Colony Ins. Co. v. Adsil, Inc.
| Decision Date | 04 June 2018 |
| Docket Number | CIVIL ACTION NO. 4:16-CV-408 |
| Parties | COLONY INSURANCE COMPANY, Plaintiff, v. ADSIL, INC., et al, Defendants. |
| Court | U.S. District Court — Southern District of Texas |
This lawsuit is aimed at determining who should pay the costs and expenses arising from litigation in state court. In the underlying case, Calallen Independent School District ("Calallen"), located near Corpus Christi, Texas, sought recovery against numerous entities for the corrosion of its HVAC equipment.1 Adsil, Inc. and CJO Enterprises, Inc. were defendants in that matter and are in the present one as well. Adsil manufactures a product meant to prevent corrosion of such equipment. Adsil, based in Florida and doing business nationally, contracted with CJO to handle the installation of Adsil's anti-corrosion product in Texas. CJO applied it to Calallen's equipment and thereby embroiled both companies in the Calallen litigation.
In a motion for summary judgment, Plaintiff Colony Insurance Company, Adsil's insurer, contends that CJO's contract with Adsil imposes a duty to indemnify Adsil for costs arising from CJO's own negligent acts. (Doc. No. 54.) Because it represented Adsil in the Calallen litigation, Colony argues that it is owed that indemnification. In its own motion for summary judgment,CJO contends that the indemnification clause is invalid, so it owes Colony nothing. (Doc. No. 53.) The parties also disagree on whether Florida or Texas should supply the governing law.
Based on careful consideration of the parties' extensive briefing, the applicable law, and oral argument, the Court holds that Florida law applies. That law, in turn, entails an inquiry into the actual facts giving rise to the Calallen litigation. That inquiry reveals genuine issues of material fact, warranting denial of both parties' motions for summary judgment.
Adsil is a Nevada corporation with its principal place of business in Florida. (Doc. No. 37 at 2.) CJO is a Texas corporation. In 2005, Adsil and CJO executed an "Independent Mobile Installer Agreement." (Doc. No. 54-1 at 180.) The Agreement made CJO a "nonexclusive Mobile Installer" for the installation of certain Adsil products in Texas. (Id. at 180-81.) The Agreement contained the following indemnity clause:
13. Indemnification Mobile Installer [CJO] shall indemnify and hold Company [Adsil] and its officers, directors, employees, agents and representatives, harmless from and against any and all claims, losses, obligations, liabilities, costs and expenses (including without limitation legal and other fees) arising from any negligent acts or omissions of Mobile Installer or its employees, agents or representatives, and, in addition, such indemnification by Mobile Installer shall cover any claims, losses, obligations, liabilities, costs or expenses arising out of any breach of this Agreement by Mobile Installer.
(Id. at 182-83.) The Agreement also provided that it would be governed by Florida law and that Flagler County, Florida would be the exclusive venue for any dispute between Adsil and CJO. (Id. at 191.)
Calallen's Original Petition was filed in late November 2014. The petition identified eight defendants, three of which—Weathertrol, Air Pro, and AAON—would eventually file cross-claims against Adsil. (Doc. No. 54-1 at 6.) CJO and Adsil were not yet in the suit. Calallen asserted that "multiple air cooled condensing units and roof top air conditioning units" had failed, and it advanced seven general theories of liability (e.g., "Failure to comply with applicable codes and standards"), which were not particularly associated with any of the defendants. (Id. at 8.)
Calallen's First Amended Petition, filed in early December 2014, added CJO as a defendant. (Doc. No. 54-1 at 13.) Calallen's allegations and theories of liability were no more specific. Calallen's Second Amended Petition, filed in mid-January 2015, added Adsil as a defendant. (Doc. No. 54-1 at 18.) This petition retained the broad, imprecise allegations and theories of the previous petitions. The same was true of Calallen's Third, Fourth, and Fifth Amended Petitions, filed over the course of 2015.
In May 2015, likely between the filing of Calallen's Third and Fourth Amended Petitions, counsel for Adsil wrote to CJO and to CJO's insurer, asking CJO to take up Adsil's defense in the Calallen litigation. (Doc. No. 54-1 at 196, 200.) CJO refused. (Doc. No. 54 at 3.)
Filed in October 2015, Calallen's Sixth Amended Petition advanced specific allegations and theories of liability as to each defendant. (Doc. No. 54-1 at 34-41.) Its allegations centered on the "severe corrosion of condenser coils, copper tubing and aluminum fins" in the "air-cooled condensing units and roof top air conditioning units" at five Calallen campuses. (Id. at 35.) Calallen brought products liability claims against the manufacturers of the units, AAON andanother company; negligence claims against Calallen's contractors, Weathersol, Air Pro, and others; and negligence claims against Adsil and CJO. (Id. at 37-40.)
