Holding Independent Certification Firms Responsible for Their Misrepresentations
INTRODUCTION
On May 23, 2022, a judge in the Southern District of Florida entered an injunction ordering PFS-TECO, an independent certifier of building materials, to revoke all PS-1 stamps issued to plywood mills in Brazil.[1] The injunction also barred PFS-TECO from issuing PS-1 stamps to any plywood mill in Brazil. In its complaint, the U.S. Structural Plywood Integrity Coalition alleged that PFS-TECO intentionally or negligently certified faulty plywood from thirty-six Brazilian mills, causing the widespread dissemination of defective structural plywood throughout the U.S.[2]
Brazil is one of the world’s foremost manufacturer and exporter of construction pine plywood.[3] The plywood’s cheap cost makes it much more attractive to builders than U.S.-made plywood. With the widespread use of Brazilian plywood in U.S. buildings, a faulty certification could have dire structural consequences. If the faulty plywood were to fail, causing damage to a building, who should be liable for the loss? When a firm is found to have improperly certified a building material, and that building material fails, the firm should be liable to the owner for the loss, not the builder who used the material.
Part I of this Article introduces the system for certifying foreign building materials for use in the U.S. It will also introduce a general process used by many certification firms in certifying foreign-made building materials, and it will introduce the specific mark used in certifying structural plywood, the PS-1 Mark. Part II will discuss U.S. Structural Plywood Integrity Coalition v. PFS Corporation, the lawsuit leading to the permanent injunction on PFS-TECO’s PS-1 stamp. Finally, Part III of this Article will advocate for the certifier of foreign materials to bear the risk of loss if their material fails and is found to not meet its certified standard.
I. A System for Certifying Foreign Materials for Use in the United States
Most American construction projects could not be completed without the help of foreign materials. Countries such as China have a large market for the mass production of building materials. This allows them to produce materials at a much lower cost as compared to domestic manufacturers. In turn, wholesalers, developers, owners, and contractors are able to purchase the materials at a lower cost, thereby lowering the overall cost of construction. Some of the most common construction imports include steel products, wood products, drywall, siding, roofing, flooring, plastics, and ceramics.[4] With a wide variety of materials flowing into American construction from foreign countries, independent certification firms have tasked themselves with ensuring all building materials meet a minimum standard.
A. OSHA’s Nationally Recognized Testing Laboratories and Their Certification Process
The United States Occupational Safety and Health Administration (OSHA) recognizes twenty-one firms across the globe as Nationally Recognized Testing Laboratories (NRTL).[5] An NRTL is a private sector organization that is authorized to “perform certification for certain products to ensure that they meet the requirements of both the construction and general industry OSHA electrical standards.”[6] The certification process is not the same for every firm; each firm has its own independent process that OSHA recognizes. Once the firm certifies a product, the product’s manufacturer is authorized to place a mark on the product, signaling its compliance with the specific OSHA standards for that product. Notably, not every foreign or domestic building material needs to be certified by an NRTL. 29 C.F.R. § 1910 contains specific materials and products that need to be certified as meeting OSHA standards before they are used in construction projects.[7] Common materials used in construction projects that must be certified by an NRTL include electrical conductors or equipment; propane gas appliances and various pipes, valves, and fittings; and scaffolding and other lift machines.[8]
Intertek is one of the world’s leading building product certification firms and one of the twenty-one NRTLs recognized by OSHA. Intertek’s certification mark, the ETL Mark, is proof of compliance with all North American safety standards.[9] The certification process starts when a manufacturer submits “product literature” and certification paperwork to Intertek for review. Next, the manufacturer must send product samples for review by the firm to ensure compliance with all relevant safety standards. Finally, the manufacturer must schedule a factory audit. During the audit, Intertek will ensure that the manufacturer’s production process is set up in a way that guarantees every product will comply with the relevant safety standards.[10] When the manufacturer passes the factory audit, Intertek will grant it permission to use the ETL Mark on its building materials. This process not only ensures the manufacturer is in compliance with all federal regulations, it also ensures the ETL Mark is applied uniformly across multiple manufacturers. This helps protect Intertek’s reputation and the integrity of the mark.
B. Materials That Do Not Require NRTL Certification
OSHA maintains supervision over its NRTLs to ensure that they remain compliant with its testing and certification procedures. Most materials used in construction do not require an NRTL to certify their compliance with federal regulations.[11]The materials requiring certification are materials used in inherently dangerous situations. Notably, raw materials do not require NRTL to certify their compliance with OSHA standards before they are used in construction projects.
Raw materials typically have their own certification systems. In the steel industry, for example, ASTM International certifies steel and other metal products to ensure their compliance with international standards for quality.[12] Additionally, ASTM certifies other building materials, such as cement and concrete, roofing materials, and insulation to name a few.[13]Plywood is not a building material that requires certification from an NRTL. Thus, there is not a federal certification requirement that all plywood must meet. Independent firms can certify foreign plywood without gaining NRTL status through OSHA.
