Class Action Certified In North Carolina Against KB Homes

You probably haven't heard of HardiePlank.  According to its manufacturer, James Hardie Industries NV, it is "the most popular brand of siding in America and can be found on over 4 million homes."

But you've probably heard of KB Home, one of the largest home builders in the country.  It builds in North Carolina and throughout the United States.

On Monday, Judge Jolly  certified a class action making claims against KB Home in Elliott v. KB Home North Carolina, Inc.  The case focuses on HardiePlank.  The class members are "all North Carolina residents" who own a home built with HardiePlank siding by KB Home where a weather restrictive barrier was not placed behind the HardiePlank.  Another defendant in the case is Stock Building Supply, LLC, which installed the HardiePlank on many of the homes involved in the certified class.  The class members allege water infiltration into their homes as a result of the lack of a barrier.

The lawyers for the parties have sparred over whether the North Carolina Building Code required the installation of the barrier at the time the homes were built.  Judge Jolly ruled that it was not necessary for him to consider that issue at the class certification stage.  Order ¶20.  Also, the varying nature of damages experienced by the class members did not bar certification.  Relying on a Ninth Circuit decision, Judge Jolly said "[t]he amount of damages is invariably an individual question and does not defeat class action treatment." (quoting Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975)).

The number of class members ranges between 277 and 554, depending on whether the homes are owned by an individual or by a couple.  They are located in KB Home's developments known as Amberly and Twin Lakes, both in Cary, NC.

This isn't the first time the Business Court has taken on a class action regarding a construction issue.  The Business Court handled a significant case regarding the synthetic stucco problem which plagued homeowners in the late 1990's, Ruff v. Parex, Inc., 1999 NCBC 6 (N.C. Super. Ct. June 17, 1999)(Tennille).

There's no telling whether HardiePlank will prove to be as large a problem as synthetic stucco was.  The plaintiffs' lawyers estimate the cost of repair for each home to be $30,000.  Although KB Home disputes that figure, that puts the full exposure for nearly 300 homes at almost $9 million.  For a public company like KB, whose last 10-K filing shows that it hasn't turned a profit between 2009 and 2011, that's a pretty daunting potential liability.

 

How Much Is That Doggie In The Window? (Not Much, Says The NC Court Of Appeals)

The North Carolina Court of Appeals ruled last week in Shera v. N.C. State University Veterinary Teaching Hospital that dog owners are not entitled to recover damages for the negligent death of their pet beyond the cost to replace the pet.  In other words, a sentimental attachment to a pet does not result in an increase to damages.

The dog in the case was a Jack Russell Terrier named Laci.  She had been owned and loved by the Sheras for 12 years, since she was a puppy.  They shepherded her through cancer treatment in 2003, and had gone to N.C. State University's veterinary hospital for further treatment for her in 2007.  Unfortunately, the vets inserted a feeding tube improperly. That caused Laci's death.

The Sheras, who had a close relationship with their dog, sued the hospital and its veterinarians for the "intrinsic value" of Laci and also for "emotional distress and loss of enjoyment of life."  They emphasized the "human-animal bond" between them and their dog.

The Industrial Commission (which had jurisdiction over the claim because of the involvement of NCSU) ruled that it could not allow intrinsic value damages for the loss of a pet.  It granted an award of $3,105.72, which covered reimbursement for the cost of the treatment that led to Laci's death plus $350 for the replacement cost of a new Jack Russell Terrier puppy.

There were amicus briefs filed for each side in the appeal to the Court of Appeals.  Lining up with the Defendant were the American Kennel Club and the Cat Fanciers' Association.  You might expect the AKC, a dog loving organization, to be supporting the Sheras in trying to recover damages based on their emotional valuation of their dog, but the AKC says that allowing large awards to pet owners based  on their emotional attachment would result in an increase to the price of pet services and products to cover the cost of the awards.  Many pet owners then could not afford the more expensive services and care and would forgo them argued the AKC, so pets "would suffer."  AKC Brf. at 14.  I don't know whether the Cat Fanciers have a different perspective on the value of a dead cat, but anyone who has a cat as a pet knows that it's only fair that veterinarians should have to pay more for the unintended death of a cat.  The established superiority of cats to dogs has even been observed by the highly reputable newspaper, The Onion.

The amicus filing for the Sheras was by the Animal Legal Defense Fund.  The ALDF says on its website that it fights "to protect the lives and advance the interests of animals through the legal system."

The best argument made by the Sheras in support of their position was probably the one based on North Carolina's Pattern Jury Instruction 810.66.  That jury instruction says that intrinsic value should be used as a measure of damage "where damages measured by market value would not adequately compensate the plaintiff and repair or replacement would be impossible."  One of the factors to be taken into consideration if the instruction applies is "the opinion  of the plaintiff as to . . . value."

The Court dwelt for a while on the Sheras' argument that Laci was irreplaceable and that market value therefore wouldn't be adequate damages.  It said, based on the Sheras' testimony, that Laci performed no unique task or function that could not be performed by another dog.  It agreed that the "emotional bond" was irreplaceable, but not the dog herself.  It said that its conclusion was supported by the consistency of "our case law denying recovery for sentimental value of negligently lost or destroyed personal property."  Op. at 15.

Another basis for enhanced damages offered by the Sheras was also rejected by the Court.  They said that their damages should include what they had paid for Laci's medical care throughout her lifetime, including her cancer treatment.  The Court rejected that argument, saying "North Carolina law has not yet recognized a lost investment valuation method in wrongful death cases, whether human child or pet animal." Op. at 16.

