Martco, Limited Partnership v. Bruks-Klockner, Inc.

Filing

UNPUBLISHED OPINION FILED. [10-30803 Reversed and Remanded] Judge: EHJ , Judge: CDK , Judge: RHB Mandate pull date is 07/14/2011 [10-30803]

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IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit
FILED
June 23, 2011
No. 10-30803

Lyle W. Cayce
Clerk

MARTCO LIMITED PARTNERSHIP
Plaintiff
v.
BRUKS INCORPORATED
Defendant - Third Party Plaintiff - Appellant
v.
MID-SOUTH ENGINEERING COMPANY,
Third Party Defendant - Appellee

Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 2:07-CV-2002

Before JONES, Chief Judge, and KING and BARKSDALE, Circuit Judges.
PER CURIAM:*
Equipment manufacturer appeals from the district court’s dismissal with
prejudice of its third-party indemnity claim against the engineering company
that allegedly provided defective equipment designs upon which the
*

Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.

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manufacturer relied. We hold that the third-party complaint sufficiently states
a claim for legal indemnity under Louisiana law, and therefore reverse the
judgment of the district court.
I. BACKGROUND
In August 2005, Martco Limited Partnership (“Martco”) entered into a
contract with Bruks Inc. (“Bruks”) (formerly Bruks-Klöckner, Inc.) for the
manufacture and sale of belt conveyors and other equipment for Martco’s
manufacturing plant in Oakdale, Louisiana. Martco separately contracted with
Mid-South Engineering (“Mid-South”) to develop the designs and specifications
for the plant’s equipment. Bruks alleges that Mid-South, working with and on
behalf of Martco, provided to Bruks the specifications and other information
necessary for Bruks to build the conveyors and other equipment that it had
contracted to supply to Martco. There was no contract between Bruks and MidSouth.
Martco commenced a civil proceeding in Louisiana state court against
Bruks on October 26, 2007, alleging state law claims for redhibition, breach of
contract, detrimental reliance, and negligence in connection with the
manufacture and delivery of the equipment. Martco alleged that Bruks failed
to deliver and install the equipment according to schedule and, following
installation, that Martco suffered continuous problems due to defects in the
equipment, resulting in substantial lost revenues and repair costs. The suit
subsequently was removed to the United States District Court for the Western
District of Louisiana.
In September 2008, the magistrate judge granted Bruks’s motion for leave
to file a third-party complaint against Mid-South. In its third-party complaint,
Bruks expressly “denies any wrongdoing whatsoever and denies that it is liable
to Martco for anything under any theory of law,” and further alleges that any

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delay in the delivery of or defects in the equipment that Bruks supplied to
Martco was caused by Mid-South. Specifically, Bruks asserts that
Any alleged delay in delivery of the Equipment to the Plant was not
the fault of Bruks. Mid-South acting on behalf of Martco failed to
provide Bruks with the necessary information in a timely manner
which caused any delay in the delivery of the Equipment.
...
Bruks relied on the information and specifications provided by MidSouth on behalf of Martco in connection with developing, building
and/or providing the Equipment delivered to the Plant. If the
Equipment was defective and/or did not perform properly (which is
denied), such was due in whole or in part to Mid-South providing
the wrong specifications and information.
Bruks “respectfully requests that if Bruks is somehow found to be liable to
Martco at all in this case (which liability is denied), a judgment be entered in
favor of Bruks against Mid-South, ordering Mid-South to contribute to and/or
indemnify Bruks for all or part of any amounts awarded to Martco.”
On February 15, 2010, Mid-South moved to dismiss Bruks’s third-party
complaint under Federal Rule of Civil Procedure 12(b)(6) on the basis that the
complaint failed to state a claim that was cognizable under Louisiana law. The
district court granted the motion, holding that Bruks had no legal basis to assert
claims against Mid-South for either contribution or indemnity. Martco Ltd.
P’ship v. Bruks-Klöckner, Inc., 2010 WL 2265145 (W.D. La. June 1, 2010). The
district court denied Bruks’s subsequent motion for reconsideration and granted
Bruks’s request for designation of the district court’s judgment as final pursuant
to Rule 54(b). Bruks appeals.
II. DISCUSSION
We review de novo the district court’s dismissal of Bruks’s third-party
complaint under Rule 12(b)(6). Ferrer v. Chevron Corp., 484 F.3d 776, 780 (5th
Cir. 2007). To avoid dismissal under Rule 12(b)(6), “a complaint must contain

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sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’ ” Ashcroft v. Iqbal, — U.S. —, 129 S. Ct. 1937, 1949 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 570 (2007)).

