The City of Fairbanks, Alaska ("City"), filed suit in Alaska state court in September, 1987, alleging strict liability, negligence, breach of express and implied warranty, fraud and unfair trade practices arising from the collapse of pipes used in the City's sewer system. The City named as defendants Amoco Reinforced Plastics Company ("ARPCO"), a subsidiary of Amoco, United Technologies Corporation ("UTC"), and Armco, Inc. ARPCO subsequently removed the case to federal district court based on diversity of citizenship. Amoco Chemical Corporation ("Amoco") was added as a defendant. Prior to trial, the City settled its claims against all parties other than ARPCO and Amoco. All of the claims except the common law fraud claim were dismissed on the ground they were precluded by the applicable statutes of limitations. The district court also granted a partial summary judgment, holding that ARPCO was the alter ego of Amoco. After four days in a bifurcated jury trial, the district court granted a judgment as a matter of law in favor of the defendants. The City appeals from the final judgment, and Amoco cross-appeals on the partial summary holding that it was the alter ego of ARPCO.
In 1974, the City was preparing for the installation of 4.5 miles of large diameter sewer lines to be placed along Van Horn and Peger Roads, in Fairbanks, Alaska. The City's design consultants had previously identified a type of reinforced plastic pipe known as Techite as an acceptable alternative to concrete pipes. Techite was designed and manufactured by UTC until 1973, when it was acquired by ARPCO, a wholly owned subsidiary of Amoco.
The City installed the Techite pipe during the summer and fall of 1975. Within four years of the pipes' installation, a large sinkhole developed along Van Horn Road. Upon further investigation, the City determined that the large crater was attributable to the collapse of a 20-foot section of Techite sewer pipe. At that time, Amoco said the collapse was due either to "improper bedding at the time of initial installation" or "changes in the native soil conditions." Later, the City learned that the collapse of the Techite pipe was due to "strain corrosion," a condition allegedly caused by the sewage passing through the pipes. The City concluded that ARPCO had concealed the defective condition of the Techite pipes.
The collapsed sewer pipes caused extensive damage. Not only did the City experience property damage, but raw sewage spilled into the streets, flooded homes, and created a public health hazard. Consequently, the City was forced to "slipline" the Van Horn sewer line with smaller iron pipe, thereby reducing its carrying capacity by 30 percent. The City estimates the total damage caused by the collapsed sewer lines will exceed $39 million.
ARPCO moved for summary judgment on the City's claims. The district court granted ARPCO's request for summary judgment on the breach of warranty claims, holding that such claims were barred by the Uniform Commercial Code's four-year statute of limitations. The district court rejected ARPCO's other statute of limitations claims on the fraud and non-fraud causes of action and ordered the trial bifurcated so that the jury could resolve certain factual disputes. In the first trial, the jury was required to find whether ARPCO defrauded the City and, if so, when the City learned of the fraud. If the jury found that the City was defrauded, then there was to be a second trial addressing causation, allegations of improper installation, and misuse of the pipe and damages. The district court also granted partial summary judgment in favor of the City on the City's claim that ARPCO had operated as a "mere instrumentality" of Amoco; and, therefore, Amoco would be liable to the City because ARPCO was its alter ego.
Jurisdiction: U.S. Court of Appeals, Ninth Circuit
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