Don't mistake my position on cats vs. dogs as making light of the Shera's understandable distress over the unexpected death of Laci.  The Court of Appeals certainly did not do that.  Judge McCullough ended the unanimous opinion by saying "[w]e sincerely empathize with plaintiffs' loss of their beloved pet Laci."  Op. at 19.  He said that the Court of Appeals was "an error-correcting court, not a law-making court" (id.) and that an expansion of the law to allow pet owners to recover sentimental damages for the loss of a pet was within the province of the NC Supreme Court, or preferably the Legislature.

That would be an unprecedented step for the state supreme court or the General Assembly.  I do not think there is a single state in the country that allows recovery for emotional damages for losing a pet.

And speaking of lost pets, one of my two cats got outside about a month ago and hasn't come back. Her picture is below.  Snickers is part Maine Coon cat and she is a real beauty.  If you have seen her running free in Greensboro, I am offering a reward of $500 for her return.  That's her intrinsic value to me based on what I have paid approximately over time to fill her Xanax prescription (don't ask me why she takes Xanax, it has nothing to do with me.)  But who knows, even though the Shera court rejected the cost of past medical treatment as a measure of damages, that's only dog law and perhaps cats will blaze a new trail in our appellate courts.

 

 

 

 

 

Don't Keep Your Trade Secrets Secret If You Are Pursuing A Trade Secrets Claim In The Business Court

I’ve written before about trade secrets claims being dismissed by the Business Court and the NC Court of Appeals because the trade secrets were too broadly referenced and not described with “sufficient particularity".  Two of those cases are Akzo Nobel Coatings Inc. v. Rogers, 2011 NCBC 41; and Washburn v. Yadkin Valley Bank and Trust Co. 190 N.C. App. 315, 660 S.E.2d 577 (2008).

And just yesterday came yet another Rule 12 dismissal of an inadequately pleaded trade secrets claim. Judge Jolly of the Business Court shot down the claim because of the insufficiency of the pleading in AECOM Tech Corp. v. Keating, 2012 NCBC 10.

AECOM has the familiar fact pattern of an employee leaving employment with the plaintiff for a position at the defendant, a competitor, with accompanying claims of unfair and deceptive trade practices, tortious interference with contract, and misappropriation of  trade secrets (which was dismissed).

The allegedly stolen "trade secrets" in AECOM were "customer lists, customer contract information, pricing information, and product information,  These descriptions of the trade secrets were deemed to be too "sweeping and conclusory" to put the defendant on notice of what had been stolen and were dismissed.

Most of the claims survived dismissal because the departing employee (Keating) had been an officer of AECOM.  That meant he owed AECOM a fiduciary duty.  Op. ¶16.  The unfair and deceptive practices claim also stuck because the alleged conspiracy between the new employer and Keating to violate his fiduciary duty could constitute constructive fraud, which makes out a UDTPA claim.

Given that getting trade secrets claims dismissed  in the Business Court now (if the trade secrets are not described with sufficient particularity) is as easy as shooting fish in a barrel, I am declaring a boycott on writing about those types of dismissals.

 

A Trustee Can't Tell The Trust He Serves To "Take This Job And Shove It"

It's not easy to walk away from your fiduciary duties as a trustee, even if you try to resign.  That's the subject of Judge Murphy's opinion this week in Wortman v. Hutaff, 2012 NCBC 9.

Two of the Defendants, Moyer and Hutaff, were trustees of a trust established by Dan L. Moser.  They resigned as trustees by filing a written "Notice of Resignation" with the Union County Superior Court on December 3, 2007.  The Moser Trust hadn't funded when they "resigned."  It was a "pour over" trust from Moser's estate, which had not yet been settled.

The Plaintiffs, potential beneficiaries of the Moser Trust when it was funded, claimed that the trustees had breached their fiduciary duties after their resignation.  The nature of the alleged breach isn't that relevant, but it involved allowing an LLC interest in a golf course, an asset of the Estate, to be sold at foreclosure at substantially less than its fair market value, eliminating an equitable interest in the LLC which should have poured into the Moser Trust.

The trustees said they had no fiduciary duty after their resignation.  The resignation to the clerk of court, however, wasn't a resignation in compliance with G.S. §36C-7-705.  Judge Murphy said that the terms of the statute were "exclusive" as to the procedure for resignation.  The statute says that a trustee can resign “(1) [u]pon at least 30 days’ notice in writing to the qualified beneficiaries, the settler, if living, and all co-trustees; or (2) [w]ith the approval of the court.”  Moyer and Hutaff had followed neither path to resign.

In addition, G.S. §36C-7-707(a)  says that a trustee's duties don't pass "until the trust property is delivered to a successor trustee."  The successor trustee wasn't appointed for nearly three years.  It was during that gap of trusteeship that the claimed breach of fiduciary duty occurred.

Judge Murphy refused to carve out an exception from the strictures of the statute regarding trustee resignation.  He also didn't buy the argument that resignation procedures ought to be different because the Trust hadn't yet been funded.  So the defendant trustees of the Moser Trust who thought they had terminated their responsibilities are still on the hook for what may be a substantial claim.

Judge Benjamin Cardozo said in a famous (at least from law school) quote in Meinhard v. Salmon that "[a] trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. . . ."  And you know what Johnny Paycheck said.  I guess that Judge Murphy is more of a Cardozo fan.