Salt Lake City Corporation v. Sekisui SPR Americas et al
Filing
173
MEMORANDUM DECISION and ORDER granting 149 Motion to Dismiss ; granting in part and denying in part 152 Motion for Judgment on the Pleadings. Signed by Judge Jill N. Parrish on 8/26/2020. (nl)
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
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;
MEMORANDUM DECISION AND
ORDER GRANTING HYDRATECH’S
MOTION TO DISMISS AND GRANTING
IN PART AND DENYING IN PART
SEKISUI’S MOTION FOR JUDGMENT
ON THE PLEADINGS
Case No. 2:17-cv-01095-JNP-CMR
District Judge Jill N. Parrish
Defendants.
Salt Lake City Corporation hired Southwest Pipeline and Trenchless Corporation
(Southwest) to rehabilitate a sewer line. Southwest used components supplied by Sekisui Rib Loc
Australia Pty Ltd. (Sekisui Australia), Sekisui SPR Americas, LLC (Sekisui Americas), and
HydraTech Engineered Products, LLC (HydraTech) to complete the project. Salt Lake City
subsequently sued Southwest, Sekisui Australia, Sekisui Americas, and HydraTech, alleging that
the rehabilitated sewer line was leaking. Southwest filed crossclaims against Sekisui Australia,
Sekisui Americas, and HydraTech for breach of contract, apportionment of fault, and
indemnification.
Before the court is HydraTech’s motion to dismiss Southwest’s crossclaims against it and
Sekisui Australia’s and Sekisui America’s (the Sekisui defendants’) motion for judgment on the
pleadings on Southwest’s crossclaims against them. ECF Nos. 149, 152. The court GRANTS
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HydraTech’s motion to dismiss and GRANTS IN PART and DENIES IN PART the Sekisui
defendants’ motion for judgment on the pleadings.
BACKGROUND
Salt Lake City requested bids to rehabilitate a sewer line by installing a liner within the
existing pipe. This “trenchless” method of rehabilitating the sewer line avoids the need to dig up
and replace the pipe. Southwest won the bid. Sekisui Australia and Sekisui Americas sold their
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.
Sometime in late 2012, Southwest finished the sewer line rehabilitation project and Salt
Lake City began to use the rehabilitated line to transport sewage to a treatment plant. On December
17, 2012, the city sent a letter to Southwest. The letter stated that on November 29, 2012, Salt Lake
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. Over the next
two and a half years, Southwest and the city formulated a number of plans to fix the leaks and
Southwest made one unsuccessful attempt to repair the sewer line. On June 22, 2015, Southwest
declined to make any further plans to repair the sewer line.
On May 10, 2017, Salt Lake City sued Sekisui Australia and Sekisui Americas. On
November 8, 2017, the city amended its complaint to add claims against Southwest and
HydraTech. Meanwhile, Southwest sued Sekisui Australia and Sekisui Americas on October 2,
2017. That lawsuit was consolidated with crossclaims that Southwest had asserted in this lawsuit.
On December 7, 2018, Southwest filed its operative crosscomplaint against the Sekisui defendants
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and HydraTech. Southwest asserted crossclaims for breach of contract, apportionment of fault, and
equitable indemnification against the cross-defendants.
The court subsequently granted motions to dismiss all of Salt Lake City’s claims against
the Sekisui defendants and HydraTech on statute of limitations grounds. The court also dismissed
Southwest’s apportionment of fault crossclaim and dismissed in part its breach of contract
crossclaim against the Sekisui defendants.
HydraTech now moves to dismiss Southwest’s crossclaims against it for breach of contract,
apportionment of fault, and indemnification. The Sekisui defendants move for a judgment on the
pleadings on what remains of the breach of contract crossclaim and the indemnification crossclaim
against them.
LEGAL STANDARDS
Dismissal of a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure is
appropriate where the plaintiff fails to state a claim upon which relief can be granted. When
considering a motion to dismiss for failure to state a claim, a court “accept[s] as true all wellpleaded factual allegations in the complaint and view[s] them in the light most favorable to the
plaintiff.” Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir. 2013).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citation omitted). The complaint must allege more than labels or legal conclusion and its
factual allegations “must be enough to raise a right to relief above the speculative level.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007).
