Federal Court Dismisses Diminished Value Class Action Against Automaker
Law 360 recently reported (subscription required) on another federal decision that dismissed a "diminished value" class action for lack of standing because the named plaintiffs had not actually experienced any problem with their automobiles; rather, they were merely suing for an unmanifested defect. See Contreras v. Toyota Motor Sales USA, Inc., No. C 09-06024 JSW, Slip op. (N.D. Cal. June 18, 2010) (opinion available at Law360).
In Contreras, plaintiffs sued on behalf of all persons "who own or lease 2009 and 2010 Toyota Corolla, and Toyota Corolla Matrixes and 2009 and 2008 and 2009 Scion xD vehicles with 1.8 liter engines." Slip op. at 1. The class excluded anyone who suffered a personal injury. Plaintiffs sued for alleged violations of California's Consumer Legal Remedies Act ("CLRA") and the Unfair Competition Law ("UCL"), as well as breaches of express and implied warranties,
Toyota had recalled the cars in December 2009 because it discovered that, under certain driving conditions in extremely low temperatures, condensation from the crank case freezes in such a way that it blocks the brake vacuum's suction port, making the brakes much more difficult to apply. The recall was only for 19 states in which temperatures might get so low as to cause the problem to manifest, but Toyota also sent a service campaign notice to vehicle owners in the other states, informing them of the potential problem and instructing them to get free service on the vehicle if there was any chance it would be driven in those 19 states. Approximately 57% of the vehicle owners in the warmer states had obtained the free service on their cars.
The district court dismissed plaintiffs' complaint for lack of standing because plaintiffs never experienced a problem with braking themselves, they had received the free service that would prevent it from happening, and they could not plead that they were in imminent danger of the "defect" manifesting. In doing so, it relied heavily on the Ninth Circuit's decision in Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009), in which rejected standing for plaintiffs with an unmanifested defect and rejected the so-called "diminished value" theory of harm -- that the product with a putative defect was worth less than they had paid for it -- because it rested on a hypthetical risk of loss to others that may or may not happen.
Criticizing plaintiffs' complaint, the district court noted:
First, Plaintiffs do not allege that their vehicles have manifested the alleged defect. Second, setting aside any possible dispute as to the specific conditions that would be necessary for the alleged defect to manifest itself, Plaintiffs have not alleged that it is reasonably likely that they intend to drive their vehicles in the conditions set forth in the Special Service Campaign Notice or in one of the Recall States. . . . Plaintiffs do not allege that they were forced to replace their vehicles after learning of the alleged defect or that they incurred any out-of-pocket damages. Finally, Plaintiffs allegation that their vehicles are worth substantially less than they would be without the alleged defect is conclusory and unsupported by any facts.
Slip op. at 9. Accordingly, the court dismissed the plaintiffs statutory and breach of warranty counts. Moreover, because the complaint already had been amended once, the court found that amendment would be futile and therefore dismissed the complaint with prejudice.
Contreras is yet another example of the growing body of authority recognizing that litigants lack standing where their product has not malfunctioned. So-called "diminished value" claims fail to state a warranty or consumer fraud claim.
