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Federal Signal Corp. v. Tammcor Industries, Inc.

United States District Court, N.D. Illinois, Eastern Division

June 28, 2017

FEDERAL SIGNAL CORPORATION, Plaintiff,
v.
TAMMCOR INDUSTRIES, INC., and PEERLESS INDEMNITY INSURANCE COMPANY a Liberty Mutual Company, Defendants.

          MEMORANDUM OPINION AND ORDER

          Harry D. Leinenweber, Judge

         I. BACKGROUND

         Plaintiff, Federal Signal Corporation ("Federal Signal") was named as a defendant in a California state court products liability action arising from a personal injury suffered by an employee while working on board a marine vessel. The employee alleged that he suffered permanent partial blindness caused by wind-borne particles of paint hitting him in the eyes. The paint particles blew off of an "Atkinson Dynamics Model AD-TB-25 Speaker, " manufactured by Federal Signal, which was affixed to a weather deck bulkhead. The plaintiff further alleged that the specific cause of his injury was the failure of the powder coating applied to the talk back part of the speaker to congeal or adhere properly, which caused it to degrade into loose, dusty, free-flying particles of paint. Tammcor Industries, Inc. ("Tammcor"), the Defendant here, who is alleged in this case to be responsible for the painting, was not named in that lawsuit.

         Federal Signal settled the lawsuit in December 2014 for the sum of $450, 000.00. Federal Signal also entered into side agreements with two other defendants in the law suit. In return for contributions toward the settlement of $25, 000.00 each, Federal Signal was assigned all rights, if any, those defendants had against Tammcor.

         Federal Signal, after settling the products liability lawsuit, filed this suit against Tammcor seeking indemnity to recover its and its two co-defendants' defense and settlement costs. The First Amended Complaint alleges that the defective product that gave rise to the product liability lawsuit was manufactured by Tammcor and sold to Federal Signal for incorporation into the AD-TB-25 Speaker. Count I of the First Amended Complaint seeks contractual indemnification based on a written provision in an alleged purchase order given to Tammcor by Federal Signal. Count III is based on Implied Indemnification, and Count IV is based on Equitable Contribution. (Count II is not directed against Tammcor.) Tammcor has moved for dismissal of each of the three counts.

         The specific parts in question subject to the powder coating failure were metal castings which, Federal Signal contends, were purchased from Tammcor pursuant to written purchase orders. These castings were incorporated by Federal Signal into the AD-TB-25 Speaker System which it assembled and sold. Tammcor was responsible for obtaining the metal castings from a Federal Signal supplier and then coating and painting them. However, according to an expert report prepared for Federal Signal, these castings were not properly painted for a product intended for use in a "marine environment." The report further opined that the castings made of aluminum should have been pretreated in order to enable them to resist corrosion. In a letter Federal Signal sent to Hose-McCann Communications, the purchaser of the AD-TB-25 Speaker, it admitted that its speaker failed to pass a salt spray testing based on the corrosion performance criteria.

         Federal Signal bases its claim for indemnity on the preprinted terms of its standard form purchase order, which stated as follows in paragraph 12 of the Terms & Conditions:

INDEMNIFICATION. Seller shall defend, indemnify and hold harmless Buyer against all damages, claims or liabilities and expenses (including attorney's fees) arising out of or resulting in any way from any defect in the goods or services purchased hereunder, or from any act or omission of Seller, its agents, employees or subcontractors. This indemnification shall be in addition to the warranty obligations of Seller and Seller agrees to provide Certificates of Insurance for such Indemnity upon request.

         Federal Signal produced examples of prior dealings between it and Tammcor where such a standard form purchase order was used. However, it was unable to produce any such purchase order governing the sale of the specific castings that were the subject of the products liability lawsuit. The only document produced that referred to this product was an offer letter Federal Signal sent to Tammcor, which purported to detail its offer to Tammcor to machine the specific product in question.

         This offer required Tammcor to purchase specific raw casting inventory from a Federal Signal supplier, then to transition the purchasing of castings to another Federal Signal supplier, and to maintain inventory of the castings on a consignment basis.

         The offer further stated that pricing, engineering, quality control, and delivery from die casting suppliers were to be handled by Federal Signal. The offer further provided that Tammcor was responsible for all tooling costs, and was responsible for maintaining inventory of product. The offer said nothing about pre-treating and/or painting the castings. Nor did the offer make mention of any requirement that Tammcor indemnify Federal Signal. The offer did, however, state that "the agreement" could only "be modified in writing signed by both parties."

         II. TAMMCOR' S MOTION

         Tammcor bases its Motion for Summary Judgment on Count I on Federal Signal's failure to produce a written indemnity agreement. It bases its Motion for Summary Judgement on Counts III and IV on Federal Signal's alleged design failure to ensure satisfaction of corrosion performance criteria, which made it at least partially at fault. Tammcor's Motion is straightforward: this is a breach of contract claim for indemnity, and the first element is the existence of a valid contract consisting of an offer, an acceptance, and consideration. All American Roofing, . Inc. v. Zurich Am. Ins. Co., 404 Ill.App.3d 438, 439 (1st Dist. 2010). Federal Signal has produced writings consisting of an offer agreement, engineering drawings, buy cards, a memorandum of understanding between the parties, and a Kanban agreement, none of which set forth an agreement on Tammcor's part to indemnify Federal Signal.

         Federal Signal responds by asserting that the two parties had a long term business relationship, which started in 2004 and ended in 2008, under which Tammcor supplied Federal Signal with parts for industrial audio speakers that Federal Signal assembled and sold. In this case, Tammcor was responsible for obtaining, coating, and painting the castings to be used in the audio speakers. Tammcor shipped the castings from its Kentucky plant to Federal Signal's facility in ...


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