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

On Monday, Law 360 reported that the judge in the Ford E-350 Van MDL denied class certification.  The opinion -- although it is designated "not for publication" -- is a strong and important reminder of why consumer fraud and warranty suits present individual issues that often preclude any ability to certify a class.  In re Ford Motor Co. E-350 Van Prods. Liab. Litig., MDL No. 1687, Civ. A. No. 03-4558, Slip op. (D.N.J. Feb. 6, 2012).

Plaintiffs alleged that Ford's "15-passenger" vans had a high center of gravity that leads to an unusually high risk of rollover, particularly where the van is full of passengers.  Of course, they brought a "diminished value" class action that excluded anyone who ever actually experienced a rollover.  Instead, the class sought recovery of the "diminished value" of the vans, as measured either in a decrease in the resale value or by the cost of a retrofit package that would add an additional axle and wheels to the vehicle.

The case had a tortured history of motions to dismiss and motions for summary judgment, such that the chart of remaining claims for plaintiffs from various states looked like a target shot full of birdshot.  Plaintiffs ultimately moved for certification of: (1) a breach of implied warranty class for residents of NY, NJ, PA, GA, and MI, (2) a consumer protection statute class for residents of NY, FL, and TX, and (3) an unjust enrichment class for residents of CA, GA, and PA.  In the alternative, they moved for certification of 8 statewide classes of "all purchasers" or others who acquired the vans within the class period.  The class period was defined as 1991 to 2005 for all proposed classes.  Slip op. at 5.

The court, citing Hydrogen Peroxide, recognized that it must give rigorous scrutiny to whether the plaintiffs had actually proven that the class action prerequisites were met.  It ultimately concluded that plaintiffs had not proven that the predominance requirement was met, and thus refused to certify the class action.  In doing so, it looked at each element of proof of each state law cause of action.  Although that led to a bit of repetition in the 86-page opinion, the court's decision can be boiled down to the following basic points.

1.  There was no uniform misrepresentation that every class member saw.  Sales brochures changed over time, some class members saw no representations, others received oral representations from salesmen, and the safety disclaimers changed over time.  And advertising changed over time for the product.  Ultimately, proof of the representation would have to be an individual issue.

2.  Class members were going to have to prove that they were actually deceived and acted to their detriment because of it.  Plaintiffs who never received a misrepresentation were not deceived.  Similarly, plaintiffs who read or heard the many media articles about the problem, or who -- incredibly -- had experienced rollover previously in other vans were not actually deceived.  Indeed, one plaintiff, in negotiating the price, warned the salesman that the vans could only be driven by experienced, trained drivers like himself.  These presented individual issues.  See Slip op. at 33 ("Considering that Plaintiff's primary theory of damages at the class certification stage is a common benefit-of-the-bargain injury, it stands to reason that the consumers who saw these reports and understood the E-350 van to have significant handling problems will have a difficult time proving causation, and in doing so, they would not rely on common proof.").  The court noted that --particularly in light of the published media reports about rollover and handling issues -- "Ford would be entitled to examine which class members had knowledge of the E-350's handling characteristics at the time of purchase, the extent of such knowledge, [and] whether the knowledge was derived from personal use or published reports."  Id. at 43; see also id. at 51.

3.  Plaintiffs would have to prove either that the product actually failed (e.g., exhibited a defect), or that they actually incurred repair costs or diminished value as a result of the defect.  Sliip op. at 35.  That is an individual injury.  The court noted that a so-called "reputational injury" that somehow inhibits resale value does not injure those plaintiffs who have no intention of selling their vans, and there was no evidence that the proposed retrofit would cure the speculated reputational injury.  Slip op. at 39.  Citing New York law, the court noted that a prior judge in this case had "properly recognized that [New York law] stopped short of requiring manifestation of the defect; yet, in the absence of such manifestation, [it] still required the plaintiff to present evidence of an actual injury, in the form of out-of-pocket repair costs or a sale at a loss."  Slip op. at 39-40.  The court also noted that "'[a] plaintiff who purchases a [product] that never malfunctions over its ordinary period of use cannot be said to have received less than what he bargained for when he made the purchase.'"  Id. at 41 (citation omitted).

These basic problems permeated the various causes of action:  implied warranty, consumer protection acts, and unjust enrichment.  Moreover, the court noted that in order to prove reliance on an "omission" under Texas's Deceptive Trade Practices Act, the plaintiffs would have to establish that they would not have bought the product if the information had been disclosed.  The record in this case clearly indicated that some plaintiffs bought the vans with full knowledge of handling problems and rollover risks -- primarily because they believed themselves qualified to drive the vehicle with the requisite skill.  As such, the reliance element of the DTPA presented individual issues that precluded class certification.  Slip op. at 56.

The court also noted at the end of the opinion that statute of limitations issues -- particularly on the warranty claims -- presented individual issues that also would be incapable of being proved on a classwide basis.

The court's opinion is another strong reminder that even in cases of so-called "omissions," the individual issues can preclude class certification.  The court explained that its "ruling reflects the unique and highly individualistic experiences of consumers, many of whom were not actually deceived and many of whom have suffered no actual injury as a result of Ford's conduct."  Slip op. at 79.

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In a strange opinion that raises nearly as many questions as it answers, the Nebraska Supreme Court last week adopted a very restrictive form of the economic loss doctrine.  See Lesiak v. Central Valley Ag Cooperative, Inc., 2012 WL 246641 (Neb. Jan. 27, 2012) (per curiam).

In Lesiak, a farmer contracted with the local ag coop for the "complete package":  The coop would provide all of the farmer's diesel fuels, chemicals, fertilizer and seed for his 2,000-acre farming operation.  As part of the package, the coop would test the farmer's soil in his various fields and then recommend which fertilizers, seed corn, pesticides and herbicides to use. In fact, the coop even applied the herbicide to the fields once the farmer was done planting them.

Apparently the coop used too high of a concentration of herbicide, allegedly harming the farmer's yield on his crops.  The farmer sued and the case went to trial on the following theories:  negligence, breach of the implied warranty of merchantability, and breach of the implied warranty of services.

There is no description of the contract, and no explanation of why there was no breach of contract claim.

At trial, the court granted summary judgment on the implied warranty of services claim, holding that the common law only recognizes such warranties in the construction context.  The Lesiak court affirmed that holding.

The trial court also granted summary judgment on the negligence claim, holding that such a claim was barred by the economic loss doctrine.  The Nebraska Supreme Court reversed this holding, and it is this holding that I'll focus on in this blog post.  (There was also a lengthy discussion of why the trial court was wrong to direct a verdict on the plaintiffs' proof of damages, but I won't get into that here.  Amazingly, however, the court set out a complicated formula for how damages could be calculated, holding that no expert testimony was necessary because Nebraska jurors were more than capable of making such calculations themselves.  Maybe they are really good at word problems in Nebraska.)

The Nebraska Supremes traced the history of the economic loss doctrine, from California's articulation of it in 1965 in Seely through its adoption by the U.S. Supremes in East River Steamship in 1986.  The court noted that Nebraska previously had adopted the economic loss doctrine, but had only applied it in product liability cases involving a defective product.  It viewed the Lesiak case as an opportunity to define the boundaries of what it viewed as an ever-expanding doctrine.

The court held:

[W]e hold that the economic loss doctrine precludes tort remedies only where the damages caused were limited to economic losses and where either (1) a defective product caused the damage or (2) the duty which was allegedly breached arose solely from the contractual relationship between the parties.  And economic losses are defined as commercial losses, unaccompanied by personal injury or other property damage.  

2012 WL 246641 at *11.

The court explained that the doctrine's underlying rationale is to preserve the distinction between contract and tort where both theories could apply, and thereby preserve the ability of the parties to privately order the risk of loss through contract.  It noted that "[i]f a party could simply avoid its contractual bargain by suing in tort, which often offers more generous terms of recovery, then the effectiveness of contract law would be reduced."  Id.

The court then made a logical leap that does not necessarily follow:

But the opposite must also be true, and the same type of concern must also exist for tort law.  While the doctrine has its place in the law of damages, it should not be interpreted so broadly as to undermine tort law and preclude remedies in situations which, historically, have presented viable tort cases.  That is to say, the doctrine should not be expanded to allow traditional tort remedies to drown in a sea of contract.

