Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-15-01830/USCOURTS-ca8-15-01830-0/pdf.json

Parties Involved:
Alan Todd Brown
Appellant
Louisiana-Pacific Corporation
Appellee

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 15-1830

___________________________

Alan Todd Brown, individually and on behalf of all others similarly situated

lllllllllllllllllllll Plaintiff - Appellant

v.

Louisiana-Pacific Corporation

lllllllllllllllllllll Defendant - Appellee

____________

Appeal from United States District Court 

for the Southern District of Iowa - Des Moines

____________

 Submitted: October 20, 2015

 Filed: April 12, 2016 

____________

Before RILEY, Chief Judge, SMITH and SHEPHERD, Circuit Judges.

____________

SMITH, Circuit Judge. 

Alan Todd Brown appeals the district court's1

 grant of summary judgment to

Louisiana-Pacific Corporation (LP) on Brown's claims for fraudulent

1

The Honorable Stephanie M. Rose, United States District Judge for the

Southern District of Iowa. 

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misrepresentation, unfair or deceptive practices, and breach of warranty against LP

for the purported defectiveness of its TrimBoard product. We affirm. 

I. Background

The following facts are undisputed. LP's former subsidiary, ABT Building

Products Corporation (ABT), manufactured and sold TrimBoard, an exterior building

component intended for use as trim in housing construction. In 2003, Brown

purchased a lot from Bryan Clark Holmes, LLC in Urbandale, Iowa, and hired Bryan

Clark to construct a home on the property for Brown and his wife. When discussing

construction materials with Clark, Brown emphasized the importance of finding a

siding-and-trim product that would not cause the rotting and buckling problems

present in Brown's prior home. TrimBoard was ultimately the product selected and

installed on Brown's home.2

The TrimBoard installed on Brown's home came with a ten-year limited

warranty; it provides, in relevant part:

Louisiana-Pacific Corporation (LP) warrants its TrimBoard, exclusive

of finish, against delamination, checking, splitting, cracking and

chipping of the basic substrate for a period of ten years from the date of

installation under normal conditions of use and exposure, providing the

trim is properly stored, installed, maintained, and protected as specified

in LP's Application Instructions. Should the product fail within ten years

of the date of installation, LP, after investigation and verification, will

replace the defective trim on the following basis: LP will compensate the

owner for repair and replacement of the affected trim no more than twice

the original purchase price of the affected trim if failure occurs within

ten years.

2

As the district court noted, "the parties dispute: (1) whether Mr. Clark

explicitly discussed TrimBoard as an option with [Brown], and (2) whether [Brown]

had any role in the selection or purchase of TrimBoard."

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Brown never viewed informational or advertising literature for TrimBoard, never

spoke to any representative of LP about the TrimBoard product, and did not see a

copy of the limited warranty prior to the product's installation on his home.

In August 2004, Brown moved into his new home. Sometime in 2010, Brown

noticed damage to certain pieces of the installed TrimBoard and contacted Clark, who

advised Brown of the ten-year limited warranty. Brown located a copy of the limited

warranty on LP's website and filed a warranty claim. In response to Brown's warranty

claim, LP sent a warranty representative to inspect Brown's house and identify the

damaged TrimBoard. LP offered Brown $197.67 in compensation for the damaged

TrimBoard, which Brown rejected. In January 2011, Brown hired a local contractor

to replace various pieces of TrimBoard on his house, at a total cost of $1,700.00,

inclusive of labor and materials. Brown admits that only some of the TrimBoard had

failed and needed to be replaced by January 2011 but contends that he

"subsequently . . . has learned that TrimBoard is not a quality product and not

moisture resistant."

Brown subsequently filed this putative class action, alleging claims for

negligence, fraudulent misrepresentation, breach of warranty, and unfair or deceptive

practices, and requested declaratory relief and money damages. Pursuant to LP's

dismissal motion, the district court dismissed Brown's claim for negligence and

permitted the remaining claims to proceed. LP then moved for summary judgment on

all remaining claims. In response to LP's motion for summary judgment, Brown relied

on relevant portions of Clark's affidavit. In that affidavit, Clark indicated that he had

purchased all of the materials for installation on Brown's residence, including

TrimBoard. Advertisements for TrimBoard are attached to the affidavit as Exhibits B,

C, and D. The advertisements state, among other things, that the TrimBoard is

"[m]oisture resistant/decay resistant"; is "moisture and weather resistant"; and

"[r]esists warping, cupping." Clark summarized the statements that the advertisements

make in his affidavit. Additionally, he stated: 

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9. The LP advertising accurately portrays what I believed I was

purchasing for my customers. I was relying on LP to provide a

quality product similar to wood trim but with the benefits

described in the advertisements. . . . 

***

11. If I had known that the TrimBoard w[as] not a quality product as

represented and warranted, then I would not have purchased the

TrimBoard and/or recommend[ed] TrimBoard to Mr. Brown.

Instead, I would have purchased another trim product.

The district court granted summary judgment to LP on the remaining claims,

denied Brown's request for declaratory relief, and dismissed as moot his motion for

class certification. First, the court addressed Brown's fraudulent-misrepresentation

claim and found that Brown failed to demonstrate a genuine issue of material fact on

whether LP made a representation to Clark—Brown's builder. Second, the court found

that to establish a claim for unfair or deceptive trade practices under the Iowa Private

Right Act, Brown had to establish at least factual causation between the alleged unfair

or deceptive practices and his damages. The court held that because Brown failed to

create a genuine issue of material fact on whether a representation was made to Clark,

Brown failed to create a genuine issue of material fact on factual causation. Finally,

as to Brown's claim for breach of express warranty, the district court determined that

the limited warranty did not fail of its essential purpose and was not unconscionable,

meaning that Brown's remedy was limited to the warranty's terms. 

