Gcube Insurance Services, Inc. v. Lindsay Corporation

Filing 71

MEMORANDUM AND ORDER RE 60 MOTION FOR SUMMARY JUDGMENT AND CONTINUING PRETRIAL CONFERENCE AND TRIAL DATES signed by Senior Judge William B. Shubb on 3/25/2014: IT IS ORDERED that defendant's motion for summary judgment be, and the same hereb y is, DENIED. As a condition to this Order, either GCube Underwriting or the Lloyd's Syndicates must join, ratify, or be substituted into this action by 4/14/2014. IT IS FURTHER ORDERED that the Final Pretrial Conference, previously scheduled for April 14, 2014, is hereby continued to 5/27/2014 at 2:00 PM in Courtroom 5 (WBS) before Senior Judge William B. Shubb; and the trial date is continued to 7/15/2014 at 9:00 AM in Courtroom 5 (WBS) before Senior Judge William B. Shubb. (Kirksey Smith, K)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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----oo0oo----

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GCUBE INSURANCE SERVICES, INC.,
a California corporation,
Plaintiff,

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LINDSAY CORPORATION, a Delaware
corporation, and DOES 1 through
10, inclusive,
Defendant.
LINDSAY CORPORATION,

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MEMORANDUM AND ORDER RE:
MOTION FOR SUMMARY JUDGMENT
AND CONTINUING PRETRIAL
CONFERENCE AND TRIAL DATES

v.

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CIV. NO. 2:12-1163 WBS CKD

v.

Third-party
Plaintiff,

AREVA SOLAR, INC.; AUSRA CA I,
LLC now known as AREVA SOLAR CA
I, LLC; SPECIAL SERVICES
CONTRACTORS, INC.; LLOYD W.
AUBRY CO., INC.; MATERIAL
INTEGRITY SOLUTIONS, INC.; and
ZOES 1 through 50, inclusive,
Third-Party
Defendants.

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Plaintiff GCube Insurance Services, Inc. brought this
subrogation action against defendant Lindsay Corporation arising
out of defendant’s provision of welds for a construction project.
Defendant now moves for summary judgment on all claims pursuant
to Federal Rule of Civil Procedure 56.
I.

Factual Background

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In March 2009, Ausra, Inc. (“Ausra”) took out a policy
of insurance (“the Policy”) to insure construction, erection, and
operations activities at its Kimberlina solar power generation
facility in Bakersfield, California.1
(Docket No. 60-1).)

(Dunkel Decl. Ex. C

The policy was issued by certain

Underwriters at Lloyd’s, London (the “Lloyd’s Underwriters”), and
names GCube Underwriting Limited (“GCube Underwriting”) as the
correspondent authorized to act on behalf of the Lloyd’s
Underwriters.

(Id.)

The relationship between the Lloyd’s

Underwriters and GCube Underwriting is memorialized in a Bind
Agreement that, among other things, grants GCube Underwriting
authority to pursue settlement of claims as well as subrogation
on behalf of the Lloyd’s Underwriters.

(Papazis Decl. Ex. B

(“Bind Agreement”) at 8-9 (Docket No. 67-3).)

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Neither the Policy nor the Bind Agreement expressly

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Plaintiff contends that Ausra, Inc. is now known as
Areva Solar, Inc. Although it is not clear if defendant contests
this assertion, the parties previously disputed this issue as it
related to defendant’s third party complaint. Because the
distinction appears immaterial for the purposes of defendant’s
present motion, the court will refer to the entity as “Ausra”
throughout this Order.
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mention plaintiff, but plaintiff contends that it shares
operations with GCube Underwriting and handles the claims
adjustment and subrogation process when claims arise in the
United States.

(Id. ¶ 2; Munoz Decl. ¶ 6 (Docket No. 67-4).)

Both plaintiff and GCube Underwriting are subsidiaries of Jardine
Lloyd Thompson, Limited.

(Id.)

In January 2010, defendant and Ausra agreed for
defendant to weld together a number of A-frame supports for the
construction of a Solar Steam Generation array (“SSG array”).
(Dunkel Decl. Exs. H, I.)

Defendant agreed to provide the welds

according to Ausra’s specifications and on steel tubes that Ausra
supplied, while defendant provided the plates that it welded
between the tubes.
(Docket No. 60-1).)

(Id. Ex. G (Eberhart Dep.) at 16:22-17:10
Defendant then delivered the welded A-frame

supports to Ausra in Bakersfield, where Ausra was to assemble the
SSG array.

(Compl. ¶ 12 (Docket No. 1).)