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Courts apply this same standard to a motion for judgment on the pleadings under Rule
12(c). Brown v. Montoya, 662 F.3d 1152, 1160 n.4 (10th Cir. 2011).
ANALYSIS
I.
HYDRATECH’S MOTION TO DISMISS
A. Breach of Contract
Southwest’s crosscomplaint alleges that HydraTech had warranted that its product would
perform properly if installed in the Salt Lake City sewer line refurbishment project. Southwest
asserts that HydraTech breached this warranty by supplying defective parts.
For the same reasons stated in the court’s orders dismissing Salt Lake City’s breach of
contract claims, ECF No. 71 at 15–24 and ECF No. 136 at 4–19, HydraTech argues that the breach
of contract crossclaim against it should be dismissed because Southwest filed the crossclaim after
the statute of limitations had run. On December 17, 2012, Salt Lake City notified Southwest that
the refurbished sewer line had a significant leak. 1 HydraTech asserts that this notice triggered the
four-year statute of limitations found in the Utah Uniform Commercial Code (UCC). See UTAH
CODE § 70A-2-725(1). According to HydraTech, this statute of limitations ran before Southwest
initiated its breach of contract counterclaim. 2
In its answer to Salt Lake City’s complaint and in its countercomplaint against the city, Southwest
acknowledged that it received notice of the leak on this date.
1
Southwest sued the Sekisui defendants on October 2, 2017. It filed a crossclaim against
HydraTech in this lawsuit on May 4, 2018. Southwest then amended his crossclaims to include a
breach of contract crossclaim against HydraTech on December 7, 2018. Because all three of these
dates are more than four years after December 17, 2012, the court need not decide whether the
breach of contract crossclaim against HydraTech relates back to either the filing of the initial
crossclaims or the filing of the initial lawsuit against the Sekisui defendants.
2
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Southwest argues that its breach of contract counterclaim is timely for two reasons. First,
Southwest asks the court to reconsider its prior rulings that the four-year UCC statute of limitations
applies to the breach of contract claims asserted in this case. Southwest argues that the six-year
period of limitations found in the improvements to real property statue should be applied instead.
This statue provides: “An action by or against a provider [any legal entity contributing to the
construction of an improvement] based in contract or warranty shall be commenced within six
years of the date of completion of the improvement or abandonment of construction.” UTAH CODE
§ 78B-2-225(3)(a) (2012). 3 Focusing exclusively on subsections (2) and (3) of this statute,
Southwest argues that this six-year statute of repose is the only limitations period that the Utah
Legislature intended to apply to construction defect cases.
If the statute consisted of only the language in subsection (3)(a), perhaps Southwest would
have a compelling argument. But Southwest completely ignores subsection (9) of the
improvements to real property statute, which states: “This section does not extend the period of
limitation or repose otherwise prescribed by law or a valid and enforceable contract.” Id.
§ 78B-2-225(9). This subsection was the linchpin of the court’s previous rulings that the four-year
UCC statute of limitations—i.e., a “period of limitation or repose otherwise prescribed by law”—
also applied to the breach of contract claims and crossclaims at issue in this case. Because
Southwest does not address the language of subsection (9), it has not convinced the court that its
prior rulings on this issue are erroneous. The court concludes that the UCC statute of limitations
applies to the breach of contract crossclaim against HydraTech.
An amended version of this statute went into effect on May 12, 2020. The court cites the version
of the statute in effect when the breach allegedly occurred.
3
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Second, Southwest argues that dismissal of the breach of contract crossclaim is not
appropriate because there is a question of fact as to when the crossclaim accrued. Quoting Brigham
Young University v. Paulsen Construction Co., 744 P.2d 1370, 1373 (Utah 1987), it contends that
“[i]n construction contract cases, an owner’s claim of defective construction against a general
contractor is generally considered to accrue on the date that construction is completed.” Southwest
asserts that there is a dispute as to when the sewer line rehabilitation project was completed and,
therefore, the court may not resolve the statute of limitations issue at this stage of the litigation.