Calallen alleged that Adsil's anti-corrosion product, "commonly known as Microguard AD35 HVAC Clear Protective Treatment or Microguard AD35 HVAC/R Coil Fin-Pack Protective Coating," was used on some unspecified number of the HVAC units. (Doc. No. 54-1 at 38-39.) "At issue," according to Calallen, was "the proper cleaning and preparation of existing condenser coils prior to recoating of existing coils [with Adsil's product]." (Id. at 39.) (Id.) Accordingly, Calallen contended that "Adsil and CJO were negligent, jointly and severally, in failing to warn others about the proper use of Adsil's product(s)." (Id.)
The allegations about Adsil were decidedly ambiguous. It was not clear how exactly Adsil had been negligent, in Calallen's view: vicariously, through its subcontractor, or directly, through some sort of failure to warn. Calallen's Seventh Amended Petition, filed in November 2015, was no more specific. (Doc. No. 54-1 at 43.)
Its Eighth, filed in late December 2015, was more specific. It alleged that Adsil had "failed to provide proper and adequate instructions, protocols, and procedures to jobbers, distributors, and end users of [its] product ... with regard to proper and effective cleaning, prepping, and recoating procedures necessary to apply the coating as originally intended by the manufacturer." (Doc. No. 54-1 at 57.) Separately, it accused CJO of "negligent failure to properly install or apply the product." (Id. at 58.) Adsil's and CJO's negligence, in turn, "jointly and severally," were the proximate cause of Calallen's damages. (Id.)
The same allegations appeared in Calallen's Ninth and Tenth Amended Petitions, but not in the Eleventh. (Doc. No. 54-1 at 62-91.) Those three petitions were filed in a flurry in late June 2016. According to Colony, all claims against Adsil were nonsuited. (Doc. No. 54 at 3.) Evidently "[Calallen] dropped its claims against Adsil." (Doc. No. 37 at 4.) The Eleventh and subsequent amended petitions addressed only CJO's negligence in the application of Adsil's product.
Adsil also faced cross-claims from its co-defendants in the Calallen litigation. Defendant Weathertrol, a contractor for Calallen, filed a cross-claim against Adsil, CJO, and two other co-defendants in early May 2016. (Doc. No. 54-1 at 131). Its original cross-claim attributed no particular conduct to Adsil other than manufacturing the product at issue. Its First Amended Cross-Claim, filed in early June 2016, alleged that Adsil was responsible for any "issues with the instructions for applying the coating, the instructions for maintaining the coating or the application thereof at [Calallen High School]." (Id. at 137.)
Defendant Air Pro, another contractor for Calallen, also filed a cross-claim against Adsil, CJO, and others. (Doc. No. 54-1 at 143.) In its original form, filed in late May 2016, Air Pro's petition said that Adsil was the manufacturer of the product applied to Calallen's HVAC units and thus, "to the extent there are issues with the coating material itself or the application thereof, both CJO and Adsil would be responsible for any alleged damages." (Id. at 144.) The amended cross-claim, filed sometime in June 2016, repeated those allegations and added that Adsil should be liable under Section 82.002 of the Texas Civil Practice & Remedies Code. (Id. at 148.) That statute obligates manufacturers of defective products to indemnify sellers for any loss arising from a products liability action, unless the seller's own negligence was the cause.
Defendant AAON, a manufacturer of HVAC units, filed claims of its own. In an Amended Petition filed in late January 2017, it said that it incurred substantial legal expenses defending itself against Calallen and that Adsil and CJO owed it indemnification. (Doc. No. 54-1 at 161.) AAON had sold roof-top HVAC units to Calallen, which then had Adsil's product applied to them by CJO. AAON wanted CJO and Adsil to indemnify it for all costs arising from the damage to Calallen's units, including AAON's cost of defending itself against Calallen. (Id. at 159-61.) AAON staked its claim for indemnity on Section 82.002 of the Texas Civil Practice and Remedies Code, the statute indemnifying innocent sellers of defective products. (Id. at 161.)
Adsil, through Colony, soon settled with AAON. (Doc. No. 54-1 at 569.) In a settlement agreement executed in mid-July 2017, AAON acknowledged it had received $130,000 from Adsil in return for releasing all claims. (Id. at 570.) Colony indicates that it paid $95,000 of that sum. (Doc. No. 54 at 14.) The fate of Weathersol's and Air Pro's claims against Adsil...
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