II. Discussion

On appeal, Brown argues that the district court erred in granting summary

judgment to LP on his claims for fraudulent misrepresentation, unfair or deceptive

practices, and breach of warranty. 

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"We review a grant of summary judgment de novo, viewing the evidence in the

light most favorable to the nonmoving party and drawing all reasonable inferences

from that evidence in favor of the nonmoving party." Smith v. URS Corp., 803 F.3d

964, 968 (8th Cir. 2015) (citation omitted). Both parties agree that Iowa law is

applicable to the present case. 

A. Fraudulent Misrepresentation

Brown argues that the district court erred in granting summary judgment on his

fraudulent-misrepresentation claim by focusing only on the element of reliance on

affirmative representations. According to Brown, the district court erroneously

dismissed this claim after finding that Brown failed to submit evidence that he or

Clark, as his builder, relied on specific advertisements or brochures in deciding to

purchase TrimBoard. Brown contends that he and all class members actually relied on

LP's omission and concealment of material facts in its advertisements that failed to

disclose that TrimBoard would rot, swell, warp, or crack when exposed to moisture

from rain, lawn sprinklers, or other sources and did not have the decay resistance as

advertised. Brown maintains that while he did not rely on any particular advertisement

or brochure, he did rely on LP's entire course of conduct. Brown contends that "LP

advertised that TrimBoard would last as long as conventional wood[,] and [Brown]

and class members relied on LP's omission to tell them otherwise."

For Brown to prevail on his fraudulent-misrepresentation claim under Iowa law,

he must prove the following elements:

(1) defendant made a representation to the plaintiff, (2) the

representation was false, (3) the representation was material, (4) the

defendant knew the representation was false, (5) the defendant intended

to deceive the plaintiff, (6) the plaintiff acted in reliance on the truth of

the representation and was justified in relying on the representation, (7)

the representation was a proximate cause of plaintiff's damages, and (8)

the amount of damages.

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Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 400 (Iowa 2001) (citation omitted).

We focus on the sixth element—justifiable reliance. Brown contends that LP's

alleged misrepresentations were passed through a third party—Clark—and then

communicated to Brown and relied upon by him. Iowa law provides that "persons who

fraudulently misrepresent the truth can be held liable to third parties if they have a

'reason to expect' their misrepresentation will be communicated to third parties." Clark

v. McDaniel, 546 N.W.2d 590, 593 (Iowa 1996) (quoting Restatement (Second) of

Torts § 533 (1977)); see also United States v. Hawley, 619 F.3d 886, 897 (8th Cir.

2010) ("The [Iowa Supreme] Court [in Clark] expressly adopted section 533 of the

Restatement (Second) of Torts (1977) . . . ."). More specifically: 

"The maker of a fraudulent misrepresentation is subject to liability for

pecuniary loss to another who acts in justifiable reliance upon it if the

misrepresentation, although not made directly to the other, is made to a

third person and the maker intends or has reason to expect that its terms

will be repeated or its substance communicated to the other, and that it

will influence his conduct in the transaction or type of transaction

involved."

Clark, 546 N.W.2d at 593 (emphasis added) (quoting Restatement (Second) of Torts

§ 533 (1977)). 

The maker of a fraudulent misrepresentation is liable to "'those whom he has

reason to expect [the misrepresentation] to reach and influence, although he does not

make the misrepresentation with that intent or purpose.'" Id. (alteration in original)

(quoting Restatement (Second) of Torts § 533 cmt. d (1977)). An objective standard

applies to whether one has "reason to expect" reliance by another: "'The maker of the

misrepresentation must have information that would lead a reasonable man to

conclude that there is an especial likelihood that it will reach those persons and will

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influence their conduct.'" Id. (quoting Restatement (Second) of Torts § 533 cmt. d

(1977)). "[T]he fact that the maker has an advantage to gain, even though it is in some

other transaction, by furnishing the misrepresentation for repetition to the third person

is of great significance in determining whether he has reason to expect that the

original recipient should so repeat it." Restatement (Second) of Torts § 533 cmt. e

(1977) (emphasis added). 

In summary, "a speaker may be liable to indirect recipients of a fraudulent

misrepresentation if the speaker 'intends or has reason to expect that its terms will be

repeated or its substance communicated to the other, and that it will influence his

conduct in the transaction or type of transaction involved.'" Cromeans v. Morgan

Keegan & Co., No. 2:12-CV-04269-NKL, 2014 WL 1901197, at *5 (W.D. Mo. May

13, 2014) (applying § 533 as adopted by Missouri courts) (quoting Restatement

(Second) of Torts § 533 (1977)). This presumes that there is an "initial, direct recipient

of this information" who repeated the speaker's communication to the third party. Cf.

First Horizon Home Loan Corp. v. Apostle (In re Apostle), 467 B.R. 433, 441 (Bankr.

W.D. Mich. 2012) ("But, to whom was this [material] misrepresentation made?

Somewhat surprisingly, the initial, direct recipient of this information was not

identified at trial, although the court infers that the completed closing statement was

initially submitted by Apostle to the escrow or title agent who handled the closing.").

As indicated supra, the Iowa Supreme Court has adopted and applied the

indirect-recipient doctrine of § 533. See Clark, 546 N.W.2d 593–94 (holding that used

car salesman could be liable to subsequent buyers of car for his fraudulent

misrepresentation to original buyers based on his failure to disclose that front end of

car of one model year had been welded to back end from car of another model year

and finding that experienced car salesman could reasonably expect that his

misrepresentation would be passed onto third parties). Brown relies on Clark in

arguing that no requirement exists that LP's misrepresentation or omission be made

directly to Brown or other class members because LP is liable to Brown (and the other

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class members) as an indirect recipient of LP's fraudulent misrepresentation.

