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Salt Lake City Corp. v. Sekisui SPR Americas, LLC

United States District Court, D. Utah

September 28, 2018

SALT LAKE CITY CORPORATION; Plaintiff;
v.
SEKISUI SPR AMERICAS, LLC; SEKISUI RIB LOC AUSTRALIA PTY LTD.; SOUTHWEST PIPELINE AND TRENCHLESS CORP.; SAFECO INSURANCE COMPANY OF AMERICA, INC.; HYDRATECH ENGINEERED PRODUCTS, LLC; and DOES 1-10; Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS

          N. Parrish United States District Court Judge

         Before the court are motions to dismiss filed by defendant Sekisui SPR Americas, LLC (Sekisui Americas), [Docket 28]; defendant Sekisui R i b Lo c Australia Pty Ltd. (Sekisui Australia), [Docket 29]; and defendant HydraTech Engineered Products, LLC, [Docket 35]. Two of the defendants-Sekisui Australia and HydraTech-moved to dismiss for lack of personal jurisdiction. The court concludes that plaintiff Salt Lake City Corporation has made a prima facie showing that Sekisui Australia and HydraTech are subject to personal jurisdiction in Utah and DENIES both motions to the extent that they seek dismissal for lack of jurisdiction.

         Three of the defendants-Sekisui Americas, Sekisui Australia, and HydraTech-moved to dismiss on statute of limitations grounds. The court GRANTS all three motions to the extent that they seek dismissal under the applicable statutes of limitations.

         BACKGROUND [1]

         Salt Lake City requested bids to rehabilitate a sewer line by installing a liner within the existing sewer pipe. This “trenchless” method of rehabilitating the sewer line avoids the need to dig up and replace the line.

         Southwest Pipeline and Trenchless Corporation won the bid. Either Sekisui Americas or Sekisui Australia[2] sold its proprietary liner product to Southwest for use in the project. HydraTech supplied joints that were used to connect and seal the sections of pipe liner used in the project.

         Sometime in late 2012, Southwest finished the sewer line rehabilitation project. On December 17, 2012, Salt Lake City sent a letter to Southwest. The letter stated that on November 29, 2012, the city had tested the rehabilitated section of sewer line and had discovered “a significant defect and leak in the liner.” The letter stated that the defect was “allowing 1.0 to 1.5 million gallons per day . . . groundwater infiltration with extremely high total dissolved solids . . . into the pipeline.” The letter demanded that Southwest “correct the defective work” by February 28, 2013. On October 1, 2015, the city formally notified Southwest and either Sekisui Americas or Sekisui Australia of a claim for breach of warranty.

         On May 10, 2017, Salt Lake City sued Southwest, Sekisui Americas, Sekisui Australia, and HydraTech. The operative complaint asserts claims for (1) breach of warranty, (2) products liability, (3) negligence, and (4) negligent failure to warn against Sekisui Americas, Sekisui Australia, and HydraTech.

         ANALYSIS

         Sekisui Australia and HydraTech move to dismiss the claims against them under Rule 12(b)(2) for lack of personal jurisdiction and under Rule 12(b)(6) for failure to state a claim. Sekisui Americas moves to dismiss only for a failure to state a claim under Rule 12(b)(6). Under Tenth Circuit precedent, courts must resolve challenges to personal jurisdiction before addressing arguments related to the merits of the case. OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1090 (10th Cir. 1998). Thus, the court first addresses Sekisui Australia and HydraTech's personal jurisdiction arguments. The court then resolves the statute of limitations arguments asserted under Rule 12(b)(6).

         I. PERSONAL JURISDICTION

         A. Facts Relevant to Personal Jurisdiction As the plaintiff, Salt Lake City bears the burden of establishing personal jurisdiction. Shrader v. Biddinger, 633 F.3d 1235, 1239 (10th Cir. 2011). When the issue of personal jurisdiction “is raised early on in litigation, based on pleadings (with attachments) and affidavits, that burden can be met by a prima facie showing.” Id.

