Gwen HART, on behalf of herself and all others similarly situated; Lucille Druther; Joseph Druther; Edward Wuellner; Jennifer Wuellner, Plaintiffs-Appellants, v. LOUISIANA-PACIFIC CORPORATION, Defendant-Appellee.
No. 13-2375.
United States Court of Appeals, Fourth Circuit.
Argued: Sept. 16, 2015. Decided: March 10, 2016.
223
Before SHEDD and THACKER, Circuit Judges, and HAMILTON, Senior Circuit Judge.
Affirmed by unpublished PER CURIAM opinion.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Gwen Hart, Lucille and Joseph Druther, and Edward and Jennifer Wuellner (collectively “Appellants“) own homes that were built using TrimBoard, a construction material manufactured by Louisiana-Pacific Corporation (“Appellee“). TrimBoard was sold with an express, ten-year warranty (the “Warranty“) that provided a specific and limited remedy if the product failed to live up to expectations. Over time, Appellants grew dissatisfied with their TrimBoard, and filed a class action asserting claims for breach of the Warranty. They also claimed the limited remedy was unconscionable and sought compensatory damages not contemplated in the Warranty.
The district court certified the class initially, but later concluded that some class members’ claims—including Appellants’ claims—were barred by an applicable statute of repose. The district court granted summary judgment to Appellee on the time-barred claims and opted to decertify the class.
We affirm, but for slightly different reasons. In our view, Appellee is entitled to summary judgment because the Warranty‘s limited remedy is not unconscionable. As a result, we do not consider the district court‘s conclusion about the timeliness of Appellants’ claims. We also affirm the district court‘s decision to decertify the class.
I.
A.
Appellants are North Carolina homeowners. Gwen Hart completed construction of her home in Dare County, North Carolina, in 1999. The Druthers and the Wuellners live in Apex, North Carolina, in houses that were completed in 2000 and 2001, respectively.
Each home was built using TrimBoard, a composite building material sold by Appellee through its subsidiary, ABTco. TrimBoard was marketed for use as exterior trim, “perfect for all trim applications,
The Warranty also provided an exclusive, limited remedy. Before 2005, Appellee promised to “compensate the owner for repair and replacement of the affected trim no more than twice the original purchase price,” if TrimBoard failed within the ten-year period. J.A. 358. After 2005, Appellee offered to “pay an amount equal to the cost ... of replacing any such failed [TrimBoard] if failure occur[red] within ten years after the [TrimBoard] was installed.” Id. at 364. Both versions of the Warranty disclaimed all other warranties, including the implied warranty of merchantability, and specifically barred the recovery of “any other damages or losses, including” incidental and consequential damages. Id. at 358, 364.
B.
Over time, the TrimBoard on Appellants’ homes began splitting and cracking, absorbing moisture, and rotting and degrading. Hart, for example, was told by a contractor that all of the TrimBoard on her home was damaged and would need to be replaced at an estimated cost of close to $5,000. She made a claim under the Warranty in 2008. Appellee offered Hart $3,772.32, but she rejected that offer because it was roughly $1,300 less than the estimate she previously received. The Druthers and Wuellners submitted claims under the Warranty in 2009. Appellee made offers to them as well, for $1,429.62 and $820.95, respectively. Presumably, both offers were not accepted.
After rejecting Appellee‘s offer, Hart filed a putative class action complaint in Dare County Superior Court on October 22, 2008. Appellee removed the case to the District Court for the Eastern District of North Carolina, after which Appellants filed their operative amended complaint on September 21, 2009. That pleading was the first to include the Druthers and Wuellners as named plaintiffs.
The amended complaint charged Appellee with “breach of express warranty,” alleging TrimBoard “prematurely deteriorates, rots, swells, buckles, delaminates, absorbs water, warps and/or bulges under normal conditions,” resulting in “water and structural damages[,] ... growth of mold mildew, fungi, and insect infestation in the structures in which it is installed.” J.A. 141, 153. Appellants claimed the Warranty‘s limited remedy provision was unconscionable because Appellee allegedly knew that TrimBoard was defective but sold it anyway. They maintained they were, therefore, entitled to recover damages otherwise excluded by the Warranty, such as compensatory damages. Alternatively, Appellants alleged that Appellee breached the Warranty by failing to “pay for 100% of the costs associated with the removal of the defective [TrimBoard].” Id. at 155.
On appeal, however, we consider only whether Appellants are entitled to recover compensatory damages if they succeed in proving that the Warranty‘s limited remedy provision is unconscionable. Appellants’ counsel made clear at oral argument that Appellants were definitively abandoning any effort to recoup the remedy provided under the terms of the Warranty as written:
COURT: Are the plaintiffs still seeking to press their claim to enforce the warranty as written?
