Court Opinion

ID: 4408576
Source: CourtListenerOpinion
Date Created: 2019-06-19 21:00:22.405173+00
Date Added: 2024-06-11T14:49:19.205992
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 17-3474
DUNCAN PLACE OWNERS ASSOCIATION,
on its own behalf and as assignee
of the Association Members,
                                                  Plaintiff-Appellant,

                                 v.

DANZE, INC., f/k/a GLOBE UNION
AMERICA CORPORATION, and
GLOBE UNION GROUP, INC.,
                                               Defendants-Appellees.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
            No. 15 C 01662 — Edmond E. Chang, Judge.
                     ____________________

       ARGUED APRIL 4, 2018 — DECIDED JUNE 19, 2019
                ____________________

   Before WOOD, Chief Judge, and BAUER and SYKES, Circuit
Judges.
     SYKES, Circuit Judge. In 2009 faucets manufactured by
Illinois-based Danze, Inc., were installed in all 63 units of a
new condominium building in Seattle, Washington. In the
2                                                 No. 17-3474

years that followed, some of the faucets failed, causing
damage to the building and replacement costs. The condo-
minium association, Duncan Place Owners Association, filed
a proposed class-action suit against Danze raising multiple
claims for relief, including breach of express warranty, unjust
enrichment, negligence, and strict product liability. The
district judge dismissed all but one of the claims and later
entered summary judgment on the sole remaining claim.
    Duncan Place appeals, seeking reinstatement of the
claims that were dismissed on the pleadings. We affirm, with
one narrow exception. The Washington Product Liability Act
(“WPLA” or “the Act”) subsumes all common-law product-
liability claims, so we construe Duncan Place’s negligence
and strict-liability claims as one cause of action under the
Act. In a suit for damages caused by a defective product,
Washington’s “independent duty doctrine” (formerly known
as the “economic loss doctrine”) generally bars recovery in
tort for direct and consequential economic losses stemming
from the product’s failure—that is, damages associated with
the “injury” to the product itself. But the doctrine does not
bar recovery for damage to other property caused by the
defective product. See Eastwood v. Horse Harbor Found., Inc.,
241 P.3d 1256, 1265 (Wash. 2010) (en banc). Duncan Place
alleges in general terms that the defective faucets caused
damage to other condominium property. To that limited
extent, the WPLA claim is not blocked by the independent-
duty doctrine and should have been allowed to proceed.
   Duncan Place’s arguments for reinstatement of its war-
ranty and unjust-enrichment claims are new on appeal.
Arguments not raised in the district court are waived, so we
No. 17-3474                                                  3

affirm the dismissal of the warranty and unjust-enrichment
claims.
                       I. Background
    We take the following factual allegations from Duncan
Place’s second amended complaint, accepting them as true
for present purposes. When the Duncan Place condominium
complex was built in 2009, the developers installed Danze
faucets in the bathrooms of each of the 63 units. The water
hoses in Danze’s faucets are made from an inferior low
nickel stainless-steel alloy that makes them vulnerable to
corrosion and cracking when put to normal use. As a result
several of the faucets failed causing “extensive property
damage” and replacement costs.
    Danze’s “limited lifetime warranty” guarantees the quali-
ty of its faucets and promises to replace any parts that prove
defective. Nonetheless, Danze refused to repair or replace
the faucets.
    The Duncan Place Owners Association filed this lawsuit
in federal court in the Northern District of Illinois on behalf
of itself, the condominium’s 63 unit owners, and a proposed
nationwide class of original consumer end-users of Danze
faucets with a steel-braided supply hose. The suit asserted
claims under Washington law, including breach of express
warranty, unjust enrichment, negligence, and strict product
liability, as well as other state-law claims that have since
dropped out of the case.
   Danze moved to dismiss on the ground that Duncan
Place lacked associational standing to assert the rights of the
unit owners. The judge agreed and dismissed the claims
brought on their behalf. Duncan Place then amended its
4                                                 No. 17-3474

complaint to reflect that it had obtained assignments from 41
of the 63 unit owners, eliminating the need for associational
standing to support its assertion of their rights.
    Danze again moved to dismiss. The judge granted the
motion for the most part. He held that Washington’s
independent-duty doctrine barred the claims of negligence
and strict product liability and dismissed them. The judge
also dismissed the unjust-enrichment claim because it was
premised on fraud but did not satisfy the heightened plead-
ing requirements of Rule 9(b) of the Federal Rules of Civil
Procedure.
    In the same order, the judge explained that to prevail on
a claim for breach of an express warranty under Washington
law, a plaintiff must show that he was aware of the warranty.
Allegations of that sort did not appear in the amended
complaint, so the judge gave Duncan Place an opportunity
to investigate whether it had a good-faith basis to allege that
any of the 41 unit owners knew of the warranty. After sever-
al months of investigation, Duncan Place was unable to
make those allegations in good faith with respect to any of
the unit owners. The judge dismissed the express-warranty
claim brought on the unit owners’ behalf.
   That left only Duncan Place’s own claim for breach of ex-
press warranty. The judge eventually entered summary
judgment for Danze on that claim, setting up this appeal.
                        II. Discussion
   Duncan Place does not challenge the judge’s summary-
judgment ruling. This appeal focuses instead on the claims
that were dismissed on the pleadings—namely, the claims
for breach of express warranty, unjust enrichment, negli-
No. 17-3474                                                  5