         Salt Lake City proffers the affidavit of the president of Southwest, Justin Duchaineau, in support of its prima facie showing that this court has personal jurisdiction over the defendants. Sekisui Australia and HydraTech also present affidavits in support of their contentions that they are not subject to personal jurisdiction in Utah. Some of the affidavits presented by the defendants-in particular, the affidavit of the acting managing director of Sekisui Australia, Gloria Porcelli-aver facts that conflict with the factual assertions made by the affidavit proffered by Salt Lake City. For the purposes of determining whether Salt Lake City has made its prima facie showing of jurisdiction, the court must “resolve any factual disputes in the plaintiff's favor.” Id. Resolving all disputes in favor of Salt Lake City, the affidavits support the following additional facts that are relevant to the question of personal jurisdiction.[3]

         Around November 2008, Southwest entered into a distributorship agreement with Sekisui Australia, an Australian company that manufactures liners used to refurbish underground pipes. Sometime in 2009, either Sekisui Australia or its American affiliate, Nordi Tube Technologies, Inc., informed Southwest that Salt Lake City had requested bids to refurbish a sewer line. Sekisui Australia asked Southwest to submit a bid for the project using its liners. In support of the bid, Sekisui Australia created design calculations tailored to the Salt Lake City project that were then submitted to the city. The Southwest bid was accepted by Salt Lake City. Sekisui Australia subsequently manufactured pipe liner sections that were specifically designed for the Salt Lake City project. The chain of custody of the liner is not fully laid out in the affidavits, but the liner sections were eventually purchased from Sekisui Americas.

         Sekisui Australia, however, continued to be involved in the Salt Lake City project. While Southwest was installing the liner, two employees of Sekisui Australia-Andreas Vetter and an unnamed individual-were regularly on the jobsite to train Southwest employees and approve the installation work.[4] Sekisui Australia also sent a letter to Southwest that approved of Southwest's proposal to use seals manufactured by HydraTech to create a watertight seal between the liner sections. The approval letter specifically referenced the Salt Lake City project.

         In July 2011, HydraTech, a company located in Ohio, received an order for a number of its joint seals. HydraTech shipped the seals to Southwest in Salt Lake City. HydraTech also sent one of its employees to Salt Lake City for two days to provide on-site installation training.

         B. Legal Standard

         To determine whether it has personal jurisdiction over Sekisui Australia and HydraTech, the court first looks to whether exercising personal jurisdiction satisfies Utah's long-arm statute, and second, whether exercising personal jurisdiction comports with principles of constitutional due process. See Soma Med. Int'l v. Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir. 1999). Utah's long-arm statute “should be applied so as to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the Fourteenth Amendment to the United States Constitution.” Utah Code § 78B-3-201(3). Therefore, the court need only address whether the exercise of personal jurisdiction over the defendants comports with due process demands.

         “The Supreme Court has held that, to exercise jurisdiction in harmony with due process, defendants must have ‘minimum contacts' with the forum state, such that having to defend a lawsuit there would not ‘offend traditional notions of fair play and substantial justice.'” Dudnikov v. Chalk & Vermillion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). A defendant's contacts with the forum state may give rise to either general or specific personal jurisdiction. In this case, Salt Lake City argues that Sekisui Australia and HydraTech are subject to both general and specific personal jurisdiction. The court first addresses the city's specific jurisdiction argument.

         Specific jurisdiction is a two-step inquiry. The court must consider “(a) whether the plaintiff has shown that the defendant has minimum contacts with the forum state; and, if so, (b) whether the defendant has presented a ‘compelling case that the presence of some other considerations would render jurisdiction unreasonable.'” Old Republic Ins. Co. v. Continental Motors, Inc., 877 F.3d 895, 904 (10th Cir. 2017) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476-77 (1985)).

         1) Minimum Contacts

         First, the court must consider whether a defendant has sufficient contacts with the forum state. A defendant's contacts with the forum state are sufficient when two requirements are met:

         (1) “the defendant purposefully directed its activities at residents of the forum, ” and (2) “the plaintiff's claim arises out of or results from the actions by the defendant himself that create a substantial connection with the forum state.” Pro Axess, Inc. v. Orlux Distribution, Inc., 428 F.3d 1270, 1277 (10th Cir. 2005) (citation omitted). Here, both requirements are satisfied.

         i. Purposeful Direction

         The purposeful direction requirement “ensures that a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts, or of the unilateral activity of another party or third person.” Burger King, 471 U.S. at 475 (citations omitted). Instead, jurisdiction is proper “where the contacts proximately result from actions by the defendant himself that create a substantial connection with the forum State.” Id. (citation omitted). Consequently,

where the defendant deliberately has engaged in significant activities within a State, or has created continuing obligations between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by the benefits and protections of the forum's laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well.