On May 28, 2010, as Ausra was in the final stages of
assembling the SSG array, twenty-four of the twenty-five A-Frame
supports buckled at the joints, and the SSG components fell to
the ground.

(Id. at ¶¶ 15-16.)

Pursuant to the Policy, the

Lloyd’s Underwriters subsequently paid Asura’s claim of
$2,319,172.00.

(Munoz Decl. ¶ 9; id. Ex. B.)

Plaintiff filed its Complaint on April 30, 2012,
seeking subrogation and bringing claims for strict products
liability and negligence.

(Docket No. 1.)

Defendant filed the

present motion for summary judgment on February 21, 2014.
(Docket No. 60.)

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II.

Discussion

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Summary judgment is proper “if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
P. 56(a).

Fed. R. Civ.

A material fact is one that could affect the outcome

of the suit, and a genuine issue is one that could permit a
reasonable jury to enter a verdict in the non-moving party’s
favor.
(1986).

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
The party moving for summary judgment bears the initial

burden of establishing the absence of a genuine issue of material
fact and can satisfy this burden by presenting evidence that
negates an essential element of the non-moving party’s case.
Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).
Alternatively, the moving party can demonstrate that the nonmoving party cannot produce evidence to support an essential
element upon which it will bear the burden of proof at trial.
Id.
Once the moving party meets its initial burden, the
burden shifts to the non-moving party to “designate ‘specific
facts showing that there is a genuine issue for trial.’”
324 (quoting then-Fed. R. Civ. P. 56(e)).

Id. at

To carry this burden,

the non-moving party must “do more than simply show that there is
some metaphysical doubt as to the material facts.”

Matsushita

Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
“The mere existence of a scintilla of evidence . . . will be
insufficient; there must be evidence on which the jury could
reasonably find for the [non-moving party].”

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Anderson, 477 U.S.

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at 252.

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In deciding a summary judgment motion, the court must
view the evidence in the light most favorable to the non-moving
party and draw all justifiable inferences in its favor.
255.

Id. at

“Credibility determinations, the weighing of the evidence,

and the drawing of legitimate inferences from the facts are jury
functions, not those of a judge . . . ruling on a motion for
summary judgment . . . .”
A.

Id.

Standing
Defendant first moves for summary judgment on the

ground that plaintiff lacks standing under the principles of
subrogation.

“Subrogation is defined as the substitution of

another person in place of the creditor or claimant to whose
rights he or she succeeds in relation to the debt or claim.”
Fireman’s Fund Ins. Co. v. Md. Cas. Co., 65 Cal. App. 4th 1279,
1291 (1st Dist. 1998).

“In the case of insurance, subrogation

takes the form of an insurer’s right to be put in the position of
the insured in order to pursue recovery from third parties
legally responsible to the insured for a loss which the insurer
has both insured and paid.”

Id. at 1291-92.

“An insurance

company plaintiff only has standing to sue as subgrogee when it
has paid its insured.”

HSBC Ins. Ltd. v. Scanwell Container Line

Ltd., No. 00-CV-5729, 2001 WL 1875851, at *1 (C.D. Cal. July 25,
2001) (citing Smith ex rel. Smith v. Parks Manor, 197 Cal. App.
3d 876, 879 (2d Dist. 1988)).
Defendant contends that only the Lloyd’s Syndicates or
GCube Underwriting could be the real party in interest with

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standing to bring this subrogation claim.

7:5-7 (Docket No. 68) (“The Plaintiff in this case could only
have been either GCube Underwriting Limited, as the Coverholder,
or the Syndicates themselves.”).)

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For its part, plaintiff admits

it did not directly insure or issue payment to Ausra.
Opp’n at 13:4-5:13 (Docket No. 67).)

(Pl.’s

Defendant, therefore,

raises a valid concern that plaintiff was not the proper party to
bring this action.

See HSBC Ins. Ltd, 2001 WL 1875851, at *1

(requiring that insurer make payment to insured in order to
assert standing as subrogee).

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(See Def.’s Reply at

However, this concern does not merit summary dismissal
of plaintiff’s suit because the proper party may either join or
ratify this action pursuant to Federal Rule of Civil Procedure
17.

Although Rule 17 requires that an action be prosecuted by

the real party in interest, it also mandates that “[t]he court
may not dismiss an action for failure to prosecute in the name of
the real party in interest until, after an objection, a
reasonable time has been allowed for the real party in interest
to ratify, join, or be substituted into the action.”
Civ. P. 17(a)(3).

Fed. R.

