Peter Hardsteen and Paulina Mayberg Hardsteen and Intervenor Texas Farm Bureau v. Dean's Campin Co. ( 2015 )

Opinion issued April 30, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00135-CV
———————————
PETER HARDSTEEN, PAULINA MAYBERG HARDSTEEN, AND
INTERVENOR TEXAS FARM BUREAU, Appellants
V.
DEAN’S CAMPIN’ CO., Appellee
On Appeal from the 506th District Court
Grimes County, Texas
Trial Court Case No. 27885
MEMORANDUM OPINION
This appeal arises out of a summary judgment granted to Dean’s Campin’
Co. on its claim for indemnity against Peter and Paulina Hardsteen and their
insurer, Texas Farm Bureau.
In two issues, the Hardsteens and Texas Farm Bureau contend that the trial
court erred by (1) granting summary judgment to Dean and denying summary
judgment to them on the indemnity issue and (2) awarding Dean prejudgment
interest on attorney’s fees and costs with an improper interest rate.
Because we conclude that the settlement agreement underlying Dean’s
indemnity claim did not require the Hardsteens or Texas Farm Bureau to provide
indemnity to Dean, we reverse the trial court’s judgment and remand the case to
the trial court for entry of judgment in the Hardsteens’ and Texas Farm Bureau’s
favor and a determination of costs.
Background and Earlier Appeals in this Litigation
Nineteen years ago, a recreational vehicle Peter Hardsteen purchased from
Dean caught fire and destroyed the Hardsteens’ home and family vehicle. Peter
Hardsteen sued the manufacturer of the RV (Rexhall), the manufacturers of various
component parts incorporated into the RV, and Dean. In addition to product-
liability claims against the other defendant-manufacturers, Hardsteen alleged that
Dean negligently repaired the RV and violated various provisions of the Deceptive
Trade Practices Act. See TEX. BUS. & COM. CODE ANN. §§ 17.41–.63 (West 2011
& Supp. 2014). After paying insurance proceeds to Hardsteen, his insurer, Texas
Farm Bureau, intervened in the suit. Dean cross-claimed against Rexhall for
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indemnity owed an innocent retailer of a defective product. See TEX. CIV. PRAC. &
REM. CODE ANN. § 82.001–.005 (West 2011).
Peter and Paulina Hardsteen and Texas Farm Bureau (now collectively
referred to as “the Hardsteens”) settled with all of the named defendants except
Dean in late 1999 for a total payment of approximately $286,000. The Hardsteens
continued their litigation against Dean, asserting two causes of action: negligent
repairs and violations of the DTPA. The Hardsteens did not assert a product-
liability claim against Dean.
Several months later, in 2000, Dean amended its pleadings to assert a
counterclaim against the Hardsteens for indemnity, relying on the following
indemnity provision found in the Hardsteens-Rexhall settlement agreement:
In addition to consideration of the above, Plaintiff [Peter Hardsteen],
his wife, Paulina M. Hardsteen, and Intervenor [Texas Farm Bureau]
do hereby agree to indemnify Defendants, 1 defend them, and hold
them harmless from any claims, damages, attorney’s fees, or amounts
rendered against them by any third party, (including but not limited to
Dean’s Campin’ Company) or incurred by the Defendants as a result
of any such claim relating to the Occurrences or the Suit to the extent
such parties may be found liable in any way to Plaintiff, Pauline
Hardsteen or Intervenor.
Dean argued that this contractual indemnity provision in combination with the
statutory indemnity it sought from Rexhall permitted Dean to seek indemnity from
the Hardsteens. See TEX. CIV. PRAC. & REM. CODE ANN. § 82.002 (“A
1
The settlement agreement defined “Defendants” to include Rexhall and the
component part manufacturers but not Dean.
3
manufacturer shall indemnify and hold harmless a seller against loss arising out of
a products liability action . . . .”).
Before trial, the Hardsteens successfully moved to dismiss Dean’s indemnity
counterclaim, arguing that Dean’s amended pleading violated Rule 63, which
prohibits pleading amendments filed so late as to cause surprise to the opposing
party. TEX. R. CIV. P. 63.
