AGK Sierra de Montserrat, L.P. v. Comerica Bank, No. 23-15290 (9th Cir. Jul. 19, 2024)
We don’t usually do federal cases, but this one has an interesting take on state law.
Forty years ago, the 9th Circuit held that, under California state law, a prevailing party in a first-party breach of contract claim could recover its attorneys’ fees under an indemnity provision in the contract. See DeWitt v. W. Pac. R.R. Co., 719 F.2d 1448 (9th Cir. 1983). It later reaffirmed that decision, noting that there was little indication from California appellate courts that the rule was otherwise. Jones-Hamilton Co. v. Beazer Materials & Servs., 973 F.2d 688, 696 n.4 (9th Cir. 1992).
But in the time since DeWitt, the California Court of Appeal repeatedly rejected its rule—including by expressly declining to follow DeWitt by name—finding that indemnity provisions justify an award of attorneys’ fees only for third-party claims. See Hillman v. Leland E. Burns, Inc., 209 Cal. App. 3d 860, 869 (1989); Otis Elevator Co. v. Toda, 27 Cal. App. 4th 559, 566 (1994); Jacobus v. Krambo Corp., 78 Cal. App. 4th 1096 (2000).
So the question is, how should the 9th Circuit handle that? Generally, the 9th Circuit’s rule on intra-circuit stare decisis says that the decision of a three-judge panel on a question of law binds all future panels until it is reversed or its logic has been completely undercut by the court sitting en banc or a court of last resort (typically the U.S. Supreme Court). See Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (en banc). But here, the first panel opinion is rejected only by intermediate state courts—the California Supreme Courthas never weighed in on the issue. That puts the Miller rule crosswise with the rule that federal courts should generally defer to state intermediate courts on issues of state law in the absence of compelling evidence that the state supreme court would rule differently. See Ryman v. Sears, Roebuck & Co., 505 F.3d 993, 995 (9th Cir. 2007).
The Court finds that, on questions of state law, the Miller rule should yield to the rule of deference to state intermediate courts. Judge Miller (no relation to Miller) writes an interesting concurrence explaining why that is the case. In particular, he notes that persisting in an approach that intermediate state courts have rejected would undermine the purpose of the Erie doctrine, in ensuring that federal courts sitting in diversity apply state law in the same manner as state courts would. He notes that while there are other ways to correct panel error on state court issues—going en banc, referring issues to the California Supreme Court—they aren’t a good use of resources to correct a prior panel’s error in accurately predicting state law.
Reversed.