Opinion
No. 8:97CV367.
February 2000.
MEMORANDUM AND ORDER
I. Introduction
Before me is the plaintiffs' motion for partial summary judgment (Filing No. 73). The defendant submitted a responsive brief and both parties filed indexes of evidence to support their briefs (Filing Nos. 75 and 92). I have reviewed the record, the parties' briefs and indexes of evidence, and the applicable law, and I hereby deny the plaintiffs' motion for partial summary judgment.
II. Factual Background
I elaborate briefly on the facts presented in my earlier memorandum and order denying the defendant's motion for summary judgment.
Plaintiff J.G. Conestoga LLC (sometimes doing business as, inter alia, Jacobs, Visconsi Jacobs, The Richard David Jacobs Group and/or The Richard E. Jacobs Group, and hereafter collectively known as Conestoga) has, since December 20, 1995, been a corporation organized under the laws of Ohio with its principal place of business located in Cleveland, Ohio. Filing No. 55, Second Amended Complaint at 1, 1 (hereafter, Amended Complaint). Conestoga owns the Conestoga Mall, a commercial property in Grand Island, Nebraska, and is the successor in interest to Conestoga Joint Venture (sometimes doing business as, inter alia, Jacobs, Visconsi Jacobs, The Richard David Jacobs Group and/or The Richard E. Jacobs Group), the owner of the Conestoga Mall from March 1, 1983, to December 20, 1995. Id at 1-2, 1.
Plaintiff Protection Mutual Insurance Company is a mutual property insurance company organized under the laws of Illinois. Protection Mutual provided insurance coverage to Conestoga from February 1, 1995, through February 1, 1996, for losses arising from damages to the Conestoga Mall. Id. at 2, 2.
Defendant Seal Dry/USA, Inc. (Seal Dry) is a corporation organized, since 1990, under the laws of Arkansas. Prior to October, 1990, Seal Dry operated in Michigan. Seal Dry develops, manufactures, and sells roofing systems to commercial customers. Amended Complaint at 2, 3. One of those customers was Conestoga. Seal Dry installed a significant portion of the Conestoga Mall roof between 1987 to 1991. Id.
Seal Dry provided Conestoga and its primary roofing contractor, Specialty Associates, Inc., with marketing materials at various times during the parties' relationship. These materials contained technical and performance claims about Seal Dry's roofing systems and described the warranties available. Filing No. 75, Plaintiffs' Index of Evidence in Support of Motion for Summary Judgment, Aff. of D. Millea, Ex. D at 8:10-19, 9:14-10:4; Exs. J-O (hereafter, Plaintiffs' Index). This lawsuit arose because Seal Dry claims that its warranties on the Conestoga Mall roofs excluded the damage to the roofs and to the interior of the mall caused by a severe hail storm in Grand Island in August 5, 1995. Conestoga asserts that the storm caused more than one million dollars in damage. The majority of the Seal Dry roofs over the mall had to be replaced or repaired, but allegedly all the non Seal Dry roofs were undamaged. Id., Aff. of J. Patterson at 4, 8.
The language in the warranties that Seal Dry issued to Conestoga for the roofing system varied from warranty to warranty. The August 27, 1987, warranty and the August 18, 1988, warranty stated that the "roofing materials will provide watertight protection for a period of ten (10) years from the date of installation after approval by a Seal-Dry inspector." Plaintiffs' Index, Aff. of J. Patterson, Exs. B and C. The May 26, 1989, warranty stated that the roofing materials, "installed to Seal-Dry specifications, will provide watertight protection for a period of ten (10) years from the date of substantial completion." Id., Ex. D. The warranties of July 6, 1990, and June 15, 1992, are nearly identical to the warranty in Exhibit D; they provide the same ten-year warranty "if the roofing materials are installed to Seal-Dry specifications." Id., Exs. E and G. Seal Dry promised to repair or have repaired leaks in its roofing materials resulting from defects in materials or workmanship. Id., Exs. B-E, G. Under the first three warranties, the owner was to provide Seal Dry with written notice of any defect or leak within thirty days after discovery; under the last two warranties, the owner had fifteen days to notify Seal Dry. Id.
