Fisher, D. v. A.O. Smith Harvestore ( 2016 )


Menu:
  • J-E01002-16
    
    2016 PA Super 177
    DANIELLE FISHER,                             IN THE SUPERIOR COURT OF
    PENNSYLVANIA
    v.
    A.O. SMITH HARVESTORE PRODUCTS,
    INC.; A.O. SMITH CORPORATION; A.O.
    SMITH (HARVESTORE PRODUCTS);
    HARVESTORE SYSTEMS T/D/B/A
    HARVESTORE; COLUMBIAN TEC TANK;
    CST INDUSTRIES, INC.; AND PENN
    JERSEY PRODUCTS, INC.,
    APPEAL OF: CST INDUSTRIES, INC.,
    Appellant                 No. 727 EDA 2013
    Appeal from the Order Entered February 8, 2013
    In the Court of Common Pleas of Bucks County
    Civil Division at No(s): 2011-03913
    DANIELLE FISHER,                             IN THE SUPERIOR COURT OF
    PENNSYLVANIA
    v.
    A.O. SMITH HARVESTORE PRODUCTS,
    INC.; A.O. SMITH CORPORATION; A.O.
    SMITH (HARVESTORE PRODUCTS);
    HARVESTORE COLUMBIAN TEC TANK,
    CST INDUSTRIES, INC., PENN JERSEY
    PRODUCTS, INC., AND LEONARD R.
    KRESGE, INDIVIDUALLY AND D/B/A
    PROVIDA DAIRY FARM,
    APPEAL OF: CST INDUSTRIES, INC.,
    Appellant                No. 1960 EDA 2013
    Appeal from the Order June 13, 2013
    In the Court of Common Pleas of Bucks County
    Civil Division at No(s): 2011-03913
    J-E01002-16
    DANIELLE FISHER,                                 IN THE SUPERIOR COURT OF
    PENNSYLVANIA
    v.
    A.O. SMITH HARVESTORE PRODUCTS,
    INC.; A.O. SMITH CORPORATION; A.O.
    SMITH (HARVESTORE PRODUCTS);
    HARVESTORE SYSTEMS T/D/B/A
    HARVESTORE, COLUMBIAN TEC TANK,
    CST INDUSTRIES, INC., AND PENN
    JERSEY PRODUCTS, INC.,
    APPEAL OF: A.O. SMITH CORPORATION,
    Appellant                  No. 2000 EDA 2013
    Appeal from the Order Entered June 13, 2013
    In the Court of Common Pleas of Bucks County
    Civil Division at No(s): 2011-03913
    BEFORE: FORD ELLIOTT, P.J.E., BENDER, P.J.E., BOWES, SHOGAN,
    LAZARUS, MUNDY, OTT, STABILE, and DUBOW, JJ.
    DISSENTING OPINION BY SHOGAN, J.:                   FILED AUGUST 12, 2016
    Upon review of the plain language of the Asset Purchase Agreement
    (“APA”) between A.O. Smith (“Smith”) and CST, Industries, Inc. (“CST”), I
    cannot agree that a genuine issue of material fact exists with regard to
    CST’s obligation to indemnify Smith. Thus, I respectfully dissent.
    The record confirms that Smith sold the Harvestore automated
    products line, including roller mills, to Recknell Industries, Ltd. in September
    1996 but retained Harvestore’s liabilities, including pending or potential
    litigations   involving   automated   products   manufactured    before   1996.
    Recknell Agreement, 9/3/96, at ¶ 3.1.
    -2-
    J-E01002-16
    Smith dissolved Harvestore, transferring its assets and liabilities in July
    1997 to a new division of Smith, Engineered Storage Products Company
    (“ESPC”).   Upon acquiring the assets and liabilities of Harvestore, ESPC
    entered the business of designing, manufacturing, and selling liquid and dry
    bulk storage tanks. Among the liabilities ESPC acquired were those Smith
    retained as part of the Recknell Agreement: pending or potential claims for
    damages related to Harvestore automated products manufactured before
    1996, including the roller mill at issue, which was produced in 1981.
    In December 2000, pursuant to the APA, Smith sold substantially all of
    ESPC’s operating assets and certain liabilities to CST.      APA, 12/15/00, at
    Preamble.     The APA includes among the liabilities assumed by CST a
    category entitled “Products Liability.” APA §§ 1.2.1, 1.5(o), 2.13, 2.22, and
    Exhibits 2.13, 2.22.   Itemized under that broad heading were six cases:
    Item 2 involved a Harvestore silo; item 3 involved a sugar silo; item 4
    involved a storage tank; item 5 involved a roller mill; item 6 involved a leaky
    tank; and item 7 involved an auger. N.T. (Wagner Deposition), 9/21/12, at
