ETM IV Special, LLC v. Pedigree Cats Inc, et al

Filing 42

ORDER denying 25 Defendant Habersetzer's Motion for Summary Judgment; signed by Judge Ronald B. Leighton.(DN)

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HONORABLE RONALD B. LEIGHTON

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

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ETM IV SPECIAL LLC,
Plaintiff,

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CASE NO. C13-5044 RBL
ORDER DENYING MOTION FOR
PARTIAL SUMMARY JUDGMENT

v.
[Dkt. #25]
PEDIGREE CATS, INC., et al.,
Defendants.

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I.

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INTRODUCTION

THIS MATTER is before the Court on Defendant Habersetzer’s Motion for Partial
Summary Judgment. [Dkt. #25].

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The case involves the design and construction of “Little Goose,” a custom 75-foot
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sportfishing yacht. Plaintiff ETM (and its sole owner, Edwin T. Meredith), engaged an
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apparently well-known Australian naval architect, Stuart Bloomfield, to design a yacht—

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specifically, a 65 foot power catamaran suitable for offshore fishing. Through Bloomfield,

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Meredith identified, interviewed, and ultimately hired Defendant Pedigree Cats to build the

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yacht. While vetting Pedigree’s qualifications, Meredith met with its owner, Defendant

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Habersetzer, who assured Meredith that he, his company, and its various employees were

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experienced, qualified, and willing and able to build the luxury yacht Meredith had

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commissioned.

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Unfortunately, from her launch (pictured below) Little Goose was plagued with design,
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quality, and construction defects. She immediately sat two feet “bow-down” in the water, her
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ineffective rudders made her difficult to handle, and she was unable to make half her design

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speed. Pedigree spent several months trying to remedy the problems, but it could not. Meredith

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reluctantly and under protest took delivery of Little Goose so that he could deliver her to a

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“competent” shipyard in southern California for repairs. On the way, Little Goose’s hull began to

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delaminate due to additional, previously unknown defects. The crew was forced to put in to a

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different shipyard for emergency repairs on the way south.
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Through the LLC he created to own the boat, Plaintiff ETM IV Special LLC, Meredith
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sued Pedigree for breach of contract and breach of warranty. He also sued Habersetzer

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personally for negligent misrepresentation, fraud, and violations of Washington’s Consumer

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Protection Act, claiming that Habersetzer misrepresented both his own and his company’s

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qualifications, experience, and abilities.

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Habersetzer asks the Court to summarily dismiss all of Meredith’s claims against him

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personally. He argues he made only vague statements of opinion and future events, not
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actionable false statements related to existing facts. Habersetzer also argues that he made all of

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his statements and representations on behalf of Pedigree, and thus cannot be held personally

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liable for them in any event.

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II.

BACKGROUND

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Little Goose
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In the fall of 2007, Meredith was searching for a yacht builder capable of constructing a
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custom-built power catamaran “sport fisher.” Meredith had selected Bloomfield to design the

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yacht, and learned of Pedigree through Bloomfield’s website. Meredith began considering

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Pedigree, and through its website learned that it was a builder of custom multihull yachts which

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were built to both American Boat & Yacht Council standards and to the standards required by

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European Union countries.

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After initial discussions with Habersetzer, Meredith visited Pedigree’s facility. Meredith
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claims that during Habersetzer’s sales pitch, he assured Meredith that he had built many sailing

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and power catamarans for some very happy customers, yet due to privacy concerns for his

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previous high net worth customers, could not provide the customer information to Meredith.

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Habersetzer also informed Meredith that he had worked with Bloomfield in the past, had a good

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working relationship with him, and would work with him throughout the construction of

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Meredith’s yacht. Meredith showed Habersetzer photos of another Bloomfield-designed yacht
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built by a Brazilian manufacturer, and Habersetzer assured Meredith that Pedigree could produce

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a yacht of equal quality. Finally, Habersetzer claimed that due to the downturn in the economy,

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other shipyards in the region had suffered, and Pedigree had access to the most qualified
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tradesmen in the Pacific Northwest.
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Even though Pedigree had very happy customers and despite the fact that each Pedigree

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yacht took years to produce, Habersetzer informed Meredith that Pedigree happened to have an

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immediate opening in its construction schedule—all it would take to commence the project was

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the first payment. Meredith agreed to have Pedigree construct his yacht.

