LEGAL02/34852200v6

American Conference Institute’s 7th Annual Summit on

Defending & Managing Automotive Product Liability Litigation

June 4-5, 2014

Chicago, Illinois

Strategies for Combating the Recent Rise in Class Actions

Involving No-Injury, Consumer Fraud and Warranties

Cari K. Dawson

Kara F. Kennedy

Ryan Ethridge

Matthew Montaigne

Amanda Kelley

Alston & Bird LLP

May 30, 2014

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More and more, plaintiffs are turning to “no-injury” class actions, asserting economic

loss claims under the various state consumer protection laws and for breach of warranty. As

with any putative class action, defendants facing these types of suits can proactively work to

weaken and defeat the plaintiffs’ claims, and ultimately the viability of a class, starting early in

the litigation. Motions to dismiss provide an early opportunity to eliminate certain claims and/or

class representatives, educate the court on key issues, and preview issues that will be important

at the class certification or summary judgment stage. And often, a court’s order on a motion to

dismiss may provide guidance, elucidating whether it believes a particular defense will be

appropriate at the summary judgment or class certification stage. See e.g., Grodzitsky v. Am.

Honda Motor Co., Inc., No. 2:12-cv-1142-SVW-PLA, 2013 WL 2631326, at *4 (C.D. Cal. June

12, 2013) (“Defendant’s argument [is] ill-suited to a motion to dismiss [and] is better made at the

class certification stage.”). This paper discusses certain key strategies to consider at the Rule 12,

summary judgment, and class certification stages of a case and also provides some specific

examples of recent class action cases in the area of fuel efficiency and odometer litigation.

I. Trends and Strategies: Motions to Dismiss

A Rule 12 motion to dismiss should often be the first line of defense for automotive

manufacturers facing a putative consumer fraud and/or breach of warranty class action. While

the ultimate goal on a Rule 12 motion is to dismiss specific claims or parties, or the case in its

entirety, it also carries intrinsic value by: (1) educating the court regarding the legal deficiencies

in, and obstacles to, the class representatives’ case; (2) introducing the manufacturer’s

affirmative themes early in the case; (3) previewing potential summary judgment arguments and

issues; and (4) highlighting challenges to certification of a class, including the myriad individual

inquiries that will be necessary to resolve the class claims. Of the many arguments to consider

making in a Rule 12 motion in a class action, automotive manufacturers in particular should be

alert to the following: standing; prudential mootness; heightened pleading requirements;

consumer fraud defenses related to reliance, causation, and materiality; and warranty defenses

related to manifestation, privity, and secret warranty laws.

A. Standing and Manifestation of Defect

Because it is difficult to certify a personal injury class, most automotive product liability

class actions focus on economic loss theories, such as benefit-of-the bargain and diminution of

value – contending that the alleged defect has rendered the purchased vehicle less valuable than

it would be if not for the defect. The majority of diminution-in-value cases are pled under

contract theories (such as breach of warranty)1 or for violations of state consumer protection

laws. Manufacturers should force the court to evaluate the standing of the named plaintiffs and

the putative class members as early as possible in defending these actions.

Article III requires plaintiffs to establish an “actual” and “concrete” injury in fact that is

particularized to them. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 576-77 (1992). This

requirement is independent from the specific requirements for underlying state law claims.

1 This is because, in many states, the economic loss doctrine precludes recovery in tort for purely economic losses.

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Thus, in federal court, Article III governs even where the underlying state law claim may not

require an actual injury to pursue a claim in state court. See, e.g., Lee v. Am. Nat’l Ins. Co., 260

F.3d 997, 1000-02 (9th Cir. 2001).

To recover damages for diminution of value in a products liability case, a plaintiff must

generally demonstrate that she purchased the allegedly defective product, that the product lost

value due to its alleged defect during the time the plaintiff owned the product, and that the

diminution in the product’s value caused the owner actual injury or present loss. See, e.g., Shoop

v. DaimlerChrysler, 864 N.E.2d 785, 787-88 (Ill. App. Ct. 2007). The majority of courts have

held that there can be no recovery of economic damages when there has been either no

manifestation of the alleged defect or no concrete loss. See, e.g., Carlson v. Gen. Motors Corp.,

883 F.2d 287 (4th Cir. 1989) (holding that plaintiffs could not recover diminution of value

damages under breach of implied warranty claim when cars had operated without incident and

thus performed satisfactorily); Weaver v. Chrysler Corp., 172 F.R.D. 96 (S.D.N.Y. 1997)

(dismissing on pleadings putative class action on behalf of purchasers of vehicles containing

allegedly defective child safety seats because “an allegation of possible economic loss fail[ed] to

plead adequately the required damages element” for fraud, negligent misrepresentation, and

breach of warranty under New York law); Yost v. Gen. Motors Corp., 651 F. Supp. 656 (D.N.J.

1986) (dismissing on pleadings putative class action under New Jersey law for breach of

warranty and fraud seeking lost value of allegedly defective vehicle because plaintiff failed to

allege that he suffered any damages through resale or otherwise provide any evidence of

devaluation).

Thus, in most instances, a plaintiff with no demonstrable damages (a “no-injury” product

liability plaintiff) should be foreclosed from recovering diminution damages based in tort or

contract, and it is generally insufficient to allege only a risk that an alleged defect experienced by

others will materialize in their products. See, e.g., Birdsong v. Apple, Inc., 590 F.3d 955, 961

(9th Cir. 2009) (finding that plaintiffs “fail to state an implied warranty claim, and they have no

standing to assert a UCL claim” because they “simply do not plead facts showing that [an injury-

in-fact] is actual or imminent, as required”); Briehl v. General Motors, 172 F.3d 623, 628-29 (8th

Cir. 1999) (affirming Rule 12 dismissal where plaintiffs’ brakes had not exhibited defect and no

plaintiffs had sold vehicles at reduced price, such that claim of diminished value was purely

speculative); Coker v. DaimlerChrysler Corp., 617 S.E.2d 306, 313 (N.C. Ct. App. 2005)

(holding that plaintiffs, who alleged possible future injury, had “not suffered a ‘concrete and

particularized’ injury-in-fact that is ‘actual or imminent,’” and that “[t]heir claims are too

speculative and illusory to show a legal injury of fact”) (quoting Neuse River Found., Inc. v.

Smithfield Foods, Inc., 574 S.E.2d 48, 52 (N.C. Ct. App. 2002)); Ziegelmann v. DaimlerChrysler

Corp., 649 N.W.2d 556 (N.D. 2002) (dismissing plaintiff’s claims for negligence and fraudulent

concealment as speculative where plaintiff sought damages for diminution in value of an

allegedly defective car, but failed to allege he sold vehicle at loss or incurred costs for repair);

Bussian v. DaimlerChrysler Corp., 411 F. Supp. 2d 614, 630 (M.D.N.C. 2006); Rivera v. Wyeth-

Ayerst Labs., 283 F.3d 315, 319-21 (5th Cir. 2002); DaimlerChryslter Corp. v. Inman, 252

S.W.3d 299, 306 (Tex. 2008).

Plaintiffs often attempt to avoid this potential barrier by pursing a benefit-of-the-bargain

theory. Under this theory, they argue that it is irrelevant whether their particular vehicle has

manifested a defect because the plaintiff suffered an injury-in-fact at the time of purchase, in that

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the vehicle she purchased was not the product she had been promised by the manufacturer or that

she had otherwise bargained to purchase. Some courts have found Article III standing where a

plaintiff pursues a benefit-of-the-bargain theory, while others have not. Compare Briehl, 172

F.3d at 628-29 (no standing under benefit of the bargain theory), and Birdsong, 590 F.3d at 961

(same) with Maya v. Centex Corp., 658 F.3d 1060, 1069 (9th Cir. 2011) (finding standing), and

Coghlan v. Wellcraft Marine Corp., 240 F.3d 449, 452 (5th Cir. 2001) (same). One key

distinction between those “no injury” benefit-of-the-bargain cases finding standing and those

finding lack of standing is whether the plaintiffs can identify a particular misrepresentation

related to the alleged defect.

In Coghlan v. Wellcraft Marine Corp., the Fifth Circuit accepted the benefit of the

bargain theory, holding that the plaintiffs asserted a cognizable injury under various tort and

breach of warranty causes of action even though the only damage sought was the “benefit of

their bargain with [defendant], or the difference in value between what they were promised, . . .

and what they received . . . .” 240 F.3d 449, 452 (5th Cir. 2001). In so doing, the Fifth Circuit

specifically distinguished the facts presented in Coghlan from the typical facts in a “no-injury”

product liability suit: “The key distinction between this case and a ‘no-injury’ product liability

suit is that the Coghlans’ claims are rooted in basic contract law rather than the law of product

liability: the Coghlans assert they were promised one thing but were given a different, less

valuable thing.” Id. at 455 n.4. According to the Court, “the core allegation in a no-injury

product liability class action” is that “the defendant produced or sold a defective product and/or

failed to warn of the product’s dangers,” such that the “wrongful act” is “the placing of a

dangerous/defective product in the stream of commerce.” Id. By contrast, “the wrongful act

alleged by the Coghlans is Wellcraft’s failure to uphold its end of their bargain and to deliver

what was promised,” and “the damages sought by the Coghlans are not rooted in the alleged

defect of the product as such, but in the fact that they did not receive the benefit of their

bargain.” Id. (emphasis added).

The Ninth Circuit in Birdsong, however, affirmed the dismissal of a putative class action

complaint alleging benefit-of-the-bargain damages, in part because there were no alleged

misrepresentations to support them. The Ninth Circuit found that the plaintiffs had not alleged a

cognizable defect to satisfy the injury-in-fact requirement because the alleged loss in value to the

plaintiffs’ iPods “rests on a hypothetical risk of hearing loss to other consumers who may or may

not choose to use their iPods in a risky manner.” 590 F.3d 955, 961 (9th Cir. 2009). The Court

then held that the “plaintiffs’ benefit of the bargain theory fares no better” because they did not

identify any representations made by Apple that “iPod users could safely listen to music at high

volumes for extended periods of time,” such that the “plaintiffs’ alleged injury in fact is premised

on the loss of a ‘safety’ benefit that was not part of the bargain to begin with.” Id. Likewise, the

Northern District of California dismissed claims against Toyota for diminution of value where

the vehicles at issue had not manifested the alleged defect, finding that the plaintiffs did “not

have standing under a benefit of the bargain theory and have not demonstrated they have

standing based on alleged economic harm.” Contreras v. Toyota Motor Sales USA, Inc., No. C

09-06024, 2010 WL 2528844, at *6 (N.D. Cal. June 18, 2010), standing issue aff’d, rev’d in part

on other grounds, 484 Fed. App’x 116 (9th Cir. 2012). The court based this finding, in part, on

the fact that the plaintiffs did not allege that Toyota promoted its braking system as an added

safety feature or otherwise identify any representations connected to the alleged defect. Id.

