Federal Court in OnStar Litigation Dismisses Some Claims, Retains Others
The court's recent decision in In re OnStar Contract Litigation, 2009 WL 415990 (E.D. Mich. Feb. 19, 2009) is a grab bag of rulings favoring both plaintiffs and defendants.
Plaintiffs in OnStar are buyers and lessees of four manufacturers' autos equipped with the OnStar in-vehicle telecommunications system that provided "automatic crash notification to emergency responders, stolen vehicle location, remote door unlock and remote diagnostics in the event of problems with airbags, anti-lock brakes or other systems." Id. at *1. Plaintiffs allege that by August 2002, the manufacturers knew that because the Federal Communications Commission ruled that cell phone companies need not support analog signals after February 2008, the analog OnStar equipment would stop working by 2008. Plaintiffs allege the manufacturers' failure to tell buyers this fact violated various state laws. They brought a putative class action against four auto manufacturers and OnStar, alleging breach of warranties and violations state consumer protection statutes.
The defendants moved to dismiss. They won some, and lost some.
The court began by noting the importance of a proper choice of law analysis, particularly for class certification. But plaintiffs alleged that they needed discovery to conduct a proper analysis. Accordingly, the court tabled any issue that required a choice of law analysis.
Except one. None of the plaintiffs were Michigan residents, and yet they had brought a claim for violation of Michigan's Consumer Protection Act, arguing that this was proper because Michigan is the defendants' primary place of business. The court looked to the text of the MCPA, which limits class actions under the MCPA to people "residing or injured" in Michigan. The court rejected plaintiffs' argument that because they paid money that ultimately flowed into Michigan, they were "injured in" Michigan. Accordingly, it dismissed the MCPA claim. Id. at *4-*5.
But the court tabled the determination regarding other states' consumer protection statute claims because it would involve individual state-by-state analysis into whether a plaintiff may have the benefit of a discovery rule or equitable tolling of the statute of limitations due to fraudulent concealment. Id. at *5-*6.
A number of defendants made individual arguments about the statutory claims that the court rejected. For example:
1. The court rejected OnStar's argument that the consumer protection act claims failed for failure to plead with particularity under Rule 9(b). The court observed that these claims were based on a variety of theories, including warranty theories, that were not fraud-based.
2. The court also rejected OnStar's argument that the plaintiffs failed to adequately plead a "co-venture" that would make OnStar liable for other defendants' actions.
3. The court rejected Honda's argument that the California, New York, and Washington consumer protection act claims failed because they were inconsistent with the terms of the express warranty. The court relied on the safety-related allegations about not having On-Star to conclude that it was possible those states would recognize a CPA claim that goes beyond the term of the express warranty.
4. The court also rejected Subaru's argument that the fraud claims should fail because the complaint establishes that plaintiffs received constructive notice from the FCC that the analog equipment would cease to work.
5. In addition, the court rejected Subaru's argument that the consumer protection act claims should be dismissed for being predicated on express warranty claims that are unsustainable.
6. Volkswagen argued that plaintiffs had not pled a "transaction" under California's Consumer Legal Remedies Act because plaintiffs bought the cars from dealers, not VW directly. The court wholly rejected the argument.
7. The court also rejected VW's proposed interpretation of Colorado's consumer protection statute, holding that the statute does not preclude class actions for damages.
VW did, however, win one important issue regarding the statutory counts. Section 901(b) of the New York statute precludes class actions for exemplary damages unless such a class action is expressly authorized by another statute. Plaintiffs argued that this provision was merely procedural and thus did not apply in federal court. The OnStar court disagreed, holding that it was substantive law that applies in federal court. Id. at *14.
The defendants also scored an important victory on the warranty counts. Defendants challenged the warranty claims because the OnStar equipment was fully functional for the entire term of the durational warranty. Citing an Illinois decision, the court recognized that allowing claims beyond the durational limits in the warranty would make the manufacturer the insurer for the product and extend the relationship beyond what it had contracted. Id. at *16. Thus, the court held that because the Limited Warranty expired before any plaintiff first asserted a warranty claim, the express and implied warranty claims of those plaintiffs whose claims were governed by the UCC must be dismissed. The court also held that the complaint failed to plead that the warranty terms were unconscionable. Id. at 19.
For the remaining implied warranty claims, the court refused to rule because they required a conflicts of law determination. And because the implied warranty claims impacted the claim asserted under the Magnuson-Moss Warranty Act, the court deferred decision on that count, too.
The OnStar decision is a good example of the use of a motion to dismiss to whittle away certain claims, leaving the others ripe for summary judgment after discovery. Given that the remaining claims are primarily those premised on various states' consumer protection statutes, it seems clear that the defendants have strong arguments opposing the certification of a class in the action because of the difficulty of applying various states' laws in a single trial.
