Avenue Lofts Condominiums Owners' Association v. Victaulic Company
Filing
97
Opinion and Order: The Court GRANTS Defendant Victaulic Company's Motion 85 to Dismiss Claims for Fraud [Fifth Claim], Negligent Misrepresentation [Sixth Claim], and Violation of the UTPA [Fourth Claim] and GRANTS Defendant's M otion 85 to Strike Punitive Damages. Thus, this matter will proceed only as to Plaintiff's First Claim for strict liability and Second Claim for negligence according to the case-management schedule previously set by the Court. Signed on 06/06/2014 by Judge Anna J. Brown. See attached 32 page Opinion and Order for full text. (bb)
.,
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
AVENUE LOFTS CONDOMINIUMS
OWNERS' ASSOCIATION, an
Oregon nonprofit corporation,
Plaintiff,
v.
VICTAULIC COMPANY, a foreign
corporation,
Defendant.
MICHELLE K. McCLURE
STUART K. COHEN
Landye Bennett Blumstein, LLP
3500 Wells Fargo Center
1300 S.W. Fifth Avenue
Suite 3500
Portland, OR 97201
(503) 224-4100
RICHARD N. SIEVING
JENNIFER L. SNODGRASS
The Sieving Law Firm, A.P.C.
100 Howe Avenue
Suite 220N
Sacramento, CA 95825
(916) 444-3366
Attorneys for Plaintiff
1 - OPINION AND ORDER
3:13-CV-01066-BR
OPINION AND ORDER
ANNE COHEN
Smith Freed & Eberhard
111 SW Fifth Avenue
Suite 4300
Portland, OR 97204
(503) 227-2424
Attorneys for Defendant
BROWN, Judge.
This matter comes before the Court on Defendant Victaulic
Company's Motion (#85) to Dismiss Claims for Fraud [Fifth Claim],
Negligent Misrepresentation [Sixth Claim], and Violation of the
UTPA [Fourth Claim] and Motion (#85) to Strike Punitive Damages.
For the reasons that follow, the Court GRANTS Defendant's
Motions.
BACKGROUND
The following facts are taken from the First Amended
Complaint of Plaintiff Avenue Lofts Condominiums Owners'
Association, Defendant's Memorandum in Support of its Motion to
Dismiss, and Plaintiff's Memorandum in Opposition to Defendant's
Motion to Dismiss.
Plaintiff is an Oregon nonprofit corporation and the
governing body of the Avenue Lofts Condominium (the Condominium) .
The Condominium consists of 169 living units, 186 parking units,
and 88 storage units.
completed in 2004.
2 - OPINION AND ORDER
Construction on the Condominium was
Defendant is a New Jersey corporation and at all relevant
times manufactured, marketed, and supplied valves, pipe
couplings, gaskets, and fittings to suppliers and installers for
use in their businesses.
At some point before 2004 developer Evergreen M&F, LLC,
hired Howard S. Wright Construction (HSW) as general contractor
for the Condominium.
HSW contracted with MSI to install the
plumbing systems for the Condominium.
MSI purchased plumbing
components (including products manufactured by Defendant) from
third-party distributor Ferguson.
MSI then installed Defendant's
products in the Condominium as part of the plumbing system.
At some point the
potable water piping system installed throughout
the CONDOMINIUM[, which) includes VICTAULIC
PRODUCTS[,) . . . prematurely deteriorated and
failed or otherwise failed to properly perform.
Among other things, the VICTAULIC PRODUCTS have
become brittle, cracked, softened, deteriorated
and disintegrated.
The deterioration of the
VICTAULIC PRODUCTS has caused water intrusion,
pipe bursts and property damage to components of
the CONDOMINIUM's General Common Elements . . . by
causing damage to the potable water system itself,
appliances, fixtures, walls, insulation, floor,
drywall and the interiors of the living units. As
deterioration and failure of the VICTAULIC
PRODUCTS progresses, further widespread water
intrusion and property damage is occurring.
First Am. Compl. at
~
35.
On June 25, 2013, Plaintiff filed a Complaint against
Defendant in this Court in which it brought claims for
products liability;
(2) negligence;
3 - OPINION .AND ORDER
(1) strict
(3) breach of express
warranty;
(4) violation of Oregon's Consumer Warranty Act (CWA),
Oregon Revised Statute § 72.8180;
(5) violation of Oregon's
Unlawful Trade Practices Act (UTPA), Oregon Revised Statute
§
646.608 (1) (e),
(g), and (t);
(6) fraud; and (7) negligent
misrepresentation.
Before this action was filed,
Plaintiff's counsel filed an
action against Defendant on February 25, 2013, on behalf of Edge
Lofts Master Condominium Association (the Edge Lofts action) in
Multnomah County Circuit Court in which the plaintiffs alleged
claims against Defendant based on facts similar to those alleged
by Plaintiff against Defendant in this case.
On March 22, 2013,
Defendant removed the matter to the United States District Court
for the District of Oregon, and the case was assigned to Judge
Michael Mosman.
On June 10, 2013, Defendant filed a Motion to
Dismiss the Edge Loft action in which it sought dismissal of,
among other things, the plaintiff's claims for violation of the
UTPA, fraud, and negligent misrepresentation.
Plaintiff's counsel also filed a Complaint against Defendant
on June 17, 2013, on behalf of Benson Tower Condominium Owners
Association (the Benson action) in the United States District
Court for the District of Oregon in which the plaintiffs alleged
claims against Defendant based on facts similar to those alleged
by Plaintiff against Defendant in this matter and the facts
alleged by the plaintiffs in the Edge Lofts action.
