Launiupoko Water Co., Inc. v. J-M Manufacturing Company, Inc.

Filing 42

ORDER GRANTING J-M MANUFACTURING COMPANY, INC. AND FORMOSA PLASTICS CORPORATION, U.S.A.'S MOTIONS TO DISMISS. Signed by JUDGE DERRICK K. WATSON on 11/25/2014. re: 19 21 Motions to Dismiss; 22 24 Motion for Joinder. **For the foregoing reasons, J-M Manufacturing Company, Inc. and Formosa Plastics Corporation, U.S.A.s Motions to Dismiss are HEREBY GRANTED. Plaintiffs are permitted leave to file an amended complaint in conformity with this order by December 30, 2014. (ecs, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAI`I

LAUNIUPOKO WATER CO., INC. a
domestic corporation; LAUNIUPOKO
IRRIGATION CO., INC., a domestic
corporation; and OLOWALU WATER
COMPANY, INC., a domestic
corporation,

CIVIL NO. 14-00303 DKW-KSC
ORDER GRANTING J-M
MANUFACTURING COMPANY,
INC. AND FORMOSA PLASTICS
CORPORATION, U.S.A.’S
MOTIONS TO DISMISS

Plaintiffs,
vs.
J-M MANUFACTURING COMPANY,
INC., d/b/a JM Eagle, a Delaware
corporation; FORMOSA PLASTICS
CORPORATION, U.S.A., a Delaware
corporation; DOE HDPE
MANUFACTURERS 1-20; and ROE
RESIN COMPANIES 1-20,
Defendants.

ORDER GRANTING J-M MANUFACTURING COMPANY, INC. AND
FORMOSA PLASTICS CORPORATION, U.S.A.’S MOTIONS TO DISMISS
INTRODUCTION
Defendants pipe and resin manufacturers seek dismissal of the complaint filed
by a group of privately owned water companies who allege damage to their water

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distribution systems caused by Defendants’ defective products. Plaintiffs claim
that, at an unknown time within the past ten years, Defendants’ defectively
manufactured and designed piping products began leaking and bursting, causing
substantial water loss and damaging both Plaintiffs’ system and the surrounding
property. Because Plaintiffs’ strict liability and negligence-based claims are barred
by the economic loss doctrine, and otherwise do not meet the requirements of
Federal Rules of Civil Procedure 8 and 9, the Court GRANTS Defendants’ motions
to dismiss.
BACKGROUND
Plaintiffs are privately owned water companies serving subdivisions on West
Maui, Hawai‘i. Launiupoko Water Co., Inc., Launiupoko Irrigation Co., Inc., and
Olowalu Water Co., Inc. hold Certificates of Public Convenience and Necessity
from the State of Hawai‘i Public Utilities Commission to provide potable drinking
water and nonpotable agricultural irrigation water to those regions. Complaint
¶¶ 3-5.
J-M Manufacturing Co., Inc., doing business as JM Eagle, is a manufacturer
and distributor of High Density Polyethylene products (“HDPE”). Formosa
Plastics Corp., U.S.A., is a manufacturer and supplier of resin used to manufacture a
variety of products, including the JM Eagle HDPE product line. According to
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Plaintiffs, Defendants manufactured and distributed HDPE cold water service pipe
and tubing products, resins and additives (“HDPE Products”) under the brand names
JM Eagle, Eagle, and Hastings Eagle Geo-Flo, among others. Complaint ¶¶ 6-7,
10.
Plaintiffs allege that “within the last 10 years, contractors and developers in
Maui began purchasing and installing JM Eagle’s HDPE Products in residential
subdivisions.” Complaint ¶ 19. They claim that JM Eagle’s HDPE Products were
installed in Plaintiffs’ service areas in the laterals that run from the main service
lines to the water meters. Within a few years of installation, Plaintiffs began
making repairs of the lateral lines due to leaking or bursting pipes. They claim that
the leaks and bursts occurred randomly throughout the service areas and were not
inconsistent with routine water system maintenance. Thereafter, Plaintiffs began to
notice an increase in system losses over the historical norm, which appeared to be
related to leaks or bursts of the lateral line pipes. As a result of the leaks and bursts,
Plaintiffs claim that more water was lost in the system than was being delivered to its
customers. Complaint ¶¶ 19-20, 25.
Plaintiffs allege damage to “surrounding property including, but not limited
to, streets, sidewalks, landscaping and driveways,” as well as to their water
distribution systems. Complaint ¶¶ 23-26. They contend that the JM Eagle HDPE
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Products and Formosa Plastics resin and/or additives have design and manufacturing
defects, leading to premature failure of the HDPE Products. Plaintiffs assert claims
for (1) products liability (Count I); (2) strict liability (Count II); (3) breach of
implied warranty (Count III); (4) breach of the warranty of merchantability (Count
IV); (5) negligence (Count V); and (6) misrepresentation/fraud (Count VI).
Defendants move to dismiss each of these claims.
STANDARD OF REVIEW
Rule 12(b)(6) permits a motion to dismiss for failure to state a claim upon
which relief can be granted. Pursuant to Ashcroft v. Iqbal, “[t]o survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.’” 555 U.S. 662, 678 (2009) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). “[T]he tenet that a
court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions.” Id. Accordingly, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. (citing Twombly, 550 U.S. at 555). Rather, “[a] claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id.
(citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to
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infer “the mere possibility of misconduct” do not constitute a short and plain
statement of the claim showing that the pleader is entitled to relief as required by
Rule 8(a)(2). Id. at 679.
Under Rule 12(b)(6), review is generally limited to the contents of the
complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001);
Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996). However, courts
may “consider certain materials—documents attached to the complaint, documents
incorporated by reference in the complaint, or matters of judicial notice—without
converting the motion to dismiss into a motion for summary judgment.” United
States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Documents whose contents are
alleged in a complaint and whose authenticity are not questioned by any party may
also be considered on a Rule 12(b)(6) motion to dismiss. See Branch v. Tunnell, 14
F.3d 449, 453–54 (9th Cir. 1994), overruled on other grounds by Galbraith v.
County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).
DISCUSSION
I.

