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Sadler v. Pella Corp.

United States District Court, D. South Carolina, Charleston Division

November 23, 2015

JOHN SADLER and GERIANN GATZIOLIS, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
PELLA CORPORATION, Defendant

          For John Sadler, Geriann Gatziolis, Plaintiffs (2:14-cv-03051-DCN): Jonathan Shub, Sr, LEAD ATTORNEY; Daniel K Bryson, Whitfield Bryson & Mason LLP, Raleigh, NC; Frank Michael Petosa, Morgan and Morgan, Plantation, FL; Marc H Edelson, Hoffman and Edelson Law Offices, Doylestown, PA; Matthew E Lee, PRO HAC VICE, Whitfield Bryson and Mason, Raleigh, NC; Scott A George, Seeger Weiss, Philadelphia, PA; Jeffrey A Leon, Quantum Legal, Highland Park, IL.

         For Pella Corporation, Defendant (2:14-cv-03051-DCN): G Mark Phillips, Michael Tucker Cole, LEAD ATTORNEYS, Nelson Mullins Riley and Scarborough (Ch), Charleston, SC; John P. Mandler, LEAD ATTORNEY, Faegre, Baker Law Firm - Minneapolis Office, Minneapolis, MN; Kevin L Morrow, Faegre Baker Daniels, Chicago, IL; Mark J Winebrenner, Shane A Anderson, Faegre Baker Daniels, Minneapolis, MN.

         For Pella Corporation Architect and Designer Series Windows Marketing, Sales Practices and Products Liability Litigation, In Re (2:14-mn-00001-DCN): John P. Mandler, LEAD ATTORNEY, Faegre, Baker Law Firm - Minneapolis Office, Minneapolis, MN; Shane A Anderson, Faegre Baker Daniels, Minneapolis, MN.

         For Plaintiff's Lead Counsel, Plaintiff (2:14-mn-00001-DCN): Daniel K Bryson, LEAD ATTORNEY, Whitfield Bryson & Mason LLP, Raleigh, NC; Jonathan Shub, LEAD ATTORNEY, PRO HAC VICE, Kohn Swift and graft, Philadelphia, PA.

         For Plaintiff's Liaison Counsel, Plaintiff (2:14-mn-00001-DCN): Justin O'Toole Lucey, LEAD ATTORNEY, Justin O'Toole Lucey Law Firm, Mt Pleasant, SC.

         For Pella Corporation, Defendant (2:14-mn-00001-DCN): Amy R Fiterman, LEAD ATTORNEY, Mark J Winebrenner, Shane A Anderson, Faegre Baker Daniels, Minneapolis, MN; G Mark Phillips, Michael Tucker Cole, LEAD ATTORNEYS, Nelson Mullins Riley and Scarborough (Ch), Charleston, SC; John P. Mandler, LEAD ATTORNEY, Faegre, Baker Law Firm - Minneapolis Office, Minneapolis, MN; John A Roberts, Kevin L Morrow, Faegre Baker Daniels, Chicago, IL.

         ORDER

         DAVID C. NORTON, UNITED STATES DISTRICT JUDGE.

         This matter is before the court on a motion to dismiss filed by Pella Corporation (" Pella" ). The court grants in part and denies in part Pella's motion as set forth below.

         I. BACKGROUND

         Plaintiff John Sadler (" Sadler" ) installed Pella windows in his Des Plaines, Illinois home in late 2002 and early 2003. Am. Compl. ¶ 30. Sadler discovered fungus growing under his windows in 2011 and discovered rot in his windows in 2013, at which time he contacted Pella. Id. ¶ 34. Pella offered to replace the windows, but indicated that Sadler would have to pay for the cost of the replacement windows and the cost of installation. Id. ¶ 35. Unsatisfied, Sadler declined Pella's offer. Id.

         Plaintiff Geriann Gatziolis's (" Gatziolis" ) St. Charles, Illinois home was built in 2004 and Pella windows were installed the same year. Id. ¶ 36. Gatziolis experienced problems with her windows about four years after they were installed, but did not observe any indication of rot at that time. Id. ¶ 40. Her windows began to exhibit worse signs of failure in 2011, at which point she contacted Pella. Id. Pella inspected Gatziolis's home and denied that her windows were defective. Id.