gence, and product liability. Waiver doctrine precludes our
consideration of some of Duncan Place’s arguments. For
what remains, our review of the judge’s dismissal order is de
novo. Catinella v. County of Cook, 881 F.3d 514, 518 (7th Cir.
2018).
A. Warranty and Unjust-Enrichment Claims; Waiver
   Duncan Place seeks reinstatement of the warranty and
unjust-enrichment claims brought on behalf of the unit
owners. Its arguments are new on appeal and thus are
waived.
    Taking the warranty claim first, as we’ve just explained,
the judge ultimately dismissed this claim because Duncan
Place could not allege in good faith that any of the unit
owners were aware of Danze’s warranty at the time of
purchase. On appeal Duncan Place argues that Washington
law requires that element if the claim is based on representa-
tions contained in advertisements but not if the claim is
based on a standard written warranty like Danze’s lifetime
limited warranty.
    We don’t need to decide if that is an accurate statement of
Washington law. Duncan Place never raised this specific
legal argument in the district court. Normally “a party
waives the ability to make a specific argument for the first
time on appeal when the party failed to present that specific
argument to the district court, even though the issue may
have been before the district court in more general terms.”
Homoky v. Ogden, 816 F.3d 448, 455 (7th Cir. 2016) (quoting
Hannemann v. Door Cty. Sch. Dist., 673 F.3d 746, 754 (7th Cir.
2012)). There is an exception, however. If the district court
raises an issue sua sponte and the appellate brief is the first
6                                                  No. 17-3474

opportunity to discuss it, the waiver rule does not preclude
review. Prop. & Cas. Ins. Ltd. v. Cent. Nat’l Ins. Co. of Omaha,
936 F.2d 319, 323 n.7 (7th Cir. 1991).
    The exception to the waiver rule doesn’t open the door
for review of this argument. It’s true that the judge sua
sponte raised the issue about the unit holder’s knowledge of
the warranty. Ruling on the second motion to dismiss, he
informed the parties that under Washington law the unit
owners could prevail on the warranty claim only if they
knew of Danze’s warranty at the time of purchase. The
amended complaint was silent on this subject, so the judge
gave Duncan Place an opportunity to file a position state-
ment clarifying the matter. He also warned that the warranty
claim would be dismissed if Duncan Place’s follow-up
submission revealed that the unit owners did not know
about the warranty at the time of purchase.
     In the months that followed, Duncan Place filed three po-
sition statements on this subject. In the first and second, it
reported that it had been unable to confirm whether 39 of
the 41 unit owners were aware of Danze’s warranty. Two
owners initially said they were aware of it but later recanted.
In neither position statement did Duncan Place advance an
argument that the knowledge requirement did not apply at
all.
    After the second position statement but before the third,
the judge held a hearing at which Danze announced its
intention to renew its motion to dismiss based on Duncan
Place’s inability to allege that the unit owners were aware of
the warranty. Duncan Place did not take this opportunity to
argue that Washington law distinguishes between represen-
No. 17-3474                                                 7

tations made in advertisements and representations made in
a standard written warranty like the one at issue here.
    Soon after this hearing, Duncan Place filed its third and
final position statement. Like the first two, this one did not
so much as hint that the knowledge requirement was inap-
plicable because the claim alleged breach of a standard
written warranty. Rather, Duncan Place asked for more time
to investigate the extent of the unit owners’ knowledge. At
yet another hearing a few weeks later, the parties again
discussed the knowledge issue. As before, Duncan Place
never suggested that knowledge of the warranty was not
required.
    In short, Duncan Place had multiple opportunities to ad-
vance the argument it now raises on appeal. At every turn, it
failed to do so. That’s a waiver. And because Duncan Place
makes no other argument to support reinstatement of the
warranty claim on behalf of the unit owners, we affirm the
dismissal of that claim.
   Next up is the claim for unjust-enrichment. The judge
ruled that the unjust-enrichment claim is premised on fraud
and thus the amended complaint had to satisfy the height-
ened pleading requirements of Rule 9(b). Because it did not,
the judge dismissed the claim.
    Duncan Place concedes on appeal that its fraud allega-
tions are inadequate under Rule 9(b). It argues instead that
the judge should have excised the fraud allegations and
evaluated whether the remaining nonfraud allegations
stated a claim for unjust enrichment under Rule 8(a).
   It is not clear to us that there is anything left of the
unjust-enrichment claim if the fraud allegations are disre-
8                                                  No. 17-3474

