Potomac Plaza Terraces, Inc. v. QSC Products, Inc.

Citations: 868 F. Supp. 346; 26 U.C.C. Rep. Serv. 2d (West) 1069; 1994 U.S. Dist. LEXIS 16973; 1994 WL 675770Docket: Civ. A. No. 93-1646 SSH

Court: District Court, District of Columbia; November 28, 1994; Federal District Court

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In the case Potomac Plaza Terraces, Inc. v. QSC Products, Inc., the United States District Court for the District of Columbia adjudicated a motion for summary judgment filed by defendant QSC Products, Inc. regarding claims made by plaintiff Potomac Plaza Terraces, Inc. for breach of implied warranty of merchantability, breach of contract, negligence, and strict liability due to a defective roofing system. The court denied QSC's motion for summary judgment on the implied warranty and breach of contract claims, while granting summary judgment on the negligence claim. Additionally, the court granted in part the summary judgment on the strict liability claim concerning damages for the loss of value or use of QSC's polyurethane coatings, but denied it for damages related to the rest of the roofing system and the building's structure.

Potomac Plaza, a housing cooperative based in Washington, D.C., sought various damages and interest for issues stemming from roofing materials produced by QSC. The dispute arose after a 1989 agreement with Ron-Ike Foam Insulators, Inc. for the installation of two roofing systems, which included QSC's polyurethane coatings. After installation, the roofs reportedly began leaking within three years, with subsequent inspections revealing deterioration and adhesion loss. Despite these issues, QSC's representative concluded that the roofs did not leak. Following dissatisfaction with the roofing systems, Potomac Plaza requested a replacement under warranty, but QSC refused to finance the removal of the existing system.

Defendant offered to provide its 'second generation' QSC-701 Adhered Membrane and technical assistance for free if the plaintiff opted to remove the existing roof at its own cost, but refused to cover any other replacement costs. Following an inspection on April 1, 1993, defendant noted indeterminate water damage to the ninth floor and proposed to respray Roof 1 with its 510 coating to repair any deteriorated areas. This offer was made three times, but the plaintiff rejected it, believing a second coating would not prevent further leaks and subsequently hired another contractor for the roof replacement. Plaintiff filed suit on July 9, 1993.

The document outlines the standard for granting summary judgment under Fed. R.Civ. P. 56(c), stating it is appropriate when no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law, particularly when facts are viewed favorably to the nonmoving party. Defendant argues that there are no genuine issues of material fact on all four counts of the complaint.

Regarding the breach of implied warranty of merchantability, the District of Columbia law implies such a warranty in sales contracts unless explicitly excluded. The defendant's written warranties contain a conspicuous exclusion clause stating it replaces all other warranties, including the warranty of merchantability. The plaintiff contends this exclusion is inapplicable because the products are 'consumer goods.' However, the court clarifies that 'consumer goods' pertain to items for personal, family, or household use, and since roofing materials do not fit this definition, the exclusion remains valid.

Summary judgment for the defendant regarding the implied warranty of merchantability is not warranted despite the validity of the exclusion clause. Under D.C. law, parties have an obligation of good faith in contract performance, which can invalidate a disclaimer of warranty if proven to violate this obligation. Allegations of bad faith, particularly concerning the warranty disclaimer, raise genuine questions of material fact that must be resolved by a trier of fact. The plaintiff argues that the defendant failed to conduct adequate testing and proper training, potentially indicating a lack of good faith in issuing the warranty. 

Regarding the breach of contract claim, the District of Columbia permits parties to limit contractual remedies, provided the remedy is exclusive and does not fail its essential purpose. The contract in question specifies an exclusive remedy for the plaintiff. However, the plaintiff contends that this exclusive remedy may not fulfill its essential purpose, a determination that remains unresolved and presents a genuine issue of material fact. Courts typically assess whether a violating party has complied with the limited remedy to judge its essential purpose, suggesting that this too is a question of fact that requires further examination.

Plaintiff claims that the defendant's proposal to power wash the foam roofing system and apply an additional layer of coating would not repair leaks and could worsen existing damage. The defendant argues that the foam will be dry during application, thus meeting warranty obligations. Both parties have provided expert affidavits, leading the Court to determine a genuine issue of material fact regarding whether the repairs would fulfill the exclusive remedy's essential purpose, resulting in the denial of summary judgment for the plaintiff's breach of contract claim related to the coating.