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Thus, if a plaintiff pursues a benefit-of-the-bargain theory, manufacturers should argue

that such damages are not recoverable for plaintiffs that have not experienced the alleged defect

and, even if viable, that they are only recoverable if the plaintiff identifies with specificity the

alleged misrepresentations related to the alleged defect. If she cannot identify any such

representations, the court should dismiss the claims because the plaintiff gotten what was

promised and, thus, received the benefit of her bargain. See, e.g., Birdsong, 590 F.3d at 961

(“The plaintiffs’ alleged injury in fact is premised on the loss of a ‘safety’ benefit that was not

part of the bargain to begin with.”). If a plaintiff is able to identify specific misrepresentations

and survive dismissal, then the manufacturer may still be able to narrow the scope of the case to

one involving affirmative misrepresentations, which, as discussed further below, are often easier

to defend against than claims based on omissions, and contractual/warranty-based claims, as

opposed to tort claims which are often barred by the economic loss doctrine. See generally KB

Home v. Superior Court, 112 Cal. App. 4th 1076, 1085 (2003) (“[T]he economic loss rule allows

a plaintiff to recover in strict products liability in tort when a product defect causes damages to

‘other property,’ that is, property other than the product itself. The law of contractual warranty

governs damage to the product itself.”).

Of course, while there are many strategies for limiting a benefit-of-the-bargain case that

withstands standing challenges at the Rule 12 stage, it is preferable to dismiss such claims

completely. Accordingly, manufacturers should be aware that their statements on social media,

the company’s website, or even Twitter may be attributed to the company and portrayed by a

plaintiff as a material, fraudulent misrepresentation. For example, the National Advertising

Division (NAD), a self-regulating advertising industry group, recently determined that claims

made by an advertiser in its Twitter constitute national advertising as defined in NAD Procedure

§ 1. NAD Case Report No. 5357 (Aug. 2, 2011). Similarly, courts have held that statements on

company websites and YouTube videos can form the basis of consumer protection and

misrepresentation claims. See Gilles v. Ford Motor Co., No. 13-cv-00357-RBJ, 2014 WL

544990, at *5-6 (D. Col. Feb. 12, 2014) (finding statements on defendant’s website and

YouTube videos contained representations that may be fraudulent). In addition, consumer

complaints posted on a “public online vehicle owner forum” can be used to support the inference

that a defendant was aware of a defect, a key issue in determining whether a duty to disclose

arose. See Grodzitsky, 2013 WL 2631326 at *7.

In almost all cases, manufacturers should consider a Rule 12 motion focusing on standing

and manifestation issues. If the named plaintiffs have not experienced a defect or suffered any

cognizable injury, under most state’s laws, courts will dismiss their claims. See, e.g., Briehl, 172

F.3d 623 at 628-29 (8th Cir. 1999) (affirming dismissal of a class action complaint where the

named plaintiffs “have failed to allege any manifest defect and their vehicles perform in a

satisfactory manner”); O’Neil v. Simplicity, Inc., 574 F.3d 501, 504-05 (8th Cir. 2009) (affirming

dismissal because “[t]he problem with [plaintiffs’] argument is that, because [their product] has

not exhibited the alleged defect, they have necessarily received the benefit of their bargain.”);

Tietsworth v. Harley-Davidson, Inc., 270 Wis. 2d 146, 677 N.W.2d 233 (Wis. 2004) (dismissing

class action suit seeking damages for diminution of value of allegedly defective motorcycles

because potential diminution of value was too speculative to constitute an actual injury); Frank

v. DaimlerChrysler Corp., 741 N.Y.S.2d 9 (App. Div. 2002) (dismissal on the pleadings of

putative class action for damages under tort and contract theories because plaintiffs failed to

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plead either personal injuries, actual costs incurred, or attempts to sell vehicles at a financial

loss); In re Air Bag Prod. Liab. Litig., 7 F. Supp. 2d 792 (E.D. La. 1998) (dismissal on the

pleadings because plaintiffs omitted any allegation of manifest injury or defect resulting from

allegedly defective airbags); Wallis v. Ford Motor Corp., 208 S.W.3d 153 (Ark. 2005)

(dismissing claims for fraud and violations of Arkansas consumer fraud statute because a mere

propensity for future vehicle failure did not constitute a cognizable injury). If the named

plaintiffs have experienced the alleged defect, but many class members have not, the battle

regarding manifestation may be delayed to the class certification stage, but a motion to dismiss

may nonetheless be helpful in previewing this issue for the court. At the very least, such a

motion may narrow the issues and force the plaintiffs’ hand in choosing a damages theory.

B. Prudential Mootness

Where the manufacturer has recalled the product that is at issue in a class action,

prudential mootness may be a winning argument at the motion to dismiss stage. Because the

plaintiffs often seek a remedy – a refund or replacement – that is already being provided under

the existing recall program, courts in a number of cases have dismissed lawsuits on mootness

grounds. See, e.g., Winzler v. Toyota Motor Sales U.S.A. Inc., 681 F.3d 1208 (10th Cir. 2012);

Cheng v. BMW of N. Am., LLC, No. CV 12-09265 GAF SHX, 2013 WL 3940815 (C.D. Cal. July

26, 2013); In re Aqua Dots Prods. Liab. Litig., 270 F.R.D. 377 (N.D. Ill. 2010); In re ConAgra

Peanut Butter Prods. Liab. Litig., 251 F.R.D. 689 (N.D. Ga. 2008). In Winzler, for example, the

Tenth Circuit dismissed putative class claims as moot because Toyota announced a nationwide

recall of the vehicles at issue, overseen by the National Highway Transportation Safety

Administration (“NHTSA”). As a result, Toyota was already compelled under federal law to

provide the remedy requested by the plaintiffs – notice of the defect to all owners and repair of

the defect at no cost to the owners. Winzler, 681 F.3d at 1209-11.

Of course, a manufacturer can only effectively argue mootness if the recall program it

implements makes the consumers whole. Thus, for example, the court in Bristow v. Lycoming

Engines denied a motion to dismiss for lack of standing, based on its finding that the plaintiffs

had alleged a sufficient injury where the defendant’s recall offered three options, all of which

involved out-of-pocket costs to the consumers. 2007 WL 1106098, at *16 (E.D. Cal. 2007).

Additionally, even if a Rule 12 motion based on mootness does not result in dismissal of the

claims, it serves to educate the court about the issues related to prudential mootness, which may

also be relevant at the class certification and summary judgment stages if there is evidence that

certain plaintiffs or class members have been made whole by the defendant. Thus,

manufacturers would be wise to preview key arguments at the Rule 12 stage.

C. Consumer Fraud Claims

There is a great deal of variation in state consumer fraud statutes and the arguments to be

made in a motion to dismiss will therefore vary from case to case. For example, some states

require a plaintiff to allege (and prove) actual reliance on the alleged fraudulent representation or

omission. See, e.g., Garcia v. Medved Chevrolet, Inc., 240 P.3d 371 (Colo. App. 2009)

(rejecting “presumed reliance” or “fraud-on-the-market” theories in fulfillment of the elements

of the Colorado Consumer Protection Act). In other states, reliance may be presumed where an

advertising campaign is widespread, see, e.g., In re Tobacco II Cases, 207 P.3d 20, 38-41 (Cal.

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2009), or in omissions cases where the alleged omission relates to a material fact, see, e.g.,

Gasperoni v. Metabolife, Int’l, Inc., No. 00-71255, 2000 WL 33365948, at *7 (E.D. Mich. Sept.

27, 2000). Yet, even if the state consumer protection statute does not require actual reliance,

proximate causation often serves as a proxy for reliance, such that a plaintiff must prove that the

conduct at issue proximately caused her to suffer damages. See, e.g., Oliveira v. Amoco Oil Co.,

201 Ill. 2d 134, 776 N.E.2d 151 (2002). As a result, plaintiffs seeking damages under virtually

every state’s consumer fraud statute must establish a causal connection between the

misrepresentations/omissions and the damages they seek to recover. Rule 12 motions focusing

on reliance and/or causation can therefore serve several important functions: forcing plaintiffs to

allege with specificity the false or misleading statements/omissions relied upon and how such

statements caused their claimed damages, previewing reliance/causation issues that may be

raised at the summary judgment stage depending on the evidence that comes out through

discovery, and highlighting individualized differences that may defeat class certification later in

the case.

1. Heightened Pleading Requirement For Fraud-Based Claims

Consumer protection claims sounding in fraud are subject to the heightened pleading

requirement of Rule 9(b) of the Federal Rules of Civil Procedure. Therefore, a defendant’s

motion to dismiss under Rule 12(b)(6) should almost always include a challenge to the

specificity of the plaintiff’s complaint.

A plaintiff’s failure to specifically identify a particular misrepresentation can be fatal,

particularly where the claims are based on affirmative misrepresentations. In affirmative

misrepresentation cases, Rule 9(b) requires plaintiffs to allege the who, what, and where of the

alleged misrepresentations at issue–identifying which statements were made, where they

appeared, where the plaintiffs were exposed to them. See, e.g., Sims v. Kia Motors Am. Inc., No.

8:13-cv-01791-AG-DFM (C.D. Cal. Mar. 31, 2014) (dismissing all of plaintiffs’ consumer fraud

claims because plaintiffs alleged they did not recall the specific ads they viewed and they did not

allege that they saw the specific advertisements identified in the complaint, some of which were

for vehicles not within proposed class). These arguments have been less successful in

omissions-based cases where some courts have held that a defendant’s failure to disclose

presents a lower pleading bar than an affirmative representation fraud case. Courts reason that in

an omissions case, a plaintiff will be unable to point to a specific statement by the defendant.

See, e.g., Skeen v. BMW of N. Am., LLC, No. 2:13-CV-1531-WHW-CLW, 2014 WL 283628, at

*8 (D.N.J. Jan. 24, 2014); Oscar v. BMW of N. Am., 274 F.RD. 498, 512 (S.D.N.Y. 2011)

(“Plaintiff correctly points out that courts are generally more likely to grant class certification . . .

where the plaintiff, as here, alleges an omission or general deceptive policy rather than a

misstatement.”).

2. Defendant’s Duty to Disclose

Because of the lower pleading bar, omissions cases are highly appealing to plaintiffs and

more difficult to defeat on a motion to dismiss than cases based on affirmative representations.

One strategy is for defendants to assert early on that they did not have a duty to disclose the

alleged defect. Although state law differs as to when a duty to disclose arises, California

provides a helpful example in light of the large number of cases filed there. In California, courts

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impose a duty to disclose in four situations, known as the LiMandri factors: (1) there is a

fiduciary relationship with the plaintiff; (2) the defendant has exclusive knowledge of material

facts not known to the plaintiff; (3) the defendant actively concealed a material fact from the

plaintiff; or (4) the defendant made a partial representation, but also suppressed a material fact.