According to Brown, LP had reason to expect that Clark—Brown's builder—would

repeat or communicate the message to Brown and that the communication would

influence Brown's conduct in purchasing TrimBoard. 

The district court correctly recognized that the Iowa Supreme Court did adopt

the indirect-misrepresentation requirements of § 533 in Clark; but, the district court

aptly distinguished Clark from the present case. In Clark, because the trial court had

specifically "found that [the defendant-dealer] misrepresented the condition of the car

[to the original purchasers]," the issue on appeal was not whether the original

purchasers were recipients of the defendant-dealer's communication. Id. at 592.

Instead, "[t]he key issue [was] whether the [plaintiffs could] justifiably rely on

representations that [the defendant-dealer] made to [the original purchasers]." Id. at

593. Here, by contrast, the district court found that Brown presented insufficient

evidence that Clark ever received a communication from LP. As the district court

explained, Clark's affidavit fails to identify "which advertisements he viewed, when

he viewed them, or which statements from the advertisement he read and relied upon

in advising [Brown] of the suitability of the product." Clark did not indicate that he

had "previously viewed the attached advertisements" from LP; in fact, Brown's

counsel indicated to the district court that "Clark was provided these exhibits at the

time of his sworn affidavit and could only affirm that the advertisements were

consistent with materials he recalled viewing some nine to ten years ago." Clark

"never state[d] he in fact viewed any advertisements published by LP at all"; instead,

he merely indicated that "[t]he LP advertising accurately portrays what [he] believed

[he] was purchasing." 

We agree with the district court that "nothing in the Clark Affidavit indicates

Mr. Clark in fact viewed any materials from LP; rather, it leaves open the possibility

that Mr. Clark had heard of TrimBoard from another source . . . and merely asserts

now that LP's advertisements were consistent with the product he believed he was

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purchasing." Indeed, Brown's counsel conceded as much at oral argument when asked

what representations LP made to Clark; he replied, "Unfortunately, [Clark] could not

recall what he had seen that made him believe it was a quality product, but he

believed, based upon his understanding . . . he couldn't recall exactly what he had

seen. He understood it was a quality product." 

Furthermore, as the district court noted, Brown failed to provide any

"foundation or context for the attached advertisements." While Brown's counsel

indicated that the advertisements attached to Clark's affidavit "were taken from LP's

website prior to the time Mr. Clark swore his affidavit," Brown produced "no evidence

that these same or similar advertisements were disseminated in or around Iowa in

2004 or otherwise accessible by Mr. Clark." Viewing the evidence in the light most

favorable to Brown, we, as did the district court, "can only infer that Mr. Clark likely

viewed some type of written material containing information about

TrimBoard—though not necessarily materials produced by LP—at some point in time

prior to purchasing TrimBoard for installation on [Brown's] home." Therefore, we

hold that Clark's affidavit is insufficient to create a genuine issue of material fact as

to whether Clark—a third party—received a communication from LP that he

subsequently communicated to Brown and upon which Brown relied.3

3

On appeal, Brown attempts to characterize his case as one of omission instead

of affirmative misrepresentation, stating: "Here, . . . [Brown], and members of the

putative class, physically observed TrimBoard which appeared to be similar to

ordinary wood trim and a suitable product for outdoor use, and TrimBoard would not

have been purchased had LP disclosed its true nature." "[A]n inference of reliance is

logical in an omission of material facts situation because of the difficulty in proving

what the party would have done if it had had the relevant information." Sollenbarger

v. Mountain States Tel. & Tel. Co., 121 F.R.D. 417, 434 (D.N.M. 1988). 

But Brown's position on appeal is contrary to what he argued before the district

court. There, he asserted that Clark did receive affirmative misrepresentations from

LP about TrimBoard by relying on advertisements for TrimBoard (which, as the

district court discussed, Brown never affirmatively proved that Clark "received"). The

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B. Unfair or Deceptive Practices

Brown argues that the Iowa Private Right Act specifically proscribes unfair

practices and omissions and that LP's entire scheme is an unfair practice for which its

omission of truth is actionable. Brown contends that the district court's granting of

summary judgment on a tangential issue is reversible error because no requirement

exists that Brown or a class member prove direct reliance on omissions. Brown asserts

that reliance can be inferred because Brown and the class members would not have

purchased the TrimBoard if LP had not concealed or omitted the truth about

TrimBoard. 

The Iowa Private Right Act provides that any "consumer who suffers an

ascertainable loss of money or property as the result of a prohibited practice or act in

violation of this chapter may bring an action at law to recover actual damages." Iowa

Code Ann. § 714H.5(1) (emphasis added). Here, the prohibited practice or act that

Brown has alleged is identified in Iowa Code Annotated § 714H.3(1):

A person shall not engage in a practice or act the person knows or

reasonably should know is an unfair practice, deception, fraud, false

pretense, or false promise, or the misrepresentation, concealment,

suppression, or omission of a material fact, with the intent that others

rely upon the unfair practice, deception, fraud, false pretense, false

promise, misrepresentation, concealment, suppression, or omission in

connection with the advertisement, sale, or lease of consumer

merchandise, or the solicitation of contributions for charitable purposes.

advertisements state, among other things, that the TrimBoard is "[m]oisture

resistant/decay resistant"; is "moisture and weather resistant"; and "resists warping,

cupping." Those are affirmative statements, which Brown now contends are false. 

