Cintas Corp. No. 2 v. Becker Property Services LLC

Citations: 914 N.W.2d 76; 2018 WI 81; 383 Wis. 2d 63Docket: 2015AP002457

Court: Wisconsin Supreme Court; June 28, 2018; Wisconsin; State Supreme Court

Original Court Document: View Document

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The Supreme Court of Wisconsin case 2018 WI 81 involves multiple plaintiffs including insurance companies and individuals against Cintas Corporation No. 2, which is seeking indemnification under a contract with Becker Property Services LLC. The dispute centers around whether Cintas is entitled to indemnification for damages resulting from its own negligence, stemming from a 2013 fire at Valentino Square, a senior living facility. The fire caused approximately $900,000 in damage due to a failure of the fire-suppression sprinkler system, which Becker had contracted Cintas to inspect.

The court's decision hinges on which state law applies—Wisconsin or Ohio. It concludes that Ohio law governs the contract in question, ruling that Becker is obligated to defend and indemnify Cintas even for damages attributable to Cintas's negligence. The Court of Appeals' decision is affirmed, albeit on different grounds than originally presented. The opinion was filed on June 28, 2018, and involved oral arguments from attorneys representing both Cintas and Becker. Justice A.W. Bradley dissented, joined by Justice Abrahamson.

Plaintiffs, including the owner of Valentino Square and tenants, sued Cintas for negligence related to a fire-suppression system's pipe failure. They alleged that Cintas's negligent performance and breach of the Contract's implied warranty led to the incident. Cintas sought indemnification from Becker under the Contract's indemnity clause after Becker rejected its defense tender. Cintas's motion for summary judgment claimed that Becker breached its obligation to defend and indemnify, asserting that Ohio law governed the Contract due to its choice-of-law clause. Becker countered with a cross-motion for summary judgment, arguing that under Wisconsin law, indemnification for one's own negligence requires clear language, which the Contract lacked. The circuit court sided with Becker, concluding that the Contract did not meet the strict-construction requirement for indemnification for negligence, despite noting that Ohio law would have favored Cintas. The court dismissed Cintas's third-party complaint. However, the court of appeals reversed this decision, stating that even under Wisconsin law, Becker was obligated to defend and indemnify Cintas. The higher court granted Becker's petition for review and affirmed the appellate decision. The standard of review for summary judgment motions involves a de novo examination of pleadings and evidence to determine if there are genuine issues of material fact, as outlined in relevant Wisconsin statutes and precedents.

The primary issue at hand is the interpretation of a contract, which is classified as a question of law subject to de novo review. The court must first ascertain the applicable state law before evaluating the enforceability of the contract’s indemnification provision and whether it encompasses indemnification for Cintas's own negligence and the breach of implied warranty. The parties concur that Ohio law governs the contract but dispute the enforcement of that provision. Becker argues that enforcing Ohio law would violate Wisconsin's public policy on strict construction of indemnification promises, while Cintas contends that such a rule cannot override the parties' chosen law. 

The court recognizes that parties generally have the freedom to select governing law but notes that this choice cannot circumvent significant public policies of a state that would apply in the absence of such a provision. The court's task is to determine if Wisconsin’s strict construction of indemnification clauses constitutes a public policy strong enough to invalidate the chosen law. The court concludes that this strict construction rule does not embody such a policy since it does not affect the enforceability of contract types or provisions and does not account for the parties' bargaining power. Ultimately, the rule serves to clarify the parties' intent regarding indemnification, functioning as a rule of caution rather than prohibition.

A cautionary rule of construction cannot nullify a choice-of-law provision, as that would undermine certainty and predictability in contracts. The law promotes clear and specific contractual terms, and broadening the definition of 'important public policies' risks eroding this certainty, potentially subjecting all contract provisions to judicial scrutiny. The court declines Becker's argument that strict construction of indemnification provisions justifies disregarding the choice-of-law clause, asserting that such provisions do not constitute an 'important public policy' exception warranting enforcement challenges. Becker's claim that enforcing the choice-of-law provision would allow Cintas to bypass Wisconsin's public policy regarding conspicuous indemnification provisions lacks sufficient argumentation to elevate this requirement to the status of an 'important public policy.' Furthermore, Becker's assertion that choice-of-law provisions must be conspicuous to comply with public policy is unsupported and illogical; the conspicuousness of a choice-of-law clause does not inherently inform parties about their indemnification obligations. Thus, the court maintains the enforceability of choice-of-law clauses, regardless of their conspicuousness in the contract.