Regarding consequential damages, if the exclusive remedy fails, the defendant could still obtain summary judgment if the contract effectively disclaims such liability. The Court finds the exclusion clause valid but notes a factual question on whether the defendant acted in good faith. The contract limits liability for damages, regardless of their nature, and the plaintiff has not argued that this clause is unconscionable. 

The assessment of unconscionability is a legal matter for the court, while good faith obligations apply to contract performance. If a seller acts in bad faith, they may lose the benefit of a valid damage limitation. The plaintiff alleges that the defendant acted in bad faith regarding repair proposals. The defendant requested access to the roof for repairs, asserting it would meet the exclusive remedy, but the plaintiff's experts indicated the roofs were compromised, and the defendant's specifications warn against applying the coating to wet surfaces. Additionally, the defendant has not tested the adhesion of a second coating layer, raising further concerns about good faith.

Defendant's expert witnesses argue that a second application of 510 coating could have resolved any leaks. However, plaintiff has provided enough evidence to raise a genuine issue of material fact regarding the defendant's good faith in adhering to the damages restriction clause, leading to a denial of summary judgment concerning plaintiff's claim for consequential damages related to the roofing system and the PPT building structure. 

Plaintiff has filed claims for negligence and strict liability regarding damages to the roofing systems and the PPT building structure. Defendant argues that the 'economic loss' doctrine bars recovery for the loss of value or use of polyurethane coatings and that liability disclaimers in the contract prevent claims for damages to the roofing system and building structure. The 'economic loss' doctrine generally prohibits tort plaintiffs from claiming damages for the product itself, repair costs, or lost profits. Although the District of Columbia has not definitively ruled on this, most jurisdictions reject such claims, including Maryland, which does not allow recovery for economic loss under negligence or strict liability theories. Consequently, the court grants in part defendant's motion for summary judgment on these claims related to the polyurethane coatings.

Regarding damages for the remaining roofing systems and the PPT building structure, plaintiff alleges negligence in the design, testing, and installation training related to the polyurethane coatings. In D.C., disclaimers that limit a manufacturer's liability for negligence are enforceable but are subject to strict interpretation requiring clear intent. Although the defendant's disclaimer does not explicitly mention negligence, it closely resembles language deemed acceptable in prior rulings, suggesting an intent to include such disclaimers.

Owner is obligated to indemnify the Manufacturer and Applicator for any losses or damages arising from leaks or failures, which includes negligence. The Court finds this liability disclaimer binding and grants the defendant's summary judgment motion regarding the plaintiff's negligence claim related to the roofing system and the PPT building structure. Conversely, the plaintiff's strict liability claim, which seeks similar damages, is not subject to enforceable disclaimers, leading the Court to deny the defendant's summary judgment motion on this claim due to genuine material fact issues. 

The Court grants in part and denies in part the defendant's summary judgment motion. It concurs that the economic loss theory and the liability disclaimer negate the plaintiff's negligence claims, thus granting summary judgment on that count. The Court also allows the summary judgment motion concerning the strict liability claim for the loss of value or use of polyurethane coatings but denies it for damages related to the roofing systems and the PPT building structure. Additional notes highlight that Ron-Ike is in default for failing to respond to the complaint, and the warranties issued by the defendant exclude the implied warranty of merchantability. The Court clarifies that the implied warranty of fitness for a particular purpose claim is not applicable to QSC since only Ron-Ike is named in that context. Furthermore, roofing materials may not be classified as consumer goods when integrated into a dwelling, a point supported by various authorities.

Defendant's company policy mandates that the coating application must be continuous without interruption. The defendant's data sheet outlines the minimum qualifications for applicators, requiring that they be approved by the coating materials manufacturer. However, the defendant's investigation into Ron-Ike focused solely on its financial stability. In legal context, although Maryland law is not binding in the District of Columbia, it is often considered persuasive. Consequently, in the absence of specific District law, Maryland law is referenced, particularly because the District’s common law derives from Maryland. Furthermore, even if unconscionability is alleged by the plaintiff, the court would likely rule that the damages restriction clause is not unconscionable. To establish unconscionability, two criteria must be met: a lack of meaningful choice for one party and unreasonably favorable terms for the other. In this case, the damages clause, accepted by parties of relatively equal bargaining power, does not meet these criteria, as restrictions on consequential damages in commercial transactions are not inherently unconscionable. Lastly, the consumer's legal claim does not hinge on the validity of the contract with the seller and remains unaffected by disclaimers or agreements tied to the product.