LiMandri v. Judkins, 52 Cal. App. 4th 326, 336 (1997).

a. Exclusive Knowledge

The second LiMandri factor, exclusive knowledge, is not strictly interpreted and is in

actuality, treated as “superior knowledge.” Johnson v. Harley-Davidson Motor Co. Grp. LLC,

285 F.R.D. 573, 583 (E.D. Cal. 2012). One potential motion to dismiss defense to an assertion

of a defendant’s superior knowledge is that the consumer-plaintiff was exposed and had access to

a myriad of sources containing information relevant to the alleged defect; for example,

Consumer Reports, IIHS ratings and reports, their mechanic, or other consumers. As a result,

defendants often argue that they lacked superior knowledge of the alleged defect due to the

plaintiff’s awareness of it. This argument has been met with mixed success. For example, in

Gray v. Toyota Motor Sales U.S.A., the Central District of California granted a defendant’s

motion to dismiss, finding it absurd that the defendant could have retained exclusive or superior

knowledge about a vehicle’s real-world fuel performance over the three-year class period in

which hundreds of thousands of vehicles were driven daily. No. CV 08-1690 PSG (JCx), 2012

WL 313703, at *8 (C.D. Cal. Jan. 23, 2012) (rejecting exclusive knowledge due to media

coverage by Consumer Reports and USA Today); see also Small v. Lorillard Tobacco Co., 252

A.D.2d 1, 8 (1st Dep’t 1998), aff’d, 720 N.E.2d 892 (N.Y. 1999). Other courts have rejected

similar arguments. See, e.g., Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088, 1097 (N.D. Cal.

2007) (finding defendant had exclusive knowledge even though prospective purchasers may

have read about alleged defect on Internet where defendant was “alleged to have known a lot

more about [the alleged defect], including information unavailable to the public.”); see also

Oscar, 274 F.R.D. at 508 (denying certification where, “[e]ven if some class members did have

additional information regarding the quality of the [tires], this knowledge would not vitiate

BMW’s basic responsibility to avoid providing consumers with materially misleading

information.”).

b. Materiality: Safety-Related Defects

The second, third, and fourth LiMandri factors all turn on whether the omitted

information was “material.” In some courts, there is a presumption that a safety-related defect is

always material therefore resulting in a duty to disclose. Doyle v. Chrysler Group LLC, No.

8:13-cv-00620-JVS-AN, slip op. at 7 (C.D. Cal. Jan. 29, 2014) (“Nondisclosures about safety

considerations of consumer products are material.” (citing Falk, 496 F. Supp. 2d at 1096)).2

2 Even where the omission claim is based on an alleged safety defect, defendants may be able to rebut the

presumption that reasonable consumers would find the omission material. See, e.g., Johnson v. Harley-Davidson

Motor Co. Group, LLC, 2:10-CV-02443, 2012 WL 1898938, at *14 (E.D. Cal. May 23, 2012) (“The Court finds that

while materiality is generally determined by the ‘reasonable consumer standard,’ there are numerous individualized

issues as to whether the reasonable consumer purchasing one of Defendants' motorcycles would find the excessive

heat material.”).

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What constitutes a safety defect, however, is not always clear. Doyle, for example,

involved an allegedly defective window regulator. Although this defect is not what one would

typically think of as a safety risk, creative pleading by the plaintiffs enabled them to survive a

motion to dismiss. Specifically, the plaintiffs alleged that the defective window regulator

presented a safety issue because a window protects a passenger from ejection and the elements,

the faulty regulator presented the possibility of driver distraction, and the window may become

dislodged and shatter. Id. at 8. In an order denying the defendant’s motion to dismiss, the court,

applying California law, agreed that plaintiffs had sufficiently alleged a safety issue. Id. In

contrast, the Supreme Court of Massachusetts has held that when a plaintiff asserting claims

under Massachusetts’ consumer protection statute has not alleged personal injury or property

damage as a result of a safety-related defect, the plaintiff must identify a legally required

standard that the vehicle failed to meet in order to sufficiently plead a safety-related defect.

Iannacchino v. Ford Motor Co., 888 N.E. 2d. 879, 888 (Mass. 2008). In Iannacchino, plaintiffs

alleged that defective door handles could accidentally open in a collision and posed a high safety

risk. Id. at 883. The court reasoned that because the defendant complied with NHTSA

requirements and the plaintiffs sought only economic damages, the plaintiffs’ “bare assertion”

that the product suffered from a safety-related defect was insufficient. Id. at 888. In fact, even

the Northern District of California has reasoned that the existence of a legally required standard

is relevant to the determination of whether a defect presents a safety concern. Smith v. Ford

Motor Co., 749 F. Supp. 2d 980, 989 (N.D. Cal. 2010). In Smith, plaintiffs claimed that faulty

ignition locks raised safety concerns because drivers could be unexpectedly stranded. Id. at 990.

Although the Smith court rejected defendant’s argument that a duty to disclose can only arise

where the alleged defect violated a legally required standard, the court did agree with the

defendant that the standards set forth under the Safety Act are relevant to the determination of

whether an alleged defect presents a safety concern. Id. at 989. The court went on to find that

the harm that could result from the alleged ignition-lock defect was too speculative to present a

safety concern. Id. at 992.

As with many other Rule 12 arguments, whether or not a materiality challenge is

successful at the motion to dismiss stage, manufacturers are often well-served to raise this issue

to begin the process of educating the court and framing these issues for summary judgment and

class certification. This is particularly true for “materiality,” since it also has implications for

whether reliance can be presumed on a classwide basis. See, e.g., Keegan v. Am. Honda Motor

Co., Inc., 284 F.R.D. 504, 530 (C.D. Cal. 2012), leave to appeal denied, 12-80138, 2012 WL

7152289 (9th

Cir. Nov. 9, 2012) (“Under the CLRA, causation can be shown as to an entire class

by proving materiality.” (citations omitted)).

3. Puffery

When defending against allegations of a safety-related defect, puffery is another defense

that can be successfully argued early in the case on a motion to dismiss. For example, in Sims v.

Kia, the court found that, although defendants advertised that their vehicles are of “world class

quality,” give consumers “peace of mind,” and “are engineered to help ensure everyone’s well-

being,” such statements constituted non-actionable puffery. Sims, MDL No. 8:13-cv-01791-AG-

DFM, slip op. at 11-12 (dismissing consumer fraud claims on Rule 9(b) grounds without

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deciding whether puffery provided an independent basis for dismissal because the parties had not

briefed whether the claims might survive based on defendant’s duty to disclose). Courts

routinely hold that general statements that do not specifically make a promise to the consumer

are puffery and are not actionable. In re Ford Motor Co. E-350 Van Prods. Liab. Litig. (No. II),

No. 03-4558 (GEB), 2010 WL 2813788, at *54 (D.N.J. July 9, 2010) (applying Texas law and

concluding that imprecise or vague statements are insufficient to serve as basis for consumer

fraud violation). This reasoning may even extend to statements addressing safety. As the

Central District of California recently stated in Sims, ‘“[i]f defendants’ assertion of safety is

merely a statement of opinion—mere ‘puffing’—they cannot be held liable for its falsity.”’

Sims, No. 8:13-cv-01791-AG-DFM, slip op. at 12 (quoting Hauter v. Zogarts, 14 Cal. 3d 104,

111 (1975)).

D. Warranty Claims

When considering Rule 12 arguments in a class action involving warranty claims,

counsel should consider arguments related to manifestation, scope, and privity. First, analyze

whether the plaintiff pleads that the alleged defect manifests itself within the warranty period.

Plaintiffs are sometimes sloppy with their allegations and fail to allege that the defect manifested

itself within the warranty period or within the statute of limitations, or that the defect manifested

itself at all.3 Second, counsel should consider the scope of the warranty since temporal or

substantive limitations in the warranty may bar the claims at issue. Third, counsel should

analyze whether privity between the plaintiff and manufacturer is required under the state law

applicable to the named plaintiff’s claim. These issues can be an easy way to have warranty

claims dismissed from a putative class action.4 Additionally, there has been a recent rise in class

actions claims under California’s “Secret Warranty” law. There are pleadings pitfalls associated

with these claims that counsel should be aware of.

3 Manifestation issues were discussed above in the context of standing, but manifestation is also an element of a

warranty claim, i.e., if the defect has not manifested, plaintiff cannot establish breach.

4 Other warranty defenses that defendants may argue at the motion to dismiss stage include: (1) failure to present

vehicle for repair (see, e.g., Brisson v. Ford Motor Co., 602 F. Supp. 2d 1227, 1231 (M.D. Fla. 2009), aff’d in part,

vacated in part, remanded, 349 F. App’x 433 (11th Cir. 2009) (holding that to assert a cause of action for breach of

an express warranty to repair or replace defective parts, a consumer must allege that the manufacturer refused or

failed to adequately repair a covered item)); (2) alleged design defect falls outside the scope of the warranty (see,

e.g., Grupo Sistemas Integrales de Telecom. S.A. de C.V. v. AT&T Commc’ns, Inc., No. 1:92-cv-7862, 1996 WL

312535, at *7 (S.D.N.Y. June 10, 1996) (“[I]n limiting its warranty to claims based on defective materials or

workmanship, [the express warranty] excludes claims of design defect . . . .”)); (3) for express warranty claims

premised on advertisements, that plaintiff did not see or rely upon the ad (see, e.g., In re Toyota Motor Corp.

Unintended Acceleration Mktg., Sales Practices, & Products Liab. Litig., 754 F. Supp. 2d 1145, 1182 (C.D. Cal.

2010) (“Plaintiffs cannot base a [warranty] claim on [advertisements] in the absence of allegations that they were

exposed to them.”); and (4) failure to provide the required notice (see, e.g., Hubbard v. Gen. Motors Corp., 1996

WL 274018, at *5 (S.D.N.Y. May 22, 1996) (dismissing plaintiff’s claim for breach of express warranty for failure

to allege that notice was provided to the manufacturer or the dealer)).

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1. Manifestation of Defect in Warranty Claims

In most states, plaintiffs alleging breach of warranty cannot simply ride the coattails of

others that may have suffered a defect; they must instead allege that they experienced the alleged

defect.5. For example, in Belville v. Ford Motor Co., No. 3:13-cv-6529, Order (Dkt. No. 88)

(S.D.W.V. March 31, 2014) the warranty claims of eighteen of the twenty named plaintiffs

claiming unintended acceleration were dismissed because they failed to allege that the defect

actually manifested itself in their vehicles. Judge Robert Chambers of the Southern District of

West Virginia held that plaintiffs “simply have failed to demonstrate a plausible claim that they

paid more for their vehicles than their actual worth when they have used their vehicles without

incident for many years.” Id. at 24. Plaintiffs also argued that their warranty claims should

survive because, while they did not experience the unintended acceleration, they alleged

objective evidence demonstrating “a substantial, clear and unreasonable risk of death or personal

injury.” Id. at 19. Judge Chambers similarly rejected this argument, holding that plaintiffs’

conclusory statements that their vehicles are inherently unsafe and dangerous because they are

susceptible to unintended acceleration was not enough. Id. at 24.

Many courts have similarly held that manifestation is required in both express6 and

implied7 warranty claims, and defendants should raise this issue in their Rule 12 motions.

