Morris v. Osmose Wood Preserving

JAMES S. GETTY, Judge, Specially Assigned. The subject matter of this litigation relates to allegedly defective plywood roofing materials installed in residential structures throughout Maryland since 1980. The initial complaint, filed January 9, 1991, has proliferated into amended complaints two, three, and four. The roof has already fallen on the appellants herein via an order of the Circuit Court for Montgomery County, filed March 26, 1993, dismissing the Fourth Amended Complaint in its entirety and purporting to affirm the dismissal of several remaining counts in the Third Amended Complaint.

Appellants’ motion for reconsideration was denied by the trial court. In this appeal, they contend, in essence, that the roof cannot fall absent a hearing on the merits of their claim. The issues raised in this appeal are: I. Whether the trial court erred in dismissing plaintiffs’ tort claims under the economic loss doctrine. 2. Whether plaintiffs must show direct reliance upon defendants’ representations and omissions in order to maintain an action for damages under the Maryland Consumer Protection Act. ⁶⁵⁰ 3.

Whether the trial court erred in dismissing plaintiffs’ breach of warranty claims as barred by the four year statute of limitations, and whether the plaintiffs alleged fraud that would toll the running of the statute. Facts This is a class action suit for damages, and for mandatory injunctive relief, seeking damages from the defendants for all expenses the plaintiffs and members of the class they represent in the State of Maryland have incurred, or will incur, for inspecting, repairing, and replacing roofs constructed with fire retardant, treated plywood (“FRT”) manufactured, marketed, and/or sold by the defendants. The named appellants are Laura Herlihy, Patty Morris, Richard Mills, and Michael Karbeling. The appellees are Osmose Wood Preserving, Inc., Hoover Treated Wood Products, Inc., and Hoover Universal, Inc. 1 Laura Herlihy purchased a townhouse in Gaithersburg on September 28, 1983.

The roof of the townhouse is constructed of FRT plywood manufactured by Hoover Universal, Inc. Patty Morris is the owner of a townhouse in Greenbelt bought November 3, 1987. The roof is constructed of FRT plywood manufactured by Osmose Wood Preserving, Inc. Richard Mills’s townhouse in Greenbelt, which contains FRT plywood manufactured by Osmose, was also acquired November 3, 1987. Michael Karbeling’s property was acquired July 11, 1985. The roof contains FRT plywood manufactured by Hoover Wood Products, Inc. Appellants allege that the FRT plywood used in the construction of their respective townhouses has deteriorated, resulting in impairment of the strength and structural integrity of the roofs.

Appellants contend that the roofs will need to ⁶⁵¹ be replaced, and that a threat of personal injury exists, although no physical injuries have occurred. The potential for injury, it is alleged, could result from walking on the roofs or from the roofs collapsing. The appellants further allege that each of the appellees marketed FRT plywood, and represented that the product was suitable for roof construction. In April, 1987, the American Plywood Association notified the appellees that the FRT plywood was subject to thermal degradation.

Hoover Treated Wood Products received an inspection report from the American Plywood Association on or about March 30, 1986, describing a deteriorated FRT plywood situation. Although the appellees did not disclose the defective condition of plywood to the appellants, the dangers created by FRT plywood, it is alleged, became publicly known in 1990 through media reports, including an article in the New York Times dated April 11, 1990, and in the Montgomery Village Gazette on the same date. The Pleadings The defendants filed motions to dismiss the Second Amended Complaint and the court (McKenna, J.), by order dated July 29, 1991, stated that: 1. All counts as to each defendant in tort (strict liability, Count I; negligence, Count II; and negligent misrepresentation, Count IV) are dismissed with prejudice and final judgments are directed on these counts, 2.

All claims for breach of implied warranty, (Count III) against Hoover Universal and HTWP with respect to plaintiffs Herlihy and Karbeling, are dismissed "with prejudice as barred by limitations, and final judgment are directed on this Count, 3. Osmose’s motion to dismiss Count III is denied, 4. All defendants’ motions to dismiss Count V under the State Consumer Protection Act are denied, and 5. Plaintiffs shall file a more definite statement regarding Count III as to Osmose and Count V as to all defendants. ⁶⁵² Appellants then filed a Third Amended Complaint, reasserting the claims dismissed with prejudice in Judge McKenna’s prior order.

