Luckey v. Alside, Inc.

Citations: 245 F. Supp. 3d 1080; 92 U.C.C. Rep. Serv. 2d (West) 323; 2017 WL 1183974; 2017 U.S. Dist. LEXIS 47750Docket: Civil No. 15-2512 (JRT/HB)

Court: District Court, D. Minnesota; March 29, 2017; Federal District Court

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Plaintiffs Cheryl Luckey, Christine Cole, Elizabeth Welna, Eric Toop, and Robert Squatrito, homeowners with Alside-manufactured windows, assert multiple claims against Defendants Associated Materials, LLC and Associated Materials, Inc. These claims include negligence, strict liability, breach of implied warranties, fraud, negligent misrepresentation, consumer fraud under state laws, unjust enrichment, and a violation of the Magnuson-Moss Warranty Act. Alside seeks judgment on the pleadings, arguing the complaint does not adequately state a claim. The Court agrees to grant Alside's motion for all claims except for breach of implied warranty of merchantability and breach of implied warranty based on course of dealing/usage of trade. The Court finds that the negligence and strict liability claims are barred by the economic loss doctrine, while the Plaintiffs did not sufficiently plead the elements for breach of implied warranty of fitness for a particular purpose, common law fraud, and unjust enrichment. Additionally, the statutory consumer fraud claims lack the required specificity. The claim under the MMWA has been abandoned. The remaining implied warranty claims may proceed, as Plaintiffs have presented facts that could suggest Alside’s limited warranties are inadequate. The background details reveal that Alside specializes in insulated glass units (IGUs), which are found to be failing in the Plaintiffs' homes, leading to condensation and corrosion earlier than expected compared to other manufacturers' products.

Plaintiffs allege widespread failure of Alside's insulated glass units (IGUs) due to design and manufacturing defects, claiming insufficient testing, quality control, and research and development by Alside, which resulted in lower durability and reliability than industry standards. They assert that Alside was aware, or should have been aware, of these defects due to a high volume of warranty claims, yet failed to inform customers or recall the defective IGUs, which continue to be produced and sold. The plaintiffs report owning Alside windows that have suffered from condensation and corrosion between the panes, affecting at least 40 of 88 townhomes in the Symphony development. Damages claimed include property damage, inconvenience, loss of use, and inadequate warranty service. Each plaintiff has filed warranty claims, with Alside providing free replacements except for one plaintiff, who faced partial costs after ten years. The lawsuit was initiated on May 20, 2015, with subject matter jurisdiction established under 28 U.S.C. 1332(d)(2) due to the amount in controversy exceeding $5 million and the presence of class members from different states. Plaintiffs assert claims related to product liability, fraud, and breach of warranty across three proposed classes. Alside's motion to dismiss or transfer venue was denied, and the company subsequently filed an answer and a motion for judgment on the pleadings. The court will review the latter under the same standards as a motion to dismiss, accepting the plaintiffs' factual allegations as true and construing them in their favor.

A complaint must contain enough factual allegations to establish a plausible claim for relief, as established by *Bell Atl. Corp. v. Twombly* and *Ashcroft v. Iqbal*. Merely reciting elements of a cause of action without sufficient factual support is inadequate. The court can consider materials integral to the pleadings. In this case, the plaintiffs did not respond to Alside's arguments for dismissing their claims regarding negligent product design, manufacturing defects, and negligent misrepresentation, which alone justifies dismissal. Even if not abandoned, the claims would fail under the economic loss doctrine, as per Minnesota law, which precludes tort claims for product defects unless there is harm to property other than the product itself. Similarly, common law misrepresentation claims are restricted unless misrepresentations were made intentionally or recklessly. New Hampshire law also disallows tort claims for purely economic losses and negligent misrepresentation in most circumstances. The plaintiffs only alleged economic damages related to the defective windows, which does not meet the threshold for claims under the economic loss doctrine, leading to the dismissal of their claims for negligent product design and strict liability. Additionally, the warranty claims allege breaches of implied warranties due to defects in the windows, resulting in damages, inconvenience, and costs for replacement.

