Kelly v. Georgia-Pacific LLCKelly v. Georgia-Pacific LLC
ORDER
Eаrl Clyde Kelly (“Kelly” or “plaintiff’) built a home in Carolina Beach, North Carolina, and now brings several North Carolina state-law claims and a claim under the Magnuson-Moss Act (“MMA”) against Georgia-Pacific LLC and Georgia Pacific Wood Products (collectively “defendants” or “GP”). Defendants are the designers and manufacturers of PrimeTrim, a product that Kelly’s builder used in constructing Kelly’s home. Kelly contends that PrimeTrim failed to work as promised, that his remedies under PrimeTrim’s express warranty are not adequate, and that he should be able to pursue this case as a class action. Defendants acknowledge the viability of Kelly’s express warranty claim, but move to dismiss Kelly’s remaining claims for failure to state a claim upon which relief can be granted [D.E. 6]. In addition, defendants filed a third-party complaint seeking indеmnification and contribution from the builder of plaintiffs home and the builders of putative class members’ homes [D.E. 15]. Kelly moves to strike the third-party complaint [D.E. 30]. As explained below, the court grants defendants’ partial motion to dismiss and denies plaintiffs motion to strike.
I.
Georgia Pacific, LLC and Georgia Pacific Wood Products, LLC are designers and manufacturers of exterior building products, including PrimeTrim. Compl.
When defendants were selling Prime-Trim, homebuilders used the product on the exterior of homes as fascia, soffit, corner board, window trim, and door trim. Id. ¶ 2; Answer ¶ 2; see Defs.’ Resp. to Mot. to Strike, Ex. A (copy of PrimeTrim installation instructions). GP marketed, advertised, and warranted that PrimeTrim was fit for the ordinary purpose for which wood trim is used, free from defects, suitable for exterior use, reliable, and superior to wood. Compl. ¶¶ 3, 14-17, 3(M1; see Answer ¶¶ 15-17. Specifically, GP warranted that “PrimeTrim may be installed wherever non-structural wood trim can be used.” Compl. ¶ 4; see Answer ¶ 4.
Kelly is a resident of New Hanover County, North Carolina and, since late 2003, has resided in a home that he built in Carolina Beach, North Carolina. Compl. ¶ 10. Plaintiffs builder used PrimeTrim in constructing plaintiffs home. Id. ¶ 25; Answer ¶ 25. However, plaintiff did not directly purchase PrimeTrim from GP. See Compl. ¶ 54. According to defendants, plaintiffs builder, Walter Thorpe McCartney, installed the PrimeTrim in plaintiffs home. Third Party Compl. ¶ 13. After installation, moisture penetrated behind the PrimeTrim, and the moisture absorption caused damage to the PrimeTrim and the “[ijnner walls, sheathing, unprotected lumber and other areas” of the home. Compl. ¶ 86; see id. ¶¶ 26, 43. Kelly makes no claims for damages other than the damage to his home. Cf. id. ¶¶ 86-87.
According to the complaint, GP failed to disclose that PrimeTrim would degrade and fail when used for its intended purpose. Id. ¶ 22, 43-44. Kelly attributes these failures to design defects. Id. ¶ 7. Further, Kelly contends that GP did not adequately instruct plaintiff and other direct and indirect purchasers on how to properly install PrimeTrim. Id. ¶ 18. Kelly cites as an example that the instructions did not include steps to seal and to prime any site-cut ends of the PrimeTrim boards despite GP knowing that builders would cut the boards on site. Id. ¶¶ 18, 23. As a result, when builders cut the Prime-Trim on site before installing it and did not seal or prime the site-cut boards, the PrimeTrim became vulnerable to moisture intrusion. Id. ¶¶ 18-19, 21. Accordingly, when builders followed GP’s instructions for installing PrimeTrim, PrimeTrim permitted water intrusion, which damaged the PrimeTrim and the structures in which it was installed. Id. ¶¶ 18-20.
PrimeTrim is covered by a thirty-year limited warranty (“limited warranty”).
