City of Willmar v. Short-Elliott-Hendrickson, Inc., SHORT-ELLIOTT-HENDRICKSO

• Citation: 512 N.W.2d 872
• Decision Date: 11 March 1994
• Docket Number: INC,No. C8-92-1614,SHORT-ELLIOTT-HENDRICKSO,C8-92-1614
• Court: Supreme Court of Minnesota (US)
• Parties: 23 UCC Rep.Serv.2d 110, Prod.Liab.Rep. (CCH) P 13,810 CITY OF WILLMAR, Minnesota, Plaintiff, v., Petitioner, Appellant, Adolfson & Peterson, Inc., Defendant, Clow Corporation, Respondent.

Page 872

512 N.W.2d 872

23 UCC Rep.Serv.2d 110, Prod.Liab.Rep. (CCH) P 13,810

CITY OF WILLMAR, Minnesota, Plaintiff, v. SHORT-ELLIOTT-HENDRICKSON, INC., Petitioner, Appellant Adolfson & Peterson, Inc., Defendant Clow Corporation, Respondent.

No. C8-92-1614.

Supreme Court of Minnesota.

March 11, 1994.

Syllabus by the Court

A consulting engineer's crossclaim for contribution and indemnity against a manufacturer-seller of a component part used in a municipal facility is not subject to, and hence is not barred by, the Uniform Commercial Code's 4-year statute of limitations.

Thomas L. Adams, Mark J. Heley, William M. Hart, Mark A. Bloomquist, Meagher & Geer, Minneapolis, for appellant.

Robert E. Cattanach, Kevin C. Quigley, Oppenheimer, Wolff & Donnelly, St. Paul, for respondent.

Heard, considered, and decided by the court en banc.

SIMONETT, Justice.

This case returns to us asking whether a defendant's crossclaim for indemnity and contribution against a codefendant will lie when the plaintiff's cause of action against the codefendant is barred by the statute of limitations. We hold the crossclaim survives, and we reverse.

This litigation began in 1987 when the City of Willmar, plagued by a malfunctioning waste water treatment plant, sued three defendants: the consulting engineers, Short-Elliott-Hendrickson, Inc. (Short-Elliott); the manufacturer of a critical component, Clow Corporation; and the general contractor, Adolfson & Peterson, Inc. When this case first came before us, the main issues were the application of two statutes of limitation to the City's claims: section 336.2-725, which provides a 4-year limitation for Uniform Commercial Code claims; ¹ and section 541.051, the 2-year limitation period for defective condition of an improvement to real estate. ² See City of Willmar v. Short-Elliott-Hendrickson, Inc., 475 N.W.2d 73 (Minn.1991) (City of Willmar I).

In City of Willmar I, we held the City's claim against Clow Corp., the manufacturer-seller, was a breach of warranty action for the sale of goods and was barred by the U.C.C. statute of limitations. We also ruled that whether the statute of limitations for a defective real estate improvement barred the City's negligence claim against Short-Elliott, the consulting engineers, depended on when the City discovered or had reason to discover the alleged defects in the defendant engineer's design. This, we said, presented a question of fact for trial, and we remanded for further proceedings.

On return to the trial court, defendant Clow Corp. found itself still in the lawsuit because of Short-Elliott's crossclaim against it for contribution or indemnity. So Clow Corp. moved for summary judgment dismissing the crossclaim. At some point in these proceedings (as we were told at oral argument), the City of Willmar settled its lawsuit against Short-Elliott with a general release. All that remains of the litigation, then, is Short-Elliott's claim for contribution or indemnity against Clow Corp. (Prior to Willmar I, the City had settled with Adolfson & Peterson, Inc., the general contractor, on a Pierringer release.) In due course, the trial court denied Clow Corp.'s motion for summary judgment, thus leaving the contribution-indemnity claim alive; but the trial court also certified to the appellate court as important and doubtful whether (1) the U.C.C. statute of limitations barred the contribution-indemnity claim, and (2) if so, whether such application was unconstitutional.

The court of appeals reversed the trial court, ruling that the 4-year U.C.C. statute of limitations applied, and that its application was not unconstitutional. City of Willmar v. Short-Elliott-Hendrickson, Inc., 498 N.W.2d 766 (Minn.App.1993).

The key issue before us, then, is whether the consulting engineers' crossclaim against Clow Corp. is governed by the 4-year U.C.C. statute of limitations--in which case the crossclaim is barred; or whether the 2-year statute of limitations of Minn.Stat. Sec. 541.051 for defective improvements to real estate governs--in which case the crossclaim survives. (In this case, 2 years is "longer" than 4 years because the 2 years did not start running until Short-Elliott had settled with the City of Willmar. See footnote 2, supra.)

