Unified School District 467, Wichita County, KS v. Leland A Gray Architects, LLC et al

Filing 90

MEMORANDUM AND ORDER granting in part and denying in part 63 Motion to Dismiss for Failure to State a Claim. Signed by District Judge Richard D. Rogers on 6/30/2015. (hs)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
UNIFIED SCHOOL DISTRICT 467,
WICHITA COUNTY, KANSAS,
Plaintiff,
v.
LELAND A. GRAY ARCHITECTS, LLC,
Defendant,
CUSTOM CONSTRUCTION & DESIGN, INC.,

Case No. 14-1025-RDR

Defendant/ThirdParty Plaintiff,
v.
REFRIGERATION SUPPLIES DISTRIBUTOR,
INC.; MITSUBIUSHI ELECTRIC AND
ELECTRONICS USA, INC.,
Third-Party Defendants.
MEMORANDUM AND ORDER
This matter is presently before the court upon the motion of
third-party defendant Mitsubishi Electric and Electronics USA,
Inc.’s (MEUS) motion to dismiss.

Having carefully reviewed the

arguments of the parties, the court is now prepared to rule.
I.
This action arises from renovation and construction projects
undertaken by Unified School District 467 (USD 467) in June 2009.
Specifically, USD 467 sought to install heating and cooling units
(HVAC systems) in their senior and junior high school building and
the elementary school.

USD 467 sought bids for the construction of

the all-purpose room for the senior and junior high.

Prior to

seeking bids, USD 467 retained Leland A. Gray Architects, LLC to
provide professional architectural and design services for the
multiple projects.

On December 3, 2009, USD 467 entered into a

contract with Custom Construction & Design, Inc. (CC&D) to serve as
its general contractor.
CC&D entered into a contract with Refrigeration Supplies
Distributor, Inc. (RSD) to purchase the HVAC equipment that was
ultimately installed in the school district=s buildings.
specified HVAC equipment from MEUS for the buildings.
equipment to RSD.

MEUS sold the

The HVAC installations occurred at some point

after August 23, 2010.
throughout 2011.

RSD

Problems began to occur in 2010 and

According to CC&D, a representative from RSD

visited the school district on ten separate occasions from October
13, 2010 through May 24, 2013 to inspect the installed HVAC systems.
CC&D further alleges that a MEUS representative inspected the HVAC
system on May 21, 2012.

USD 467 had an engineering firm investigate

the HVAC system in November 2012.
revealed many deficiencies.

This investigation purportedly

The school district represents that it

was forced to hire a separate entity to correct the alleged design
and construction defects associated with the HVAC system.
II.
USD 467 initially filed its lawsuit against Gray Architects and
2

CC&D on October 7, 2013 in state court.

The school district=s claims

against CC&D include (1) breach of contract; (2) breach of warranty;
(3) breach of implied warranty; and (4) negligence. The case was
removed to this court on January 17, 2014.

On September 12, 2014,

CC&D filed a motion to join additional parties, which was granted
on October 6, 2014. CC&D filed its Third-Party Complaint against MEUS
and RSD on October 7, 2014.
In its motion to dismiss, MEUS contends that CC&D’s claims
against it fail to state a claim upon which relief can be granted.
Specifically, MEUS argues that (1) CC&D’s breach of implied warranty
claim fails because there is no liability for breach of implied
warranties to a remote seller of a product for pure economic loss
where there is no privity of contract; and (2) CC&D’s tort-based
claims sound in comparative implied indemnity and negligence, and
are either barred by the statute of limitations or fail to state a
claim.
III.
Fed.R.Civ.P. 8(a)(2) provides that a complaint must contain “a
short and plain statement of the claim showing that the pleader is
entitled to relief.”