2. Scope Considerations

Manufacturers are permitted to limit the scope of their express warranties and the

remedies available under them. In some recent cases, plaintiffs have attempted to circumvent

warranty limitations by arguing that the defect at issue was covered by a more expansive

warranty. For example, in Speier-Roche v. Volkswagen Group of America Inc., the plaintiff

alleged that the brake pads and rotors in her Audi were defective and asserted claims for breach

of express and implied warranty. No. 14-20107-CIV, 2014 WL 1745050 (S.D. Fla. Apr. 30,

2014). The plaintiff’s Audi was covered by a 48 month/50,000 mile warranty, but the warranty

expressly limited the warranty period for brake discs and brake pads to 12 months/12,000 miles.

Plaintiff argued that the longer warranty period should apply to her brake repairs because there

was a defect in the vehicle design itself, which caused the damage to the brakes. The court

rejected the plaintiff’s attempt to get around the shorter warranty period and dismissed her

breach of express warranty claim, holding that the defendant was not required to pay for brake

repairs outside the shorter warranty period. Id. at *3.8 The only defect alleged in the complaint

5 In some states, such as California, it may be sufficient to allege a substantial certainty that manifestation will

occur. See Am. Honda Motor Co. v. Super. Ct., 199 Cal. App. 4th 1367, 1372, 132 Cal. Rptr. 3d 91, 98 (2011).

6 See, e.g., Hubbard, 1996 WL 274018, at *3; Brisson v. Ford Motor Co., 349 F. App’x 433, 434 (11th Cir. 2009).

7 See, e.g., Frank v. DaimlerChrysler Corp., 292 A.D.2d 118, 125, 741 N.Y.S.2d 9, 15 (N.Y. App. Div. 2002); Kia

Motors Am. Corp. v. Butler, 985 So. 2d 1133, 1138-39 (Fla. Dist. Ct. App. 2008).

8 The court also held that plaintiff’s Magnusson Moss claim was barred by the applicable statute of limitations.

12 LEGAL02/34852200v6

was premature wear of the brakes and plaintiff failed to identify a single allegedly defective

component other than her brakes that caused the premature wear of the breaks.9

Majdipour v. Jaguar Land Rover N. Am., LLC, No. 2:12-CV-07849 WHW, 2013 WL

5574626 (D.N.J. Oct. 9, 2013), provides another recent example of plaintiffs attempting to

expand express warranty limitations. There, plaintiffs alleged that certain Range Rover vehicles

had a defect in the air suspension system that caused a loss of suspension to one side of the

vehicle. The plaintiffs’ Range Rovers included a 6 year/75,000 mile warranty, which the

plaintiffs argued that Land Rover breached by repairing the suspension, only to have the defect

recur. The Court rejected the plaintiffs’ argument, holding that Land Rover did exactly what it

said it would do under the warranty—“repair, replace, or reimburse’ covered parts ‘if required

due to a mechanical breakdown or failure.’” Id. at *19.10

The plaintiffs attempted an end-run

around their pleading deficiencies by arguing that the repairs provided by Land Rover were

incomplete because Land Rover did not replace the parts of the suspension that had not yet

broken. The court rejected this argument, holding that the express warranty did not require Land

Rover to “predict parts’ possible future failures or replace parts prophylactically.” Id.. Finally,

the plaintiffs (like others before them11

), also argued that the warranty terms were

unconscionable because Land Rover knew that the defect might manifest after the warranty term.

The court rejected this argument, holding that a six-year, 75,000 mile warranty was not per se

unconscionable and holding that a rule that warranties are unconscionable if there is knowledge

that the part may fail after the warranty period would render the time and mileage limitations

meaningless. Id. at *20.

Plaintiffs also look to expand the scope of their express warranty claims by categorizing a

design defect as a manufacturing defect and arguing that the defect is covered by an express

warranty for defects in materials or workmanship. “A design defect . . . exists when the product

is built in accordance with its intended specifications, but the design itself is inherently defective.

. . .” McCabe v. Am. Honda Motor Co., 100 Cal. App. 4th 1111, 1119 (2002) (citation omitted).

Courts have held that design defects fall outside the scope of express warranties which cover

9 Plaintiffs have argued that limits on the length of the warranty are unconscionable where defendant intentionally

shortened the warranty period to avoid repairing defects. At the motion to dismiss stage, these arguments have met

with mixed results. Compare Perez v. Volkswagen Grp. of Am., Inc., 2:12-CV-02289, 2013 WL 1661434, at *4-5

(W.D. Ark. Apr. 17, 2013) (holding that 4 year, 60,000 mile warranty was not “facially unconscionable”) with

Skeen, 2014 WL 283628, at *14 (holding that plaintiff’s allegation that 4 year, 50,000 mile warranty was

unconscionable survived motion to dismiss where plaintiff alleged that manufacturer “manipulated the warranty

terms to avoid paying for” defect).

10 The plaintiff also alleged that following the first warranty repair, he subsequently presented the vehicle for repair

a second time. The court rejected this argument, holding that the plaintiffs failed to allege that the second incident

occurred during the warranty period. Id.

11 See McQueen v. BMW of N. Am., No. 12-6674 (SRC), Order (Dkt. No.38) (D.N.J. August 29, 2013) (dismissing

implied merchantability claim where plaintiff brought vehicle in for service after merchantability period and

rejecting argument that express 48 month, 50,000 mile warranty was unconscionable); Nelson v. Nissan N. Am., Inc.,

894 F. Supp. 2d 558, 565 (D.N.J. 2012) (holding that 5 year, 60,000 mile warranty was not unconscionable); Alban

v. BMW of N. Am., No. CIV. 09-5398 DRD, 2011 WL 900114 (D.N.J. Mar. 15, 2011) (holding that 4 year, 48,000

mile warranty was not unconscionable).

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defects in material and/or workmanship. In re Toyota Motor Corp., 754 F. Supp. 2d 1145, 1180

(C.D. Cal. 2010) (granting motion to dismiss to extent plaintiffs based “express written warranty

claims [against Toyota] on an alleged design defect”).

Defendants’ attempts to dismiss these design defect claims at the pleading stage have

been met with mixed results. In Troup v. Toyota Motor Corp., 545 F. App’x 668 (9th Cir. 2013)

plaintiffs alleged a defect in their gas tanks which resulted from the use of resin in building the

gas tank. Id. at 669. The court affirmed dismissal of plaintiffs’ express warranty claim, holding

that the use of resin was “a design decision” and thus did “not fall within the scope of Toyota’s

Basic Warranty against ‘defects in materials or workmanship.’” Id. at 668-69. The court noted

that while plaintiffs’ complaint made references to materials, the crux of the complaint was a

design defect. Id. at 669; see also Lee v. Toyota Motor Sales, U.S.A., Inc., No. CV 13-7431,

2014 WL 211462 (C.D. Cal. Jan. 9, 2014) (dismissing express warranty claim where plaintiffs

alleged design defect in pre-collision braking system, which fell outside warranty covering

“defects in material and/or workmanship”).

In Morris v. BMW of North America, LLC, No. 13-4980, U.S. Dist. LEXIS 24211 (D.N.J.

Feb. 21, 2014), the court, however, rejected defendant’s argument that plaintiff’s breach of

express warranty claim should be dismissed because it was based upon a design defect. Id. at

*29. Plaintiff alleged that BMW breached the express warranty by failing to repair her in-car

navigation system. According to plaintiff, the navigation system gave her wrong directions,

directed her to the wrong location, and took unnecessary detours. Id. at *2. Defendant argued

that plaintiff alleged a defect in the software, which was a design defect, as opposed to a defect

in the navigation system itself—the hardware. The court held that whether “the alleged defect in

the Navigation System is caused by defective hardware or software, a design defect or a defect in

‘materials or workmanship’ remains to be seen.” Id. at *29. The key factor for the court in

denying the motion to dismiss seemed to be that plaintiff did not concede that the navigation

system “was manufactured as designed.” Id.; see also Coba v. Ford Motor Co., No. 12-1622,

2013 U.S. Dist. LEXIS 8366, at *17 (D.N.J. Jan. 22, 2013) (denying motion to dismiss express

warranty claim where it was “unclear whether [defect] is a design defect or a defect in materials

or workmanship…”). Based upon Morris and Coba, it appears that complaints that provide less

detail regarding the defect, thus making it unclear whether the defect is a design defect, are more

likely to survive a motion to dismiss arguing that the express warranty did not cover design

defect.

Another recent trend related to temporal scope of warranties, are cases in which plaintiffs

allege that the time limits of California’s Song-Beverly Act should not apply because the alleged

defect was latent at the time of sale. This issue also came up in Majdipour. There, the court

declined to dismiss the plaintiffs’ implied warranty of merchantability claims under the Song-

Beverly Act, pursuant to which the implied warranty of merchantability for used goods, like the

plaintiffs’ Ranger Rovers, extends no more than three months after the sale of the product. Land

Rover argued that the court should dismiss the plaintiffs’ claims because the defect manifested

itself well after three months following the sale of the vehicles. Id. at *22. However, the Court,

relying on Mexia v. Rinker Boat Co., Inc., 174 Cal.App.4th 1297, 95 Cal.Rptr.3d 285, 290–91

(Cal.Ct.App.2009), agreed with the plaintiffs’ arguments, holding that latent defects existing at

the time of sale, which do not manifest themselves until after three months, may breach the

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implied warranty of merchantability notwithstanding the time limits of the Song-Beverly Act.

Id. at *22-23.

The Majdipour decision addressing the Song-Beverly Act claim, however, is contrary to

the Central District of California’s opinion in Grodzitsky. See 2013 WL 2631326 at *11.

Plaintiffs in Grodzitsky alleged that vehicles produced by Honda had a defective window

regulator, which rendered the windows inoperable. The plaintiffs asserted breach of implied

warranty claims under the Song-Beverly Act (as well as under Tennessee, and New Jersey law).

The implied warranty of merchantability for new goods under the Song-Beverly Act extends no

more than one year after the sale of the product. As a result, the court dismissed the plaintiff’s

Song-Beverly Act claim, holding that “[b]ecause the windows at issue in this case did not begin

to fail until well more than a year after they were purchased, Plaintiff’s Song-Beverly Act claims

is barred . . . .”12

Id. at *10-11. In so doing, the court rejected Mexia, finding that it is contrary to

established California case law and criticizing its holding for “render[ing] meaningless any

durational limits on implied warranties.” Id.

McDonald v. Ford Motor Company is another recent case involving the Song-Beverly

Act, in which plaintiffs alleged that a vehicle had an inherent defect at the time of sale. No.

3:13-cv-02988-JST, Order (Dkt. No. 43) (N.D. Cal. March 31, 2014). In McDonald, the

plaintiffs alleged that Ford breached implied warranties under the Song-Beverly Act and the

MMWA, because it knowingly sold vehicles that contained defective coolant pumps. Id. at 1-2.

The court acknowledged the disagreement among California courts as to whether a Song-Beverly

claim can succeed if the defect arises at the one-year implied warranty has expired, and then

dismissed the plaintiffs’ Song-Beverly claims on the ground that it was barred by the four-year

statute of limitations. Id. at 15. The plaintiffs alleged that the coolant pumps had an inherent

defect at the time of sale; accordingly, the court concluded that the latest a claim could be

brought was four years after the purchase of the vehicle. Id. at 16.13

The holdings from McDonald, Majdipour, and Grodzitsky provide guideposts for motion

to dismiss arguments directed at implied warranty claims under the Song-Beverly Act. First, in

states requiring manifestation, defendants should argue that the defect manifested itself (if at all)

outside the warranty time period.14

Second, even if the court holds that the defect is latent and

the defect manifested itself within the warranty period, defendant should argue that the statute of

12

The court similarly dismissed the plaintiffs’ implied merchantability claims under Tennessee and New Jersey law

because the defect manifested itself outside the duration of the implied warranty. Id. at *12-13.

