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Luckey v. Alside, Inc.

United States District Court, D. Minnesota

March 29, 2017

CHERYL LUCKEY, CHRISTINE COLE, ELIZABETH WELNA, ERIC TOOP, and ROBERT SQUATRITO, Plaintiffs,
v.
ALSIDE, INC., ASSOCIATED MATERIALS, LLC, and ASSOCIATED MATERIALS INCORPORATED, Defendants.

          Alex M. Nelson, BENSON, KERRANE, STORZ & NELSON, PC, and William James Rogers, BENSON, KERRANE, STORZ & NELSON, PC, for plaintiffs.

          Michael K. Farrell, BAKER & HOSTETLER LLP, and Karl C. Procaccini, GREENE ESPEL PLLP, for defendants.

          MEMORANDUM OPINION AND ORDER ON DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS

          JOHN R. TUNHEIM Chief Judge United States District Court

         Plaintiffs Cheryl Luckey, Christine Cole, Elizabeth Welna, Eric Toop, and Robert Squatrito are homeowners whose homes contain windows designed and manufactured by Defendants Associated Materials, LLC, and Associated Materials, Incorporated (doing business as “Alside”).[1] Plaintiffs assert numerous claims against Alside on behalf of themselves and those similarly situated based on alleged defects in their Alside windows.

         Their claims include negligence and strict liability related to the windows' design and manufacture; breach of implied warranties; fraud; negligent misrepresentation; consumer fraud under Minnesota, New Hampshire, and Ohio law; unjust enrichment; and a claim under the Magnuson-Moss Warranty Act (“MMWA”), 15 U.S.C. § 2301 et seq. Alside moves for judgment on the pleadings on all claims pursuant to Fed.R.Civ.P. 12(c), asserting that the complaint fails to state a claim upon which relief may be granted.

         The Court will grant Alside's motion with respect to all claims except breach of implied warranty of merchantability and breach of implied warranty based on course of dealing/usage of trade. The negligence and strict liability claims are barred by the economic loss doctrine. Plaintiffs have failed to plead all elements of breach of implied warranty of fitness for a particular purpose, common law fraud, and unjust enrichment. As for the statutory consumer fraud claims, the Court finds that Plaintiffs have failed to plead these claims with particularity as required by Fed.R.Civ.P. 9(b). Plaintiffs abandoned their claim under the MMWA. The two remaining implied warranty claims will survive judgment on the pleadings because Plaintiffs have pled facts which, if true, could indicate that Alside's limited warranties fail of their essential purpose.

         BACKGROUND

         I. PLAINTIFFS' FAILING ALSIDE WINDOWS[2]

         Defendants Associated Materials, LLC, and Associated Materials, Inc. are Delaware corporations with a principal place of business in Ohio. (Second Am. Compl. (“Compl.”) at 4, Aug. 31, 2015, Docket No. 23.)[3] Alside designs, manufactures, distributes, and sells windows to builders and distributors in the continental United States for use in commercial and residential properties, including the particular type of window at issue in this case: the two-pane insulated glass unit (“IGU”). (Id. at 6-7.) IGUs have two panes of glass that are separated by low emissivity metallic films and inert argon gas; the panes “make[] use of a single seal to keep air from passing in or out of the glass assembly.” (Id. at 7.) After the IGU frame is assembled around the glass panes, the gas is inserted through a small hole, which is then hermetically sealed. If the seal fails, normal air can fill the space between the panes of glass, causing corrosion and condensation between the panes. (See Id. at 12, 14.) Alside sells its windows with a variety of limited warranties, the details of which depend on the specific line of window at issue. (Id. at 12-15.)

         Plaintiffs Luckey, Squatrito, Toop, and Welna (the “Minnesota Plaintiffs”) own homes containing Alside Performance Series windows which utilize Alside's IGU technology. (Id. at 3-4, 15, 19-21.) The Minnesota homes were all constructed between 2006 and 2008, in the Symphony at Town Center subdivision (“Symphony”) in Ramsey, Minnesota. (Id. at 15-16, 19-21.) Plaintiffs allege on information and belief that all eighty-eight townhomes in Symphony contain Alside Performance Series windows. (Id. at 16.) The Minnesota homes included the Alside windows in their original construction; thus the Minnesota Plaintiffs did not directly purchase their windows from Alside, but rather, Alside sold windows to developers, contractors, and/or subcontractors who built the Minnesota homes. (Id. at 15, 19-21.) Plaintiff Christine Cole lives in New Hampshire; she purchased a full set of replacement windows containing Alside's IGU technology for her home on January 22, 2002. (Id. at 3, 17.)