    108–112.
    Unlike the Majority, I do not consider dispositive of the indemnification
    issue ESPC’s status as a division or the fact that it is not in the roller mill
    business. Pursuant to the definition of “Assumed Liabilities,” CST acquired:
    the following liabilities of the Seller relating to the Division
    [ESPC] ...(A) the current portion of all liabilities of the Division
    as set forth on the face of the Closing Balance Sheet... (B) all of
    the Division’s obligations and liabilities arising under the
    -3-
    J-E01002-16
    “Contracts”... (C) all liabilities in the nature of product
    liability, including, without limitation, any liability for claims
    made for injury to person, damage to property or other damage
    arising from, caused by or arising out of any product designed,
    manufactured, assembled, installed, sold, lease or licensed, or
    any service rendered by the Division, prior to the Closing Date...
    APA, 12/15/00, at ¶ 1.2.1 Definitions (emphasis supplied). In light of the
    broad sweep of this definition, CST’s argument that it is not responsible for
    Ms. Fisher’s roller mill liability because ESPC did not make the roller mill
    relies on too narrow a perspective.     The definition of “Assumed Liabilities”
    refers to “all liabilities in the nature of product liability” and includes as a
    specific example “any liability for claims . . . arising out of any product . . .
    designed, manufactured, assembled, installed, sold, lease or licensed . . . by
    the Division, prior to the Closing Date.” APA, 12/15/00, ¶ 1.2.1. Inclusion
    in the definition of the specific example of product liability claims related to
    an ESPC product or service does not negate the general reference to “all
    liabilities in the nature of product liability,” which would include those
    involving roller mills and augers.
    In short, the plain language of the APA indicates that CST was
    acquiring from ESPC the broad category of product-liability-based liabilities,
    not liabilities based on specific products, i.e., tanks, silos, augers, or roller
    mills. As the trial court concluded, the APA’s language “indicates the parties’
    intent to transfer product liability cases, as a group, to CST.”     Trial Court
    Opinion, 10/1/13, at 7.     Moreover, as the Majority implies, by “carv[ing]
    Exhibit 2.22—the only reference to litigation involving a roller mill—out of a
    -4-
    J-E01002-16
    list of otherwise excluded activities,” Majority at 21, the parties intended
    litigation involving a roller mill to be an included liability.
    Smith’s performance pursuant to section 11.1(vi) of the APA supports
    this interpretation. As the trial court explained, that section obligated Smith
    “to cover any litigation liability assumed by CST within the first three years
    of the contract date.” Trial Court Opinion, 10/1/13, at 8–9 (underscore in
    original; citing APA, 12/15/11, § 11.1(vi)). Smith paid damages out of its
    reserves to settle two of the itemized liabilities before December 15, 2003:
    Smith, which involved a Harverstore roller mill, and Woods, which involved
    a Harvestore auger. “By contrast, Fisher was settled on February 4, 2013,
    well outside of A.O. Smith’s reimbursement obligation period.”        Id. (citing
    APA § 11.7(e) (“… that in no event shall [Smith] have any liability under
    Section 11.1(vi) for claims for any liability or obligation which arises more
    than three years from the closing date.”)).        Smith made these settlement
    payments because the claims sounded in product liability, not because of the
    nature of the specific product involved. Notably, although it is in the storage
    tank business, CST agreed that it assumed liability for the auger case,
    Woods.     Smith’s Motion for Summary Judgment on Crossclaim, Exhibit 4
