Rayco Mfg., Inc. v. Beard Equip. Co.Rayco Mfg., Inc. v. Beard Equip. Co.
CARR, Judge.
{¶1} Appellant/cross-appellee Beard Equipment Co. (“Beard“) appeals the judgment of the Wayne County Court of Common Pleas that granted summary judgment in favor of appellee/cross-appellant Rayco Manufacturing, Inc. (“Rayco“). Rayco filed a cross-appeal to the judgment denying its motion to compel. This Court reverses and remands.
I.
{¶2} Rayco is an Ohio corporation in the business of manufacturing and selling equipment that is used in the forestry and landscaping industries. Beard is a Florida corporation that sells and services equipment, such as that manufactured by Rayco. Rayco and Beard entered into a dealership agreement wherein Rayco appointed Beard as its exclusive dealer for Rayco‘s products in certain counties in Alabama, Florida, and Louisiana. The agreement contained a forum selection clause that required legal proceedings arising out of the agreement to be heard in either the federal court located in the Northern District of Ohio or, if that court had no
{¶3} Beard thereafter sold a Rayco forestry mower to Josh Akridge in Alabama. Mr. Akridge subsequently filed a complaint in the Circuit Court of Clarke County, Alabama, against Rayco; Beard; and Joe Ecker and Jody Bach1, individually and as representatives of Beard. The July 22, 2008 complaint alleged eight causes of action, including claims for breach of implied and express warranty, and respondeat superior. The breach of warranty claim (Count Four) alleged in part that “the defendants expressly in writing and impliedly under the law, warranted that the Mower was free of defects when in fact the Mower had defects and had been damaged[.]” In addition, Count Four alleged that “[t]he aforesaid breach of warranty of each of the above described defendants * * * combined and concurred, and as a proximate consequence thereof, the plaintiff was injured and damaged * * *.”
{¶4} A little more than a year and a half later, Rayco filed a complaint against Beard in the Wayne County Court of Common Pleas, in which it alleged a claim for breach of contract (relating to the dealership agreement), and a claim for declaratory judgment seeking a declaration that Beard was contractually obligated to indemnify Rayco in the Alabama litigation.
{¶5} On June 21, 2010, Beard filed both a motion to dismiss Rayco‘s complaint filed in the Wayne County Court of Common Pleas, and an answer to Rayco‘s complaint. In its motion to dismiss, Beard argued that Rayco‘s complaint failed to state a claim upon which relief can be granted because the trial court lacked subject matter jurisdiction to hear the claims which were not yet ripe. Specifically, Beard asserted that the dealer agreement included no express duty to “defend.” In the alternative, Beard moved to stay the proceedings pending resolution of the Alabama litigation. In its answer, Beard raised multiple defenses, including the failure to state a claim upon which relief can be granted and the inapplicability of the indemnity provision in the dealer agreement because Mr. Akridge alleged a manufacturing and/or design defect in the mower and, per the parties’ agreement, Rayco was responsible for manufacturing and/or design defects.
{¶6} Rayco opposed Beard‘s motion to dismiss, arguing that Beard‘s duty to indemnify Rayco constituted a duty to defend that was triggered by the filing of Mr. Akridge‘s complaint. Rayco argued that its Ohio claims were ripe because it had already been harmed by the need to pay for its own defense in Alabama. Beard replied that, because Mr. Akridge alleged that the mower was defective and Rayco had a contractual duty to indemnify Beard against defects, the indemnification provision in favor of Rayco was not yet triggered. Beard argued that indemnification implicates the right of one party to compel another to pay damages; therefore, the issue of liability must first be determined. Beard argued that Rayco‘s claims were not ripe because Rayco must be completely absolved from liability before it might be entitled to
{¶7} Beard filed a motion for reconsideration of its motions to dismiss and, alternatively, stay the proceedings. Beard asserted that the Alabama court had denied Rayco‘s motion to dismiss or decline to exercise jurisdiction. In conclusion, Beard argued: (1) Rayco‘s liability for design or manufacturing defects would preclude indemnification by Beard; (2) Rayco‘s contributory liability would preclude indemnification by Beard; and (3) Rayco would be required to indemnify Beard for any design or manufacturing defects. Because the Alabama court had not yet determined those issues, Beard argued that Rayco‘s Ohio claims were not ripe.
