DENVER (Legal Newsline) - A Colorado appeals court reversed a $15 million jury verdict against Weyerhaeuser over wood trusses that smelled of formaldehyde, finding a home building company wasn’t entitled to extra damages beyond what were provided under warranty, citing the economic loss doctrine preventing double recoveries.
Dream Finders Holdings and its subsidiary DFH Mandarin sued Weyerhaeuser after the building-products manufacturer switched to a formaldehyde-urea formula for the fire retardant chemicals in its wood trusses in 2016, causing home buyers to complain about the smell. Weyerhaeuser honored its warranty agreement to pay up to three times the cost of removing and replacing the defective trusses in 38 homes, but Dream Finders Homes argued it was entitled to additional costs including interest expense from delayed home closings and losses from defaulting on lot purchases.
In its suit, Dream Finder Homes accused Weyerhaeuser of breach of warranty, negligence, product liability and fraudulent concealment, claiming the manufacturer knew the resin would emit obnoxious fumes and lied to customers.
At trial, Homes’ expert testified the company had more than $20 million in damages including $17 million from delayed closings on home sales. The judge granted Weyerhaeuser a directed verdict on the warranty claims and the jury rejected state consumer protection law claims but awarded the homebuilder almost $15 million for negligence and fraudulent concealment. The judge affirmed the jury verdict.
Weyerhaeuser appealed the jury verdict and Homes appealed the judge’s refusal to reverse the jury finding of no liability under the Colorado Consumer Protection Act. The Colorado Court of Appeals, in a Dec. 2 decision, reversed the jury verdict but refused to disturb the dismissal of the CCPA claims. One judge who concurred in the decision nevertheless warned that it shouldn’t be seen as an excuse to dismiss all such claims when a warranty is available.
The appeals court started by explaining the economic loss doctrine, a judge-made rule prohibiting tort claims when two parties are operating under a contract that provides for damages when one side breaches the agreement. Only if an independent duty exists under tort law can the plaintiff proceed, the appeals court said, and to determine that the court must decide whether the plaintiff is seeking relief different from what is provided under the contract, whether there was a recognized common law duty of care and whether that duty differs from the contractual duty.
In this case, the homebuilder sought money for costs flowing from the removal and replacement of defective joists, which the appeals court said were covered under its warranty agreement. Dream Finder Homes was “a sophisticated buyer” who assumes the seller is adhering to the principle of “good faith and fair dealing,” the court said, which included manufacturing beams according to accepted industrial standards. The contract states: “In no event will either party be liable to the other for procedural costs, loss of profits, loss of use, or for any other incidental, consequential, indirect or special damages.”
“Not allowing Homes and Mandarin to recover damages expressly excluded in the contract furthers the rationale of the economic loss rule that contracting parties `are free to include, or exclude, provisions as to the parties’ respective rights and remedies, should the product prove to be defective,’” the court ruled.
The economic loss rule, which was created by judges, doesn’t bar claims under the CCPA, which is a statute written by legislators, the appeals court wrote. On appeal, the homebuilder argued the judge should have reversed the jury’s dismissal of its consumer protection claims because they had the “public impact” of affecting more than 800 Colorado consumers, including homeowners, contractors and sales agents.
The joists only indirectly affected consumers, the appeals court ruled, and the CCPA doesn’t “provide a remedy for every downstream market impact stemming from a private transaction.”
“The record reflects that Weyerhaeuser marketed and advertised the G4 joists exclusively to home builders, and not to the ultimate individual home buyers or other members of the public,” the court ruled. “This alone dooms Homes and Mandarin’s CCPA claim.”
Judge Jaclyn Casey Brown, in a concurrence, said she was “concerned that our holding today may be misused.”
By ruling in this case that the duty of good faith and fair dealing effectively replaces similar duties under tort law, the judge wrote, the appeals court shouldn’t be seen as eliminating claims like negligence and fraudulent concealment whenever a warranty is in place.
“I highlight what appears to be a renewed current running through recent case law: The economic loss rule should rarely apply to preclude intentional tort claims,” the judge wrote.