Deminsky v. Arlington Plastics Machinery

• Citation: 2003 WI 15,259 Wis.2d 587,657 N.W.2d 411
• Decision Date: 06 March 2003
• Docket Number: No. 01-0242.,01-0242.
• Parties: Todd DEMINSKY, Plaintiff-Respondent-Petitioner, v. ARLINGTON PLASTICS MACHINERY, Locator Corporation, Alpha Omega Plastics Company, Conair, Inc., and Steadfast Insurance Company, Defendants, IMAGE PLASTICS, INC. and Federated Mutual Insurance Company, Defendants-Appellants-Petitioners.
• Court: Wisconsin Supreme Court

259 Wis.2d 587

2003 WI 15

657 N.W.2d 411

Todd DEMINSKY, Plaintiff-Respondent-Petitioner, v. ARLINGTON PLASTICS MACHINERY, Locator Corporation, Alpha Omega Plastics Company, Conair, Inc., and Steadfast Insurance Company, Defendants, IMAGE PLASTICS, INC. and Federated Mutual Insurance Company, Defendants-Appellants-Petitioners.¹

No. 01-0242.

Supreme Court of Wisconsin.

Oral argument September 10, 2002.

Decided March 6, 2003.

For the defendants-appellants-petitioners, there were briefs by Laura J. Hanson, Katherine A. McBride and Meagher & Geer P.L.L.P, Minneapolis, Minnesota, and oral argument by Laura J. Hanson.

For the plaintiff-respondent-petitioner, there were briefs by John P. Richie and Richie, Wickstrom & Wachs, LLP, Eau Claire, and oral argument by John P. Richie.

¶ 1. JON P. WILCOX, J.

In this case we review a published decision of the court of appeals, Deminsky v. Arlington Plastics Machinery, 2001 WI App 287, 249 Wis. 2d 441, 638 N.W.2d 331, which reversed and remanded a summary judgment order of the Barron County Circuit Court, Edward R. Brunner, Judge. Two issues are presented to this court. First, we must determine whether an indemnity agreement is valid and enforceable under the circumstances presented. Second, if the provision is valid, we must decide the extent to which an indemnitor is bound by a settlement agreement reached between the plaintiff and the indemnitee before trial.

¶ 2. The plaintiff in this case, Todd Deminsky (Deminsky), sued Arlington Plastics Machinery, Inc. (Arlington) when he was injured while using a grinding machine sold by Arlington to Deminsky's employer, Image Plastics, Inc. (Image). When Deminsky learned that there was an indemnification agreement between Arlington and Image in the contract for the sale of the machine, he impleaded Image and its insurer, Federated Mutual Insurance Company (Federated).² Deminsky and Arlington then reached a settlement agreement. The circuit court approved the stipulated judgment and entered judgment against Arlington. The agreement assigned Arlington's indemnification claims to Deminsky. Deminsky amended his complaint to include an indemnification claim against Image. Both parties then moved for summary judgment. The circuit court granted Deminsky's motion for summary judgment and awarded him the full amount of the judgment ordered against Arlington, plus interest and costs. Image appealed. The court of appeals upheld the circuit court's finding that the indemnity agreement was valid, but reversed and remanded the case, finding that Image should not be bound by the terms of the stipulation reached by Deminsky and Arlington. The court of appeals believed Image should be afforded a full trial on the issues of liability and damages. We agree that the indemnity provision in the sales contract between Image and Arlington is valid. We also agree that Image may not be bound to the terms of the settlement agreement, but find that the scope of the remand should be limited because Image rejected the tender of the defense.

¶ 3. Accordingly, we affirm the holding of the court of appeals and remand the case to the circuit court for a limited court trial on the issue of whether the settlement agreement reached is reasonable and not the product of fraud or collusion. If the circuit court finds that the settlement agreement is reasonable and there was no fraud or collusion, then the judgment against Image will stand. However, if the circuit court finds that the settlement agreement was unreasonable or involved fraud or collusion, then the parties will be back to the position they were in before any settlement agreement was reached between Deminsky and Arlington. That means that the parties will be headed for a trial on Arlington's liability and damages. Unlike before, though, Image will have the benefit of this court's opinion and know that the indemnity agreement in its contract with Arlington is valid and binding upon them.

I

¶ 4. For purposes of this review, the parties agree on the following facts. Image is a Wisconsin corporation that recycles and reprocesses plastic. In 1995, one of Image's customers asked it to grind up plastic snow fencing. However, Image had no machine suitable for such a purpose. The owner of Image, Gregory Harm, determined that new machines were too expensive and decided to seek an appropriate used machine. Harm contacted John Clarke, the president of Arlington Plastics Machinery, an Illinois corporation that buys and sells used plastics processing equipment. Arlington was the closest of the available suppliers. Image had purchased equipment from Arlington on prior occasions. Clarke told Harm that he had a machine that might work.