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When Meredith received word that the yacht was nearing completion, he hired a full-time

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captain who traveled to Pedigree’s facilities. The captain subsequently informed Meredith that
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not only was the yacht far from complete, but it was fraught with issues, and was largely being
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built by inexperienced workers supervised by a logger, rather than tradesmen from the abundant

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crop of available boatbuilders in the Pacific Northwest. Furthermore, Habersetzer had not

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maintained contact and consultation with Bloomfield throughout the construction process—

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particularly when he modified the yacht to increase its length from Bloomfield’s 65-foot design

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to 75 feet. Lacking proper detailed drawings and specifications for the construction of Little

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Goose, Habersetzer instead gave his employees basic drawings and pictures from the designer,
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and told them to “make it look like the pictures.” [Dkt. #32 at 3].
Meredith also discovered that Habersetzer and Pedigree may not have enjoyed the history

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of successful builds that Meredith was led to believe. Not only had Pedigree completed just two

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yachts for previous customers—three total, including one for Habersetzer himself—but at least

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one of those customers, Dr. Frank Lyons, was anything but “happy.” Pedigree delivered to

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Lyons a 52-foot yacht that was constructed from a “used” 62-foot catamaran shell, and the yacht
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was not even seaworthy due to extreme weight and balance issues. Indeed, even after Dr. Lyons

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paid full price under the fixed price contract, his yacht was less than one-third complete. Instead

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of scrapping the boat, Dr. Lyons transferred it to a different shipyard for completion.1

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Meredith spent several months working with Pedigree through its attempts to correct
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Little Goose’s deficiencies. Unhappy with Pedigree’s progress, Meredith took delivery of the

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yacht in order to transport her to a shipyard in San Diego for further repairs (a voyage ultimately

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delayed by the previously mentioned pit stop necessitated by Little Goose’s structural

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delamination). At the time of briefing on this motion, Little Goose was still located in San Diego

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undergoing repairs at an expense of more than $1 million. Meredith sued to recover these

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expenses.
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III.

DISCUSSION

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Summary judgment is appropriate when, viewing the facts in the light most favorable to

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the nonmoving party, there is no genuine issue of material fact which would preclude summary

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judgment as a matter of law. Once the moving party has satisfied its burden, it is entitled to

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summary judgment if the non-moving party fails to present, by affidavits, depositions, answers to

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interrogatories, or admissions on file, “specific facts showing that there is a genuine issue for

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trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). “The mere existence of a scintilla of
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evidence in support of the non-moving party’s position is not sufficient.” Triton Energy Corp. v.

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Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995). Factual disputes whose resolution would not

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affect the outcome of the suit are irrelevant to the consideration of a motion for summary

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According to Meredith, the other prior customer, Jack McCormick, did not want to get
involved, possibly because he is actively trying to sell his yacht. Habersetzer submitted a letter
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high quality vessel.
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judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In other words, “summary

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judgment should be granted where the nonmoving party fails to offer evidence from which a

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reasonable [fact finder] could return a [decision] in its favor.” Triton Energy, 68 F.3d at 1220.
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A.

Misrepresentation

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In support of his Motion for Partial Summary Judgment, Habersetzer first argues that

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Meredith’s misrepresentation claims fail as a matter of law because each of Habersetzer’s

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statements are either statements of opinion, statements relating to a future event, or that Meredith

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has failed to produce any evidence demonstrating the statement’s falsity. Both negligent

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misrepresentation and intentional misrepresentation (fraud) are predicated on a false statement of
a presently existing fact. Havens v. C & D Plastics, Inc., 124 Wn.2d 158, 182, 876 P.2d 435

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(1994); Stieneke v. Russi, 145 Wn.App. 544, 190 P.3d 60, 70 (2008).
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The parties agree that some of Habersetzer’s statements relate to promises of future

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performance, and therefore cannot provide the basis for a misrepresentation action. See W.

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Coast, Inc. v. Snohomish Cnty., 112 Wn. App. 200, 206, 48 P.2d 997 (2002). Additionally, some

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of Habersetzer’s statements express an opinion or amount to puffery (e.g., “PCI’s catamarans are

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virtually unsinkable”), and similarly provide unsuitable foundation for a misrepresentation claim.

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In his response, Meredith boils down the statements he relies on in support of his
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misrepresentation claims, asserting that at least seven of the statements made by Habersetzer are
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false statements relating to a presently existing fact. Habersetzer disputes the merits of each

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statement and whether it can form the basis for a misrepresentation action, and concludes by

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asserting that he cannot be held personally liable for the statements he made as Pedigree’s agent

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in any event.

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1.

