ANTHONY J. TRENGA, District Judge.
Presently pending before the Court is Defendant Lumber Liquidators, Inc.'s Motion for Summary Judgment on Plaintiffs' First Amended Representative Class Action Complaint [Doc. No. 999]) (the "Motion").
Upon consideration of the Motion, the memoranda in support thereof and in opposition thereto, the arguments of counsel at the hearing held on September 13, 2016, and for the reasons set forth below, the Motion will be GRANTED as to (1) all claims filed by Laura Washington; (2) those claims filed by the Cloudens (New York plaintiffs), the Burkes (Illinois plaintiffs), and Lila Washington (California plaintiff) for fraudulent concealment (Count I); (3) all claims filed by all Plaintiffs for violations of the three California consumer protection laws (Counts II-IV), the Texas Deceptive Trade Practices Act (Count VII), and the Illinois Consumer Fraud and Deceptive Business Practices Act (Count VIII); and (4) all Plaintiffs' demands for declaratory relief (Count XII). The Motion is otherwise DENIED, and the following claims will remain for adjudication: (1) claims filed by the Ronquillo and Balero California Plaintiffs as well as the Florida and Texas Plaintiffs for fraudulent concealment (Count I); (2) the Brandts' (Florida plaintiffs) claims under the Florida Deceptive and Unfair Trade Practices Act (Count V); (3) the Cloudens' (New York plaintiffs) claims under New York General Business Law Section 349 (Count VI); (4) all Plaintiffs' claims for breach of implied warranty and violations of the Magnuson-Moss Warranty Act (Counts IX-X); and (5) the Brandts' (Florida plaintiffs) claims for negligent misrepresentation (Count XI).
Plaintiffs collectively have asserted the following twelve causes of action in the FAC.
On October 7, 2015, Defendant Lumber Liquidators, Inc. ("Lumber Liquidators" or "LL") filed a "Motion to Dismiss First Amended Representative Class Action Complaint and to Strike Plaintiffs' Request for Injunctive Relief Classes" [Doc. No. 597] (the "Motion to Dismiss"). On December 1, 2015, the Court held a hearing, and on December 11, 2015, it dismissed the claims for negligent misrepresentation filed in Count XI on behalf of all Plaintiffs other than Ryan and Kristin Brandt and the Florida class and otherwise denied the Motion to Dismiss.
On August 1, 2016, Defendant filed a motion for summary judgment, which is now before the Court. Briefly summarized, Lumber Liquidators seeks summary judgment on Plaintiffs' claims principally on the grounds that (1) LL did not violate the Airborne Toxic Control Measure to Reduce Formaldehyde Emissions from Composite Wood Products, and therefore did not violate any state consumer protection laws or breach any warranties, (2) Plaintiffs lack standing to sue because they did not rely on any sufficiently identified misrepresentations and were not injured in any legally cognizable way as a result, and (3) Plaintiffs are not entitled to the relief sought, including declaratory or injunctive relief.
Unless otherwise indicated, the following facts are undisputed or, where they are disputed, are viewed most favorably to the Plaintiffs, as the non-moving party:
Defendant Lumber Liquidators sold, supervised, and controlled the manufacturing of certain composite wood-based laminate products, including Chinese-manufactured composite wood flooring (the "Products"). Defendant's Memorandum in Support of its Motion for Summary Judgment [Doc. No. 1000] ("Def.'s Mem.") ¶ 1. After supervising the manufacturing and packaging of the Products in China, it acquired the flooring via Sequoia Floorings, Inc. ("Sequoia"), its subsidiary. Plaintiffs' Memorandum in Opposition to Defendant's Motion for Summary Judgment [Doc. No. 1017] ("Pls.' Mem. Opp'n") ¶ 3. Lumber Liquidators then distributed, marketed, and sold its Chinese-manufactured composite wood flooring in California, Florida, Illinois, New York, and Texas, where the Plaintiffs purchased the Products, as well as in other states. Def.'s Mem. ¶ 1.
The State of California, through the California Air Resources Board ("CARB"), lists formaldehyde as a toxic air contaminant with no safe level of exposure and has set comprehensive and stringent formaldehyde emission standards, which serve as a model for national standards considered by, among other regulatory entities, the United States Environmental Protection Agency. Id. No other state or federal agency regulates formaldehyde in laminate flooring or MDF cores. Def.'s Mem. ¶ 3.
In April 2007, CARB approved the Airborne Toxic Control Measure to Reduce Formaldehyde Emissions from Composite Wood Products ("ATCM"), which appears publicly as Cal. Code Regs. tit. 17, § 93120. The ATCM became effective in January 2009 and sets limits for decreasing formaldehyde levels in two phases. The second phase standard, which was in operation when the events described in this litigation took place, states that regular medium density fiberboard ("MDF") and "thin" MDF products, such as those at issue here, should emit no more than 0.11 ppm and 0.13 ppm of formaldehyde, respectively. ATCM § 93120.2. The CARB regulations also specify testing methods that may be used to determine whether products meet the CARB emissions limits. Although CARB standards only apply to products sold in California, Def.'s Mem. ¶ 3, Defendant represented nationwide, both on its website and on its packaging, that its Products met CARB standards. FAC ¶¶ 9, 13; Def.'s Answer 3-4 (not contesting the allegations). At the time of its Product sales to Plaintiffs, Lumber Liquidators' website explicitly said that there was "NO formaldehyde" in its hardwood floors. Pls.' Mem. Opp'n ¶ 12.
