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Southwest Louisiana Hospital Ass'n v. BASF Construction Chemicals, LLC

United States District Court, W.D. Louisiana

April 29, 2013

SOUTHWEST LOUISIANA HOSPITAL ASSOCIATION d/b/a LAKE CHARLES MEMORIAL HOSPITAL
v.
BASF CONSTRUCTION CHEMICALS, LLC

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For Southwest Louisiana Hospital Association, doing business as Lake Charles Memorial Hospital, Plaintiff: Stephen Charles Polito, LEAD ATTORNEY, H Alan McCall, Stephen Donald Polito, Stockwell Sievert et al, Lake Charles, LA.

For B A S F Construction Chemicals L L C, Defendant: Scott C Barney, LEAD ATTORNEY, Matt N Terrell, Chaffe McCall et al (BR), Baton Rouge, LA.

For B A S F Corp, formerly known as B A S F Construction Chemicals L L C, Defendant: Matt N Terrell, Scott C Barney, Chaffe McCall et al (BR), Baton Rouge, LA.

PATRICIA MINALDI, UNITED STATES DISTRICT JUDGE. MAGISTRATE JUDGE KAY.

OPINION

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MEMORANDUM RULING

PATRICIA MINALDI, UNITED STATES DISTRICT JUDGE.

Before the court are a Partial Motion for Summary Judgment from the plaintiff, Southwest Louisiana Hospital Association (" Hospital" ) [Doc. 40] filed on January 22, 2013, and a Motion for Summary Judgment from the defendant, BASF Construction Chemicals, LLC (" BASF" ) [Doc. 41], filed on January 22, 2013. BASF timely filed an opposition to the Hospital's motion [Doc. 44] as did the Hospital for BASF's motion [Doc. 46], on February 11, 2013. Both the Hospital [Doc. 50] and BASF [Doc. 52] and also filed replies for their respective motions on February 25, 2013. The Hospital filed a motion for hearing [Doc. 48], and the undersigned heard oral argument on the two motions on Tuesday, April 2, 2012 at 10:00 a.m. The court granted portions of both parties' motions, [1] and took the remainder of the issues under advisement. For the foregoing reasons, the Hospital's Partial Motion for Summary Judgment is GRANTED and BASF's Motion for Summary Judgment is DENIED.

FACTUAL BACKGROUND

This case arises from the installation of a defective architectural wall system, referred to as Exterior Insulation Finish System (" EIFS" ) on the outer walls of the Hospital's Women & Children's Hospital facility (" facility" ) at the corner of Gauthier and Nelson Road in Lake Charles, Louisiana. The EIFS was manufactured by Finestone, but the defendant BASF is the successor-manufacturer for the product (via a merger on April 1, 2010), and thus appears as the named defendant in this case. [2] The Hospital originally filed this action on April 29, 2010 in the Fourteenth Judicial Court of Calcasieu Parish, and BASF subsequently removed it to this court based on diversity jurisdiction soon thereafter. [3]

A. Construction of the Facility (2001-2003)

In 2000, the Hospital contracted with Bessette Development (" Bessette" ) to construct

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a three-building facility (containing a Utility building, Medical Office building, and Hospital building) at the corner of Nelson and Gauthier Roads in Lake Charles, Louisiana. Bessette, in turn, bid out portions of the building project to subcontractors. Eventually, Bessette selected Robbins Contracting (" Robbins" ) [4] to construct the exterior walls of the facility. Robbins and one of the Hospital's architects, Michael Pomarico, then decided to use a Finestone Pebbletex EIFS product as the outer wall cladding system for the facility. [5] In mid 2001, Pomarico and Bessette reviewed and approved " Finestone EIFS submittals" from Robbins, which contained, among other things, example warranty language, before acquiring the EIFS. [6] At this point, Pomarico's main requirement for the EIFS was that it should have a ten-year warranty. Robbins subsequently purchased the EIFS materials from an EIFS supplier, F& W Architectural Products (" F& W" ) and began applying the EIFS to the facility in 2001, completing the project on or about January 14, 2003.