13 The court similarly dismissed the plaintiffs’ Magnuson Moss Warranty Act (“MMWA”) claim because state law

determines the meaning and scope of the warranty under the MMWA and therefore the four year statute of

limitation also barred the plaintiffs’ MMWA claim. Id. at 18-19.

14 Some states do not require that plaintiff allege a manifestation of defect. In these states, the plaintiff needs only to

allege that the automobiles were sold with a defect and that the defect rendered the goods unfit for ordinary and safe

use. Lloyd v. Gen. Motors Corp., 916 A.2d 257, 291 (Md. 2007).

15 LEGAL02/34852200v6

limitations began running at the date of purchase, which will likely set an earlier date for the

statute of limitations to expire.15

3. Privity

Privity can be the death knell for warranty claims in certain states. In Speier-Roche v.

Volkswagen, for example, the court dismissed the plaintiff’s implied warranty of merchantability

claim under Florida law, holding that the plaintiff could not demonstrate privity. 2014 WL

1745050, at *8. Under Florida law, an action for breach of the implied warranty of

merchantability will not lie where there is no privity between the plaintiff and the defendant.

Where a plaintiff purchases a vehicle from a dealership and not the manufacturer, there is no

privity between the plaintiff and the manufacturer. In Speier-Roche, the plaintiff’s complaint

was directed at the manufacturer and she failed to allege any contractual privity with the

defendant or any agency relationship between the dealer and the manufacturer. Id. Accordingly,

the court dismissed the plaintiff’s implied warranty of merchantability claim. Id.; see also

Mitchell v. Gen. Motors LLC, 3:13-CV-498-CRS, 2014 WL 1319519 (W.D. Ky. Mar. 31, 2014)

(dismissing implied warranty of merchantability claims in putative class action under Kentucky

law where plaintiff failed to allege privity with manufacturer); Tae Hee Lee v. Toyota Motor

Sales, U.S.A., Inc., No. CV 13-7431-JFW VBKX, 2014 WL 211462, at *13, n.15 (C.D. Cal. Jan.

9, 2014) (dismissing implied warranty of merchantability claims on behalf of putative class

under California law because plaintiffs “admit that they did not purchase their vehicles from

[manufacturer] and, therefore, they were not in vertical privity with [manufacturer].”).

4. Secret Warranty Claims

Recently, plaintiffs have filed putative class actions alleging violation of California’s so-

called secret warranty law. A secret warranty claim may arise where a manufacturer adopts an

“adjustment program”16

that extends the consumer warranty period or if the manufacturer agrees

to pay all or any part of repairs to the consumer’s vehicle, but fails to notify consumers of the

program. See CAL. CIV. CODE § 1795.92(a), (d); Cholakyan v. Mercedes-Benz USA, LLC, 796 F.

Supp. 2d 1220, 1239 (C.D. Cal. 2011). These claims have generally failed at the motion to

dismiss stage because the plaintiffs fail to allege that the program at issue qualifies as an

15

In Mui Ho v. Toyota Motor Corp., 931 F. Supp. 2d 987 (N.D. Cal. 2013), the court dismissed the plaintiff’s Song-

Beverly Act claim because the plaintiff failed to allege when or from whom she purchased her vehicle.

Accordingly, the court could not assume that the plaintiff’s purchase fell within the Song-Beverly Act time limits.

16 An adjustment program is defined as:

any program or policy that expands or extends the consumer's warranty beyond its stated limit or

under which a manufacturer offers to pay for all or any part of the cost of repairing, or to

reimburse consumers for all or any part of the cost of repairing, any condition that may

substantially affect vehicle durability, reliability, or performance, other than service provided

under a safety or emission-related recall campaign. “Adjustment program” does not include ad hoc

adjustments made by a manufacturer on a case-by-case basis.

CAL. CIV. CODE § 1795.90(d).

16 LEGAL02/34852200v6

adjustment program. See Cholakyan, 796 F.Supp.2d at 1239-41 (dismissing secret warranty

claim where plaintiff failed to allege challenged program extended warranty coverage beyond

original period or constituted adjustment program); Feldman v. Mercedes-Benz USA, LLC, No.

2:11-CV-00984 WJM, 2012 WL 6596830 (D.N.J. Dec. 18, 2012) (dismissing secret warranty

claims brought on behalf of California-only subclass because plaintiff failed to allege that

program at issue extended coverage beyond original period or constituted an adjustment

program).

In Marsikian v. Mercedes Benz USA, LLC, however, the court denied the defendant’s

motion to dismiss the plaintiff’s secret warranty claim. No. CV 08-04876 AHM (JTLx), 2009

WL 8379784, at *7 (C.D. Cal. May 4, 2009). The plaintiff alleged that the defendant had a

policy of replacing clogged reed valves in certain Mercedes-Benz air intake systems, which was

not covered under the vehicle’s original warranty. Id. at *2. Additionally, the plaintiff alleged

that the defendant only extended the repairs to the reed valves to the most vocal customers,

refused to repair the plaintiff’s reed when requested, and failed to disclose the repairs. The court

held that these allegations were sufficient to state a claim for violation of secret warranty law.

Id. at *7.

Similarly, in Ehrlich v. BMW of North America, LLC, the court denied defendant’s

motion to dismiss the plaintiff’s secret warranty claim. 801 F.Supp.2d 908, 920 (C.D. Cal.

2010). The plaintiff’s secret warranty claim was based upon a program through which defendant

replaced windshields on certain Mini-Cooper models. Id. at 913-14. BMW, at the motion to

dismiss stage, argued that the windshield repair and replacement was made on a “case-by-case”

basis, and, therefore, could not be an adjustment program. The court rejected this argument,

holding that it was an argument more appropriate for the summary judgment stage. Instead, the

court held that the plaintiff sufficiently alleged a violation of the secret warranty law by alleging

that Ford had a

‘clandestine program to secretly pay for the cost of replacing or repairing’ cracked

windshields for some customers even if the crack was not stress-related and even

if the cracks occurred outside of the New Car Warranty for those customers who

were the most vocal and persistent, using code names for the repairs like

“goodwill” or “policy adjustments.”

Id. at 920.

Plaintiffs have also attempted to extend secret warranty claims to states outside

California. For example, in Haag v. Hyundai Motor America, the plaintiff alleged that Hyundai

had a secret warranty program that violated New York consumer protection laws. 969 F.Supp.2d

313, 315 (W.D.N.Y. 2013). The court dismissed this claim because the plaintiff’s allegations

were based upon generalized statements and not supported by statement of facts. Id. However,

the court did not foreclose the possibility that the plaintiff could assert a secret warranty claim by

pleading the right set of facts. Id.

The key distinction between successful and unsuccessful motions to dismiss for secret

warranty claims lies in the specificity with which the plaintiff has alleged that the defendant has

17 LEGAL02/34852200v6

adopted an adjustment program. Specifically, defendants have been most successful in

dismissing secret warranty claims where the complaint fails to allege that the repairs occurred

outside the warranty period, the defendant failed to disclose its repair program, and only offered

repairs to the most vocal customers. In contrast, the complaints that set forth these important

details will often survive Rule 12.

II. Trends and Strategies: Motions for Summary Judgment

The timing and strategy of motions for summary judgment will vary with the facts and

circumstances of each case. When they are filed concurrently with class certification briefing,

however, summary judgment motions can serve as yet another tool through which manufacturers

can preview for the court, using concrete examples, the reasons that a class cannot be certified.

For example, summary judgment motions directed at specific class representatives17

can

demonstrate how the proposed class representative is not typical of the absent class members and

highlight the myriad issues that will predominate, thus demonstrating that a class action is not a

superior method of adjudication of the claims. By making these arguments in a summary

judgment motion filed concurrently with a class certification opposition, defendants can force the

court to wrestle with issues that the court may otherwise consider hypothetical. In other words,

arguments made in the class certification briefing regarding individualized inquiries are

grounded and reinforced by the practical application of those issues raised in summary judgment

motions directed at particular persons under specific facts and circumstances.

Regardless of when a manufacturer intends to file a motion for summary judgment or

whether such a motion is directed only to putative class representatives or to a certified class, it is

important for a defendant to consider the record that will need to be developed to support its

summary judgment arguments. Defendants should begin developing these strategic

considerations as early in the litigation as possible, so that the necessary documentary evidence

and testimony can be adduced.

A. Evidence of Injury in Benefit of the Bargain Cases

It is essential for manufacturers to develop evidence, including expert testimony and/or

reports, to refute the plaintiffs’ claims that they have suffered injury in fact. A 2013 decision

from the Central District of California provides a helpful example of the importance of

developing a robust factual record. In In re Toyota Motor Corp. Hybrid Brake Marketing, Sales

Practices and Products Liability, the court granted summary judgment in the defendant’s favor

on plaintiff’s consumer fraud and warranty claims where the plaintiff could not demonstrate he

suffered an injury as a result of the alleged defect. 915 F. Supp. 2d 1151 (C.D. Cal. 2013). The

plaintiff alleged that the brakes on his Toyota Prius suffered from a defect which Toyota failed to

correct through a recall of the software in the Prius braking system. Id. at 1152. On summary

judgment, Toyota argued that none of the plaintiff’s claims could go forward because the

plaintiff could not demonstrate injury. The crux of Toyota’s argument was that the safety recall

17

A summary judgment ruling will not bind the entire class unless and until a class has been certified. Accordingly,

summary judgment motions prior to certification are often directed only to the class representative plaintiffs.

18 LEGAL02/34852200v6

of the plaintiff’s brake system remedied any defect in the plaintiff’s braking system. In support

of this argument, Toyota presented the testimony from Toyota’s Project General Manager, who

testified about Toyota’s software updates to correct the alleged defects and the testing of those

updates, and concluded that the software update remedied the issue, and the opinion of an

engineering expert, who confirmed this conclusion, ran tests, and concluded that the update

nullifies the possibility of extended stopping distance that existed in the pre-recall condition. Id.

at 1156-57. The plaintiff failed to present any evidence disputing this testimony, that his brake

system malfunctioned, or that he incurred any expense as a result of the alleged malfunction.

Instead, the plaintiff argued that he suffered an actual injury because he paid more for his

vehicle. The court rejected this argument, relying on testimony from the plaintiff himself to hold

that the plaintiff received exactly what he bargained for from Toyota after the brakes were fixed.

Id. at 1158-59 (“As Mr. Choi so aptly stated: ‘Now I'm happy, the brake is working fine.’”).

In addition to establishing evidence demonstrating that no common defect exists –

because, for example, there is no defect in the named plaintiff’s vehicle – manufacturers should

seek expert (and/or factual) evidence to rebut the causation requirement of the plaintiff’s claim.

In a benefit of the bargain case, a manufacturer should attempt to demonstrate that the recall

and/or the defect allegedly experienced by other consumers did not result in a diminished value

for the non-defective vehicle. To the extent that the vehicle’s value has declined, experts may be

required to opine that the reduced value is the result of numerous other factors not related to the

alleged defect.

B. Consumer Fraud

In addition to summary judgment arguments related to lack of defect and lack of injury,

which are required elements under virtually all consumer protection statutes, the elements of

reliance, causation, or materiality may provide additional avenues for summary judgment

arguments and help defendants set the stage for class certification. Shortly after a case is filed,

defendants should determine what is required by the state law(s) at issue in order to begin

developing the necessary evidence to defeat the plaintiff’s claims. For example, if the state law

at issue requires reliance, a defendant should attempt to illicit testimony from the plaintiff

admitting that she did not see or rely upon the allegedly false statements. If the state law

requires only proximate causation – and even if it permits a presumption of causation for

material representations or omissions – the manufacturer should develop evidence rebutting the

materiality of the statements at issue. This may come in the form of plaintiff deposition

testimony that the plaintiff would have purchased the vehicle even if she had known the omitted

information, or through affidavits of absent class members demonstrating that a reasonable

consumer would not find the alleged misrepresentation or omission material. Defendants should

also consider developing evidence from an expert on consumer behavior to demonstrate that the

alleged misrepresentations and omissions relate to a feature that is not material to consumers’

decision-making process. This sort of evidence would also highlight the problems with

19 LEGAL02/34852200v6

certifying a class and why reliance should not be presumed even in a state like California that

presumes reliance if a reasonable consumer would find the omission material.18

C. Warranty

If a named plaintiff’s warranty claims survive the motion to dismiss stage, the defendant

should engage in discovery aimed at determining whether the plaintiff in fact suffered any injury

and, if so, whether the alleged defect actually occurred within the warranty period. Defendants

should also engage in discovery aimed at revealing whether the cause of the plaintiff’s troubles is

in fact covered by the warranty at issue. Additionally, defendants should determine whether the

part at issue was subject to a recall or was replaced.

A recent case, Decker v. Mazda Motor of America Inc., provides an example of a

successful summary judgment motion. There, the named-plaintiff, a Florida resident, alleged

that certain Mazda vehicles suffered a defect called “crank no start,” wherein the engine would

not start after an owner had driven the vehicle a short distance, not allowing the engine to reach

normal operating temperature. No. SACV 11-0873 AG (RNBx), Order (Dkt. No. 124) (C.D.

Cal. March 17, 2014). Mazda extended the warranty period on the rotary engine core to eight

years and 100,000 miles to specifically cover this problem. Id. at *1. The plaintiff alleged that

she experienced a crank no start condition twice and that Mazda failed to reimburse her under the

warranty. Id. Mazda moved for summary judgment on the plaintiff’s breach of warranty claim,

arguing that the plaintiff could not present evidence that the plaintiff had valid claims under the

warranty for either of these incidents. Id. at *5-*6. The court granted Mazda’s motion. As to

the plaintiff’s first incident, the court held that it was not a true crank no start incident because

the plaintiff drove her car for twenty minutes, long enough for the engine to warm up to normal

operating temperature. Id. at *6-*9. Second, the court held that the plaintiff’s engine failed to

start in the first incident because of shorted ignition coils caused by fuel flooding and not

because of a problem with the rotary engine core. Id. The court rejected the plaintiff’s argument

that the fuel flooding was covered under the warranty. Specifically, the court held that the

plaintiff was “attempting to offer evidence to prove liability on a basis outside of the allegations

in her pleadings.” Id. at *7. The plaintiff made clear in her complaint that she was seeking

warranty coverage for the crank no start defect and not for shorted ignition coils. Id. (“Plaintiff

cannot move the target after discovery by seeking compensation for other defects.”). As for the

plaintiff’s second incident, the court held that the plaintiff could not maintain a breach of

warranty claim because she did not take her vehicle to a Mazda dealer as required by the

warranty. This case highlights the importance of developing a strong factual record – both

through the defendant’s internal documents, fact and expert witnesses, and through key

testimony from the named plaintiff.

Finally, when faced with secret warranty claims, the battleground is again determining

whether the challenged program qualifies as an adjustment program. In Smith v. Ford Motor

Co., the Ninth Circuit affirmed summary judgment on the plaintiffs’ secret warranty claims. 462

18

Materiality often overlaps with the idea of reliance, as courts have found a presumption of reliance whenever a

misrepresentation or omission is material. See In re Tobacco II, 46 Cal. 4th 298, 327 (2009).

20 LEGAL02/34852200v6

F. App’x 660 (9th Cir. 2011). The crux of the plaintiffs’ class claims were that Ford’s “After-

Warranty Assistance” program, which it failed to disclose, was an adjustment program under

California’s secret warranty law. Id. at 662. Through the program, Ford replaced 16,000

ignition locks on Ford Focus models. The plaintiffs argued that the large number of

replacements indicated that the program was an adjustment program. The Ninth Circuit rejected

this argument, citing Ford’s internal manuals which emphasized that repair decisions should be

made on a case-by-case basis and did not mention ignition locks. Id.

III. Trends and Strategies: Class Certification

Certification of a class action is appropriate only when the numerosity, typicality, adequacy

and commonality requirements of Rule 23(a) of the Federal Rules of Civil Procedure are met. In

addition, plaintiffs commonly seek certification of a class under Rule 23(b)(3), which also

requires a demonstration that questions of law or fact common to the class predominate over any

questions affecting individual members and that a class action is superior to other methods of

adjudication. Predominance and superiority are usually the key battle ground at class

certification.

Fortunately for defendants, courts in several jurisdictions have recognized the problems

posed when plaintiffs seek certification of a nationwide or multi-state class that requires the

application of several states laws. Plaintiffs have the burden of establishing predominance,

superiority, and manageability; however, when there are material conflicts among the states’

laws, plaintiffs are often unable to meet this burden. See In re Digitek Prods. Liab. Litig., MDL

No. 2:08-md-01968, 2010 WL 2102330, at *7 (S.D. W. Va. May 25, 2010) (emphasis omitted)

(quoting Joseph M. McLaughlin, McLaughlin on Class Actions § 5:46 (6th ed. 2009)) (“‘[W]hen

class certification is sought in a case based on state law claims, the question of which law

governs is crucial in making class certification determination.’”).

Even when a plaintiff seeks certification of a nationwide class under a single state’s laws,

defendants can argue that predominance is not satisfied due to individualized questions of fact,

such as the level of importance the consumer placed on the alleged defect in question, or whether

the plaintiff was actually exposed to the defendant’s alleged misrepresentation.

A. Standing and Manifestation of Defect

One of the most important issues currently facing manufacturers is whether a class that

includes members who lack Article III standing may be certified despite this seemingly fatal

deficiency. The Circuits are currently split on this issue, and the Supreme Court recently denied

two petitions for certiorari in cases that would have provided it with an opportunity to answer

this question. See Whirlpool Corp. v. Glazer, No. 13-431 (U.S. Feb. 24, 2014) (denying petition

for certiorari from 6th Circuit decision certifying a liability class); Sears, Roebuck & Co. v.

Butler, No. 13-430 (U.S. Feb. 24, 2014) (denying petition for certiorari from 7th Circuit decision

certifying a liability class).

The Second and Eighth Circuits have held that a class cannot be certified if it includes

persons who lack Article III standing. Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th

Cir. 2010); Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006). Recent opinions

21 LEGAL02/34852200v6

from the Sixth, Third, Seventh, and Ninth Circuits, however, have held that a class consisting of

members who lack Article III injury may nonetheless be certified. See In re Whirlpool Corp.

Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838 (6th Cir. 2013); Butler v. Sears,

Roebuck & Co., 727 F.3d 796 (7th Cir. 2013); Wolin v. Jaguar Land Rover N. Am., LLC, 617

F.3d 1168, 1173 (9th Cir. 2010); In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 275 (3d Cir.

2009). In light of the Supreme Court’s recent denials of certiorari, which leave undisturbed the

decisions of the Sixth and Seventh Circuits, it will be interesting to monitor whether other courts

begin to apply more lenient class-certification standards in product-defect cases where an alleged

defect manifests in only a small percentage of the product line.

For now, manufacturers should continue to challenge certification of classes that consist

of members who have not been injured on predominance grounds, as well as constitutional, due

process, and public policy grounds. Specifically, defendants should elucidate the pitfalls

involved in adopting the plaintiffs’ bar’s theory of standing: it would enable, if not encourage,

all product owners to bring a class action against a product manufacturer every time any owner

of the product is alleged to have experienced a malfunction of any kind, every time a

manufacturer issues a recall or service bulletin, or, indeed, every time the public becomes

concerned about the product’s safety for any reason (whether justified or not), even though the

owner instituting the lawsuit continues to enjoy her product without experiencing any problem

with it whatsoever. The drain on commerce and judicial resources would be astronomical.

In addition, manufacturers should argue that the presence of so many class members with

no injury in fact renders the class un-ascertainable in violation of an “essential prerequisite” to

class certification. Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349, 354 (3d Cir. 2013). In order to

establish that the proposed class is ascertainable, a plaintiff must show by a preponderance of the

evidence that the class is “defined with reference to objective criteria,” and that there is “a

reliable and administratively feasible mechanism for determining whether putative class

members fall within the class definition.” Id. at 354-55. As part of this analysis, the trial court

should ensure at the class certification stage that class members can be identified ‘without

extensive and individualized fact-finding or ‘mini-trials.’’” Carrera v. Bayer Corp., 727 F.3d

300, 307 (3d Cir. 2013) (quoting Marcus v. BMW of North America, LLC, 687 F.3d 583, 593 (3d

Cir. 2012)). Where putative class members have not experienced the alleged defect and/or have

not taken their vehicles to the dealer to repair the alleged defect, the proposed class raises

“serious ascertainability issues.” Marcus, 687 F.3d at 593. Moreover, a plaintiff cannot escape

her burden of establishing that the class is ascertainable merely because the defendant’s records

do not contain the information necessary to identify the members of the putative class. Hayes,

725 F.3d at 355-56.

Through these arguments, a manufacturer may be able to defeat certification outright on

Article III standing grounds. Even short of this result, however, a manufacturer should focus the

court’s attention on the individualized nature of the damage inquiry at the certification stage as

many courts have denied certification on this ground. In re Ford Motor Co. Bronco II Product

Liability Litigation, 177 F.R.D. 360, 374 (E.D. La. 1997) (denying certification of class of Ford

Bronco owners, who were suing manufacturer for diminution of value of vehicles based on car

model’s alleged high propensity to roll over in normal driving conditions, in part because of lack

of a common method of proof as to class-wide damages); In re Bridgestone/Firestone, Inc., 288

F.3d 1012, 1018 (7th Cir. 2002) (denying certification for nationwide class of SUV buyers

22 LEGAL02/34852200v6

seeking damages for diminished resale value of vehicles, based on allegedly defective tires, and

noting in dicta that putative class was not manageable even on statewide level, given that several

enumerated factors all affected resale value and thus each individual car’s diminution in value);

Bristow v. Lycoming Engines, No. Civ. S-06-1947 LKK/GGH, 2008 WL 850306 (E.D. Cal.

