Two virtually identical wrongful death cases involving fatal automobile accidents on a stretch of private road in El Paso County triggered a dispute between a property owner and its lessee over an indemnity provision in the lease.
CEMEX Construction Materials Pacific, LLC v. Ranchos Real Land Holdings, LLC (No. 08-20-00219-CV) arose from the second of these cases (the Borrego case), in which a rollover accident killed the driver and two of his four passengers. The accident occurred at a ninety-degree turn in the road. Plaintiffs alleged that CEMEX and Ranchos were negligent and grossly negligent in failing to limit public access to the road, failing to provide adequate signage and lighting, and failing to erect barriers that might have mitigated the damages resulting from the crash. Ranchos cross-claimed against CEMEX for contractual indemnity and sought attorney’s fees and expenses incurred in defending the suit. Plaintiffs nonsuited Ranchos, and the trial court severed Ranchos’ indemnity claim against CEMEX. The jury returned a substantial verdict against CEMEX in the underlying suit.
In the severed case, Ranchos filed a motion for summary judgment on its indemnity claim. CEMEX cross-motioned for summary judgment but also contended that Ranchos’ indemnity claim was barred by collateral estoppel. Just a year prior to this suit, another trial court in El Paso County ruled against Ranchos in an indemnity claim based on the same provisions. The prior suit (the Ochoa case) likewise arose from a fatality accident on the same turn in the road. The trial court granted summary judgment for Ranchos and denied CEMEX’s motion. It entered final judgment for $226,733.65 in attorney’s fees, plus court costs and post-judgment interest. CEMEX appealed.
The court of appeals reversed and rendered. First, the court determined that Ranchos indemnity claim was indeed barred by collateral estoppel. A showing of collateral estoppel (or issue preclusion), a party “must establish that (1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action” (citation omitted). Applying this test, the court found that the facts asserted in the first action, the Ochoa case, were fully and fairly litigated in the first action, which likewise involved competing summary judgment claims based on the indemnity provision. But contrary to the trial court in Borrego, the trial court in Ochoa ruled that the indemnity provision in the CEMEX surface lease did not satisfy the express negligence rule, taking CEMEX off the hook for Ranchos attorney’s fees. As to whether the facts litigated in Ochoa were essential to the judgment in that case, the court found that the legal issues in both cases were identical even though the facts of each case differed slightly. Moreover, although Ranchos settled in the first case (as opposed to being nonsuited in the second one), that had no effect on the express negligence rule issue, and the parties were certainly cast as adversaries nonetheless. Collateral estoppel thus barred Ranchos claim for indemnity under the surface lease.
Despite holding that Ranchos could not relitigate the applicability of the indemnity provision, the court went on to an express negligence rule analysis. The express negligence rule is a rule of contract interpretation (not an affirmative defense) that requires an indemnity provision to clearly and specifically state that it covers the indemnitee’s own negligence (citations omitted). The indemnity clause at issue here provided that “[E]xcept as to only injury, death or property damage proximately caused by the sole negligence or willful misconduct of [Ranchos], for which [Ranchos] is legally liable, [CEMEX] agrees to indemnify and hold [Ranchos] harmless from any and all losses, claims, suits, actions, damages and liability whatsoever.” The problem with this language, according to the court, arose from its exclusion of the indemnitee’s sole negligence without a specific inclusion of concurrent negligence. In order to have covered Ranchos’ negligence in this case, the clause should have explicitly stated that the indemnitor would indemnify for claims regardless of whether Ranchos was found negligent “in whole or in part.” It did not, so CEMEX did not owe indemnity under the surface lease.
The last issue in the case was whether CEMEX owed indemnity under a separate agreement in which Ranchos granted CEMEX an easement for access to the private road. In the easement agreement, the indemnity provision was triggered by suits arising out of CEMEX’s exercise of the rights granted [in the easement agreement] or activities or operations [under the agreement].” Ranchos claimed that the accident involving Borrego and his passengers occurred on the easement, which covered a small section of the private road just south of the point at which the road makes the ninety-degree turn. Unfortunately for Ranchos, its own accident reconstruction expert concluded that Borrego’s truck ran right through the turn and never reached the easement. So much for the indemnity claim based on the easement agreement.
This is an interesting case for its holdings on collateral estoppel and the express negligence rule. Business-to-business disputes like this one bring to mind the potential difficulties of defining the jurisdiction of a specialized business court. Under past proposals for such a court, this case would not qualify because the amount at issue in the breach of contract claim was well under $1 million, the jurisdictional minimum. Even supposing that the amount of the claim exceeded that amount, however, the contract interpretation issues would have been the same. Moreover, the contract dispute was severed from the underlying personal injury case. Again, if the amount in controversy had exceeded $1 million in the severed claim, would that claim be transferred to the business court or remain in the court where the personal injury case was pending? If so, would that be a good use of scarce judicial resources? It does seem logical that highly complex and esoteric business disputes should have recourse to a specialized tribunal with subject matter expertise. The question then becomes where to draw the line between “complex” and generic disputes, especially where the questions of law are pretty basic.