B. Discovery of Defect: " Weeping" Rust Stains in EIFS (December 2002)

Unfortunately, the EIFS finish coat contained iron pyrite particles that quickly began to rust, soon after the application of the EIFS to the buildings and before the construction of the facility was completed. On December 17, 2002, Robbins notified F& W of the rust appearing at the facility. [7] In the meantime, on December 19, 2002, the Certificate of Substantial Completion was issued for the facility. In response to the rust, a complaint initiation form was then sent on December 30, 2002, noting " rust on the EIFS" and requesting a remedy to the problem. [8] At the time the Hospital became aware of the problem and made a warranty claim, Finestone had not even issued a written warranty to the Hospital. Robbins then sent a January 14, 2003 fax to F& W, asking for the EIFS Warranty. [9] The actual written EIFS warranty (a " Limited Warranty" for a term of ten years) [10] was not delivered to the Hospital

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until April 28, 2003, but was dated January 14, 2003. This Limited Warranty waived implied warranties of merchantability and for fitness for a particular use, and limited the buyer's remedies to either replacement of the applicable coatings component or refund of the original purchase price. [11]

C. Remediation Efforts: First Pick and Clean (May 2003)

Robbins met with a Finestone representative on January 28, 2003 to discuss the rust issues with the EIFS. The representative's solution was a " pick and clean," in which a contractor would pick out the iron particles of the exterior wall using a knife, and then clean the rust stains with a solution. The Finestone representative then sent a follow up letter on February, 18, 2003, noting that the EIFS had exhibited " limited amounts of sand particles that cause[d] a slight color differential, and that Finestone would hire a contractor " at no cost to remove the affected particles." [12] In May 2003, BASF hired a remediation contractor, Southern Stucco Coatings & Paint, to perform the " pick and clean" procedure. According to the Hospital, an internal Finestone memo noted that the rust could reappear and that Finestone should reinspect the site after six months, but Finestone did not conduct a follow-up inspection. [13]

D. Remediation Efforts: Second Pick and Clean (2005-2006)

About a month after the first remediation effort (June 2003), the Hospital once again noticed that the rust was reemerging, and they lodged another complaint with Finestone in December 2004. Finestone advised Robbins that it had recommended a second pick and clean effort to take place in the second quarter of 2005. Allegedly due to Hurricane Rita, Finestone delayed the second pick and clean until May 2006. [14] Before the May 2006

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pick and clean commenced, the Hospital contracted Robbins to remove and replace EIFS on the Utility building at the facility that had been damaged by Rita. In the course of performing work on the Utility Building, Robbins unilaterally decided to remediate the rust stains present on the building. While the Hospital alleges that Robbins performed the pick and clean procedure in accordance with Finestone protocol, BASF asserts that Robbins performed the work incorrectly (not using Finestone products), leading to " unique and distinct" rust stains on the Utility building. BASF has essentially disclaimed any responsibility for the Utility building in light of Robbins' work on it. [15]

E. Unsuccessful Meeting to Discuss Potential Third Pick and Clean (May 2008)

Finestone then had another contractor perform pick and clean remediation in May 2006 on the other two buildings at the facility (the Medical Office building and Hospital building). Following this second remediation, the Hospital once again noticed rust stains on the facility buildings and complained to Finestone. A Finestone representative (Mr. Bowen) met with Pomarico, Hospital representatives, a Bessette representative, and a Robbins representative to discuss the rust problem in May of 2008. Bowen once again recommended the pick and clean method. Pomarico refused, arguing that the only effective way to address the rust was to remove and replace the EIFS. The other Hospital parties agreed: the pick and clean appeared to be making things worse, not better.