But the general principle outlined in Brigham Young University does not apply here. First,
this general principle was articulated in the context of a claim brought by a landowner against a
general contractor. In this case, a general contractor is asserting a claim against the supplier of a
component used in a construction project. Second, Brigham Young University does not apply
because that case did involve or interpret the UCC statute of limitations. This statute contains a
provision that specifically addresses when a claim governed by the UCC accrues:
A cause of action accrues when the breach occurs, regardless of the
aggrieved party’s lack of knowledge of the breach. A breach of
warranty occurs when tender of delivery is made, except that where
a warranty explicitly extends to future performance of the goods and
discovery of the breach must await the time of such performance the
cause of action accrues when the breach is or should have been
discovered.
UTAH CODE § 70A-2-725(2). By statute, Southwest’s crossclaim accrued either upon delivery of
the joint seals or, if the claim is based upon an explicit warranty of future performance, when the
breach was or should have been discovered. This accrual provision trumps the general statement
found in Brigham Young University.
On December 17, 2012, Salt Lake City notified Southwest that the refurbished sewer line
had a significant leak. The city stated that it expected Southwest to remedy the problem. As the
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court discussed in its prior ruling, ECF No. 136 at 13–19, this knowledge triggered a duty to
investigate whether the leak was caused by defective parts supplied by HydraTech. See Macris v.
Sculptured Software, Inc., 24 P.3d 984, 990 (Utah 2001). (“[A]ll that is required to trigger the
statute of limitations is sufficient information to put plaintiffs on notice to make further inquiry if
they harbor doubts or questions.”). Southwest has not pled any facts suggesting that such an
investigation would not have revealed HydraTech’s potential liability for the leaks. See Berneau v.
Martino, 223 P.3d 1128, 1134–35 (Utah 2009) (“[B]efore a statute of limitations may be tolled
. . . , the plaintiff must make an initial showing that he did not know nor should have reasonably
known the facts underlying the cause of action in time to reasonably comply with the limitations
period.”). Thus, even assuming that HydraTech made an explicit warranty of future performance,
Southwest has not carried its burden of showing that it should not have discovered HydraTech’s
alleged breach of the warranty soon after it received notice of the leak.
Accordingly, the court concludes that the four-year UCC statute of limitation ran before
Southwest filed its breach of contract crossclaim. The court dismisses this crossclaim. Because
Southwest has already had an opportunity to amend its crossclaims in light of the court’s prior
ruling on the Sekisui defendants’ nearly identical statute of limitations arguments, the court finds
that leave to amend would be futile. Therefore, dismissal is with prejudice.
B. Apportionment
Southwest also asserted a crossclaim for apportionment of fault pursuant to Utah’s Liability
Reform Act (LRA). See UTAH CODE § 78B-5-819. In this crossclaim, Southwest seeks to allocate
to HydraTech liability for the claims Salt Lake City has asserted against Southwest.
Salt Lake City asserted three causes of action against Southwest: breach of contract, breach
of the American Public Works Association (APWA) warranty, and breach of the workmanship
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warranty. The court has already ruled that all of these claims sound in contract. ECF No. 136 at
31–32. But the Utah Supreme Court has explicitly rejected the notion that the LRA can be extended
to “breach of contract actions and actions for breach of statutory duties since those actions also
involve an ‘actionable breach of legal duty.’” Graves v. N. E. Servs., Inc., 345 P.3d 619, 635 n.10
(Utah 2015) (citation omitted). In so holding, the court reasoned that
[t]he Liability Reform Act is all about tort law. Perhaps its principle
of “fault” could conceivably be read, in the abstract, to tread into
other legal fields. But we don’t read statutes in the abstract. We read
them in context. And given its context we think the better
construction would limit its principle of fault to tortious acts or
omissions, and not to exten[d] to breaches of duty rooted in contract
or statute.
Id.
Because the LRA does not permit the allocation of fault for Salt Lake City’s contract claims
against Southwest, the court dismisses the allocation of fault crossclaim against HydraTech. This
legal impediment renders any amendment futile. Accordingly, dismissal is with prejudice.
C. Indemnification
Finally, Southwest asserts a crossclaim for equitable indemnification against HydraTech.
