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Argabright v. Rheem Manufacturing Co.

United States District Court, D. New Jersey

June 23, 2017

LAWRENCE ARGABRIGHT, VICTORIA FECHT, and LIBRADO MONTANO, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
RHEEM MANUFACTURING COMPANY, Defendant.

          Melanie H. Muhlstock, Esq. PARKER WAICHMAN LLP Counsel for Plaintiffs.

          Aaron Van Nostrand, Esq. David Jay, Esq. GREENBERG TRAURIG LLP Counsel for Defendant.

          OPINION

          JEROME B. SIMANDLE U.S. District Judge.

         I. INTRODUCTION

         This matter comes before the Court on Defendant Rheem Manufacturing Company's (“Rheem” or “Rheem Manufacturing”) Motion to Dismiss the Amended Complaint. [Docket Item 49.] In this putative multistate class action, Plaintiffs Lawrence Argabright (“Argabright”), Victoria Fecht (“Fecht”), and Librado Montano (“Montano”) allege that Defendant manufactured defective residential heating, ventilating, and air conditioning (“HVAC”) systems under the Rheem and Ruud brand names. Plaintiffs assert the following claims in their Amended Complaint: breach of express warranty (Count I); breach of implied warranty of merchantability (Count II); fraudulent concealment (Count III); negligent misrepresentation (Count IV); violation of the Magnuson-Moss Warranty Act (“MMWA”) (Count V); violation of the New Jersey Consumer Fraud Act (“NJCFA”) (Count VI); violation of New York General Business Law § 349 (“NYGBL”) (Count VII); violation of the Arizona Consumer Fraud Act (“ACFA”) (Count VIII); unjust enrichment (Count IX); and a claim for declaratory relief (Count X). [Docket Item 43 at 22-43.]

         Defendant has moved to dismiss all claims in the Amended Complaint, with the exception of the claim for breach of implied warranty of merchantability as to Plaintiff Lawrence Argabright (“Argabright”). [Docket Item 49.] Plaintiffs have submitted a Response in opposition [Docket Item 55] and Defendant has submitted a Reply [Docket Item 56].

         The general facts of this case were recited in the Court's previous Opinion and will not be repeated here. See Argabright v. Rheem Manufacturing Company, 201 F.Supp.3d 578, 587-90 (D.N.J. 2016). The Court will address factual allegations not made in the original complaint but that were added to the Amended Complaint, however, in the Discussion section, infra. The Court will address the arguments as to each claim in turn. For the reasons set forth below, the Court denies in part and grants in part Defendant's Motion.

         II. STANDARD OF REVIEW[1]

         When considering a motion to dismiss a complaint for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6), a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the nonmoving party.[2] A motion to dismiss may be granted only if a court concludes that the plaintiff has failed to set forth fair notice of what the claim is and the grounds upon which it rests that make such a claim plausible on its face. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         Although the court must accept as true all well-pleaded factual allegations, it may disregard any legal conclusions in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Iqbal, 556 U.S. at 678.

         In addition, the complaint must contain enough well-pleaded facts to show that the claim is facially plausible. This “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “If the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not shown - that the pleader is entitled to relief.” Id. at 679 (internal quotation marks and citation omitted).

         Rule 9(b) of the Fed.R.Civ.P. requires particularized pleading for the conduct underlying Plaintiffs' fraud claims. Under Rule 9(b), the “circumstances” of the alleged fraud must be pleaded with enough specificity to “place defendants on notice of the precise misconduct with which they are charged.” Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984). Although the rule states that “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally, ” and does not require the plaintiff to plead every material detail of the fraud, the plaintiff must use “alternative means of injecting precision and some measure of substantiation into their allegations of fraud.” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir.2002) (internal quotations and citations omitted).

         IV. DISCUSSION[3]

         A. Breach of Express Warranty (Count I)

         Plaintiffs complain that Defendant breached its Warranty “because the HVAC had a known latent defect and was substantially certain to fail within the warranty period, Mr. Argabright did not receive compensation for the costs of refrigerant to identify the failure, and he has not been reimbursed for the costs of refrigerant that was not used in connection with the normal use of his Rheem HVAC.” [Docket Item 55 at 18.]

