Tuesday, March 08, 2011

Summary 2011 WY 40

Summary of Decision March 8, 2011

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Summaries are prepared by Law Librarians and are not official statements of the Wyoming Supreme Court

Case Name: Pennant Service Company, Inc. v. True Oil Company, LLC

Citation: 2011 WY 40

Docket Number: S 09 0234, S 09 0235

URL: http://wyomcases.courts.state.wy.us/applications/oscn/DeliverDocument.asp?CiteID=461800

Appeal from the District Court of Sweetwater County, Honorable Nena R. James, Judge

Representing Pennant Service Company, Inc.: Rex O. Arney and Orintha E. Karns of Brown, Drew & Massey, Sheridan, WY.

Representing True Oil Company, LLC: Scott P. Klosterman and Patrick J. Murphy of Williams, Porter, Day & Neville, Casper, WY.

Date of Decision: March 8, 2011

Facts: This is an appeal and a cross-appeal between True Oil Company, LLC, and Pennant Service Company, Inc., a Colorado corporation. Both companies were originally involved in a negligence action brought by Christopher Van Norman after he was injured in an oil well accident. True Oil settled out of court with Van Norman for $500,000.00. The original suit was resolved in 2005, leaving only a third-party suit that alleged breach of contract and indemnification between True Oil and Pennant. After a bench trial on those issues, the trial court found in favor of True Oil. Pennant was found to have breached the contract, and the court awarded True Oil $500,000.00 in damages.

Issues: Case 09-0234

Whether the indemnitee was entitled to damages after failing to prove its damages came as a result of the breach of contract. In the alternative, if the indemnitee is entitled to the award of damages from the indemnification clause, then: whether the trial court erred by ruling that an indemnitee’s burden of showing potential liability is met merely by the existence of the original plaintiff’s claim and whether the trial court erred by ruling that when only an indemnity issue is presented, there is no right to a jury trial.

Case 09-0235

Whether the district court abused its discretion when it failed to award attorney’s fees to True when an express contractual provision exists for such an award, and True proved its fees at trial without rebuttal from Pennant. Whether the district court abused its discretion when it failed to award prejudgment interest to True on the liquidated settlement sum of $500,000.00 and the attorney’s fees it incurred.

Holdings: Indemnity has its roots in equitable principles of restitution and unjust enrichment. A person who has been unjustly enriched at the expense of another is required to make restitution to the other. In general, the action for indemnity was premised on the desirable shifting of liability from a party who has paid damages but who should not have had to bear the entire burden alone.

Wyoming endorses the universal view that where an indemnitor declines to approve a proposed settlement or assume the burden of defense, then the indemnitee is only required to prove a potential liability to the original plaintiff in order to support a claim against the indemnitor. A showing of “potential liability” is required because the indemnitee must not be a mere volunteer who has settled the underlying claim when there was no exposure to legal liability that obligated him or her to do so. Only if the indemnitor is not given notice and an opportunity to assume responsibility for the claim must the settling indemnitee show that it was actually liable to the plaintiff. Where notice has been given to the indemnitor and the indemnitor has elected not to act to protect himself, he, in effect, consents to allow the indemnitee to act for him and will not be heard to complain about the outcome.

The indemnitee may settle for a reasonable amount and then recover that amount from the indemnitor by showing that it was not liable on any theory outside the indemnity agreement and was potentially liable on a theory covered by the agreement. If, before settlement is concluded, the indemnitor is offered a choice between approving the settlement or taking over the defense of the claim, and refuses to do either, the indemnitee can recover by showing potential liability to the original plaintiffs and need not prove actual liability.

In the present action, potential liability was established when the Van Norman complaint was amended to include a claim for vicarious liability. This conclusion was based upon much more than the mere allegation, but the showing by True Oil throughout the lawsuit that it was potentially liable. However, Pennant stipulated to the reasonableness of the settlement in this case and had to have considered the possibility of indemnification in accordance with the contract. Pennant was asked repeatedly to participate in the settlement negotiations with Van Norman, or to approve the settlement amount. Pennant did not object or respond in any manner until it stipulated to the reasonableness of the amount of the settlement. Pennant argues that “only those damages which are the natural and foreseeable result of a breach of contract are recoverable.” True Oil actually agrees with that statement, and contends that the $500,000.00 settlement payment was absolutely within the contemplation of the parties.

