General Contractor Not a "Seller" Entitled to Indemnity in Product Liability Case

General Contractor Not a "Seller" Entitled to Indemnity in Product Liability Case

On June 17, 2016, the Texas Supreme Court held that a general contractor was not a "seller" under Chapter 82 of the Civil Practice and Remedies Code and, therefore, not entitled to indemnification from the manufacturer of an allegedly defective roof truss. See Centerpoint Builders GP v. Trussway Ltd., 2016 WL 3413329 (Tex. June 17, 2016). The general contractor, according to the Court, was not a "seller" because it was not "engaged in the business of" selling the roof trusses. Rather, providing the trusses was merely incidental to the general contractor's construction services. The Centerpoint decision does not represent the expansion of liability for general contractors and manufacturers that could have occurred if the Court had ruled differently. See "Looming Texas Supreme Court Decision Could Impact Contractor Liability in Construction Cases." Nevertheless, the Court emphasized that the "seller" analysis is fact-specific and that a general contractor could be considered a "seller" under different circumstances.

Chapter 82

Chapter 82 provides a means for an "innocent" seller to seek indemnification from the manufacturer of an allegedly defective product. See Tex. Civ. Prac. & Rem. Code § 82.002. The statute requires a manufacturer to indemnify and hold harmless a seller against loss arising out of a product liability action, except for any loss caused by the seller's negligence, intentional misconduct, or other act or omission for which the seller is independently liable. Id. at § 82.002(a). "Seller" is broadly defined in the statute as "a person who is engaged in the business of distributing or otherwise placing, for any commercial purpose, in the stream of commerce for use or consumption a product or any component part thereof." Id. at § 82.001(3).

Notably, the Texas Supreme Court in Fresh Coat, Inc. v. K-2, Inc., 318 S.W.3d 893 (Tex. 2010) held that a contractor hired to apply synthetic stucco components to homes according to the manufacturer's instructions and training is a "seller" of the synthetic stucco components. The Court in Fresh Coat held that Chapter 82's definition of "seller" does not exclude a seller who is also a service provider, and Chapter 82 does not require the seller to sell only the product at issue. Id. at 899.

Case Background and the Beaumont Court of Appeals Decision

Centerpoint began as a personal injury action filed by Merced Fernandez against Centerpoint Builders GP, LLC ("Centerpoint") and Trussway Ltd. ("Trussway") for injuries sustained while installing drywall at an apartment complex construction project. Centerpoint was the general contractor, and Fernandez was an independent contractor. At the time of the accident, Fernandez was standing on a roof truss that had not yet been installed. The truss broke and Fernandez was severely injured from his fall. Fernandez filed suit, asserting that the truss, which was manufactured by Trussway and purchased by Centerpoint, was defective and unreasonably dangerous.

Centerpoint filed a claim against Trussway seeking statutory indemnification under Chapter 82. Trussway filed a cross-action against Centerpoint, denying that Centerpoint was a seller under Chapter 82 and contending that it was actually an innocent seller that was entitled to indemnification from Centerpoint. The trial court granted Centerpoint's motion for summary judgment and held that Centerpoint was a "seller" under Chapter 82 but denied Centerpoint's motion for partial summary judgment regarding its entitlement to indemnity. The trial court also held that Trussway was not entitled to indemnity from Centerpoint. The parties then filed a joint notice of agreed interlocutory appeal.

On appeal, the Beaumont Court of Appeals reversed the trial court's order and held that Centerpoint does not fit the statutory definition of "seller," focusing on how the Fresh Coat opinion was distinguishable from the facts before it. Centerpoint Builders GP, LLC v. Trussway, Ltd., 436 S.W.3d 882 (Tex. App.—Beaumont, pet. granted).

The Texas Supreme Court's Decision

The Texas Supreme Court framed the inquiry as whether Centerpoint was "engaged in the business of" selling trusses. If so, then it was a "seller" under Chapter 82 entitled to indemnification.

The Court began its analysis by distinguishing Fresh Coat, which it described as being limited to the proposition that one is not precluded from being a seller merely because one also provides services. See Centerpoint, 2016 WL 3413329 at *4. The Court also noted that the contractor in Fresh Coat sold and installed a particular product, as evidenced by testimony that the contractor was in the business of providing the product combined with the service of installing the product. Id.

The Court then turned to case law from both Texas and other jurisdictions, which, although sparse, supported the conclusion that Centerpoint is not a seller. Id. at *6. The Court examined cases—typically in the strict liability context—holding that contractors whose business is providing construction services, as opposed to any particular building material utilized in the construction process, were not sellers of the material. These cases emphasized the distinction between a company in the business of selling its services and a company in the business of selling products. Distilling these cases, the Court held that one is not "engaged in the business of" selling a product if providing that product is incidental to selling services. Id.

Applying this standard, the Court held that Centerpoint was not a seller, even though it technically sold trusses to its customer. Id. In particular, the Court examined the specific project at issue, noting that Centerpoint agreed to undertake construction of an entire building and to be reimbursed for the cost of the materials—including the trusses at issue. Id. This, according to the Court, indicated that Centerpoint was in the business of selling construction services as opposed to trusses or other building materials. Id.

Practical Implications

The Court in Centerpoint declined to expand Chapter 82's applicability to construction cases and provided some much-needed clarity regarding the parameters of the statute's definition of "seller." However, contractors and those in the manufacturing chain should note that the Centerpoint decision left open the possibility of the "seller" designation being applied to contractors in certain situations.

In particular, the Court implied that a general contractor who is also a "retailer" or a "wholesale distributor" of a particular product might be a "seller" under Chapter 82. The Court also placed particular emphasis on how Centerpoint charged its customer for the building materials. The Court noted that Centerpoint did not set prices on the materials to achieve a gain or profit but was effectively reimbursed for the cost of the materials. If building materials were priced to achieve a profit in a particular contract, this fact could weigh in favor of Chapter 82's application.

Given the Court's admonishment that the Chapter 82 "seller" analysis is highly fact-specific—and its acknowledgment that "some contractors may engage in the business of selling both products and services"—this will likely continue to be a heavily contested issue in the construction context. Thus, general contractors and product manufacturers will need to determine how best to allocate the uncertainty of such a statutory indemnification claim. See Centerpoint, 2016 WL 3413329 at *7.

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