McClanahan v. American Gilsonite Co.

Citation: 494 F. Supp. 1334Docket: Civ. A. No. 77-C-1127

Court: District Court, D. Colorado; July 21, 1980; Federal District Court

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Plaintiffs Preston James McClanahan, Marilyn McClanahan, Margaret T. Morris, Laura L. Morris, and Scott A. Morris filed for damages due to personal injuries and wrongful death stemming from an oil refinery accident on November 16, 1975, at the Mesa Refinery in Fruita, Colorado. The case was initiated in state court on November 15, 1977, and later removed to federal court. Initially, the complaint did not name Standard Oil Company of California (Socal) or Chevron Research Company (CRC) as defendants, but included Chevron U.S.A. Inc., which was later dismissed from the case. A Second Amended Complaint in February 1978 added Socal as a defendant, and a Third Amended Complaint in September 1978 included CRC, which is a subsidiary of Socal.

The Mesa Refinery was owned by Gary Operating Company at the time of the accident and had previously been sold to Gary by Gilsonite in December 1973. Gilsonite had originally built the refinery to process gilsonite and crude oil, but after a fire in 1973, it was modified to operate solely as a crude oil refinery. The plaintiffs allege that the changes made during this conversion contributed to the 1975 accident. The court granted Socal's and CRC's motions for summary judgment regarding Margaret T. Morris, while denying them for other plaintiffs. Gilsonite's motion was granted in part and denied in part.

Plaintiffs allege that Gilsonite's modifications to the refinery caused an accident, but also assert that the refinery's original design, construction, and operational procedures contributed to the incident. Socal and CRC are named as defendants due to their roles in the refinery's initial design and construction. They argue that the plaintiffs' claims are barred by section 13-80-127, C.R.S.1973, due to their lack of involvement with the refinery post-1957. The plaintiffs challenge the applicability and constitutionality of this statute.

The wrongful death claims filed by Margaret T. Morris and her family are governed by section 13-21-204, C.R.S.1973, which they assert is the proper statute of limitations rather than section 13-80-127, which pertains to personal injury claims. The court agrees, noting that section 13-21-204 applies to all wrongful death actions and does not conflict with section 13-80-127, which pertains specifically to injury claims. The amendment to section 13-80-127 in 1979 to include wrongful death actions further supports this interpretation.

Despite the applicability of section 13-21-204, Socal and CRC contend that the plaintiffs did not join them as defendants within the required two-year limitation following the accident. The original complaint was filed on November 15, 1977, just before the two-year deadline, but Socal and CRC were not joined until February and September 1978. The plaintiffs argue that, under F.R. Civ. P. 15(c), the amendments adding these defendants relate back to the original complaint's filing date, as the claims arose from the same transaction and the defendants were sufficiently notified of the action to avoid prejudice.

Plaintiffs assert compliance with the notice requirement of Rule 15(c) by arguing that Socal, as the parent corporation of Chevron U.S.A., received actual notice of the lawsuit shortly after the complaint was served on Chevron. They further claim that CRC, a wholly-owned subsidiary of Socal represented by the same counsel, also received sufficient notice. However, the defendants contend that Rule 15(c) necessitates that notice must be given within the statutory two-year period for commencing the action, specifically before November 16, 1977. The plaintiffs do not allege that CRC or Socal received notice prior to Chevron being served on November 21, 1977, thus the relation back doctrine does not apply.

Nonetheless, the plaintiffs argue that claims made by the decedent's children, Scott and Laura Morris, remain valid due to the tolling period outlined in section 13-81-103, C.R.S.1973, which applies when the true owner of a right is under disability, such as minors. This statute allows for an extension of the statute of limitations, providing that a legal representative can act within two years of their appointment, even if this period extends beyond the original statute of limitations. The court acknowledges this argument as persuasive, noting that section 13-81-103 applies to all Colorado statutes of limitations, including wrongful death claims.

The court finds no evidence regarding whether Mrs. Morris was appointed as the children's representative, leading to an assumption that the action was timely filed on their behalf. Consequently, the court grants summary judgment in favor of Socal and CRC against Margaret T. Morris, while denying it for Laura and Scott Morris, leaving open the possibility of revisiting the issue with additional evidence.