         Plaintiffs contend that their windows suffer from various design deficiencies, including " a defect in the design of the sill extrusion and sill nailing fin attachment[,] as well as a defect in the design of [sic] allowing a gap between the jamb gasket and the sill gasket." Id. ¶ 51. Plaintiffs allege that due to these design defects, water is permitted to be trapped between the aluminum and the operable wood frame, permitting leaks and causing damage to the windows and other property within the home. Id. Plaintiffs further allege that Pella knew, or but for its negligence should have been aware, of the defects. Id. ¶ 24.

         On May 5, 2014, plaintiffs filed a class action complaint against Pella in the United States District Court for the Northern District of Illinois, alleging jurisdiction based on diversity of citizenship. On June 10, 2014, plaintiffs amended their complaint, bringing the following ten causes of action: (1) negligence; (2) breach of implied warranty of merchantability; (3) breach of implied warranty of fitness for a particular purpose; (4) breach of express warranty; (5) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (" ICFA" ); (6) fraudulent misrepresentation; (7) fraudulent concealment; (8) unjust enrichment; (9) violation of the Magnuson-Moss Warranty Act (" MMWA" ); and (10) declaratory relief.

         On July 30, 2014, the United States Judicial Panel on Multidistrict Litigation transferred plaintiffs' case to this court as part of the consolidated multidistrict litigation. Pella filed the instant motion to dismiss on August 29, 2014. Plaintiffs opposed the motion on October 17, 2014, and Pella replied on October 31, 2014. The motion has been fully briefed and is ripe for the court's review.

         II. STANDARDS

         A. Motion to Dismiss

         Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss for " failure to state a claim upon which relief can be granted." When considering a Rule 12(b)(6) motion to dismiss, the court must " accept[] all well-pleaded allegations in the plaintiff's complaint as true and draw[] all reasonable factual inferences from those facts in the plaintiff's favor." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). But " the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

         On a motion to dismiss, the court's task is limited to determining whether the complaint states a " plausible claim for relief." Id. at 679. A complaint must contain sufficient factual allegations in addition to legal conclusions. Although Rule 8(a)(2) requires only a " short and plain statement of the claim showing that the pleader is entitled to relief," " a formulaic recitation of the elements of a cause of action will not do." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The " complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). " Facts pled that are 'merely consistent with' liability are not sufficient." A Soc'y Without a Name v. Virginia, 655 F.3d 342, 346 (4th Cir. 2011) (quoting Iqbal, 556 U.S. at 678).

         B. Applicable Law

         This case is predicated on diversity jurisdiction and was filed in federal court, so it is governed by state substantive law and federal procedural law. Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996). " In multidistrict litigation, the law of the transferee circuit governs questions of federal law." In re KBR, Inc., 736 F.Supp.2d 954, 957 (D. Md. 2010) modified on reh'g sub nom. In re KBR, Inc., Burn Pit Litig., 925 F.Supp.2d 752 (D. Md. 2013) vacated and remanded on other grounds, 744 F.3d 326 (4th Cir. 2014); see also In re Gen. Am. Life Ins. Co. Sales Practices Litig., 391 F.3d 907, 911 (8th Cir. 2004); Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1993); In re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171, 1176, 265 U.S.App.D.C. 39 (D.C. Cir. 1987); cf. Bradley v. United States, 161 F.3d 777, 782 n.4 (4th Cir. 1998) (applying Fourth Circuit law to questions of federal law in a case transferred from the Fifth Circuit). Therefore, this court must apply Illinois substantive law and Fourth Circuit procedural law.

         III. DISCUSSION

         A. Implied Warranty Claims

         Pella argues that plaintiffs' claims for breach of the implied warranty of merchantability and the implied warranty of fitness for a particular purpose fail because they are barred by the statute of limitations. Pella also argues that: (i) Gatziolis's implied warranty claims fail because she cannot establish privity with Pella; and (ii) plaintiffs' claim for breach of the implied warranty of fitness for a particular purpose fails because the windows were used for their ordinary purpose. The court will address each argument in turn.