A contract's choice-of-law provision does not need to be conspicuous, and the enforceability of the indemnification provision will be determined using Ohio law. Becker contends that the indemnification clause is ambiguous and does not clearly require him to indemnify Cintas for damages related to Cintas's own negligence. Under Ohio law, the primary goal in contract scrutiny is to ascertain the parties' intent based on the language used. The intent is presumed to be found in the contract's wording, and common terms are to be interpreted with their ordinary meaning unless a different meaning is clearly intended.

Ohio law states that if contractual language is clear and unambiguous, courts cannot create a new contract by inferring an intent not explicitly stated. The indemnification provision is deemed unambiguous and clearly applies to any claims or damages arising from the goods or services provided by Cintas. The use of the term "any" indicates a broad scope without exceptions, which includes failures of the goods or services. The contract further clarifies that Cintas has no liability for damages resulting from fire or equipment malfunctions, placing that responsibility solely on Becker. Thus, the language of the indemnification provision clearly delineates Becker's obligations without ambiguity.

Cintas's indemnification provision in the Contract is deemed unambiguous, clearly covering Cintas's own negligence. Altering the language, such as removing "any," would significantly distort the Contract's intent, implying that Cintas could avoid responsibility for damages from incidents like fires or equipment malfunctions. Becker's argument that other provisions introduce ambiguity is insufficient; while emphasizing the Contract's requirement for work to meet certain standards and be insured, it fails to undermine the clear indemnification clause. Ohio law mandates that contracts be read as a whole, and the specific indemnification provision takes precedence over any general representations regarding insurance. Ultimately, the Contract explicitly requires Becker to defend and indemnify Cintas, including for Cintas's negligence, affirming the provision's clarity and applicability.

Ohio law treats indemnification agreements similarly to other contracts, requiring them to be interpreted without contradicting public policy. Such agreements are generally enforceable unless they violate public policy, which is applied narrowly. Courts are cautioned against broadly invalidating agreements based on public policy concerns, emphasizing freedom of contract as the default principle. Indemnification clauses that protect against an indemnitee's own negligence are also enforceable, but Ohio adheres to a strict construction rule in these cases, especially when there is disparity in bargaining power. This rule aims to protect weaker parties from unfair contractual burdens. However, this strict construction does not apply when parties engage in free and informed negotiations, particularly when they are sophisticated commercial entities. In the present case, Becker, which manages multiple apartment complexes and presumably possesses contract negotiation experience, does not qualify for the protections of the strict construction rule, suggesting it can adequately negotiate contract terms without being disadvantaged.

Becker's claim for strict construction protection is deemed insufficient as the Contract's indemnification clause clearly indicates that Cintas is indemnified for its own negligence. Ohio Supreme Court precedent asserts that contracts should not impose liability for a party's negligence unless explicitly stated, and any ambiguity is resolved against such intent. However, Ohio law does not mandate explicit language for indemnification of negligence. The Contract's unambiguous language demonstrates it meets strict construction requirements, as interpreting it otherwise would require significant alterations to the agreement. The conclusion confirms that the indemnification provision unambiguously requires Becker to defend and indemnify Cintas, even for its own negligence, affirming the court of appeals' decision.

In dissent, Justice Ann Walsh Bradley argues that the Contract's insurance language, clearly stated in bold, is misinterpreted by the majority. She contends that the majority's findings undermine the explicit language, shifting liability for Cintas's negligence to Becker through a less conspicuous indemnity provision. She emphasizes that both Wisconsin and Ohio laws generally require clear expressions in indemnification agreements to avoid imposing liability for one's negligence. The dissent highlights that ambiguous provisions are unenforceable and that Ohio law cannot override Wisconsin's public policy against unconscionable agreements. Thus, the dissent asserts that the indemnification provision is both ambiguous and inconspicuous, leading to the failure of the majority's application of Ohio law.

