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Delta Mechanical, Inc. v. Rheem Manufacturing Co.

United States District Court, D. Arizona

March 6, 2015

Delta Mechanical, Inc., Plaintiff,
Rheem Manufacturing Company, et al., Defendants.


JOHN W. SEDWICK, Senior District Judge.


At docket 152 defendants Rheem Manufacturing Company, American Water Heater Company, Bradford White Corporation, A.O. Smith Corporation, and Lochnivar Corporation (collectively "defendants") move pursuant to Federal Rule of Civil Procedure 56 for summary judgment on plaintiff Delta Mechanical's remaining breach-of-contract claim and its good faith claim. Defendants assert that plaintiff has not and cannot establish that it complied with the claims protocol for any of its 2, 611 claims for which it believes it is due payment. Plaintiff opposes the motion at docket 158. Defendants reply at docket 158. Oral argument was heard March 6, 2015.


Defendants manufacture water heater tanks. Delta is a plumbing company. In Heilman v. Perfection Corp., [1] a class action lawsuit against defendants, the United States District Court for the Western District of Missouri approved a settlement agreement by which defendants agreed to facilitate the repair of defective water heaters that they had manufactured (the "Agreement").

The Agreement defined the class as "all persons throughout the United States who own a water heater manufactured by [defendants] containing a [dip tube manufactured by Perfection Corporation] or who owned such a heater and suffered damages."[2] Under Section 8.2 of the Agreement, members of the class who had not yet incurred out-of-pocket expenses related to the faulty dip tubes or whose problems had not yet been fully repaired were entitled to certain benefits: either a certificate for a dip tube replacement or a repair of property damage or both.[3] The benefits were subject to a protocol set forth in Section 8.2. Class members seeking benefits under the Agreement were required to submit a proof-of-claim form. Those who had a valid claim for benefits would then receive a certificate, which could be redeemed for services within six months. A list of authorized service personnel would be provided along with the certificate. The Agreement stated that each certificate would have the water heater's serial number printed on it, and the certificate could "only be applied to that water heater by matching the serial number on the certificate to the serial number on the water heater."[4] In order to receive benefits under Section 8.2, the proof-of-claim form had to be postmarked by December 31, 2000.[5]

Delta was among the authorized service providers enlisted to perform dip tube replacements. In applying to be an authorized service provider, Delta agreed to abide by the terms set forth in a pamphlet entitled "Protocols, Procedures & Processes for Replacing Consumer Dip Tubes" (the "Pamphlet").[6] The Pamphlet described the process a class member would go through to obtain a certificate for service and how the plumbing professional would receive payment.[7] Delta maintains in its complaint that it performed hundreds of dip tube replacements between January 2000 and December 2001 for class members who had submitted proof-of-claim forms, but that defendants, through the claims administrator, never issued certificates to those class members despite their eligibility for benefits. Specifically, Delta seeks payment from defendants for 2, 611 dip tube services it allegedly performed for customers it believes are entitled to benefits under the Agreement.[8]

Delta hired a collection agency in December of 2001 to seek payment from defendants. In August of 2003, defendants informed Delta that the settlement fund had been exhausted. Delta subsequently moved to intervene in the Missouri action to enforce the Agreement. In September 2005, the Western District of Missouri denied Delta's motion.

In March 2006, plaintiff filed this lawsuit in Arizona state court, asserting claims against defendants and the administrator of the settlement agreement[9] for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and promissory estoppel. The case was removed to federal court on the basis of diversity.

In June 2007, the court dismissed Delta's promissory estoppel and unjust enrichment claims based on the applicable statutes of limitation. In a separate order, following supplemental briefing that applied Missouri law, the court dismissed Delta's breach-of-contract and good faith claims, holding that Delta was not an intended third-party beneficiary of the Agreement.[10] The Ninth Circuit Court of Appeals reversed the court's determination, stating that "[t]he evidentiary record on this issue demonstrates that at this early stage of the case... whether Delta was or was not a third-party beneficiary is a genuine issue of material fact that might survive summary judgment."[11]

After discovery closed, defendants moved for summary judgment as to whether Delta was a third-party beneficiary. The court granted summary judgment in favor of defendants on the ground that Delta was not a third-party beneficiary of the Agreement under Missouri law.[12] The Ninth Circuit Court of Appeals reversed and remanded the case to the district court for proceedings to determine "whether Delta and its customers complied with the claims protocol for the disputed claims."[13]

Defendants again move for summary judgment. They argue that Delta has not and cannot establish compliance with the claims protocol as to any of the 2, 611 service claims Delta contends are eligible for payment under the Agreement, and because compliance with the claims protocol was a condition that must have been followed before a class member could avail herself of the benefits under the Agreement, payment is not due.


Summary judgment is appropriate where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."[14] The materiality requirement ensures that "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment."[15] Ultimately, "summary judgment will not lie if the... evidence is such that a reasonable jury could return a verdict for the nonmoving party."[16] However, summary judgment is mandated under Rule 56(c) "against a party who fails to make a showing ...

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