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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