APPELLANTS’ COUNSEL: No, not as written, Your Honor.
...
COURT: [Y]ou‘re not going to proceed on the warranty as-written claim?
APPELLANTS’ COUNSEL: That‘s correct. Our claim is that there‘s a breach of warranty in that the limitations of the warranty limiting us to two times ... the cost of repair is unconscionable given the circumstances and facts of this case.
C.
The parties vigorously litigated the question of unconscionability in the district court. On July 18, 2011, the district court granted Appellants’ motion to certify a
Appellee thereafter filed two motions for summary judgment. The first argued that the Warranty was not unconscionable, but the district court disagreed. In the district court‘s view, “[a] manufacturer‘s prior knowledge of an inherent or latent defect” could support a finding “that a contract or contract clause is both procedurally and substantively unconscionable.” J.A. 2698. As a result, because there was a genuine dispute of fact about whether Appellee knew TrimBoard was defective when it issued the Warranty, the district court reasoned it was too soon to decide whether the Warranty was unconscionable.
Shortly before trial, Appellee again moved for summary judgment, arguing Appellants’ claims were barred by a six-year statute of repose. This time the district court agreed, granting Appellee summary judgment because it was “undisputed that this suit was filed beyond the six-year statute of repose applicable to the claims of the named plaintiffs.” J.A. 3246. The
II.
We consider first whether the district court properly awarded summary judgment to Appellee. In doing so, we review the district court‘s legal conclusions de novo, Liberty Univ., Inc. v. Citizens Ins. Co. of Am., 792 F.3d 520, 523 (4th Cir. 2015), accepting Appellants’ evidence as true and drawing all justifiable inferences in their favor, Tolan v. Cotton, — U.S. —, 134 S. Ct. 1861, 1863, 188 L.Ed.2d 895 (2014) (per curiam). We next review the district court‘s decision to decertify the class for abuse of discretion. See EQT Prod. Co. v. Adair, 764 F.3d 347, 357 (4th Cir. 2014). And we may, of course, affirm on alternate grounds apparent in the record. See Ellis v. Louisiana-Pacific Corp., 699 F.3d 778, 786-87 (4th Cir. 2012).
III.
A.
The district court held Appellants’ claims were barred by article 5, section 1-50(a)(5) of the North Carolina General Statutes, which provides:
No action to recover damages based upon or arising out of the defective or unsafe condition of an improvement to real property shall be brought more than six years from the later of the specific last act or omission of the defendant giving rise to the cause of action or substantial completion of the improvement.
As it happens, the North Carolina courts issued two opinions analyzing that very question while this litigation was unfolding. In Christie v. Hartley Construction, Inc. (“Christie I“), 228 N.C.App. 284, 745 S.E.2d 60 (2013), homeowners sued Grailcoat WorldWide, LLC (“Grailcoat“), the manufacturer of a waterproofing sealant called SuperFlex, seeking damages for breach of warranty. Id. at 61. In response, Grailcoat moved for summary judgment, arguing that the plaintiffs’ claims were barred by a six-year statute of repose despite the fact that SuperFlex was “fully warranted” for twenty years. See id. at 61, 63. The Court of Appeals of North Carolina agreed with Grailcoat, holding, “a plaintiff whose action is not filed within the time set forth in the statute of repose has no cause of action for damages,” despite the existence of an extended warranty. Id. at 63.
The district court in this case diligently applied Christie I, and concluded Appellants’ claims were likewise untimely. But while this appeal was pending, a parallel
The parties disagree sharply over the proper interpretation of Christie II and its implications for this case. Appellee concedes it is bound by the Warranty, but maintains it agreed to extend its liability beyond the repose period only on the limited basis set forth therein. Thus, Appellee argues, if Appellants seek “relief beyond that to which [Appellee] has agreed” and do so “outside the statute of repose, ... the rationale for the [Christie II] exception does not apply, and the statute of repose bars the claim.” Appellee‘s Supp. Br. 9.
In contrast, Appellants argue that the statute of repose loses all force if a claim for breach of warranty is made within the Warranty period. See Appellants’ Supp. Br. 7 (“[Appellee] willingly agreed to waive the six year statute of repose and [Christie II] makes clear that the statute of repose is inapplicable—for all purposes and with respect to all provisions.“). In their view, the entirety of the Warranty is fair game; if Appellee is entitled to enforce the limited remedy provision, then Appellants argue they should be entitled to attack its conscionability and, if successful, invalidate it.
We do not need to resolve the parties’ conflicting interpretations of Christie II in this case, however, because even assuming Appellants are entitled to litigate the question of unconscionability after the statute of repose has elapsed, we conclude the Warranty at issue here is not unconscionable.
