Dream Finders Homes LLC v. Weyerhaeuser NR Co.

• Citation: 506 P.3d 108,2021 COA 143
• Decision Date: 02 December 2021
• Docket Number: Court of Appeals No. 20CA0002
• Parties: DREAM FINDERS HOMES LLC, a Florida limited liability company, and DFH Mandarin, LLC, a Florida limited liability company, Plaintiffs-Appellees and Cross-Appellants, v. WEYERHAEUSER NR COMPANY, a Washington corporation, Defendant-Appellant and Cross-Appellee.
• Court: Colorado Court of Appeals

506 P.3d 108

2021 COA 143

DREAM FINDERS HOMES LLC, a Florida limited liability company, and DFH Mandarin, LLC, a Florida limited liability company, Plaintiffs-Appellees and Cross-Appellants,

v.WEYERHAEUSER NR COMPANY, a Washington corporation, Defendant-Appellant and Cross-Appellee.

Court of Appeals No. 20CA0002

Colorado Court of Appeals, Division III.

Announced December 2, 2021

Holland & Knight LLP, Thomas D. Leland, Maxwell N. Shaffer, Denver, Colorado; Holland & Knight LLP, Stacy D. Blank, Tampa, Florida; Holland & Knight LLP, Peter P. Hargitai, Joshua H. Roberts, Laura B. Renstrom, Jacksonville, Florida, for Plaintiffs-Appellees and Cross-Appellants

Perkins Coie LLP, Craig M.J. Allely, Michael A. Sink, Daniel Graham, Denver, Colorado; Latham & Watkins LLP, Mary Rose Alexander, Robert C. Collins III, Chicago, Illinois, for Defendant-Appellant and Cross-Appellee

Opinion by JUDGE LIPINSKY

¶ 1 Law schools teach torts and contracts as fundamentally distinct areas of the law. Students learn that " ‘contract obligations arise from promises made between parties,’ whereas ‘[t]ort obligations generally arise from duties imposed by law ... without regard to any agreement or contract.’ " Bermel v. BlueRadios, Inc. , 2019 CO 31, ¶ 20, 440 P.3d 1150, 1154 (citation omitted).

¶ 2 But, in practice, the line between tort law and contract law can blur. A party to a breached contract may assert tort claims and contract claims in the same lawsuit. So, to preserve the distinction between tort law and contract law, courts have devised the economic loss rule, which clarifies when a party whose contract has been breached may obtain damages against the breaching party under a tort theory. The rule provides that "a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law." Town of Alma v. AZCO Constr., Inc. , 10 P.3d 1256, 1264 (Colo. 2000).

¶ 3 In this case, we consider for the first time whether a sophisticated buyer of a defective product, who received a warranty from the manufacturer of the product, may assert tort claims based on the manufacturer's alleged negligence and fraud in representing the quality of its product and failing to disclose the defect, even though the buyer received the remedy specified in the warranty and the warranty expressly excluded the very type of damages the buyer seeks to recover through its tort claims.

¶ 4 Weyerhaeuser NR Company appeals, among other rulings, the trial court's judgment entered on a jury verdict finding it liable for negligence, negligent misrepresentation, and fraudulent concealment. Dream Finders Homes LLC (Homes) and DFH Mandarin, LLC (Mandarin) (collectively, Dream Finders) cross-appeal the trial court's order directing a verdict in favor of Weyerhaeuser on their warranty claims and the court's order denying their motion for judgment notwithstanding the verdict on their Colorado Consumer Protection Act (CCPA) claim.

¶ 5 We hold that the economic loss rule bars Homes and Mandarin's negligence, negligent misrepresentation, and fraudulent concealment claims. In light of our holding on the applicability of the economic loss rule, we need not reach Weyerhaeuser's other arguments.

¶ 6 Because Homes and Mandarin conceded they received the contractual benefit for which they bargained — the remedies set forth in the warranty they received from Weyerhaeuser — we hold that the trial court did not err by granting Weyerhaeuser's motion for a directed verdict on Homes and Mandarin's warranty claims. We also hold that the economic loss rule does not generally bar CCPA claims. However, we affirm the trial court's denial of Homes and Mandarin's motion for judgment notwithstanding the verdict on their CCPA claim because they failed to prove one of the elements of the claim.

¶ 7 Thus, we reverse the judgment entered against Weyerhaeuser on Homes and Mandarin's claims for negligence, negligent misrepresentation, and fraudulent concealment; affirm the directed verdict in favor of Weyerhaeuser on Homes and Mandarin's warranty claims; and affirm the judgment entered against Homes and Mandarin on their CCPA claim.

I. Background Facts and Procedural History

A. The Parties

¶ 8 Weyerhaeuser designs, manufactures, sells, and distributes engineered lumber products, including joists with a fire-resistant coating used in home construction. Joists are engineered wooden I-beams used to support the first floor in a house.

