Lloyd E. Hartford, Plaintiff-appellant, v. Larry Dunkle, Individually and As Agent, Branch Manager Andsupervisor of Globe Life and Accident, a Montanacorporation Defendantandglobe Life and Accident, a Montana Corporation Defendant-appellee, 10 F.3d 808 (9th Cir. 1993)

MEMORANDUM^** 

Larry Dunkle, a branch manager at the Globe Life and Accident ("Globe") Billings office, recruited and trained sales agents. In 1985, Dunkle was sued by three of the sales agents for a variety of reasons, including wrongful conversion of sales commissions, fraud, negligent infliction of emotional distress, sexual assault and harassment. Dunkle retained appellant Lloyd Hartford to represent him in these cases.

Hartford claimed approximately $60,000 in unpaid attorney's fees. Hartford sued Dunkle, Globe, and United States Fidelity & Guaranty ("USFG"), Globe's insurer, for payment of the attorney's fees. Hartford alleged that Dunkle had "failed and refused to pay his debt" to Hartford, that USFG, as the insurer of Globe, was required but refused to defend Dunkle in the suits arising out of the course and scope of his employment with Globe, and that as a result of Globe's and USFG's "wrongful and willful refusal and failure to defend" Dunkle, Globe and USFG had been unjustly enriched. Hartford and Dunkle stipulated to the entry of judgment against Dunkle, and USFG was dismissed by stipulation that USFG's motion for summary judgment was meritorious.

The district court granted Globe's motion to dismiss. The court held that Hartford could not recover against Globe on a contract theory because (1) there was no privity between Hartford and Globe and (2) there is not an implied promise to pay an attorney whom one has not employed because of incidental benefits received. This is not appealed. The district court also rejected Hartford's claim for equitable subrogation to Dunkle's right to indemnification for legal expenses. This is the sole issue on appeal.

DISCUSSION

A dismissal for failure to state a claim is reviewed de novo. Oscar v. University Students Coop. Ass'n, 965 F.2d 783, 785 (9th Cir.) (en banc), cert. denied, 113 S. Ct. 655, 656 (1992). Review is limited to the contents of the complaint. Buckey v. County of Los Angeles, 968 F.2d 791, 794 (9th Cir.), cert. denied, 113 S. Ct. 599, 600 (1992). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Id. A complaint should not be dismissed unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Id.

To be entitled to subrogation, Hartford must establish that Dunkle has a right to indemnification from Globe. Hartford argues that under Mont.Code Ann. Sec. 39-2-701,¹  Dunkle is entitled to indemnification because the lawsuits against Dunkle resulted from his actions "during the course and scope of his employment with Globe."

Globe correctly contends that the amended complaint fails allege facts sufficient to state a claim for indemnification. While the complaint alleges the lawsuits brought against Dunkle were in his capacity as an employee of Globe and arose out of the course and scope of his employment, the complaint does not allege (and neither Hartford's opposition to the motion to dismiss or his appeal brief argue) that Dunkle's legal expenses were in "direct consequence of the discharge of his duties as such or of his obedience to the directions of the employer." (Emphasis added).

Further, Sec. 39-2-701 does not provide indemnification for expenses incurred in defending allegations of conduct which an employee knew was unlawful. The intentional acts alleged against Dunkle (conversion, fraud, sexual harassment and assault) are all acts which Dunkle would have known were unlawful.

AFFIRMED.