Unified School District 467 v. Leland A. Gray Architects, LLC

Citations: 112 F. Supp. 3d 1223; 2015 U.S. Dist. LEXIS 85268; 2015 WL 4041676Docket: Case No. 14-1025-RDR

Court: District Court, D. Kansas; June 30, 2015; Federal District Court

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The court is addressing a motion to dismiss filed by Mitsubishi Electric and Electronics USA, Inc. (MEUS) in a case involving Unified School District 467 (USD 467), which initiated legal action following issues with HVAC installations in its school buildings. USD 467 contracted Custom Construction Design, Inc. (CC&D) as the general contractor, which in turn procured HVAC equipment from Refrigeration Supplies Distributor, Inc. (RSD), specifying MEUS equipment. Problems with the HVAC systems emerged in 2010, prompting inspections by representatives from RSD and MEUS, as well as a subsequent investigation by an engineering firm that identified numerous deficiencies. 

USD 467 originally sued Gray Architects and CC&D in state court for breach of contract, breach of warranty, and negligence, with the case being removed to federal court in 2014. CC&D later filed a Third-Party Complaint against MEUS and RSD. MEUS's motion to dismiss argues that CC&D's claims are baseless, asserting that the breach of implied warranty claim lacks merit due to the absence of privity of contract and that CC&D's tort claims are barred by the statute of limitations. 

The court emphasizes the necessity of a complaint to provide a clear and concise statement of the claim to ensure the defendant is adequately informed. It highlights that for a complaint to survive a motion to dismiss, it must present sufficient factual content to allow a plausible inference of liability against the defendant.

Ashcroft v. Iqbal affirms the "plausibility" standard established in Twombly, emphasizing that mere speculation in allegations is insufficient. The court must accept all allegations as true when resolving motions, focusing on whether a plaintiff can present evidence, not on the likelihood of prevailing. The Tenth Circuit employs a two-step approach to motions to dismiss: first, identifying conclusory allegations that lack an assumption of truth, and second, assessing whether remaining factual allegations plausibly suggest entitlement to relief. The reliance on the outdated Conley standard for dismissal is criticized, as the Supreme Court in Twombly has clarified that plaintiffs must provide more than vague labels; they need to present sufficient facts for a plausible claim. 

In the context of CC&D's breach of implied warranty claims against MEUS, the argument for dismissal is based on Kansas law, which states that a remote product seller is not liable for mere economic loss without personal injury, unless there is contractual privity. CC&D has not demonstrated privity with MEUS, challenging this by asserting two points: that MEUS is not a remote seller due to its involvement in the design and service of the units, and that it is in privity with CC&D because RSD acted as its authorized dealer. CC&D references Ritchie Sand, where claims arose from a similar situation involving a product distributor, to support its position. However, the court's analysis indicates that implied warranties in Kansas do not extend to remote sellers for economic losses unless the product in question is inherently dangerous.

Eagle Iron's motion for summary judgment on implied warranty claims was denied by Judge Crow, who found material issues of fact regarding a potential agreement for design services between Ritchie Sand and Eagle Iron. The judge determined the issue of privity unnecessary to address since Ritchie Sand's claims were based on a service contract. The court distinguished this case from typical scenarios involving goods sold through distributors, as the claims were not solely about defective products. The judge suggested that if implied warranty claims related to equipment manufactured by Eagle existed, Kansas law might recognize privity based on extensive personal contacts between the manufacturer and purchaser, even through an authorized dealer.

In a related matter, CC&D argued that Ritchie Sand's case applied due to allegations that MEUS designed, installed, inspected, and serviced the HVAC system for a school district. MEUS countered that CC&D's allegations were insufficient. The court found CC&D's attempts to connect the case to Ritchie Sand somewhat strained but acknowledged that the third-party complaint included vague allegations of MEUS's involvement. Despite this lack of clarity, the court determined that CC&D's allegations suggested MEUS might not be merely a seller and indicated potential privity due to the involvement of its dealer, RSD. The court permitted further discovery on this issue, agreeing that plausible claims of breach of implied warranties existed, thus denying MEUS's motion to dismiss.

CC&D’s claims against MEUS involve indemnity, contribution, and negligence related to potential liability to USD 467. MEUS contends that CC&D's claims are effectively for comparative implied indemnity and negligence, which are barred by the statute of limitations or fail to state a claim. MEUS asserts that CC&D's allegations do not support claims for express or implied contractual indemnity and that contribution claims are no longer recognized in Kansas. The court reviews CC&D's third-party complaint, where CC&D denies liability to the plaintiff but seeks indemnification or contribution from MEUS if found liable, based on negligence related to Mitsubishi HVAC equipment. Kansas law recognizes three indemnity types: express contractual indemnity, implied contractual indemnity, and comparative implied indemnity. MEUS argues CC&D has not established a basis for any indemnity claim, noting the absence of a relevant contract for express indemnity and a lack of factual pleadings to support implied indemnity or comparative implied indemnity. The court concurs with MEUS, indicating that CC&D has not sufficiently stated a claim for express contractual indemnity due to the lack of a contract and has not addressed this argument in their responses.

CC&D's claim for implied contractual indemnity against MEUS is upheld by the court despite MEUS's argument that CC&D failed to establish a direct relationship between the parties. While implied contractual indemnity typically arises from employer/employee or principal/agent relationships, Kansas courts do not restrict its application to these scenarios. The court finds sufficient allegations in CC&D's third-party complaint, particularly concerning its relationship with RSD, a distributor for MEUS, to support a plausible claim of privity.

MEUS contended that CC&D only asserted a claim for comparative implied indemnity and that CC&D had not demonstrated MEUS's potential liability for any part of the judgment against it. MEUS referenced the Burlington Northern case to bolster this argument. However, CC&D countered that it is not required to specify the type of indemnity claim at this stage and that its allegations align with Kansas's comparative negligence principles. Furthermore, CC&D argued that MEUS incorrectly linked its indemnity claim to its negligence claim, suggesting that the two-year statute of limitations in K.S.A. 60-513(a)(4) should not apply.

The court agrees with CC&D, indicating that the indemnity claim does not need to be categorized solely as a comparative implied indemnity. Unlike the Burlington Northern case, where no relationship was established, the court finds sufficient allegations in the current case to suggest a plausible relationship between MEUS and CC&D. The court refrains from making a final determination regarding the statute of limitations, stating that this issue may be revisited during a motion for summary judgment, rather than at the motion to dismiss stage.

MEUS argues that the claims against them are barred by the two-year statute of limitations because the HVAC system issues were known to the school district by winter 2010, while the third-party complaint was filed on October 7, 2014. In response, CC&D claims that a three-year statute of limitations applies to indemnity claims, making their claim timely. CC&D also contends that if the two-year statute under K.S.A. 60-513(a)(4) applies, their indemnity and negligence claims were timely filed, as the school district could not ascertain the extent of its injuries until an independent inspection in November 2012. The court notes that a statute of limitations defense can be addressed via a motion to dismiss only if the complaint clearly demonstrates that the claim has expired. Under Kansas law, the limitation period begins when substantial injury occurs or when the injury is reasonably ascertainable. The court finds it unclear when the HVAC issues were reasonably ascertainable to the school district, indicating that further factual development is necessary. Additionally, MEUS's argument that contribution claims are eliminated in Kansas is acknowledged but not conclusive, as case law shows ongoing use of the terms interchangeably. Consequently, the court partially grants MEUS’s motion to dismiss by dismissing CC&D's express contractual indemnity claim but denies the rest, allowing the remaining claims to proceed.