City of Fairbanks v. Amoco Chemical Co.
| Decision Date | 09 March 1994 |
| Docket Number | Nos. 92-36924,92-36949,s. 92-36924 |
| Parties | NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. CITY OF FAIRBANKS, a municipal corporation of the State of Alaska, Plaintiff-Appellant/Cross-Appellee, v. AMOCO CHEMICAL COMPANY, a corporation, aka Amoco Chemicals Company, a successor of and formerly known as Amoco Chemicals Corporation, and Amoco Reinforced Plastics Company, a wholly owned subsidiary and alter ego of its parent Amoco Chemical Company, Defendants-Appellees/Cross-Appellants. . Argued and Submitted: |
| Court | U.S. Court of Appeals — Ninth Circuit |
Before: HUG, HALL, and THOMPSON, Circuit Judges.
The City of Fairbanks, Alaska ("City"), filed suit in Alaska state court in September, 1987, alleging strict liability, negligence, breach of express and implied warranty, fraud and unfair trade practices arising from the collapse of pipes used in the City's sewer system. The City named as defendants Amoco Reinforced Plastics Company ("ARPCO"), a subsidiary of Amoco, United Technologies Corporation ("UTC"), and Armco, Inc. ARPCO subsequently removed the case to federal district court based on diversity of citizenship. Amoco Chemical Corporation ("Amoco") was added as a defendant. Prior to trial, the City settled its claims against all parties other than ARPCO and Amoco. All of the claims except the common law fraud claim were dismissed on the ground they were precluded by the applicable statutes of limitations. The district court also granted a partial summary judgment, holding that ARPCO was the alter ego of Amoco. After four days in a bifurcated jury trial, the district court granted a judgment as a matter of law in favor of the defendants. The City appeals from the final judgment, and Amoco cross-appeals on the partial summary holding that it was the alter ego of ARPCO.
In 1974, the City was preparing for the installation of 4.5 miles of large diameter sewer lines to be placed along Van Horn and Peger Roads, in Fairbanks, Alaska. The City's design consultants had previously identified a type of reinforced plastic pipe known as Techite as an acceptable alternative to concrete pipes. Techite was designed and manufactured by UTC until 1973, when it was acquired by ARPCO, a wholly owned subsidiary of Amoco.
The City installed the Techite pipe during the summer and fall of 1975. Within four years of the pipes' installation, a large sinkhole developed along Van Horn Road. Upon further investigation, the City determined that the large crater was attributable to the collapse of a 20-foot section of Techite sewer pipe. At that time, Amoco said the collapse was due either to "improper bedding at the time of initial installation" or "changes in the native soil conditions." Later, the City learned that the collapse of the Techite pipe was due to "strain corrosion," a condition allegedly caused by the sewage passing through the pipes. The City concluded that ARPCO had concealed the defective condition of the Techite pipes.
The collapsed sewer pipes caused extensive damage. Not only did the City experience property damage, but raw sewage spilled into the streets, flooded homes, and created a public health hazard. Consequently, the City was forced to "slipline" the Van Horn sewer line with smaller iron pipe, thereby reducing its carrying capacity by 30 percent. The City estimates the total damage caused by the collapsed sewer lines will exceed $39 million.
ARPCO moved for summary judgment on the City's claims. The district court granted ARPCO's request for summary judgment on the breach of warranty claims, holding that such claims were barred by the Uniform Commercial Code's four-year statute of limitations. The district court rejected ARPCO's other statute of limitations claims on the fraud and non-fraud causes of action and ordered the trial bifurcated so that the jury could resolve certain factual disputes. In the first trial, the jury was required to find whether ARPCO defrauded the City and, if so, when the City learned of the fraud. If the jury found that the City was defrauded, then there was to be a second trial addressing causation, allegations of improper installation, and misuse of the pipe and damages. The district court also granted partial summary judgment in favor of the City on the City's claim that ARPCO had operated as a "mere instrumentality" of Amoco; and, therefore, Amoco would be liable to the City because ARPCO was its alter ego.
