E-Alert Case Updates

Fourth Circuit Applies North Carolina Law to Affirm District Court’s Dismissal of Putative Class Action Lawsuit Against Trimboard Manufacturer

Bianca Ellis v. Louisiana-Pacific Corp.
United States Court of Appeals for the Fourth Circuit, No. 11-2319 (November 2, 2012)
by Jhanelle Graham, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Bianca Ellis v. Louisiana-Pacific Corp., the United States Court of Appeals for the Fourth Circuit affirmed the district court’s dismissal of a putative class action complaint by Bianca Ellis, Mark Sroka, and Jaqueline Sroka, against Louisiana-Pacific Corporation (“LP”), alleging negligent design and manufacture of Trimboard—a composite building product designed and marketed for use as exterior trim around windows and doors—as well as violation of the North Carolina Unfair and Deceptive Trade Practices Act (the “UDTPA”).

Ellis and the Srokas bought homes in which Trimboard had already been installed, but did not directly purchase Trimboard themselves. Bianca Ellis’s house was completed in 2005, and five (5) years later, she allegedly discovered problems with the Trimboard on her house. Similarly, the Srokas’ house was completed in 2006, and they allegedly discovered problems with Trimboard in 2009. Specifically, the homeowners claimed that the Trimboard on their houses was either “failing” or “defective but ha[d] not yet manifested signs of failure.” Consequently, on April 18, 2011, Ellis and the Srokas filed a putative class action lawsuit against LP in the Western District of North Carolina. The complaint specified three (3) counts: (1) a claim for negligent design and manufacture (the “negligence claim”); (2) an unfair or deceptive trade practices claim under N.C. GEN. STAT. § 75-1.1, et seq. (the “UDTPA claim”); and (3) a declaratory relief claim concerning Trimboard’s alleged latent defects and its warranty (the “declaratory judgment claim”).

In their complaint, Ellis and the Srokas claimed that LP provided an express warranty to “the owners of the residences on which Trimboard was installed and/or applied,” and that “the consumer, in most cases, would not have been aware of the warranty because it was only included in bundles of Trimboard sent to the wholesaler or distributor and was most likely not passed on through the contractor to the consumer.” Only Ellis was able to obtain a copy of the warranty and filed a warranty claim, although the Srokas agreed that they were also covered by the warranty.

On November 8, 2011, the district court granted LP’s Rule 12(b)(6) motion to dismiss as to all three (3) counts in the complaint. In its order, the court held: (1) that the negligence claim was barred by North Carolina’s economic loss rule (the “ELR”); (2) that the UDTPA claim was also barred by the ELR; and (3) that the declaratory judgment claim should have been raised in a similar class action suit in the Eastern District of North Carolina. See Hart v. Louisiana-Pacific Corp., No. 2:08-cv-47-BO (E.D.N.C. Nov. 21, 2008) (involving a class action lawsuit against LP for the defective design, manufacture, and breach of express warranty of Trimboard, in which Ellis and the Srokas were also class members). Ellis and the Srokas appealed to the United States Court of Appeals for the Fourth Circuit.

First, the appellate court noted that because this case was in federal court based on diversity jurisdiction, the law of the forum state — in this case, North Carolina law—applied. With respect to the negligence claim, the Fourth Circuit affirmed the district court’s finding that this claim was barred by North Carolina’s ELR. The ELR provides that “[o]rdinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor.” N.C. State Ports Auth. v. Lloyd A. Fry Roofing Co., 240 S.E.2d 345, 350 (N.C. 1978). Additionally, the appellate court stated that the rule “prohibits the purchaser of a defective product from bringing a negligence action against the manufacturer or seller of that product to recover purely economic losses sustained as a result of that product’s failure to perform as expected.” Wilson v. Dryvit Sys., Inc., 206 F. Supp. 2d 749, 753 (E.D.N.C. 2002).

The court of appeals highlighted that the complaint in the instant case claimed only economic loss stemming from the allegedly defective Trimboard, but the relevant inquiry under North Carolina case law should be whether the plaintiff “ha[s] [a] basis for recovery in contract or warranty.” Warfield v. Hicks, 370 S.E.2d 689, 694 (N.C. Ct. App. 1988). Here, Ellis and the Srokas had a contractual basis for recovery in warranty, which they were pursuing in the Hart action. Moreover, the fact that Ellis and the Srokas were downstream purchasers did not make a difference in the analysis. Citing to Moore v. Coachmen Indus., Inc., 499 S.E.2d 772, 780 (N.C. Ct. App. 1998), the Fourth Circuit noted that the North Carolina Court of Appeals previously held that the ELR barred a negligence claim for the loss of an RV where the plaintiffs may have been the original purchaser of the RV, but had no occasion to bargain or consider the terms of the defective component that caused the RV to catch on fire. For these reasons, the court of appeals held that the district court did not err in finding that the negligence claims were barred by the ELR.

Second, the Fourth Circuit addressed the North Carolina UDTPA claims. To state a claim under the UDTPA, a plaintiff must show “(1) defendant committed an unfair or deceptive act or practice; (2) the action in question was in or affecting commerce; and (3) the act proximately caused injury to the plaintiff.” Becker v. Graber Builders, Inc., 561 S.E.2d 905, 910 (N.C. Ct. App. 2002). The court determined, however, that Ellis and the Srokas failed to allege any common law or statutory requirement that LP was required to ensure that its warranties were provided to every downstream consumer. The Fourth Circuit dismissed the UDTPA claim, reasoning that LP’s failure to ensure that all consumers who would eventually own a structure containing Trimboard received a copy of the warranty was neither unfair nor deceptive.

Finally, with respect to the declaratory judgment claim, the Fourth Circuit articulated that “a district court’s decision to entertain a claim for declaratory relief is discretionary and, as such, reviewed for abuse of discretion.” Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 421 (4th Cir. 1998). Here, the court of appeals concluded that the district court aptly explained why the Hart action was the proper place to raise warranty issues and LP’s alleged violation of the warranty. Thus, the court explained that considering those claims in a venue separate from the Eastern District of North Carolina, where Hart was pending and in which Ellis and the Srokas were also parties, would be to disregard the concerns set forth in Aetna. For these reasons, the Fourth Circuit dismissed the declaratory judgment claim and affirmed the district court’s judgment.