See id.,
Ex. A (copy of the limited warranty agreement).
1
Under the limited war
Nonetheless, on or about June 23, 2008, Kelly submitted a claim under the limited warranty to GP. Id. ¶ 27, Ex. A; Answer ¶ 27. In August 2008, GP inspected Kelly’s residence to investigate the warranty claim. Compl. ¶28; Answer ¶28. GP and Kelly were unable to resolve the warranty claim. Compl. ¶ 29.
On October 15, 2008, Kelly sued defendants in New Hanover County Superior Court [D.E. 1-2]. Kelly claims breach of express warranty, breach of implied warranty, negligence, violation of the Magnuson-Moss Act (“MMA”),
On November 19, 2008, defendants removed the action to this court based on diversity and federal-question jurisdiction [D.E. 1].
See
On December 18, 2008, defendants filed their answer [D.E. 8] and a partial motion to dismiss pursuant to
On January 6, 2009, defendants filed a third-party complaint against Walter Thorpe McCartney and John Does 1-500 [D:E. 15], According to the third-party complaint, McCartney built Kelly’s home, and John Does 1-500 are the unknown builders of the homes of the putative class members. Id. ¶¶ 5-6. According to defendants, the third-party defendants negligently installed the PrimeTrim. See id. ¶¶ 18, 21. Thus, if defendants are liable to plaintiff and the putative class, defendants seek indemnification and contribution from the third-party defendants. Id. ¶¶ 2, 8, 21-49; see id. at 11 (prayer for relief).
On January 23, 2009, Kelly responded in opposition to defendants’ partial motion to dismiss [D.E. 20]. On February 6, 2009, defendants replied [D.E. 26].
On April 13, 2009, Kelly filed a motion to strike defendants’ third-party complaint
On May 6, 2009, defendants responded to Kelly’s motion to strike [D.E. 33]. Defendants contend that a central question in this case will be causation — did defendants’ defective design and manufacturing of the product and the subsequent failure to adequately instruct builders how to install the product cause the PrimeTrim’s deteriorаtion (as plaintiff contends), or did the builders’ improper installation cause the damage (as defendants contend).
See id.
at 2-3. As for Kelly’s other arguments for severing the third-party complaint from the original action, defendants argue that the court should not strike the third-party complaint because the claims against the third-party defendant-builders are meritorious and consistent with
II.
A.
North Carolina substantive law controls plaintiffs state-law claims. The standard for a motion to dismiss under
B.
Defendants argue that North Carolina’s economic loss rule bars Kelly’s neg
The economic loss rule addresses the intersection between contract remedies (including warranty remedies) and tort remedies. Thus, “[o]rdinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor.”
N.C. State Ports Auth. v. Lloyd A. Fry Roofing Co.,
North Carolina State Ports Authority
is the North Carolina Supreme Court’s seminal opinion on the economic loss rule. In that case, the North Carolina Supreme Court noted thе general rule: “Ordinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor.”
In
North Carolina State Ports Authority,
the North Carolina Supreme Court analyzed a case where a state agency entered a contract with a general contractor for the construction of a transit shed and a warehouse. The general contractor then entered a subcontract with a roofing company to construct the roofs on the two buildings. Fry manufactured and supplied the materials in constructing the roofs. After the state agency took possession of the transit shed and warehouse, the roofs leaked. The state agency sued the general contractor, the roofing subcontrаctor, and Fry. Among other claims, the state agency alleged that the general contractor and the roofing subcontractor negligently constructed the roofs.
In
Oates,
the North Carolina Supreme Court again analyzed the economic loss rule. In
Oates,
homeowners who were not the original purchasers filed an action against the builder for negligent construction.
In this case, the parties agree that none of the four exceptions that the North Carolina Supreme Court described in
North Carolina State Ports Authority
applies. The parties also agree that
Oates
does not apply because Kelly is the original purchaser. Finally, the parties agree that no North Carolina Supreme Court decision addresses the fact pattern present in this case. Thus, this court “must determine how the Supreme Court of [North] Carolina would rule.”
Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Bevеrage Co. of S.C.,
In this case, Kelly is the original purchaser of the home. See Compl. ¶ 10. He contracted with Walter-Thorpe McCartney to build the home. McCartney, in turn, installed the PrimeTrim in plaintiffs home. Kelly makes no claim for damages other than the damage to his home, and Kelly has a remedy against GP under PrimeTrim’s express warranty. See id. ¶ 60, Ex. A. Nonetheless, Kelly seeks to hold PrimeTrim’s manufacturers GP liable for negligence concerning PrimeTrim. See id. ¶¶ 73-87.
Under North Carolina law, when a defective component of a larger system causes damage to the rest of the system, only economic loss has occurred, and the economic loss rule still applies.
See, e.g., Higginbotham v. Dryvit Sys., 50
U.C.C. Rep.Serv.2d (Callaghan) 128, at *11 (M.D.N.C.2003);
Wilson,
In order to avoid this conclusion, Kelly argues that North Carolina law requires a contract between the parties in order for the economic loss rule to apply.
See Lord v. Customized Consulting Specialty, Inc.,
In making his argument about how the North Carolina Supreme Court would rule, Kelly primarily relies on the North Carolina Court of Appeals’ decision in
Lord.
In
Lord,
defendants appealed a jury verdict in favor of original homeowners who hаd sued, on the basis of negligence, the manufacturer of floor trusses that had been installed in their new home.
Lord cannot bear the weight that Kelly seeks to place on it. In Lord, the court discussed Oates, in which the North Carolina Supreme Court declined to apply the economic loss rule to a secondary purchaser of a house where that purchaser lacked a contractual remedy against the builder. In Lord, the court also discussed
Warfield,
where the North Carolina Court of Appeals relied on the economic loss rule to affirm the dismissal of an original purchaser’s negligence claim against his builder arising out of the builder’s alleged negligent use of beetle infested interior beams in building the house.
In analyzing North Carolina appellate decisions applying the economic loss doctrine and federal court applying North Carolina’s economic loss doctrine, courts focus on the availability of a contractual remedy, including a remedy for breach of warranty. For example, in
Reece v. Homette Corp.,
Recently, the North Carolina Court of Appeals again focused on the availability of a contractual remedy in applying the economic loss rule.
See Hospira Inc. v. AlphaGary Corp.,
— N.C.App. -,
Notably, in
Hospira,
and
Lord,
if the court did not allow the negligence claim to proceed on a tort theory, plaintiffs would have been without a contract or warranty remedy. Further, in
Moore,
the North Carolina Court of Appeals applied the economic loss rule despite the lack of a contract between the RV manufacturer and plaintiff because plaintiff had a remedy under the manufacturer’s express warranty.
See Moore,
Although plaintiff contends that Lord casts doubt on the continued vitality of Moore, Hospira’s description of Moore refutes such an argument. Instead, Hospira indicates that North Carolina applies the economic loss rule even absent a contract between plaintiff and defendant so long as plaintiff has a contract or warranty remedy against defendant. Further, Judge Wynn wrote both Hospira and Lord, suggesting that plaintiffs reading of Lord is overly expansive.
In this case, as in
Moore,
Kelly may proceed against GP under the express warranty. Although GP and Kelly did not enter a contract, the warranty allocates risk between Kelly and GP, lowers the price of the PrimeTrim, and thereby lowers the price of the home that Kelly built using the PrimeTrim.
See East River S.S. Corp.,
After considering the relevant precedent and the allegations in plaintiffs complaint, this court predicts that the North Carolina Supreme Court would apply the economic loss rule to bar plaintiffs negligence claim in this case.
See Twin City Fire Ins. Co.,
C.
Next, the court addresses Kelly’s implied warranty claim against defendants. Under North Carolina common law, privity of contract is generally required to assert an implied warranty claim.
See, e.g., Terry v. Double Cola Bottling Co.,
The Act partially abrogates the privity requirement for implied warranty claims against manufacturers when the action is “brought for or on account of personal injury, death or property damage caused by or resulting from the manufacture ... of any product.”
