2013 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-26-2013

SGS US Testing Co v. Takata Corporation

Precedential or Non-Precedential: Non-Precedential

Docket No. 12-3284

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Recommended Citation

"SGS US Testing Co v. Takata Corporation" (2013). 2013 Decisions. Paper 1542.

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 12-3284

_____________

SGS U.S. TESTING COMPANY, INC.,

Appellant

v.

TAKATA CORPORATION; TK HOLDINGS, INC.; JOHN DOE COMPANIES 

(1–50)

________________

On Appeal from the United States District Court

for the District Court of New Jersey

District Court No. 2-09-cv-06007

District Judge: The Honorable Dennis M. Cavanaugh

________________

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)

September 12, 2013

Before: McKEE, Chief Judge, SMITH, and SLOVITER, Circuit Judges

(Filed: November 26, 2013)

________________

OPINION

________________

SMITH, Circuit Judge.

The appellant, SGS U.S. Testing Company, tests seatbelts and other 
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products for its clients. Over a seventeen-year period, SGS tested nearly six 

hundred seatbelts for the appellees, Takata Corporation and its affiliates. Amid 

allegations that the tests were inadequate and the seatbelts unsafe, SGS and Takata 

were named as defendants in multiple class actions. None of the actions were 

successful. Before and after each action, SGS requested indemnification from 

Takata, and Takata denied all requests. Those denials led to this lawsuit. 

SGS sued Takata for contractual indemnification, breach of the duty of good 

faith and fair dealing, and common-law indemnification. The District Court 

dismissed the first and second claims for failure to state a claim and granted 

Takata‟s motion for summary judgment on the third claim. SGS appeals all three 

decisions. For the reasons that follow, we will reverse in part and affirm in part.1

SGS‟s first argument is that it has a valid claim for contractual 

indemnification. We review de novo a District Court‟s dismissal under Federal 

Rule of Civil Procedure 12(b)(6), applying the same standard as the District Court. 

See Morrow v. Balaski, 719 F.3d 160, 165 (3d Cir. 2013) (en banc). “Under Rule 

12(b)(6), a motion to dismiss may be granted only if, accepting all well-pleaded 

 

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The District Court had diversity jurisdiction under 28 U.S.C. § 1332, and 

we have final-order jurisdiction under 28 U.S.C. § 1291. The parties and the 

District Court assumed that New Jersey substantive law applies, and we see no 

reason to assume otherwise. See Neely v. Club Med Mgmt. Servs., 63 F.3d 166, 

180 & n.10 (3d Cir. 1995) (en banc) (concluding that “choice of law issues may be 

waived”).
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allegations in the complaint as true and viewing them in the light most favorable to 

the plaintiff, a court finds that [the] plaintiff‟s claims lack facial plausibility.” Id. 

(quoting Warren Gen. Hosp. v. Amgen Inc., 643 F.3d 77, 84 (3d Cir. 2011)). 

In exchange for SGS‟s testing services, Takata agreed to indemnify SGS. 

Indeed, the parties executed several contracts with various indemnification 

provisions over the years. New Jersey‟s indemnification law distinguishes 

between vicarious-liability and independent-fault cases. Mantilla v. NC Mall 

Assocs., 770 A.2d 1144, 1149 (N.J. 2001). In Mantilla, the Court “adopt[ed] the 

„after-the-fact‟ approach” to determine whether a party has defended against 

allegations of its independent fault. Id. at 1149, 1151 (citing Cent. Motor Parts 

Corp. v. E.I. duPont deNemours & Co., 596 A.2d 759 (N.J. Super. Ct. App. Div. 

1991)). This approach “permits an indemnitee to recover counsel fees if the 

indemnitee is adjudicated to be free from active wrongdoing regarding the

plaintiff‟s injury, and has tendered the defense to the indemnitor at the start of the 

litigation.” Id. at 1151 (citing Cent. Motor Parts Corp., 596 A.2d at 769). This 

does not mean that an indemnitee is automatically entitled to an award for the 

costs of defense. Rather, as Kieffer v. Best Buy, 14 A.3d 737 (N.J. 2011), 

demonstrates, when the indemnitee has been adjudged free of any wrongdoing, the 

ability to recover depends upon the language of the contract. Id. at 743-44 & n.6 
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(concluding that adjudication that owner, contractor and subcontractor were not 

negligent entitled indemnitee owner to indemnification based on expansive 

language indemnifying it from “any and all” claims, but that indemnitee contractor 

was not entitled to indemnification for costs of defense since contract with 

subcontractor required judicial finding of negligence by subcontractor). If 

application of the after-the-fact approach establishes that an indemnitee “has been 

found to be at least partially at fault,” then the indemnitee “may not recover the 

costs of its defense from an indemnitor” unless there is explicit language in the

indemnity contract. Mantilla, 770 A.2d at 1145. 

Employing the “after-the-fact” approach here, it is evident that the 

complaint alleged that SGS, as indemnitee, was adjudicated free of wrongdoing

and that it tendered the defense to Takata, the indemnitor, at the outset of the 

litigation. See JA. 442 (¶¶14-24). SGS, therefore, may be entitled to recover its 

defense costs depending upon the language of the various indemnity contracts. 

See Mantilla, 770 A.2d at 1151, Kieffer, 14 A.3d at 743-44. Accordingly, we 

conclude that the allegations in SGS‟s complaint were sufficient to state a claim 

for indemnification under New Jersey law and that the District Court erred by 

dismissing the claim. 

We note, however, that in New Jersey “[an] indemnitee may recover only 
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those fees and expenses attributable to the making of defenses which are not 

primarily directed toward rebutting charges of active negligence.” Central Motor 

Parts Corp., 596 A.2d at 762 (quoting Piedmont Equip. Co. v. Eberhard Mfg. Co., 

665 P.2d 256, 258-259 (Nev. 1983)). See also Piedmont, 665 P.2d at 260 (holding 

that an indemnitee who was “exonerated of liability at trial” was, nonetheless, only 

entitled to recover expenses not directed at rebutting charges of active negligence.) 

In this case, SGS incurred substantial expenses defending its testing methodology. 

On remand, the District Court will need to consider whether, in light of the 

language of the indemnification provisions, these expenses should be excluded

from any recovery.

SGS‟s second argument is that it also has a valid claim for breach of the 

duty of good faith and fair dealing. This duty “is implied in every contract in New 

Jersey.” Wilson v. Amerada Hess Corp., 773 A.2d 1121, 1126 (N.J. 2001). 

Conduct that is contrary to “community standards of decency, fairness or 

reasonableness” violates the duty. Id. (quoting Restatement (Second) of Contracts 

§ 205 cmt. a (1981)); see also id. at 1130 (“Bad motive or intention is essential.”). 

The District Court dismissed this claim because it concluded that SGS did not have 

a valid “claim for contractual indemnification.” JA. 16. As explained, that 

conclusion was wrong and the claim should not have been dismissed.
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SGS‟s third and final argument is that the District Court improperly granted 

summary judgment on its common-law indemnification claim. For many of the 

reasons stated in the District Court‟s opinion, see JA. 41–46, we conclude that 

summary judgment was proper.

In sum, we will affirm the District Court‟s order granting summary 

judgment on SGS‟s common-law indemnification claim. But we will reverse its

order dismissing SGS‟s claims for contractual indemnification and breach of the 

duty of good faith and fair dealing, and we will remand for further proceedings.