Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_00-cv-20002/USCOURTS-cand-5_00-cv-20002-3/pdf.json

Nature of Suit Code: 245
Nature of Suit: Real Property Product Liability
Cause of Action: 28:1332 Diversity-Product Liability

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 This disposition is not designated for publication and may not be cited.

Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

**E-Filed 5/30/06**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

LOCKHEED MARTIN CORPORATION,

 Plaintiff,

 v.

RFI SUPPLY, INC., et al.,

 Defendants.

Case Numbers C 00-20002 JF (PVT)

 C 03-04617 JF

ORDER1 (1) GRANTING FMRC’S

MOTION FOR SUMMARY

JUDGMENT, AND (2) DENYING

RANTEC’S MOTION FOR

SUMMARY JUDGMENT

[re: docket nos. 324, 339]

AND RELATED CROSS ACTIONS.

I. BACKGROUND

The instant action arises out of the accidental activation of the fire control system in

Plaintiff Lockheed Martin Corporation’s (“Lockheed”) Large Compact Range anechoic chamber

(“the LCR”), a facility that is used to test electromagnetic emissions, electromagnetic immunity,

and radio frequencies associated with satellite components, on December 20, 1996. Three

telescoping sprinkler assemblies (“TSAs”), designed and sold to Lockheed by Defendant and

Counter-complainant ETS-Lindgren LP, successor to Rantec Power Systems Inc. (“Rantec”),

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

allegedly malfunctioned and caused severe water damage. 

On December 20, 1999, Lockheed filed suit against Rantec, Grinnell Fire Protection

Company (the company that installed the fire control system), RFI Supply, Inc., and KiddeFenwal Inc., alleging claims for negligence, strict products liability, and breach of implied

warranties, C 00-20002 JF (“the 1999 action”). On December 6, 2000, Rantec filed a third-party

complaint against Counter-Defendant Factory Mutual Research Corporation (“FMRC”) and

Factory Mutual Insurance Company (“FMIC”), alleging claims for negligence, equitable

indemnity, and contribution. On September 24, 2001, District Court Judge Spencer Williams

granted FMRC’s motion for summary judgment based in part on its conclusion that the Approval

Agreement entered into by Rantec and FMRC in 1991 included an indemnity provision that

barred Rantec’s claims against FMRC. On March 28, 2003, this Court entered judgment for

FMRC. On October 20, 2004, the Ninth Circuit affirmed this Court’s grant of summary

judgment in favor of FMRC. 

On April 18, 2003, FM Global Technologies LLC, formerly known as Factory Mutual

Research Corporation, filed suit against Rantec in the Central District of California, seeking

indemnification for the costs and fees incurred by FMRC in defending Rantec’s third-party

claims in the 1999 action. On November 10, 2004, Rantec filed a counter-complaint against

FMRC and FMIC, alleging claims for fraud and unfair and deceptive business practice pursuant

to Section 17200, et seq., of the California Business and Professions Code. FMRC’s complaint

and Rantec’s counter-complaint, C 03-04617 JF, were transferred to this Court and consolidated

with the 1999 action.

On January 5, 2006, FMRC filed a motion for summary judgment on Rantec’s

counterclaims for fraud, violation of Section 17200, et seq. of the California Business and

Professions Code, and punitive damages. On March 10, 2006, Rantec filed a motion for

summary judgment on FMRC’s claim for indemnification. Both motions are opposed. The

Court heard oral argument on both motions on May 5, 2006.

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

II. LEGAL STANDARD

A motion for summary judgment should be granted if there is no genuine issue of

material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P.

56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears

the initial burden of informing the Court of the basis for the motion and identifying the portions

of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that

demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S.

317, 323 (1986). 

