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Cheapskate Charlie's LLC v. Louisiana-Pacific Corp.

United States District Court, N.D. California

December 9, 2014

CHEAPSKATE CHARLIE'S LLC, et al., Plaintiffs,
v.
LOUISIANA-PACIFIC CORPORATION, Defendant

For Cheapskate Charlie's LLC, Cabinets To Go, Inc., Boston Cedar, Inc., Plaintiffs: Angela Sun Rho, LEAD ATTORNEY, Murphy, Pearson, Bradley & Feeney, San Francisco, CA; Barry A. Steinway, LEAD ATTORNEY, Steinway Law Offices, P.C., Farmington Hills, MI.

For Louisiana-Pacific Corporation, Defendant, 3rd Party Plaintiff, Counter-defendant, 3rd Party Defendant: Amy Kuo Alexander, Thomas Arthur Packer, Gordon & Rees, San Francisco, CA; James E Weatherholtz, Womble Carlyle Sandridge Rice, LLP, Charleston, SC; Rebecca R Monroe, Gordon & Rees LLP, San Francisco, CA; Elisabeth M. Von Eitzen, Warner Norcross and Judd LLP (Grand Rapids), Grand Rapids, MI.

For Meadow River Lumber Company, Calvin D. Garland, doing business as Meadow River Lumber Company, 3rd Party Defendants: Lindsay M Haigh, LEAD ATTORNEY, Duluth, GA.

For Meadow River Lumber Company, Calvin D. Garland, Counter-claimants: Lindsay M Haigh, LEAD ATTORNEY, Duluth, GA.

ORDER REGARDING MOTIONS TO DISMISS Re: Dkt. Nos. 68, 73

JOSEPH C. SPERO, United States Magistrate Judge.

I. INTRODUCTION

This case relates to a sale of decking materials produced by Defendant Louisiana-Pacific Corporation (" LP"). Plaintiff Boston Cedar, Inc. alleges that LP falsely represented that the decking materials were suitable for resale and not subject to a recall, and that Boston Cedar purchased the materials from Cal Garland and/or Meadow River Lumber Company (collectively, the " Garland Parties") in reliance on LP's misrepresentation. LP filed a third-party complaint against the Garland Parties, who now move to dismiss. The Garland Parties also filed a counterclaim against LP, which LP moves to dismiss. The Court finds the parties' motions suitable for resolution without oral argument, and vacates the hearing scheduled for December 12, 2014. See Civ. L.R. 7-1(b). The case management conference will occur as scheduled at 9:30 a.m. on December 12, 2014. As discussed below, the Garland Parties' Motion is GRANTED in part and DENIED in part, and LP's Motion is GRANTED. Both parties may file amended pleadings no later than January 16, 2015.[1]

II. BACKGROUND

A. Procedural History and Present Motions

This case was originally filed in the Circuit Court for the County of Wayne, Michigan on August 27, 2013, with Boston Cedar, Cabinets to Go, Inc., Cheapskate Charlie's, LLC, and the Garland Parties named as plaintiffs. See generally Original Compl. (dkt. 1-1). LP removed the case to United States District Court for the Eastern District of Michigan. Notice of Removal (dkt. 1). The case was assigned to the Honorable Avern Cohn, who transferred the case to the Northern District of California on December 11, 2013. Dkt. 11. The case was then related to Postier, et al. v. Louisiana-Pacific Corp., No. 09-cv-03290-JCS. Dkt. 30. With leave of the Court, the plaintiffs filed their First Amended Complaint (" FAC, " dkt. 32), which no longer included the Garland Parties as plaintiffs.[2] LP moved to dismiss, and the Court granted LP's motion in part, leaving only Boston Cedar's claim for fraud. See generally dkt. 41. The Court granted all plaintiffs leave to amend, but no amended complaint was filed.

LP filed an answer to the FAC that included a third-party claim against the Garland Parties. Dkt. 50. The Garland Parties moved to dismiss, see dkt. 58, and LP filed an Answer and Amended Third-Party Complaint (the " LP Answer, " dkt. 63) on September 12, 2014. LP brings claims for indemnity, contribution, and specific performance of contractual obligations. LP Answer ¶ ¶ 45-110.

The Garland Parties filed a " Special Answer" (the " Garland Answer, " dkt. 66) to the third-party claims on October 1, 2014, and included a counterclaim for fraud against LP. Later the same day, the Garland Parties filed a motion to dismiss LP's third-party claims. Garland Mot. (dkts. 67, 68). LP opposed the Garland Parties' Motion, see dkt. 72, but the Garland Parties did not file a reply. LP also filed a motion to dismiss the Garland Parties' counterclaim. LP Mot. (dkt. 73). That Motion has been fully briefed. Although the Garland Parties filed their Opposition (dkt. 74) late, LP concedes that any prejudice resulting from the late filing has been cured. See LP Reply (dkt. 77) at 2 n.1.

B. Allegations of Boston Cedar's First Amended Complaint[3]

Certain decking materials manufactured by LP were subject to a product advisory in 2008, a recall in 2009, and a class action settlement in 2010. FAC ¶ ¶ 13-15. Boston Cedar alleges that in September of 2011, the Garland Parties " contacted Boston Cedar with an offer to sell certain decking materials manufactured by LP and suitable for resale to retailers and consumers" (hereafter, " the subject decking"), which was in LP's possession at the time. Id. ¶ ¶ 16, 22.

