[00:00:01] Speaker 02:
Good morning may it please the court Michael Ram for plaintiffs and appellants and here with me at council table is my colleague Mary Beth Lipsmith if the court please I'd like to reserve five minutes for rebuttal all right keep your eye on the clock, but I'll try to help you out.

[00:00:20] Speaker 02:
Yes three topics first.

[00:00:24] Speaker 02:
What is this case about?

[00:00:25] Speaker 02:
second

[00:00:28] Speaker 02:
The motion for judgment on the pleadings with respect to the express warranty claim and third sanctions First what is this case about?

[00:00:40] Speaker 02:
Simpson strong tie company told builders that its interior dry environments are the least corrosive to its safety ties while the outdoor environments are the more corrosive

[00:00:57] Speaker 01:
Maybe, maybe I hate to interrupt you because I don't want you to get away from that argument, but I have a real problem about whether you have any standing here.

[00:01:10] Speaker 01:
I read your third party complaint.

[00:01:12] Speaker 01:
It alleges that the defendant's products have prematurely failed.

[00:01:19] Speaker 01:
Will prematurely fail or are reasonably certain to prematurely fail?

[00:01:27] Speaker 01:
And then I read it says these connectors are not supposed to experience wear and tear that materially degrades them during the lifetime.

[00:01:36] Speaker 01:
And then it says the products are substantially certain to result in failures, not that they have failed.

[00:01:46] Speaker 01:
Why are these allegations not conclusory?

[00:01:50] Speaker 02:
They're not conclusory because, among other things, we say, Your Honor, that they have failed thousands of times.

[00:01:59] Speaker 01:
Oh, now, just a minute.

[00:02:01] Speaker 01:
Which homes have experienced damage?

[00:02:04] Speaker 02:
In our first amended complaint.

[00:02:07] Speaker 01:
I'm not going to go back to the first.

[00:02:09] Speaker 01:
That was the subject of the sanctions order, Your Honor.

[00:02:11] Speaker 01:
Well, I understand.

[00:02:12] Speaker 01:
I'll talk about the sanctions order when I get there.

[00:02:14] Speaker 01:
I'm trying to see if you have any standing to bring this third amended complaint.

[00:02:18] Speaker 01:
In the record,

[00:02:20] Speaker 01:
I mean, which homes have already been experienced damage?

[00:02:25] Speaker 01:
What damage occurred?

[00:02:27] Speaker 02:
I understand, Your Honor.

[00:02:28] Speaker 02:
We allege that we've all been damaged because as homeowners, we paid more and got less.

[00:02:38] Speaker 01:
Are you going to go to the benefit of the bargain then?

[00:02:41] Speaker 01:
That is one of the arguments.

[00:02:43] Speaker 01:
Yes, Your Honor.

[00:02:43] Speaker 01:
Well, that's the one you've given thus far.

[00:02:45] Speaker 01:
What else do you have?

[00:02:46] Speaker 01:
Because I can go to benefit of the bargain.

[00:02:49] Speaker 01:
My worry was I went to the Third Amendment complaint and I tried to find a place where I could find where you would have standing.

[00:02:58] Speaker 01:
Which homes were already damaged?

[00:03:01] Speaker 01:
What damage occurred?

[00:03:03] Speaker 01:
When did it occur?

[00:03:04] Speaker 01:
What repairs were needed?

[00:03:07] Speaker 01:
That's generally in a complaint and it's not there.

[00:03:10] Speaker 01:
Even in your reply briefing, you talk about the defects having manifested in other homes, not those of your clients.

[00:03:20] Speaker 01:
Never that you, your clients suffered the damage or already paid to fix them.

[00:03:27] Speaker 01:
My book is, there's no standing.

[00:03:30] Speaker 02:
Well, Your Honor, please remember, this is a product that's embedded in the foundation of the home so that if there's an earthquake... I know where it's embedded.

[00:03:40] Speaker 01:
I'm just trying to get you to tell me what the pandemic is.

[00:03:43] Speaker 04:
Yes, Your Honor.

[00:03:44] Speaker 04:
I think I'm struggling with the same issue.

[00:03:47] Speaker 04:
I understand your response that these products were embedded.

[00:03:49] Speaker 04:
Now, it may be difficult to show that they've already corroded, but showing that they've already corroded

[00:03:55] Speaker 04:
would be necessary to establish standing.

[00:03:58] Speaker 04:
Do you dispute that?

[00:03:59] Speaker 02:
I dispute that, Your Honor.

[00:04:02] Speaker 04:
So you don't need to allege that there's been corrosion in order to go forward with the complaint in order to establish standing?

[00:04:09] Speaker 02:
Yes, Your Honor.

[00:04:10] Speaker 02:
Let me please quote the district court, for example.

[00:04:13] Speaker 02:
The district court found UCL standing with respect to the third amended complaint saying, plaintiffs have established standing

[00:04:23] Speaker 04:
Well, let's set aside what the district did.

[00:04:26] Speaker 04:
As I understand it, you do have to allege that there's been corrosion in order to establish a standing.

[00:04:34] Speaker 04:
I don't see that you've alleged that in the complaint.

[00:04:38] Speaker 02:
I'd also add that we were not allowed leave to amend.

[00:04:41] Speaker 02:
It's outside the record that our experts have done testing

[00:04:46] Speaker 02:
And it's part of the class certification record.

[00:04:49] Speaker 02:
They've done testing.