If the moving party meets this initial burden, the burden shifts to the non-moving party to

present specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e);

Celotex, 477 U.S. at 324. A genuine issue for trial exists if the non-moving party presents

evidence from which a reasonable jury, viewing the evidence in the light most favorable to that

party, could resolve the material issue in his or her favor. Anderson, 477 U.S. 242, 248-49;

Barlow v. Ground, 943 F.2d 1132, 1134-36 (9th Cir. 1991). 

“When the nonmoving party has the burden of proof at trial, the moving party need only

point out ‘that there is an absence of evidence to support the nonmoving party’s case.’” 

Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (quoting Celotex Corp. v. Catrett, 477

U.S. 317, 325 (1986)). Once the moving party meets this burden, the nonmoving party may not

rest upon mere allegations or denials, but must present evidence sufficient to demonstrate that

there is a genuine issue for trial. Id. 

III. DISCUSSION

A. FMRC’s Motion for Summary Judgment

Lockheed’s LCR anechoic chamber simulates outer space by creating conditions that are

without light or sound. In order to achieve this effect, anechoic foam, a special material that

absorbs sound, is placed on all four walls of the chamber. The state of the art facility is highly

sensitive, and any imperfection in the anechoic foam is likely to produce unacceptable levels of

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

noise. Traditional fire sprinklers that protrude permanently from a ceiling would have interfered

with the LCR’s anechoic features. For that reason, Lockheed chose to use TSAs, which allow for

full use of the chamber because they are located underneath the foam layer and telescope into the

chamber only in the event of a fire. Lockheed’s contractor purchased TSAs for the LCR

anechoic chamber from Rantec.

Rantec, which designed and constructed anechoic chambers, designed a TSA in the early

1980s. Hartley Decl., Ex. 43, ¶¶ 3,4. In November, 1982, Rantec contacted FMRC, seeking

FMRC’s approval for its TSA. Id., Ex. 9. FMRC “offers certification and testing services of

industrial and commercial loss prevention products” and “issues product standards, performs

testing, issues Approval Reports, and publishes a directory of approved products.” Allard Decl.,

¶¶ 2, 3. When a product meets FMRC’s approval criteria, the manufacturer may label it with the

“FM APPROVED” mark, and the product will be included in FMRC’s Approval Guide. Id., ¶ 4.

As described in a 1998 press release, FMRC “is an internationally recognized, nonprofit

organization within Factory Mutual — the world leader in property loss control engineering,

research and training.” Hartley Decl., Ex. 8. FMIC and its subsidiaries “provide property

insurance, loss prevention engineering and other risk management services to large commercial

and industrial customers.” Id., Ex. 3. Philip Johnson (“Johnson”), an employee in the hydraulics

lab at Factory Mutual Research, has testified that FMRC was “set up to provide approvals of

products, fire protection devices, automatic sprinklers, et cetera.” Id., Ex. 4. Johnson explained

that when FMIC was underwriting a new risk, it would ensure that the fire protection was reliable

by having it approved by FMRC. Id. 

On March 9, 1983, soon after Rantec had contacted FMRC for its approval, FMRC wrote

to Rantec: “In our opinion the device [TSA] shows potential as an approvable device for use in

fire protection systems in anechoic chambers.” Id., Ex. 12. FMRC further explained:

Our test program is designed to determine the integrity of your device for use in

the vertical position and to generate certain data for sprinkler system design

engineers. The design data is necessary so that approval can be granted without

tying your device to any specific make or model of standard orifice sprinkler.

We have never been approached to approve a telescoping nipple before, so,

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

therefore, we have no standard.

Id. On March 10, 1983, Rantec and FMRC entered into a “Proposal and Service Agreement,”

whereby FMRC agreed:

to perform certain tests or services . . . by qualified personnel in accordance with

sound engineering practices and conforming, as appropriate, with standard Factory

Mutual procedures. . . . Upon completion of the work, Factory Mutual will

provide a report or reports to Client describing the tests or services performed, and

the opinions or conclusions reached as a result thereof, but such opinions or

conclusions shall represent only the best judgment of Factory Mutual as to the

conditions reported, and shall not constitute a warrant or other agreement with

respect to such conditions or of any product. Factory Mutual reserves the right at

any time in its sole judgement [sic] to change or revise its standards, criteria,

methods or procedures.