         Plaintiffs assert that the IGUs are failing, meaning that they incur condensation and/or corrosion between the panes, “in unacceptably high numbers and at unacceptably early timeframes in the life of the products, ” as compared to windows produced by other manufacturers, and “[m]any Alside Two-Pane IGUs that have not yet actually failed are subject to premature failure.” (Id. at 7-8.) Plaintiffs attribute the widespread IGU seal failure to design and manufacturing defects, [4] resulting from Alside's alleged failure to perform adequate “testing, quality control, and research and development” that could have led to “greater durability and reliability” and would have made the “IGUs' construction more in line with the accepted industry standards.” (Id. at 7-9.) In addition, Plaintiffs allege that Alside was aware or should have been aware of the defects in the IGUs, positing that even if Alside lacked actual notice, the “abnormally large number of warranty claims” from IGU owners put Alside on notice of the defects. (Id. at 9.) Despite this awareness, Alside failed to notify or warn customers and also failed to recall the defective IGUs, which it continues to manufacture and sell. (Id. at 9-10.)

         Plaintiffs allege that they each own one or more Alside window that has “failed, ” and that “no less than 40 of the 88 townhomes in Symphony contain at least one [Alside IGU window] with condensation and/or corrosion between the panes of glass, and many units have multiple [Alside IGU windows] with that type of visible damage to them.” (Id. at 16-17.) Plaintiffs allege that their damages include property damage to the windows themselves, “inconvenience, aggravation, loss of use of their windows, other noneconomic damages, and/or economic damages as a result of the condensation and corrosion that obscures the windows, and the inadequate warranties and warranty service provided by [Alside].” (Id. at 2.)

         The Minnesota Plaintiffs first noticed the failure of one or more Alside IGUs “[a]t some point in time” after purchasing their homes, while Cole noticed her first IGU failure in February 2004. (Id. at 15, 17, 20-21.) Each Plaintiff has submitted at least one warranty claim to Alside based on condensation and/or corrosion between window panes.[5] Alside provided replacement IGUs in each instance at no cost to the warranty- holder with the exception of Cole - in Cole's case, Alside only provided free replacements for ten years, after which Alside relied on language in its limited warranty and instead offered to provide replacement IGUs for 50% of the cost. (Id. at 18.) Alside did not pay for removal of old or installation of new IGUs for any of the Plaintiffs, based on its interpretation of Plaintiffs' limited warranties. Plaintiffs either paid a contractor to do this work or, in Cole's case, installed the replacement IGUs themselves. (Id. at 16-18, 20-21.)

         II. PROCEDURAL HISTORY

         Plaintiffs initiated this lawsuit on May 20, 2015 and filed the operative complaint on August 31, 2015. The Court has subject matter jurisdiction based on 28 U.S.C. § 1332(d)(2) because the amount in controversy for the proposed class exceeds $5, 000, 000 and at least one class member is a citizen of a state other than Ohio or Delaware - Alside's states of citizenship. Plaintiffs assert sixteen claims on behalf of themselves and three proposed classes - a nationwide class, a Minnesota class, and a New Hampshire class - comprised of “[a]ll persons (including both natural persons and legal entities) [in the relevant geographic location] who presently own or have owned real property containing Alside Two-Pane IGUs.” (Id. at 24-25.) Plaintiffs' allegations fall into three general categories: product liability in tort, [6] fraud and misrepresentation, [7] and breach of warranty.[8]

         On October 8, 2015, Alside filed a motion to dismiss based on improper venue, or alternatively to transfer venue, which the Court subsequently denied. On May 2, 2016, Alside filed an Answer, and on May 10, 2016, Alside filed the instant motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c).[9]

         ANALYSIS[10]

         I. STANDARD OF REVIEW

         Reviewing a motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c), the Court applies the same standard as under a motion to dismiss pursuant to Rule 12(b)(6). Clemons v. Crawford, 585 F.3d 1119, 1124 (8th Cir. 2009). Therefore, the Court is required to “‘accept as true all factual allegations set out in the complaint' and to ‘construe the complaint in the light most favorable to the [plaintiff], drawing all inferences in [the plaintiff's] favor.'” Ashley Cty. v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009) (quoting Wishnatsky v. Rovner, 433 F.3d 608, 610 (8th Cir. 2006)). Although a complaint need not contain “detailed factual allegations, ” it must contain sufficient factual allegations “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “[A] formulaic recitation of the elements of a cause of action will not do.” Id. The “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). In addition to the pleadings, the Court may properly consider materials that are necessarily embraced by the pleadings. Enervations, Inc. v. Minn. Mining & Mfg. Co., 380 F.3d 1066, 1069 (8th Cir. 2004).