4 - OPINION AND ORDER
The Benson
action was assigned to Judge Michael Simon.
On July 29, 2013, Defendant filed Motions for Centralized
Pre-Trial Proceedings in each of the above three cases.
On August 7, 2013, Judge Mosman granted Defendant's Motions
for Centralized Pre-Trial Proceedings in all three actions.
On September 6, 2013, Defendant filed Motions to Dismiss in
this matter and in the Benson action that mirrored the Motion to
Dismiss that Defendant filed in the Edge Lofts action.
On November 18, 2013, Defendant filed a Motion to
Consolidate Hearings on Defendant's Motions to Dismiss in the
three actions.
On November 26, 2013, Judge Mosman granted
Defendant's request for consolidated hearings.
On January 6, 2014, Judge Mosman heard oral argument on
Defendant's Motions to Dismiss and, among other things:
(1) granted Defendant's Motions as to each of the Plaintiffs' CWA
claims on the ground that Plaintiffs failed to plead sufficiently
that Defendant's products are "consumer products" within the
meaning of the CWA,
(2) granted Defendant's Motions as to each of
the Plaintiffs' UTPA claims on the ground that Plaintiffs failed
to plead sufficiently that Defendant's products are "consumer
goods" within the meaning of the UTPA, and (3) granted
Defendant's Motions as to each of the Plaintiffs' claims for
lo
fraud and negligent misrepresentation on the ground that
Plaintiffs failed to plead the elements of justifiable reliance
5 - OPINION AND ORDER
and to identify to whom the statements were made with the
specificity required by Federal Rule of Civil Procedure 9(b).
Judge Mosman also granted each of the plaintiffs leave to amend
their Complaints.
On January 21, 2014, Plaintiff in this matter filed a First
Amended Complaint in which it alleged claims for (1) strict
products liability,
warranty,
(2) negligence,
(4) violation of the UTPA,
(3) breach of express
(5) fraud,
and (6) negligent
misrepresentation.
Also on January 21, 2014, the plaintiffs in the Edge Lofts
action filed a Second Amended Complaint and the plaintiffs in the
Benson action filed a First Amended Complaint in which each of
those plaintiffs asserted the same claims as those asserted by
Plaintiff in this action based on facts similar to those alleged
by Plaintiff in this action.
On February 24, 2014, Defendant filed nearly identical
Motions to Dismiss Claims for Fraud, Negligent Misrepresentation,
and Violation of the UTPA in both this matter and the Benson
action.
On March 5, 2014, Defendant filed a similar Motion to
Dismiss in the Edge Lofts action.
This Court took Defendant's Motion to Dismiss Plaintiff's
claims for fraud, negligent misrepresentation, and violation of
the UTPA filed in this action under advisement on March 24, 2014.
On March 21, 2014, Defendant filed a Motion for Summary
6 - OPINION AND ORDER
Judgment in the Edge Lofts action in which it also sought summary
judgment as to the plaintiff's claims for violation of the UTPA,
negligent misrepresentation, and fraud.
On April 3, 2014, Judge Mosman entered an order in all three
actions dissolving the administrative consolidation of the
matters.
On April 18, 2014, Judge Mosman issued an Order in the Edge
Lofts action in which, among other things, he granted Defendant's
Motion for Summary Judgment as to Plaintiff's claims for fraud
and misrepresentation based on the plaintiff's allegations that
Defendant misrepresented the ability of its products to operate
at temperatures lower than 230 degrees or to operate in potable
water systems containing a certain percentage of chloramines such
as the Portland water system. 1
On May 27, 2014, Judge Simon issued an Opinion and Order in
the Benson action in which, among other things, he also granted
Defendant's Motion to Dismiss the plaintiff's claims for fraud
and negligent misrepresentation based on the plaintiff's
allegations that Defendant misrepresented the ability of its
products to operate at temperatures lower than 230 degrees or to
operate in potable water systems containing a certain percentage
Judge Mosman denied the Defendant's Motion to Dismiss in
Edge Lofts action as moot because it raised the same grounds
the
for dismissal of the plaintiff's UTPA, fraud, and negligent
misrepresentation claims as the Defendant's Motion for Summary
Judgment.
1
7 - OPINION AND ORDER
of chloramines such as the Portland water system.
In addition,
Judge Simon granted Defendant's Motion to Dismiss the plaintiff's
UTPA claim.
STANDARDS
To 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.u
[Bell Atlantic v.
Twombly, 550 U.S. 554,) 570, 127 S. Ct. 1955. 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. at 556.
The plausibility standard is not akin to a
"probability requirement,u but it asks for more
than a sheer possibility that a defendant has
acted unlawfully.
Ibid.
Where a complaint pleads
facts that are "merely consistent withu a
defendant's liability; it "stops short of the line
between possibility and plausibility of
'entitlement to relief.'u Id. at 557, 127 S. Ct.
1955 (brackets omitted).
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
Atlantic, 550 U.S. at 555-56.
See also Bell
The court must accept as true the
allegations in the complaint and construe them in favor of the
plaintiff.
Din v. Kerry,
718 F. 3d 856, 859 (9th Cir. 2013).
"In ruling on a 12 (b) (6) motion, a court may generally
consider only allegations contained in the pleadings, exhibits
attached to the complaint, and matters properly subject to
judicial notice."
Akhtar v. Mesa,
2012) (citation omitted).
698 F.3d 1202, 1212 (9th Cir.
A court, however,
"may consider a
writing referenced in a complaint but not explicitly incorporated
8 - OPINION AND ORDER
therein if the complaint relies on the document and its
authenticity is unquestioned."
