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Pennant Service Company, Inc., A Colorado Corporation v. True Oil Company

March 8, 2011

PENNANT SERVICE COMPANY, INC., A COLORADO CORPORATION, APPELLANT (THIRD-PARTY DEFENDANT),
v.
TRUE OIL COMPANY, LLC, APPELLEE (THIRD-PARTY PLAINTIFF).
TRUE OIL COMPANY, LLC, APPELLANT (THIRD-PARTY PLAINTIFF),
v.
PENNANT SERVICE COMPANY, INC., APPELLEE (THIRD-PARTY DEFENDANT).



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

The opinion of the court was delivered by: Hill, Justice.

Before KITE, C.J., and GOLDEN, HILL, VOIGT*, and BURKE, JJ.

*Chief Justice at time of oral argument.

HILL, J., delivers the opinion of the Court; BURKE, J., files a special concurrence/dissent.

NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third. Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be made before final publication in the permanent volume.

[¶1] 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. This appeal followed.

ISSUES

Case 09-0234

[¶2] Pennant states its issues as follows:

A. Was the indemnitee entitled to damages after failing to prove its damages came as a result of the breach of contract?

B. In the alternative, if the indemnitee is entitled to the award of damages from the indemnification clause, then:

1. Did the trial court err by ruling that an indemnitee's burden of showing potential liability is met merely by the existence of the original plaintiff's claim?

2. Did the trial court err by ruling that when only an indemnity issue is presented, there is no right to a jury trial?*fn1

True Oil states the issues this way:

A. Should each of Pennant Well Service, Inc.'s, appellate arguments be resolved in favor of True Oil Company, LLC, as a result of Pennant Well Service, Inc.'s, admissions, stipulation, concession, and failure to raise these arguments in district court?

B. Did the district court correctly find that the indemnitee, True Oil Company, LLC, was entitled to $500,000.00 in breach of contract damages from indemnitor, Pennant Well Service, Inc.?

In its cross appeal, True Oil presents the following issues:

1. Did the district court abuse 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?

2. Did the district court abuse 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?

Pennant rephrases the issues as follows:

A. Whether a provision for attorney's fees contained solely in an indemnification clause allows an indemnitee to recover attorney fees for a direct negligence action where the indemnification clause is void pursuant to Wyo. Stat. Ann. § 30-1-131.

B. Whether a provision for attorney's fees contained solely in an indemnification clause allows an indemnitee to recover attorney fees in an action between the parties to the contract attempting to establish a right to indemnification.

C. Whether prejudgment interest is available on a settlement amount involving the discretion and opinion of the party seeking the interest.

D. Whether prejudgment interest is available on attorney's fees in the absence of applicable statutory authority and absence of notice.

FACTS

[¶3] On July 3, 2001, Christopher Van Norman was severely burned as the result of a flash fire on an oil and gas well owned by True Oil Company, LLC (True Oil), a Wyoming based company that owns and operates various oil and gas wells throughout Wyoming. Van Norman was employed by Pennant Service Company, Inc., a Colorado corporation that contracted with True Oil to provide the necessary equipment, as well as a four-person crew to perform "workover" operations on the True Oil well.

[¶4] Van Norman filed suit against True Oil, Halliburton, Inc., Weatherford, and eventually Pennant alleging, among other things, that ".True Oil failed to properly and safely supervise said project, and otherwise failed to implement basic and important safety precautions and/or to supervise the proper placement of equipment at the well thereby creating or failing to prevent a dangerous work environment for [Van Norman]," and that "Pennant and its employees, excluding himself, were negligent and that such negligence is imputed to True Oil under the legal theory of respondeat superior."*fn2

[¶5] True Oil filed a third-party complaint against Pennant, alleging that Pennant breached the terms of its Master Service Contract (MSC). True Oil alleged that Pennant breached the MSC by: (1) failing to provide fully trained personnel capable of operating its equipment and performing its work; (2) failing to provide a full crew to perform its work; (3) failing to perform its work in a good and workmanlike manner; (4) failing to perform its work in compliance with all state and federal laws, rules, and regulations; and

(5) failing to furnish True with insurance coverage. In its answer to True Oil's third-party complaint, Pennant admitted that it agreed to indemnify True Oil for the amount of any judgment or settlement that might be entered against True Oil which is attributable to the negligence of Pennant and its employees. Settlement discussions ensued between True Oil and Van Norman. Neither Pennant nor its insurer, Mid-Continent, participated despite invitations to do so. On December 7, 2005, True Oil accepted Van Norman's demand to settle all claims for the total sum of Five Hundred Thousand Dollars ($500,000.00). In consideration for this sum, Van Norman agreed to dismiss with prejudice all of his claims against True Oil for its own potential negligence, as well as True Oil's vicarious liability for Pennant's negligence arising out of the July 3, 2001 accident.

[¶6] Regarding the settlement between Van Norman and True Oil, Pennant signed a stipulation agreeing to the "reasonableness" of the settlement, and by 2006, all that remained of the underlying litigation was the third-party claims between True Oil and Pennant. A bench trial was held in August of 2008, after which the trial court found Pennant to have breached its contract with True Oil, and that the damages were equal to the settlement amount True Oil had paid Van Norman. Furthermore, Pennant was to pay the attorney's fees and costs from the time the amended complaint was filed alleging vicarious liability. This appeal followed.