¶ 5. On November 3, 1995, Harm drove to Elk Grove Village, Illinois, to meet with Clarke at Arlington's plant and inspect the machine. He took some of the snow fencing along with him to test on the machine. After inspecting the machine, Harm gave Clarke a verbal order, agreeing to purchase the machine. Clarke then had an administrative assistant type up the sales order containing the purchase price and other terms of the sale. While Arlington's sales orders are typically mailed to customers, Clarke may have given Harm the paperwork while he was there. Neither Clarke nor Harm recall exactly when or how the sales order was transmitted. ¶ 6. The sales order form was one page, front and back, with the terms and conditions listed on the back of the order. For purposes of this review, the relevant language included:

... WE [Arlington] ACCEPT YOUR ORDER ONLY ON THE EXPRESS CONDITION THAT YOU ASSENT TO THE TERMS CONTAINED BELOW AND YOUR ACCEPTANCE AND RECEIPT OF THE GOODS SHIPPED HEREUNDER SHALL CONSTITUTE ASSENT TO SUCH TERMS.

. . . .

3 - BUYER'S INDEMNITY OF ARLINGTON.

A. WARNING ... Seller will not be responsible for any loss or injury resulting from defects in the items sold or from the subsequent use of the items. Buyer expressly agrees as a condition of the purchase of these items that it will indemnify and hold Seller harmless from any and all claims that may hereafter at any time be asserted by any subsequent owner or user of the items sold hereunder or asserted by any agent or employee of such user or by any third party arising from any purported defect in the items or by reason of the use of these items. Purchaser agrees to assume all responsibility in connection with the goods upon delivery thereof to the customer or to a common carrier.

B. HAZARDS LIABILITY—Purchaser shall indemnify and hold harmless Seller ... from and against any and all losses, expenses, demands, and claims made against Seller ... by Buyer, any agent, servant, or employee of Buyer, any subsequent Purchasers ... because of injury or illness (including death) ... actual or alleged whether caused by the sole negligence of Seller, the concurrent negligence of Seller with Buyer, any agent, servant, or employee of Buyer, any subsequent Purchasers ... resulting from, or in any way connected with the operation, maintenance, possession, use, transportation, or disposition of the Articles . . . Buyer agrees to defend any suit action or cause of action brought against Seller, its agents, servants, or employees based on any such alleged injury, illness, or damage and to pay all damages, costs, and expenses including attorney's fees in connection therewith or resulting therefrom.

¶ 7. Clarke admits that he and Harm never verbally discussed the indemnity language included in the sales order, but he testified that Harm would have been instructed to look the order over, sign it, and return a signed copy to Arlington. Clarke filled out an "Estimate and Repair Order" on November 3rd to have the machine cleaned, painted, and tested. On Monday, November 6, 1995, Harm signed the contract on behalf of Image and faxed the signed contract back to Arlington. Harm did not read the back of the contract, but he did flip over the contract and was aware that "Terms and Conditions" were on the back of the form from prior purchasing experience with Arlington. Harm signed the form directly below a warning about the terms on the back of the form:

We offer to purchaser the following articles for the purchase price specified above and subject to the terms and conditions set forth on the reverse side of this Agreement and Offer. This Agreement shall become effective upon, but not until, execution by ARLINGTON PLASTICS MACHINERY, INC. AND PURCHASER. The terms and conditions on the reverse side are part of this agreement as effectively as though they precede the signature of the purchaser.

AGREED

¶ 8. In late 1995, Image paid Arlington the $10,000 owed for the grinder. Image then transported the grinder to its recycling plant in Rice Lake, Wisconsin. In order to recycle the plastic snow fencing, it had to be cut into small pieces. That was the purpose of the grinder. Arlington did not give Image an instruction manual or warnings regarding proper use. There was no sign on the machine warning the user that the guards should not be removed. The grinder had a problem with clogging and a metal guard box had to be unbolted and removed in order to unclog it. Employees found the process inconvenient and time-consuming. Because the grinder clogged repeatedly, the operators used the machine with the guard off at least some of the time. Some employees even refused to operate the machine, because they felt it was too dangerous.

¶ 9. On September 18, 1996, Todd Deminsky was seriously injured when his right hand and arm got caught in the gears of the grinding machine after his sweatshirt sleeve stuck in the machine while he was operating it. The guard was not in place on the machine at the time.

¶ 10. In May 1998, Deminsky brought suit against Arlington, alleging that the grinder was unreasonably dangerous and defective at the time that Arlington sold it to Image. Deminsky claimed that Arlington: 1) altered a guard on the grinder or caused the guard to...