garded. But we don’t need to sort that out. This argument
too is waived because Duncan Place never raised it in the
district court.
    Duncan Place insists that it preserved the argument by
contending below that Rule 9(b) does not apply at all. But
that general contention is insufficient to preserve the specific
argument Duncan Place advances here. See Homoky, 816 F.3d
at 455. Duncan Place points out that its response to Danze’s
second motion to dismiss cited Goodman v. HTC America, Inc.,
No. C11-1793MJP, 2012 WL 2412070, at *9 (W.D. Wash.
June 26, 2012), which discusses the two-step approach that it
argues should have been applied here. Goodman indeed
addresses that subject, but Duncan Place never drew the
judge’s attention to the relevant part of the case. Instead, it
relied on Goodman for a different purpose. Because Duncan
Place raises no other argument to support reinstatement of
the unjust-enrichment claim, we affirm the dismissal of that
claim.
B. Product-Liability Claim
    The judge dismissed Duncan Place’s claims for negli-
gence and strict product liability, reasoning that Washing-
ton’s independent-duty doctrine blocks recovery. That’s
partially correct. In a suit for damages caused by a defective
product, Washington’s independent-duty doctrine generally
bars recovery in tort for economic losses associated with the
injury to the product itself, but it does not bar recovery of
damages for injury to other property caused by the defective
product.
   At the outset we note that the Washington Product
Liability Act “created a single cause of action for product-
No. 17-3474                                                       9

related harms, and supplants previously existing common
law remedies, including common law actions for negli-
gence.” Wash. State Physicians Ins. Exch. & Ass’n v. Fisons
Corp., 858 P.2d 1054, 1066 (Wash. 1993) (en banc); see also
WASH. REV. CODE § 7.72.010(4). We therefore construe the
claims styled as negligence and strict product liability as one
WPLA claim.
    Under the WPLA, a manufacturer is liable for harm prox-
imately caused by its defective products, WASH. REV. CODE
§ 7.72.030(1), but not all harms are cognizable under the Act,
id. § 7.72.010(6). Economic losses arising from defective
products often trigger remedies in both contract and tort,
and Washington’s independent-duty doctrine—formerly
known as the economic-loss doctrine—provides a test for
“distinguish[ing] between claims where a plaintiff is limited
to contract remedies and cases where recovery in tort may be
available.” Eastwood, 241 P.3d at 1261–62.
    In Eastwood the Washington Supreme Court renamed and
substantially clarified the contours of the doctrine. The court
began with the terms of the WPLA, which codified the “tort
duty to avoid product designs and construction that are
unreasonably dangerous.” 1 Id. at 1265; see WASH. REV. CODE
§ 7.72.030(1)–(2). The Act’s definition of “harm” includes
“any damages recognized by the courts of this state” but
specifically excludes “direct or consequential economic loss
under Title 62A,” the state’s version of the Uniform Com-
mercial Code. WASH. REV. CODE § 7.72.010(6). This limiting
language “leav[es] the law of sales contracts as the sole

1The Act also covers harm caused by inadequate product warnings, see
WASH. REV. CODE § 7.72.030(1)(b)–(c)), but that’s not at issue here.
10                                                  No. 17-3474

source of a plaintiff’s remedy for economic loss.” Eastwood,
241 P.3d at 1265.
    But this limitation applies to economic losses associated
with a breach of contractual duties. Under Washington’s
independent-duty doctrine, a product-related injury “is
remediable in tort if it traces back to the breach of a tort duty
arising independently of the terms of the contract.” Id. at
1262. To determine whether a harm can be reasonably traced
to a tort duty independent of the contract, the Washington
Supreme Court has adopted a “risk of harm” test that en-
deavors to “distinguish[] between a harm that implicates
only the contract and a harm that implicates the independ-
ent [tort] duty as well.” Id. at 1265. Relevant factors in the
risk-of-harm analysis include the nature of the product
defect, the type of risk at issue, and the manner in which the
injury arose. Id.
    Crucial for our purposes, however, Eastwood explains that
“[w]hen a product defect results in a personal injury or
damage to other property, the cause can plainly be a breach of
the tort duty.” Id. (emphasis added). On the other hand,
“[w]hen a product defect results in injury only to the prod-
uct itself, … the risk of harm must be carefully analyzed.” Id.
Accordingly, Washington law allows tort recovery for eco-
nomic loss associated with the product’s failure—i.e., tort
recovery for “injury” to the product itself—only if the product
is hazardous and poses an unreasonable risk of harm under
the “risk of harm” test, implicating the “safety interests of
the WPLA.” Id.
   So the first step in the analysis is to determine whether
the plaintiff seeks recovery for losses associated with dam-
age to the product itself, on the one hand, or for personal
No. 17-3474                                                   11