F. Breakdown in Communication after Meeting (2008-2010)

After the May 2008 meeting, on or about June 2, 2008, Bowen transmitted a follow-up letter, memorializing in writing the offer to pick and clean the Hospital building and Medical Office building (but not the Utility building). [16] Pomarico then sent a response letter to Finestone on August 5, 2008, requesting that Finestone to perform a limited, " sample" remediation procedure which the Hospital would then review to determine if a third pick and clean would be worth it (although he indicated in his deposition and in the letter that he thought it was very unlikely that the pick and clean would be a good long term solution). [17] BASF alleges it never received this letter, and in the hearing, the parties noted that the person the letter was addressed to at Finestone no longer works there. After this August 2008 letter, it appears that the parties ceased communicating altogether.

Because Finestone allegedly never received Pomarico's letter, it closed the Hospital's

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file on August 19, 2009. [18] The next year, on April 29, 2010, the Hospital filed this lawsuit.

MOTION FOR SUMMARY JUDGMENT STANDARD

A court should grant a motion for summary judgment when the pleadings, including the opposing party's affidavits, " show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party moving for summary judgment is initially responsible for demonstrating the reasons justifying the motion for summary judgment by identifying portions of pleadings and discovery that show the lack of a genuine issue of material fact for trial. Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). The court must deny the moving party's motion for summary judgment if the movant fails to meet this burden. Id.

If the movant satisfies this burden, however, the nonmoving party must " designate specific facts showing that there is a genuine issue for trial." Id. (quoting Celotex, 477 U.S. at 323). In evaluating motions for summary judgment, the court must view all facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). There is no genuine issue for trial, and thus a grant of summary judgment is warranted, when the record as a whole " could not lead a rational finder of fact to find for the non-moving party..." Id.

LAW AND ANALYSIS

I. The Hospital's Partial Motion for Summary Judgment

The Hospital makes two arguments in its motion: (1) that the remedy limitations and waivers of implied warranties in the Limited Warranty are unenforceable and (2) if the court finds that the Limited Warranty is enforceable, that ambiguity in the Limited Warranty should be construed in favor of the Hospital.

A. Enforceability of Remedy Limitations and Waiver of Implied Warranties in EIFS Limited Warranty

In its motion, the Hospital offers a three-part argument on whether the Limited Warranty's limitations of remedies (limiting the Hospital to either refund of the purchase price or replacement of the product) and waiver of implied warranties are enforceable. [19] This argument forms the bulk of its Partial Motion for Summary Judgment.

1. Waiver of implied warranties and limitation of warranties in the EIFS warranty under the Prince test

The Hospital argues that the waiver of implied warranties and limitation of remedies within the Limited Warranty are unenforceable because: (1) they were not written in clear and unambiguous terms; (2) they were not contained in the sales documents; (3) they were not brought to

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the attention of the buyer and explained to them.

Before addressing the three elements required to effectively waive warranties, BASF makes an overarching argument that the Hospital is incorrectly conflating waiver of implied warranties supplied as a matter of Louisiana law (under La. Civ. Code Ann. art. 2520 and 2524) versus express warranties provided in the written EIFS warranty. Since the prescription period for the implied warranty claims (one year) has allegedly expired, BASF accuses the Hospital of attempting to avoid the consequences of prescription by arguing that the express EIFS Limited Warranty, which has a term of ten years, somehow incorporates implied warranties by failing to effectively waive them, thus meaning that the implied warranty claims are viable for a ten year period. Continuing, BASF notes that even if the Hospital is correct on this point, a breach of express warranty claim is still subject to a one year prescriptive period, regardless of the express warranty terms.

In its reply, the Hospital argues that BASF's argument on prescription of warranty claims is erroneous, for the reasons discussed infra in BASF's Motion for Summary Judgment. Turning to the waiver of implied warranties issue, the Hospital asserts that it is BASF who has ignored Louisiana jurisprudence in making its argument, and that Louisiana law " unquestionably requires" waiver to be clear and unambiguous, contained in the sales document, and brought to the Hospital's attention in order to be effective. Concluding, the Hospital asserts that while BASF correctly notes that this case involves implied warranty claims and express warranty claims, it erroneously accuses the Hospital of confusing the separate warranty obligations in an attempt to expand the terms of its written warranty. The Hospital notes that BASF issued the Hospital a warranty which guaranteed the EIFS would have certain aesthetic properties; instead, the Hospital got a " rust-riddled finish coat." As such, the Hospital alleges it is not trying to expand the terms of the warranty, but rather wishes to show that BASF's attempt to limit available damages, like its attempt to waive implied warranties, was ineffective.

