Sheldrake v. Skyline Corp., No. S1269-01 CnC (Norton, J., June 23, 2005)

[The text of this Vermont trial court opinion is unofficial. It has been
reformatted from the original. The accuracy of the text and the
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STATE OF VERMONT                                     SUPERIOR COURT
Chittenden County, ss.:                          Docket No. S1269-01 CnC



SHELDRAKE

v.

SKYLINE CORP.




                                  ENTRY

       Following the denial of their application for class action status,
Plaintiffs Roger and Holly Sheldrake have moved for partial summary
judgment based on the defendant’s lack of cooperation with the
Sheldrakes’s discovery requests. Defendant Skyline Corporation has also
moved for partial summary judgment on the Sheldrakes warranty and
negligence claims. As there are no issues of material fact in either request,
summary judgment is appropriate at this time. Donnelly v. Guion, 467 F.2d
290, 293 (2d Cir. 1972) (“A summary judgment motion is intended to
‘smoke out’ the facts so that the judge can decide if anything remains to be
tried.”)

       This is a leaky roof case. The Sheldrakes purchased their mobile
home from the Skyline Corporation in November 1995 through a local
Vermont dealer. Soon thereafter the couple noticed ice forming on the roof
and water leaking into the house. They began complaining to the Vermont
dealer, who made some minor repairs, but soon began contacting Skyline
directly about ice build-up on the roof, inadequate blocking and anchoring
of the home, leaking ceiling, leaking skylight, electrical problems, rotting
roof, and clogged drains. These calls began in early 1996 and continued
throughout the year into 1997. Along with their mobile home, the
Sheldrakes received a homeowners’ manual, which contained a warranty
for any manufacturing defects up to one year and ten days. The manual
also included a registration card that, if returned, would extend the Skyline
Warranty for more three months. It is not clear , however, from the
evidence and affidavits whether or not the Sheldrakes returned this
registration card.

        On October 25, 2001, the Sheldrakes filed their complaint against.
Skyline, the dealer who sold them the mobile home, and individual
corporate officers of Skyline. The Sheldrakes also filed for class action
status claiming that their claims were indicative of a wider defects
indicative to Skyline mobile homes and render them unsuitable for sale and
use in New England. On December 2, 2002, this court dismissed the claims
against the individual defendants. On March 29, 2004, this court also
denied Plaintiffs’ class action petition.

       Presently, the parties have competing motions for summary
judgment, as well as several discovery issues, pending. Many of these
discovery issues stem from a lack of clarity over the fate of the competing
summary judgment motions. To that, this court hopes to resolve some of
the confusion and clear the path for the parties to resolve their pre-trial
disputes.