         1. Statute of Limitations

         Under Illinois law, the statute of limitations for a breach of warranty claim is four years. 810 Ill.Comp.Stat. 5/2-725(1). Ordinarily, the cause of action accrues when the breach occurs. 810 Ill.Comp.Stat. 5/2-725(2). A breach occurs when tender of delivery is made, unless the warranty at issue " explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance," in which case " the cause of action accrues when the breach is or should have been discovered." Id. " [I]mplied warranties by definition cannot explicitly extend to future performance." Stoltzner v. Am. Motors Jeep Corp. Inc., 127 Ill.App.3d 816, 469 N.E.2d 443, 445, 82 Ill.Dec. 909 (Ill.App.Ct. 1984). Pella argues because Sadler's windows were installed in 2003 at the latest, Am. Compl. ¶ 30, and Gatziolis's windows were installed in 2004, Id. ¶ 36, the statute of limitations for each plaintiff's claim expired by 2008, about six years before the current action was filed.

         Plaintiffs argue that the statute of limitations was tolled by the doctrine of equitable estoppel because Pella concealed the defect from plaintiffs and other window owners.[1] Id. ¶ ¶ 67, 68. Pella also contends that plaintiffs have failed to adequately plead equitable estoppel.

         Equitable estoppel tolls the running of a statute of limitations when the party claiming estoppel demonstrates that:

(1) the other party misrepresented or concealed material facts; (2) the other party knew at the time the representations were made that the representations were untrue; (3) the party claiming estoppel did not know that the representations were untrue when the representations were made and when they were acted upon; (4) the other party intended or reasonably expected the representations to be acted upon by the party claiming estoppel or by the public generally; (5) the party claiming estoppel reasonably relied upon the representations in good faith and to their detriment; and (6) the party claiming estoppel has been prejudiced by his reliance on the representations.

Parks v. Kownacki, 193 Ill.2d 164, 737 N.E.2d 287, 296, 249 Ill.Dec. 897 (2000). Here, plaintiffs' equitable estoppel claim appears to be based on a theory of fraudulent concealment.[2] Compl. ¶ ¶ 67, 68 (stating that " Pella has known of the defects . . . and has concealed from owners of the [w]indows . . . the defective nature of the windows," and that " [g]iven Pella's failure to disclose this known but non-public information . . . Pella is estopped from" enforcing the statute of limitations).

         Illinois law provides that:

If a person liable to an action fraudulently conceals the cause of such action from the knowledge of the person entitled thereto, the action may be commenced at any time within 5 years after the person entitled to bring the same discovers that he or she has such cause of action, and not afterwards.

735 Ill.Comp.Stat. 5/13-215. As with equitable estoppel generally, a plaintiff invoking the doctrine of fraudulent concealment must show " affirmative acts by the defendant which were designed to prevent, and in fact did prevent, the discovery of the claim." Cangemi v. Advocate S. Suburban Hosp., 364 Ill.App.3d 446, 845 N.E.2d 792, 804, 300 Ill.Dec. 903 (Ill.App.Ct. 2006) (citation omitted); see also Dancor Int'l, Ltd. v. Friedman, Goldberg & Mintz, 288 Ill.App.3d 666, 681 N.E.2d 617, 623, 224 Ill.Dec. 302 (Ill.App.Ct. 1997) (" The concealment of a cause of action sufficient to toll the statute of limitations requires affirmative acts or representations designed to prevent discovery of the cause of action or to lull or induce a claimant into delaying the filing of his claim." ). " Mere silence of the defendant and the mere failure on the part of the plaintiff to learn of a cause of action do not amount to fraudulent concealment." Cangemi, 845 N.E.2d at 804.

         Pella argues that plaintiffs' have not pleaded the requisite " affirmative act" because their estoppel argument is based on Pella's " failure to disclose." Am. Compl. ¶ 68. Plaintiffs argue that equitable estoppel may be established by acts of concealment and that Pella engaged in such acts by failing to disclose the defect to customers. Pl.'s Resp. at 10-11.