“A proper ratification pursuant to Rule 17(a)

requires the ratifying party to: 1) authorize continuation of the
action; and 2) agree to be bound by the lawsuit’s result.”
Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707, 712 (9th Cir.
1992).
As defendant concedes that either GCube Underwriting or
the Lloyd’s Syndicates is the real party of interest in this
litigation, the court must give either of those entities a

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reasonable time to join, ratify, or be substituted into this
action before dismissal is appropriate under Rule 17.2

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Accordingly, the court will deny defendant’s motion for
summary judgment on the condition that, by April 14, 2014, either
GCube Underwriting or the Lloyd’s Syndicates joins, ratifies, or
is substituted into this action pursuant to Rule 17(a)(3).3

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B.

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Alternatively, defendant moves for summary adjudication
on plaintiff’s claim for strict products liability on the ground
that the welding defendant conducted was either a service or a
specially-designed product not marketed or sold to the general
public.4

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Strict Products Liability

The doctrine of strict products liability does not
apply “to transactions whose primary objective is obtaining
services.”

Hennigan v. White, 199 Cal. App. 4th 395, 403 (3d

Dist. 2011) (quoting

Ferrari v. Grand Canyon Dories, 32 Cal.

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At oral argument, counsel for defendant contended that Rule
17(a) does not apply here because plaintiff did not make a
reasonable mistake as to whether it was the real party in
interest. See, e.g., Feist v. Consol. Freightways Corp., 100 F.
Supp. 2d 273, 276 (considering “whether or not Plaintiff was
acting in good faith when he filed this action in his own name”
before allowing substitution of real party in interest). Even
assuming it is appropriate to consider this argument without
giving plaintiff an opportunity to respond, the court is
satisfied that plaintiff acted in good faith in bringing the
present action.
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Although defendant focuses on subrogation in its
briefs, it also appears to contend that plaintiff lacks standing
under Article III. Because defendant does not contend that
either GCube Underwriting or the Lloyd’s Syndicates would lack
standing, this argument would be moot once either of those
entities joins, ratifies, or is substituted into this action.
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Separate from its subrogation argument, defendant does
not move for summary judgment on plaintiff’s negligence claim.
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App. 4th 248, 258 (3d Dist. 1995)).

To bring a strict products

liability claim, “a plaintiff must show the transaction in which
she obtained the product was one in which the transaction’s
primary objective was to acquire ownership or use of a product,
and not one where the primary objective was to obtain a service.”
Id.
California courts define a product as “a physical
article which results from a manufacturing process and is
ultimately delivered to a consumer,” while a service “is no more
than direct human action or human performance.”

Pierson v. Sharp

Mem’l Hosp., Inc., 216 Cal. App. 3d 340, 345 (4th Dist. 1989).
Although a product defect “even if initially latent is ultimately
objectively measurable,” whether the performance of a service “is
defective is judged by what is reasonable under the circumstances
and depends upon the actor’s skill, judgment, training, knowledge
and experience.”

Id.

The parties do not cite to any authority holding that
welding is definitively a product or a service for purposes of
strict products liability.

However, California courts have

recognized defects in welds as giving rise to strict products
liability claims when those defects appear in a product.

See,

e.g., Soule v. Gen. Motors Corp., 8 Cal. 4th 548, 557 (1994)
(addressing alleged defect in manufacture of automobile relating
to substandard welding); Wimberly v. Derby Cycle Corp., 56 Cal.
App. 4th 618, 624 (4th Dist. 1997) (considering strict products
liability claim of defective bike assembly partially based on
failures during welding process).

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In Soule, both parties

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presented expert testimony relating to the weakness and propriety
of the weld.

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during the welding process.

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56 Cal. App. 4th at 624.

Thus,

these courts treated welding as containing defects that were,
like a product, “ultimately objectively measurable,” Pierson, 216
Cal. App. 3d at 345.
Defendant, however, compares itself to the installer of
a product, which California courts of appeal have exempted from
strict products liability.

For example, in Endicott v. Nissan

Motor Corp., 73 Cal. App. 3d 917, 930 (2d Dist. 1977), the
plaintiff, whose seat belt had ruptured during an automobile
accident, brought suit against the independent contractor who
installed the seatbelt.

The court held that the installer, who

installed belts that were supplied by the manufacturer according
to the manufacturer’s specifications, was a provider of a service
and not liable for a product defect.

Id. at 925, 930.

Similarly, a subcontractor who installed a soap dish that it had
purchased from another party was not liable under a strict
products liability claim when the dish broke.

Monte Vista Dev.