The Economic Loss Rule Bars Plaintiffs’ Products Liability and
Negligence-Based Claims
Defendants seek a ruling that Plaintiffs’ products liability and

negligence-based claims are barred by the economic loss rule because Plaintiffs

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allege purely economic losses. Plaintiffs assert that the rule is inapplicable because
the HDPE Products damaged “other property.”
The economic loss rule precludes a plaintiff from recovering for purely
economic losses in tort.1 See Ass’n of Apartment Owners of Newton Meadows v.
Venture 15, Inc., 115 Hawai‘i 232, 167 P.3d 225 (2007); City Exp., Inc., v. Express
Partners, 87 Hawai‘i 466, 469, 959 P.2d 836, 839 (1998); State of Hawaii ex rel.
Bronster v. U.S. Steel Corp., 82 Hawai‘i 32, 919 P.2d 294 (1996). The rule is
codified at Hawaii Revised Statutes (“HRS”) § 663-1.2, which provides that “[n]o
person may recover damages, including punitive damages, in tort for a breach of a

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As the district court explained in Keahole Point Fish LLC v. Skretting Canada Inc.:
“Economic losses encompass [damages] for inadequate value, costs of repair and
replacement of [the] defective product, or consequent loss of profits-without any
claim of personal injury or damage to other property.’ ” Newtown Meadows, 115
Hawai‘i at 293, 167 P.3d at 286 (citations and quotations omitted) (alteration in
original); City Express, 87 Hawai‘i at 469, 959 P.2d at 839 (in cases involving
negligent design of building, economic loss damages are those pertaining solely to
the costs related to the operation and value of the building itself, i.e. additional
costs, lost rent, the cost of remedying the alleged building defects, and the
difference between the value of the building as designed and the value it would
have had if it had been properly designed; personal injuries caused by the defective
design or damage to property other than the building itself are excluded);
Millenkamp v. Davisco Foods Int’l, Inc., 391 F. Supp. 2d 872, 878 (D. Idaho 2005)
(“‘Economic loss’ includes costs of repair and replacement of defective property
which is the subject of the [litigation], as well as commercial loss of profits or use
. . . Alternatively, property damage encompasses damage to property other than
that which is the subject of the [litigation].”) (citations omitted).

Keahole Point Fish LLC v. Skretting Canada Inc., 971 F. Supp. 2d 1017, 1029-30 (D. Haw. 2013).