Rexhall also moved for summary judgment on Dean’s indemnity cross-claim
asserted directly against it. Rexhall argued that it did not owe Dean statutory
indemnity under section 82.002 because the Hardsteens were asserting non-
product-liability claims against Dean and section 82.002 innocent-seller indemnity
is only available for product-liability claims. In support of its argument, Rexhall
relied on Hurst v. American Racing Equipment, Inc., 981 S.W.2d 458 (Tex.
App.—Texarkana 1998, no pet.), 2 which held that a seller may recover attorney’s
fees and costs associated with defending a product-liability claim but not those
costs associated with defending a separate negligence claim in the product-liability
suit. 981 S.W.2d at 463. The trial court granted summary judgment to Rexhall.
The Hardsteens proceeded to trial against Dean asserting only their negligent
repair and DTPA causes of action. The jury found that Dean was not liable under
2
As discussed below, the Texas Supreme Court later disapproved of the Hurst
decision in Meritor Automotive, Inc. v. Ruan Leasing Co., 44 S.W.3d 86, 90 (Tex.
2001).
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either theory. After a final judgment was entered, Dean appealed the trial court’s
order striking its counterclaim for indemnity against the Hardsteens and the order
granting Rexhall summary judgment on the chapter 82 indemnity cross-claim.
This Court reversed the trial court on both points. Dean’s Campin’ Co. v.
Hardsteen, No. 01-00-01190-CV, 2002 WL 1980840, at *6–7 (Tex. App.—
Houston [1st Dist.] Aug. 29, 2002, pet. denied) (mem. op.) (Dean I). In doing so,
we noted that the Texas Supreme Court had disapproved of the Hurst language
relied on by Rexhall in Meritor Automotive, Inc. v. Ruan Leasing Co., 44 S.W.3d
86, 90 (Tex. 2001). Dean I, 2002 WL 1980840, at *3–4. Applying Meritor, we
held that Dean’s right to indemnity from Rexhall was invoked once the Hardsteens
alleged that the RV was defective and commenced their “product-liability action”
with Dean as a named defendant. Id.; see Toyota Indus. Equip. Mfg., Inc. v.
Carruth-Doggett, Inc., 325 S.W.3d 683, 688–91 (Tex. App.—Houston [1st Dist.]
2010, pet. denied).
This Court further held that Rexhall was not entitled to summary judgment
on Dean’s statutory indemnity claim for indemnity from Rexhall unless it
established that Dean did not qualify as an innocent retailer in the Hardsteens’
product-liability suit against both Rexhall and Dean. Dean I, 2002 WL 1980840, at
*4. Rexhall had not met its burden of showing that Dean was not an innocent
retailer; therefore, the trial court erred in granting summary judgment to Rexhall on
5
that issue and denying Dean’s claim to indemnity from Rexhall. Id. We also noted
that, following the trial court’s order granting Rexhall summary judgment on
Dean’s indemnity cross-claim, the jury determined that Dean was not liable to the
Hardsteens, which meant that Dean had been adjudged an innocent seller and, as a
result, had established its right to indemnity from Rexhall, under section 82.002,
for its attorney’s fees and costs defending against the Hardsteens’ claims. Id. at *7.
In its first appeal, which resulted in our 2002 opinion in Dean I, Dean
argued that we should not only reverse the summary judgment granted to Rexhall
on its statutory indemnity claim but should also render judgment in Dean’s favor
because there were competing summary-judgment motions and the trial court erred
in denying Dean’s motion. We rejected that contention, observing that, when Dean
moved for summary judgment, Dean’s status as an innocent retailer presented a
disputed fact issue that had yet to be resolved by the jury and that Dean did not
present evidence of the amount of its attorney’s fees and costs when it moved for
summary judgment. See id. at *5. Instead of rendering judgment for Dean, we
remanded the case “for determination of Dean’s . . . attorney’s fees and costs under
section 82.002(a) of the Civil Practice and Remedies Code.” Id. at *7.
