Opinion ID: 1379140
Heading Depth: 2
Heading Rank: 2

Heading: IFF's Proposed Express Indemnification Crossclaim

Text: IFF argues that the District Court erred in denying its request to assert an express indemnification crossclaim. In that proposed crossclaim, IFF alleged that its contract with Dammann included two express indemnity clauses and that Dammann, despite demand, had refused to indemnify IFF. Under New Jersey Law, express contractual indemnification claims are subject to a six-year statute of limitations. See N.J. Stat. Ann. § 2A:14-1; see also First Indem. of America Ins. Co. v. Kemenash, 328 N.J.Super. 64, 744 A.2d 691, 696 (2000). The first clause in the parties' contract, titled REWORK AND PRODUCT LIABILITY INDEMNIFICATION, provides, in pertinent part: Seller shall be responsible for claims by third parties against Buyer for loss or damage based on personal injury or destruction of property due to defects in the product for which Seller is responsible. (App. 196.) The second clause, labeled PERSONAL INJURY AND PROPERTY DAMAGE LIABILITY INDEMNIFICATION, states: Seller agrees to defend, indemnify and hold harmless Buyer from all claims, actions, losses, damages and expenses resulting from any injury to persons, damage to property or action by any regulatory agency, arising out of or in any way associated with the design, installation, and/or operation of any production formulation, packaging, or support equipment (including equipment owned by Seller, Buyer or Third Parties), used in the production, processing or handling of the product(s) sold hereunder and all raw materials used in the production[.] (App. 197.) The District Court reasoned that an indemnification claim is viable only where the indemnitee seeks to obtain recovery from the indemnitor for liability incurred to a third party. Travelers Indem., 592 F.Supp.2d at 767 (emphasis omitted). The Court found no authority under New Jersey law to support IFF's position that an indemnitee may sue an indemnitor for damages to the indemnitee itself. Thus, the District Court ruled that IFF's indemnification claim, to the extent it sought such first-party damages, was in fact governed by contract principles and consequently time-barred under the U.C.C.'s four-year statute of limitations. [11] To the extent IFF's proposed express indemnification crossclaim was based on third-party damage, the District Court concluded that IFF had not alleged any such damage. Recognizing that IFF alleged that its customers had sought refunds for the contaminated vanilla extract they had bought, the Court examined the language of the indemnification clauses in IFF's and Dammann's contract and determined that none of the claims asserted by IFF's customers came within the scope of those clauses. Specifically, the Court noted that while one of those clauses allowed for indemnification where a third party suffered personal injury or property damage due to product defects, IFF had not actually alleged that any of its customers' claims were based on personal injury or property damage. With respect to the other clause, the Court found that IFF had not alleged that it paid its customers and distributors for claims arising out of the design, installation, or operation of production formulation, packaging or support equipment[,] id. at 768, although, in the Court's view, that clause allowed for indemnification only in the event of such a circumstance. Accordingly, the District Court held that IFF had failed to state an express indemnification claim. Turning first to IFF's express indemnification claim for first-party damages, we, like the District Court, have unearthed no New Jersey case that actually permits an indemnitee to maintain the sort of claim that IFF wishes to assert against Dammann. To support its view, IFF correctly asserts that the word indemnity generally enjoys a broad definition. See Black's Law Dictionary 783 (8th ed.2004) (defining indemnity as [a] duty to make good any loss, damage, or liability incurred by another (emphasis added)). To be sure, given the expansive meaning of indemnity and New Jersey law's respect for the ability of parties to contract freely, see Spring Motors, 489 A.2d at 668 (noting the principle that parties should be free to make contracts of their choice); see also, e.g., Solondz v. Kornmehl, 317 N.J.Super. 16, 721 A.2d 16, 19 (1998) (We must enforce the contract which the parties themselves have made. (citations omitted)), we cannot hold that first-party indemnification claims such as the one IFF seeks to maintain are categorically barred as a matter of law in New Jersey absent direct authority to that effect. But we need not presume the existence of such a sweeping rule to conclude that, under the circumstances presented here, IFF's crossclaim is nevertheless fatally flawed. Under New Jersey law, we must interpret the parties' contract according to its plain language, see State Troopers Fraternal Ass'n of N.J. v. State, 149 N.J. 38, 692 A.2d 519, 523 (1997), by read[ing] the document as a whole in a fair and common sense manner[,] Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95, 965 A.2d 1165, 1169 (2009) (citation omitted). We must also endeavor to avoid ignoring certain words or reading the contract in such a way as to make any words meaningless. Cumberland County Improvement Auth. v. GSP Recycling Co., Inc., 358 N.J.Super. 484, 818 A.2d 431, 438 (2003). In other words, we must interpret the word indemnify in relation to the words defend and hold harmless. Cf. United States v. CDMG Realty Co., 96 F.3d 706, 714 (3d Cir.1996) (noting the constructional canon noscitur a sociis, which states that one may infer meaning by examining the surrounding words), cited with approval in State v. Watkins, 193 N.J. 507, 940 A.2d 1173, 1183 (2008). When we apply these principles to the clause on which IFF relies, it becomes clear that, just as Dammann cannot defend IFF from itself or hold harmless IFF for IFF's own wrong, Dammann cannot indemnify IFF for IFF's own loss. Put another way, the only sensible reading of that clause evidences a requirement that third-party liability exist for the clause to be triggered. IFF's interpretation impermissibly reads that requirement out of the contract. See, e.g., Hardy, 965 A.2d at 1169-70 (declining to read an insurance contract in such a way as to render certain terms meaningless). As a consequence, IFF's indemnification crossclaim for first-party damages fails as a matter of law. By extension, we do not find that the District Court abused its discretion in denying IFF's request for leave to assert that crossclaim. [12] Turning next to IFF's express indemnification crossclaim based on third-party damages, we must again consider the clauses' language. IFF argues that both clauses obligate Dammann to indemnify IFF for IFF's liability to its customers based on the contaminated flavoring and that IFF alleged as much in its proposed crossclaim. IFF gives the first clause too liberal a reading. As noted above, that clause requires Dammann to compensate IFF for loss or damage based on personal injury or destruction of property due to defects in the vanilla beans. (App.196.) IFF's proposed crossclaim is devoid of even an oblique suggestion that any customer that asserted a claim against IFF suffered personal injury or property damage. Accordingly, the District Court did not abuse its discretion when it concluded that IFF failed to state a claim based on the first clause. [13] IFF's understanding of the second clause is likewise misguided. That clause, as noted above, requires Dammann to compensate IFF for losses arising out of or ... associated with the design, installation, and/or operation of any production formulation, packaging, or support equipment... used in the production, processing or handling of the product(s) sold hereunder and all raw materials used in the production[.] (App 197.) IFF clings to the phrase raw materials to show that it adequately alleged that its customers suffered damage to their raw materials. IFF's isolation of that phrase is unavailing. The clause at issue here clearly imposes an obligation on Dammann only if IFF incurs liability to a third party in connection with the design, installation, and/or operation of any production formulation, packaging, or support equipment. The remaining portion of the clause that IFF spotlights has not been triggered because IFF does not allege that its predicate  the first part of the clause  is met. That is, IFF nowhere alleges that any claim against it by a third party bears any relation to the design, installation, and/or operation of the various activities enumerated in the rest of the clause. IFF has therefore failed to state an indemnification claim for third party damages, and the District Court, by extension, did not abuse its discretion in denying IFF's request as it pertained to that crossclaim. [14] Accordingly, we conclude that the District Court did not abuse its discretion in denying IFF's request for leave to assert an express indemnification crossclaim.