A court may refuse to enforce a contract for the sale of goods, or any clause therein, if it finds the agreement was unconscionable as a matter of law when it was made. See
Appellants argued, and the district court agreed, that the unconscionability question turned on whether and to what extent Appellee knew that TrimBoard was defective before offering it for sale under the terms of the Warranty. Citing our decision in Carlson v. General Motors Corp., 883 F.2d 287, 296 (4th Cir. 1989), the district court reasoned “[a] manufacturer‘s
We assume without deciding that Appellee‘s alleged knowledge of TrimBoard‘s ineffectiveness may be evidence of the kind of disparity in bargaining power and unfair surprise often indicative of procedural unconscionability. See Carlson, 883 F.2d at 296 (“When a manufacturer is aware that its product is inherently defective, but the buyer has no notice of [or] ability to detect the problem, there is perforce a substantial disparity in the parties’ relative bargaining power.” (alteration in the original; internal quotation marks omitted)). But we fail to see, at least under these circumstances, how advanced knowledge could have established substantive unconscionability.
In Carlson, we found advanced knowledge of a latent defect probative on the issue of substantive unconscionability because it was alleged that the seller abused its superior knowledge to unfairly limit the duration of an implied warranty of merchantability. See Carlson, 883 F.2d at 295-96. As we explained, “Evidence of the knowledge of [a] stronger party that the weaker party will be unable to receive substantial benefits from the contract ... should in most cases contribute to a finding of unconscionability.” Id. at 296 (internal quotation marks omitted). The relevant question, in other words, was whether one party used its superior knowledge to impose a contractual term that was harsh, one-sided, or oppressive. And because the plaintiffs in that case discovered latent defects only after the duration of the defendant‘s limited warranty had elapsed, we held that the facts construed in the light most favorable to the plaintiffs could withstand a motion to dismiss. See Carlson, 883 F.2d at 296 (“[T]he district court erred by dismissing the claims of those named plaintiffs who alleged that they first encountered substantial difficulties with their cars only after the purported expiration of all express and implied warranties.“).
But we think, for several reasons, that Carlson provides scant support for the proposition that the limited remedy in this case is substantively unconscionable. First, the case is plainly distinguishable on its facts. There, consumers alleged that a manufacturer concealed knowledge of a latent defect, imposed a durational limitation on its warranty, and that the defect only manifested itself after the limitation had lapsed, effectively leaving the consumers with no remedy at all. Here, by contrast, Appellants’ evidence tends to show that Appellee knew TrimBoard would, on average, fail within nine years, yet still warranted the product for ten years and offered twice the purchase price or, after 2005, the cost of replacement as a remedy. Indeed, each of the Appellants in this case discovered the alleged defect in their TrimBoard within the Warranty period, made a claim, and received an offer of compensation from Appellee.
Moreover, we also do not read Carlson for the broad proposition that the terms of a warranty are necessarily substantively unconscionable solely because one party conceals certain information during the bargaining process. Ample authority supports this common-sense distinction. See, e.g., McCabe v. Daimler AG, 948 F.Supp.2d 1347, 1358 (N.D.Ga.2013) (“Plaintiffs have failed to identify any au-
Instead, like Carlson, cases finding substantive unconscionability based on an inherent defect in a warranted product require some link between the defect and the objective unfairness of the warranty terms. See, e.g., DJ Coleman, Inc. v. Nufarm Americas, Inc., 693 F.Supp.2d 1055, 1073 (D.N.D.2010) (“The clause at issue here would limit DJ Coleman‘s remedy for a breach of an express warranty to the purchase price of Assert or the replacement of the product. The Court finds that the limitation of remedies provision is substantively unconscionable. [T]he farmer is required to expend large sums of money before any defect [] is noticeable, and once a defect is found an entire year‘s crop might be worthless. Once the crop has failed, the farmer‘s only recourse is monetary compensation to cover his lost profit and expenditures; replacement and repair are not viable options.” (internal quotation marks omitted; alterations in the original)); Lennar Homes, Inc. v. Masonite Corp., 32 F.Supp.2d 396, 401 (E.D.La.1998) (“The Court agrees that shipping a product with a known latent defect may infect a limitation with unconscionability. This limitation is not prima facie unconscionable, but Lennar has sufficiently raised material issues of fact regarding Masonite‘s knowledge of defects to preclude summary judgment.” (citation omitted; emphasis supplied)); Majors v. Kalo Labs., Inc., 407 F.Supp. 20, 22-23 (M.D.Ala.1975) (“In summary, the situation presented here is one of an alleged latent defect in a product whose effectiveness was known by its manufacturer to be questionable and an exclusion which has the effect of foreclosing any recovery by a farmer for large and foreseeable consequential damages for crop failure. This is, therefore, a proper case for a determination that the attempted exclusion is unconscionable, and such is the opinion of this Court.“).