Southwest asserts that any obligation that it may owe to Salt Lake City should be discharged by
HydraTech.
HydraTech moves to dismiss the equitable indemnification crossclaim, arguing that
Southwest cannot satisfy all of the elements of such a claim. “In actions for indemnity, courts
universally require proof of three elements: (1) the payor (prospective indemnitee) must discharge
a legal obligation the payor owes to a third person; (2) the prospective indemnitor must also be
liable to the third person; and (3) as between the claimant payor and the prospective indemnitor,
the obligation ought to be discharged by the indemnitor.” Perry v. Pioneer Wholesale Supply Co.,
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681 P.2d 214, 218 (Utah 1984). HydraTech contends that Southwest cannot satisfy the second
element of this test because HydraTech (the prospective indemnitor) is not liable to Salt Lake City
(the third person). The court dismissed all of Salt Lake City’s claims against HydraTech on statute
of limitations grounds, precluding any liability on the part of the prospective indemnitor.
Southwest does not contest that HydraTech cannot be liable to Salt Lake City. Instead it
argues that it can satisfy the second element of the equitable indemnification crossclaim so long
as it can show HydraTech owed a duty to Salt Lake City, regardless of whether liability had been
extinguished by the statute of limitations. Southwest relies upon a single sentence found in a Utah
Court of Appeals opinion: “Under the second element of equitable indemnity, there must be
sufficient facts in the record to support the finding that Galbraith & Green [the prospective
indemnitor] owed a duty to Welch [the third party].” Salt Lake City Sch. Dist. v. Galbraith & Green,
Inc., 740 P.2d 284, 288 (Utah Ct. App. 1987) (emphasis added).
Southwest’s argument is unpersuasive. The Utah Supreme Court stated that liability, rather
than the existence of a duty, is required to satisfy the second element of the test. Perry, 681 P.2d
at 218. The Utah Court of Appeals cannot override the Utah Supreme Court. Taken in context,
moreover, it is clear that the court of appeals did not hold that the existence of a duty, in the absence
of liability, is sufficient to satisfy the second element of equitable indemnification. In Galbraith &
Green, the district court had found that the defendant was liable for equitable indemnification. 740
P.2d at 287. On appeal, the defendant argued that the second element of equitable indemnification
was not met because it could not be liable to the third party as it did not owe a duty to the third
party. See id. at 288. Thus, when it stated that “there must be sufficient facts in the record to support
the finding that Galbraith & Green owed a duty to Welch,” the Utah Court of Appeals was merely
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framing the issue before it. Id. The court of appeals did not hold that that the existence of a duty,
by itself, is sufficient to satisfy the second equitable indemnification element.
Because HydraTech cannot be liable to Salt Lake City, Southwest cannot prove the second
element of its equitable indemnification crossclaim. The court dismisses this crossclaim with
prejudice.
II.
THE SEKISUI DEFENDANTS’ MOTION FOR JUDGEMENT ON THE
PLEADINGS
A. Breach of Contract
1) The Court’s Prior Order on the Sekisui Defendant’s Motion to Dismiss
Southwest asserted a breach of contract crossclaim against the Sekisui defendants, alleging
that they violated two provisions of a licensing agreement between the parties: (1) section 9.2,
which permitted Southwest to request additional installation training from the Sekisui defendants
and (2) section 13.1, which warranted that the liner sections purchased by Southwest would be free
from defects. In a prior motion, the Sekisui defendants moved to dismiss the breach of contract
crossclaim on statute of limitations grounds.
One of the issues in the prior motion was whether Southwest’s breach of contract
crossclaim was governed by the four-year UCC statute of limitations for a claim based on contract
for the sale of goods or whether the crossclaim was governed by the six-year statute of limitations
for a claim based on a written contract for services. The court determined that the licensing
agreement was a hybrid contract for both goods and services and noted that in a similar context,
the Utah Supreme Court had adopted the primary purpose test to determine the nature of a hybrid
transaction. In Utah Local Government Trust v. Wheeler Machine Co., 199 P.3d 949, 950 (Utah
2008), a city entered into a hybrid contract for goods and services with a contractor. The contract
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required the contractor to provide two diesel generators and installation and testing services for
the equipment. Id. The city sued the contractor after one of the generators caught fire, damaging
the city’s building and equipment. Id. at 950–51. The district court granted summary judgment in
favor of the contractor, and the city appealed. Id. at 951. The question presented to the Utah
Supreme Court was whether the city had asserted a product liability cause of action governed by
the two-year statute of limitations for such a claim. Id. More specifically, the issue was “whether
a transaction that includes both a tangible item and a service will be treated as the sale of a product
under the [Products Liability] Act.” Id. at 952.
