Opinion ID: 1387072
Heading Depth: 3
Heading Rank: 3

Heading: The Superior Court Properly Denied ARCO's Alternative Bases for Summary Judgment.

Text: On cross-appeal, ARCO contends that it is entitled to summary judgment for several additional reasons not relied upon by the superior court. We now address these arguments. [25]
In its brief, ARCO argues that the superior court failed to consider an alternate basis for granting summary judgment: The trial court addressed the question of Western['s]... negligence and held that ARCO ... had raised evidence of Western['s] ... negligence sufficient to defeat Western['s] . .. motion for summary judgment. However, the trial court did not explicitly address the significance of nonnegligent active participation or contribution. .... The active participation or contribution by Western ... in this case, even if such conduct does not constitute negligence, should also bar any recovery by Western.... Because Western ... manufactured and marketed its insulation board, Western ... had to have contributed to and actively participated in any alleged defect in the Insulfoam that it sold. (Emphasis added.) By stating as such, ARCO is asking us to consider the significance of Western's material alteration of the beads. ARCO's assertion that Western actively participated in or contributed to any alleged defect in the Insulfoam by altering the beads is an affirmative defense. As ARCO correctly notes, we have held that [a]ctive participation by the indemnitee in the indemnitor's wrong may preclude recovery on an implied contract theory. Kandik I, 795 P.2d at 804; see also D.G. Shelter Prods., 684 P.2d at 842. However, based on this premise, ARCO mistakenly concludes that Western is precluded from seeking implied indemnity. As for whether Western's material alteration of the beads precludes its claim for implied indemnity, the Restatement (Second) of Torts is instructive. It states: Further Processing or Substantial Change. ... It seems reasonably clear that the mere fact that the product is to undergo processing, or other substantial change, will not in all cases relieve the seller of liability under the rule stated in this Section. If, for example, raw coffee beans are sold to a buyer who roasts and packs them for sale to the ultimate consumer, it cannot be supposed that the seller will be relieved of all liability when the raw beans are contaminated with arsenic, or some other poison.... On the other hand, the manufacturer of pigiron, which is capable of a wide variety of uses, is not so likely to be held to strict liability when it turns out to be unsuitable for the child's tricycle into which it is finally made by a remote buyer. The question is essentially one of whether the responsibility for discovery and prevention of the dangerous defect is shifted to the intermediate party who is to make the changes. No doubt there will be some situations, and some defects, as to which the responsibility will be shifted, and others in which it will not. Restatement (Second) of Torts § 402A, cmt. p (1977). Though the coffee bean example posed above does not involve a design defect, whereas Western's allegation does, the necessary analysis remains unchanged. Material alteration, per se, does not preclude indemnity. Instead, the necessary focus is on the alleged defect and whether the alteration actively contributed to it. Applied to this case, if, as a result of Western's processing, the beads became more flammable, and this increased flammability played a role in causing the fire, then Western actively contributed to the defect. Though normally a question of fact, in this instance ARCO has effectively conceded that Western did not actively contribute to the alleged defect, the flammability of the beads themselves. Rather, ARCO argues as follows: ARCO['s] ... defense is based upon the proposition that Western ... manufactured an insulation product, not that it altered the beads so as to increase their flammability characteristics. The flammability characteristics of the beads have virtually no bearing upon the flammability characteristics of any insulation board as installed or maintained by the [underlying] plaintiffs. The flammability characteristics of the insulation board depends upon the application of the insulation board and the measures employed by users such as the plaintiffs to protect the insulation board from fire. In essence, ARCO is arguing that Western, either through nonfeasance or malfeasance, caused the ultimate harm. In so doing, ARCO is making two, somewhat implicit, arguments. First, it is arguing that its beads were not defective. That is, in the words of the Restatement, The seller is not liable when he delivers the product in a safe condition, and subsequent mishandling or other causes make it harmful by the time it is consumed. Restatement (Second) of Torts § 402A, cmt. g (1977). However, whether or not ARCO's beads were defective when delivered is a threshold inquiry, not an affirmative defense, which we discuss in further detail infra, §§ III(C)(2) & (C)(3). Second, ARCO is arguing that, notwithstanding any flammability defect in its beads, Western's subsequent processing of the beads into insulation either caused or contributed to the fire. That is, ARCO argues that Western's marketing, labeling, and inadequate sheathing of its insulation end product, rather than any inherent flammability characteristic of the beads, caused or contributed to the fire. As we stated in Kandik II, A traditional rule of indemnity, however, is that an indemnitee is not entitled to recover if the indemnitee has actively participated in the wrongful acts that caused the damage. 823 P.2d 632, 638 (Alaska 1991). [26] Whether or not Western's subsequent processing of the beads, rather than the beads themselves, caused or contributed to the damage  the fire  is a factual inquiry. Since the record does not dispositively demonstrate that it was Western's subsequent manufacturing processes that caused or contributed to the fire, ARCO's affirmative defense is not ripe for summary judgment. [27]