Regarding Dean’s second appellate issue, which challenged the trial court’s
order that struck Dean’s counterclaim for indemnity from the Hardsteens based on
Rule 63, we held, in Dean I, that the Hardsteens failed to establish that they were
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surprised or prejudiced by Dean’s counterclaim and, therefore, the trial court erred
in granting their motion to dismiss Dean’s claims. id. at *6 (“[W]ithout expressing
any opinion on the merits of those claims, we hold that the trial court abused its
discretion by striking them.”). We remanded “for determination of Dean’s
supplemental [counter]claims” and the amount of Rexhall’s indemnity obligation.
Id. at *7.
On remand, Dean’s claims were dismissed for want of prosecution. Dean
appealed the dismissal, which was transferred to the Thirteenth Court of Appeals
for resolution. See Dean’s Campin’ Co. v. Hardsteen, No. 13-05-00468-CV, 2008
WL 3984161, at *10 (Tex. App.—Corpus Christi 2008, pet. denied) (mem. op.)
(Dean II). That appellate court again reversed the trial court, reinstated Dean’s suit,
and remanded the case with instructions to follow the mandate previously issued
by the First Court of Appeals. Id. at *11. After this second remand to the trial
court, Rexhall filed for bankruptcy protection and the litigation was stayed.
Dean and Rexhall later entered a stipulation, which they filed with the
bankruptcy court. The bankruptcy court entered an order stating that the motion to
lift the stay had been “settled by stipulation.” Incorporating language from the
stipulation, the order provides that (1) the stay is lifted “to permit the parties to
continue the appeal in the Texas State Court and further prosecution of the cross
complaint” and (2) “[t]o the extent Dean[] obtains an award against Rexhall, any
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such award shall be the obligation of, and sought only through, Hardsteen and/or
Texas Farm Bureau. Dean[] shall not seek any recovery against Rexhall or the
bankruptcy estate.”
With the stay lifted, Dean continued to pursue its indemnity counterclaim
against the Hardsteens. Both sides moved for summary judgment. The trial court
denied the Hardsteens’ motion and granted Dean’s. The final judgment awarded
Dean recovery from the Hardsteens of over $200,000 in attorney’s fees and costs,
plus prejudgment and postjudgment interest at the rate of 10 percent per year for
nearly 20 years.
The Hardsteens appeal this final judgment, raising two issues. First, they
argue that the trial court erred by denying their summary-judgment motion and
granting summary judgment to Dean because Dean had neither a contractual nor a
statutory right to indemnity from them as they were merely the product’s
purchaser, not indemnifiers of Dean. Second, they argue that the trial court erred
by awarding Dean prejudgment interest on attorney’s fees and costs and by setting
an improper interest rate.
Summary Judgment
Both parties moved for summary judgment on the indemnity issue. Rexhall’s
motion was granted; the Hardsteens’ motion was denied. In their first issue, the
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Hardsteens contend that Dean’s indemnity claim against them fails as a matter of
law.
A. Standard of review on competing summary-judgment motions
A party moving for Rule 166a(c) summary judgment must conclusively
prove all of the elements of its cause of action as a matter of law. TEX. R. CIV. P.
166a(c); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex.
2001); Rhone–Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222–23 (Tex. 1999). A
defendant moving for summary judgment on a cause of action asserted against it
must negate as a matter of law at least one element of the plaintiff’s theory of
recovery or plead and prove each element of an affirmative defense. Nelson v.
Chaney, 193 S.W.3d 161, 165 (Tex. App.—Houston [1st Dist.] 2006, no pet.).
“When both sides move for summary judgment and the trial court grants one
motion and denies the other, the reviewing court should review both sides’
summary judgment evidence and determine all questions presented.” FM Props.
Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000); accord
Gillebaard v. Bayview Acres Ass’n, 263 S.W.3d 342, 348 (Tex. App.—Houston
[1st Dist.] 2007, pet. denied). The reviewing court should render the judgment that
the trial court should have rendered. See Tex. Workers’ Comp. Comm’n v. Patient
Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004); Comm’rs Ct. of Titus Cnty. v.
Agan, 940 S.W.2d 77, 81 (Tex. 1997); see also Gillebaard, 263 S.W.3d at 347–48.
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The propriety of summary judgment is a question of law. We, therefore, review the
trial court’s ruling to grant one party’s motion and deny the other using the de novo
standard. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex.
2003).
