Fisher, D. v. A.O. Smith Harvestore

Opinion

J-E01002-16

2016 PA Super 177

DANIELLE FISHER, IN THE SUPERIOR COURT OF PENNSYLVANIA v.

A.O. SMITH HARVESTORE PRODUCTS, INC.; A.O. SMITH CORPORATION; A.O. SMITH (HARVESTORE PRODUCTS); HARVESTORE SYSTEMS T/D/B/A HARVESTORE; COLUMBIAN TEC TANK; CST INDUSTRIES, INC.; AND PENN JERSEY PRODUCTS, INC.,

APPEAL OF: CST INDUSTRIES, INC.,

Appellant No. 727 EDA 2013

Appeal from the Order Entered February 8, 2013 In the Court of Common Pleas of Bucks County Civil Division at No(s): 2011-03913

A.O. SMITH HARVESTORE PRODUCTS, INC.; A.O. SMITH CORPORATION; A.O. SMITH (HARVESTORE PRODUCTS); HARVESTORE COLUMBIAN TEC TANK, CST INDUSTRIES, INC., PENN JERSEY PRODUCTS, INC., AND LEONARD R. KRESGE, INDIVIDUALLY AND D/B/A PROVIDA DAIRY FARM,

Appellant No. 1960 EDA 2013

Appeal from the Order June 13, 2013 In the Court of Common Pleas of Bucks County Civil Division at No(s): 2011-03913 J-E01002-16

A.O. SMITH HARVESTORE PRODUCTS, INC.; A.O. SMITH CORPORATION; A.O. SMITH (HARVESTORE PRODUCTS); HARVESTORE SYSTEMS T/D/B/A HARVESTORE, COLUMBIAN TEC TANK, CST INDUSTRIES, INC., AND PENN JERSEY PRODUCTS, INC.,

APPEAL OF: A.O. SMITH CORPORATION,

Appellant No. 2000 EDA 2013

Appeal from the Order Entered June 13, 2013 In the Court of Common Pleas of Bucks County Civil Division at No(s): 2011-03913

BEFORE: FORD ELLIOTT, P.J.E., BENDER, P.J.E., BOWES, SHOGAN, LAZARUS, MUNDY, OTT, STABILE, and DUBOW, JJ.

DISSENTING OPINION BY SHOGAN, J.: FILED AUGUST 12, 2016

Upon review of the plain language of the Asset Purchase Agreement

(“APA”) between A.O. Smith (“Smith”) and CST, Industries, Inc. (“CST”), I

cannot agree that a genuine issue of material fact exists with regard to

CST’s obligation to indemnify Smith. Thus, I respectfully dissent.

The record confirms that Smith sold the Harvestore automated

products line, including roller mills, to Recknell Industries, Ltd. in September

1996 but retained Harvestore’s liabilities, including pending or potential

litigations involving automated products manufactured before 1996.

Recknell Agreement, 9/3/96, at ¶ 3.1.

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Smith dissolved Harvestore, transferring its assets and liabilities in July

1997 to a new division of Smith, Engineered Storage Products Company

(“ESPC”). Upon acquiring the assets and liabilities of Harvestore, ESPC

entered the business of designing, manufacturing, and selling liquid and dry

bulk storage tanks. Among the liabilities ESPC acquired were those Smith

retained as part of the Recknell Agreement: pending or potential claims for

damages related to Harvestore automated products manufactured before

1996, including the roller mill at issue, which was produced in 1981.

In December 2000, pursuant to the APA, Smith sold substantially all of

ESPC’s operating assets and certain liabilities to CST. APA, 12/15/00, at

Preamble. The APA includes among the liabilities assumed by CST a

category entitled “Products Liability.” APA §§ 1.2.1, 1.5(o), 2.13, 2.22, and

Exhibits 2.13, 2.22. Itemized under that broad heading were six cases:

Item 2 involved a Harvestore silo; item 3 involved a sugar silo; item 4

involved a storage tank; item 5 involved a roller mill; item 6 involved a leaky

tank; and item 7 involved an auger. N.T. (Wagner Deposition), 9/21/12, at

108–112.

Unlike the Majority, I do not consider dispositive of the indemnification

issue ESPC’s status as a division or the fact that it is not in the roller mill

business. Pursuant to the definition of “Assumed Liabilities,” CST acquired:

the following liabilities of the Seller relating to the Division [ESPC] ...(A) the current portion of all liabilities of the Division as set forth on the face of the Closing Balance Sheet... (B) all of the Division’s obligations and liabilities arising under the

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“Contracts”... (C) all liabilities in the nature of product liability, including, without limitation, any liability for claims made for injury to person, damage to property or other damage arising from, caused by or arising out of any product designed, manufactured, assembled, installed, sold, lease or licensed, or any service rendered by the Division, prior to the Closing Date...

APA, 12/15/00, at ¶ 1.2.1 Definitions (emphasis supplied). In light of the

broad sweep of this definition, CST’s argument that it is not responsible for

Ms. Fisher’s roller mill liability because ESPC did not make the roller mill

relies on too narrow a perspective. The definition of “Assumed Liabilities”

refers to “all liabilities in the nature of product liability” and includes as a

specific example “any liability for claims . . . arising out of any product . . .

designed, manufactured, assembled, installed, sold, lease or licensed . . . by

the Division, prior to the Closing Date.” APA, 12/15/00, ¶ 1.2.1. Inclusion

in the definition of the specific example of product liability claims related to

an ESPC product or service does not negate the general reference to “all

liabilities in the nature of product liability,” which would include those

involving roller mills and augers.

