In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 02-3159

JINWOONG, INC.,

Plaintiff-Appellee,

v.

JINWOONG, INC.,

Defendant-Appellant.

____________

Appeal from the United States District Court

for the Southern District of Illinois.

No. 98 C 4194—David R. Herndon, Judge.

____________

ARGUED SEPTEMBER 11, 2002—DECIDED OCTOBER 17, 2002

____________

Before POSNER, EASTERBROOK, and EVANS, Circuit Judges.

POSNER, Circuit Judge. This appeal from a diversity damages suit between identically named parties (and no, it

is not a suit for divorce) started off on a very bad foot,

with the appellant certifying in its statement of jurisdiction that it was appealing from a final judgment and the

appellee certifying in its statement of jurisdiction that the

appellant’s statement was complete and correct. In fact

the judgment order stated merely that summary judgment

was being granted for the plaintiff, without specifying the

amount of damages that was being ordered. Such a judgment is nonfinal and therefore (with immaterial excep-
2 No. 02-3159

tions) unappealable. Liberty Mutual Ins. Co. v. Wetzel, 424

U.S. 737 (1976); Mercer v. Magnant, 40 F.3d 893, 896 (7th Cir.

1994). So we dismissed the appeal. The judge then entered

a proper judgment awarding $1.2 million to the plaintiff,

and the defendant filed a new notice of appeal.

Worse was to come. The parties as we said have the

same name, but the plaintiff is a California corporation

and the defendant a Korean corporation. (From here on

in we’ll call them “J-USA” and “J-Korea.”) The briefs

suggest that the only relation that has ever existed between them was that J-USA was the U.S. distributor of

J-Korea’s products. But we discovered at argument that

when the suit was filed, J-USA was a subsidiary of J-Korea,

though it was later sold. A suit by a subsidiary against

its parent is sufficiently outré to warrant mention by the

parties. We shall set the former relation between the parties to one side for a moment but come back to it.

The appeal arises from the following sequence of events,

which we state in simplified form. J-Korea sold a tent, together with the stakes for fastening it to the ground, to

American Recreation Products (ARP). It is unclear where JKorea got the tent that it sold ARP, but the stakes were

manufactured by an independent contractor in Korea that

J-Korea hired for this task, according to specifications that

ARP furnished it. J-Korea shipped the tent and stakes

to J-USA, which packaged them and delivered them either to ARP or to ARP’s customer, Wal-Mart. One of the

stakes had been defectively manufactured, and it broke

and caused a serious injury to a child named Amanda

Cochran. That was in 1994. Shortly afterwards, she (by her

parents) sued ARP, Wal-Mart, and a third firm (Kellwood),

the role of which in this whole business is obscure and

which therefore we shall ignore, in an Illinois state court.
No. 02-3159 3

The suit sought damages on grounds of breach of warranty, strict products liability, and negligence.

Two years into the suit (1996) Wal-Mart filed a thirdparty claim against J-USA. The Cochrans then amended

their complaint to add as a defendant Jinwoong, Inc.,

described in the amended complaint as a domestic corporation that was however “the same entity” as J-Korea. This

domestic corporation was in fact J-USA. J-Korea soon

learned that J-USA was being sued both by Wal-Mart and

by the Cochrans. But it made no effort to intervene. J-USA

says that it tried to implead J-Korea but was rebuffed by the

court; the record is muddy on this issue. Although

J-Korea did not receive formal notice of the claims against

J-USA until much later, it is apparent from an e-mail in

the record and other evidence that J-Korea, though not

impleaded or otherwise formally notified, learned about

the claim against J-USA soon after it was filed.

In 1998 the Cochrans’ suit was settled after they obtained

summary judgment against J-USA on liability. J-USA

agreed to pay them $1.2 million and then brought this

diversity suit against J-Korea, seeking indemnity for the

amount of the settlement. It is from the belatedly entered

judgment for that amount that J-Korea is appealing.