The undersigned finds that BASF misconstrues the Hospital's argument in this section. The Hospital is simply stating that the waiver of implied remedies and the limitation of available remedies in the Limited Warranty were ineffective because BASF did not properly alert the Hospital about these waivers and limitations. It is not attempting to bootstrap the ten year warranty period onto implied warranty claims.

Turning to the relevant law, in 1973, the Louisiana Supreme Court, in Prince v. Paretti Pontiac Co., 281 So.2d 112 (La. 1973), established than if a seller/manufacturer wishes to waive implied warranties, this waiver must be: (1) written in clear and unambiguous terms; (2) contained in the sales documents; and (3) brought to the attention of the buyer or explained to him. Id. at 117. Courts have deferentially applied this rule to consumer-purchasers, conforming to the Louisiana Supreme Court's finding that " safeguards protecting consumers must be more stringent than those protecting businessmen in the marketplace." Louisiana Nat'l Leasing Corp. v. ADF Serv., Inc., 377 So.2d 92, 96 (La. 1979). Accordingly, waivers of implied warranties are often found ineffective, as they do not meet all three requirements of the Prince test. The seller/manufacturer has the burden of proving that the buyer waived the warranties. Pias v. Wiggins, (La.App. 3rd Cir. 10/09/96), 688 So.2d 1103, 1106.

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Courts in Louisiana have also extended the three-part Prince test to warranty provisions which limit liability or recoverable damages. Harvey v. Mosaic Fertilizer, LLC, 2009 WL 3112144 (E. D. La. 2009); Fontenot v. F. Hollier & Sons, 478 So.2d 1379 (La App. 3 Cir. 1985). Based on Louisiana jurisprudence, both the waivers of implied warranties and the limitations on remedies in the EIFS warranty must meet the above three requirements. Thus, the court will address each requirement in turn.

a. The warranty was written in clear and unambiguous terms

The Hospital first asserts that there are several terms in the EIFS Limited Warranty [20] that are ambiguous: (1) it is unclear whether the waiver of implied warranties also waives claims for breach of implied warranty against redhibitory defects; (2) it is unclear what the waiver of " special, incidental, or consequential damages" means; and, (3) it is unclear whether " replacement" in the warranty means replacement of the EIFS wall or else simply delivering pails of new finish coat to the Hospital.

BASF counters that the implied warranty waivers are clear and unambiguous, and that the Hospital's assertion that terms like " replacement" are ambiguous is immaterial, as such terms are utilized in declaring the limited remedies under the express EIFS Limited Warranty, and not anything to do with the implied warranties. [21] Citing to the relevant portion of the warranty that disclaims implied warranties, BASF asserts that it is clear that this language waives implied warranties. [22]

The Hospital replies that Louisiana law requires warranty limitations to be unambiguous so that a contract party can make an informed decision prior to accepting waiver of warranties. Since the Hospital did not even have the warranty when the rust appeared, it argues that the warranty was even worse than ambiguous: it was non-existent.

The Fifth Circuit case, Datamatic, Inc. v. International Business Machines Corp., 795 F.2d 458 (5th Cir. 1986), provides guidance on whether this Limited Warranty language is clear enough in regards to the consequential damages provision and the waiver of implied warranties provision. In Datamatic, a manufacturer (IBM) sold computers to several corporations, including in the contract of sale a clause that expressly limited its liability as follows:

IBM will not be liable for personal injury or property damages except personal injury or property damage caused by IBM's negligence. IBM shall in no event have obligations or liabilities for consequential damages.
The foregoing Warranties and Limitations are exclusive remedies and are in lieu of all other warranties express or implied, including but not limited to the implied warranty of merchantability.