[00:04:50] Speaker 02:
There is corrosion.

[00:04:52] Speaker 02:
That is not in the complaint.

[00:04:54] Speaker 02:
I agree it's not in the complaint.

[00:04:55] Speaker 02:
If we are allowed to amend, which we should have been... You were allowed to amend three times.

[00:05:00] Speaker 02:
That's not accurate, Your Honor.

[00:05:03] Speaker 01:
Oh, okay.

[00:05:04] Speaker 02:
I thought three times.

[00:05:06] Speaker 01:
May I address that point, Your Honor?

[00:05:08] Speaker 01:
All I'm trying to do is get, where do I look in your complaint to find what I need?

[00:05:14] Speaker 01:
Let's go to your benefit of the bargain damages.

[00:05:18] Speaker 01:
Where do you allege benefit of the bargain damages in your third amended complaint?

[00:05:23] Speaker 02:
In the third amended complaint, we say that these safety ties in our home

[00:05:31] Speaker 02:
are going to fail before the end of the useful life.

[00:05:35] Speaker 02:
This is paragraphs 26, 33, 39, 46, and 53.

[00:05:43] Speaker 01:
It's five excerpts of record, 901 through... Well, frankly, the reason I worried about this is the builders were the ones making the bargain.

[00:05:55] Speaker 01:
Your clients weren't.

[00:05:57] Speaker 01:
Well, our clients paid for... If someone didn't get a benefit,

[00:06:01] Speaker 01:
The builders didn't get it.

[00:06:03] Speaker 01:
Your allegations simply talk about avoiding buying the homes from ones from whom you purchased them.

[00:06:13] Speaker 01:
That's what your argument is.

[00:06:16] Speaker 01:
And to me, just to be fair, that doesn't allege a benefit of the bargain.

[00:06:23] Speaker 02:
We are the third party

[00:06:26] Speaker 02:
beneficiary of the express warranty.

[00:06:29] Speaker 02:
The district court found that.

[00:06:31] Speaker 02:
We allege that.

[00:06:32] Speaker 02:
Simpson's witnesses testified to that.

[00:06:34] Speaker 01:
But we're talking about the benefit of the bargain here.

[00:06:36] Speaker 01:
The builders made a bargain.

[00:06:39] Speaker 01:
You bought from the builders.

[00:06:42] Speaker 01:
And all your allegations simply say is that you could avoid buying the homes from the builders from whom you purchased them.

[00:06:51] Speaker 01:
That's the best benefit of the bargain damage you've got.

[00:06:56] Speaker 02:
Well, Your Honor, a lot of manufacturers sell their products through intermediaries.

[00:07:01] Speaker 02:
Almost all manufacturers have wholesalers, distributors, retailers, and that's what happened here.

[00:07:07] Speaker 02:
We did not, as homeowners, buy directly from Simpson, but we bought homes, the most important asset in many people's lives.

[00:07:21] Speaker 01:
and paid our money.

[00:07:23] Speaker 01:
All of that I agree with.

[00:07:24] Speaker 01:
I just wanted to get your best argument that you would make about whether you had any standing at all and especially on the benefit of the bargain damages so you can go on with your other argument if that's the best you have.

[00:07:38] Speaker 00:
Okay, well I I would can I actually can I ask this I thought one of your arguments in reliance using Hicks?

[00:07:46] Speaker 00:
Was that you you are?

[00:07:48] Speaker 00:
Establishing standing because there's an inherent design defect and so there's something inherently defective about the structural ties right now Yeah, yes run under here, which is not a benefit of the wider night Can you explain how you establish standing on those tanks?

[00:08:05] Speaker 02:
Thank you under Hicks

[00:08:10] Speaker 02:
First of all, we properly allege that a foundation should reasonably last the life of the home.

[00:08:15] Speaker 02:
That's Hicks, 89 K, 4th at 923, where the California court says a foundation's useful life is indefinite.

[00:08:24] Speaker 02:
But then more directly to the court's point, Hicks, and this is what we allege, says if

[00:08:33] Speaker 02:
the defect of substantially certain to result in malfunction during the useful life of the product, that suffices.

[00:08:43] Speaker 02:
In the California court, and of course we're here on diversity, the California court goes on to say, if plaintiffs prove their foundations contain an inherent defect, which is substantially certain to result in malfunction during the useful life of the product, they have established a breach of express

[00:09:04] Speaker 00:
and implied warranties and here that's exactly what we've alleged your honor but can you just to be more specific since we have to apply article three standing principles in federal court what is it about an inherently defective foundational product

[00:09:20] Speaker 00:
that gives you concrete and immediate injury or imminent harm.

[00:09:25] Speaker 00:
In other words, your friends on the other side point to TransUnion as why you don't have standing in federal court.

[00:09:33] Speaker 00:
Why are they wrong?

[00:09:36] Speaker 02:
TransUnion, if the bad guys never see the disinformation, that's not a problem for you here.

[00:09:44] Speaker 02:
Right now, we are at risk if there is

[00:09:48] Speaker 02:
Earthquake or when we had Florida in the case in the first minute complaint a hurricane We're at risk right now.

[00:09:57] Speaker 02:
We have diminished Value right now and that is what the district court found 1er 16 That there's economic loss from property damage and diminishing in the home value now when the district court found article 3 standing in the second amendment complaint

[00:10:16] Speaker 02:
District Court said contains products with inherent defects, substantially certain to result in failures during the product's useful life.