Respondent Clow Corp.'s basic argument is that the claim for contribution or indemnity is, at bottom, a breach of warranty claim based on a sale of goods, i.e., the sale of certain rotating cylinders used in the facility; and, as a breach of warranty claim, the claim is barred. Clow Corp. contends that it should not be held liable in contribution or indemnity for a breach of warranty claim when it cannot be held liable to the plaintiff for that very same breach of warranty.

The difficulty with this argument is that contribution and indemnity are independent causes of action; they are venerable equity actions and part of our state's common law. See, e.g., White v. Johnson, 272 Minn. 363, 137 N.W.2d 674 (Minn.1965), overruled on other grounds, Tolbert v. Gerber Indus., Inc., 255 N.W.2d 362, 368 n. 11 (Minn.1977) (adopting comparative fault contribution). Contribution requires, first, a common liability of two or more actors to the injured party, and second, payment by one of the actors of more than its fair share of the common liability. White, 272 Minn. at 376, 137 N.W.2d at 677. Indemnity applies when, among other situations, a party fails to discover or prevent another's fault and, consequently, pays damages for which the other party is primarily liable. See, e.g., Tolbert, 255 N.W.2d at 366.

Respondent does not really dispute that contribution-indemnity is a separate cause of action, ³ but rather claims that, in this case, it is an action "based on" a breach of contract for the sale of goods. In response, appellant Short-Elliott points out that the U.C.C. statute of limitations is expressly limited to "[a]n action for breach of any contract for sale." Minn.Stat. Sec. 336.2-725.

In fact, contribution-indemnity is not based on contract or tort, although either may secondarily be involved, but on one party paying more than its fair share of a common liability. Common liability exists when both parties are liable to the plaintiff for the same damages, even though their liability may depend on different legal theories. See, e.g., Farmers Ins. Exch. v. Village of Hewitt, 274 Minn. 246, 249, 143 N.W.2d 230, 233 (1966). Thus, here, common liability may exist where Short-Elliott's liability to the plaintiff City is for alleged negligence, while Clow Corp.'s liability is for alleged breach of warranty. In short, the nature of the common liability is of secondary importance to the fact of common liability itself. The same holds true for indemnity, where the primary liability of the indemnitor (e.g., breach of warranty) may rest on different grounds than the secondary liability of the indemnitee (in negligence).

Next, to get to the issue at hand, it makes no difference that the injured plaintiff's claim against the party from whom contribution-indemnity is sought is barred by the statute of limitations. Plaintiff is not bringing the contribution-indemnity claim; rather the claim is being brought by Short-Elliott, which, by paying more than its fair share of a common liability shared with another, has sustained an injury different in kind from the plaintiff City's injury. But even more importantly, a statute of limitations defense does not negate liability; it is only a procedural device that is raised after the events giving rise to liability have occurred, and which precludes the plaintiff from collecting on that liability. See Spitzack v. Schumacher, 308 Minn. 143, 145, 241 N.W.2d 641, 643 (1976). Indeed, unless the defendant affirmatively asserts the statute of limitations bar, a plaintiff can still recover on its claim against that defendant.

As a practical matter, a party may lose the protection afforded by the statute of limitations against a plaintiff's claim when there are other defendants who do not have a statute of limitations defense to plaintiff's claims; but equity deems it more important that a defendant not evade its liability at the literal expense of a codefendant. ⁴ However, the statute of limitations defense is frequently dependent on when the plaintiff decides to commence suit, a decision outside the control of the defendant that pays more than its fair share.

The well-settled law in Minnesota is contrary to respondent Clow Corp.'s contention. For that matter, the majority of courts of other states that have treated the problem have decided against Clow Corp.'s position. ⁵ In 1965, in White v. Johnson, supra, this court held that a defendant truck driver involved in a personal injury motor vehicle accident could maintain a third party complaint against the City of St. Paul for contribution-indemnity for negligent signing of the highway, notwithstanding that plaintiffs could not sue the city because they had failed to serve the city with a written notice of claim as then required by statute. In so holding, this court noted, "the majority of the courts hold that running of the statute of limitations against one defendant on the plaintiff's claim does not bar a suit for contribution against him." 272 Minn. at 371, 137 N.W.2d at 679.

In recent years this court has dealt with the so-called economic loss rule which limits recovery of certain property damages to the remedies provided by the Uniform Commercial Code. See, e.g., Lloyd F. Smith Co. v. Den-Tal-Ez, Inc., 491 N.W.2d 11 (Minn.1992); Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn.1990). Respondent Clow Corp. seeks to take advantage of this line of cases by arguing that to allow Short-Elliott's crossclaim for contribution-indemnity would violate the U.C.C.'s exclusive governance of commercial transactions. Respondent points out that the U.C.C. selected a 4-year statute of limitations for "contractual actions" because it was "appropriate to modern...