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Rutter v. Arlington Park Jockey Club

decided: February 4, 1975.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division - No. 71 C 1891 Richard W. McLaren, Judge.

Hastings, Senior Circuit Judge, Stevens and Sprecher, Circuit Judges.

Author: Hastings

HASTINGS, Senior Circuit Judge.

This is an appeal from a judgment of the district court, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, 28 U.S.C.,*fn1 dismissing defendants' counterclaim and third-party complaint. We reverse and remand to the district court with directions to reinstate the counterclaim and third-party complaint.

Plaintiffs were the owners of five racing horses which were brought to the Arlington Park Race Track owned by the Arlington Park Jockey Club (Club), by plaintiffs' horse trainer, Tracey Bougan, in connection with a race. In order to secure stables for the horses, Bougan signed, as the applicant, a "1971 Stall Application," which is included as an appendix to this opinion. A note under the signature stated that a trainer signing the application represented that his signature was authorized by and was on behalf of the horse owners. The application stated that in consideration for the Club's provision of certain facilities and services to the applicant without charge, including "fire and police protection," the applicant agreed that the Club would assume "no responsibility for loss or damage by fire . . . to . . . animals . . . located on the Premises." The application further stated that the Club was free from liability "whether or not such injury, loss or damage is caused by the negligent acts or omissions" of the Club, its employees or agents. The applicant also agreed to indemnify the Club from any liability for damage to the applicant's animals in connection with the use of the Club's property. On June 3, 1971, the five horses were killed in a barn fire.

Plaintiffs brought an action against the Club for damages in the amount of $310,500 for the loss of the horses, alleging that the Club had been negligent in maintaining a fire hazard and in failing to provide adequate fire alarms and fire fighting equipment. Jurisdiction is based on diversity of citizenship and the law of Illinois is controlling.

The Club filed a third-party complaint against Bougan, alleging that if he did not have authority to sign the application as agent for the plaintiffs then he was personally liable for whatever the plaintiffs might recover from the Club. The Club also filed a counterclaim against the plaintiffs alleging that they were bound by Bougan's actions and therefore required to indemnify the Club from any judgment awarded to the plaintiffs.

Plaintiffs and the Club each moved for summary judgment on the Club's affirmative defense that the stall application exculpated it from liability for the loss of the horses. The district court granted the plaintiffs' motion for summary judgment and denied the Club's motion. The court reasoned that since the Club had undertaken to provide fire protection, it was not clear that the intent of the agreement was to put the entire risk of fire loss on the plaintiffs. The court dismissed the Club's third-party complaint and counterclaim, sua sponte, on the grounds that they were dependent upon the validity of the exculpation and indemnification provisions. The court granted the Club's motion for a finding under Rule 54(b) of the Federal Rules of Civil Procedure that the two dismissals were immediately appealable. Thus, this is an appeal only from the dismissals of the third-party claim and counterclaim. However, because those dismissals were based on the same question of law as the partial summary judgment, the issue here is the same.

The question is whether, under Illinois law, a contract which provides for fire protection, but which also provides for indemnification and exculpation of the promisor from liability for fire losses, even if due to its negligence, is effective to free the promisor from liability for damages caused by fire.

Under Illinois law, courts will enforce contractual clauses exempting a party from liability for its own negligence, if it is clear from the contract that the parties' intent was to shift the risk of loss, "unless (1) it would be against the settled public policy of the State to do so, or (2) there is something in the social relationship of the parties militating against upholding the agreement." Jackson v. First National Bank, 415 Ill. 453, 460, 114 N.E.2d 721, 725 (1953). Our court recently reviewed the state law on this question and said:

In Illinois, at least when contracts between parties of relatively equal bargaining strength are being construed, the risk that a party will be guilty of negligence is treated like any other commercial risk that may cause harm to the other party to a commercial transaction. In the evaluation of foreseeable commercial risks, Illinois seems to attach greater importance to the commercial interest in certainty than to the policy of deterring negligence. Gates Rubber Co. v. USM Corp., 7 Cir., 508 F.2d. 603, 614 (1975) (Footnote omitted).*fn2

Although there are a number of Illinois cases construing exculpatory clauses, a recent decision on the subject by the Illinois Supreme Court suggests that reference to those cases will not be useful in determining the parties' intent in a particular case. The court said:

We have examined the authorities cited by the parties . . . and conclude that the contractual provisions involved are so varied that each must stand on its own language and little is to be gained by an attempt to analyze, distinguish or reconcile the decisions. The only guidance afforded is found in the accepted rule of interpretation which requires that the agreement be given a fair and reasonable interpretation based upon a consideration of all of its language and provisions. Tatar v. Maxon Construction Co., 54 Ill. 2d 64, 67, 294 N.E.2d 272, 273-274 (1973).

In the instant case, the language is explicit that the Club is not to be liable for fire losses due to its negligence. The question is whether, as the district court suggested, the fact that the Club agreed to provide fire protection somehow ...

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