Wilson v. Dryvit Systems, Inc.

• Decision Date: 17 May 2002
• Docket Number: No. 5:00-CV-242(BR).,5:00-CV-242(BR).
• Citation: 206 F.Supp.2d 749
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: J. Kevin WILSON and wife, Azita Wilson, Plaintiffs, v. DRYVIT SYSTEMS, INC., Defendant and Third-Party Plaintiff, v. NCW Development, Inc., et al., Third-Party Defendants. and D.T. Glosson Construction, Inc., D.T. Glosson Construction d/b/a Glosson Drywall Construction Co., and Glosson Drywall Construction, Co., Fourth-Party Plaintiffs, v. Custom Designed Exteriors, Inc., Fourth-Party Defendant.

206 F.Supp.2d 749

J. Kevin WILSON and wife, Azita Wilson, Plaintiffs, v. DRYVIT SYSTEMS, INC., Defendant and Third-Party Plaintiff, v. NCW Development, Inc., et al., Third-Party Defendants. and D.T. Glosson Construction, Inc., D.T. Glosson Construction d/b/a Glosson Drywall Construction Co., and Glosson Drywall Construction, Co., Fourth-Party Plaintiffs, v. Custom Designed Exteriors, Inc., Fourth-Party Defendant.

No. 5:00-CV-242(BR).

United States District Court, E.D. North Carolina, Western Division.

May 17, 2002.

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Daniel K. Bryson, Lewis & Roberts, Raleigh, NC, for Plaintiffs.

Hada V. Haulsee, David J. Mazza, Womble, Carlyle, Sandridge & Rice, Winston-Salem, NC, for Defendants.

ORDER

BRITT, Senior District Judge.

The matter before the court is defendant Dryvit Systems, Inc.'s ("Dryvit") 15 February 2002 motion for summary judgment. Plaintiffs have not responded to the motion, and the time within which to do so has expired. Thus, the motion is ripe for disposition.

I. BACKGROUND

On or about 9 June 1995, plaintiffs and third-party defendant NCW Development, Inc. ("NCW") entered into a contract for the sale and purchase of property and improvements located at 304 Otmoor Lane, Morrisville, North Carolina. See Compl. ¶ 1. Plaintiffs' house was subsequently built by NCW, who hired subcontractors to work on the house. See Dyrvit's Evidence in Supp. of Mot. for Summ. J., Tab A, Pls.' Resp. to Interrog. 18. The house was substantially completed on or about 31 May 1996. See Compl. ¶ 2.

Plaintiffs' house is allegedly clad with Fastrak System 4000 ("Fastrak"). See Compl. ¶ 1. Fastrak is a Direct-Applied Exterior Finish System ("DEFS") that was developed by Dryvit. See Dyrvit's Evidence in Supp. of Mot. for Summ. J., Tab C, Aff. of William Preston ¶ 3. It is applied to buildings as an exterior cladding that protects the building from weather. Fastrak consists of several component parts, including Georgia-Pacific's DensGlass Gold, a non-cementitious base coat, reinforcing mesh, and a finish coat. See id. ¶ 5.

Due to alleged defects in the DEFS cladding on their house, plaintiffs filed the instant action in Wake County Superior Court on 10 February 2000. Plaintiffs assert five claims against Dryvit: (1) negligence; (2) gross negligence; (3) negligent misrepresentation; (4) fraud; and (5) unfair and deceptive acts and practices. On 11 April 2000, Dryvit removed the case to this court based on diversity of citizenship. Dryvit subsequently filed a third-party complaint against NCW and the DEFS applicator, D.T. Glosson Construction, Inc. ("Glosson"), among other parties. Glosson and related entities then filed a fourth-party complaint against their subcontractor, Custom Designed Exteriors, Inc., on 8 November 2001.

II. DISCUSSION

A. Legal standards

Because this is a diversity action, the substantive law of the state of North Carolina applies to plaintiffs' claims, but the standard for summary judgment is a procedural matter governed by federal law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Gafford v. General Elec. Co., 997 F.2d 150, 165 (6th Cir.1993). Summary judgment is appropriate in those cases in which there is no genuine dispute as to a material fact, and in which it appears that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Haavistola v. Cmty. Fire Co. of Rising Sun, Inc., 6 F.3d 211, 214 (4th Cir.1993). When a party makes a summary judgment motion supported by pleadings, depositions, answers to interrogatories, and affidavits, an adverse party may not rest upon his pleadings. Fed.R.Civ.P. 56(e). If the adverse party fails to respond, "summary judgment, if appropriate, shall be entered against him." Id.

B. Negligence claims

Plaintiffs have asserted claims against Dryvit for negligence and gross negligence. Plaintiffs generally allege that "[d]efendant was negligent in the design, formulation, manufacture, production, quality control, testing, labeling, and warning of the Fastrak System 4000 such that this [d]efendant sold, supplied and/or distributed products that were defective." Compl. ¶ 33. Plaintiffs claim that they have incurred damages in an amount in excess of $10,000 as a result of Dryvit's negligence. Plaintiffs also state that they have not suffered "any damage to personal property other than damage to the home itself as a result of the DEFS wall cladding." Dyrvit's Evidence in Supp. of Mot. for Summ. J., Tab A, Pls.' Resp. to Interrog. 10. Dryvit argues that plaintiffs have alleged only economic losses and that, under North Carolina law, a plaintiff may not recover for purely economic losses in tort.

