Court of Appeals Affirms Summary Judgment in Home Products Case

The 8th Circuit recently affirmed the grant of summary judgment to the defendant in a proposed class action brought by an Iowa homeowner suing over allegedly defective house trim.  See Brown v. La.-Pac. Corp., No. 15-1830, 2016 WL 1425824 (8th Cir. 4/12/16).

In 2003, Brown purchased a lot and hired a contractor, who in turn selected defendant's  TrimBoard as the product to be installed on Brown's new home. The TrimBoard installed on Brown's home came with a ten-year limited warranty, covering delamination, checking, splitting, cracking and chipping of the basic substrate for a period of ten years from the date of installation under normal conditions of use and exposure, providing the trim is properly stored, installed, maintained, and protected as specified in defendant's Application Instructions.

Plaintiff never viewed informational or advertising literature for TrimBoard, never spoke to any representative of defendant about the TrimBoard product, and did not see a copy of the limited warranty prior to the product's installation on his home.

In August 2004, Brown moved into his new home. Sometime in 2010, plaintiff allegedly noticed damage to certain pieces of the installed TrimBoard. Ultimately, defendant offered Brown $197.67 in compensation for the damaged TrimBoard, which Brown rejected. In January 2011, Brown hired a local contractor to replace various pieces of TrimBoard on his house, at a total cost of $1,700.00, inclusive of labor and materials. 

Brown subsequently filed this putative class action, alleging claims for negligence, fraudulent misrepresentation, breach of warranty, and unfair or deceptive practices, and requesting declaratory relief and money damages. After some rounds of motion practice, the claims were dismissed. On appeal, Brown argued that the district court erred in granting summary judgment  on his claims for fraudulent misrepresentation, unfair or deceptive practices, and breach of warranty.

The court of appeals began with the fraudulent misrepresentation claim. For Brown to prevail on his fraudulent-misrepresentation claim under Iowa law, he needed to prove the following elements:

(1) defendant made a representation to the plaintiff, (2) the representation was false, (3) the representation was material, (4) the defendant knew the representation was false, (5) the defendant intended to deceive the plaintiff, (6) the plaintiff acted in reliance on the truth of the representation and was justified in relying on the representation, (7) the representation was a proximate cause of plaintiff's damages, and (8) the amount of damages.  Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 400 (Iowa 2001).

The court focused on justifiable reliance. Brown contended that LP's alleged misrepresentations were passed through a third party—his contractor—and then communicated to Brown and relied upon by him. Iowa law provides that "persons who fraudulently misrepresent the truth can be held liable to third parties if they have a 'reason to expect' their misrepresentation will be communicated to third parties." Clark v. McDaniel, 546 N.W.2d 590 , 593 (Iowa 1996) (quoting Restatement (Second) [*4] of Torts § 533 (1977)); see also United States v. Hawley, 619 F.3d 886 , 897 (8th Cir. 2010) ("The [Iowa Supreme] Court [in Clark] expressly adopted section 533 of the Restatement (Second) of Torts (1977) . . . .").  An objective standard applies to whether one has "reason to expect" reliance by another: "'The maker of the misrepresentation must have information that would lead a reasonable man to conclude that there is an especial likelihood that it will reach those persons and will influence their conduct.'" Id. (quoting Restatement (Second) of Torts § 533 cmt. d (1977)). "[T]he fact that the maker has an advantage to gain, even though it is in some other transaction, by furnishing the misrepresentation for repetition to the third person is of great significance in determining whether he has reason to expect that the original recipient should so repeat it." Restatement (Second) of Torts § 533 cmt. e (1977) (emphasis added).

Here, however, the court found that Brown presented insufficient evidence that his contractor ever received a relevant communication from LP. The contractor failed to identify "which advertisements he viewed, when he viewed them, or which statements from the advertisement he read and relied upon in advising [Brown] of the suitability of the product."  In fact, it appeared that the contractor was provided with copies of ads at the time of his sworn affidavit and he could only affirm that the advertisements were consistent with materials he recalled possibly viewing some nine to ten years ago. So the record left open the distinct possibility that the contractor had heard of TrimBoard from another source.