Swartz v. KPMG LLP, 476 F.3d 756,
763 (9ili Cir. 2007) (citation omitted).
DISCUSSION
Defendant moves to dismiss Plaintiff's claims for violation
of the UTPA (Fourth Claim), negligent misrepresentation (Sixth
Claim), and fraud (Fifth Claim) as well as Plaintiff's request
for punitive damages.
I.
Plaintiff's UTPA Claim (Fourth Claim)
Defendant moves to dismiss Plaintiff's Fourth Claim for
violation of the UTPA on the grounds that (1) the purchase of
Defendant's components by MSI was a commercial transaction rather
than a consumer transaction, and, therefore, the UTPA does not
apply;
(2) Plaintiff has failed to plead sufficient reliance to
state a claim under the UTPA; and (3) Plaintiff is not the real
party in interest and, therefore, may not bring a claim under the
UTPA.
The UTPA provides in pertinent part:
(1) A person engages in an unlawful practice if in
the course of the person's business, vocation or
occupation the person does any of the following:
* * *
(e) Represents that real estate, goods or
services have sponsorship, approval,
characteristics, ingredients, uses, benefits,
quantities or qualities that the real estate,
9 - OPINION AND ORDER
goods or services do not have or that a
person has a sponsorship, approval, status,
qualification, affiliation, or connection
that the person does not have.
* * *
(g) Represents that real estate, goods or
services are of a particular standard,
quality, or grade, or that real estate or
goods are of a particular style or model, if
the real estate, goods or services are of
another.
* * *
(t) Concurrent with tender or delivery of any
real estate, goods or services fails to
disclose any known material defect or
material nonconformity.
Oregon courts have long held the UTPA "applies only to
consumer transactions; it does not regulate commercial
transactions."
590 (1981).
Investigators, Inc. v. Harvey, 53 Or. App. 586,
See also Denson v. Ron Tonkin Gran Turismo, Inc.,
279 Or. 85, 90 n.4 (1977) (The "policy underpinning" the UTPA is
"protection of consumers.").
Courts in this District have
reached the same conclusion.
See, e.g., L & A Designs v. Xtreme
ATVs, Inc., No. 03:10-CV-00627-HZ, 2012 WL 1532417, at *4
(D. Or.
Apr. 30, 2012) (" [T]he UTPA is limited to consumer actions.");
Slep-Tone Entm't Corp. v. Shenanigans Lounge, No. 6:12-CV1236-TC, 2013 WL 1768444, at *4
(D. Or. Feb. 22, 2013) ("Plaintiff
has not alleged that it is a consumer of defendants' products and
thus,
I find that plaintiff lacks standing to maintain claims
under the UTPA. "), adopted by Chief District Judge Ann Aiken,
10 - OPINION AND ORDER
2013 WL 1767727 (D. Or. Apr. 20, 2013) ("Despite plaintiff's
objections, this court finds no reason to depart from the
previous decisions by the judges of this court finding that the
UTPA is limited to.consumer actions."); Allegro Corp. v. Only New
Age Music, Inc., No. 01-790-HU, 2003 WL 23571745, at *16 (D. Or.
Jan. 23, 2003) (granting summary judgment to the plaintiff on
defendant's counterclaim for violation of the UTPA on the ground
that the defendant was not a consumer of the plaintiff's
products); Volm v. Legacy Health Sys., 237 F. Supp. 2d 1166, 1175
(D. Or. 2002) (granting summary judgment to the defendant on the
plaintiff's UTPA claim on the ground that plaintiff was not a
consumer of the defendant's products); CollegeNet, Inc. v.
Embark.Com, Inc.,
230 F. Supp. 2d. 1167, 1175 (D. Or. 2001)
(granting the defendant's motion to dismiss the plaintiff's UTPA
claim on the ground that the plaintiff is not a consumer of the
defendant's products); Oregon Laborers-Emp'r Health & Welfare
Trust Fund v. Philip Morris, Inc., 17 F. Supp. 2d 1170, 1180 (D.
Or. 1998) (same).
The Court notes Plaintiff does not explicitly allege it is a
"consumer" of Defendant's products.
Indeed, MSI purchased
Defendant's products through Ferguson and installed those
products in the Condominium in the course of its plumbing
business.
There is not any allegation that Plaintiff or the
condominium owners (Owners) purchased any of Defendant's
11 - OPINION AND ORDER
products.
In addition, the Owners purchased their condominium
units either from the developer, Evergreen M&F, or from prior
owners of the units who purchased them from Evergreen M&F.
The sole allegation in Plaintiff's First Amended Complaint
related to Plaintiff's alleged status as a consumer is that the
Owners of the individual condominiums and "members of Plaintiff,
when buying their individual units, purchased real property as
contemplated by the [UTPA] ."
First Am. Compl. at
~
68.
Plaintiff relies on Fowler v. Cooley, 239 Or. App. 338
(2010), to
support its assertion that the Owners' purchase of their
condominium units is sufficient to establish that the Owners,
and, in turn, Plaintiff are consumers under the UTPA.
In Fowler
the plaintiff sought damages under the UTPA arising from the
defendant's sale to the plaintiff of a single-family home that
had a water leak in the basement.
After a bench trial the court
entered a judgment in the plaintiff's favor.
The defendant
appealed on the ground that, among other things, the trial court
erred when it denied the defendant's motion to dismiss the
plaintiff's UTPA claim because the house was not purchased by the
plaintiff for personal, household, or family purposes.
