McIntyre Refrigeration, Inc. v. Mepco Electra

• Decision Date: 04 October 1990
• Docket Number: No. 1,CA-CV,1
• Citation: 799 P.2d 901,165 Ariz. 560
• Parties: McINTYRE REFRIGERATION, INC., a California corporation, Third-Party Plaintiff-Appellee, and Tecumseh Products Company, a Michigan corporation, Third-Party Defendant, Third-Party Plaintiff, Appellee, Cross-Appellant, v. MEPCO ELECTRA, a Delaware corporation, Third-Party Defendant-Appellant, Cross-Appellee. 89-007.
• Court: Arizona Court of Appeals

Page 901

799 P.2d 901

165 Ariz. 560

McINTYRE REFRIGERATION, INC., a California corporation, Third-Party Plaintiff-Appellee, and Tecumseh Products Company, a Michigan corporation, Third-Party Defendant, Third-Party Plaintiff, Appellee, Cross-Appellant, v. MEPCO ELECTRA, a Delaware corporation, Third-Party Defendant-Appellant, Cross-Appellee.

No. 1 CA-CV 89-007.

Court of Appeals of Arizona Division 1, Department B.

Oct. 4, 1990.

[165 Ariz. 561] Mariscal, Weeks, McIntyre & Friedlander, P.A. by Gerald Gaffaney, Leonce A. Richard, Phoenix, for appellee McIntyre Refrigeration, Inc.

Jones, Skelton & Hochuli by Mark D. Zukowski, Phoenix, for appellee/cross-appellant Tecumseh Products Co.

Christopher D.C. Hossack, Phoenix, for appellant/cross-appellee Mepco Electra.

OPINION

LANKFORD, Judge.

This litigation is the result of a fire which destroyed the Wagon Wheel Restaurant in Quartzite, Arizona. After investigators determined that the fire probably started in the refrigeration compressor of a pie cooler in the restaurant, the owners filed a lawsuit against International Harvester Company, the manufacturer of the compressor, and against McIntyre Refrigeration Company (McIntyre), the seller.

McIntyre filed a cross-claim against International Harvester, as well as a third-party complaint against Tecumseh Products Company (Tecumseh) and Arizona Refrigeration Supplies, Inc. (ARS). The court later dismissed International Harvester from the lawsuit by stipulation.

Tecumseh filed a third-party complaint against Texas Instruments and Mepco Electra (Mepco). Prior to filing its third-party complaint, Tecumseh had unsuccessfully tendered the defense of the lawsuit to these parties. McIntyre also filed a third-party complaint against Texas Instruments and Mepco.

An investigation of the fire revealed that it had started in a refrigeration compressor unit purchased from McIntyre approximately two weeks before the fire. McIntyre had purchased the unit from ARS, which in turn had purchased it from Tecumseh. Tecumseh had assembled the compressor's three components, consisting of an electrical relay manufactured by Texas Instruments, a start capacitor manufactured by Mepco, and a compressor component manufactured by Tecumseh.

The plaintiffs' expert witness testified that the electrical relay, which was mounted inside a metal box attached to the housing, malfunctioned and ignited. According to this testimony, the heat from the relay caused the start capacitor, also mounted inside the metal box, to explode. The explosion ejected flammable material through a small wiring hole in the metal box. The combination of fuel and fire caused a "blow torch" effect which apparently ignited a nearby table, causing the fire to spread from the product to the building.

The plaintiffs' expert had no opinion on whether the start capacitor was defective. However, he did believe that the start capacitor was an active cause of the fire because it exploded and spewed forth its contents, generating the flame which ignited the table. He testified that the fire probably would not have occurred had the start capacitor not exploded.

Tecumseh moved for partial summary judgment against Texas Instruments and Mepco, seeking reimbursement pursuant to A.R.S. § 12-684(A) for its costs and attorney's fees incurred in defending McIntyre's third-party action. McIntyre subsequently joined in the motion.

Mepco filed cross-motions for summary judgment against Tecumseh and McIntyre on the ground that no evidence revealed that the component it had manufactured, the start capacitor, was defective.

The superior court granted partial summary judgment in favor of Tecumseh and McIntyre against Mepco and Texas Instruments. It simultaneously denied Mepco's cross-motions. The effect of this ruling was to hold Mepco and Texas Instruments responsible for the costs and attorney's fees incurred by Tecumseh and McIntyre.

The case subsequently proceeded to trial on the plaintiffs' strict liability claim against McIntyre only. On the first day of trial, counsel for Tecumseh was substituted as counsel of record for McIntyre, pursuant to a "Joint Defense Agreement" among Tecumseh, McIntyre, Texas Instruments and Mepco. The jury returned a defense verdict. The superior court entered judgment on the verdict.