        The first argument that Skyline raises concerns the economic loss
rule and the plaintiffs’ claims of negligence. The remedy that the
Sheldrakes seek in this case is only the cost of either their mobile home or
its replacement. They do not, or have not, claimed physical injuries or
specified personal property that was damaged as a result of the alleged
negligence. They are also raising the claims of negligence within a
relationship that was primarily commercial as the parties were buyer and
seller (and seller’s dealer) in a consumer transaction. These issues raises
the economic loss rule as a potential bar to the Sheldrakes’ recovery in
negligence. This rule works to keep tort law out of commercial or
consumer transactions where contract law controls. See, e.g., S. Gardner &
M. Sheynes, The Moorman Doctrine Today: A Look at Illinois’ Economic-
loss Rule, 89 Ill. B.J. 406, 406 (2001) (“The practical application of this
rule bars consequential damages not necessarily intended by the parties at
the time of making the contract, as well as punitive damages, which
typically are not recoverable in contract, unless the conduct allegedly in
breach can be characterized as an independent tort.”); E. Ballinger, Jr. & S.
Thumma, The History, Evolution and Implications of Arizona's Economic
Loss Rule, 34 Ariz. St. L.J. 491, 492–93 (2001) (“[T]he economic loss rule
is one of several principles that have evolved to define the boundaries of
both contract and tort and to ensure a proper and vital role for both bodies
of law.”); T. Yocum & C. Hollis, III, The Economic Loss Rule in
Kentucky: Will Contract Law Drown in a Sea of Tort?, 28 N. Ky. L. Rev.
456, 459 (2001) (“[Kentucky’s Economic Loss Rule] recognizes a mutual
exclusivity between claims sounding in contract and tort, encouraging
sophisticated parties entering into contracts to bargain now rather than sue
in tort later.”); S. Tourek, et al., Bucking the “Trend”: The Uniform
Commercial Code, the Economic Loss Doctrine, and Common Law Causes
of Action for Fraud and Misrepresentation, 84 Iowa L. Rev.875 (2001)
(“The Economic Loss Doctrine is a judicially created doctrine that provides
commercial purchasers of goods cannot recover damages that are solely
economic losses from manufacturers of those goods under ‘tort’ theory.”).
The purpose is to prevent plaintiffs from using negligence or strict liability
to do an end-run around the tighter requirements of contract and warranty
law, where parties can predict and shift their risk of loss accordingly. In
other words, the economic loss rule is a stabilizing principle to keep the
“soft” analysis of policy and duty under tort law away from parties who
have had the opportunity to bargain for the risk or who can rely on a set of
rules to supply any missing terms in a predictable manner. See, e.g., 9A
V.S.A. §§ 2-313–2-316 (U.C.C. warranty law).1

       Similarly, the major Vermont cases enunciating the Economic Loss
Rule have involved parties whose primary relationship was contractual.
Springfield Hydroelectric Co. v.Copp, 172 Vt. 311, 314 (2001) (“As our
caselaw makes clear, claimants cannot seek, through tort law, to alleviate
losses incurred pursuant to a contract.”); Gus’ Catering v. Menusoft, 171


       1
          Historically, the Economic Loss Rule developed as a judicial check on §
402A strict liability. Springfield Hydroelectric Co. v.Copp, 172 Vt. 311, 314–15
(2001). In such situations, a contract was always involved because the defendant
was the seller or manufacturer whose connection to the plaintiff was through a
sale. While the Rule has since spread to areas of tort law such as negligence, id.,
it has in nearly all cases kept this initial and significant connection to contract
law.
Vt. 556 (2000) (mem.) (refusing damages for negligence to customer who
bought software which was negligently installed); Paquette v. Deere & Co.,
168 Vt. 258, 260–64 (1998) (applying the doctrine to a strict liability claim
for a defective motor home purchased from defendant manufacturer);
Breslauer v. Fayston Sch. Dist., 163 Vt. 416, 421–22 (1995) (denying
negligence claim for economic losses for breach of employment contract);
see also East River Steamship Corp. v. Transamerica Delaval, 476 U.S.
858, 870–71 (1986) (limiting damages to the cost of the product and not
consequentials “[w]hen a product injures only itself.”). In each of these
cases, the courts had the separation of contract and tort law as an
underlying interest.

        Here the Sheldrakes’ claims are classic economic losses. They are
claiming damages for harm caused by and to the very product which they
negotiated for, contracted about, and purchased from Skyline. The source
and object of their claim, like East River Steamship, is the very same object
of their agreement. It does not involve personal injury or damage to other
property. Moreover, this claim is about alleged defects and product
failures, not an accident or unexpected losses such as traditional tort and
negligence law covers. See, e.g., People Express Air., Inc. v. Consol. Rail
Corp., 495 A.2d 107, 111–12 (N.J. 1985) (refusing to apply the Economic
Loss Rule in a pure accident situation). This leaves the Sheldrakes’
negligence claims squarely within the purview and purpose of the
Economic Loss Rule.

