Wells Dairy, Inc. Vs. American Industrial Refrigeration, Inc., And Refrigeration Valves And Systems Corporation ( 2009 )

IN THE SUPREME COURT OF IOWA
No. 06–1018
Filed March 6, 2009
WELLS DAIRY, INC.,
Appellant,
vs.
AMERICAN INDUSTRIAL REFRIGERATION,
INC., and REFRIGERATION VALVES and
SYSTEMS CORPORATION,
Appellees.
Appeal from the Iowa District Court for Plymouth County,
James D. Scott, Judge.
Party appeals summary judgment denying its implied contractual
and equitable indemnity claims. AFFIRMED IN PART, REVERSED IN
PART, AND REMANDED.
Juli Wilson Marshall, Mary Rose Alexander, Thomas J. Heiden,
Andre M. Geverola, and Matthew J. Johnson of Latham & Watkins, LLP,
Chicago, Illinois, Richard H. Moeller of Berenstein, Moore, Berenstein,
Heffernan & Moeller, L.L.P., Sioux City, and Bruce E. Johnson of Cutler
Law Firm, P.C., West Des Moines, for appellant.
Matthew T. Early of Rawlings, Neiland, Probasco, Killinger,
Ellwanger, Jacobs & Mohrhauser, LLP, Sioux City, and Michael D.
Hutchens, Jenneane L. Jansen, and Jennifer E. Ampulski of Meagher &
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Geer, PLLP, Minneapolis, Minnesota, for appellee American Industrial
Refrigeration, Inc.
John D. Mayne and Missy J. Denton of Bikakis, Mayne, Arenson &
Hindman, Sioux City, and Lindsay G. Arthur and Christopher D.
Newkirk of Arthur, Chapman, Kettering, Smetak & Pikala, P.A.,
Minneapolis, Minnesota, for appellee Refrigeration Valves and Systems
Corporation.
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APPEL, Justice.
In this case, we peer into the abyss of indemnity law. Specifically,
we must decide whether the district court properly granted summary
judgment in favor of American Industrial Refrigeration, Inc. (AIR) and
Refrigeration Valves & Systems Corp. (RVS) in an indemnification action
brought by Wells Dairy, Inc. following a fire and explosion at one of its
plants. The explosion and subsequent fire allegedly prevented Wells from
completing performance of its contract with Pillsbury Co., Inc. to produce
ice cream. The district court granted AIR and RVS summary judgment
on Wells’ indemnification actions. For the reasons expressed below, we
affirm in part, reverse in part, and remand for further proceedings.
I. Factual and Procedural History.
A. Nature of Underlying Litigation. On or about January 28,
1999, Wells and Pillsbury entered into a contract whereby Wells agreed
to manufacture at its facility in Le Mars, Iowa certain Häagen-Dazs
frozen dessert products marketed by Pillsbury. The contractual terms
included minimum levels of production by Wells over a fixed term. The
contract provided that Wells could manufacture Häagen-Dazs only at its
South Ice Cream Plant unless Wells obtained Pillsbury’s written consent.
Two months after the contract was signed, an explosion and fire
occurred at the South Ice Cream Plant. The explosion resulted from the
catastrophic failure of a check valve in a pipeline of the ammonia
refrigeration system. The failure of the check valve caused thousands of
pounds of liquid ammonia to spill onto the floor of the plant. An
electrical charge subsequently caused the explosion and resulting fires.
The explosion and fires extensively damaged the South Ice Cream Plant
and resulted in an immediate and complete shutdown of the facility.
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In August 2002 Pillsbury filed an action in district court against
Wells for breach of contract and negligence. Thereafter, Wells filed the
instant third-party action against AIR and RVS seeking indemnification
and contribution for any damages owed to Pillsbury. In the
indemnification action, Wells asserted that the explosion and fire were
caused by a defective refrigeration system that AIR and RVS installed,
designed, and sold to Wells. After discovery, AIR and RVS filed motions
for summary judgment against Wells.
B. Relationship between Wells and AIR. The undisputed facts
show that in 1991 Wells hired AIR to design and install a multi-million
dollar refrigeration system at the South Ice Cream Plant. The bid
documents submitted by AIR and accepted by Wells called for AIR to
supply a “total systems engineering and turnkey proposal,” including
ammonia refrigeration. In its proposal, AIR stated that its system would
be code-compliant, would be made with the “highest quality material and
workmanship available,” and would include numerous safety controls.