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(Emphases added.)4

Brown argues that the question of materiality is an objective one. He contends

that materiality can be proven through objective evidence to show that the material

misrepresentation would have induced a reasonable person's reliance. Before the

district court, Brown initially argued only that "the Private Right Act . . . does not

require individual reliance." In his motion for reconsideration pursuant to Federal

Rules of Civil Procedure 59(e) and 60(b), Brown argued "that causation can be

established through objective standards." The district court declined to consider this

argument, finding that Brown's "argument that causation can be established through

objective standards reflects a new interpretation of the statute" not previously raised

as a theory. LP notes that, in this appeal, Brown raises "only his second, untimely

theory about reliance in Private Right Act claims" and that he cannot make this

argument on appeal. A court of appeals "will typically not consider an issue or a new

argument raised for the first time in a motion for reconsideration in the district court."

U.S. Bank Nat'l Ass'n v. Verizon Commc'ns, Inc., 761 F.3d 409, 425 (5th Cir. 2014),

as revised (Sept. 2, 2014), cert. denied, 135 S. Ct. 1430 (2015) (citations omitted). But

even assuming Brown raised this argument before the district court, we conclude that

it fails.

4

The district court noted that "[t]he parties seem to agree that the purported

unfair or deceptive practice at issue here is the alleged misrepresentation," not an

"omission" of fact. But, before this court, Brown argues that "throughout this

litigation, Appellant has made clear that his claim under the Act is grounded in LP's

omissions, failure to disclose and concealing the true nature of TrimBoard with the

intent that consumers rely on such material omissions in deciding to purchase the

product as required by the Act." As explained supra, we reject Brown's attempt to

recharacterize his claims against LP as involving omissions rather than affirmative

misrepresentations. See supra Part II.A., at n.3. 

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Brown argues that the materiality of LP's alleged misrepresentations creates an

inference of causation that satisfies factual causation between LP's alleged unfair or

deceptive trade practice and Brown's damages. But the cases that Brown cites in

support of that argument do not stand for that proposition; instead, they involve other

state or federal statutes with different language and requirements.5

Our focus is on the precise language of the Iowa Private Right Act—whether

Brown "suffer[ed] an ascertainable loss of money or property as the result of a

prohibited practice." Iowa Code Ann. § 714H.5(1) (emphasis added). "[T]he phrase

'as a result of' can be 'naturally read simply to impose the requirement of a causal

connection.'" Sanders v. Kohler Co., 641 F.3d 290, 294 (8th Cir. 2011) (quoting

Brown v. Gardner, 513 U.S. 115, 119 (1994)). "Until recently, [the Iowa Supreme

Court] described causation as consisting of two components: cause in fact and

5

See, e.g., Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1193

(2013) (involving the Securities Exchange Act of 1934 and holding that "[t]he

fraud-on-the-market theory . . . facilitates class certification [in a securities fraud

action] by recognizing a rebuttable presumption of classwide reliance on public,

material misrepresentations when shares are traded in an efficient market"); Ballone

v. Eastman Kodak Co., 109 F.3d 117, 122 (2d Cir. 1997) (holding that "[w]here an

ERISA fiduciary makes guarantees regarding future benefits that misrepresent present

facts, the misrepresentations are material if they would induce a reasonable person to

rely upon them" and not stating that establishing materiality creates an inference of

causation); In re Motor Fuel Temperature Sales Practices Litig., 867 F. Supp. 2d

1124, 1139 (D. Kan. 2012) ("Under the [Kansas Consumer Protection Act], a supplier

has a duty to disclose a material fact if the supplier knows that the consumer is

entering into a transaction under a mistake as to the material fact, and the consumer

would reasonably expect disclosure of such material fact based on the relationship

between the consumer and the supplier, the customs and trade or other objective

circumstances." (citations omitted)); State ex rel. Miller v. New Womyn, Inc., 679

N.W.2d 593, 594, 596 (Iowa 2004) (involving an attorney general enforcement action

under Iowa's Consumer Fraud Act—not the Private Right Act—under which the

burden is on the defendant to demonstrate the reasonable basis for an assertion). 

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proximate, or legal, cause." Garr v. City of Ottumwa, 846 N.W.2d 865, 869 (Iowa

2014), reh'g denied (June 4, 2014) (citations omitted). But the Iowa Supreme Court

"no longer refer[s] to proximate or legal cause; instead, [it] use[s] a different

formulation, scope of liability." Id. (citation omitted). Iowa courts apply a but-for test

in determining whether a "defendant in fact caused the plaintiff's harm." Id. The Iowa

Supreme Court has described that test as follows:

the defendant's conduct is a cause in fact of the plaintiff's harm if, but-for

the defendant's conduct, that harm would not have occurred. The but-for

test also implies a negative. If the plaintiff would have suffered the same

harm had the defendant not acted negligently, the defendant's conduct is

not a cause in fact of the harm.

Id. (quotations and citations omitted). 

Assuming that § 714H.5 requires merely factual causation, we conclude that

Brown failed to establish causation as a matter of law. See id. at 870 (explaining that

although "[c]ausation is ordinarily a jury question," it may sometimes "be decided as

a matter of law" when the "plaintiff[] fail[s] to produce sufficient evidence on

causation" (citations omitted)). As explained supra, to show causation, Brown must

prove that, but-for LP's purported misrepresentation, he would not have elected to

purchase TrimBoard and install it on his home. See id. at 869. For Brown to satisfy

this requirement, he must show that Clark received a representation that LP made. As

we explained, Brown has failed to satisfy this showing. See supra Part II.A. In

summary, as the district court explained: 

[T]he Clark Affidavit—the only evidence before the Court that touches

on any representation made by LP to Mr. Clark—contains conclusory

statements and insufficient facts to support [Brown's] claim that Mr.

