Max's of Camden Yards v. A.C. Beverage

¹⁴³ EYLER, JAMES R., J. Max’s of Camden Yards, L.L.C. (“Max’s”) and Insurance Designers of Maryland, Inc., Max’s liability insurer, appellants, filed a complaint, later amended, in the Circuit Court for Baltimore City against A.C. Beverage, Inc. (“A.C. Beverage”), Selective Insurance Company of America (“Selective”), A.C. Beverage’s liability insurer, appellees, and Chad Burger (“Burger”). 1 Prior to the filing of the complaint in this case, Burger had sued Max’s and A.C. Beverage, alleging that they negligently had caused Burger to sustain personal injuries, and appellees had settled Burger’s claims against both Max’s and A.C. Beverage, without any contribution from appellants. In this case, appellants seek to be indemnified for attorney’s fees and costs incurred in the defense of the Burger suit. Appellants also seek a declaration that appellees must indemnify them in any future actions brought by parties alleging injuries sustained in the same manner as Burger.

Overview Generally, if more than one tortfeasor is found liable to a plaintiff, and one of them is found to be passively negligent, the passively negligent tortfeasor has a right of implied indemnity against an actively negligent tortfeasor. Usually, the issue of implied indemnity is addressed either after findings of fact have been made in the underlying case or as a preliminary matter when later fact findings are contemplated in the underlying case. In the case before us, the issue of implied indemnity arose after the tort plaintiffs claims were settled and, therefore, in the absence of findings of fact, or contemplated findings of fact, in the underlying case. Stated briefly, Burger, the tort plaintiff, sued two alleged tortfeasors, Max’s and A.C. Beverage, claiming compensation for personal injuries allegedly caused by the tortfeasors’ negligence.

Prior to trial, one of the tortfeasors, A.C. Beverage, settled all of the plaintiffs claims and obtained a release of ¹⁴⁴ itself and the other tortfeasor. The non-settling tortfeasor, Max’s, then filed a separate indemnity action against the settling tortfeasor, A.C. Beverage, alleging that the settling tortfeasor was actively negligent and that it, the non-settling tortfeasor, was only passively negligent. The non-settling tortfeasor claimed that it was entitled to be indemnified for the attorney’s fees and costs incurred in defending the tort plaintiffs claims, and for the attorney’s fees and costs it was incurring in pursuing its indemnity claim. The two insurance carriers, parties on this appeal, are parties only by virtue of being liability carriers for the two alleged tortfeasors.

An implied indemnity action between alleged or actual tortfeasors based on the active-passive negligence distinction is recognized under Maryland law. It is unclear, however, whether and, if so, under what circumstances attorney’s fees and costs, as distinguished from losses or damages, may be recovered in such an implied indemnity action. The primary issue before us is whether, on the facts of this case, the non-settling tortfeasor has a valid indemnity claim for attorney’s fees and costs against the settling tortfeasor. The answer ultimately turns on: (1) whether Maryland recognizes a right to recover attorney’s fees and costs as an element of recovery if an implied indemnity action otherwise lies; and, if so, (2) whether the right to indemnity is controlled by the tort plaintiffs allegations against each tortfeasor, i.e., whether active or passive negligence was alleged, or by the facts as found after a trial; and (3) if both active and passive acts of negligence were alleged against the non-settling tortfeasor, regardless of whether indemnity is controlled by the allegations or the facts as found, whether the attorney’s fees and costs the non-settling tortfeasor seeks to recover should be apportioned between defense of the active negligence claims and defense of the passive negligence claims.

To our knowledge, there are no Maryland eases squarely on point. We expressly do not answer the above questions generally, confining our holding to the facts of this case. We do so because we have determined that it is virtually impossible to ¹⁴⁵ anticipate the various factual situations that may arise and fashion rules governing each. We hold that when: (1) the tort plaintiff sues more than one alleged tortfeasor and alleges active negligence against the tortfeasor seeking indemnity, and (2) the tort plaintiffs suit is dismissed as to the alleged tortfeasor seeking indemnity and the alleged tortfeasor from whom indemnity is sought prior to adjudication of tortfeasor status, then (3) the alleged tortfeasor seeking indemnity is not entitled to fees and costs incurred in defending the tort plaintiffs claims or fees and costs incurred in pursuing the indemnity action.

Factual and Procedural Background According to appellants’ amended complaint, Max’s owned and operated a restaurant and bar. Pursuant to an agreement between Max’s and A.C. Beverage, A.C. Beverage was responsible for inspecting and cleaning the beer lines in Max’s establishment. Several patrons at Max’s restaurant and bar became ill after allegedly consuming tainted beer. One such patron, Burger, brought a claim for damages against Max’s and A.C. Beverage, who had serviced the lines that carried the beer from the keg to the beer tap.