The contract between Wells and AIR also contained several service
provisions. Among other things, the contract provided that AIR would
supply the services of one control system designer for the maximum of
one hundred and eighty hours, one field technician for a maximum of
one hundred and eighty hours, and “include[ ] services of King Gauge
Field Service personnel to review installation, calibrate tank level
controls, and provide training services.” When a problem arose with the
refrigeration unit, Wells employees would “give them [AIR] a call on the
phone and say, hey, we have an issue or whatever it was.” In addition,
AIR conducted at least two training sessions at Wells on the safe
operation of the system in 1994 and 1996.
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C. Relationship between Wells and RVS. The undisputed facts
show that RVS is a supplier of vessels, piping, and components for
ammonia refrigeration systems. RVS supplied much of the equipment
for the south plant refrigeration system, including the selection of the
pressure vessels, piping, various valves, and, specifically, the check valve
that catastrophically failed.
The parties dispute whether RVS had a contractual relationship
with Wells. RVS contends it merely sold goods to AIR and shipped them
to Wells. In blueprints and engineering specifications prepared by RVS,
the client is described as “AIR/Well’s South Plant.” Wells alternatively
asserts that a contractual relationship existed between it and RVS.
D. District Court Ruling. The district court granted AIR’s and
RVS’s motions for summary judgment. The district court found there
was no express agreement to indemnify between the parties. The district
court further held that no implied duty to indemnify arose from the
series of finite agreements between AIR/RVS and Wells.
The district court also granted Wells’ motion for summary
judgment on the underlying claim brought by Pillsbury. Such a ruling
rendered Wells’ indemnification claim moot. This court, however, has
reversed the district court’s grant of summary judgment in the
underlying action. See Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430(Iowa 2008). As a result, Wells’ indemnification claims against AIR and
RVS remain live rounds on the battlefield awaiting our disposition.
II. Standard of Review.
We review the district court’s ruling on a motion for summary
judgment for correction of errors at law. Buechel v. Five Star Quality
Care, Inc., 745 N.W.2d 732, 735 (Iowa 2008). Summary judgment is
proper if the entire record before the court shows that there is no
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genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. Phillips v. Covenant Clinic, 625 N.W.2d 714,
717 (Iowa 2001). Every legitimate inference that can reasonably be
deduced from the evidence should be afforded the party resisting the
motion for summary judgment, and a fact question is generated if
reasonable minds can differ on how the issue should be resolved. Id. at
718.
III. Discussion.
A. Analytical Framework. Indemnification is a form of
restitution. Iowa Elec. Light & Power Co. v. Gen. Elec. Co., 352 N.W.2d
231, 236 (Iowa 1984). Indemnity shifts the entire liability or blame from
one legally responsible party to another. Federated Mut. Implement &
Hardware Ins. Co. v. Dunkelberger, 172 N.W.2d 137, 142 (Iowa 1969),
superseded by statute, 1971 Iowa Acts ch. 131, § 94, as recognized in
Ayers v. Straight, 422 N.W.2d 643, 646 (Iowa 1988). Indemnity is, in
short, a redistribution of risk. Nicholas P. Alexander, Developments in
Indemnity Law: Express, Implied Contractual, Tort-Based & Statutory, 79
Mass. L. Rev. 50, 51 (1994).
The nomenclature used by courts for implied indemnity claims can
be confusing and is not always used with precision. When an implied
obligation to indemnify arises from an existing contractual relationship,
it is often said to involve an implied-in-fact obligation, or implied
contractual indemnity. See E. Eugene Davis, Indemnity Between
Negligent Tortfeasors: A Proposed Rationale, 37 Iowa L. Rev. 517, 538
(1952); Dale B. Furnish, Distributing Tort Liability: Contribution &
Indemnity in Iowa, 52 Iowa L. Rev. 31, 35 (1966). When indemnity arises
outside of a contractual setting, it is often referred to as an obligation
implied-in-law, or equitable indemnity. Id. Sometimes, however, the
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term implied indemnity is used to include both implied contractual
indemnity and equitable indemnity, which can lead to considerable
confusion. See generally 17 Vista Fee Assocs. v. Teachers Ins. & Annuity
Ass’n of Am., 693 N.Y.S.2d 554 (App. Div. 1999).