The complaint must give the defendant adequate

notice of what the plaintiff’s claim is and the grounds of that claim.
Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002). This
simplified notice pleading rule is justified because of the liberal
3

discovery rules and availability of summary judgment to dispose of
unmeritorious claims. Id.
“In reviewing a motion to dismiss, this court must look for
plausibility in the complaint....Under this standard, a complaint
must include ‘enough facts to state a claim to relief that is
plausible on its face.’” Corder v. Lewis Palmer Sch. Dist. No. 38,
566 F.3d 1219, 1223B24 (10th Cir. 2009)(quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)).

“A claim has facial plausibility

when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the
misconduct alleged.”
(clarifying

and

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

affirming

Twombly’s

probability

standard).

Allegations that raise the specter of mere speculation are not
enough. Corder, 566 F.3d at 1223B24.

The court must assume that all

allegations in the complaint are true. Iqbal, 556 U.S. at 678.

“The

issue in resolving a motion such as this is ‘not whether [the]
plaintiff will ultimately prevail, but whether the claimant is
entitled to offer evidence to support the claims.’”

Bean v. Norman,

2010 WL 420057 at *2 (D.Kan. Jan.29, 2010)(quoting Swierkiewicz, 534
U.S. at 511). The Tenth Circuit utilizes a two-step process when
analyzing a motion to dismiss. Hall v. Witteman, 584 F.3d 859, 863
(10th

Cir.

2009).

First,

the

court

must

identify

conclusory

allegations not entitled to the assumption of truth. Id. Second, the
4

court must determine whether the remaining factual allegations
plausibly suggest the plaintiff is entitled to relief. Id.
The court notes that counsel for CC&D relies upon Conley v.
Gibson, 355 U.S. 41, 45-46 (1957), and cases citing it in support
of its argument that dismissal is appropriate only when it appears
beyond doubt that plaintiff can prove no set of facts that would
entitled it to legal relief.

As noted by the review of the law set

out above, it may be time for counsel to update his briefs.
is no longer valid.

The Supreme Court made clear in Twombly that

the Conley standard has “earned it retirement.”
at 562-563.

Conley

Twombly, 550 U.S.

Twombly makes clear that a plaintiff must plead “more

than labels and conclusions,” and “[f]actual allegations must be
enough to raise a right to relief above the speculative level.”

Id.

at at 555. Rule 8(a) requires that there must be “enough facts to
state a claim to relief that is plausible on its face.” Id. at 570.
IV.
MEUS initially contends that CC&D’s breach of implied warranty
claims should be dismissed because a remote product seller is not
liable to a downstream, non-privity purchaser for mere economic loss
in the absence of personal injury.

In making this argument, MEUS

points out that CC&D has not pleaded any privity of contract between
it and MEUS.
The law in Kansas is clear.

“[I]mplied warranties of fitness
5

and

merchantability

are

not

extended

to

a

remote

seller

or

manufacturer of an allegedly defective product, which is not
inherently dangerous, for only economic loss suffered by a buyer who
is

not

in

contractual

manufacturer.”

privity

with

the

remote

seller

or

Professional Lens Plan, Inc. v. Polaris Leasing

Corp., 234 Kan. 742, 675 P.2d 887, 898-99 (1984).
CC&D attempts to avoid the holding of Professional Lens by
making two claims:

(1) MEUS was not a remote seller of the heating

and cooling systems because it was involved in the manufacture,
design, installation and service of the units for the school project;
and (2) MEUS was in privity with it because RSD was an authorized
dealer for MEUS.
In making the former argument, plaintiff relies upon Ritchie
Sand, Inc. v. Eagle Iron Works, 1989 WL 31408 (D.Kan.
for support.

Mar. 14, 1989)

Ritchie Sand asserted several claims against Eagle

Iron Works, including breach of implied warranties, arising from the
construction of a sand plant.

Ritchie Sand contacted Eagle Iron

about the design of the plant, including an underplant conveyor
system.

Eagle Iron designed the plant and Ritchie Sand purchased

it through an Eagle Iron distributor.

Ritchie Sand never paid Eagle

Iron for its design or engineering services.
incorporated within the cost of the sand plant.