Corp. v. Superior Court, 226 Cal. App. 3d 1681, 1684-87 (5th
Dist. 1991).

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Similarly, in Wimberly the

plaintiff’s expert testified as to defects created in the product

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8 Cal. 4th at 558.

Like the defendants in Endicott and Monte Vista,
defendant provided the welds according to Ausra’s specifications
and on steel tubes that Ausra supplied.
17:10.)

(Eberhart Dep. at 16:22-

Here, however, defendant itself provided some of the raw

materials in the form of the plates welded between the tubes.

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(Id.)

Moreover, plaintiff has produced evidence supporting an

inference that the parties themselves considered the welds to be
a product.

For example, a quotation provided by defendant to

Ausra includes terms allowing the buyer “the right to inspect
product” both at the point of manufacture and delivery.
Decl. Ex. B (Docket No. 67-2).)

(Miles

Further, an employee of

defendant discussed in an email a proposal “to build a few of
these,” (id. Ex. D.), which demonstrates that defendant may have
considered the welds to constitute “a physical article which
results from a manufacturing process”--that is, a product.
Pierson, 216 Cal. App. 3d at 345.

Thus, plaintiff has raised a

disputed issue of material fact as to whether “the transaction’s
primary objective was to acquire ownership or use of a product,
and not one where the primary objective was to obtain a service.”
Hennigan, 199 Cal. App. 4th at 403.
Defendant also raises two policy arguments against the
imposition of strict products liability here.
Defendant’s first policy argument, that the welds were
a unique good not subject to strict products liability, is not
persuasive.

Strict products liability may still apply to a one-

of-a-kind good that was not mass produced if the defendant was in
the business of making the good.

See Rawlings v. D.M. Oliver,

Inc., 97 Cal. App. 3d 890, 897-98 (4th Dist. 1979) (holding that
uniqueness of product does not prevent strict liability when
defendant was “engaged in manufacturing and selling products as
part of its full time commercial activity”); see also Oliver v.
Superior Court, 211 Cal. App. 3d 86, 89 (4th Dist. 1989) (noting

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that in Rawlings “[t]he fact a special order was involved which
was not sold to the general public did not insulate the
manufacturer from strict liability,” but refusing to extend
liability to case of “occasional” production).

It is undisputed

that defendant was in the business of welding.

Thus, the fact

that these welds may have been unique and made to Ausra’s
specifications does not shield defendant from strict products
liability.

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Defendant’s second policy argument--that California
courts have never applied strict products liability to
construction cases outside the construction of mass-produced
homes--is also unpersuasive.

Defendant relies in part on Oliver,

but in that case the court held only that mass-produced homes may
be subject to strict liability while the “occasional or isolated
construction and sale of a residence” is not.
at 87-89.

211 Cal. App. 3d

Moreover, while the California Supreme Court more

recently held in Jimenez v. Superior Court, 29 Cal. 4th 473, 479
(2002), that manufacturers of component parts installed in massproduced homes can be subject to strict products liability, that
case contained sweeping language applicable to manufacturers and
suppliers of component parts in general, see, e.g., id. (“The
policies underlying strict products liability in tort . . . are
equally applicable to component manufacturers and suppliers.”).
The case law, therefore, does not support limiting strict
products liability in construction cases to mass-produced homes.
Accordingly, because disputed issues of material fact
remain as to whether defendant’s welds constituted a product or a

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service, and policy reasons do not foreclose strict liability
here, the court will deny defendant’s motion for summary
adjudication on plaintiff’s strict products liability claim.5

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IT IS THEREFORE ORDERED that defendant’s motion for
summary judgment be, and the same hereby is, DENIED.

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As a condition to this Order, either GCube Underwriting
or the Lloyd’s Syndicates must join, ratify, or be substituted
into this action by April 14, 2014.

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IT IS FURTHER ORDERED that the Final Pretrial
Conference, previously scheduled for April 14, 2014, is hereby
continued to May 27, 2014, at 2:00 p.m.; and the trial date is
continued to July 15, 2014 at 9:00 a.m.
Dated:

March 25, 2014

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In its Reply brief, defendant cites to Kaiser Steel
Corp. v. Westinghouse Elec. Corp., 55 Cal. App. 3d 737, 748 (2d
Dist. 1976), which held that strict products liability does not
apply in certain commercial contexts. (Def.’s Reply at 12:2.)
However, because defendant raised this argument for the first
time in its Reply brief, did not address it at oral argument, and
did not develop any facts to support it, this contention cannot
serve as the basis for summary adjudication here.
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