Krasny-Kaplan Corp. v. Flo-Tork, Inc. - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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Krasny-Kaplan Corporation v. Flo-Tork, Inc., Appellee; Spuhler,
d.b.a. Power Control Company, Appellant.
[Cite as Krasny-Kaplan Corp. v. Flo-Tork, Inc. (1993), Ohio
St.3d .]
Torts -- Products liability -- Manufacturer under no obligation
to indemnity distributor for attorney fees and costs, when.
(No. 91-2332 -- Submitted January 20, 1993 -- Decided
April 7, 1993.)
Appeal from the Court of Appeals for Cuyahoga County, No.
59137.
The case before us on appeal originated when plaintiff,
Krasny-Kaplan Corporation ("Krasny-Kaplan"), purchased
hydraulic actuators manufactured by defendant-appellee,
Flo-Tork, Inc. ("Flo-Tork"). The actuators were sold to
Krasny-Kaplan by defendant-appellant, Peter Spuhler, d.b.a.
Power Control Company, a distributor of Flo-Tork products.
When the actuators did not function to Krasny-Kaplan's
expectations, Krasny-Kaplan filed a products liability suit in
the Court of Common Pleas of Cuyahoga County, naming both
Spuhler and Flo-Tork as defendants.
The case proceeded to jury trial, with Krasny-Kaplan
bringing claims against Spuhler for breach of express
warranties, breach of implied warranties of merchantability and
fitness for a particular purpose, strict products liability,
and negligent misrepresentation; and against Flo-Tork for
strict products liability. The case also proceeded on
Flo-Tork's and Spuhler's separate counterclaims against
Krasny-Kaplan, and on each defendant's cross-claim against the
other for indemnification.
At the close of the presentation of evidence,
Krasny-Kaplan withdrew its claim of negligent misrepresentation
against Spuhler, and Flo-Tork also withdrew its cross-claim
against Spuhler for indemnification. Spuhler elected not to
have his cross-claim against Flo-Tork for indemnification for
attorney fees and costs go to the jury, but instead chose to
have the trial court resolve the indemnification question.
The jury returned verdicts in favor of Spuhler and
Flo-Tork on all claims of Krasny-Kaplan, and Krasny-Kaplan

prevailed on the counterclaims brought against it. The result
was that the jury determined no party was liable to any other
party, so that no damages were awarded. No party appealed from
the jury's verdicts, and therefore Krasny-Kaplan is no longer
involved in the present dispute.
After the jury verdicts, the trial court held a hearing to
rule on Spuhler's indemnity claim against Flo-Tork. Flo-Tork
stipulated that Spuhler's submitted claim for $15,494 for
attorney fees and costs was reasonable, but argued that it was
under no obligation to indemnify Spuhler. The trial court
ruled in Spuhler's favor and ordered Flo-Tork to indemnify
Spuhler for the full amount.
Flo-Tork appealed the trial court's judgment to the court
of appeals, which reversed the order of indemnity. The
appellate court held that "absent a contractual provision that
provides for the indemnification of attorney fees in defense of
a lawsuit, a co-defendant has no cause of action for indemnity
from another co-defendant for attorney fees and costs of his
own defense."
The cause is now before this court pursuant to the
allowance of a motion to certify the record.

Critchfield, Critchfield & Johnston, Lincoln Oviatt and
Peggy J. Schmitz, for appellee.
Gallagher, Sharp, Fulton & Norman, Burt Fulton and William
A. Meadows, for appellant.
Vorys, Sater, Seymour & Pease, Edward A. Schrag, Jr. and
Michael D. Martz, urging affirmance for amicus curiae, Ohio
Manufacturers' Association.

Alice Robie Resnick, J. The issue for determination is
whether a distributor of a product is entitled to
indemnification for attorney fees and costs from the
manufacturer of the product in a products liability action,
when both are defendants in the action, and when neither is
adjudged to be liable to the plaintiff. For the reasons which
follow, we find that in the circumstances of this case, the
manufacturer is under no obligation to indemnify the
distributor for attorney fees and costs.
Initially, we stress that this case involves
indemnification for attorney fees and costs. Since no damages
were paid by either defendant, no issue concerning the
indemnification of a codefendant for damages paid to a
plaintiff who sues multiple defendants is implicated in this
case.
It is the general rule in this state that when multiple
parties are defendants in litigation, each bears the costs of
his or her own defense. This rule pertaining to codefendants
is in part a consequence of Ohio's adherence to the so-called
"American rule," which requires each party involved in
litigation to pay his or her own attorney fees in most
circumstances. See Sorin v. Bd. of Edn. (1976), 46 Ohio St.2d
177, 179, 75 O.O.2d 224, 225, 347 N.E.2d 527, 528-529; State ex
rel. Durkin v. Ungaro (1988), 39 Ohio St.3d 191, 193, 529
N.E.2d 1268, 1270. There are, however, significant exceptions
to this general rule regarding defense costs of codefendants.
For example, a contractual provision between the parties may