Clark ever viewed advertising materials published by TrimBoard or that

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the materials Mr. Clark may have viewed contained any statements of

fact concerning TrimBoard's ability to withstand moisture and decay.

Because Brown produced no evidence "that Mr. Clark was the recipient of any

representation made by LP," we agree with the district court's conclusion that Brown

"has failed to generate a genuine issue of material fact with respect to causation."

C. Breach of Warranty 

Finally, Brown argues that the terms of LP's limited warranty cannot be

enforced under the present circumstances and that the district court's decision is not

based on relevant law or fact. He asserts that LP breached the limited warranty by

inadequately compensating him for the repair and replacement of the faulty

TrimBoard. First, he argues that the limited warranty failed of its essential purpose by

inadequately compensating him for the costs to repair the direct and consequential

damages to his home. Second, he maintains that LP's attempt to limit its liability for

the faulty TrimBoard—which Brown contends that LP knew was defective—renders

the limited warranty unconscionable. 

1. Failure of Essential Purpose

Section 554.2719 of the Iowa Code Annotated concerns limitations of remedies

and is substantively identical to § 2-719 of the Uniform Commercial Code (UCC).

Section 554.2719(2) provides that "[w]here circumstances cause an exclusive or

limited remedy to fail of its essential purpose, remedy may be had as provided in this

chapter." The Iowa Supreme Court has elaborated on the meaning of "essential

purpose," stating: 

A remedy's essential purpose "is to give to a buyer what the seller

promised him." Hartzell v. Justus Co., Inc., 693 F.2d 770, 774 (8th Cir.

1982). The focus of analysis "is not whether the remedy compensates for

all damage that occurred, but that the buyer is provided with the product

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as seller promised." Brunsman v. DeKalb Swine Breeders, Inc., 952 F.

Supp. 628, 635 (N.D. Iowa 1996); Nelson v. DeKalb Swine Breeders,

Inc., 952 F. Supp. 622, 628 (N.D. Iowa 1996).

Where repair or replacement can give the buyer what is bargained

for, a limitation of remedies does not fail of its essential purpose. Badgett

Constr. & Dev. Co. v. Kan-Build, Inc., 102 F. Supp. 2d 1098, 1105 (S.D.

Iowa 2000). In other circumstances, however, repair or replacement is

not sufficient, and then a court may find the remedy failed of its essential

purpose. See Select Pork, Inc. v. Babcock Swine, Inc., 640 F.2d 147, 150

(8th Cir. 1981) (finding a limitation of remedies provision failed of its

essential purpose when sellers did not deliver special pigs as described

in a contract; the court found the limitation of remedies provision would

have applied only if the special pigs had been delivered).

Midwest Hatchery & Poultry Farms, Inc. v. Doorenbos Poultry, Inc., 783 N.W.2d 56,

62–63 (Iowa Ct. App. 2010). 

"The issue of whether a limited remedy fails of its essential purpose is separate

and distinct from whether a limited remedy is unconscionable." Baptist Mem'l Hosp.

v. Argo Constr. Corp., 308 S.W.3d 337, 345 (Tenn. Ct. App. 2009) (citing 1 James J.

White & Robert S. Summers, Uniform Commercial Code § 12–10 (5th ed. 2006)).

When a court deems a limitation of remedy unconscionable, it is void. Id. at 345–46

(citing 67A Am. Jur. 2d Sales § 843 (2003)). "In contrast with failure of essential

purpose, the determination of unconscionability focuses on the circumstances as they

existed when the parties entered into the contract." Id. (footnote omitted) (citing 67

Am. Jur. 2d Sales § 213 (2003)). 

This court has considered § 554.2719 on prior occasions. See Hartzell, 693 F.2d

at 773–75 (holding that where district court instructed the jury that if it found for

home buyer on question of liability for roof damage, it should fix amount of money

which would reasonably compensate buyer for expenses of necessary repairs and, if

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jury found there were structural defects which could not be repaired, jury could also

award as damages difference between fair market value of home had there been no

breach of warranty or negligence, and fair market value of home after all repairs were

made, jury's verdict for buyer in amount almost exactly equal to buyer's evidence of

cost of repairs plus diminution in market value indicated that jury must have found

that seller's limited warranty failed of its essential purpose); Select Pork, 640 F.2d at

149 (finding no error in the district court's conclusion that the limitation-of-remedies

clause at issue failed of its essential purpose because the defendant-sellers of pigs did

not deliver the specific breeds of pigs described in the agreement). 

The Iowa Court of Appeals has also considered § 554.2719 in a case in which

"no dispute on appeal [existed] that [the seller of chickens] breached the contract by

providing nonconforming chickens." Midwest Hatchery, 783 N.W.2d at 62. The seller

invoked the limitations clause contained in the contract, which provided that if the

seller breached the contract, the buyer was entitled to either replacement or refund of

the purchase price, at the seller's option. Id. The Iowa Court of Appeals agreed with

the district court's conclusion "that the limited remedy provision of the parties'

contract failed of its essential purpose." Id. at 63. At the time that the buyer informed

the seller that the chickens were nonconforming, the buyer "was not interested in

having the pullets replaced, and [the seller] made no offer to replace them." Id. at 64.