B. Whether the Hardsteens owed contractual indemnity that Dean could
enforce
We begin by noting that, but for its bankruptcy protection, Rexhall owed a
statutory obligation to indemnify Dean—an exonerated, innocent seller of its
product—for Dean’s attorney’s fees and costs incurred defending against the
Hardsteens’ claims. See Dean I, 2002 WL 1980840, at *3–4 (relying on TEX. CIV.
PRAC. & REM. CODE ANN. § 82.002 and Meritor, 44 S.W.3d at 90); see also Toyota
Indus. Equip. Mfg., 325 S.W.3d at 688–91. This duty arises from section 82.002 of
the Civil Practice and Remedies Code, which provides:
A manufacturer shall indemnity and hold harmless a seller against loss
arising out of a products liability action, except for any loss caused by
the seller’s negligence, intentional misconduct, or other act or
omission, such as negligently modifying or altering the product, for
which the seller is independently liable.
TEX. CIV. PRAC. & REM. CODE ANN. § 82.002(a).
But the issue presented in the competing summary-judgment motions is not
whether Dean has a right to statutory indemnity from Rexhall but, rather, whether
Dean has a contractual right to indemnity from the Hardsteens. Dean contends it
does because (1) the Hardsteens owed contractual indemnity to Rexhall arising
10
from the Hardsteens-Rexhall settlement agreement and (2) Dean can maintain an
action against the Hardsteens to collect on that obligation.
Dean offers three theories to support its claim that it can step into Rexhall’s
shoes and obtain indemnity from the Hardsteens: (1) it is an intended beneficiary
of the Hardsteens–Rexhall settlement agreement; (2) the Rexhall–Dean bankruptcy
stipulation, together with the bankruptcy court order, establishes a right to
indemnity; and (3) the bankruptcy stipulation, together with the bankruptcy order,
assigns Rexhall’s right to indemnity from the Hardsteens to Dean under the
settlement agreement. Relying on these three alternative theories, Dean attempts to
enforce Rexhall’s indemnity rights against the Hardsteens.
The threshold issue is whether the settlement agreement between the
Hardsteens and Rexhall requires the Hardsteens to indemnify Rexhall for its
indemnity obligation to Dean. If it does not, then Dean cannot recover on its
indemnity claim against the Hardsteens. Therefore, we begin our analysis by
determining whether the Hardsteens–Rexhall settlement agreement requires the
Hardsteens to indemnify Rexhall on Dean’s indemnity claim.
1. The Hardsteens–Rexhall indemnity contract
The Hardsteens’ indemnity obligation is set forth in—and limited by—their
settlement agreement with Rexhall. The agreement provides:
In addition to consideration of the above, Plaintiff [Peter Hardsteen],
his wife, Paulina M. Hardsteen, and Intervenor [Texas Farm Bureau]
11
do hereby agree to indemnify Defendants [including Rexhall], defend
them, and hold them harmless from any claims, damages, attorney’s
fees, or amounts rendered against them by any third party, (including
but not limited to Dean’s Campin’ Company) or incurred by the
Defendants as a result of any such claim relating to the Occurrences
or the Suit to the extent such parties may be found liable in any way to
Plaintiff, Pauline Hardsteen or Intervenor.
(Emphasis added.)
Dean contends that the Hardsteens owe Rexhall contractual indemnity
because a claim was “rendered” against Rexhall when this Court held, in Dean I,
that Dean was entitled to innocent-retailer indemnity. Dean argues that the
alternative basis for contractual indemnity—a claim being “incurred” by Rexhall—
does not apply. Dean concludes, therefore, that all aspects of the provision
following the terms “or incurred” have no application and do not impede its suit.
Under Dean’s reading, the Hardsteens owe contractual indemnity to Rexhall to
cover Rexhall’s statutory indemnity to Dean, regardless of whether Dean was
found liable to the Hardsteens.