North Carolina has adopted the economic loss rule, which prohibits the purchaser of a defective product from bringing a negligence action against the manufacturer or seller of that product to recover purely economic losses sustained as a result of that product's failure to perform as expected. See Moore v. Coachmen Indus., Inc., 129 N.C.App. 389, 499 S.E.2d 772, 780 (1998); Chicopee, Inc. v. Sims Metal Works, Inc., 98 N.C.App. 423, 391 S.E.2d 211, 217 (N.C.Ct.App.1990). See also AT & T Corp. v. Medical Review of North Carolina, Inc., 876 F.Supp. 91, 94 (E.D.N.C.1995). Instead, such claims are governed by contract law. "The rationale for the economic loss rule is that the sale of goods is accomplished by contract and the parties are free to include, or exclude, provisions as to the parties' respective rights and remedies, should the product prove to be defective." Moore, 499 S.E.2d at 780. The North Carolina courts have construed the term "economic losses" to include damages to the product itself. See id.; Reece v. Homette Corp., 110 N.C.App. 462, 429 S.E.2d 768, 770 (1993). On the other hand, "[w]here a defective product causes damage to property other than the product itself, losses attributable to the defective product are recoverable in tort rather than contract." Moore, 499 S.E.2d at 780. See Reece, 429 S.E.2d at 770.

Here, a question arises as to what constitutes damage to property "other than the product itself" for the purposes of the economic loss rule. In this case, plaintiffs claim that the use of Fastrak on their house "has resulted in widespread and extensive moisture intrusion behind the faces of the house, probable deterioration of the sheathing, and rotting of framing members, doors, windows and subflooring." Compl. ¶ 31. Thus, the court must determine whether this water intrusion, sheathing deterioration, and rotting constitutes "other" property damage which would render the economic loss doctrine inapplicable.

The North Carolina courts have indicated that when a component part of a product or a system injures the rest of the product or the system, only economic loss has occurred. See, e.g., Moore, 499 S.E.2d at 780 (damage to recreational vehicle caused by faulty component constituted economic loss with respect to negligence claims brought against component manufacturer); Gregory v. Atrium Door & Window Co., 106 N.C.App. 142, 415 S.E.2d 574, 575 (1992) (water damage to flooring caused by malfunctioning and deteriorating doors constituted economic loss); Chicopee, Inc., 391 S.E.2d at 216-17 (damage to drying ranges caused by explosion of component pressure vessels was economic loss that was not recoverable in a negligence action against the manufacturer of the component parts). Furthermore, other jurisdictions have concluded that a defective building creates only economic loss, even if the particular defect causes damage to other parts of the structure. See, e.g., Calloway v. City of Reno, 993 P.2d 1259, 1268-69 (Nev.2000), and cases cited therein; Casa Clara v. Charley Toppino & Sons, Inc., 620 So.2d 1244, 1247 (Fla.1993) (allegedly defective concrete became an integral part of finished house and thus did not injure "other" property); Northwest Arkansas Masonry, Inc. v. Summit Specialty Prods., Inc., 31 P.3d 982, 987-88 (Kan.Ct.App.2001). See also Restatement (Third) of Torts: Products Liability § 21 cmt. e (1997) (when a product or system is deemed to be an integrated whole, courts treat damage caused by a component part as harm to the product itself for purposes of economic loss doctrine).

Here, Dryvit's DEFS cladding is an integral component of plaintiffs' house. The damage caused by the allegedly defective Fastrak therefore constitutes damage to the house itself. No "other" property damage has resulted, and plaintiffs have suffered purely economic losses. Thus, plaintiffs' negligence claims against Dryvit are barred by the economic loss rule, and Dryvit is entitled to summary judgment on those claims.

C. Misrepresentation-based claims

Plaintiffs assert three misrepresentation-based causes of action against Dryvit: negligent misrepresentation, fraud, and unfair trade practices. Plaintiffs' claims are based on allegations that "Dryvit made misrepresentations to general contractors and to the public in general regarding the quality of the Fastrak System 4000 and its performance as exterior cladding." Dyrvit's Evidence in Supp. of Mot. for Summ. J., Tab A, Pls.' Resp. to Interrog. 24. In addition, plaintiffs assert that Dryvit "failed to disclose problems associated with the Fastrak System 4000." Id. See also Compl. ¶¶ 62, 63. Dryvit contends that it is entitled to summary judgment with respect to all three causes of action because there is no evidence to support essential elements of plaintiffs' claims.

1. Negligent misrepresentation

The tort of negligent misrepresentation has been defined in North Carolina as follows:

One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if...