The Utah Supreme Court held that the predominant purpose test was the appropriate tool
for determining whether a hybrid transaction for goods and services constituted the sale of a
product that would support a product liability claim. Id. at 952–57. If a hybrid transaction primarily
concerned a product, a cause of action for injury to property caused by the transaction was a
product liability claim. Id. at 956–57. If the hybrid transaction primarily concerned a service, the
resulting cause of action was not a product liability claim. Id. The Utah Supreme Court remanded
the case for a determination of whether products or services predominated the transaction for the
purchase and installation of the diesel generators. Id. at 956.
The Utah Supreme Court relied on a Delaware Supreme Court case, Neilson Business
Equipment Center, Inc. v. Monteleone, 524 A.2d 1172 (Del. 1987), when it adopted the primary
purpose test in Wheeler. Id. Neilson, in turn, cites an earlier Delaware case, Glover School & Office
Equipment Co. v. Dave Hall, Inc., 372 A.2d 221 (Del. Super. Ct. 1977). Glover held:
Where a mixed contract is involved, it is necessary that the Court
review the factual circumstances surrounding the negotiation,
formation and contemplated performance of the contract to
determine whether the contract is predominantly or primarily a
contract for sale of goods or for services. If the cause of action
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centers exclusively on the materials portion or the services portion
of the contract, the determination may rest upon that fact.
Id. at 223.
Relying upon Glover and a Tenth Circuit case that applied the UCC only to the portions of
a contract that dealt with goods in a hybrid contract, Foster v. Colorado Radio Corp., 381 F.2d
222, 226 (10th Cir. 1967), this court ruled in its prior order that if a plaintiff sues on a goods
provision, the UCC applies. But if a plaintiff sues on a services provision of a hybrid contract, the
UCC does not apply. Accordingly, the court found that the six-year general breach of contract
statute of limitations applied to section 9.2 of the licensing agreement because it was a services
provision and that the four-year UCC statute of limitations applied to section 13.1 because it was
a goods provision. Because Southwest filed its complaint more than four years after it should have
known about its breach of contract claims, the court dismissed Southwest’s section 13.1
crossclaim. But since Southwest asserted its claims within the six-year statute of limitations, the
court denied the motion to dismiss the section 9.2 crossclaim.
The Sekisui defendants now move for a judgment on the pleadings for the remaining
section 9.2 crossclaim. They argue that this court erred when it determined that Utah law required
it to apply the UCC statute of limitations to only part of the licensing agreement. The Sekisui
defendants assert that Utah follows the one-law approach adopted by most courts, which requires
the court to apply the UCC to the entire contract if it is predominately a contract for goods. They
further contend that because the licensing agreement is predominately a contract for goods, the
breach of contract crossclaim should be dismissed in its entirety. 4
Southwest asserts that the court should not consider the Sekisui defendants’ argument because it
is an unwarranted motion for reconsideration under Rule 59(e). See Servants of Paraclete v. Does,
12
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2) One Law Approach vs. Gravamen Approach
Courts generally follow one of two main approaches to applying the UCC to hybrid
contracts for goods and services. The majority of courts have adopted the one-law approach, which
applies the UCC to the entire contract if it is predominately a contract for goods. If, on the other
hand, the contract is primarily for services, the common law controls the contract. 1 COMMERCIAL
LAW AND PRACTICE GUIDE ¶ 3.02[1][d][ii] (2019). Some courts, on the other hand, have applied
the gravamen test, which permits a court to apply the UCC to disputes concerning a goods portion
of a hybrid contract and the common law to disputes concerning a services portion of the contract.
Id.; Foster, 381 F.2d at 226.