The parties agree that Kelly and defendants are not in privity of contract. Nonetheless, Kelly argues that his asserted status as a third-party beneficiary to the contract between defendants and plaintiffs builder implies privity and thereby authorizes his implied warranty claim. In support, Kelly cites
Coastal Leasing Corp. v. O’Neal,
The court recognizes that “[t]here is no definition of the word ‘privity’ which can be applied in all cases.”
Masters v. Dunstan,
D.
Next, Kelly argues that this court should not limit his remedy to the limited warranty because the limited warranty fails of its essential purpose and therefore does not serve as an adequate remedy. Essentially, Kelly argues that the remedies provided under the limited warranty would not be adequate because either the cap on payments would be insufficient or replacing the defective product with more PrimeTrim would not remedy the problem. See Pl.’s Mem. 5-6.
Pursuant to N.C. GemStat. § 25-2-719, “the agreement ... may limit or alter the measure of damages recoverable under this article, as by limiting the buyer’s remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts.” N.C. GemStat. § 25-2-719(l)(a). The agreement also may limit consequential damages “unless the limitation or exclusion is unconscionable.” Id. § 25-2-719(3). Remedies provided in an agreement are “optional unless expressly agreed to be exclusive, in which case it is the sole remedy.” Id. § 25 — 2—719(l)(b). A contractual limitation of remedy is permitted so long as “circumstances [do not] cause an exclusive or limited remedy to fail of its essential purpose.” Id. § 25-2-719(2). “[I]t is of the very essence of a sales contract that at least minimum adequate remedies bе available.” Id. § 25-2-719, official cmt. 1.
Kelly misinterprets the plain terms of the limited warranty. GP promises either repair or replacement of the affected trim. If the PrimeTrim is defective by design, then the limited warranty allows “the reasonable cost of ... replacement of the affected trim with similar trim.” CompL, Ex. A. Nowhere does the limited warranty specify that the affected trim has to be replaced with PrimeTrim. As for Kelly’s argument concerning the remedy cap of double the sales price of the PrimeTrim, the remedy cap is consistent with
E.
Next, defendants seek to dismiss Kelly’s UDTPA claim for two reasons: (1) Kelly fails to state a claim for relief under the UDTPA; and (2) the economic loss rule bars the UDTPA claim. Initially, the court addresses whether Kelly fails to state a UDTPA claim.
To state a claim under the UDTPA, plaintiff must show (1) an unfair or deceptive act or practice (2) in or affecting commerce (3) which proximately caused actual injury to the plaintiff or to his business.
See, e.g.,
Under North Carolina law, a breach of warranty alone is insufficient to state a UDTPA claim.
See, e.g., Washburn v. Yadkin Valley Bank & Trust Co.,
Here, defendants’ failure to address plaintiffs warranty claim to his satisfaction or the design of a purportedly dеfective product do not rise to “substantial aggravating circumstances” to support Kelly’s UDTPA claim.
See, e.g., PCS Phosphate Co.,
F.
Finally, defendants argue that plaintiffs MMA claim fails as a matter of
The coverage of building materials which are not separate items of equipment is based on the nature of the purchase transaction. An analysis of the transaction will determine whether the goods are real or personal property. The numerous products which go into the construction of a consumer dwelling are all consumer products when sold “over the counter,” as by hardware and building supply retailers. This is also true where a consumer contracts for the purchase of such materials in connection with the improvement, repair, or modification of a home (for example, paneling, dropped ceilings, siding, roofing, storm windows, remodeling). However, where such products are at the time of sale integrated into the structure of a dwelling they are not consumer products as they cannot be practically distinguished from realty. Thus, for example, the beams, wallboard, wiring, plumbing, windows, roofing, and other structural components of a dwelling are not consumer products when they are sold as part of real estate covered by a written warranty.