[00:10:25] Speaker 02:
Were we to sell the home now, we would have to disclose that there is a safety risk now because there is a defective product and it's a safety defect.

[00:10:36] Speaker 02:
And so that is the Article 3 standing and it dovetails with HICS, as your honor is pointing out.

[00:10:46] Speaker 01:
When you move to breach of warranty... Yes, Your Honor.

[00:10:51] Speaker 01:
Where in your complaint does it allege that the products were installed in conformance with the interior tri-use spec as used in the catalog?

[00:11:04] Speaker 01:
Because you've alleged stuff, but we're really talking about the warranty that the defendant gave to you.

[00:11:15] Speaker 01:
Where does it allege that the products were installed in conformance with the interior dry use spec?

[00:11:24] Speaker 01:
And I read the interior dry use spec because that comes right from the warranty.

[00:11:30] Speaker 02:
Your honor, we allege that we complied with the installation instructions in paragraphs 36 and 41 and that's volume 12.

[00:11:40] Speaker 01:
I'm talking about where do you allege they did something wrong by failing to install our products in conformance with the interior dry use spec because that's what they warrant.

[00:11:56] Speaker 01:
That's what they warranted in the catalog.

[00:11:59] Speaker 01:
So I looked all over in your complaint to say, well, if you don't make that warranty, how are you going to get anything for breach of warranty?

[00:12:08] Speaker 01:
And I never found it.

[00:12:10] Speaker 02:
We're not alleging that the builders did anything wrong, Your Honor.

[00:12:13] Speaker 02:
They're builders of following the instructions of Simpson.

[00:12:19] Speaker 02:
Simpson says that this application

[00:12:23] Speaker 02:
where you have the safety ties that are connecting the foundation to the home so it doesn't fly off if there's an earthquake or hurricane or a quote interior dry environment so you can use the least galvanization product which is their G90 product which has the zinc which is half the size of a human hair which our experts and this is in the records say it's insufficient because the way these products are

[00:12:52] Speaker 02:
installed, and this is in our complaint and in the AOB, I think it's at page 7, they're installed into the concrete at an angle, 45 degree angle.

[00:13:06] Speaker 02:
So the deepest part, you have sufficient concrete cover, but as it goes up to zero where it comes out of the concrete,

[00:13:15] Speaker 02:
you have diminishing concrete cover so it's exposed to the chloride in the air and it fails and it has failed thousands of times and Simpson knows that it has failed thousands of times and that is a defective design that's not the builders fault your honor.

[00:13:32] Speaker 01:
I'm not saying it was the builders fault all I'm trying to do is I'm trying to say they said how it should be installed

[00:13:41] Speaker 01:
They said how it should be done.

[00:13:43] Speaker 01:
You say what you say, and you never say that they were installed according to what they warranted.

[00:13:51] Speaker 01:
And that makes it pretty hard to get a warranty.

[00:13:54] Speaker 01:
And that's all I'm after.

[00:13:55] Speaker 01:
If that's your argument, I'm glad to have it.

[00:13:58] Speaker 01:
Let's go on one further.

[00:14:00] Speaker 01:
Where do you allege that while properly installed, the deterioration was not the result of environmental damage?

[00:14:13] Speaker 02:
We have alleged I didn't see anything in there.

[00:14:17] Speaker 02:
We have alleged that even when it's properly installed that it is

[00:14:24] Speaker 01:
I mean, you've got to suggest that the deterioration is not the result of environmental damage, or it's out of the warranty.

[00:14:38] Speaker 01:
And I didn't find it in your complaint, and that was the worry.

[00:14:43] Speaker 02:
The language that Your Honor is picking up on

[00:14:47] Speaker 02:
applies to It's outside warranty.

[00:14:52] Speaker 02:
Yeah, it applies to outdoor applications for example in Sanctioning asset page one of the excerpts of record

[00:15:05] Speaker 02:
Page 32, the district court says, metal connectors, anchors, and fasteners will corrode and may lose load carrying capacity when installed in corrosive environments.

[00:15:17] Speaker 02:
And it mentions ocean salt there and other environments.

[00:15:21] Speaker 02:
And then it says, especially in outdoor applications.

[00:15:23] Speaker 02:
I see I've got my five minutes buzzers up.

[00:15:26] Speaker 02:
Right.

[00:15:27] Speaker 02:
By definition, it's not an interior dry environment.

[00:15:29] Speaker 04:
The warranty does exclude deterioration due to environmental.

[00:15:34] Speaker 02:
Damage I take it that's where your questions coming from you know every Application in the class it's inside concrete your honor.

[00:15:43] Speaker 02:
They never say inside concrete is an issue They say if it's outside if it's salt there, but then they define our installation in the concrete

[00:15:55] Speaker 02:
as interior dry, and that is how it was involved.

[00:16:01] Speaker 01:
I would like- And I'm sorry to take over your time, but on the UCL, here's another situation which I worried about in your complaint.

[00:16:11] Speaker 01:
Why shouldn't this claim not be dismissed because your allegations don't articulate a specific theory of unfairness under the UCL?

[00:16:23] Speaker 01:
You cite the elements of a balancing test.

[00:16:27] Speaker 01:
You cite the elements of a Camacho test.

[00:16:31] Speaker 01:
But I can't tell what conduct forms the basis of your claim.

[00:16:36] Speaker 01:
Therefore, it would be hard for me, if I were a defendant, to even say how to defend this claim.

