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Mccarthy Integrated Systems, LLC v. Evoqua Water Technologies, LLC

Court of Appeals of Arizona, First Division

August 16, 2016

MCCARTHY INTEGRATED SYSTEMS, LLC, an Arizona limited liability company, Plaintiff/Appellant,
EVOQUA WATER TECHNOLOGIES, LLC, a Delaware limited liability company; MISCOWATER, LLC, a California limited liability company, Defendants/Appellees.

         Appeal from the Superior Court in Maricopa County No. CV2014-010697 The Honorable Robert H. Oberbillig, Judge

          Graif Barrett & Matura, P.C., Phoenix By E. Scott Dosek, Amanda J. Taylor Counsel for Plaintiff/Appellant

          Coppersmith Brockelman, PLC, Phoenix By Andrew S. Gordon, Shelley Tolman Counsel for Defendant/Appellee Evoqua Water Technologies

          Ballard Spahr, LLP, Phoenix By John G. Kerkorian, Christopher Moeser Counsel for Defendant/Appellee MISCOwater

          Judge Randall M. Howe delivered the opinion of the Court, in which Presiding Judge Kent E. Cattani and Judge Samuel A. Thumma joined.


          HOWE, Judge

         ¶1 This appeal is based on a distribution agreement between McCarthy Integrated Systems, LLC ("McCarthy") and Evoqua Water Technologies, LLC ("Evoqua"). McCarthy argued that Evoqua wrongfully terminated their agreement for chlorination machines in violation of the Equipment Dealers Act, A.R.S. §§ 44-6701-6709 ("the Act"). Evoqua moved to dismiss McCarthy's complaint, arguing that the Act does not protect agreements for chlorination machines. The trial court denied McCarthy's request for provisional relief and granted Evoqua summary judgment. McCarthy appeals from that judgment.

         ¶2 We hold that the trial court did not err in dismissing McCarthy's complaint because the Act does not apply to or protect the agreement with Evoqua for chlorination machines. Additionally, we hold that "equipment" for purposes of the Act includes only machines related to farming and agriculture.


         ¶3 McCarthy maintains and repairs chlorination machines and related parts used in the water and wastewater industries. It also sells the chlorination machines and related parts. These machines add regulated amounts of chlorine, bromine, and hydrogen peroxide to disinfect drinking and wastewater and to process water for pumps and the beverage and electric power industries. Among McCarthy's largest customers are municipalities in Arizona and Nevada, Salt River Project, Arizona Public Service, and food manufacturers. McCarthy's owner stated that the company's other customers are "anybody who uses chlorine . . . that's what we specialize in."

         ¶4 In October 2009, McCarthy entered into a distribution agreement with Siemens Water Technologies-which Evoqua later acquired-a manufacturer of water treatment products, including chlorination machines. The agreement authorized McCarthy to service and sell specified Evoqua aftermarket parts to existing water treatment systems exclusively in Arizona and four Nevada counties. The agreement stated that McCarthy could sell the specified aftermarket parts only to a "water or wastewater processing or treatment facility owned or operated by . . . any municipal tax-funded entities . . . or a private company that provides the equivalent of municipal water or wastewater treatment services." The agreement further provided that for an initial period of one year, only Evoqua could terminate the agreement "for cause." After that time, either party could terminate the agreement "at any time for any reason without cause with written notice sent by registered or certified mail 30 days prior to the effective date of such termination."

         ¶5 On July 17, 2014, Evoqua sent McCarthy a 30-day notice of termination without cause, effective August 16, 2014. Three days before the termination took effect, McCarthy sued Evoqua, alleging that Evoqua's notice of termination violated the Act, which prohibits suppliers of "equipment" from terminating "dealer agreements" without cause, regardless of the agreements' terms or choice-of-law provisions. McCarthy also alleged that Evoqua had breached their agreement by falsely identifying MISCOwater, LLC, on its website as the only Evoqua distributor in Arizona and the four Nevada counties that McCarthy had served. McCarthy named MISCOwater as a defendant, alleging that it tortiously interfered with the agreement. In addition to seeking damages, McCarthy sought a temporary restraining order and preliminary and permanent injunctions prohibiting Evoqua from terminating the agreement.

         ¶6 At the hearing to show cause for the temporary restraining order and preliminary injunction, McCarthy argued that the Act's definition of "equipment, " which includes machines used for "light industrial and utility purposes, " encompassed its chlorination machines. McCarthy contended that because its largest customers used the chlorination machines in the light industry of food manufacturing and in the public utility industry to generate and provide electricity and water, the Act applied and prohibited Evoqua from terminating their agreement without cause.

         ¶7 Evoqua argued, however, that the Act did not apply to the distribution agreement for chlorination machines. Relying on the Act's legislative history, Evoqua maintained that the legislature intended "equipment" to include only farming and agricultural equipment, not chlorination or water treatment machines and parts. Evoqua introduced legislative committee minutes, which included testimony from a farm equipment dealers' association representative stating that the Act was necessary to address problems in the farm equipment industry. Evoqua argued that because the Act did not apply to their agreement, the agreement's terms - allowing for termination without cause upon 30-day ...

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