Toll Bros., Inc. v. Dryvit Systems, Inc.

• Decision Date: 21 December 2005
• Docket Number: No. 05-1077.,05-1077.
• Citation: 432 F.3d 564
• Parties: TOLL BROS., INC., Plaintiff-Appellant, v. DRYVIT SYSTEMS, INCORPORATED; Imperial Stucco, Incorporated; Gill Levesque, d/b/a Imperial Stucco, LLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

432 F.3d 564

TOLL BROS., INC., Plaintiff-Appellant, v. DRYVIT SYSTEMS, INCORPORATED; Imperial Stucco, Incorporated; Gill Levesque, d/b/a Imperial Stucco, LLC, Defendants-Appellees.

No. 05-1077.

United States Court of Appeals, Fourth Circuit.

Argued October 26, 2005.

Decided December 21, 2005.

COPYRIGHT MATERIAL OMITTED

ARGUED:

Dexter Ryan Hamilton, Cozen O'Connor, Philadelphia, Pennsylvania, for Appellant. Jon Peter Antkowiak, Rocky Hill, Connecticut; Andrew P. Fishkin, Edwards & Angell, L.L.P., Short Hills, New Jersey, for Appellees.

ON BRIEF:

Kenneth J. Cesta, Edwards & Angell, L.L.P., Short Hills, New Jersey, for Appellee Dryvit Systems, Inc.

Before WILKINS, Chief Judge, and NIEMEYER and KING, Circuit Judges.

Affirmed in part, reversed in part, and remanded by published opinion. Chief Judge WILKINS wrote the majority opinion, in which Judge KING joined. Judge NIEMEYER wrote a dissenting opinion.

OPINION

WILLIAM W. WILKINS, Chief Judge.

Toll Bros., Inc. (Toll) appeals a district court order granting summary judgment against it in this action against Dryvit Systems, Inc., Imperial Stucco, Inc., and Gill Levesque, d/b/a Imperial Stucco, LLC,¹ seeking primarily to recover the costs it incurred in removing allegedly defectively designed synthetic stucco from homes that it had built and then recladding the homes with a different finish. We affirm in part, reverse in part, and remand for further proceedings.

I.

Toll is a real estate developer and builder. In or around 1996, Toll began development of a residential community called "Newtown Chase" in Newtown, Connecticut. Toll contracted with Imperial to clad some of the homes in the development with "Outsulation," a synthetic stucco exterior insulation finish system (EIFS) that Dryvit manufactured.

In October 1999, several Newtown Chase homeowners whose homes were clad with Dryvit's EIFS ("the homeowners") wrote to Toll expressing concerns regarding the EIFS and alleging that Toll's advertising and promotional literature did not reveal that the homes would be clad in synthetic, rather than actual, stucco. The letter requested information regarding Toll's written warranty policies relating to the EIFS as well as the EIFS product warranty. The homeowners also asked for a letter of compliance from the contractor that installed the system verifying that installation was completed in accordance with the manufacturer's specifications.

In August 2000, the homeowners again contacted Toll, this time demanding, inter alia, that Toll remove Dryvit's EIFS from their homes and reclad them with another finish. By this time, it was not just the homeowners who had questions regarding Dryvit's EIFS; Toll had also come to believe that the EIFS was defectively designed in that it "permitted water and moisture to penetrate the exterior of the houses" without "provid[ing] a means for the water to evaporate or drain," thereby causing significant problems including "rotting, structural damage, health hazards and diminished property value." J.A. 262. Although Toll had not yet received any complaints of actual water infiltration from Newtown Chase homeowners, it nevertheless agreed to remove the EIFS and reclad the homes with a different product. In return, the homeowners released Toll from liability for future harm caused by the EIFS and assigned Toll their rights to sue the responsible parties.

Toll subsequently initiated this action in Connecticut state court, primarily seeking compensation for the costs it incurred in stripping and recladding the homes. Against both Dryvit and Imperial, Toll asserted claims for unjust enrichment, unfair trade practices (in misrepresenting the capabilities of the EIFS), see Conn. Gen.Stat. Ann. §§ 42-110a-42-110q (West 2005), negligent and intentional misrepresentation, and claims under the Connecticut Product Liability Act (CPLA), see Conn. Gen.Stat. Ann. §§ 52-572m-52-572q (West 2005). Toll's complaint also alleged an indemnification claim against Imperial based on a contractual indemnity clause.

