TIME & SEC. MANAGEMENT, INC. v. Pittway Corp.

Citations: 422 F. Supp. 2d 907; 2006 U.S. Dist. LEXIS 16260; 2006 WL 686284Docket: 02-2417 B

Court: District Court, W.D. Tennessee; March 15, 2006; Federal District Court

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The case involves plaintiffs Time Security Management, Inc. (d/b/a Allied Industrial Electronics) and Stephanie Cole, trustee for the estate of Allied, seeking damages due to a failed business transaction involving third-party plaintiffs Pittway Corporation, Honeywell Corporation, and Northern Computers, Inc. The plaintiffs allege that faulty access systems led to business losses, customer attrition, contract breaches, and ultimately bankruptcy, claiming Pittway is solely responsible for these damages.

Charles Beyer, initially a plaintiff, was dismissed for lack of standing. Pittway later sought to file a third-party complaint against Beyer, alleging his negligence and fraud as President caused Allied's bankruptcy. The court allowed this motion, reversing an earlier magistrate's decision.

The current issue is Beyer’s motion to dismiss the third-party complaint, arguing that Pittway failed to establish a valid cause of action for contribution or indemnity under Tennessee law. The court granted Beyer’s motion, emphasizing that under Rule 12(b)(6), the complaint must be viewed favorably to the plaintiff, but must still present a viable claim. The ruling clarified that the focus is on the claimant’s ability to offer evidence for the claims, not on proving those claims at this stage.

On December 3, 2004, the Court found that the Third-Party Plaintiffs met the procedural requirements for motions under Rule 14(a), but emphasized that the success of their claims relied on Tennessee's laws of contribution and indemnity. Beyer’s motion aims to dismiss the third-party complaint based on the merits of these claims. In response, Pittway asserts it has valid grounds for a contribution claim under Tennessee law, arguing that denying this claim would lead to injustice. The Tennessee Supreme Court's decision in McIntyre v. Balentine established comparative fault, limiting contribution remedies by holding that defendants are liable only for their share of damages, thus preventing situations where a defendant pays more than their share. Nevertheless, McIntyre does not eliminate the remedy of contribution entirely, as clarified in General Electric Co. v. Process Control Co., which outlines three scenarios where contribution may be allowed: cases arising before the adoption of comparative fault, cases involving joint and several liability, and cases where fairness necessitates contribution to avoid injustice. Pittway contends its claim against Beyer fits the third scenario, arguing that Beyer’s negligence and fraud contributed to the injuries sustained by Allied, warranting a contribution claim. Pittway also argues that since Beyer is financing litigation against them and is a creditor in Allied's bankruptcy, the Trustee will not sue him, thus fairness compels that Pittway be allowed to seek contribution to ensure accountability for Beyer’s actions and maximize recovery for bankruptcy creditors. The Third-Party Defendants reference Owens v. Truckstops of America, where the court allowed a contribution claim under different circumstances, noting that Owens involved a cause of action predating the adoption of comparative fault principles, contrasting it with the current case.

During the ongoing lawsuit, the McIntyre decision prompted the patron to attempt to include the stool's manufacturer and distributor in the case for complete recovery. However, the statute of limitations had expired on the patron's claims against them, and Tennessee Code Annotated 20-1-119 could not revive these claims since it took effect after the patron's cause of action against the restaurant. Consequently, the patron risks being denied full recovery unless allowed to claim all damages from the restaurant. This scenario could lead to an injustice for the restaurant unless it can file third-party claims against the manufacturer and distributor.

The court determined that the restaurant should be allowed to seek contribution from the manufacturer and distributor, aligning with principles of comparative fault. In a related case, Bervoets, the plaintiff was injured while a passenger, leading to a suit against the driver, Jackson, and his parents. Following a settlement with Jackson, the insurer sought contribution from a bar that unlawfully served alcohol to Jackson. The court concluded that under comparative fault principles, Jackson could seek contribution from the bar based on fault percentages, despite the change in law during litigation.

The court emphasized the significance of the transitional timing of these cases, noting that had Bervoets' cause of action arisen post-comparative fault adoption, the plaintiff could have amended his complaint to include the bar directly. The ruling allows for a fair assessment of liability based on fault proportions. In the current matter, the court finds no injustice in allowing the contribution claim, stating that Pittway will only be liable for the percentage of damages attributable to its own wrongdoing, with the trial permitting apportionment of fault between Pittway and Beyer.

