A home builder cannot maintain a suit to recover damages against the manufacturer of defective synthetic stucco installed in a Fairfax County home, the Supreme Court of Virginia has ruled.
The builder had sued the manufacturer after settling with the couple that owned the home, which was damaged by synthetic stucco, known in the industry as exterior insulation and finish system, or EIFS.
The manufacturer demurred, contending that there was no breach of implied warranty because the builder’s damages were consequential, not direct. Such “pass-through” damages cannot be recovered in the absence of privity, said the manufacturer.
The manufacturer likewise demurred to the claim for breach of express warranty, contending that the builder’s failure to produce a written contract left it with nothing more than a “naked allegation” of a breach.
The Supreme Court agreed, affirming the trial judge’s decision to sustain the manufacturer’s demurrers to both claims.
“Clearly, this opinion has significant impact on EIFS cases,” said Falls Church lawyer Timothy R. Hughes, who represented the manufacturer. “The Supreme Court has made it clear that you need privity for pass-through claims.”
Michael J. McManus of Washington, D.C., the builder’s lawyer, said the ruling leaves Virginia home builders in a bind.
“The court’s decision has left builders with no remedy against the manufacturer of a defective product, unlike almost every state in the union,” McManus said.
The case is Pulte Home Corporation v. Parex Inc. (VLW 003-6-053). Senior Justice Harry L. Carrico wrote the 15-page opinion for the court.
If the glove fits …
In June 2000, a Fairfax couple filed a $500,000 suit against the builder and the manufacturer to cover the cost of repairing damage to their home caused by defective EIFS. The builder then filed a cross-claim against the manufacturer, asserting claims for breach of implied warranty and breach of express warranty.
The builder’s demurrer to the couple’s suit was overruled. In October 2000, the builder settled the couple’s claim.
The trial court, however, sustained the manufacturer’s demurrer to the cross-claim. The builder appealed to the Supreme Court.
In its claim for breach of implied warranty, the builder contended that it sought direct damages as opposed to consequential damages. The distinction is important because under the court’s ruling in Beard Plumbing and Heating Inc. v. Thompson Plastics Inc. (VLW 097-6-088), the court held that privity was required for a claim for consequential damages.
In its analysis, the court homed in on the builder’s complaint, which, in Carrico’s description, said that the builder “would suffer damages from [the manufacturer's] breach of warranty only upon the happening of an intermediate event, i.e., [the builder] being found liable to the [Fairfax couple] for the damages they suffered.”
Carrico also cited Black’s Law Dictionary’s definition of consequential damages: “Such damage, loss, or injury as does not flow directly and immediately from the act of the party, but only from some of the consequences or results of such act.”
“[The builder's] damages fit into this definition like a hand in a glove,” Carrico wrote. “They did not flow directly and immediately from the act of [the manufacturer's] breach of warranty but from a consequence of the [Fairfax couple's] recovery of damages from [the builder]. Indeed, [the builder] acknowledges that it is entitled to recover only on some ‘sort of a pass through.’”
With respect to the claim for breach of express warranty, the court noted that the plaintiff had failed to produce any evidence of a written contract. The defendant had filed a motion for “craving oyer,” a procedural mechanism in which the defendant asked the plaintiff to attach a copy of the contract to its pleading.
“Hence,” Carrico wrote, “[the builder] was left with the naked allegation in its cross-claim that its approval of the use of the EIFS was based upon the express oral or written warranties of [the manufacturer]. … This allegation merely parroted the language of Code Sect. 8.2-313, which sets forth several legal bases for the creation of express warranties, and amounted to no more than a legal conclusion.”
“If a party is unable to produce the warranties under craving oyer, the court found they’re no longer on the table,” said Hughes. “Merely restating statutory language is incorrect — that’s just restating a legal conclusion.”
The court’s ruling was also significant for its stance on the claim for breach of implied warranty, Hughes said.
“The Supreme Court has made it clear that you need privity for pass-through claims,” he said. “You still need privity under Beard.”
Hughes suggested the ruling would influence not just EIFS cases but a wide variety of construction cases.
“You often see third-party claims or cross-claims seeking recovery for damages,” he said. “The Supreme Court has offered a great degree of clarity with respect to the type of claims that can be maintained against manufacturers.”
“It gives no guidance,” countered McManus. “The disappointing aspect is that the court had an opportunity to give guidance to other courts and consumers vis-a-vis manufacturers and their defective products.”
The ruling, said McManus, also deprives builders in EIFS cases of a crucial remedy.
“The builder still has an opportunity to collect from the applicator,” he said. “[But] homeowner experts will tell you that no matter how well it’s put on, it’s not going to work. It’s inherently defective.”