         II. PRODUCT LIABILITY AND NEGLIGENT MISREPRESENTATION

         Plaintiffs failed to brief any response to Alside's arguments in favor of dismissal of Claims 1-4 (alleging negligent product design and manufacturing and strict product liability based on design and manufacturing defects) or Claim 8 (negligent misrepresentation). This abandonment of the claims alone is a sufficient basis for dismissal. See, e.g., Espey v. Nationstar Mortg., LLC, No. 13-2979, 2014 WL 2818657, at *11 (D. Minn. June 19, 2014); Koenen v. Homecomings Fin. LLC, No. 11-945, 2011 WL 3901874, at *2-3 (D. Minn. Sept. 6, 2011).

         Even if Plaintiffs had not abandoned these claims, Alside would still be entitled to judgment on the pleadings as a matter of law based on the economic loss doctrine. Under Minn. Stat. § 604.101, “a buyer may not bring a product defect tort claim for compensatory damages unless the defect ‘caused harm to the buyer's tangible personal property other than the goods or the buyer's real property.'” Daigle v. Ford Motor Co., 713 F.Supp.2d 822, 829 (D. Minn. 2010) (quoting Minn. Stat. § 604.101, subd. 3). “A buyer is also prohibited from bringing ‘a common law misrepresentation claim against a seller relating to the goods sold . . . unless the misrepresentation was made intentionally or recklessly.'” Johnson v. Bobcat Co., 175 F.Supp.3d 1130, 1145 (D. Minn. 2016) (quoting Minn. Stat. § 604.101, subd. 4).

         New Hampshire courts similarly bar tort claims seeking damages for purely economic loss, defined as “the diminution in the value of a product because it is inferior in quality, ” as opposed to harm to persons or property resulting from a defective product. Lockheed Martin Corp. v. RFI Supply, Inc., 440 F.3d 549, 552-56 (1st Cir. 2006) (quoting Ellis v. Robert C. Morris, Inc., 513 A.2d 951, 954 (N.H. 1986), overruled on other grounds by Lempke v. Dagenais, 547 A.2d 290, 297-98 (N.H. 1988)). New Hampshire also bars negligent misrepresentation claims seeking damages for purely economic loss other than in narrow circumstances not present here. See Plourde Sand & Gravel v. JGI E., Inc., 917 A.2d 1250, 1257-58 (N.H. 2007).

         Plaintiffs have failed to allege facts sufficient to demonstrate damages beyond economic loss. They allege damages to the windows, in the form of condensation and corrosion, as well as “inconvenience, aggravation, loss of use of their windows, other noneconomic damages, and/or economic damages as a result of the condensation and corrosion.” (Compl. at 2, 16-17.) Because the only harm alleged with sufficient specificity is economic loss, see Iqbal, 556 U.S. at 678, the economic loss doctrine bars Plaintiffs' claims for negligent product design and manufacture and strict liability.[11]Plaintiffs' common law negligent misrepresentation claim also fails as a matter of law under Minnesota and New Hampshire law. Minn. Stat. § 604.101, subd. 4 (“A buyer may not bring a common law misrepresentation claim against a seller relating to the goods sold or leased unless the misrepresentation was made intentionally or recklessly.”); Plourde, 917 A.2d at 1257-58 (requiring the plaintiff to plead that that the defendant had a special reason to anticipate the reliance of the plaintiff on a negligent misrepresentation and also that the plaintiff directly relied on the alleged negligent misrepresentation in order to state a claim for negligent misrepresentation resulting in purely economic loss).

         III. WARRANTY CLAIMS

         In Claims 5 and 7, Plaintiffs allege that in selling defective IGUs, Alside breached the implied warranty of merchantability and an implied warranty arising from course of dealing or usage of trade.[12] See Minn. Stat. § 336.2-314, N.H. Rev. Stat. § 382-A:2-314.

         Plaintiffs argue that because of Alside's breaches, Plaintiffs suffered damages to their windows, inconvenience, and aggravation, and they incurred costs related to removing damaged windows and installing replacement windows. Plaintiffs therefore assert that they are entitled to “reasonable damages in an amount to be proven at trial as to the implied warranty claims.” (Compl. at 41.) Alside counters that the limited warranties applicable to Plaintiffs' IGUs validly limit Plaintiffs' remedies to repair or replacement, and even if remedies are not limited to repair or replacement, the limited warranties' separate provision excluding consequential and incidental damages is valid.[13]