Id., Ex. 5. The tests described by FMRC in the Proposal and Service Agreement did not involve

any products other than Rantec’s TSA. Id.

On June 18, 1985, Johnson sent a letter informing Rantec that FMRC was encountering

problems in its testing of the TSAs. Id., Ex. 15. Johnson explained “that many automatic

sprinklers are not capable of withstanding high ‘g’ forces. For that reason, we suggest that you

contact the automatic sprinkler manufacturers to determine if they have any interest in

developing a special sprinkler for use with telescoping assemblies, or would have any design

suggestions to make your telescoping unit more compatible with existing sprinkler designs.” Id. 

In a meeting on September 5, 1986, FMRC again suggested to Rantec “that it would be to

[Rantec’s] advantage to design their units in close cooperation with a sprinkler manufacturer.” 

Id., Ex. 18. Carvel Moore, then the Director of Engineering for Rantec, responded that “Rantec

was not in a position to undertake any type of testing or design with a sprinkler manufacturer

since Rantec was not in the fire-suppression system business.” Id., Ex. 43, ¶ 15.

Johnson has testified that FMRC tested the available sprinklers with Rantec’s TSA. Id.,

Ex. 20. One sprinkler, the Viking, “totally disintegrated,” and a representative of Grinnell

informed Rantec that its sprinkler was not designed for this purpose. Id. Two sprinklers

“managed to survive”—the Star Model E and the Central Model A. Id. Several years later, on

July 30, 1997, Johnson summarized this testing:

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

When FMRC first started testing telescoping sprinkler assemblies for use in

anechoic chambers, we soon realized that many of the Approved automatic

sprinklers were not suitable for that application. Neither the sprinkler

manufacturers nor the assembly manufacturers were interested in designing a

sprinkler for that purpose. 

Since something is better than nothing, we tested all the sprinklers Approved at

that time, except for glass bulb types. . . . 

The sprinklers were installed in telescoping assemblies that would extend about

two feet. Water at a static pressure of 125 psi was introduced into a small system

by means of a quick opening valve. Any sprinkler that leaked or fell apart after its

deployment was eliminated. The Star Model E and Central Model A sprinklers

stood up to the test.

Id., Ex. 21. On March 7, 1990, Johnson reported to a superior:

The two Factory Mutual Research Approved automatic sprinklers that have been

found to have best withstood the shock associated with the operation of telescoping

sprinkler assemblies are the Central Model A and the Star Model E. There are no

sprinklers specifically Approved by FMRC for use with such assemblies. There

may be other sprinklers equally or better suited for installations using open

sprinklers, but that area has not been investigated.

Id., Ex. 22. On May 11, 1990, FMRC wrote to Rantec, informing it that FMRC had completed

its testing of the TSA and that “[t]he results are satisfactory.” Id., Ex. 23. FMRC further wrote:

“Formal Approval cannot be granted until the Approval report has been issued, and the Approval

Agreement has been signed and received by Factory Mutual Research Corporation.” Id. Rantec

asserts, and FMRC does not dispute, that Rantec was not informed of the details of the testing

that led to the approval of Rantec’s product with Star Model E and Central Model A.