Id. at *12.

The court said that it was reaffirming the doctrine's "continued application in the products liability context," namely that "where a defective product causes harm only to itself, unaccompanied by either personal injury or damage to other property, contract law provides the exclusive remedy to the plaintiff."  Id.  This, the court reasoned, was merely the loss of the benefit of the bargain, "which is the essence of a warranty action." 

The court gave no hint, however, of the fact that courts in other states have been struggling for decades about precisely what "harm to the product itself" actually means.  For example, where the product is a motor that has been incorporated into a boat, if the motor's failure causes the complete destruction of the boat, is that damage to "other property," or is it the type of economic loss that the parties can be expected to have bargained over in the contract?  The opinion in Lesiak suggests that Nebraska would take a very narrow view of the applicability of the economic loss doctrine in any such situation.

The court also justified its "new" rule that the doctrine applies where "the alleged breach is only of a contractual duty, and no independent tort duty exists."  Id.  (Of course, I have to ask myself, if no independent tort duty exists, why do you need the economic loss doctrine to bar tort claims in the first place?)  The court said that it "serves to 'weed[] out cases involving nothing more than an allegedly negligent failure to perform a purely contractual duty -- a duty that would not otherwise exist.'"  Id. (citation omitted).  Apparently some Nebraska decisions previously had recognized a cause of action for "negligent performance of a contract."   In such cases, the economic loss doctrine would now bar recovery, so long as there was no independent duty in tort.

The Nebraska Supreme Court then sought to apply its newly-demarcated economic loss doctrine to the facts in Lesiak.  It held that the trial court had improperly invoked the doctrine to grant summary judgment to the defendant on the negligence claim:

The question still remains whether the doctrine bars the Lesiaks' negligence claims here.  It does not.  It is true that the alleged breach was of a contractual duty which would not have existed but for the creation of the contractual relationship between the Lesiaks and [the coop].  But the damage allegedly caused by the breach was not purely economic loss; rather, [the coop's] actions allegedly caused damage to the Lesiaks' corn, which qualifies as "other property" -- that is, property other than the property that was sold pursuant to the contract.  Thus, this case is removed from the doctrine's reach.

Id. at *13. So apparently you still can have a cause of action for negligent breach of a contractual duty in Nebraska, so long as the damage is to something other than the product sold in the contract.

In reaching this conclusion, the court specifically rejected the approach of other courts that would view the crop loss as part of the parties' "disappointed commercial expectations" and thus would apply the economic loss doctrine to bar tort claims by reasoning that the parties could best assign the risk among themselves through contractual bargaining, rather than tort.  See id. (rejecting Grams v. Milk Prods., Inc., 699 N.w.2d 167 (Wisc. 2005)).  The Nebraska Supremes explained:

[A]lmost nothing would qualify as "other property" under the "disappointed expectations" test.  This is because the "disappointed expectations" test precludes tort remedies whenever the purchaser should have anticipated the occurrence of the damage at issue -- in essence, whenever the occurrence of the damage was reasonably foreseeable.  Thus, under this test, if "other property" damage occurs, but it was foreseeable at the time of contracting, then all tort theories would be precluded.  Therefore, the only circumstance in which tort theories would not be precluded would be when the damages were not foreseeable.  But, of course, then a plaintiff would likely have no remedy in tort either.  In effect then, the "disappointed expectations" test eliminates tort remedies for damage to "other property," but that type of damage has traditionally been recoverable in tort.

. . . But where the damages were never bargained for and are not expressly dealt with in the contract, it makes no sense to preclude a party's traditional tort remedies.

Id. at *13 - *14.

The opinion in Lesiak certainly piques one's curiosity as to what the provisions of the underlying contract were and if there was a way in which the entire economic loss discussion could have been avoided.  But for now, it is enough to know that Nebraska has squarely placed itself in the restrictive camp when it comes to the application of the economic loss doctrine to bar tort claims -- even negligent breach of contract.

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A federal court recently issued a decision holding that a publisher is not a "seller" and thus is not liable for product liability claims brought by the purchaser of a product advertised on the publisher's website.  See Inman v. Technicolor USA, Inc., 2011 WL 5829024 (W.D. Pa. Nov. 18, 2011).  This decision reminds us of the all-important duty determination in product liability and warranty cases:   the manufacturer and seller of a product may owe duties to the product purchaser, but not others who are not in the chain of distribution of the product.  This apt reminder -- coming in a case about product sales on eBay -- is particularly useful because in other contexts, plaintiffs seeking to avoid federal diversity jurisdiction are attempting to fraudulently join companies that publish information about products as defendants in product liability cases.  But, as Inman holds, publishers are not liable in product liability or warranty because they are not sellers of the allegedly defective product and thus owe no duty to the plaintiff.

In Inman, the plaintiff bought vacuum tubes from various sellers on the on-line auction site eBay over the course of 8 years.  These tubes allegedly contained mercury, and plaintiff claimed personal injury from using them. 

Plaintiff sued various sellers and eBay in strict liability, negligence, and breach of express and implied warranties.

eBay filed a motion to dismiss.  Applying Twiqbal, the court proceeded through a three-part analysis:  first, laying out the elements of the claim, then identifying the bare allegations not entitled to a presumption of truth, and then determining whether the well-pleaded facts meet the elements of the causes of action.  2011 WL 5829024 at *3.

The court reviewed Pennsylvania law, noting that there can be no strict liability for one who is not a "seller" of a product.  The status of "seller" "depends on the relationship between the defendant, the defective product, and the chain of distribution."  The court concluded that plaintiff had failed to plead that eBay was anything approaching a seller:

[Plaintiff] has not alleged that eBay, at any time, had anything more than a fleeting connection to the allegedly defective products.  He has not alleged that eBay ever had physical possession of the products, that they were moved or stored in a facility owned by eBay, or any other facts to suggest that holding eBay responsible would incentivize safety, that eBay is the only member of the marketing chain available, or that eBay is in a better position than [plaintiff] to prevent the circulation of such defective vacuum tubes.

Id. at *6.

The court assumed, for the sake of argument, that the complaint pled a valid negligence claim.  It then analyzed the federal Communications Decency Act, which provides that :  "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."  47 U.S.C. sec. 230(c)(1).  The court determined that the immunity provided by this section applied to eBay, which simply published on the web a site where buyers and sellers could meet to make deals.  In doing so, it relied on precedents holding that an auctioneer is not subject to liability under the CDA.  (Notably, there were similar cases in strict liability holding that auctioneers are not "sellers" of a product for the purposes of strict liability under Section 402A of the Restatement (Second) of Torts.)

As a result of its conclusions, the court dismissed the complaint, giving plaintiff an opportunity to replead.

Inman is not a groundbreaking opinion.  But it's simple application of the principle that in product liability, duties only flow from one's status as a seller makes Inman potentially useful in a variety of contexts.

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I like Nutella.  I like peanut butter better, and that's usually what's on my toast in the morning.  But sometimes I like to switch it up with Nutella.

I don't know the precise amount of sugar or oil that it contains.  But I know where to look for such information:  right on the label, in the box marked "Nutrition Facts."

I have voiced my opinion in previous posts about the bogus nature of lawsuits where lawyers have invented class action "misrepresentation" claims out of Nutella's claim that the tasty spread can be part of a healthy breakfast. No one can be deceived into thinking that Nutella has suddenly become wheat germ.  A simple look at the Nutrition Facts on the label tells anyone who is curious what they want to know.

And so it was with great disappointment that I read the decision certifying a class of California purchasers of Nutella.  See In re Ferrero Litigation, Case No. 11-CV-205 H(CAB), Slip op. (S.D. Cal. Nov. 15, 2011) (Law 360 subscription required).  Plaintiffs' consolidated complaint asserted claims under California's Unfair Competition Law, its False Advertising Act, Consumer Legal Remedies Act, and for breach of express and implied warranties.  It claims that "Ferrero misleadingly promotes its Nutella spread as healthy and beneficial to children when it in fact contains dangerous levels of fat and sugar."  Slip op. at 2.

