Honeywell v. Gada Builders, Inc.

Citations: 271 P.3d 88; 2012 OK CIV APP 11; 2011 Okla. Civ. App. LEXIS 124; 2011 WL 7293394Docket: No. 109,277

Court: Court of Civil Appeals of Oklahoma; October 27, 2011; Oklahoma; State Appellate Court

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Plaintiff Don Honeywell's house was destroyed by fire after being struck by lightning. He sued GADA Builders, Inc. (the homebuilder) and Larry Brannon Plumbing, Mechanical, Inc. (the subcontractor for the gas distribution system) for negligence and breach of contract. The subcontractor then filed a third-party petition against Gastite, the manufacturer of the corrugated stainless steel tubing (CSST) used in the gas system. Following this, Honeywell amended his petition to include Gastite as a defendant, alleging damages due to defective CSST. He later filed a second amended petition, changing his claims to strict products liability against all three parties. After settling with the defendants, Builder and Plumber sought indemnification from Gastite for attorney fees and costs related to the product liability claims, citing 12 O.S. Supp. 2004, 832.1. The trial court granted them summary judgment, ordering Gastite to indemnify them for costs incurred from March 27, 2007, when Gastite's counsel appeared, to the end of the indemnification proceedings. Gastite challenged this ruling, asking the court to interpret 12 O.S. 832.1. Upon de novo review, the court determined that Gastite's duty to indemnify was triggered on May 31, 2007, when Honeywell filed his Amended Petition. The court affirmed in part, reversed in part, and remanded the case to calculate reasonable attorney fees and costs from that date until the conclusion of the indemnification proceedings. Honeywell's original petition alleged negligence by both Builder and Plumber, claiming improper installation of the electrical and gas systems led to the fire, resulting in damages exceeding $10,000, along with a breach of contract claim against Builder for inadequate construction.

On February 21, 2007, Plumber filed a third-party petition against Gastite, claiming that the fire and resultant damages were caused by defective corrugated stainless steel tubing (CSST) manufactured by Gastite. Plumber asserted that the CSST was unreasonably dangerous at the time it left Gastite's control and that the Plaintiff was a foreseeable consumer. Gastite's counsel entered an appearance on March 27, 2007. Subsequently, Builder filed a third-party petition against Gastite on April 9, 2007.

On May 31, 2007, Plaintiff filed an Amended Petition naming Builder, Plumber, and Gastite as Defendants, alleging that the fire resulted from improper installation of the electrical and gas distribution systems. The allegations included Builder's negligence in supervising the installation and failing to warn the Plaintiff of fire hazards, as well as Plumber's negligence in the gas distribution system's installation. The Amended Petition asserted that the CSST, installed by Plumber under Builder's supervision, was defective and unreasonably dangerous when it left Gastite's control, resulting in damages over $10,000.

After eighteen months of discovery, Plaintiff filed a Second Amended Petition on December 18, 2008, abandoning negligence claims against Builder and Plumber in favor of strict products liability claims against all three defendants, asserting the CSST was defective at the time of sale and distribution. The Plaintiff maintained the breach of contract claim against Builder, alleging that Builder failed to construct the home without defective materials, leading to the fire that destroyed the home and personal property.

After the Plaintiff filed a Second Amended Complaint, Gastite defended the lawsuit for Builder and Plumber, who sought indemnification from Gastite as sellers of CSST under 12 O.S. 832.1 for attorney fees and costs related to the product liability action. All parties filed motions for summary judgment, but Gastite settled the underlying lawsuit, leading to the dismissal of all claims against the Defendants on November 30, 2009, leaving only the indemnification issue for the trial court.

According to 12 O.S. 832.1, a manufacturer must indemnify a seller against losses from a product liability action, except when the seller's negligence or misconduct contributes to the loss. Builder and Plumber contended that the product liability action commenced when Gastite's attorney appeared in the case on March 27, 2007, thus triggering Gastite's duty to indemnify. They claimed Gastite was notified of their indemnification demands through third-party petitions and argued that the duty to indemnify arose before the Plaintiff abandoned his negligence claims in December 2008. They maintained that Gastite could only avoid indemnification by proving Builder and Plumber's independent negligence.

Conversely, Gastite argued that Builder was not a 'seller' as defined by the statute, and therefore, it had no indemnification obligation. Gastite asserted that a 'product liability action' did not exist until the Plaintiff's Second Amended Petition was filed on December 18, 2008, which was the first instance of product liability claims against Builder and Plumber. Gastite contended that the fees and costs incurred by Builder and Plumber between March 27, 2007, and December 18, 2008, were due to claims of independent negligence and breach of contract, not product liability, and thus were not indemnifiable under 12 O.S. 832.1.

