Thursday, December 27, 2018

Plaintiffs’ claims in Barry v. Weyerhaeuser Company are likely to proceed after initial hurdle.

By: Frank Ingham

On December 18, 2018, Federal Magistrate Judge Scott T. Varholak recommended in a written opinion that the Motion of Defendant Weyerhaeuser Company (“Weyerhaeuser”) to Dismiss Amended Complaint Pursuant to F.R.C.P. 12(b)(6) be denied. Barry v. Weyerhaeuser Company, 2018WL6589786 (D. Colo. 2018). As such, we believe District Court Judge Christine M. Arguello will accept this recommendation and the lawsuit will proceed.

At interest in this lawsuit are TJI joists designed, manufactured, and sold by Weyerhaeuser for residential construction. Headquartered in Seattle, Washington, Weyerhaeuser is one of the world’s largest private owners of timberlands, owning or controlling nearly 12.4 million acres in the United States and managing 14 million acres in Canada. It is a public company that trades on the New York Stock Exchange with revenues of $7.2 billion in 2017.[1] In addition to managing forests, Weyerhaeuser has interests in energy, minerals, and wood products.[2] 

In this case, the joists were used in homes built at the Wyndham Hill subdivision in Weld County and the Dove Creek in Douglas County. A lawsuit was filed in Colorado District Court, case number 2018CV01641, Barry et al. v. Weyerhaeuser Company. The six Plaintiffs worked in various capacities during the construction of the homes within the two subdivisions. In addition, as discussed below, there are class action lawsuits against Weyerhaeuser in five other states regarding the TJI joists. The joists are composed of wood particles and treated with Flak Jacket coating, a proprietary coating designed by Weyerhaeuser. Barry at 1. The joists are installed during construction to support floors and ceilings within the home and are typically covered by drywall or the flooring. The joists look like typical I-beams with the vertical center made wood chips, covered with the Flak Jacket coating.

In December 2016, Weyerhaeuser began commercial production of a fourth generation of Flak Jacket known as “Gen 4,”which contained a formaldehyde-based resin. Barry at 1. As reported by the American Cancer Society, formaldehyde is commonly found in building materials, including various wood products, adhesives, many household products, and even added as a preservative to food.[3] Formaldehyde is also released in automobile exhaust and tobacco smoke. Id.  Four months after production of Gen 4 began, in April 2017, Weyerhaeuser received notice that homeowners were complaining of an odor in homes where these joists were installed. Barry at 1. Weyerhaeuser concluded the odor was related to formaldehyde “off-gassing” and on July 6, 2017, sent a letter to dealers, distributors, and home builders warning them of the odor related to the joists which contain formaldehyde. Id. In a second letter sent that same day, Weyerhaeuser warned builders that workers in basements in affected homes to contact Weyerhaeuser’s customer care line for guidance. Id. In July 2018, Weyerhaeuser announced it stopped production and sales of these joists and advised affected homeowners to vacate their homes until the Flak Jacket could be remediated. Id

The Amended Complaint states the Plaintiffs were unknowingly exposed to dangerous levels of formaldehyde. Barry at 2. They alleged coughs, shortness of breath, burning eyes, rashes, sinus issues, and increased risks of respiratory ailments and cancer. Id. The Complaint alleges that the Occupational Safety and Health Administration (“OSHA”) recognized formaldehyde as a cancer hazard and respiratory illness. Id. According to Plaintiffs, and as confirmed by OSHA,[4] OSHA set a permissible exposure to formaldehyde limit of .75 parts per million in an eight-hour time weighted average. Id. At 2 parts per million, the maximum exposure allowed is 15 minutes, and levels exceeding 100 parts per million are immediately dangerous to life and health. Id.  Plaintiffs alleged they were exposed to levels exceeding 2 parts per million for many hours per day, for months. Id. at 3.