In short, the plain language of the APA indicates that CST was

acquiring from ESPC the broad category of product-liability-based liabilities,

not liabilities based on specific products, i.e., tanks, silos, augers, or roller

mills. As the trial court concluded, the APA’s language “indicates the parties’

intent to transfer product liability cases, as a group, to CST.” Trial Court

Opinion, 10/1/13, at 7. Moreover, as the Majority implies, by “carv[ing]

Exhibit 2.22—the only reference to litigation involving a roller mill—out of a

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list of otherwise excluded activities,” Majority at 21, the parties intended

litigation involving a roller mill to be an included liability.

Smith’s performance pursuant to section 11.1(vi) of the APA supports

this interpretation. As the trial court explained, that section obligated Smith

“to cover any litigation liability assumed by CST within the first three years

of the contract date.” Trial Court Opinion, 10/1/13, at 8–9 (underscore in

original; citing APA, 12/15/11, § 11.1(vi)). Smith paid damages out of its

reserves to settle two of the itemized liabilities before December 15, 2003:

Smith, which involved a Harverstore roller mill, and Woods, which involved

a Harvestore auger. “By contrast, Fisher was settled on February 4, 2013,

well outside of A.O. Smith’s reimbursement obligation period.” Id. (citing

APA § 11.7(e) (“… that in no event shall [Smith] have any liability under

Section 11.1(vi) for claims for any liability or obligation which arises more

than three years from the closing date.”)). Smith made these settlement

payments because the claims sounded in product liability, not because of the

nature of the specific product involved. Notably, although it is in the storage

tank business, CST agreed that it assumed liability for the auger case,

Woods. Smith’s Motion for Summary Judgment on Crossclaim, Exhibit 4

(Deposition of John Farris at 12:9–17, 44:15–20).

Similarly sounding in product liability, Ms. Fisher’s claim falls under the

broad coverage of section 2.22 as a liability assumed by CST. However,

because it arose after Smith’s payment obligation ended, CST was

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responsible for indemnifying Smith for payments made in settlement of Ms.

Fisher’s product liability claim. The fact that her particular claim involved a

roller mill is not relevant to CST’s obligation to indemnify Smith for product

liability claims in general.

Next, I address Smith’s two-fold claim for attorney fees and costs.

Smith first seeks recovery of the attorney fees and costs it incurred in

defending against Ms. Fisher’s action. Smith’s Substituted Response Brief at

53. Upon review of the APA, I conclude that Smith is not entitled to attorney

fees and costs related to defending against Ms. Fisher’s claim.

The dispositive language of the APA reads, “If the Indemnifying Party

[CST] fails or refuses to defend any Third Party Claim [Ms. Fisher’s claim],

the Indemnified Party [Smith] may nevertheless, at its own expense,

participate in the defense of such Third Party Claim.” APA, 12/25/00, at §

11.3 (emphasis supplied). Smith participated in the defense of Ms. Fisher’s

claim because “CST [did not have] a duty to defend.” Smith’s Substituted

Response Brief at 53. Pursuant to a strict construction of section 11.3,

therefore, Smith participated in the defense at its own expense.

Smith also seeks recovery of attorney fees it incurred in prosecuting

its indemnification claim against CST. Smith’s Substituted Response Brief at

57. Given my position on the indemnification issue, I am of the opinion that,

under Illinois law, Smith is entitled to those attorney fees.

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The “American Rule” requires specific statutory or contractual

authority to receive an award of attorney fees. Baksinski v.

Northwestern University, 595 N.E.2d 1106 (Ill. App. 1992). An indemnity

agreement is a contractual obligation whereby the indemnitor agrees to

protect an indemnitee from claims asserted against the indemnitee by a

third person. Magnus v. Lutheran General Health Care System, 601

N.E.2d 907, 915 (Ill. App. 1992). Attorney fees are recoverable pursuant to

an indemnity contract if such terms are specifically provided for within the

contract. Nalivaika v. Murphy, 458 N.E.2d 995 (Ill. App. 1983).

Section 11.2 of the APA provides for the recovery of damages

“incurred or sustained by [Smith] or any of its shareholders, officers or

directors as a result of (i) the breach of any term, provision, covenant or

agreement contained in this Agreement by [CST]; . . . (iii) [CST’s] failure to

pay, perform and discharge, when due, any of the Assumed Liabilities.”

APA, 12/15/00, at § 11.2. The parties agree that the APA definition of

“damages” includes attorney fees. CST Substituted Reply Brief at 51–52;

Smith’s Substituted Response Brief at 13.

Here, CST’s refusal to indemnify Smith was a breach under APA

section 11.2 that required Smith to file a claim to enforce its right to

indemnification. As such, I conclude that CST should be liable to Smith for

the attorney fees it incurred in prosecuting that claim.

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Based on the foregoing, I would affirm the trial court’s order granting

summary judgment to Smith on the issue of indemnification. I would affirm

in part and reverse in part the denial of Smith’s claim for attorney fees and

costs.

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