Microtek Medical, Inc. v. 3M Co.

• Decision Date: 05 October 2006
• Docket Number: No. 2005-CA-01860-SCT.,2005-CA-01860-SCT.
• Parties: MICROTEK MEDICAL, INC. v. 3M COMPANY.
• Court: Mississippi Supreme Court

942 So.2d 122

MICROTEK MEDICAL, INC. v. 3M COMPANY.

No. 2005-CA-01860-SCT.

Supreme Court of Mississippi.

October 5, 2006.

COPYRIGHT MATERIAL OMITTED

Brenda B. Bethany, Jackson, C. Michael Ellingburg, attorneys for appellant.

Melody McAnally, W. Wayne Drinkwater, Jr., Jackson, attorneys for appellee.

EN BANC.

CARLSON, Justice, for the Court.

¶ 1. The 3M Company sued Microtek Medical, Inc. for indemnification of attorneys' fees incurred by 3M in defending a personal injury suit in Pennsylvania. The Chancery Court of Lowndes County, Mississippi, granted summary judgment in favor of 3M and awarded 3M in excess of $223,000 in attorneys' fees; however, the chancellor refused to award prejudgment interest in 3M's favor. From this chancery court judgment, Microtek appeals the chancellor's assessment of attorneys' fees against it, and 3M cross-appeals the chancellor's refusal to assess prejudgment interest against Microtek. Finding no error, we affirm.

FACTS AND PROCEEDINGS IN THE TRIAL COURT

¶ 2. Microtek and 3M entered into a contract in May, 1997 wherein Microtek agreed to manufacture the ArthroSteri surgical drape for resale by 3M. 3M marketed the product as its own.¹ The contract contained an indemnification clause which provided that Microtek would indemnify 3M for losses incurred due to any accident or injury sustained by a third party as a result of Microtek's breach of warranty or negligence. Furthermore, the contract provided that Microtek would conduct all of the required safety inspections of the surgical drapes and warrant them for fitness. Microtek also agreed to purchase $5,000,000 in liability insurance to cover indemnification expenses of suits arising worldwide. Additionally, the contract contained a choice of law provision that Minnesota law would govern substantive issues.

¶ 3. Subsequently, Mary Catherine Chapley of Pennsylvania filed a personal injury suit against 3M, her doctor, and her hospital in the Court of Common Pleas of Philadelphia County, Pennsylvania, seeking damages for a nerve injury during her knee surgery that she claimed was caused by a defective surgical drape which Microtek manufactured. Microtek was not a party to the suit, which asserted claims of both negligence and strict liability against 3M. Upon being notified of the suit, 3M tendered the defense of the claim to Microtek and Microtek's insurer, claiming that the contract required Microtek to defend 3M in suits concerning the surgical drapes. Microtek and its insurer refused to defend 3M, so 3M retained counsel at its own expense to defend the Chapley case. The Pennsylvania trial court granted summary judgment in favor of 3M, which thus had the practical effect of a finding that Microtek's product was not defective.²

¶ 4. 3M then filed suit against Microtek in the Chancery Court of Lowndes County, Mississippi, for indemnification according to the contract. Since no damages were paid in Chapley inasmuch as summary judgment was granted in 3M's favor, 3M demanded only that Microtek reimburse the attorneys' fees incurred by 3M in its defense of the Chapley case, with the total amount of reimbursement requested being $223,031.09. The chancellor found that 3M was entitled to attorneys' fees as a matter of law and granted summary judgment in favor of 3M. However, the chancellor declined to award 3M prejudgment interest, and he did not state a reason for his denial in the order. Microtek appeals the chancellor's grant of summary judgment, and 3M cross-appeals the chancellor's denial of prejudgment interest.

DISCUSSION

¶ 5. The parties stipulated in the contract that Minnesota law would control substantive issues. However, Mississippi law will control procedural issues. Zurich Am. Ins. Co. v. Goodwin, 920 So.2d 427, 433 (Miss.2006) (citing Ford v. State Farm Ins. Co., 625 So.2d 792, 793 (Miss.1993)). See also Sentinel Indus. Contracting Corp. v. Kimmins Indus. Serv. Corp., 743 So.2d 954, 960 (Miss.1999). This Court reviews a grant or denial of summary judgment applying a de novo standard. Stuckey v. Provident Bank, 912 So.2d 859, 864 (Miss.2005); Burgess v. BankPlus, 830 So.2d 1223, 1227 (Miss.2002); Richardson v. Methodist Hosp., 807 So.2d 1244, 1246 (Miss.2002).

¶ 6. In considering the language of the contract between Microtek and 3M, we must decide whether 3M is entitled to indemnification from Microtek for attorneys' fees incurred by 3M in its defense of the Pennsylvania lawsuit. If this Court decides that 3M is entitled to attorneys' fees, we must then determine whether the amount of attorneys' fees awarded was reasonable, and we must also decide whether 3M is entitled to prejudgment interest.