The court agreed that when the seller received notification of the breach, it "could

have exercised its option under the contract, taken back the entire flock, and either

replaced the chickens with eighteen week old pullets or refunded the entire purchase

price. The record support[ed] the conclusion that this did not happen because . . . it

was plainly impractical." Id. According to the court, it would not have been efficient

for the parties to replace the chickens that the seller had delivered, and "it [did] not

appear that either party was interested in the option of removal and refund." Id. The

court found "that replacement or refund was not practical at the time of trial. By that

time, the chickens had reached the end of their productive life and were about to be

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rendered. As a result, replacement was no longer possible." Id. The court, therefore,

affirmed the district court's conclusion that "the limitation of remedies provision in the

parties' contract failed in its essential purpose." Id. 

As the district court observed, while Select Pork, Hartzell, and Midwest

Hatchery generally instruct us on how § 559.2719 operates, they are factually

distinguishable: "[I]n each case, the goods provided were nonconforming, their defects

readily apparent, and the contractual limitations of remedies did not contemplate

long-term use (i.e., warranty)." (Emphasis added.) Here, Brown is essentially arguing

that the warranty fails of its essential purpose because the defect was latent and could

not have been discovered. See Bapt. Mem'l Hosp., 308 S.W.3d at 346. Some

jurisdictions have held "that a limited remedy can be found to fail of its essential

purpose if the goods contain a latent defect that cannot be discovered upon reasonable

inspection." Id. at 348 (citing Viking Yacht Co. v. Composites One LLC, No. 05–538,

2007 WL 2746713, at *6 (D.N.J. Sept. 18, 2007); Comind, Companhia de Seguros v.

Sikorsky Aircraft Div. of United Techs. Corp., 116 F.R.D. 397, 413 (D. Conn. 1987);

Majors v. Kalo Labs., Inc., 407 F. Supp. 20, 22–23 (M.D. Ala. 1975); Cox v. Lewiston

Grain Growers, Inc., 936 P.2d 1191, 1198 (Wash. Ct. App. 1997); Latimer v. William

Mueller & Son, Inc., 386 N.W.2d 618, 625 (Mich. Ct. App. 1986); Wilson Trading

Corp. v. David Ferguson, Ltd., 244 N.E.2d 685, 688 (N.Y. 1968)).

But "numerous jurisdictions" have held "that a latent defect does not cause an

exclusive contractual remedy to fail of its essential purpose." Id. at 349 (citing

Arkwright–Boston Mfrs. Mut. Ins. Co. v. Westinghouse Elec. Corp., 844 F.2d 1174,

1179–80 (5th Cir. 1988); Wis. Power & Light Co. v. Westinghouse Elec. Corp., 830

F.2d 1405, 1412–13 (7th Cir. 1987); Boston Helicopter Charter, Inc. v. Agusta

Aviation Corp., 767 F. Supp. 363, 374 (D. Mass. 1991); Hart Eng'g Co. v. FMC

Corp., 593 F. Supp. 1471, 1479 (D.R.I. 1984); Regents of the Univ. of Colo. ex rel.

Univ. of Colo. at Boulder v. Harbert Constr. Co., 51 P.3d 1037, 1041 (Colo. Ct. App.

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2001); Clark v. Int'l Harvester Co., 581 P.2d 784, 802–03 (Idaho 1978)). We conclude

that the Iowa Supreme Court would follow this majority rule. See Ashley Cty., Ark. v.

Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009) ("Our task in [a] diversity case is to

apply [state] law and, where an issue has not been decided by the [highest court of that

state], to predict how it would decide the issue." (citation omitted)). 

We also find persuasive Kelly v. Georgia-Pacific LLC, 671 F. Supp. 2d 785

(E.D.N.C. 2009)—a case involving nearly identical facts to the present case. In that

case, the plaintiff constructed a home through the use of a builder, who selected and

purchased materials for construction. Id. at 788. The builder purchased and installed

in the plaintiff's home a material called PrimeTrim, a product for use on the exterior

of homes as window and door trim. Id. The defendant-manufacturer of PrimeTrim

"marketed, advertised, and warranted that PrimeTrim was fit for the ordinary purpose

for which wood trim is used, free from defects, suitable for exterior use, reliable, and

superior to wood." Id. After initial installation, moisture penetrated the PrimeTrim,

causing damage to both the trim itself and the walls and sheathing of the home. Id.

The plaintiff brought suit against the defendant-manufacturer, alleging, among other

things, breach of express warranty. Id. PrimeTrim was covered by a limited warranty

that provided for "[r]epair of the affected trim" or "[c]ash payment to the owner

equivalent to the reasonable cost of repair or replacement of the affected trim" up to

"two times the original sales price of the affected trim." Id. at 789 (alterations in

original) (quotations and citations omitted). The plaintiff argued that the "court should

not limit his remedy to the limited warranty because the limited warranty fails of its

essential purpose and therefore does not serve as an adequate remedy." Id. at 798.

Specifically, the plaintiff asserted "that the remedies provided under the limited

warranty would not be adequate because either the cap on payments would be

insufficient or replacing the defective product with more PrimeTrim would not

remedy the problem." Id. Relying on North Carolina's adoption of UCC § 2-719—a

provision identical to Iowa's § 554.2719—the court concluded that "the remedy cap

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of double the sales price of the PrimeTrim . . . is consistent with N.C. Gen. Stat.

§ 25–2–719, and the limited warranty does not fail of its essential purpose." Id.

(citations omitted).

Brown makes no effort to distinguish or even discuss Kelly. Instead, he relies

on Holbrook v. Louisiana-Pacific Corp., No. 3:12CV484, 2015 WL 1291534 (N.D.