The
Oregon Court of Appeals noted
the [Oregon] Supreme Court in Searle v. Exley
Express, 278 Or. 535, 540, 564 P.2d 1054 (1977),
[explained] "[i]f goods are customarily bought by
a substantial number of purchasers for personal,
family or household uses and were, in fact, bought
by the plaintiff for his or someone else's use and
12 - OPINION AND ORDER
not for resale, the [UTPA) applies.n Thus, Searle
Is the real estate,
embodies a two-part test:
good, or service at issue customarily purchased by
a substantial number of people for personal,
family, or household use (the objective component)
and was it, in fact, purchased by the plaintiff
for personal, family, or household use, rather
than for commercial use or resale (the subjective
component)
239 Or. App. at 344.
The Oregon Court of Appeals found "[a)
residential home is undoubtedly real estate that is customarily
bought by a substantial number of people for personal, family, or
household use.
Thus, plaintiff easily satisfies the objective
component of the Searle test.n
Id. at 344-45.
Plaintiff asserts Fowler supports the proposition that
because the Owners, who are members of Plaintiff, purchased their
units in the Condominium for personal use, they also purchased
the plumbing materials (including Defendant's products) for their
personal use.
According to Plaintiff, therefore, it is a
consumer of Defendant's products for personal, family, or
household uses, and, therefore, Plaintiff has stated a claim
under the UTPA.
Nevertheless, Judge Mosman rejected this same
argument when it was made by the plaintiffs in the Edge Lofts
action, and he granted summary judgment in favor of Victaulic on
the ground that the plaintiff had not established the owners'
purchase of the condominium units was sufficient to establish a
purchase of Defendant's consumer goods under the UTPA.
Edge
Lofts v. Victaulic, 3:13-CV-00492-MO, Hearing Tr. at 43-44
13 - OPINION AND ORDER
(Apr. 14, 2014).
Judge Simon also rejected this argument in the
Benson action and granted Defendant's Motion to Dismiss the
plaintiff's UTPA claim on the ground that
[w)hat Plaintiff, or to be precise, an individual
unit owner who is a member of Plaintiff, purchased
was a living unit (a condominium, or a home) that
contained plumbing components, among many other
That purchaser did not purchase the
things.
plumbing components - at least not under the UTPA
as that statute has been interpreted by the
federal courts in this district.
Benson v. Victaulic,
3:13-CV-01010-SI, Opin. and Order at 16
(May 27, 2014, docket #76).
The Court agrees with the reasoning of Judges Mosman and
Simon and likewise concludes Plaintiff here has not established
it is a consumer of Defendant's products under the UTPA.
particular, the Court looks to Miller v. Herman,
(7th Cir. 2010).
In
600 F.3d 726
Although Miller was decided under the Magnuson-
Moss Act, the court's analysis in that case is helpful because
the definition of a "consumer product" under the Magnuson-Moss
Act is similar to the Oregon Supreme Court's definition of
consumer goods under the UTPA in Searle.
Moreover, the Miller
case involved facts similar to those alleged in this case.
In
Miller the plaintiffs (husband and wife) entered into a contract
with builder James G. Herman & Associates for the construction of
a new home.
In mid-June 2003 Herman purchased for the
plaintiffs' home a number of windows and doors manufactured and
warranted by Pella Products.
14 - OPINION AND ORDER
Herman and subcontractor Joseph
Nobilio installed the windows in the plaintiffs' home.
Although
Herman represented to the plaintiffs that the house was
habitable, the Pella windows leaked and allowed water into the
plaintiffs' home.
Ultimately the plaintiffs brought an action
against Herman and Pella that included a claim for violation of
the Magnuson-Moss Act, 15 U.S.C. § 2310, which provides a civil
cause of action for consumers "damaged by the failure of a
supplier, warrantor, or service contractor to comply with any
obligation [under the Act)
. or under a written warranty,
implied warranty, or service contract." 15 U.S. C. § 2310 (d) ( 1) .
Herman moved to dismiss and Pella moved for summary judgment
against the plaintiffs' Magnuson-Moss Act claim on the ground
that the windows installed in the plaintiffs' home were not
"consumer products" within the meaning of the Act.
The trial
court found the plaintiffs
contracted with Herman for the construction of a
new home, not for the individual sale of windows.
Because those windows were intended to be
integrated into the [plaintiffs') home, we find
that they do not constitute "consumer products"
under the Magnuson-Moss Act, but are instead
building materials indistinguishable from the real
Thus, the [plaintiffs] have no valid
property.
claims under the Magnuson-Moss Act.
Id. at 731.
motions.
Accordingly, the trial court granted the defendants'
The plaintiffs appealed.
The Seventh Circuit affirmed
the trial court and noted the Act defines a "consumer product" as
"any tangible personal property which is distributed in commerce
15 - OPINION AND ORDER
and which is normally used for personal, family, or household
purposes (including any such property intended to be attached to
or installed in any real property without regard to whether it is
so attached or installed)
noted
~[the
.n
15 U.S.C. § 2301(1).
The court
plaintiffs] did not go to the store and engage in a
transaction for windows.
Instead,
[they) specifically alleged
that 'Herman purchased, on behalf of the [plaintiffs), fixed and
casement windows and several hinged doors and a slider patio door
manufactured by Pella.'n
Id. at 735.
The court found the
plaintiffs' circumstances were similar to those described in 16
C.F.R. § 700.1(f), 2 which provides in pertinent part:
[When] a consumer contracts with a builder to
. the building materials to
construct a home,
be used are not consumer products. Although the
materials are separately identifiable at the time
the contract is made, it is the intention of the
parties to contract for the construction of realty
which will integrate the component materials.