C. PS-1 Plywood Certification Mark
The PS-1 Mark designates structural plywood that meets standards proffered by the U.S. Department of Commerce.[14]Notably, the PS-1 Mark is a voluntary standard; all plywood used in construction in the U.S. is not federally required to meet the standard. Despite this, these standards have become established trade customs. As a result, the PS-1 grade is required by most building codes across the United States.[15] The PS-1 grade is specifically required because it designates the strongest plywood that is made from the strongest species of trees. The PS-1 Mark is a strong form of advertising for domestic and foreign manufacturers because it signals to builders that the plywood meets the standards required by building codes.
Although the PS-1 rating is required by most building codes, any firm can issue the rating. Since the Department of Commerce has no regulatory power in the enforcement of these standards, firms issuing the gradings do not have to be approved by the government before giving the rating, unlike OSHA’s NRTLs. PFS-TECO—the Wisconsin based firm subject to an injunction preventing it from issuing PS-1 Marks—is one of these firms.
The PS-1 Mark provides a wide array of information to builders about specific pieces of plywood. Specifically, the Mark will designate the grade of the plywood, which tells the builder how the plywood can be used; the strength of the plywood; the species of wood used in manufacturing; the span rating of the plywood; its strength; its thickness; the mill number of the actual manufacturer; and whether the plywood is suitable for interior or exterior use.[16]
All of the information provided by the PS-1 Mark is relevant to a builder. The Mark tells the builder specifically how this piece of plywood can be safely used in the construction project. Pieces of plywood that contain a false or misleading PS-1 Mark can be dangerous if they are used in construction. Plywood wrongly certified to be suitable for exterior uses could cause flooding or structural damage if they do not actually meet that standard. A piece wrongly certified to a certain strength rating could splinter if placed under a greater strength than it could actually withstand. A piece wrongly graded for use in roof construction could cause a cave-in if it should not be used in that manner. All in all, it is important for the information included on a PS-1 mark to be accurate in order to protect the owner from any problems with its construction project.
II. U.S. Structural Plywood Integrity Coalition v. PFS Corporation and its Effects
The 2022 case U.S. Structural Plywood Integrity Coalition v. PFS Corporation placed the PS-1 Mark in the national spotlight.[17] Plaintiffs were a group of ten companies that manufacture PS-1 grade plywood in the United States. Defendant, PFS-TECO, is the sole licensor of the PS-1 Mark to thirty-six Brazilian plywood manufacturers that export plywood to the U.S. Plaintiffs allege that Defendant failed to perform “the testing and quality-assurance inspections that the PS-1[] standard requires.”[18] They argued that the fast-growing pine plantations of southern Brazil made it impossible to consistently manufacture PS-1 grade plywood because the accelerated growth rate of the trees inevitably results in weaker wood. In 2018 and 2019, test results of Brazilian plywood certified by Defendant showed the plywood failed to meet PS-1 standards. Plaintiffs asserted two claims: a claim under the Lanham act, alleging Defendant’s certification of Brazilian plywood amounted to false advertising, and a negligence claim, alleging Defendant’s false certification caused economic injury to Plaintiffs.[19]
On March 3, 2022, upon hearing Defendant’s motion to dismiss, the U.S. District Court for the Southern District of Florida held that Defendant failed to meet its burden of proving the complaint did not state a claim that was plausible on its face. On Plaintiff’s first claim, the court held the PS-1 Marks could constitute commercial advertising within the Lanham Act, Defendant’s marks could amount to false or misleading statements regarding the quality of wood, and Defendant’s false or misleading statements could be the cause of Plaintiff’s economic injury. On the negligence claim, the court held that Plaintiffs sufficiently plead Defendant’s conduct “created a general zone of foreseeable danger or harm.” Therefore, the court denied Defendant’s motion to dismiss both counts.
Unfortunately, this case never went to trial to determine whether PFS-TECO was liable to Plaintiffs for false advertising or negligence based on the use of PS-1 Marks on Brazilian plywood. On May 23, 2022, two months after the motion to dismiss hearing, the parties settled and entered a stipulated final judgement.[20]
The settlement agreement contained a permanent injunction against PFS-TECO. It ordered PFS-TECO to revoke all PS-1 stamps issued to plywood manufacturers in southern Brazil, and it permanently enjoined PFS-TECO from issuing any additional PS-1 stamps to manufacturers in Brazil. In order for the injunction to be lifted, PFS-TECO must demonstrate to the court that it has performed sufficient testing of the tree species to be used in PS-1 grade plywood, has determined that those species will adequately meet PS-1 standards, and has put in place measures for the inspection and testing of the manufacturers to ensure they will continue to meet PS-1 standards. The settlement agreement contained no findings of fact, however, so we do not know whether these Brazilian manufacturers were actually improperly certified.
