Hi-Tech Aggregate v. Pavestone

555 P.3d 1184

HI-TECH AGGREGATE, LLC, Appellant,

v.PAVESTONE, LLC, a Foreign Limited Liability Corporation Authorized to do Business in Nevada, Respondent

No. 86320

Supreme Court of Nevada.

Filed September 19, 2024

Appeal from a district court amended judgment following a bench trial in a contract and tort action. Eighth Judicial District Court, Clark County; Mark R. Denton, Judge.

Dennett Winspear, LLP, and Ryan L. Dennett and Matthew A. Sarnoski, Las Vegas, for Appellant.

Lipson Neilson P.C. and J. William Ebert, Las Vegas; Smith, Currie & Hancock LLP and Ronald G. Robey, Las Vegas, for Respondent.

BEFORE THE SUPREME COURT, STIGLICH, PICKERING, and PARRAGUIRRE, JJ.

OPINION

By the Court, STIGLICH, J.:

In this opinion, we reach the issues of what level of knowledge a supplier must have to be held liable for breach of the warranty of fitness for a particular purpose and whether the economic loss doctrine precludes relief on negligence and products liability claims. Here, Hi-Tech Aggregate, LLC, supplied Pavestone, LLC, with aggregate, which Pavestone used to manufacture pavers. After receiving customer complaints of efflorescence developing on the pavers, Pavestone sued Hi-Tech under contract and torts theories, including breach of warranty and products liability. The district court ruled for Pavestone on both claims.

[1] In determining that Hi-Tech’s sale of aggregate to Pavestone carried with it an implied warranty of fitness for a particular purpose because Hi-Tech had reason to know of Pavestone’s intended usage for the goods it purchased, we adopt the reasoning of Uniform Commercial Code § 2-315 official comment 1 that a buyer does not need to prove a seller’s actual knowledge where the seller had reason to know of the product’s intended purpose. Similarly, in holding that Pavestone was excused from 1 failing to test the aggregate for the defect, we adopt UCC § 2-316 comment 8, which states that a warranty is not excluded when there is a latent defect in the goods and a simple examination would not reveal the latent defect.

We reverse the district court, however, as to its determination that the economic loss doctrine does not bar Pavestone’s noncontractual claims. In so doing, we take this opportunity to reiterate that the economic loss doctrine applies only when the damage is to the product itself, not when there is damage to other property. Here, we hold that the economic loss doctrine precludes Pavestone’s noncontractual claims because Pavestone did not provide sufficient facts to show there was damage to property other than the product itself. Accordingly, we affirm in part and reverse in part.

FACTS

Hi-Tech operates a mining and processing operation. It sells gravel and sand, known as aggregate. Pavestone manufactures pavers used to construct sidewalks and driveways. In 2019, Pavestone purchased aggregate from Hi-Tech to make into pavers. The arrangement was informal. Pavestone would call Hi-Tech to order, and Hi-Tech would send a written invoice in response. Pavestone would send trucks to pick up the aggregate and then would test the aggregate’s particle size. It never tested any other attribute of the aggregate. Pavestone’s only specification to Hi-Tech was for "washed alluvial aggregate," which comes from the bottom of a riverbed. Each invoice contained only one line that read either "Pavestone sand," "masonry sand," or "mortar sand."

In December 2019, Pavestone began to receive complaints from customers that their driveways and sidewalks had developed an "unsightly crust" on the surface of the pavers. Some rocks and landscaping adjacent to the driveways also developed this crust. In response, Pavestone replaced the defective pavers with its existing inventory When Pavestone received more complaints from customers about the efflorescence on the pavers, it investigated its production process and determined that the cause of the efflorescence was sodium carbonate in Hi-Tech’s aggregate that manifested when the pavers became wet. At the time, no one in the industry tested aggregate for sodium carbonate, which is why Pavestone had not tested for it earlier. Furthermore, the sodium ions were not visible to the naked eye and would not have been spotted without a test. Because Hi-Tech was its only supplier of aggregate at the time, Pavestone identified Hi-Tech’s aggregate as the cause of the defect and switched suppliers.

Pavestone filed a complaint against Hi-Tech alleging negligence, products liability, breach of contract, and breach of warranty.¹ The district court conducted a two-day bench trial and found for Pavestone on its claims for breach of the warranty of fitness for a particular purpose and products liability. Hi-Tech appeals.

DISCUSSION

Standard of review

[2–4] We review de novo a district court’s legal conclusions following a bench trial.

