Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-00815/USCOURTS-casd-3_15-cv-00815-9/pdf.json

Nature of Suit Code: 365
Nature of Suit: Personal Injury - Product Liability
Cause of Action: 28:1441pl Removal- Product Liability

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

JESUS ROMERO, 

Plaintiff,

v.

S. SCHWAB COMPANY, INC.; RL 

CHILDRENSWEAR COMPANY, 

LLC; SYLVIA COMPANY, LLC; 

CUNY ASSOCIATES, LLC; LM 

SERVICES LLC; SAMUEL 

SCHWAB; DOUGLAS SCHWAB; 

TADD SCHWAB; and AMY OWENS,

Defendants.

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Case No. 15-CV-815-GPC-MDD

ORDER ON PLAINTIFF’S 

FINDINGS OF FACT AND 

CONCLUSIONS OF LAW ON

EXPRESS INDEMNIFICATION 

CAUSE OF ACTION IN THE 

THIRD PARTY COMPLAINT

[Dkt. No. 316.] 

A jury trial was held in this case on Plaintiff Jesus Romero’s (“Plaintiff”) first 

amended complaint (“FAC”) on January 8-24, 2018 against the Schwab Defendants.

1 

The parties left the issue of the express indemnity claim alleged in the third party 

complaint by Ralph Lauren Defendants against Schwab Defendants to be determined 

by the Court. (Dkt. No. 228.) Plaintiff filed Proposed Findings of Fact and 

 

1 Schwab Defendants include Defendants RL Childrenswear Company, LLC; S. Schwab Company, 

Inc.; Sylvia Company, LLC; Cuny Associates, LLC; LM Services, LLC; Samuel Schwab; Douglas 

Schwab; Tadd Schwab; and Amy Owens. 

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Conclusions of Law2 on the third party complaint on February 23, 2018. (Dkt. No. 

316.) On February 24, 2018, Schwab Defendants filed an opposition. (Dkt. No. 318.) 

In response to the Court’s order of February 27, 2018, Plaintiff filed a reply on March 

8, 2018. (Dkt. No. 321.) The Court makes the following findings of fact and 

conclusions of law pursuant to Rule 52 of the Federal Rule of Civil Procedure. 

Procedural Background

On April 13, 2015, the case was removed from state court. (Dkt. No. 1.) On 

August 18, 2015, Plaintiff Jesus Romero3 filed the operative first amended complaint 

(“FAC”) against Defendants Macy’s Inc., Macy=s West Stores, Inc., and Ralph Lauren 

Corporation’s (“Ralph Lauren Defendants”) and added RL Childrenswear Company, 

LLC; S. Schwab Company, Inc.; Sylvia Company, LLC; Cuny Associates, LLC; LM 

Services, LLC; Samuel Schwab; Douglas Schwab; Tadd Schwab; and Amy Owens 

(collectively the “Schwab Defendants”) as defendants. (Dkt. No. 17.) The FAC 

alleged claims against Macy Defendants and Schwab Defendants for severe burns 

suffered by Plaintiff, a minor at the time, when a shirt (“Shirt”) allegedly purchased 

at Macy=s caught fire after being exposed to a flame. The FAC asserted causes of 

action for strict products liability–manufacturing defect, design defect and failure to 

warn, negligence, breach of warranty, negligent misrepresentation and negligent 

infliction of emotional distress. (Id.) 

On April 28, 2016, the Ralph Lauren Defendants filed a third-party complaint 

against the Schwab Defendants for express indemnification, equitable 

 

2 Plaintiff filed Proposed Findings of Fact and Conclusions of Law under Federal Rule of Civil 

Procedure (“Rule”) 52. However, the Court notes it did not hold a bench trial, but instead, pursuant 

to the parties’ agreement, the Court relies on the evidence presented throughout the litigation, 

including trial, and the parties’ submission of legal arguments in their briefs. 

3 At the time of the filing of the Complaint, Plaintiff Jesus Romero, a minor at the time, filed the 

complaint by and through his Guardian ad Litem, Merida Ramos, Plaintiff’s mother. Also, when 

the FAC was filed, Jesus’ siblings, Marcos and Perla Romero, asserted a cause of action for negligent 

infliction of emotional distress based on a bystander theory. (Dkt. No. 17, FAC.) However, on 

October 13, 2016, the parties filed a joint motion to dismiss the claims of Marcos and Perla Romero. 

(Dkt. No. 95.) 