{¶8} Rayco opposed the motion to reconsider, arguing that the trial court could not consider materials outside the pleadings with regard to a motion to dismiss filed pursuant to
{¶10} Rayco filed a sur-reply, noting that Beard for the first time in its reply invoked
{¶11} The parties filed competing motions for summary judgment. Each side further filed a brief in opposition to the other‘s motion. On August 19, 2011, the trial court issued a judgment entry in which it granted Rayco‘s motion for summary judgment and denied Beard‘s motion for summary judgment. The court concluded that Beard breached its agreement with Rayco. It scheduled a subsequent damages hearing at which time it would determine Rayco‘s damages, specifically the reasonable costs and fees it expended in defending the Alabama litigation during the relevant time period, as well as the reasonable costs and fees it expended in
{¶12} The parties attempted to engage in discovery regarding the damages issue. Due to numerous disputes regarding discovery, the damages hearing was continued until November 1, 2011. Immediately prior to hearing, the parties argued their respective pretrial motions. The trial court orally denied Beard‘s motion to strike or preclude the testimony of Rayco‘s expert and orally denied Rayco‘s motion to compel Beard to provide its own legal bills relevant to the Ohio matter.
{¶13} On November 21, 2011, the trial court issued its judgment awarding damages to Rayco in the total amount of $116,633.55. This amount was comprised of $27,897.50 for Ohio counsel and $21,291.84 for local Alabama counsel in connection with the defense of the Alabama litigation; $60,855.50 for attorney fees and $703.91 in costs in connection with the prosecution of the Ohio indemnification case; and $5884.80 for expert witness fees in connection with its litigation of damages in the Ohio indemnification case.
{¶14} Beard filed a timely appeal the next day, raising two assignments of error. Rayco subsequently filed a timely cross-appeal, raising one assignment of error.
II.
BEARD‘S FIRST ASSIGNMENT OF ERROR
THE COURT ERRED BY DENYING BEARD‘S MOTION FOR SUMMARY JUDGMENT AND GRANTING RAYCO‘S MOTION FOR SUMMARY JUDGMENT.
{¶16} This Court reviews an award of summary judgment de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105 (1996). This Court applies the same standard as the trial court, viewing the facts in the case in the light most favorable to the non-moving party and resolving any doubt in favor of the non-moving party. Viock v. Stowe-Woodward Co., 13 Ohio App.3d 7, 12 (6th Dist.1983).
{¶17} Pursuant to
(1) No genuine issue as to any material fact remains to be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party.
Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977).
{¶18} To prevail on a motion for summary judgment, the party moving for summary judgment must be able to point to evidentiary materials that show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Dresher v. Burt, 75 Ohio St.3d 280, 293 (1996). Once a moving party satisfies its burden of supporting its motion for summary judgment with sufficient and acceptable evidence pursuant to
{¶20} The following facts are not in dispute. Rayco drafted a dealership agreement that it required all dealers who would be selling Rayco‘s products to execute. Rayco was designated as “company,” in those agreements and the seller was designated as “distributor.” Rayco and Beard entered into such an agreement that contained the following indemnification provision:
In consideration of the separate responsibilities of the parties in the manufacture and service of product, company agrees to save, indemnify and hold harmless distributor from and against all law suits, damages, cost, losses and expenses that may be made or suffered by anyone in any manner arising out of the design and manufacture of product sold to distributor except as heretofore provided; distributor agrees to save, indemnify, and hold harmless company from and against any and all claims, suits, damages, cost, losses, and expenses that may be made or suffered by anyone in any manner resulting from or arising out of the sale, rental, lease, modification, alteration, installation or servicing of the product by its employees or agents. Where both parties have been contributory causes to any claim, suit damages, cost, and losses and expenses each party shall bear and sustain its’ own damages, cost, losses, and expenses. The parties shall cooperate in the resolution or defense of such claims or litigation. (sic).
{¶21} Rayco argued in its motion for summary judgment that the parties’ indemnification provision required Beard to defend Rayco in the Alabama litigation from its inception. In its complaint, it sought a declaration to that effect, as well as a finding that Beard breached the terms of the dealership agreement by refusing to provide such a defense. The crux of its argument was that, although the indemnification provision did not expressly recite a duty to defend, defense was warranted because the provision was triggered pursuant to the pleading rule.
{¶22} As indemnity provisions are construed in the same manner as other contractual agreements, “[t]he nature of an indemnity relationship is determined by the intent of the parties as expressed by the language used.” Worth v. Aetna Cas. & Sur. Co., 32 Ohio St.3d 238, 240 (1987). The parties’ provision did not expressly include any obligation to defend.
{¶23} Rayco here relies heavily on two Ohio Supreme Court cases in support of his argument that Beard had a duty to provide Rayco‘s defense in the Alabama case. Specifically, Rayco relies on Worth, supra, in support of its argument that Beard must pay its ongoing attorney fees and costs. Worth, however, involved a contractual provision entitling certain company executives to reimbursement of attorney fees incurred, up to a certain limit, in their efforts to enforce their employment agreements after a change in company ownership. The provision did not require the company to provide the underlying defense, but rather to reimburse the executives for their legal expenses. The company understood that the future new management might not want to pay the executives the benefits for which they had contracted, and the purpose of the reimbursement provision was to prevent the executives from ultimately retaining their benefits but realizing a net loss due to legal expenses incurred in pursuing payment of those benefits. The Worth court held that “an indemnitor‘s express agreement to indemnify an indemnitee for qualified legal expenses incurred is enforceable * * *. In the event that the indemnitor wrongfully refuses to honor its obligations, the indemnitee may recover its legal expenses.” Id., 32 Ohio St.3d at 242.