As an exhibit to the amended complaint, appellants attached a copy of the complaint filed by Burger. In his complaint, Burger alleged that he became violently ill and suffered severe injuries after consuming beer at Max’s due to (1) Max’s negligence in failing to properly inspect, maintain and clean its facilities; in negligently hiring incompetent and negligent contractors to inspect, maintain, and clean its facilities; in negligently supervising the contractors that it hired, and (2) A.C. Beverage’s negligence in failing to properly inspect, maintain and clean the beer lines. Burger’s action never reached trial as Burger settled all of his claims in exchange for money paid by Selective, A.C. Beverage’s insurer. Appellants did not contribute to the settlement.

Burger executed a general release, which re ¹⁴⁶ leased both alleged tortfeasors, and dismissed his complaint with prejudice. Appellants’ amended complaint contained four counts. Count I was styled “declaratory judgment-the Burger action” and requested a declaration that appellees were required to indemnify appellants for the fees and costs incurred in defending the Burger action. Count II was styled “breach of contract.” The count is vague, but at oral argument appellants asserted that the contract referred to was the contract between Max’s and A.C. Beverage.

Count III was styled “indemnification” and sought a judgment for the fees and costs incurred in defending the Burger action and in pursuing the action against appellees. Count IV was styled “declaratory judgment-subsequent claims” and requested a declaration that appellees shall indemnify appellants, for both costs of defense and damages, in any other claims filed by patrons of Max’s, alleging injuries as a result of drinking tainted beer. Appellees filed a motion to dismiss the amended complaint on the ground that no indemnification was owed by either Selective or A.C. Beverage and, specifically, that Selective had no contractual relationship with appellants. Following oral argument, the circuit court granted appellees’ motion to dismiss by order, incorporating the reasons stated on the record at oral argument.

With respect to the indemnity claim, it appears the court relied heavily on this Court’s decision in Boatel Industries, Inc. v. Hester, 77 Md. App. 284 , 550 A.2d 389 (1988). With respect to the request for declaratory relief as to any future claims by persons claiming personal injury as a result of ingesting tainted beer, the court found that appellants had not presented a justiciable controversy. Contentions Appellants sought indemnification for fees and costs incurred (1) in defense of the Burger action, and (2) in pursuing this action. Appellants also requested a declaration of the ¹⁴⁷ indemnification rights of the parties with respect to any future claims.

We shall examine the contentions in the order listed. There is no need to address other contentions except to state that there was no contract or tort relationship between appellants and Selective, A.C. Beverage’s insurer, and appellants have no valid direct claim against Selective. Additionally, while Count I was styled a request for declaratory relief, it related to the Burger action. Resolution of the indemnity claim in Count III effectively declared the rights of the parties in that regard.

There was nothing to add. Finally, Count II, breach of contract, requires no discussion because, as confirmed at oral argument, the contract was alleged solely to provide a basis for imposing a tort duty on A.C. Beverage. Appellants do not claim that appellees expressly agreed to indemnify appellants. For the reasons set forth below, we shall affirm the judgment entered by the circuit court.

Indemnification for the Burger Action Passive!Active Negligence A claim for indemnification may be based on an express contract or may be implied by law. In this case, we are not concerned with express indemnity. Indemnity between tortfeasors or alleged tortfeasors, the situation before us, falls within the concept of implied indemnity. Implied indemnity between tortfeasors “arose in an era when contribution among joint tortfeasors was not permitted.” Franklin v. Morrison, 350 Md. 144, 154 , 711 A.2d 177 (1998).

The right to contribution is now available pursuant to the Uniform Contribution Among Tortfeasors Act (“UCATA”), see Maryland Code (2002 Repl.Vol., 2006 Cum.Supp.) §§ 3-1401 to 3-1409 of the Courts and Judicial Proceedings Article (“C.J.”). UCATA did “not impair any right of indemnity under existing law.” Id. at 3-1406. Indemnity between tortfeasors continues to be developed by case law. For a thorough discussion of implied indemnity, and its application, see Franklin, 350 Md. at 154-58 , 711 A.2d 177 .

See also Restatement of Torts ¹⁴⁸ (Second) § 886B (identifying the situations in which indemnity is generally appropriate between tortfeasors) and Restatement (First) of Restitution §§ 89-98 (same). The basis for implied indemnity is the concept “that one person is unjustly enriched at the expense of another when the other discharges liability that it should be his responsibility to pay.” Franklin, 350 Md. at 154 , 711 A.2d 177 (quoting Restatement (Second) of Torts § 886B cmt. c). The Restatement lists are not exclusive. Id. at 160, 711 A.2d 177 .

Indeed, it would be difficult, if not impossible, to synthesize all of the cases and develop a cohesive explanation for the results. Generally, implied indemnity is dependent on the relationship between the alleged tortfeasors or the nature of their respective acts. Frequently occurring situations in which a right to implied indemnity between tortfeasors has been recognized include a tortfeasor liable (1) vicariously for the conduct of another, (2) for failing to discover a defect in a chattel supplied by another, (3) for failing to discover a defect in work performed by another, and (4) for failing to discover a dangerous condition on land created by another. Of the various bases for indemnification, the basis relied on in this case is the distinction between active and passive negligence. 2 This right to implied indemnity exists when there is a disparity between the levels of fault of each tortfeasor that produces an unjust result, and the less culpable tortfeasor, said to be passively or secondarily negligent, pays or is held liable for damages which are properly attributable to the conduct of the more culpable co-defendant, who is primarily or actively negligent.