Ultimately the court concluded the plaintiffs
contracted with Herman for the construction of a
The home was not existing; the windows
new home.
at issue here were purchased by Herman, a
[The
contractor, to instalf into the home.
plaintiffs have) not produced any evidence showing
a separate contract for the windows, or a separate
transaction for them in which [they were)
[Thus], the windows are
personally engaged.
within the meaning of
not ~consumer productsn
Magnuson-Moss.
The regulations interpreting the Magnuson-Moss Act were
promulgated by the Federal Trade Commission (the agency
responsible for implementing the Act) after a notice-and-comment
period.
2
16 - OPINION AND ORDER
Id,
at 737.
Here neither Plaintiff nor the Owners contracted with
Defendant for the plumbing parts at issue.
As noted MSI
purchased Defendant's products from Ferguson, a third party.
The
Owners purchased the condominium units from either Evergreen M&F
or from previous unit owners.
As in§ 700.1(f), it was the
intention of the Owners to purchase realty that integrated
Defendant's component materials rather than to purchase the
component materials themselves.
There is not any evidence of a
separate contract between Plaintiff and Defendant or the Owners
and Defendant for the purchase of Defendant's components.
On
this record, therefore, the Court concludes Plaintiff has not
alleged sufficient facts to establish that it is a consumer of
Defendant's products as defined in the UTPA.
Because the Court
concludes the purchase of Defendant's components by MSI was a
commercial transaction rather than a consumer transaction and the
UTPA, therefore, does not apply to Plaintiff's claim, the Court
declines to address Defendant's other grounds for dismissal.
Accordingly, the Court grants Defendant's Motion to Dismiss
Plaintiff's Fourth Claim for violation of the UTPA.
In addition,
because Plaintiff has already been given the opportunity to amend
its UTPA claim, the Court declines to grant Plaintiff leave to
amend its Complaint a second time as to this issue.
17 - OPINION AND ORDER
II.
Plaintiff 's Claim for Negligent Misrepres entation (Sixth
Claim)
Plaintiff alleges in its Sixth Claim for negligent
misrepres entation that Defendant was aware "[p]rior to the
installati on of [Defendan t's] products into the condominiu m
that [Defendan t's] products contained an inherent defect" and
that Defendant was recklessly indifferen t to the risk that its
products would fail when exposed to temperatu res less than 230
degrees and/or would fail when exposed to chloramin es.
Compl.
First Am.
90, 93-94.
~~
The Oregon Supreme Court has held claims for negligent
misrepres entation "must be predicated on some duty of the
negligent actor to the injured party beyond the common law duty
to exercise reasonable care to prevent foreseeab le harm."
Pac.
Corp.
added).
v.
Trs.
of Bronson,
Onita
315 Or. 149, 159 (1992) (emphasis
"In other words, for the duty to avoid making negligent
misrepres entations to arise, the parties must be in a 'special
relations hip,' in which the party sought to be held liable had
some obligation to pursue the interests of the other party."
Conway v.
Pac.
Univ.,
324 Or. 231, 237 (1996).
Courts in Oregon
have concluded such special relationsh ips may arise with, for
example, attorneys , physician s, principal s in an agent
relationsh ip, trustees, "pledgees ," and liability insurers "who
undertake [] a duty to defend."
Id. at 239-40.
In addition, an
individua l may be in a special relationsh ip with the engineers
18 - OPINION AND ORDER
and architects who they enter into a "contract with when the
individual "authorize[s)
[the engineer or architect) to exercise
independent judgment in the [individual's ] behalf and in the
[individual's ) interests,n and the individual has the right to
rely on the engineer or architect "to achieve a desired outcome
or resolution.n
Id. at 239-40.
Oregon courts, however, have
made clear that a special relationship does not exist in a
business transaction in which "adversarial parties negotiat[e) at
arm's length to further their own economic interests.n
315 Or. at 161.
Onita,
Accordingly, the Onita court concluded "in
arm's-length negotiations, economic losses arising from a
negligent misrepresent ation are not actionable.n
Id.
Here Plaintiff does not allege in its First Amended
Complaint that it was in a special relationship with Defendant
nor does Plaintiff allege any facts in its First Amended
Complaint from which the Court could infer that Plaintiff and
Defendant were in a special relationship.
As noted, MSI rather
than Plaintiff or the Owners purchased Defendant's products from
a third-party dealer in a typical business transaction.
To the
extent that the Owners were an intended beneficiary of that
purchase, Plaintiff does not allege, and there are not any facts
in the First Amended Complaint to suggest, that MSI's purchase of
Defendant's products from Ferguson was anything other than that
of an arm's-length transaction between "adversar[ies ) in a sales
19 - OPINION AND ORDER
transaction."
Conway,
324 Or. at 243.
Although courts have held
engineers or architects may be in a special relationship with
their clients, Plaintiff does not bring this action on behalf of
the Owners against the developer or contractor.
Thus, those
cases in which engineers or architects are held to be in a
special relationship with their clients are not applicable here.
In addition, to the extent that Plaintiff asserts its First
Amended Complaint should be read as contending that Defendant may
be liable for negligent misrepresentation because Defendant was a
"nongratuitous supplier of information" and, therefore, Defendant
owed the Owners as intended beneficiaries of that information a
duty to avoid making negligent misrepresentations , the Court
finds such an assertion to be unpersuasive.
In Onita the Oregon
Supreme Court noted some legal scholars "distinguish() between
misrepresentations made by an adversary in a sales transaction
and by one who holds out to the general public that he or she
supplies information" and suggested the latter may have a duty to
avoid making negligent misrepresentations .
315 Or. at 162.
In
Conway, however, the court explained a nongratuitous supplier of
information who may have a duty to avoid making negligent
misrepresentations "is someone in the business of supplying
information for a fee."