[00:16:43] Speaker 01:
Because Doe versus CVS Pharmacy says you've got to tell them what is the basis of your claim.

[00:16:53] Speaker 01:
I didn't find the specific theory of unfairness.

[00:16:59] Speaker 02:
We allege that Simpson knew.

[00:17:02] Speaker 02:
that inadequate concrete cover poses, quote, an elevated risk of corrosion to metal embedded in concrete.

[00:17:10] Speaker 02:
That's at paragraph 113.

[00:17:12] Speaker 02:
We allege that Simpson knew of the defect and continued marketing, selling, and warranting.

[00:17:19] Speaker 02:
We allege that Simpson knew and continued recommending the low.

[00:17:25] Speaker 01:
So are you making these allegations as it relates to the balancing test?

[00:17:30] Speaker 01:
The tethering test, the Camacho test, that's the UCL.

[00:17:36] Speaker 01:
And Doe says that the district court should deny your UCL claim, where there's just a conclusory recitation of a legal standard, but you don't clarify what conduct the plaintiffs claimed was unfair.

[00:17:52] Speaker 01:
So that's why I'm trying to get you to focus in on one of those tests.

[00:17:56] Speaker 02:
Yes, we satisfy all three tests.

[00:17:58] Speaker 02:
Your Honor, one, it is tethered to the warranty.

[00:18:02] Speaker 02:
Two, under Camacho, there is a substantial injury.

[00:18:05] Speaker 04:
I think the problem is just very conclusory nature of the allegations.

[00:18:09] Speaker 04:
But you're down to a couple of minutes, and I know you wanted to save time for rebuttal.

[00:18:14] Speaker 02:
There's one last point.

[00:18:15] Speaker 02:
May I make before I sit down, Your Honor?

[00:18:17] Speaker 02:
Sure.

[00:18:19] Speaker 02:
The district court concluded, based on one sentence,

[00:18:25] Speaker 02:
in a hundred ninety three page catalog meant for builders that simpson does not provide a warranty for the life of the home and this is uh... it eighty are eighteen forty six

[00:18:38] Speaker 02:
focused on both the orders, focused on the first sentence, that Simpson says they can't estimate.

[00:18:45] Speaker 02:
And both district courts ignore the third sentence that says, as long as Simpson's recommendations are followed, Simpson stands behind his product performance and our standard warranty.

[00:18:58] Speaker 02:
Simpson ignored that third sentence in its briefing, and both district courts ignored it.

[00:19:04] Speaker 02:
And Simpson made up this phrase called

[00:19:08] Speaker 02:
Corrosion warnings it does not exist in any of this Simpson materials they made it up they put in their briefs and the courts adopted it and That phrase that is not in their materials 32 times in the sanctions order 32 times the district court says warnings, and I just before I sit down I need to please say we take this extremely seriously and

[00:19:34] Speaker 02:
to be sanctioned.

[00:19:36] Speaker 02:
That like you, we feel like this is a calling.

[00:19:39] Speaker 02:
We're office of the court.

[00:19:40] Speaker 02:
We're extremely serious about the sanctions.

[00:19:44] Speaker 02:
And we believe that we have a meritorious case for homeowners who were cheated.

[00:19:49] Speaker 02:
Thank you.

[00:19:50] Speaker 02:
Thank you, counsel.

[00:19:51] Speaker 02:
My 30 seconds.

[00:19:53] Speaker 04:
I'll put a couple of minutes back on the clock for rebuttal.

[00:20:03] Speaker 03:
Good morning, Your Honor.

[00:20:04] Speaker 03:
Sheridan Caldwell of Horvitz and Levy on behalf of Simpson.

[00:20:07] Speaker 03:
May I proceed?

[00:20:08] Speaker 04:
Yes, please.

[00:20:09] Speaker 03:
I'll go ahead and jump right in on standing, since the court seems interested in that.

[00:20:14] Speaker 03:
As Judge Smith pointed out, plaintiff's allegations of injury are entirely conclusory.

[00:20:21] Speaker 03:
At this point in the case, it's the third amended complaint.

[00:20:26] Speaker 03:
As this court is aware, this case already went up, has already been up to this court.

[00:20:32] Speaker 03:
That was on class certification.

[00:20:34] Speaker 03:
Plaintiffs got a lot of discovery in order to bring that class certification motion.

[00:20:39] Speaker 04:
Well, counsel today referenced some expert analyses that didn't get included.

[00:20:45] Speaker 04:
I take it on the leave the men question you're saying too little too late?

[00:20:49] Speaker 03:
Yes, your honor.

[00:20:50] Speaker 03:
That was information that they had before they filed the third amended complaint, which they didn't file until the case was remanded back down to the trial court after it came up.

[00:21:02] Speaker 03:
leave to amend would be futile, both because plaintiffs had the information that they now claim they could have added to the complaint.

[00:21:09] Speaker 03:
They chose not to do so.

[00:21:11] Speaker 00:
I was trying to think of what might be analogous to this.

[00:21:22] Speaker 00:
Let's say someone was sold a home with a cracked foundation.

[00:21:25] Speaker 00:
Is that a future harm where someone wouldn't have standing because they have to go and repair it at some point in the future, even if it might not fail immediately?

[00:21:34] Speaker 00:
Or is that a concrete and immediate injury now?

[00:21:39] Speaker 03:
It sounds to me, if on its face all it is, is the bare possibility that the product will fail in the future.