    (Deposition of John Farris at 12:9–17, 44:15–20).
    Similarly sounding in product liability, Ms. Fisher’s claim falls under the
    broad coverage of section 2.22 as a liability assumed by CST.          However,
    because it arose after Smith’s payment obligation ended, CST was
    -5-
    J-E01002-16
    responsible for indemnifying Smith for payments made in settlement of Ms.
    Fisher’s product liability claim. The fact that her particular claim involved a
    roller mill is not relevant to CST’s obligation to indemnify Smith for product
    liability claims in general.
    Next, I address Smith’s two-fold claim for attorney fees and costs.
    Smith first seeks recovery of the attorney fees and costs it incurred in
    defending against Ms. Fisher’s action. Smith’s Substituted Response Brief at
    53. Upon review of the APA, I conclude that Smith is not entitled to attorney
    fees and costs related to defending against Ms. Fisher’s claim.
    The dispositive language of the APA reads, “If the Indemnifying Party
    [CST] fails or refuses to defend any Third Party Claim [Ms. Fisher’s claim],
    the Indemnified Party [Smith] may nevertheless, at its own expense,
    participate in the defense of such Third Party Claim.” APA, 12/25/00, at §
    11.3 (emphasis supplied). Smith participated in the defense of Ms. Fisher’s
    claim because “CST [did not have] a duty to defend.” Smith’s Substituted
    Response Brief at 53.      Pursuant to a strict construction of section 11.3,
    therefore, Smith participated in the defense at its own expense.
    Smith also seeks recovery of attorney fees it incurred in prosecuting
    its indemnification claim against CST. Smith’s Substituted Response Brief at
    57. Given my position on the indemnification issue, I am of the opinion that,
    under Illinois law, Smith is entitled to those attorney fees.
    -6-
    J-E01002-16
    The   “American      Rule”    requires     specific   statutory   or   contractual
    authority   to   receive   an      award    of   attorney     fees.     Baksinski     v.
    Northwestern University, 
    595 N.E.2d 1106
     (Ill. App. 1992). An indemnity
    agreement is a contractual obligation whereby the indemnitor agrees to
    protect an indemnitee from claims asserted against the indemnitee by a
    third person.    Magnus v. Lutheran General Health Care System, 
    601 N.E.2d 907
    , 915 (Ill. App. 1992). Attorney fees are recoverable pursuant to
    an indemnity contract if such terms are specifically provided for within the
    contract. Nalivaika v. Murphy, 
    458 N.E.2d 995
     (Ill. App. 1983).
    Section 11.2 of the APA provides for the recovery of damages
    “incurred or sustained by [Smith] or any of its shareholders, officers or
    directors as a result of (i) the breach of any term, provision, covenant or
    agreement contained in this Agreement by [CST]; . . . (iii) [CST’s] failure to
    pay, perform and discharge, when due, any of the Assumed Liabilities.”
    APA, 12/15/00, at § 11.2.          The parties agree that the APA definition of
    “damages” includes attorney fees.          CST Substituted Reply Brief at 51–52;
    Smith’s Substituted Response Brief at 13.
    Here, CST’s refusal to indemnify Smith was a breach under APA
    section 11.2 that required Smith to file a claim to enforce its right to
    indemnification. As such, I conclude that CST should be liable to Smith for
    the attorney fees it incurred in prosecuting that claim.
    -7-
    J-E01002-16
    Based on the foregoing, I would affirm the trial court’s order granting
    summary judgment to Smith on the issue of indemnification. I would affirm
    in part and reverse in part the denial of Smith’s claim for attorney fees and
    costs.
    -8-
    

Document Info

Docket Number: 727 EDA 2013

Filed Date: 8/12/2016

Precedential Status: Precedential

Modified Date: 8/13/2016