Ariz. Chem. Co. v. Mohawk Indus., Inc.

193 So.3d 95

ARIZONA CHEMICAL COMPANY, LLC, Appellant,

v.MOHAWK INDUSTRIES, INC. and Aladdin Manufacturing Corp., Appellees.

No. 1D14–4079.

District Court of Appeal of Florida, First District.

May 20, 2016.

Rehearing Denied July 1, 2016.

Sylvia H. Walbolt and Christine Davis Graves of Carlton Fields Jorden Burt, P.A., Tallahassee; Michael A. Abel, Jeremy J. Ches, and Andrew J. Steif of Holland and Knight, LLP, Jacksonville, for Appellant.

Thomas E. Bishop, Michael G. Tanner, and Casey W. Arnold of Tanner Bishop, Jacksonville; Doug Scribner, Daniel Norris, and Jason Rottner of Alston & Bird LLP, Atlanta, Georgia, for Appellees.

RAY, J.

This appeal and cross-appeal arise from a $70.1 million jury verdict and resulting judgment for the plaintiffs, Mohawk Industries, Inc., and Aladdin Manufacturing Corporation (collectively “Mohawk”), in a lawsuit about defective Unibond-brand carpet. Mohawk, the manufacturer, became aware of the Unibond defects in 2008, when consumers' claims against Unibond's lifetime warranty began to rise sharply. After studying the issue, Mohawk developed a hypothesis that the cause of the claims spike was the use of a particular resin in the Unibond backing system. This resin had been formulated and manufactured by the defendant, Arizona Chemical Company, LLC, for this purpose.

As Mohawk later told the jury, Mohawk stopped using Arizona's resin after developing its hypothesis that the resin was causing failures in Unibond's backing system. The claims rate for newly manufactured Unibond carpet then returned to a rate consistent with the low rate Unibond had historically enjoyed. Nevertheless, Unibond sales plummeted, and Mohawk discontinued the carpet line in 2011. Mohawk sued Arizona on theories of breach of contract, breach of express warranty, and breach of implied warranty of fitness for a particular purpose, seeking recovery for the cost of the relevant claims and the loss of profits from unrealized sales.

The jury trial resulted in a judgment for Mohawk on the contract and express warranty claims and for Arizona on the implied warranty claim. Arizona, the appellant and cross-appellee before this Court, raises three issues. We affirm the appeal on the merits of each issue and write to address two of them. In light of this disposition, and at Mohawk's invitation, we affirm the cross-appeal as moot.

In the first issue, Arizona contends that the trial court erred in excluding evidence of claims spikes experienced by other Mohawk carpet lines contemporaneously with the Unibond spike, where those carpets were manufactured at the same facility as Unibond. Arizona offered this evidence to show possible alternative causes of the backing defects and resulting claims spike and to rebut Mohawk's expert testimony on causation. We find no abuse of discretion in the trial court's ruling that the other products' claims rates were not legally relevant to causation.¹

In the second issue, Arizona argues that Mohawk's evidence of the amount of lost profits was legally insufficient because Mohawk's damages expert did not consider important variables affecting the amount of revenue Mohawk would have gained from Unibond sales in the absence of the backing failures. Those variables include, among others, reputational damage to Mohawk from the failure of Mohawk's Encycle carpet line, which contemporaneously generated a claims rate far exceeding the peak Unibond claims rate. In the alternative, Arizona argues that it should have been permitted to cross-examine Mohawk's lost-profits expert with Mohawk's business records acknowledging these variables as they affected the company's market share for commercial carpet, which included Unibond. We conclude that the expert's failure to address the variables at issue did not render his testimony legally insufficient to support the lost-profits verdict and that Arizona has not shown an abuse of discretion in the limitation of cross-examination.

I. FACTS AND PROCEDURAL HISTORY

A. Motion in Limine

Before trial, Mohawk moved in limine to exclude evidence and argument concerning the claims spikes for Mohawk products that were not manufactured using Arizona's resin. Arizona opposed the motion, arguing that this evidence was relevant to rebut Mohawk's theories of causation and lost profits.

