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BESSER CO. v. PACO CORP.

February 3, 1987

Besser Company, Plaintiff
v.
Paco Corporation, Defendant



The opinion of the court was delivered by: NEALON

 Plaintiff commenced this action by filing a Complaint on September 16, 1985. In the Complaint, plaintiff seeks indemnity or contribution from defendant as a result of plaintiff's payment of two hundred thousand ($ 200,000.00) dollars to one Robert Galdieri (Galdieri) pursuant to a settlement of Galdieri's case against plaintiff and defendant. Defendant demanded a jury trial and filed an answer on February 13, 1986. Pursuant to the court's instructions, the parties filed pretrial memorandums concerning the burden of proof plaintiff would bear at trial. The issue presented confronts the court with a legal question which must be determined prior to trial. For the reasons set forth below, the court concludes that at trial plaintiff must establish its actual liability, as opposed to potential liability, to Galdieri on the indemnity claim and plaintiff will need to establish that plaintiff and defendant were joint tort-feasors in Galdieri's action to proceed on plaintiff's contribution claim. *fn1"

 FACTUAL BACKGROUND

 Plaintiff instituted this action against defendant seeking in the alternative indemnity or contribution for plaintiff's payment of $ 200,000.00 in the settlement of a prior personal injury action filed by Galdieri in the United States District Court for the Middle District of Pennsylvania against Plaintiff Besser Company and Defendant Paco Corporation. The settlement occurred during a trial on the merits, but Defendant Paco Corporation did not contribute toward the settlement. While defendant admits to the reasonableness of the amount of the settlement, defendant disputes the existence of liability by any party for Galdieri's injuries.

 DISCUSSION

 At the outset, the court recognizes that in this diversity action, the law of the forum must be applied. See Erie Railroad Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938). Accordingly, the court must apply Pennsylvania law to the instant action.

 In Tugboat Indian Co. v. A/S Ivarans Rederi, 334 Pa. 15, 5 A.2d 153 (1939), the Pennsylvania Supreme Court stated, "To recover indemnity where there has been such a voluntary payment, however, it must appear that the party paying was himself legally liable and could have been compelled to satisfy the claim." Id. at 21 (emphasis in original). In that case, Defendant Tugboat Indian Company (Tugboat) settled with plaintiff for $ 2,500.00. Upon commencement of the action by plaintiff, counsel for Tugboat wrote letters to counsel for A/S Ivarans Rederi (Rederi) and Moore and McCormick, Inc. (Moore) demanding that these defendants undertake defense of the suit. In addition, prior to effecting the settlement of the case with plaintiff, Tugboat gave notice of the proposed payment and expressly reserved the right of action by way of subrogation against the remaining defendants. The above quotation in Tugboat was reaffirmed by the Pennsylvania Superior Court in Martinique Shoes, Inc. v. New York Progressive Wood Heel Co., 207 Pa. Super. 404, 217 A.2d 781 (1966). In Martinique, the court recognized that the only question raised by the appeal was that relating to the quantity of proof required to support plaintiff's claim for indemnification. The Superior Court reaffirmed the principle that a party making a voluntary payment assumes the risk of being able to prove the actionable facts upon which his liability depends as well as the reasonableness of the amount which he pays. Id. at 409. As the court stated:

 
Where a judgment has been rendered against an indemnitee but no notice has been given to the indemnitor there rests upon the indemnitee the burden of justifying his payment of damages by offering against the indemnitor in the second action practically the same evidence as was relied on to establish the case against the indemnitee in the first action. (citations omitted). We are of the opinion that this requirement prevails also in the case of settlements, even with notice, as previously stated, and the opinion of counsel for the indemnitee that the settlement is reasonable or advisable is not sufficient to establish such liability.

 Id. See also Ridgeway Court, Inc. v. James J. Canavan Ins. Assoc., Inc., 348 Pa. Super. 136, 501 A.2d 684 (1985) (Superior Court persuaded of the continuing viability of Martinique Shoes).

 In its pretrial memorandum, plaintiff attempts to distinguish Martinique Shoes by claiming that in Martinique Shoes the indemnitor was not a party to the underlying action and was not aware of the settlement. A review of the facts in Martinique Shoes, however, compels a different conclusion.

 In Martinique, one Defendant, Hahn, demanded that Defendant Martinique assume the defense of the claim and Martinique notified Defendant Progressive of the suit and demanded that it undertake the defense. When neither Martinique nor Progressive undertook the defense, and with the case approaching trial, Hahn settled with plaintiff. Upon formal demand, Martinique paid the amount of the settlement plus costs to Hahn. Martinique then sought indemnity from Progressive.

 As stated, the evidence indicated that Martinique had made a demand from Progressive prior to the settlement. Indeed, the court expressly stated, "Had the Witt case against Hahn proceeded to trial, verdict and judgment, the facts to support a claim for indemnity would have been established since both Martinique and Progressive had notice of the suit and an opportunity to defend." Id. 207 Pa. Super. at 407 (citations omitted). In rendering its decision, the Superior Court was of the opinion that the requirement of proving actual liability prevailed in cases of settlements, even with notice. Id. at 409. Accordingly, the court does not find plaintiff's distinctions persuasive.

 In Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303 (3d Cir.), cert. denied, 474 U.S. 980, 106 S. Ct. 384, 88 L. Ed. 2d 337 (1985), our Court of Appeals stated, "Under Pennsylvania law, the right to indemnity 'enures to a person who, without active fault on his own part, has been compelled, by reason of some legal obligation to pay damages occasioned by the ...


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