Pedigree’s Abilities

First, Meredith bases his misrepresentation claims on Habersetzer’s statement when
shown the picture of the Bloomfield-designed catamaran built by the Brazilian boatbuilder,

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asserting that he and his company were qualified and had the experience to “produce a vessel of
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equal quality.” [Dkt. #34 at 3]. Certain representations regarding past experience will support an

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action in misrepresentation. For example, Meredith relies on Cutaia v. Radius Eng’g Int’l, Inc.,

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where the district court determined the defendant’s representation that he had installed a “Radius

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dome” survival shelter before was a presently existing fact. Cutaia v. Radius Eng'g Int'l, Inc.,

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No. 5:11CV00077, 2013 WL 5491868, at *6 (W.D. Va. Oct. 2, 2013). Unlike Cutaia, however,
Habersetzer’s representations as to his and his company’s experience is an opinion of ability—

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whether they are capable of producing something, not whether they have produced something
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specific in the past.
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Employee Experience

Second, Meredith bases his claims on Habersetzer’s statements about the experience of

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his employees. Habersetzer represented that Pedigree “had ‘the pick of the litter,’ the best, most

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qualified yacht construction workers available in the Pacific Northwest,” and that Pedigree’s

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workers “were better trained and experienced than the workers employed by Westport

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Shipyard.” [Dkt. #34 at 3]. While the extent of a worker’s experience and training may present a
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mere difference in opinion, Meredith has produced evidence that many of the workers employed

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by Pedigree had no prior experience at all, were supervised by inexperienced employees, and

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were given no training by Pedigree. Even the Little Goose “project supervisor”—responsible for

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supervising workers who should themselves have relevant training2—had literally no prior

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boatbuilding experience. He was instead a former choker setter in the local logging industry.

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3.

Customer Satisfication

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Third, Meredith bases his claims on Habersetzer’s representation that “he had made many
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prior large sailing catamarans and power cats for some very happy customers.” While customer

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satisfaction is also subjective by nature, the satisfaction of customers at the ends of the spectrum

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amount to questions of fact. Of the two previously completed Pedigree catamarans, Dr. Lyons

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was extremely unhappy; thus, Habersetzer could not have had “some very happy customers.”3

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This is at least a question of fact for the fact finder.

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Value of Pedigree-built Yachts

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Fourth, Meredith offers Habersetzer’s statement that “based on the experience of the
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owners of the other boats he had built,” Meredith’s boat would be worth more money than he
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had into it as soon as it was launched. [Dkt. #34 at 7]. Whether prior customers’ yachts were

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immediately worth more than their cost is a presently existing fact. Meredith has produced

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evidence upon which a jury could determine this statement to be false—namely, Dr. Lyon’s

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declaration. When Dr. Lyon received his yacht from Pedigree, it was “worth much less than the

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amount of money” he had paid to Pedigree and Habersetzer for its construction. [Dkt. #35 at 3].

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Pedigree’s CEO, Defendant Kelly Habersetzer, explained the importance of proper
training in an interview with a local paper just this year: “Master marine carpenters have to be
experienced in the woods and techniques used in boatbuilding.… ‘[T]hey need to have specialty
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[training] in their trade.’” Mike Williams, Boatyard May Sail Out of Town For Good in Dispute
26 With Port, DAILY ASTORIAN (Apr. 4, 2014), http://www.dailyastorian.com/20140404/boatyardmay-sail-out-of-town-for-good-in-dispute-with-port (quoting Pedigree CEO Kelly Habersetzer).
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At least one other party was unhappy enough to sue Habersetzer and Pedigree for fraud
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and CPA violations in 1997. See Munro v. Habersetzer, 97-cv-05408-JKA (filed Jun. 27, 1997).
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5.

Yacht Construction Standards

The fifth statement at issue is Habersetzer’s claim “[t]hat the yachts built by PCI met
ABYC and European yacht construction standards.” This is an affirmative statement of a

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presently existing fact. [Dkt. #30 at 13]. It is neither a promise of future performance (that
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ETM’s yacht would be built to ABYC and European yacht construction standards) nor a

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statement of opinion (PCI’s previous yachts were either built to the standards, or they were not).

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Meredith presented sufficient evidence that at least one of the two yachts Pedigree had

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previously “completed”—Dr. Lyon’s—was not in fact built to ABYC standards. Additionally,

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there is evidence that Little Goose was not built to those standards.

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Strength of Pedigree’s Hulls

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Sixth, Habersetzer’s statement that “the hulls built by PCI were 35 times stronger than
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solid fiberglass, wood or aluminum” is a statement of existing fact. [Dkt. #34 at 3]. The marine
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survey conducted on Little Goose suggests that Pedigree’s construction techniques and materials

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are, in fact, no stronger than the other materials and techniques used in standard yacht

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construction.