STANDARD OF REVIEW

[¶7] We very recently stated in Hofstad v. Christie, 2010 WY 134, ¶ 7, 240 P.3d 816, 818 (Wyo. 2010):

Following a bench trial, this court reviews a district court's findings and conclusions using a clearly erroneous standard for the factual findings and a de novo standard for the conclusions of law. Piroschak v. Whelan, 2005 WY 26, ¶ 7, 106 P.3d 887, 890 (Wyo. 2005) (citing Hansuld v. Lariat Diesel Corp., 2003 WY 165, ¶ 13, 81 P.3d 215, 218 (Wyo. 2003) and Rennard v. Vollmar, 977 P.2d 1277, 1279 (Wyo. 1999)).

The factual findings of a judge are not entitled to the limited review afforded a jury verdict. While the findings are presumptively correct, the appellate court may examine all of the properly admissible evidence in the record. Due regard is given to the opportunity of the trial judge to assess the credibility of the witnesses, and our review does not entail re-weighing disputed evidence. Findings of fact will not be set aside unless they are clearly erroneous. A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.

Piroschak, ¶ 7, 106 P.3d at 890. Findings may not be set aside because we would have reached a different result. Harber v. Jensen, 2004 WY 104, ¶ 7, 97 P.3d 57, 60 (Wyo. 2004). Further, we assume that the evidence of the prevailing party below is true and give that party every reasonable inference that can fairly and reasonably be drawn from it. We do not substitute ourselves for the trial court as a finder of facts; instead, we defer to those findings unless they are unsupported by the record or erroneous as a matter of law.

Id. (quotation marks omitted) (some citations omitted).

DISCUSSION

[¶8] Pennant argues that True Oil failed to prove that its damages for indemnification were reasonably foreseeable as a result of the breach of contract by Pennant. Also, Pennant argues that True Oil presented no evidence at trial that its damages (from Pennant's alleged breaches of contract) were foreseeable and naturally flowed from the breaches of the MSC, and failed to provide any evidence that the damages were within the contemplation of the parties at the time of contracting. In response, True Oil asserts that it was not required to prove its damages because Pennant stipulated to the "reasonableness" of True Oil's settlement with the original plaintiff. True Oil maintains that even if this Court finds that the stipulation is not proof of Pennant's potential liability, the evidence shows that True Oil was potentially liable for Pennant's negligence.

[¶9] This case began when Christopher Van Norman sued True Oil, among others, for his injuries suffered at work. True Oil filed a third-party complaint against Pennant Service Company which essentially became a breach of contract action between the two companies. True Oil claimed that indemnification was the remedy for Pennant's breach of contract. Pennant was asked repeatedly to either participate in the settlement negotiations with Van Norman or to approve the settlement. However, Pennant never participated in the negotiations, but in the end stipulated to the "reasonableness" of the settlement. As the district court stated:

[T]he action between True and Pennant is not one alleging that Pennant acted negligently against True. It is instead an action based on Pennant's refusal to participate or indemnify True for its settlement with the plaintiff in a negligence action.

The issue the Court is called upon to address is as follows: Would Pennant be in breach of contract if it were not required to indemnify True Oil for True's good-faith settlement with Van Norman? The short answer to this question is yes.

[¶10] We begin our efforts to explain our more detailed answer to this question by examining the law associated with indemnity. Indemnity has its roots in equitable principles of restitution and unjust enrichment. 2 George E. Palmer, The Law of Restitution § 10.6(c) (1978). "A person who has been unjustly enriched at the expense of another is required to make restitution to the other." Restatement of Restitution § 1 (1937). Schneider Nat., Inc. v. Holland Hitch Co., 843 P.2d 561 (Wyo. 1992). The traditional basis for distinguishing indemnity from tort based liability relied on unequal fault of the actors. Id.

[Any] attempt to reconcile the numerous decisions and particularly the sweeping pronouncements often found in them, is an exercise in frustrating utility. The law as to indemnity among tortfeasors, like that of contribution among them, is in a state of development, flux and evolution, and the two, in some aspects, appear to merge[.]

1 Stuart M. Speiser, Charles F. Krause & Alfred W. Gans, The American Law of Torts § 3:26 at 518 (1983) (footnotes omitted). 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. 6 Marilyn Minzer, Jerome H. Nates, Clark D. Kimball & Diana T. Axelrod, Damages in Tort Actions § 50.21 (1989). The Restatement (Second) of Torts § 886B(1) (1979) states:

(1) If two persons are liable in tort to a third person for the same harm, and one of them discharges the liability of both, he is entitled to indemnity from the other if the other would be unjustly enriched at his expense by the discharge of the liability.

[¶11] 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." Pan American Petroleum Corp. v. Maddux Well Serv., 586 P.2d 1220, 1225 (Wyo. 1978). 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. Camp, Dresser & McKee, Inc. v. Paul N. Howard Co., 853 So. 2d 1072, 1079-80 (Fla. Dist. Ct. App. 5th Dist. 2003). 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. Id. Although this Court has not yet articulated the standard or test for proving potential liability, we are persuaded by the following description:

The threshold for "potential liability" is not high, nor should it be. 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 -- except in the very limited circumstance where the indemnitee was not, in fact, at risk, but nevertheless paid money that it would never have owed to the plaintiff . [T]he test for potential liability may be both subjective and objective, i.e., was the indemnitee ...


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