Dennis v. Southeastern Kansas Gas Co., Inc.

• Decision Date: 10 May 1980
• Docket Number: No. 51096,51096
• Parties: Alden DENNIS and Velma Dennis, Plaintiffs-Appellants, v. SOUTHEASTERN KANSAS GAS COMPANY, INC., Defendant, and the City of Moran, a Municipal Corporation, Defendant-Appellee.
• Court: Kansas Supreme Court

Page 627

610 P.2d 627

227 Kan. 872

Alden DENNIS and Velma Dennis, Plaintiffs-Appellants, v. SOUTHEASTERN KANSAS GAS COMPANY, INC., Defendant and the City of Moran, a Municipal Corporation, Defendant-Appellee.

No. 51096.

Supreme Court of Kansas.

May 10, 1980.

Syllabus by the Court

1. If a certification and final judgment has been entered pursuant to K.S.A. 60-254(b ), the time for appeal immediately commences to run, and such a judgment becomes res judicata where a timely appeal is not taken by an aggrieved party. Such a judgment may not later be reviewed as an intermediate ruling when an appeal from the final judgment disposing of the entire case is taken pursuant to K.S.A. 60-2102.

2. Where an indemnitor has notice of a suit against his indemnitee and has been afforded an opportunity to appear and defend, a judgment rendered therein against the indemnitee, if without fraud and collusion, is conclusive against the indemnitor in respect to all questions therein determined.

3. Under the factual circumstances set forth in the opinion, where the plaintiff suffered injuries in a gas explosion allegedly caused by the negligence of a city and a gas company, where the gas company was legally obligated to indemnify the city for any damages recovered from the city by the plaintiff, and where the plaintiff as a part of a settlement agreement with the gas company agreed to hold the gas company harmless from any loss or damages which the gas company might incur as a result of the explosion, a complete circle of indemnity was created which rendered moot the claim of the plaintiff against the city.

Monte K. Heasty, of Scovel, Emert & Heasty, Independence, argued the cause and was on the brief for appellants.

Sara Sue Beezley, of Wilbert, Lassman, Toburen & Wachter, Pittsburg, and Robert V. Talkington, of Conderman & Talkington, Iola, argued the cause, and Nelson E. Toburen, of Wilbert, Lassman, Toburen & Wachter, Pittsburg, was with them on the brief for appellee.

PRAGER, Justice:

This appeal is a consolidation of two actions brought by a husband and wife to recover damages for personal injuries suffered in a gas explosion. The plaintiffs-appellants are Alden Dennis and Velma Dennis. In the trial court, the defendants were Southeastern Kansas Gas Company, Inc., and the City of Moran, Kansas. Only the city is a party to this appeal as appellee.

The facts necessary to determine the appeal are undisputed and are essentially as follows: On September 28, 1953, the governing body of the city of Moran enacted an ordinance granting the Southeastern Kansas Gas Company, Inc. a franchise for the establishment of a gas plant and the supplying of natural gas to the city and its inhabitants. Section 4 of the ordinance provided in part as follows:

"Section 4. The said grantees, their successors or assigns, shall at all times protect and save the City harmless from any and all damages and loss which said City might be liable to pay from the operation, and maintenance of said plant . . .."

The gas company accepted the franchise, including the hold-harmless provision of section 4, constructed a gas plant, and proceeded to supply gas to the city and its inhabitants.

On February 11, 1975, a gas explosion occurred at the Dennis home in Moran and plaintiffs were severely injured. On July 18, 1975, the plaintiffs filed statements of claim with the city clerk of Moran, claiming in substance that the city had failed to discover a leakage of gas, failed to make proper tests, and failed to take proper action under the circumstances. These claims were denied by the city. On November 24, 1975, each plaintiff filed a separate action against the gas company and the city seeking to recover damages on the basis of negligence, trespass, and strict liability in tort. These actions were consolidated. On December 3, 1975, the gas company filed its answer to each plaintiff's petition denying liability. On January 16, 1976, the city filed its answer in each case and included therein a cross-claim against the gas company, seeking indemnity from the gas company for any damages or losses suffered by the city as a result of the plaintiff's claim. The basis for the city's cross-claim against the gas company for indemnity was that the city was entitled to recover a judgment over against the gas company under the hold-harmless provision of the gas franchise ordinance. Additionally, the city contended the gas company had a duty to indemnify the city for any judgment obtained by the plaintiffs because the city's negligence, if any, was passive and secondary, while the gas company's negligence was active and primary.