Plaintiffs claim entitlement to reasonable damages for implied warranty claims, while Alside argues that the limited warranties for Plaintiffs’ insulated glass units (IGUs) restrict remedies to repair or replacement and validly exclude consequential and incidental damages. Under the Uniform Commercial Code (UCC), the sale of goods entails an implied warranty of merchantability, which requires goods to meet minimum standards suitable for ordinary use. This warranty can be modified as per state statutes (Minn. Stat. 336.2-316; N.H. Rev. Stat. 382-A:2-316), allowing parties to limit breach of warranty remedies, but if an exclusive remedy fails, buyers can pursue other UCC remedies, including damages reflecting the difference in value of the goods. Alside maintains that even if the repair-or-replace remedy is invalid, the exclusion of consequential and incidental damages remains enforceable, citing Minnesota case law that treats these provisions as independent. However, the cited cases involved merchants with equal bargaining power and do not apply to consumer transactions, which are governed by principles from earlier Minnesota cases (Jacobs v. Rosemount Dodge-Winnebago South and Durfee v. Rod Baxter Imports). In Jacobs, the court determined that despite a warranty limiting remedies, buyers were entitled to all UCC remedies, including consequential damages, due to the inadequate protection of their contractual rights.

Under Minnesota law, a limited remedy in a consumer transaction governed by the UCC becomes unenforceable if it fails its essential purpose, which also invalidates any separate clause excluding consequential or incidental damages, irrespective of unconscionability. The Court notes that the only New Hampshire case cited by Alside, which supports the enforceability of a consequential damages exclusion, involves a merchant transaction and lacks sufficient legal argumentation for its application to consumer transactions. Thus, the Court treats New Hampshire law as akin to Minnesota law on this issue, allowing for further arguments at later stages of litigation.

The Court further examines whether Alside’s limited warranties fail their essential purpose, identifying three scenarios that could lead to such a failure: the seller being unwilling or unable to repair or replace the defective item, or the costs of foreseeable incidental or consequential damages significantly exceeding the value of the limited remedy. While Alside has shown a willingness to repair or replace the defective insulated glass units (IGUs), the Plaintiffs have not established that the incidental or consequential damages outweigh the limited remedy's value. However, they have raised a plausible issue regarding Alside's ability to repair or replace the IGUs due to a design defect.

Regarding statutes of limitations and repose, Cole purchased Alside replacement windows in January 2002, with the first IGU failure reported in 2004. She filed several warranty claims from 2004 to 2012, with the last claim being withdrawn. The Plaintiffs filed their lawsuit in May 2015, but Alside argues that Cole's claims are untimely under New Hampshire law, which mandates that actions for property damage or economic loss arising from improvements to real property must be initiated within eight years from substantial completion of the improvement.

The statute of repose applicable to warranty claims may be extended beyond the standard eight years if a written warranty for an improvement to real property exceeds that duration. In this case, Alside’s warranties extend for at least twenty years, meaning New Hampshire's statute of repose does not bar Cole’s claims. Under the UCC in New Hampshire, actions for breach of contract must be initiated within four years after the cause accrues, which occurs upon breach, regardless of the aggrieved party's awareness. A breach of warranty is typically recognized at the time of delivery unless it pertains to future performance, in which case the cause accrues upon discovery of the breach. Cole's warranty explicitly covers future performance, and although some early failures may be barred by the statute of limitations, Cole alleges certain failures occurred within the four-year period before the lawsuit was filed. Consequently, the court will not dismiss Cole's implied warranty claims based on the four-year limitations. Further arguments will be allowed regarding which damages are barred by the statute of limitations.

