Indemnity. Dismissal of third party claim as “moot” affirmed, despite loss later sustained by appeal and settlement of primary claim.

The Stratton Corporation v. Engelberth Construction, Inc., 2015 VT75 [Filed May 29, 2015.]
SKOGLUND, J.,This appeal arises from dismissal of third-party claims in a construction contract dispute. Owner sued Engelberth Construction, Inc., the project's general contractor. Engelberth filed third-party complaints for indemnification against its subcontractors. The trial court granted summary judgment to Engelberth on Owner’s claims, finding the claims barred by the statute of limitations. Given its summary judgment ruling, and without objection, the court dismissed Engelberth's third-party claims as moot.

Owner’s appeal was also dismissed pursuant to the parties' stipulation. After notification that Owner and Engelberth had settled on appeal, the court issued an entry order on dismissing all claims of whatever sort asserted by any party in this matter. Engelberth sought to amend the dismissal order to provide that the third-party claims were dismissed without prejudice. The court denied its request, and Engelberth appeals. We affirm.

Engelberth maintains that its settlement with Owner after Owner appealed the summary judgment constituted a cognizable loss for which the third-party defendants were contractually responsible. We disagree.

 It is clear that Engelberth's claims were derivative of Owner’s claims against Engelberth. As we have stated, "[i]f the third-party plaintiff prevails against the principal plaintiff and incurs no liability, the third-party defendant in turn incurs no liability to the third-party plaintiff." Riblet Tramway Co. v. Marathon Elecs.-Avtek Drive Div., 159 Vt. 503, 506, 621 A.2d 1274, 1275 (1993). The trial court determined that Engelberth had no liability to Owner on the statute of limitations. At that point, the court reasonably concluded that Engelberth's third-party claims were moot and should be dismissed.

Rule 41(b)(3) expressly provides that: unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision operates as an adjudication upon the merits. We do not address Engelberth's assertion, raised for the first time on appeal, that a dismissal on mootness grounds is not an adjudication on the merits under Rule 41. Engelberth sought to amend the dismissal order to be "without prejudice," but not for any of the reasons it now advances on appeal, Engelberth raised no timely objection to the dismissal of its claims. "[H]aving slept on its rights," we will not now do for Engelberth "what by orderly procedure it could have done for itself." U.S. v. Munsingwear, Inc., 340 U.S. 36, 41 (1950).

Given the absence of any appeal or any other modification of the underlying decision, it is the law of the case that Engelberth has no liability to Owner, and thus, Engelberth has no basis upon which to assert any third-party claims.

SCOVT note:

May a party who incurs attorney’s fees and defense costs who is not liable to the principal plaintiff recover against a third party on a theory of implied indemnity after prevailing against the plaintiff?

Insurers expressly agree to indemnify against groundless claims. Does the obligation of implied indemnity ever extend this far?

The opinion in Stratton v Engelberth suggests the answer is "no." It quotes Riblet Tramway Co. for a general rule that "If the third-party plaintiff prevails against the principal plaintiff and incurs no liability, the third-party defendant in turn incurs no liability to the third-party plaintiff.” Riblet Tramway Co. v. Marathon Elecs.-Avtek Drive Div., 159 Vt. at 506.

The actual holding of Riblet is based on res judicata.

In Riblet the third party plaintiff’s failure to appeal the court's dismissal of its third party claim became a final adjudication of the claim. The case is very similar factually to Stratton v Engelberth in that the defendant/ third party plaintiff prevailed against the plaintiff on grounds of statute of limitations, and then the court dismissed the third party claim. The Riblet Court said defendant should have opposed the dismissal and, if unsuccessful, appealed.

 The Riblet Court expressly said it had no views as to whether dismissal of the main claim mandated dismissal of the third party claim. 159 Vt. at __ n. 1.

Stratton v Engelberth, likewise, should not be viewed as merits ruling that a defending party who incurs no liability cannot recover fees and costs on a theory of implied indemnity. The ruling is grounded in the failure of Engelberth to raise timely objection to the dismissal of its claims and its failure to appeal.  See also Knappmiller v. Bove, 2012 VT 038 (mem.) (party exonerated on main claim who requested  indemnification for attorney’s fees did not preserve issue because it did not object to in instruction that jury was to reach indemnity claim only if plaintiff prevailed).