March 28, 2008) (decertifying class in case alleging economic damages resulting from defective

plane engines, as damages widely differed among individuals, and plaintiffs could not provide a

formula for calculating class-wide damages); Chin v. Chrysler Corp., 182 F.R.D. 448, 463

(D.N.J. 1998) (noting that, in class action wherein plaintiffs sought damages for “lost bargain” in

buying vehicles with alleged defect and diminished value of those vehicles, the value of each

vehicle depended on myriad of individual factors, such as “age, mileage, repair and maintenance

history and accidents or damage,” as well as differences in state law, and determining that such

individualization of damages weighed against a finding of predominance); see also O'Keefe v.

Mercedes-Benz USA, LLC, 214 F.R.D. 266 (E.D. Pa. 2003) (granting certification of settlement

class, but noting that the many different car models at issue, as well as differing levels of damage

sustained by class vehicles and lack of apparent damage in some cases, made it highly difficult to

create formula for determination of individual damages).

A common strategy by the plaintiffs in this situation is to argue that liability and damages

issues should be bifurcated – that the court may certify a liability-only class and leave damages

issues to individual lawsuits. Even if this argument is made, or if a court signals that this is its

intent, it would behoove manufacturers to point out the individualized nature of damages because

this underscores the individualized nature of the claims in general. In addition, the fact of injury

is a required element to most claims, which is separate and distinct from the measure of

damages. Beaulieu v. EQ Indus. Servs., Inc., No. 5:06-CV-00400BR, 2009 WL 2208131, at *21

(E.D.N.C. July 22, 2009) (“[T]he ‘[f]act of damage pertains to the existence of injury, as a

predicate to liability; actual damages involve the quantum of injury, and relate to the appropriate

measure of individual relief.”) (quoting Martino v. McDonald's Sys., Inc., 86 F.R.D. 145, 147

(N.D.Ill.1980)). Thus, it is possible to convince a court to deny even a liability-only class on this

basis.

B. Consumer Fraud Cases

State consumer fraud acts vary greatly in their requirements for reliance, causation, and

materiality–whether reliance is a required element and whether causation may be presumed

where the representation or omission is material. No matter the consumer fraud statute at issue,

however, a key strategy for manufacturers at the class certification stage is to demonstrate that

individualized issues of reliance, causation and/or materiality will predominate thereby

precluding class certification.19

19

Of course, depending on the statute at issue, there will be other viable arguments for defeating class certification.

For example, in Corder v. Ford Motor Co., 283 F.R.D. 337, 343 (W.D. Ky. 2012), the court refused to certify the

proposed class, holding that, to do so, would violate the defendant’s due process rights and the Rules Enabling Act

because the defendant was entitled to defend itself by arguing that the Kentucky Consumer Protection Act did not

apply to class members who may have purchased their truck for non-personal use. Similarly, depending on the

defect alleged, there may be individualized issues related to causation. See, e.g., Cholakyan, 281 F.R.D. at 555

n.108 (“Causation problems . . . stand in the way of identifying common issues here.”); Arabian v. Sony Elec. Inc.,

23 LEGAL02/34852200v6

In some jurisdictions requiring individual proof of reliance, plaintiffs face an uphill battle

in certifying a class. For example, the Fifth Circuit has established a pro se prohibition against

certifying class actions requiring individualized proof of reliance. See Castano v. Am. Tobacco

Co., 84 F.3d 734, 745 (5th Cir. 1996) (holding that “a fraud class action cannot be certified when

individual reliance will be an issue”). The Fourth Circuit has adopted a middle-ground approach,

holding that certification of claims requiring a showing of reliance is only appropriate in cases

involving uniform misrepresentations if the class representatives submit primarily general proof

that they personally received the misrepresentation and that their reliance was the proximate

cause of their loss. See Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th

Cir. 1998) (holding that class certification was inappropriate despite plaintiffs’ showing of

misrepresentations disseminated to entire class because plaintiffs also submitted substantial

evidence of reliance on individualized representations). Other jurisdictions, such as California,

are more permissive, allowing a presumption of reliance to arise in certain circumstances. Even

in California, however, defendants can defeat certification if presumption should not be applied

and individualized issues would therefore overwhelm common issues. See, e.g., Mazza v.

American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012) (no presumption of reliance where

class members’ exposure to advertisements varied and many were never exposed to the allegedly

misleading advertisements); Webb v. Carter’s Inc., 272 F.R.D. 489, 502 (C.D. Cal. 2011) (“[I]f

the issue of materiality or reliance is a matter that would vary from consumer to consumer, the

issue is not subject to common proof, and the action is properly not certified as a class action.”).

Issues of causation and materiality are inextricably intertwined with issues of reliance,

and manufacturers should focus the court’s attention on these issues–particularly where the

applicable state law does not require reliance. A 2012 decision from the Third Circuit

underscores the importance of these issues and demonstrates how a manufacturer can use

proximate cause as a substitute for a reliance requirement. In Marcus v. BMW of North America,

LLC, 687 F.3d 583 (3d Cir. 2012), the Third Circuit vacated a district court order certifying a

class for claims under the New Jersey Consumer Fraud Act (NJCFA) based on fraudulent

omissions. Id. at 611. The NJCFA requires the alleged violation to be a “proximate cause of the

plaintiff’s ascertainable loss,” but does not require reliance, and the district court found that

common issues predominated because it could apply a “presumption of causation” and,

therefore, focus solely on the defendant’s conduct. Id. at 606-07. The Third Circuit disagreed

and held that the district court erred by focusing exclusively on the defendants’ conduct and in

failing to make critical factual findings necessary to the predominance analysis. Id. at 611.

Specifically, the court was required to find that either: (1) the alleged omitted facts “were not

knowable to a significant number of potential class members before [their purchase]”; or (2)

“even if the [omitted facts] were knowable, that class members were nonetheless relatively

uniform in their decisionmaking,” suggesting that only an “insignificant number of class

members” made their purchase with such knowledge. Id. If these findings are not present, the

court may not presume causation, and “individual questions related to causation will

predominate.” Id.

No. 05-cv-1741, 2007 WL 627977, at *12 (S.D. Cal. Feb. 22, 2007) (denying class certification because “there is no

expert evidence that the problems experienced by [the named plaintiffs] emanated from the same root cause”).

However, because reliance/causation issues will arise under nearly all consumer protection statutes, this paper

focuses on these issues.

24 LEGAL02/34852200v6

These cases underscore the importance of developing record evidence–both facts and

expert testimony–to demonstrate at the class certification stage the numerous individualized

inquiries necessary in resolving issues of reliance, causation and materiality. Evidence should be

introduced to establish that putative class members: (1) bought the product for a host of

idiosyncratic reasons, many of which are wholly unrelated to the alleged defect; (2) were not

necessarily exposed to the representations or messages at issue in the litigation; (3) saw or heard

a wide array of different messages and representations about the product from a similarly wide

array of different sources other than the manufacturer; (4) would value and weigh both

representations and undisclosed information in different ways, if at all; and (5) would not have

changed their purchasing decision had the “truth” been disclosed to them. Expert testimony is

essential in this regard. Experts can establish the wide ranging degree of importance that

proposed class members place on the allegedly defective feature and that, as a result, the

proposed class members were all affected by the alleged misrepresentation differently.20

While

some of the proposed class members may find the misrepresentation material because it relates to

a feature they believe is essential or highly desirable, others may find the misrepresentation of

such little consequence that they continue to use their vehicle or would purchase it again in the

future. See e.g., Edwards v. Ford, No. 11-CV-1058, 2012 WL 2866424, at *9 (S.D. Cal. June

12, 2012) (denying certification where defendant put forth “persuasive expert evidence that the

level of importance a potential car buyer places on safety concerns varies from consumer to

consumer such that the reasonable consumer standard cannot be applied on a classwide basis”);

Johnson, 285 F.R.D. at 580-81 (denying certification because defendant’s expert offered

persuasive evidence that materiality of excessive heat defect would vary from consumer to

consumer, former named plaintiff admitted he would still buy and recommend motorcycle, and

defendant had loyal customer base); Oscar, 274 F.R.D. at 513 (denying certification because

plaintiff failed to establish on a class-wide basis that consumers would have paid less had they

known of the alleged defect).21

C. Warranty Claims

In class action seeking to certify a nationwide class or sub-classes, a key strategy to

defeat certification of implied or express warranty claims is to argue that variations in state law

would predominate making the class action unmanageable.22

When faced with a state specific

claim, defendants should focus on proving that plaintiff cannot demonstrate a common defect.

20

Defendants should also consider obtaining testimony from absent class members to rebut the “reasonable

consumer” standard and demonstrate that materiality varies from consumer to consumer, precluding certification.

21 Similarly, in states that require causation in lieu of reliance, the individualized nature of a consumer’s purchase

decision may destroy predominance. See Oscar v. BMW N. Am., LLC, No. 09 Civ. 11(PAE), 2012 WL 2359964

(S.D.N.Y. June 19, 2012) (concluding it impossible to establish causation on large scale given confounding factors

that affect consumer’s purchase decision).

22 Similar arguments can likewise be made in cases attempting to apply a single state’s consumer

25 LEGAL02/34852200v6

1. Variations in State Law

Variations in state warranty law can often be used to defeat certification of a nationwide

class. For example, in California, pre-suit notification of a defect is not a prerequisite to a

warranty claim “where the consumer did not deal directly with the manufacturer.” Keegan v.

Am. Honda Motor Co., Inc., 284 F.R.D. 504, 547 (C.D. Cal. 2012) leave to appeal denied, 12-

80138, 2012 WL 7152289 (9th Cir. Nov. 9, 2012). In other states, however, pre-suit notification

of the defect to the manufacturer is a prerequisite. See id. (holding that pre-suit notification is a

prerequisite under North Carolina and New York law); Schmidt v. Ford Motor Co., No. 2:12-cv-

7222, Order (Dkt. No. 34) (E.D. Pa. Sept. 23, 2013) (holding that pre-suit notification is

prerequisite under Arkansas, California, Pennsylvania, and New Jersey law). In Keegan, the

court concluded that it could not certify a breach of express warranty class under California law

because New York and North Carolina differed as to whether pre-suit notification was required.

Keegan, 284 F.R.D. at 548.23

Similarly, in Decker v. Mazda Motor of America, Inc., the court held that California’s

secret warranty law could not be applied to a nationwide class. No. SACV 11-0873 AG (RNBx),

Order (Dkt. No. 80) (C.D. Cal. March 29, 2013). The court reasoned that because the secret

warranty law lacks a comparable counterpart in most states, it cannot be applied to a nationwide

class. The court further opined that the Secret Warranty law only applies to vehicles registered

in California. Id. at *17.

Additionally, courts routinely decline certification of nationwide class claims under the

Magnuson Moss Warranty Act (“MMWA”). The MMWA provides a federal cause of action for

breach of implied warranty by federalizing already existing state laws on implied warranties.