         Under the Uniform Commercial Code (“UCC”), transactions involving the sale of goods give rise to an implied warranty “that the goods shall be merchantable . . . if the seller is a merchant with respect to goods of that kind.” Minn. Stat. §§ 336.2-102, 336.2-314; N.H. Rev. Stat. §§ 382-A:2-102, 382-A:2-314. The statute defines “merchantable” goods as those that meet various minimum standards, including that they “are fit for the ordinary purposes for which such goods are used.” Minn. Stat. § 336.2-314(2), N.H. Rev. Stat. § 382-A:2-314(2). The implied warranty of merchantability may be excluded or modified in accordance with Minn. Stat. § 336.2-316 and N.H. Rev. Stat. § 382-A:2-316.[14]

         The UCC permits parties to limit remedies for breach of warranty. Minn. Stat. § 336.2-316(4); N.H. Rev. Stat. § 382-A:2-316(5). Parties may agree to “limit[] the buyer's remedies . . . to [the exclusive remedy of] repair and replacement of non-conforming goods or parts, ” but “[w]here circumstances cause an exclusive or limited remedy to fail of its essential purpose, ” a buyer may pursue other remedies permitted under the UCC. Minn. Stat. § 336.2-719(1), (2); N.H. Rev. Stat. § 382-A:2-719(1), (2). Buyers' remedies under the UCC include damages based on the difference “between the value of the goods accepted and the value they would have had if they had been as warranted, ” Minn. Stat. § 336.2-714, N.H. Rev. Stat. § 382-A:2-714, as well as incidental and consequential damages, Minn. Stat. § 336.2-715, N.H. Rev. Stat. § 382-A:2-715. In addition, “[c]onsequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.” Minn. Stat. § 336.2-719(3); N.H. Rev. Stat. § 382-A:2-719(3).

         A. Relationship Between Limited Remedy and Exclusion of Consequential Damages

         Alside asserts that under both Minnesota and New Hampshire law, even if the repair-or-replace limited remedy is invalid, the exclusion of consequential and incidental damages[15] is separately enforceable.

         Alside relies on two Minnesota cases to support its argument about exclusion of consequential and incidental damages: International Financial Services, Inc. v. Franz, 534 N.W.2d 261 (Minn. 1995), and Taylor Investment Corp. v. Weil, 169 F.Supp.2d 1046 (D. Minn. 2001). In Franz, the court explained that “the better reasoned approach is to treat the repair or replacement remedy and a consequential damage exclusion as discrete and independent contractual provisions. Accordingly, the consequential damage exclusion is valid unless it is unconscionable.” Franz, 534 N.W.2d at 269; see Weil, 169 F.Supp.2d at 1058 (quoting Franz, 534 N.W.2d at 269). However, both Franz and Weil addressed UCC transactions in which the parties were merchants of relatively equal bargaining power. Weil, 169 F.Supp.2d at 1058; Franz, 534 N.W.2d at 269. This line of cases

is not intended to establish that a consequential damage bar survives a failure of the limited repair remedy in consumer transactions that involve relatively commonplace or uncomplicated products . . . . [S]uch consumer transactions will continue to be governed by the principles enunciated in Jacobs v. Rosemount Dodge-Winnegabo South, 310 N.W.2d 71 (Minn. 1981), and Durfee v. Rod Baxter Imports, Inc., 262 N.W.2d 349 (Minn. 1977).

Franz, 534 N.W.2d at 269.

         In Jacobs, consumers bought a defective motor home under a warranty limiting remedies to repair or replacement and separately excluding recovery of consequential damages. The Minnesota Supreme Court held that notwithstanding the exclusion of consequential damages in the warranty, the remedies set out in UCC Chapter 336, including consequential damages, were available to the buyers because “[t]he limitations on remedies set out in the warranties in this case have operated to deprive [the buyers] of the substantial value of their bargain.” Jacobs, 310 N.W.2d at 75, 77-78; see also Durfee, 262 N.W.2d at 357 (permitting recovery of incidental damages in relation to a consumer transaction, despite a warranty clause excluding incidental damages, when the exclusive repair-and-replace remedy failed of its essential purpose). Based on Jacobs and Durfee, the Court concludes that under Minnesota law, in a consumer transaction under the UCC, when a limited remedy fails of its essential purpose, a separate clause excluding consequential and/or incidental damages is also unenforceable even if it is not unconscionable.

         The only New Hampshire case Alside cites to support its argument regarding the separate enforceability of a consequential damages exclusion involved a transaction between merchants. See Xerox Corp. v. Hawkes, 475 A.2d 7, 10-12 (N.H. 1984). Therefore, without a more developed legal argument about the proper application of New Hampshire law, the Court declines to hold that under New Hampshire law, an exclusion of consequential and/or incidental damages is enforceable unless unconscionable even if a repair-or-replace limited remedy fails of its essential purpose. The Court proceeds at the motion-to-dismiss stage as though New ...


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