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contract in the absence of conduct that: (1) Violated a duty that is independently
recognized by principles of tort law; and (2) Transcended the breach of the
contract.”
The crux of [the economic loss rule] is the premise that economic
interests are protected, if at all, by contract principles, rather than
tort principles. Contract law is designed to enforce the
expectancy interests created by agreement between the parties
and seeks to enforce standards of quality. This standard of
quality must be defined by reference to that which the parties
have agreed upon. In contrast, tort law is designed to secure the
protection of all citizens from the danger of physical harm to
their persons or to their property and seeks to enforce standards
of conduct. These standards are imposed by society, without
regard to any agreement. Tort law has not traditionally
protected strictly economic interests related to product
quality—in other words, courts have generally refused to create a
duty in tort to prevent such economic losses.
Newtown Meadows, 115 Hawai‘i at 291, 167 P.3d at 284 (quoting Calloway v. City
of Reno, 116 Nev. 250, 993 P.2d 1259 (Nev. 2000), overruled on other grounds by
Olson v. Richard, 120 Nev. 240, 89 P.3d 31 (Nev. 2004)). Courts apply the
economic loss rule to bar economic recovery in tort cases such as this, “where there
is no contract and[,] thus[,] no privity” between the parties. Newtown Meadows,
115 Hawai‘i at 287, 167 P.3d at 280 (internal citations omitted).
Under the economic loss rule, “a manufacturer in a commercial relationship
has no duty under either a negligence or strict products liability theory to prevent a

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product from injuring itself.” Leis Family Ltd. P’ship v. Silversword Eng’rg, 126
Hawai‘i 532, 538-39, 273 P.3d 1218, 1224-25 (Ct. App. 2012) (quoting Bronster, 82
Hawai‘i at 39, 919 P.2d at 301). The rule also applies to a negligent design and/or
manufacturing theory, Bronster, 82 Hawai‘i at 40, 919 P.2d at 302, and to negligent
misrepresentation. City Express, 87 Hawai‘i at 470, 959 P.2d at 840; Keahole
Point Fish LLC v. Skretting Canada Inc., 971 F. Supp. 2d 1017, 1028-29 (D. Haw.
2013).
In this case, tort damages for economic losses relating to the HDPE Products
used in the water systems are barred under the doctrine. Plaintiffs’ allegations that
the HDPE Products were defective and damaged, leading to increased operational
costs, water loss, and increased repair and maintenance costs are consequential
damages that arose precisely from the alleged defects. See Complaint ¶¶ 23-26.
Any damage caused by the leaks and bursts in the pipes to the appurtenant valves
and integrated systems are similarly covered by the economic loss rule. A claim
based upon damage to the HDPE Products themselves “is most naturally understood
as a warranty claim.” East River S.S. Corp., 476 U.S. at 872.
An exception to the rule exists when the finished product causes damage to
“other property.” See Kawamata Farms, Inc. v. United Agric. Prods., 86 Hawai‘i
214, 254, 948 P.2d 1055, 1095 (1997). For example, Newtown Meadows examined
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whether cracked floor tile, demising walls, skewed door jambs and windows, and
damage caused by termites entering through floor cracks, was “other property”
damaged as a result of the negligent construction of concrete slabs. Newtown
Meadows, 115 Hawai‘i at 293, 167 P.3d at 286. The Newtown Meadows court
concluded that the plaintiff’s damages consisted of purely economic losses, and
noted that the plaintiff did not seek damages for personal injuries. Id. at 294, 167
P.3d at 287. In reaching this conclusion, the Hawai‘i Supreme Court relied on
cases applying the economic loss rule to situations where the defective product is a
component of an integrated system or structure and causes damage to other
components within the system/structure. Id. at 293-94, 167 P.3d at 286-87.
Newtown Meadows held that “even assuming arguendo that the cracked floor tiles,
demising walls, skewed door jambs and windows, and damage caused by termites
entering through the cracks were caused by the allegedly defective floor slabs, such
consequential damages do not constitute damage to ‘other property.’” Id. at
294-95, 167 P.3d at 287-88. This district has interpreted Newtown Meadows to
extend the reach of the economic loss rule to preclude “purely economic losses
including ‘consequential damages’ to property other than the allegedly defective
product.” Burlington Ins. Co. v. United Coatings Mfg. Co., Inc., 518 F. Supp. 2d
1241, 1254 (D. Haw. 2007).
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Plaintiffs contend that the “other property” exception applies here to damage
to “surrounding property” including, streets, sidewalks, landscaping and driveways.
Complaint ¶¶ 23. In their opposition and at the hearing, they further specified that
there was damage to a cul-de-sac above the water system’s pipes. This vague
assertion is insufficient to establish that Plaintiffs suffered any injury as a result of
the alleged defective products. It is not clear who owns the damaged road above the
leaking pipes, whether the road has been repaired, who repaired it, and whether
Plaintiffs were responsible for the costs of the unspecified repairs to the property.
In any event, it appears that such harm is foreseeable and constitutes consequential
damages resulting from the leaks and bursts. Like the cracked floor tiles, demising
walls, skewed door jambs and windows, and damages from termites entering cracks
all caused by defective concrete floor slabs in Newtown Meadows, or the defective
wall coating that streaked and fell into an adjacent parking lot in Burlington, the
damage to roads above the water distribution systems does not appear to fall outside
the ambit of the economic loss rule because it “constitutes pecuniary consequential
damage.” Burlington, 518 F. Supp. 2d. at 1254.
Nor is the Court persuaded by Plaintiffs’ argument that these claims should
survive because the HDPE Products did not meet industry standards, including those
established by ASTM, AWAA, ANSI/NSF and UL. Complaint ¶ 16. To the
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extent that Hawaii courts recognize an exception to the economic loss rule for
violations of building codes in cases against residential home-builders, the exception
does not extend to industry standards, such as those allegedly violated here, which
are not codified by state law. As this district court has noted, the exception applies
“expressly to builders,” and “only in the residential real estate construction context,”
and does “not apply in the product liability context” against a manufacturer. Baker
v. Castle & Cooke Homes Haw., Inc., 2012 WL 145967, at *11 (D. Haw. Apr. 25,
2012).
Accordingly, the Court dismisses with prejudice Plaintiffs’ tort claims
sounding in negligence, products liability, and strict liability. Counts I, II, V, and
the portion of Count VI alleging negligent misrepresentation are barred by the
economic loss rule.
II.

