Indemnitee Drafted Pennsylvania Choice of Law Clause, Putative Indemnitor Conceded Fees Clause In Indemnity Agreement Was Reciprocal, And Apportionment Not Required Because Liability And Indemnity Issues Inextricably Intertwined.
You knew where this one was going when it opened “Appellant . . . was hoist by its own petard when the trial court enforced an unfavorable choice-of-law provision in a form contract written by [appellant].” Ouch .... and it didn’t get any better.
What happened is this: an employee sued appellant crane operator (third-party tortfeasor that can be sued outside of workers’ compensation) for worksite personal injuries, with crane operator then cross-complaining against respondent employer for indemnity based on an indemnity agreement drafted by appellant crane operator and containing a Pennsylvania choice of law clause. There also was an attorney’s fees clause in the agreement, which employer conceded during the course of the litigation was reciprocal--a good concession for employer as you shall soon see.
Above: crane operator in the yard. Jack Delano, photographer. July 1942. Decatur, Alabama. Library of Congress.
Employee settled with third-party crane operator, but crane operator then lost its indemnity cross-claim against employer (the attempt to recoup settlement moneys paid to employee from employer), based primarily on what even the trial court thought seemed harsh but was within the contractual bargain of the two parties: Pennsylvania law, which crane operator wanted in its indemnity agreement with employer, held that an employer has no liability to a third party tortfeasor such as crane operator unless the liability is provided by a contract entered into prior to the date of the worker’s injury. As the fates would have it, the indemnity contract had been signed the day of the worksite accident, not prior to it. Crane operator lost the indemnity action, and employer was awarded fully requested fees of $161,669.87 under the fee-shifting clause based on Civil Code section 1717.
The judgment was affirmed in a 3-0 decision in Maxim Crane Works, L.P. v. Tilbury Constructors, Case No. C067054 (Aug. 8, 2012) (published), which has a great discussion on contractual expectations for use by litigators in contractual disputes.
The indemnity agreement was enforced by its terms, and there was no California public policy that nullified the Pennsylvania choice of law, especially given that the crane operator was the drafter of the contract and could have inserted contractual language requiring indemnity even if the contract was signed on the day of the accident.
With respect to the fee award, employer did a smart thing by acknowledging that the fees clause was reciprocal, potentially avoiding choice of law problems under Civil Code section 1717. (See our June 11, 2008 discussion of ABF Capital Corp. duology and other decisions on the choice of law issue.) That left appellant crane operator with the argument that the trial court should have apportioned work spent on the personal injury circumstances versus simply defending on the indemnity cross-claim. The appellate court agreed with the lower court that the work was inextricably intertwined, illustrating this reality in these two ways: (1) employer was defending the indemnity cross-claim in part by arguing that employee’s claims were inflated; and (2) employer had to explore personal injury circumstances to minimize potential indemnity exposure by arguing that the employee-crane operator was unreasonable in nature.
Comments