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indemnification, equitable contribution and declaratory relief. (Dkt. No. 61.) The 

cause of action for express indemnification was asserted on behalf of Ralph Lauren 

Corporation only. (Id. at 3.) On May 20, 2016, the Schwab Defendants filed an 

answer to the third-party complaint and brought a counterclaim against the Ralph 

Lauren Defendants for express indemnification, equitable indemnification, equitable 

contribution and declaratory relief. (Dkt. No. 64.)

Findings of Fact

The parties do not dispute the relevant facts at issue. On January 1, 2000, PRL 

USA, Inc. and Polo/Lauren Company, L.P., the licensors, entered into a License 

Agreement with RL Childrenswear LLC, licensee, granting it the exclusive right to 

manufacture, promote and sell apparel under the Polo/Ralph Lauren trademarks. (Dkt. 

No. 318-1, Irving Decl., Ex. A.) The License Agreement also included a design 

services agreement with Ralph Lauren’s design company, Polo Ralph Lauren 

Corporation (“RLC”). (Id. at ¶¶ 3.1-3.3.)

On May 25, 2004, RL Childrenswear, and the Seller Affiliate Group, identified 

as the Sellers, and RLC, the Buyer, entered into Asset Purchase Agreement (“APA”) 

related to the License Agreement dated January 1, 2000. (Dkt. No. 316-4, Weitz 

Decl., Ex. 12, APA.) The Seller Affiliate Group includes Defendants Sylvia 

Company, LLC, CUNY Associates, LLC, LM Services LLC, S. Schwab Company, 

Samuel Schwab, Douglas Schwab, Tadd Schwab and Amy Owens. (Id. at 194.) The 

Asset Purchase Agreement closed, and business transferred to RLC on July 2, 2004. 

(Dkt. No. 316-5, Weitz Decl., Ex. 13; id., Ex. 21, S. Schwab Depo. at 44:14-15.) 

Article X of the APA contains an indemnification provision that provides,

Obligation of the Seller and the Seller Affiliate Group to Indemnify. 

Subject to the limitations contained in Section 10.5, the Seller and the 

Seller Affiliate Group (collectively, the “Seller Indemnifying Parties”, 

jointly and severally, agree to indemnify, defend and hold harmless the 

 

4 Page numbers are based on the CM/ECF pagination. 

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Buyer (and any of its officers, directors, employees, stockholders, 

Affiliates, successors and assigns) (the “Buyer Indemnified Parties”) 

from and against any losses, claims, liabilities, damages, judgments, 

assessments, fines, costs, expenses or deficiencies (including reasonable 

fees, expenses and disbursements of attorneys, experts, personnel and 

consultants incurred by the party entitled to indemnification under this 

Article X), whether or not involving Litigation by a third party, 

(collectively, “Losses”) based upon, arising out of, due to or otherwise 

in respect of:

(a) any inaccuracy in or any breach of representation or 

warranty of the Seller contained in this Agreement or in any 

certificate delivered pursuant hereto;

(b) (i) any breach of any covenant or agreement of the Seller or 

any Affiliate of the Seller contained in this Agreement;

(c) the operation of the Business at any time during the period 

prior to and including the Closing, including the operation 

of the Business by the Prior Licensee (as defined in the 

License) (other than any Loss that constitutes an Assumed 

Liability); and

(d) any Liability of the Seller that is not an Assumed Liability, 

including without limitation, the Excluded Liabilities.

(Dkt. No. 316-4, Weitz Decl., Ex. 12, APA ¶ 10.1.) The parties dispute the 

applicability of sections (b) and (c) of the indemnification provision. 

Plaintiff filed a complaint on February 26, 2015 in state court which was 

removed to this Court on April 13, 2015. (Dkt. No. 1, Not. of Removal.) On July 30, 

2015, Ralph Lauren Defendants tendered their defense to Schwab Defendants 

pursuant to Article X. (Dkt. No. 316-20, Kawabata Decl., Ex. 1.) On December 21, 

2015, Schwab Defendants’ insurer declined to defend RLC and Macy’s asserting that 

it did not manufacture the Shirt and was not obligated to indemnify Ralph Lauren 

Defendants. (Dkt. No. 316-21, Kawabata Decl., Ex. 2; Dkt. No. 316-22, Kawabata 

Decl., Ex. 3; Dkt. No. 316-23, Kawabata Decl., Ex. 4.) 