In October 2013, CARB notified Lumber Liquidators that certain tested Products had failed CARB's emissions testing, including some Products that were eventually resold to Plaintiffs. Pls.' Mem. Opp'n ¶ 20. Defendant then retained a separate laboratory, Benchmark International, which separately confirmed that at least several of the Products exceeded CARB's standards. Nevertheless, Defendant did not remove or qualify the representation on its website that its Products contained "NO formaldehyde." Id. ¶¶ 12, 21. However, on the same day that CARB notified Lumber Liquidators of further CARB test results indicating impermissible formaldehyde levels (May 7, 2015), Lumber Liquidators suspended all sales of its Products. Id. ¶ 22.
On March 1, 2015, the CBS television news program 60 Minutes presented a segment on Lumber Liquidators' Products, which included allegations that the Products contained dangerous levels of formaldehyde. Def.'s Mem. ¶ 5. Responding to the 60 Minutes segment, Lumber Liquidators' CEO stated in a letter dated March 2, 2015 posted on its website that its products are "100% safe" and that Lumber Liquidators "compl[ies] with applicable regulations regarding our products, including California standards for formaldehyde emissions for composite wood products. . . ." FAC ¶ 45; see Def.'s Answer 8-9 (not contesting the allegations). The parties dispute to what extent Lumber Liquidators and its leadership knew about the levels of formaldehyde in its Products prior to the 60 Minutes report. Nevertheless, the Plaintiffs have produced evidence sufficient, when viewed most favorably to them, for a fact finder to reasonably conclude that Lumber Liquidators, including its top management, were on notice that certain of its Products were not CARB compliant as advertised.
In March 2016, following the conclusion of a CARB investigation into Lumber Liquidators' products and practices, CARB and Lumber Liquidators agreed to a settlement. See Defendant's Reply Memorandum in Support of its Motion for Summary Judgment [Doc. No. 1028] ("Def.'s Reply") 3, Pls.' Mem. Opp'n ¶ 23. Although Lumber Liquidators admitted no liability or wrongdoing, CARB stated in its announcement of the settlement that "ARB testing showed exceeded state formaldehyde limits, and . . . Lumber Liquidators failed to take reasonable prudent precautions to ensure those products met such limits designed to protect public health." Pls.' Mem. Opp'n ¶ 23.
The party seeking summary judgment has the initial burden to show the absence of a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1984). Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). To defeat a properly supported motion for summary judgment, the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 247-48 ("[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact."). Whether a fact is considered "material" is determined by the substantive law, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248. The facts shall be viewed, and all reasonable inferences drawn, in the light most favorable to the non-moving party. Id. at 255; see also Lettieri v. Equant Inc., 478 F.3d 640, 642 (4th Cir. 2007).
Defendant seeks dismissal as to many of the Plaintiffs' claims in the First Amended Complaint based on the following issues:
Defendant challenges the Plaintiffs' standing to assert their claims principally on the grounds that they have not sustained sufficient injury in fact. More specifically, Defendant contends that Plaintiffs' theory of injury and damages, the "price distortion theory" or "price inflation theory," is not a constitutionally sufficient theory of injury that can establish Article III standing and that, in any event, Plaintiffs have failed to present evidence sufficient to establish damages even under that theory. For the reasons stated below, the Court concludes that Plaintiffs have standing under the price distortion theory and that, because discovery as to Plaintiffs' individualized damages has been stayed pending the Court's ruling on Defendant's summary judgment motion and class certification issues,
At the summary judgment stage, in order to establish standing, the plaintiff must set forth specific facts to demonstrate that (1) he or she has "suffered an `injury in fact' . . . which is (a) concrete and particularized . . . and (b) `actual or imminent, not conjectural or hypothetical"; (2) there exists "a causal connection between the injury and the conduct complaint of"; and (3) "it must be `likely,' as opposed to merely `speculative,' that the injury will be `redressed by a favorable decision.'" Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (citations omitted).
Plaintiffs' price distortion theory of injury is based on the claim that "if Defendant had told the truth about its Chinese-made laminates, it could not have sustained the prices it charged." Pls.' Mem. Opp'n 21. Under that theory, Plaintiffs are entitled to recover for the difference in value between the Products as represented and what they actually received. As to the measure of damages, Plaintiffs assert that "[o]nce the truth came out about the dubious reliability of the CARB certifications, the products' value plummeted to zero, as it was pulled from the market, never to be sold again."
Defendant challenges the price distortion theory, and Plaintiffs' standing based on it, on the grounds that there is no causal link between Defendant's actions and any injury they allege. More specifically, Defendant contends that in the absence of reliance on the alleged misrepresentations, Plaintiffs' price distortion theory is not sufficiently anchored in an injury in fact to confer standing.
The price distortion theory has various articulations, but it appears in substance to be simply a benefit-of-the-bargain theory and measure of damages that is not materially different from a generally accepted breach of warranty measure of damages. See Carriuolo v. Gen. Motors Co., 823 F.3d 977, 986-87 (11th Cir. 2016); U.C.C. § 2-714 ("The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount."). Neither the U.S. Supreme Court nor the Fourth Circuit has ruled on whether the price distortion theory is constitutionally sufficient to confer standing. The case law is otherwise mixed: while some of the cases Defendant cites support its position,
In Carriuolo, the Eleventh Circuit affirmed the district court's grant of class certification under the Florida Deceptive and Unfair Trade Practices Act where the plaintiffs alleged that they had overpaid for cars based on the defendant's misrepresentations about their safety through a sticker affixed to the cars. 823 F.3d at 986-87. Even though many of the named plaintiffs had not relied on this misrepresentation, the Court nevertheless concluded that they had Article III standing. The Court reasoned:
Id. at 987. In other words, "[a product] that the manufacturer knows to be safe is more valuable than a vehicle that the manufacturer perhaps anticipates will later be declared safe." Id.
