Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

District Judge Dennis M. Cavanaugh recently issued an opinion in a consumer warranty class action that provides a good illustration of basic principles of warranty law.  In Suddreth v. Mercedes-Benz, LLC, Civ. A. No. 10-CV-05130 (DMC-JAD), Slip op. (D.N.J. Oct. 31, 2011), the plaintiffs -- owners of 2006 Mercedes ML 350 cars -- brought a putative class action against Mercedes, claiming that their soccer mom cars were defective because the balance shaft gear had a tendency to wear out prematurely, causing the "check engine" light to illuminate and the car to misfire or stop running.  Mercedes had issued a technical service bulletin about the problem in 2007, and it changed the design of its engine in 2009.  

Mercedes moved to dismiss the lawsuit, and Judge Cavanaugh ultimately granted the motion.

Mercedes moved to dismiss the express warranty cause of action on the ground that the failures in plaintiffs' vehicles occurred outside of the 4-year/50,000 mile warranty.  Plaintiffs argued that the "defect" was latent in the vehicle during the warranty period, but the court noted that "[c]ourts have consistently rejected claims that a latent defect was present in a vehicle from the date of manufacture, when that defect did not manifest itself until outside of the warranty period."  Slip op. at 6 (citations omitted). 

Plaintiffs also argued that the warranty was unconscionable because it did not cover the expected useful life of the balance shaft gear.  The court rejected that argument, too.  It noted that merely knowing that a product might fail after the expiration of the warranty is not enough to make a limited warranty unconscionable.  Slip op. at 7.  Moreover, plaintiffs' use of their vehicles during the warranty period without failure simply cannot be classified as "nominal" use of the product.  Slip op. at 8.

As for the breach of implied warranty claim, the court focused on the fact that plaintiffs drove their cars for the full warranty period without incident:  "It is simply not plausible that a motor vehicle could be classified as not merchantable when it has been used for its intended purpose for 4 years and 50,000 miles."  Slip op. at 9.

Plaintiffs also had sued under various state consumer fraud statutes, arguing that Mercedes's failure to disclose these "known" defects was an unfair practice that violated the statute.  The court, analyzing the New Jersey Consumer Fraud Act, noted that where an allegedly defective product is alleged to have been under warranty, a claim for a defect that manifests after the warranty period cannot establish liability under the NJCFA unless "the manufacturer knew with certainty that the product at issue or one of its components was going to fail."  Slip op. at 10.  Because Mercedes had no certainty that the gear would fail, there was no liability under the NJCFA.  As for the other states' statutes, the court also relied on the fact that there was no evidence that Mercedes knew the gear's propensity to fail until after it had sold the cars.  It also held that the Massachusetts plaintiff's failure to provide statutory notice defeated his claim.

The court also dismissed claims for strict liability and negligence, relying on the economic loss doctrine.  Slip op. at 11.  And it dismissed the unjust enrichment claim, noting that the failure of the other causes of action that had alleged wrongful conduct meant that the unjust enrichment claim must be dismissed as well.

The decision in Suddreth makes it very clear that when you buy a product under a limited warranty and the product performs for the full life of the warranty, you have no cause of action if it subsequently requires repair.  No amount of creative lawyering about "latent defects" that allegedly existed "unmanifested" during the warranty period should change this basic fact.

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US District Judge Dickinson Debevoise recently wrote an opinion that is a good reminder of the scope and breadth of warranty law.  See Alban v. BMW of North Am., L.L.C., 2011 WL 900114 (D.N.J. Mar. 15, 2011).  In Alban, plaintiff alleged that his car developed a "burnt crayon" smell outside of the warranty period.  He pointed to two of BMW's own internal Technical Service Bulletins ("TSBs") that acknowledged the potential for the condition to occur and attributed the smell to degradation of either the rear parcel shelf insulation or the sound insulating mat under the rear parcel shelf.  Both TSBs noted that replacement of the relevant part would be covered under the terms of the BMW New Vehicle Limited Warranty.

The limited warranty ran for 48 months or 50,000 miles, whichever occurs first.  It also provided that "THE DURATION OF ANY IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTY OF MERCHANTABILITY, IS LIMITED TO THE DURATION OF THE EXPRESS WARRANTIES HEREIN."

