State ex rel. Stephan v. GAF Corp.

• Decision Date: 11 December 1987
• Docket Number: No. 58501,58501
• Citation: 242 Kan. 152,747 P.2d 1326
• Parties: STATE ex rel. Robert T. STEPHAN, Appellee, v. GAF CORPORATION, et al., Appellant.
• Court: Kansas Supreme Court

Page 1326

747 P.2d 1326

242 Kan. 152

STATE ex rel. Robert T. STEPHAN, Appellee, v. GAF CORPORATION, et al., Appellant.

No. 58501.

Supreme Court of Kansas.

Dec. 11, 1987.

Syllabus by the Court

1. All of the essential elements necessary to establish fraudulent concealment, under the facts of this case, were contained within the trial court's Instruction No. 5, following PIK Civ.2d 14.42.

2. No manufacturer has an absolute right to or can with impunity disseminate false information about its products, knowing that others will rely upon that information to their detriment.

3. A manufacturer who knows that its product is being improperly used or installed cannot continue to disseminate with impunity information encouraging the improper installation or use of its product.

4. Where the manufacturer has actual knowledge of recurring defects and problems when roofs are built according to its specifications, the law imposes upon it the duty to either change those specifications, withdraw those specifications, or warn those likely to follow its recommendations of the dangers inherent in such construction.

5. An election of claims is required only when the claims are inconsistent.

6. A pretrial order controls the subsequent course of the action unless modified to prevent manifest injustice.

Jerry D. Bogle of Gott, Young & Bogle, P.A., Wichita, argued the cause and Kenneth M. Clark, of the same firm, was with him on the briefs, for appellant.

William E. Enright of Scott, Quinlan & Hecht, Topeka, argued the cause and was on the brief, for appellee.

MILLER, Justice:

The defendant, GAF Corporation, appeals from a judgment for actual and punitive damages entered against it and in favor of the plaintiff, State of Kansas, after a lengthy jury trial in Shawnee County District Court. The Court of Appeals affirmed that portion of the judgment awarding actual damages of $70,493.79, but reversed the finding of fraud and the award of punitive damages of $1,000,000. It remanded the case for a new trial on the fraud claim. State ex rel. Stephan v. GAF Corp., 12 Kan.App.2d 123, 736 P.2d 465 (1987). We granted review upon petitions from both parties.

The factual background of this litigation is clearly set forth in Judge Parks' opinion for the Court of Appeals, 12 Kan.App.2d at 123-26, which factual statement is incorporated by reference. We will briefly set out the facts here.

The State's suit against GAF was based upon claims of breach of express warranty, negligence, and fraud. Prior to 1974, the State planned a new building at the Kansas Neurological Institute in Topeka. This structure, known as the Flint Hills Lodge, was designed to serve as living quarters for approximately 96 severely handicapped and disabled persons. The cost of the building was in excess of one million dollars. On February 28, 1974, by addendum to the original specifications, GAF specification 212N was adopted as the specification for construction of the roof on the new building. The roof was later built according to that specification.

Manufacturers of roofing and other building and construction components annually submit specifications for their various products to a publisher who incorporates them in a multi-volume work known as "Sweet's Catalog." As one would expect, architects rely upon those specifications. The architects in preparing the specification for the Flint Hills Lodge relied upon roofing specifications submitted and thus published by GAF. The roof was built according to those specifications by a general contractor who was an approved GAF roof installer. After the installation, GAF inspected and approved the roof and issued a written ten-year guarantee. Almost immediately after completion, the roof leaked. Water appeared to come through the roof, through the underlying lightweight insulating concrete, and through the concrete roof deck. Water filled ceiling light fixtures and ceiling tile installations. Water ran down interior walls, dripped from the ceiling, and collected on the floor. After numerous attempts at repair failed, GAF inspected the roof and refused to accept responsibility for the leaks, claiming that the cracks in the surface (the GAF membrane) were caused by excessive moisture in the underlying Zonolite layer. A new roof was installed by the State at cost of $109,600 plus architect fees. This litigation followed. The problems with the Flint Hills Lodge roof appear to be similar to those described in Haysville U.S.D. No. 261 v. GAF Corp., 233 Kan. 635, 666 P.2d 192 (1983).