“While a

complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed
factual allegations, a plaintiff’s obligation to provide the grounds of his
entitlement to relief requires more than labels and conclusions.” Twombly, 550
U.S. at 555 (citation, quotation marks, and punctuation omitted). In deciding
whether the complaint states a valid claim for relief, we accept all well-pleaded
facts as true and construe the complaint in the light most favorable to the
plaintiff. Ferrer, 484 F.3d at 780.
Bruks challenges only the district court’s ruling that it failed to state a
cognizable third-party claim against Mid-South for indemnity. Rule 14 provides
that “[a] defending party may, as third-party plaintiff, serve a summons and
complaint on a nonparty who is or may be liable to it for all or part of the claim
against it.” Fed. R. Civ. P. 14(a)(1). “The secondary or derivative liability notion
is central and thus impleader has been successfully utilized when the basis of
the third-party claim is indemnity, subrogation, contribution, express or implied
warranty, or some other theory.” 6 Charles Alan Wright, Arthur R. Miller &
Mary Kay Kane, Federal Practice & Procedure § 1446, at 415–21 (3d ed. 2010).
“Impleader also is proper only when a right to relief exists under the applicable
substantive law; if it does not, the impleader claim must be dismissed. If, for
example, the governing law does not recognize a right to contribution or
indemnity, impleader for these purposes cannot be allowed.” Id. at 435–36; see
also Gen. Dynamics Corp. v. Adams, 340 F.2d 271, 279 (5th Cir. 1965) (“[W]hile
the right to proceed in a third party action is established by Federal rule, such
right depends upon the existence of a state created liability.”).
In this diversity case, we consider whether Bruks has plausibly alleged an
entitlement to indemnity that is recognized under Louisiana law. “It has long
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been held in Louisiana that a party not actually at fault, whose liability results
from the faults of others, may recover by way of indemnity from such others.”
Bewley Furniture Co. v. Maryland Cas. Co., 285 So.2d 216, 219 (La. 1973). “The
obligation to indemnify may be express, as in a contractual provision, or may be
implied in law, even in the absence of an indemnity agreement.” Nassif v.
Sunrise Homes, Inc., 739 So.2d 183, 185 (La. 1999) (citation omitted). The
parties agree that Bruks has no contract with Mid-South, and hence no basis for
contractual indemnity. Instead, Bruks’s claim, if there is one, rests on a theory
of indemnity arising by operation of law.
Indemnity “is based on the principle that everyone is responsible for his
own wrongdoing, and if another person has been compelled to pay a judgment
which ought to have been paid by the wrongdoer, then the loss should be shifted
to the party whose negligence or tortious act caused the loss.” Id. (citing 42
C.J.S. Indemnity at § 2 (1991)). A claim for legal indemnity “arises only where
the liability of the person seeking indemnification is solely constructive or
derivative and only against one who, because of his act, has caused such
constructive liability to be imposed.” Id. (citation omitted); see also Bewley, 285
So.2d at 219 (“The cases have referred to this imposed liability variously as
technical, constructive, vicarious and

derivative.”). “Indemnity,

unlike

contribution, is not dependent upon subrogation to the right of the creditor, but
finds its basis in the concept of unjust enrichment, i.e., the party primarily at
fault is unjustly enriched when one held liable vicariously or by reason of
technical fault discharges the indebtedness.” Mayo v. Benson Chevrolet Co., 717
So.2d 1247, 1249 (La. App. 5th Cir. 1998) (citation omitted). Accordingly, a party
“who is actually negligent or actually at fault cannot recover [legal] indemnity.”
Hamway v. Braud, 838 So.2d 803, 806 (La. App. 1st Cir. 2002) (citation omitted).
A third-party claim for indemnity should be dismissed if “[t]here is no
foreseeable combination of findings, viewing the allegations of the pleadings . .
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. in the light most favorable to [the party seeking indemnity], that could result
in [that party] being cast in judgment for mere technical or passive fault.”
Threlkeld v. Haskins Law Firm, 922 F.2d 265, 267–68 (5th Cir. 1991) (citation
and internal quotation marks omitted). In determining whether a theoretical
basis for indemnity exists, “[s]crutiny is . . . directed at the nature . . . of the
fault, if any, of the party seeking indemnity.” Ducre v. Exec. Officers of Halter
Marine, Inc., 752 F.2d 976, 984–85 (5th Cir. 1985) (construing Louisiana law).
An action for indemnity will lie so long as the party’s fault “can be characterized
as merely technical or constructive,” id. at 985, and where the party “was
exposed to liability and compelled to pay damages . . . on account of the negligent
act of” the third-party defendant, Nassif, 739 So.2d at 187.
In dismissing Bruks’s third-party complaint for failure to state a claim, the
district court stated that an indemnity claim under Louisiana law “is viable only
in circumstances where the main defendant could be liable to the main plaintiff
for the third-party defendant’s conduct, such as the employer-employee or
contractor-subcontractor relationships.” Martco Ltd. P’ship, 2010 WL 2265145,
at *5.