Ohio Mar. 23, 2015) (order granting in part and denying in part LP's motion for

summary judgment). Holbrook is a case against LP based on the defectiveness of

TrimBoard. In that case, the plaintiff argued that LP's limited warranty—the same one

as in the present case—failed of its essential purpose based on the plaintiff's testimony

that repairing and replacing all of the defective TrimBoard would cost him between

$30,000 and $32,000. Id. at *2. The plaintiff contended that the warranty's provision

capping damages at twice the purchase price of the new TrimBoard therefore failed

of its essential purpose. Id. The district court applied Ohio law that "'[a] limited

remedy fails of its essential purpose when the aggrieved party cannot obtain the

intended benefit of the remedy for which it bargained'" and that such a situation often

"'occurs . . . where the parties agree that the buyer's only remedy for the seller's breach

of warranty is repair or replacement of the goods sold.'" Id. at *6 (quoting Nat'l Mulch

& Seed, Inc. v. Rexius Forest By-Prods., Inc., No. 2:02-CV-1288, 2007 WL 894833,

at *29 (S.D. Ohio Mar. 22, 2007)). While the court acknowledged that LP never

refused to fulfill its obligations under the warranty, it held that Ohio law permitted the

plaintiff to prove that the warranty still failed of its essential purpose "because a jury

could find the warranty covers only a fraction of Holbrook's allegedly

substantial—and foreseeable—economic hardship." Id. (citing Daniel A. Terrieri &

Sons, Inc. v. All. Wall Corp., No. 95 C.A. 11, 1996 WL 148596, at *6 (Ohio Ct. App.

Mar. 29, 1996) (holding a warranty limited to replacing defective goods failed of its

essential purpose because the warranty "would not be adequate to cover [the buyer's]

actual damages and enable it to receive the benefit of its bargain herein")).

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Holbrook is inapplicable to the present case because its conclusion is dependent

upon Ohio case law not present in Iowa. We, like the district court, also note that

"there is no evidence—and [Brown] makes no allegation—that the purported defects

in the TrimBoard were not remedial and could not be repaired or replaced." (Citing

Midwest Hatchery, 783 N.W.2d at 63.) Finally, we, like the district court, find

persuasive the "conclusions drawn by the Kelly court" and likewise find that "the mere

fact that the Limited Warranty does not compensate [Brown] for the entirety of his

damages does not mean it has failed of its essential purpose." (Citing Midwest

Hatchery, 783 N.W.2d at 63.)

2. Unconscionability

Brown also argues that LP's limited warranty is unenforceable on account of its

unconscionability. See Iowa Code Ann. § 554.2302(1) ("If the court as a matter of law

finds the contract or any clause of the contract to have been unconscionable at the time

it was made the court may refuse to enforce the contract, or it may enforce the

remainder of the contract without the unconscionable clause, or it may so limit the

application of any unconscionable clause as to avoid any unconscionable result."). 

Iowa law provides that "[a] contract is unconscionable where no person in his

or her right senses would make it on the one hand, and no honest and fair person

would accept it on the other hand." Bartlett Grain Co., LP v. Sheeder, 829 N.W.2d 18,

27 (Iowa 2013) (quotation and citation omitted). To determine whether a contract is

unconscionable, Iowa courts "examine factors of assent, unfair surprise, notice,

disparity of bargaining power, and substantive unfairness." Id. (quotation and citation

omitted). But the Iowa Supreme Court has cautioned that "the doctrine of

unconscionability does not exist to rescue parties from bad bargains." Id. (quotation

and citation omitted). Under Iowa law, unconscionability has two components:

procedural and substantive. Id. Procedural unconscionability "includes the existence

of factors such as sharp practices[,] the use of fine print and convoluted language, as

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well as a lack of understanding and an inequality of bargaining power." Id. (alteration

in original) (quotation and citation omitted). Substantive unconscionability "includes

harsh, oppressive, and one-sided terms." Id. (quotation and citation omitted). A court

determines unconscionability at the time that the parties made the agreement. Id. Iowa

law does not require both procedural and substantive unconscionability to find a

contract provision unconscionable; instead, either type of unconscionability may

render the contract provision unconscionable. See In re Marriage of Shanks, 758

N.W.2d 506, 516–19 (Iowa 2008) (addressing procedural unconscionability even after

finding a lack of substantive unconscionability). 

The Fourth Circuit recently held, as a matter of law, that LP's limited

warranty—the same one at issue in the present case—is not substantively

unconscionable. Hart v. Louisiana-Pac. Corp., No. 13-2375, 2016 WL 908878, at *1

(4th Cir. Mar. 10, 2016) (per curiam). Hart was a class-action lawsuit against LP,

"alleging TrimBoard 'prematurely deteriorates, rots, swells, buckles, delaminates,

absorbs water, warps and/or bulges under normal conditions,' resulting in 'water and

structural damages[,] . . . growth of mold mildew, fungi, and insect infestation in the

structures in which it is installed.'" Id. at *2 (alterations in original) (citation omitted).

As in the present case, the plaintiffs "claimed the Warranty's limited remedy provision

was unconscionable because [LP] allegedly knew that TrimBoard was defective but

sold it anyway." Id. 