         It is clear that equitable estoppel, particularly in the form of fraudulent concealment, can be established by " acts of concealment," including the breach of a duty to disclose material information. DeLuna v. Burciaga, 223 Ill.2d 49, 857 N.E.2d 229, 246, 306 Ill.Dec. 136 (Ill. 2006); see also Parks, 737 N.E.2d at 296 (" To establish equitable estoppel, the party claiming estoppel must demonstrate that: (1) the other party misrepresented or concealed material facts . . . ." ) (emphasis added). " A duty to disclose a material fact may arise out of several situations[,] [f]irst, if plaintiff and defendant are in a fiduciary or confidential relationship" and " [s]econd, . . . where plaintiff places trust and confidence in defendant, thereby placing defendant in a position of influence and superiority over plaintiff." DeLuna, 857 N.E.2d at 246 (quoting Connick v. Suzuki Motor Co., 174 Ill.2d 482, 675 N.E.2d 584, 593, 221 Ill.Dec. 389 (Ill. 1996)). A duty to disclose material information can also arise " when the defendant's acts contribute to the plaintiff's misapprehension of a material fact and the defendant intentionally fails to correct plaintiff's misapprehension." Coca-Cola Co. Foods Div. v. Olmarc Packaging Co., 620 F.Supp. 966, 973 (N.D.Ill. 1985).

         The amended complaint alleges actions by Pella which could plausibly have contributed to plaintiffs' misapprehension that the windows were not defective: specifically, that Pella brought the windows to market and undertook active and ongoing steps to conceal the defect. Am. Compl. ¶ 153, 160. The amended complaint also alleges that Pella knew of the defect and knew that customers would not be able to detect it, even after diligent inspection, but chose to omit any mention of the defect in the course of selling and distributing the windows. Id. ¶ 23, 28, 29. Though these allegations are somewhat conclusory, courts have found similar allegations sufficient to establish the possibility of a duty to disclose at the motion to dismiss stage. See Design Ideas, Ltd. v. Bed Bath & Beyond, Inc., 2013 WL 2489174, at *5 (C.D. Ill. June 10, 2013) (denying motion to dismiss counterclaim for fraudulent concealment where counterclaimant alleged that counterclaim defendant " intentionally concealed" a material fact during contract negotiation, even though counterclaimant did not allege any affirmative act that created their misapprehension). Therefore, the court finds that plaintiffs have sufficiently pleaded facts showing that Pella breached a duty to disclose the defect.

         Pella also argues that plaintiffs have failed to plead their fraudulent concealment claim in compliance with the standards of Federal Rule of Civil Procedure 9(b).[3] Def.'s Resp. 20-21. Rule 9(b) provides that a party alleging fraud " must state with particularity the circumstances constituting fraud." This rule extends to claims for fraudulent concealment. Beauchem v. Rockford Prods. Corp., 2004 WL 432328, at *1 (N.D.Ill. Feb. 6, 2004) (" Fraudulent concealment must be pled with particularity." ); Breeden v. Richmond Cmty. Coll., 171 F.R.D. 189, 195 (M.D.N.C. 1997) (" [E]ven in a case of fraudulent concealment or omission, a plaintiff must comply with the heightened pleading requirements of Fed.R.Civ.P. 9(b)." ). Generally, in order to satisfy Rule 9(b), the complaint must allege the " who, what, when, where and how of the alleged fraud," U.S. ex rel. Ahumada v. NISH, 756 F.3d 268, 280 (4th Cir. 2014), or the " first paragraph of any newspaper story." Great Plains Trust Co. v. Union P. R.R. Co., 492 F.3d 986, 995 (8th Cir. 2007); see also U.S. ex rel. Elms v. Accenture LLP, 341 Fed.Appx. 869, 872 (4th Cir. 2009) (holding Rule 9(b) requires a plaintiff to allege " the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby" ).

         Rule 9(b) operates somewhat differently when evaluating claims based on omissions. Breeden, 171 F.R.D. at 195 (recognizing that the usual Rule 9(b) requirements " work[] well for cases of affirmative misrepresentations because such are discrete, observable events which can be particularized," while " fraud by omission . . . is by its very nature, difficult to plead with particularity" (quoting Daher v. G.D. Searle & Co., 695 F.Supp. 436, 440 (D. Minn. 1988))). In order to plead fraud by omission in compliance with the pleading requirements of Rule 9(b), " a plaintiff usually will be required to allege the following with reasonable particularity:"

(1) the relationship or situation giving rise to the duty to speak, (2) the event or events triggering the duty to speak, and/or the general time period over which the relationship arose and the fraudulent conduct occurred, (3) the general content of the information that was withheld and the reason for its materiality, (4) the identity of those under a duty who failed to make such disclosures, (5) what those defendant(s) gained by withholding information, (6) why plaintiff's reliance on the omission was both reasonable and detrimental, and (7) the damages proximately flowing from such reliance.