The court turned next to the unfair and deceptive trade practices act claim. The Iowa Private Right Act provides that any "consumer who suffers an ascertainable loss of money or property as the result of a prohibited practice or act in violation of this chapter may bring an action at law to recover actual damages." Iowa Code Ann. § 714H.5(1)(including material misrepresentations). Brown argued that the materiality of LP's alleged misrepresentations created an inference of causation that satisfied factual causation between LP's alleged unfair or deceptive trade practice and Brown's damages. But the act requires that plaintiff "suffer[ed] an ascertainable loss of money or property as the result of a prohibited practice." Iowa Code Ann. § 714H.5(1). And Brown failed to establish such causation as a matter of law. To show causation, Brown needed to prove that, but-for LP's purported misrepresentation, he would not have elected to purchase TrimBoard and install it on his home. And to satisfy this requirement, he needed to show that his contractor received a material representation that LP made. As noted, Brown failed to satisfy this showing. Because Brown produced no evidence that the contractor was the recipient of any representation made by LP, Brown "failed to generate a genuine issue of material fact with respect to causation."

Finally, Brown argued that the limited warranty failed of its essential purpose by inadequately compensating him for the costs to repair the direct and consequential damages to his home. The Iowa Supreme Court has elaborated on the meaning of "essential purpose," stating:  A remedy's essential purpose "is to give to a buyer what the seller promised him." Hartzell v. Justus Co., Inc., 693 F.2d 770 , 774 (8th Cir. 1982). The focus of analysis "is not whether the remedy compensates for all damage that occurred, but that the buyer is provided with the product as seller promised." Brunsman v. DeKalb Swine Breeders, Inc., 952 F. Supp. 628 , 635 (N.D. Iowa 1996); Nelson v. DeKalb Swine Breeders, Inc., 952 F. Supp. 622 , 628 (N.D. Iowa 1996).

Where repair or replacement can give the buyer what is bargained for, a limitation of remedies does not fail of its essential purpose. Badgett Constr. & Dev. Co. v. Kan-Build, Inc., 102 F. Supp. 2d 1098 , 1105 (S.D. Iowa 2000). In other circumstances, however, repair or replacement is not sufficient, and then a court may find the remedy failed of its essential purpose. See Select Pork, Inc. v. Babcock Swine, Inc., 640 F.2d 147 , 150 (8th Cir. 1981). "The issue of whether a limited remedy fails of its essential purpose is separate and distinct from whether a limited remedy is unconscionable." Baptist Mem'l Hosp. [*9] v. Argo Constr. Corp., 308 S.W.3d 337 , 345 (Tenn. Ct. App. 2009). Here, Brown essentially argued that the warranty fails of its essential purpose because the defect was latent and could not have been discovered. But numerous jurisdictions have held that a latent defect does not cause an exclusive contractual remedy to fail of its essential purpose. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Westinghouse Elec. Corp., 844 F.2d 1174 , 1179-80 (5th Cir. 1988); Wis. Power & Light Co. v. Westinghouse Elec. Corp., 830 F.2d 1405 , 1412-13 (7th Cir. 1987); Boston Helicopter Charter, Inc. v. Agusta Aviation Corp., 767 F. Supp. 363 , 374 (D. Mass. 1991); Hart Eng'g Co. v. FMC Corp., 593 F. Supp. 1471 , 1479 (D.R.I. 1984); Regents of the Univ. of Colo. ex rel . Univ. of Colo. at Boulder v. Harbert Constr. Co., 51 P.3d 1037 , 1041 (Colo. Ct. App. 2001 ); Clark v. Int'l Harvester Co., 99 Idaho 326 , 581 P.2d 784 , 802-03 (Idaho 1978)). The court of appeals concluded that the Iowa Supreme Court would follow this majority rule.  The court also noted that there is no evidence—and Brown made no allegation—that the purported defects in the TrimBoard were not remedial and could not be repaired or replaced.  So, the mere fact that the Limited Warranty does not compensate a buyer for the entirety of his damages does not mean it has failed of its essential purpose.

Class Certification Reversed in Unfair Trade Practices Case

A Florida appeals court recently decertified a class action with an unusual theory: a car maker who allegedly used headlights that can be too easily stolen in its luxury vehicles. See Porsche Cars v. Peter Diamond, et al., No. 3D12-2829 3d DCA Fla. 6/12/14).  One wonders why and how theft of auto parts is not the responsibility of the thief, but perhaps we digress. 

