United States District Court, E.D. Virginia, Alexandria Division
IN RE LUMBER LIQUIDATORS CHINESE-MANUFACTURED FLOORING PRODUCTS MARKETING, SALES PRACTICES AND PRODUCTS LIABILITY LITIGATION This Document Relates to ALL Cases
MEMORANDUM OPINION (DEFENDANT'S MOTION FOR
SUMMARY JUDGMENT ON PLAINTIFFS' FIRST AMENDED
REPRESENTATIVE CLASS ACTION COMPLAINT)
Anthony J. Trenga United States District Judge
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”).
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).
Claims and Procedural History
collectively have asserted the following twelve causes of
action in the FAC.
Count I: fraudulent concealment (by all Plaintiffs
and all classes) (FAC ¶¶ 156-64);
Count II: violation of the California Unlawful,
Unfair, or Fraudulent Business Acts and Practices Law
(“UCL”), Cal. Bus. & Prof. Code § 17200,
et seq. (by the Washingtons and Ronquillos, Mr.
Balero, and the California class) (id. ¶¶
Count III: violation of the California False
Advertising Law (“FAL”), Cal. Bus. & Prof.
Code § 17500, et seq. (by the Washingtons and
Ronquillos, Mr. Balero, and the California class)
(id. ¶¶ 177-82);
Count IV: violation of the California Consumer Legal
Remedies Act (“CLRA”), Cal. Civ. Code §
1750, et seq. (by the Washingtons and Ronquillos,
Mr. Balero, and the California class) (id.
Count V: violation of the Florida Deceptive and
Unfair Trade Practices Act, Fla. Stat. § 501.201, et
seq. (by the Brandts and the Florida class)
(id. ¶¶ 194-202);
Count VI: violation of N.Y. Gen. Bus. Law §
349, et seq. (by the Cloudens and the New York
class) (id. ¶¶ 203-16);
Count VII: violation of the Texas Deceptive Trade
Practices Act, Tex. Bus. & Com. Code § 17.50, et
seq. (by the Parnellas and the Texas class)
(id. ¶¶ 217-26);
Count VIII: violation of the Illinois Consumer Fraud
and Deceptive Business Practices Act, 815 Ill. Comp. Stat.
§ 505/1, et seq. (by the Burkes and the
Illinois class) (id. ¶¶ 227-38);
Count IX: breach of implied warranty (by all
Plaintiffs and all classes) (id. ¶¶
Count X: violation of the Magnuson-Moss Warranty
Act, 15 U.S.C. § 2301, et seq.
(“MMWA”) (by all Plaintiffs and all classes)
(id. ¶¶ 248-58);
Count XI: negligent misrepresentation (by the
Brandts and the Florida class) (id. ¶¶
Count XII: declaratory relief (by all Plaintiffs and
all classes) (id. ¶¶ 266-67).
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
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
otherwise indicated, the following facts are undisputed or,
where they are disputed, are viewed most favorably to the
Plaintiffs, as the non-moving party:
Lumber Liquidators' Business and Applicable
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.
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.
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.
Formaldehyde Testing Results
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.
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
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.
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).
ANALYSIS OF ISSUES APPLICABLE TO MULTIPLE CLAIMS
seeks dismissal as to many of the Plaintiffs' claims in
the First Amended Complaint based on the following issues:
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,
Defendant may not obtain summary judgment at this point based
on a failure to present evidence sufficient to establish a
specific amount of damages under the price distortion theory.
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).
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.” Pls.' Mem.
Opp'n 22. Thus, the essence of their claim is that they
overpaid for the flooring they purchased based on
Defendant's misrepresentations and that, had LL not
provided the various assurances concerning the formaldehyde
content of the flooring, it could not have obtained the
prices it was charging. In other words, the Products would
have had to have been priced lower and Plaintiffs would have,
in turn, paid a lower price than they did.
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. In short, Defendant essentially conflates
the issue of reliance with Article III standing.