MICROTEK'S DIRECT APPEAL

I. WHETHER 3M IS ENTITLED TO INDEMNIFICATION FOR ATTORNEYS' FEES

¶ 7. We first consider the issue of whether 3M is entitled to Microtek's indemnification under the contract as a result of the attorneys' fees incurred by 3M in defending the Pennsylvania lawsuit. The contract clause in question states:

Seller shall be responsible for and shall indemnify Buyer against all losses, claims, expenses, or damages which may result in any way from any accident, injury, or damage to either person or property or from death of any persons by reason of Seller's breach of warranty described in Article 11 or any negligent act or omission on the part of Seller, its agent, employees, or subcontractors except to the extent that the accident, injury, damage, or death is due to negligence of Buyer.

¶ 8. Microtek argues that the plain language of the contract requires that Microtek be held liable for breach of warranty or negligence before it is responsible for indemnification; therefore, summary judgment does not trigger indemnification because there was no finding of wrongdoing on the part of Microtek. Specifically, Microtek states that a judgment or settlement must be "by reason of" Microtek's breach of warranty or negligence.

¶ 9. Conversely, 3M argues that the plain language of the contract requires that Microtek is "responsible for" and must indemnify all "losses, claims, expenses, or damages ... by reason of [Microtek's] breach of warranty" or negligence. In other words, 3M argues that Microtek is required to defend 3M in any claim of breach of warranty or negligence resulting from the products themselves and not 3M's own negligence. 3M further asserts that Microtek must indemnify 3M for any judgment or settlement and also reimburse 3M for any fees or expenses incurred.

¶ 10. The parties agree that since summary judgment was granted, no damages were awarded in favor of the Pennsylvania plaintiff requiring indemnification by Microtek. Therefore, the true issue on appeal is not whether Microtek had to indemnify damages, but instead, whether 3M is entitled to reimbursement for attorneys fees when the Pennsylvania summary judgment was granted in its favor. Stated differently, based on the language of the contract, this Court must decide whether the phrase "shall be responsible for" is synonymous with "defend."

¶ 11. In considering Minnesota law, a contract is interpreted according to its plain and ordinary meaning. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 67 (Minn.1979) (citing Employers Mut. Liab. Ins. Co. v. Eagles Lodge, 282 Minn 477, 479, 165 N.W.2d 554, 556 (1969); Bass v. Ring, 215 Minn. 11, 15, 9 N.W.2d 234, 236 (1943)). Furthermore, the intent of the parties should be "ascertained ... in accordance with the obvious purpose of the contract ... as a whole." Republic Nat'l Life Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn.1979) (citing Cement, Sand & Gravel Co. v. Agricultural Ins. Co., 225 Minn. 211, 216, 30 N.W.2d 341, 345 (1947)). When parties enter into contracts, they intend for every provision "to have some effect." Therefore, "any interpretation which would render a provision meaningless should be avoided." Indep. Sch. Dist. No. 877 v. Loberg Plumbing & Heating Co., 266 Minn. 426, 123 N.W.2d 793, 799-800 (1963); Casey v. Brotherhood, 197 Minn. 189, 266 N.W. 737 (1936); Commercial Union Assur. Co. Ltd. v. Foley Brothers, 141 Minn. 258, 169 N.W. 793 (1918).

¶ 12. We are not directed by the parties to any case on point in Minnesota or Mississippi which states that an indemnitee is entitled to attorneys fees upon the grant of summary judgment in its favor. The parties cite numerous Minnesota cases which are not wholly applicable to the case sub judice; however, these cases offer valuable guidance as we consider these critical issues.

¶ 13. In his order granting summary judgment, the Lowndes County chancellor made the following conclusions of law:

The rules governing requisites, validity and construction of contracts generally apply to indemnity contracts. Sorenson v. Safety Flate, Inc. 306 Minn. 300, 235 N.W.2d 848 (1975).

The intent of the parties whose contract is to be ascertained so as to give the contract a meaning in accordance with the obvious purpose of the contract. Republic Nat'l Life Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. 1979).

Indemnity language to be given a fair construction and will accomplish its stated purpose. Sorenson v. Safety Flate, Inc. 306 Minn. 300, 235 N.W.2d 848, 852 (1975).

The 1997 contract required Microtek to purchase liability insurance including products liability. An insurer has the duty to defend and a duty to indemnify. St. Paul Fire & Marine Ins. Co. v. Nat'l Chiropractic Mut. Ins. Co., 496 N.W.2d 411, 415 (Minn.Ct.App.1993).

The chancellor concluded:

Although an excellent argument in opposite was made by Microtek, the Court concludes that the 1997 contract was to protect 3M from the cost of expenses arising out of claims such as Ms. Chapley's. Microtek and its insurer were offered the opportunity to defend the Chapley claim.

¶ 14. We agree with the chancellor. The plain language of the contract stated that Microtek was "responsible for ... all losses, claims, expenses, or damages ... by reason of [Microtek's]...