Here, the evidence is sufficient for a fact finder to conclude that Lumber Liquidators knowingly misrepresented within a nationwide marketplace that its flooring had "NO formaldehyde" and was CARB complaint. Plaintiff's theory of injury is that these misrepresentations allowed LL to charge a higher price for its Product than the Plaintiffs would have otherwise had to pay. As other courts have found, if Plaintiffs can present facts and expert opinion to adequately support that claim, Plaintiffs have Article III standing for the purposes of their federal claims and for the Brandts' claims under the FDUTPA, regardless of whether any particular Plaintiff relied on the misrepresentation, though reliance remains an element or is otherwise material to many of Plaintiffs' specific causes of action.
Many, but not all, of Plaintiffs' claims require that they actually relied on Lumber Liquidators' alleged misrepresentations or that they would have known about allegedly omitted information that LL was required to disclose, had Lumber Liquidators, in fact, disclosed it. Although the FAC alleges reliance in some fashion by each of the named Plaintiffs,
There are some variations in the definitions of reliance as between state and federal law and among the states themselves.
As to the Brandts, there is substantial evidence that they also did not actually rely on the alleged misrepresentations. Kristin Brandt did not see the CARB label on the box before purchasing the flooring and did not research the flooring's CARB compliance. She did not know what CARB meant when she bought the flooring and only heard about it when she watched 60 Minutes. She had not heard of the ATCM at the time of her deposition and does not try to purchase products that comply with California standards. On their plaintiff fact sheets, the Brandts made no reference to being aware in any way of formaldehyde, safety, or state-law compliance. Likewise, Ryan Brandt knew nothing about CARB at the time of his purchase and only learned about CARB and the ATCM when he became involved in this litigation. He did not remember seeing any Lumber Liquidators advertisements and as a matter of practice or routine, did not research whether products comply with regulatory standards before he buys them and did not do so with regards to his flooring purchase, even though he knew that flooring generally contains formaldehyde.
On the other hand, when deposed, Kristin Brandt said that she researched product safety before purchasing her flooring because she was pregnant at the time and was preparing a nursery for their child and, during that search, saw something on Lumber Liquidators' website that satisfied her that the Products complied with California safety laws. Ryan Brandt testified that a Lumber Liquidators sales associate told them the flooring complied with all state laws and was safe before they purchased it. Because there is some evidence that the Brandts relied on the alleged misrepresentation, there exists a genuine issue of material fact in that regard, which is centrally bound up with credibility determinations for the fact finder.
For the above reasons, the evidence is insufficient as a matter of law to establish that any Plaintiff except the Brandts (FL) actually relied on the alleged misrepresentations.
Some of Plaintiffs' claims require them to demonstrate that the misrepresentations or omissions they allege Lumber Liquidators made were material. In that regard, Defendant claims that the alleged nondisclosure was not material as to any Plaintiff and that CARB non-compliance could not possibly be material to any consumer outside of California. Def.'s Mem. 20.
Last term, the United States Supreme Court clarified that the "materiality requirement descends from `common law antecedents.'" Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 2002 (2016) (quoting Kungys v. United States, 485 U.S. 759, 769 (1988)). The Court explained:
Universal Health Servs., Inc., 136 S. Ct. at 2002-03. In elaborating on "materiality," the Court cited with approval a treatise that appears to incorporate into materiality essentially a "but for" element
Plaintiffs claim that "the true content of formaldehyde" constitutes material information because it "directly impact[s] the safety of the flooring products. . . . Whether composite flooring was manufactured with levels of formaldehyde that can pose significant health risks is a material safety concern." FAC ¶ 159. On the one hand, Plaintiffs argue that because Defendant so prominently advertised its compliance with CARB's standards—even outside of California— Defendant surely believed it to be a material consideration for consumers; and they point to Defendant's decision to destroy its entire supply of Products because of reports of excessive formaldehyde emissions as further confirmation of materiality. On the other hand, Defendant contends that "[i]f people who ultimately chose to sue based on CARB compliance were unconcerned with CARB compliance when they shopped for flooring, then ordinary citizens (especially outside of California) do not commonly consider such information important to their purchasing decisions." Def.'s Mem. 22.
While certainly related, "materiality" and "reliance" are separate concepts.
Lumber Liquidators claims that there is insufficient evidence to establish that the Products exceeded ATCM formaldehyde emissions limits because (1) only CARB can determine if a product violates the ATCM, and it has not done so with respect to most of the Plaintiffs' Products; and (2) even if ATCM non-compliance can be established through privately retained third party testing, Plaintiffs have failed to sufficiently demonstrate through reliable testing that Plaintiffs' Products exceeded allowable levels of emissions under the ATCM.
Throughout this litigation, Defendant has claimed that only CARB—not third party certifiers and not a jury—can determine whether Lumber Liquidators' Products contained formaldehyde emissions in excess of those permitted under the ATCM. Defendant contends in that regard that because CARB utilizes an undisclosed "uncertainty factor" in assessing whether emissions levels exceed permissible ATCM limits, no one other than CARB can determine whether those limits have been exceeded. Based on these premises, Defendant argues that since there is no evidence that CARB ever tested the specific wood products in most of the Plaintiffs' homes and that, in the two homes where it did (the Cloudens' and the Ronquillos'), CARB never declared an ATCM violation, Plaintiffs have failed to establish a genuine issue of material fact as to whether the Plaintiffs' particular products violated the ATCM. Def.'s Mem. 12-13.