Id.

         As discussed above, plaintiffs have sufficiently pleaded facts giving rise to Pella's duty to speak by alleging actions by Pella which could have contributed to plaintiffs' misapprehension that the windows were not defective. Plaintiffs have also pleaded: the general content of the information that was withheld, i.e., the existence of the defect; what Pella gained by withholding such information, i.e., increased window sales; why plaintiffs' reliance on Pella's omission was reasonable and detrimental; and damages. See Am. Compl. ¶ ¶ 164 (alleging plaintiffs " suffered a loss of money . . . as a result of Pella's fraudulent concealment and nondisclosure because [] they would not have purchased the [w]indows on the same terms if the true facts concerning the windows had been known" ). The court finds these allegations sufficient to satisfy the requirements of Rule 9(b) and adequately state a claim that Pella fraudulently concealed the basis of their implied warranty claims.

         On this fraudulent concealment theory, plaintiffs had five years from the time they discovered the basis of their implied warranty claims to bring such claims. 735 Ill.Comp.Stat. 5/13-215. Both plaintiffs appear to have discovered the defect, and thus the basis for their claim, in 2011--when Sadler discovered fungus growing under his windows and Gatziolis discovered signs of rot in her windows.[4] See Am. Compl. ¶ ¶ 34, 40. Plaintiffs filed the present action in 2014, well within the five year period permitted by 735 Ill.Comp.Stat. 5/13-215. Therefore, the court finds that plaintiffs' implied warranty claims are not barred by the statute of limitations, under the doctrine of equitable estoppel.

         2. Privity and Gatziolis

         Pella also argues that Gatziolis's implied warranty claims fail because she was not in privity with Pella.

         Illinois law does not allow plaintiffs to assert implied warranty claims against product manufacturers where the plaintiffs did not purchase the product. Bd. of Educ. of City of Chicago v. A, C & S, Inc., 131 Ill.2d 428, 546 N.E.2d 580, 595, 137 Ill.Dec. 635 (Ill. 1989) (" [I]n order to state a claim against the defendant for breach of implied warranty, privity must exist between the plaintiff and defendant." ). However, " absence of privity will not bar an action based on implied warranty when the plaintiff is a third-party beneficiary to a contract." Chrysler Corp. v. Haden Uniking Corp., 1992 WL 373039, at *8 (N.D. Ill.Dec. 3, 1992) (collecting cases). " To be a 'direct' beneficiary and therefore the third party beneficiary of a contract, the parties to the agreement must 'have manifested in their contract an intention to confer a benefit upon the third party.'" Hunter v. Old Ben Coal Co., 844 F.2d 428, 432 (7th Cir. 1988) (quoting Altevogt v. Brinkoetter, 85 Ill.2d 44, 421 N.E.2d 182, 187, 51 Ill.Dec. 674 (Ill. 1981)).

         Gatziolis asserts that she was the intended third party beneficiary of the sale between Pella and its distributors, and is therefore entitled to enforce the implied warranty claim based on Pella's false description of the product. Pls.' Resp. 12; Am. Compl. ¶ 89, 96. " The law of Illinois is that third-party beneficiary status may only be conferred where the identification of the third party to be benefited is clear and the benefit to him is direct." Spiegel v. Sharp Elec. Corp.,125 Ill.App.3d 897, 466 N.E.2d 1040, 1044, 81 Ill.Dec. 238 (Ill.App.Ct. 1984). A plaintiff cannot recover as a third-party beneficiary unless the facts " show an intent on the part of the [initial buyer] to confer the benefit." Id. at 1045. A seller's knowledge that the goods in question will be resold is not sufficient to render subsequent purchasers third party beneficiaries. Id. (stating that ...


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