Contacts, Contracts, Indemnities.

Halyard Health v. Kimberly-Clark Corp., No. B294567 (D2d5 Jan. 2, 2020)

Back in the days before he represented Stormy Daniels, and before he got criminally charged with fraud, and long before he got arrested while in the process of getting disbarred, Michael Avenatti popped Kimberly-Clark Corp. and its spinoff Halyard with a $450 mm judgement for fraudulently representing the qualities of certain surgical gowns. The awards were later dialed way back to around $20 million, due to excessive punitive damages. The case is on appeal to the Ninth Circuit. 

This case, however, is a declaratory relief action about whether Halyard needs to indemnify Kimberly-Clark for its share of the punitive damages. That seems to be required under the terms of a “Distribution Agreement” spinning Halyard out as a separate company. But there’s questions about whether an indemnity for punis is valid. The court here doesn’t even reach the merits of that question, however, because the Court of Appeal finds that there isn’t personal jurisdiction over Kimberly-Clark.

There’s no question that personal jurisdiction here needs to be specific—i.e., the defendant’s contacts with the state need to be connected to the facts that give rise to the case. Generally, in California, that invokes a three part test: First, the defendant needs to have purposefully availed itself of California. Second, the controversy needs to arise out of the defendant’s contacts with the forum. Under the test applied in California, that means there needs to be a substantial relationship between the contacts and the claim. And third, the assertion of personal jurisdiction must “comport with fair play and substantial justice.”

The Court here finds that the analysis founders on the second point. It is true that Kimberly-Clark sells lots of stuff in California. (Which is how it got sued here.) But this case doesn’t really arise from those contacts—it arises instead from the general contractual indemnity from the Distribution Agreement, which was not California specific. Nor does the fact that California law might apply to the validity of the indemnity necessarily mean that the case arises from California contacts. The Court of Appeal ultimately holds that the fact that the obligation to be indemnified arose in California is insufficient to conclude that an action in contact over the enforceability of the indemnity agreement is substantially related to Kimberly-Clark's California contacts.

Justice Rubin dissents. His principal point of contention is that although the dispute arises out of the contract, it also arises out of the underlying obligation to be indemnified. As he sees it, “[g]iven the broad ‘substantial connection’ test used for the second prong in California, it is clear to me that a declaratory relief coverage action both arises out of, and relates to, more than the contract itself, but also to the underlying tortious activity.” He cites a number of declaratory relief cases in the insurance context in support.

Affirmed.

Indemitee Not Saddled with Underlying Plaintiff's Crappy Expert

National Union Fire Ins. Co. of Pittsburgh, PA v. Tokio Marine & Nichido Fire Ins. Co., Bo. B244899 (D2d5 Feb. 4, 2015)

Two co-defendants in a personal injury case—a manufacturer and a retailer—settled for a combined $6.6 million on the eve of trial. Now their insurers are slogging out the subrogation and indemnity issues. On a motion in limine, the trial court limited the retailer’s carrier—who was trying to establish that the product was defective—to presenting to the theories of defect presented by plaintiff’s expert in the underlying PI case. Those theories weren’t very compelling—the retailer’s expert refused to adopt them. So, after the trial court refused to permit the expert to testify about other product defect theories, it nonsuited the retailer and entered judgment in favor of the manufacturer’s insurer.

The court of appeal reverses. When an insurer settles a personal injury claim and then purses a third-party claim indemnity claim against a co-defendant’s insurer, no authority justifies limiting the indemnity plaintiff to the underlying plaintiff’s expert evidence in proving fault. The additional expert evidence was relevant to the question of comparative fault and the expert’s qualifications were unchallenged. The trial court thus erred. And its error was “undoubtedly prejudicial” because it resulted in depriving the retailer’s insurer of any evidence that the true fault was that the product was, in fact, defective.

Reversed.

A Class Action Is Community Property

Lennar Homes of Cal. v. Stella Stephens, E057280 (D4d2 Dec. 18, 2014)

Defendants in this case are a husband and wife who bought a house from the plaintiff, Lennar Homes. The husband was the named plaintiff in an unsuccessful federal class action alleging illegality in the transaction. Lennar sued both husband and wife for express contractual indemnification for the costs incurred in defending the class action, based on an indemnity clause in the purchase agreement.  Defendants brought an anti-SLAPP motion, which the trial court granted. Lennar appealed.

The court applies the familiar two-part analysis. First, it finds that the trial court correctly found that the suit arose from protected activity. That was conceded as to husband—since he is, in effect, being sued for filing a lawsuit—but not as to wife. Lennar asserts that because wife was not a party to the federal case, its claim her does not arise from her protected activity. The court doesn’t buy it. In a case where husband is asserting rights that are tied up with the family’s community property, the petitioning entailed is as much hers as it is his, notwithstanding the name on the caption. Moreover, Lennar couldn’t show a likely success on the merits because the indemnification provision was, in fact, unconscionable and thus could not be enforced.

Affirmed