for contractual obligations of their subsidiaries in several circumstances, including where the contract was signed by the party's agent, the contract was assigned to the party, the signatory is in fact the ‘alter ego’ of the party, or where the parent intended to be bound by the contract. See Kitchen Winners NY Inc. v. Rock Fintek LLC, 668 F. Supp. 3d 263, 285 (S.D.N.Y. 2023) (collecting cases and discussing relevant standards). Because DOCCS Defendants plausibly allege that TFSI should be bound by the Contract — citing, for instance, that the bids for the contract were submitted on TFSI letterhead from individuals with TFSI emails — there are issues of fact that preclude the Court from dismissing the crossclaim.

III. CONCLUSION

For the foregoing reasons, Microgenics Defendants’ motion to dismiss is granted in part and denied in part. DOCCS Defendants’ contractual indemnification crossclaim against Microgenics Defendants survives.

SO ORDERED.

FOOTNOTES

1.   DOCCS Defendants appealed the Court's denial of their motion to dismiss on the grounds of qualified immunity, but the Second Circuit has allowed the case to proceed with discovery. See Steele-Warrick v. Finnegan, No. 23-743, 2024 WL 2837618, at *1 (2d Cir. June 5, 2024).

2.   Several DOCCS Defendants have either withdrawn or stated that they do not oppose Microgenics Defendants’ motion to dismiss their common-law contribution and indemnification claims. In any event, the Court dismisses these claims because there is no federal right to indemnification or contribution under § 1983. See, e.g., Firestone v. Berrios, 42 F. Supp. 3d 403, 419 (E.D.N.Y. 2013); Hancock v. Cnty. of Rensselaer, No. 113CV1184NAMCFH, 2014 WL 12961140, at *8 (N.D.N.Y. Sept. 24, 2014); Hayden v. Hevesi, No. 05-CV-0294E(SR), 2007 WL 496369, at *4 (W.D.N.Y. Feb. 12, 2007).

BLOCK, Senior District Judge: