Gehan Homes, Ltd. v. Nibco Inc.
| Decision Date | 31 August 2020 |
| Docket Number | Case No. 5:19-CV-1478-JKP |
| Parties | GEHAN HOMES, LTD., Plaintiff, v. NIBCO INC., Defendant. |
| Court | U.S. District Court — Western District of Texas |
The Court has under consideration Defendant's Motion to Dismiss First Amended Complaint (ECF No. 16). The motion is ripe for ruling. For the reasons that follow, the Court denies the motion.
In February 2020, Plaintiff filed a First Amended Complaint (ECF No. 12) in response to a prior motion to dismiss. In this diversity action, Plaintiff, an entity that develops residential subdivisions and builds homes in Texas, sues NIBCO, Inc., a corporation that manufactures, markets, and distributes PEX-c pipe for use in residences. First Am. Compl. ¶¶ 2-6. To date, this case involves eighteen homes constructed by Plaintiff between 2008 and 2013 that have allegedly sustained water damage from leaking pipes manufactured by Defendant and installed in the homes by Plaintiff's contractors. Id. ¶¶ 19, 32. Each affected homeowner have "assigned their right to bring a claim against NIBCO to Gehan" and Plaintiff has provided Defendant "with pre-suit notice for each of the claims asserted" in the amended complaint. Id. ¶¶ 32-33, 83. It has also "complied with all obligations under the warranty or is otherwise excused from performance as a result ofNIBCO's conduct." Id. ¶ 47. Defendant "has been provided an opportunity to inspect each instance of piping failures in homes constructed by Gehan." Id.
Plaintiff alleges that Defendant induces purchases of its piping by offering a 25-year warranty for defects in materials and workmanship. Id. ¶ 8. As part of the inducement, Defendant represents that it has more than a century of industry experience and is an industry leader in the manufacturing of PEX piping. Id. Defendant advertises, markets, and sells its PEX piping while expressly representing and warranting that the piping will be free from defects in materials and workmanship for ten to twenty-five years. Id. ¶ 9. This express warranty was part of the bargain between Defendant and the original purchaser and transfers to the ultimate users. Id. The goods provided by Defendant "were not of the quality or condition expressly warranted" and the "piping suffers from undisclosed design and/or manufacturing defects that cause the piping to fail prematurely." Id. ¶¶ 10-11. In addition to such express warranty, Plaintiff alleges that Defendant "impliedly warranted that the tubing was of merchantable quality and was safe and fit for the purpose intended when used under ordinary circumstances." Id. ¶ 12.
Plaintiff further alleges that Defendant "induced consumers to purchase NIBCO piping by advertising on its packaging and piping that it complies with various internationally-recognized standards and certifications," including representing that the piping complies with "ASTM F876, which requires that PEX piping be uniformly manufactured and stabilized to resist oxidation due to chlorine exposure in potable water for more than 50 years." Id. ¶ 13. The piping at issue in this case did not meet the advertised standards despite the representations, and because of Defendant's manufacturing processes and materials used, the piping used by Plaintiff "resulted in a highly variable product, which was not uniformly stabilized to resist oxidation due to exposure to chemicals in potable water supply, such as chlorine and chloramine." Id. ¶ 15.
With knowledge of the defective piping that failed to comply with advertised certificationsand standards, Defendant knowingly placed its product in the marketplace bearing the certifications and standards. Id. ¶ 16. Alternatively, Defendant "recklessly misrepresented material facts about its piping when it made positive statements about its compliance with the advertised standards—including ASTM F876—without actual knowledge of the pipe's compliance." Id. ¶ 17. With awareness of premature pipe failures, Defendant continued to sell its pipes with advertising that the piping complied with standards, including ASTM F876. Id. ¶ 18. In doing so, Defendant exhibited "conscious indifference to the rights, safety and welfare of consumers, including homeowners and Gehan" and its decision to continue selling a known "variable pipe product . . . as though it were compliant with ASTM F876 and other standards and certifications printed on its label . . . involved an extreme degree of risk." Id.
When Defendant put its piping into the stream of commerce by selling it to suppliers, the piping "was defective and unsafe for its intended purposes" and it was similarly defective and unsafe when Plaintiff's contractors purchased it. Id. ¶ 22. The piping was "defectively designed and manufactured" because Defendant used materials and a manufacturing process that "resulted in a variable pipe with uneven distribution of chorine-resistant stabilizers throughout the pipe." Id. ¶ 23. By using a known available economically and technologically feasible design, Defendant could have avoided the variable pipe. Id. ¶ 24. The pipe failures have caused and will continue to cause extensive damage to homes built by Plaintiff and sold to individual homeowners. Id. ¶ 25.