324 Or. at 243.
Plaintiff does not
allege any facts in its First Amended Complaint from which the
Court could plausibly conclude Defendant was in the business of
20 - OPINION AND ORDER
supplying information for a fee.
The Court, therefore, concludes Plaintiff has not stated a
claim for negligent misrepresent ation. 3
Accordingly, the Court
grants Defendant's Motion to Dismiss Plaintiff's Sixth Claim for
negligent misrepresent ation.
In addition, because Plaintiff has
already been given the opportunity to amend its negligentmisrepresent ation claim, the Court declines to grant Plaintiff
leave to amend its Complaint a second time as to this issue.
III. Plaintiff's Fraud Claim (Fifth Claim)
Plaintiff alleges in its Fifth Claim for fraud that
Defendant knew its products "were not acceptable for use in
potable water systems such as the potable water system in the
condominium" because they would fail when exposed to temperatures
less than 230 degrees and/or to chloramines.
~~
75, 77-78.
First Am. Compl. at
Plaintiff further alleges 4 Defendant did not
disclose the risk of failure of its products "to prospective
The Court notes Judges Mosman and Simon also dismissed the
port~on of the plaintiffs' negligent-mi srepresentati on claims in
the Edge Lofts and Benson actions based on the same facts as
Judges Mosman and
those alleged by Plaintiff in this matter.
Simon did not dismiss the portions of the plaintiffs' negligentmisrepresent ation claims in those actions that were based on
Here,
warranty claims made by the plaintiffs to Defendant.
it did not make any
however, Plaintiff specifically alleges
warranty claims.
3
Plaintiff also makes allegations related to "when
consumers submitted warranty claims." As noted, however,
Plaintiff specifically alleges neither it nor the Owners made any
The Court, therefore, concludes Plaintiff
warranty claims.
cannot base its fraud claims on warranty issues.
4
21 - OPINION AND ORDER
purchasers,• that Plaintiff "reasonably relied on [Defendant] to
disclose• the risk of failure, and that Plaintiff suffered an
"ascertainable loss[] of money and property.•
First Am. Compl.
at 'li'li 80, 86, 88.
Defendant moves to dismiss Plaintiff's fraud ·claim on the
ground that Plaintiff has not pled facts sufficient to establish
the reliance element of fraud.
A.
Pleading Standard
Federal Rule of Civil Procedure 8(a) provides:
A
pleading that sets forth a claim must contain "a short and plain
statement of the claim showing the pleader is entitled to
relief.''
"Rule 8's liberal notice pleading standard .
requires that the allegations in the complaint give the defendant
fair notice of what the plaintiff's claim is and the grounds upon
which it rests."
Tribble v.
Raytheon Co.,
490992, at *1 (9th Cir. Feb. 14, 2011).
No. 09-56669, 2011 WL
With respect to
allegations of fraud, however, Federal Rule of Civil Procedure
9(b) requires all allegations of fraud to be stated ''with
particularity."
In order to satisfy the additional burdens
imposed by Rule 9(b), the plaintiff must allege, at a minimum,
''the time, place and nature of the alleged fraudulent
activities."
Tok Cha Kim v.
CB Richard Ellis Haw., Inc.,
App'x 312, 315 (9th Cir. 2008) (citation omitted).
288 F.
"Rule 9 (b)
demands that the circumstances constituting the alleged fraud 'be
22 - OPINION AND ORDER
specific enough to give defendants notice of the particular
misconduct .
. . so that they can defend against the charge and
not just deny that they have done anything wrong.'"
567 F.3d 1120, 1124 (9th Cir. 2009) (quoting
Ford Motor Co.,
Ely-Magee v.
Kearns v.
Cal.,
236 F.3d 1014, 1019 (9th Cir. 2001)).
"'Averments of fraud must be accompanied by 'the who, what, when,
where, and how' of the misconduct charged."
Ciba-GeigyCorp.
USA,
Id.
(quoting Vess v.
317 F.3d 1097,1106 (9thcir. 2003)).
"A
party alleging fraud must set forth more than the neutral facts
necessary to identify the transaction."
Id.
(quotation omitted).
Fraud Standard
B.
To state a claim for fraud under Oregon common law a
plaintiff must allege:
"(1) a representation; (2) its falsity; (3) its
materiality; (4) the speaker's knowledge of its
falsity or ignorance of its truth; (5) his intent
that it should be acted on by the person and in
the manner reasonably contemplated; (6) the
hearer's ignorance of its falsity; ( 7) his
reliance on its truth; ( 8) his right to rely
thereon; and (9) his consequent and proximate
injury."
Burgdorf
Clark,
C.
v.
Weston,
259 Or. App. 755, 771 (2013) (quoting Webb v.
274 Or. 387, 391 (1976)).
Analysis
Although Plaintiff agrees it must plead every element
of fraud "with ultimate facts," Plaintiff contends "reliance is
not required in this case because the basis of Plaintiff's claim
23 - OPINION AND ORDER
is that [Defendant] knew its products would deteriorate and
degrade
. and actively concealed this information from the
public, including Plaintiff.n
Pl.'s Mem. in Opp'n at 6.
Plaintiff states "[t]his is a classic failure to disclose case.n
To. support its assertion that reliance is not required,
relies on two Oregon UTPA cases:
Plaintiff
Sanders v. Francis, 277 Or. 593
(1977), and State ex rel. Redden v. Discount Fabrics, Inc., 289
In Sanders the Oregon Supreme Court held Oregon
Or. 375 (1980).
UTPA § 646.608(2) does not require reliance as an element of
causation.