The Court concludes that a Plaintiff is not required to establish excessive formaldehyde emissions either through CARB-conducted testing or a CARB-declared violation. First, there is nothing in the ATCM that confers on CARB the exclusive ability to determine whether there exists an excessive formaldehyde level, although only CARB can declare a violation of the ATCM for the purposes of administrative sanctions. See Cal. Health & Safety Code § 43024 (2010). Rather, as the Court explained in Pretrial Order No. 8, under ATCM Section 93120.2(a)(4), a product "does not comply" with applicable emission standards if "[a] finished good contains any composite wood product which does not comply with the applicable emission standards in Table 1, based on the criteria set forth in . . . [ATCM Section 93120.2(a)(3)]." ATCM Section 93120.2(a)(3), in turn, states that an emissions violation occurs if "[a] composite wood product produced by a manufacturer is tested at any time after it is manufactured, using
Lumber Liquidators contends that even if a violation of ATCM Section 93120.2(a) can be demonstrated through third party testing, Plaintiffs have failed to present evidence of excessive emissions levels through an appropriate and reliable testing method. Plaintiffs claim that their testing, as well as testing conducted by CARB and Defendant itself, establishes that their personal flooring had formaldehyde emission levels in excess of those allowed under the ATCM. Plaintiffs contend that Defendant also violated its obligation under ATCM Section 93120.8(b) to "take reasonable prudent precautions to ensure that the composite wood products and composite wood products contained in finished goods . . . comply with the emission standards specified in section 93120.2(a)."
For the purposes of establishing that the Products' emission levels exceeded ATCM limits, Plaintiffs have used the ASTM D6007 compliance test method, referenced in ATCM Section 93120.9(a), with test samples prepared in accordance with CARB's Standard Operating Procedure for Finished Good Test Specimen Preparation Prior to Analysis of Formaldehyde Emissions from Composite Wood Products (the "CARB SOP"). The CARB SOP deals with how an MDF core sample should be extracted for testing from a finished product. For that reason, it has been referred to as "deconstructive testing," even though its only purpose is to obtain a sample core for testing.
Defendant attacks Plaintiffs' testing on two grounds: (1) that the CARB SOP applies only to the preparation of the samples to be tested by CARB according to the enforcement test method for finished goods set forth in ATCM Section 93120.9(c) and not to the compliance test method under ATCM Section 93120.9(a); and (2) that the CARB SOP does not produce a sample core that can accurately or reliably measure formaldehyde emission levels as they existed when the core was incorporated into the finished product, the critical point in time for the purpose of measuring ATCM compliance.
Under ATCM Section 93120.9(a), authorizing the compliance test method, "[c]ompliance with the emission standards for . . . MDF in section 93120.2(a) . . . shall be demonstrated by conducting product emissions tests, verified by third party certification as specified in section 93120.4." (Emphasis added). ATCM Section 93120.1(41) defines a "third party certifier" as "an organization or entity approved by the [ARB] Executive Officer that: (A) verifies the accuracy of the emission test procedures and facilities used by manufacturers to conduct formaldehyde emission tests, (B) monitors manufacturer quality assurance programs, and (C) provides independent audits and inspections." ATCM Section 93120.4, titled "Third Party Certifiers," (1) provides that "[a]ll third party certifiers must be approved in writing by the ARB," ATCM § 93120.4(a)); (2) sets forth the approval process for third party certifiers, id. § 93120.4(b); and (3) references the requirements for third party certifiers set forth in Section 93120.12, Appendix 3, id. § 93120.4(c). Section 93120.12, Appendix 3, in turn, requires, inter alia, that a third party certifier "[u]se laboratories and primary or secondary methods for conducting testing that are certified by an accreditation body that is a signatory to the International Laboratory Accreditation Cooperation Mutual Recognition Arrangement (ILAC, 2000)" and that the "formaldehyde test methods used by the laboratory shall appear in its scope of accreditation." Id. § 93120.12, App. 3(b)(F). ATCM Section 93120.9(a), authorizing the compliance test method used by Plaintiffs, does not otherwise impose any specific testing requirements or methods, and neither the compliance test method specified under ATCM Section 93120.9(a) nor the CARB SOP, by its terms, appears to prohibit the use of an MDF core sample in accordance with the CARB SOP. Rather, the compliance test method in effect delegates to third party certifiers the ability to determine compliance with ATCM emission standards based on recognized testing methods that appear in its accreditation.
Based on the above rulings, Plaintiffs' testing evidence is sufficient for a fact finder to reasonably conclude that each of the Products Plaintiffs purchased contained a level of formaldehyde above the permitted limits prescribed by CARB and the ATCM. Each Plaintiff had his or her own flooring tested by various third party certifiers, both before and during discovery, and each Plaintiff's flooring exceeded the 0.11 ppm limit established by the ATCM, including some that were 300% of that limit, such as the Burkes (IL). Pls.' Mem. Opp'n 25. Moreover, the laboratory that Defendant itself hired, Benchmark International, found that some of LL's Products exceeded CARB standards
There is also evidence sufficient to establish that Defendant failed to comply with its obligation under the ATCM to "take reasonable prudent precautions to ensure that the composite wood products and composite wood products contained in finished goods that [it] purchase[s] comply with the emission standard specified in section 93120.2(a)," ATCM § 93120.8(b), thereby establishing a separate basis for an ATCM violation. Again, in its March 2016 announcement, CARB made a finding that "Lumber Liquidators failed to take reasonable prudent precautions," and Plaintiffs have provided other evidence sufficient for a fact finder to reasonably reach that conclusion. This includes evidence that Lumber Liquidators failed to properly instruct and supervise its Chinese suppliers concerning formaldehyde levels and failed to terminate its relationship with vendors who Defendant had reason to believe were involved in supplying products that misrepresented their formaldehyde content.
For the above reasons, the Court concludes that there exists a genuine issue of material fact as to whether Lumber Liquidators sold Chinese-manufactured composite wood flooring that did not comply with the ATCM.
Applying the above rulings to the various counts of the FAC, the Court concludes as follows:
Plaintiff Laura Washington concedes that she lacks standing. See Hr'g Tr. 39:11-14. Defendant's motion as to Plaintiff Laura Washington is therefore GRANTED as to all claims involving Laura Washington, and those claims are DISMISSED.