In relation to fraud claims, Plaintiffs argue that Alside engaged in fraud, misrepresentation, and concealment. To succeed in Minnesota, a plaintiff must demonstrate several elements, including a false representation of material fact, knowledge of its falsity, intent to induce reliance, actual reliance by the other party, and resulting damages. New Hampshire requires proof of a representation made with knowledge of its falsity or with conscious indifference, alongside justifiable reliance. Reliance necessitates that the plaintiff believed the misrepresentation to be true and it must not have been known or obvious to be false. Fraud claims must be pleaded with particularity under Federal Rule of Civil Procedure 9(b), requiring detailed allegations of the fraudulent conduct. Plaintiffs accuse Alside of intentionally misrepresenting critical information regarding the IGUs' design and durability, which they claim led to significant issues such as premature seal failures.

Plaintiffs claim that the purchasers of Insulated Glass Units (IGUs) were harmed due to reliance on alleged misrepresentations and omissions made by Alside. They reference the Restatement (Second) of Torts and relevant case law to argue that direct communication of misrepresentations to a plaintiff is not necessary for a fraud claim; rather, reliance can occur through third-party communication. However, Plaintiffs have not sufficiently alleged that any misrepresentations by Alside were communicated to them, nor that they relied on such misrepresentations during their purchasing decisions. Specifically, the Minnesota Plaintiffs did not know Alside windows were in their homes at the time of purchase and did not allege reliance on any misrepresentations. Additionally, Cole, who purchased through a third-party seller, does not claim she received any misrepresentations prior to her purchase. Consequently, Plaintiffs have not adequately pleaded the reliance element essential to common law fraud claims.

In Claims 10-13, Plaintiffs assert statutory consumer fraud claims under Minnesota and New Hampshire laws. They allege that Alside knowingly misrepresented the quality and characteristics of IGUs, caused confusion regarding the source and certification of its goods, and misrepresented connections with other entities. Plaintiffs cite specific quotes from Alside’s sales literature, claiming this information was disseminated widely, resulting in damage to all foreseeable purchasers and end-users. The statutes allow for broader claims than common law fraud, permitting actions by any injured party (MUPTA and NHCPA) or those likely to be injured (MDTPA), though claims must still meet particularity standards under Rule 9(b).

Statutory claims differ from common law fraudulent misrepresentation as they do not necessitate proof of the plaintiff's detrimental reliance on fraudulent statements. The Minnesota Supreme Court's decision in Group Health Plan established that plaintiffs must demonstrate a causal link between the defendant's conduct and their damages, but personal reliance is not the sole means of establishing this connection. The Court rejects Alside's argument that plaintiffs must have directly perceived and relied on alleged misrepresentations to bring a claim under specific statutes. At the pleading stage, plaintiffs only need to assert that the defendant engaged in prohibited conduct and that they suffered damages as a result.

The Court first addresses the MDTPA claim, finding the complaint insufficiently alleges support for this claim, resulting in its dismissal. Under the MDTPA, injunctive relief is the only remedy, not monetary damages, and the plaintiffs did not request injunctive relief in their complaint. Moreover, the plaintiffs failed to demonstrate they are likely to suffer future damages from Alside’s deceptive practices, as required by the statute.

For the MUTPA and NHCPA claims, the Court evaluates whether the complaint provides sufficient detail regarding Alside's statutory violations. The complaint identifies several statements from Alside’s promotional materials, some of which may be subjective and non-actionable, but at least some are actionable factual statements. Despite Alside’s contention that plaintiffs did not sufficiently allege misrepresentation, the Court finds that the complaint, when viewed favorably towards the plaintiffs, does allege that the promotional statements are misrepresentations. Specific allegations indicate that Alside's products are defective and do not meet industry standards, contradicting the company’s claims of superior quality and minimal maintenance.

The complaint against Alside does not explicitly allege that each sales statement is fraudulent, though it contains a section titled "Alside’s Sales and Promotional Misrepresentations." Alside seeks dismissal based on the argument that the complaint lacks the specificity required by Rule 9(b), which aims to allow defendants to prepare a defense against fraud allegations. 

Key deficiencies in the complaint include:

1. **Where**: While the complaint mentions that misrepresentations occurred online, in person, and through mail across the continental U.S., it fails to specify the locations where mailings or in-person communications took place.

2. **When**: The complaint indicates that misrepresentations occurred over many years but does not provide specific dates or timeframes for these actions.