BMW refused to fix plaintiff's auto, so naturally he brought a class action, asserting claims of breach of express and implied warranties, breach of the Magnuson-Moss Warranty Act, breach of the covenant of good faith and fair dealing, breach of New Jersey's Consumer Fraud Act, and unjust enrichment.  Last Fall, the court issued an opinion dismissing plaintiff's unjust enrichment claim with prejudice and the rest of the claims without prejudice.  The court noted that the warranty and MMWA claims were barred by the statute of limitations, and instructed plaintiff that if he was going to plead unconscionability of the warranty limitations or fraud, he needed to plead with particularity what BMW knew and when it knew it, so that he could prove that all cars of his model were defective, that the company knew the parts were certain to fail, and that the limitation in the warranty was an intentional effort to avoid the cost of repairing the defect.  Id. at *5.

Plaintiff filed another complaint asserting the same causes of action, and in support thereof pled that BMW had knowledge of the potential for the smell to develop (relying on certain documents), it knew the smell would not develop until after the warranty period had passed, it concealed that information and thus prevented plaintiff from bargaining for a warranty that would cover the defect, and there was a disparity of bargaining power between plaintiff and BMW.  Id. at 6.

Judge Debevoise's opinion reminds us that a limited warranty is just that -- limited -- and you are not entitled to expect a product to function without problem or defect outside of the warranty period:

However, in its prior opinion, the Court rejected the argument that, even though a defect does not manifest until after the expiration of a warranty agreement, a plaintiff can nonetheless maintain breach of warranty claims by alleging that the manufacturer knew about the defect at the time of purchase.  Indeed, the Court found that "the general rule, stated in Duesquesne, prohibiting breach of warranty actions premised on defects that did not arise until after the warranty expired applies to Plaintiff's claims regardless of his assertion that BMW knew that his vehicle was defective before the time-limit took effect.  Therefore, by extension, Mr. Alban's allegations that BMW knew that the sound insulation in his vehicle would fail after the expiration of the warranty agreement do not indicate that the time and mileage limitation clause was unconscionable.

Moreover, Mr. Alban's bare-bones allegations that he had "no meaningful choice in determining" the time and mileage limitation, and that "a gross disparity in bargaining power existed between" him and BMW, are "no more than conclusions [that] are not entitled to the assumption of truth."  Iqbal, 129 S. Ct. at 1950.

Id. at *9 (citations omitted).

The court also dismissed the NJCFA claim, observing that where an allegedly defective product was covered by a limited warranty and the alleged defect has manifested outside of the warranty period, the plaintiff must allege that the defendant knew with certainty that the product would fail outside the warranty period in order to maintain an NJCFA claim.  Plaintiff could not.  Id. at *10.

The court also had some useful instruction regarding TSBs:

Finally, as a practical matter, the Court is hesitant to view technical service bulletins, or similar advisories, as potential admissions of fraudulent concealment of a defect.  Such advisories are generally the result of consumer complaints that cause a manufacturer to investigate, diagnose, and remedy a defect in one of its products.  Accepting these advisories as a basis for consumer fraud claims may discourage manufacturers from responding to their customers in the first place.

Id. at *12.

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In Levinson v. Johnson & Johnson Consumer Cos., 2010 WL 421091 (D.N.J. Feb. 1, 2010), Judge Dennis Cavanaugh was confronted with yet another attempt to turn a product liability action into a consumer fraud class action by carefully pleading only economic harm and a failure to disclose the risk of harm.  Faced with motion to dismiss, Judge Cavanaugh significantly narrowed the class, but he allowed certain limited claims to go forward.

In Levinson, some Missouri plaintiffs brought a putative nationwide class action against J&J and Wal-mart, alleging that J&J's Baby Shampoo and Wal-mart's Equate Tearless Baby Wash contained trace amounts of chemicals that increase the risk of cancer, cause skin irritation, and can lead to asthma and hypersensitivity.  Plaintiffs allegedly had independent lab tests conducted that identified trace amounts of methylene chloride (which FDA has banned from use in cosmetics), 1,4-dioxane and formaldehyde.  Plaintiffs alleged that the defendants' failure to disclose the presence of these chemicals -- as well as statements such as "Ultra Mild," "Hypoallergenic," and "gentle enough even for newborns" -- constituted a violation of state consumer fraud statutes, a breach of the implied warranty of merchantability and implied warranties of fitness for a particular purpose, and unjust enrichment.