The opinion gives great lip service to the Supreme Court's decision in Wal-Mart v. Dukes, quoting it often on rigorous analysis and commonality.  And yet it ultimately certifies a class in which most of the class members likely were not deceived and would have bought Nutella even if they had read the label and thus knew the facts that plaintiffs claim were concealed.  The district court reasoned:

To the extent that Defendant interprets the decision in Wal-Mart as requiring plaintiffs to prove common class-wide injury at the class certification stage, the Court disagrees.  Rather, Plaintiffs must show that the claims of the class "depend on a common contention . . . of such a nature that it is capable of classwide resolution--which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke."  Wal-Mart Stores, Inc., 131 S. Ct. at 2551.  In this case, the claims made on behalf of the proposed class are based on a common advertising campaign, and include common questions such as whether Ferrero's advertising campaign misrepresented that Nutella is healthier or more nutritious than it actually is, or makes a more significant contribution to a balanced breakfast than it actually does, including for children.  Thus, Rule 23(a)(2)'s commonality requirement is satisfied.

Slip op. at 6.

One of the fundamental questions that remains unaddressed in the district court's opinion is the obvious overbreadth of the class definition.  The class is defined as a classic "all purchasers" class:  "all persons who . . . bought one or more Nutella products in the United States for their own household use rather than resale or distribution."  Slip op. at 2.  This, of course, sweeps into the class everyone, even those who used and enjoyed the product and would purchase it again and again.  Like me.  Or like plaintiff Hohenberg, who testified at her deposition that she "does not regret buying Nutella and continued using the spread after she learned about its sugar content."  Slip op. at 8-9.

Of course, where a class includes a large number of people who have no damages and have not been injured, the class definition is imprecise and overbroad.  Courts routinely deny class certification in such circumstances. See, e.g., State ex rel. The Coca-Cola Company v. Nixon, 249 S.W.3d 855 (Mo. 2008) (class of all purchasers of fountain Diet Coke was overbroad because many did not care that the product contains saccharin and would drink it anyway).  But the court in the Nutella litigation did not even consider the issue.  Nor did it consider how class members would provide objective proof at the outset of the litigation that they are class members.  Ascertainability, too, is a problem for this class.

The bright side, to the extent that there is one, is that the district court clearly recognized that the consumer protection laws of the 50 states are far too different for a nationwide class to pass muster under the predominance requirement, and California could not properly impose its consumer protection statutes on transactions that occurred outside its borders involving nonresidents.  Slip op. at 10-11.  Thus, the court certified a California-only class.  And it limited the class period to the start of the defendant's advertising campaign in August 2009, rather than the January 2000 start-date the plaintiffs had requested.

Still, that means that the maker of Nutella must endure merits discovery and a classwide trial over the claims of many Californians who have not experienced an injury or suffered any damages.  Here's hoping they have the fortitude to stick it out and put the "class" to its proofs.

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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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It's amazing the lengths some courts will go to get around U.S. Supreme Court decisions holding that the Federal Arbitration Act preempts laws that seek to place conditions on or otherwise thwart agreements to arbitrate consumer contracts.

Recently, the Ninth Circuit held that actions of the Federal Trade Commission taken under power delegated to it by the Magnuson-Moss Warranty Act effectively preclude the use of pre-suit binding arbitration with consumer products that have written warranties to which the MMWA applies.  See Kolev v. Euromotors West/The Auto Gallery, No. 09-55963, Slip op. (9th Cir. Sept. 20, 2011).  In Kolev, the plaintiff bought a used Porsche that allegedly developed serious mechanical problems during the warranty period.  The plaintiff sued for breach of express and implied warranties, as well as breach of contract.  The defendant pointed to the mandatory arbitration provision in the sales contract, and the District Court granted a motion to compel arbitration.  It later confirmed the arbitrator's award.

A split panel of the Ninth Circuit reversed.  It expressly acknowledged that the text of the MMWA does not specifically prohibit binding arbitration clauses.  The FTC, however, had issued a rule providing that the decisions of any pre-suit informal settlement procedure would not be legally binding on any person.  The majority gave this rule Chevron deference, stating that it was consistent with congressional intent, the purpose of the statute (in protecting consumers from being forced into contracts of adhesion), and had been the FTC's interpretation of the statute for more than 35 years.

The majority noted that both the Eleventh and Fifth Circuits have reached a different conclusion, holding that the FTC's construction of the MMWA is unreasonable in light of the Supreme Court's repeated holdings that Congress created a liberal federal policy favoring arbitration when it enacted the FAA in 1924, more than 50 years before Congress enacted the MMWA in 1975.  Slip op. at 17801-17802 (citing cases).  The Ninth Circuit majority rejected these holdings because: (1) it viewed the prior statute, the FAA, as "less specific" than the later MMWA, (2) it found the FTC's interpretation "reasonable," and (3) the MMWA differs in certain respects from other statutes that the Supreme Court has found to be trumped by the FAA.  Slip op. at 17804.

Judge N. Randy Smith dissented vociferously.  First, he argued that the majority got it wrong in interpreting the FTC's regulation.  Binding arbitration is not an "informal dispute settlement procedure" to which the FTC's rule even applies, and it does not meet the FTC's extensive regulations for IDSMs.  (The FTC has a number of requirements for pre-suit informal dispute settlement mechanisms.  Where a manufacturer establishes such a mechanism, the buyer must engage in the mechanism as a prerequisite to filing suit.  Interestingly, the same panel of Ninth Circuit judges issued a split opinion on the same day as Kolev, addressing whether that prerequisite goes to the court's subject matter jurisdiction.  See Maronyan v. Toyota Motor Sales, Inc., No. 09-56949, Slip op. (9th Cir. Sept. 20, 2011).)

Rather than being a pre-suit settlement mechanism, the sales contract at issue in Kolev made arbitration a binding alternative to litigation, not some sort of prerequisite to suit.  Slip op. at 17809 (Smith, J., dissenting).  And even the FTC has acknowledged that "nothing in the Rule precludes the parties from agreeing to the use of some avenue of redress other than the [IDSM] if they feel it is more appropriate.  Thus, Judge Smith argues, "If we truly must afford Chevron deference to the FTC's interpretation of the MMWA . . . the Majority's determination that all ADR procedures are 'Mechanisms' plainly contradicts the FTC's view of the statute."  Slip. op. at 17810-11. 

Judge Smith argues that the FTC's interpretation is not due Chevron deference because Congress did not authorize the FTC to regulate non-judicial remedies outside of the informal dispute settlement procedures now known as "Mechanisms."  Thus, the FTC's opinions about binding arbitration as an alternative dispute resolution procedure is beyond the scope of the FTC's authority.  But even more important, under the MMWA, federal courts -- not the FTC -- are the entities charged with Congress of deciding enforcement issues under the MMWA.  Slip op. 17813-14.

Judge Smith also cast himself squarely with the 11th and 5th Circuits, reasoning that Congress's adoption of the FAA established a federal policy favoring arbitration, and that agreements to arbitrate should be vigorously enforced.  He noted that "in every case raising a statutory right that does not explicitly preclude arbitration, the Supreme Court has enforced the presumption of arbitrability under the Arbitration Act."  Slip op. at 17817.

It remains to be seen whether the Kolev opinion will prompt Supreme Court review of an obvious circuit split.  Given the Court's recent Concepcion decision, which broadly asserted the supremacy of the FAA and its presumption favoring the parties' agreement to arbitrate, one could have reasonable grounds for believing that review would be forthcoming.

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"Cognitive dissonance" is the anxiety resulting from holding two conflicting ideas in one's head at the same time.  You would have to think that Judge James M. Smart, Jr. experienced cognitive dissonance when he wrote the opinion in Hope v. Nissan North America, Inc., No. WD73299, Slip op. (Mo. App. -- W. Dist. Sept. 20, 2011).  I know I sure suffered from cognitive dissonance in reading it.

Hope is another one of those no-injury, BS class actions in which no one has actually experienced a product defect, but the plaintiffs' lawyers bring the suit claiming everyone suffered some "diminished value" of the product and thus are entitled to some small payment, while the lawyers make off like bandits.