         Plaintiffs also argue that Defendant's Warranty fails of its essential purpose because the remedy they chose was insufficient under the contract “because Defendant unreasonably delayed recovery under the warranty notwithstanding that it knew, but failed to disclose, that the evaporator coils were substantial[ly] certain to cause failure of the entire unit, depriving Mr. Argabright the substantial benefit of his purchase.” [Id. at 19-20.] Finally, Plaintiffs argue that the “fact alleged here state a claim that the exclusion of refrigerant and labor costs” from the Warranty was unconscionable because Defendant knew or should have known that their HVAC units contained this defect when they sold them, that Plaintiffs and Class Members could not have discovered the defect “before failure and certainly not until after the time of purchase, ” and that “Defendant unreasonably delayed providing remedies under the warranty until after owners had expended money on inspection costs that might reasonably have been avoided but for Defendant's concealment or omissions[.]” [Id. at 20-21.]

         For reasons discussed infra, even construed liberally, the allegations in Plaintiffs' Complaint are insufficient to plausibly make out Plaintiffs' claims for breach of warranty as to Argabright. However, the Court will deny Defendant's Motion as to Fecht. Furthermore, because Arizona law disapproves of disposing with claims of unconscionability at the motion-to-dismiss stage, the Court will also deny Defendant's Motion as to Montano.

         1. Defendant Did Not Breach the Terms of Its Warranty as to Argabright and Montano, but Plaintiffs State a Claim for Breach of Warranty as to Fecht

         The Court previously ruled that Plaintiff did not plausibly state a claim for breach of express warranty, because, by its terms, the Limited Warranty [Docket Item 8-2] stated under “EXCLUSIONS, ” that the Limited Warranty did not apply to “parts installed with Covered Equipment or used in connection with normal maintenance, such as cleaning or replacing air filters, refrigerant, thermostats, tubing, or concrete pads”; the Limited Warranty also stated in a section titled “LABOR COSTS” that the warranty “does NOT cover any labor costs of expenses for service, NOR for removing or reinstalling parts.” The Court ruled that Plaintiffs did not plausibly allege that Defendant breached the terms of the warranty because Defendant in fact replaced the defective coils; the items Defendant did not replace, in contrast, were those that were excluded by the terms of the warranty. [Docket Item 44 at 3-4 & 12-17.]

         Under New Jersey law, “to state a claim for breach of express warranty, Plaintiffs must properly allege: (1) that Defendant made an affirmation, promise or description about the product; (2) that this affirmation, promise or description became part of the basis of the bargain for the product; and (3) that the product ultimately did not conform to the affirmation, promise or description.” Francis E. Parker Memorial Home, Inc. v. Georgia-Pacific LLC, 945 F.Supp.2d 543, 568 (D.N.J. 2013).

         Plaintiff now alleges that although “the limited warranty has an express exclusion relating to refrigerant, that exclusion only excludes coverage for parts installed with the Rheem HVAC or used in connection with the normal maintenance, such as cleaning or replacing refrigerant . . . [and] [t]he refrigerant Mr. Argabright purchased to discover and repair the evaporator coil defect was not . . . used in connection with the Rheem HVAC's normal maintenance. . . . [That refrigerant] should never have had to be replaced because refrigerant does not escape the closed system absent a leak.” [Docket Item 55 at 18.]

         This argument is unavailing. First, as Defendant correctly notes, Plaintiffs have not alleged any additional factual circumstances regarding the terms of the warranty or any alleged breach thereof by Defendant that address the Court's original decision. [Docket Item 49-1 at 22.] All Plaintiffs allege is a different reading of the terms of the Limited Warranty; however, such an argument is not convincing.

         The Limited Warranty provides that it “WILL NOT APPLY TO . . . parts installed with Covered Equipment or used in connection with normal maintenance, such as cleaning or replacing air filters, refrigerant, thermostats, tubing, or concrete pads.” [Docket Item 8-2.] The natural, unconstrained reading of this exclusion is that the Limited Warranty does not apply to, inter alia, parts used in connection with normal maintenance. These non-covered parts include but are not limited to cleaning or replacing air filters, refrigerant, thermostats, tubing, or concrete pads. The Limited Warranty, by its express terms, excludes coverage for refrigerant. Plaintiffs do not point to any other provision in the Limited Warranty that would suggest Defendant extended warranty coverage for refrigerant, even that which was “used in connection” for some purpose other than normal maintenance. For those reasons, although Plaintiffs allege that Defendant failed to cover the costs of replacement refrigerant, the Court again finds that Plaintiffs have failed to allege a plausible claim that Defendant breached the terms of the Limited Warranty.

