Opinion ID: 165742
Heading Depth: 2
Heading Rank: 2

Heading: Oklahoma Precedent

Text: 17 The seminal Oklahoma case guiding our analysis is Smith v. Westinghouse Electric Corp., 732 P.2d 466, 469 (Okla.1987). In Smith, the Oklahoma Supreme Court considered whether an electrical transformer constituted an improvement to real property within the meaning of section 109. The Public Service Company of Oklahoma had purchased the electrical transformer from the defendant-manufacturer, and then housed it in a vault beneath a building in Tulsa, Oklahoma. When the transformer exploded a short time later, several plaintiffs brought an action against the manufacturers of the transformer and its component parts. The defendants argued that they were shielded by section 109 because the transformer, which was more than ten years old at the time of the explosion, constituted an improvement to real property, and the trial court agreed. Id. at 468. 18 The Oklahoma Supreme Court reversed, however. In finding that section 109 did not shield the defendants from suit, the Court held that the preliminary test for determining whether machinery or equipment is an improvement to real property for purposes of section 109 protection is derived from [Oklahoma's ad valorem] taxing scheme. Id. at 470. Because the transformer at issue had always been taxed as personalty, and not as real property, it retain[ed] at all times its character as the personalty of the public utility supplying the electrical power and thus was not an improvement to real property. Id. at 468. In addition, it was significant to the Court's analysis that the electrical transformer had neither been purchased nor owned by the proprietor of the building where the injury occurred. Id. at 469. 19 The district court in this case interpreted Smith to focus its tax analysis only on the ownership aspect of the transformer, and not on whether the transformer was taxed as personalty or realty, citing O'Dell v. Lamb-Grays Harbor Co., 911 F.Supp. 490, 493 (W.D.Okla.1995). See Aplt.App. Vol. I at 28 n. 5. But we feel compelled to give meaning to Smith's statement that the transformer was not an improvement to real property, at least in part, because it retained its character as personalty, having always been taxed as personalty. 3 See Smith, 732 P.2d at 467-68. Thus, as we understand Smith, the question of whether a particular item is an improvement to real property depends on its ad valorem tax treatment and its ownership. See Riley v. Brown & Root, Inc., 896 F.2d 474 (10th Cir.1990) (applying Oklahoma law, remanding case for record development regarding tax treatment and ownership); Branch v. Mobil Oil Corp., 788 F.Supp. 531, 537 (W.D.Okla.1991) (In Oklahoma, the question of whether structures ... are `improvements to real property' turns on who owns the structures and ad valorem tax treatment.) (citing Smith, 732 P.2d at 468-70). 20 Our analysis of Smith is not at an end, however. In reaching the conclusion that the electrical transformer was not an improvement to real property, Smith discussed the case of Mullis v. Southern Co. Services., Inc., 250 Ga. 90, 296 S.E.2d 579 (1982). There, the Georgia Supreme Court applied a three-prong test for assessing what constitutes an improvement to real property; namely, (1) the permanence of the improvement, (2) the degree to which the improvement enhances the value of the realty, and (3) the intention of the parties to make the improvement one to the realty. 4 Id. Although Smith did not adopt these factors or apply them to the facts before it, nor did it foreclose their use. In fact, Smith gives tacit approval to these factors in factual circumstances similar to the case at bar: While this may be a correct conceptual approach when the injury for which recovery is sought occurs on the public utility's property, it is not persuasive where, as here, the harm is dealt by an instrumentality located on property serviced by the public utility. Id. at 469; see also O'Dell, 911 F.Supp. at 494 (applying Mullis's three-part test). 21 Thus, in predicting how the Oklahoma Supreme Court would answer the question before us, we conclude that it would look to the machinery's ad valorem tax status, whether the machinery was taxed as the personal property of somebody other than the owner of the real property where the accident occurred, and the factors identified in Mullis. 5 This articulation, in our view, recognizes the weight given by Oklahoma courts to a particular item's tax and ownership status, while at the same time acknowledging that other factors such as permanence, enhanced value to the realty, and the intent of the parties can aid the court in making its decision with respect to the applicability of section 109.