Central to the issues in this case is the interpretation of the exclusions listed in the "Terms, Conditions Limitations" sections of the warranties. The August 24, 1987, warranty excluded damages to and leaks in the roof resulting from "natural disasters, including but not limited to earthquakes, lightning, tornados, gales, hurricanes, fires, etc." Id., Ex. B, B1. The May 26, 1989, and the August 18, 1998, warranties were identical to the first except that the gale exclusion was modified to exclude "full gales." Id., Exs. C and D, B1. An exclusion for hail damage first appeared in the July 6, 1990, and the June 15, 1992, warranties; they exclude natural disasters "including but not limited to earthquakes, lightning, hail, gales, tornados, hurricanes, fires, etc." Id., Ex. G, B1. Conestoga maintains that Seal Dry did not notify it when Seal Dry added hail to the list of excluded natural disasters. Plaintiffs' Brief in Support of Motion for Partial Summary Judgment at 9 (hereafter Plaintiffs' Brief).
Conestoga received these warranties only after each section of the roof was installed and inspected, a practice which Seal Dry maintains is standard in the roofing industry. Filing No. 92, Defendant's Index of Evidence Opposing Plaintiffs' Motion for Summary Judgment, Aff. of M. Scahill, Ex. A, Dep. of J. Patterson, 24:12-25, 44:17-25; Ex. C, Dep. of D. Chmura, 36:1-38:7; Aff. of W. Shroyer, 3 (hereafter, Defendant's Index). Seal Dry also observes that Conestoga had access to its marketing and technical materials which contained specimen copies of the warranties. Id., Ex. F. Dep. of B. Shroyer, 196:6-197:25.
Conestoga claims that it installed the Seal Dry roofing systems because Seal Dry's marketing materials led Conestoga to believe that the roofs could withstand the extremes of Nebraska's climate — including severe thunderstorms with hail. Plaintiffs' Brief at 5; Defendant's Index, Dep. of J. Patterson, 25:12-27:8. When Seal Dry refused to repair the roofs after the 1995 hail storm, Conestoga brought this suit for breach of express and implied warranties, negligence, and strict liability. Conestoga now argues that it is entitled to summary judgment on several issues:
1. Seal Dry's marketing literature established express warranties in favor of Conestoga;
2. Seal Dry extended implied warranties in favor of Conestoga;
3. The limitations in Seal Dry's for warranties are unenforceable as a matter of law;
4. The natural disaster exclusions in Seal Dry's form warranties are ambiguous as a matter of law;
5. Conestoga's tort claims are not barred by the economic loss doctrine; and
6. The proper measure of damages for Conestoga's claims is the cost of returning the mall to its pre-loss condition, plus consequential damages.
III. Legal Standard
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, the court grants summary judgment if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court's function at the summary judgment stage is not to weigh the evidence and determine the truth of the matter; rather, the court must determine whether a genuine issue exists for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). "If no rational trier of fact could find for the nonmoving party, then summary judgment is appropriate." McCormack v. Citibank, N.A., 100 F.3d 532, 537 (8th Cir. 1996). The Eighth Circuit has recognized that primarily legal issues and particularly questions of contract interpretation are issues amenable to summary disposition. See, e.g., Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir. 1995); Mumford v. Godfried, 52 F.3d 756, 759 (8th Cir. 1995); and Crain v. Board of Police Comm'r, 920 F.2d 1402, 1405-06 (8th Cir. 1990).
If the moving party meets the initial burden of establishing the nonexistence of a genuine issue, then the burden shifts to the opposing party to produce evidence of the existence of a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party may not rest upon mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson, 477 U.S. at 256; Krenik v. County of LaSueur, 47 F.3d 953, 957 (8th Cir. 1995).