The Hardsteens argue, in response, that the final phrase of the indemnity
provision—“to the extent such parties may be found liable in any way to Plaintiff,
Pauline Hardsteen or Intervenor”—acts to limit the Hardsteens’ contractual
indemnity obligation to apply only if Dean (referred to in the provision as “such
parties”) has been held liable to the Hardsteens. We apply the relevant rules of
12
contract interpretation to construe this indemnity provision and determine which
reading prevails.
a. Rules of construction
A settlement agreement is a contract and is governed by the same rules of
construction that apply to all contracts. Gen. Metal Fabricating Corp. v. Stergiou,
438 S.W.3d 737, 744 (Tex. App.—Houston [1st Dist.] 2014, no pet.) (op. on
reh’g). Contracts are construed to give effect to the parties’ intent as expressed in
the written instrument. Lenape Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d
565, 574 (Tex. 1996); SLT Dealer Grp., Ltd. v. AmeriCredit Fin. Servs., Inc., 336
S.W.3d 822, 828 (Tex. App.—Houston [1st Dist.] 2011, no pet.). “The contract
must be read as a whole, rather than by isolating a certain phrase, sentence, or
section of the agreement.” Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 848 (Tex.
App.—Houston [14th Dist.] 2001, pet. denied) (citing State Farm Life Ins. Co. v.
Beaston, 907 S.W.2d 430, 433 (Tex. 1995)). “Contract language is given its plain
grammatical meaning unless doing so would defeat the parties’ intent.” SLT Dealer
Grp., 336 S.W.3d at 828; DeWitt Cnty. Elec. Coop., Inc. v. Parks, 1 S.W.3d 96,
101 (Tex. 1999).
“When a court concludes that contract language can be given a certain or
definite meaning, then the language is not ambiguous, and the court is obligated to
interpret the contract as a matter of law.” Parks, 1 S.W.3d at 100. “A term is not
13
ambiguous because of a simple lack of clarity. Nor does an ambiguity arise merely
because parties to an agreement proffer different interpretations of a term.” Id. An
agreement is ambiguous when “application of established rules of construction
leaves an agreement susceptible to more than one meaning” and both potential
meanings are reasonable. Id. If the contract can be given a certain or definite legal
meaning, it is not ambiguous and should be construed as a matter of law. Grain
Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458 (Tex. 1997).
With regard to indemnity contracts in particular, courts may not expand the
parties’ rights or responsibilities beyond the limits defined in the indemnity
contract. DBHL, Inc. v. Moen Inc., 312 S.W.3d 631, 635 (Tex. App.—Houston [1st
Dist.] 2009, pet. denied); Hong Kong Dev., Inc. v. Nguyen, 229 S.W.3d 415, 458
(Tex. App.—Houston [1st Dist.] 2007, no pet.). Indemnity agreements are strictly
construed in favor of the indemnitors, in this case, the Hardsteens. Webb v.
Lawson-Avila Const., Inc., 911 S.W.2d 457, 461 (Tex. App.—San Antonio 1995,
writ dism’d); Safeco Ins. Co. of Am. v. Gaubert, 829 S.W.2d 274, 281 (Tex.
App.—Dallas 1992, writ denied).
b. Interpreting the contract
Dean asserts that the correct interpretation of the indemnity provision is to
view it as addressing two distinct situations. The first situation would be addressed
in the first half of the paragraph before the word “or,” and the second would be
14
addressed in the second half of the paragraph after the word “or.” According to
Dean, the first situation “allows indemnity when the claims/damages (attorney
fees, expenses etc.) are ‘rendered’ against Rexhall.” The second situation, again
according to Dean, deals with an “alternative scenario for indemnity, i.e. ‘incurred’
from a liability finding.” Dean explained its argument as follow:
The first part was clearly to deal with a simple fee and expense
damage claim when Appellee [Dean] got a defense verdict. The
second part was for when a verdict was entered against Appellee
[Dean] in favor of Appellants [the Hardsteens] unrelated to any
alteration of the RV, i.e. Appellee [Dean] being liable, but an as
innocent retailer.
Dean contends that the facts of this suit implicate only the first situation
because a claim was “rendered” against Rexhall when this Court issued its 2002
opinion in Dean I stating that Dean “was entitled to recover both its attorney’s fees
and its costs . . . from Rexhall under section 82.002(a) of the Civil Practice and
Remedies Code.” See Dean I, 2002 WL 1980840, at *7. Dean argues that the
Hardsteens assumed the obligation to pay Rexhall’s debt to Dean under the terms
of the first half of the settlement agreement’s indemnity provision and that the
phrase “as a result of any such claim relating to the Occurrences or the Suit,”
which is found after the word “or” in the provision has no application.
