Chase v. Dow Chemical Co., 87-2060

Citation875 F.2d 278
Decision Date19 May 1989
Docket NumberNo. 87-2060,87-2060
PartiesBlaine B. CHASE, C. Alan Hackstaff and Robert Hackstaff, Plaintiffs-Appellants, v. The DOW CHEMICAL COMPANY, a Delaware corporation, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

William E. Dorigan of Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., for plaintiffs-appellants.

Bruce D. Drucker of Rivkin, Radler, Dunne & Bayh, Chicago, Ill. (Warren S. Radler, Dale R. Crider, Dorothy B. Zimbrakos, and Victoria A. Walkowicz of Rivkin, Radler, Dunne & Bayh, Chicago, Ill., Walter A. Steele and Michael L. O'Donnell of White and Steele, Denver, Colo., and J. Roger Lochhead of The Dow Chemical Co. Legal Dept., Litigation Section, Midland, Mich., of counsel), for defendant-appellee.

Before LOGAN, SETH and TACHA, Circuit Judges.

SETH, Circuit Judge.

Plaintiffs brought this diversity action to recover damages allegedly caused by defendant Dow Chemical Company's product, Sarabond, to the exterior masonry walls of plaintiffs' three-story office building. Dow moved for summary judgment, citing a 1981 Release and Indemnification Agreement executed between it and plaintiffs, wherein Dow paid plaintiffs $30,000 to resolve a dispute over cracking in the brick piers supporting the canopy over the front door of plaintiffs' building. By the terms of this release, plaintiffs agreed to give up "any and all claims, demands, and causes of action [they] have now or might have now, ever had, or may have in the future, known or unknown," arising from or connected with the use of Sarabond in the building.

The parties agree on appeal that the release, if binding, bars all the claims plaintiffs raise in this suit. Plaintiffs alleged in their Second Amended Complaint, however, that the release should be declared void since Dow fraudulently induced plaintiffs to execute it. In granting summary judgment to Dow, the trial court held that, as a matter of law, plaintiffs could not satisfy three of the five elements necessary to establish a claim for fraud under Colorado law. In re Dow Company "Sarabond" Products Liability Litigation, 660 F.Supp. 270, 274 (D.Colo.). The trial court also held that the doctrine of mutual mistake could not be applied to void the terms of the release. Id. at 275. Plaintiffs appeal from this judgment. Because we find the trial court did not properly apply the law to the evidence contained in the record on the issue of whether the release was procured through fraud, we reverse as to that issue.

Summary judgment is appropriate only when the documentary evidence before the court demonstrates that "there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c). A fact is "material" if it "might affect the outcome of the suit" when applying the relevant substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202. In reviewing the trial court's entry of summary judgment for Dow, "[t]he evidence of the [plaintiffs] is to be believed, and all justifiable inferences are to be drawn in [their] favor." Id. at 255, 106 S.Ct. at 2513. The evidence presented by plaintiffs in response to Dow's motion for summary judgment is summarized below.

Sarabond was developed by Dow in the 1950's to increase the bond strength of brick to mortar, thus making for stronger brick walls. The main solid component of Sarabond is saran latex, which contains vinylidene chloride. Vinylidene chloride releases chlorine when mixed with mortar, which in turn leads to the corrosion of steel embedded in the mortar. Over a period of years the corrosion product buildup occupies a far greater volume than the original steel. The stress exerted by this buildup eventually leads to cracking in the mortar and the bricks.

Research conducted by Dow resulted in findings that Sarabond does cause corrosion and cracking. The November 2, 1972 Frenier Report contains information about the corrosive tendencies of Sarabond that would be crucial to any engineer investigating the masonry distress of a building containing Sarabond. As relevant to this lawsuit, the Frenier Report concludes:

1. The amount of chloride released by Sarabond after one year is 67 times the amount found in the normal mortar, and over twice the amount identified by Dow as the threshold amount necessary to start corrosion. Further, the chloride release from Sarabond continues as the mortar ages.

2. Where a steel rod is fully encased in Sarabond, corrosion is considerably worse than is the case for a rod fully encased in normal mortar.

3. Where a steel rod is partially encased in Sarabond and partially kept in a water-filled void, the interaction of the Sarabond and the water causes corrosion to occur in the void 100 times faster than the rate of corrosion for the embedded portion, while in a normal mortar sample the corrosion rate is only 14.5 times greater in the water-filled void.