In opposition, Kelly acknowledges that the PrimeTrim was “integrated” into his home at the time of the sale, but argues that PrimeTrim remains a consumer product, despite its presale integration into his home, because GP advertises PrimeTrim as “non-structural.” Compl. ¶ 16. Focusing on the regulation’s reference to “other structural components of a dwelling” in the last sentence of
The court disagrees with Kelly. First, the list in the final sentence of
The complaint alleges that PrimeTrim was used in the construction of homes as “fascia, soffit, corner board, window trim, door trim and general exterior use.” Cоmpl. ¶ 2. Further, plaintiff asserts that the defective product “causes consequential water and structural damages; and promotes the growth of mold, mildew, fungi, and insect infestation
in the structures in which it is installed.” Id.
¶ 56 (emphasis added). Based on plaintiffs characterization of PrimeTrim, the product is a building material that was integrated into the structure of the dwelling prior to the dwelling’s sale.
See id.
¶¶ 2, 25, 54, 56. Accordingly, PrimeTrim is not a consumer product under the MMA.
See, e.g., Mikola v. Penn Lyon Homes, Inc.,
III.
As plaintiff concedes, defendants’ third-party complaint was timely and does not require leave of court.
See
PL’s Mot. to Strike Reply Br. 2;
cf.
Nothing in the limited warranty precludes defendants from seeking indemnification or contribution from third parties. At this early stage of the litigation, the court declines to strike the third-party complaint. If discovery reveals that defendants’ claims against the third parties would prejudice plaintiffs case, the court will then consider possible remedies with a more complete record. Accordingly, the court denies plaintiffs motion to strike.
rv.
As explained above, the court GRANTS defendants’ partial motion to dismiss [D.E. 6] and DENIES plaintiffs motion to strike the third-party complaint [D.E. 30]. In his response to defendants’ motion to dismiss, plaintiff requested permission to file an amended complaint if the court granted any portion of defendants’ motion to dismiss. The court GRANTS plаintiffs request to file an amended complaint. If plaintiff wishes to file an amended complaint, he shall do so not later than October 30, 2009.
Notes
. The limited warranty provides, in part:
With respect to any claim, damage or defect covered under the foregoing substrate limited warranty and subject to the maximum limits of compensation specified herein, Georgia-Pacific shall elect, at its sole discretion, to compensate the owners either by:
• Repair of the affected trim, or replacement of the affected trim with trim of the same or similar type and specification (including installation costs), without charge to the owner, OR
• Cash payment to the owner equivalent to the reasonable cost of repair or replacement of the affected trim with similar trim, provided however, that the “reasonable cost” of repair or replacement shall not exceed two times the original Georgia-Pacific sales price of the affected trim.
Compl., Ex. A.
. The four scenarios are:
(1) The injury, proximately caused by the promisor’s negligent act or omission in the performance of his contract, was an injury to the person or property of someone other than the promisee....
(2) The injury, proximately caused by the promisor’s negligent, or wilful, act or omission in the performance of his contract, was to property of the promisee other than the property which was the subject of the contract, or was a personal injury to the promisee ....
(3) The injury, proximately caused by the promisor’s negligent, or wilful, act or omission in the performance of his contract, was loss of or damage to thе promisee’s property, which was the subject of the contract, the promisor being charged by law, as a matter of public policy, with the duty to use care in the safeguarding of the property from harm, as in the case of a common carrier, an innkeeper or other bailee....
(4)The injury so caused was a wilful injury to or a conversion of the property of the promisee, which was the subject of the contract, by the promisor....
North Carolina State Ports Auth.,
. North Carolina does not recognize strict liability in products liability actions.
See, e.g.,
N.C. Gen. Stat § 99B-1.1;
Smith v. Fiber Controls Corp.,
. In light of this conclusion, the court does not address whether the economic loss rule bars plaintiffs UDTPA claim.
Cf. Bussian v. DaimlerChrysler Corp.,
. In light of the court's conclusions concerning plaintiff's negligence claim, UDTPA claim, implied warranty claim, and MMA claim, the court need not address the statute-of-limitations arguments.