Gray v. Leisure Life Indus.

• Decision Date: 01 October 2013
• Docket Number: No. 2012-406,2012-406
• Citation: 77 A.3d 1117,165 N.H. 324
• Parties: JoAnne GRAY & a. v. LEISURE LIFE INDUSTRIES a/k/a Leisure Life Industries, Inc. a/k/a Leisure Life Industries, LLC & a.
• Court: New Hampshire Supreme Court

165 N.H. 324

77 A.3d 1117

JoAnne GRAY & a.

v.LEISURE LIFE INDUSTRIES a/k/a Leisure Life Industries, Inc. a/k/a Leisure Life Industries, LLC & a.

No. 2012-406

Supreme Court of New Hampshire.

Argued: February 13, 2013

Opinion Issued: October 1, 2013

The Stein Law Firm, PLLC, of Concord (Robert A. Stein & a. on the brief, and Mr. Stein orally), for the plaintiffs.

Hoefle, Phoenix, Gormley & Roberts, P.A., of Portsmouth (Lawrence B. Gormley on the brief and orally), and Hawkins Parnell Thackston & Young LLP, of Atlanta, Georgia (Michael J. Goldman on the brief), for the defendants.

BASSETT, J.

The defendants, Leisure Life Industries a/k/a Leisure Life Industries, Inc. a/k/a Leisure Life Industries, LLC (Leisure Life) and Knothe Apparel Group, Inc. (Knothe) (collectively, the defendants), appeal an order of the Superior Court (McHugh, J.) denying their motion for summary judgment and granting the cross-motion for entry of final judgment on the issue of indemnity filed by the plaintiffs, JoAnne Gray, Jeffrey Gray, Jeffrey J. Gray, and Jonathan Gray. The defendants also appeal the trial court's order denying their motion for summary judgment on successor liability. We reverse the trial court's denial of summary judgment with respect to the plaintiffs' indemnity claim.

The trial court found, or the record supports, the following facts. On or about December 3, 1996, Jeffrey Gray purchased a robe from The Orvis Company (Orvis) for his wife, JoAnne Gray. Orvis had purchased the robe from the manufacturer, Leisure Life. On January 9, 2005, Mrs. Gray was wearing the robe when she added a piece of firewood to her wood stove and the robe caught fire. As result, she was severely burned and suffered extensive injuries.

In the fall of 2007, the plaintiffs sued the defendants and Orvis along with other parties involved either in the design and distribution of the robe or the manufacture and sale of the wood stove. With respect to the defendants, the plaintiffs asserted numerous claims in connection with the robe, including counts sounding in negligence and strict liability. As to Orvis, the plaintiffs asserted claims of direct liability as well as a strict liability claim premised upon the liability of the defendants.

In 2008, Leisure Life moved for summary judgment against the plaintiffs, asserting that Leisure Life was purchased by Knothe in 2004 and was a division of Knothe at the time Mrs. Gray sustained her injuries. Leisure Life argued that it was not liable for the plaintiffs' injuries because it was no longer the same entity that manufactured the robe, and the circumstances of the purchase did not support holding Knothe liable as a successor. The trial court denied the motion.

In 2009, Orvis successfully moved to add third-party claims against the defendants for indemnification and contribution. Orvis claimed that it "had no involvement in the design and manufacturing of the robe" and that it "was simply a ‘pass-through’ entity." As a result, Orvis sought indemnity or contribution from the defendants for any damages it ultimately owed to the plaintiffs, including the amount of any judgment against, or settlement by, Orvis. In addition, Orvis asserted that it was entitled to recover the costs and attorney's fees that it had incurred in defending against the claims asserted by the plaintiffs. In January 2010, Orvis sent a letter to the defendants asserting that it was entitled to indemnification and, therefore, that the defendants should "assume the indemnity and defense of Orvis." Although the defendants participated in settlement discussions, they did not offer to indemnify or defend Orvis.

On September 13, 2010, immediately prior to the scheduled start of the trial, all parties except Leisure Life settled with the plaintiffs. The parties involved in the sale and manufacture of the wood stove settled the claims against them for five million dollars. Orvis settled the claims against it for one million dollars and assigned to the plaintiffs "any and all rights to indemnity" that Orvis had against the defendants. The settlement did not extinguish the plaintiffs' claims against the defendants.

The plaintiffs, as Orvis's assignees, subsequently moved for summary judgment against the defendants on the indemnity claim. They argued that the defendants had an implied duty to indemnify Orvis, and, that the plaintiffs, as assignees of Orvis's right to indemnity, were entitled to enforce that right. The defendants objected. The trial court deferred its ultimate ruling on the motion until after the trial on the plaintiffs' underlying claims against the defendants. On January 30, 2012, the jury returned a verdict in the defendants' favor.