In Redden, however, the Oregon Supreme Court
specifically distinguished the elements of a UTPA claim under
§
646.608(2) from those in a common-law fraud claim:
The elements of common law fraud are distinct and
separate from the elements of a cause of action
under the Unlawful Trade Practices Act, and a
violation of the [UTPA] is more easily shown.
* * *
A review of the UTPA reveals that not all of these
elements are required in order to recover under
For example, the element of reliance is
the act.
notably different.
289 Or. at 383-84
(emphasis added) (quotation omitted).
The
Court, therefore, finds the analysis and conclusion in Sanders is
of limited relevance to the analysis of Plaintiff's fraud claim
in this matter.
Plaintiff also relies on Caldwell v. Pop's Homes, Inc.,
in which the court held "[s]ilence or nondisclosure can be the
24 - OPINION AND ORDER
basis for a fraud action.
A party need not make an affirmative
statement to be liable in fraud."
54 Or. App. 104, 113 (1981).
In Caldwell the plaintiff, the buyer of a mobile home, brought,
among other things, a fraud claim alleging the seller on
consignment (the defendant) failed to advise the plaintiff that
the park in which the home was located was being sold and the
home would have to be removed.
The court held when
~fraud
is
based on actual concealment, as opposed to simple nondisclosure"
a plaintiff need not establish the defendant had
speak."
Id.
~a
duty to
The court, however, did not hold that a plaintiff
is not required to plead or to prove reliance in a failure-todisclose fraud claim.
In fact, the plaintiff's reliance on the
defendant's alleged failure to disclose was not at issue in
Caldwell because, as the Oregon Court of Appeals specifically
noted,
~[t]here
was evidence that plaintiff purchased [a mobile
home] in reliance on the fact that the mobile home was ready for
occupancy in a park."
Id. at 111-12.
According to Defendant, Plaintiff has merely recast the
traditional fraud claim asserted in its original Complaint as a
failure-to-disclose fraud claim in its First Amended Complaint.
Defendant asserts Plaintiff's fraud claim is the kind of failureto-disclose fraud claim that requires an allegation of reliance.
In its original Complaint Plaintiff alleged with respect to its
fraud claim that Defendant
25 - OPINION AND ORDER
~expressly
represented and/or implied
(through affirmative statements or failures to disclose)":
a.
b.
That the grade E gaskets are recommended for
hot water service within a specified
temperature range of -30°F/-34°C to
+230°F/+110°C;
d.
That the grade E gaskets are compatible with
a variety of dilute acids, oil-free air and
many chemical services; and
e.
~~
That VICTAULIC's grade E EPDM gasket material
is UL classified in accordance with ANSI/NSF
61 for cold (+86°F/+30°C) and hot
(+180°F/+82°C) potable water service;
c.
Compl. at
That the Victaulic products' characteristics
created a permanent, leak-tight triple seal
on a variety of piping materials including
steel, stainless steel, aluminum, PVC,
ductile iron and copper;
That the Victaulic products were warranted to
be free from defects in material and
workmanship under normal conditions of use
and service.
28, 70.
Plaintiff also alleged Defendant's
representations were false, that Defendant knew or should have
known they were false, that Defendant intended customers to rely
on its representations, that Plaintiff justifiably relied on the
representations, that Plaintiff had a right to rely on the
representations, and that the representations were material "to
the determination as to whether to use [Defendant's] products in"
the Condominium.
Compl. at
~~
71-78.
At the January 6, 2014,
hearing, Judge Mosman concluded Plaintiff failed to plead fraud
with sufficient specificity as required under Rule 9(b).
In
particular, Judge Mosman noted Plaintiff failed to allege to whom
26 - OPINION AND ORDER
the alleged misrepresentations were made, to allege facts
underlying Plaintiff's .assertion that it justifiably relied on
Defendant's alleged misrepresentations, and to allege facts to
support its assertion that the alleged misrepresentations were
material.
In its First Amended Complaint Plaintiff alleges
Defendant "represented in its Seal Selection Guides, Field
Installation Handbooks, Design and Installation Manual and
Product Catalogs" that its Grade E gaskets were "recommended for
hot water service" up to 230 degrees.
First Am. Compl. at '11 13.
Plaintiff also alleges Defendant's Seal Selection Guides, Field
Installation Handbooks, Design and Installation Manual and
Product Catalogs "were published by [Defendant] prior to
construction of the condominium and disseminated on the internet
through [Defendant's] website" and that Defendant "provided a
copy of [its publications] to any person or entity upon
request." 5
Id.
Plaintiff also alleges Defendant did not provide
any "warnings about the use of Grade E EPDM in water with
chloramines."
First Am. Compl. at '11 15.
Finally, Plaintiff
alleges Defendant knew its products would fail when exposed to
water at temperatures less than 230 degrees and/or to chloramines
in the water, but Defendant failed to disclose those facts to its
5
Plaintiff does not, however, allege it or the Owners
requested or received any of Defendant's publications.
27 - OPINION AND ORDER
customers.
First Am. Compl. at
~~
77-78, 80.
As noted, however,
Plaintiff does not allege it relied on Defendant's published
guidelines for water temperature or on the fact that Defendant
did not warn of possible failure when its products were exposed
to chloramines.
In Pearson v. Philip Morris, Inc., the Oregon Court of
Appeals addressed allegations of faiLure-to-disclose fraud in a
similar context.
In Pearson the plaintiffs brought a class
action against a cigarette manufacturer and asserted the
defendant violated the UTPA when it, among other things, "both
affirmatively misrepresented that its light cigarettes would
inherently deliver low tar and nicotine, and failed to disclose
that, in order to receive low tar and nicotine, the smoker would
have to smoke the light cigarettes in a particular way."