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Relationship With Bloomfield

The final statement that Meredith’s misrepresentation claims are based on is

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Habersetzer’s assertion that “he had worked with Mr. Bloomfield in the past, that he had a good
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working relation with Mr. Bloomfield, and that if contracted to build the yacht, would work
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directly with Mr. Bloomfield to complete the proper design of the yacht.” Whether Habersetzer

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had in fact worked with Bloomfield in the past, and to some degree whether it was a good

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working relationship, was an existing fact. Even Habersetzer’s own testimony provides

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conflicting evidence as to whether he had in fact previously worked with Bloomfield. Viewed in

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the light most favorable to Meredith, the evidence would permit a jury to find that this statement

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was intentionally false, and that Meredith reasonably relied on it, to his detriment.

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Personal Liability as Agent

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Habersetzer last argues that even if some of his statements falsely convey existing facts,
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he is not personally liable for them because the statements were made while Habersetzer was

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acting as Pedigree’s agent. When an agent makes representations, knowing them to be false, the

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agent may be personally liable to an injured party. Lasman v. Calhoun, Denny & Ewing, 111

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Wash. 467, 470, 191 P. 409 (1920). The only question left to determine is whether Habersetzer

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honestly believed the representations made to Meredith to induce him to contract with Pedigree

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were true. See Annechino v. Worthy, 175 Wn.2d 630, 638, 290 P.3d 126 (2012). Meredith has

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presented sufficient evidence for a fact finder to decide this question. For example, if the fact
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finder determines that Habersetzer never worked with Bloomfield prior to his conversation with

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Meredith, it would be clear that Habersetzer could not have honestly believed his statements to

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be true.

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Viewed in the light most favorable to the non-moving party, several of the alleged
statements falsely convey presently existing facts. Habersetzer’s Motion for Partial Summary

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Judgment on Meredith’s negligent and intentional misrepresentation claims is DENIED.
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B.

Consumer Protection Act

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Habersetzer next argues that Meredith’s CPA claim also fails as a matter of law because

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he did not deceive Meredith, for many of the same reasons offered in his arguments against the

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misrepresentation claims. Additionally, Habersetzer argues that the claim must fail because the

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harm arose from a private contract made on behalf of the corporate entity Pedigree.

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In a private CPA action, a plaintiff must establish that the defendant (1) engaged in an

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unfair or deceptive act, which (2) occurred in commerce, (3) affected the public interest, and (4)
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proximately caused, (5) damage to the plaintiff’s business or property. Hangman Ridge Training

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Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 784-85, 719 P.2d 531 (1986). Habersetzer

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argues that Meredith cannot demonstrate elements 1, 2, and 3 as a matter of law.
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First, Habersetzer argues that his conduct was not unfair or deceptive. An act is
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considered unfair or deceptive when it misleads or misrepresents something of material

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importance. Holiday Resort Cmty. Ass'n v. Echo Lake Assocs., LLC, 134 Wash. App. 210, 226,

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135 P.3d 499 (2006), as amended on denial of reconsideration (Aug. 15, 2006). The

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misrepresentations discussed above induced Meredith to contract with Pedigree. Understandably,

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Pedigree’s experience and qualifications were of grave importance to Meredith when considering

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Pedigree, and specifically Habersetzer, for the construction of the costly offshore fishing vessel.
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Next, Habersetzer argues that he did not engage in commerce individually, and only did
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so in the corporate form of Pedigree. Washington law is clear that a corporate officer that

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participates in conduct in violation of the CPA is personally liable. Aungst v. Roberts Constr.

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Co., 95 Wn.2d 439, 442, 625 P.2d 167 (1981); Jackson v. Harkey, 41 Wash. App. 472, 480, 704

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P.2d 687 (1985).

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Finally, Habersetzer argues that the alleged conduct did not affect the public interest.

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Even though private individual contracts typically do not affect the public interest, the likelihood
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that additional parties will be injured in the exact same fashion turns a private contract into one

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that affects the public interest. See Hangman Ridge, 105 Wn.2d at 790. The evidence in this case

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is clear: out of two boats constructed for previous customers, at least one of those customers was

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injured in the same way and through similar misrepresentations as was Meredith.

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Habersetzer’s Motion for Partial Summary Judgment on Meredith’s CPA claim is

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DENIED.
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***
There are material issues of fact that cannot be resolved on summary judgment.

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Habersetzer’s Motion for Partial Summary Judgment [Dkt. #25] is DENIED.
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IT IS SO ORDERED.
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Dated this 7th day of November, 2014.

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A

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RONALD B. LEIGHTON
UNITED STATES DISTRICT JUDGE

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