This case focuses on Porsche’s High Intensity Discharge Headlights. The Headlights are an upscale amenity in the luxury car market.  The intense blue-white light given by the Headlights is closer to natural daylight than the yellowish light of regular headlights. The Headlights provide better nighttime visibility than older types of headlights. Since model year 2000, the Headlights have been offered as standard or optional equipment across the Porsche vehicle line. The Headlights were mounted on modules that were slid into a plastic tray in the fender and clamped in place. This mounting made the Headlights less expensive to install and repair. Plaintiffs alleged it made them "easier" to steal. 

In this proposed class action, the class representatives asserted unfair trade practices and unjust enrichment claims. They alleged the defendant distributed a product highly susceptible to theft without taking any remedial steps. Specifically, the defendant allegedly failed to “notify owners of the flaw and potential risk of theft so they could take their own precautions,” to “offer replacement lights at reduced costs,” and to “work with law enforcement agencies to assist in the prevention of the theft of their headlights.”  This, the representatives members allege, violated the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”).  There was an unjust enrichment claim, and the plaintiffs also alleged that the defendant distributor could have redesigned the vehicles in
various ways, even though a car distributor does not design or manufacture vehicles.

The opinion did not reach the issue of whether such a factual theory of damages is viable (it would have been nice to see a blow struck for common sense). But the decision focused on the legal issues raised by the class action. The trial court certified the case as a rule 1.220(b)(3) class action. In a (b)(3) class action, common issues must predominate over individual issues. Fla. R. Civ. P. 1.220(b)(3). Common issues predominate when, considering both the rights and duties of the class members, the proof offered by the class representatives will necessarily prove or disprove the cases of the absent class members.  The class representative’s case must not merely raise a common question, but that proof of the class representative’s case must also answer the question.

FDUTPA declares unlawful unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.  The term “unfair” is
not defined in FDUTPA. Here, the trial judge defined unfair trade practice as one that “offends established policy” and “is immoral, unethical, oppressive, unscrupulous or substantially injurious to customers.” This definition derives from a 1964 Federal Trade Commission policy statement. In 1980, however, the Federal Trade Commission updated its definition of unfair trade practice. The new definition established a three-pronged test for “unfairness,” which requires that the injury to the consumer:
(1) must be substantial;
(2) must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and
(3) must be an injury that consumers themselves could not reasonably have avoided.

The court held that Florida law adopted the definition of unfairness contained in the 1980 Policy Statement. The state legislature provided that violations of FDUTPA include violations of the standards of unfairness and deception set forth and interpreted by the Federal Trade Commission or the federal courts. The Florida Legislature amended FDUTPA in 1983, 2001, 2006, and 2013, for the specific purpose of adding to Florida Law the latest interpretations by the Federal Trade Commission or federal courts that occurred since the last statutory amendment.  In light of this history, the 1980 Policy Statement is clearly one of the “standards of unfairness” interpreted by the Federal Trade Commission and federal courts. 

The trial court erroneously adopted the premise that the distributor’s actions could be found to be an unfair trade practice regardless of whether class members knew and could have avoided the risk of the Headlight thefts. From this premise, it reasoned “an individual class member’s pre-purchase knowledge of the potential risk of theft was not relevant to the Plaintiff’s FDUTPA claim.” Since the premise was wrong, so was the conclusion.  The individual class member’s knowledge of the risk of Headlight theft bears on whether the practice was unfair because it impacts whether the consumer could reasonably avoid the risk. Given the nature of the claim in this case—that the Headlights functioned great as headlights but were too susceptible to theft—an individual class members knowledge of the risk of  theft goes to the heart of his or her claim.


To prove an unfair trade practice, the class must prove that the injury caused by the allegedly unfair trade practice could not have been reasonably avoided by the consumers.  The idea behind the reasonably avoidable inquiry is that free and informed consumer choice is the first and best
regulator of the marketplace: consumers may act to avoid injury before it occurs if they have reason to anticipate the impending harm and the means to avoid it, or they may seek to mitigate the damage afterward if they are aware of potential avenues toward that end.  A jury might well find that a consumer who knew the Headlights were targeted by thieves had avenues available to reasonably avoid the risk. This is particularly true where, as here, the alleged problem of theft was greater in some geographic locations than others. How about consumers park in only safe areas, install alarm systems extending to the mounting module, or, if these options were not acceptable, decline to purchase or lease a Porsche with the Headlights? Given the theory of this case, the knowledge of some class members that the Headlights were prone to theft could not be ignored.