Apparently Nissan Infiniti FX35 and FX45 models for the model years 2003 through 2007 had dashboards made of a particular material that had some propensity to exhibit surface bubbling in extreme heat and humidity.  Nissan, of course, would repair the problem when it occurred, and it revised the manufacturing process and changed the material composition for replacement dashboards by 2009.  In early 2010, Nissan extended the warranty for the FX vehicles to 8 years and unlimited mileage, so that it would replace any bubbled dashboards at no cost to the consumer, providing free loaner vehicles while doing so.  This warranty was fully transferrable with the vehicle.  Nissan even agreed to reimburse any customer who previously might have paid for a replacement.  And the problem was not rampant; as of the date of the filing of the lawsuit, only 54 of the 1,200 registered vehicles in Missouri had received a dashboard replacement.  Slip op. at n.12.  Plainly, Nissan had behaved as a responsible manufacturer and stood behind its product even though it was faced with a purely cosmetic issue.

Some creative class action lawyers sued Nissan for breach of express and implied warranties, as well as violation of Missouri's Merchandising Practices Act.  The trial court certified a class action for each of those causes of action, defined as:  "All persons who purchased and currently own an Infiniti FX35 or FX45, model years 2003 through 2007 inclusive, in the State of Missouri, with the dashboard installed as original manufacturer's equipment."

On appeal, Nissan challenged the class definition and the fact that the trial court had ordered it to propose its own class definition.  The court held that a "defendant cannot be coerced into assisting the success of the plaintiff's attempt to obtain class certification," that it had no duty to give such assistance, and that the trial court was without authority to compel Nissan to define the class.  Slip op. at 9.

As for the challenge to the definition itself, the court began by noting that although there is no express requirement in the rules regarding a class definition, such a requirement clearly exists because a proper class definition is necessary to define who is going to receive relief, who is going to be bound by the judgment, and who deserves notice and an opportunity to be heard.  Slip op. at 10.  The class cannot be vague, amorphous or indefinite, and must not sweep into its ambit a large number of uninjured people.  Such a definition would be " impermissibly overbroad."

The court relied on a classic class definition case, State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 860-61 (Mo. banc 2008).  In that case, plaintiffs had sued the defendant because it did not inform consumers that fountain Diet Coke contained saccharin in addition to aspartame, unlike bottled Diet Coke, which contained only aspartame.  They defined the class as everyone who drank fountain Diet Coke in Missouri during a particular date range.  But the Nixon court had held that the class definition was impermissibly overbroad because it contained a large number of people who were uninjured -- they drank the Diet Coke and liked it, and would drink it again.  They had gotten the benefit of their bargain.  Id. at 862.  The Nixon court granted mandamus to decertify the class because there was no way the class definition could be modified to include only those people who dislike saccharin, as that would make the class indefinite and subject to thousands of individual determinations.  Id. at 863.

The Hope court ultimately held that the case before it was distinguishable from the Diet Coke case.  The car owners were identifiable, and they alleged that they were damaged by the "stigma" associated with the bubbling problem and a "'diminished resale value' . . . regardless of the manifestation of the defect."  Slip op. at 13.  The court thus rejected Nissan's challenge to the class definition -- but it seemed to do so more as a function of the state of the record:

While it is possible that a significant number of FX owners may not feel cheated or injured in any way, at this stage we do not have that information. . . .  Thus, the putative class is not so overbroad or indefinite within the parameters of an initial test of the class definition by the trial court, at least for present purposes, that we discern an abuse of discretion in the initial definition.

. . . While we agree with Nissan that the definition is subject to difficulties, we do not believe we can say at this point that the class definition was clearly overbroad or indefinite.

* * *

. . . Because the record is not developed at this point as to how Plaintiffs will seek to objectively prove the existence of the damage they assert, we cannot speculate on whether Plaintiffs can establish the economic injury they claim.  As a result, we cannot say categorically that the trial court abused its discretion in certifying the class.

Slip op. at 13-15 (emphasis in original).

The court then went on to analyze predominance.  Relying heavily on Plubell v. Merck & Co., Inc., 289 S.W.3d 707 (Mo. App. 2009), the Hope Court concluded that -- based on the rather undeveloped state of the record -- the trial court did not abuse its discretion in concluding that common issues predominated on the Merchandising Practices Act.  Under Plubell, the court reasoned, plaintiffs would not have to offer proof of Nissan's knowledge or intent for certain MMPA claims, and Plubell would allow the plaintiffs to meet the "ascertainable loss" requirement of the MMPA by pleading that they did not get the full benefit of their bargain (i.e. suffered "diminished value" of their product).  Slip op. 20-24.

But the court did a 360 on the issue of warranties, holding that the trial court abused its discretion in certifying a class action on breach of express and implied warranty claims.  To begin with, the court noted that subsequent purchasers -- people who bought the cars used from people other than Nissan -- could not establish that Nissan made an express warranty to them that they could rely on.  Slip op. at 25. 

But more important, the court analyzed the decisions from across the country and Missouri holding that a buyer has no breach of express or implied warranty claim where the alleged defect has not manifested in the product.  See Slip op. at 27-31.  The reason, of course, is as simple as it is clear:  if the product has not broken, then the user has received exactly what he paid for.  Thus, where a product performs satisfactorily during the warranty period and never exhibits an alleged defect, no cause of action lies for breach of express or implied warranty.  Slip op. at 27.  The court, in discussing an Eighth Circuit case, observed that where a plaintiff brings what is really a "no injury product liability suit," she cannot recover economic loss, because that kind of loss is only recoverable in contract, and the contract (i.e. warranty) does not provide for recovery of loss where the product works properly.

Thus, Missouri warranty law, at least, still requires a plaintiff to establish that he suffered a product malfunction in order to have a cause of action, and this individual issue -- along with the many other elements of warranty causes of action -- are individual issues that preclude an express or implied warranty suit.  See slip op. at 34-35 ("Class membership would require individual determinations of whether each putative class member actually experienced manifestation of the bubbling defect, so as to be able to maintain a cause of action for breach of implied warranty of merchantability, and then subsequently, individual inquiries into the extent of the damage sustained, whether the alleged defect was the cause in fact or proximate cause of the damage sustained, and finally, whether each individual class member notified Nissan.").

Although the Hope Court's decision on the express and implied warranty claims seems well within the mainstream of American jurisprudence, I have a hard time simultaneously holding in my head its apparent suggestion that an unmanifested defect can give rise to an MMPA claim that can be treated on a classwide basis.  As a practical matter, I don't think such an "unmanifested defect" MMPA claim actually can be tried manageably on a classwide basis.

I'm from Missouri, and you have to show me.

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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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A few weeks ago I read Judge Carol Bagley Amon's opinion in the light cigarettes case, Caronia v. Philip Morris USA, Inc., Slip op., No. 06-CV-224 (CBA) (SMG) (E.D.N.Y. Jan. 13, 2011).  In that decision, Judge Amon granted the defendant's motion to dismiss a medical monitoring claim and its motion for summary judgment on breach of implied warranty.  It also held that the plaintiffs' motion for class certification was therefore moot.

But in making these rulings, Judge Amon predicted that the New York Court of Appeals would adopt a cause of action for medical monitoring and even articulated the elements of such a claim.  A look at her predictions is instructive.

(This light cigarettes case is not unlike the others that have been filed around the country.  Plaintiffs argue that the light cigarettes allowed smokers to compensate for the lower tar yield by drawing deeper on the cigarette.  The court had previously dismissed plaintiffs' strict liability and negligence claims for statute of limitations problems.  But the medical monitoring and implied warranty claims remained.  Plaintiffs argued that the defendant's conduct justifies a medical monitoring program that includes low dose computed tomography ("LDCT") scans to identify lung cancer.)

Judge Amon recognized that the question whether New York law permits an equitable cause of action for medical monitoring is a close one (slip op. at 6), and used intermediate appellate decisions to predict that New York's highest court, the Court of Appeals, would recognize such a cause of action.  The defendant argued forcefully that a present injury is a critical element of a tort claim in New York law.  The court rejected this argument, citing appellate decisions in which medical monitoring was allowed to asymptomatic plaintiffs as an element of consequential damages.  See slip op. at 8-9.