Indemnity is another name for insurance, and it is

common for the parties to a contract to provide that in

the event that one is held liable the other shall indemnify

it for the consequences. For example, contracts between

authors and publishers invariably require the author to

indemnify the publisher should the latter be held liable

for defamation contained in the author’s book. The underlying principle is that the party that is in the better position to avoid liability is given an incentive to do so by

being made responsible for the consequences. McMunn v.
4 No. 02-3159

Hertz Equipment Rental Corp., 91 F.2d 88, 91 (7th Cir. 1986);

cf. Marvin A. Chirelstein, Concepts and Case Analysis in

the Law of Contracts 10 (3d ed. 1998). But even if the parties

fail to include an indemnity provision in their contract,

if it is apparent that they would have done so had the

point occurred to them the courts will read it into their

contract unless it is disclaimed. Contract completion is a

standard function of common law courts. Harold Wright

Co. v. E.I. DuPont De Nemours & Co., 49 F.3d 308, 310

(7th Cir. 1995); Wisconsin Real Estate Investment Trust v.

Weinstein, 781 F.2d 589, 593 (7th Cir. 1986); Lisa Bernstein,

“Social Norms and Default Rules Analysis,” 3 S. Cal.

Interdisciplinary L.J. 59, 62 (1993). It reduces transaction

costs and gives the parties an approximation to what, if

they were omniscient, they would have provided respecting every possible contingency that might arise in the

course of performance of the contract.

For indemnity to be thus “implied” in a contract, the

Illinois cases require (and it is Illinois common law that

all agree governs the substantive issues in this diversity

suit) that the parties must have already had a relationship when the tort giving rise to the liability occurred—

for remember that the function of the doctrine of implied

indemnity is to fill out the parties’ contract; it is not to

create a contract where none existed. In addition, the party on whom the duty to indemnify is sought to be imposed must have been in some (though often an attenuated) sense “at fault” and the other party blameless

though liable—that is to say, only strictly liable, by virtue of

respondeat superior, implied warranty, strict products

liability, or some other legal principle that imposes liability regardless of fault. E.g., Frazer v. A.F. Munsterman, Inc.,

527 N.E.2d 1248, 1251-52 (Ill. 1988); Kerschner v. Weiss & Co.,

667 N.E.2d 1351, 1355-56 (Ill. App. 1996). Obviously the fact
No. 02-3159 5

that the party seeking indemnity was sued and settled

rather than litigating to the death does not establish blame

and thus refute his right to indemnity. Richardson v.

Chapman, 676 N.E.2d 621, 631 (Ill. 1997); Faier v. Ambrose &

Cushing, P.C., 609 N.E.2d 315, 316 (Ill. 1993).

It is by virtue of the requirement of a preexisting relation

that the parties’ failure to disclose their corporate affiliation (which did not dissolve till after this suit was brought)

so startles. Obviously they had a preexisting relation: one

was owned by the other! Yet J-Korea denied in its brief

that there was any preexisting relation, and J-USA said

only that the two companies had a supplier-distributor

relation, J-USA’s role being to import the goods from Korea

and market them in the United States. J-Korea may have

denied the relationship in an effort to deny one element

of the Illinois test for indemnity, while J-USA may have

ignored the relationship lest its existence make us think

that they were indeed “the same entity” so that the fault

of J-Korea should be attributed to J-USA. Another possibility, however, is, as we shall see, that the preexisting

relation was not the right kind from the standpoint of

indemnity doctrine. Still, the lawyers should have been

more forthcoming.

A further question about the corporate relation is

whether it renders the suit collusive. We think not. J-USA

was a subsidiary but (we were told at argument without

contradiction) not a wholly owned one, so its board

of directors had obligations to minority shareholders,

especially in a case that involved a conflict with the parent;

it may also have had obligations to creditors who by virtue

of the principle of limited liability could not look to the

parent to pay J-USA’s debts. One obligation of J-USA to its

minority shareholders was to enforce any right of indemnity

that the law gave it, or rather not to refuse to enforce it
6 No. 02-3159

merely because the right was against its parent. Cf. Sinclair

Oil Corp. v. Levien, 280 A.2d 717, 720, 723 (Del. 1971); Case v.

New York Central R.R., 204 N.E.2d 643, 645-46, 656 (N.Y.

1965); Palley v. McDonnell Co., 295 A.2d 762, 765 (Del. Ch.

1972). The obligation was honored. J-USA having dutifully

bought insurance that funded the settlement with the

Cochrans, the insurance company became the subrogee of

J-USA’s indemnity claim and is, we understand, controlling

this suit. J-Korea is insured by another insurance company,

which is controlling the defense.