It found that, because Mid-South is neither an employee nor

subcontractor of Bruks, “Mid-South has no relationship with Bruks that could
ever cause Bruks to be responsible to the original plaintiff, Martco, for damages
caused solely by Mid-South.” Id. at *6. The district court concluded, “Bruks’
allegations that Mid-South, under contract to Martco, prepared faulty or late
designs, and that such faulty or late designs detrimentally impacted Bruks’
production of equipment, is not a viable derivative indemnity claim under
Louisiana law. . . . [I]n order for Bruks to have true derivative liability, Bruks
would have to be directly liable to the original plaintiff for the defective designs
themselves.” Id. at *5. The district court held that Bruks could have no liability
for any fault of Mid-South in the preparation of the designs because Bruks had
no duty to Martco regarding those designs. Id. at *6.
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Bruks argues that, regardless of the absence of a relationship between
Bruks and Mid-South that would render Bruks derivatively liable for MidSouth’s negligence, Bruks may ultimately still be held liable in this case for
damages attributable to Mid-South’s exclusive fault.

Bruks argues that if

defects are found in the equipment, Bruks may be found liable to Martco for
breach of its contract, even where the defects were caused by the defective
designs, specifications and other information provided by Mid-South. Bruks
argues that it may also be held constructively liable in redhibition for damages
resulting from any defects in the equipment, because Bruks, as a manufacturer,
is deemed to have knowledge of —and may be held liable for—any defects in the
product sold, even where the defects resulted solely from Mid-South’s negligence.
See La. Civ. Code Art. 2545 (“A seller who knows that the thing he sells has a
defect but omits to declare it . . . is liable to the buyer for [damages]. . . . A seller
is deemed to know that the thing he sells has a redhibitory defect when he is a
manufacturer of that thing.”). Thus, with respect to Martco’s breach of contract
and redhibition claims, Bruks contends that it may be held constructively or
technically liable to Martco absent any “active fault” on the part of Bruks.
Bruks cites Gurtler, Hebert and Co. v. Weyland Machine Shop, Inc., 405
So.2d 660 (La. App. 4th Cir. 1981), contending that Louisiana courts have long
recognized indemnity claims analogous to the one it asserts in this case. In
Gurtler, a contractor sued a subcontractor for breach of contract, alleging that
the subcontractor furnished incomplete and unacceptable shop drawings and
failed to provide materials for the project as agreed in a purchase order,
resulting in delays and damages for the contractor.

Id. at 661.

The

subcontractor filed a third-party demand against the project’s architect, seeking
recovery from the architect in the event that the subcontractor was found liable
to the contractor and alleging that the actions of the architect were “the sole

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cause of any increase in [the] contract price as alleged in the main demand” and
“the sole cause of the delays complained of in the main demand.” Id. at 663.
The architect moved to dismiss, asserting that, because there was no
privity of contract between the subcontractor and the architect, who was an
agent solely of the project owner, the subcontractor was not entitled to recover
from the architect. Id. at 661. The Court of Appeal reversed the trial court’s
dismissal of the third-party claim, holding that the subcontractor could bring a
third-party claim against the architect for damages resulting from its negligent
failure to timely provide adequate plans and specifications, notwithstanding the
lack of privity between the subcontractor and the architect. Id. at 662.
Similarly, Bruks cites Minyard v. Curtis Products, Inc., 205 So.2d 422 (La.
1967), in which the Louisiana Supreme Court recognized a third-party claim for
indemnity brought by a subcontractor against the manufacturer of a defective
caulking compound, where the subcontractor was bound to indemnify the
general contractor for the cost of repairing the damage caused by the defective
product. The court found that the “real fault or cause of the expense or damage
incurred . . . on the project was the defective material of the manufacturer,” and
found Minyard’s liability to the general contractor to be “purely technical,
vicarious or derivative.”