This interpretation would result in an unlimited indemnity obligation on the
part of the Hardsteens, covering all claims by all third parties, so long as a
judgment was rendered against Rexhall or any of the other defendants on any third
15
party’s claim related to any defective Rexhall RV. This interpretation does not
limit the Hardsteens’ indemnity obligation to claims that arise out of the
underlying RV fire or claims brought by, through, or under the Hardsteens. We
conclude that such a reading of the indemnity provision is unreasonable and
properly rejected. See Vill. Place, Ltd. v. VP Shopping, LLC, 404 S.W.3d 115, 129
(Tex. App.—Houston [1st Dist.] 2013, no pet.) (stating that appellate courts “avoid
constructions that would lead to absurd results.”).
The phrase that places a reasonable limit on the scope of the Hardsteens’
duty to indemnity—“as a result of any such claim relating to the Occurrences or
the Suit”—is found after the word “or.” That limiting phrase necessarily modifies
all situations covered by the indemnity provision because any other reading would
make the Hardsteens liable for claims unrelated to their suit or their settlement.
This limiting phrase modifies the entire indemnity provision, including the clause
before the word “or.”
This reasonable construction of the indemnity provision is based on reading
the provision as a whole. See Baty, 63 S.W.3d at 848. The Hardsteens agreed to
indemnify Rexhall for any amounts rendered against it by any third party,
including Dean, or incurred by it “as a result of any such claim relating to the
Occurrences or the Suit,” but only “to the extent such [third] parties[, including
Dean,] may be found liable in any way to Plaintiff, Paulina Hardsteen or
16
Intervenor.” See Wellington Underwriting Agencies Ltd. v. Hous. Exploration Co.,
267 S.W.3d 277, 287–88 (Tex. App.—Houston [14th Dist.] 2008), aff’d, 352
S.W.3d 462 (Tex. 2011) (holding that limitation phrases in indemnity agreement
must be read in connection with clauses they modify).
Under this more reasonable construction, the term “or” does not divide the
indemnity paragraph into two distinct halves, each addressing different scenarios,
as Dean suggests. Instead, it delineates two types of obligations that must be
indemnified: claims/fees/amounts that are “rendered” against the settling
defendant pursuant to a third party’s claim and claims/fees/amounts that are
“incurred” by the settling defendant while defending against such third-party
claim. Under the terms of the indemnity provision, both must be indemnified. The
two limiting phrases that follow after the “rendered . . . or incurred” clauses modify
the entire paragraph.
The Hardsteens-Rexhall indemnity provision, therefore, would be diagramed
as follows:
1. In addition to consideration of the above,
2. Plaintiff [Peter Hardsteen], his wife, Paulina M. Hardsteen, and
Intervenor [Texas Farm Bureau]
3. do hereby agree to indemnify Defendants [Rexhall and all of its
co-defendants, except Dean], defend them, and hold them
harmless from
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4. any claims, damages, attorney’s fees, or amounts
a. rendered against them [i.e., the “Defendants”] by any
third party, (including but not limited to Dean’s Campin’
Company) or
b. incurred by the Defendants [i.e., “them”] as a result of
any such claim
5. relating to the Occurrences or the Suit
6. to the extent such parties [i.e., “third party,” like Dean] may be
found liable in any way to Plaintiff, Pauline Hardsteen or
Intervenor.
In addition to concluding that this is the only reasonable interpretation of the
provision, we note that our interpretation is consistent with that advanced by the
parties at the time they agreed to the provision, as evidenced by their
contemporaneous legal arguments. 3
3
In the first appeal, Dean I, Rexhall argued that the Hurst approach was the correct
method to determine whether a section 82.002 statutory indemnity obligation had
been invoked. Dean’s Campin’ Co. v. Hardsteen, No. 01-00-01190-CV, 2002 WL
1980840, at *4 (Tex. App.—Houston [1st Dist.] Aug. 29, 2002, pet. denied)
(mem. op.); see TEX. CIV. PRAC. & REM. CODE ANN. § 82.002 (West 2011). Under
the Hurst approach, a seller could obtain indemnity from a product manufacturer
for attorney’s fees and costs incurred defending a product-liability claim but not