Boston Cedar contacted LP to confirm that the subject decking was suitable for resale to retailers and consumers, and spoke to a production supervisor for LP, Stanley Oliver. Id. ¶ ¶ 17, 19. Oliver stated that the decking was suitable for resale and not subject to the 2009 recall. Id. ¶ ¶ 23-24. Boston Cedar then purchased the subject decking from the Garland Parties for $329, 932.90. See id. ¶ 28.[4] According to Boston Cedar, LP repackaged the subject decking before delivery and attempted to remove all prior labels and branding, making it difficult to determine whether the decking was subject to the recall. Id. ¶ ¶ 25-27.

Boston Cedar sold the subject decking to Cabinets To Go, Inc., which then sold it to Cheapskate Charlie's, LLC. Id. ¶ ¶ 29-30. On September 19, 2012, an LP representative inspected the decking in Cheapskate Charlie's possession and determined that it was subject to the recall and the class action settlement, and thus not suitable for resale to retailers or consumers. Id. ¶ ¶ 32-33. LP offered to pay $63, 385.80 to buy back the subject decking. Id. ¶ 34. The subject decking remains in Cheapskate Charlie's possession and continues to accrue storage fees. Id. ¶ 31.

C. Allegations of LP's Third-Party Complaint

LP alleges that it transferred or sold recalled building products to the Garland Parties on multiple occasions, and that on each occasion the Garland Parties " knew or should have known that the products . . . had been recalled, " " knew or should have known that the products . . . had to be destroyed, " and " promised not distribute the products on the market and [instead] to dispose of them." LP Answer ¶ ¶ 46-49.

In January of 2009, LP sold the Garland Parties recalled building materials from LP's Selma, Alabama facility for $8, 718.06. Id. ¶ ¶ 51, 54. As part of that sale, the Garland Parties " agreed to grind, burn, or send to the landfill the products . . . in accordance with all applicable laws." Id. ¶ 56. In another transaction in November of 2009, LP transferred approximately two million pounds of recalled decking to the Garland Parties as part of an agreement under which the Garland Parties would transport the decking for disposal by regrinding. Id. ¶ ¶ 57-62 & Ex. B. The letter agreement memorializing that agreement indicates that the decking at issue was located at LP's Selma facility. Id. ¶ 61 & Ex. B. The Garland Parties later reported that they had destroyed the November 2009 decking in accordance with the agreement. Id. ¶ 65.

A third transaction took place in August of 2011, when the Garland Parties purchased an " additional quality of decking product from LP's Selma, Alabama plant" for $35, 000. Id. ¶ ¶ 66-68. As with the previous sales, LP alleges that the Garland Parties " knew or should have known that the decking they bought in the August 2011 sale was recalled decking and could not be sold or distributed for retail or consumer purposes, " and that the Garland Parties " promised and agreed not to resell or distribute the product as decking and to properly dispose of the product, as they had allegedly done previously." Id. ¶ ¶ 70, 72.

According to LP, " the decking [the Garland Parties] sold Boston Cedar may have consisted of a combination of products [the Garland Parties] bought in the January 2009 Sale, the November 2009 Sale, and/or the August 2011 Sale." Id. ¶ 84. LP therefore alleges that the Garland Parties breached one or more of their agreements with LP by failing to destroy these products and instead selling them for retail or consumer use. Id. ¶ ¶ 85-86. LP also claims that the Garland Parties breached certifications that they had made the Consumer Product Safety Commission, defrauded Boston Cedar, and " violated state a federal laws relating the sale of recalled products." Id. ¶ ¶ 86-88.

D. Allegations of the Garland Parties' Counterclaim

The Garland Parties dispute LP's characterization of the transactions at issue. With respect to the January 2009 transaction, the Garland Parties " deny that they ever were presented or paid for any of the recalled decking that was subject to disposal." Garland Answer ¶ ¶ 50-56. As for the November 2009 transaction, the Garland Parties dispute that a " sale" occurred, because " there was no barter or exchange of any payment." Id. ¶ 58. They admit that they " took possession of and transported certain materials subject to recall and to be disposed of." Id.; see also id. ¶ 112. The Garland Parties state they complied with their obligation to ensure that the November 2009 material was reground. Id. ¶ ¶ 115-16.

According to the Garland Parties, " decking material manufactured in the Selma, AL manufacturing plant of LP was not subject to the recall, " and the material that the Garland Parties purchased in August of 2011 was manufactured at that plant. Id. ¶ ¶ 117, 119-20. They also state that " LP confirmed to the Garland Parties that the Subject Material was not subject to recall and was suitable for resale." Id. ¶ 130. This representation allegedly occurred " at the time of the transaction." Id. ¶ 133.

The Garland Parties " relied on the representations of LP in selling the Subject Material to Boston Cedar." Id. ¶ 135. The subject decking was sold " F.O.B. Selma, AL, " and the transportation was coordinated by LP and Boston Cedar. Id. ¶ ¶ 126, 129. The Garland Parties did not ...


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