On June 24, 1991, FMRC issued its Approval Report, which covered “all the assemblies

as outlined in the title page, but only when equipped with FMRC Approved Standard, SSU

Sprinklers, Central Model A or Star Model E.” Id., Ex. 24, § 6.2. The Approval Report also

states that the TSAs “discussed in this report are Approved only when anechoic chamber

sprinkler system is provided with FMRC Approved Surge Suppresser.” Id., § 6.3. The 1991

Approval Agreement, signed by FMRC on June 24, 1991 and by Rantec on July 10, 1991,

provides that: “FMRC Approval does not imply or express any warranty of any kind with respect

to the Client’s product or service, and FMRC assumes no responsibility for defects, failure in

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

service or patent infringement.” Allard Decl., Ex. C, § 10. The 1991 Approval Agreement also

includes the following indemnity and hold harmless provision: 

The Client [Rantec] shall assume full responsibility for the design, material,

workmanship and operation of the product or the quality of the service rendered

and agrees to hold harmless and indemnify FMRC from any claims and liability to

the Client or others for any kind or type of injury or damage, including without

limitation, loss of earnings or profits, caused by or in any way connected with any

of the services rendered by FMRC, or arising out of any defect, accident, damage

or injury related to the product or service referenced herein.

Id., § 12. FMRC was also involved in approving the language used in Rantec’s manual for the

TSAs, and Rantec’s TSAs were listed in the FMRC approval guide. See, e.g., id., Exs. 27, 40.

a. Fraud

FMRC moves for summary judgment on Rantec’s claim for fraud on the ground that

Rantec has not provided evidence for each of the elements of fraudulent misrepresentation. In its

opposition and during oral argument, Rantec argued that its fraud claim in fact is based upon

fraudulent concealment, rather than fraudulent misrepresentation. Because Rantec has not

opposed FMRC’s motion for summary judgment to the extent that Rantec’s claim is based upon

fraudulent misrepresentation, the Court will grant FMRC’s motion with respect to this claim. 

Rantec’s argument that it has alleged fraudulent concealment relies upon a single

sentence in its twelve-paragraph claim for fraud. Referring to FMRC’s testing of Star and

Central sprinkler heads, Rantec alleges: “FMRC did not disclose those testing results.” Countercomplaint, ¶ 13. In contrast, Rantec’s claim for fraud alleges the elements of fraudulent

misrepresentation with particularity. Accordingly, the Court concludes that Rantec’s countercomplaint alleges fraudulent misrepresentation, not fraudulent concealment. Because Rantec

might be able to withstand a motion for summary judgment on a properly pled claim for

fraudulent concealment, the Court will grant Rantec leave to amend its counter-complaint in

order to allege such a claim. Nguyen v. United States, 792 F.2d 1500, 1503 (9th Cir. 1986)

(“Granting leave to amend after summary judgment is thus allowed at the discretion of the trial

court.”).

The Court notes that FMRC, in litigating the instant action, was entitled to assume that

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

Rantec’s fraud claim was based on alleged fraudulent misrepresentation. Accordingly, if Rantec

amends its counter-complaint to include a claim for fraudulent concealment, Rantec shall bear

any additional legal fees that may be incurred by FMRC as a direct result of this amendment.

b. Section 17200, et seq. of the California Business and Professions Code

FMRC argues that Rantec’s claim under Section 17200, et seq. of the California Business

and Professions Code is time-barred. The statute of limitations for a Section 17200 claim is four

years, Cal. Bus. & Prof. Code § 17208, and is not subject to the discovery rule. See Karl Storz

Endoscopy America, Inc. v. Surgical Technologies, Inc., 285 F.3d 848, 857 (9th Cir. 2002)

(“[Plaintiff-appellant’s] claims under California Business and Professions Code § 17200 et seq.

are subject to a four-year statute of limitations which began to run on the date the cause of action

accrued, not on the date of discovery.”) Rantec argues that Section 17204 provides that the

statute of limitations begins when there has been an “injury in fact.” However, this section

provides the requirement for standing, not for the statute of limitations. Cal. Bus. & Prof. Code §

17204 (“Actions for any relief pursuant to this chapter shall be prosecuted exclusively in a court

of competent jurisdiction . . . by any person who has suffered injury in fact and has lost money or

property as a result of such unfair competition.”).