those incurred defending a negligence claim. Hurst v. Am. Racing Equip., Inc.,
981 S.W.2d 458, 463 (Tex. App.—Texarkana 1998, no pet.).
Had the Hurst approach (that Rexhall was championing) been approved by the
Texas Supreme Court, the indemnity provision would have insulated Rexhall from
any indemnity to Dean so long as the Hardsteens did not amend their petition to
assert a product-liability claim against Dean, regardless of whether Dean was
found liable under the theories the Hardsteens were pursuing. If the Hardsteens did
amend, Rexhall might have to indemnity Dean, but the Hardsteens were
contractually agreeing to indemnity Rexhall to the extent their change in course
resulted in additional recovery from Dean.
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2. The Hardsteens do not owe contractual indemnity on Dean’s
claim
The effect of our construction of the settlement agreement is that the
Hardsteens are required to indemnify Rexhall for any claims/fees/amounts
rendered against Rexhall in favor of Dean or incurred by Rexhall as a result of
litigating that claim, if the claim/fees/amounts relate to the Hardsteens’ suit, but
only to the extent that Dean is found liable to the Hardsteens. This construction of
the indemnity provision takes into account the parallel structure of the
“rendered . . . or . . . incurred” clauses, while giving effect to all surrounding
phrases as well.
It is undisputed that Dean was not found liable to the Hardsteens. Therefore,
relying on applicable rules of contract interpretation, we conclude that the
indemnity provision does not impose on the Hardsteens a contractual obligation to
indemnity Rexhall. Because the Hardsteens do not owe indemnity to Rexhall,
Dean’s efforts to step into the shoes of Rexhall to enforce the indemnity obligation
Once Hurst was subsequently rejected, it became possible that Rexhall would have
to indemnity Dean for the claims asserted, even if the Hardsteens did not amend
their petition. The Hardsteens would then owe Rexhall indemnity only if they
actually recovered from Dean.
Rexhall’s legal argument sheds light on why Rexhall agreed to settle with the
Hardsteens while Dean’s liability was still unclear.
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are unavailing.4 Accordingly, we conclude that the trial court erred in granting
judgment in Dean’s favor on its indemnity counterclaim.
Having construed the indemnity provision in the manner that the Hardsteens
urged in their summary-judgment motion, as a matter of law, we conclude that the
trial court erred in denying their motion. See FM Props. Operating Co., 22 S.W.3d
at 872 (“When both sides move for summary judgment and the trial court grants
one motion and denies the other, the reviewing court should review both sides’
summary judgment evidence and determine all questions presented.”).
Conclusion
We reverse the trial court’s judgment and remand the case to the trial court
with instructions that judgment be entered in the Hardsteens’ and Texas Farm
Bureau’s favor on Dean’s indemnity counterclaim and for a determination of any
4
To the extent Dean argues that the bankruptcy court order recognizes Dean’s right
to collect indemnity “in Rexhall’s name” from the Hardsteens independently of
the settlement agreement, we conclude that the trial court erred in granting
summary judgment to Dean on its indemnity claim on that basis as well.
The bankruptcy court order states that it is addressing Dean’s ability to continue
with “further prosecution” of its claims; it does not purport to resolve them.
Furthermore, the order states, “To the extent Dean[] obtains an award against
Rexhall, any such award shall be . . . [the obligation of the Hardsteens and Texas
Farm Bureau].” The phrases “to the extent” and “any such” are conditional in
nature and in no way adjudicate Dean’s right to an award. The settlement
agreement does not provide Rexhall a right to indemnity from the Hardsteens;
therefore, even with the bankruptcy order, there is no basis for Dean to look to the
Hardsteens to collect on Rexhall’s indemnity obligation.
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court costs. As a result of this disposition, Dean is not entitled to any of the
attorney’s fees, costs, or interest it was awarded, and we vacate the award. 5
Harvey Brown
Justice
Panel consists of Justices Keyes, Bland, and Brown.
5
Because we have resolved the first issue in the Hardsteens’ favor, it is unnecessary
for us to address the Hardsteens’ second issue challenging the amount of interest
awarded to Dean by the trial court.
21