       The Sheldrakes argue that notwithstanding their contractual
relationship with Skyline and the warranty-nature of their claims the court
should apply a risk-of-harm analysis that was discussed as dicta in the
Paquette case. 168 Vt. at 261–63. Risk-of-harm analysis is essentially an
exception to the economic loss rule where, notwithstanding the contractual
nature of the underlying relationship and claims, plaintiffs can seek a
remedy in negligence or products liability under certain circumstances.
Traditionally courts look to three factors: “the nature of the defect, the type
of risk, and the manner in which the injury arose” when applying the
analysis. Id. at 262 (quoting East River Steamship, 476 U.S. at 869-70).
In East River Steamship, the United States Supreme Court rejected this
analysis at least in the context of maritime law. 476 U.S. 858, 869–70
(1986). But in Paquette, the Vermont Supreme Court refused to adopt the
higher court’s reasoning and left the door open to risk-of-harm analysis
where it might be needed. 168 Vt. at 263.

        From the Paquette court’s reasoning, however, a strong pattern
emerges. In each case cited by the court to support some future risk-of-
harm analysis, the defect involved a risk of death or serious personal injury
and a potential tort-like accident. Id. at 262–63 (citing to Alaska and
Washington cases with plane crashes and fire dangers); see also R. Fox &
P. Loftus, Riding the Choppy Waters of East River: Economic Loss
Doctrine Ten Years Later, 64 Def. Couns. J. 260, 262–63 (1997) (“Several
jurisdictions permit recovery in tort if the defect creates a serious risk of
death or personal injury.”).

       Such qualities are not met in the present case. Paquette does not
stand for the proposition that risk-of-harm analysis should be expanded to
any case involving the economic loss rule. Rather the Paquette court’s
reasoning recommends reserving risk-of-harm analysis for more tort-like
factual scenarios where the relationship of the parties would be secondary
to imminent harm posed by the danger of the defect. Such an analysis is
not merited by either the nature of the harm or the threat of danger in this
case. Therefore, the court declines to apply risk-of-harm analysis and will
apply the economic loss rule to dismiss the Sheldrakes’ negligence claims
against Skyline.2
       Skyline’s second argument is that the statute of limitations has run
on the Sheldrakes’ warranty claims. Under the Uniform Commercial Code,
warranty claims must be brought within four years within the time the
cause of action accrues. 9A V.S.A. § 2-725(1). The Sheldrakes purchased
their mobile home on November 21, 1995. Their problems began almost
immediately, and they contacted the Vermont dealer and Skyline on a
regular basis over the next few months. This is important because the
defects that the Sheldrakes cite in their warranty claims became clear
during this period. That is the Sheldrakes “discovered” most, if not all, of
the defects in their mobile home within the first few months of ownership.
They do not cite to any specific defect that did not appear during this period
or was not “discoverable” given the problems they claim to have had in
early 1996. Rodrigue v. VALCO Enters., 169 Vt. 539, 541 (1999) (mem.).

       2
          The court acknowledges that this “refusal” to apply risk-of-harm analysis
may in a sense be a risk-of-harm analysis. This is a fine distinction, but the facts
of this case are fairly clear. Regardless of the exact defect, the problems with the
mobile home at issue here did not threaten the Sheldrakes’ lives or pose serious
physical harm. Additionally, the court is generally not persuaded that this
exception to the economic loss rule applies at all here since the cases that discuss
risk-of-harm have been limited to products liability and not negligence claims.
The difference is important since courts have traditionally limited negligence
claims to cases with a physical or distinct property injury while allowing greater
leeway for product liability claims that inherently tend to encompass or encroach
on warranty claims. Compare 1 D. Dobbs, The Law of Torts § 110, at 258–59
(2001), with 2 id. at § 352, at 972 (discussing the different sources and limitations
on economic loss in negligence and products liability). The inevitable conclusion
is the risk-of-harm analysis is a limited counterbalance to the economic loss rule
in products liability cases where the larger policies of consumer protection may
supercede the importance of separating tort from contract law.
       The Sheldrakes argue that their warranty claims were tolled because
they did not “discover” the defects in their mobile home until much later.
They blame this delay on Skyline because it misrepresented the quality of
its homes and their general unfitness for New England climates. These
misrepresentations are drawn primarily from Skyline’s promotional
material that the Sheldrakes received prior to purchasing their mobile
home. This language of quality, however, has less to do with an affirmative
promise and is more about marketing and advertising.