Although the injunction bars only one U.S. firm from issuing PS-1 stamps to only Brazilian plywood manufacturers, the effect of the injunction could still have lasting effects on the construction industry. Brazilian plywood makes up eleven percent of the U.S. supply.[21] And PFS-TECO was the sole licensor of the PS-1 stamp to thirty-six manufacturers in Brazil.[22] If these manufacturers could not change their manufacturing process to become PS-1 compliant, they would have to find another U.S. firm to certify their faulty plywood. This, they were able to accomplish.
Shortly after the injunction took effect against PFS-TECO, a new U.S. firm began issuing PS-1 stamps to the Brazilian plywood manufacturers effected. Forestwood Industries began issuing PS-1 stamps to the Brazilian mills that used to be PFS-TECO clients. The U.S. Structural Plywood Integrity Coalition then filed a request for a preliminary injunction against Forestwood.[23] It argued that Forestwood’s certification of this plywood frustrated the purpose of the original injunction. It argued that these manufacturers did not change anything; their manufacturing process remained the same, and Forestwood simply stepped in to fill the void that PFS-TECO created. Forrestwood provided a way for these manufacturers to remain PS-1 certified and to continue selling their plywood in the United States. At the time of writing this Article, there has not been a ruling on the Coalition’s request for a preliminary injunction. Nevertheless, the court should issue the injunction for the same reasons it enjoined PFS-TECO—Forestwood is incapable of ensuring this plywood is actually PS-1 compliant, and faulty, misrepresented plywood could cause problems for the U.S. construction industry.
III. Who Should Bear the Risk of Faulty, Misrepresented Building Materials Failing?
If a builder uses faulty, misrepresented PS-1 grade plywood in a project and that wood fails causing damage to the building, which party should risk of loss? The owner of the build would normally have a variety of claims against the builder for use of defective materials. However, the builder believed that the materials they were using were, in fact, not defective. When a builder relies on an independent third party’s certification of building materials and that certification turns out to be improperly made, the certification firm should be liable to the builder in a lawsuit for damages.
Ordinarily, the owner would have a claim against the builder for damages resulting from defective building materials. The owner’s breach of warranty claim would be the most popular. For example, the American Institute of Architects sample contract A201, section 3.5.1 warrants that the materials used in construction will be of good quality.[24] Here, the builder would be responsible to the owner if the construction project is found to have defective materials. But what if the builder thought the materials were of good quality? Further, what if the materials actually had PS-1 Marks, signaling to the builder that they were of good quality? In a case where a builder relies on a mark that signifies a certain quality of material, he should not be liable to the owner if the material turns out to be of a lesser quality.
Further, the certifier of the building material would be liable to the builder in an action for fraud. An action for fraud against the certifier could be “actual” or “constructive.”[25] With constructive fraud, intent is not required.[26] Liability may be based on a negligent or even innocent misrepresentation.[27] This is likely the type of fraud that PFS-TECO could be liable for. It did not actually know that the plywood produced by the Brazilian manufacturers was not PS-1 compliant. However, by certifying the wood without completing the testing that the PS-1 standard requires, it could have negligently misrepresented the quality of the wood and opened itself up to a constructive fraud claim.
Actual fraud, on the other hand, requires an intent to defraud another.[28] This claim could be successful against a certifier like Forestwood. Once Forestwood knew that the plywood produced by these Brazilian plywood manufacturers might not be up to PS-1 standards and did not complete an independent check before issuing PS-1 stamps to these manufacturers, Forestwood could be said to have intentionally misrepresented the quality of the plywood for an economic gain. In this instance, the builder would have a claim against Forestwood for actual fraud of the PS-1 Mark. PFS-TECO could also be liable for actual fraud because it continued to issue PS-1 Marks while it knew the plywood from these manufacturers failed independent quality tests in 2018 and 2019.[29] This claim could succeed for pieces of wood certified after PFS-TECO gained knowledge of the failing test results. However, for pieces of wood used in construction before the 2018 test, a constructive fraud claim would be the most successful.
CONCLUSION
U.S. Structural Plywood Integrity Coalition v. PFS Corporation put material certification firms in the federal spotlight. Although we do not know whether PFS-TECO falsely certified plywood produced by Brazilian manufacturers, a question arose: if this wood were to fail, who would be liable to the owner? Although in most building contracts the builder warrants that all materials will be of good quality, it would not be fair to hold him liable when he reasonably relied on the certifier’s mark designating that the plywood was of good quality. When a builder relies on an independent certification firm to designate the quality of materials, and the certification turns out to be faulty—whether intentionally or negligently—the builder should not be liable to the owner for breach of warranty. Instead, the certification firm should be liable for either actual or constructive fraud in the certification of the materials.