Judge Amon acknowledged that "the wisdom of these decisions expanding traditional theories of tort liability to permit asymptomatic plaintiffs to recover for medical monitoring is highly debatable."  Slip op. at 11 (collecting citations).  But she predicted that New York's Court of Appeals would adopt a medical monitoring cause of action:

The Court is persuaded that the New York Court of Appeals, given the opportunity, would likely permit asymptomatic plaintiffs to recover the sort of medical monitoring that the plaintiffs are requesting here:  a defendant-created and maintained comprehensive monitoring program.  This is so for several reasons.  First, New York's intermediate appellate and trial courts have uniformly adopted this rule, and the Court cannot lightly disregard that fact.  Second, the majority of other federal courts that have applied New York law to this question have concluded that the Court of Appeals would permit recovery.  Third, the New York Court of Appeals would not be alone, and would not even be at the vanguard, in permitting recovery of this sort.  Fourth, and finally, the Court notes that the fact that the plaintiffs are not asking for recognition of a right to a lump sum damage award to cover the supposed cost of monitoring eliminates some of the reasons to fear permitting asymptomatic plaintiffs a right to relief.

Slip op. at 12 (citations omitted).

The elements of such a cause of action, Judge Amon concluded, are:

(1) exposure at greater than background levels; (2) to a proven hazardous substance; (3) caused by defendant's tortious conduct; (4) as a proximate result of the exposure, plaintiff faces an elevated risk of contracting a serious latent disease; (5) a monitoring procedure exists that makes early detection possible; (6) the monitoring program is different than the program normally prescribed in the absence of exposure; and (7) the monitoring program is reasonably necessary according to contemporary scientific principles.

Slip op. at 13.

Judge Amon held that the statute of limitations on such a claim begins running (i.e., the medical monitoring claim accrues) when the standard of care of the reasonable physician first calls for medical monitoring.  In doing so, she rejected the defendant's statute of limitations arguments.

But Judge Amon ultimately rejected plaintiffs' medical monitoring claim as pleaded because of its failure to meet elements 3 and 6:  "caused by tortious conduct" and that the "monitoring program is different than the program normally prescribed in the absence of exposure."  The court held that "plaintiffs must plead and prove that Philip Morris's failure to produce and market a non-defective cigarette is the reason that the plaintiffs must now secure medical monitoring that includes LDCT scans."   Slip op. at 19.  The plaintiffs failed to do so:

Nowhere have the plaintiffs pleaded that if Philip Morris had marketed and designed the non-defective cigarette they describe, they would not have been exposed to harmful levels of tar.  Indeed, they concede that even had Philip Morris not acted tortiously and produced this less dangerous cigarette, the plaintiffs still would have been exposed to highly carcinogenic cigarettes. . . .  Additionally, . . . the affidavits of the plaintiffs' experts do not support a finding that physicians would not recommend monitoring that includes LDCT scans for individuals who have smoked non-defective Marlboro cigarettes for twenty pack-years.

. . . New York tort law . . . uses "substantial factor" to refer to the subset of but for causes that will be said to be the proximate legal cause of an actionable harm.  This view of New York causation law is consistent with New York product liability cases, which require that plaintiffs plead and prove that they would not have been injured by the non-defective product.

For these reasons, the Court concludes that the plaintiffs must have, and have not, pleaded that Philip Morris's tortious conduct is what caused them to be exposed to harmful smoke sufficient to require medical monitoring that includes LDCT scans.

Slip op. at 20-22 (citations omitted).

Put differently, unless the alleged product defect is a but-for cause of the need for medical monitoring, the defendant cannot be held liable for it.  If plaintiffs had smoked an allegedly non-defective cigarette, their experts still would have recommended medical monitoring for them.  Thus, it wasn't the defendant's allegedly defective product that caused the putative need for medical monitoring.  This is an important defense to medical monitoring claims.

Finally, it bears noting that the court granted summary judgment on the implied warranty claim.  Plaintiffs had conceded that they knew smoking presented risks, but they argued that they did not know that the defendant had the ability to produce a safer cigarette.  The court held that this "conflates what New York considers two distinct theories of liability and improperly inserts risk-utility considerations into the law of warranty."  Slip op. at 24.  Because plaintiffs knew there were risks from smoking, there was no implied warranty that Philip Morris breached.

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Regular readers will recall that last year Michael Reese and his colleagues at Reese Richman earned the title of Torts Twit of the Month for their suit against the chocolaty beverage Yoo-hoo for its alleged failure to disclose the presence of partially-hydrogenated soybean oil -- even though it was printed right on the label. 

Well, they are at it again with another ridiculous food-based lawsuit in which they hope to ring the class action bell.  This time they have sued Quaker Oats, once again complaining about the presence of partially hydrogenated oil in food.  According to the complaint, Quaker Oats committed fraud by calling its foods "low fat," a "good source of calcium," "heart healthy," "made with whole grain oats," and containing "no high fructose corn syrup."  Compl. para. 3.  Reese does not allege that these statements are untrue individually.  Rather, he alleges that the manufacturer's failure to disclose on the front of the packaging the presence of trace amounts of partially hydrogenated oil -- which he compares to poison and alleges causes "cancer, birth defects, heart disease, diabetes, and many other fatal diseases" (Compl. para. 4) -- makes any statement about health misleading.

Of course, the FDA allows the use of partially hydrogenated oils -- or so-called "trans fats" -- in food, and has established regulations and guidance for how trans fats should be disclosed on product labeling.   Moreover, Quaker Oats places required nutritional information on the product label itself.  For example, the label for Quaker Chewy Granola Bars discloses that a 1-bar serving has 0 grams of trans fats.  Plaintiff does not plead that Quaker Oats fails to comply with FDA rules and regulations in listing the amount of trans fat at 0 grams per serving.  Rather, he complains that, under the FDA rules, there could be "nearly 5 [grams] of trans fat overall" in a 10-serving box.  But this is plainly consistent with FDA regulations, which talk of nutrition information in terms of individual servings.

Surprisingly, plaintiff -- a New York resident -- had his New York lawyers sue Quaker Oats at its headquarters in Chicago, seeking to apply the Illinois Consumer Fraud Act to the claims of a nationwide class customers who bought Quaker Oats products.  Of course, if counsel had read the decisions of the Illinois Supreme Court from Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100 (2005) through Barbara's Sales, Inc. v. Intel Corp. (Ill. 2007) and beyond, they would know that the Illinois Supreme Court has definitively held that Illinois's Consumer Fraud Act cannot be used by nonresidents to recover in consumer fraud actions, even against defendants domiciled in Illinois.  Simply put, Illinois has no interest in the extraterritorial application of its law to sales transactions in other states.  Quaker Oats ought to be awarded its costs for even having to move to dismiss that count.

Similarly, the express warranty and implied warranty claims should be dismissed on the pleadings as well.  FDA regulations allow much more trans fats than Quaker Oats has in its products.  The fact that there may be some trace amounts does not make the goods unmerchantable in the trade or unfit for human consumption.  Moreover, plaintiff cannot plead or prove that the express statements made about the goods are untrue.  And they comply with FDA rules and regulations.  Put simply, there is no reasonable ground for a breach of warranty action.

Plaintiff's "unjust enrichment" theory is equally flawed.  Although the complaint pleads that plaintiff paid an inflated or "premium" price for the foodstuffs because he believed they contained no trans fats, he will be just as unable to establish any sort of "premium" price for such products as the plaintiffs were in Weiner v. Snapple Beverage Corp. (S.D.N.Y. 2010), in which Judge Denise Cote dismissed similar claims for failure to establish any pricing differential and, thus, any injury.

In the end, this is yet another attempt by the plaintiffs' bar to achieve regulation through financially lucrative litigation.  Let's hope the courts in the Northern District of Illinois are as quick as other courts have been in deeming such misuse of the class action mechanism impermissible.

