Bay Summit Community Assn. v. Shell Oil Co.

• Decision Date: 16 December 1996
• Docket Number: No. D018345,D018345
• Citation: 59 Cal.Rptr.2d 322,51 Cal.App.4th 762
• Court: California Court of Appeals Court of Appeals
• Parties: , Prod.Liab.Rep. (CCH) P 14,834, 96 Cal. Daily Op. Serv. 9120, 96 Daily Journal D.A.R. 15,041 BAY SUMMIT COMMUNITY ASSOCIATION et al., Plaintiffs and Respondents, v. SHELL OIL COMPANY et al., Defendants and Appellants.

Page 322

59 Cal.Rptr.2d 322

51 Cal.App.4th 762, Prod.Liab.Rep. (CCH) P 14,834,

96 Cal. Daily Op. Serv. 9120,

96 Daily Journal D.A.R. 15,041

BAY SUMMIT COMMUNITY ASSOCIATION et al., Plaintiffs and Respondents, v. SHELL OIL COMPANY et al., Defendants and Appellants.

No. D018345.

Court of Appeal, Fourth District, Division 3, California.

Dec. 16, 1996.

Musick, Peeler & Garrett, William R. Warhurst, Schiff, Hardin & Waite, Roger Pascal, Darren Van Puymbrouck, Catherine Masters Epstein, Fabris, Burgess & Ring, David D. Ring, Barri Kaplan Bonapart, San Francisco, Karen M. Porter, for Defendants and Appellants.

Gerard, Selden, Osuch & Johnson, Lynde Selden II, Kathryn L. Johnson, Richard H. Benes, San Diego, Mark R. Lippman, La Jolla, for Plaintiffs and Respondents.

HALLER, Associate Justice.

The developer of a condominium development, Bay Summit, installed polybutylene plumbing in the individual condominium units and in the common areas. After the plumbing developed numerous leaks, the Bay Summit Community Association and individual homeowners (plaintiffs ¹ ) sued numerous entities, including United States Brass Corporation (U.S.Brass), a polybutylene plumbing manufacturer, and Shell Oil Company (Shell), a supplier of resin for the polybutylene pipes. Plaintiffs alleged the plumbing leaked because of defective fittings used in the polybutylene plumbing system. When the jury reached its verdict, plaintiffs had settled with all defendants except U.S. Brass and Shell.

The jury found U.S. Brass and Shell committed fraud and were strictly liable for damages caused by the defective fittings in the polybutylene plumbing system. The jury awarded plaintiffs $89,035.85 in compensatory damages, for which it found Shell to be 10 percent liable and U.S. Brass 55 percent liable. ² The jury assessed $14,014 in punitive damages against Shell and $63,816 in punitive damages against U.S. Brass. After offset of sums paid in settlement by other defendants, Shell and U.S. Brass's compensatory damage liability was reduced to zero.

Shell appeals, ³ arguing the judgment cannot be sustained on fraud or strict liability grounds. Shell contends the fraud verdict was improper because plaintiffs were not required to, and did not, establish they relied on Shell's representations. Plaintiffs concede they did not prove reliance and that under the recent decision in Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 23 Cal.Rptr.2d 101, 858 P.2d 568, they were required to establish reliance to prove fraud. ⁴ Based on this concession, we hold the judgment must be reversed with respect to the fraud claim, including the punitive damages award.

Shell additionally contends that because it was merely a supplier of a nondefective product (resin) it may not be held strictly liable to plaintiffs. Plaintiffs counter that Shell was properly held strictly liable based on its extensive involvement in the marketing and distribution of the defective polybutylene plumbing system. We conclude Shell is potentially subject to strict liability, but the trial court prejudicially erred in instructing the jury on the scope of a strict liability claim. Accordingly, we reverse the judgment on the strict liability claim.

FACTUAL & PROCEDURAL BACKGROUND ⁵

A. The Polybutylene Plumbing System

U.S. Brass and Vanguard Plastics, Inc. (Vanguard) each manufactured a substantially identical polybutylene plumbing system. The system consisted of several parts: (1) polybutylene pipes, (2) T-shaped plastic fittings, (3) metal rings, and (4) installation tools. The manufacturers made the pipes and fittings each from a different material. The pipes were made from polybutylene resin supplied in pellet form by Shell. The fittings were made from a plastic material described as an "acetal copolymer" supplied by Hoechst Celanese Corporation (Celanese). Celanese sold the material under the trade name Celcon.

After purchasing the parts, a plumber would attach the polybutylene pipes together by placing a Celcon fitting between the pipes, positioning the metal ring over the connection between the pipe and the fitting, and crimping the ring with a large crimping tool.