Id. at 427.

The court found that there was no

contractual relationship between the subcontractor and the manufacturer, but
held that the third-party claim could proceed under the theory that the
manufacturer would be unjustly enriched were the subcontractor to discharge
a liability for which the manufacturer was actually at fault. Id. at 431–33; see
also Bewley, 285 So.2d at 220 (upholding a third-party indemnity claim by a
general contractor whose liability was “founded on obligations imposed by their
construction contract with” the plaintiff in the main demand, but which “arose
out of inherent design defects and faulty installation which were the handiwork
of” the third-party defendants).
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Bruks also cites Nassif v. Sunrise Homes, Inc., 739 So.2d 183 (La. 1999),
in which the Louisiana Supreme Court held that a builder found liable to a
homeowner in redhibition for defects in the foundation of a home could recover
in indemnity from the engineering firm that designed the faulty foundation. The
court held that the builder was “only technically or constructively liable” for the
homeowner’s damages and attorney’s fees under La. Civ. Code Art. 2545, and
that the engineering firm’s negligence in designing the foundation was the “true
fault or cause of the damage [the homeowner] sustained.” Id. at 187. The court
concluded that, because the builder “was exposed to liability and compelled to
pay damages and statutory attorney fees on account of the negligent act of [the
engineering firm], an implied contract of indemnity arose in [the builder’s] favor
to prevent an unjust enrichment.” Id.
It may be that these cases differ in their factual particulars from the case
at hand. But they suggest, at the very least, that Bruks’s complaint presents a
plausible claim for indemnity. We do not agree with the district court that
indemnity is limited solely to claims involving a contractor-subcontractor or
employer-employee-type relationship between the party seeking indemnity and
the party actually at fault. As the Louisiana Supreme Court has explained, an
indemnity claim rests “upon the general obligation to repair the damages caused
by one’s fault . . . and the moral maxim that ‘no one ought to enrich himself at
the expense of another.’ ” Bewley, 285 So.2d at 220 (citations omitted). Here,
Bruks has denied any wrongdoing in this case and has alleged that any liability
that it may have is only technical and a result of the faulty and untimely
specifications, designs and other information provided by Mid-South upon which
Bruks wholly relied in manufacturing the allegedly defective equipment for

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Martco. Bruks’s allegations state a plausible basis for indemnity sufficient to
defeat dismissal under Rule 12(b)(6).1
Mid-South argues that if Bruks is found liable to Martco in this case, it
will be because of Bruks’s actual fault, in which case Bruks will have no basis
for asserting a claim for indemnity against Mid-South.

While that may

ultimately prove to be the case, such a determination turns on factual findings
that cannot be made at the Rule 12(b)(6) stage. At this point we are concerned
only with whether Bruks has stated in its third-party complaint a plausible basis
for an entitlement to legal indemnity. We stress that our holding is narrow—we
do not decide whether, or under what circumstances, any of the theories of relief
alleged against Bruks will ultimately support an indemnity claim against MidSouth under the particular facts of this case as will be developed in the trial
court. We hold today only that Bruks’s pleadings suffice to state a third-party
claim for indemnity to survive dismissal under Rule 12(b)(6), and that the
district court erred in holding otherwise.
III. CONCLUSION
For the foregoing reasons, we REVERSE the judgment of the district court
to the extent that it dismissed with prejudice Bruks’s third-party indemnity
claim against Mid-South, and REMAND for further proceedings.

1

Finding no basis upon which Bruks could be held derivatively liable for Mid-South’s
negligence, the district court concluded that, pursuant to Louisiana’s theory of comparative
fault as set forth in La. Civ. Code arts. 2323 and 2324, Bruks has no need for indemnity
because it will “never be required to pay an amount in damages that is not proportionate to
its own actual negligence.” Martco Ltd. P’ship, 2010 WL 2265145, at *6 (citing Robinson v.
Louisiana Dock Co., 2001 WL 1175114, at *1–2 (E.D. La. Oct. 03, 2001)). Because we have
concluded that Bruks has sufficiently alleged that its liability to Martco is solely constructive
or technical, which, if proven, would entitle Bruks to shift its entire liability to Mid-South, we
find comparative fault to be inapplicable at this stage, if at all. See Nassif, 739 So.2d at 185
(“[B]ecause the party seeking indemnification must be without fault, a weighing of the relative
fault of tortfeasors has no place in the concept of indemnity.” (citing Bewley, 285 So.2d at
219)).

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