The charge was
Ritchie Sand then

erected the plant with the equipment manufactured by Eagle Iron and
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other defendants and the aid of several local contractors.

Ritchie

Sand’s claims against Eagle Iron were limited to the underplant
conveyor system.

Eagle Iron sought summary judgment on the implied

warranty claims because it was not in privity with Ritchie Sand.
Judge Crow denied summary judgment to Eagle Iron, finding that
material issues of fact remained regarding the existence of an
agreement between Richie Sand and Eagle Iron to provide certain
design services.

Ritchie Sand, 1989 WL 31408 at *8.

Judge Crow

found it unnecessary to reach the issue of privity between Ritchie
Sand and Eagle Iron because Ritchie Sand’s claims against Eagle Iron
were based on a purported service contract with Eagle Iron.
*9.

Id. at

The court found that this was not a case where the claims were

based on goods passing through a chain of distributors or where a
remote

seller/manufacturer

allegedly

sold

defective

products

through a distributor to an ultimate consumer with no knowledge by
the manufacturer of whom the ultimate purchaser is or what the
particular needs of purposes are for the goods sold.
did, however, go on to say:

Id.

The court

“Assuming plaintiff had brought implied

warranty claims upon the equipment specifically manufactured by
Eagle, the court would agree with the Fourth Circuit Court of Appeals
that Kansas law may recognize contractual privity where extensive
personal contacts existed between the manufacturer and purchaser,
despite the fact the purchase was conducted through an authorized
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dealer. Fullerton Aircraft Sales v. Beech Aircraft Corp., 842 F.2d
717, 722 (4th Cir.1988). See also Wood Products, Inc. v. CMI Corp.,
651 F.Supp. 641, 649 (D.Md.1986); Sanco, Inc. v. Ford Motor Co., 579
F.Supp.

893,

Cir.1985).”

899

(S.D.Ind.1984),

aff’d,

771

F.2d

1081

(7th

Id.

With this recitation of Ritchie Sand, the court turns to the
specific arguments raised by the parties.

CC&D believes that

Ritchie Sand applies here because it has made allegations that MEUS
“designed and installed” and “inspected and serviced” the equipment.
MEUS, on the other hand, contends that CC&D’s allegations in the
complaint are insufficient to bring them within the facts of Ritchie
Sand.
Frankly, the efforts of CC&D to place this case within the
confines of Ritchie Sand appear a bit strained.

CC&D has suggested

that MEUS was involved in the “design and installation” and the
“inspection and service” of the HVAC system for the school district.
The court recognizes that the third-party complaint does contain some
allegations of this nature, even though they are somewhat vague.

The

third-party complaint fails to provide any additional details on
these matters.

Nevertheless, these allegations do suggest that MEUS

was involved to a greater extent than as a mere seller.

Whether that

actually happened or not cannot be determined on a motion to dismiss.
There is an allegation that a MEUS employee did visit the school after
8

installation to inspect the system.

There are also allegations that

MEUS made certain promises and affirmations in connection with the
sale of the equipment.

At this point, the court is not persuaded

that MEUS is entitled to dismissal of plaintiff’s implied warranties
claims.

The circumstances surrounding the relationship of the

parties remains to be determined.

In addition, the court finds that

the third-party complaint also contains sufficient allegations to
demonstrate that privity with MEUS may exist due to the involvement
of one its dealers, RSD. See Meyers v. Garmin Int’l, Inc., 2014 WL
273983 at *7 (D.Kan. Jan. 24, 2014).

Again, the complaint is not

a model of clarity on this point, but the court believes there are
sufficient allegations to allow CC&D to conduct discovery on this
issue.

Plaintiff has alleged with requisite plausibility that RSD,

MEUS’s authorized dealer, was acting as MEUS’s agent and that, as
a result, privity between CC&D and MEUS exists.

