Com. v. Johnson Insulation

• Citation: 425 Mass. 650,682 N.E.2d 1323
• Parties: , 33 UCC Rep.Serv.2d 426 COMMONWEALTH v. JOHNSON INSULATION & others. 1
• Decision Date: 30 July 1997
• Court: United States State Supreme Judicial Court of Massachusetts

Page 1323

682 N.E.2d 1323

425 Mass. 650, 33 UCC Rep.Serv.2d 426

COMMONWEALTH v. JOHNSON INSULATION & others. ¹

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued May 6, 1997.

Decided July 30, 1997.

Edward T. Dangel, III, Special Assistant Attorney General (Alexander T. Bok, Special Assistant Attorney General, and Susan Granoff, with him), for the Commonwealth.

Alice Olsen Mann (Gary W. Harvey and Linda J. Molumphy, with her), Boston, for defendants.

Before WILKINS, C.J., and ABRAMS, LYNCH, O'CONNOR, GREANEY and MARSHALL, JJ.

GREANEY, Justice.

Asbestos was widely used as an insulator and fire retardant until the 1970's, when it became evident that the material posed health hazards (including lung diseases and cancer) even at low levels of exposure. As a result, the Commonwealth undertook a program to identify and remove asbestos-containing materials that had been installed in its buildings over several decades. To recoup the costs of these remediation activities, the Commonwealth brought an action against numerous companies that had manufactured, supplied, and installed the asbestos-containing products, seeking damages for the costs of removing these materials on the theory that the companies had breached an implied warranty of merchantability. The Commonwealth also sought multiple damages and attorney's fees for violations of the consumer protection statute, G.L. c. 93A. ² The trial judge ordered the action to be split into three phases, according to the type of asbestos product installed; the case before us involved thermal insulation products, such as those applied to pipes and boilers. All defendants in this phase settled before trial, with two exceptions: Owens-Corning Fiberglas Corporation and Johnson Insulation (Johnson). ³ At trial, the jury found that the defendants had furnished products that were unfit for their intended use, and assessed damages for twenty- of the twenty-two buildings at issue. ⁴ After judgment was entered against both defendants for damages and interest, Johnson moved, pursuant to Mass. R. Civ. P. 50(b), 365 Mass. 814 (1974), for judgment notwithstanding the verdict (judgment n.o.v.) or, in the alternative, pursuant to Mass. R. Civ. P. 59(a), 365 Mass. 827 (1974), for remittitur or a new trial on the damages awarded for two of the sites. Johnson also moved to amend the judgment to reduce the amount of prejudgment interest. The judge allowed the motion for judgment n.o.v., and dismissed entirely the complaint against Johnson. He denied Johnson's other motions as moot, and also denied the Commonwealth's subsequent motion to set a date for trying its claim that Johnson had violated G.L. c. 93A. Owens also filed motions for judgment n.o.v. or a new trial, but subsequently settled with the Commonwealth. Therefore, Johnson is the only remaining defendant in this action. The Commonwealth appealed from the judge's grant of judgment n.o.v. to Johnson and his dismissal of the Commonwealth's G.L. c. 93A claim, and we granted the Commonwealth's application for direct appellate review. We now reverse the judgment n.o.v., and reinstate the jury's verdict. We conclude that the Commonwealth's G.L. c. 93A claim was properly dismissed. We also conclude that prejudgment interest was properly calculated. We remand for a reconsideration of Johnson's motion for remittitur or a new trial.

We address in turn each of the principal issues on appeal, including (1) Johnson's liability to the Commonwealth for the cost of asbestos removal, (2) the Commonwealth's contention that Johnson is liable as well for having engaged in practices that violated G.L. c. 93A, (3) the proper basis for computing prejudgment interest on the award of damages, and (4) Johnson's objection to the amount of damages imposed on it for asbestos removal at two sites.

