Searles Valley Minerals Operations Inc v. Ralph M. Parson Serv. Co.
| Decision Date | 21 January 2011 |
| Docket Number | No. CIVBS900052,E049927,CIVBS900052 |
| Court | California Court of Appeals Court of Appeals |
| Parties | SEARLES VALLEY MINERALS OPERATIONS INC., Plaintiff and Appellant, v. RALPH M. PARSON SERVICE COMPANY et al., Defendants and Respondents. |
CERTIFIED FOR PUBLICATION
OPINIONAPPEAL from the Superior Court of San Bernardino County. Kirtland L. Mahlum, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed with directions.
Haight Brown & Bonesteel, William O. Martin, Jr., R. Bryan Martin, Jules S. Zeman, and Stephenie M. Alexander for Plaintiff and Appellant.
Sheppard, Mullin, Richter & Hampton, Candace L. Matson, and Robert T. Sturgeon for Defendants and Respondents.
In this contract indemnity action, plaintiff and appellant Searles Valley Minerals Operations Inc. (Searles) appeals the judgment of dismissal entered in favor of defendants and respondents Ralph M. Parsons Service Company and Parsons Infrastructure & Technology Group, Inc. (Parsons), following an order sustaining Parsons's demurrer, without leave to amend, to Searles's cause of action for express indemnity.
Searles contends it adequately alleged a cause of action for express indemnity by alleging that Parsons was required, under an indemnity contract between Parsons and Kerr-McGee Chemical Corporation (KM), to provide KM with a defense and indemnify KM for losses arising from a wrongful death action against KM, Parsons, and Parsons's subcontractor. Searles argues that, as an assignee of KM's indemnity rights, it was entitled to reimbursement for paying KM's defense costs.
While there appears to be no case law directly on point, we conclude that an assignee of contract indemnification rights stands in the shoes of the indemnitee. Therefore, if the indemnitor refuses to pay an indemnitee's defense costs, the indemnitee, and in turn the assignee, can pay the costs and seek reimbursement from the indemnitor. Searles, as KM's assignee, was entitled under the indemnity agreement to recover defense costs it paid on KM's behalf. The trial court thus erred in sustaining, without leave to amend, Parsons's demurrer to Searles's cause of action for express indemnity, and we reverse the judgment of dismissal.1
Decedent, Michael Todd Moore, was killed while working at Searles's soda ash processing plant in Trona (the Argus plant). In a wrongful death action, Moore's heirs sued KM, Parsons, and Parsons's subcontractor, which manufactured parts for the plant's pneumatic conveyor system. Parsons rejected KM's tender of defense. Searles provided KM with a defense.
After judgment was entered in the underlying wrongful death action (the Moore lawsuit), Searles filed a complaint seeking reimbursement from Parsons for KM's defense costs. Searles's complaint included causes of action for (1) express indemnity, (2) equitable indemnity, (3) subrogation, and (4) declaratory relief.
Searles's complaint contains the following allegations. In 1974, KM entered into a contract with Parsons for the design and construction of the Argus plant, located on property owned by KM. The design and construction included providing a pneumatic conveyor system. The construction contract contained an indemnity provision (paragraph 17) in which Parsons agreed to defend and indemnify KM for personal injury or death arising out of Parsons's or its subcontractors' negligence in connection with work Parsons or its subcontractors performed pursuant to the construction contract. Paragraph 61 of the construction contract permitted KM to assign the agreement.
Searles, formerly known as North American Chemical Company, purchased the Argus plant from KM. In connection with the purchase, Searles agreed to indemnify KM for any accidents or injuries resulting in KM being sued. Under the purchase agreement, KM, in turn, assigned to Searles its rights, including KM's indemnity rights against Parsons under the construction contract.
In 2001, one of Searles's employees, Michael Moore, was killed while working at the Argus plant. At the time, Moore was attempting to remove the door of the pneumatic conveyor system. Moore's heirs filed a wrongful death complaint against KM, Parsons, and Parsons's subcontractor. KM tendered its defense to Searles and to Parsons. Searles accepted KM's defense, whereas Parsons declined it.
In 2004, the Moore plaintiffs, Searles, and Parsons entered into a release and assignment agreement and addendum, wherein it was agreed that all potential claims for indemnity, apportionment, and contribution, other than a pending workers' compensation complaint-in-intervention, would not be extinguished by the judgment entered in the Moore lawsuit.