The court also

agrees with Judge Crow that Kansas law may recognize contractual
privity where extensive personal contacts existed between the
manufacturer and purchaser, despite the fact that the purchase was
conducted through an authorized dealer.

All of these issues can be

addressed in a summary judgment motion.

But, for the purposes of

MEUS’s motion to dismiss, it must be denied because CC&D has made
plausible claims of breach of implied warranties.
V.
9

The court next turns to CC&D’s claims of indemnity, contribution
and negligence.

In these claims, CC&D seeks to recover from MEUS

any liability it may have to USD 467.

MEUS initially argues that

CC&D’s tort-based claims sound in comparative implied indemnity and
negligence, and are either barred by the statute of limitations or
fail to state a claim.

MEUS argues that although CC&D only

identifies its claim against it as an “indemnity claim” it is actually
a claim for comparative implied identity.

MEUS contends that CC&D

has stated no claim for express contractual indemnity or implied
contractual indemnity.

MEUS further suggests that CC&D’s claim for

contribution is not available because it has been eliminated in
Kansas.

MEUS then argues that CC&D’s claims of comparative implied

indemnity and negligence are barred by the applicable two-year
statute of limitations of K.S.A. 60-513.
The court begins with a review of the allegations contained in
CC&D third-party complaint concerning indemnity and contribution.
In the third-party complaint, CC&D makes the following allegations
against MEUS on these claims:
Defendant/third-party plaintiff CC&D denies any
liability to plaintiff School District, and denies all the
plaintiff’s allegations. However, if CC&D is adjudged to
be liable to plaintiff for any of its alleged damages, then
CC&D is entitled to indemnification and/or contribution
from Mitsubishi to the extent that plaintiff’s damages
were caused or contributed to be caused by the acts,
omissions and/or negligence of Mitsubishi and/or its
employees regarding the Mitsubishi HVAC Equipment and
10

installation instructions that was sold to CC&D, and for
such damages awarded to the plaintiff, or in the
alternative, any damages awarded to the plaintiff should
be apportioned between the plaintiff, CC&D, LAGA, RSD,
Mitsubishi and any others according to the relative degree
of fault, if any.

Kansas recognizes three types of indemnity claims:

(1) express

contractual indemnity; (2) implied contractual indemnity; and (3)
comparative implied indemnity.

Express contractual indemnity

arises where there is a contract of indemnity, such as a hold harmless
agreement.

Implied contractual indemnity arises when one is

compelled to pay what another party ought to pay; generally, when
a party without fault is made to pay for a tortious act of another
and seeks indemnity from the party at fault. Although this theory
has frequent viability in the context of respondeat superior, it is
not limited to this context. See, e.g., Haysville U.S.D. No. 261 v.
GAF Corp., 233 Kan. 635, 666 P.2d 192 (1983). Comparative implied
indemnity is an equitable remedy available to a tortfeasor among
other tortfeasors, who by settling with the plaintiff or paying a
judgment, pays the other tortfeasors’ share of liability. Schaefer
v. Horizon Building Corp., 26 Kan.App.2d 401, 985 P.2d 723 (1999).
MEUS argues that CC&D has failed to state a claim under any of
the aforementioned theories of indemnity.

MEUS initially notes that

CC&D has not noted the presence of a contract between the parties
that would allow express contractual indemnity.
11

MEUS next argues

that CC&D has failed to state a claim for implied contractual
indemnity because it has failed to plead any facts from which the
court could infer a relationship directly between MEUS and CC&D.
Finally, MEUS contends that CC&D has not stated a valid claim for
comparative implied indemnity because CC&D has not pleaded facts that
show MEUS could be liable to CC&D for any portion of the potential
judgment against CC&D.
The court agrees with MEUS that CC&D has failed to state a claim
for express contractual indemnity.

There is no mention of a contract

between the parties that would allow such a claim.

CC&D has failed

to even address this argument in their responses.
The court next turns to the argument of MEUS that has failed
to state a claim for implied contractual indemnity.

