Carpetland of Northwest Arkansas, Inc. v. Howard, 90-102

• Decision Date: 04 February 1991
• Docket Number: No. 90-102,90-102
• Citation: 304 Ark. 420,803 S.W.2d 512
• Parties: CARPETLAND OF NORTHWEST ARKANSAS, INC. d/b/a Carpetland: and Philadelphia Carpet, Inc., A Foreign Corporation, Appellants, v. Gary HOWARD and Nancy Howard, Husband and Wife, Richardson-Vicks, Inc. and Personal Care Products Division, Inc., Appellees.
• Court: Arkansas Supreme Court

Page 512

803 S.W.2d 512

304 Ark. 420

CARPETLAND OF NORTHWEST ARKANSAS, INC. d/b/a Carpetland and Philadelphia Carpet, Inc., A Foreign Corporation, Appellants, v. Gary HOWARD and Nancy Howard, Husband and Wife Richardson-Vicks, Inc. and Personal Care Products Division, Inc., Appellees.

No. 90-102.

Supreme Court of Arkansas.

Feb. 4, 1991.

James A. Penix, Jr., Springdale, for appellants.

Don A. Taylor, Fayetteville, for appellees.

HAYS, Justice.

The primary question in this product liability case concerns the defendant-manufacturers' impleader of third-party defendants under ARCP Rule 14, and what causes of action defendants--third-party plaintiffs can maintain against third-party defendants after the original plaintiffs have dismissed their claim against the defendants.

Gary and Nancy Howard sued Carpetland of Northwest Arkansas, Inc., and Philadelphia Carpet, Inc., appellants (Carpetland) alleging that a carpet installed in their home was defective, in that orange-pink spots had appeared on the carpet throughout the house. Carpetland believed the spots were not caused by a defect in the carpet, but by benzoyl peroxide, a bleaching agent present in certain over-the-counter acne medications. Carpetland discovered that Clearasil, an acne medication containing benzoyl peroxide, had been used in the Howard home.

Armed with that information, in January 1988, Carpetland filed a third-party complaint against appellees, Richardson-Vicks, and Personal Care Products Division, Inc., manufacturer of Clearasil, (Richardson-Vicks) under ARCP Rule 14, alleging that Richardson-Vicks were liable for all or part of the Howards' claim against them. Carpetland amended the third-party complaint to include damages caused by other claims against them based on similar incidents. These claims are widely dispersed throughout the country and have been referred to by the parties as the "nationwide claim."

In April 1988, the Howards executed a release for $1,000, releasing Carpetland, Philadelphia Carpet, Richardson-Vicks and Personal Care Products from all liability. On April 22, 1988, the trial court granted an oral motion to dismiss the Howard complaint with prejudice.

Richardson-Vicks then moved for summary judgment against Carpetland on the theory that Carpetland no longer had a claim based on indemnity. Carpetland resisted, contending the nationwide claim against Richardson-Vicks and Personal Care Products still existed and that they had incurred attorneys fees, costs and loss of goodwill in the Howard case, for which Richardson-Vicks should indemnify them.

A hearing was held and the trial court dismissed the third-party complaint in its entirety on the premise that Carpetland had made a voluntary settlement with the Howards which extinguished any claim Carpetland might then have based on indemnity. On appeal, Carpetland argues two points: the trial court erred by dismissing the claim for damages incurred in connection with the Howards' action and by dismissing the claim based on the nationwide losses.

With respect to the Howard claim, the trial court found that because Carpetland had voluntarily settled with the Howards, they were not entitled to indemnification. Larson Machine, et al. v. Wallace, 268 Ark. 192, 600 S.W.2d 1 (1980). Carpetland does not dispute the court's finding that their actions were voluntary, but they do object to the legal conclusions of the trial court attendant on this finding. We cannot sustain the argument.

Larson states that the theory of indemnity is based on "equitable principles of restitution which permit one who is compelled to pay money, which in justice ought to be paid by another, to recover the sums so paid...."

It is a general rule of law that the indemnitee on an implied covenant for indemnity against loss or damage cannot recover from the indemnitor upon a mere showing that the indemnitee has incurred liability, but he must show that he has suffered actual loss by payment or satisfaction of a judgment or by other payment under compulsion. [Our emphasis].

That is generally correct, but it must be noted that "compulsion" to pay is not confined to a judgment or court order Indemnity against losses does not cover losses for which the indemnitee is not liable to a third person, and which he improperly pays. But a person legally liable for damages who is entitled to indemnity may settle the claim and recover over against the indemnitor, even though he has not been compelled by judgment to pay the loss. The fact of voluntary payment does not negative the right to indemnity since a person confronted with an obligation that he cannot legally resist is not obligated to wait to be sued and to lose a reasonable opportunity for compromise. Such recovery is subject to proof of liability and the reasonableness of the amount of the settlement. 41 Am.Jur.2d Indemnity, § 33 (1968).

And it is also stated in Morrissette v. Sears Roebuck & Co., 114 N.H. 384, 322 A.2d 7 (1974):

While a prejudgment payment in settlement does not extinguish a right of indemnity [citation omitted], the third-party plaintiff must show that the settlement was made under legal compulsion, rather than as a mere volunteer....

Carpetland has made no showing in this regard. Thus, Carpetland's exposure to a judgment, the advisability of reaching a settlement, or the reasonableness of the amount are not matters of record. Consequently, the trial court was correct in finding Carpetland acted voluntarily and that the claim of the Howards, and any costs as a result of that claim, were extinguished as a matter of indemnity as between Carpetland and Richardson-Vicks.

As to the claim based on nationwide losses, the basis for the dismissal with prejudice is not stated in the trial court's letter opinion. At the hearing, the trial court gave two reasons for dismissing the nationwide claim. The first was that ARCP Rule 14 does not allow extended claims, and second, even if it did, the nationwide claim was too unwieldy and inconvenient for that court to manage. The trial court's letter opinion is not explicit, merely noting that:

As I indicated over a year ago, it is my intention to dismiss the nationwide claims by Carpetland and Philadelphia Land Carpet Division of Shaw Industries.

We are not aware of any cases of our own touching on whether Rule 14 would allow expanded claims against a third-party defendant, so we have looked to the nearly identical federal rule for guidance. While Rule 14 requires that the claims be against a party secondarily liable to the defendant and be based on defendant's liability to plaintiff, Rule 14 must be construed in conjunction with the other rules to give as much effect as possible. C. Wright, A. Miller and M. Kane, Federal Practice & Procedure: Civil 2d § 1442 (1990). In this case, it must be read in conjunction...