Plaintiffs Lila Washington, Ronquillo, and Balero allege that Defendant violated three different California consumer protection statutes: the Unlawful, Unfair, or Fraudulent Business Practices Law ("UCL") (Count II), the False Advertising Law ("FAL") (Count III), and the Consumer Legal Remedies Act ("CLRA") (Count IV). See FAC ¶¶ 165-93.
The California False Advertising Law makes unlawful any "unfair, deceptive, untrue, or misleading advertising." Cal. Bus. & Prof. Code § 17500. It prohibits "advertising which, although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public." Kasky v. Nike, Inc., 27 Cal.4th 939, 951 (Cal. 2002) (internal quotation marks omitted) (alterations omitted). In order to prove a violation of the FAL, a plaintiff must prove that the "statement . . . [is] untrue or misleading" and that the defendant "knew, or by the exercise of reasonable care should have known, that the statements were [un]true or misleading." People ex rel. Mosk v. Lynam, 253 Cal.App.2d 959, 965 (Cal. Ct. App. 1967). As discussed above, the Plaintiffs here have presented evidence sufficient to establish these two elements.
A plaintiff bringing suit under the FAL must also prove reliance. True v. Am. Honda Motor Co., Inc., 520 F.Supp.2d 1175, 1182 (C.D. Cal. 2007) ("[M]ost courts that have confronted this issue . . . have concluded that [California law] impose[s] a requirement that a UCL/FAL plaintiff actually was exposed to and relied on the misleading advertisements."). However, courts have also held that "FAL plaintiffs may avail themselves of the inferred reliance principle where the misrepresentation is `material.'" Id. (citation omitted). Therefore, under the inferred reliance principle, if a misrepresentation is material, "a plaintiff satisfies the reliance element with an allegation that a false or deceptive advertisement `induced the plaintiff to alter his position to his detriment.'"
Based on the summary judgment record before the Court, and as Plaintiffs' counsel effectively conceded during the hearing the Court held on September 13, 2016, see Hr'g Tr. 39:18-19, the evidence is insufficient as a matter of law for a reasonable fact finder to conclude that any of the California Plaintiffs altered his or her position in any way due to the misrepresentations that Defendant allegedly made. Any presumption of reliance that may arise from the materiality of the alleged misrepresentation, see Section III(C), supra, is refuted by the record. Accordingly, Defendant's Motion is GRANTED as to Count III.
As the Court has already explained in Pretrial Order No. 8,
Pretrial Order No. 8 at 13-14 (emphasis added).
Consistent with this Court's prior order, Defendant concedes that "a presumption of reliance arises where a claim rests on a material misrepresentation" but claims that it has successfully rebutted this presumption given the California Plaintiffs' admission that they did not rely on Lumber Liquidators' alleged misrepresentations. Def.'s Mem. 14-15. Plaintiffs contend that their testimony was equivocal concerning their lack of reliance and that a jury should determine whether Plaintiffs would not have purchased Defendant's Products, had Defendant disclosed the truth about the formaldehyde levels. Pls.' Mem. Opp'n 20-21. See Khoday v. Symantec Corp., 93 F.Supp.3d 1067, 1088-1090 (rejecting summary judgment on UCL and CLRA claims, finding the plaintiff's equivocal answers on whether the defendant's conduct impacted her purchase decision "best determined by a jury").
Defendant Washington never claimed that she relied on any representations made by Lumber Liquidators concerning formaldehyde content or CARB compliance. Nor does she specifically claim that she would not have bought the product had she known the truth. Rather, she claims that she relied generally on Lumber Liquidators to comply with the laws of the State of California. No California court appears to have ever recognized this as an adequate form of reliance. The Court concludes that she has failed to present facts sufficient for a reasonable fact finder to find that she relied on any alleged misrepresentations, as required for the purposes of establishing liability under the UCL. Defendant's Motion is therefore GRANTED as to the UCL claim (Count II) of Defendant Washington.
The other California Plaintiffs—the Ronquillos and Balero—present a closer question. As the Court has already found, these Plaintiffs have not demonstrated actual reliance, which is required to prosecute a claim under the "unfair" and "fraud" prongs of the UCL, and therefore, they have failed to make a claim under those prongs. However, unlike Ms. Washington, these Plaintiffs all claim that they would not have purchased the flooring had they known it failed formaldehyde emission standards. Whether this "had I known" theory of reliance constitutes reliance under California law under the "unlawful" prong of the UCL turns on whether the claim is based on a misrepresentation or an omission. If it is based on a misrepresentation, then California courts do not recognize "had I known" reliance. See Tobacco II, 207 P.3d at 39 (finding that reliance requires that "the misrepresentation . . . played a substantial part, and so [was] a substantial factor, in influencing [the plaintiff's] decision" (internal quotation marks omitted)). If based on an omission, then "had I known" reliance suffices. See Mirkin v. Wasserman, 858 P.2d 568, 574 (Cal. 1993) ("[T]o prove reliance on an omission . . . [o]ne need only prove that, had the omitted information been disclosed one would have been aware of it and behaved differently.").
To the extent the Ronquillos' and Balero's claims are based on a misrepresentation, the record is insufficient as a matter of law for a reasonable fact finder to find actual reliance. Likewise, to the extent their claims are based on an omission,
Similar to the UCL, California's CLRA prohibits "unfair methods of competition and unfair or deceptive acts or practices." Such practices include "[r]epresenting that goods are of a particular standard, quality, or grade . . . if they are of another." Cal. Civ. Code § 1770(a). The California Plaintiffs allege in the FAC that Lumber Liquidators represented that its Chinese-manufactured laminate flooring was compliant with the relevant CARB emission standards when it was not. FAC ¶¶ 183-93.