         However, Plaintiffs raise new factual allegations with regard to Fecht that allow her claim for breach of the Limited Warranty to continue. The original complaint did not allege that Fecht ever contacted Defendant to seek compensation or reimbursement for the replacement coil the third-party technician installed in her HVAC, thereby not allowing the Court to “draw an inference that Fecht sought replacement by Defendant of the coil and Defendant refused, in violation of the terms of the warranty.” [Docket Item 44 at 15 n.6.] However, the Amended Complaint alleges that Fecht, upon noticing that her Rheem HVAC was not adequately cooling, contacted “an independent Rheem Contractor, which sent a fully licensed professional technician” to service the HVAC on two occasions, replacing the evaporator coil on the second occasion. [Docket Item 43 at 20 ¶¶ 100-101.] Fecht alleges that although “the Limited Warranty only requires homeowners to contact a local service technician for repair, Ms. Fecht contacted Rheem directly in or around May 2015 when she still had no received reimbursement for the replacement evaporator coil”; however, “Defendant notified Ms. Fecht that, even though her Rheem HVAC was still covered by the Warranty, Rheem would not reimburse any cost incurred because she failed to contact Rheem and comply with the requirements of its warranty process.” [Id. at 20-21 ¶¶ 102-103.]

         The Limited Warranty states as follows:

HOW TO OBTAIN WARRANTY CLAIMS ASSISTANCE: You must promptly report any failure covered by this Limited Warranty to the installing contractor or distributor. . . . If the contractor is not available, simply contact any other local contractor handling the Maufacturer's heating or air conditioning products.
The name and location of a local contractor can usually be found in your telephone directory or by contacting the Manufacturer's heating or air conditioning distributor.

         [Docket Item 8-2 at 1.] Taking the facts in the light most favorable to Plaintiff and accepting Fecht's allegations as true, the Limited Warranty does not require that Fecht contact Rheem directly to seek warranty claims assistance, but rather only to contact the installing contractor, or, in the alternative, “any other local contractor” handling Rheem's HVAC products. Fecht alleges that she did so by contacting Pipe Doctor, “an independent Rheem Contractor, ” and in the event, did ultimately contact Rheem directly to seek compensation for the replacement evaporator coil. Fecht alleges that Rheem has not reimbursed her, in violation of the terms of the Limited Warranty. [Docket Item 43 at 21 ¶ 104.]

         Given these factual allegations, the Court finds that Fecht has sufficiently alleged a claim that Defendant breached its express Limited Warranty by failing to reimburse her for the replacement coil.

         2. The Warranty Does Not Fail of Its Essential Purpose

         The Court previously ruled that the Limited Warranty does not fail of its essential purpose, contrary to Plaintiffs' claims. [Docket Item 44 at 17-21.]

         New Jersey law permits parties to a contract to establish an exclusive or limited remedy under the terms of the contract. N.J.S.A. 12A:2-719(1)(b). However, “[w]here circumstances cause an exclusive or limited remedy to fail of its essential purpose, ” a remedy may be available under the New Jersey U.C.C. N.J.S.A. § 12A:2-719(2); see also id. cmt. 1 (“[W]here an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions of this Article.”). Courts have generally concluded that “‘so long as the buyer has the use of substantially defect-free goods, the limited remedy should be given effect.'” Viking Yacht Co., Inc. v. Composite One LLC, 385 Fed. App'x 195, 207 (3d Cir. 2010) (quoting Chatlos Sys., Inc. v. Nat'l Cash Register Corp., 635 F.2d 1081, 1085 (3d Cir. 1980)). But where the seller is “either unwilling or unable to conform the goods to the contract, ” Chatlos, 635 F.2d at 1085, or where “novel circumstances not contemplated by the parties” works to deprive a party of the “substantial value” of its bargain, the remedy [provided for by a limited warranty] will not suffice. BOC Grp., Inc. v. Chevron Chem. Co., LLC, 819 A.2d 431, 438 ( N.J.Super.Ct.App.Div. 2003) (internal quotations and citation omitted).