¶ 9 Homes and Mandarin are separate legal entities and subsidiaries of Dream Finders Holdings, LLC. Homes is a homebuilder and contractor. It purchases "the various components of the [h]ouses" it builds, including joists. Mandarin sells the houses that Homes builds to "end-home buyers."

¶ 10 Universal Forest Products, Inc., a retailer, sells construction materials, including products manufactured by Weyerhaeuser, to home builders in Colorado through its affiliate, Universal Forest Products Lafayette, LLC. (We refer to both UFP entities as UFP.)

B. The Parties' Agreements

¶ 11 Weyerhaeuser and UFP entered into a distribution agreement on September 4, 2006. The distribution agreement governed UFP's sale of various Weyerhaeuser products, including the joists that are the subject of this case. UFP purchased joists from Weyerhaeuser under the distribution agreement. For each order of joists that UFP placed with Weyerhaeuser, Weyerhaeuser sent UFP a confirmation that incorporated by reference Weyerhaeuser's standard terms of sales.

¶ 12 In March 2015, Homes and UFP entered into a general terms agreement and several addendums to that agreement. From 2015 through 2016, Homes purchased Weyerhaeuser's Generation 2 Joists (G2 joists) from UFP.

¶ 13 Weyerhaeuser promulgated a technical bulletin and a material safety data sheet (SDS) for the G2 joists. The technical bulletin included a link to Weyerhaeuser's warranty and SDS for the joists.

¶ 14 Addendum B to Homes and UFP's general terms agreement provided that "[UFP] shall apply [SDS] information for any products brought to the job site." UFP's invoices included a link to the SDS's for the products UFP sold.

C. Weyerhaeuser's Warranty for the Joists

¶ 15 Weyerhaeuser provided at least two warranties for its joists: a general warranty for all its products, which was included in the distribution agreement and in Weyerhaeuser's standard terms of sales, and a stand-alone warranty. (We refer to both warranties as Weyerhaeuser's warranty.)

¶ 16 Weyerhaeuser's stand-alone warranty for the joists provided as follows:

For delamination

, strand or component separation, inadequacy of design values (as published) or manufacturing defect covered by this warranty, Weyerhaeuser will pay reasonable costs of labor and material for the repair or replacement of the covered [j]oists, not to exceed 3 times the original purchase price of the [j]oist.

....

Weyerhaeuser's sole responsibility is as set forth in this warranty and Weyerhaeuser will not be responsible for incidental, indirect, or consequential damages.

D. The Generation 4 Joists

¶ 17 In December 2016, Weyerhaeuser informed UFP that it had changed the fire-resistant protective coating on its joists. Weyerhaeuser internally referred to the joists with the new coating as Generation 4 (G4) joists.

¶ 18 On December 20, 2016, Weyerhaeuser sent UFP a description of, and announced it was transitioning to, the G4 joists. That same month, Weyerhaeuser posted an updated technical bulletin and revised the SDS for its joists. The revised SDS said it applied to products manufactured after December 1, 2016. Homes began purchasing Weyerhaeuser's G4 joists from UFP in January 2017.

¶ 19 Three months later, Weyerhaeuser received a report from a home builder other than Homes that occupants of a house constructed with G4 joists had reported a "chemical-like odor from the basement" and irritation in their eyes and throat when they entered the basement.

¶ 20 On July 6, 2017, Weyerhaeuser notified dealers, distributors, and home builders of reports of odors in some houses constructed with G4 joists. Weyerhaeuser directed home builders to temporarily discontinue use of its joists manufactured after December 1, 2016. On July 18, 2017, Weyerhaeuser issued a press release stating it had "determined that recent customer feedback regarding an odor in certain newly constructed homes is related to a recent formula change to the ... [fire-resistant] coating that included formaldehyde-based resin." Weyerhaeuser announced that it "will cover the cost to either remediate or replace affected joists."

¶ 21 Weyerhaeuser offered different remediation options to builders that had installed G4 joists. Homes, which had installed G4 joists in thirty-eight houses in Colorado, selected a mechanical removal option. Weyerhaeuser contracted with a third party to remediate the joists in the thirty-eight houses that Homes had constructed with the G4 joists. After the third-party contractor performed the work, Homes acknowledged in writing that the remediation had been completed. The parties do not dispute that Weyerhaeuser paid all the remediation costs, which amounted to significantly more than the "3 times the original purchase price of the [j]oist[s]" referenced in Weyerhaeuser's stand-alone warranty.

E. The Parties' Claims

¶ 22 Despite the completion of the remediation work, Homes sent Weyerhaeuser a notice that threatened Weyerhaeuser with claims for breach of express and implied warranties, negligence, and strict products liability. In the notice, Homes demanded that Weyerhaeuser compensate Homes for the losses it had allegedly sustained as a consequence of the defect in the G4 joists, including its "hard remediation costs and legal fees incurred to date." Homes filed suit when Weyerhaeuser did not comply with its demand. Homes later amended its complaint to add Mandarin as a second plaintiff.

¶ 23 In their third amended complaint, Homes and Mandarin asserted...