Plaintiffs Preston James McClanahan and Marilyn McClanahan are pursuing compensatory damages for personal injuries and loss of consortium. Defendants Socal and CRC argue that their claims are barred by section 13-80-127, C.R.S.1973, and seek summary judgment based on undisputed facts. Although section 13-80-127 appears applicable, it is claimed to be unconstitutional, with section 13-80-110, C.R.S.1973, serving as the governing statute of limitations instead.

To assess the constitutional challenges to section 13-80-127, it must first be determined if the section, if valid, would bar the McClanahans’ claims. The statute stipulates that actions for injuries related to improvements to real property must be brought within two years of the claim arising, and no later than ten years after substantial completion of the improvements. Key issues include whether the case involves an "improvement to real property" and whether such improvements were substantially completed more than ten years ago.

The plaintiffs contend that the structures and equipment at the Mesa Refinery involved in the accident do not qualify as "improvements to real property" under section 13-80-127 and argue that their claims relate to Socal and CRC's development of refining processes rather than the refinery's physical design and construction. Colorado courts have not definitively interpreted "improvement to real property," but other jurisdictions typically adopt a common usage approach. Definitions from sources like Webster’s Third International Dictionary and Black's Law Dictionary characterize an improvement as a substantial enhancement to property that increases its value, distinguishing it from mere repairs. Given the absence of a special meaning in the statute or Colorado case law, "improvement" should be interpreted in its commonly accepted sense.

The refinery equipment in question includes a delayed coking unit and a surge tank, which overflowed, causing injuries to individuals. The central issue is whether this equipment qualifies as "improvements" under a special statute of limitations. It is determined that there is no factual dispute regarding the classification of these structures, allowing for a legal interpretation of the term “improvement to real property.” Initially, the refinery had a melt plant associated with the delayed coking unit, which processed gilsonite into a liquid for further refining. Following a fire, the refinery was modified to process only crude oil, utilizing the surge tank as an integral part of the system.

Both the delayed coking unit and surge tank are viewed as intermediate components that cannot be detached from the overall refinery, which is recognized as an improvement. Despite arguing for the surge tank's separate status, its size and interconnections with the refinery reinforce its characterization as an improvement to real property. The plaintiffs argue that the liability of defendants Socal and CRC extends beyond physical design to their role in developing operational processes for the refinery. However, the court finds no evidence that their involvement was separate from the refinery's design, asserting that the design of these processes is inherently linked to the physical structure of the refinery.

The complaint alleges that CRC and Socal were contracted to design, construct, and develop operational procedures for a refinery, with all activities closely tied to that objective. Section 13-80-127 applies to individuals involved in the design, planning, and construction of real property improvements. Even if all allegations by the plaintiffs are assumed true, Socal and CRC's actions fall within this statute's scope. The plaintiffs argue that the refinery was not 'substantially completed' until after changes made in 1973, which they claim should reset the ten-year limitation for filing their action. However, this interpretation contradicts the legislative intent of section 13-80-127, which should recognize the original completion date in 1957, as the defendants had no involvement post-1960s. Consequently, the plaintiffs filed their complaint more than ten years after this date.

The plaintiffs challenge the constitutionality of section 13-80-127 on several grounds: it allegedly grants special privileges contrary to Colorado’s Constitution, violates equal protection under the Fourteenth Amendment, denies access to courts under Colorado’s Constitution, and deprives them of property without due process. The defendants contest the plaintiffs' standing, specifically regarding the equal protection and special immunities claims. Two standing questions arise: whether the plaintiffs have suffered an 'injury in fact' and whether they are proper proponents of the legal rights asserted. The first question confirms the plaintiffs' injury, as they risk losing their rights under section 13-80-127. The second question is more complex; while plaintiffs can assert their own rights to access courts and due process, their arguments concerning equal protection and special immunities primarily seek to assert rights on behalf of others, leading to challenges on the legitimacy of their claims.

The Court in Singleton v. Wulff established a general rule that individuals typically lack standing to assert the constitutional rights of third parties, primarily to avoid unnecessary judicial adjudication of those rights. The Court noted that third parties may not wish to assert their rights or may still enjoy them regardless of the outcome of the litigation. Additionally, third parties are usually the most effective advocates for their own rights. However, this rule can be set aside when its justifications are not present, particularly concerning two key factual elements: the relationship between the litigant and the third party and the latter's ability to assert their own rights. 

