Ruling has ramifications

A RULING by the Supreme Court of Texas in a $4.1 million products-liability lawsuit against Houston-based RKI Inc likely will change the landscape for truck-equipment manufacturers in that state — and possibly influence the way the issue is viewed in other states.

In General Motors Corp and Rawson-Koenig Inc v Hudiburg Chevrolet Inc, et al, #03-0987, the court unanimously dismissed a major claim against RKI — which was known as Rawson-Koenig Inc until 2001 — ruling that the Texas Legislature never intended for “innocent manufacturers” of non-defective parts to have any duty to indemnify customers who assemble a defective end product.

“This represents one of the most decisive opinions ever issued on the liability issues that component-parts manufacturers in Texas deal with every day they're in business,” says J Michael Colpoys, lead trial counsel for RKI and a partner in Dallas' Vial, Hamilton, Koch & Knox LLP. “We believe this ruling draws a bright line between who is and who isn't liable in claims involving manufacturers of component parts.”

James A “Sandy” McCorquodale, who argued the case for RKI before the Supreme Court, says he thinks the ruling could help draw new business to Texas.

“Texas is home to a thriving industry of component-parts manufacturers, and this well-reasoned opinion only strengthens their ability to produce and sell their goods without fear of costly and unnecessary litigation,” he says of the March 24 ruling. “It is our hope that this decision will encourage even more companies to make Texas their home.”

Colpoys, while noting that the case is still pending before the Supreme Court of Texas — a final ruling is expected by September on Hudiburg's motion for rehearing — says the effect could extend far beyond the borders of the nation's second-largest state.

“It affects the rest of the country because Texas has been somewhat of a leader in the past 10 years in product-liability law, initially for the worse for manufacturers,” he says. “Now we're seeing some change, and we're seeing some benefit as a protection for manufacturers.”

For RKI, it was the culmination of an eight-year battle that started after the plaintiffs settled with Hudiburg and GM in June 1998.

“We've struggled with this case, and our insurance company has spend considerable money over the period of many years to try to come out with a favorable result,” President Tom Rawson says. “I would hope it has some precedent, but it hasn't come without a cost.

“This may be one small step for man — as opposed to one giant leap for mankind — from my perspective. It's a long journey to get any kind of reasonableness built back into the American legal system, but it's certainly not a bad thing.”

The history

RKI, founded in 1911 by the Koenig family as a blacksmith shop and joined by Rawson Industries Inc in a 1987 merger, was sued by Hudiburg, of Midwest City, Oklahoma. Hudiburg had contracted with B&M Truck Equipment Inc of Dallas, the final-stage manufacturer, to use an RKI truck body and a GM cab chassis to assemble a completed truck that was involved in a September 1995 accident that killed one man and injured another in Van Zandt County, Texas.

Robert Seaton was driving a 1987 one-ton truck and trailer on Interstate 20 east of Dallas when he was struck from behind by another vehicle. The truck and trailer crossed the median and collided with an oncoming 3/4-ton pickup driven by Ronald Anderson. The trailer broke away from Seaton's truck, and its body and chassis separated pulling apart the truck's dual-fuel tanks' filler systems and spilling fuel. In the ensuing fire, Seaton was injured and Anderson was killed.

Seaton's truck had been sold new nine years earlier by Hudiburg and consisted of a drivable chassis (including the fuel system) manufactured by GM and an attached body manufactured by RKI. Hudiburg hired B&M Truck Equipment, an approved Rawson-Koenig dealer, to assemble the body, which was sold in pieces as a “knock-down” kit, and attach it to the chassis to make the finished vehicle.

Seaton and his wife and Anderson's statutory beneficiaries sued Hudiburg and GM, alleging that the 1987 pickup “was originally designed, manufactured, and sold” by GM, that it was “distributed and sold” by Hudiburg, that it “had installed on it a service body, which was installed by or at the direction of” Hudiburg, and that “at the time the subject motor vehicle was designed, manufactured, and sold by (GM and Hudiburg), the vehicle, including its fuel system was defective and unreasonably dangerous.”

