Indemnity under Oklahoma’s Products Liability Statute.

Posted on February 27, 2012 by briefer

12 O.S. §832.1 was enacted in 2004. It generally provides that manufacturers shall provide indemnity to “sellers” who are sued because they are pulled into a products liability case because they sold or distributed an allegedly defective product. The statute is somewhat reflective of the common law, and indemnity rules provided in other Oklahoma statutes.  However, §832.1 does provide that the seller need not give the manufacturer any “notice” if the pending action (and, presumably, need not make a formal indemnity demand), if the manufacturer has been named as  party to the action, or has actual notice of the action.

The statute saw its first published appellate action in Honeywell v GADA Builders, Inc., 2012 OK CIV APP 11, ___P.3d___. Plaintiff’s house was struck by lightning and destroyed by fire. Plaintiff sued the plumber and subcontractor who installed the gas distribution system. The suit was for negligence and breach of contract. In February, 2007, Plumber brought the manufacturer in on a third party petition. In May, 2007, Plaintiff filed an Amended Petition adding manufacturer as a defendant, alleging that the product was defective. In December, 2008, Plaintiff filed a Second Amended Petition, abandoning negligence allegations against all defendants and suing only on a products liability theory. Plaintiff then settled with the defendants. The plumber and contractor then sought their attorneys fees against manufacturer, based on the indemnity provisions in §832.1. The trial court granted fees from March 27, 2007, the date the manufacturer entered the case in response to the plumber’s third party claim against it.

The COCA agreed that manufacturer had a duty, under §832.1, to indemnify the plumber and contractor and to pay their attorneys fees and expenses. However, the appellate court disagreed with the trial court’s finding that fees were owed from the first date that manufacturer was brought into the suit by the plumber. The Court noted that, in March 2007, when the plumber filed their entry of appearance, the Plaintiff’s only claim against the plumber and builder was for negligence. Even though this entry was in response to a third party petition claiming an indemnity duty arising from a defective product, the case was not a “product liability action” under the statute until the Plaintiff amended to allege a defective product in May, 2007. The manufacturer had a duty to pay the plumber and contractor’s attorneys fees, but only those fees incurred after May, 2007 when the case became a “products” case. The duty to indemnify is triggered by the Plaintiff’s pleadings.

The COCA also agreed that the contractor was a “seller” as contemplated by the statute. Manufacturer had previously admitted that status. Further, contractor was a “middleman” in the chain of distribution, and was covered as a “”seller” or “distributor” under the statute.  Plaintiff contracted to build the home; contractor contracted with plumber to install the gas distribution system, which included purchase of the allegedly defective product. “Fro purposes of this statute, the builder of a house is a ‘seller’ of the products used in the construction of the house.” ¶18.

In Plaintiff’s May, 2007 amendment, Plaintiff sought damages against plumber and contractor for negligence and products liability. §832.1(A) provides there shall be no indemnity if the seller is independently negligent. However, the Plaintiff did not allege “independent” negligence against the sellers, but, rather, negligence in installing a defective product. Therefore, §832.1(A) did not apply.  Further, the “independent negligence” exception is a defense that must be proven by the manufacturer. Allegations in Plaintiff’s Petition to that effect are not sufficient. Manufacturer presented no independent evidence that would have justified a jury question on whether the plumber or contractor had committed some manner of independent negligence. ¶¶31-32. The appellate court remanded the case to the trial court to determine attorneys fees and expenses incurred after May, 2007.

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Personal Jurisdiction is Really Hard

Posted on November 28, 2010 by briefer

I really don’t think it should be. If you’re from out of state, but you mess around in Oklahoma, then you shouldn’t be surprised to end up in court in Oklahoma. Pretty simple. But its not really that simple. The rules of personal jurisdiction, both specific and general, are complex and very fact dependent. So make note of this case. Not because the result is that earth shattering or surprising, but because the case gives a mini-tutorial on personal jurisdiction.

WILLBROS USA, INC. v. CERTAIN UNDERWRITERS AT LLOYDS OF LONDON, 2009 OK CIV APP 90, 220 P.3d 1166 questions whether a London based insurance broker can be sued in Oklahoma courts. The broker had made several trips to Oklahoma, as part of the transaction, discussing business and meeting the client and broker. He exchanged emails and made calls to Oklahoma for the same purpose. The broker tried to minimize the importance and extent of these contacts, but the COCA held that there were sufficient contacts to support personal jurisdiction over the broker in Oklahoma.

Again, the result is not surprising in my mind, and the result might have been reached with a much shorter legal opinion. But the COCA chose to give a great outline of personal jurisdiction – all that stuff about minimum contacts and fair play and substantial justice. I won’t repeat it all here because I would simply be regurgitating what the COCA already wrote. Just save this case and make reference to it next time you’ve got a personal jurisdiction problem to work out.

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The Statute of Repose does not apply to negligent failure to warn of defect in the property.

Posted on November 23, 2010 by briefer

12 O.S. § 109 says:

No action in tort to recover damages

(i) for any deficiency in the design, planning, supervision or observation of construction or construction of an improvement to real property,
(ii) for injury to property, real or personal, arising out of any such deficiency, or
(iii) for injury to the person or for wrongful death arising out of any such deficiency,

shall be brought against any person owning, leasing, or in possession of such an improvement or performing or furnishing the design, planning, supervision or observation of construction or construction of such an improvement more than ten (10) years after substantial completion of such an improvement.

So what if someone trips over a step that has been in place for over ten years?  Is the property owner protected by the Statute of Repose because the “improvement” (the step) has been there for more than ten years?