Becker Property Services engaged Cintas for regular inspections of a fire-suppression system, which subsequently failed, resulting in approximately $900,000 in damages from a fire. The property owner, tenants, and insurers sued Cintas for negligence and breach of implied warranty. Cintas invoked an indemnity provision in their contract with Becker, seeking indemnification for its own negligence. The majority opinion enforced a choice of law provision favoring Ohio law, concluding that the indemnity clause was valid, thus obligating Becker to indemnify Cintas for its negligence.

The dissent argues that the majority mischaracterized the threshold legal question by improperly including Ohio law as applicable. It contends that if the contract language is ambiguous, the conclusion must fail under both Wisconsin and Ohio law. Furthermore, even if the contract were unambiguous, its enforcement might violate Wisconsin public policy, rendering Ohio law unenforceable.

The dissent identifies three critical errors in the majority's reasoning: it overlooks ambiguity in Cintas's claim that its work is "insured," misinterprets the inconspicuous nature of the indemnity clause buried in dense text, and neglects significant Wisconsin public policy factors. The dissent emphasizes that the ambiguous language suggests Cintas is responsible for its own negligence unless explicitly stated otherwise, which is not present in the contract. Wisconsin law generally does not support indemnity for one's own negligence without clear language to that effect, indicating a need for strict construction of such agreements.

The indemnity provision in the contract is deemed unenforceable due to its ambiguity and inconspicuousness under Wisconsin and Ohio law. For the provision to be valid, it must clearly cover losses from the indemnitee’s own negligence and reflect the parties' unmistakable intent to do so. However, the contract is contradictory; it ambiguously suggests that Cintas's work is insured, which could imply that Cintas is responsible for its own insurance, while the indemnity clause shifts liability to Becker, creating irreconcilable conflict. Consequently, the contract does not "clearly and unequivocally" provide for Becker to indemnify Cintas for its own negligence. Additionally, the indemnity provision fails the conspicuousness requirement, as established in the case of Deminsky, which mandates that such provisions must be prominent and noticeable. According to Wisconsin law, a term is considered conspicuous if it is presented in a way that stands out from the surrounding text, a standard that the indemnity clause does not meet.

The font size of the contract is extremely small, requiring counsel for Becker to use a magnifying glass during oral arguments. This issue is compounded by the uniform appearance of the contract's terms, with the indemnity provision being one of seventeen indistinguishable sections on the eighth and ninth pages, devoid of any formatting that would highlight its importance. Consequently, the indemnity provision is deemed inconspicuous and unenforceable under Wisconsin law.

The choice of law provision indicates that Ohio law governs the contract, excluding any conflicting choice of law rules. Wisconsin courts recognize that parties can agree on the governing law, but such agreements cannot override significant public policies of another state. The majority opinion fails to consider the conspicuity of the indemnity provision before assessing the choice of law provision, which is critical in determining whether Wisconsin's public policy on unconscionable liability-shifting provisions affects the enforceability of the indemnity clause. Thus, it's argued that Ohio law is not applicable to this case. The reference is made to prior cases emphasizing that enforceability hinges on the conspicuousness of contract provisions.

Unconscionability doctrines are deemed significant enough to override a contract's choice of law provision, as established in Bush, 139 Wis. 2d at 643. The requirement for conspicuousness, articulated in Deminsky, is based on this doctrine. The Wisconsin Supreme Court identified unconscionability as an important public policy, which would be undermined by enforcing the choice of law provision selecting Ohio law. Consequently, the choice of Ohio law is ruled unenforceable, leading to the application of Wisconsin law. The dissenting opinion, authored by Justice Abrahamson, points out that no Ohio case mirrors the conspicuousness rule from Deminsky, and allowing a choice of law provision to circumvent this requirement would render it ineffective. Furthermore, the dissent argues that the majority's ruling has limited precedential value, particularly in Wisconsin or Ohio, as it only pertains to the specific context of a Wisconsin court applying Ohio law due to a choice of law provision.