Mcgaffin et al v. Cementos Argos S.A. et al

Filing 43

ORDER granting 30 Motion to Stay disposition. Signed by Magistrate Judge G. R. Smith on 10/20/16. (wwp)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
JIM and BECKY McGAFFIN,
et al.,
Plaintiffs,
C4616-104

V.

CEMENTOS ARGOS S.A., et al.,
Defendants.

ORDER
Defendants in this class action move to dismiss and to stay
discovery. Docs. 28 & 30. The district judge will decide the dismissal
motion, while the stay motion will be resolved here.
I. Background
Plaintiff homeowners purchased homes in Chatham County,
Georgia, from homebuilders Beazer Homes and D.R. Horton. Doc. 23
(Amended Complaint), ¶IT 4-6. Defendants Cementos Argos, S.A., et al.,
"designed, formulated, manufactures, mixed, blended and supplied the
concrete" that the hornebuilders used "in discrete structures in and
around Plaintiffs' residential properties and dwellings, including in
foundations, slabs . . . , footings, garages, driveways, walkways and

patios." Id. ¶IT 3 & 14.
Plaintiffs contend that defendants breached their "duty to design
and manufacture a properly portioned concrete mixture" by supplying
concrete that contained "an excessive percentage of fly ash," a material
mixed with cement to form concrete.

Id. ¶IT 17-21, 28 1 44. The mixture

allegedly caused the concrete to crumble and disintegrate, in turn creating
a "fine silicate dust" that has since settled on plaintiffs' personal property
and continues to pose a threat to their respiratory health.

Id. ¶T 25,

29-39, 58.
Defendants defend on the ground that they were never in
contractual privity with the plaintiffs. Docs. 28 & 30. They thus want a
discovery stay until the district judge rules on their dismissal motion.
Plaintiffs oppose. Docs. 37 & 39.
IL Analysis
In essence, the Argos defendants contend that (a) plaintiffs can't sue
them due to lack of privity; and (b) in any event Georgia's economic loss
rule bars their tort claims. Doc. 30 at 2. Plaintiffs respond that "their
negligence, fraud and class claims are supported by sufficient facts" to
meet the pleading standard required to defeat a motion to dismiss, so they

2

want discovery to proceed. Doc. 39.
To that end, plaintiffs cite their Amended Complaint to demonstrate
that their "homes, other property, and health have been damaged by the
Argos Defendants' concrete, rendering the economic loss doctrine
inapplicable" to their claims. Doc. 39 at 2. Counts I-ITT are various
types of negligence claims: negligent design and manufacture, negligent
failure to warn, and negligent remediation. Count VT alleges
concealment/suppression. All are tort claims, and it is undisputed that
all may fall under the economic loss rule.

See docs. 28, 37.

Plaintiffs contend, however, that their claims fall outside the
economic loss rule because "[t]here is no contract between Plaintiffs and
the Argos Defendants, and Plaintiffs are consumers whose largest
investments -- their homes -- are contaminated with defective Argos
cement." Doc. 37 at 15.
The "economic loss rule" prohibits tort recovery when a defective
product results in damage only to itself, causing economic loss but no
attendant injury to persons or other property.

See, e.g., East River

Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986); Geri.
Elec. Co. v. Lowe's Home Ctrs., Inc., 279 Ga. 77, 78 (2005) (the rule

3

"generally provides that a contracting party who suffers purely economic
losses must seek his remedy in contract and not in tort"); Vulcan

Materials Co., Inc. v. Driltech, Inc., 251 Ga. 383, 384 (1983).
In other words, economic losses are "disappointed economic
expectations," which are protected by contract law, rather than tort
law. This is the basic difference between contract law, which
protects expectations, and tort law, which is determined by the duty
owed to an injured party. For recovery in tort "there must be a
showing of harm above and beyond disappointed expectations. A
buyer's desire to enjoy the benefit of his bargain is not an interest
that tort law traditionally protects."

Casa Clara Condo. Ass'n, Inc., et al. v. Charley Toppino and Sons., Inc., et
al., 620 So.2d 1244, 1246 (Fla. 1993) (internal citations omitted); see Puite
Home Corp. v. Osmose Wood Preserving, Inc., 60 F.3d 734, 740 (11th Cir.
1995) (citing with approval Casa Clara's exclusion of the purchase of
houses from the economic loss rule).
In Casa Clara, homeowners sued numerous defendants and
included claims against a concrete supplier for breach of common law
implied warranty, products liability, negligence, and violation of the
building code. The Florida Supreme Court held that because the
allegedly defective concrete at issue was an "integral part" of the finished
homes, it could not be brought outside the economic loss rule. In other
words, the deterioration of the concrete damaged only itself, not any other

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property, and therefore could not be a tortious injury to the homeowners'
property.