Thereafter, the defendants moved for summary judgment, arguing that the jury's finding that the defendants were not liable to the plaintiffs precluded the plaintiffs from recovering on the indemnity claim. The plaintiffs objected and filed a cross-motion for the entry of final judgment.

The trial court issued a written order denying the defendants' motion and granting the plaintiffs' motion. Relying on Morrissette v. Sears, Roebuck & Co., 114 N.H. 384, 322 A.2d 7 (1974), the court found that "the verdict had no impact upon [the plaintiffs'] right to indemnity under the law," and that the plaintiffs had to prove only Orvis's potential liability at the time of settlement. The court ruled that the plaintiffs had satisfied their burden and, as a result, awarded them one million dollars based upon the defendants' implied obligation to indemnify Orvis for its settlement payment to the plaintiffs.

With respect to the plaintiffs' claim for attorney's fees and costs, the court found that this claim was "akin to a claim for similar fees in cases where parties elect to litigate the issue of insurance coverage," and that "if the insured prevails he shall receive court costs and reasonable attorney fees." Since the plaintiffs had prevailed on the issue of indemnity, the court found that they were "entitled to reimbursement of [Orvis's] defense costs and attorney['s] fees incurred up until the time of settlement" and awarded the plaintiffs $298,811.73 in attorney's fees and costs. This appeal followed.

On appeal, the defendants argue that the trial court erred in granting summary judgment for the plaintiffs on the issue of indemnity. They further contend that there is no basis for the trial court's award of attorney's fees and costs and that, therefore, the award must be set aside. Finally, the defendants argue that the trial court erred in finding Knothe liable as a successor to Leisure Life.

When "reviewing the trial court's summary judgment rulings, we consider the evidence in the light most favorable to each party in its capacity as the nonmoving party and, if no genuine issue of material fact exists, we determine whether the moving party is entitled to judgment as a matter of law." Coco v. Jaskunas, 159 N.H. 515, 518, 986 A.2d 531 (2009) (quotation omitted).

We first address the defendants' claim that the trial court erred in ruling that they were required to indemnify the plaintiffs, as assignees of Orvis. We agree.

We begin by reviewing the law pertaining to indemnity. In New Hampshire, the right to indemnity has historically existed: (1) "where the indemnitee's liability is derivative or imputed by law"; (2) where an implied duty to indemnify exists; or (3) where there is an express duty to indemnify. Hamilton v. Volkswagen of America, 125 N.H. 561, 563, 484 A.2d 1116 (1984) (quotation omitted). In the first situation, we have said that the right to indemnity arises "where one is legally required to pay an obligation for which another is primarily liable." Coco, 159 N.H. at 519, 986 A.2d 531 (quotation omitted); see also Greenland v. Ford Motor Co., 115 N.H. 564, 571, 347 A.2d 159 (1975) ; Morrissette, 114 N.H. at 387, 322 A.2d 7. This situation typically occurs in tort actions "where one who, without active fault on his part, has been compelled by a legal obligation to pay an injured party for injuries caused by active fault of another." Morrissette, 114 N.H. at 387, 322 A.2d 7 (quotation and brackets omitted).

The second situation occurs where there is an implied agreement to indemnify. See Jaswell Drill Corp. v. General Motors Corp., 129 N.H. 341, 346, 529 A.2d 875 (1987). "[I]ndemnity agreements are rarely to be implied and always to be strictly construed." Hamilton, 125 N.H. at 564, 484 A.2d 1116. Nonetheless, an implied agreement to indemnify may exist when an indemnitor performs a service under contract negligently and, as a result, causes harm to a third party in breach of a nondelegable duty of the indemnitee.

Jaswell Drill Corp., 129 N.H. at 346, 529 A.2d 875. The rationale for finding an implied agreement to indemnify under such circumstances is akin to the rationale for finding a right of indemnity in tort actions in that it is based upon "the fault of the indemnitor as the source of [the] indemnitee's liability in the underlying action and, conversely, the indemnitee's freedom from fault in bringing about the dangerous condition." Id. (quotation omitted).

The third situation involves an express duty to indemnify, Hamilton, 125 N.H. at 563, 484 A.2d 1116, which arises when there is an express contract providing for indemnity, see Kessler v. Gleich, 161 N.H. 104, 108, 13 A.3d 109 (2010). Under such circumstances, the right to indemnity is determined by the specific terms of the contract for indemnity. See id. We construe express indemnity agreements strictly, id. and indemnity arising from an express contract "is not subject to equitable considerations," Reyburn Lawn Designers v. Plaster Dev't Co., 255 P.3d 268, 274 (Nev.2011). "[E]xpress indemnity allows contracting parties great freedom to allocate indemnification responsibilities as they see fit, and to agree to protections beyond those afforded by the doctrines of implied or equitable indemnity." Prince v. Pacific Gas & Elec. Co., 45 Cal.4th 1151...