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City of Spearfish v. Duininck, Inc.

United States District Court, D. South Dakota, Western Division

August 3, 2016

CITY OF SPEARFISH, a South Dakota Municipal Corporation, and ELKHORN RIDGE MANAGEMENT, LLC, a South Dakota Limited Liability Company, Plaintiffs,
v.
DUININCK, INC., f/k/a/ DUININCK BROS., INC., d/b/a DBI, a Minnesota Corporation, Defendant and Third-Party Plaintiff,
v.
AMERICAN TECHNICAL SERVICES, INC., and WYSS ASSOCIATES, INC., Third-Party Defendants.

          MEMORANDUM OPINION AND ORDER

          KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE

         Defendant and third-party plaintiff, Duinink, Inc. (DBI), moves for summary judgment on the breach of contract claim asserted by plaintiffs, City of Spearfish and Elkhorn Ridge Management, LLC. Docket 29. Plaintiffs move for partial summary judgment as to liability against DBI. Docket 47. Third-party defendants, American Technical Services, Inc. (ATS), and Wyss Associates, Inc., move for summary judgment on the claims asserted by DBI. Docket 36; Docket 37. For the following reasons, DBI’s motion is granted in part. Plaintiffs’ motion is denied. Wyss’s motion is granted, and ATS’s motion is denied.

         BACKGROUND

         On June 18, 2007, plaintiffs[1] formed an agreement with DBI to construct the Elkhorn Ridge Golf Course in Spearfish, South Dakota. The agreement established that DBI was the general contractor and that Wyss Associates was the landscape architect for the golf course. This dispute revolves around the pond in front of the green on the 6th hole-it has leaked on at least four occasions over the past five years.

         During construction of the area dedicated for the pond, excavators encountered gypsum. Gypsum is a type of soil known to deteriorate or dissolve when it encounters water. Due to the discovery of gypsum, the parties hired ATS to perform soil borings and to obtain an opinion regarding the impact gypsum may have on the project. Based on ATS’s recommendation, the parties amended the construction agreement to include installation of a synthetic liner at the base of the pond to prevent leakage. DBI hired Colorado Lining International, Inc., to install the synthetic liner. Before the synthetic liner was installed, DBI constructed a drainage system of drain tile and a pipe that extended from the green on the 6th hole to the area excavated for the pond.

         Colorado Lining installed the synthetic liner at the base of the pond. But the parties dispute the exact chain of events associated with the installation. DBI asserts that Colorado Lining modified the drainage system extending from the green on the 6th hole by cutting the pipe and adding a non-water tight coupling behind the synthetic liner. Plaintiffs dispute that Colorado Lining modified the pipe. Colorado Lining completed its work on the synthetic liner in the summer of 2008. DBI completed construction of the golf course in 2009.

         In spring of 2011, plaintiffs notified DBI that the pond liner had failed and the pond was leaking. The parties generally agree that, prior to spring of 2011, water leaked under the liner and encountered the gypsum beneath the pond. Eventually water dissolved the gypsum and created voids under the liner that caused the liner to fail.

         The liner was repaired in May of 2011 and again in November of 2011 after a second leak. Also in November of 2011, the parties discovered that the coupling in the pipe located behind the liner was non-water tight. The parties determined that the coupling was a source of water leakage that contributed to the deterioration of gypsum beneath the pond. DBI decided to raise the drain tile and pipe above the water level of the pond, and the pond liner was repaired in March 2012.

         A third leak occurred in May of 2012. As a result, Colorado Lining performed extensive repairs to the liner. On July 5, 2012, Elkhorn entered into a release with Colorado Lining. Elkhorn released all claims against Colorado Lining, known or unknown at that time, arising from the construction of the pond. In 2013, the pond leaked yet again. The liner leaked near the intake area of the pond due to deficient welds in the liner.

         As a result of these issues with the pond, plaintiffs filed suit against DBI on April 29, 2014, in Lawrence County, South Dakota. DBI removed the case to this court under 28 U.S.C. § 1441 and relied upon diversity of jurisdiction under 28 U.S.C. § 1332. Docket 1. DBI filed a third-party complaint against ATS and Wyss on June 4, 2014. Docket 4.

         STANDARD OF REVIEW

         “One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses[.]” Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). 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.” Fed.R.Civ.P. 56(a); Celotex Corp., 477 U.S. at 323 (“[A] party seeking summary judgment always bears the initial responsibility of . . . demonstrat[ing] the absence of a genuine issue of material fact.” (internal quotations omitted)). The moving party must inform the court of the basis for its motion and also identify the portion of the record that shows there is no genuine issue in dispute. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (citation omitted).

         Once the moving party has met its initial burden, the nonmoving party must establish “that a fact . . . is genuinely disputed” either by “citing to particular parts of materials in the record, ” or by “showing that the materials cited do not establish the absence . . . of a genuine dispute.” Fed.R.Civ.P. 56(c). “The nonmoving party may not ‘rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial.’” Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). For purposes of summary judgment, the facts and inferences drawn from those facts are “viewed in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).

         DISCUSSION

         I. DBI’s Motion for Summary Judgment.

         DBI moves for summary judgment on plaintiffs’ breach of contract claim by arguing that the release executed between Elkhorn and Colorado Lining also precludes DBI’s liability. DBI relies upon Krause v. Reyelts, 646 N.W.2d 732 (S.D. 2002), to support its position. Plaintiffs argue that Krause is inapplicable here and that the release between Elkhorn and Colorado Lining has no effect on the breach of contract claim against DBI.

         In Krause, the parties entered into a contract for construction of a home. Id. at 733. The contractor utilized a subcontractor to perform excavation work. Id. After completion of the home, the homeowners noticed multiple problems associated with the subcontractor’s work. Id. The homeowners and general contractor later signed a release in favor of the subcontractor in exchange for payment from the subcontractor’s insurance company. Id. Further problems came to light after executing the release, and the homeowners brought multiple claims against the general contractor, including breach of contract. Id. at 734.

         The state circuit court granted summary judgment in favor of the defendant general contractor, and the Supreme Court of South Dakota affirmed the decision by finding that release of the subcontractor also barred plaintiff’s claims against the general contractor. Id. In reaching this conclusion, the Krause court relied upon Estate of Williams ex rel. Williams v. Vandeberg, 620 N.W.2d 187 (S.D. 2000), which established that “a release of an agent is a release of the principal even when the release contains an express reservation [of applicability to the principal] and where the claim is premised on the [] act of the agent.” Id. at 191. The following passage in Krause examines proper application of the rule identified in Williams:

[W]e start by noting that [subcontractor] was hired by [general contractor] to perform the [] work. Therefore, any liability of [general contractor] arising from [subcontractor’s] work is premised on [general contractor’s] vicarious liability. The release, however, clearly stated that [plaintiff] released [subcontractor] from ‘any and all claims’ arising from [subcontractor’s] work. Therefore, under Williams, the trial court properly held that the release of [subcontractor] bars ...

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