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In re Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales Practices And Products Liability Litigation

United States District Court, E.D. Virginia, Alexandria Division

June 20, 2017

IN RE: LUMBER LIQUIDATORS CHINESE-MANUFACTURED FLOORING PRODUCTS MARKETING, SALES PRACTICES AND PRODUCTS LIABILITY LITIGATION This Document Relates to ALL s MDL

          MEMORANDUM OPINION (DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON PLAINTIFFS' FIRST AMENDED REPRESENTATIVE CLASS ACTION COMPLAINT)

          Anthony J. Trenga United States District Judge.

         Presently 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”).[1]

         Upon 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 California False Advertising Law (Count III), the California Legal Remedies Act (Count IV), 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 Lila Washington, the Ronquillos, and Mr. Balero (California plaintiffs) and the Florida and Texas plaintiffs for fraudulent concealment (Count I); (2) claims filed by Lila Washington, the Ronquillos, and Mr. Balero (California plaintiffs) under the California Unlawful, Unfair, or Fraudulent Business Acts and Practices Law (Count II); (3) the Brandts' (Florida plaintiffs) claims under the Florida Deceptive and Unfair Trade Practices Act (Count V); (4) the Parnellas' (Texas plaintiffs) claims under the Texas Deceptive Trade Practices Act (Count VII); (5) the Cloudens' (New York plaintiffs) claims under New York General Business Law Section 349 (Count VI); (6) all Plaintiffs' claims for breach of implied warranty and violations of the Magnuson-Moss Warranty Act (Counts IX-X); and (7) the Brandts' (Florida plaintiffs) claims for negligent misrepresentation (Count XI).

         I. Claims and Procedural History

         Plaintiffs collectively have asserted the following twelve causes of action in the FAC.[2]

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. ¶¶ 165-76);
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. ¶¶ 183-93);
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. ¶¶ 239-47);
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[3]) (id. ¶¶ 259-62); and
Count XII: declaratory relief (by all Plaintiffs and all classes) (id. ¶¶ 266-67).

         On 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 to Dismiss.

         On 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 (“ATCM”), 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 injunctive relief.

         II. FACTS

         Unless otherwise indicated, the following facts are undisputed or, where they are disputed, viewed most favorably to the Plaintiffs, as the non-moving party:

         A. Lumber Liquidators' Business and Applicable Regulations

         Defendant Lumber Liquidators is a retail seller of certain composite wood-based laminate products, including the Chinese-manufactured composite wood flooring that is the subject of this litigation (the “Products”), which it distributed, marketed, and sold in California, Florida, Illinois, New York, and Texas, where the representative Plaintiffs purchased the Products, as well as in other states. Defendant's Memorandum in Support of its Motion for Summary Judgment [Doc. No. 1000] (“Def.'s Mem.”) ¶ 1.

         The State of California has established the California Air Resources Board (“CARB”). 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.

         In April 2007, CARB approved the 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; Defendant's Answer [Doc. No. 599] (“Def's Answer”) 3-4 (not contesting the allegations).

         B. Formaldehyde Testing Results

         In 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. Plaintiffs' Memorandum in Opposition to Defendant's Motion for Summary Judgment [Doc. No. 1017] (“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 modify its website following CARB's and Benchmark's findings. Id. ¶ 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. ¶ 22.

         On 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 advertised.[4]

         In 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.[5]

         II. LEGAL STANDARD

         The 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).

         III. ANALYSIS OF ISSUES APPLICABLE TO MULTIPLE CLAIMS

         Defendant seeks dismissal of many of the Plaintiffs' claims in the First Amended Complaint based on the following issues:

         A. Standing

         Defendant 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, [6] 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.

         At the 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).

         Plaintiffs' 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.”[7] 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.

         Defendant 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.[8] In short, Defendant essentially conflates the issue of reliance with Article III standing.

         The 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, [9] others it cites either support Plaintiffs' position or do not relate precisely to the issue.[10] The one circuit court that has dealt with the price distortion theory has found it sufficient to confer standing.

         In 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 the cars' 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.

         Here, the evidence is sufficient for a fact finder to conclude that Lumber Liquidators knowingly misrepresented throughout a nationwide marketplace that its flooring was CARB compliant. 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.

         B. Reliance

         Many, 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, [11] 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. 1.

         There are some variations in the definitions of reliance as between state and federal law and among the states themselves.[12] 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), [13] 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.

         As to 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.

         On the 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.

         For the 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.

         C. Materiality

         Some of Plaintiffs' claims require them to demonstrate that the misrepresentations or omissions they allege Lumber Liquidators made were material. In that regard, Defendant claims that its 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 Mem. 20.

         Last 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[14] and a state court decision that viewed materiality in terms of whether a misrepresentation “went to the very essence of the bargain.”[15] 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 ...


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