For the purposes of clarity in this opinion, we refer to implied
contractual indemnity as including indemnity claims (other than express
indemnity) arising out of contractual relations. We use the term
equitable indemnity to refer to distinctly different indemnity claims which
arise from the noncontractual legal relationships between the indemnitor
and the indemnitee.
1. Implied contractual indemnity. It has been widely accepted for
decades that indemnity may, in some instances, arise from a contractual
relationship even if the parties did not expressly include an indemnity
clause in the contract. Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp.,
350 U.S. 124, 133, 76 S. Ct. 232, 237, 100 L. Ed. 133, 141 (1956),
superseded by statute as stated in Edmonds v. Compagnie Generale
Transatlantique, 443 U.S. 256, 262, 99 S. Ct. 2753, 2757, 61 L. Ed. 2d
521, 528 (1979). The standard for implying a contractual indemnity
obligation, however, is generally quite high. As stated by the New York
Court of Appeals, in order for a court to imply a contractual right to
indemnification, there must be an “unmistakable intent” to indemnify.
Hogeland v. Sibley, Lindsay & Curr Co., 366 N.E.2d 263, 266 (N.Y. 1977).
Under Iowa law, we have couched our implied contractual
indemnity doctrine in terms of an “independent duty,” stating that an
implied contractual duty to indemnify may arise from a contractual
relationship that lacks an express obligation to indemnify where there
are “independent duties” in the contract to justify the implication.
McNally & Nimergood v. Neumann-Kiewit Constructors, Inc., 648 N.W.2d
8564, 573 (Iowa 2002); Iowa Elec., 352 N.W.2d at 236. Such
“independent duties” arise in the context of implied contractual
indemnity when the contract implies “a mutual intent to indemnify for
liability or loss resulting from a breach of the duty.” McNally, 648
N.W.2d at 573. In other words, we have found an implied contractual
duty to indemnify where the circumstances require that a party to an
agreement “ought to act as if he had made such a promise, even though
nobody actually thought of it or used words to express it.” Woodruff
Constr. Co. v. Barrick Roofers, Inc., 406 N.W.2d 783, 785 (Iowa 1987).
It is not necessary that a party seeking indemnity under a theory
of implied contractual indemnity be blameless in connection with the
incident. In Iowa Power & Light Co. v. Abild Construction Co., an
employer company who was negligent toward its own employee was still
able to recover on an implied contractual indemnity theory where the
indemnitor breached its contractual obligation to notify the employer of
construction activity around power lines. 259 Iowa 314, 338, 144
N.W.2d 303, 317 (1966). The question in an implied contractual
indemnity case, therefore, is whether a duty arising from the contract
has been violated and, if so, what damages flow directly from breach of
that duty.
While recognizing that implied contractual indemnity can arise in
special circumstances, our cases clearly demonstrate that implied
contractual indemnity does not arise from plain vanilla contracts. For
example, implied contractual indemnity is generally not found in
ordinary purchase agreements. Johnson v. Interstate Power Co., 481
N.W.2d 310, 319 (Iowa 1992). Similarly, contracts involving the sale of
services that give rise only to a general duty of care do not give rise to
implied contractual indemnity. Merryman v. Iowa Beef Processors, Inc.,
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978 F.2d 443, 445 (8th Cir. 1992); Cochran v. Gehrke Constr., 235 F.
Supp. 2d 991, 1003–04 (N.D. Iowa 2002); Roger W. Stone & Jeffrey A.
Stone, Indemnity in Iowa Construction Law, 54 Drake L. Rev. 125, 147
(2005) (noting only contractual duties of a specific and defined nature
give rise to implied contractual indemnity). Something beyond a routine
service contract triggering only general duties of care or a sale-and-
purchase contract is required to support an implied contractual
indemnity claim.
2. Equitable indemnity. When equitable indemnity is involved, the
intention of the parties to indemnify, unlike the case of implied
contractual indemnity, is not relevant. Instead, the law imposes
indemnity due to the relationship of the parties and the underlying loss
regardless of intention. Equitable indemnity arises from noncontractual
obligations. See Davis, 37 Iowa L. Rev. at 538 (noting implied-at-law
indemnity does not really involve a contract at all). It is a murky doctrine
based on notions of fairness and justice.