ARCO argues that the burden of proof test established by this court in Caterpillar Tractor Co. v. Beck, 593 P.2d 871 (Alaska 1979), is inappropriate in this case. Beck states: We hold that the plaintiff need only show that he was injured and that the injury was proximately caused by the product's design. The defendant may then avoid liability for a defectively designed product by proving by a preponderance of the evidence that, on balance, the benefits of the challenged design outweigh the risk of danger inherent in such design. Id. at 885 (quoting Barker v. Lull Eng'g Co., Inc., 20 Cal.3d 413, 143 Cal. Rptr. 225, 573 P.2d 443, 458 (Cal. 1978)). ARCO contends that Beck establishes the burdens of proof as between an ordinary consumer plaintiff and manufacturer. Thus, the rationale of that decision does not apply to an implied indemnity claim by a manufacturer against one of its raw material suppliers. The rationale of Beck is clear. Besides lessening the burdens of plaintiff's prima facie case, this allocation puts the burden of producing the relevant complex and technical evidence on the party who has the most access to and is the most familiar with such evidence. Id. at 886. Contrary to ARCO's assertion, the rationale of Beck does apply and the superior court correctly allocated the burden of proof upon ARCO as the bead manufacturer. The product in question in this case is ARCO's beads, not Western's Insulfoam. Western must prove that the beads are defective if it is to receive indemnity. Furthermore, in accordance with the rationale of Beck, ARCO is the party who has the most access to and is the most familiar with the relevant evidence of the quality of the beads since it manufactured them. ARCO contends that this case represents an anomaly. It cites the fact that Western's officers were active members of industry groups that conducted in-depth studies regarding polystyrene beads. [28] However, the Beck standard for allocating burdens of proof nonetheless applies in this case because, although Western may be fully knowledgeable about the combustion characteristics of expandable polystyrene beads, ARCO is no less knowledgeable. [29]
As discussed in detail in section III(A), supra, Western must prove that ARCO's beads were defective in order to obtain indemnity. It was for this reason that the superior court correctly denied Western's own motion for summary judgment. In its cross-appeal, ARCO argues that Western failed to offer any proof as to whether ARCO's beads were defective. In support of this contention, ARCO quotes the superior court's finding that Western offered no proof of defect in ARCO's product. The superior court, however, made this finding in the context of considering Western's motion for summary judgment. When it considered ARCO's cross-motion for summary judgment, the superior court stated: Applying the above principles, Western ... need only show that its injury was proximately caused by the product's design; in other words, that it paid the settlement due to the flammability characteristics of the polystyrene beads.... Proximate cause is a question of fact which must be established if Western ... is to be entitled to indemnity. As there is a question of fact to [be] established, such must be determined by the trier of fact. Summary judgment based upon ARCO's contention that Western .. . has failed to prove the polystyrene foam was defective is thus inappropriate. (Citations omitted.) Thus, though Western did not offer sufficient proof of defect to support its own motion for summary judgment, it did offer sufficient proof of defect to defeat ARCO's cross-motion for summary judgment.
In its cross-appeal, ARCO misconstrues the meaning and application of the word innocent as used in Fairbanks North Star Borough v. Kandik Construction, 795 P.2d 793, 803 (Alaska 1990) ( Kandik I ) (an innocent party who merely passes on an already defective product in the stream of commerce is entitled to implied noncontractual indemnity from the product producer), vacated in part on other grounds, 823 P.2d 632 (Alaska 1991). ARCO argues that since Western manufactured and marketed Insulfoam and altered the component beads, it is not innocent and thus is precluded from asserting its implied indemnity claim. However, innocent, as applied in these cases refers to the general proposition that a party's own negligence bars a claim for implied indemnity. As such, it provides for an affirmative defense and does not preclude Western from asserting an indemnity claim. [30]
ARCO argues that Western should not be entitled to recover implied indemnity since Western paid to settle a negligence claim. ARCO argues that the settlement establishes negligence on the part of Western, and thus bars Western from seeking indemnification from ARCO. However, ARCO's argument, an estoppel claim, is misguided. Western's settlement offer with the NSB explicitly denies any fault. It states, Releasors understand that this settlement is in compromise of a disputed claim and that the payment is not to be construed as an admission of liability on the part of the persons and entities hereby released.... (Emphasis added.) In short, Western's settlement agreement with the NSB in no way establishes Western's liability.