The 8th Circuit recently affirmed the grant of summary judgment to the defendant in a proposed class action brought by an Iowa homeowner suing over allegedly defective house trim. See Brown v. La.-Pac. Corp., No. 15-1830, 2016 WL 1425824 (8th Cir. 4/12/16).
In 2003, Brown purchased a lot and hired a contractor, who in turn selected defendant's TrimBoard as the product to be installed on Brown's new home. The TrimBoard installed on Brown's home came with a ten-year limited warranty, covering delamination, checking, splitting, cracking and chipping of the basic substrate for a period of ten years from the date of installation under normal conditions of use and exposure, providing the trim is properly stored, installed, maintained, and protected as specified in defendant's Application Instructions.
Plaintiff never viewed informational or advertising literature for TrimBoard, never spoke to any representative of defendant about the TrimBoard product, and did not see a copy of the limited warranty prior to the product's installation on his home.
In August 2004, Brown moved into his new home. Sometime in 2010, plaintiff allegedly noticed damage to certain pieces of the installed TrimBoard. Ultimately, defendant offered Brown $197.67 in compensation for the damaged TrimBoard, which Brown rejected. In January 2011, Brown hired a local contractor to replace various pieces of TrimBoard on his house, at a total cost of $1,700.00, inclusive of labor and materials.
Brown subsequently filed this putative class action, alleging claims for negligence, fraudulent misrepresentation, breach of warranty, and unfair or deceptive practices, and requesting declaratory relief and money damages. After some rounds of motion practice, the claims were dismissed. On appeal, Brown argued that the district court erred in granting summary judgment on his claims for fraudulent misrepresentation, unfair or deceptive practices, and breach of warranty.
The court of appeals began with the fraudulent misrepresentation claim. For Brown to prevail on his fraudulent-misrepresentation claim under Iowa law, he needed to prove the following elements:
(1) defendant made a representation to the plaintiff, (2) the representation was false, (3) the representation was material, (4) the defendant knew the representation was false, (5) the defendant intended to deceive the plaintiff, (6) the plaintiff acted in reliance on the truth of the representation and was justified in relying on the representation, (7) the representation was a proximate cause of plaintiff's damages, and (8) the amount of damages. Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 400 (Iowa 2001).
The court focused on justifiable reliance. Brown contended that LP's alleged misrepresentations were passed through a third party—his contractor—and then communicated to Brown and relied upon by him. Iowa law provides that "persons who fraudulently misrepresent the truth can be held liable to third parties if they have a 'reason to expect' their misrepresentation will be communicated to third parties." Clark v. McDaniel, 546 N.W.2d 590 , 593 (Iowa 1996) (quoting Restatement (Second) [*4] of Torts § 533 (1977)); see also United States v. Hawley, 619 F.3d 886 , 897 (8th Cir. 2010) ("The [Iowa Supreme] Court [in Clark] expressly adopted section 533 of the Restatement (Second) of Torts (1977) . . . ."). An objective standard applies to whether one has "reason to expect" reliance by another: "'The maker of the misrepresentation must have information that would lead a reasonable man to conclude that there is an especial likelihood that it will reach those persons and will influence their conduct.'" Id. (quoting Restatement (Second) of Torts § 533 cmt. d (1977)). "[T]he fact that the maker has an advantage to gain, even though it is in some other transaction, by furnishing the misrepresentation for repetition to the third person is of great significance in determining whether he has reason to expect that the original recipient should so repeat it." Restatement (Second) of Torts § 533 cmt. e (1977) (emphasis added).
Here, however, the court found that Brown presented insufficient evidence that his contractor ever received a relevant communication from LP. The contractor failed to identify "which advertisements he viewed, when he viewed them, or which statements from the advertisement he read and relied upon in advising [Brown] of the suitability of the product." In fact, it appeared that the contractor was provided with copies of ads at the time of his sworn affidavit and he could only affirm that the advertisements were consistent with materials he recalled possibly viewing some nine to ten years ago. So the record left open the distinct possibility that the contractor had heard of TrimBoard from another source.