Only consumers who have suffered injury "as a result of" allegedly unlawful conduct may bring suit. Id. The California Supreme Court has determined that the meaning of this phrase in the CLRA parallels that in the UCL.
The FDUTPA prohibits "unfair or deceptive acts or practices in the conduct of any trade or commerce." Fla. Stat. § 501.204(1). The statute does not define the elements of an action but, instead, requires that Florida courts give "due consideration and great weight" to Federal Trade Commission and federal court interpretations of section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1). See Fla. Stat. § 501.204(2). Florida courts have, in turn, interpreted the DUTPA to mean that "a deceptive practice is one that is `likely to mislead' consumers." Davis v. Powertel, Inc., 776 So.2d 971, 974 (Fla. Dist. Ct. App. 2000) (citation omitted). "The plaintiff need not prove the elements of fraud to sustain an action under the statute," and "the question is not whether the plaintiff actually relied on the alleged deceptive trade practice, but whether the practice was likely to deceive a consumer acting reasonably in the same circumstances." Id. Furthermore, a price distortion theory of damages is cognizable under the DUTPA. "[T]he FDUTPA `benefit of the bargain' model provides a standardized class-wide damages figure because the plaintiff's out-of-pocket payment is immaterial." Carriulolo, 823 F.3d at 986; see also Collins v. DaimlerChrysler Corp., 894 So.2d 988, 991 (Fla. Dist. Ct. App. 2004) ("This case turns on a relatively simple question, at least as to damages-Is a car with defective seatbelt buckles worth less than a car with operational seatbelt buckles? Common sense indicates that it is. . . .").
Here, the record is sufficient for a reasonable fact finder to find that Defendant made misrepresentations concerning the formaldehyde content of the Products and its compliance with CARB and that these misrepresentations constituted a deceptive marketing practice likely to deceive a customer acting reasonably when buying flooring and that the Brandts suffered an injury as a result of that deceptive marketing practice. Defendant's Motion is therefore DENIED as to the claim of the Brandts under Count V.
New York General Business Law Section 349(a) ("Section 349") prohibits "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service." "[A]ny person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions." Id. § 349(h). Additionally, courts may award treble damages up to $1,000 and/or attorney's fees. Id. Like the Florida DUPTA, Section 349 also does not specify any particular elements. Nevertheless, New York courts have required a plaintiff to show "first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act." Stutman v. Chem. Bank, 731 N.E.2d 608, 611 (N.Y. 2000). Reliance is not required. Id. at 612 ("[A]s we have repeatedly stated, reliance is not an element of a section 349 claim."). Section 349 also allows for the price distortion theory of damages that Plaintiffs advance in this litigation. See, e.g., Ebin v. Kangadis Food Inc., 297 F.R.D. 561, 568-69 (S.D.N.Y. 2014) (finding damages were satisfied by "the injury incurred from buying an overpriced product alleging to be olive oil, which was actually pomace oil"). Here, for the reasons described above, the first and second elements are clearly met. A closer question is whether or not Plaintiffs were actually injured. New York courts have permitted recovery under Section 349 under Plaintiffs' price distortion theory so long as a plaintiff proves "actual" injury, though not necessarily pecuniary harm." Id. In analyzing whether a consumer suffered an "actual injury" for the purposes of Section 349, the Court of Appeals of New York rejected the argument that "consumers who buy a product that they would not have purchased, absent a manufacturer's deceptive commercial practices, have suffered an injury under General Business Law § 349." Small v. Lorillard Tobacco Co., Inc., 720 N.Y.S.2d 615, 620-21 (N.Y. 1999). Nevertheless, the court recognized in dicta that it "m[ight] be right that a plaintiff might have a claim for the higher price the consumer paid for the product as a result of the misrepresentation in that circumstance [where the cost of the product was affected by the alleged misrepresentation]." Id. n.5. Based on the current state of New York law and considering the facts in a light most favorable to the Plaintiffs, the Court finds that the Cloudens have demonstrated a genuine issue of material fact as to whether they suffered injury under New York law, and Defendant's Motion on Count VI is therefore DENIED.
The DTPA provides a cause of action where "a false, misleading, or deceptive act or practice" is, inter alia, "relied on by a consumer to the consumer's detriment." Tex. Bus. & Com. Code § 17.50(a)(1)(B). As Plaintiffs concede, actual reliance on an affirmative misrepresentation is required to establish a claim under the DTPA. See Pls.' Mem. Opp'n 16.
As the Court has already concluded, there is insufficient evidence for a reasonable fact finder to conclude that the Parnellas (TX) relied on an affirmative misrepresentation. In fact, the Parnellas explicitly said that they did not rely on any representations concerning formaldehyde or CARB compliance at the time of their purchase. During the hearing the Court held on September 13, 2016, Plaintiffs' counsel conceded that Count VII should be dismissed. See Hrn'g Tr. 39:15-16, 21-23.
Defendant's Motion is therefore GRANTED as to Count VII.