Similarly, the determination of unjust enrichment would turn on individual facts. A court would be hard pressed to conclude that a distributor was unjustly enriched when class members with the sophistication and knowledge of the product continued to seek out the Headlights even when they knew of the thefts.

The court concluded that when the individual knowledge and experience of the consumer is an
important element of the cause of action and its defense, there can be no class-wide proof that injury was not reasonably avoidable.

Class certification reversed and remanded. 

Claim Against Classic Coke Down the Drain

The Coca-Cola Co. has successfully obtained summary judgment in a case alleging that the company unfairly marketed its Coca-Cola Classic soft drink as “original formula” despite allegedly having substituted high-fructose corn syrup for the ordinary table sugar it used when the drink was introduced. Judge Patrick Murphy issued an order last week in the U.S. District Court for the Southern District of Illinois.

Plaintiffs Amanda Kremers and Jason McCann, sued on behalf of themselves and a proposed class of Illinois citizens, alleging that Coca-Cola’s conduct in labeling cans and bottles of “Classic” Coke with the terms “Original Formula” constitutes a deceptive and unfair trade practice. This is because, plaintiffs contended, the “Original Formula” of Coke, which was invented in 1886, called for Coke to be sweetened using sucrose (ordinary table sugar, in essence), whereas “Classic” Coke currently is sweetened using high fructose corn syrup (“HFCS”). They alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), and unjust enrichment.

Proposed class rep Kremers conceded at her deposition that she has known since the 1990's that “Classic” Coke contained HFCS and that “Classic” Coke is marketed as the “Original Formula” of Coke.  Kremers admitted also that she read the words “Original Formula” on a container of “Classic” Coke in the 1990s.  That was sufficient to put her on notice to inquire about her alleged claims, and that she knew or reasonably should have known of her so-called injury. Thus, her claim was barred by the statute of limitations, even with the discovery rule.

Turning to the merits of the case, the state statutory cause of action requires: (1) a deceptive act or practice by the defendant, (2) the defendant’s intent that the plaintiff rely on the deception, (3) the occurrence of the deception in the course of conduct involving trade or commerce, and (4) actual damage to the plaintiff (5) proximately caused by the deception.  To prove that element of proximate causation in a private cause of action brought under the ICFA, a plaintiff must allege that he was, in some manner, actually deceived. 

McCann’s testimony at his deposition was that he wasn't actually deceived.  He never read the key language until after he was approached by counsel for plaintiffs in this case about serving as the representative of the proposed class. Hence, he could not prove proximate causation for purposes of a claim for deceptive trade practices under the ICFA.

To establish a prima facie case of unfair trade practices under the ICFA, a plaintiff must prove that a defendant intentionally engaged in an unfair practice in the course of conduct involving trade or commerce, and that this practice proximately caused harm to the plaintiff. The court found that as a matter of law, the sales here were not unfair trade practices. The trade practices in dispute in this case were not deceptive acts (as above). No public policy of Illinois proscribed the use of HFCS as a sweetening agent in beverages and foodstuffs. The facts concerning plaintiffs' use hardly suggested they had been oppressed by Coca-Cola’s trade practices, or had been afforded the lack of meaningful choice necessary to establish unfairness.

Perhaps most importantly, McCann could not show the necessary substantial harm for an unfair trade practice, given the small amount of the product he purchased, the fact that he continued to purchase "Classic” Coke after the commencement of this suit and despite knowledge that the product contains HFCS, and because the alleged injury was one any consumer of “Classic” Coke quite easily could have avoided, by, for example, simply drinking a different soft drink or other beverage.

Although fraud is not an element of a claim for unjust enrichment under Illinois law, the Seventh Circuit nevertheless has made clear that where the plaintiff’s claim of unjust enrichment is predicated on the same allegations of fraudulent conduct that support an independent claim of fraud, resolution of the fraud claim against the plaintiff is dispositive of the unjust enrichment claim as well.

Class motion dismissed as moot.