The court turned next to the unfair and deceptive trade practices act claim. The Iowa Private Right Act provides that any "consumer who suffers an ascertainable loss of money or property as the result of a prohibited practice or act in violation of this chapter may bring an action at law to recover actual damages." Iowa Code Ann. § 714H.5(1)(including material misrepresentations). Brown argued that the materiality of LP's alleged misrepresentations created an inference of causation that satisfied factual causation between LP's alleged unfair or deceptive trade practice and Brown's damages. But the act requires that plaintiff "suffer[ed] an ascertainable loss of money or property as the result of a prohibited practice." Iowa Code Ann. § 714H.5(1). And Brown failed to establish such causation as a matter of law. To show causation, Brown needed to prove that, but-for LP's purported misrepresentation, he would not have elected to purchase TrimBoard and install it on his home. And to satisfy this requirement, he needed to show that his contractor received a material representation that LP made. As noted, Brown failed to satisfy this showing. Because Brown produced no evidence that the contractor was the recipient of any representation made by LP, Brown "failed to generate a genuine issue of material fact with respect to causation."
Finally, Brown argued that the limited warranty failed of its essential purpose by inadequately compensating him for the costs to repair the direct and consequential damages to his home. The Iowa Supreme Court has elaborated on the meaning of "essential purpose," stating: A remedy's essential purpose "is to give to a buyer what the seller promised him." Hartzell v. Justus Co., Inc., 693 F.2d 770 , 774 (8th Cir. 1982). The focus of analysis "is not whether the remedy compensates for all damage that occurred, but that the buyer is provided with the product as seller promised." Brunsman v. DeKalb Swine Breeders, Inc., 952 F. Supp. 628 , 635 (N.D. Iowa 1996); Nelson v. DeKalb Swine Breeders, Inc., 952 F. Supp. 622 , 628 (N.D. Iowa 1996).
Where repair or replacement can give the buyer what is bargained for, a limitation of remedies does not fail of its essential purpose. Badgett Constr. & Dev. Co. v. Kan-Build, Inc., 102 F. Supp. 2d 1098 , 1105 (S.D. Iowa 2000). In other circumstances, however, repair or replacement is not sufficient, and then a court may find the remedy failed of its essential purpose. See Select Pork, Inc. v. Babcock Swine, Inc., 640 F.2d 147 , 150 (8th Cir. 1981). "The issue of whether a limited remedy fails of its essential purpose is separate and distinct from whether a limited remedy is unconscionable." Baptist Mem'l Hosp. [*9] v. Argo Constr. Corp., 308 S.W.3d 337 , 345 (Tenn. Ct. App. 2009). Here, Brown essentially argued that the warranty fails of its essential purpose because the defect was latent and could not have been discovered. But numerous jurisdictions have held that a latent defect does not cause an exclusive contractual remedy to fail of its essential purpose. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Westinghouse Elec. Corp., 844 F.2d 1174 , 1179-80 (5th Cir. 1988); Wis. Power & Light Co. v. Westinghouse Elec. Corp., 830 F.2d 1405 , 1412-13 (7th Cir. 1987); Boston Helicopter Charter, Inc. v. Agusta Aviation Corp., 767 F. Supp. 363 , 374 (D. Mass. 1991); Hart Eng'g Co. v. FMC Corp., 593 F. Supp. 1471 , 1479 (D.R.I. 1984); Regents of the Univ. of Colo. ex rel . Univ. of Colo. at Boulder v. Harbert Constr. Co., 51 P.3d 1037 , 1041 (Colo. Ct. App. 2001 ); Clark v. Int'l Harvester Co., 99 Idaho 326 , 581 P.2d 784 , 802-03 (Idaho 1978)). The court of appeals concluded that the Iowa Supreme Court would follow this majority rule. The court also noted that there is no evidence—and Brown made no allegation—that the purported defects in the TrimBoard were not remedial and could not be repaired or replaced. So, the mere fact that the Limited Warranty does not compensate a buyer for the entirety of his damages does not mean it has failed of its essential purpose.