On December 23, 2016, Plaintiff and Ralph Lauren Defendants entered into a 

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settlement agreement. (Dkt. No. 316-25, Kawabata Decl., Ex. 6.) In exchange for a 

full release and dismissal with prejudice of all claims, the Ralph Lauren Defendants 

paid Plaintiff $300,000 and assigned any indemnity and contribution rights they had 

against Schwab Defendants as alleged in Ralph Lauren Defendants’ third party 

complaint and the APA. (Id.) On June 28, 2017, the Court granted Ralph Lauren 

Defendants’ motion for determination of good faith settlement. (Dkt. No. 138.) On 

September 9, 2017, the Court granted Plaintiff and Ralph Lauren Defendants’ joint 

motion to dismiss with prejudice. (Dkt. No. 145.) 

Prior to trial, on December 29, 2017, Plaintiff, the Ralph Lauren Defendants 

and the Schwab Defendants filed a “Final Amended Joint Proposal for Resolving 

Indemnity Claims” which states that,

The Parties agree that the contractual indemnification claims should be 

severed and adjudicated, if necessary, after the jury trial of the main 

action concludes. The Parties further stipulate and agree that the Court 

may decide all factual and legal issues relating to those indemnification 

claims.

(Dkt. No. 228.) 5 

Trial began on January 8, 2018 and the remaining causes of action were strict 

products liability for manufacturing defect and design defect, negligence and breach 

of express warranty. (Dkt. No. 237, 304.) Closing arguments were held on January 

23, 2018. (Dkt. No. 301.) On January 24, 2018, the jury returned a special verdict 

that Schwab Defendants manufactured the shirt but found no liability on any of the 

causes of action. (Dkt. No. 304.) The express indemnity claim is governed by the 

indemnification provision in the asset purchase agreement between the Schwab 

Defendants and RLC dated May 25, 2004.

/ / / /

 

5 Schwab Defendants, in opposition, contend that there is no evidence to support a claim for 

contribution or equitable indemnity, an argument not addressed by Plaintiff. The Court notes that 

the parties’ joint agreement limited the Court’s ruling on the express indemnity claim. (Dkt. No. 

228.) Therefore, the Court declines to address the contribution and equitable indemnity claims. 

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Conclusions of Law

Plaintiff argues that because he demonstrated to the jury that Schwab 

Defendants manufactured the Shirt, they must indemnify him as the assignee for all 

Losses incurred by Ralph Lauren Defendants in defending and compromising 

Plaintiff’s action, as well as all costs, expenses, and reasonable attorney fees incurred 

by him in pursuing his assigned right to the claims in the third party complaint, 

including all costs, expenses, and fees incurred to prove the Subject Shirt was 

manufactured by Schwab Defendants. 

Since July 30, 2015, RLC has incurred $478,028.40 in Losses arising out of the 

litigation which includes the settlement amount of $300,000 and $178,028.40 in 

attorneys’ fees and costs. (Dkt. No. 316-19, Kawabata Decl., Exs. 6-9.) Plaintiff, 

himself, incurred in excess of $702,615.58 in attorney’s fee Losses and in excess of 

$181,515.09 in costs due to the litigation. (Dkt. No. 314-4, Weitz Decl. ¶¶ 20-25.) 

Plaintiff seeks judgment against Schwab Defendants for Losses totaling 

$1,362,159.07. (Dkt. No. 316 at 10.) 

The parties do not dispute that New York Law governs the APA as the choice 

of law clause states that “THIS AGREEMENT SHALL BE GOVERNED BY AND 

CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW 

YORK WITHOUT REGARD TO ANY CONFLICT OF LAW PRINCIPLES 

THEREOF.” (Dkt. No. 316-4, Weitz Decl., Ex. 12, APA ¶ 12.6.) 

According to Schwab Defendants, Plaintiff cannot prevail on the express

indemnity claim because Ralph Lauren Defendants did not possess any valid claims 

against them because Plaintiff’s claims did not trigger the indemnity provision of the 

APA and cites to Haynes v. Kleinewefers and Lembo Corp. 921 F.2d 453, 456 (2d 

Cir. 1990) in support. In an express indemnity claim, the contract language must 

demonstrate an “unmistakable intention” to indemnify before a court enforces such a 

provision. Id. However, Haynes dealt with whether there was an agreement to 

indemnify based on an assumption of liabilities and other obligations provision. In 

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this case, the parties specifically agreed to an indemnification provision which details 

what is covered. Contrary to Haynes, the Article X of the APA, entitled 

“INDEMNIFICATION” demonstrates the parties’ clear and “unmistakable intention” 

to indemnify. 