In its order on the Sekisui defendants’ prior motion to dismiss, the court essentially applied
the gravamen test. The Sekisui defendants now urge the court to change course and use the one-law
approach to determine which statute of limitations should be applied to the entire contract. They
cite a number of cases from other jurisdictions applying the one-law approach to hybrid contracts
and argue that the court should likewise apply this rule here. Southwest asserts that the court
correctly reasoned from Baker that it was more appropriate to apply the gravamen test.
The court agrees with the Sekisui defendants that it should have applied the one-law,
predominant purpose test to determine the proper statute of limitations to apply to Southwest’s
breach of contract crossclaim. Both the Wheeler opinion and the language of the UCC statute of
limitations suggest that Utah follows the one-law approach.
204 F.3d 1005, 1012 (10th Cir. 2000). But Rule 59(e) only applies to post-judgment motions. No
judgment has been entered in this case. Prior to judgment, the court may revisit issues that it has
previously ruled upon in earlier stages of the litigation. Rimbert v. Eli Lilly & Co., 647 F.3d 1247,
1251 (10th Cir. 2011) (“[D]istrict courts generally remain free to reconsider their earlier
interlocutory orders.” (citation omitted)).
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First, the Wheeler opinion indicates that the Utah Supreme Court would apply one statute
of limitations to the licensing agreement at issue here. The Wheeler court addressed an analogous
issue: whether to apply the product liability statute of limitations to the claim asserted by the city
for damages caused by a diesel generator fire. 199 P.3d at 950–52. The Utah Supreme Court held
that the predominant purpose test governed whether the city’s claim was subject to the product
liability statute of limitations or not. Id. at 952–57. On remand, the district court was required to
decide whether the sale of the diesel generators or the installation and testing services
predominated the transaction between the city and the contractor. Id. at 956. If the sale of products
predominated, the product liability statute of limitations would apply to the city’s entire cause of
action. If the sale of services predominated, another statute of limitations would apply.
The Utah Supreme Court could have adopted a different rule in Wheeler that would have
split the city’s cause of action in two—applying the product liability statute of limitations to the
extent that the city asserted that a defective product caused the fire and applying the general
negligence statute of limitations to the extent that the city asserted that negligently rendered
services caused the fire. Instead, that court held that a single statute of limitations should govern
the cause of action depending on whether goods or services predominated the underlying
transaction. Thus, although Wheeler applied the predominant purpose test in the context of a tort
claim for either product liability or general negligence, that case indicates that the Utah Supreme
Court would apply a similar one-law approach to determine the proper statute of limitations for a
contract claim.
The language of Utah’s UCC statute of limitations also supports the one-law approach.
This statute provides: “An action for breach of any contract for sale must be commenced within
four years after the cause of action has accrued.” UTAH CODE § 70A-2-725(1). The UCC defines a
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“contract for sale,” as a contract for the present or future sale of goods. See id. § 70A-2-106(1).
Notably, the UCC statute of limitations focuses on the contract as a whole rather than upon
individual provisions of a contract. It does not state that it applies to an action for breach of a sales
clause of a contract; it applies to the entire contract so long as it is a contract for the sale of goods.
When a contract contains both goods provisions and service provisions, the method for
determining whether it is “contract for sale,” within the meaning of the UCC, is the predominant
purpose test. See Wheeler, 199 P.3d at 956–57.
The court, therefore, determines that Utah law requires the application of the predominant
purpose test to determine whether the four-year UCC statute of limitations applies to all of
Southwest’s breach of contract crossclaim or whether the general six-year statute of limitations
applies to the entire crossclaim.
3) Application of the Predominant Purpose Test in a Motion for Judgment on the
Pleadings
The Sekisui defendants argue that the licensing contract is predominately for goods. But
the court concludes that in this case, it may not resolve the predominant purpose test on a motion
for judgment on the pleadings.
When applying the predominant purpose test, courts must “review the factual
circumstances surrounding the negotiation, formation and contemplated performance of the
contract to determine whether the contact is predominantly or primarily a contract for the sale of
goods.” Wheeler, 199 P.3d at 956 (quoting Neilson, 524 A.2d at 1174). Thus, under Utah law,
courts must consider facts outside of the four corners of the contract to determine its primary
purpose, including the circumstances of the contract’s negotiation, formation, and performance.