        While perhaps more than a mere puffing of the product, the language
should have stood in sharp contrast to the problems that the Sheldrakes
began experiencing almost immediately after moving in. More to the point
of fraudulent concealment, for which the statute of limitation may be tolled,
the Sheldrakes do not produce any affirmative statements or promises made
by Skyline that prevented them from discovering the alleged defects in their
home or to recognizing that their actual home differed substantially from
Skyline’s pre-sale statements. Troy v. Am. Fidelity Co., 120 Vt. 410, 423–
24 (1958) (“[T]he fraudulent concealment of a cause of action which will
postpone the running of the statute of limitations must consist of some
affirmative act.”). To toll the statute for the Sheldrakes based on such
vague sales representations by Skyline would be the same as giving every
customer at McDonald’s a cause of action when their Big Mac invariably
failed to live up to its airbrushed promotions. Skyline committed no
affirmative act that stopped or should have stopped the Sheldrakes from
realizing the defects in their mobile home.

       At the very latest, the Sheldrakes’ warranty claims did not run past
March 3, 1997, fifteen months and ten days after their purchase when their
explicit warranty from Skyline expired. By that time, the Sheldrakes had
experienced every defect claimed; had contacted Skyline and the Vermont
dealer; and had affirmative notice through their owners manual that their
express warranty had expired. While the Sheldrakes cite to their
communication with Skyline as the source of additional warranty promises,
they cannot show any evidence that either Skyline or the Vermont dealer
made explicit promises that would rise to the level of a future performance
warranty. South Burlington School Dist. v. Calcagni-Frazier-Zajchowski
Architects, 138 Vt. 33, 48 (1980) (“[C]ourts will not lightly infer from the
language of express warranties terms of prospective operation that are not
clearly stated.”).

        Rather these communications are best characterized as promises and
attempts to fix the Sheldrakes individual problems. Such actions do not toll
the statute of limitations. Gus’ Catering, Inc. v. Menusoft Sys., 171 Vt.
556, 558 (2000) (mem.). Therefore, the clock on the Sheldrakes’ statute of
limitations under § 2-725 began running no later than March 3, 1997 and
expired four years later, March 3, 2001, seven months before the
Sheldrakes filed this action.

       The Sheldrakes’ main argument for tolling § 2-725 is that between
April 2000 and October 2001, they were part of a potential class action for
these claims. This Cahee case, in which the Sheldrakes were not a named
party but only part of the potential class, was filed in federal court on April
25, 2000. Two weeks later, it was voluntarily dismissed by the plaintiffs
and re-filed with the Rutland Superior Court. That court dismissed the
petition for class certification and the plaintiffs’ case on December 10,
2001. Two months before that dismissal, however, the Sheldrakes
voluntarily dropped out of the potential class and filed this action. Now the
Sheldrakes want to take advantage of the tolling provisions that accompany
class action petitions.
        The rule that a class action tolls the statute of limitations for
individual potential class members comes from two United States Supreme
Court opinions. Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350
(1983) (“Once the statute of limitations has been tolled, it remains tolled for
all members of the putative class until class certification is denied. At that
point, class members may choose to file their own suits or to intervene as
plaintiffs in the pending action.”); American Pipe & Construc. Co. v. Utah,
414 U.S. 538, 554 (1974) (“[T]he commencement of a class action
suspends the applicable statute of limitations as to all asserted members of
the class who would have been parties had the suit been permitted to
continue as a class action.”). The purpose behind these cases was to
discourage a rush of individual cases when plaintiffs feared a class would
not be certified, which would result each time in “a needless multiplicity of
actions.” Crown, Cork & Seal, 462 U.S. at 351. By tolling the statute for
any individual member, the Court reasoned would support the purpose of
Rule 23 (class actions) allowing economy and efficiency win out over the
chaotic potential of hundreds of plaintiffs instituting actions designed to
preserve their rights against the possibility that the class might not be
certified. Moreover, it serves another purpose of Rule 23, by uniting the
fate and interests of the class and treating potential members equal to the
representative plaintiffs.

