iLink Technology v. Zalinda Farms CA4/1
D064901
Cal. Ct. App.Apr 22, 2015Background
- iLink Technology (iLink) contracted to provide IT services to Zalinda Farms; the agreement contained an indemnity clause requiring Zalinda to indemnify and hold iLink harmless for claims arising out of Zalinda's use of iLink's services.
- Zalinda separately contracted with Wilkins to develop custom software; disputes arose over Wilkins's work and invoices, and Zalinda sought iLink's evaluation and recommendations.
- Wilkins sued Zalinda, Christian Zaleschuk, iLink, and iLink's officer Korn for breach of contract and interference; iLink tendered defense to Zalinda, which declined, so iLink defended itself and incurred fees.
- The Wilkins action settled on the record: Zalinda and Christian agreed to pay most damages, iLink/Korn paid a smaller sum, and the court-recorded settlement included the statement "the parties waive all claims against each other."
- After settlement iLink sued Zalinda and Victor for breach of contract and indemnity seeking reimbursement of defense costs and settlement payment; the trial court ruled for Zalinda, finding the settlement waived iLink's claims and the indemnity clause ambiguous.
- On appeal, the court affirmed, holding iLink waived its indemnity claim by agreeing to the broad on-the-record waiver when settling the Wilkins lawsuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether iLink waived its right to seek indemnity by agreeing to the settlement language "the parties waive all claims against each other" | iLink: waiver was meant only to resolve Wilkins's claims; iLink had preserved its right to later seek indemnity and did not file a cross-complaint | Zalinda: waiver language was broad and extinguished all claims among the settling parties, including iLink's indemnity claim | Held: waiver was broad and unambiguous on its face; iLink waived its indemnity claim by agreeing to the settlement on the record |
| Whether iLink's failure to file a cross-complaint at the time of settlement preserves indemnity claim | iLink: it never asserted indemnity in the Wilkins action and had an earlier agreement not to oppose a later cross-complaint | Zalinda: iLink knew of the claim, had opportunity to preserve it on the record, and did not do so | Held: iLink was aware of the indemnity claim and its silence when the on-the-record waiver was read meant it waived that claim |
| Whether a pre-settlement letter promising not to oppose a future cross-complaint carved out indemnity from the waiver | iLink: letter memorialized agreement that Zalinda would not oppose later filing of indemnity cross-complaint | Zalinda: letter only promised not to oppose a request for leave to file; it did not guarantee preservation of indemnity post-settlement | Held: letter did not create a reservation that excluded indemnity from the settlement waiver |
| Whether Peck precludes waiver of contractual indemnity by settlement | iLink: Peck held a good-faith settlement does not extinguish contractual indemnity | Zalinda: Peck is distinguishable because here the indemnity claimant (iLink) was a settling party who failed to preserve the claim | Held: Peck is inapplicable; its facts differ and do not revive iLink's waived claim |
Key Cases Cited
- Weddington Productions, Inc. v. Flick, 60 Cal.App.4th 793 (1998) (settlement agreements are contracts governed by contract principles)
- Bank of the West v. Superior Court, 2 Cal.4th 1254 (1992) (contract interpretation aims to effectuate parties' mutual intent)
- Morgan v. City of Los Angeles Bd. of Pension Comrs., 85 Cal.App.4th 836 (2000) (de novo review of contract interpretation unless extrinsic evidence credibility is at issue)
- People v. Shelton, 37 Cal.4th 759 (2006) (use of extrinsic evidence to ascertain objective manifestations of intent)
- Winograd v. American Broadcasting Co., 68 Cal.App.4th 624 (1998) (contract interpretation based on what reasonable person would understand)
- Oceanside 84, Ltd. v. Fidelity Federal Bank, 56 Cal.App.4th 1441 (1997) (if contract language is not reasonably susceptible to an asserted interpretation, that interpretation fails)
- C.L. Peck Contractors v. Superior Court, 159 Cal.App.3d 828 (1984) (good-faith settlement does not necessarily extinguish contractual indemnity between settling and nonsettling parties; distinguished on the facts here)