If the trier of fact determines that Beyer is responsible for injuries sustained by Allied, Pittway's attributed fault will be reduced proportionately. Allied's decision not to amend its complaint against Beyer under Tennessee law does not affect Pittway's ability to argue that liability should be assigned to Beyer. It would be unjust for a defendant to bear the consequences of another's wrongdoing while being restricted from proving that fault lies elsewhere. Under comparative fault principles, any reduction in recovery due to Beyer's nonparty status will be borne by Allied, not Pittway. The cited conflict of interest does not alter this framework, as established in Smith v. Methodist Hospitals of Memphis, where the court ruled that a plaintiff's strategic choice not to include a liable party did not constitute an injustice under comparative fault.

Indemnity is based on the principle that individuals are responsible for their own wrongdoing. If one party is compelled to pay damages that the wrongdoer should have paid, the wrongdoer becomes liable for indemnity. Indemnification can be express, based on a contract, or implied, arising from the legal relationship between the parties. Implied indemnity may occur when a breach of contract or tortious conduct by one party necessitates indemnification. A direct contractual relationship may give rise to an implicit right to indemnification for negligent conduct. Courts historically recognized implied indemnity on equitable grounds prior to the adoption of comparative fault, shifting the burden of loss when justice and fairness warrant it.

The rule discussed allows a tortfeasor guilty of passive negligence to recover from one guilty of active negligence, but the Tennessee Supreme Court has clarified that claims for indemnification based on this distinction are encompassed within the doctrine of comparative fault. Implied indemnity may still apply based on the legal relationship between parties, following traditional indemnity principles. In this case, Allied claims against Pittway for breach of warranty, contract, fraud, and negligent misrepresentation. Pittway's third-party complaint seeks contribution and indemnity from Beyer, attributing Allied's injuries to Beyer's fraud and negligence, not to Pittway's actions. However, there is no express contract of indemnity or legal relationship between Pittway and Beyer, negating any implied obligation for indemnity. The Court must determine if an implied obligation to indemnify can exist without such a relationship. Pittway argues that general indemnity principles support its claim, stating that it should not bear the losses resulting solely from Beyer's actions. The case of Starr Printing Co. Inc. v. Air Jamaica illustrates that an implied right to indemnity cannot be established without a contractual relationship, emphasizing that the defending party (AJV) was not facing allegations due to the wrongful actions of the other party (Moore). Similarly, in Morse/Diesel, Inc. v. Provident Life and Accident Ins. Co., the Sixth Circuit found no sufficient relationship to support an implied indemnity obligation, as the disputes arose from contractual service acceptance rather than wrongful acts.

Martin filed several claims against Provident and Morse, including breach of subcontract, negligent misrepresentation, and negligence, as well as a claim against the project architects for negligent supervision. Morse subsequently sought indemnification from Provident for attorney's fees incurred in defending against Martin's claims. The Sixth Circuit examined whether an indemnification obligation could be implicitly inferred from the contract between Morse and Provident, which did not explicitly mention indemnification. The court concluded that Morse failed to demonstrate a relationship warranting indemnification, as the claims against Provident were not based on tortious actions but rather on contract obligations. The court referenced a similar case involving a restaurant's claim for indemnification, which was denied due to the lack of a legal relationship and the nature of the allegations being against the restaurant's own negligence. Consequently, the court dismissed Morse’s indemnity claim, reasoning that because Morse was defending against its own alleged wrongdoing, it could not seek indemnity from Provident. The court granted the Third-Party Defendant's motion to dismiss, treating it as a failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

Comparative fault entails determining how to allocate damage recovery among multiple tortfeasors based on their respective percentages of fault, adjusted for the plaintiff's negligence. Tennessee Code Annotation 20-1-119 allows a plaintiff to amend a complaint to include additional defendants identified by existing defendants, even if the statute of limitations has expired for claims against those new defendants. A claim that the absence of Beyer as a defendant unfairly impacts creditors of Allied’s bankruptcy estate is rejected, as allowing a contribution claim between Pittway and Beyer would not influence the recovery of Allied's estate, which is not involved in the current action. Allied's product liability claim was dismissed on October 10, 2003. Indemnity rights are not automatically included in every contractual relationship, as shown by cases like Starr Printing Co. and Morse/Diesel, Inc., necessitating a careful analysis to establish a claim for indemnity.