Brookings Mun. Utilities v. Amoco Chemical Co., No. Civ 97-4243.

• Decision Date: 26 May 2000
• Docket Number: No. Civ 97-4243.
• Citation: 103 F.Supp.2d 1169
• Parties: BROOKINGS MUNICIPAL UTILITIES, INC., and City of Brookings, South Dakota, Plaintiffs, v. AMOCO CHEMICAL COMPANY, a corporation, a/k/a Amoco Chemicals Company; Amoco Reinforced Plastics Company, a wholly owned subsidiary and alter ego/instrumentality of its parent, Amoco Chemical Company, Defendants.
• Court: U.S. District Court — District of South Dakota

103 F.Supp.2d 1169

BROOKINGS MUNICIPAL UTILITIES, INC., and City of Brookings, South Dakota, Plaintiffs, v. AMOCO CHEMICAL COMPANY, a corporation, a/k/a Amoco Chemicals Company; Amoco Reinforced Plastics Company, a wholly owned subsidiary and alter ego/instrumentality of its parent, Amoco Chemical Company, Defendants.

No. Civ 97-4243.

United States District Court, D. South Dakota, Southern Division.

May 26, 2000.

COPYRIGHT MATERIAL OMITTED

Robert L. Morris, Quinn, Day & Barker, Belle Fourche, SD, Gregory A. Eiesland, Johnson, Eiesland, Huffman & Clayborne, Rapid City, SD, David Griffin, San Diego, CA, for plaintiffs.

Michael L. Luce, Davenport, Evans, Hurwitz & Smith, Sioux Falls, SD, Richard C. Godfrey, Andrew A. Kassof, Scott W. Fowkes, Kirkland & Ellis, Chicago, IL, Randall S. Henderson, Pasadena, CA, for defendants.

AMENDED MEMORANDUM OPINION AND ORDER

PIERSOL, Chief Judge.

The defendants, Amoco Chemical Company and Amoco Reinforced Plastics Company (ARPCO), have filed a Motion for Summary Judgment on the Merits of the Complaint filed against them by the plaintiffs, Brookings Municipal Utilities, Inc. and the City of Brookings, South Dakota. After the Court's previous Memorandum Opinion and Order on the Motion for Summary Judgment, defendants' filed a Motion for Reconsideration of the Order. For the reasons stated below, defendants' Motion for Summary Judgment is granted in part and denied in part, and the Motion for Reconsideration is denied.

BACKGROUND

Between 1975 and 1980, plaintiffs over-saw the construction of a sewer line, the "Southwest Interceptor," that ran between Brookings and a wastewater treatment facility three miles south of town. The Southwest Interceptor included 14,855 feet of Techite II pipe (hereinafter sometimes referred to simply as "Techite pipe"), which was sold to a private contractor by the defendants. In 1996, after a break in the Techite pipe in 1983 and two more breaks in 1996, plaintiffs replaced all of the Techite pipe in the Southwest Interceptor. In 1997, plaintiffs filed this lawsuit, alleging that the pipe was defective, and seeking damages caused by the alleged defects in the pipe.

The process of building the Southwest Interceptor began in 1975. That year, the City of Brookings hired Banner Associates, Inc. ("Banner"), to engineer and design the pipeline. Banner's senior engineer, Fred Rittershaus, served as the project director, and began the process of designating certain types of reinforced fiberglass pipe as suitable for use in the Southwest Interceptor. In the course of designating such materials, Rittershaus received information about Techite pipe from Chuck Conklin, a representative of ARPCO. At the time, ARPCO was a wholly owned subsidiary of Amoco and the manufacturer of Techite pipe.

The information which Rittershaus received from Conklin included several representations about the qualities of Techite II pipe. For instance, Conklin wrote Rittershaus a letter stating that the defendants manufactured Techite II "in accordance with ASTM D 3262-76 (Sewer Pipe)." An Amoco brochure which Conklin gave to Rittershaus also stated that Techite II met the requirements of ASTM D 3262, and additionally stated that the pipe would "perform satisfactorily after an extended period (50 years) of operation under commonly encountered and anticipated conditions." Techite II's projected life of 50 years was linked to its ability to resist corrosion and its qualification for the ASTM sewer pipe specification. In his deposition, Rittershaus testified that these statements were important to him in deciding whether Techite II was suitable for the Southwest Interceptor.

Despite the statements in defendants' sales literature, there is evidence to suggest that Techite II did not meet the specifications of ASTM D 3262, and that defendants knew it. For example, a memorandum produced by defendants, dated April 26, 1974, discusses the "problems we are having with Type 2 — both in not qualifying for the ASTM and severe leaking at Hydro testing." Defendants apparently tried to fix the problems with Techite II over the next several years. In 1977, a "dossier" prepared by Amoco employees to "provide factual summaries for rebuttal arguments in defense" of Techite pipe, stated that there had been "no Techite strain-corrosion field problems with pipe made to ASTM D3262, since 1973." In 1977, however, a memorandum describing a meeting of Amoco and ARPCO employees to discuss a "five-year (1978-1983) strategy study" on "marketing, manufacturing, research and licensing of Techite pipes" listed, as a research goal: "Solve cracking and strain corrosion problems."¹ As late as August 18, 1980, another memo that was being circulated by a former ARPCO employee continued to discuss corrosion problems with Type 2 Techite pipe.² In particular, the memo stated:

Problems have been encountered with the ASTM test method both by us and apparently others in the industry. It appears that no one can literally meet it but no one will admit it.