3. **Who**: The allegation of misrepresentations made to “purchasers” lacks detail regarding the identities of these purchasers, particularly the contractors and sellers involved. Furthermore, there are no specifics about which Alside personnel engaged in the alleged misconduct.

4. **Causal Nexus**: The complaint does not establish a causal connection between the alleged misrepresentations and the damages claimed by the Plaintiffs. It merely asserts that "purchasers" relied on Alside's statements without providing supporting facts on who relied on them or how that reliance resulted in damages.

Due to these deficiencies in pleading with particularity, the Court will dismiss the Plaintiffs’ claims under the relevant statutes.

Iqbal establishes that a mere "formulaic recitation" of a cause of action is insufficient for a pleading. In Claim 14, Plaintiffs allege that Alside was unjustly enriched through profits from selling defective windows and related warranty services, arguing it would be unjust for Alside to retain these benefits. Under New Hampshire law, restitution for unjust enrichment requires that the defendant received a benefit that would be unconscionable to retain. Unjust enrichment can arise from wrongful acts or passive acceptance of benefits. Recovery focuses on the value received by the defendant, not the plaintiff's costs. In Minnesota, a claim requires proof that the defendant knowingly received a benefit that they should compensate for in equity and good conscience. It is emphasized that unjust enrichment claims must demonstrate that the enrichment was illegal or unlawful. The complaint, however, lacks sufficient allegations linking Alside's benefits directly to the Plaintiffs. It notes that Alside sells windows through third parties and that the Plaintiffs acquired their windows from these parties, not directly from Alside. Therefore, the reasonable inference is that Alside's profits were realized from third-party sales, not from the Plaintiffs' transactions. The Plaintiffs have not adequately shown how their payments benefited Alside, as the facts suggest that any money paid for the windows did not flow to Alside as a result of the Plaintiffs' purchases.

Plaintiffs' claim fails not due to the indirect nature of the transactions but because there is no allegation of any indirect benefit conferred on Alside by the Plaintiffs. The claim that Alside benefited from warranty labor and service charges lacks factual support, as the Plaintiffs stated they either performed installations themselves or hired contractors, without any evidence of payment to Alside for labor or service charges. The Court indicates that if Plaintiffs conferred any benefit on Alside, the complaint must be amended with supporting facts. Consequently, thirteen of Plaintiffs’ claims are dismissed for deficient pleading, although the allegations are deemed sufficient for claims of breach of the implied warranty of merchantability and based on course of dealing/usage of trade. Plaintiffs may seek leave to amend their pleadings for any dismissed claims. The Court's order grants Alside's motion for judgment on the pleadings in part, dismissing all claims against Alside, Inc. with prejudice. Claims against Associated Materials, LLC and Associated Materials, Inc. are dismissed with prejudice for several specified claims, while others are dismissed without prejudice. Alside's motion to dismiss "Alside, Inc." is granted as it is not an existing corporate entity, with no opposition from Plaintiffs.

The Court accepts the Plaintiffs' allegations as true at the motion-to-dismiss stage, referencing Ashcroft v. Iqbal. Due to a numbering error in the complaint, the Court will cite CM/ECF page numbers instead. Plaintiffs assert various defects in the Insulated Glass Units (IGUs), such as lack of edge deletion on low-emissivity films, inadequate desiccant, edge seal defects, absence of a secondary seal, high frost points, and poor glass preparation resulting in visible marks. 

Luckey filed a warranty claim in October 2014, leading to a replacement window in November 2014; however, Alside did not cover the associated removal or installation costs. Luckey later withdrew a second claim in February 2015. Similarly, other plaintiffs, Squatrito, Toop, and Welna, filed claims in early 2015, receiving replacements without installation compensation. Cole submitted multiple warranty claims from 2004 to 2010, receiving replacements each time. In March 2012, Alside agreed to replace additional IGUs for Cole if she paid half of the costs, as the windows were over ten years old. Cole reported a total of seventeen failed IGUs since 2004. 