Id. at 475-76.

         a) Sekisui Australia

         Because Sekisui Australia delivered its liner sections to a third-party distributer, which then sold the product for use in the Salt Lake City project, the court must conduct a stream-of-commerce analysis to determine if Sekisui Australia purposefully directed its activities toward Utah.

         In J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (2011), the U.S. Supreme Court addressed the conditions under which placing goods into the stream of commerce can subject the manufacturer to specific personal jurisdiction in the state where the goods end up. But the Court did not agree on a majority opinion. “When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, ‘the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds . . . .'” Marks v. United States, 430 U.S. 188, 193 (1977) (alteration in original) (citation omitted).

         The opinion with the narrowest holding in McIntyre was the concurring opinion of Justice Breyer, which “adhere[d] strictly” to the Court's prior precedents. McIntyre, 564 U.S. at 893. The Breyer concurrence affirmed that a manufacturer may be subject to personal jurisdiction in a state if it “delivered its goods in the stream of commerce ‘with the expectation that they will be purchased'” by end-users in that state. Id. at 889 (quoting World -Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298 (1980)). The concurrence concluded, however, that a mere expectation that a good will arrive in a particular state by way of a third-party distributor is not sufficient to establish personal jurisdiction. Courts must also consider (1) whether there was a “‘regular . . . flow' or ‘regular course' of sales” in the forum state and (2) whether there was evidence that the manufacturer had done “something more” to direct its product to the forum state, “such as special state-related design, advertising, advice, [or] marketing.” Id. (citations omitted). Under the facts of McIntyre, a foreign manufacturer that sold its product in the United States through a third-party distributor did not have sufficient contacts with the state of New Jersey to establish personal jurisdiction where only one item was sold in the state and where there was no indication that the manufacturer had done something more to direct its product to the state. Id. at 888-89.

         In this case, Sekisui Australia placed its liners in the stream of commerce and they were eventually sold by Sekisui Americas for delivery and installation in Utah. Similar to the facts of McIntyre, Salt Lake City has not produced evidence of a course of sales in the state. The only evidence before the court is of a single sale to the city. But unlike in McIntyre, where there was no evidence that the manufacturer had done anything to direct its product to the forum state, Salt Lake City has made a strong showing that Sekisui Americas specifically targeted it product toward Utah. It encouraged Southwest to bid for the Salt Lake City project using its liner. Sekisui Australia then created design calculations for the Salt Lake City project to support the bid and manufactured liner sections that were specifically designed for the project. Two Sekisui Australia employees visited the Salt Lake City project site to ensure that the liner sections were installed correctly. Finally, it authorized the use of HydraTech seals for the project.

         Salt Lake City, therefore, has proffered strong evidence that Sekisui Australia specifically directed its product to Utah through “special state-related design, . . . advice, [and] marketing.” Id. at 889. This evidence demonstrates that the liners did not arrive in Utah by happenstance or by way of choices made by third parties. Sekisui Australia identified the Salt Lake City project, aided a contractor's bid so that its liners would be purchased for the project, and manufactured liner sections specifically for use in the project. Even after the liner sections arrived in this state, Sekisui Australia continued to be involved in the installation process by inspecting the workmanship and authorizing the use of another company's product to seal the liner sections. In short, Sekisui Australia purposefully directed its activities toward Utah in order to place its product here and continued its contacts after its product arrived.

         The court concludes that even though there is no evidence of a course of sales in Utah, Salt Lake City's strong showing that Sekisui Australia specifically targeted its liners toward the state is sufficient to show that it purposely created a substantial connection with Utah. This evidence is directly related to the core question of whether “the defendant purposefully directed its activities at residents of the forum.”[5]See Pro Axess, 428 F.3d ...


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