Weyerhaeuser moved to dismiss the two claims of Strict Liability and Negligence pursuant to F.R.C.P. 12(b)(6), failure to state a claim upon which relief can be granted. Magistrate Varholak recommended this motion be denied. Barry at 5. Under this rule, the court must accept the factual allegations as true and in the light most favorable to the plaintiff. Id. (citing Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010)). To survive the motion, the amended complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Id. (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A complaint must contain enough factual matter to suggest that the plaintiff is entitled to relief. Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 554, 556 (2007)). The court reviews whether there are sufficient alleged facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed. Id. (citing Forest Guardians v. Forsgren, 478 F. 3d 1149, 1160 (10th Cir. 2007)).

For both claims, Weyerhaeuser argued Plaintiffs failed to plausibly allege they sustained any damages or that the product caused any damages they did sustain. Barry at 3. For negligence, a plaintiff must prove the existence of a legal duty on the part of the defendant, breach of that duty, causation and damages. Id. at 5 (citing Davenport v. Cmty. Corr. of Pikes Peak Region, Inc., 962 P.2d 963, 966 (Colo. 1998). For strict liability, Colorado recognizes three areas of the manufacturing process that lead to strict liability claims: 1) physical flaws due to improper manufacture; 2) inadequate design; and 3) inadequate warnings for safe use. Id. (citing Union Supply Co. v. Pust, 583 P.2d 276, 280 (Colo. 1978)). For each of the three areas, a plaintiff must prove, among other elements, that the alleged defect caused plaintiffs’ injuries. Id. (citing Barton v. Adams Rental, Inc., 938 P.2d 532, 536-37 (Colo. 1997), Wollam v. Wright Med. Grp., Inc. 2012 WL 4510695 at 2 (D. Colo. Sept. 30, 2012); Oja v. Howmedica, Inc., 111 F.3d 782, 791 (10th Cir. 1997)).

Magistrate Varholak noted that Weyerhaeuser itself recognized the dangers from the defective joists and instructed homeowners to vacate their homes with these joists. Magistrate Varholak found these allegations plausibly allege the ailments were caused by the defective joists and recommended the Weyerhaeuser motion to dismiss be denied. Id. at 4-5.

Class Action Lawsuit

Berger & Montague, P.C. filed six class action lawsuits in federal courts in Colorado, Delaware, Minnesota, New Jersey, New York, and Pennsylvania against Weyerhaeuser regarding the TJI Joist.[5] The Colorado case is styled, Smith et al v. Weyerhaeuser Company, case number 17CV01900, and seeks more than $5 million in damages, exclusive of interests and costs.[6] In the initial pleading, the class of plaintiffs lists only Alyse Smith and Ryan Smith, but purports to represent a class of hundreds or thousands of members. Locally, the Law Office of Franklin D. Azar & Associates, P.C. is listed as counsel for Plaintiffs. This lawsuit was filed on August 4, 2017. On August 3, 2018, the case was administratively closed by order granting Weyerhaeuser’s Motion to Compel Arbitration and Dismiss or Stay This Action. Plaintiffs’ home purchase agreements with the developer required arbitration for any supplier who provided labor, services, or materials to the project.  The Court agreed with Weyerhaeuser and ordered the matter to arbitration.

Conclusion

Magistrate Varholak merely issued a recommendation. However, in light of the actions taken by Weyerhaeuser to warn homeowners to leave their homes, along with the OSHA standards, we find it unlikely District Court Judge Christine M. Arguello will reject the recommendation and deny plaintiffs their day in court. It is not yet known if Weyerhaeuser will seek to enforce arbitration in the Barry lawsuit, or whether the cases will be joined into a single class action. We believe both to be likely scenarios to ensure judicial economy.

Concerning our developer clients, the arbitration provisions in the home purchase agreements between the developer and the home buyer were broad enough to benefit a material provider such as Weyerhaeuser.  We recommend broad arbitration provisions in construction contracts as arbiters tend to avoid the emotional issues regarding home defects, where juries tend to be more empathetic.  This is evident by the fact that Plaintiffs in the Smith class action lawsuit fought to prevent arbitration. 