Joseph McCarthy (’23) is a Juris Doctorate candidate at Michigan State University College of Law. He is the Executive Editor of the Michigan State Law Review. He graduated from the University of Michigan with a Bachelor of Arts in Political Science (’20). His primary focus of interest is in corporate law and litigation.
[1] See U.S. Structural Plywood Integrity Coal. v. PFS Corp., No. 19-62225, slip op. at 1 (S.D. Fla. May 23, 2022).
[2] See id. at 2–3 (order denying defendant’s motion to dismiss).
[3] See Brazilian Exports, Putnam Lumber & Export Co., https://www.putnamlumber.com/brazil.html (last visited Oct. 4, 2022).
[4] See Deb Dulal Das, The Complete Guide to Import Building Materials from China, Dragon Sourcing (Jan. 28, 2021), https://www.dragonsourcing.com/the-complete-guide-to-import-building-materials-from-china/
[5] See Occupational Safety and Health Administration, Current List of NRTLs, U.S. Dep’t of Lab., https://www.osha.gov/nationally-recognized-testing-laboratory-program/current-list-of-nrtls (last visited Nov. 23, 2022) (listing twenty-one firms on the current list of NRTLs).
[6] Occupational Safety and Health Administration, OSHA's Nationally Recognized Testing Laboratory (NRTL) Program, U.S. Dep’t of Lab.,https://www.osha.gov/nationally-recognized-testing-laboratory-program (last visited Nov. 23, 2022).
[7] See generally 29 CFR § 1910
[8] See Occupational Safety and Health Administration, supra note 5. The other products requiring NRTL certification are products generally used in the industrial workplace, but not necessarily in construction projects. See id.
[9] ETL Listed Mark, Interek, https://www.intertek.com/marks/etl/ (last visited Nov. 23, 2022).
[10] C.f. Building Product Certification, Intertek, https://www.intertek.com/building/product-certification/ (last visited Nov. 23, 2022).
[11] C.f. Occupational Safety and Health Administration, supra note 5 (listing products that need NRTL certification).
[12] Mark Anderson, What are ASTM Standards?, Mead Metals, Inc. (Sept. 9, 2020), https://www.meadmetals.com/blog/what-are-astm-standards.
[13] See Standards by Category, ASTM Int’l, https://www.astm.org/products-services/standards-and-publications/standards/standards-category-list.html (last visited Nov. 23, 2022).
[14] See Voluntary Product Standard PS 1-19: Structural Plywood, U.S. Dep’t of Com. 1, https://www.nist.gov/system/files/documents/2021/04/08/PS%201%2019%20final%20WERB-approved%20%28NIST%20vers%2011-18-2019%29%2B.pdf
[15] See Joe Bousquin, The Dotted Line: What Builders Need to Know About the Brazilian Plywood ‘Ban’, Construction Dive (June 28, 2022),https://www.constructiondive.com/news/the-dotted-line-what-contractors-need-to-know-about-the-brazilian-plywood/626109/; see also U.S. Structural Plywood Integrity Coal. v. PFS Corp., 524 F. Supp. 3d 1320, 1327–28 (S.D. Fla. 2021).
[16] Explaining PS 1 and PS2 Gradestamps, PFS-TECO, https://www.pfsteco.com/techtips/pdf/TT_Explaining_PS1_and_PS2_Gradestamps_2017 (last visited Nov. 23, 2022).
[17] See generally 524 F. Supp. 3d 1320 (S.D. Fla. 2021).
[18] Id. at 1328.
[19] See id. at 1329, 1338
[20] See U.S. Structural Plywood Integrity Coal. v. PFS Corp., No. 19-62225, slip op. at 1 (S.D. Fla. May 23, 2022).
[21] See Bousquin, supra note 15.
[22] See PFS Corp., 524 F. Supp. 3d at 1327.
[23] See generally Complaint, U.S. Structural Plywood Integrity Coal. v. Forestwood Indus., Inc, No. 0:22-cv-60976-RNS (June 14, 2022)
[24] See Document A201, AIA 1, 13 https://content.aia.org/sites/default/files/2017-04/A201_2017%20sample%20%28002%29.pdf (last visited Feb. 23, 2023).
[25] See 10 Mich. Civ. Jur. Fraud and Undue Influence § 3.
[26] See id.
[27] See id.
[28] See id.
[29] See U.S. Structural Plywood Integrity Coal. v. PFS Corp., 524 F. Supp. 3d 1320, 1328 (S.D. Fla. 2021).
Any reproduction of the Article, including, but not limited to its publication, posting, or excerption in print, or on the internet, shall give attribution to the Article’s original publication on the online MSLR Forum, using the following method of citation:
“Originally published on Feb. 19, 2023 Mich. St. L. Rev.: MSLR Forum.”