In the case at hand, the Court determined that the plaintiffs were appropriate parties to raise arguments regarding equal protection and special immunities. The plaintiffs argued that their exclusion from certain protections under a statute of limitations directly impacted their ability to assert their rights against preferred defendants. Their interest in the outcome was deemed equivalent to that of excluded material suppliers or construction laborers. The Court clarified that while the plaintiffs’ relationship to the excluded parties was not close, the outcome of the suit would significantly affect the enjoyment of the rights in question. The final point emphasized was that although there were no significant obstacles preventing the excluded third parties from asserting their rights, the plaintiffs remained the best available proponents for those rights in court.

The plaintiffs' standing to assert constitutional challenges hinges on whether they are proper proponents of the legal rights they claim. While there is a general principle that one party cannot assert another's rights, this has not been uniformly applied as a strict constitutional limitation on federal jurisdiction. The Court acknowledges a legitimate threat to the plaintiffs from section 13-80-127, confirming their interest in the case parallels that of the individuals whose rights are at stake.

The plaintiffs argue violations of the Fourteenth Amendment's Equal Protection Clause and Article II, section 11 of the Colorado Constitution, which prohibits irrevocable grants of special privileges. However, Colorado courts have typically addressed such challenges under Article V, section 25, which restricts the General Assembly from passing local or special laws that confer exclusive privileges or immunities.

Both the equal protection claims and the special immunities claims share similar standards. The Equal Protection Clause allows for classifications by the state, provided they have a reasonable basis. Legislative discretion is broad, and classifications are only deemed abusive if irrelevant to the state's objectives. Here, without a suspect classification or fundamental right involved, the Court must assess whether the classifications are rationally related to legitimate state purposes. This principle also applies under Article V, section 25, where permissible classifications must be based on substantial differences relevant to the legislation's objectives. Several state courts have upheld similar equal protection and special legislation challenges against statutes akin to section 13-80-127.

Several cases have deemed certain statutes invalid due to constitutional challenges, including Overland Construction Co. Inc. v. Sirmons (Fla. 1979), Fujioka v. Kam (Haw. 1973), and Skinner v. Anderson (Ill. 1967), among others. Conversely, other courts have upheld such statutes, as seen in Carter v. Hartenstein (Ark. 1970) and Regents of the University of California v. Hartford Accident. Indemn. Co. (Cal. App. 1976). The court concludes that the more reasoned position is that of the courts striking down these statutes, which grant immunity to specific defendants without reasonable justification. The legislature aimed to protect certain construction industry participants from increased liability exposure following the removal of a previous rule that shielded contractors from post-completion liability. The statute's intent is to ensure actions for damages due to construction defects are initiated shortly after project completion, addressing proof challenges over time. However, the statute discriminates by granting immunity solely to architects and contractors while leaving other parties, like property owners, liable and without recourse for indemnity. This arbitrary distinction, highlighted by the Illinois Supreme Court's decision in Skinner v. Anderson, raises concerns about fairness, as negligence from a broader range of individuals could also result in damages.

Immunity is not granted to manufacturers of materials, such as adhesives, if defects lead to issues like a cornice falling after construction, regardless of the four-year time frame. Conversely, architects and contractors responsible for defective design or construction are afforded immunity. The court cites Skinner v. Anderson, emphasizing that the rationale for immunity does not change based on the length of the statute of limitations, which is ten years in this case, compared to four years in Illinois. The statute, section 13-80-127, is deemed invalid as it creates unjust classifications, excluding certain parties like material suppliers and construction laborers from special protection. The court acknowledges persuasive arguments regarding the Colorado Supreme Court’s treatment of medical statutes, but finds them irrelevant to this specific case. The appropriate statute of limitations for the plaintiffs’ claims is section 13-80-110, which aligns with traditional classifications based on liability types rather than defendant categories. This promotes equality under the law and prevents special immunity based on political influence. The court concludes that the statute violates equal protection principles and does not address other constitutional grounds raised. Additionally, the Third Amended Complaint includes eight claims for relief against Gilsonite.

Claims against the defendants include allegations of negligent design, testing, manufacture, installation, inspection, operation, and maintenance of the refinery, as well as negligent concealment and failure to warn about unsafe conditions during the sale to Gary Operating Company. The claims also include a strict liability assertion under Restatement (Second) of Torts 402A, breach of express and implied warranties, and misrepresentation regarding the refinery's safety at the time of sale. The latter claims are implicitly directed at Gilsonite, as they pertain to the sale rather than the initial construction.