IV. Discussion
A. Choice of Law
The defendant revisits in its brief, as a preliminary matter, the choice of law issue raised in its motion for summary judgment, asserting once again that the choice of law provisions in the warranties are valid and controlling. I have reviewed the defendant's arguments, and I disagree that my prior ruling was erroneous. Accordingly, the law of Nebraska will be applied to the claims of this action.
B. Warranties
1. Express Warranties
A seller creates an express warranty in favor of a buyer in one of three ways: 1) by "[a]ny affirmation of fact or promise . . . which relates to the goods and becomes part of the basis of the bargain"; 2) by "[a]ny description of the goods which is made part of the basis of the bargain"; or 3) by "[a]ny sample or model which is made part of the basis of the bargain." Neb. U.C.C. § 2-313(1) (Michie 1995). Conestoga maintains that although Seal Dry's marketing materials were not labeled as warranties, they nonetheless created express warranties as a matter of law. A seller can create an express warranty without using words such as "warrant" or "guarantee" and without the specific intent to make a warranty, but "an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty." Neb. U.C.C. § 2-313(2) (Michie 1995).
Conestoga extensively quotes Seal Dry's marketing literature from the late 1980s and early 1990s to establish that Seal Dry's claims about the quality and durability of its roofing systems constituted express warranties upon which Conestoga relied in deciding to purchase the Seal Dry system. See Plaintiffs' Brief at 3-5, 14.
The primary problem with Conestoga's argument, however, is determining who in the Conestoga corporate structure would have read these materials and been induced thereby to purchase Seal Dry's product. Much of the evidence indicates that Conestoga relied upon the recommendations of its roofing contractor, Specialty Associates, when selecting a roofing product for the mall rather than upon any promotional material and marketing literature Conestoga received directly from Seal Dry. Indeed, Jim Newman, who was Seal Dry's national account representative from 1987 to 1989, testified that his contacts with Conestoga were generally only through Specialty Associates, with whom Seal Dry had a relationship that predated Conestoga's decision to purchase Seal Dry's product. Defendant's Index, Ex. D, Dep. of J. Newman, 8:5-19, 9:6-7. Conestoga claims that Newman directly solicited it as Seal Dry's sales representative, Plaintiffs' Brief at 15, but Newman remembers personally visiting Conestoga corporate offices for the first time only in early 1990, several months after he became Seal Dry's regional manager. He attests that he is "fairly certain" that this visit was only a courtesy call during which he would not have left promotional materials. He also attests that he might have visited Conestoga corporate offices once or twice again, also on courtesy calls not involving promotion. Id., 8:10-15; Aff. of J. Newman, §§ 3, 4.
Moreover, James Patterson, the witness whom Conestoga offers as most knowledgeable about the decision to purchase Seal Dry products, had no involvement with Conestoga until 1991 — well after Conestoga first decided to use the Seal Dry roofing system on the Grand Island mall. Defendant's Index, Dep. of J. Patterson, 9:4-12:19. Patterson, Conestoga's Director of Shopping Center Operations, testified that while he remembered seeing the marketing literature, he could not remember when he read it or exactly what it contained. Id., 16:16-24:5. I conclude that the jury must decide whether any employees or officers at Conestoga actually read the sales literature or looked at the specimen warranties before Conestoga decided to purchase Seal Dry's roofing systems on Specialty Associates' recommendation.
Nor has Conestoga persuaded me that the marketing and technical materials at issue here created express warranties as a matter of law. While catalogue descriptions, brochures or advertisements may create express warranties, "[t]he existence of an express warranty depends upon the particular circumstances in which the language is used and read." Mennonite Deaconess Home Hosp., Inc. v. Gates Eng'g Co., 363 N.W.2d 155, 161 (Neb. 1985) ( quoting Peterson v. North Am. Plant Breeders, 354 N.W.2d 625, 630 (Neb. 1984)). The trier of fact must determine "whether the seller assumes to assert a fact of which the buyer is ignorant, or whether he merely states an opinion or expresses a judgment about a thing as to which they may each be expected to have an opinion and exercise a judgment." Id.