1. Johnson's liability under an implied warranty of merchantability. The Commonwealth argued at trial that Johnson was liable for breach of the implied warranty of merchantability, as defined by provisions of the Uniform Commercial Code (UCC) governing sales, G.L. c. 106, §§ 2-314--2-318. Under the UCC, a warranty that goods are merchantable is implied in a contract for their sale, if the seller is a merchant with respect to goods of that kind. ⁵ To be merchantable, goods must be "fit for the ordinary purposes for which such goods are used." G.L. c. 106, § 2-314(1), (2) (c ). Although the notion of warranty is grounded in contract, we have recognized that breach of this implied warranty provides a cause of action in tort where the harm is a physical injury to person or property rather than an "economic" loss of value in the product itself (for which contractual remedies must still be pursued). Bay State-Spray & Provincetown S.S., Inc. v. Caterpillar Tractor Co., 404 Mass. 103, 107-110, 533 N.E.2d 1350 (1989). See also Dighton v. Federal Pac. Elec. Co., 399 Mass. 687, 691 n. 6, 506 N.E.2d 509, cert. denied, 484 U.S. 953, 108 S.Ct. 345, 98 L.Ed.2d 371 (1987); Wolfe v. Ford Motor Co., 386 Mass. 95, 97-100, 434 N.E.2d 1008 (1982). We have declined to allow claims for strict liability in tort for defective products, but we have recognized that, by eliminating most contractually-based defenses to the implied warranty of merchantability (such as the requirements of privity and of notice), the Legislature has imposed duties on merchants as a matter of social policy, and has expressed its intent that this warranty should establish liability as comprehensive as that to be found in other jurisdictions that have adopted the tort of strict product liability. Back v. Wickes Corp., 375 Mass. 633, 639-640, 378 N.E.2d 964 (1978). Swartz v. General Motors Corp., 375 Mass. 628, 629-631, 378 N.E.2d 61 (1978). Liability under this implied warranty is "congruent in nearly all respects with the principles expressed in Restatement (Second) of Torts § 402A (1965)." Back v. Wickes, supra at 640, 378 N.E.2d 964. The Restatement of Torts, supra, takes the position that the seller of "any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property," even though "the seller has exercised all possible care in the preparation and sale of his product." Id. at § 402A (1), (2)(a). Thus, a claim for breach of the implied warranty of merchantability should be considered in light of the requirements for warranties contained in G.L. c. 106, §§ 2-314 to 2-318, as well as the principles expressed in § 402A of the Restatement. ⁶ Back v. Wickes Corp., supra.

The UCC provides separately for an implied warranty of fitness for a particular purpose, which exists "[w]here the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods." G.L. c. 106, § 2-315. The Commonwealth did not argue that such a warranty existed in this case. As discussed below, the existence of the two separate implied warranties, and of separate defenses to their existence, engenders some confusion and ambiguity in statutes, commentary, and case law.

By way of defense, Johnson contends that it cannot be held liable for having sold the asbestos-containing products, whether or not they were "unreasonably dangerous," because no implied warranty of merchantability existed as to those products. It argues that the warranty never arose, because the products were supplied according to the Commonwealth's plans and specifications. Johnson argues that the Commonwealth specified the products that Johnson was to supply and install, and that it is fundamentally unfair to hold a seller liable for providing a product which it was bound by the buyer's specifications to provide. As indications that it had no discretion in supplying these products, Johnson points out that (1) the specifications were created by design engineers and reviewed by staff of the division of capital planning and operations before the projects were put out to bid, (2) Johnson had to obtain approval of the materials it proposed to use, and (3) a "clerk of the works" at each job site ensured that the approved materials were actually installed. Johnson does not cite any specific statutory language as the basis for its defense. We presume here that it relies on G.L. c. 106, § 2-316(3) (c ), which provides that an implied warranty can be excluded or modified "by course of dealing or course of performance or usage of trade," and on § 2-317 (c ), which states that an express warranty (here, Johnson's contractual promise to install the specified materials) displaces an inconsistent implied warranty of merchantability. As support for its position, Johnson cites 1A U.L.A. § 2-316 official comment no. 9, at 467 (Master ed.1989):

"The situation in which the buyer gives precise and complete specifications to the seller is not explicitly covered in this section, but this is a frequent circumstance by which the implied warranties may be excluded. The warranty of fitness for a particular purpose would not normally arise since in such a situation there is usually no reliance on the seller by the buyer. The warranty of merchantability in such a transaction, however, must be considered in connection with [§ 2-317] on the cumulation and conflict of warranties. Under [§ 2-317 (c ),] in case of such an inconsistency the implied warranty of merchantability is displaced by the express warranty that the goods will comply with the specifications. Thus, where the buyer gives detailed specifications as to the goods, neither of the implied warranties as to quality will normally apply to the transaction unless consistent with the specifications." (Emphasis added.)

Logically, in the circumstances where a buyer specifies the desired goods, in detail, to a seller, the buyer has not relied on the...