Counsel for Texas Instruments subsequently requested leave to substitute as counsel of record for Tecumseh. After the court consented to the substitution, Tecumseh filed its application for attorney's fees and costs against Mepco pursuant to the court's previous partial summary judgment in favor of Tecumseh and McIntyre. Tecumseh sought attorney's fees and costs totalling $78,347.40.

Mepco opposed an award of fees and costs in any amount. It also argued alternatively that any otherwise recoverable amount should be reduced by two items: first, a $33,000 payment made by Texas Instruments to Tecumseh pursuant to an agreement between those parties, and second, the amount of attorney's fees and costs which Tecumseh allegedly had incurred in pursuing its indemnity claim and which Mepco argued was not attributable to the defense of the plaintiffs' product liability claim, an amount which was said to be $21,295.76.

McIntyre filed a similar application for attorney's fees pursuant to the partial summary judgment. McIntyre claimed $14,799.97, of which $5,883 was said to have been incurred in defending the plaintiffs' product liability claim. The remainder represented McIntyre's share of the total fees incurred when Tecumseh represented all of the defendants at trial.

The superior court awarded attorney's fees of $5,883 to McIntyre and $24,051.64 to Tecumseh. The court reduced Tecumseh's fees and costs because it decided that Tecumseh was not entitled to recover the expenses of pursuing its indemnity claim. It further reduced Tecumseh's request by the amount of the $33,000 payment received by Tecumseh from Texas Instruments.

Mepco timely appealed from the judgments and Tecumseh timely cross-appealed. McIntyre neither appealed nor cross-appealed.

Mepco argues on appeal that the superior court erred in awarding costs and attorney's fees to Tecumseh and McIntyre. Tecumseh, in its cross-appeal, argues that the court arbitrarily reduced the amount of its recoverable attorney's fees and costs.

I.

The first issue presented is whether Tecumseh is entitled to recover any costs and attorney's fees from Mepco pursuant to A.R.S. § 12-684. A.R.S. § 12-684 states, in pertinent part:

A. In any product liability action where the manufacturer refuses to accept a tender of defense from the seller, the manufacturer shall indemnify the seller for any judgment rendered against the seller and shall also reimburse the seller for reasonable attorneys' fees and costs incurred by the seller in defending such action ...

Mepco's appeal challenges the award to Tecumseh on the theory that because the plaintiffs never alleged that Mepco's start capacitor was defective, they did not assert a "product liability action" against Mepco. Mepco contends that it would not further the purpose of § 12-684--which Mepco says is to allow a blameless seller to recover costs and attorney's fees from the manufacturer of a defective product--to award costs and fees against a manufacturer whose product was not defective.

We believe that reimbursement is authorized in this situation. The statute conferring the right to reimbursement of defense costs requires neither allegation nor proof that the manufacturer's product is defective. Under § 12-684, a downstream seller is entitled to recover costs and attorney's fees from the manufacturer regardless of whether the trier of fact finds that the product was defective.

The statute makes an important distinction between a seller's right to indemnification and his right to reimbursement. The seller can be indemnified against liability to the plaintiff only if the plaintiff recovers a judgment against the seller. In contrast, the seller's right to reimbursement for costs and attorney's fees does not depend upon the entry of a judgment in the plaintiff's favor.

In Hellebrandt v. Kelley Co. Inc., 153 Ariz. 429, 737 P.2d 405 (App.1987), this court held that the statutory right to reimbursement is not contingent on a finding against the seller. In reversing the trial court's denial of attorney's fees and costs to a seller after a defense verdict, the court explained:

We do not believe reimbursement of fees and costs to a seller in a product liability action brought against it and a manufacturer is contingent on the seller losing the case. As a matter of policy that makes no sense, and nothing in the statute requires that result. A faultless seller is as victimized by being required to defend a meritless claim against it as by one having merit because of a manufacturer's defective product. By distinguishing between indemnification of a judgment and reimbursement of fees and costs, we believe the legislature recognized this. Indemnification requires a judgment; reimbursement does not.

153 Ariz. at 430, 737 P.2d at 406.

Mepco argues that the reasoning of Hellebrandt should not extend to the manufacturer of a component that is not defective. Because the component manufacturer in that situation is as blameless as the downstream seller, Mepco contends, there is no reason to shift the cost of the seller's defense onto the component manufacturer.

The legislature decided this question when it enacted § 12-684. The statute clearly confers a right to reimbursement from the manufacturer for the costs of defending against the underlying tort claim. The legislature pointedly omitted any requirement that there be a liability judgment against either the manufacturer or the seller as a condition of reimbursement. This is an entirely sensible arrangement, because the manufacturer's superior knowledge about the product places it in a better position than the seller to defend the product against...