2013 D e c i sion s O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit

11-26-2013 

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w . v i l l a no v a . e du/thir dc ir c uit_2013/1542NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

_____________ No. 12

- 3284

_____________ SGS U.S. TESTING COMPANY, INC.,

Appellant

v. TAKATA CORPORATION; TK HOLDIN GS, 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 Pursua nt to Third Circuit L.A.R. 34.1(a)

September 12, 2013 Before: McK EE , Chief Judge , SMITH, and SLOVITER, Circuit Judges

(Filed: November 26, 2013 )

________________ OPINION

________________ SMITH, Circuit Judge. The appe llant, SGS U.S. Testing Company , tests seatbelts and other2

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 inadeq uate and the seatbelts unsafe, SGS and Takata were named as defendants in multiple class action s . No ne of the actions were successful

. Before and after each action , SGS requested indemnification from Takata, and Takata denied all request s . Those denials le d 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 no vo a District Court ‟ s dismiss al 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 on ly if, accepting all well

- pleaded

1 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 th e 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”).3

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 bet ween 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 indep endent 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 “ permit s an indemnitee to recover cou nsel fees if the indemnitee is a djudicated to be free from a ctive wrongdoing regarding the plaintiff‟s injury , and has tendered the defense to the indemnitor at the start of the litigation. ” Id. at 115 1 ( citing Cent. Motor Parts Corp. , 596 A.2d at 76 9)

. This does not mean that an indemnitee is automatically entitl ed 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.64

(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 entit led to indemnification for costs of defense since contract with subcontractor required judicial finding of neg l igence 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

co mplaint alleged that SGS, as indemnitee, was adjudicated free of wrongdoing and that it tendered the defense to Takata, the indemnitor, at th e outset of the litigation

. See J A

. 442 (¶¶14

- 24). SGS, therefore, may be entitled to recover its defense costs d epending upon the language of the various indemnity contract s . 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 Jer sey law and that the District Court erred by dismissing the claim. We note, however, that in New Jersey “[ an] indemnitee may recover only5

those fees and expenses attributable to the making of defenses which are not primarily directed toward rebutting cha rges 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 exclude d 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 i n 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 explai ned, that conclusion was w rong and the claim should not have been dismissed.6

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 indemnificat ion and breach of the duty of good faith and fair dealing , and we will remand for further proceedings.