Additionally, there is an allegation of fraud or wanton disregard for the plaintiffs’ rights, seeking punitive damages. Gilsonite's summary judgment motion argues it should not be liable for injuries sustained after it sold the refinery, citing the principle that a vendor is not liable for personal injuries related to existing defective conditions at the time of a sale. However, this argument is countered by exceptions for active concealment of defects and affirmative acts of negligence that create dangerous conditions.

The court finds that the allegations in the first, second, sixth, and seventh claims fit these exceptions, indicating potential liability for Gilsonite. The court also rejects Gilsonite's assertion that following operating instructions would have prevented the explosion, noting that it cannot definitively rule out other potential causes. Furthermore, Colorado law, as established in Wright v. Creative Corporation, limits Gilsonite's defenses.

Applying the MacPherson doctrine, liability for injuries or death caused by negligent construction of real property extends to contractors or builders after project completion and acceptance by the owner, if the completed work poses a danger to third parties. In this case, Gilsonite's involvement in structural and design changes post-fire implies a heightened potential for liability if negligence is established. Although the case Wright v. Creative Corporation involved a residence, its principles are not limited solely to residential contexts.

Regarding strict liability claims, Gilsonite argues that the plaintiffs cannot recover under this theory as Colorado has adopted the Restatement (Second) of Torts § 402A, which holds sellers liable for defective products causing harm. The plaintiffs failed to demonstrate that the refinery qualifies as a "product" under this definition, as they did not identify a specific component separate from the integrated refinery. Furthermore, Gilsonite's sale of the refinery was a singular transaction rather than a continuous business activity involving such products. The Colorado Court of Appeals has also limited strict liability's application in cases like Wright, emphasizing that the rule is designed to ensure manufacturers bear the costs of injuries from defective products, rather than the injured parties.

The primary challenge in recovering damages for injuries caused by a chattel lies in identifying the negligent party and ensuring recovery from them. There are notable distinctions between the application of strict liability in manufactured products versus building construction, where a builder's liability is less easily limited through warranties and disclaimers. Tracing defects is more feasible in construction due to the potential for thorough inspections of structures. The court did not categorically rule out strict liability for improvements on real property, but its reasoning is applicable here, particularly as the plaintiff, Gary, had an independent engineer assess the refinery's condition before purchase. Consequently, the plaintiffs cannot pursue their strict liability claim.

Regarding the breach of warranty claims, Gilsonite argues that the plaintiffs lack a factual basis for their claims of express and implied warranty breaches. These claims are grounded in the sales provisions of Article 2 of the Uniform Commercial Code (UCC) as adopted in Colorado, which pertains only to "goods." "Goods" are defined as movable items at the time of sale, and while certain attached items can qualify, the sale of the refinery from Gilsonite to Gary does not fit this definition. The contract did not envision severability of the refinery components, as noted in relevant case law.

The analysis regarding the plaintiffs' claims against Gilsonite also applies to claims against Socal and CRC, although the breach of warranty and misrepresentation claims are primarily focused on Gilsonite's sale to Gary. Both Socal and CRC supported Gilsonite's motion, resulting in the rulings from the opinion applying to all defendants. Thus, Socal's and CRC's motions for summary judgment based on the statute of limitations are granted concerning plaintiff Margaret T. Morris but denied for other plaintiffs. Gilsonite's motion for summary judgment, with Socal and CRC joining, is granted for the third, fourth, and fifth claims and denied for the remaining claims.

Most facts relevant to the motions are undisputed, unless specified otherwise. The Court asserts jurisdiction under 28 U.S.C. § 1332. Amendments to Section 13-80-127 took effect on July 1, 1979, and the relevant language is cited as it applies to this case. Section 13-21-204 was similarly amended in 1979 for cases initiated after June 7, 1979, with applicable language quoted. The Third Amended Complaint indicates that Socal and CRC were involved in various refinery aspects, but the claims specifically target the "delayed coking unit" and "surge tank." Plaintiffs reference City of Victoria v. Victoria County, 103 Tex. 477, 129 S.W. 593 (1910) to argue that structures beneficial for specific uses but detrimental to others do not qualify as improvements. However, the court finds this interpretation misaligned with common understanding and potentially exclusionary of many specialized structures. Consequently, the distinction drawn is deemed unpersuasive.