shift the costs of presenting a defense from one party to
another--the parties have the ability to contractually require
one codefendant either to supply the other's defense or to
reimburse the other for attorney fees expended. Also, just as
a statute may specifically provide that a prevailing party may
recover attorney fees as part of the costs of litigation (see
Sorin, 46 Ohio St.2d at 180-181, 75 O.O.2d at 226, 347 N.E.2d
at 529-530), a statute could require that one party must bear
the costs of another party's defense. See, e.g., McIntyre
Refrigeration, Inc. v. Mepco Electra (App.1990), 165 Ariz. 560,
799 P.2d 901 (applying an Arizona statute). Or, a finding that
one of the codefendants to litigation has acted in bad faith
may result in that defendant being forced to pay the defense
costs of the other defendant, in the same way that a finding of
bad faith against a party may force that party to pay the
attorney fees of the prevailing party. See Durkin, 39 Ohio
St.3d at 193-194, 529 N.E.2d at 1270. In addition, a situation
may occur in which a party must indemnify another party for
costs of mounting a defense, because a failure to indemnify
would serve to unjustly enrich the party that benefits from the
other party's efforts. This implied right of indemnity arises
when the party seeking indemnity is totally free of fault, and
the fault of another party has been imputed to the party
seeking indemnity. See Amisub of Florida, Inc. v. Billington
(Fla.App.1990), 560 So.2d 1271, 1271-1272. When a case does
not present a situation requiring deviation from the general
rule that each codefendant bears responsibility to pay the
costs of his or her own defense, no indemnification is required.
The relationship between appellee, Flo-Tork (as
manufacturer) and appellant, Spuhler (as distributor of
Flo-Tork products) is set forth in a Distributor Licensing
Agreement, which denotes the contractual positions of the two
parties. It is uncontested that no provision in the
Distributor Licensing Agreement requires appellee to indemnify
appellant for attorney fees and costs. Likewise, appellant
does not call our attention to any statute requiring appellee
to indemnify him for attorney fees and costs. Nor does
appellant convincingly argue that appellee has acted in bad
faith. Therefore, appellant can prevail only if he can
demonstrate that an implied obligation exists entitling him to
indemnification.
The concept of indemnity embraces aspects of primary and
secondary liability. Indemnification occurs when one who is
primarily liable is required to reimburse another who has
discharged a liability for which that other is only secondarily
liable. See Prosser & Keeton on Torts (5 Ed.1984) 341, Section
51. In the present case, no liability of either defendant to
the plaintiff was found. Therefore, the traditional
understanding of indemnity cannot apply, because appellee was
never determined to be primarily liable.
In Merck & Co. v. Knox Glass, Inc. (E.D.Pa.1971), 328
F.Supp. 374, a jury in a products liability action found that
neither the manufacturer nor the retailer was liable to the
plaintiff. When the retailer sued the manufacturer for its
costs of litigation (including attorney fees), the court
determined that the manufacturer had no obligation to reimburse
the retailer. The court stated at 377: "In the absence of (1)