Bussian v. DaimlerChrysler Corp., 411 F.Supp.2d 614 (M.D.N.C.2006), another case on which Appellants principally rely, illustrates the difference. There, as in Carlson, plaintiffs challenged a durational limitation in a warranty, alleging that the manufacturer concealed information about a latent defect. The court acknowledged the “broad, nearly universally accepted proposition that a latent vehicle defect known to the manufacturer at the time of sale that does not manifest itself until after expiration of the express warranty does
Even if we read Carlson as broadly as Appellants would like, we would not be bound by it because Carlson did not interpret North Carolina law which, as a federal court sitting in diversity, we must apply. In this case, Appellants allege that Appellee knew TrimBoard was likely to fail within nine years, yet still agreed to cover its product for ten years. And although the Warranty disclaimed consequential damages, Appellee nevertheless offered to pay to replace defective TrimBoard or refund twice the purchase price paid for TrimBoard that failed within ten years of purchase. Our task, then, is to assess whether North Carolina courts would consider those terms substantively unconscionable because they are “so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other.” Wilner v. Cedars of Chapel Hill, LLC, 773 S.E.2d 333, 337 (N.C.Ct.App.2015) (quoting Brenner, 274 S.E.2d at 210). We predict that North Carolina courts would not reach that conclusion.
To begin with, contractual provisions disclaiming consequential damages for economic loss are authorized under state law and not presumptively unconscionable. See
If the terms of the limited remedy are not per se or categorically unconscionable, our next task is to measure their fairness in the context of this case. To do so it is useful to consider the default remedies that would otherwise have been available to Appellant in the absence of the Warranty‘s limitations. The standard measure of damages for breach of warranty in North Carolina is “the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted,”
So here, assuming the value of the defective TrimBoard is zero, Appellants’ damages (the difference between the value of the goods as warranted and the value of the defective goods accepted) would have been equal to the TrimBoard‘s original purchase price. The Warranty remedy applicable to Appellants’ TrimBoard, by comparison, provides twice that amount. And even if we further assume in the absence of the Warranty‘s limitations that Appellants could have recovered some consequential and incidental damages, such as “expenses or commissions in connection with effecting cover” or “injury to ... property proximately resulting from [the] breach,”
Finally, by offering a ten-year warranty, Appellee granted Appellants a limited remedy in years seven through ten that would otherwise have been extinguished after the expiration of the repose period. If Appellee had not offered a ten-year warranty, purchasers like Appellants who filed suit beyond the six-year repose period would have had no remedy at all. Instead, under the terms of the Warranty, Appellants had the chance (before they abandoned it) to recover twice what they paid for the defective TrimBoard. That may not be the remedy Appellants want, but it is substantially more valuable than nothing at all. And that additional benefit must be considered in measuring the Warranty‘s overall fairness.
In sum, assuming the truth of Appellants’ evidence, Appellee knew TrimBoard was likely to fail within nine years, but nevertheless agreed to warrant the product for ten years and offered purchasers twice their money back or the cost of replacement if and when their TrimBoard did fail. The Warranty also extended that remedy beyond the point that Appellee‘s liability would otherwise have been extinguished by the statute of repose. We doubt that North Carolina courts would find that bargain harsh, oppressive, or one-sided. See Harbison v. Louisiana-Pacific Corp., 602 Fed.Appx. 884, 887 (3d Cir.2015) (holding, in a similar case involving TrimBoard, “because the warranty ... provides [consumers] with a benefit [they] would not otherwise have, the damages limitation [is] not unconscionable“). As a result, Appellee‘s alleged advanced knowledge about TrimBoard‘s ineffectiveness alone will not sustain a finding under North Carolina law that the Warranty‘s limited remedy is unconscionable. Cf. Rite Color, 411 S.E.2d at 649-50 (contract not substantively unconscionable where price charged was higher than price available from other sellers, making it irrelevant that the trial court did not assess allegations of fraud bearing on potential procedural unconscionability).
Accordingly, in light of the fact that Appellants have abandoned any attempts to recover the limited remedy provided by the Warranty as written and proceed only on the theory that the Warranty is uncon-
B.
We now consider the district court‘s decision to decertify the class. Class actions are “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 131 S.Ct. 2541, 2550, 180 L.Ed.2d 374 (2011) (internal quotation marks omitted). To obtain class certification, plaintiffs bear the burden of showing
- the class is so numerous that joinder of all members is impracticable;
- there are questions of law or fact common to the class;
- the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
- the representative parties will fairly and adequately protect the interests of the class.
Here, Appellants sought class certification pursuant to
As noted,
That aside,
IV.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
SHEDD, THACKER, and HAMILTON
CIRCUIT JUDGES