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In In re Sony Frand Wega KDF-E A 10/A20 Series Rear Projection HDTV Television Litigation, Lead Case No. 08-CV-2276-IEG (WVG), Slip op. (S.D. Cal. Nov. 30, 2010) (Gonzalez, J.) (Law360 subscription required), the plaintiffs alleged that the technology used in Sony's rear projection televisions was defective and tended to generate color spots and blemishes after more than a year of use.  The limited warranty that came with the televisions, however, was only one year in duration.  Plaintiffs sued under a variety of California statutes (the Unfair Competition Law, the False Advertising Law, the Consumer Legal Remedies Act, and the Song-Beverly Consumer Warranty Act), the consumer protection statutes of other states, the federal Magnuson-Moss Warranty Act, and breach of express warranty and breach of implied warranty.  The defendant moved to dismiss, and the court granted the motion with prejudice.

The court began by analyzing the common elements of the UCL, FAL, and CLRA.  It held that plaintiffs failed to allege fraud with suffidient specificity under Federal Rule of Civil Procedure 9(b).  Basically, plaintiffs alleged that Sony knew its TVs would eventually exhibit color spots and blemishes, but it didn't tell customers and instead advertised the TVs as being of "high," "superior" and "excellent" quality. 

The court held that the claims under the statutes -- including the consumer protection statutes of the various states -- failed "because the alleged misrepresentations are nothing more than mere puffery" that cannot form the basis for a fraud claim.  Slip op. at 8-9.  Moreover, the court held, a product that performs throughout its warranty period cannot form the basis of a fraud claim, because "[w]here a manufacturer has expressly warranted a product, consumers can only expect that product to function properly for the length of the manufacturer's express warranty."  Third, the court held that plaintiffs failed to plead with sufficient particularity that Sony was actually aware of the alleged defect at the time the plaintiffs bought the TVs.

Going statute-by-statute, the court then explained additional reasons why the UCL claims should fail.  First, it held that plaintiffs had not established that a law was broken to support an "unlawfulness" prong.  Second, the unfairness prong could not be met as a mater of law where the product functioned as warranted throughout the warranty period.  Slip op. at 12.  Third, the fraud prong of the UCL was not satisfied because plaintiffs did not sufficiently plead that the representations were false when made, they only pled non-actionable puffery, and the representations did not relate to the claimed defect, thus meaning that plaintiffs could not sufficiently allege reliance.  Id. at 13-14.

Similarly, the plaintiffs' FAL claim failed because plaintiffs failed to identify specific ads, when and where they enountered them, and why the ads were untrue or misleading.  Id. at 15.  And the statements identified were puffery and were not shown to be false when made.

The court also dismissed the CLRA claim because the identified representations are mere puffery and "Plaintiffs have not claimed that Sony made any representations that run counter to the allegedly omitted fact:  that the televisions' optical block wore out over time."  Slip op. at 16.  The court also held that Sony had no independent duty to disclose:  "a manufacturer's duty to disclose information related to [a] defect that manifests itself after the expiration of an Express Warranty is limited to issues related to product safety."  Id. at 17.

The court dismissed the claims asserted under other states' laws for the same reasons it dismissed the UCL claim.  And it dismissed the SBCWA claim because plaintiffs failed to plead that they bought their TVs at retail, and that they tendered them for repair within the express Warranty period.  Id. at 20-21.

As for the express warranty claim, the court dismissed the claim because a warranty does not cover repairs that are necessary only after the warranty period has expired.  Id. at 22.

Because plaintiffs did not adequately plead a Song-Beverly Act claim, vertical privity was still a requirement for the implied warranty count.  And the durational limit on the express warranty applied to the implied warranty with equal vigor.

Finally, the MMWA claim failed because all of the state law claims failed, too.

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Judge Kathleen O'Malley recently handed down an interesting opinion in a consumer class action case styled McKinney v. Bayer Corp., Case No. 10-CV-224, Slip op. (N.D. Ohio Sept. 30, 2010).  In McKinney, plaintiff sued the maker of vitamins (One-A-Day Men's Health Formula and One-A-Day Men's 50+ Advantage), claiming that its representations that the vitamins "promote prostate health" and "may reduce the risk of prostate cancer" were false.  In fact, according to plaintiff, the vitamins increased the risk of aggressive prostate cancer and diabetes.  Plaintiff sued on behalf of a class of Ohio purchasers of the products, asserting breach of the Ohio Consumer Sales Practices Act, breach of the Ohio Deceptive Trade Practices Act, breach of express warranty, and breach of implied warranty.

The question presented by the OCSPA claim was straightforward:  does the provision limiting class actions under Act to instances where the Attorney General, a court, or a regulatory agency has issued an opinion prohibiting substantially similar conduct survive after the Supreme Court's recent Shady Grove decision?  See Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010).

You'll recall, of course, that in Shady Grove the Supreme Court allowed the federal class action rule, Fed. R. Civ. P. 23, to trump a state law that limited instances in which class actions could be brought.  Justice Scalia, writing for a plurality, concluded that Rule 23 is within the Rules Enabling Act because it is procedural in nature, and the substantive purpose of the competing state law makes no difference because it is the procedural nature of the federal rule that matters.  Justice Stevens, however, wrote a separate concurrence, framed the rule of decision differently, suggesting that a federal rule "cannot govern a particular case in which the rule would displace a state law that is procedural in the ordinary use of the term but is so intertwined with a state right or remedy that it functions to define the scope of the state-created right."  Id. at 1452.

Judge O'Malley held that she was governed by Justice Stevens' concurrence because it was the narrowest grounds for the Supreme Court's opinion.  Slip op. at 18.  In doing so, she relied on two other recent district court opinions:  In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 2010 U.S. Dist. LEXIS 69254 (N.D. Ohio July 12, 2010), and Bearden v. Honeywell Int'l Inc., 2010 U.S. Dist. LEXIS 83996 (M.D. Tenn. Aug. 16, 2010).  Judge O'Malley then concluded that the class action limitations in the OCSPA are substantive in nature, and thus applying Federal Rule of Civil Procedure 23 to permit a class action would modify substantive law in a way that is disallowed under the Rules Enabling Act.  Accordingly, the court dismissed the class claim under the OCSPA.

Judge O'Malley next confronted the question whether a consumer has standing to assert a claim under the Ohio Deceptive Trade Practices Act.  The ODTPA is based on the federal Lanham Act, which has been held not to afford standing to individual consumers because the purpose of the statute is to protect people engaged in commerce against unfair competition.  Nevertheless, the language of the ODTPA -- like the Lanham Act itself -- contains no express limitation on who may assert a claim.  But allowing a consumer standing to assert an ODTPA claim would seem to make the consumer statute, the OCSPA, superfluous.  Ultimately, Judge O'Malley chose to certify the question to the Ohio Supreme Court, and thus denied the motion to dismiss on this question.

Judge O'Malley did dismiss the implied warranty claim, noting that Ohio imposes a strict privity requirement for such claims.  The complaint could not allege privity between the plaintiff and the vitamin maker.

But Judge O'Malley refused to dismiss the express warranty claim, finding that there was a question of fact for the jury at issue there.  The defendant had argued that, "when read as a whole, the Prostate Claims amount to conditional statements that the products might have certain health benefits, but that they also might not."  Slip op. at 31.  This was in large part based on disclaimers on the packaging to the effect that "FDA has determined that this evidence [of cancer risk reduction] is limited and not conclusive," and that "This statement has not been evaluated by the Food and Drug Administration."  Id. at n.11.  It is hardly surprising that the court refused to dismiss the express warranty claim on the basis of this language, particularly where the plaintiff had affirmatively pled that he had relied on the Prostate Claims in purchasing the product.

In sum, the McKinney case suggests that state restrictions on class actions are not necessarily a dead letter after Shady Grove, and we can watch with interest to see how the Ohio Supreme Court will answer the certified question of whether consumers have standing to bring claims under the Ohio Deceptive Trade Practices Act.

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The Nattering Nutrition Nannies scored a victory last week in the Eastern District of New York -- a victory against beverage giant The Coca-Cola Company and, more important, a victory against common sense and personal responsibility.  Last Wednesday, the Center for Science in the Public Interest and its co-counsel persuaded a federal court to deny Coca-Cola's motion to dismiss a putative nationwide consumer fraud class action challenging the beverage "vitaminwater" made by Coca-Cola's subsidiary, Glaceau.  See Ackerman v. The Coca-Cola Company, No. CV-09-0395 (JG) (RML), Slip op. (E.D.N.Y. July 21, 2010).