The plaintiffs did not sue RKI or make any other reference in their pleadings to the body RKI manufactured. Hudiburg, however, asserted cross-claims for contribution and indemnity against RKI as a responsible third party.

Hudiburg and GM each settled with the plaintiffs for undisclosed amounts, expressly reserving Hudiburg's right to seek indemnity from GM and RKI. Hudiburg then brought this suit against GM, RKI, and B&M for indemnity under section 82.002 of the Texas Civil Practice and Remedies Code and the common law. Hudiburg sought to recover $4.1 million in settlement costs, expenses, attorney fees, and interest, plus the expenses of this action. B&M filed for bankruptcy and was no longer a solvent defendant.

GM and RKI moved for summary judgment on the grounds that Hudiburg was independently liable for the plaintiffs' injuries, and therefore not entitled to statutory or common-law indemnification. Their reasons:

  • Hudiburg hired B&M, whose service body/chassis attachments and fuel tank filler connections were defective.

  • Hudiburg failed to inspect the finished truck for defects before selling it.

  • Hudiburg sold the truck with defects.

Hudiburg responded that it was not independently liable, or at least not as a matter of law, and that even if it was partially liable, it should be entitled to partial indemnification. GM replied that the law does not allow partial indemnification.

Other points

In addition:

  • RKI contended that the plaintiffs' pleadings did not allege that its service body was defective and therefore no right to statutory indemnification against it was triggered.

  • RKI contended that a manufacturer can't, consistent with due process, be required to indemnify a seller's losses without a determination that the manufacturer's product is defective.

  • GM contended that a component-parts manufacturer cannot, consistent with due process, incur any liability for losses due to defects in a finished product unrelated to the component part, and because it had settled with the plaintiffs, the losses for which Hudiburg sought indemnity necessarily related only to Hudiburg's own conduct or RKI's service body.

Neither GM nor RKI moved for summary judgment on the grounds that its product was not defective. Hudiburg's summary judgment evidence included expert testimony by affidavit that both the chassis and the body were defective because GM supplied a metal filler neck mounting flange to attach the fuel-system filler line to the opening for it in the side of the body, and neither GM nor RKI required a breakaway connection that would have prevented the system from being compromised if the body and chassis separated, as they did.

The 191st Judicial District Court, Dallas County, granted both of RKI's motions in their entirety and entered a final judgment in favor of RKI, and also did the same for GM.

Hudiburg appealed the judgment to the Court of Appeals for the Fifth District of Texas (Dallas), which in 2003 reversed the judgment of the trial court because: “although the summary judgment evidence established that the bed-chassis separation caused the plaintiffs' injuries, it did not also establish that the separation would not have occurred but for the faulty attachment of the body and chassis, a prerequisite to Hudiburg's independent liability on any theory; the plaintiffs' pleadings may reasonably be construed to include a claim that the service body manufactured by (RKI) was defective; until Rawson-Koenig is held liable for indemnification, its due process claim is premature; and absent proof that GM would be required to indemnify Hudiburg for losses not attributable to GM's chassis, GM's due process claim failed.”

The Supreme Court had jurisdiction over the appeal under Texas Government Code 22.001(a)(3) because the case involved the construction of a statute, Chapter 82 of the Texas Civil Practice and Remedies Code, necessary to the determination of the case.

Chapter 82 interpretation

In a “Brief on the Merits of Petitioner Rawson-Koenig, Inc,” McCorquodale argued, “Chapter 82 of the Civil Practice and Remedies Code grants sellers of products a limited statutory right of indemnity against manufacturers. Chapter 82 applies to manufacturers of a product alleged to have been defective by a plaintiff in a products-liability action against the seller. If the product alleged to be defective in the products-liability action against the seller is an assembly the seller has caused to be made from component parts, can the seller seek indemnity under Chapter 82 from one or more of the component part suppliers whose individual component parts have not been specifically alleged to be defective in the products-liability action against the seller?