Accordingly, courts refuse to certify nationwide classes because variations in state law

predominate over common questions. See Oscar, 274 F.R.D. at 510 (denying certification of

nationwide class asserting MMWA claims because variations in state law predominated over any

common questions). For example, states vary as to whether or not a defect must manifest itself

to maintain a breach of warranty claim. See Lloyd, 916 A.2d at 290 (“a plaintiff need only plead

that the automobiles were sold with a defect and that the defect rendered the goods unfit for

ordinary and safe use” to assert a breach of implied warranty claim); O’Neil v. Simplicity, Inc.,

553 F. Supp. 2d 1110, 1115 (D. Minn. 2008) (“It is simply not enough for a plaintiff to allege

that a product defect suffered by others renders his or her use of that same product unsafe; the

plaintiff must instead allege an actual manifestation of the defect that results in some injury in

order to state a cognizable claim for breach of warranty…”), aff’d, 574 F.3d 501 (8th Cir. 2009).

In Martin v. Ford Motor Co., the court similarly declined to certify a 23 state putative

class asserting breach of express warranty. 292 F.R.D. 252, 272 (E.D. Pa. 2013). “The Court is

not persuaded . . . that the law of all twenty-three states is sufficiently similar to be capable of

classwide application at trial.” Id. For example, the court noted that Florida, New York, and

Oklahoma law all required “that a buyer show reliance on a statement or representation made by

23

The court certified a California only breach of warranty class.

26 LEGAL02/34852200v6

the seller as condition for recovery on a breach of express warranty claim,” while other states do

not have this requirement. Id.

2. Lack of Common Defect or Damages

The Southern District of New York’s decision in Oscar also presents an important lesson

in defending and defeating state-specific warranty class actions. The plaintiff’s claims in Oscar

were based on an alleged defect in defendant’s run-flat tires (“RFTs”). In addition to the

nationwide classes, the plaintiff also sought New York only breach of express and implied

warranty classes. The court denied certification of both claims. The court held that because the

plaintiff could not prove a common defect in the RFTs, each putative class member will need to

prove that the RFTs failed because of a common defect. Such an individualized inquiry, the

court held, made class treatment inappropriate. 274 F.R.D. at 511-12; see also Daniel v. Ford

Motor Co., No. CIV. 2:11-02890 WBS, 2013 WL 3146810, at *6 (E.D. Cal. June 18, 2013)

(declining motion to certify class alleging Song-Beverly Act claims where “[r]esolving whether

the alleged suspension defect caused the tire wear in Daniel’s vehicle will not resolve the same

question for other class members who might have experienced different types of tire wear caused

by different factors.”); Am. Honda Motor Co. v. Superior Court, 199 Cal. App. 4th 1367, 1378,

132 Cal. Rptr. 3d 91, 100 (2011) (declining to certify breach of warranty claims where “whether

each proposed class member’s third gear malfunctioned, if it will malfunction, how it

malfunctioned and why it malfunctioned are individual questions not amenable to common

proof.”); Burton v. Chrysler Grp. LLC, No. CIV.A. 8:10-00209, 2012 WL 7153877, at *4

(D.S.C. Dec. 21, 2012) (declining to certify class where “[p]laintiffs . . . failed to specify a

specific defective component”). Similarly, courts decline to certify classes where plaintiff fails

to put forth a common method for determining damages. See Martin, 292 F.R.D. at 276 (holding

that subclasses could not be certified because plaintiff failed to present a model that calculated

damages on a classwide basis).

IV. Specific Applications Regarding Accuracy of Disclosures: Fuel Efficiency &

Odometer Cases

A. Fuel Efficiency Cases

In recent years, there have been numerous consumer fraud class actions in which

plaintiffs allege that a defendant misrepresented the expected fuel economy of a vehicle. These

consumer fraud claims are based on both affirmative representations and omissions. See Gilles,

2014 WL 544990 (D. Col. Feb. 12, 2014) (alleging both failure to disclose and affirmative

misrepresentation). Fortunately for defendants, fuel economy class actions based on breach of

warranty are unlikely to be successful as the relevant federal statute clearly states, “[a] disclosure

about fuel economy or estimated annual fuel costs under this section does not establish a

warranty under a law of the United States or a State.” 49 U.S.C. § 32919. See also Paduano v.

Am. Honda Motor Co., 169 Cal. App. 4th 1453, 1465-66 (2009) (granting defendant’s motion for

summary judgment on breach of warranty claims resulting from fuel economy advertisements).

Defendants often argue that federal law impliedly preempts state law consumer fraud

claims, courts have routinely rejected the preemption argument. Two bodies of law, The Energy

Policy and Conservation Act of 1975, 49 U.S.C. § 32901-32919, and an FTC regulation, “Guide

27 LEGAL02/34852200v6

Concerning Fuel Economy Advertising for New Automobiles” 16 C.F.R. § 259.2, form the basis

of the preemption argument. Under the Energy Policy and Conservation Act, the EPA is

responsible for establishing fuel-efficiency testing protocols that manufacturers use to test the

fuel economy of their vehicles. 49 U.S.C. § 32908(b)(1). After testing, manufacturers are

required to post the vehicle’s fuel-efficiency on a car’s Monroney Sticker, and must include a

disclaimer stating that the actual mileage will vary depending on how the consumer drives and

maintains the vehicle. 40 C.F.R. § 600.302-08(b)(4). In addition, the EPA regulations require a

manufacturer to develop and make available to consumers a fuel economy booklet. § 49 U.S.C.

32908(c). Under the FTC regulation, manufacturers must advertise the EPA estimated miles per

gallon in a clear and conspicuous manner, and must indicate that the miles per gallon are

estimates based on the EPA’s testing procedures. 16 C.F.R. § 259.2.

In Gilles, the court held that a plaintiff’s fuel-efficiency consumer fraud claim was not

preempted because the plaintiff was not alleging that the defendant failed to comply with any of

the Energy Policy and Conservation Act requirements. Gilles, 2014 WL 544990, at *3-4.

Instead, the court reasoned that the plaintiff was alleging that that defendant made fraudulent

representations that went beyond the statements required by the Act. Id. In addition, the court

reasoned that while the defendant had likely violated the FTC regulation by failing to identify the

advertised miles per gallon as only estimates, the violation was consistent with Colorado’s

consumer fraud statute. Id. According to the court, the defendant’s implied preemption

argument was especially weak because the regulation of advertising is an area traditionally

regulated by the states, which requires congressional intent to preempt to be clear and manifest.

Id. at *4.

Defendants will be relieved to know that while omissions cases are easier to plead in a

typical consumer fraud case, the opposite may be true in an omissions fuel efficiency case. In

Gray, the district court did not even address preemption when granting the defendant’s motion to

dismiss. Instead, the court rejected the plaintiff’s omission theory, finding the defendant did not

have a duty to disclose since fuel economy is not a safety-related defect. Gray, 2012 WL

313703 at *5. The court also rejected the plaintiff’s affirmative representation theory,

concluding there was nothing false or misleading about the defendant’s advertising that

identified the EPA fuel economy estimates. Id. at *6. The court reasoned that imposing liability

would impermissibly “allow one to ‘directly’ challenge the accuracy of the EPA estimates by

way of state law causes of action.” Id.

B. Odometer Cases

While not as popular in recent years, there continue to be class actions in which plaintiffs

allege that their odometers were manufactured to over-register mileage. The Federal Odometer

Act prohibits a person from installing a device that causes an odometer to over-register mileage,

or to disconnect or alter an odometer with the intent to change the mileage registered by the

odometer. See 28 U.S.C. §§ 32703(1)-(2). Plaintiffs have had mixed success in arguing that the

Federal Odometer Act is applicable. While some courts have held that the Act applies only to

post-manufacture tampering of an odometer involving an independent device, other courts have

held that the Act applies if a manufacturer intentionally designed the odometer to over register

mileage. Compare Baxter v. Kawasaki Motors Corp., U.S.A., 911 F. Supp. 2d 683 (N.D. Ill.

28 LEGAL02/34852200v6

2012) (finding Odometer Act applies only to post-manufacture tampering involving added

devices) with Vasilas v. Subaru of Am., Inc., No. 07 CV 2374 (GBD), 2009 WL 8447590

(S.D.N.Y. Aug. 5, 2009) (concluding that component part of odometer causing odometer to

register outside of capable accuracy range is covered by Odometer Act).

One possible result of the uncertainty surrounding the Federal Odometer Act is that

plaintiffs will increasingly rely solely on state consumer fraud law. Although plaintiffs have

obtained class certification in odometer cases based on traditional consumer fraud, defendants

can, and should, still use the traditional consumer fraud defenses to their advantage. See Baxter,

911 F. Supp. 2d 683 (granting defendants’ motion for summary judgment post-certification, in

part, because defendant lacked requisite intent to defraud). Regardless, whether the plaintiff’s

claim is brought under the Federal Odometer Act or is based on state consumer fraud laws, both

laws require a plaintiff establish fraudulent intent by the defendant. Generally, in odometer

cases, defendants are able to successfully challenge this element based on automotive industry

guidelines that recommend an acceptable accuracy range of plus or minus 4% for odometers.

Fortunately, the majority of defendants’ odometers register well within the recommended 4%

range. Baxter, 911 F. Supp. 2d at 688. Taking the industry guidelines into account, courts

routinely find that designing an odometer within the recommended range, even when the

odometer could have been designed to be more accurate, cannot support an inference of fraud.

Baxter, 911 F. Supp. 2d at 689; Lopez v. Nissan N. Am. Inc., 201 Cal. App. 4th 572, 580-81

(2011).

In addition, defendants may be successful in arguing that state law offers a “safe harbor”

from liability for fraudulent or unfair business practices if the defendant complies with an

applicable national standard. For example, in Lopez, the defendants successfully argued that its

compliance with the National Institute of Standards and Technology (NIST) tolerance standard

of 4%, which had been adopted by California, triggered safe harbor protection, and the district

court agreed. Lopez, 201 Cal. App. 4th at 591 (discussing CAL. BUS. & PROF. CODE § 12500(c)).

According to the court, if the instrument was correct as a matter of law, the plaintiff would be

required to introduce evidence of the defendant’s deliberate miscalculation in the design of the

odometer to overcome the safe harbor. Id. at 580. Otherwise, the defendant had no duty to

disclose that its odometer may not be 100% accurate. Id. at 592. However, in In re Nissan

North America, Inc. Odometer Litigation, the Middle District of Tennessee refused to apply

California’s safe harbor, finding that the NIST standards did not purport to address the question

of whether manufacturers manipulated the accuracy of the odometer, and should not be used to

“create a window for unaccountable fraud.” 664 F. Supp. 2d 873, 888 (M.D. Tenn. 2009).

V. Conclusion

While no-injury consumer fraud and breach of warranty class actions may be

unavoidable, defendants should remember that litigation is not indefensible. This paper provides

some strategies that manufacturers should consider from the beginning of the case through class

certification. Effective use of these strategies may allow a manufacturer to narrow the claims

asserted, if not have them dismissed entirely, and to prepare a successful defense to class

certification.