In Ackerman, Plaintiffs allege that the name, "vitaminwater," along with a description of the vitamins in the water and slogans about health are deceptive because they mislead people to believe that the beverages do not have sugar or calories in them.  As the court described plaintiffs' theory:

The plaintiffs have sufficiently alleged that the collective effect of the challenged statements was to mislead a reasonable consumer into believing that vitaminwater is either composed solely of vitamins and water, or that it is a beneficial source of nutrients rather than a "food of little or no nutritional value [which has been fortified] for the sole purpose of" claiming or implying that it is "healthy."  58 Fed. Reg. 2478, 2522.

Slip op. at 32.

Of course, there's one major problem with that theory:  the nutrition facts label on every bottle of vitaminwater discloses that there are a certain number of grams of sugar in the product, and that an 8 ounce serving of the drink contains a certain number of calories.  So the fact that there is an ingredient other than vitamins and water -- namely, sugar -- is plain to anyone who can read.  Nevertheless, the court allowed this claim to survive the pleading stage, so now there will be lots of expensive discovery and motion practice on a theory that is patently ridiculous.

(An additional sign to the consumer that there is something besides vitamins and water in the product is the fact that it is sweet -- some might even complain that it is cloyingly sweet.  This has led Glaceau to release "vitaminwater 10," which has ten calories per serving, and now  "vitaminwater zero," which has -- you guessed it -- zero calories per serving.  The court ducked the sweetness argument by stating that "there is no evidence before me concerning vitaminwater's taste."  Slip op. at 35.)

The court's response to the fact that sugar is listed as an ingredient right on the label was to declare that "the presence of a nutritional panel, though relevant, does not as a matter of law extinguish the possibility that reasonable consumers could be misled by vitaminwater's labeling and marketing."  Slip op. at 34.  The court relied heavily on Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), in which the Ninth Circuit had held that the packaging of a product called "Fruit Juice Snacks" could be misleading where it pictured various fruits on the label, but did not actually contain the juice of any of the pictured fruits, and only revealed this fact on the product label.

But Ackerman is no Williams.  There were no allegations that the packaging or marketing for vitaminwater contained any false statements or pictures.  Unlike the "Fruit Juice Snacks" at issue in Williams, which did not contain the juice of the pictured fruits, vitaminwater actually contains the vitamins the marketing discusses.  And the fact that it also contains sugar is stated right on the Nutrition Facts label in close proximity to the disclosures of the percentages of the vitamins and minerals that would surely interest vitaminwater's consumers.

This complaint is as deficient on its face as the Crunchberries complaint that I discussed earlier this month.  Reasonable people should not, as a matter of law, be allowed to claim surprise at the presence of an ingredient that is clearly disclosed on the Nutrition Facts label.

Although the court in Ackerman gave lip service to the pleading requirements of Twombly and Iqbal, it ultimately held that conclusory allegations met the pleading standard.  Indeed, it credited the following as adequately pleading the fact of reliance:

Each plaintiff relied on Defendants' . . . misrepresentations that VitaminWater is a beneficial dietary supplement beverage including, but not limited to, "vitamins + water = all you need" and the name of the product itself -- "VitaminWater" -- in deciding to purchase vitaminwater.  Had Plaintiffs known the truth that the statements they relied on were false, misleading, deceptive, and unfair, they would have neither purchased VitaminWater nor paid the premium price Defendants charged for it.

Slip op. at 40. 

The court refused to dismiss causes of action under California's Unfair Competition Law, False Advertising Law, and the Consumer Legal Remedies Act, as well as under New York's General Business Law sections 349 and 350.  It also refused to dismiss plaintiffs' common law misrepresentation claims for NY and CA plaintiffs and the unjust enrichment claims for all plaintiffs. 

Notably, the court was forced to conclude that plaintiffs' claims under the New Jersey Consumer Fraud Act failed to state a claim because they failed to plead enough specifics as required by Federal Rule of Civil Procedure 9(b). 

The court also held that plaintiffs failed to plead a claim for breach of express warranty because they failed to set forth any statement made about the product that the product failed to meet.  In addition, the court dismissed the implied warranty claims because -- even crediting the complaint as true -- "plaintiffs cannot establish that vitaminwater failed to constitute a merchantable product."  This, of course, begs the question:  if, as a matter of law, everything the defendant said was true (such that it did not constitute a breached warranty), and the sugar content was listed on the product itself and did not make the product unmerchantable, how could the packaging and marketing be "fraudulent"? 

The first half of the court's opinion is comprised of a recitation of the regulatory history regarding adding nutrients to foods and beverages.  Ultimately, the court rejected the defendants' arguments that the lawsuit was expressly and/or impliedly preempted by statutes and regulations preventing states from imposing labeling requirements that are different from those imposed by the FDA.  See, e.g., Slip op. at 27.  The court concluded that although plaintiffs' claims were premised on violations of the federal statutes and regulations, they were not preempted because they sought to impose "identical" requirements under state law as those imposed by the federal scheme.  The court also rejected the defendants' primary jurisdiction argument, stating that the question of what could mislead a reasonable consumer is one courts typically handle, and reasoning that the "FDA is aware of plaintiffs' concerns but lacks the resources to take enforcement action in every instance in which its policies are violated."  Slip op. at 30.

But plaintiffs legal assault on the fortified beverage industry ignores one important fact:  the public wants nutritionally-enhanced foods and beverages.  Indeed, fortified beverages are one of the fastest-growing market segments.  Consumers are capable of reading nutrition labels and ingredients and making dietary choices for themselves, and they do not need the FDA or self-appointed nutrition nannies like CSPI to limit the products from which they can legitimately choose.  Although the FDA has articulated policies about adding nutrients to foods and beverages, it has not acted to eliminate the category of nutritionally-enhanced products from the market.  One benefit of limited regulatory resources is prioritization, and instances of actual fraud should take (and generally have taken) enforcement priority. 

The Ackerman court's opinion on express and implied warranties makes it clear that there is no real fraud or misrepresentation in the marketing or packaging of vitaminwater.  The label clearly discloses the product's sugar content.  As such, CSPI should move on to lawsuits that fight actual fraud, rather than trying to co-opt the courts into doing what the FDA to date has refused to do.

To read CSPI Litigation Project Director Steve Gardner's take on the decision, click here.

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This seems to be turning into food and beverage week at Ye Olde Consumer Class Actions Blogge.  First, we had our Tort Twits suing Yoo-hoo out the ying-yang.  And now these two decisions, which demonstrate a judicial willingness -- even on a motion to dismiss -- to employ some common sense and dismiss claims that obviously fail to plead a plausible fraud.

The first decision -- Werberl v. Pepsico, Inc., 2010 WL 2673860 (N.D. Cal. July 2, 2010) -- was covered earlier this week by Sean Wajert over at Mass Tort Defense.  I won't completely rehash the case here, other than to note that Werberl is an excellent example of a jurist who does not feel compelled to check her brain at the door when adjudicating Rule 12 motions.  In Werberl, plaintiff alleged that the packaging for Cap'n Crunch's Crunch Berries cereal -- which is delicious and was a favorite of mine growing up -- is deceptive because the name and the pictures lead one to believe that it has actual berries in it when it does not.  Of course, anyone who has ever seen a box of Crunch Berries knows that this allegation is pure horse puckey.  (As does anyone who has actually tasted the cereal.)

Many judges faced with such a ridiculous theory still might hesitate to dismiss such claims pled under California's pro-plaintiff Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law.  They might be tempted to allow some discovery, or say the theory presents a jury question.  But not Judge Saundra Brown Armstrong!  She began her analysis by noting that although the question whether a business practice is deceptive is generally a question of fact not suitable for resolution in a motion to dismiss, "where a court can conclude as a matter of law that members of the public are not likely to be deceived by the product packaging, dismissal is appropriate."  Id. at *3.

She then looked to the facts pled in the putative class action to conclude as a matter of law that there was no deception here:

[T[here are no pictures or images of any berries or any other fruit depicted on the Cap'n Crunch cereal box.  Nor are there any representations that the cereal is made with real fruit or is nutritious.  Rather, the Crunch Berries -- which are not fruit -- are described as a "SWEETENED CORN & OAT CEREAL" and shown as brightly-colored balls of cereal that no reasonable consumer would believe are made from real berries. . . . [T]here simply is nothing in the Cap'n Crunch packaging that would lead a reasonable consumer to believe that the brightly-colored cereal balls depicted on the product cover and described as Crunch Berries are, in fact, made or derived from berries or fruit.