A classic branch of equitable indemnity is based upon vicarious
liability. In the vicarious liability cases, the relationship of the
indemnitor and the indemnitee is such that fairness and justice requires
that the party primarily responsible for the underlying injury should bear
the liability. Vicarious liability is commonly used in cases involving
respondeat superior, principals and agents, employers and employees, or
other similar relationships. We have adopted indemnity based on
vicarious liability in Iowa. Rozmajzl v. Northland Greyhound Lines, 242
Iowa 1135, 1143, 49 N.W.2d 501, 506 (1951).
Another traditional branch of equitable indemnity has been utilized
by courts in the context of joint tortfeasors where there is a great
disparity in fault. Often expressed as involving a distinction between
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active and passive negligence, this tort-based doctrine was designed as a
rule to avoid the harshness of the contributory negligence doctrine before
the era of comparative fault. See Francis H. Bohlen, Contribution &
Indemnity between Tortfeasors, 21 Cornell L. Rev. 552, 554 (1936).
While we adopted indemnity based on active-passive negligence decades
ago, we abandoned this branch of equitable indemnity in light of the
enactment of Iowa’s Comparative Fault Act. Britt-Tech Corp. v. Am.
Magnetic Corp., 487 N.W.2d 671, 673 n.1 (Iowa 1992); Am. Trust & Sav.
Bank v. United States Fidelity & Guar. Co., 439 N.W.2d 188, 190 (Iowa
1989).
Some courts have embraced a third branch of equitable indemnity
based upon an “independent duty” between the indemnitor and the
indemnitee. See generally Andrew Kull, The Source of Liability in
Indemnity & Contribution, 36 Loy. L.A. L. Rev. 927, 932–35 (2003).
Although using vocabulary similar to that used in implied contractual
indemnity, the theory is markedly different. In equitable indemnity
based on “independent duties,” there is no effort to determine whether
the parties would have agreed to indemnity had they addressed the
issue. Instead, the question is whether there is some duty between the
indemnitor and the indemnitee sufficient to impose indemnity on the
indemnitor as a matter of law. Id. at 933.
Because “independent duty” equitable indemnity cases do not
require common liability, they are not, at their core, based upon unjust
enrichment. Id. Rather, independent duty equitable indemnity cases are
based on notions of fairness based on the nature of the relationship
between the indemnitor and the indemnitee and the underlying cause of
the injury or damage claimed by the first-party plaintiff. Id.
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What constitutes an “independent duty” for purposes of equitable
indemnity is not always clear. However, a number of cases have held
that a breach of duty by licensed engineering professionals toward their
clients is sufficient to support indemnification. Peters v. Mindell, 620
A.2d 1268, 1271–72 (Vt. 1992). In these cases, indemnification is not
based upon a contractual relationship, but rather upon a tort involving a
special relationship between the licensed professional and a client.
Most of the indemnity cases in Iowa dealing with “independent
duties” are cases involving implied contractual indemnity. See McNally,
648 N.W.2d at 573. We have, however, recognized equitable indemnity
based on an independent duty. Hansen v. Anderson, Wilmarth & Van Der
Maaten, 630 N.W.2d 818, 826 (Iowa 2001). We have not had the
opportunity to develop this branch of equitable indemnity in great detail.
Some courts have gone beyond the “independent duty” doctrine
and decided to impose liability based on “simple fairness.” Kull, 36 Loy.
L.A. L. Rev. at 939 (citing City of New York v. Lead Indus. Ass’n, 644
N.Y.S.2d 919, 921 (App. Div. 1996), and McDermott v. City of New York,
406 N.E.2d 460, 462 (N.Y. 1980)). The merits of an approach to
indemnity based upon “simple fairness” have been subject to
considerable academic debate. Id. at 941 n.30 (comparing Peter Linzer,
Rough Justice: A Theory of Restitution & Reliance, Contracts & Torts,
2001 Wis. L. Rev. 695, with Emily Sherwin, Restitution & Equity: An
Analysis of the Principle of Unjust Enrichment, 79 Tex. L. Rev. 2083(2001)). Application of equitable indemnity based solely on notions of
simple fairness could cover a lot of legal territory. We have criticized
equitable indemnity based solely on fairness, citing the need for stability
in the law. Woodruff, 406 N.W.2d at 785–86.
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B. Indemnification Claim against AIR.