[00:21:47] Speaker 03:
That is a mere risk of future harm under TransUnion.

[00:21:50] Speaker 00:
Even with a concrete, I mean, because TransUnion, you had these credit reports that never saw the light of day.

[00:21:55] Speaker 00:
But if you are sold a home with a cracked foundation, you have to do something about it, right?

[00:22:04] Speaker 00:
You're not going to sit around and hope that an earthquake or something else doesn't strike and decimate your house.

[00:22:11] Speaker 00:
Why isn't this in the same boat as that in order to establish standing?

[00:22:18] Speaker 00:
Now, whether they can prove up their case is a completely different matter, but for standing purposes, why aren't those equivalent?

[00:22:25] Speaker 03:
Right your honor well first of all and I think it's already been established that plaintiffs have not actually alleged that there has been any damage to their homes, but even assuming that there were as in many of the cases that plaintiffs cited in their reply brief on standing all of which were pre trans union cases so.

[00:22:43] Speaker 03:
To the extent they suggest the future harm is enough that aspect of the opinion has been overruled But even for kind of a current loss of value or overpayment theory The plaintiffs in all of those cases alleged far more than the plaintiffs here They alleged that there was a history of failure of the products that they received less or that they would not be able to sell their products resell the products for as much and

[00:23:07] Speaker 04:
Well, Council's arguing precisely that, that there have been numerous failures and in fact multiple lawsuits filed against Simpson and other home developers.

[00:23:18] Speaker 04:
How do you respond to that?

[00:23:20] Speaker 03:
I respectfully disagree that they've alleged that there have been any failures, Your Honor.

[00:23:23] Speaker 03:
They've identified corrosion in products in other homes.

[00:23:27] Speaker 04:
Well, they're arguing that Simpson's really on notice because of failures in other cases and they point to other lawsuits that have been filed.

[00:23:36] Speaker 03:
Even by pointing to those other lawsuits, plaintiffs haven't actually identified any home where the product has failed.

[00:23:43] Speaker 03:
And by failed, plaintiffs agree the definition here is that the products are no longer able to carry their load capacity in high wind or earthquakes events.

[00:23:53] Speaker 03:
Corrosion does not equal failure and that's explicitly stated in Simpson's catalog, which is incorporated into the complaint.

[00:24:01] Speaker 00:
I think Simpson says corrosion does not necessarily equal failure.

[00:24:05] Speaker 00:
I mean, I think Simpson does acknowledge if something corrodes enough,

[00:24:09] Speaker 00:
it'll fail.

[00:24:11] Speaker 00:
It won't bear the load that it's meant to bear, right?

[00:24:14] Speaker 00:
So I guess it's a matter of degree.

[00:24:16] Speaker 00:
If these products are, if I understand plaintiff's case, they're saying that because of this low galvanized coverage, because of this not insufficient concrete cover, these are inherently defective even if they were installed internally

[00:24:31] Speaker 00:
in the way that Simpson recommends, and that is what makes these things to prematurely fail.

[00:24:39] Speaker 00:
Like, that's the inherent defect behind them.

[00:24:42] Speaker 03:
Right.

[00:24:42] Speaker 03:
Well, I think Your Honor's question, first of all, hints at an important detail, which is if they were installed correctly, which plaintiffs

[00:24:50] Speaker 03:
do not allege actually that they weren't installed in compliance.

[00:24:55] Speaker 00:
I wanted to ask about that.

[00:24:57] Speaker 00:
The third amended complaint talks about, the plaintiffs allege for each plaintiff home that the products were embedded in the concrete foundation, nailed to structural members and covered with house wrap and exterior cladding in original construction pursuant to Simpson's installation requirements for its applicable interior dry service specifications.

[00:25:17] Speaker 00:
And that they actually do meet the specifications for interior application.

[00:25:22] Speaker 00:
Why isn't that on a rule eight basis sufficient to allege that they were installed according to specifications under the warranty?

[00:25:29] Speaker 03:
Because, Your Honor, as alluded to by Judge Smith and when already the warranty includes far more specifications than just that they were installed in an interior dry setting.

[00:25:40] Speaker 03:
There are four things that plaintiffs should have alleged.

[00:25:43] Speaker 03:
First, that the products were properly specified based on the conditions of the home and the local environment of the home.

[00:25:50] Speaker 03:
They have not done that.

[00:25:52] Speaker 03:
Second, that the products were properly specified.

[00:25:55] Speaker 00:
What is that?

[00:25:56] Speaker 00:
I mean, I sort of see this as matters of triable proof.

[00:26:02] Speaker 00:
And I take counsel's point that this is called corrosion information.

[00:26:07] Speaker 00:
and the company is indicating that there are many variables involved in what might lead to corrosion.

[00:26:14] Speaker 00:
But when I read this warning, the very first sentence says, metal connectors, anchors and fasteners will corrode and may lose load carrying capacity

[00:26:24] Speaker 00:
when installed in corrosive environments or exposed to corrosive materials.

[00:26:29] Speaker 00:
So the entire framing of that warning is corrosive environments, corrosive materials.

[00:26:35] Speaker 00:
What plaintiffs are alleging is we're complying with Simpson's interior installation specifications, meaning a non-corrosive environment, and we installed things in this particular way.

[00:26:48] Speaker 00:
Now, again, whether they can prove up their case or not is a different question, but it seems as if for rule eight purposes, they adequately informed defendants the nature of their claims and what they intend to try to prove at trial.