Next, Schwab Defendants argue that Plaintiff’s claims do not arise from 

Schwab’s operation of its clothing manufacturing business or from any liability or 

obligation under the agreement. (See Dkt. No. 316-4, Weitz Decl., Ex. 12, APA ¶ 

10.1.) They maintain that RLC, as the designer of the shirt, had primary responsibility 

of any design defect that is alleged in the FAC. However, the design defect at issue 

was based on the material makeup of the Shirt that Schwab Defendants’ allegedly 

used 90% cotton, 5% rayon and 5% nylon instead of 100% cotton. The design defect 

did not relate to the use of RLC’s logo, style of shirt, or labeling. (See Dkt. No. 321-

1, Szeto Decl., Ex. 1.) Schwab Defendants have not presented any evidence that RLC

had any input concerning the fabric make-up of the Shirt or that it was negligent for 

the material composition based on its control of the design process. 

Moreover, as pointed out by Plaintiff, the indemnification provision includes

any Losses arising out of “the operation of the Business” and any Excluded Liabilities. 

(Dkt. No. 316-4, Weitz Decl., Ex. 12, AP ¶¶ 10.1(c) & (d).) The Excluded Liabilities 

include “any product liability or product warranty with respect to any product 

manufactured, produced or sold by the Seller (or any successor), whether or not 

included in the Purchased Assets.” (Id. ¶ 2.4(j).) This case involved personal injuries 

related to a shirt that was defectively manufactured and defectively designed based on 

strict product liability, negligence and breach of express warranty. These causes of 

action fall under the indemnification provision as Excluded Liabilities.

Schwab Defendants also contend that Plaintiff cannot recover RLC’s defense 

costs or the $300,000 settlement payment because RLC did not incur those expenses 

since its liability insurer, CNA Insurance Company, funded its defense and issued the 

settlement check. They cite to Cardo v. Bd of Managers, Jefferson Village Condo, 67 

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A.D.3d 945 (N.Y. App. Div. 2009) in support. Plaintiff disagrees.

Cardo involved an award of attorney’s fees as provided in the condominium’s 

by-laws. Id. at 945-46. The issue on appeal was not the order granting an award of 

reasonable attorney’s fees but the amount of attorney’s fee that was awarded. Id. at 

946. The legal fees were paid or would be paid by the defendant’s insurer. Id. 

Because the defendant did not actually incur any expenses of its legal representation 

and in the “absence of appropriate documentation demonstrating the defendant’s right 

to seek attorney’s fee on behalf of its insurer”, the court held that the defendant was 

not entitled to recover an award of attorney’s fee. Id. However, Cardo did not involve 

an indemnity provision.

In Centennial Contractors Enters. v. East New York Renovation Corp., 79 

A.D.3d 690, 693 (N.Y. App. Div. 2010), the appellate court held that the trial court 

did not err in awarding the plaintiff an award as well as attorney’s fees based on 

contractual indemnification even though the plaintiff’s insurer paid the attorney’s fees 

of the plaintiff’s attorney. Id. at 691, 693. The court noted that the contract obligated 

the defendants to indemnify and hold the plaintiff harmless from all causes of action, 

costs and attorney’s fees relating to the project and that the contractual 

indemnification provision in the DOA would take precedence in interpretation. Id. at 

693. 

Also, in U.S. Bank Nat’l Ass’n v. Dexia Real Estate Capital Markets, 12cv9412 

(PAE), 2016 WL 6996176, at *7 (S.D.N.Y. Nov. 30, 2016), the district court noted 

that New York courts grant an award of attorney’s fees even if those fees have already 

been paid by an insurer because of the “need to avoid a windfall for the losing party, 

freeing it from having to pay the attorneys’ fees that it was contractually obliged to 

pay.” Id. at 7 (emphasis in original) (citing Isaacs v. Jefferson Tenants Corp., 270 