Hanscome v. Perry, 75 Md. App. 605, 615 , 542 A.2d 421 (1988) (citations omitted); Gardenvillage Realty Corp. v. Russo, 34 Md.App. 25, 40-41 , 366 A.2d 101 (1976). This concept is based on the distinction ¹⁴⁹ between “active” and “passive,” however, not on relative degrees of fault. Any other approach would be inconsistent with the UCATA because it apportions liability among tortfeasors on a pro rata basis, see C.J. § 3-1402, not on a relative fault basis. Maryland does not recognize comparative negligence.

See Franklin, 350 Md. at 168 , 711 A.2d 177 . We note that “[i]t is well established under Maryland law that one who is guilty of active negligence cannot obtain tort indemnification,” regardless of whether the alleged tortfeasor from whom indemnity is being sought was actively negligent. Franklin, 350 Md. at 163 , 711 A.2d 177 . The general rule is that, if an implied indemnity action lies, fees and costs are includible, particularly when the indemnitor was on notice of the underlying claim and was offered the opportunity to defend the indemnitee in the underlying claim.

See 42 C.J.S. Indemnity § 42; 41 Am.Jur.2d Indemnity § 30. Regardless of what the general rule may be in other jurisdictions it is very doubtful, under Maryland law, whether and, if so, when attorney’s fees and costs are recoverable in an implied indemnity action. It is highly doubtful, under Maryland law, whether fees and costs are recoverable as part of an indemnity claim based on the active-passive negligence distinction, under any circumstances that may exist in that context. In most of the Maryland cases addressing the active-passive negligence distinction, the Courts either concluded that there was no right to indemnity on the facts before it, see Franklin, 350 Md. 144 , 711 A.2d 177 , or the issue of recovery for attorney’s fees and costs, as distinguished from damages, was not presented.

See Gardenvillage Realty Corp., 34 Md.App. 25 , 366 A.2d 101 . The recovery of defense fees and costs was permitted in Chesapeake & Ohio Canal Co. v. Allegany County Comm’rs, 57 Md. 201 (1881) (noting that counsel fees should be available in indemnity cases as it would place an unfair hardship for a defendant to pay its own fees where it is answering essentially for the negligence of a co-defendant). The viability or extent of this holding is in question. It may ¹⁵⁰ be limited to those situations in which, by virtue of the particular relationship of the parties, the law imposes a duty to defend, as well as to indemnify.

A duty to defend is separate from a duty to indemnify. Generally, an alleged tortfeasor has no duty to defend another alleged tortfeasor. In order to maintain an action for contribution, the tortfeasor seeking indemnity must be hable to a plaintiff, in addition to the tortfeasor from whom indemnity is being sought. Similarly, an action for indemnity based on the active-passive distinction generally requires shared liability.

There are circumstances in which implied indemnity has been held to be available without a showing of liability by the indemnitee, but ordinarily, that result requires facts different from those in this case. For example, circumstances, particularly the relationship of the parties, may give rise to a duty by one entity to defend another entity. Another example is when a statute establishes a duty to defend. It may be that, in Maryland, recovery of defense fees and costs is limited to those situations.

Maryland does recognize that, when an innocent party is forced into litigation with a third party by the wrongful conduct of another, the innocent party can recover fees and costs incurred in defending itself from the culpable party. See Chang v. Brethren Mut. Ins. Co., 168 Md.App. 534, 553 , 897 A.2d 854 (2006).

In contrast to the above situations in which recovery of attorney’s fees has been permitted, there are many Maryland appellate decisions stating that, generally, attorney’s fees are not recoverable unless by contract, statute, or rule. See Bresnahan v. Bresnahan, 115 Md.App. 226, 243-47 , 693 A.2d 1 (1997). The statements, however, are usually in the context of discussing the availability of attorney’s fees as part of compensatory damages, and not in the context of identifying the extent of recovery in an implied indemnity action. We conclude that it is very doubtful whether Maryland recognizes the right to recover defense fees and costs under any variation in circumstances discussed in this opinion, as an ¹⁵¹ element of recovery, in an implied indemnity action based on the active-passive distinction.

This includes a situation in which the tortfeasor seeking indemnity was found to be passively negligent and the tortfeasor from whom indemnity is being sought was found to be actively negligent, at least absent some special relationship, beyond a contractual obligation by one to maintain facilities owned by another. Nevertheless, we shall assume, without deciding, for purposes of the remainder of the discussion, that attorney’s fees and costs incurred in defense of the underlying tort claim may be available as an element of recovery under certain