Wells Dairy, Inc. v. Air

• Decision Date: 06 March 2009
• Docket Number: No. 06-1018.,06-1018.
• Citation: 762 N.W.2d 463
• Parties: WELLS DAIRY, INC., Appellant, v. AMERICAN INDUSTRIAL REFRIGERATION, INC., and Refrigeration Valves and Systems Corporation, Appellees.
• Court: Iowa Supreme Court

762 N.W.2d 463

WELLS DAIRY, INC., Appellant, v. AMERICAN INDUSTRIAL REFRIGERATION, INC., and Refrigeration Valves and Systems Corporation, Appellees.

No. 06-1018.

Supreme Court of Iowa.

March 6, 2009.

Juli Wilson Marshall, Mary Rose Alexander, Thomas J. Heiden, Andre M. Geverola, and Matthew J. Johnson of Latham & Watkins, LLP, Chicago, Illinois, Richard H. Moeller of Berenstein, Moore, Berenstein, Heffernan & Moeller, L.L.P., Sioux City, and Bruce E. Johnson of Cutler Law Firm, P.C., West Des Moines, for appellant.

Matthew T. Early of Rawlings, Neiland, Probasco, Killinger, Ellwanger, Jacobs & Mohrhauser, LLP, Sioux City, and Michael D. Hutchens, Jenneane L. Jansen, and Jennifer E. Ampulski of Meagher & Geer, PLLP, Minneapolis, Minnesota, for appellee American Industrial Refrigeration, Inc.

John D. Mayne and Missy J. Denton of Bikakis, Mayne, Arenson & Hindman, Sioux City, and Lindsay G. Arthur and Christopher D. Newkirk of Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, Minnesota, for appellee Refrigeration Valves and Systems Corporation.

APPEL, Justice.

In this case, we peer into the abyss of indemnity law. Specifically, we must decide whether the district court properly granted summary judgment in favor of American Industrial Refrigeration, Inc. (AIR) and Refrigeration Valves & Systems Corp. (RVS) in an indemnification action brought by Wells Dairy, Inc. following a fire and explosion at one of its plants. The explosion and subsequent fire allegedly prevented Wells from completing performance of its contract with Pillsbury Co., Inc. to produce ice cream. The district court granted AIR and RVS summary judgment on Wells' indemnification actions. For the reasons expressed below, we affirm in part, reverse in part, and remand for further proceedings.

I. Factual and Procedural History.

A. Nature of Underlying Litigation. On or about January 28, 1999, Wells and Pillsbury entered into a contract whereby Wells agreed to manufacture at its facility in Le Mars, Iowa certain Häagen-Dazs frozen dessert products marketed by Pillsbury. The contractual terms included minimum levels of production by Wells over a fixed term. The contract provided that Wells could manufacture Häagen-Dazs only at its South Ice Cream Plant unless Wells obtained Pillsbury's written consent.

Two months after the contract was signed, an explosion and fire occurred at the South Ice Cream Plant. The explosion resulted from the catastrophic failure of a check valve in a pipeline of the ammonia refrigeration system. The failure of the check valve caused thousands of pounds of liquid ammonia to spill onto the floor of the plant. An electrical charge subsequently caused the explosion and resulting fires. The explosion and fires extensively damaged the South Ice Cream Plant and resulted in an immediate and complete shutdown of the facility.

In August 2002 Pillsbury filed an action in district court against Wells for breach of contract and negligence. Thereafter, Wells filed the instant third-party action against AIR and RVS seeking indemnification and contribution for any damages owed to Pillsbury. In the indemnification action, Wells asserted that the explosion and fire were caused by a defective refrigeration system that AIR and RVS installed, designed, and sold to Wells. After discovery, AIR and RVS filed motions for summary judgment against Wells.

B. Relationship between Wells and AIR. The undisputed facts show that in 1991 Wells hired AIR to design and install a multi-million dollar refrigeration system at the South Ice Cream Plant. The bid documents submitted by AIR and accepted by Wells called for AIR to supply a "total systems engineering and turnkey proposal," including ammonia refrigeration. In its proposal, AIR stated that its system would be code-compliant, would be made with the "highest quality material and workmanship available," and would include numerous safety controls.

The contract between Wells and AIR also contained several service provisions. Among other things, the contract provided that AIR would supply the services of one control system designer for the maximum of one hundred and eighty hours, one field technician for a maximum of one hundred and eighty hours, and "include[ ] services of King Gauge Field Service personnel to review installation, calibrate tank level controls, and provide training services." When a problem arose with the refrigeration unit, Wells employees would "give them [AIR] a call on the phone and say, hey, we have an issue or whatever it was." In addition, AIR conducted at least two training sessions at Wells on the safe operation of the system in 1994 and 1996 C. Relationship between Wells and RVS. The undisputed facts show that RVS is a supplier of vessels, piping, and components for ammonia refrigeration systems. RVS supplied much of the equipment for the south plant refrigeration system, including the selection of the pressure vessels, piping, various valves, and, specifically, the check valve that catastrophically failed.