Conestoga and its roofing contractor, Specialty Associates, were experienced mall builders. Specialty Associates was Conestoga's primary roofing consultant, and witnesses from Conestoga testified that they relied on the recommendations of Specialty Associates in selecting Seal Dry products for several malls. In 1987, Conestoga owned approximately forty mall properties in eleven states, all of which presumably had roofs. Defendant's Index, Ex. C, Dep. of D. Chmura, 35:2-25. Conestoga has an annual re-roofing budget for its properties of two million dollars. Id., 34:17-19. The trier of fact must decide whether a sophisticated business organization such as Conestoga — allegedly one of the top five mall owners in the United States — can be reasonably charged with the responsibility of evaluating not only the performance and durability claims found in a roofing supplier's promotional and technical materials but also the one-page specimen warranties found therein. Accordingly, Conestoga's motion for summary judgment on the issue of express warranties is denied.
2. Implied Warranty of Fitness for a Particular Purpose
Because Seal Dry knew that Conestoga was purchasing a roofing system for a mall in Nebraska, Conestoga contends that Seal Dry, a roofing expert, was required to provide a product that would withstand Nebraska's harsh climate, including severe hailstorms.
An implied warranty of fitness for a particular purpose is established "[w]here the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods." Neb. U.C.C. § 2-315 (Michie 1995). To establish creation of the implied warranty, Conestoga must establish three elements: a) Seal Dry had reason to know of Conestoga's particular purpose; b) Seal Dry had reason to know that Conestoga was relying on Seal Dry's skill or judgment to furnish appropriate goods; and c) Conestoga in fact relied on Seal Dry's skill or judgment. Mennonite Deaconess Home Hosp. at 164. The third element "is almost always essentially factual in nature," Gillette Dairy, Inc. v. Hydrotex Indus., Inc., 440 F.2d 969, 974 (8th Cir. 1971), and it is this reliance element about which a factual issue remains.
As noted earlier, a question exists whether Conestoga made the decision to purchase the Seal Dry system primarily based upon the recommendation of Specialty Associates, its roofing contractor, or whether it relied upon its own review of the claims made in Seal Dry's sales literature. Consequently, Conestoga's motion for summary judgment on the claim for breach of warranty of fitness for a particular purpose must be denied.
C. Timing of Warranty Limitations
Conestoga contends that Seal Dry's warranty limitations were ineffective as a matter of law for several reasons. Conestoga first contends that Seal Dry was obliged to inform Conestoga of any warranty limitations before it sold and delivered the first section of roofing. According to Conestoga, the express and implied warranties for all five sections of the Conestoga Mall roof were established by the time the first section was installed in 1987; any later alterations in subsequent warranties were therefore ineffective as matter of law. Plaintiffs' Brief at 18-19. Conestoga also argues that all limitations in the warranties fail because the first roofing project was finished almost three months before the purported effective date of the warranty. To allow Seal Dry to sell the system, install it, inspect it, receive payment, and then limit its liability months later, Conestoga argues, would offer more protection to sellers than the U.C.C. contemplated. Id. at 20.
Conestoga's only authority for its position is a Nebraska case in which a seller of seed corn provided the buyer with several documents concerning crop performance prior to the date on which the parties signed a contract for the sale of seed corn, the second page of which allegedly contained disclaimers of warranty. The bags containing the seed corn, delivered several months after the parties signed the contract, contained full disclaimers of warranty as did the reverse side of the shipping order and invoice. The buyer claimed that it did not see or receive the disclaimers of warranty at the time the contract was signed, and that the disclaimers on the seed corn bags and on the shipping notice/invoice were therefore ineffective because they were delivered after the contract was signed. The court held that "disclaimers o[f] warranty made on or after delivery of goods by means of an invoice, receipt, or similar note are ineffectual unless the buyer assents or is charged with knowledge as to the transaction." Pfizer Genetics, Inc. v. Williams Mngmt. Co., 281 N.W.2d 536, 539 (Neb. 1979).