After Appellees removed this suit to federal district court,² the district court granted summary judgment against Toll. The court expressed doubt regarding whether Toll had forecasted sufficient evidence that the EIFS was in fact defectively designed. That issue aside, however, the court ruled as a matter of law that no such defect had caused any harm to the homes and that the proximate cause of Toll's dispute and settlement with the homeowners was Toll's misrepresentation to them that the homes would be clad in actual, rather than synthetic, stucco. Ruling as a matter of law that Dryvit could not have reasonably foreseen that Toll would make such a misrepresentation, the district court determined that Toll had failed to forecast evidence creating a genuine issue of fact about whether its injuries were proximately caused by the defectiveness of the EIFS (or Appellees' misrepresentations concerning that defectiveness).

The district court further ruled as a matter of law that Toll's contract with Imperial did not entitle Toll to indemnification. The court noted that the indemnity clause in the parties' agreement states that Imperial is only obligated to indemnify Toll "from and against all claims, damages, losses and expenses... arising out of or resulting from the performance of [Imperial's] Work." J.A. 668. The court reasoned that, as a matter of law, the homeowners' claims arose out of Toll's misrepresentations, not Imperial's work.

II.

We review the grant of summary judgment de novo, viewing the disputed facts in the light most favorable to Toll. See Edelman v. Lynchburg College, 300 F.3d 400, 404 (4th Cir.2002). Summary judgment is warranted when the admissible evidence forecasted by the parties "demonstrates that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law." Williams v. Staples, Inc., 372 F.3d 662, 667 (4th Cir.2004).

A.

Toll does not dispute that to recover under any of its claims, it must establish that the financial losses it incurred as a result of its dispute with the homeowners were proximately caused by the defectiveness of Dryvit's EIFS.³ Toll argues, however, that the district court erred in ruling that there was no genuine issue of material fact regarding whether the defective design of Dryvit's EIFS proximately caused Toll's alleged injuries. In so doing, Toll challenges the ruling of the district court that the record established as a matter of law that its injuries were proximately caused by its misrepresentation to the homeowners that the homes were to be clad in actual, rather than synthetic, stucco. We agree with Toll.

Under Connecticut law,⁴ proximate cause is "an actual cause that is a substantial factor in the resulting harm." Stewart v. Federated Dep't Stores, Inc., 234 Conn. 597, 662 A.2d 753, 758 (1995) (internal quotation marks, alteration & emphasis omitted). Whether a plaintiff's injuries were proximately caused by the defendant generally presents a factual question for the jury to determine. See id. at 760. The question becomes one of law "only when the mind of a fair and reasonable [person] could reach only one conclusion; if there is room for a reasonable disagreement the question is one to be determined by the trier as a matter of fact." Trzcinski v. Richey, 190 Conn. 285, 460 A.2d 1269, 1275 (1983) (internal quotation marks omitted).

Here, the forecasted evidence does not establish as a matter of law that Toll misled the homeowners regarding whether the homes were to be clad with synthetic stucco. Although Dryvit forecasted evidence of the homeowners' out-of-court complaints that Toll misled them, the evidence that such complaints were made is not admissible to prove that they were true. See Fed.R.Evid. 801(c) ("`Hearsay' is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted."); Fed.R.Evid. 802 ("Hearsay is not admissible except as provided by [the Federal Rules of Evidence] or by other rules prescribed by the Supreme Court pursuant to statutory authority or by Act of Congress.").

Moreover, even if the record established as a matter of law that Toll misled the homeowners regarding whether it used actual stucco on their homes, there is a genuine issue of material fact regarding whether the misrepresentations proximately caused Toll's dispute and settlement with the homeowners. Homeowner Craig Tenenbaum testified by deposition that the homeowners' complaint that Toll represented to them that the homes were to be clad with actual stucco was only "one of the reasons" that the homeowners demanded that Dryvit's system be replaced. J.A. 193. The possibility that the system installed simply was not sufficient to protect the homes from water damage was also a primary concern. See id. at 194 (Tenenbaum's deposition testimony that the homeowners wanted their homes reclad because they thought Dryvit's system might cause water damage). Indeed, in their initial letter to Toll, the homeowners requested Toll's written warranty policies regarding the system. Thus, the record did not establish as a matter of law that the homeowners would not have made the same demands absent any misrepresentation by Toll.

Similarly, the record does not establish as a matter of law that any misrepresentation by Toll was a substantial factor in Toll's decision to submit to the homeowners' demands. Toll forecasted evidence that it was the likelihood of future water damage to the homes from the defective EIFS that it was concerned about when it decided to settle with the homeowners. Specifically, Greg Kamedulski, a Toll vice president, stated in an affidavit that (1) at the time Toll decided to use Dryvit EIFS, it believed that the EIFS "was suitable for use on residential homes"; (2) it reclad the homes because it discovered that the EIFS "was inherently defective"; and (3...