a statutory duty to reimburse for litigation costs and counsel
fees, or (2) a contractual obligation so to do, or (3) a
finding of fault on the part of [the manufacturer], there can
be no basis for indemnification. The record is totally devoid
of any of these three elements. [The retailer] is in no
different position than any other successful defendant who must
bear the costs of counsel fees to establish his defense."
Appellant cites cases from other jurisdictions allowing a
retailer to gain indemnification for attorney fees and defense
costs from a manufacturer when the retailer sells a defective
product which the manufacturer has placed in the stream of
commerce, and the retailer is merely a passive conduit in the
chain of distribution. See, e.g., Pender v. Skillcraft
Industries, Inc. (Fla.App.1978), 358 So.2d 45; Piedmont Equip.
Co., Inc. v. Eberhard Mfg. Co. (1983), 99 Nev. 523, 665 P.2d
256. We are not persuaded by appellant's citation of
authority. Cases such as Pender are easily distinguished from
the present case: appellee's product was found not to be
defective, while in Pender and other cited cases the
manufacturer's product was determined to be defective. Nor are
we persuaded by appellant's citation of Friend v. Eaton Corp.
(Okla.App.1989), 787 P.2d 474. In that case, the manufacturer
settled with the plaintiff, and the trial court, after finding
the manufacturer to be the primary wrongdoer, then ordered the
manufacturer to indemnify the codefendant retailer for attorney
fees and costs incurred prior to the settlement. The court of
appeals, in affirming the order of indemnity, found that the
manufacturer's act of settlement did not destroy the right of
indemnity. The court's approach in Friend appears to be
similar to that of the Pender court; and because that approach
is premised on the manufacturer being a wrongdoer, it has no
application to the case before us.
Appellant also argues that some courts have awarded
indemnity for attorney fees and costs to an innocent retailer
when the manufacturer was also determined not to be liable to
the plaintiff. These courts have apparently based the award of
indemnification for attorney fees and costs on a determination
that the manufacturer of the product was unjustly enriched by
the retailer's successful support. See Heritage v. Pioneer
Brokerage & Sales, Inc. (Alaska 1979), 604 P.2d 1059; Pullman
Standard, Inc. v. Abex Corp. (Tenn.1985), 693 S.W.2d 336.
Appellant further contends that to not award him
indemnification in this situation would be unfair; appellant
believes it is anomalous to punish him for his success in
supporting appellee's defense at trial that the product was not
defective.1 From appellant's perspective, there is some logic
to this contention; however, appellant does not place enough
importance on the fact that appellee also was found to be free
of fault at trial.
Appellee argues that, from its perspective, it is of
critical importance that no defective product was
manufactured. Therefore, appellee urges that the general rule
that each codefendant must pay the costs of his or her own
defense should apply. We agree that appellee was not actually
unjustly enriched by appellant's support. See Oates v. Diamond
Shamrock Corp. (1987), 23 Mass.App.Ct. 446, 448-449, 503 N.E.2d
58, 60 ("Where the manufacturer was absolved of liability, it

was not unjustly enriched because the retailer bore the costs
of its own defense. *** The retailer is in a position no
different from that of any other successful defendant."
(Citation omitted.) Thus, we find the Heritage rationale to be
questionable, at least when considered in light of the
circumstances of the present case. Ultimately, we conclude
that the Merck approach sets out the better policy. We decline
to use the facts of the case before us to create an exception
to the general rule that each codefendant bears the costs of
his or her own defense.
In a relationship such as that between the codefendants
here, in which the issue of indemnification of a party may
arise, a manufacturer and distributor are free to negotiate,
and have the ability to contractually provide that one party
must bear the other's costs of litigation, whether successful
or unsuccessful. In the absence of such a provision, it must
be recognized that attorney fees and costs necessary to defend
against an action are often the price of doing business.
We agree with the conclusion of the court in Papas v.
Kohler Co., Inc. (M.D.Pa.1984), 581 F.Supp. 1272, 1274, a case
factually similar both to Merck and to the present case, which
also refused to award indemnification to a retailer for
attorney fees and costs: "*** a manufacturer of a
non-defective product who is sued in a products liability
action should not be forced to pay not only for its own defense
but for defense of the retailer as well." (Emphasis added.)
We hold that, in the circumstances of this case, appellant
is not entitled to indemnification from appellee. The judgment
of the court of appeals is affirmed.
Judgment affirmed.
Moyer, C.J., A.W. Sweeney, Douglas, Wright, F.E. Sweeney
and Pfeifer, JJ., concur.

FOOTNOTE:

1 We note that the cases cited by appellant which awarded
indemnification when both the manufacturer and retailer were
determined not to be liable to the plaintiff differ in one
significant regard from the present case: the plaintiff's
claims in this case against appellant included some allegations
which were not based on appellee's alleged wrongdoing, but were
based on appellant's own actions. Were we to adopt appellant's
interpretation of cases such as Heritage, appellant at best
would be entitled to indemnification for only a portion of his
attorney fees and costs (those incurred in defending against
allegations of appellee's wrongdoing). Because we hold that
appellant is not entitled to indemnification from appellee, we
do not address this question.