        This logic, however, does not carry through when an individual
plaintiff voluntarily chooses to leave the class prior to certification or
dismissal of the petition. In that case, the plaintiff has voluntarily elected to
leave the class and has divorced herself from the fate of that class. Rather
than preserving unity, efficiency, and economy, allowing a plaintiff who
voluntarily leaves a class prior to a determination to have the tolling benefit
of the class would encourage more litigation and less solidarity. Instead of
putting her fate in the same boat with the class, plaintiff could merely
“ride” along with the class and then get out where ever she saw fit. Nearly
every court that has considered this question has rejected a plaintiff’s right
to the tolling provision of a class action when she voluntarily leaves the
class prior to the court’s determination. In re Worldcom, Inc. Securities
Litigation, 294 F.Supp.2d 431, 451 (S.D.N.Y. 2003) (citing federal circuit
decisions); see also Catholic Social Serv., Inc. v. INS, 182 F.3d 1053,
1060–61 (9th Cir. 1999) (discussing the limits of Crown, Cork & Seal in
the context of successive class actions).
        In this case, the Sheldrakes only had to wait two more months to
learn the fate of the Cahee petition. Even if the class had been certified, the
Sheldrakes could have opted out of the class under Rule 23 and still have
taken advantage of the class’s tolling provision. But by opting out of the
class earlier, the Sheldrakes may not take advantage of this tolling
provision. They chose not to stay with their potential class. It is in
conformance with the policies of Crown, Cork & Seal and American Pipe
to deny Rule 23's tolling provisions to the Sheldrakes. Therefore, the
Sheldrakes’ warranty claims were filed out of time and are dismissed as a
matter of law.

       Turning briefly to the Sheldrakes’ argument for summary judgment
based on Skyline’s refusal to answer their discovery request, it is important
to note that none of the requested material touches upon the questions of
discussed above. This discovery dispute goes more to the competing
visions of this case held by the plaintiffs and the defendants. Much of the
Sheldrakes’ discovery is broad and aimed at uncovering the patterns in
Skyline’s customer service and customer response to its products. Neither
of these facts would have changed the time-frame in which the Sheldrakes
should have discovered the defects in their own home. Nor would this
discovery have changed what affirmative acts the Sheldrakes could cite as a
basis for tolling the statute of limitations. Thus, any negative inferences
would not help the Sheldrakes’ case.

       Moreover, it would be improper to draw negative inferences from
Skyline’s position because much of its resistance came from a good faith
dispute about the scope of this case. In particular, Skyline’s objections date
from the time when the class certification petition was still pending.
Skyline took the position that it did not have to comply with such wide
discovery until the class was certified. Now that the case has been
narrowed to individual action, both parties need to re-evaluate the scope of
discovery.3

       At this point, the parties’ current discovery issues may or may not
have been rendered moot. By granting Skyline’s motion for partial
summary judgment, the plaintiffs’ claims have been reduced to a single
count of consumer fraud. In light of this, the court will wait to make a
determination about the parties pending discovery motions to compel and
protect. Parties will arrange with the court for a hearing on these issues.

      Based on the foregoing, defendant Skyline’s motion for partial
summary judgment is granted. Plaintiffs Roger and Holly Sheldrakes’
cross-motion for partial summary judgment is denied.

       Dated at Burlington, Vermont________________, 2005.




       3
         Needless to say, parties should incorporate the ramifications of this
decision in their future discovery plans.
________________________
Judge