The defendants moved to dismiss for lack of standing and for failure to state a claim as a matter of law.  In analyzing their standing argument, the court relied heavily on Koronthaly v. L'Oreal, 2008 U.S. Dist. LEXIS 59024 (D.N.J. July 25, 2008), a case involving the purchase of lipstick containing lead.  Judge Cavanaugh described the holding in Koronthaly as "[i]n the absence of an FDA regulation concerning lead content in lipstick, or other legal prohibition, the plaintiff could not 'seek a remedy for a harm that she had not actually or allegedly suffered.'"  Levinson, 2010 WL 421091 at *4 (citation omitted).  Accordingly, the court held that plaintiffs lacked standing to assert purely economic harm from the chemicals that were unregulated by the FDA in soap or cosmetics (formaldehyde and 1,4-dioxane), but they could assert a claim for purely economic harm involving the substance that had been banned by the FDA for use in cosmetics (methylene chloride).  As the court explained:

While the Court agrees that the assertion of an economic injury is not an automatic bar to standing, Koronthaly demonstrates that an exception has been recognized in the context of claims concerning defective products, absent a specific legal prohibition precluding particular ingredients or usages.  Insofar as Plaintiffs' claims pertain to allegedly toxic chemicals that have not been banned by the FDA for use in cosmetics . . . this Court concludes that any potential injury is too remote, hypothetical and/or conjectural to establish standing in this matter.  However, insofar as Plaintiffs' claims pertain to methylene chloride, a chemical explicitly banned for use by the FDA in any cosmetic, this Court declines to dismiss Plaintiffs' claims pursuant to Fed.R.Civ.P. 12(b)(1) for lack of standing.

Id. at *4.

The court then proceeded to analyze whether the individual causes of action stated a claim under Rule 12(b)(6).  The parties apparently had represented to the court that regardless of whether New Jersey law or Missouri law were applied, the result would be the same, and thus there was no conflict of laws issue.  Id. at *5.  The court disagreed, holding that New Jersey's Product Liability Act preempted plaintiffs' other claims.  The court relied upon Sinclair v. Merck & Co., 948 A.2d 587 (N.J. 2008), in which the New Jersey Supreme Court held that consumer fraud claims for economic harm allegedly caused by prescriptions for Vioxx were preempted by the Product Liability Act.  Judge Cavanaugh concluded:

Similarly, at the heart of this matter is the potential for harm caused by the defective products, J&J Baby Shampoo and Wal-Mart Equate Tearless Baby Wash, containing allegedly "toxic chemicals linked to increased cancer risk, adverse skin reactions, and other serious health problems." (See Pl. Compl. para. 2). . . .  [C]onsistent with the Sinclair decision, this court concludes that the PLA subsumes all of Plaintiffs' claims, effectively precluding Plaintiffs' claims with respect to the CFA, and otherwise, in the absence of "harm" as defined by the PLA.  The Court does not agree that articulating a claim in terms of pure economic harm where the core issue is the potential injury arising as a consequence of the products' allegedly harmful chemicals converts the underlying defective product claim into an independent and unrelated consumer fraud issue.  Limiting a claim to economic injury and the remedy sought to economic loss cannot be used to obviate the PLA.

Id. at *6. 

Accordingly, because New Jersey's Product Liability Act would preempt all claims, but Missouri's would not, the court concluded there was a conflict of laws requiring it to determine which law would apply.  Because the plaintiffs were from Missouri and bought and used the product there, the court concluded that Missouri law would apply to these plaintiffs' claims.

Missouri's Consumer Fraud Act requires a causal connection between the allegedly unfair practice and the plaintiff's harm.  Where the harm allegedly results from a failure to disclose, "'there must be a showing that the [product] in fact suffered that defect, or evidence from which the defect reasonably could be inferred, in order to demonstrate an ascertainable loss as a result of [defendant]'s failure to disclose the defect.'"  Id. at *7 (citation omitted).  The court concluded that as to methylene chloride, which the FDA had banned for use in cosmetics, plaintiffs had sufficiently pled a Consumer Fraud Act claim.

Similarly, the court concluded that, with respect to methylene chloride, plaintiffs had sufficiently pled claims for breach of implied warranties under Missouri law.  Id. at *9.

However, the court held that plaintiffs had failed to plead a cause of action for unjust enrichment under Missouri law because they had not sufficiently pled that there was irreparable injury or the lack of an adequate remedy at law.  Id.  The loss was economic, and could be remedied by the payment of money, which could be recovered by an action at law.  Thus, there could be no unjust enrichment.

For those keeping a tally, the court whittled the Missouri plaintiffs' claims down to the violation of Missouri's Consumer Fraud Act and breach of implied warranties solely for the inclusion of methylene chloride -- not the other substances.  In concluding that New Jersey law would preclude all claims because of its Product Liability Act, the court also went a long way toward establishing why a nationwide class could not be certified.  It remains to be seen where this action will go from here, but we will attempt to monitor it for you.

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