{¶25} This situation is not analogous to situations involving insurance companies where the insurance company has an inherent duty to defend the insured. Preferred Mut. Ins. Co. v. Thompson, 23 Ohio St.3d 78, 80 (1986) (“An insurance company has a duty to defend an action against its insured when the allegations of the complaint against the insured bring the action within the coverage of the insured‘s policy.“). That inherent duty clearly arises “where the pleadings unequivocally bring the action within the coverage afforded by the policy,” and it may otherwise arise where the allegations “state a claim which is potentially or arguably within the policy coverage, or [where] there is some doubt as to whether a theory of recovery within the policy coverage had been pleaded[.]” Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St.3d 177, 180 (1984). In cases such as the instant one, however, the purpose of an indemnification provision is to protect one party or both from liability for the negligent acts of the other, and the parties are free to negotiate the terms and limitations of the indemnification as they may agree. E.g., Krasny-Kaplan Corp. v. Flo-Tork, Inc., 66 Ohio St.3d 75, 77 (1993) (“[A] contractual provision between the parties may shift costs of presenting a defense from one party to another - the parties have the ability to contractually require one codefendant either to supply the other‘s defense or to reimburse the other for attorney fees expended.“). Such provisions will be enforced as long as they are not void as against public policy. See, e.g., Best v. Energized Substation Serv., 9th Dist. Lorain No. 93CA005737, 1994 WL 440471 (Aug. 17, 1994). Here, Rayco and Beard did not expressly contract to provide a defense for one another.
{¶26} Nevertheless, Rayco further relies on the Ohio Supreme Court‘s decision in Allen v. Standard Oil Co., 2 Ohio St.3d 122 (1982), for the proposition that the agreement‘s language regarding indemnity for “all claims” or “suits” gave rise to Beard‘s duty to defend Rayco in the Alabama action. As an initial matter, this Court notes that the contract in Allen stated that “Carrier agrees to indemnify, save harmless, and defend Sohio from and against all and any liabilities, * * * claims, * * * of whatsoever nature * * *.” Accordingly, the parties in that case expressly agreed that the carrier would provide a defense. That is not the case in the matter before us, although the absence of language regarding defense is not dispositive.
{¶27} Rayco accurately asserts that the high court in Allen reiterated that it generally follows the pleading rule in determining whether a duty to defend exists. Allen, 2 Ohio St.3d at 124. “For purposes of the pleading rule the question is whether the allegations contained in the complaint fall within the coverage of the policy.” Id. The Allen court refused to apply the pleading rule in that particular case, however, because the parties’ agreement negated the carrier‘s duty to defend and indemnify “where the separate intervening negligence of Sohio or third persons is the proximate cause of the accident.” Id. at 123. Because that agreement premised the existence of the carrier‘s duties on the ultimate finding regarding the parties’ respective liability, the high court found the pleading rule inapposite. Id. at 125.
{¶28} Where the pleading rule is not applicable, the court may necessarily look to matters beyond the pleadings. The Allen court enunciated the applicable rule as follows: “[W]hen an indemnitor expressly agrees to indemnify an indemnitee except in certain specified instances and it is determined that the exceptions do not pertain, then the indemnitor is obligated
{¶29} Beard argued in its motion for summary judgment that Rayco‘s claims against it were not ripe for consideration. This Court agrees. To obtain a declaratory judgment, the plaintiff must prove that there exists “(1) a real controversy between the parties, (2) a controversy which is justiciable in character, and (3) a situation where speedy relief is necessary to preserve the rights of the parties.” Williams v. Akron, 54 Ohio St.2d 136, 144 (1978). “In order to be justiciable, a controversy must be ripe for review.” State ex rel. Mun. Constr. Equip. Operators’ Labor Council v. Cleveland, 113 Ohio St.3d 480, 2007-Ohio-2452, ¶ 17, quoting Keller v. Columbus, 100 Ohio St.3d 192, 2003-Ohio-5599, ¶ 26. In determining whether a claim is justiciable, courts consider “(1) whether delayed review would cause hardship to the plaintiffs; (2) whether judicial intervention would inappropriately interfere with further [] action; and (3) whether the courts would benefit from further factual development of the issues presented.” Ohio Forestry Assn., Inc. v. Sierra Club, 523 U.S. 726, 733 (1998).