Arizona anticipated that, to show causation, Mohawk would rely on proof that the Unibond claims spike coincided with the use of Arizona's resin. Arizona intended to introduce evidence of contemporaneous claims spikes related to three other carpet brands manufactured at the same facility as Unibond, in Glasgow, Virginia. Those brands were known as PVC, U2, and Encycle.² Arizona argued that the similar claims spikes experienced by the other carpet lines indicate a likelihood that the rise and fall in the Unibond claims was caused by a factor shared among the four carpet lines, not a factor exclusive to Unibond, such as the use of Arizona resin. In conjunction with this rebuttal, Arizona intended to introduce evidence that the Glasgow manufacturing facility had experienced organizational issues, poor performance habits, and a lack of discipline among employees. Further, Arizona had evidence that Glasgow's director of quality assurance had been fired in 2008 for poor job performance. Arizona contended that this evidence would show that all the claims spikes were attributable to poor quality control or failure to adhere to manufacturing protocol at the Glasgow facility. For its part, Mohawk argued that the other products' claims rates were irrelevant because they were distinct products with different manufacturing processes and unrelated defects.

Unibond, a carpet sold for commercial use, had three defining characteristics: its longevity in the market, from 1971 until 2011; its broadloom classification, meaning that it was produced in long twelve-foot-wide rolls; and its manufacturing process. Unibond's manufacturing process was relevant not only to the arguments on the motion in limine but also to an understanding of the causation evidence at trial. This carpet was manufactured using a two-step “hot melt” process. In the first step, a pre-coat made of pure resin was applied to the carpet fibers in a hot liquid form. In the second step, a main coat, also called a secondary backing and an adhesive, was applied. The main coat consisted of three ingredients: resin, ethyl-vinyl acetate (“EVA”), and a filler. The resin provided a “sticky” quality to the main coat; the EVA provided strength; and the “filler” was just that. Like the pre-coat, the main coat was applied hot. The two coats would cool to form a solid, fusing the entire carpet system together. The failure of this system, in the form of delamination, edge ravel, and poor tuft bind, caused the warranty claims that led to this lawsuit.

In contrast to Unibond, Encycle and PVC were carpet-tile products. U2 was a broadloom product, but U2's backing was not applied through a two-step hot-melt process. In fact, none of the other products had this backing system or experienced the backing failures at issue in this case. Also, unlike Unibond, both U2 and Encycle were short-lived experimental products. Perhaps most importantly, Arizona proffered no evidence specifically linking the defects of Encycle, PVC, and U2 to quality control or any particular cause.

To support the claim that the other products' failures were relevant to a determination of how much profit Mohawk lost as a result of the backing failures, Arizona provided the deposition testimony of Robert Devlin, Mohawk's director of commercial quality, expressing his belief that the claims against Encycle in particular, which at one time accounted for 88.2% of Mohawk's paid commercial carpet claims, hurt Mohawk's reputation and affected sales of Mohawk products. In addition, Arizona presented documents prepared by Mohawk attributing a general loss of commercial market share in 2009 and 2010 to the Encycle issues, at least in part. Arizona contended that this evidence would show that Mohawk's lost profits were a result of non-Unibond product failures. In support of its motion in limine, Mohawk asserted that the other products' claims were irrelevant because Mohawk was not seeking damages for the loss of any market share other than in the broadloom carpet space.

The trial court granted Mohawk's motion in limine. Concerning damages, the ruling was without prejudice to Arizona's raising the issue again if the evidence presented at trial warranted the admission of other-product evidence.

B. Causation Evidence

At the beginning of trial, Mohawk informed the jury that the timing of the Unibond claims spike—and specifically the fact that the claims rate returned to its historical level when Mohawk discontinued the use of Arizona's resin—led the company to file the lawsuit. Devlin's testimony provided the basis for this point. According to Devlin, the vast majority of the defective carpet was produced during a time when Arizona's resin was the only resin used in Unibond's pre-coat and the only resin used in the main coat of at least seventy percent of the Unibond carpet being produced. Mohawk decided to discontinue the use of Arizona's resin based on the possibility that it was the cause of the backing failures. Devlin testified that Mohawk filed suit a couple of years later after seeing the claims rate on Unibond carpet return to normal.

Nevertheless, Devlin, a thirty-year veteran of the carpet industry, described a multi-faceted investigation into the cause of the backing failures. In addition to analyzing the claims rate and Mohawk's manufacturing process, Devlin reviewed the claim files, personally inspected some of the claim sites, and examined samples of defective carpet. He considered strength and aging tests conducted on relevant carpet samples. These observations and tests led him to conclude that the condition of the defective carpet indicated degradation of the resin used in the backing system. Devlin ruled...