Pennant executed this contract which expressly states that Pennant must indemnify True Oil for settlements or judgments to Pennant’s employees arising out of Pennant’s acts or omissions. Pennant was well aware of True Oil’s vicarious liability risk, and Pennant agreed, through the contract, to indemnify True Oil for any damages resulting therefrom. Furthermore, by stipulating to the reasonableness of the $500,000.00 settlement paid by True Oil to Van Norman, Pennant supported True Oil’s “potential liability” for Pennant’s negligence.

The issue of reasonable apprehension of liability was clearly established in this instance, and that the damages in this case were proven to a reasonable degree of certainty. As evidenced by the contract, Pennant and True Oil each contemplated indemnification damages for bodily injuries when they signed. The district court’s award of $500,000.00 to True Oil is affirmed.

Although Wyoming generally subscribes to the American rule regarding the recovery of attorney’s fees, under which rule each party pays his or her own fees, a prevailing party may be reimbursed for attorney’s fees when provided for by contract or statute. However, a trial court in its discretion may properly disallow attorney’s fees altogether on the basis that such recovery would be inequitable.

An indemnity provision is interpreted in the same manner as any other contract, affording the language its plain meaning. However, Wyoming Wyo. Stat. 30-1-131 is an oil field specific anti-indemnity statute which invalidates indemnification clauses under certain circumstances. An agreement containing a provision violative of the anti-indemnity statute is not void and unenforceable in total, but only to the extent that it violates the statute. Further, indemnification is not prohibited except for the indemnitee’s own negligence. Although indemnification is not available for liability arising from negligence, reasonable attorney’s fees and costs expended in the defense of the underlying action are available to be recovered.

The district court determined the accident that injured Van Norman was caused 100% by Pennant. Thus, the indemnification provision was not a basis to be relied upon by the district court in denying True Oil’s request for attorney’s fees. It is a valid and enforceable part of the agreement. Relieving True Oil of any negligence, but then denying its attorney’s fees in defending itself against Pennant was an abuse of discretion by the district court. True Oil is thus entitled to its attorney’s fees incurred in defending the claims associated to this case. However, nothing in the clause suggests that it provides for the recovery of legal expenses incurred in establishing the right to indemnity. Accordingly, the trial court did not abuse its discretion when it determined that True Oil was not entitled to attorney’s fees incurred pursuing those claims.

Prejudgment interest is an accepted form of relief in Wyoming where the claim is “liquidated,” which is defined as one that is readily computable by basic mathematical calculation. The general principle is that he who retains money which he ought to pay to another should be charged interest upon it. The successful claimant is compensated for the lost “use value” of the money owed. That is, an award of prejudgment interest is in the nature of preventing the unjust enrichment of the defendant who has wrongfully delayed payment.

True Oil paid $500,000.00 to Christopher Van Norman to settle all claims asserted against it by him. The amount sought to be recovered was a sum certain of which Pennant had notice prior to the trial court’s decision. Both parties were well aware of the settlement amount between True Oil and Van Norman, as was the court. The $500,000.00 sum awarded by the court was a liquidated sum. Given the circumstances present in this case, the trial court’s ruling that this was not an appropriate case for prejudgment interest is reversed.

Pennant breached its contract with True Oil, and the court’s award of $500,000.00 to True Oil is affirmed. Regarding attorney’s fees, the trial court was half right in its decision. Reversing the trial court, True Oil is entitled to its attorney’s fees incurred in defending the negligence claims associated with case. However, the court’s ruling that True Oil is not entitled to attorney’s fees incurred asserting its indemnity claims is affirmed. Finally, the trial court’s ruling that this was not an appropriate case for prejudgment interest is reversed.

J. Hill delivered the opinion for the court.

J. Burke concurred in part and dissented in part. The district court’s denial of True’s claim for attorney fees incurred prior to the filing of the amended complaint should be affirmed. True was being sued solely for its own negligence. Any agreement to indemnify True for its own negligence was void pursuant to Wyo. Stat. 30-1-131(a)(iii) (2009). The “freedom to contract” is restricted by Wyo. Stat. 30-1-131, which specifically provides that agreements to indemnify an entity for its own negligence are against public policy and are void and unenforceable.

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