The ICFA sets out an extremely broad set of protections for consumers. It reads:
815 ILCS 505/2. Actual reliance is not essential to establish a claim. See Tyla v. Gerber Prods. Co., 178 F.R.D. 493, 499 (N.D. Ill. 1998) ("[P]roof of actual reliance on the part of each plaintiff is not required under the [Illinois Consumer Fraud Act]."). Nevertheless, a plaintiff must have sustained an injury, and the Supreme Court of Illinois has determined that "to properly plead the element of proximate causation in a private cause of action for deceptive advertising brought under the Act, a plaintiff must allege that he was, in some manner, deceived." Oliveira v. Amoco Oil Co., 776 N.E.2d 151, 164 (Ill. 2002). In that case, the Supreme Court of Illinois affirmed the dismissal of a case analogous to this one in which the plaintiffs there claimed that "defendant's allegedly deceptive advertising scheme increased demand for defendant's premium gasolines. Because of this increase in demand, defendant `was able to command an inflated and otherwise unsustainable price for its premium gasolines.'" Id. at 155 (citation omitted). Plaintiffs concede that their price distortion theory cannot support damages under the ICFA. See Pls.' Mot. Opp'n 22 n.95. It would therefore appear that Plaintiffs' price distortion theory of damages is insufficient to make out a valid claim under the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 Ill. Comp. Stat. § 505/1, et seq. Because the Illinois Plaintiffs have not shown that they were directly deceived in any way, Defendant's Motion is GRANTED as to the ICFA claim (Count VIII).
Plaintiffs contend that Lumber Liquidators "concealed and suppressed material facts concerning the content of formaldehyde" in its Products. FAC ¶ 158. Each relevant state's fraudulent concealment cause of action includes a similar set of elements: (1) misrepresentation or omission of a material fact, (2) a duty to disclose, (3) intent to induce reliance and/or defraud, (4) some form of reliance, and (5) resulting damages.
As described in Section III(C) above, Plaintiffs have sufficiently demonstrated that LL's alleged misrepresentations were material. Regarding the second element—duty to disclose— Defendant argues that Lumber Liquidators had no special duty to the non-California Plaintiffs to disclose whether its laminate flooring complied with CARB. Def.'s Mem. 22. While there are some differences among the states concerning when a party has a duty to disclose, the states relevant to the pending Motion all recognize a duty to disclose in at least one of the two following circumstances: (1) when one party voluntarily discloses information, the whole truth must be disclosed or (2) when one party possesses superior information to the other and knows or should have known that the other is acting on the basis of mistaken information.
With respect to the third and fourth elements of intent to induce reliance and actual reliance, reliance is not required in Texas, and California only requires that a plaintiff would have acted differently had that plaintiff been aware of the suppressed fact. This element therefore does not preclude the Parnellas (TX), the Ronquillos (CA), or Mr. Balero (CA), who, as the Court has already discussed, presented adequate evidence that they would have acted differently had they known about the Products' formaldehyde levels. However, none of the other Plaintiffs except the Brandts (FL) have presented sufficient evidence of reliance.
Regarding the fifth element of damages, Defendant claims Plaintiffs were not damaged by the alleged nondisclosure. Def.'s Mem. 23. Plaintiffs claim harm in the form of overpayment for the flooring. Pls.' Mem. Opp'n 21 ("[I]f Defendant had told the truth about its Chinese-made laminates, it could not have sustained the prices it charged."). Defendant argues that economic harm alone does not constitute harm sufficient for fraud.
The Court has already concluded that the five states relevant to the Motion—California, New York, Illinois, Texas, and Florida—do not apply the economic loss rule to bar claims for fraudulent concealment. Pretrial Order No. 8 at 19. Therefore, as long as the Plaintiffs allege a cognizable form of economic loss, their claims are not barred. Whether they have suffered legally cognizable forms of economic loss, however, depends on whether each of the respective states allows recovery for fraud-based loss based on the price distortion theory. In that regard, as discussed previously, the Court concludes that the California,
By way of summary, because the Cloudens (NY), the Burkes (IL), and Washington (CA) have not presented sufficient evidence of reliance, as required under New York and Illinois state law for fraudulent concealment claims, Defendant's Motion is GRANTED as to their claims on Count I, and the Motion is DENIED as to the other Plaintiffs' claims on Count I.
Only the Brandts' claim for fraudulent representation remains pending before the Court. In Florida, negligent misrepresentation requires (1) that the defendant made a statement concerning a material fact that it believed to be true but which was in fact false; (2) negligence in making the statement because the defendant should have known that the statement was false; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting loss, injury, or damage. In re Standard Jury Instructions in Civil Cases—Report No. 12-01, 130 So.3d 596, 610 (Fla. 2013) (per curiam).
As this Court previously stated, "[a]n `implied warranty' means `an implied warranty arising under state law . . . in connection with the sale by a supplier of a consumer product.'" Pretrial Order No. 8 at 20 (citing 15 U.S.C. § 2301(7)). The specific prima facie showing for an implied warranty claim varies among states. See Cal. Civ. Code § 1790 et seq.; Fla. Stat. § 672.314; 810 Ill. Comp. Stat. 5/2-314; N.Y. U.C.C. Law § 2-314; Tex. Bus. & Com. Code § 2.314. However, the required substantive showing is essentially the same, and the parties all rely on the Uniform Commercial Code. Of particular relevance are the requirements that, to be merchantable, goods "must be at least such as . . . pass without objection in the trade under the contract description; and . . . are fit for the ordinary purposes for which such goods are used; and . . . conform to the promises or affirmations of fact made on the container or label if any." U.C.C. §§ 2-314(2)(a), (c), (f).
Defendant argues that all of its flooring functioned as flooring and that all Plaintiffs agreed in that regard in their depositions. Def.'s Mem. 25. No Plaintiff claims personal injury damages, and Defendant contends that "Plaintiffs have no evidence of unsafety to such a degree that all states at issue would penalize its sale." Id. As to the issue of container labeling, LL claims that Plaintiffs have abandoned their written warranty claim and that in any event, "[t]he logic by which courts have excluded product descriptions from the . . . definition of a written warranty applies with equal force here." Def.'s Reply 17.