Plaintiffs’ Fraud Claims Do Not Satisfy Rule 9(b)
Plaintiffs’ claims for fraud fail to satisfy Federal Rule of Civil Procedure

9(b)’s particularity requirement. To succeed on a fraudulent misrepresentation
claim, a plaintiff must show that “(1) false representations were made by defendants;
(2) with knowledge of their falsity (or without knowledge of their truth or falsity);
(3) in contemplation of plaintiff’s reliance upon these false representations; and (4)
plaintiff did rely upon them.” Newtown Meadows, 115 Hawai‘i at 263, 167 P.3d at
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256 (quoting Shoppe v. Gucci Am., Inc., 94 Hawai‘i 368, 386, 14 P.3d 1049, 1067
(2000)). Fraudulent misrepresentation claims are subject to the heightened
pleading requirements of Rule 9(b). Radford v. Wells Fargo Bank, 2011 WL
1833020 (D. Haw. May 13, 2011) (applying Rule 9(b) to a plaintiff's fraudulent
misrepresentation claim).
Rule 9(b) requires that, when fraud or mistake is alleged, “a party must state
with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P.
9(b). An allegation of fraud is sufficient if it “identifies the circumstances
constituting fraud so that the defendant can prepare an adequate answer from the
allegations.” Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (internal
citations and quotations omitted). Averments of fraud must be accompanied by the
“who, what, when, where, and how” of the misconduct charged. Vess v. Ciba–
Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).
Here, the complaint does not sufficiently identify the circumstances that
constitute fraud, including such facts as the times, dates, places, or other details of
the alleged fraudulent activity. Neubronner, 6 F.3d at 672. Nor do Plaintiffs

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sufficiently explain why the unspecified conduct or statements are fraudulent.2 In
re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 n.7 (9th Cir.1994) (en banc),
superseded by statute on other grounds by 15 U.S.C. § 78u–4. Plaintiffs allege only
that Defendants “misrepresented and/or certified to prospective purchasers and users
that the HDPE Products met the respective requirements and standards of AWWA,
ASTM, ANSI-MSK and UL in existence at the time of manufacture,” and that
Plaintiffs relied upon these representations and certifications “when allowing them
to be installed in the water system service areas in Maui, Hawaii and in assuming
responsibility for the maintenance of the HDPE Products after installation.”
Complaint ¶¶ 66-67. These allegations do not identify the circumstances
constituting fraud as to each Defendant, do not specify how each Defendant could
have intended to induce reliance by entities, including Plaintiffs, with whom
Defendants had no relationship, or otherwise permit Defendants to prepare an
adequate answer from the allegations.