“Here, the Court of Appeals erred (a) in concluding that a seller can determine for itself which, if any, of the component part manufacturers to seek indemnity from under Chapter 82 can “bring a claim for indemnity (under Chapter 82) even when a product or component part or manufacturer has not been identified by name” in the products liability action against the seller; and (b) in applying this conclusion to reverse the trial court's grant of summary judgment in favor of Rawson-Koenig. Hudiburg is not entitled to statutory indemnification from Rawson-Koenig under Chapter 82 because the plaintiffs' pleadings in the products liability action against Hudiburg did not expressly allege any defect in Rawson-Koenig's product.

“The Court of Appeals erred in reversing the trial court's grant of summary judgment in favor of Rawson-Koenig because Rawson-Koenig conclusively established as a matter of law that Hudiburg is independently liable for the damages to the underlying plaintiffs and therefore is not entitled to indemnity.”

The Supreme Court reversed the Court of Appeals' decision, dismissing Hudiberg's Chapter 82 indemnification claim against RKI, but not for GM. In delivering the opinion of the court, Justice Nathan L Hecht wrote:

“The manufacturer of a component product that is not defective, who is innocent of any culpable conduct such as negligence, but who nevertheless owes a duty to indemnify under section 82.002, is also a seller of the component to whom that same duty may be owed in return by the assembler of the finished product, and those duties may offset one another.

“A product manufacturer has a statutory duty to indemnify a seller only if a claimant alleges that the product is defective, and an allegation of a defective finished product includes a component only if the allegation can fairly be read as being directed to the component as well.

“A seller may be ‘independently liable’ within the meaning of section 82.002, and therefore not entitled to statutory indemnity, if its acts or omissions independent of any defect in the manufactured product cause injury, even if a claimant cannot recover against the seller.

“A product manufacturer's statutory duty to indemnify a seller does not depend on proof of a product defect.”

Hecht summarized: “To allow a finished-product manufacturer to shift the burden of products-liability litigation to component-product manufacturers whose products are unrelated to any allegations of defect would certainly work an injustice.”

Colpoys concurs.

“Texas was unique when it created the Chapter 82 statute,” he says. “It really was an expansion of indemnity in favor of retail facilities. I think the application in this case and some other cases by some of the parties was inappropriate. It makes sense that if I make something and put it all together in one neat package and I sell it at the retailer, and they don't do anything to it, then that manufacturer probably should have some exposure.

“But if, like in this situation, I make a service body and somebody makes the ignition switch or the hubcap, and the ignition switch or the hubcap have nothing to do with the accident, the way this statute had been interpreted may have created a liability for that hubcap manufacturer or that ignition manufacturer. It really didn't make sense because it really was somebody taking these different parts and creating a new product. That's what happens a lot of times with these incomplete vehicles. When you have a cab chassis, it's not a completed vehicle until you put the two pieces together. You can't even register it under federal statutes.”

In addition, Hecht offered this opinion:

“If B&M's faulty assembly of the truck caused Seaton's injuries and Anderson's death, that fault was attributable to Hudiburg, who arranged for B&M to assemble the truck, and precludes indemnity.”

Colpoys said this case also has ramifications for dealers and final-stage manufacturers.

“If you buy an off-the-shelf RKI service body and an off-the-shelf GM cab chassis, and there's nothing inherently wrong with either one, but you put them together improperly, as the completed-vehicle manufacturer you're going to have exposure,” he says. “And you're not going to be able to pass it back off on the two component-parts manufacturers if their product isn't defective in and of itself. If you're a retailer and you're doing business with a company that is an assembler of those completed vehicles, and if they're not putting them together properly, you can't just walk away from your responsibility to the end user by saying, ‘Well, I just hired him as an independent contractor to put it together right.’ You have some responsibility as the retailer of the product.”

The case is still pending before the Supreme Court because Hudiburg filed a motion for rehearing that has not yet been addressed. Colpoys says the Supreme Court typically rules within three to six months of that motion being filed.

“I don't anticipate they'll change their ruling,” Colpoys says.

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