The trial court granted summary judgment in favor of Builder and Plumber for attorney fees incurred from March 27, 2007, until indemnification proceedings concluded. Later, the court awarded $242,494.18 to Builder and $152,500.00 to Plumber for reasonable attorney fees, expenses, and costs related to the product liability action. Gastite appealed, raising nine issues, primarily concerning the interpretation of 12 O.S. 832.1 and the reasonableness of the awarded fees. The summary judgment process was governed by Rule 18, with the parties agreeing on the relevant facts, making the appeal a question of law.

Gastite's Petition in Error raises the legal question of interpreting 12 O.S. 832.1, which mandates that manufacturers indemnify sellers for losses incurred from product liability actions. Statutory interpretation is treated as a legal question subject to de novo review by appellate courts. The primary rule of statutory construction is to determine and effectuate the Legislature's intent, using the plain and ordinary meaning of the statute's language. 

Under 12 O.S. 832.1, a wholesale distributor or retail seller who partially or fully assembles a product per the manufacturer's instructions qualifies as a seller. Builder filed for summary judgment, asserting its entitlement to indemnity for legal costs incurred while defending against Plaintiff's claims, and stated it was a seller of CSST as defined by the statute, a fact admitted by Gastite. However, Gastite later disputed Builder's status as a retail seller or distributor in its own summary judgment motion, despite its earlier admission.

The court affirmed that Builder is a seller under 12 O.S. 832.1, noting that middlemen in the distribution chain are subject to strict products liability due to public safety interests and consumer protection. This strict liability applies to both manufacturers and retailers, allowing them to share the costs of injuries from defective products. The statute's purpose is to ensure that manufacturers indemnify those in the distribution chain against product liability expenses and damages. In this context, the builder of a home is regarded as a seller of the materials used in construction.

Gastite's duty to indemnify Builder and Plumber for attorney fees and costs arose from the plaintiff's amended petition, which transformed the underlying lawsuit into a 'product liability action' as defined under Title 12 O.S. 832.1.A. This statute mandates that a manufacturer indemnifies a seller against losses from such actions. The determination of when this duty is triggered relies on the plaintiff's pleadings, which must clearly state claims of defective products. 

Gastite contended that between March 27, 2007, and December 18, 2008, no product liability claims were made against Builder or Plumber, asserting they were only facing independent negligence claims. The court agreed that during the initial period (March 27 to May 30, 2007), the original petition did not allege damages from a defective product, thus no product liability action existed, and the trial court erred in asserting otherwise. 

However, upon reviewing the Amended Petition filed on May 31, 2007, the court found that it sufficiently alleged a product liability action against Builder and Plumber, thereby activating Gastite's indemnity obligation. Consequently, the court reversed the trial court's ruling regarding the indemnity duty for the earlier period while affirming that Gastite's duty to indemnify was established by the plaintiff's amended allegations.

Plaintiff's Amended Petition asserts product liability claims against Gastite, Builder, and Plumber, alleging injuries from a defective product, specifically CSST. The claims are rooted in theories of negligence and strict products liability, with the Oklahoma Supreme Court's ruling in Kirkland v. General Motors Corp. affirming that a plaintiff can pursue multiple liability theories without having to choose between them. The allegations specify that Plumber negligently installed the defective product and Builder negligently supervised its installation. Consequently, the product liability action commenced, triggering Gastite's statutory duty to indemnify Builder and Plumber for defense costs from May 31, 2007, through the conclusion of the indemnification proceedings. The manufacturer's obligation to indemnify parallels an insurer's duty to defend; both are activated by claims made in the plaintiff's pleadings. Builder and Plumber's reliance on Texas case law, particularly Meritor Automotive, Inc. v. Ruan Leasing Co., is acknowledged, but the court emphasizes that the specific facts of this case are distinct from those in Meritor, limiting the holding to the present facts.

The Texas Supreme Court determined that the reasonable costs incurred by a seller to defend an unsuccessful negligence claim, when asserted separately from a products liability claim, are included as losses from a products liability action, thus falling under the manufacturer's duty to indemnify. In the case at hand, the Plaintiff's Amended Petition did not assert an independent negligence claim, but rather product liability claims against Builder and Plumber. The appeal addresses whether the trial court misinterpreted 12 O.S. 832.1, which outlines a manufacturer's indemnity obligation, by requiring proof of the seller's independent negligence for indemnification despite the Plaintiff alleging such negligence in the original Petition. 

The Amended Petition shifted focus to damages from property damage due to a defective product, abandoning any independent negligence claims, effectively transforming the lawsuit into a product liability action devoid of independent negligence allegations. The statute mandates that while a manufacturer must indemnify a seller for certain damages arising from a product liability action, the seller is responsible for losses caused by their own independent actions. The exception to this indemnity duty requires the manufacturer to demonstrate the seller's independent conduct caused the plaintiff's injuries, as established by the Texas Supreme Court's interpretation in Meritor, which posits that the plaintiff's pleadings do not alone invoke this exception.