So the suit is not collusive and let us move to the merits. As we said, because implied indemnity is meant to fill a

gap in the parties’ contract there has to be a preexisting relation in the nature of contract and there was here:

J-USA was J-Korea’s U.S. distributor. The corporate relation itself was not the preexisting relation that the cases

require; if the corporations though affiliated were not

dealing with each other, imposition of implied indemnity

would be an end run around limited corporate liability,

which with immaterial exceptions applies even between

affiliated corporations. That is, if A sues B, a subsidiary

of C, B would not by virtue of the parent-subsidiary

relation have a right to indemnity from C. The law does

not attribute responsibility for the torts of a subsidiary to its

parent, let alone regard the parent as the real wrongdoer and the subsidiary as liable merely under some theory of strict liability. Such a theory of indemnity would

be upside down, since C, the parent, would have been

an entirely passive participant in the events giving rise

to A’s suit against B.

There is a more difficult question concerning the relative

blame of our like-named parties. When two parties are both

at fault, even if not equally, the doctrine that per-
No. 02-3159 7

mits a readjustment of liability in accordance with relative

fault is contribution rather than indemnity. Indemnity is

for “when the cheapest way of avoiding a careless accident is for one party to take all the precautions.” Hillier v.

Southern Towing Co., 714 F.2d 714, 720 (7th Cir. 1983)

(emphasis added). J-Korea fastens on the fact that the

Cochrans’ amended complaint charged J-USA with negligence. But it is apparent from the wording of that pleading and the further proceedings in the state court that the

Cochrans had only an imperfect idea of the relation among

the different Jinwoongs—hence the “same entity” claim.

In fact, no evidence ever emerged that J-USA did anything except package and deliver the tent and its stakes,

or that the defect was introduced in, exacerbated by, or

should have been discovered and corrected in the course

of the packaging and delivery function performed by

J-USA. 

A trickier question is whether J-Korea itself was at fault,

since it did not manufacture the defective stake or provide the specs for it, but instead transmitted ARP’s specs

to an independent contractor whom J-Korea hired to manufacture it. There is evidence, however, that J-Korea culpably failed to detect its subcontractor’s failure to manufacture the stake according to the specifications furnished

J-Korea by ARP and forwarded by J-Korea to the subcontractor. The failure was culpable because J-Korea monitored and inspected the manufacture of the stakes and

also inspected and tested the stakes, and there is no suggestion that a careful inspection at either stage would

have failed to discover the defect. The failure was therefore negligence and a distributor whose only liability is

strict liability is entitled to indemnity from a negligent

supplier. Cooper Power Systems, Inc. v. Union Carbide

Chemicals & Plastics Co., Inc., 123 F.3d 675, 684 (7th Cir.
8 No. 02-3159

1997); cf. Frazer v. A.F. Munsterman, Inc., supra, 527 N.E.2d

1248, 1251-52; Kerschner v. Weiss & Co., supra, 667 N.E.2d

at 1355-56.

It is true that J-Korea’s negligence was not at issue in the

Cochrans’ suit. That case was settled, apparently on the

basis of J-USA’s strict liability. J-Korea was not a defendant

and its negligence was irrelevant. This point has been

obscured by J-Korea’s charge that J-USA took a dive in

the Cochrans’ suit knowing (or hoping) that it could lay off

the expense of settlement on J-Korea, and that J-USA

should have impleaded J-Korea or at least formally

notified it of the Cochrans’ suit and given it a chance to

defend its interest. It is here that the analogy between

contractual indemnity and formal insurance is closest.

Ordinarily an insurance company insists on controlling

the suit against its insured to protect its stake, and to

that end insists on prompt notification of the suit. All

that is set out in the insurance contract. But when as in

this case indemnity is not sought on the basis of an insurance contract or some other contract of indemnity, no

formalities are prescribed (for there is no contract to prescribe formalities and no statute to do so either, as we

are dealing with a common law doctrine) or are required.

The only question is whether the party seeking indemnity

gave the other party (or at least the other party had) a fair

opportunity to protect its interests. Due process requires

no less, but no more either. See Atlantic Richfield Co. v.

Interstate Oil Transport, 784 F.2d 106, 111, 113 (2d Cir. 1986);

Burke v. Ripp, 619 F.2d 354, 357-59 (5th Cir. 1980); Jennings

v. United States, 374 F.2d 983, 985-86 (4th Cir. 1967).