Wells Fargo Bank, N.A. v. Radecki, 134 Nev. 619, 621, 426 P.3d 593, 596 (2018). "[W]e will not overturn the district court’s findings of fact unless they are clearly erroneous or not supported by substantial evidence." Yount v. Criswell Radovan, LLC, 136 Nev. 409, 414, 469 P.3d 167, 171 (2020) (internal quotation marks omitted). "Substantial evidence is evidence that a reasonable mind might accept as adequate to support a conclusion." White-maine v. Aniskovich, 124 Nev. 302, 308, 183 P.3d 137, 141 (2008).

Hi-Tech’s sale earned with it an implied warranty of fitness for a, particular purpose

Hi-Tech argues that it did not know of Pavestone’s particular purpose because it did not know that Pavestone needed a sodium-free aggregate due to its particular paver-manufacturing process, which it argues falls beyond the scope of any warranty. It further argues that even if it knew of the particular purpose, this alleged knowledge was not enough to hold it liable because Pavestone must prove that Hi-Tech "participated in the selection of the product for that particular purpose."

Pavestone counters that the evidence demonstrated a breach of the implied warranty of fitness for a particular purpose. It argues that Hi-Tech knew the particular purpose for which its aggregate was intended and that the evidence showed that Pavestone relied on Hi-Tech because Pavestone had no role in selecting the aggregate.

[5] The Uniform Commercial Code (UCC) is codified in NRS Chapter 104. In Nevada, two implied warranties on sales of goods governed by the UCC exist. Long v. Flanigan Warehouse Co., 79 Nev. 241, 245, 382 P.2d 399, 402 (1963). These are the warranty of merchantability and the warranty of fitness for a particular purpose, id., and both are implied as a matter of law into every contract for the sale of goods under the UCC, unless disclaimed in writing. NRS 104.2314(1). Relevant here, NRS 104.2315 governs the implied warranty of fitness for a particular purpose. This warranty applies when "the seller at the time of contracting has reason to know any particular purpose for which the goods are required" and "the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods." NRS 104.2315.

Comment 2 of UCC § 2-315, the analog of NRS 104.2315, explains that a particular purpose is different from an ordinary purpose in that the goods have a "specific use by the buyer which is peculiar to the nature of his business." U.C.C. § 2-315 cmt. 2; see Edelstein v. Bank of N. Y. Mellon, 128 Nev. 505, 523, 286 P.3d 249, 261 (2012) (relying on UCC official comments as persuasive authority). A buyer does not have to prove a seller’s actual knowledge of the particular purpose for which the goods are intended where the seller had reason to know the intended purpose. U.C.C. § 2-315 cmt. 1.

[6, 7] And buyer reliance exists, for instance, when a buyer relies on the judgment and selection of the seller. Mohasco Indus., Inc. v. Anderson Halverson Corp., 90 Nev. 114, 119, 520 P.2d 234, 236 (1974). There is no buyer reliance, however, when the buyer uses its own judgment, makes its own selection, or supplies the seller with its own specifications. Id. For example, in Mohasco, this court held that there was no buyer reliance where the buyer of allegedly defective carpet specified "the type and length of yarn, weight per square yard, type of weave, color[,] and pattern" and the manufacturer provided precisely what the buyer requested. Id. at 116, 520 P.2d at 234-35. Consequently, this court concluded that a warranty of fitness could not be implied under the circumstances. Id. at 119, 520 P.2d at 236.

[8] We conclude that the district court properly found that Pavestone’s purchase carried with it an implied warranty of fitness of a particular purpose and that Hi-Tech knew of Pavestone’s intended usage. Pavestone intended to use the aggregate it bought from Hi-Tech to make pavers for driveways and sidewalks. Pavestone needed to prove only that Hi-Tech had reason to know the intended purpose, and the district court did not err in concluding it did because there is substantial evidence in the record showing that Hi-Tech knew that the aggregate was to be made into pavers for driveways. Specifically, Blaine J. Rees, the owner and manager of Hi-Tech, testified that he knew that Hi-Tech was supplying aggregate for use in pavers, although he did not know the process, and that he knew the pavers were used for driveways. Furthermore, the district court found that the aggregate was not suitable for use as pavers because the excess sodium content was aesthetically unsuitable for driveways and sidewalks, Because Hi-Tech knew that the pavers were to be used for driveways, it had reason to know the importance of appearance in the paver-manufacturing process.

[9] There is also substantial evidence showing that Pavestone relied on Hi-Tech’s skill or judgment to select the aggregate. Pavestone allowed Hi-Tech to pick the specifications of the aggregate, trusting that it would be suitable for its use. Unlike in Mohasco where the respondent asked for yarn with particular specifications, Pavestone...