The jury in the trial on the Moore lawsuit awarded the Moore plaintiffs approximately $6.75 million in damages. The jury assigned no fault to KM or Parsons. The jury found Parsons's subcontractor 25 percent at fault and Searles 75 percent at fault.
Searles incurred over $800,000 in attorney fees, costs, and expenses from providing KM with a defense in the underlying Moore lawsuit.
Searles alleges in the first cause of action for express indemnity that, under paragraph 17 of the construction contract between KM and Parsons, Parsons agreed to indemnify KM from all claims and liability for death arising out of Parsons's negligence. The damages claimed by the Moore plaintiffs were caused in part by Parsons and arose out of the performance of its obligations under the construction contract. Under the agreement, Parsons agreed it would be liable for KM's defense in the event of a dispute with a third party regarding work performed by Parsons. Searles, on behalf of KM, retained legal counsel to defend KM in the underlying action brought by the Moore plaintiffs. Searles is therefore entitled to recover KM's defense costs.
In the declaratory relief cause of action, Searles alleges that, as assignee of KM's rights against Parsons under paragraph 17, Searles is entitled to recover defense costs Searles incurred on KM's behalf in defending KM in the underlying action under Civil Code section 2778, subdivisions (4) and (5).2
In March 2009, Parsons filed a demurrer to Searles's complaint. As to the cause of action for express indemnity, Parsons argued that Searles failed to allege sufficient facts since there were no allegations that KM suffered any damage. Searles, rather than KM, paid for KM's defense. Searles filed an opposition, arguing that, as KM's assignee under the construction contract, Searles was entitled to recover KM's defense expenses.
The trial court heard and sustained, without leave to amend, the demurrer to the first cause of action for express indemnity and the fourth cause of action for declaratory relief. The court overruled the demurrer to the second cause of action for equitable indemnity and third cause of action for subrogation.
After the trial court denied Searles's motion for reconsideration of the ruling, Searles filed a petition for writ of mandate, requesting this court to direct the trial court to vacate its order denying Searles's motion for reconsideration and grant the motion. This court summarily denied Searles's writ petition, noting that: "„A trial court's order is affirmed if correct on any theory, even if the trial court's reasoning was not correct.'"
Searles filed a request for dismissal of the remaining second and third causes of action, and thereafter the trial court entered a judgment of dismissal of the action with prejudice.
Searles contends the trial court erred in sustaining, without leave to amend, Parsons's demurrer to the first cause of action for express indemnity. The trial court stated the demurrer was sustained on the ground that, although Searles, as KM's assignee, "steps into [KM]'s shoes," "[a]ttorney's fees and costs are not expressly set forth in the [KM]/Parsons' indemnification agreement and do not constitute legal damages."
On appeal, the parties acknowledge this rationale is incorrect because paragraph 17 provides for a defense. Also, in an indemnification action, if the indemnity agreement provides for a defense which is not provided, attorney fees and costs are considered recoverable legal damages. Parsons argues the ruling is nevertheless correct because Searles is not entitled to reimbursement of KM's attorney fees under paragraph 17, since KM did not incur any loss.
"In reviewing a judgment of dismissal after a demurrer is sustained without leave to amend, we must assume the truth of all facts properly pleaded by the plaintiffs, as well as those that are judicially noticeable." (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814.) Here, the issue as to whether the complaint sufficiently alleges an action for express indemnity is purely legal. (Diamond Benefits Life Ins. Co. v. Troll (1998) 66 Cal.App.4th 1, 5 [Fourth Dist., Div. Two].)
The issue here is whether the fact that Searles paid KM's defense expenses, after Parsons rejected KM's tender of defense, precludes Searles from recovering KM's defense costs, as assignee of KM's indemnity rights, since KM did not incur any out-of-pocket losses.
In paragraph 17, Parsons agreed to indemnify KM as follows: "Contractor [Parsons], agrees that it will, at its sole cost and expense, defend, indemnify and save Owner [KM], its subsidiaries, and their officers and employees, harmless from and against any and all claims, demands, causes of action and liabilities for loss of use or damage to property... or for bodily injury, personal injury or death arising out of Contractor's (or its subcontractor's) negligence (including, as respect bodily injury, personal injury or death, the contributory negligence of Owner [...
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