Rantec’s counter-complaint, which was filed on November 10, 2004, relates back to

FMRC’s complaint, filed on April 18, 2003. “‘[T]he commencement of an action by a plaintiff

tolls the statute of limitations for any counterclaims that ‘arise out of the same occurrence’ as the

allegations of the complaint.” Burger v. Kuimelis, 325 F.Supp.2d 1026, 1045 (N.D. Cal. 2004)

(citing Sidney v. Superior Court, 198 Cal.App.3d 710 (1988). FMRC argues that Rantec’s

Section 17200 claim does not “arise out of the same occurrence” as FMRC’s claim for attorney’s

fees and costs. However, because both parties’ claims arise out of the 1991 Approval Agreement

and the 1999 action, this Court concludes that Rantec’s claim relates back to FRMC’s complaint. 

Accordingly, the effective filing date for Rantec’s Section 17200 claim is April 18, 2003.

To the extent that Rantec’s Section 17200 claim is based on events that occurred prior to

April 18, 1999, it is barred by the statute of limitations. Significantly, Rantec’s claim that it “was

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

fraudulently induced to enter into the Approval Agreement with FMRC” is time-barred because

the alleged fraudulent inducement would have occurred in or prior to 1991. Counter-Complaint

¶ 33. Because the doctrine of delayed discovery does not apply to Section 17200 claims, Rantec

ignorance of the alleged fraudulent inducement prior to the law suit initiated by Lockheed does

not affect when the statute of limitations period expired. See Karl Storz Endoscopy America, 285

F.3d at 857.

However, it is possible to construe Rantec’s allegations to include a claim that FMRC’s

role in the 1999 litigation constituted an unfair business practice. Rantec alleges that it “was

fraudulently induced to enter into the Approval Agreement with FMRC and thereafter was

subject to suit brought on behalf of the insurance entities, including FMIC and its predecessors,

which own and/or controlled FMRC, and which were subrogated to the claims of Lockheed, and

to the present suit brought by FMGT.” Counter-Complaint ¶ 33. While this general allegation

that the 1999 litigation itself constituted an unfair business practice may be enough to survive a

motion to dismiss based on the statute of limitations, it is not, on its own, enough to survive a

motion for summary judgment. Rantec has provided no evidence that might show that FMRC

engaged in any unfair business practice later than the early 1990s. Instead, the only evidence

Rantec cites in its opposition to FMRC’s motion for summary adjudication of the Section 17200

claim relates to documents from or events during the early 1990s. See Hartley Decl. ¶ 29, ex. 22

(letter dated March 7, 1990); Id. at ¶ 52, Ex. 45 (memorandum dated February 15, 1990); Id. at ¶

31, Ex. 24 (document dated June 24, 1991); Mawdsley Decl. ¶¶ 6-14 (describing events during

and documents from the early 1990s). Accordingly, the Court concludes that Rantec has not

offered any evidence of an unfair business practice that would not be barred by the statute of

limitations, and the Court will grant FMRC’s motion with respect to Rantec’s claim under

Section 17200. 

c. Punitive damages

Having concluded that it will grant FMRC’s motion with respect to both claims, the

Court need not reach the issue of punitive damages.

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 “WHEREFORE, FMRC requests that the Court deny all of the relief sought by

RANTEC for the reasons described in this First Amended Answer, and dismiss RANTEC’s

Third-Party COMPLAINT with prejudice and award FMRC the costs of suit, its attorneys’ fees,

and any other relief the Court finds just and proper.” FAA, p. 8 (emphasis added).

10

Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

B. Rantec’s Motion for Summary Judgment

Pursuant to the 1991 Approval Agreement, FMRC seeks recovery from Rantec of costs

and fees associated with defending against counterclaims brought against it by Rantec in the

1999 action. In its First Amended Answer (“FAA”) to Rantec’s counterclaims, FMRC asserted a

defense based on the indemnity and hold harmless provision of the 1991 Approval Agreement. 

