Show’s Over – Indemnity Dispute Between State Fair and Equipment Lessor Regarding Collapsed Stage Continues (IN)

by

In re Indiana State Fair Litigation (Indiana)
(one Judge dissenting)

This case arises from a collapsed stage at a state fair in August of 2011, which caused several deaths and injuries.  The issue was whether the stage equipment supplier (Mid-America Sound [“Mid-America”]) was entitled to indemnification from the event operator (the Indiana State Fair Commission [“Commission”]) based on the terms and conditions of the typical course of business between them.

Dating back to the mid-1990s, the Commission leased temporary roof structures and other equipment from Mid-America to use for outdoor concerts on property operated by the Commission.  During the last ten years of their relationship, the parties followed the same procedure with regard to the equipment leasing.  Mid-America delivered the equipment before the event and then later returned to pick up the equipment after the event.  When it picked up the equipment, Mid-America would sign contracts for the rented items and submit the contracts to the Commission.  The Commission audited each contract to make sure it conformed to the agreement of the parties and then issued payment.

All of the contracts before 2003 did not include an indemnity provision.  However, beginning in 2003, the parties began using a form agreement which included indemnity language, which was used over the next 9 years (more than one hundred agreements were signed during the period).  Each agreement consisted of a double-sided invoice, which had the “Conditions of Contract” on the back.  As part of the conditions for the agreement, the Commission “agreed ‘to assume the entire responsibility for the defense of, and to pay, indemnify, and hold [Mid-America] harmless from and hereby release [Mid-America] from any and all claims for damages to property or bodily injury (including loss of life) resulting from ‘ the use of Mid-America’s equipment.”  In another section, the conditions provided that “the Commission again agreed to ‘pay, indemnify, and hold harmless [Mid–America] from and hereby releases [Mid–America] from any and all claims for damage to property or bodily injury’ resulting from the use of the equipment.”  The Commission provided claim vouchers to accompany the invoices, and the vouchers were signed by Commission officials who certified that the invoices were true and correct and in accordance with the contracts.

In 2009, the Commission hired a contracts officer who sought to adopt a “sole source” agreement that would allow the Commission to accept equipment and services from Mid-America without requiring the Commission to participate in a bidding process.  At the request of the Commission, Mid-America submitted a letter referring to the long-term working relationship between the parties, noting Mid-America’s satisfaction with how business was conducted between them, and referring to to the parties’ prior course of dealings.  Mid-America’s letter noted that it had always provided the Commission with lower-than-normal pricing, and that it was able to do so because the Commission understood Mid-America’s billing and invoice process.  Mid-America noted that the long term relationship would permit Mid-America to continue to charge at the same pricing level and limit future increases.

In 2011, the Commission claims that it sent Mid-America its “Standard Terms and Conditions that it provided in all contracts.”  That document included language pursuant to which “Mid–America would agree to indemnify and hold harmless the Commission, but the Commission would not provide such indemnification to Mid–America.”  However, there was no evidence that the parties ever executed an agreement with that language or that Mid-America actually received it.

At the State Fair in 2011, Mid-America provided equipment to the Commission, and strong winds blew the temporary roof structure and audio equipment to the grounds.  Mid-America presented the normal invoice for the equipment lease, which included indemnity language in favor of Mid-America.  The Commission gave the invoice and associated vouchers “special scrutiny” because of the problem with the winds, but they were signed by the Commission (certified as “true and correct”) and Mid-America was paid.

At another event later in 2011, a number of people were killed or injured when a stage collapsed at a concert.  Many lawsuits followed, with Mid-America asserting cross-claims (or third party claims), seeking indemnification from the Commission.  The trial court granted summary judgment in favor of the Commission (finding it did not owe a duty to indemnify Mid-America), and Mid-America appealed.  However, the Court of Appeals of Indiana reversed the decision.

In reviewing the applicable law, the Court noted that “[n]o public policy prevents parties from contracting as they desire, and in Indiana, a party may contract to indemnify another for the other’s own negligence.”  However, the Court explained that because it is a “harsh burden,” “such provisions are strictly construed and will not be held to provide indemnification unless it is so stated in clear and unequivocal terms.”

First, the Court had to address the issue of retroactivity in light of the fact that the invoice with the terms and conditions (including the indemnity language) for the equipment that failed on the day of the incident was not provided to the Commission until after Mid-America had rendered its services, and after the incident occurred.  The Court ultimately concluded that the “designated evidence of the parties’ course of dealing [gave] rise to a genuine issue whether the application of the indemnity provision may fairly be characterized as ‘retroactive'” such that summary judgment could not be granted on the issue.  The parties’ “longstanding course of dealing” had included indemnity terms on the invoices for many years, and those invoices were never submitted until after the completion of the events.

Second, the Commission argued that the indemnity provisions were unconscionable in that it was something Mid-America “slipped in” the contract back in 2003.  The Commission claimed that the language was “tucked into the middle of small boilerplate print on the back of the invoice.”  However, the Court disagreed, noting that the indemnification provision was in the same size type as all of the remaining text and one of the emboldened headings in the terms and conditions was “Responsibility for Use — Indemnity.”  Additionally, the parties’ long course of dealing was also important to the Court’s analysis.  The Commission presented evidence to indicate that its Director did not read the invoices, but the Court referred to the Commissions statutory obligation to audit and certify contracts before a payment can be made.  There was evidence of review and certification of the many invoices that the Commission paid to Mid-America.

The Commission further argued that it “did not knowingly and willingly agree to indemnification.”  However, the Court referred to “ample evidence” that the Commission “reviewed, audited, approved, and paid the invoice at issue, and numerous similar invoices over the years.”  As such, the Commission was not entitled to summary judgment on those grounds.

Finally, the Commission argued that even if the indemnity language was valid, it could not be enforced because the Commission, as a government entity, could not enter into such an agreement in light of the Indiana Tort Claims Act (“ITCA”) and the Appropriations Clause of the Indiana Constitution.  However, the Court pointed out that the ITCA “applies only to a claim or suit in tort” (not a contractual dispute).  Moreover, the Court noted that the “legislature has explicitly granted the Commission broad authority to enter into contracts,” and nothing in the record before the Court reflected that “the Commission’s enabling statute or its own rules concerning contracts prohibit indemnification agreements.”

The decision of the trial court was reversed, and the case was remanded for trial.

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