1. Implied contractual indemnity. Wells asserts that it is entitled to
implied contractual indemnity from AIR.1 Wells cites two features of the
contract as support. First, Wells asserts that contractual indemnity is
implied as a result of AIR’s contractual duty over time to inspect and
perform necessary repairs to the refrigeration system. Second, Wells
claims indemnity is implied due to AIR’s contractual duty to provide
safety devices. For the reasons expressed below, we conclude that AIR is
entitled to summary judgment on the implied contractual indemnity
claim.
The undisputed facts show that AIR agreed to provide Wells with
refrigeration equipment and services. Some of the services were provided
after the installation of the equipment. At no time, however, did AIR
assume an ongoing duty to maintain the equipment or to ensure its safe
operation. A contract to provide maintenance services or training as
needed does not give rise to an implied contractual obligation to
indemnify if the equipment, which is under the day-to-day control of the
purchaser, fails to perform. Merryman, 978 F.2d at 445.
Nothing in McNally is to the contrary. In McNally, the crane which
caused the accident was under the exclusive control of the contractor
who had leased it. McNally, 648 N.W.2d at 568. As a result,
independent duties to maintain the crane in good condition and notify
the owner of any damage to the crane were implicitly imposed in the
contract. Id. at 573. Here, the equipment was not within the exclusive
control of AIR, but was under the control of Wells. There is no basis in
the contractual relationship of the parties to imply that, had they
1Wells makes no claim of indemnity based upon express contract.
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thought about it, they would have thrust an indemnity obligation onto
AIR. Woodruff, 406 N.W.2d at 785.
We also hold that a contractual obligation to provide equipment
that meets certain safety standards does not give rise to an implied
indemnity obligation in the event of subsequent malfunction. Such a
promise is merely a promise to provide equipment with certain
characteristics. Johnson, 481 N.W.2d at 319–20. It does not provide
“independent duties” sufficient to support implied contractual indemnity
similar to those contained in McNally.
2. Equitable indemnity based on professional duties.2 The first
argument advanced by Wells in support of its equitable indemnity claim
is that because its contract with AIR involved the provision of
professional engineering services, AIR has an “independent duty”
sufficient to support an equitable indemnity claim. We agree. Claims of
professional negligence are independent of underlying contractual
obligations. City of Mounds View v. Walijarvi, 263 N.W.2d 420, 423
(Minn. 1978).
In Cochran, the federal district court refused to recognize equitable
indemnity under Iowa law in a case that involved “nothing more than the
general duty that every member of society owes to every other member—
the duty not to harm through tortious acts.” Cochran, 235 F. Supp. 2d
at 1002. The duties of a professional engineer, however, are not the
same as general duties owed to everyone by everybody, but are more
2AIR asserts that equitable indemnity is inapplicable here due to the operation of
the force majeure clause in the underlying contract between Wells and Pillsbury.
Specifically, AIR asserts that either Wells is at fault for the explosion and thus not
entitled to equitable indemnity or it is not at fault, in which case Wells would not be
liable to Pillsbury for any breach under the force majeure clause. AIR, however, has
failed to assert any legal authority on the proper interpretation of the force majeure
clause. As such, this court deems the issue not properly raised on this appeal. See
Iowa R. App. P. 6.903(2)(g)(3).
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specific and defined. Sommer v. Fed. Signal Corp., 593 N.E.2d 1365,
1369 (N.Y. 1992) (finding professional obligations involve more than
generalized duty of care).
We also agree with Wells that it is not necessary that the proposed
indemnitor be liable to the first-party plaintiff in order to establish a
claim for indemnity based on an independent duty. The requirement of
common liability was a rule that applied in the context of the now
abandoned active-passive negligence branch of equitable indemnity. It
does not apply in the context of equitable indemnity based on
independent duties. Hansen, 630 N.W.2d at 823; see also Cochran, 235
F. Supp. 2d at 998–99 (finding under Iowa law, only active-passive
branch of equitable indemnity requires common liability); Stone & Stone,
54 Drake L. Rev. at 129 (noting indemnity does not require common
liability and is permitted where there is an agreement, relationship, or
duty between the indemnitor and the indemnitee).
In light of the summary judgment record and the issues raised on
appeal, there are triable issues regarding whether AIR engaged in acts of
professional negligence and whether the acts of negligence caused the
underlying explosion. Any liability to Wells, of course, is contingent
upon Wells being liable to Pillsbury on the underlying contract. The
record reveals a proverbial battle of experts on these issues. As a result,
AIR is not entitled to summary judgment on the equitable indemnity
claim based on an alleged breach of professional duties.