A.D.2d 95, 96 (N.Y. App. Div. 2000) (“Plaintiff may not benefit from the 

circumstance that the cooperative had an insurance policy to cover its legal costs” as 

to a proprietary lease agreement); O'Neill v. 225 E. 73 Owners Corp., 298 A.D.2d

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239, 239 (N.Y. App. Div. 2002) (“plaintiffs were not effectively relieved of their 

counsel fee obligation by reason of the payment of those fees by defendant's insurance 

carrier” as to proprietary lease agreement)). Based on these cases, the Court does not 

find Schwab Defendants’ argument persuasive.6

Next, Schwab Defendants argue that even if they are required to reimburse 

Ralph Lauren’s defense and settlement costs, they should be entitled to a proportionate 

discount for amounts attributable to defending and settling the claims against Macy’s 

since it had no contractual relationship with Schwab Defendants. Plaintiff argues that 

Schwab Defendants are not entitled to an offset because they were obligated to protect 

both RLC and Macy’s pursuant to the terms of their purchase orders, from any 

expenses related to Plaintiff’s claims. (See Dkt. No. 316-9, Weitz Decl., Ex. 17, 

General Terms and Conditions of Purchase Orders, § 13 (“Indemnification”).) 

Plaintiff does not explain specifically how the terms of the purchase orders obligated 

Schwab Defendants to protect Macy’s. Instead, the Court notes that neither party has 

provided any legal support for their argument nor assessed the proportionate discount 

that would apply to the claims against Macy’s. It would appear that the attorney’s 

fees expended to defend RLC would have necessarily required the same amount of 

work with or without Macy’s. Schwab Defendants have not demonstrated that they 

are entitled to an offset concerning the settlement as to Macy’s.

Lastly, Schwab Defendant argue that Plaintiff has no right to recover any of his 

own attorney’s fees and costs because Plaintiff has only those claims that RLC could 

have brought and Plaintiff has not established that RLC had a right to recover 

Plaintiff’s attorney’s fees from the Schwab Defendants. According to Plaintiff, 

because Schwab Defendants declined to fulfill their obligations under the terms of 

Article X of the APA, they are liable for the expense of the defense and compromise 

of the case including the prosecution of the third party complaint. Plaintiff argues that 

 

6 Subrogation “exists to prevent double recovery by the insured and to force the wrongdoer to bear 

the ultimate costs.” Scinta v. Kazmierczak, 59 A.D.2d 313, 316 (N.Y. App. Div. 1977). 

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because Schwab Defendants repeatedly stated that it was not providing a defense to 

RLC because it was not clear who manufactured the Shirt, it was therefore necessary 

for RLC, through Plaintiff as its assignee, to prove this. Therefore, Plaintiff is entitled 

to attorney’s fee and costs in proving who manufactured the Shirt. 

“An assignment carries with it all the rights of the assignor.” Johnson v. Cnty. 

of Fresno, 111 Cal. App. 4th 1087, 1096 (2003) (“The assignment merely transfers 

the interest of the assignor. The assignee ‘stands in the shoes' of the assignor, taking 

his rights and remedies, subject to any defenses which the obligor has against the 

assignor prior to notice of the assignment.”).7 It is a familiar principle that an assignee 

“stands in the shoes of the assignor” and also “that an assignment cannot create rights 

in the assignee not held by the assignor.” Misic v. Building Serv. Employees Health 

and Welfare Trust, 789 F.2d 1374, 1378 n. 4 (9th Cir. 1986). 

RLC settled with Plaintiff and RLC was dismissed from the case on September 

9, 2017; therefore, after that date, RLC had no liability to Plaintiff. Plaintiff was 

assigned only the rights of RLC that it had against Schwab Defendants and has not 

cited to any legal authority that the familiar principle, that the scope of an assignment 

is limited to those of the assignor, can be broadened in his case. Accordingly, 

Plaintiff’s argument that he is entitled to recover his own attorney’s fees and costs 

under the APA is without merit. 

/ / / /

/ / / /

/ / / /

/ / / /

/ / / /

/ / / /

 

7 RLC and Plaintiff’s settlement agreement assigning to Plaintiff the indemnification rights under 

the APA is governed by California law. (Dkt. No. 316-25, Kawabata Decl., Ex. 6, Sett. Agreement 

¶ 20.)

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Conclusion

Based on the above, the concludes that Plaintiff, as assignee to RLC’s 

contractual indemnification rights against Schwab Defendants alleged in the Third 

Party Complaint, is entitled to $478,028,40 which represents the Losses RLC incurred

under the APA.

8 

IT IS SO ORDERED.

Dated: March 23, 2018

 

8 The Court notes that the equitable indemnification and contribution cause of action still remain in 

the Third Party Complaint and judgment may not be entered until all claims are resolved. See Fed. 

R. Civ. P. 54. 

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