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Wilson v. Metals, USA, Inc.

United States District Court, E.D. California

July 12, 2017

JAMES WILSON, an individual, and JACK WHITE, an individual, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
METALS, USA, INC., a Delaware Corporation, and DOES 1-100, inclusive, Defendant.

          ORDER

         A class of homeowners sues a roofing tile manufacturer for allegedly defective tiles. Defendant Metals USA, Inc. (“Metals”), the alleged successor to the company that manufactured the tiles, brings this motion for summary judgment or, in the alternative, partial summary judgment. Mot., ECF No. 102. The representatives of the class, plaintiffs James Wilson and Jack White, oppose the motion. Opp'n, ECF No. 105. Metals replied. Reply, ECF No. 106. The court held a hearing on November 18, 2016, at which Richard Lambert appeared for plaintiffs and Bartholomew Dalton, Adrian Sawyer and Frank Busch appeared for Metals. Hr'g Mins., ECF No. 108. As explained below, the court DENIES the motion.

         I. BACKGROUND

         A. Procedural Background

         Plaintiffs filed the original complaint on March 5, 2012 against 604471 Ontario, Inc., a Canadian corporation formerly known as Dura-Loc Roofing Systems Limited (“Dura-Loc”), and Allan Reid, a principal of Dura-Loc. Compl. at 1-2, ECF No.1. After Dura-Loc filed for bankruptcy in Canada in April 2012, plaintiffs filed a first amended complaint on May 5, 2012, against Metals, the alleged successor of Dura-Loc, and Reid. First Am. Compl. (“FAC”) at 9 n.2, ECF No. 11. Metals moved to dismiss for failure to state a claim on July 9, 2012, and Reid moved to dismiss for lack of personal jurisdiction on August 18, 2012. ECF Nos. 15, 22. The court granted Metals's motion, ECF No. 31, and sua sponte dismissed the complaint for failure to join 604471 Ontario, Inc. as a necessary party, ECF No. 34. Plaintiffs filed a second amended complaint on May 8, 2013, against Metals only. Second Am. Compl. (“SAC”), ECF No. 49. The court denied Metals's motion to dismiss this complaint. ECF Nos. 50, 57.

         Plaintiffs filed the operative third amended complaint on June 29, 2015, asserting four claims against Metals: (1) breach of express warranties under California Civil Code §§ 1790 et seq.; (2) breach of express warranties under California Commercial Code §§ 2313 et seq.; (3) violations of the California Consumer Legal Remedies Act, California Civil Code §§ 1750 et seq.; and (4) violations of California Unfair Competition Law, California Business and Professions Code § 17200. Third Am. Compl. (“TAC”) ¶¶ 48-55, ECF No. 78. On July 5, 2016, the court granted plaintiffs' motion to certify their second express warranties claim for class treatment. Mot. Class Cert., ECF No. 81; Cert. Order, ECF No. 93.[1]

         On September 4, 2016, Metals filed the instant motion for summary judgment or, in the alternative, partial summary judgment. See Mot.

         B. Evidentiary Issues

         The parties raise several objections to each other's proffered statements of undisputed facts. See Def.'s Statement of Undisputed Facts (“DSUF”), ECF No. 102-2; Pls.' Response to DSUF, ECF No. 105-1 (objecting to DSUF 1, 29); Pls.' Statement of Undisputed Facts (“PSUF”), ECF No. 105-1; Def.'s Objs., ECF No. 106-3 (objecting to PSUF 169, 184). The court does not rely on most of the material a party finds objectionable and therefore addresses only relevant objections below, in the course of reviewing the facts of the case.

         C. Factual Background

         When considering a motion for summary judgment, the court relies on whatever facts are undisputed and otherwise considers the evidentiary record in the light most favorable to the party opposing the motion. See, e.g., A.G. v. Paradise Valley Unified Sch. Dist. No. 69, 815 F.3d 1195, 1202 (9th Cir. 2016). The following facts are not disputed unless otherwise noted.

         1. Dura-Loc's Tiles

         A few details about Dura-Loc and its roofing tiles help set the stage. Dura-Loc started its business in Ontario, Canada in 1984. TAC Ex. D (“Reid Decl.”) ¶ 15. Between 1985 and 2006, Dura-Loc manufactured part-m, part-stone, layered roofing tiles. Id.; see also Stonebarger Decl. Ex. D, at MUSA 003923, ECF No. 81-3. The tiles' top sides, which were the sides eventually exposed to the elements, were coated with crushed stone chips, granules of “Colorquartz Aggregate” manufactured by 3M. See Dalton Decl. (Class Cert.) Exs. B, D, ECF No. 82-2. Each tile is just over four feet wide and about fifteen inches long. Stonebarger Decl. Ex. D, at MUSA 003923. When installed on a roof, each tile overlaps with adjacent tiles to protect the structure below. Id.