FMRC’s FAA also included a boilerplate request for attorney’s fees,

2

 but FMRC did not file a

counter-complaint for attorney’s fees pursuant to the 1991 Approval Agreement. Rantec now

moves for summary judgment on the grounds that (1) by failing to assert a counterclaim for

attorney’s fees and costs pursuant to the 1991 Agreement, FMRC waived this claim, (2) FMRC’s

claim for attorney’s fees and costs is barred by res judicata, and (3) the claim lacks merit.

The 1991 Approval Agreement provides in relevant part:

The Client [Rantec] shall assume full responsibility for the design, material,

workmanship and operation of the product or the quality of the service rendered

and agrees to hold harmless and indemnify FMRC from any claims and liability to

the Client or others for any kind or type of injury or damage, including without

limitation, loss of earnings or profits, caused by or in any way connected with any

of the services rendered by FMRC, or arising out of any defect, accident, damage

or injury related to the product or service referenced herein.

Allard Decl., Ex. C. In FMRC’s 2001 motion for summary judgment, FMRC argued that this

provision barred Rantec’s claims for negligence, equitable indemnity, and contribution, without

regard to any possible finding of negligence on the part of FMRC. The district court granted

FMRC’s motion for summary judgment, and entered final judgment on March 28, 2003. FMRC

did not file a motion pursuant to Federal Rule of Civil Procedure 54 for attorney’s fees. The

Ninth Circuit affirmed the grant of summary judgment for FMRC on October 20, 2004. 

a. Compulsory Counterclaim

A counterclaim is compulsory “if it arises out of the transaction or occurrence that is the

subject matter of the opposing party’s claim and does not require for its adjudication the presence

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 “Rantec’s third-party claims against Factory Mutual, Allendale and IRI for negligence,

indemnity and contribution involve the same operative facts as the claims filed by Lockheed

against Rantec in the original action. Lockheed alleges that Rantec negligently designed,

manufactured, and sold the telescoping sprinkler assemblies installed in Lockheed’s [LCR

anechoic chamber]. through discovery, reliable evidence has come to light showing that Factory

Mutual, Allendale and IRI each took an active role in the design, testing and approval of the fire

suppression system in Lockheed’s LCR chamber, including the telescopic sprinkler deployment

system.” Johnson Decl., Ex. A (“Memorandum of Points and Authorities in Support of Rantec’s

Motion for Leave of Court to File Third-Party Complaint against Factory Mutual Research

Corporation, Allendale Mutual Insurance Company, and Industrial Risk Insurers for Negligence,

Indemnity and Contribution”).

11

Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

of third parties of whom the court cannot acquire jurisdiction. ” Fed. R. Civ. P. 13(a); see also

Seattle Totems Hockey Club, Inc. v. Nat’l Hockey League, 652 F.2d 852, 854 (9th Cir. 1981)

(“The purpose of requiring a defendant to assert his claim as a counterclaim in a pending action

is ‘to prevent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes

arising out of common matters.’”) (citing Southern Construction Co. v. Pickard, 371 U.S. 57, 60

(1962)).

The parties disagree as to whether FMRC’s claim of indemnity for attorney’s fees and

costs arises out of the same transaction or occurrence that was the subject matter of the 1999

action. FMRC contends that the transaction or occurrence that was the basis of Rantec’s thirdparty complaint in the 1999 action was the malfunction of Rantec’s TSAs in Lockheed’s LCR

anechoic chamber.3 Rantec contends, however, that FMRC is attempting to litigate issues in the

present action that were litigated in the 1999 action, in which FMRC successfully argued that the

indemnity provision of the 1991 Approval Agreement barred Rantec’s claims for negligence,

indemnity and contribution against FMRC.