As discovery proceeded, counsel for the plaintiffs learned that the gas company was insolvent and had limited liability insurance coverage in the amount of $25,000. The briefs of counsel indicate that, in an attempt to settle the claims, the gas company offered to turn over the entire gas plant to the plaintiffs. It appears that the gas company actually filed a voluntary bankruptcy petition during the course of the litigation. Plaintiffs then started looking for prospective purchasers for the gas company franchise and assets and located Compton Industries, Inc., who agreed to buy the gas plant, provided the plaintiffs would settle all claims against the gas company. After negotiations, on January 16, 1976, a settlement agreement was executed between the plaintiffs and Compton Industries, Inc., as successors and purchasers of the gas company assets. By the terms of this agreement the plaintiffs received $75,000 in cash from Compton Industries, Inc., plus an additional $25,000 from the gas company's liability insurance carrier. Under section 6 of the agreement, the plaintiffs agreed to hold harmless the Southeastern Kansas Gas Company, Inc., and Compton Industries, Inc., from any claims that might arise or judgments for damages that might be entered against Southeastern Kansas Gas Company, Inc., as a result of the injuries to the Dennis's resulting from the gas explosion which occurred on February 11, 1975, at the Dennis home. This provision enabled Compton Industries, Inc., to take over the operation of the gas company without the danger of further liability to the plaintiffs or others for damages resulting from the explosion.

Thereafter, on February 27, 1976, plaintiffs dismissed without prejudice their action against the Southeastern Kansas Gas Company. On April 16, 1976, the city filed a motion for default judgment on its cross-claim against the gas company. On April 28, 1977, a discovery conference was held at which counsel for the plaintiffs and for the city appeared. There was no appearance by the gas company. At that time, the trial court issued an order granting the gas company twenty days to show cause why judgment should not be entered in favor of the city on its cross-claim. The gas company took no action and, on May 26, 1977, the trial court entered judgment in favor of the city against the gas company on the city's cross-claim. The judgment entered was in favor of the city against the gas company for all sums that may be adjudged in favor of the plaintiffs on their claim against the city of Moran. It is clear from the journal entry of judgment that in the event plaintiffs should recover a judgment against the city of Moran, the city in turn would be entitled to reimbursement from the gas company for any damages awarded to the plaintiffs.

Thereafter, on motion of the city on April 6, 1978, the trial court certified that there was no just cause or reason to delay entry of final judgment on the city's cross-claim against the gas company, and final judgment was entered by journal entry pursuant to K.S.A. 60-254(b ). There was no appeal taken from that judgment. Thereafter, the city filed a motion for summary judgment on plaintiffs' petition. In its motion, the city maintained that it was entitled to summary judgment on the basis that a "circle of indemnity" had rendered the pending claim of plaintiffs against the city moot. In support of its position, the city reasoned as follows: Under the judgment finalized April 6, 1978, in favor of the city on its cross-claim against the gas company, the gas company became obligated to indemnify the city of Moran for any amounts recovered by the plaintiffs on their claim against the city. By their agreement of January 16, 1976, the plaintiffs agreed to indemnify the gas company for any amounts which it might be required to pay as a result of the explosion on which the suit was based. Thus, the city argued in its motion, there is a full circle of indemnity running from the plaintiffs to the city. Should plaintiffs recover a judgment against the city of Moran, the city will be entitled in turn to recover that same amount from the gas company pursuant to the city's judgment for indemnity. The gas company in turn will be entitled to recover that same amount back from the plaintiffs, pursuant to the settlement and hold-harmless agreement of January 16, 1976. The end result is that, through this indirect process, plaintiffs will be required to indemnify the city for any judgment recovered by plaintiffs against the city. The city reasons that the issues in the present case have now become moot, and the city is entitled to summary judgment on plaintiffs' claim against the city. The trial court agreed with the position of the city and sustained the city's motion for summary judgment against the claim of the plaintiffs. The plaintiffs then brought a timely appeal to this court.

On the appeal, the plaintiffs contend that the trial court erred in entering summary judgment in favor of the city on the plaintiffs' claim for damages. The plaintiffs do not disagree with the conclusion that the case is now moot if it is assumed that the circle of indemnity among the parties is unbroken and complete. The plaintiffs recognize that in order to avoid mootness they must show some break in the circle of...