The Plaintiffs' claims include four product liability claims (negligent design and manufacture, strict liability for design and manufacture), seven fraud and misrepresentation claims (including negligent misrepresentation, unlawful trade practices, and unjust enrichment), and four warranty-related claims (breach of implied warranties and violation of the M&IWA). Wendy Mackey's claims were dismissed by stipulation. The parties agree that Minnesota law governs the claims of the Minnesota Plaintiffs, while New Hampshire law applies to Cole's claims.

Plaintiffs’ strict liability claims are dismissed due to a lack of allegations demonstrating that the Insulated Glass Units (IGUs) were unreasonably dangerous. Additionally, the Plaintiffs did not provide a substantive response to Alside’s motion to dismiss their claims for breach of implied warranty of fitness for a particular purpose and violation of the Magnuson-Moss Warranty Act (MMWA), leading the Court to conclude that these claims are waived. The Plaintiffs failed to allege sufficient facts to support the claim for breach of implied warranty of fitness under New Hampshire law. The warranties associated with the IGUs limit remedies to repair or replacement and exclude responsibility for shipping, delivery costs, or labor related to these processes. Coverage for repair or replacement costs varies by warranty type, original ownership, and window age. Furthermore, the warranties disclaim any liability for consequential or incidental damages. Although the limited warranties attempt to exclude all express or implied warranties, they do not effectively disclaim implied warranties as they do not mention "merchantability" and fail to meet statutory criteria for such disclaimers under both Minnesota and New Hampshire law. The Uniform Commercial Code (UCC) provisions regarding incidental and consequential damages further clarify the limitations and exclusions related to damages arising from breach of warranty.

A limited remedy for defective goods, such as a repair-or-replace clause, does not fail its essential purpose under Minnesota law if the seller consistently repairs the item after defects arise. However, if repairs are unsuccessful, as exemplified in **Durfee**, where a car could not be made operational despite multiple repair attempts, the limited remedy may be deemed inadequate. Cases in which a limited remedy fails often involve significant consequential or incidental damages that exceed the value of the repaired or replaced product, potentially undermining the buyer's bargain. While some decisions suggest that the latent nature of a defect can affect the remedy's adequacy, prevailing views indicate that the critical factor is whether the defective product was integrated into a more expensive system, raising repair costs beyond the product's purchase price. The court notes that if plaintiffs can substantiate their claims, it may find that the limited remedies offered by Alside are insufficient, thus avoiding the need to evaluate the unconscionability of excluding consequential and incidental damages. Additionally, Minnesota's Unlawful Trade Practices Act prohibits knowingly misrepresenting the quality or origin of merchandise, allowing affected individuals to seek actual damages, while the Deceptive Trade Practices Act encompasses a range of deceptive behaviors relevant to the plaintiffs' allegations.

A person harmed by a deceptive trade practice can pursue injunctive relief under New Hampshire's Consumer Protection Act (NHCPA), which also allows the prevailing party to recover costs and attorney fees. The NHCPA defines "unfair or deceptive acts" broadly, encompassing the conduct alleged in Claim 12. Section 358-A:10 permits private actions for actual damages or $1,000, whichever is greater, with the possibility of treble damages for willful violations. While the First Circuit has partially preempted one provision of the NHCPA by federal law, this does not impact the current claims. The complaint also references the Ohio Consumer Sales Practices Act, but the Ohio consumer fraud claim has been waived due to lack of briefing. In federal court, the heightened pleading standard of Rule 9(b) applies to both common law and statutory fraud claims where fraud is central to the complaint. The court assumes that the NHCPA's claim elements are sufficiently analogous to those of the Minnesota Uniform Trade Practices Act (MUTPA). Unjust enrichment claims do not require privity, and a quasi-contract can exist without a promise between parties. The court finds Alside’s argument that a plaintiff must directly confer a benefit on a defendant to claim unjust enrichment unconvincing, noting ambiguity in Minnesota law on this issue. Despite deficiencies in the plaintiffs' pleadings, the court will dismiss the state-law consumer fraud and unjust enrichment claims without prejudice, allowing for possible future amendments.