FMRC argues that Federal Rule of Civil Procedure 13(a) does not apply to its affirmative

defenses because this Rule applies to a claim only if it “arises out of the transaction or occurrence

that is the subject matter of the opposing party’s claim” (emphasis added). Rantec argues that a

counterclaim may be compulsory if it arises out of an affirmative defense, citing Competitive

Technologies v. Fujitsu Ltd., 286 F.Supp.2d 1118, 1139 (N.D. Cal. 2003) (“The Court concludes

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

that counterclaims should be considered compulsory when they are based on the same

‘transaction or occurrence’ as the plaintiff’s causes of action and the affirmative defenses

asserted in the action.” Id. at 1139. However, the Eastern District of California has expressly

declined to follow Competitive Technologies: 

Defendant’s argument that its counterclaims are compulsory because they are

related to its affirmative defense of off-set is not persuasive. Defendant cites a

district court case to support its argument that its counterclaims should proceed

because they are based on similar evidence and issues to be addressed on its

off-set affirmative defense. Competitive Technologies v. Fujitsu Ltd., 286

F.Supp.2d 1118, 1139 (N.D.Cal.2003). Competitive Technologies cites no Ninth

Circuit authority supporting this principle and has not been cited by any other

courts in support of this principle. Furthermore, the facts in Competitive

Technologies, which involved patent infringement issues and which were highly

involved and complex, are not analogous to the facts at issue here.

Sparrow v. Mazda American Credit, 385 F.Supp.2d 1063, 1069 n.3 (E.D. Cal. 2005). In a case

involving facts similar to those in Sparrow, the Northern District of California has followed

Sparrow: 

Defendant Western’s second distinction based on its affirmative defense of setoff

is not persuasive. Defendant Western has failed to cite any case supporting its

argument that its counterclaim should proceed because it is based on the same

evidence and issues to be addressed by its affirmative defense. In addition, the

Sparrow court, addressing this exact issue did not find the argument persuasive

and held the counterclaim permissive.

Campos v. Western Dental Services, Inc., 404 F.Supp.2d 1164, 1169 n.3 (N.D. Cal. 2005). 

Finding Competitive Technologies and Campos persuasive, this Court concludes that FMRC’s

claim for attorney’s fees and costs was not a compulsory counterclaim relating to its affirmative

defense of indemnity in the 1999 action.

b. Res Judicata

In the alternative, Rantec argues that FMRC’s claim is barred by the doctrine of res

judicata. However, Rantec has waived the affirmative defense of res judicata by failing to assert

it previously. Federal Rule of Civil Procedure 8(c) requires that “[i]in pleading to a preceding

pleading, a party shall set forth affirmatively . . . res judicata . . . and any other matter constituting

an avoidance or affirmative defense.” Res judicata, or claim preclusion, “is an affirmative

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ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

defense which may be deemed waived if not raised in the pleadings.” Clements v. Airport

Authority of Washoe County, 69 F.3d 321, 328 (9th Cir. 1995) (citing Kern Oil v. Tenneco, 840

F.2d 730, 734-35 (9th Cir.1988). Accordingly, the Court concludes that FMRC’s claim is not

barred by res judicata.

c. Merits of FMRC’s claim for attorney’s fees and costs

Rantec argues, also in the alternative, that summary judgment should be granted in its

favor because FMRC’s claim for attorney’s fees and costs is without merit. Rantec relies on

Varco-Pruden, Inc. v. Hampshire Construction Company, 50 Cal.App.3d 654, 660 (1975), in

which the court observed that, “[o]rdinarily, indemnity connotes liability for derivative fault.”

However, “this general rule does not apply if the parties to a contract use the term ‘indemnity’ to

include direct liability as well as third party liability.” Dream Theater, Inc. v. Dream Theater,

124 Cal.App.4th 547, 555 (2004); see also Myers Building Industries, Ltd. v. Interface

Technology, Inc., 13 Cal.App.4th 949, 968 (1993) (“An indemnity agreement is to be interpreted

according to the language and contents of the contract as well as the intention of the parties as

indicated by the contract.”). 