The Court of Civil Appeals held that the Statute did not bar such a suit in Ruddy v Skelly, 2010 OK CIV APP 14, 231 P.3d 725.  The trial court granted summary judgment, based on the Statute of Repose.  However, the appellate court reversed holding that the plaintiff’s action was not for negligently creating a construction defect, but was for common law negligence in failing to warn of the “hidden danger” posed by the defect.  It is true that claims for negligent design and construction are barred if the construction is over ten years old (Gorton v. Mashburn, 1999 OK 100, 995 P.2d 1114), but a defendant can still face liability for failure to warn of those same defects (Abbott v. Wells, 2000 OK 75, 11 P.3d 1247).

This line of cases seems to make the Statute of Repose fairly useless for garden variety (no pun intended) premises liability cases. Most such cases are based upon the defendant’s failure to discharge his common law duty to warn of a dangerous condition on the premises. Under Ruddy and Abbott, the negligent failure to warn claim will be viable even if the negligently designed property is more than ten years old.

In Gorton the plaintiff fell on a pedestrian bridge that he claimed was built in violation of the BOCA building code.  The plaintiff’s claims were based in negligent design and construction.  The claims were not, the Court held, centered on “negligent maintenance” (and no mention is made of a claim for negligent failure to warn).  Since design and construction were the only issues in Gorton, the Court held that the Statute of Repose was applicable and barred the claim.

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Game night! Tort immunity for volunteer school sports physicians.

Posted on November 20, 2010 by briefer

New law folks.  Oklahoma has seen fit to extend liability protection to health care providers who provide volunteer services to “secondary school function[s].” The protection is limited to a provider “who renders or attempts to render care to an injured participant who is in need of immediate medical aid.” The only exception will be if the provider commits “gross negligence or willful or wanton negligence in rendering the emergency care.” It will be codified as 76 O.S. 32.1 and will apply to civil actions filed after January 1, 2011.

This might encourage some more docs to volunteer their time at their local high school games.

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Guaranty agreements are dangerous. (Credits for me, but not for thee.)

Posted on November 19, 2010 by briefer

JPMORGAN CHASE BANK, N.A. v. SPECIALTY RESTAURANTS, INC.
2010 OK 65, __P.3d__.

This case provides some tough lessons for guarantors in Oklahoma.  A restaurant borrowed $1.75 million to get started.  But the note and mortgage was not enough security so lender obtained guaranties from Kreth and Vallion.  The language of the guaranty agreements stripped the guarantors of all rights “other than actual payment and agreeing not to assert or make any claim of setoff.”  A later transaction required Vallion to execute a new guaranty agreement that waived Vallion’s right to assert any limitation defense and the benefits of any statutory provision limiting the trust’s liability including “without limitation” the provisions of sections 334, 337, 338, and 344 of Title 15 along with any right to setoff under 12 O.S. §686.

Fast forward a few years and we find he debtors defaulting on the note.  The lender foreclosed  and the property was sold at sheriff’s sale to the lender for $750,000.  The lender asked the court to grant a deficiency judgment against the restaurant, giving the restaurant credit for the fair market value of the property.  However, the lender asked the court to only give the guarantors credit for the $750,000 actually paid at the sheriff’s sale.  The lenders argued that the guarantors had waived, by their guaranty agreements, all of their rights to claim setoff.  The trial court ultimately found that the fair value of the property that had been recouped by the lender was $1,500,000 and the trial court gave that “credit” to both the restaurant and to the guarantors.  Lenders appealed.  The Court of Civil Appeals affirmed and the Supreme Court granted certiorari.

The Supreme Court disagreed.  Despite the fact that the restaurant (the original debtor) was granted a $1,500,000 credit against its debt (representing the value of the property received by the lender after the sale), the guarantors were only entitled to a $750,000 credit (the amount the lender “received” at the sheriff’s sale).  The Court held that the clear language of the guaranty agreements barred the guarantors from claiming any type of “credit” other than actual payment of the original debt.  Normally a debtor can take credit against his debt, under 12 O.S. § 686,  for the lender receiving the fair market value of the foreclosed-on property.  This credit is given  on the theory that the lender received, in foreclosure, a property with a certain fair market value, so the debtor should receive credit against the debt for that much value.  Guarantors, when they sign their guaranty agreements, may well believe that they are entitled to the same credit.  Not so, at least if their guaranty agreements contain this type of “waiver” language.

Further, the waiver language necessary to put the guarantor in that position can be fairly broad and unspecific.  The Vallion guaranty agreement contained very specific language that waived the Vallion’s right to claim credit under a whole string of statutes, including specifically 12 O.S. § 686.  However, the Kreth guaranty agreement did not specifically refer to the statutory protections being waived but simply recited that the guarantor waived “any defense given to guarantors at law or in equity other than actual payment” and the right to “assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim or setoff” even if the borrower could claim them.  Under either the more specific Vallion language, or the more general Kreth language, the Court held that the guaranty contracts were clear.  The guarantors would end up with a debt much larger than the debt owed by the original debtor.  The lender would end up with possession of a property worth $1.5 million – but still be able to chase the guarantors as if that received value did not exist.

The key to the opinion may lie in footnote 27.  The Court explains that § 686, which gives debtors the right to a credit for the fair market value of the mortgaged property, is for the debtor’s benefit and can not be waived by the debtor.  However, the statute “does not deal with the more complex, tripartite relationship of guarantor/debtor/creditor or with the rights under the guaranty agreement.”

Lesson:  Lenders have the right to drive hard bargains with guarantors.  Read closely the language of guaranty agreements and understand that you might end up owing, as guarantor, much more than the original debtor.

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