2

The statements made by Plaintiffs at the hearing and in their opposition are not within the four
corners of the complaint, are not incorporated by reference, and are not properly before the Court
on a Rule 12(b)(6) motion to dismiss. See Cooper v. Picket, 137 F.3d 616, 622-23 (9th Cir. 1997).

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Accordingly, Count VI fails to comply with Rule 9(b) and is dismissed with
leave to amend, with respect to the claim for fraud.3
III.

Plaintiffs’ Warranty Claims Do Not Satisfy Rule 8(a)
Defendants also seek dismissal of Plaintiffs’ warranty claims as inadequately

pled because Plaintiffs do not allege that they purchased HDPE Products made by
JM Eagle nor that they are consumers of Formosa’s resin. The Court agrees that the
claims for breach of implied warranty (Count III) and breach of the warranty of
merchantability (Count IV) require more than the threadbare allegations set forth in
the complaint.4

3

Defendants also contend that Plaintiffs fail to plead facts supporting an award of punitive
damages. Because the Court is permitting Plaintiffs to amend their claims for fraud, for which
punitive damages may be available, the Court denies as moot JM Eagle’s request to strike the
prayer for punitive damages. See Kang v. Harrington, 59 Haw. 652, 587 P.2d 285 (1978).
4
The elements of these claims are as follows:
In a breach of implied warranty of merchantability claim, Plaintiff must
show (1) the seller is a merchant of such goods, and (2) the product was
defective or unfit for the ordinary purpose for which it is used. . . . In a
breach of implied warranty for fitness of purpose claim, Plaintiff must
prove that (1) Plaintiff desired a product for a particular purpose, (2)
Defendants had reason to know about this purpose, and (3) the product sold
to Plaintiff failed to meet that purpose.
Stoebner Motors, Inc. v. Automobili Lamborghini S.P.A., 459 F. Supp. 2d 1028, 1035 (D. Haw.
2006) (quoting Neilsen v. American Honda Motor Co., Inc., 92 Hawai‘i 180, 190-91, 989 P.2d
264, 274-75 (App. 1999)).

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The complaint does not allege which JM Eagle products were purchased and
installed, when and where such products were installed, when Plaintiffs first
detected the defects they claim plague Defendants’ products, or what steps they took
to investigate the defects. The complaint vaguely alleges that “JM Eagle’s HDPE
Products and/or HDPE Products manufactured by the Doe Manufacturing
Defendants were in Plaintiffs’ service areas in the laterals that run from the main
service lines to the water meters.” Complaint ¶ 20. With respect to Formosa,
there are no facts alleged supporting a reasonable inference that its resin was
implicated in any specific product failures or caused the leaks and bursts in the
pipes. These bare allegations reciting the elements of a warranty claim fall short
under Iqbal and Twombly and do not satisfy Rule 8(a). See Iqbal, 556 U.S. at 662
(Rule 8 requires more than “the-defendant-unlawfully-harmed-me accusation[s]”
and “[a] pleading that offers labels and conclusions or a formulaic recitation of the
elements of a cause of action will not do.”). Accordingly, Counts III and IV are
dismissed with leave to amend.
IV.

Statutes of Limitations
In addition to the foregoing, JM Eagle seeks dismissal of Plaintiffs’ various

counts based on the applicable statutes of limitations. Because the Court is granting
Plaintiffs leave to amend certain claims, it does not reach these arguments at this
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time. Moreover, the statute of limitations is an affirmative defense that appears to
be more appropriate for disposition at the summary judgment stage, rather than on a
motion to dismiss.
CONCLUSION
For the foregoing reasons, J-M Manufacturing Company, Inc. and Formosa
Plastics Corporation, U.S.A.’s Motions to Dismiss are HEREBY GRANTED.
Plaintiffs are permitted leave to file an amended complaint in conformity with this
order by December 30, 2014.
IT IS SO ORDERED.
DATED: November 25, 2014 at Honolulu, Hawai‘i.

Launiupoko Water Co., et al. v. J-M Manufacturing Company, Inc., et al.;
Civil No. 14-00303 DKW-KSC; ORDER GRANTING J-M
MANUFACTURING COMPANY, INC. AND FORMOSA PLASTICS
CORPORATION, U.S.A.’S MOTIONS TO DISMISS

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