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,  others it cites
either support Plaintiffs' position or do not relate
precisely to the issue. The one circuit court that has dealt
with the price distortion theory has found it sufficient to
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:
As the district court recognized here, a manufacturer's
misrepresentation may allow it to command a price premium and
to overcharge customers systematically. Even if an individual
class member subjectively valued the vehicle equally with or
without the accurate [safety label], she could have suffered
a loss in negotiating leverage if a vehicle with perfect
safety ratings is worth more on the open market. As long as a
reasonable customer will pay more for a vehicle with perfect
safety ratings, the dealer can hold out for a higher price
than he would otherwise accept for a vehicle with no safety
ratings. Thus, for example, a dealer would likely not
discount a pickup truck with superior towing capacity for a
customer with only a suburban commute, since most customers
willingly pay more for that feature. Nor would a dealer be
likely to lower the price for a hearing impaired customer who
demands to pay less for a vehicle equipped with satellite
radio, even though she might value it equally to a vehicle
equipped with no audio capabilities. Obviously, prices are
determined in substantial measure according to market demand.
Thus, because a vehicle with three perfect safety ratings may
be able to attract greater market demand than a vehicle with
no safety ratings, the misleading sticker arguably was the
direct cause of actual damages for the certified class even
if members individually value safety ratings differently.
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.
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.
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,  Defendant contends that Plaintiffs
cannot recover under any claim that requires any form of
reliance since “the evidence shows that no Plaintiff
relied on the CARB-compliance label.” Def.'s Mem.
are some variations in the definitions of reliance as between
state and federal law and among the states
themselves. In any event, for the most part, the
record is clear concerning whether the Plaintiffs actually
relied on the alleged misrepresentations. In that regard,
with the exception of the Brandts (FL),  none of the
Plaintiffs saw or heard any statements concerning
formaldehyde or CARB compliance on Defendant's product
packaging, website, or anywhere else before he or she
purchased it. See generally Def.'s Mem. ¶
7-37. Many Plaintiffs did not know what CARB or the ATCM
were, either at the time of purchase or when deposed. Some,
such as Plaintiffs Lila Washington (CA), the Ronquillos (CA),
Joseph Balero (CA), and the Parnellas (TX) have never claimed
they relied on any of Lumber Liquidators'
representations. Some have testified explicitly that they did
not rely on any representations concerning
formaldehyde or CARB compliance at the times of their
purchases. See Id. ¶¶ 27-28, 35
(pertaining to at least one of the Cloudens (NY) and Burkes
(IL)); Dep. Tr. for Pl. Sarah Cloud at 81:10-13; Dep. Tr. for
Pl. Devin Cloud at 128:9-12; Dep. Tr. for Pl. Shawn Burke at
151:7-16, 290:7-14. All Plaintiffs also agreed that their
floors have functioned successfully as floors, and none
claims that he or she was made ill as a result of the
Products or suffered any form of medical injury.
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.
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.
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.
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
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:
Under any understanding of the concept, materiality
“look[s] to the effect on the likely or actual behavior
of the recipient of the alleged misrepresentation.” 26
R. Lord, Williston on Contracts § 69:12, p. 549 (4th ed.
2003) (Williston). In tort law, . . . a “matter is
material” in only two circumstances: (1) “[if] a
reasonable man would attach importance to [it] in determining
his choice of action in the transaction”; or (2) if the
defendant knew or had reason to know that the recipient of
the representation attaches importance to the specific matter
“in determining his choice of action, ” even
though a reasonable person would not. Restatement (Second) of
Torts § 538, at 80.
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 and a state court decision that viewed
materiality in terms of whether a misrepresentation
“went to the very essence of the
bargain.” Whether a reasonable consumer would find
information to be material is often viewed as a question of
fact, reserved for the trier of fact, and the omitted
information need not be the sole or even decisive reason for
the transaction. See In re Tobacco II Cases, 207
P.3d 20, 39-40 (Cal. 2009). But see United States ex rel.
Berge v. Board of Trustees of the Univ. of Ala., 104
F.3d 1453, 1460 (4th Cir. 1997) (finding that, “in the
context of the civil False Claims Act the determination of
materiality, although partaking of the character of a mixed
question of fact and law, is one for the court”).
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 ...