[00:27:00] Speaker 00:
Why is that insufficient for rule eight purposes?

[00:27:03] Speaker 03:
Because, Your Honor, in order to plead a warranty claim, plaintiffs were required to show that the conditions of the warranty were met, that the warranty even applies here.

[00:27:11] Speaker 03:
And even just taking, even if we focus in on plaintiffs allegation of interior dry,

[00:27:16] Speaker 03:
for example, and we look at page 1846 of the record, which is part of the catalog incorporated into the complaint.

[00:27:26] Speaker 03:
And again, that's actually reproduced in the complaint at paragraph 91.

[00:27:30] Speaker 03:
That has a handy little chart that shows which settings permit which type of fasteners.

[00:27:36] Speaker 03:
And here, the fasteners that issue are the low, galvanization G90.

[00:27:40] Speaker 03:
So if we look at the chart,

[00:27:42] Speaker 03:
There is a row for interior dry.

[00:27:44] Speaker 03:
But if we look at the columns, only two types of wood can even be used in order for it to qualify for the low galvanization.

[00:27:53] Speaker 03:
And plaintiffs here don't even allege what type of wood was used in their home, even to show that.

[00:27:59] Speaker 00:
So we're talking about something that hasn't.

[00:28:02] Speaker 00:
And I take your point.

[00:28:03] Speaker 00:
Maybe class action discovery might change my mind about it.

[00:28:05] Speaker 00:
But this is pre-discovery.

[00:28:07] Speaker 00:
These are at the pleading stage.

[00:28:10] Speaker 00:
And there are, I guess, further matters of proof as to what happened in these particular homes, what kind of wood was applied or anything else.

[00:28:20] Speaker 00:
Your view is that the allegations that they've made for interior dry use, that for each of these plaintiffs, which reflect these interior dry use specifications, that that's not sufficient, that you would have to get into the type of treated wood that the builder used for each and every home.

[00:28:40] Speaker 00:
That seems a little bit more than what Rule 8 would require in my view.

[00:28:44] Speaker 00:
That seems like you're getting more into like Rule 9 fraudulent allegations or something, that you need something more specific.

[00:28:51] Speaker 03:
Respectfully your honor plaintiffs have had discovery on this issue so the fact that there are not more specific allegations about their homes At this point should be assumed to be intentional most likely for purposes of class certification so that there's less obvious differences between the homes but even if we go look past the issue about whether the conditions of the warranty were met plaintiffs also haven't alleged that the warranty has been breached and

[00:29:15] Speaker 03:
They haven't shown that, going back to my discussion with Judge, when there has not been any identification of any products that have failed in any home, plaintiffs make conclusory allegations that the products have failed in homes, but even in doing so, they point only to pictures of corrosion.

[00:29:34] Speaker 00:
What about the Hicks case?

[00:29:37] Speaker 03:
just whether the Hicks case applies.

[00:29:42] Speaker 00:
For properly alleging a breach of the express warranty.

[00:29:44] Speaker 00:
Why isn't an inherently defective product that it's substantially likely to fail over its useful life sufficient to allege a breach in that circumstance?

[00:29:56] Speaker 03:
That's, first of all, not the test that California courts have applied when actually looking to what a plaintiff needs to show on the merits.

[00:30:02] Speaker 03:
But even under Hicks, plaintiffs have not identified either an inherent defect because they haven't connected the dots between corrosion and definite failure.

[00:30:12] Speaker 03:
Even the documents incorporated into the complaint show that it is possible to stop corrosion.

[00:30:18] Speaker 03:
Exhibit three discusses mitigation of corrosion and how that can be stopped or reversed So corrosion does not necessarily equal failure So there's no defect and then plaintiffs also can't show even if there was a defect that it's substantially certain to manifest in their home Which is what Hicks requires because again if these products are installed in thousands of homes, and we have no Insight or identification of any of them much less a high number of them

[00:30:48] Speaker 00:
That have failed certainly none of the products and plaintiffs own homes have failed Then there's no indication that for each of these plaintiffs It is substantially certain that they will fail in your in your view that pointing to the other cases in Hawaii or California These other ones that are also pending would not be enough to show at least for plausibility purposes That failures have been happening on a mass level

[00:31:13] Speaker 03:
Right, Your Honor, certainly not in terms of a failure of the product itself.

[00:31:19] Speaker 03:
Most of those other lawsuits are actually against the builders of the home.

[00:31:22] Speaker 03:
alleging that the products were not properly installed.

[00:31:25] Speaker 03:
And that's both an issue for Article 3 and for plaintiffs pleading of both of their claims as a traceability problem because plaintiffs haven't alleged that the products were properly installed in their homes under the correct conditions.

[00:31:39] Speaker 04:
The district court had pointed out that the vast majority of those other lawsuits were against developers and builders for improper installations.

[00:31:47] Speaker 04:
Does that mean that there were no inherent design defect claims against Simpson in those other cases?

[00:31:52] Speaker 03:
I'm not aware of the specific allegations in those cases, but my understanding is that they were focused on misinstallation.

[00:32:01] Speaker 03:
And that's really actually more of what the record points to here.

[00:32:04] Speaker 04:
Right, improper installation.

[00:32:06] Speaker 04:
In the Gentry case, which is the one out of Hawaii, there was a question of fact determination as to the design defect question.

[00:32:15] Speaker 04:
Was that ever settled in that other case, one way or the other?