Rather than filing a more definite statement of Count III as to Osmose, appellants repeated, verbatim, the allegations made in the Second Amended Complaint and provided a more definite statement as to Count V, the Maryland Consumer Protection Act. The Third Amended Complaint was greeted with motions to dismiss the counts remaining under Judge McKenna’s order and it is these motions that were addressed by Judge Cave on September 25, 1992. Following the hearing before Judge Cave, appellants filed a Fourth Amended Complaint excising some allegations that the appellees characterized as “scandalous.” As pointed out earlier herein, Judge Cave dismissed the Fourth Amended Complaint in its entirety. He also dismissed Count III (implied warranty) as to Osmose, and indicated that the “... granting of the Motion to Dismiss Counts I and II by Judge McKenna will not be disturbed.

The Court also declines to disturb the dismissal by Judge McKenna of Counts IV, V, and VI.” From the record, however, it is clear that Count VI was never before Judge McKenna; it appeared for the first time in the Third Amended Complaint filed three months after Judge McKenna’s order dated July 29, 1991. More important, Judge McKenna did not dismiss Count V; he denied the motion to dismiss as to all defendants and required that plaintiffs file a more definite statement as to that count relating to State Consumer Protection Acts. For the purposes of this appeal, we shall assume that Judge Cave would have dismissed Count V, since he believed it had been dismissed and “declined to disturb the dismissal.” It would serve no worthwhile purpose to remand the case for clarification of what appears to us to be patently obvious. Standard of Review Appellate review of a judgment granting a motion to dismiss pursuant to Md. Rule 2-322 requires that this Court ⁶⁵³ assume as true all well-pleaded material facts in the complaint and all reasonable inferences that may be draw therefrom.

If facts are alleged that, if proved, would entitle plaintiffs to relief, then the motion to dismiss was improperly granted. See Stone v. Chicago Title Ins. Co., 330 Md. 329 , 624 A.2d 496 (1993); MacGill v. Blue Cross of Maryland, 77 Md.App. 613 , 551 A.2d 501 , cert. denied, 315 Md. 692 , 556 A.2d 673 (1989). Issue I The Supreme.

Court has emphasized the need to maintain the separation of tort and contract law to prevent “contract law [from] drow[ing] in a sea of tort.” East River Steamship Corp. v. Tramamerica Delaval, Inc., 476 U.S. 858, 866 , 106 S.Ct. 2295, 2299 , 90 L.Ed.2d 865 (1986). Accordingly, the Court held that a manufacturer in a commercial relationship has no duty under either a negligence or strict products liability theory to prevent a product from injuring itself. The case involved a suit by a shipbuilder against the manufacturer of turbines installed in four supertankers. The turbines malfunctioned in each of the four vessels causing substantial economic damages for replacement and lost revenue.

The Court determined that the failure, or damage, to a product is a warranty claim, which simply means that the product has not met the customer’s expectations. The customer, however, may obtain the benefit of his bargain by a breach of warranty action. East River, supra, was decided by the Supreme Court on June 16, 1986. Thereafter, the Court of Appeals (McAuliffe, J.), on November 14, 1986, addressed the issue of whether economic losses are recoverable in tort, or whether such claims are to be pursued as a breach of warranty.

See Council of Co-Owners v. Whiting-Turner, 308 Md. 18 , 517 A.2d 336 (1986). In that case the condominium owers association brought a tort action against the general contractor, developers and architects involved in the construction of a building, alleging the negligent failure to construct ten vertical utility shafts with materials having a fire resistance rating of two hours as required by both the design and the local fire ⁶⁵⁴ code. The owners alleged that these latent conditions created a fire hazard that “presents a threat to the safety and welfare of the owners and occupants of the Atlantis Condominium and to the personal and real property of the owners and occupants.” Following a thorough review of the case law pertaining to the issues of privity and economic loss, the Court found “particularly persuasive” the reasoning of the Indiana Supreme Court in Barnes v. Mac Brown and Co., 264 Ind. 227 , 342 N.E.2d 619 (1976), stating: The contention that a distinction should be drawn between “economic loss” and personal injury is without merit. Why there should be a difference between an economic loss resulting from injury to property and an economic loss resulting from personal injury has not been revealed to us.

When one is personally injured from a defect, he recovers mainly for his economic loss. Similarly, if a wife loses a husband because of injury from a defective construction, the measure of damages is totally economic loss. We fail to see any rational reason for the distinction. [2] 308 Md. at 34-35 , 342 N.E.2d 619 . The Court of Appeals also cited Drexel Properties, Inc. v. Bay Colony Club Condominium, Inc., 406 So.2d 515 (Fla.Dist.Ct.App.1981), cer t. denied, 417 So.2d 328 (Fla.1982), which held that damages for economic loss were recoverable in a ⁶⁵⁵ negligence action absent proof of personal injury or property damage.