MEUS has

suggested that CC&D has failed to plead any facts from which the court
could infer a relationship directly between CC&D and it.
As noted previously, implied contractual indemnity is generally
used

in

cases

involving

an

employer/employee

relationship

or

principal/agent relationship.

However, Kansas courts have not

limited

indemnity

implied

contractual

to

cases

where

employer/employee or principal/agent relationship exists.

an

Danaher

v. Wild Oats Markets, Inc., 2011 WL 855793 at *4 (D.Kan. Mar. 9, 2011);
Hartford Fire Ins. Co. v. P&H Cattle Co., Inc., 2005 WL 3576939 at
*3 (D.Kan. Dec. 29, 2005).

MEUS has argued that CC&D has failed to
12

plead any facts from which the court could infer relationship between
the two parties.

We do not agree.

As suggested previously during

the discussion of the implied warranty claims, the court believes
that there are enough allegations in the third-party complaint to
support a plausible claim of privity between the parties based upon
CC&D’s relationship with RSD, a distributor for MEUS.

Again, the

circumstances of the relationship remain to be determined.

Having

carefully reviewed CC&D’s complaint, the court is persuaded that CC&D
has stated a plausible claim of implied contractual indemnity.
Finally, the court considers MEUS’ contention that CC&D has
stated only a claim for comparative implied indemnity, to the extent
that such a claim is still viable in Kansas.

MEUS asserts CC&D has

not pleaded facts that show it could be liable to CC&D for any portion
of the potential judgment against CC&D.

In making this argument,

MEUS relies heavily upon Judge Lungstrum’s decision in Burlington
Northern v. Cosco North America, Inc., 2003 WL 21685908 (D.Kan. July
15, 2003).
CC&D responds that it is under no obligation at this time to
allege or commit to any particular type of indemnity claim.

CC&D

further argues that is has alleged sufficient facts to state a claim
for comparative implied indemnity that is complementary to Kansas’
comparative negligence principles.

CC&D also contends that MEUS has

improperly argued that its indemnity claim is tied to its negligence
13

claim.

Thus, CC&D asserts that the court should not reach a

determination that the two-year statute of limitations contained
K.S.A. 60-513(a)(4) is applicable here.
As noted above, the court is not persuaded that CC&D’s indemnity
claim must be considered only as one for comparative implied
indemnity.

The court does not believe that Burlington Northern, the

case relied upon by MEUS, requires a different result.

There, Judge

Lungstrum determined that the indemnity claim of the third-party
plaintiff could only be considered as a claim for comparative implied
indemnity, not as one for implied contractual indemnity.
Northern, 2003 WL 21685908 at * 4.

Burlington

In reaching this conclusion,

Judge Lungstrum found that there was no allegation of a relationship
between the third-party plaintiff and the third-party defendant.
Id.

Here, contrary to Burlington Northern, the court has determined

that there are sufficient allegations, although scant, to suggest
a plausible relationship between MEUS and CC&D.

As a result, the

court is also not persuaded that CC&D’s indemnity claim must be lumped
together with CC&D’s negligence claim as tort-based.

The court may

ultimately reach this conclusion when all the facts are set forth
in a motion for summary judgment, but we are not inclined to do so
on a motion to dismiss.
With this decision, the court considers the argument raised by
MEUS on the applicable statute of limitations.
14

MEUS argues that

CC&D’s indemnity and negligence claims were not timely filed.

MEUS’

argument is based upon the premise that CC&D’s indemnity claim can
only be considered as one for comparative implied indemnity.

Thus,

both claims are subject to the two-year statute of limitations
contained in K.S.A. 60-513(a)(4).

With the application of the

two-year period of limitations, MEUS contends that these claims are
barred because they began to run at least by the winter of 2010 when
the school district determined that problems existed in the HVAC
system.

Since the third-party complaint was filed on October 7,

2014, MEUS argues that the comparative implied indemnity and
negligence claims are barred by the statute of limitations.
CC&D raises a variety of arguments in response to contentions
of MEUS.