The parties dispute whether RVS had a contractual relationship with Wells. RVS contends it merely sold goods to AIR and shipped them to Wells. In blueprints and engineering specifications prepared by RVS, the client is described as "AIR/Well's South Plant." Wells alternatively asserts that a contractual relationship existed between it and RVS.

C. District Court Ruling. The district court granted AIR's and RVS's motions for summary judgment. The district court found there was no express agreement to indemnify between the parties. The district court further held that no implied duty to indemnify arose from the series of finite agreements between AIR/RVS and Wells.

The district court also granted Wells' motion for summary judgment on the underlying claim brought by Pillsbury. Such a ruling rendered Wells' indemnification claim moot. This court, however, has reversed the district court's grant of summary judgment in the underlying action. See Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430 (Iowa 2008). As a result, Wells' indemnification claims against AIR and RVS remain live rounds on the battlefield awaiting our disposition.

II. Standard of Review.

We review the district court's ruling on a motion for summary judgment for correction of errors at law. Buechel v. Five Star Quality Care, Inc., 745 N.W.2d 732, 735 (Iowa 2008). Summary judgment is proper if the entire record before the court shows that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Phillips v. Covenant Clinic, 625 N.W.2d 714, 717 (Iowa 2001). Every legitimate inference that can reasonably be deduced from the evidence should be afforded the party resisting the motion for summary judgment, and a fact question is generated if reasonable minds can differ on how the issue should be resolved. Id. at 718.

III. Discussion.

A. Analytical Framework. Indemnification is a form of restitution. Iowa Elec. Light & Power Co. v. Gen. Elec. Co., 352 N.W.2d 231, 236 (Iowa 1984). Indemnity shifts the entire liability or blame from one legally responsible party to another. Federated Mut. Implement & Hardware Ins. Co. v. Dunkelberger, 172 N.W.2d 137, 142 (Iowa 1969), superseded by statute, 1971 Iowa Acts ch. 131, § 94, as recognized in Ayers v. Straight, 422 N.W.2d 643, 646 (Iowa 1988). Indemnity is, in short, a redistribution of risk. Nicholas P. Alexander, Developments in Indemnity Law: Express, Implied Contractual, Tort-Based & Statutory, 79 Mass. L.Rev. 50, 51 (1994).

The nomenclature used by courts for implied indemnity claims can be confusing and is not always used with precision. When an implied obligation to indemnify arises from an existing contractual relationship, it is often said to involve an implied-in-fact obligation, or implied contractual indemnity. See E. Eugene Davis, Indemnity Between Negligent Tortfeasors: A Proposed Rationale, 37 Iowa L.Rev. 517, 538 (1952); Dale B. Furnish, Distributing Tort Liability: Contribution & Indemnity in Iowa, 52 Iowa L.Rev. 31, 35 (1966). When indemnity arises outside of a contractual setting, it is often referred to as an obligation implied-in-law, or equitable indemnity. Id. Sometimes, however, the term implied indemnity is used to include both implied contractual indemnity and equitable indemnity, which can lead to considerable confusion. See generally 17 Vista Fee Assocs. v. Teachers Ins. & Annuity Ass'n of Am., 259 A.D.2d 75, 693 N.Y.S.2d 554 (1999).

For the purposes of clarity in this opinion, we refer to implied contractual indemnity as including indemnity claims (other than express indemnity) arising out of contractual relations. We use the term equitable indemnity to refer to distinctly different indemnity claims which arise from the noncontractual legal relationships between the indemnitor and the indemnitee.

1. Implied contractual indemnity. It has been widely accepted for decades that indemnity may, in some instances, arise from a contractual relationship even if the parties did not expressly include an indemnity clause in the contract. Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 133, 76 S.Ct. 232, 237, 100 L.Ed. 133, 141 (1956), superseded by statute as stated in Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 262, 99 S.Ct. 2753, 2757, 61 L.Ed.2d 521, 528 (1979). The standard for implying a contractual indemnity obligation, however, is generally quite high. As stated by the New York Court of Appeals, in order for a court to imply a contractual right to indemnification, there must be an "unmistakable intent" to indemnify. Hogeland v. Sibley, Lindsay & Curr Co., 42 N.Y.2d 153, 397 N.Y.S.2d 602, 366 N.E.2d 263, 266 (1977).

Under Iowa law, we have couched our implied contractual indemnity doctrine in terms of an "independent duty," stating that an implied contractual duty to indemnify may arise from a contractual relationship that lacks an...