Applying North Carolina law, which requires both procedural and substantive

unconscionability, the Fourth Circuit "conclude[d] the Warranty at issue here is not

unconscionable." Id. at *5. The court "assume[d] without deciding that [LP's] alleged

knowledge of TrimBoard's ineffectiveness may be evidence of the kind of disparity

in bargaining power and unfair surprise often indicative of procedural

unconscionability." Id. at *6 (citation omitted). But it "fail[ed] to see, at least under

these circumstances, how advanced knowledge could have established substantive

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unconscionability." Id. To show the lack of substantive unconscionability, the court

cited the plaintiffs' evidence that LP "knew Trimboard would, on average, fail within

nine years, yet still warranted the product for ten years and offered twice the purchase

price or, after 2005, the cost of replacement as a remedy." Id. The court also rejected

"the broad proposition that the terms of a warranty are necessarily substantively

unconscionable solely because one party conceals certain information during the

bargaining process." Id. Instead, the court explained, a link must exist "between the

defect and the objective unfairness of the warranty terms." Id. at *7 (citations

omitted). 

Ultimately, the court, sitting in diversity, predicted that North Carolina courts

would not find unconscionable the terms of the limited warranty, which disclaimed

consequential damages but also "offered to pay to replace defective TrimBoard or

refund twice the purchase price paid for TrimBoard that failed within ten years of

purchase." Id. The court acknowledged that North Carolina law authorizes contractual

provisions disclaiming consequential damages for economic loss, meaning that such

provisions are not presumptively unconscionable. Id. at *8. Additionally, it found that

North Carolina law permitted "remedies, similar to the ones at issue here, that limit

a buyer's recovery to the purchase of replacement goods or the repayment of the

purchase price." Id. (citations omitted). After concluding that the limited remedy's

terms were not "per se or categorically unconscionable," the court measured the

fairness of the limited warranty "in the context of this case." Id. To do so, the court

"consider[ed] the default remedies that would otherwise have been available to [the

plaintiffs] in the absence of the Warranty's limitations." Id. (citing N.C. Gen. Stat.

Ann. §§ 25-2-714, 25-2-715 (stating that the measure of damages is the difference

between the value of the goods as warranted and the value of the defective goods

accepted, plus the potential of incidental and consequential damages)). "[A]ssuming

the value of the defective TrimBoard is zero," the court found that the plaintiffs'

damages "would have been equal to the TrimBoard's original purchase price." Id. But

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the court observed that LP's limited warranty "provides twice that amount." Id.

Furthermore, the court pointed out that "by offering a ten-year warranty, [LP] granted

[the plaintiffs] a limited remedy in years seven through ten that would otherwise have

been extinguished after the expiration of the repose period." Id. at *9. In summary, the

court concluded that

assuming the truth of [the plaintiffs'] evidence, [LP] knew TrimBoard

was likely to fail within nine years, but nevertheless agreed to warrant

the product for ten years and offered purchasers twice their money back

or the cost of replacement if and when their TrimBoard did fail. The

Warranty also extended that remedy beyond the point that [LP's] liability

would otherwise have been extinguished by the statute of repose. We

doubt that North Carolina courts would find that bargain harsh,

oppressive, or one-sided. See Harbison v. Louisiana–Pacific Corp., 602

F. App'x 884, 887 (3d Cir. 2015) (holding, in a similar case involving

TrimBoard, "because the warranty . . . provides [consumers] with a

benefit [they] would not otherwise have, the damages limitation [is] not

unconscionable"). As a result, [LP's] alleged advanced knowledge about

TrimBoard's ineffectiveness alone will not sustain a finding under North

Carolina law that the Warranty's limited remedy is unconscionable.

Id. (fourth, fifth, sixth, and seventh alterations in original). 

In Harbison v. Louisiana-Pacific Corp., the plaintiff alleged that LP "knew that

its express promise to pay 'twice the original purchase price of the affected trim' would

be less than the damage sustained by Plaintiff and other end users of the TrimBoard

product." No. 13CV0814, 2014 WL 469936, at *9 (W.D. Pa. Feb. 6, 2014). The

district court, applying Pennsylvania law, found that LP's limited warranty was not

substantively unconscionable, explaining:

Even accepting the factual allegations as true, Defendant's

combined knowledge about the product and its limitation of liability

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language in the express warranty does not render the language of the

express warranty "unconscionable." Defendant agreed to pay a set

amount in its express warranty, which is permissible under the UCC and

Pennsylvania's Commercial Code. The express terms of that warranty are

binding on Defendant—and on Plaintiff.

Id. 

The Third Circuit affirmed the district court, adding that LP's warranty was also

not procedurally unconscionable. Harbison, 602 F. App'x at 886–87. According to the

court, "the degree of procedural unconscionability is low because the warranty was

provided to Harbison with the TrimBoard, and the warranty at issue is featured in the

first paragraph and not in fine print." Id. (footnote omitted). The court also affirmed

the district court's finding of no substantive unconscionability, explaining that

"Louisiana–Pacific chose to offer a ten-year warranty to consumers. It did not have

to offer this benefit. The damages limitation contained in the warranty was the

condition on which it was willing to extend the benefit of the warranty." Id. at 887.

The court noted that the plaintiff would not have had any remedy under the contract

for TrimBoard's failure seven years after its installation but for LP's ten-year warranty

and that because LP 

did offer the ten-year warranty as written, Harbison has the opportunity

to recover twice the value of the TrimBoard that was affected. So the

warranty included with the TrimBoard is actually somewhat favorable

to Harbison because, even if it does not provide him with all the relief he

wants, it provides him with more relief than nothing.

Id. In summary, the court found that "because the warranty was prominently featured

within the contract and because the warranty as a whole provides Harbison with a

benefit he would not otherwise have, the damages limitation was not unconscionable."

Id. 

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We agree with the analysis set forth by both the Fourth Circuit in Hart and the

Third Circuit in Harbison and therefore hold that LP's limited warranty is neither

procedurally nor substantively unconscionable.

III. Conclusion

Accordingly, we affirm the judgment of the district court. 

______________________________

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