257 Or.
App. 106, 119 (2013) (emphasis in original).
Regarding causation, plaintiffs argued that they
did not have to prove that they and the putative
class members had relied on defendant's
representations that Marlboro Lights were "Lights"
and had "Lowered Tar & Nicotine" because the
representations were half-truths.
According
to plaintiffs, "[t]he half-truth case involves a
failure to disclose, and [a UTPA] plaintiff need
not establish reliance when [the defendant]
fail[ed] to disclose information." Relying on
Sanders v. Francis, 277 Or. 593, 598, 561 P.2d
1003 (1977)
. plaintiffs argued that they did
not need to prove that they and the putative class
members had relied on defendant's representations.
Id. at 128.
Although the reliance element under the UTPA differs
from that in fraud, the Pearson court's analysis of half-truths,
28 - OPINION AND ORDER
failure to disclose, and generic fraud is instructive.
The trial
court held the plaintiffs would have to prove they had relied on
the defendant's representations in order "to prove that they had
suffered ascertainable losses as a result of defendant's
representations.•
Id. at 130.
The trial court also concluded
this case does not involve the type of 'failure to
disclose' misrepresentation the Sanders court
referred to when it said that in some UTPA cases
reliance is not an element of causation.
Plaintiffs allege here that the statement lowered
tar and nicotine' was misleading because it was a
They contend that it was false
half-truth.
because it did not explain that the statement was
true if the cigarettes were smoked in a certain
fashion by a machine, but not necessarily if they
Plaintiffs' theory
were smoked by a human being.
is that if the full truth had been told, they
would not have bought the cigarettes at all, or
would not have paid as much as they did for them.
Instead, being lulled by the half-truth, they
The theory still boils
bought Marlboro Lights.
down to an assertion that what defendant did say
Such a theory requires proof of
was false.
reliance.
Id. at 130 (emphasis in original) .
The Oregon Court of Appeals
affirmed the trial court's ruling related to reliance and
distinguished the case from Sanders as follows:
The distinction between misleading actions and
misleading omissions is not always clear and may
be malleable. As another court has recognized in
the fraud context, "[e]very fraud case based on
material misrepresentation [can] be turned
facilely into a material omissions case[.]• Beck
v. Cantor, Fitzgerald & Co., Inc.,· 621 F. Supp.
1547, 1556 (N.D. Ill. 1985) (quoted in State
Treasurer v. Marsh & McLennan Companies, Inc., 241
Plaintiffs
Or. App. 107, 119 (2011)).
allege that defendant's representations caused
them to believe something that was not true and
29 - OPINION AND ORDER
that they acted on that belief.
For that type of
allegation, proof of reliance is required.
Id. at 143-44 (citations omitted).
Here Plaintiff has alleged Defendant made affirmative
misrepresentations related to the temperature at which its
products could operate without defect as well as representations
that its products were approved for potable water systems.
Plaintiff, in effect, alleges Defendant told half-truths about
its products and failed to tell the entire truth about the
ability of its products to operate at lower temperatures or in
potable water systems with a certain percentage of chloramines
such as the Portland water system.
These allegations, like those
in Pearson, are not the type of "failure-to-disclose"
misrepresentations that the Sanders court referred to when it
concluded reliance was not a required element of causation.
As
in Pearson, Plaintiff's fraud theory boils down to an assertion
that what Defendant said was false, and, therefore, such a theory
requires proof of reliance, but Plaintiff did not plead reliance.
The Court notes Judges Mosman and Simon each concluded in the
Edge Lofts and Benson actions that the plaintiffs failed to plead
reliance under Rule 9(b) with respect to Defendant's statements
regarding the suitability of its products for temperatures up to
230 degrees and/or in potable water systems and dismissed those
30 - OPINION AND ORDER
portions of the plaintiffs' fraud claims.
6
Accordingly, the Court grants Defendant's Motion to
Dismiss Plaintiff's Fifth Claim for fraud.
In addition, because
Plaintiff has already been given the opportunity to amend its
fraud claim, the Court declines to grant Plaintiff leave to amend
its Complaint a second time as to this issue.
IV.
Punitive Damages
Defendant also moves to strike Plaintiff's request for
punitive damages on the ground that punitive damages are
available only for Plaintiff's claims for fraud, negligent
misrepresentation, and violation of the UTPA.
Plaintiff concedes
it may not recover punitive damages on its claims for negligence
and strict liability.
Because the Court grants Defendant's Motion to Dismiss
Plaintiff's claims for fraud, negligent misrepresentation, and
violation of the UTPA, the Court also strikes Plaintiff's claim
for punitive damages on the ground that Plaintiff may not recover
punitive damages for negligence or strict liability.
CONCLUSION
For these reasons, the Court GRANTS Defendant Victaulic
6
Judges Mosman and Simon did not dismiss the portion of the
plaintiffs' fraud claims relat~d to the plaintiffs' warranty
claims. As noted, however, here Plaintiff specifically alleges
it and the Owners did not submit any warranty claims to
Defendant.
31 - OPINION AND ORDER
Company's Motion (#85) to Dismiss Claims for Fraud [Fifth Claim],
Negligent Misrepresentation [Sixth Claim], and Violation of the
UTPA [Fourth Claim] and GRANTS Defendant's Motion (#85) to Strike
Punitive Damages.
Thus, this matter will proceed only as to Plaintiff's First
Claim for strict liability and Second Claim for negligence
according to the case-management schedule previously set by the
Court.
IT IS SO ORDERED.
DATED this
6th
day of June, 2014.
ANNA J. BROWN
United States District Judge
32 - OPINION AND ORDER
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