Third, Conestoga argues that even if I determine that the second through fifth installations were covered by separate, independent warranties, Seal Dry was obliged to inform Conestoga of changes made in the limitations of each warranty. In particular, Conestoga contends that Seal Dry should not be allowed to rely on the hail exclusion added to the warranty limitations covering the fourth and fifth roof sections because Conestoga could not have seen the "new" exclusion until after those sections were installed. Id. at 21-22.
Finally, Conestoga contends that even were I to find the limitations timely, the warranty limitations must fail as a whole because they cannot be construed in a manner consistent with the express and implied warranties allegedly found in the marketing material. Id. at 22. Section 2-316(1) provides that "words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other" subject to the proviso that "negation or limitation is inoperative to the extent that such construction is unreasonable." Neb. U.C.C. § 2-316(1). Conestoga argues that the limitations are ineffective because they allegedly contradict the "broad promises, product performance descriptions and expressions of "leak-proof' warranty protections" that "dripped" from Seal Dry's sales literature. Plaintiffs' Brief at 22.
Seal Dry responds that in the roofing industry the standard practice is to provide buyers with warranties after installation is complete and the manufacturer has inspected the roof. Defendant's Brief at 31. Even Conestoga's own witness, James Patterson, stated, "The fact of the matter is I don't know that I've ever seen a roof warranty until after the roof is on the building. . . . I don't recall ever seeing a roof warranty prior to the roof being on." Defendant's Index, Ex. A, Dep. of J. Patterson, 24:13-15, 44:24-25. Nowhere in Mr. Patterson's testimony can I find an indication that he found anything out of the ordinary in not receiving the warranties for the roof on the Conestoga Mall until after Seal Dry had installed and inspected the roofs.
Seal Dry observes that the sales and technical literature that Seal Dry gave to Specialty Associates — and, presumably, Conestoga — contained prominent specimen warranties and other language that referred to "the conditions of our warranty." See, e.g., Plaintiffs' Index, Aff. of D. Millea, Ex. K at SD2995, SD2998 SD3002; Ex. N at JM00207. Any review of the Seal Dry warranties, either in the literature or as delivered after installation of the each section of roof, would have revealed the existence and scope of warranty limitations. Moreover, Conestoga, as a sophisticated mall-building enterprise, certainly can be charged with the knowledge that suppliers of products used in its malls offer limited warranties on those products. Conestoga is not a naive consumer susceptible to the blandishments of a high-pressure seller, nor did Seal Dry ever try to take advantage of Conestoga's alleged "inexperience" by hiding or denying the limitations placed on its warranties. Pfizer Genetics is simply inapplicable here since Conestoga can be charged with knowledge at the time of contracting of not only the existence of warranty limitations but also the content of those limitations. Consequently, Conestoga's motion for summary judgment on this issue is denied.
D. "Natural Disaster" Language
Conestoga contends that the "natural disaster" warranty limitation is unenforceable because it is ambiguous as a matter of law. It argues that the term must be construed against Seal Dry, the drafter of the exclusion, so that the hailstorm which caused such extensive damage to the mall's roof would not be considered an excluded natural disaster.
Under Nebraska law, whether a contract is ambiguous is a matter a law. McCormack v. Citibank, N.A., 100 F.3d at 538. A contract is ambiguous if it is " susceptible of two or more reasonable but conflicting interpretations or meanings." Id. ( quoting Boyles v. Hausmann, 517 N.W.2d 610, 615 (Neb. 1994)). A contract written in clear and unambiguous language, however, " is not subject to interpretation or construction and must be enforced according to its terms." Id. ( quoting C.S.B. Co. v. Isham, 541 N.W.2d 392, 396 (Neb. 1996)).
To establish that the term "natural disaster" is ambiguous, Conestoga points to the varying interpretations of the term given by Seal Dry witnesses, and concludes that its interpretation is just as reasonable as any of the witnesses' interpretations. Conestoga argues that the term "natural disasters" includes "natural events that cause widespread catastrophic property damage and/or personal injury, but . . . does not include Nebraska hail storms such as the one that damaged the roof at issue." Plaintiffs' Brief at 24.