For additional information regarding Barry et al. v. Weyerhaeuser Company or about construction defect litigation in Colorado, generally, you can reach Frank Ingham by telephone at (303) 653-0046 or by e-mail at ingham@hhmrlaw.com.
[6] The amount of damages sought is likely much higher than $5 million.  This is the amount listed in the Complaint as required to give jurisdiction to the District Court of Colorado.[1] 

Thursday, December 13, 2018

Two things to consider before making warranty repairs


By David M. McLain

In my last article: “What a construction defect ‘win’ looks like for a builder,” I made the point that builders should go to great lengths to work with homeowners to resolve legitimate problems through the entire statute of repose, in order to prevent the homeowners from involving attorneys.  Again, happy homeowners do not call attorneys and do not bring construction defect claims.  In this article, I want to address two ramifications of this strategy that builders should consider.  First, builders must be aware that any repairs performed will likely start anew the statutes of limitation and repose for the repairs.  Second, builders should inform and involve their insurers in this process so as to avoid running afoul of their carriers’ “voluntary payments” clauses.  In the long run, keeping homeowners happy is well worth the cost, especially if you keep in mind these additional considerations.  

 

In Colorado, an owner has two years after he or she first notices, or should have noticed, the manifestation of a defect in which to bring a claim, but in no event can any claim be brought more than six years after substantial completion unless the defect becomes manifest within years five or six, in which case the owner gets two more years to bring the claim.  For all intents and purposes, Colorado therefore has a two-year statute of limitation and a six-plus-two-year statute of repose.  Prior to 2010, the repair doctrine equitably tolled the running of any statute of limitation or repose while the builder performed repairs or promised to perform repairs.  As long as the owner relied on the promises in not suing, the tolling continued until the builder finished the repairs or stopped promising such repairs.  The Colorado Supreme Court did away with the repair doctrine in 2010 when it issued its decision in Smith v. Executive Custom Homes.

 

Today, there is no tolling if the builder merely promises, but does not perform repairs.  If an owner sends a notice of claim pursuant to C.R.S. § 13-20-803.5, and the builder actually performs repairs in response, the statutes of limitation and repose will be tolled until sixty days after the completion of the notice of claim process, including the repairs.  Whether the owner goes through the formal notice of claim process, or simply sends a warranty request, and the builder performs repairs, the owner may be able to successfully argue that the statutes of limitation and repose are reset as to the repairs themselves by bringing a claim for negligent repair.

 

An additional consideration to have in mind is the effect of making repairs on your insurance coverage.  Especially in situations where the cost of repair is substantial, builders should consider involving their insurance companies in the discussion and process so that any money spent on performing the repairs may be treated, if the repair is ultimately unsuccessful, as satisfying, either totally or partially, the deductible or self-insured retention.  If the carrier is not on board with the repairs beforehand, and a claim is filed afterward, carriers will likely argue that the money spent was done without their knowledge and consent and, therefore, paid voluntarily by the builder.  Voluntary payments do not satisfy deductibles or self-insured retentions.



 

Nothing contained in this article is intended to scare builders from spending the money necessary to keep homeowners happy.  To the contrary, that advice still applies.  Builders should know, however, that the repairs performed may restart the statutes of limitation and repose for those repairs.  Also, unless you want to get stuck holding the bag for more expensive repairs, involve your carriers early in the process and endeavor to get their agreement that any moneys spent to keep homeowners happy, if ultimately unsuccessful, can be treated as satisfying your deductible or self-insured retention.  Now go forth and keep the plaintiffs’ attorneys at bay.

 

For additional information regarding warranty repairs or about construction defect litigation in Colorado, generally, you can reach David  by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.


Disclaimer

The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.