         Plaintiffs claim that the Amended Complaint alleges a failure of the Limited Warranty's essential purpose “because Defendant unreasonably delayed recovery under the warranty notwithstanding that it knew, but failed to disclose, that the evaporator coils were substantial[ly] certain to cause failure of the entire unit, depriving Mr. Argabright the substantial benefit of his purchase.” [Docket Item 55 at 19-20.] In support of this argument, Plaintiffs cite to ¶¶ 123 through 127 of the Amended Complaint. [Docket Item 43 at 24-25.] The gravamen of these paragraphs is that Defendant's “unreasonable delay” has been in “refus[ing] to adequately repair or replace Rheem HVACs in accordance with” Plaintiffs' understanding of the “warranty terms”; that the Limited Warranty does “not provide the means for purchasers to . . . remedy damages to their structures associated with and caused by these defects”[4]; and that, because Defendant “knew, or was reckless in not knowing, about the defects, ” Defendant's failure to notify Plaintiffs and Class Members (as well as installers and distributors) about the defect “unreasonably delay[ed] any remedy under the warranty until after owners had expended money on inspection costs that might reasonably have been avoided[.]” [Id. at 24.]

         The “unreasonable delay” cited by Plaintiffs in fact presents a circular argument. The only unreasonable delay alleged, by the Court's reading of the Amended Complaint, has been in Defendant's failure to cover the costs of labor and refrigerant; however, this is what Defendant contends, and the Court has previously ruled, is excluded under the Limited Warranty. The Amended Complaint alleges that Plaintiffs Argabright and Montano in fact received replacement coils, in accordance with the Limited Warranty. For the reasons the Court explained previously, the Plaintiffs do not adequately allege a claim that the warranty failed of its essential purpose where Plaintiffs do not claim that “Defendant refused to repair or replace the nonworking coils, or [that] Defendant's replacement parts failed to function, saddling Plaintiffs with non-working units still under warranty[.]” [Docket Item 44 at 19.] The Court will address, infra, Plaintiffs' argument that Defendant knew or recklessly failed to learn of the defect; however, even if this is true, this does not render the Limited Warranty one that fails of its essential purpose where Defendant did in fact replace the defective part and there continues to be no allegation that the replacement parts in turn failed to function properly.

         The Court's review of the case law cited in support of the argument that the Limited Warranty failed of its essential purpose as to Fecht (citing to New York case law [Docket Item 55 at 22-23]) and Montano (citing to Arizona case law [id. at 24-25]) does not persuade the Court otherwise.

         As to Fecht, Plaintiffs cite Siemens Credit Corp v. Marvik Colour, Inc., 859 F.Supp. 686, 689 (S.D.N.Y. 1994); Roneker v. Kenworth Truck Co., 944 F.Supp. 179 (W.D.N.Y. 1996); and Cayuga Harvester Inc. v. Allis-Chalmers Corp., 95 A.D.2d 5, 11-12 (N.Y.App.Div. 1983). In Siemens, the plaintiff alleged that the defendant failed to repair or replace defective components free of charge, 859 F.Supp. at 696, and in Roneker, the plaintiff alleged that the defendant was “unable to repair” the problems with his truck, 944 F.Supp. at 185. In Cayuga, the plaintiff alleged “over 100 mechanical failures and over 100 parts replacement resulting in over 640 actual hours of machine downtime . . . [which led to] a full eight months [to use the equipment for its intended purpose].” 95 A.D.2d at 12. The allegations here--that Fecht “had to incur additional expenses . . . to identify the cause of the failure”--are not analogous. [Docket Item 55 at 23.]

         As to Montano, Plaintiffs cite Kalil Bottling Co. v. Burroughs Corp., 619 P.2d 1055 (Ct. App. Ariz. 1980). However, Kalil simply reiterates that it is possible to state a claim that a warranty fails of its essential purpose where “the warrantor fails to correct the defect as promised ...


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