Seal Dry responds that the list of natural disasters in the warranty exclusion was never meant to be exhaustive or exclusive, especially since the list is introduced by the phrase "including, but not limited to." It claims that the term is not ambiguous since it would plainly include "a storm, the significance of which would include two inch hail and 80 mph winds." Defendant's Brief at 18. Further, Seal Dry argues that its witnesses' interpretations of the term "natural disaster" are not contradictory since they all agree that the warranty excludes some hail.
I find that the contract is ambiguous as a matter of law. While the first three warranties do not list hail as a specific natural disaster, the list recited is nevertheless open to other possible catastrophes. All five warranties contain the phrase "including but not limited to" just before the list of specific disasters, and all five warranties conclude the list of disasters with the abbreviation "etc." Seal Dry's interpretation of the term "natural disasters" is certainly reasonable, given that a severe Nebraska thunderstorm with large hail and punishing winds is capable of causing property damage as extensive as — if not greater than — the other disasters specifically listed in the exclusion.
Conestoga's interpretation of the first three warranties, however, is also reasonable. Given the product claims of puncture resistance, durability, and impermeability, Conestoga might have reasonably concluded that the roof would withstand a Nebraska hail storm and that hail had been deliberately left off the list of exclusions. However, since Seal Dry specifically included hail as an excluded natural disaster in its final two warranties, Conestoga cannot argue that term "natural disaster" was ambiguous as a matter of law in those two documents. Accordingly, I conclude that the jury should determine the meaning of the term "natural disaster," but only as used in the first three warranties. Conestoga's motion for summary judgment on this issue is therefore denied.
E. Economic Loss Doctrine
Under Nebraska law, a purchaser cannot recover from a seller-manufacturer the cost of repairs to a defective product without proof of a "sudden, violent event which aggravated the inherent defect or caused it to manifest itself." Hilt Truck Line Inc. v. Pullman, Inc., 382 N.W.2d 310, 312 (Neb. 1986) ( citing Nerud v. Haybuster Mfg., Inc., 340 N.W.2d 369, 375 (1983); National Crane Corp. v. Ohio Steel Tube Co., 332 N.W.2d 39, 44 (1983)) (emphasis added). Conestoga maintains that because the hail storm that caused the damage was a sudden, violent event, it should be allowed to recover from Seal Dry the costs of repairing "a previously serviceable roofing system . . . [as well as] severe water damage to the underlying insulation and the internal property below." Plaintiffs' Brief at 26.
For the "sudden, violent event" exception to the economic loss doctrine to apply to Conestoga's damage, Conestoga is required to establish that Seal Dry's roofing system was defective. Conestoga offered no such evidence in support of its motion for summary judgment, and Seal Dry maintains that no such evidence exists. I will not assume for purposes of ruling on Conestoga's motion that it can produce sufficient defect evidence; consequently, Conestoga's motion for summary judgment on this issue is denied.
F. Measure of Damages
Finally, Conestoga asks me to rule that the proper measure of damages for loss involving improvements to real property such as the mall is the cost to return the property to its pre-loss condition. Plaintiffs' Brief at 27-8. Seal Dry responds that the proper measure of damages derives from the warranty language disclaiming recovery of any incidental or consequential damages. Seal Dry also notes, quite correctly, that since Conestoga's proposed measure of damages sounds in negligence, it thus seemingly abandons its U.C.C. damages sounding in contract and warranty. Defendant's Brief at 45.
Until all the evidence has been presented, I cannot determine whether Conestoga has met its burden of proof on its negligence, strict liability, contract, and warranty claims, nor decide what the appropriate measure of damages should be. Consequently, Conestoga's motion for summary judgment on this issue is denied.
IT IS THEREFORE ORDERED that the plaintiffs' motion for partial summary judgment (Filing 73) is denied in its entirety.