3. Equitable indemnity based upon U.C.C. warranties. Wells
argues that implied warranties of fitness for ordinary use and fitness for
a particular purpose under the U.C.C. give rise to independent duties
sufficient to support a claim of indemnity. These implied warranties
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arise by operation of law in connection with the sale of goods. See Iowa
Code §§ 554.2314, .2315.
In support, Wells cites the case of Peters v. Lyons, 168 N.W.2d 759(Iowa 1969). In Peters, a dog owner specifically sought a chain capable of
constraining her large dog. Peters, 168 N.W.2d at 761. When told of the
size of the dog, the seller told the purchaser that the chain was “the best
we’ve got, that ought to do it.” Id. The chain ultimately failed to hold the
dog, who attacked a third party. Id. The victim sued the dog owner
under a statute imposing strict liability for dog bites. Id. The insurer of
the dog owner sought indemnity from the seller. Id. We held that the
owner’s insurer was entitled to indemnity. Id. at 767. In reaching this
conclusion, we cited the implied warranty of fitness and merchantability
made by the seller under the U.C.C. in upholding the owner’s indemnity
claim. Id. at 763–66.
There is a raging controversy in the law regarding whether implied
U.C.C. warranties give rise to an independent duty in equitable
indemnity actions. The majority of courts have held that the U.C.C.
warranty provisions support such claims. See, e.g., City of Willmar v.
Short-Elliott-Hendrickson, Inc., 512 N.W.2d 872, 874 (Minn. 1994); City of
Wood River v. Geer-Melkus Constr. Co., 444 N.W.2d 305, 311 (Neb. 1989);
Cen. Wash. Refrigeration, Inc. v. Barbee, 946 P.2d 760, 763 (Wash. 1997)
(en banc). There is a minority view, which asserts that a breach of an
implied warranty under the U.C.C. is nothing more than a simple breach
of contract. See Superior, Inc. v. Behlen Mfg. Co., 738 N.W.2d 19, 26
(N.D. 2007); Perry v. Pioneer Wholesale Supply Co., 681 P.2d 214, 219
(Utah 1984).
Based on stare decisis, however, we decline to disturb the
approach announced in Peters. As a result, AIR is not entitled to
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summary judgment on the equitable indemnity claim based upon an
alleged breach of U.C.C. warranties.
C. Indemnity Claims against RVS.
1. Issue preservation. RVS argues that Wells did not properly
preserve the issue of independent duty in this case. RVS claims that the
first time Wells raised the issue of an independent duty to indemnify was
in its opposition to RVS’s motion for summary judgment. RVS argues
that a careful reading of the Wells’ cross-petition against RVS does not
reveal even a hint of the theories espoused in its opposition to summary
judgment.
We reject RVS’s preservation claim. We continue to rely upon
notice pleading in Iowa. As such, it is not necessary to raise a specific
theory of liability, but only to state the basis in broad, general terms.
Iowa R. Civ. P. 1.402(2)(a). The parties may utilize ordinary discovery
techniques to determine the basis of the underlying claim. Cemen Tech,
Inc. v. Three D Indus., L.L.C., 753 N.W.2d 1, 12 (Iowa 2008).
2. Implied contractual indemnity. Wells asserts that engineering
specifications, blueprints, and sales invoices collectively amount to a
contractual agreement between it and RVS. Wells claims that pursuant
to this contractual relationship, RVS had a duty to provide safety
features for the component parts it supplied to AIR and had a duty to
inspect its work and recommend necessary repairs and modifications.
From these contractual obligations, Wells argues that an implied
contractual duty to indemnify arises.
RVS responds that it at no time had a contractual relationship
with Wells. RVS further asserts that even if a contractual relationship
existed, the relationship only amounted to a sale-and-purchase
agreement that did not give rise to indemnity obligations.
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We agree with RVS. A contract requires offer, acceptance, and
sufficiently definite terms to be enforced. While we have held that a
series of documents may give rise to a contractual relationship, Horsfield
Construction, Inc. v. Dubuque County, Iowa, 653 N.W.2d 563, 570 (Iowa
2002), we find that under the undisputed facts, RVS and Wells did not
have a contractual relationship under the series of documents presented
here.