Affidavit of Dr. Robert Kudder at 5. See also Affidavit of David Austin at 5. This data is highly technical information that a prudent structural engineer would not know or have reason to expect. Plaintiffs and their experts did not obtain access to the information contained in the 1972 Frenier Report until May 1985.

Architect Michael Lombardi used Sarabond in the exterior walls of plaintiffs' building when it was constructed in 1970. In 1975, certain hairline cracks appeared in the brick piers supporting the canopy over the front door of the building. Over the course of the next year and a half, Dow conducted a rather lengthy correspondence with Lombardi and with Mr. Dell Hogy, a representative of plaintiffs, over Sarabond's role in causing the cracking. Dow feigned ignorance as to the cause of the cracking and repeatedly requested specific evidence linking the cracking to Sarabond. In a letter dated June 22, 1976, Dow made the following representations to Mr. Hogy:

"SARABOND is sold on the assurance that it produces a high strength mortar--considerably stronger ... than any mortar with which I am familiar. There is also an implied warranty that this strength will not deteriorate with time, and there is a considerable body of data that supports this fact. If there is data [to the contrary], we are, of course, most anxious to have you share this information with us."

(Emphasis added.) This letter was written by Mr. Dallas Grenley, one of the authors of Dow's 1972 Frenier Report. Lombardi asked Dow numerous times during this period if there was any available in-house data concerning potential Sarabond deterioration or corrosion but was never provided with the Frenier Report or any other internal data from Dow.

Dow inspected plaintiffs' building in October 1976, in June 1978, and in September 1979. At the request of Dow's expert, plaintiffs shipped masonry samples to a lab in Texas. In December 1979, plaintiffs' lawyer asked Dow for feedback from the inspections. Dow responded by letter, stating that the samples were "currently being evaluated" but that "additional samples and pictures" were needed. Dow acknowledged it had examined a number of buildings containing Sarabond that were experiencing similar cracking problems. "What we are finding is a consistent pattern of design defects in the structures or faulty workmanship or both. Neither cause has anything to do with Sarabond." The letter described Dow's effort as "cooperative" and noted that Dow "[does] not regard [itself] as in an adversary position to [the plaintiffs]."

In 1979, plaintiffs retained David Austin, an independent consultant, to evaluate their building's problems. While Austin had heard that Sarabond released chlorides into mortar, he believed that oxygen and moisture leaking through the outside walls might be combining with the chlorides to cause corrosion and cracking. Austin and Lombardi both recommended that the cracks be caulked and the walls sealed--all to prevent further entry of water and air. They believed this repair would sufficiently limit access of outside oxygen and water to the steel so as to retard further corrosion. This recommendation was communicated to Dow.

Plaintiffs held two meetings with Dow, in July 1980 and January 1981, following Dow's investigation of the cracking. Dow claimed the building had been designed and constructed so as to allow excess air and water to enter and be retained inside the masonry. Dow claimed the cracking occurred after the excess water froze. Dow specifically denied that Sarabond played any role in the cracking or in the corrosion of the steel. Instead, it stated that its in-house data demonstrated Sarabond did not deteriorate and was not corrosive. Finally, Dow agreed that blocking the entry of air and water from the outside should resolve the problem. At no time did Dow mention the data concerning Sarabond's corrosive behavior contained in the 1972 Frenier Report. See Affidavits of David Austin, C. Allan Hackstaff, and Blaine Chase.

Based upon Dow's representations and the advice of their own expert, plaintiffs believed that caulking and sealing the building would solve the cracking and corrosion problem. Accordingly, plaintiffs accepted $30,000 from Dow in 1981 pursuant to the Release and Indemnification Agreement. This money was for replacement of the cracked masonry piers of the canopy and for caulking and sealing the rest of the building.

In May 1985, plaintiffs were contacted by Lombardi and told of the existence and content of the 1972 Frenier Report. Lombardi obtained access to the report while serving as an expert in another Sarabond-related lawsuit in Minnesota. After reviewing the report, Lombardi informed plaintiffs that Sarabond could cause enough distress in their building to create "a danger to person or property." As a result of Lombardi's warning, plaintiffs engaged a structural engineer with previous Sarabond experience, Dr. Robert Kudder, to inspect the building. Kudder determined that the entire masonry facade of the building was irreparably...

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