Id. at 460. The Fifth Circuit acknowledged that Louisiana law permitted a seller to limit or exclude the implied warranty against redhibitory defects, but that to be effective, the limitation or exclusion had to

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follow the requirements of the Prince test: (1) in the sales contract, (2) clear and unambiguous, and (3) brought to the buyer's attention. Id. at 464. While the court noted that usually, warranty limitations were construed against manufacturers, in the Datamatic case, " the IBM sales were to commercially sophisticated parties," allowing the court to hold the buyer to " a higher standard than an unknowledgeable customer." Id. at 465. The Fifth Circuit found that under this higher standard, the language was clear and unambiguous enough to allow for exclusion of implied warranties against redhibitory defects, and that the " consequential" damages provision was similarly clear and unambiguous. See id.

In this case, it cannot be said that a professional architect overseeing a large construction project would not be similarly considered a sophisticated party. Accordingly, the court will apply a higher standard than it normally would in a typical consumer case to discern whether the implied warranty waivers and consequential damages provisions are clear and unambiguous. Reading through the Limited Warranty, the waiver of implied warranties is similarly clear to the language in the Datamatic case: while it does not specifically mention waiver of implied warranties against redhibitory defects, it " makes no other warranty on FNESTONE COATINGS, including any implied warranty of merchantability or fitness for a particular use." Additionally, while the Hospital asserts that the warranty language limiting " consequential" damages (" FINESTONE shall not in any case be liable for special, incidental, or consequential damages" ) is too ambiguous to be enforceable, this language is also similar to the broad " consequential" damages language in the Datamatic case. The undersigned thus finds that these terms are both clear and unambiguous.

The clarity of the limitation on remedies (either replacement of the finish coat or refund of the purchase price) is more contentious. [23] The Hospital argues that this limitation of remedies was ambiguous and unclear because " replacement" could mean replacement of the entire EIFS system or replacement of the defective finish coat only. It asserts that this was particularly important because replacement of only the finish coat would be worthless remedy, since the finish coat could not be removed and replaced without destroying the rest of the EIFS system. BASF counters that the Hospital's dissatisfaction with this limited remedy does not render the limited remedy unenforceable, and that any issues with the sufficiency of the warranty were due to the negligence of Pomarico, who approved this Limited Warranty language by reviewing and signing off on the EIFS " submittals" from Robbins. It argues that, viewing the Limited Warranty as a whole, it is clear that the " limited" remedy of replacement of the coatings component or refund of the purchase price can only refer to the EIFS finish coat itself, and not the entire EIFS system. Further, it argues that because it was only responsible for the sale of the EIFS, and not the installation of the EIFS, it would not make sense for the Limited Warranty supplied by BASF to offer to strip and reclad the facility with replacement EIFS.

The applicable warranty language is as follows: " FINESTONE's sole liability is expressly limited to either the replacement

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of the applicable FINESTONE coatings component or refund of the original purchase price." Thus, the inquiry becomes, what exactly constitutes the " applicable coatings component" ? Louisiana's Civil Code provides that " [e]ach provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole." La. Civ. Code Ann. art. 2050. The Limited Warranty begins with this statement: " FINESTONE warrants that the FINESTONE Architectural Wall System (" System" : product or products and packaged components manufactured by FINESTONE and approved insulation boards) will perform satisfactorily under normal weather conditions for ten years from the date shown below." Thus, the warranty differentiates between the entire EIFS " System" and the various " components" which make up the " System." The " coatings component" would thus be a part of the group of " components" that make up the " System." While this language leads to an unfortunate result for the Hospital, in that replacement of the one defective " component" part would potentially not remedy the ultimate problem, the undersigned cannot say that, when reading the contract as a whole, replacement of the " applicable coatings component" is so ambiguous and unclear to render the provision unenforceable under Prince. Accordingly, the undersigned will turn to the second and third requirements of the Prince test.

b. Despite the fact that the Hospital, through Pomarico, had some notice of BASF's intent to limit remedies and waive implied warranties, there is no evidence that the waivers and limitations were brought ...


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