         In 2006, the year Metals purchased Dura-Loc's assets, Dura-Loc employed about fifty people, and Allan Reid was Dura-Loc's president and director. Reid Decl. ¶ 15. Before the 2006 asset sale, Reid had been a member of Dura-Loc's board of directors for over ten years and owned about thirty percent of its voting shares. Id. ¶ 18.

         2. Metals's Purchase of Dura-Loc's Assets

         In May 2006, Metals purchased a majority of Dura-Loc's assets for $9.4 million. DSUF 1; see also TAC Ex. H (“Purchase Agreement”). At the time, the purchase price was nearly $1.6 million less than Dura-Loc's gross sales in 2005 and nearly $2.1 million less than Dura-Loc's projected total sales for 2006. PSUF 122-23.

         Under the Purchase Agreement, Metals and Dura-Loc initially agreed to jointly administer a warranty program and share certain defined “Warranty Costs.” DSUF 3. Metals and Dura-Loc split the Warranty Costs using a sliding scale, with Dura-Loc agreeing to pay an increasing share of the Warranty Costs as the total annual claims increased. DSUF 4-5; see also Purchase Agreement §§ 2.9-2.10. At the extremes, Metals agreed to pay 100 percent of the total warranty costs between $0 and $65, 000 in annual claims, and Dura-Loc agreed to pay 100 percent of the total warranty costs for total annual claims above $260, 000. Id. Metals's maximum possible annual warranty cost-sharing liability was $161, 000. DSUF 4. The parties dispute whether, aside from the cost-sharing arrangement under the Purchase Agreement, warranty liability for Dura-Loc tiles rested solely with Dura-Loc. Compare DSUF 6, with PSUF 133.

         In addition, as part of the Purchase Agreement, Metals paid $500, 000 into an escrow account to satisfy any future claims Metals might raise for breaches of the covenants, representations and warranties in the Purchase Agreement, or Warranty Costs incurred outside the warranty cost sharing agreement. PSUF 137. As part of the Purchase Agreement, Metals also employed Reid, one of Dura-Loc's principals, whose responsibilities with Metals included investigating warranty claims. PSUF 138.

         Before executing the Purchase Agreement, Metals reviewed Dura-Loc's operations and information about the warranty claims Dura-Loc's purchasers had made. PSUF 140. Metals's due diligence report reflects the following number of warranty claims in each year reviewed: 56 claims in 2000; 40 claims in 2001; 43 claims in 2002; 43 claims in 2003; 37 claims in 2004; and 77 claims in 2005. TAC Ex. Q. Metals also reviewed information regarding seven pending lawsuits against Dura-Loc, which Metals concluded were “all . . . related to product quality or installation.” PSUF 142; TAC Ex. L. In one suit, a purchaser alleged the granular coating of his tiles was coming off prematurely due to a manufacturing or materials defect. PSUF 143; TAC Ex. M.

         After the asset sale, Dura-Loc ceased manufacturing, marketing and selling the tiles and changed its name to 604471 Ontario Inc. PSUF 139; Reid Decl. ¶ 14.

         3. Metals's Claims against Dura-Loc

         Soon after the asset sale, conflict arose between Dura-Loc and Metals. Metals became aware of seventy-four total warranty claims on the tiles in 2006, nearly all of which were for granule loss. PSUF 147; TAC Exs. Q, T, K. Metals alleged that Dura-Loc, Reid and Spriet, another principal of Dura-Loc whom Metals never employed, all had significantly underrepresented the extent of customer complaints and warranty claims regarding Dura-Loc products in breach of their contractual obligations to Metals under the Purchase Agreement. PSUF 151; TAC Exs. B, R. Specifically, according to Metals, Dura-Loc underrepresented the extent of its tile degranulation issues. PSUF 148.

         Around June 1, 2007, approximately a year after the Purchase Agreement was signed and apparently prior to any litigation, Metals settled with Dura-Loc, Reid and Spriet (“Settlement Agreement”). DSUF 7. Under the Settlement Agreement, Dura-Loc paid Metals $450, 000 (CDN[2]) and assumed sole administrative responsibility for “handling and resolving” outstanding, pending and future warranty claims. DSUF 8; TAC Ex. U. Dura-Loc, Reid and Spriet also released Metals from various obligations in the Purchase Agreement, such as responsibility for costs associated with warranty administration, and Metals released Dura-Loc, Reid and Spriet from liability for certain alleged misrepresentations and nondisclosures. DSUF 8; TAC Ex. U.