B. Plumbing at Bay Summit

In approximately September 1980, Bay Summit's developer contracted with Ted Whitt Plumbing (Whitt) to install polybutylene plumbing at the condominium development. During the latter part of 1980, Whitt installed Vanguard and U.S. Brass polybutylene plumbing systems at Bay Summit. ⁶ In January 1981, the Bay Summit project was completed. The individual plaintiffs first purchased their condominiums in May 1982.

Thereafter, owners of 12 condominiums experienced leaks in their plumbing systems, resulting in physical damage to each of their homes, including ceilings and walls. These owners sued the developer, the plumbing contractor (Whitt), the two manufacturers of the polybutylene plumbing system (Vanguard and U.S. Brass), Shell, and Celanese. Plaintiffs sought to recover the cost of the property damage caused by the plumbing system defects, plus punitive damages. All the defendants, except U.S. Brass, Shell, and Celanese settled before trial. Celanese settled with plaintiffs during jury deliberations.

C. Evidence Presented At Trial

At trial, plaintiffs presented evidence that the polybutylene plumbing system leaked primarily because of the defective Celcon fittings. The evidence showed the Celcon material was hypersensitive to chlorine and to other oxidizing agents and acidic conditions. Additionally, the fittings would often crack because of their sensitivity to environmental stress.

Plaintiffs further presented evidence showing Shell was aware the Celcon fittings were defective, but failed to disclose the defects. For example, in March 1981, Shell's marketing director wrote to a manufacturer, confirming that "[Shell's] field sales staff do not make any statements to prospective customers about the potential problems with Celcon. If we did so, the information would quickly spread and frustrate all of our efforts to extend the penetration of polybutylene plumbing systems into the marketplace." Shell also attempted to internally develop its own fitting material because of the potential problems with Celcon.

Plaintiffs did not present any evidence of a defect in Shell's resin or that Shell's resin was used in the defective fittings. Plaintiffs' theory for holding Shell strictly liable was instead based on evidence showing Shell played a prominent role in the marketing of polybutylene pipes and the polybutylene plumbing system for new homes in the late 1970's and early 1980's. According to a 1981 memorandum written by Shell's polybutylene sales manager, Anthon Schroer, Shell's involvement was necessary "[b]ecause [Shell's] customers [the manufacturers] are, with one exception, small companies [and therefore] [Shell] must take an active role in promoting polybutylene plumbing systems until our customers become strong enough to completely assume that responsibility." Schroer explained the wholesalers did "not have the resources or the inclination ... required to get code approvals and teach plumbers how to use the product. They ... must have a market created for them."

To achieve its goal of developing the residential polybutylene plumbing market "as rapidly as possible," Shell engaged in numerous forms of marketing activities. Because an understanding of the nature of Shell's activities is essential to resolving the issues raised on appeal, we set forth the relevant evidence in some detail.

1. Direct Marketing Assistance to Manufacturers

During the late 1970's and early 1980's, Shell provided substantial marketing assistance to polybutylene plumbing system manufacturers. For example, Shell developed materials for use by U.S. Brass sales representatives, including a slide presentation and a publication providing answers to technical questions about polybutylene plumbing. Shell's marketing personnel spoke at U.S. Brass sales meetings and provided written information, including copies of Shell's polybutylene plumbing marketing guide.

Shell also initiated the formation of the polybutylene product committee, a subgroup of a larger trade organization. At a 1979 meeting, a Shell executive stated the purpose of the group would be to "promot[e] and protect[ ] ... the interests of producers of polybutylene products." The executive explained that the committee would offer assistance to all "[polybutylene] pipe and fittings producers." Shell personnel also reported on Shell's efforts to gain acceptance of the polybutylene plumbing system throughout the country. Shell provided the major portion of the initial funding for the group, fifteen times that of any other group member. Manufacturers of the polybutylene plumbing system and of the Celcon fittings attended the meeting and were members of the committee.

2. Marketing Directed At Homebuilders and Plumbers

In addition to assisting the manufacturers and devising marketing strategy, Shell directly promoted the polybutylene plumbing system to the purchasers of the plumbing system, including homebuilders and plumbers. Shell published a newsletter called "The Polybutylene Piper," aimed at "building credibility" for polybutylene plumbing. Shell sent this quarterly publication to the "top" builders and contractors, "influential building code officials," and people inquiring about the polybutylene plumbing system.

Shell also displayed the polybutylene plumbing system at trade shows. For example, in January 1978, Shell had a booth at the National Association of Home Builders Show, showing the advantages of polybutylene pipe, lists of various plumbing codes, and fittings used in polybutylene plumbing systems. A memorandum noted the attendance to the Shell exhibit "was beyond all expectations" and "was, beyond a doubt, one of the most successful that Shell has participated in--ever--even though the audience was made up of not our customers but our customers['] cus...