The first and primary issue before us is whether the trial court properly instructed the jury as to the elements of fraudulent concealment and, if not, then whether any error in the instructions was prejudicial and constitutes reversible error. The trial court gave the jury two instructions on fraud, and later answered a question from the jury about them. Judge Parks, in his opinion for the Court of Appeals, explains:

"The two instructions given by the trial court on fraud were taken from PIK Civ.2d 14.40 and 14.42. Instruction No. 4 (14.40) states the elements of active fraud or misrepresentation while Instruction No. 5 (14.42) describes fraudulent concealment as follows:

"Instruction No. 4

'The essential elements required to sustain an action for fraud are:

1. That false (or untrue) representations were made as a statement of existing and material fact.

2. That the representations were known to be false (or untrue) by the party making them, or were recklessly made without knowledge concerning them.

3. That the representations were intentionally made for the purpose of inducing another party to act upon them.

4. That the other party reasonably relied and acted upon the representations made.

5. That the other party sustained damage by relying upon them.

A representation is material when it relates to some matter that is so substantial as to influence the party to whom it was made.'

"and

"Instruction No. 5

'The plaintiff claims fraud through silence on the part of the defendant. To constitute fraud by silence the plaintiff must prove:

1. The defendant has knowledge which plaintiff did not have and which the plaintiff could not have discovered by the exercise of reasonable diligence;

2. The defendant was under an obligation to communicate the true state of facts to the plaintiff;

3. The defendant intentionally failed to communicate to plaintiff the true state of facts;

4. The plaintiff relied upon the defendant to communicate the true state of facts to him; and

5. The plaintiff sustained damages as a result of the defendant's failure to communicate this to the plaintiff.'

"During deliberations, the jury asked the following question: 'In order to find fraud by silence do all five items on page 4 and all items on page 5 need to be present[?]' The court responded in writing, after hearing the objections of defendant, as follows:

'In order to find fraud by silence, all five items in Instruction No. 5 must be proved. Instruction No. 4 is not applicable to fraud by silence.' " 12 Kan.App.2d at 126-27, 736 P.2d 465.

During the jury instruction conference, defense counsel's only objection to Instruction 5 was that it was cumulative to Instruction 4. However, when the trial court received the jury question quoted above, defense counsel objected to the trial court's proposed answer on the grounds that Instruction 5, standing alone, does not require that the silence relate to something material, does not require that the plaintiff reasonably relied and acted upon the representations made, and does not advise the jury how to determine whether the defendant was obligated to communicate the "true state of facts" to the plaintiff.

The Court of Appeals held that in order for silence or fraudulent concealment to constitute fraud, the plaintiff must establish that the seller had superior knowledge of a material defect that was not within the fair and reasonable reach of the buyer, and not discoverable by the buyer through the exercise of reasonable diligence; that the undisclosed knowledge was knowledge of a material fact and defect; and that the buyer reasonably relied upon the seller to communicate the true facts. While we agree with the Court of Appeals' statement of the law, we disagree with its conclusion that Instruction No. 5 was deficient, and that the trial court's response to the jury's question constituted reversible error.

First, let us examine the obligation of GAF to "tell it like it is"--to tell the complete truth in the information it disseminates about its products. There was evidence that GAF experienced problems with this type of roof as early as 1969. These included blistering and splitting when its roofing materials were applied over the lightweight insulating concrete, Zonolite, manufactured by W.R. Grace and Company. The problems did not go away, but got worse at a progressive rate. Meanwhile, GAF continued to issue and disseminate its recommended building specifications on built-up roofing, urging the installation of its roofing materials over products such as Zonolite. It continued to recommend just the type of installation that was causing the problems. Between May and June, or at least May and the fall of 1973, and long before the specifications for the Flint Hills Lodge were issued, the four GAF employees who were responsible for revising GAF's built-up roofing specifications each year determined that GAF should no longer specify the use of its products over Zonolite. Their conclusions, findings, and recommendations fell on deaf ears; GAF continued to disseminate the same or similar roofing specifications. Architects, contractors, and builders were not warned of the recurring problems with this type of roof, and GAF continued to recommend that such roofs be built, with its products. GAF continued to so recommend, in spite of the fact that it was having increasing problems with similar roofs in areas of the United...