This Court and the Ninth Circuit have previously held that the indemnity and hold

harmless provision of the 1991 Approval Agreement applied to claims brought by Rantec against

FMRC. Rantec contends that these previous holdings are not controlling on the issue of

attorney’s fees and costs. However, without respect to whether the previous holdings are

controlling, the terms of this provision provide for the possibility of third-party liability:

The Client [Rantec] shall assume full responsibility for the design, material,

workmanship and operation of the product or the quality of the service rendered

and agrees to hold harmless and indemnify FMRC from any claims and liability to

the Client or others for any kind or type of injury or damage, including without

limitation, loss of earnings or profits, caused by or in any way connected with any

of the services rendered by FMRC, or arising out of any defect, accident, damage

or injury related to the product or service referenced herein.

Creason Decl., Ex. C (emphasis added). Accordingly, this Court concludes that the indemnity

and hold harmless provision allows for third party liability. 

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

d. FMRC’s request for the Court to enter summary judgment sua sponte

FMRC requests that this Court enter partial summary judgment on the issue of liability in

its favor sua sponte, leaving the issue of damages to be determined at a later stage of the

proceeding. “Even when there has been no cross-motion for summary judgment, a district court

may enter summary judgment sua sponte against a moving party if the losing party has had a ‘full

and fair opportunity to ventilate the issues involved in the matter.’” Gospel Missions of America

v. City of Los Angeles, 328 F.3d 548, 553 (9th Cir. 2003) (citing Cool Fuel, Inc. v. Connett, 685

F.2d 309, 312 (9th Cir.1982)). Rantec responds that FMRC’s claim for attorney’s fees and costs

is subject to Rantec’s counterclaims seeking the rescission of the 1991 Approval Agreement. 

Additionally, Rantec argues that FMRC has not established that its claim for attorney’s fees and

costs, which FMRC argues was not mature at the time it alleged its affirmative defenses in the

1999 action, is now “mature.”

The Court is concerned that considering whether to grant summary judgment on the issue

of liability sua sponte would not provide adequate notice to Rantec. Accordingly, the Court will

deny FMRC’s request to do so.

IV. ORDER

Good cause therefore appearing, IT IS HEREBY ORDERED that FMRC’s motion for

summary judgment is GRANTED. Rantec may file any amended complaint to include a claim

for fraudulent concealment within thirty (30) days after service of this order. If Rantec so

amends, it shall bear any legal fees that may be incurred by FMRC as a direct result of this

amendment.

IT IS FURTHER ORDERED that Rantec’s motion for summary judgment is DENIED.

DATED: May 30, 2006

 

JEREMY FOGEL

United States District Judge

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Case Nos. C 00-20002 JF (PVT) and C 03-04617 JF

ORDER (1) GRANTING FMRC'S MOTION FOR SUMMARY JUDGMENT, AND (2) DENYING RANTEC'S

MOTION FOR SUMMARY JUDGMENT

(JFLC1)

This Order has been served upon the following persons:

Elaine M. Adam emadam@rkmc.com, geross@rkmc.com

Stephan A. Barber sbarber@ropers.com, blangston@ropers.com

J. Cross Creason jcc@dillinghammurphy.com

Margaret M Drugan mmdrugan@rkmc.com, biberinger@rkmc.com

Randy W. Gimple rgimple@ccplaw.com

Patrick J. Hagan pjh@wirepaladin.com, cap@wirepaladin.com

Edward E. Hartley eeh@dillinghammurphy.com

Scott Gregory Johnson sgjohnson@rkmc.com,

Alice K. Loh akl@dillinghammurphy.com

R. Wardell Loveland

Coddington Hicks & Danforth

555 Twin Dolphin Dr Ste 300

Paragon Ctr Redwood Shores

Redwood City, CA 94065

Jennifer A. Stewart

Long & Levit LLP

465 California Street

5th Floor

San Francisco, CA 94104

Theodore C. Zayner

777 San Marin Dr. #SMI-A18

Novato, CA 94998-0001

Case 5:00-cv-20002-JF Document 350 Filed 05/30/06 Page 15 of 15