Byron Jackson Co. v. Woods

California Court of Appeal Nov 29, 1940 No. Civ. 11172Published

Before: Knight

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Holding. The court held that an indemnitee cannot recover legal expenses from an indemnitor when those expenses were incurred defending against claims arising from the indemnitee's own independent wrongful acts occurring after the execution of the indemnity agreement. Furthermore, the court held that the appellant failed to meet its burden of proof to apportion defense costs between covered and non-covered liabilities.

Issues

Whether an indemnity agreement covering a predecessor's business liabilities extends to independent liabilities incurred by the successor through its own post-acquisition conduct.
Whether an indemnitee is entitled to partial reimbursement of defense costs when the underlying litigation involves both covered and non-covered claims without sufficient evidence to apportion those costs.

Disposition. affirmed

Quotations verified verbatim against the opinion

“an indemnitee cannot recover against an indemnitor for counsel fees or costs incurred and voluntarily paid by him in defending a suit for damages caused by the indemnitee’s own wrongful acts.”

“whatever liability arose from its actions subsequent to the taking over of the U. S. Tool Company was its own responsibility, and cannot be said to come within the terms of the indemnity agreement.”

“in the absence of sufficient proof no apportionment of the expenses could be made.”

KNIGHT, J.

On August 10, 1928, Byron Jackson Company purchased the business and assets of the U. S. Tool Company, and as part of the sales transaction Hugh E. Stock (since deceased), W. T. Woods, O. C. Dunn, and Herbert W. Erskine, owners of more than two-thirds of the issued stock of the U. S. Tool Company, executed an indemnity agreement whereby they agreed to “indemnify and hold harmless Byron Jackson Pump Co., a Delaware corporation, of and from any and all claims or demands of whatsoever kind or nature that at any time may be made against said Byron Jackson Pump Co. by: (1) said U. S. Tool Company, (2) any of the creditors of U. S. Tool Company, (3) any person or persons having any claim or claims of whatsoever kind or nature against U. S. Tool Company, or (4) any of the stockholders of U. S. Tool Company”. Eight years later Byron Jackson Company brought the present action against Woods, Dunn, Erskine and the legal representative of the estate of

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Hugh E. Stock, deceased, to recover the sum of $4,537.36, claiming that the same was due under the terms of said agreement. Judgment was given for defendants, and plaintiff appeals.

The complaint alleged that the sum of money sued for represented the amount of expenses, including attorneys’ fees, incurred by appellant in connection with a damage suit brought by International Supply Company, a retail dealer in oil drilling tools, against appellant, respondents, the U. S. Tool Company and the Empire Steel Products Company, Inc., which suit was settled by respondents prior to trial The basis of the International suit was a large money judgment for patent infringement, which had been obtained against International on account of the sale to the trade by International of certain “rock-bit” cones used in oil drilling operations, which had been manufactured by the three companies named in the International suit and by them sold to International for resale to the trade.

The important events which led up to the filing of the International suit, and the circumstances attending the settlement thereof by respondents, were as follows: Originally these “rock-bit” cones were manufactured by the Empire company and sold to International. While these sales transactions were being carried on, and some time previous to June, 1927, the Hughes Tool Company, a manufacturer of oil drilling tools competing with the Empire company, commenced a patent infringement suit against International, charging it with the infringement of the Hughes patents in the sale of these cones. The Empire company then wrote International a letter to the effect that it would protect the latter against the results of any patent infringement litigation. Thereafter Empire sold its business to the U. S. Tool Company, which continued to manufacture said cones and sell them to International under a similar letter of guaranty. In April, 1928, the United States District Court entered a decree in the Hughes patent infringement suit, denying relief to the Hughes company and holding in effect that the cones sold by International did not infringe on the Hughes patents. The Hughes company took an appeal, and pending the appeal the U. S. Tool Company sold its business to appellant, and the indemnity agreement, which is the basis of this action, was executed. Appellant continued to operate the U. S.

Byron Jackson Co. v. Woods

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KNIGHT, J.

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