Id. at 1247 . 1

As explained in Casa Clara,
We are urged to make an exception to the economic loss doctrine for
homeowners. Buying a house is the largest investment many
consumers ever make, and homeowners are an appealing,
sympathetic class. If a house causes economic disappointment by
not meeting a purchaser's expectations, the resulting failure to
receive the benefit of the bargain is a core concern of contract, not
tort, law. East River, 476 U.S. at 870. There are protections for
hornebuyers, however, such as statutory warranties, the general
warranty of habitability, and the duty of sellers to disclose defects,
as well as the ability of purchasers to inspect houses for defects.
Coupled with homebuyers' power to bargain over price, these
protections must be viewed as sufficient when compared with the
mischief that could be caused by allowing tort recovery for purely
economic losses. Therefore, we again "hold contract principles
more appropriate than tort principles for recovering economic loss
without an accompanying physical injury or property damage." If
we held otherwise, "contract law would drown in a sea of tort."
East River, 476 U.S. at 866. We refuse to hold that homeowners are
not subject to the economic loss rule.

"Generally, house buyers have little or no interest in how or where the
individual components of a house are obtained. They are content to let the
builder produce the finished product, i.e., a house. These homeowners bought
finished products -- dwellings -- not the individual components of those
dwellings. They bargained for the finished products, not their various
components. The concrete became an integral part of the finished product
and, thus, did not injure 'other' property.
Casa Clara, 620 So.2d at 1247. See also In re Chinese Manufactured Drywall Prod.
Liab. Litig., 680 F. Supp. 2d 780, 791 (E.D. La. 2010) ("in order to determine the
'product' .. . , one must look to the product purchased by the plaintiff, not the product
sold by the defendant. . . . when homeowners purchase finished homes, and not the
individual components of those homes, the finished homes constitute the 'product.").

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Casa Clara, 620 So.2d at 1247 (internal citations and footnotes omitted).

Georgia law has an even more expansive reading of the economic loss rule
than that applied in Casa Clara -- applying it to all tort claims.

See Gen.

Elec., 279 Ga. at 78.

Here, plaintiffs seek damages to the value of their property, namely
the house and its component parts including the HVAC system, caused by
the allegedly defective concrete. This case presents identical claims to
those of Casa Clara -- meaning, those claims are almost certainly barred
by the economic loss rule.' Their other allegations of damage to other
property seems to be limited to purchasing vacuuming supplies and
repeatedly cleaning their furniture and appliances, which is not exactly
property damage.

See Am. Comp. at 2, 12-13, 15, and 40. And their

allegations of damage to their persons are limited to a conclusory charge
2

Plaintiffs contend they fall under the "misrepresentation exception" to the
economic loss rule by virtue of their concealment/suppression claim. Doc. 37 at 20.
As they note, however, fraudulent concealment requires both pleading and proving
that they justifiably relied on the alleged concealment. Id. at 12 (citing McLendon v.
Georgia Kaolin Co., 837 F. Supp. 1231, 1239 (M.D. Ga. 1993). Plaintiffs' conclusion -that they "justifiably relied on Argo's concealment/suppression of the dangers of
Argo's defective concrete mix and have allowed it to remain, untreated, beneath the
floors of their dwellings" -- is unsupported by factual allegations. See Am. Compl.,
¶ 88. Further, plaintiffs seem to admit that they lack a concealment/suppression
claim against defendants, noting in a footnote that they themselves "may not have
relied on the suppression of the alteration of the Argos Defendants' residential
concrete design at the time that the alteration decision was originally made, [but] their
builders and others did sorely." Doc. 37 at 13 n. 9. They establish no legal authority
to impute their builder's reliance to them.

on

of "personal injuries," including some undefined type of respiratory
distress. Id. at 12 (noting that the silicate dust poses a "risk of silicosis,
lung cancer, other nonmalignant respiratory disease, [and] renal and
autoimmune problems" and that plaintiffs "have experienced increased
respiratory issues since moving into the dwellings"). If the district judge
considers the allegations of other property damage and personal injury to
pass muster at this pleading stage, they may well be the only claims that
will proceed, and even then only with amendment, see, e.g., In re Atlas

Roofing Corp. chalet Shingle Prod. Liab. Litig., 22 F. Supp. 3d 1322, 1327
(N.D. Ga. 2014) (general allegations of damage to "other property" is too
ambiguous to survive preclusion by the economic loss rule), meaning that
the scope of potential discovery may be significantly narrowed.
There is also a possibility that the district judge may find the
reasoning of Casa Clara entirely inapplicable to the facts at hand, and
allow plaintiffs' claims to go forward.

See In re Chinese Manufactured

Drywall, 680 F. Supp. 2d 780, 793-94 (because plaintiffs sufficiently
alleged "more than disappointed economic expectations," the economic
loss rule could no longer be applied to preclude their negligence claims).
Given the current factual allegations of the Complaint, however, this

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possibility is unlikely.' A stay of discovery is therefore warranted.

See

Fed. R. Civ. P. 26(c).
III. CONCLUSION
The Court GRANTS defendants' motion to stay pending disposition
of the defendants' dismissal motion. Doc. 30.
SO ORDERED, this 20th day of October, 2016.

UNITED STATES MAGISTRATE JUDGE
SOUTHERN DISTRICT OF GEORGIA

"When a party seeks a stay pending resolution of a motion to dismiss, a court must
take a preliminary peek at a dispositive motion to assess the likelihood that the motion
will be granted." Sams v. GA West Gate, LLC, 2016 WL 3339764 at * 6 (S.D. Ga. June
10, 2016) (quotes and cites omitted).