Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Pa.: Claims of defective humidifiers proceed against Honeywell, (Apr 27, 2016)

By Linda O’Brien, J.D., LL.M.

Two homeowners sufficiently raised plausible claims that consumer products manufacturer Honeywell engaged in unfair trade practices by knowingly selling defective humidifiers and replacing defective humidifiers under warranty with the same defectively designed humidifiers, the federal district court in Philadelphia has decided (Burke v. Honeywell International, Inc., April 26, 2016, Schiller, B.).

In October 2012, Robert Burke purchased a Honeywell TrueSteam humidifier from a Philadelphia dealer/installer. The total cost of the humidifier and installation was $1,015. Honeywell warranted that the humidifier would be “free from defects in the workmanship or materials, under normal use and service, for a period of five (5) years from the date of purchase by the consumer.” In February 2015, the humidifier indicated that the heating element needed replacement. A technician examined the unit and determined that the heating element had failed. Honeywell provided a new unit. However, the installation cost for the replacement unit was paid by Burke.

Burke and another consumer, Mark Riley, filed suit against Honeywell, alleging violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) and New Jersey Consumer Fraud Act (CFA). The consumers claimed that Honeywell designed, marketed, and knowingly sold defective humidifiers, and replaced defective units with other defective units. Honeywell moved to dismiss the complaint.

UTPCPL claims. The court determined that the economic loss doctrine did not bar the plaintiffs’ UTPCPL claims. First, the plaintiffs alleged significant property damage, including clogged exterior drains which resulted in flooding, as well as corrosion and mold growth in HVAC ducts. The plaintiffs also alleged a plausible chain of events in which the interior of the units became coated with mineral deposits that lead to overheating, cracked components, and the overflow of scalding water into the adjoining structure. Such allegations of damage to property other than the defective product brought the claims outside of the economic loss doctrine.

Additionally, the plaintiffs plausibly alleged that Honeywell knowingly sold defective units and replaced defective units with other defective units. In the court’s view, such allegations did not relate to representations about the units and were far from any contractual breach. Accordingly, the alleged conduct was a separate cause of action for fraud and the economic loss doctrine did not apply to fraud extraneous to any contractual breach.

CFA claims. Honeywell’s arguments that the plaintiffs’ claim of a simple breach of warranty did not constitute a violation of the CFA and that the plaintiffs failed to allege any actionable misrepresentations or omissions were rejected. The court noted that the plaintiffs alleged more than a breach of warranty claim by setting forth specific examples of repeated product failures and allegations that Honeywell had actual and constructive knowledge that its humidifiers regularly failed. Thus, the complaint plausibly stated that Honeywell knowingly replaced defective units with other defective units. Such conduct could constitute an “unconscionable commercial practice that extends beyond a breach of warranty and into the realm of consumer fraud,” the court concluded.

The case is No. 2:15-cv-01921-BMS.

Attorneys: Charles E. Schaffer (Levin, Fishbein, Sedran & Berman) for Robert Burke. James T. Moughan (Bennett, Bricklin & Saltzburg LLC) for Honeywell International, Inc.

Companies: Honeywell International, Inc.

Cases: Advertising StateUnfairTradePractices PennsylvaniaNews