Sunday, January 11, 2015

Incomplete Invocation of Indemnification

Heco v. Foster Motors, 2015 VT 3

By Andrew Delaney

I think it would be more fun if we referred to indemnification generally as the pay-my-bills doctrine, but I guess it doesn’t sound as lawyerly. “Your Honor, my client is clearly entitled to invoke the pay-my-bills doctrine here” doesn’t have the same ring to it as, “Your Honor, my client is clearly entitled to indemnification.” Ah, well.

Neither of the named parties really have anything to do with this appeal. As alluded to above, this is a dispute between Midstate Dodge, LLC and Johnson Controls, Inc. (JCI) over indemnification.

But the background helps lay out the playing field. Plaintiff was severely injured when her Dodge Neon was rear-ended. She sued Midstate (which sold her the car); the manufacturer of the car (Chrysler Group LLC as successor-in-interest to the now-bankrupt Chrysler Corporation); JCI (manufacturer of the seat); and the seatbelt manufacturer. The gist of her claim was that the restraint system was garbage and caused her spinal-cord injuries. It seems as though the seatback collapsed, which it ought not to have.

There were a number of settlements and dismissals, which eventually led to just Midstate and JCI being involved in the case on the “D” side of the “V.” Midstate made a cross-claim for indemnification from JCI, basically saying: “Hey, look, if anyone’s responsible for plaintiff’s injuries, it’s JCI, not us.” JCI moved for summary judgment on the cross-claim. Midstate and the Chrysler Group then settled with plaintiff for an undisclosed amount. The settlement specifically allowed plaintiff to move forward with her claim against JCI.

At some point, the court ruled for JCI on the cross-claim, reasoning that a full settlement was an essential prerequisite to Midstate’s invocation of indemnity.

Plaintiff went to trial on the products liability claim and got a large verdict against JCI—and by “large” I mean $36.9 million dollars. Maybe “huge” is more appropriate here. Vermont juries are not generally known for their liberality. That judgment was appealed and apparently settled. Midstate appealed the judgment for JCI on the indemnity cross-claim.

So here we are. The SCOV notes that the primary issue briefed by the parties “is whether an indemnitee invoking common law equitable indemnity must extinguish the liability of the indemnitor to collect indemnity.” In other words, does B have to settle all claims A has against C in order for C to pay A on B’s behalf (or for C to pay B what B has already paid A)? Wow, I think I made that more confusing by trying to explain it.

It’s an interesting question, but the SCOV avoids it. Instead, the SCOV looks to one of JCI’s alternative arguments below—that when Midstate settled, it did so to extinguish its own potential vicarious liability through Chrysler, separately of any acts or omissions by JCI.

Though the trial court didn’t directly address this argument, both parties argued it below and on appeal, and the SCOV likes it because “it represents a clearly preferable basis of decision, resting on well-settled and universally recognized common-law principles,” as opposed to the kind-of-an-issue-of-first-impression basis for the trial court’s ruling.

The SCOV notes that it’s pretty basic that a party can only get non-contracted indemnity from the putatively responsible party when there’s no independent culpability—all liability has to be vicarious and solely attributable to the proposed indemnifying party. Here, the SCOV reasons that there was vicarious liability for Chrysler’s as well as JCI’s acts and omissions, and so Midstate settled those claims and can’t get indemnity from JCI.

Midstate makes a last-gasp, but-Chrysler-is-bankrupt-and-not-a-named-party argument, but the SCOV isn’t having it because there’s no authority to support it.

It’s acceptable for the SCOV to affirm on alternative grounds when the trial court gets the right result using a different rationale, and that’s what the SCOV does here.

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