{¶31} Moreover, applying Allen as requested by Rayco, it appears that this is not the case in which the pleading rule would apply. The parties’ agreement provided that Beard will indemnify Rayco against certain types of claims, that Rayco will indemnify Beard against certain other types of claims, and that each party would bear its own costs where both have been “contributory causes to any claim * * *.” Given that the indemnification provision provides for “certain specified instances” in which one party or both would be excused from indemnifying the other, it is necessary and proper to look beyond the mere allegations in the Alabama complaint. Both parties agreed that the Alabama litigation had not been resolved at the time relevant to the trial court‘s determination of the parties’ competing motions for summary judgment.
{¶33} Because Beard‘s liability has not yet been determined, it is not possible to determine whether it maintains any duty to indemnify or defend Rayco. By the same reasoning, because Rayco‘s liability has not yet been determined, it is not possible to determine whether Rayco maintains any duty to indemnify or defend Beard.
{¶34} The trial court concluded that the issue of Beard‘s obligation to indemnify Rayco after Mr. Akridge filed his second amended complaint in which he added a count alleging a claim under Alabama‘s extended manufacturer‘s liability doctrine (a product liability cause of action) could not yet be determined. It reasoned that that claim clearly implicated the provision in the parties’ agreement that Rayco indemnify Beard for any design or manufacturing claims.
{¶35} The circumstances are no different as they relate to Mr. Akridge‘s initial complaint. Although the pleading rule was inapposite in this case, even were this Court to apply it as argued by Rayco, Mr. Akridge‘s allegations in the initial complaint reasonably implicated the “certain specified instances” in the parties’ indemnification agreement which potentially exempted Beard or both parties from indemnifying the other.
{¶36} Based on this Court‘s de novo review, we conclude that the issue of indemnification was not ripe for the trial court‘s review. The trial court could not determine the rights and obligations of the parties under the indemnification provision because the Alabama litigation, which implicated the exceptions in the parties’ agreement, had not yet been resolved. The trial court recognized this in its ruling that Beard did not yet have an obligation to indemnify Rayco against the claims raised in Mr. Akridge‘s second amended complaint. Rayco has not presented any evidence that it will experience any greater hardship by waiting for the resolution of the Alabama litigation that it has already experienced by paying for its own defense. Furthermore, because Rayco‘s declaratory judgment claim was not ripe for determination, the trial court could not have granted judgment in favor of Rayco on its breach of contract claim either, because any declaration necessarily would have been inextricably intertwined with the court‘s finding regarding liability for breach of contract. Accordingly, the trial court erred in granting summary judgment in favor of Rayco. Moreover, because Rayco‘s claims were not ripe
BEARD‘S SECOND ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED IN GRANTING ATTORNEY FEES AND COSTS IN THE AMOUNT OF $116,633.55.
{¶37} Beard argues that the trial court abused its discretion in awarding attorney fees and costs in the amount of $116,633.55. Based on our resolution of Beard‘s first assignment of error, its second assignment of error has been rendered moot and we decline to address it. See
RAYCO‘S ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED IN DENYING CROSS-APPELLANT‘S MOTION TO COMPEL.
{¶38} Rayco argues that the trial court erred by denying its motion to compel Beard to produce its billing statements relevant to the indemnification case. Based on our resolution of Beard‘s first assignment of error, Rayco‘s assignment of error has been rendered moot and we decline to address it. See
III.
{¶39} Beard‘s first assignment of error is sustained. This Court declines to address Beard‘s second assignment of error and Rayco‘s sole assignment of error. The judgment of the Wayne County Court of Common Pleas is reversed and the cause remanded for further proceedings consistent with this opinion.
Judgment reversed, and cause remanded.
We order that a special mandate issue out of this Court, directing the Court of Common Pleas, County of Wayne, State of Ohio, to carry this judgment into execution. A certified copy of this journal entry shall constitute the mandate, pursuant to
Immediately upon the filing hereof, this document shall constitute the journal entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period for review shall begin to run.
Costs taxed to Appellee/Cross-Appellant.
DONNA J. CARR
FOR THE COURT
HENSAL, J. CONCURS.
BELFANCE, P. J. CONCURRING IN JUDGMENT ONLY.
{¶40} I concur in the majority‘s judgment. I agree that the trial court‘s judgment must be reversed as Beard cannot be said to have breached the indemnity clause in the dealership agreement prior to a determination of its liability to the third party. Thus, because the Alabama litigation is ongoing, the present suit is not ripe and should be dismissed without prejudice.
HARRY A. TIPPING, CHRISTOPHER A. TIPPING and HAROLD M. SCHWARZ, III, Attorneys at Law, for Appellant/Cross-Appellee.
DAVID J. WIGHAM, TIMOTHY B. PETTORINI and ANDREW P. LYCANS, Attorneys at Law, for Appellee/Cross-Appellant.