The case was subsequently reassigned to a different judge who reaffirmed the bifurcation order, but modified the statute of limitations rulings, thereby barring all claims except the common law fraud claim. At the close of the City's case, the district court granted judgment as a matter of law because the City had not demonstrated reliance and ARPCO had no duty to disclose material facts relevant to the transaction. This appeal and cross-appeal followed.
The City asserts that the district court erred in granting judgment as a matter of law against it on its common law fraud claim. We review an order granting judgment as a matter of law de novo. Donoghue v. County of Orange, 848 F.2d 926, 932 (9th Cir. 1988). A judgment as a matter of law is proper when the evidence permits only one reasonable conclusion as to the verdict. Id.
The City specifically challenges the two district court rulings that formed the basis for the grant of judgment as a matter of law: (1) that the City would be unable to establish fraud under an affirmative misrepresentation theory because the City failed to demonstrate by testimony of a witness that it relied on ARPCO's misrepresentations in purchasing the pipe, and (2) that ARPCO had no duty to warn the City of the Techite pipes' susceptibility to strain corrosion; and, thus, the nondisclosure theory of the fraud cause of action could not be maintained.
The City acknowledges that it was unable to establish reliance by the testimony of a specific witness who relied on the misrepresentations, but it argues that the jury should be permitted to infer reliance based on circumstantial evidence of the misrepresentations made and the action the City took in using the product. The City cites several cases as support for the proposition that reliance need not be proven in every misrepresentation case: State v. First Nat'l. Bank, 660 P.2d 406, 422 (Alaska 1982) and Cousineau v. Walker, 613 P.2d 608, 612 (Alaska 1980). We find the City's argument persuasive. The Alaska Supreme Court noted that a presumption of reliance is appropriate in fraud cases. "Where representations have been made ... and action has been taken, in the absence of evidence showing to the contrary, it will be presumed that the representations were relied on." First Nat'l. Bank, 660 P.2d at 422 n.26 (quoting 12 Williston on Contracts Sec. 1515, at 480). Therefore, we conclude that the district court erred by not applying the presumption of reliance in this case.
It is apparent that the City had substantial evidence to support its claim of misrepresentation. The parties dispute what evidence was admitted and whether other evidence was excluded because of the truncated issues to be tried in the bifurcated trial. Our review of the record convinces us that the City was precluded from introducing this evidence because of the strictures imposed by the bifurcated trial on the limited issues.
With respect to the nondisclosure theory, the City contends that ARPCO had a duty to disclose to the City during the negotiations the fact that the Techite pipes were unsuitable for transporting sewage through the wet, unstable soil conditions indigenous to Fairbanks. We reject ARPCO's contention that it had no such duty to disclose. Alaska law is clear that one who decides to speak is under a duty to disclose (1) facts necessary to prevent ambiguous statements from being misleading, (2) subsequently acquired information that makes previous statements misleading, and (3) facts basic to the transaction. Matthews v. Kincaid, 746 P.2d 470, 471-72 (Alaska 1987).
The City offered evidence demonstrating that ARPCO had knowledge of the alleged unsuitability of Techite pipes for the Fairbanks' sewer project. Two of the City's witnesses testified that ARPCO knew of problems with the Techite pipes and their unsuitability for use in the City's sewer system. In addition, the district court excluded other evidence sought to be introduced by the City that would have further buttressed the City's argument that ARPCO concealed defects in the Techite pipes. Because the City offered evidence of ARPCO's knowledge of the unsuitability of the Techite pipes, which would establish that ARPCO was under a duty to disclose such information, the City should have been permitted to take its case to the jury. The grant of judgment as a matter of law on the nondisclosure theory was therefore improper.
We remand to the district court for a trial on the City's allegations of common law fraud, misrepresentation, and nondisclosure.
The district court ruled that the City's non-fraud causes of action were barred by the applicable statute of limitations. The City argues that this decision was error because the underlying basis for the causes of action was fraud and therefore the statute of limitations should have been tolled until the City "discovered" the fraud. The district court's interpretation of Alaska's discovery rule is a question of law reviewed de novo by this court. In re McLinn, 739 F.2d 1395, 1397 (9th Cir. 1984) (en banc).
In general, Alaska law provides a six-year statute of limitations period for the commencement of a cause of action brought by a municipality. If, however, the...
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