Plaintiff's contractors relied on Defendant's warranties and misrepresentations when selecting, purchasing, and installing Defendant's products. Id. ¶ 20. Although pipes obtained from Defendant began to leak soon after installation, it was not immediately apparent that the cause was defective pipes that had been labeled to indicate they met certain industry standards. Id. ¶ 21. As a result of Defendant's defective piping, Plaintiff has responded to homeowner complaints of (1) damage to various home components (floors, walls, insulation, sheetrock, carpet, etc.); (2) damageto personal contents (clothes and furniture); and (3) mold exposure. Id. ¶ 31.
Plaintiff asserts the following claims under Texas law: (1) negligence in creating, marketing, and/or selling PEX tubing; (2) negligent failure to warn of proper use of products; (3) breach of implied warranties; (4) breach of express warranties; (5) strict products liability; (6) negligent misrepresentation; (7) gross negligence; and (8) fraud. Id. ¶¶ 34-70. For its breach of express warranty claim, it alleges that "[t]o the extent NIBCO's express warranty purports to limit or eliminate certain contractual rights of consumers, such limitations are unconscionable and unenforceable under the circumstances." Id. ¶ 47.
Plaintiff also asserts that Defendant has been unjustly enriched by Plaintiff's repairs caused by Defendant's products and would have been liable to homeowners for each of the eight listed claims Id. ¶¶ 72-73. Plaintiff further asserts that it has made repairs under the implied warranty of habitability and pursuant to assignment of rights obtained from homeowners. Id. ¶¶ 74-75. It asserts that it is entitled to equitable subrogation to prevent Defendant's unjust enrichment. Id. ¶¶ 76-77. It alleges that "[a]ll conditions precedent to [its] claims for relief have been performed or have occurred." Id. ¶ 83. It seeks damages for costs of repairs, replacement or repair of damaged goods, engineering or consulting fees, temporary housing, reduction in market value, and attorney's fees. Id. ¶ 80. In addition, it seeks exemplary and punitive damages because its injuries resulted from the fraud and/or gross negligence of Defendant. Id. ¶ 84.
Defendant has moved to dismiss the amended complaint pursuant to Fed. R. Civ. P. 12(b)(6). See Mot. at 1-20. In general, it argues that the Court should dismiss the complaint because Plaintiff has not satisfied the federal pleading standards. Id. at 15-17. More particularly, it argues that Plaintiff has failed to plead an express warranty claim because it failed to plead the basis of the bargain element and because the limited warranty does not cover the alleged design defect. Id. at 4-7. It also argues that Plaintiff has failed to plead the required notice necessary for the breachof warranty claims. Id. at 7-9. He asserts that Plaintiff has not alleged its claims of fraud and misrepresentation with particularity as required by Fed. R. Civ. P. 9(b) and that the failure-to-warn claim must be dismissed due to pleading deficiencies. Id. at 10-15. Additionally, it contends that the economic loss doctrine bars Plaintiff's tort-based claims (negligence, gross negligence, and strict liability) and that the applicable statute of limitations bars all claims. Id. at 9-10, 17-20.
In its response (ECF No. 17), Plaintiff disagrees with each of Defendant's arguments and contentions. It maintains that it has adequately pleaded its claims and that neither the economic loss doctrine nor any statute of limitations bars its claims. With respect to the limitations defense, it argues that it has adequately pleaded the discovery rule and that its claims are timely under that rule or under the fraudulent concealment doctrine. The motion to dismiss became ripe for ruling with Defendant's reply brief (ECF No. 19).
"Under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law." Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996); accord Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Because jurisdiction in this case is based on diversity of citizenship, the Court must "apply Texas law," including its law regarding statutes of limitations. Ocwen Loan Servicing, L.L.C. v. Berry, 852 F.3d 469, 473 (5th Cir. 2017); accord West v. Conrail, 481 U.S. 35, 39 n.4 (1987); Walker v. Armco Steel Corp., 446 U.S. 740, 752-53 (1980); Hensgens v. Deere & Co., 869 F.2d 879, 880 (5th Cir. 1989). Accrual of a claim or cause of action is also governed by state law. See Milton v. Stryker Corp., 551 F. App'x 125, 127 (5th Cir. 2014) (per curiam) ().
"When reviewing issues of state law, federal...
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