[00:32:18] Speaker 03:
I apologize, Your Honor.

[00:32:20] Speaker 03:
I don't know the answer to that question.

[00:32:22] Speaker 03:
But certainly here plaintiffs could have if there was if there were favorable conclusions drawn in that case Those could have been included in third amended complaint.

[00:32:31] Speaker 03:
They weren't plaintiffs again, if anything have pointed to allegations that suggests that if there was corrosion it was due to a

[00:32:40] Speaker 00:
Misinstallation can I turn you to the rule 11 sanctions issue?

[00:32:44] Speaker 00:
I was having difficulty trying to understand what about the first amendment complaint was?

[00:32:51] Speaker 00:
sanctionable Versus the allegations in the third amended complaint, and so I was I was looking very carefully at this corrosion information Description which seems to be a large part of the basis behind it and

[00:33:05] Speaker 00:
and I had read that first sentence to you before, it seems to me that the magistrate judge was dipping into what might be a more triable question as to whether plaintiffs are adequately alleging if something corrodes in a corrosive environment, whether that should extend to a non-corrosive installation.

[00:33:31] Speaker 00:
In other words,

[00:33:33] Speaker 00:
It's not necessarily inconsistent.

[00:33:35] Speaker 00:
Plainness allegations are not necessarily inconsistent with this corrosion information that even if you follow Simpson's instructions for internal dry use installation.

[00:33:46] Speaker 00:
Their claim is that because this galvanization coating is too thin, it's going to prematurely corrode and cause more failures.

[00:33:58] Speaker 00:
Even when you're installing in a non-corrosive environment.

[00:34:02] Speaker 00:
This warning doesn't seem to speak to that question, much less make it baseless.

[00:34:08] Speaker 00:
Why was it appropriate to sanction plaintiffs for those allegations?

[00:34:13] Speaker 03:
Plaintiffs did make statements that were flatly contradictory to the catalog information.

[00:34:19] Speaker 00:
Like what, for example?

[00:34:20] Speaker 03:
For example, the facts said that the warranty led homeowners to believe the products were, quote, capable of resisting corrosion for the entire life of the home.

[00:34:30] Speaker 03:
When, in fact, the catalog says, it is common to see some corrosion on connectors.

[00:34:35] Speaker 03:
The presence of some corrosion does not mean that load capacity has necessarily been affected or that a failure will occur.

[00:34:42] Speaker 00:
But I take your point.

[00:34:45] Speaker 00:
At the same time, plaintiffs are also talking about a difference between interior versus exterior.

[00:34:51] Speaker 00:
And plaintiffs make this point that if these things are being installed at the foundation, concrete is poured over, and then they put up drywall, you're not inspecting them again.

[00:35:01] Speaker 00:
You're not maintaining.

[00:35:03] Speaker 00:
There's no expectation that you're going to replace them.

[00:35:05] Speaker 00:
And so it's just stuck there.

[00:35:10] Speaker 00:
And so plaintiff's argument is that's basically coextensive with the foundation itself.

[00:35:15] Speaker 00:
Why is it baseless to argue that that would mean that the warranty extends to the life of the foundation, even though I take Simpson's point that no, it's not.

[00:35:27] Speaker 00:
We said we can't predict the useful life of this product.

[00:35:31] Speaker 00:
Why is that a basis for a sanctions order as opposed to disputed questions of fact?

[00:35:37] Speaker 03:
Respectfully, Your Honor, under the abuse of discretion standard, the trial court did identify a number of issues with the complaint.

[00:35:47] Speaker 03:
If the court is concerned more about whether plaintiffs have connected the dots between corrosion and failure, I'd be much more interested in exploring that on the merits rather than the sanctions question.

[00:35:58] Speaker 00:
But the only reason why is we see all the time inadequate pleadings.

[00:36:05] Speaker 00:
People have a complaint.

[00:36:07] Speaker 00:
It's not good enough.

[00:36:09] Speaker 00:
The court allows it to amend.

[00:36:10] Speaker 00:
And in this case, it was amended three times.

[00:36:13] Speaker 00:
It's unusual to me to see

[00:36:16] Speaker 00:
a sanctions order over an earlier complaint when what I see in a later complaint are not two dissimilar allegations to what they were ostensibly sanctioned for.

[00:36:29] Speaker 00:
So I'm just scratching my head as to why the court decided to sanction someone for what may not have been the best written complaint in the first place.

[00:36:39] Speaker 00:
And why isn't that an abuse of discretion?

[00:36:41] Speaker 01:
I don't want you to miss answering this question, but

[00:36:45] Speaker 01:
The thing that worried me a little bit about this district court order is that the award was based on the declaration of defense counsel.

[00:36:58] Speaker 01:
and then the court reduced the award by half.

[00:37:03] Speaker 01:
So I think it's quite important to answer this question because really the award only came because there was a declaration of defense counsel.

[00:37:12] Speaker 01:
Now I'm not sure you were the defense counsel, but whoever that defense counsel was made, if you will, the declaration,

[00:37:23] Speaker 01:
Magistrate Court reviewed it, reduced it by half.

[00:37:27] Speaker 01:
That's why I think this question is important, and I was prepared to ask you the same question.

[00:37:33] Speaker 03:
Sure, Your Honor.

[00:37:35] Speaker 03:
Both of Your Honors, the first amended complaint, again, although it does echo similar themes to what are now in the third amended complaint, the third amended complaint is still deficient on most of the same points.

