Hudson v. Siemens Logistics & Assembly Systems, Inc.

Citation: 353 F. App'x 717Docket: No. 08-2722

Court: Court of Appeals for the Third Circuit; November 23, 2009; Federal Appellate Court

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Eaton Corp. appeals the District Court's summary judgment and indemnification order favoring HK Systems, Inc. Eaton argues it is not contractually obligated to indemnify HK, challenges the District Court's reliance on Eaton's settlement with Hudson, asserts that indemnification is barred by a New Jersey statute of repose, and claims the Court failed to address HK's alleged lack of good faith cooperation. The District Court's decision is affirmed, confirming that Eaton must indemnify HK.

The case background includes Eaton-Kenway, a subsidiary of Eaton, which installed an Automated Material Handling System (AMHS) sold to Exxon-Mobil. After selling Eaton-Kenway's assets to HK in 1995, HK began providing maintenance for the AMHS. Charles Hudson, an Exxon-Mobil employee, was injured in 2004 due to the AMHS and filed a lawsuit against multiple parties, including HK as Eaton-Kenway's successor. 

The Asset Purchase Agreement (APA) contains mutual indemnification clauses, requiring Eaton to indemnify HK for matters arising before the APA and vice versa for post-APA matters. HK requested Eaton to defend against Hudson's claims, asserting the injury-causing component was produced by Eaton prior to the APA. Disputes arose over HK's compliance with Eaton's request for information regarding the complaint. HK filed a third-party complaint against Eaton for indemnification, and Hudson later amended his complaint to include Eaton. 

Eaton conditionally accepted HK's defense offer, but HK rejected it. Following mediation, Eaton settled with Hudson, who then voluntarily dismissed his claims against HK. Subsequently, both Eaton and HK filed motions for summary judgment regarding HK's indemnification claim.

The District Court granted HK full indemnification from Eaton for attorneys' fees and costs related to Hudson's claims and the cross-claim for indemnification, denying Eaton's motion for reconsideration. Eaton appealed the judgment ordering the indemnification. The case is governed by the APA, interpreted under Wisconsin law, with both parties agreeing on the applicability of the New Jersey statute of repose. The District Court had jurisdiction under 28 U.S.C. 1332, and appellate jurisdiction under 28 U.S.C. 1291. Summary judgment decisions are reviewed de novo, with the district court's factual findings reviewed for clear error and legal interpretations reviewed de novo.

The District Court found Eaton liable under the APA's indemnification provisions, which require Eaton to cover costs arising from acts related to the Subject Assets before the APA. Eaton contends that the court misinterpreted the contract, arguing that liability for indemnification should be divided between pre- and post-APA claims. Eaton maintains HK could be liable to Hudson until it was clear that Hudson's claims were solely related to pre-APA acts, suggesting indemnification should not apply for costs incurred before this clarity. However, the APA's language permits severance of claims for indemnification but does not support Eaton's argument. HK asserts that while Hudson's allegations may have clarified post-report, they did not change in substance, as the original complaint targeted HK solely as Eaton-Kenway's successor.

The District Court affirmed that the APA mandates indemnification for all costs related to pre-APA events, with HK's expenses linked to a pre-APA claim. Eaton references two Seventh Circuit cases to bolster its argument, beginning with *Foskett v. Great Wolf Resorts*, which asserts that indemnification provisions aim to relieve sellers of liability for uncontrollable accidents post-sale. However, HK distinguishes this case, noting that it did not own or control the AMHS, nor does the indemnification clause in their case align with the one in *Foskett*, as it pertains to acts or omissions by Eaton prior to the APA. Additionally, the injury in *Foskett* occurred after the closing date, while the act in HK's claim occurred during the AMHS's manufacture and installation.

Eaton also cites *HK Systems Inc. v. Eaton Corp.*, where the Seventh Circuit ruled that indemnification was not required as the claims arose from a contract signed after the indemnity agreement. This principle does not apply here since Eaton sold the AMHS to Exxon-Mobil before the APA execution.

Eaton argues that Hudson's claims were groundless, suggesting that neither party is liable for indemnification. This claim is rejected, as indemnification rights are not limited to valid claims per the APA.

Finally, Eaton posits that the New Jersey statute of repose could bar Hudson's claims and HK’s indemnity claims. The statute prohibits actions for damages arising from defective improvements to real property after ten years from completion of the construction or services.

Indemnification claims in New Jersey are deemed invalid when the statute of repose is applicable, as established in Ebert v. S. Jersey Gas Co. However, this statute does not pertain to product liability claims, which are governed by the New Jersey Products Liability Act, specifying a distinct statute of limitations for such claims. The New Jersey Supreme Court in Dziewiecki clarified that the applicability of the statute of repose is contingent on the actions of the party seeking protection. If a defendant is both a manufacturer and an installer, and the injury arises from both roles, the statute of limitations should be applied to product liability claims while the statute of repose applies to installation claims. Consequently, if a plaintiff's complaint consists solely of product liability claims, the statute of repose is inapplicable.

In Hudson's case against HK, the claims asserted were strict liability under the New Jersey Products Liability Act, breach of warranty, and negligence, all of which the District Court determined to be rooted in product liability. Eaton’s argument for the application of the statute of repose was rejected based on its role as a product manufacturer. Furthermore, the District Court examined Eaton’s settlement with Hudson, concluding that it did not use the settlement to establish liability but rather to clarify the nature of the claims, indicating they were based on product liability principles. The District Court’s rationale was that Eaton, by settling, implicitly acknowledged the claims were not protected by the statute of repose, thus negating Eaton’s argument for indemnity against HK based on the statute. The court's findings affirmed that the statute of repose did not apply due to the nature of Eaton’s involvement as a manufacturer.

The Court found no error in its decision, stating that reliance on the settlement was unnecessary. Eaton claimed HK breached the Asset Purchase Agreement (APA) by failing to cooperate with information requests regarding HK's tender of defense, arguing this breach absolved it from liability for HK’s attorney fees. The District Court ruled that the APA required cooperation only after a tender of defense was accepted. Eaton appealed, restating its argument, while HK contested the claims of bad faith and non-cooperation. The timeline indicates HK tendered its defense on January 13, 2005, and Eaton's acceptance was conditional in August 2006, leading to no acceptance of the tender. The District Court correctly interpreted the APA, which did not impose a duty to cooperate until a tender was accepted, thus HK's actions did not constitute a breach. Eaton's suggestion of a breach of the duty of good faith was deemed waived, as it was only raised in a motion for reconsideration. Consequently, the Order of the District Court was affirmed.