Plaintiffs contend that the Products' label at the point of sale in every state made the demonstrably false claim that the Products were CARB compliant. Pls.' Mem. Opp'n 29. However, they have not presented any other evidence to support the claim that the Products could not "pass without objection in the trade under the contract description" or were "unfit for ordinary use," as they have alleged. See FAC ¶ 243. Whether or not Plaintiffs' claim for breach of implied warranty survives Defendant's Motion for Summary Judgment therefore depends on whether LL's Product "conform[ed] to the promises or affirmations of fact made on the container or label."
Under a breach of implied warranty claim, the central issue is whether a product is, in fact, as it is represented to be on its packaging and whether it conforms to any promises made by that packaging. The issue is not whether there is "evidence of unsafety to such a degree that all states at issue would penalize its sale," as Lumber Liquidators has suggested. Def.'s Mem. 25. The Court has already determined that there is sufficient evidence to support the claim that Defendant's Products were not CARB compliant because they failed to comply with the ATCM. Although the ATCM applies only to products sold in California, Lumber Liquidators represented in all states that its products complied with the ATCM, and the existence vel non of an implied warranty may properly be based on that representation. The Court also concludes that the Defendant is not entitled to summary judgment on this claim based on its other grounds.
First, contrary to Defendant's contention, product labeling such as that used by Lumber Liquidators is not excluded from the applicable U.C.C. definition of "implied warranty." See, e.g., Native Am. Arts, Inc. v. Bundy-Howard, Inc., 2002 WL 1488861, at *2 (N.D. Ill. July 11, 2002) (permitting breach of implied warranty claim against sellers based on label suggesting products were made by Native Americans and finding that fitness of product for ordinary use was irrelevant).
Finally, Defendant asserts a disclaimer defense to the implied warranty claims. It argues that "like all plaintiffs, Lila Washington's invoice included a warranty disclaimer." Def.'s Mem. 5; id. Ex. 6. While there is no evidence in the record as to the other Plaintiffs' disclaimers, the one referenced by LL states as follows: "All other warranties are disclaimed, except to the extent such warranties cannot be validly disclaimed under applicable law." Def.'s Mem., Ex. 6. But, as Plaintiffs correctly contend, this language cannot disclaim the implied warranty of merchantability because it fails to specifically mention that warranty by name, which is required under the U.C.C. See U.C.C. § 2-316(2) ("[T]o exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability. . . .").
Given that Plaintiffs have presented facts sufficient for a jury to reasonably find that Defendant's Products did not conform to promises on their labeling and that Defendant's disclaimer defense is unavailing, Defendant's Motion is DENIED as to Plaintiffs' claims for breach of implied warranty (Count IX).
The MMWA provides a federal cause of action for state law express and implied warranty claims. Carlson v. Gen. Motors Corp., 883 F.2d 287, 291-92 (4th Cir. 1989). Specifically, suit may be brought by a consumer who is "damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under this chapter, or under a written warranty, implied warranty, or service contract." 15 U.S.C. § 2310(d)(1).
An "implied warranty" under Magnuson-Moss means "an implied warranty arising under State law . . . in connection with the sale by a supplier of a consumer product." 15 U.S.C. § 2301(7). Plaintiffs do not claim a breach of a written warranty as the basis for their MMWA claim, see Pls.' Mem. Opp'n 28 ("Plaintiffs are not advancing a claim premised upon a written warranty for the reasons noted by Defendant"); and Defendant argues that Plaintiffs have failed to demonstrate a breach of an implied warranty, including, specifically, the elements of notice, reliance, and breach so the only issue that remains is whether Plaintiffs have sufficiently alleged breach of an implied warranty. Because Magnuson-Moss claims are "subject to the same pleading requirements and defenses as . . . state law warranty claims," Bussian v. DaimlerChrysler Corp., 411 F.Supp.2d 614, 624 (M.D.N.C. 2005), the requirements for the claim under Count X parallel those for Count IX pertaining to implied warranty claims within the Plaintiffs' states. This includes the appropriate measure of damages and, hence, the viability of Plaintiffs' price distortion theory of damages. MacKenzie v. Chrysler Corp., 607 F.2d 1162, 1166 (5th Cir. 1979). The Court therefore DENIES Defendant's Motion as it relates to Plaintiffs' MMWA claim (Count X) for the same reasons set forth above as to Plaintiffs' implied warranty claims in Count IX.
Plaintiffs seek a judicial finding and declaration that Defendant's policies and practices of labeling, advertising, selling, and distributing the Products violate the CARB standards as set forth in the ATCM. FAC ¶¶ 266-67.
"[D]istrict courts have great latitude in determining whether to assert jurisdiction over declaratory judgment actions." Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419 422 (4th Cir. 1998). A Court may grant declaratory relief where the result of the declaration will affect the public interest and/or serve a "useful" or "helpful" purpose with respect to rights and obligations relating to an issue. Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937). As the Court has previously observed, a declaratory judgment "is only appropriate when it would serve a useful purpose in clarifying and settling the legal relations in issue to guide the parties in the future" and that it is "not an appropriate remedy" to adjudicate only "past misconduct." Beazer Homes Corp. v. VMIF/Anden Southbridge Venture, 235 F.Supp.2d 485, 494 (E.D. Va. 2002) (internal quotation marks omitted).
Given that Defendant's Products have been removed from sale, Def.'s Mem. 29 n.6, and that the parties' rights and obligations will be fully adjudicated in the context of their specific claims and defenses, it would be neither "helpful" nor "useful" to provide declaratory relief so that "each of the parties [to] know their respective rights and duties and act accordingly."
For the reasons stated above, Defendant's Motion is:
Accordingly, Counts If, III, IV, VII, VIII and XTI are DISMISSED. The proceedings will continue as to Counts I, V, VI, IX, X, and XI.
The Court will issue an appropriate order.
The Clerk is directed to forward a copy of this Memorandum 0 record.
U.C.C. § 2-314, cmt. 10.