Neilson, the Supreme Court of Delaware case quoted by Wheeler, confirms that this test
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incorporates questions of fact. The Nielsen court upheld a district court’s “factual conclusion” that
a hybrid contract was predominately for goods under a substantial evidence standard of review.
524 A.2d at 1173–74.
In resolving a motion for judgment on the pleadings, the court may consider only the
well-pleaded facts of the complaint. But the allegations of Southwest’s crosscomplaint do not paint
a full picture of the formation and performance of the licensing agreement. Southwest alleges in
its crosscomplaint: “The Sekisui License Agreement and agreements between Sekisui
Americas/Sekisui Australia and Southwest were intended by the parties to be primarily an
agreement for the pipeline restoration and renovation method, system, process and technology,
construction services and pipeline renovation restoration [sic] and not primarily sale of a product.”
But aside from this summary allegation, there is little factual context concerning the negotiation
and formation of the contract. Perhaps most importantly, neither the allegations of the
crosscomplaint nor the contract documents provided to the court 5 state the full cost of the goods
sold to Southwest or the full cost or value of the training services provided to it. Without this key
information, the court cannot determine whether goods or services predominate at this stage of the
proceedings.
4) Conclusion
Because the issue of whether the four-year UCC statute of limitations or the six-year
general breach of contract statute of limitations cannot be resolved, the court denies judgment on
The licensing agreement consists of five documents: (1) the Customer Specific Terms and
Conditions, (2) the General Terms and Conditions for Sales and Delivery, (3) the Global Price List
for Rehabilitation Materials, (4) the Charge List for Training and Technical Support, and (5) the
Purchase Contract Proposal. The Sekisui defendants have only provided the first two documents
to the court.
5
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the pleadings as to Southwest’s section 9.2 breach of contract crossclaim. Furthermore, because
the court has reconsidered its application of the predominant purpose test, the court decides that it
should not have dismissed Southwest’s section 13.1 breach of contract crossclaim. The court
reinstates this crossclaim and the parties may conduct discovery regarding the section 13.1 claim.
B. Indemnification
Southwest also asserted a crossclaim for equitable indemnification against the Sekisui
defendants. Under this crossclaim, it contends that any obligation that it may owe to Salt Lake City
should be discharged by the Sekisui defendants.
“In actions for indemnity, courts universally require proof of three elements: (1) the payor
(prospective indemnitee) must discharge a legal obligation the payor owes to a third person; (2)
the prospective indemnitor must also be liable to the third person; and (3) as between the claimant
payor and the prospective indemnitor, the obligation ought to be discharged by the indemnitor.”
Perry v. Pioneer Wholesale Supply Co., 681 P.2d 214, 218 (Utah 1984). Southwest cannot satisfy
the second element of the equitable indemnity test because the Sekisui defendants (the prospective
indemnitors) are not liable to Salt Lake City (the third person). The court has dismissed all of Salt
Lake City’s claims against the Sekisui defendants on statute of limitations grounds, precluding any
liability on the part of the prospective indemnitors. Thus, for the same reasons that the court
dismisses Southwest’s equitable indemnification crossclaim against HydraTech, the court grants
judgment on the pleadings as to the indemnification crossclaim against the Sekisui defendants.
CONCLUSION AND ORDER
The court orders as follows:
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(1) The court GRANTS HydraTech’s motion to dismiss Southwest’s crossclaims against
it. ECF No. 149. Dismissal is with prejudice.
(2) The court GRANTS IN PART and DENIES IN PART the Sekisui defendants’ motion
for judgment on the pleadings. ECF No. 152. The court grants judgment on the
pleadings for Southwest’s indemnification crossclaim. The court denies judgment on
the pleadings for Southwest’s breach of contract crossclaim for breach of section 9.2 of
the licensing agreement. The court also reconsiders its prior order dismissing
Southwest’s breach of contract crossclaim for breach of section 13.1 of the licensing
agreement. The court reinstates this crossclaim.
DATED August 26, 2020.
BY THE COURT
______________________________
Jill N. Parrish
United States District Court Judge
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