The blueprints that are said to be part of the contract here are
simply that, blueprints. There is nothing in them that suggests an offer,
acceptance, or legal duty between RVS and Wells. Crum Elbow
Sportsmen’s Ass’n v. Whelan, 73 N.Y.S.2d 531, 532–33 (Sup. Ct. 1947)
(holding blueprints and a check do not amount to binding contract for
sale of land).
Similarly, the sales invoices document a series of purchases
between RVS and AIR, not between RVS and Wells. Each of these
invoices states that RVS sold the items to AIR for shipment to Wells. The
fact that the merchandise was shipped to Wells is not evidence of a
contractual relationship between Wells and RVS. There can be no basis
for implied indemnity based on independent contractual duties where
there is no underlying contract between the parties.
Moreover, even if there were a contract, there is no basis for
implied contractual indemnity. The documents reflect at most purchase
orders. There is no contractual language or contractual duty that
demands that an indemnification obligation be implied for such purchase
orders. Johnson, 481 N.W.2d at 320.
3. Equitable indemnity based on professional duties. Wells asserts
that RVS had noncontractual independent duties sufficient to give rise to
equitable indemnity. Specifically, Wells claims that it was RVS’s client
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and that, as a result, RVS had a duty to perform its work to the standard
of the engineering profession and to provide a refrigeration system that
was fit for ordinary use and/or intended use.
RVS does not challenge the assertion that it had an engineering
relationship with Wells.3 Based on our holding on the identical issue
with respect to AIR, we conclude that RVS is not entitled to summary
judgment on the equitable indemnity claim based upon an alleged breach
of professional duties.
4. Equitable indemnity based on U.C.C. warranties. We have
already determined that there is no contractual relationship between
RVS and Wells. This lack of privity is dispositive of the equitable
indemnity claim against RVS based upon U.C.C. warranties.
This court has, of course, eliminated the privity requirement in
products liability cases raising a breach-of-implied-warranty claim. State
Farm Mut. Auto. Ins. Co. v. Anderson-Weber, Inc., 252 Iowa 1289, 1301,
110 N.W.2d 449, 456 (1961). Nevertheless, the claims that may be
brought by a remote purchaser are limited.
While we have held that a nonprivity purchaser may recover “direct
economic loss” for breaches of implied warranties under the U.C.C., we
have repeatedly held that a remote purchaser of goods cannot recover
“consequential economic loss” from a vendor under an equitable
indemnity theory. Kolarik v. Cory Int’l Corp., 721 N.W.2d 159, 163 n.3
(Iowa 2006); Beyond the Garden Gate, Inc. v. Northstar Freeze-Dry Mfg.,
3The fact that Wells and RVS are not in privity does not necessarily mean that
RVS owes no professional duties toward Wells. For example, in John T. Jones
Construction Co. v. Hoot General Construction, 543 F. Supp. 2d 982, 1009 (S.D. Iowa
2008), a federal district court sitting in diversity held that under Iowa law, the duties of
a professional extended to those who would foreseeably rely on the engineer’s services.
Because RVS in this appeal does not challenge the assertion that it owes a duty to
Wells, we do not need to confront the issue in this appeal.
19
Inc., 526 N.W.2d 305, 309 (Iowa 1995). Direct economic loss is the
difference between the value of goods as warranted and the value of
goods actually delivered, while consequential economic losses includes
all losses caused by the defective product. Id.
In this case, the recovery which Wells seeks—indemnity for the
contractual claims of Pillsbury—is a consequential economic loss. As
such, the loss would not be recoverable in a direct breach of warranty
action under the U.C.C. due to Wells’ lack of privity with RVS. It would
be illogical for indemnity based upon independent duties established by
implied U.C.C. warranties to provide greater substantive relief than
would be available in a direct action under the U.C.C. Therefore, RVS is
entitled to summary judgment on the equitable indemnity claim based
upon U.C.C. warranties.
IV. Conclusion.
For the above reasons, we conclude that AIR and RVS are entitled
to summary judgment on Wells’ claim for implied contractual indemnity.
On the question of equitable indemnity, however, we hold that AIR and
RVS are not entitled to summary judgment on the claims of equitable
indemnification based upon the independent duties of professional
engineers. With respect to equitable indemnity based on U.C.C.
warranties, we conclude RVS is entitled to summary judgment, but AIR
is not. As a result, the district court is affirmed in part, reversed in part,
and the case is remanded to the district court for further proceedings.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
All justices concur except Hecht and Baker, JJ., who take no part.