That holding was expressly overruled, however, in Casa Clara v. Charley Toppino and Sons, Inc., 620 So.2d 1244, 1248 (Fla.1993). The Court in Whiting-Turner concluded that whether a duty will be imposed in this type of case “should depend upon the risk generated by the negligent conduct, rather than upon the fortuitous circumstance of the nature of the resultant damage.” The Court held that where the risk is of death or personal injury, the action will lie for recovery of the reasonable cost of correcting the dangerous conditions. Id. In footnote 5, the Court explained: It is the serious nature of the risk that persuades us to recognize the cause of action in the absence of actual injury.

Accordingly, conditions that present a risk to general health, welfare, or comfort but fall short of presenting a clear danger of death or personal injury will not suffice. A claim that defective design or construction has produced a drafty condition that may lead to a cold or pneumonia would not be sufficient. Id. It is against the known facts in this case that we apply the test set forth in Whiting-Turner .

Unlike Whiting-Turner , this is not a case where a sudden fire could reasonably be calculated to result in serious physical injury or death in addition to property damage. The damage complained of herein is qualitative, occurring through gradual deterioration of the plywood. The four named appellants have owned their townhouses from six to ten years; not one of the four has replaced the roof from fear of personal injury. In each of the complaints they allege that the plywood has “darkened, spotted, warped and fractured, indicating that it has reduced strength capacity and must be replaced.” In short, they want new roofs.

Appellants allege in conclusory terms that someone walking on the roof could be injured if the sheathing collapsed, or a heavy snowfall could trigger a collapse. Mere possibilities, however, do not meet the threshold of establishing a clear ⁶⁵⁶ danger of death or personal injury. Accordingly, we agree with the trial court that the loss incurred herein is economic, which is not recoverable in a tort action. See In re Lone Star Industries, Inc., 776 F.Supp. 206 (D.Md.1991), where Amtrak sued the manufacturer in tort for the cost of replacing railroad ties that deteriorated prematurely.

The federal court granted summary judgment for the manufacturer, holding that as a matter of law Amtrak had not presented evidence of a clear danger of personal injury where the repair process had been ongoing for two years after discovery of the deterioration. The Court of Appeals recently addressed several of the issues raised in this appeal in A.J. DeCoster Co. v. Westinghouse Electric Corporation, 333 Md. 245 , 634 A.2d 1330 (1994). In that case, a transfer switch manufactured by Westinghouse allegedly malfunctioned resulting in the suffocation of 140,000 chickens when the auxiliary ventilation system failed to activate during a thunderstorm. The Court held that DeCoster’s claim was for the replacement of a property loss rather than for repair costs, or lost profits.

Accordingly, the Court reversed the trial court’s dismissal of the negligence count of DeCoster’s complaint. In the case sub judice, as we have stated, the principal claim is for the replacement cost of gradually deteriorating plywood, which is solely an economic loss. Issue II Maryland Consumer Protection Act Appellants next take issue with Judge Cave’s dismissal of their “Fifth Claim for Relief,” which alleged that, in their advertisements for FRT plywood, appellees violated the Maryland Consumer Protection Act. Md.Com.Law Code Ann. §§ 13-101—13-501 (1990).

According to appellants, Judge Cave “rejected appellants’] claims under the Act because [they] did not allege that they relied on any false statement of the [appellees]----” Appellants point out that Count V was brought under § 13-408(a) of the Act, which provides that “any person may bring an action to recover for injury or loss ⁶⁵⁷ sustained by him as the result of a practice prohibited by this title.” They argue at great length that reliance on a false representation is not necessary to a recovery under § 13-408(a). In addition to responding that reliance is necessary under § 13-408(a), appellees set forth an alternative ground for the dismissal of the fifth count. Appellees argue, as they argued below, that the Consumer Protection Act is inapplicable to the instant case because it addresses situations involving “consumers” and “consumer goods.” Appellees posit that appellants “did not buy consumer goods. Builders—who are not consumers—bought FRT plywood. [Appellants] bought homes.” Preliminarily, we observe that, despite the apparent present understandings of both appellants and appellees, appellants did allege that they relied on false statements—as well as omissions—by appellees.

In the portion of their complaint headed “Factual Allegations Common to All Claims,” appellants alleged that appellees’ advertisements “had the capacity, tendency, or effect of deceiving or misleading consumers, including [appellants and other members of] the [c]lass.” Appellants alleged that appellee Osmose in particular “knowingly omitt[ed]” to include in its advertising “material fact[s]” regarding the degradation and deterioration characteristics of one of its FRT plywood products. Most significantly, appellants alleged under the fourth count, for negligent misrepresentation: 68. Hoover Universal, HTWP and Osmose knew or should have known that, but for these material