[00:37:47] Speaker 03:
But the first amended complaint didn't even include any information about, for example,

[00:37:52] Speaker 03:
which products were installed in plaintiff's home, what the definition of the products at issue were.

[00:37:57] Speaker 03:
It I believe included a hyperlink to the catalog, but it did not actually quote or acknowledge the warranty claims itself.

[00:38:07] Speaker 03:
So there were a number of reasons that the complaint was factually baseless.

[00:38:11] Speaker 03:
But again, I'd be much more interested in discussing why those are still present in the current version of the third amended complaint.

[00:38:18] Speaker 03:
And those are insufficient, both for standing purposes and for purposes of plaintiffs' claims.

[00:38:25] Speaker 03:
If the court found that the

[00:38:28] Speaker 03:
Declaration was insufficient even under this deferential standard of review We would understand but on the merits plaintiffs still have not shown that even though now They've said they have looked and they said they can see these products are in their home They have not done any testing to identify or

[00:38:46] Speaker 03:
If there was testing, they intentionally have not included it in the complaint at this point about whether there was any corrosion on their own homes, whether there's any environmental factors that affected those homes, and whether that can be traceable actually to Simpson's actions.

[00:39:04] Speaker 00:
Can I ask you one last question?

[00:39:06] Speaker 00:
Can you just briefly tell me what was in the nature of the class action, the class discovery?

[00:39:11] Speaker 00:
Like what kind of information was disclosed during that discovery process?

[00:39:17] Speaker 03:
There was actually testing done of plaintiff's homes.

[00:39:20] Speaker 03:
And this is in the record of actually the last appeal, obviously, because that was up on class certification.

[00:39:26] Speaker 03:
There was testing of plaintiff's homes.

[00:39:29] Speaker 03:
I think the court can draw its own conclusions about why those were not included in the third amended complaint later.

[00:39:34] Speaker 03:
There was also expert evaluations of the sites of the homes.

[00:39:39] Speaker 03:
And I believe also whether we would expect that these products would fail

[00:39:46] Speaker 03:
Moving to the future so in conclusion we respectfully request the court of firm.

[00:39:51] Speaker 03:
Thank you.

[00:39:52] Speaker 02:
Thank you counsel Very quickly your honors a paragraph 123 of the complaint

[00:40:17] Speaker 02:
We say that this product has failed in the same way in thousands of homes for well more than the last decade.

[00:40:26] Speaker 02:
In paragraph 127, when we talk about the Gentry case, my co-counsel were in the Gentry case.

[00:40:33] Speaker 02:
We say they sued Simpson.

[00:40:38] Speaker 02:
That was the focus of that case, a design defect.

[00:40:41] Speaker 04:
You're talking about the Hawaii case?

[00:40:43] Speaker 02:
Yes, Your Honor.

[00:40:44] Speaker 04:
So at one point there was a trialable question of fact on the design defect question.

[00:40:48] Speaker 04:
Was that issue ever settled in that case?

[00:40:50] Speaker 02:
No, the case was settled, Your Honor.

[00:40:52] Speaker 02:
Simpson settled, but concerned the same.

[00:40:54] Speaker 04:
So that would be no.

[00:40:55] Speaker 04:
There's no finding that there was, in fact, an inherent design defect.

[00:40:59] Speaker 02:
No finding, Your Honor, but it shows the knowledge, which goes, among other things, to the unfairness.

[00:41:10] Speaker 02:
Our expert Paul Brown did find damage at each of the plaintiff's homes.

[00:41:18] Speaker 02:
This is seven excerpts of record at 1421.

[00:41:24] Speaker 02:
Eight excerpts.

[00:41:26] Speaker 02:
This is outside the complaint.

[00:41:28] Speaker 02:
It is outside the complaint, Your Honor.

[00:41:31] Speaker 02:
And under Keegan, the court should take after acquired evidence

[00:41:39] Speaker 02:
into consideration in looking at the sanctions.

[00:41:44] Speaker 02:
We're in a very unusual posture here where the district court who sanctioned us for the first amended complaint allowed us to proceed with our claims for express warranty and UCL unfairness in the second amended complaint.

[00:42:08] Speaker 02:
And then in the third amendment complaint, all we did was change some plaintiffs, because some of them were frankly chilled by the sanctions order.

[00:42:16] Speaker 02:
The third amendment complaint, and then another district court decided we hadn't stated a claim.

[00:42:20] Speaker 02:
Makes no sense, Your Honor.

[00:42:22] Speaker 02:
Respectfully makes no sense.

[00:42:25] Speaker 02:
And we would urge the court to please reverse, at the very least, allow us to amend, because we did not have four bites at the apple, Your Honor.

[00:42:33] Speaker 02:
We filed an amendment complaint before there was ever a motion to dismiss.

[00:42:38] Speaker 02:
And then in the second amendment complaint, our claims were upheld.

[00:42:42] Speaker 02:
And then the third amendment complaint, the same claims were thrown out.

[00:42:48] Speaker 02:
So in fairness, we should have been allowed leave to amend.

[00:42:52] Speaker 02:
Thank you very much for your time.

[00:42:53] Speaker 02:
We appreciate it.

[00:42:54] Speaker 04:
Thank you very much.

[00:42:55] Speaker 04:
Both of your arguments this morning have been very helpful.

[00:42:58] Speaker 04:
The case is submitted, and we are in recess until tomorrow morning at 9.