The Plaintiff's allegations were deemed insufficient to invoke the indemnity exception under 12 O.S. 832.1. The Plaintiff abandoned claims of negligence against Builder and Plumber in the Second Amended Petition. Prior to trial, a settlement occurred with Gastite, leading to a dismissal of all claims against all Defendants, without any determination of independent negligence by Builder or Plumber causing the fire. Section 832.1.E.1 indicates that sellers are entitled to indemnity regardless of how an action concludes. In the summary judgment appeal, there was no evidence showing that Builder or Plumber's negligence caused the Plaintiff's injury, leading to the affirmation of the trial court's order regarding this issue.

Gastite sought clarification on the relationship between 12 O.S. 832.1 and the case Booker v. Sears Roebuck. Co., asserting that while Booker established a common law duty for manufacturers to indemnify sellers, the later enacted statute provides a statutory duty overriding the previous ruling. The trial court's award of attorney fees is reviewed for abuse of discretion, which occurs when decisions are based on erroneous legal conclusions or lack evidentiary support. Builder and Plumber incurred substantial fees defending against Plaintiff's product liability claims and Gastite's cross-claims. Gastite argued that the trial court erroneously allowed fees for duplicative efforts, vague entries, and unnecessary expert witness fees; however, the court found no abuse of discretion. 

The trial court did err by awarding fees for the period before May 31, 2007, when the case was not considered a product liability action. Thus, the decision was partially reversed and remanded to recalculate attorney fees, costs, and expenses solely incurred from May 31, 2007, onward. The case was affirmed in part and reversed in part, with specific instructions for recalculating fees. Gastite's queries included whether Builder qualified as a 'seller' under 12 O.S. 832.1, the timing of a 'product liability action' against Builder and Plumber, the necessity for a manufacturer to prove a seller's independent negligence to invoke the indemnity exception, and whether 12 O.S. 832.1 superseded the decision in Booker.

Gastite submitted a letter indicating its immediate agreement to defend, indemnify, and hold harmless GADA Builders, citing a statutory obligation under 12 O.S. 832.1, which mandates manufacturers to indemnify sellers for damages caused by their products. GADA Builders claimed its status as a distributor of the CSST product since it purchased and installed it, thus being part of the commerce stream to the ultimate consumer, Plaintiff. The court's interpretation of 12 O.S. 832.1 is sought to clarify whether Builders qualifies as a retail seller. Liability extends to every participant in the distribution chain if a defective product causes injury, as outlined in case law such as Kirkland v. Gen. Motors Corp. and the Restatement 2d of Torts. Each entity in the chain has a non-delegable duty to ensure product safety as highlighted in Braden v. Don Hendricks. The manufacturer's indemnity duty applies regardless of the case conclusion, and sellers must notify manufacturers of any claims unless the manufacturer is already aware of the action. Sellers are entitled to recover court costs, reasonable expenses, attorney fees, and damages associated with enforcing indemnification rights. Additionally, an insurer has a separate duty to defend and indemnify its insured, which is broader than the duty to indemnify alone. This obligation is based on the presence of facts indicating potential liability under the policy, assessed through the information available at the time of defense demand, rather than the outcome of the underlying action. If an insurer refuses to defend when obligated, it may be held liable.

Manufacturers are required to indemnify sellers against losses from products liability actions, excluding losses due to the seller's own negligence or intentional misconduct. "Loss" encompasses court costs, reasonable attorney fees, and damages, with damages deemed reasonable upon final judgment. Sellers who partially assemble products per manufacturer instructions are also considered sellers under this statute. The indemnity duty is effective regardless of how a legal action concludes and supplements any existing indemnification obligations. Sellers must notify manufacturers of claims unless the manufacturer is already aware of the action. Sellers can recover expenses incurred while enforcing their indemnification rights.

Recent case law, including *Toyota Industrial Equip. Mfg. v. Carruth-Doggett, Inc.*, clarifies that claims based on defective products invoke the indemnity provision. Oklahoma courts recognize the manufacturer's duty to indemnify dealers for losses due to defective products, allowing reasonable attorney fees for defense costs if incurred in relation to indemnified claims. However, indemnification for legal costs is not allowed if an adverse position is taken against the indemnitor, as the law requires a benefit to the indemnitor for liability to arise.

Factors influencing attorney fee assessments include time and labor required, legal complexities, skill level, customary fees, and results achieved. Specific attorney fees were awarded to parties involved in the case, reflecting the stipulated accuracy of their billing records. Sellers are entitled to recover reasonable costs and expenses while enforcing their indemnification rights.