         After the parties executed the Settlement Agreement, problems with the performance by Dura-Loc, Reid and Spriet of their ongoing warranty obligations persisted. On April 26, 2011, Metals filed a suit in the Ontario (Canada) Superior Court of Justice claiming damages for lost sales, injury to Metals's reputation and goodwill and legal costs. DSUF 9-10. Metals's allegations included its dissatisfaction with Dura-Loc's disclosure of relevant warranty issues. DSUF 11; TAC Ex. B at 13-15. A little over a month later, the parties amended their earlier Settlement Agreement (“Amendment”). DSUF 12. Under the Amendment, Metals received $845, 055.75 (CDN): $345, 055.75 (CDN) from the remaining Escrow Amount, $350, 000 (CDN) from Dura-Loc, and $150, 000 (CDN) from Reid and Spriet. DSUF 12; PSUF 167. Metals released Reid and Spriet from all liability. DSUF 12; TAC Ex. Z.

         4. Plaintiffs' Purchase of the Tiles

         In June 2004, plaintiff James Wilson purchased Dura-Loc's Flat Panel m roofing tiles for his single-family home in Roseville, California. Wilson Decl. ¶ 2, ECF No. 81-10. The tiles came with a twenty-five year warranty. Id. Ex. A (“Wilson Warranty”), ECF No. 81-11. In or about June 2011, Wilson noticed for the first time the tiles on his roof had deteriorated and lost much of their original color, coating and texture. Id. ¶¶ 4-5. At that time, Wilson contacted Metals about the deterioration. Id. ¶ 4. Metals explained it did not manufacture the tiles and instructed Wilson to contact Ontario 604471 as the successor to Dura-Loc. Id. Ex. C (“Metals Letter”), ECF No. 81-13. Wilson contacted Ontario 604471, which demanded a $400 deposit before investigating his claim. Id. Ex. D (“Ontario 604471 Letter”), ECF No. 81-14. Wilson refused to pay the deposit. DSUF 47.

         Plaintiff Jack White purchased the same style of Dura-Loc tiles in June 2004 for his home in Orangevale, California. White Decl. ¶ 2, ECF No. 81-16. The tiles came with a twenty-five year warranty. Id. In or about June 2011, White noticed the tiles had deteriorated, in much the same way as had Wilson's tiles, having lost their original color, coating and texture. Id. ¶¶ 4-5. White recalls receiving a letter asking for $400 to inspect the roof, DSUF 43, but White did not have his roof inspected, DSUF 45.

         5. The Dura-Loc Warranties

         Plaintiffs' case turns on whether plaintiffs can enforce their warranties against Metals as the alleged successor to Dura-Loc. Wilson and White, who both purchased the Dura-Loc tiles in 2004, have substantially similar warranties. See DSUF 28, 29-37. However, many class members who purchased their tiles earlier have notably different warranties. See Id. There are three versions of warranty across the class. See Dalton Decl. Ex. E (“2004-06 Warranty”), ECF No. 102-8; Lambert Decl. Ex. 34 (“2001-03 Warranty”), ECF No. 105-6 at 2-3; Lambert Decl. Ex. 11 (“1996-2000 Warranty”), ECF No. 105-4.[3] The court discusses the 2004-06 Warranty here, and addresses the few relevant differences in the 2001-03 Warranty and the 1996-2000 Warranty, respectively, in the analysis section of this order.

         Dura-Loc's 2004-06 Warranty promises “[t]hat, for a period of 25 years following proper installation, the surface coating of the Dura-Loc Product shall be UV resistant* and will not deteriorate as the result of a manufacturing defect to the extent that the appearance of the roof is substantially affected.” DSUF 28; 2004-06 Warranty at 1 (asterisk in original). The asterisk references a “note” that explains “[a]t the date of installation, the coating will meet or exceed industry standards when tested to ASTM 4214 - 89 standards given the service life of the roof.” DSUF 29. The Warranty goes on to say that “taking all the circumstances into account, Dura-Loc will, at its sole option, either repair or replace the affected Product . . . provided in all circumstances that Dura-Loc's aggregate liability to all persons with respect to such Product shall be limited to an amount actually paid.” DSUF 31. Thus, Dura-Loc's promise is that the roofing tile should have certain characteristics, and if it does not, its owner will be entitled to the specified repair, replacement or repayment remedies subject to the remaining terms of the limited warranty. DSUF 32. To be covered by the Warranty, the purchaser must register the Warranty within ninety days of the tile installation; failure to register within that window reduces the warranty period to only two years from the installation date. DSUF 30.

         The 2004-06 Warranty has a section entitled “How to Make a Claim, ” which explains Dura-Loc must be notified of all warranty claims within thirty days of either acceptance of the tiles or discovery of the defect. DSUF 34. All warranty claims must include a copy of the Warranty, proof of the date of purchase, proof of installation, and a $400 refundable service fee for Dura-Loc to investigate the complaint. 2004-06 Warranty at 2. Any legal proceeding based on the Warranty must be brought within one year of Dura-Loc's corrective action or denial of the owner's claim. Id.

         D. Metals ...


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