There is no evidence that the "problems" defendants had in getting Techite II to meet the ASTM requirements were ever disclosed to plaintiffs or to Banner.

Through Banner, Brookings advertised the Southwest Interceptor project for bids, and listed Techite pipe as one of five kinds of fiberglass reinforced pipe which were suitable for the project.³ North Central Underground ("NCU") submitted the lowest bid which, upon Banner's recommendation, Brookings accepted. NCU entered into a contract with Brookings on February 27, 1979 and, on its own initiative, opted to use Techite II as sewer pipe for the project.⁴ On March 7, 1979 NCU ordered from Amoco 14,855 feet of 30-inch Techite T-2 gravity pipe. On March 30, Amoco certified that the pipe and fittings which it would supply for the Southwest Interceptor "will meet or exceed all of the requirements of ASTM D-3262." On March 31, 1979, the first loads of Techite II were delivered to Brookings by rail. Afterwards, on April 23, 1979, NCU began work on the project. On May 29, 1979, Amoco certified that the pipe which it had supplied "meets all the requirements of ASTM/ANSI D-3262-76 for Type 1, Grade 1 reinforced plastic mortar sewer pipe."

Apparently after NCU had laid all 14,855 feet of the Techite pipe, Rittershaus wrote to NCU to notify NCU about problems with pipe deflection. ARPCO's Techite brochure indicated that pipe corrosion could be accelerated by strain induced by deflection in Techite pipe, and stated that "[m]aximum ring deflection is limited to 5% of the nominal pipe diameter." The letter, a copy of which was also sent to ARPCO, noted that 117 sections of pipe had deflections between 5% and 10%, and an additional 14 sections of pipe had deflections greater than 10%. In response, an ARPCO service manager wrote to Banner, stating that "[t]he strain level at 7.5% deflection will still be within the parameters of ASTM-D-3262 corrosion resistance guidelines," with the only effect being "a small reduction in the safety factor at 50-years life." Rittershaus asked for additional data to support ARPCO's conclusion that the deflection criteria could be relaxed from 5% to 7.5%. On January 3, 1980, Rittershaus received a report indicating that such a relaxation would be within the safety margin after fifty years of service life. Apparently, all of the deflections in the pipeline greater than 7.5% were corrected. On November 6, 1980, after Banner certified and recommended the Southwest Interceptor project for approval, Brookings Municipal Utilities accepted ownership of the pipeline.

After installation, the Southwest Interceptor suffered three corrosion-related incidents. On April 25, 1983, a twenty-foot section of pipe broke, necessitating repair of the pipe and prompting Rittershaus to advise NCU and Amoco of the problem. Almost thirteen years later, on April 14, 1996, a motorist named Heidi Aylward drove her car into what she thought was a mud puddle, but which turned out to be a fifteen-foot deep sinkhole caused by a break in the sewer line. Another break was discovered in June of 1996. After this third break, plaintiffs determined that a majority of the pipeline was damaged, and decided to replace all of the Techite pipe in the Southwest Interceptor at a cost of $1,056,788. Plaintiffs did not discuss the problems with the pipeline with representatives from the defendants or NCU before replacing the pipeline, or before filing this lawsuit.

Plaintiffs' Complaint contains six counts: (1) strict products liability; (2) negligence; (3) breach of express warranty; (4) breach of implied warranty; (5) fraud, deceit and misrepresentation; and (6) deceptive trade practices. Defendants have moved for summary judgment on all counts of the Complaint.

DISCUSSION

Under Rule 56(c) of the Federal Rules of Civil Procedure, "[s]ummary judgment is appropriate when the evidence, viewed in a light most favorable to the non-moving party, demonstrates that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law." Clark v. Kellogg Co., 205 F.3d 1079, 1082 (8th Cir.2000). Because jurisdiction in this case is premised on diversity of citizenship, defendants' motion is governed by the law of South Dakota. See id. If the state law on any issue is ambiguous, the Court must predict how the South Dakota Supreme Court would resolve that issue. See id.

A. Strict Products Liability and Negligence Claims

"The general rule is that economic losses are not recoverable under tort theories; rather, they are limited to the commercial theories found in the UCC." City of Lennox v. Mitek Industries, Inc., 519 N.W.2d 330, 333 (S.D.1994) (adopting the economic loss doctrine in South Dakota).⁵ While this general rule prohibits tort recovery for purely economic losses caused to a defective product itself, it allows recovery in tort when a defective product causes either personal injury or damage to...