First, CC&D argues that the statute of limitations for an

indemnity claim is three years.

With the application of the

application of the three-year statute of limitations, CC&D contends
there is no dispute that CC&D indemnity claim was timely.

Second,

CC&D asserts that, even if its only indemnity claim is one for
comparative implied indemnity which is tied to its negligence claim,
these claims of indemnity and negligence were timely filed under the
two-year statute of limitations of K.S.A. 60-513(a)(4).

CC&D argues

that a genuine dispute remains concerning when the substantial injury
first occurred and when such injury was reasonably ascertainable by
the school district.

CC&D suggests that the school district could
15

not have known about the fact and extent of their injuries until the
independent engineering firm conducted an inspection and issued
findings in November 2012.

With this date as the date of accrual,

CC&D contends that its third-party complaint against MEUS was timely.
When assessing a statute of limitations argument upon a motion
to dismiss, the question before the court is whether “the dates given
in the complaint make clear that the right sued upon has been
extinguished.”

Aldrich v. McCulloch Prop., Inc., 627 F.2d 1036,

1041 n.4 (10th Cir. 1980); see also Dummar v. Lummis, 543 F.3d 614,
619 (10th Cir. 2008)(if pivotal question for application of statute
of limitations is apparent on the face of the complaint, the issue
may be resolved on a motion to dismiss).
Under Kansas law, a tort action generally accrues when:

“the

act giving rise to the cause of action first causes substantial
injury, or, if the fact of the injury is not reasonably ascertainable
until some time after the initial act, then the period of limitation
shall not commence until the fact of the injury becomes reasonably
ascertainable to the injured party. . .”

K.S.A. 60-513(b).

The parties are in apparent agreement that CC&D’s claims were
timely filed if the three-year statute of limitations contained in
K.S.A. 60-512 applies.

This statute of limitations would appear to

apply to CC&D’s implied contractual indemnity claim.

See U.S.

Fidelity & Guar. Co. v. Sulco, Inc., 939 F.Supp. 820, 826 (D.Kan.
16

1996).

Even assuming that K.S.A. 60-513(a)(4) applies to CC&D’s

claims of indemnity and negligence, the court is not convinced that
these claims are barred.

It is not clear from the face of the school

district’s complaint when the problems of the HVAC system became
reasonably ascertainable to it.

Although MEUS argues that the

school district should have known of the cause of their injuries much
earlier, the court finds that this issue requires further development
of the record.
Finally, the court turns to MEUS’ contention that the claim of
contribution has been eliminated in Kansas.
for this position.
823.

There is some support

See U.S. Fidelity & Guar. Co., 939 F.Supp. at

However, there are also a number of Kansas cases which

continue to use contribution and indemnity interchangeably.

See

Gaulden v. Burlington Northern, Inc., 232 Kan. 205, 654 P.2d 383,
391 (1982); Schaefer v. Horizon Bldg. Corp., 26 Kan.App.2d 401, 985
P.2d 723, 725 (1999); Blackburn, Inc. v. Harnischfeger Corp., 773
F.Supp. 296, 299 (D.Kan. 1991).

Under the present allegations, the

court will allow this claim to continue at this time.

The court will,

however, examine it in a greater detail if MEUS raises it on a motion
for summary judgment.
IT

IS

THEREFORE

ORDERED

that

the

motion

to

dismiss

of

third-party defendant Mitsubishi Electric and Electronics USA, Inc.
(Doc. # 63) be hereby granted in part and denied in part.
17

Third-party

plaintiff Custom Construction & Design, Inc.’s claim for express
contractual indemnity, to the extent that such a claim was asserted,
shall be dismissed.

The remainder of the third-party defendant’s

motion to dismiss shall be denied.
IT IS SO ORDERED.
Dated this 30th day of June, 2015.

s/RICHARD D. ROGERS
UNITED STATES DISTRICT JUDGE

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