injury or damage to other property, on the other. Id. If the
injury falls in the first category, then the next step requires
application of the risk-of-harm test to determine whether the
injury is nonetheless cognizable in tort under the Act. Id. If it
falls in the second category, however, the claim is cognizable
under the Act without further analysis because “the cause
can plainly be a breach of the tort duty” independent of the
contract. Id.
   Here the judge acknowledged that the claim seeks recov-
ery for damage to other property—i.e., other parts of the
condominium building—caused by the defective faucets. But
he went on to conduct a risk-of-harm analysis as if Duncan
Place sought to recover for faucet-related injuries alone. That
was error. The amended complaint alleges that Danze’s
defective faucets caused “extensive damage” to the condo-
minium building. To that extent, the WPLA claim should
have been allowed to move forward.
    There is an important limitation, however. As we’ve ex-
plained, Duncan Place obtained assignments from 41 unit
owners, and everyone agrees that it may assert the rights of
those unit owners. On remand the WPLA claim may proceed
to the extent that it alleges that Danze’s defective faucets
caused damage to other property in those 41 units. As it
stands, the amended complaint contains specific allegations
only with respect to two unit owners; the allegations about
“extensive damage” to the condominium building are
otherwise quite general. These generalized allegations
support an inference that the defective faucets caused dam-
age to common condominium property as well, and we take
this to mean that the homeowners’ association also asserts
12                                                     No. 17-3474

this claim on its own behalf. To that additional extent, the
claim may proceed to factual development.
    Finally, Duncan Place insists that it may also assert the
rights of the unit owners from whom it did not obtain
assignments. This argument verges on frivolous. “[W]hether
an association has standing to invoke the court’s remedial
powers on behalf of its members depends in substantial
measure on the nature of the relief sought.” Warth v. Seldin,
422 U.S. 490, 515 (1975). “‘[I]ndividual participation’ is not
normally necessary when an association seeks prospective or
injunctive relief for its members, but … such participation
would be required in an action for damages to an associa-
tion’s members … .” United Food & Commercial Workers Union
Local 751 v. Brown Grp., Inc., 517 U.S. 544, 546 (1996) (citing
Hunt v. Wash. State Apple Advert. Comm’n, 432 U.S. 333, 343
(1977)). Associational standing is inappropriate if “whatever
injury may have been suffered is peculiar to the individual
members concerned, and both the fact and extent of injury
would require individualized proof.” Warth, 422 U.S. at 515–
16; see also Sanner v. Bd. of Trade of City of Chi., 62 F.3d 918, 923
(7th Cir. 1995) (forbidding a farming association from assert-
ing standing on behalf of its members where the suit would
“require the calculation of damages for each of the individu-
al farmers”).
    Duncan Place has no viable claim for prospective relief.
What it casts as a plea for declaratory and injunctive relief is
instead a straightforward claim for damages. Duncan Place
seeks a declaration announcing that all Danze faucets manu-
factured from 2000 to the present have defects of which
No. 17-3474                                                             13

Danze was well aware. 2 This request reflects a misunder-
standing of the purpose of declaratory judgments. A declara-
tory judgment serves to “settle the particular controversy
and clarify the legal relations at issue.” NUCOR Corp., v.
Aceros Y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 579
(7th Cir. 1994) (quoting Sears, Roebuck & Co. v. Am. Mut. Liab.
Ins. Co., 372 F.2d 435, 438 (7th Cir. 1967)). A declaration that
Danze produced defective faucets would not settle the
controversy between Duncan Place and Danze or clarify
their legal relationship. It would only lay the groundwork
for a claim for damages.
    And associational standing cannot support a damages
claim on behalf of the nonassigning unit owners. There’s no
question that each unit owner with a viable claim would
have to provide “individualized proof” of “the fact and
extent of injury” to the condominium unit. Warth, 422 U.S. at
515–16.
   In sum, we AFFIRM the dismissal of Duncan Place’s war-
ranty and unjust-enrichment claims, REVERSE the dismissal
of Duncan Place’s WPLA claim, and REMAND for further
proceedings consistent with this opinion.

2Duncan Place also seeks declaratory and injunctive relief regarding
Danze’s failure to honor its warranty. We’re affirming the dismissal of the
warranty claim, so we need say no more about associational standing to
pursue these remedies.