The requirements of due process were satisfied here, if

barely. J-Korea learned of Wal-Mart’s and the Cochrans’

claims against J-USA shortly after they were made, and

under Illinois law it could have intervened in the suit at
No. 02-3159 9

that time. See 735 ILCS 512-408(a); Freesen, Inc. v. County of

McLean, 659 N.E.2d 411, 414 (Ill. App. 1995); Moore v.

McDaniel, 362 N.E.2d 382, 388-89 (Ill. App. 1977); City of

Chicago v. Zik, 211 N.E.2d 545, 546 (Ill. App. 1965). That

would not have been too late to protect itself from the

consequences of what it claims to have been J-USA’s

repeated dropping of the ball in the defense of the claims.

Therefore the failure of formal notice whether by impleader or otherwise is not a defense to J-USA’s claim for

indemnity.

Although J-Korea thus cannot complain about J-USA’s

having settled the case, there is still the question whether

J-Korea was negligent or otherwise blameworthy relative

to the blameless J-USA. J-Korea’s failure to intervene in

the state suit cannot be thought to have resolved, or

excused the district court in J-USA’s indemnity suit (this

suit) from having to resolve, that issue. For had J-Korea

intervened in the Cochrans’ suit, it is doubtful, to say the

least, that the court would have determined whether

J-Korea had been negligent—its negligence would have

been irrelevant to J-USA’s or any of the other defendants’

liability to the Cochrans—unless J-USA had filed a thirdparty complaint against J-Korea. Doubtless J-USA would

have done so had J-Korea been a party; that is why J-USA

tried to implead it, to make it a party. But for reasons that

are obscure, the attempt failed and as a result J-Korea’s

culpability was not determined—in that suit. But in this

suit, J-USA presented evidence—the evidence we summarized earlier—that J-Korea had indeed been negligent

in failing to detect the defect in the tent stake. J-Korea

presented no counter evidence.

The district court did not, however, make an explicit

finding that J-Korea had been negligent. All it found was “a

qualitative distinction” between J-Korea’s conduct and
10 No. 02-3159

that of J-USA that favored the latter. “Qualitative distinction” is not a very satisfactory standard, because it

is so vague. But what the term, like the “active-passive”

formula also found in indemnity cases, is gesturing toward is the fact that, although as we said earlier indemnity is allowed only when the party against whom indemnity is sought is “at fault,” the requisite “fault” may consist

of nothing worse than having been responsible in a merely

causal sense for a product defect. Negligence is not required. A retailer or other distributor of a product who

had absolutely nothing to do with its manufacture, and

is held strictly liable to a customer injured by a defect

in the product solely by virtue of doctrines of implied

warranty or strict products liability, can still obtain indemnity from the manufacturer, on the theory that the latter,

even if not negligent, made the defective product and so in a

sense caused the defect. Texaco, Inc. v. McGrew Lumber

Co., 254 N.E.2d 584, 588 (Ill. App. 1969); Schneider National,

Inc. v. Holland Hitch Co., 843 P.2d 561, 581 (Wyo. 1992). The

manufacturer is better able than the distributor to prevent the defect, maybe just by curtailing output if greater care in manufacture would not be cost justified. More

important (because it usually is uneconomical to achieve

zero-defect output), the manufacturer is in a better position to estimate the likelihood and cost of accidents due

to defects in his product and to insure against such mishaps. This point is illustrated by the “vendor’s endorsement,” a common provision in a manufacturer’s liability

insurance policy that extends coverage to his distributors.

Hartford Fire Ins. Co. v. St. Paul Surplus Lines Ins. Co., 280

F.3d 744, 745-46 (7th Cir. 2002).

A further wrinkle here, however, is that J-Korea did not

manufacture the defective stake. Supposing it hired an

entirely reputable firm to manufacture it, why should it
No. 02-3159 11

be thought in a better position to have avoided the accident than J-USA or even to have estimated the likelihood

of an accident and insured against it better than J-USA

could have done? But we need not try to answer this

question. J-Korea devotes only a sentence to denying that

it was negligent or otherwise blameworthy relative to

J-USA, and that is not enough discussion to preserve the

issue for appellate review. Jones Motor Co. v. Holtkamp,

Liese, Beckemeier & Childress, P.C., 197 F.3d 1190, 1192 (7th

Cir. 1999); United States v. Berkowitz, 927 F.2d 1376, 1383-84

(7th Cir. 1991); Karibian v. Columbia University, 14 F.3d 773,

777 n. 1 (2d Cir. 1994).

AFFIRMED.

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—10-17-02