Id. at *4.  Accordingly, the court dismissed the UCL, CLRA, and FAL claims.  It also dismissed the intentional misrepresentation claims for lack of a misrepresentation and because any reliance by the consumer to conclude that the cereal had real berries would be unreasonable per se.  The court also dismissed the breach of express and implied warranties as frivolous because there was no express or implied representation on the packaging that Crunch Berries contain real fruit.  The court even refused to grant leave to amend the complaint because no amendment could cure the fact that the packaging was not deceptive as a matter of law.

Judge Armstrong's analysis is an excellent example of a court that -- faced with a motion to dismiss a ridiculous claim -- was not hamstrung by the rules to avoid applying basic common sense to a consumer fraud claim.  We need more judges like that.

The second opinion I wanted to share in today's post was Mason v. The Coca-Cola Co., 2010 WL 2674445 (D.N.J. June 30, 2010).  In Mason, the plaintiffs brought a putative nationwide class action against Coca-Cola alleging that Diet Coke Plus was misleading under federal and state law because "'the term "Plus" connotes a more robust amount of vitamins and minerals in the product when, in fact, that was not the case at all.'"  Id. at *1.

The defendant began by invoking the primary jurisdiction doctrine and federal preemption to dismiss the claims.  The court wasn't buying it.  As for primary jurisdiction, the court concluded that the lawsuit asked the court to do what courts routinely do:  apply federal regulations.  Indeed, the court said that "[a]t its heart, this case calls for the determination of whether Plaintiffs received what they bargained for."  Id. at *2. 

The court also rejected the defendant's express preemption and conflict preemption arguments.  It quickly dispatched the express preemption argument, reasoning that plaintiffs were simply seeking a state law remedy for a violation of federal labeling requirements, and this was not expressly preempted by the Food, Drug and Cosmetics Act.  As for conflict preemption, the defendant argued that the FDA had established a regulation defining use of the term "Plus," and if the state law claim were allowed to proceed, it might result in a conflicting definition.  The court strongly rejected this argument, reasoning:

Were the Court to permit the application of implied conflict preemption in this case, it would turn regulatory definitions such as 21 C.F.R. sec. 101.54(e) into suits of armor capable of immunizing parties who mislead the public from any potential civil liability, even before it is determined whether the party complied with the definition.  Congress could not have intended such a perverse result when it granted the FDA authority to regulate in this area.

Id. at *4.

But once the court moved to an analysis of plaintiffs' causes of action, it applied basic common sense to conclude that plaintiffs had failed to plead consumer fraud.  In analyzing the claim under the New Jersey Consumer Fraud Act, the court noted that plaintiffs must plead:  (1) unlawful conduct, (2) an ascertainable loss, and (3) a causal relationship between the two.  The court began its analysis by observing that although plaintiffs say that the term "Plus" connoted more vitamins and minerals than were actually in the product, the actual amount of added vitamins and minerals were listed on the product itself.  Indeed, a warning letter sent by the FDA to defendant, which was attached to the complaint, indicated that:

the ingredient list includes the following added vitamins and minerals:  magnesium sulfate (declared at 10% of the Daily Value (DV) for magnesium in the Nutrition Facts panel), zinc gluconate (declared at 10% of the DV for zinc), niacinamide (declared at 15% of the DV for niacin), pyridoxine hydrochloride (declared at 15% of the DV for vitamin B6), and cyanocobalamine (declared at 15% of the DV for vitamin B12).

Id. at *6.  In light of these disclosures right on the product, the court held that plaintiffs had failed to allege with particularity what further expectations they had for the product or how it fell short of such expectations.  Thus, they had failed to plead the first element of an NJCFA claim. 

The court held that they also failed to plead the ascertainable loss element of such a claim because they do not plead how what they received was of a lesser value than what they were promised.  They bought a tasty beverage, they drank a tasty beverage.  They don't allege that they paid more for it than other beverages.  And they don't allege that they would not have bought the Diet Coke Plus but for the allegedly fraudulent misrepresentations.  Thus, they failed to plead an ascertainable loss under the NJCFA.  Id. at *6-*7. 

The court held that, for the same reasons, plaintiffs failed to state a claim for negligent or intentional misrepresentation.  Id. at *7.  And it dismissed plaintiffs' unjust enrichment claim because New Jersey does not recognize unjust enrichment as a separate tort cause of action, and where the underlying tort claims fail, the unjust enrichment claim should be dismissed as well.  Id.

Unlike the court in Werberl, the court in Mason gave plaintiffs an opportunity to re-plead their claims.  But given the fact that the added vitamins and minerals were fully disclosed on the Nutrition Facts section of the product label, plaintiffs will have a very difficult time pleading anything that could give rise to a fraud or misrepresentation claim.

Taken together, Werberl and Mason provide strong encouragement for courts to throw out consumer fraud claims where the contents of the food or beverage product are apparent from the product's packaging and labeling.

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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.

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It seems to be such a basic proposition:  the statute of limitations for breach of warranty begins running with tender of the goods for delivery.  But it's amazing how often the issue gets litigated, with plaintiffs asserting a discovery rule. 

In Mitchell v. Skyline Homes, the court granted the defendant's motion to dismiss on various warranty and other claims.  Plaintiffs alleged that the "manufactured homes" sold by defendant were defective because they lacked a secondary water barrier.  The defendant asserted the statute of limitations as a defense, noting that plaintiff's mobile home was purchased in 1997, but the action was not brought in court until June 2009.  

The express warranty provided that "manufacturing defects reported to Skyline within 15 months after original retail delivery will be corrected without charge within a reasonable time."  Even if the 15-month period extended the statute of limitations beyond the four years after delivery, it did not reach all the way to 2009.  The court held the express warranty claim was time-barred.

As for the implied warranty claim, the court held that even if the bar to vertical privity could be overcome, the statute only ran from the date of delivery, i.e., from 1997 to 2001.

The court also dismissed the Consumer Legal Remedies Act claim because the product performed properly throughout the express warranty period.

It also dismissed the Unfair Competition Law claim because it was necessarily dependent upon the breach of express warranty claim, which was time-barred.

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The Uniform Commercial Code allows sellers to limit the scope of relief available under an express warranty.  Typically, manufacturers do limit warranties to repair and replacement of defective parts.  But what happens where the manufacturer has had numerous opportunities to make repairs and it doesn't seem to have fixed the problem?

That's the basic allegation in Commercial Steam Cleaning, L.L.C. v. Ford Motor Co., 2010 WL 1734792 (S.D. W. Va. Apr. 27, 2010).  There, plaintiffs alleged that Ford offered as an option in its 2002 through 2006 model years of F-Series trucks a 6.0 liter Power Stroke diesel engine made by Navistar.  The plaintiffs alleged that these engines were subject to numerous failures, including "fuel system and injector issues, oil leaks, broken turbochargers, wiring harness troubles, faulty sensors, defective exhaust gas recirculation valves and faulty computers."  Id. at *1. Basically, plaintiffs threw every possible problem into their class action kitchen sink.

The named plaintiff, Commercial Steam Cleaning ("CSC"), had bought three trucks with the engine.  It pled that, because of repairs, it was "without use of its three trucks for approximately 325 days between December 9, 2005 and May 31, 2008, resulting in assorted forms of economic harm."

The plaintiffs asserted, on behalf of a putative class, claims for breach of express warranty, breach of implied warranty, and negligence, gross negligence and recklessness.  They sought an injunction requiring Ford or Navistar to repurchase all vehicles with the engine, a declaration that the engine is defective and inherently dangerous, and compensatory and punitive damages (with attorneys fees and costs).

Defendants moved to dismiss the express warranty claim.  The court analyzed the complaint, applying Twombly and Iqbal, noting that plaintiffs had alleged multiple repair attempts, two recalls, and the failure to fix the problems with the vehicles.  The court refused to dismiss the express warranty count:

The allegations of the Second Amended Complaint, taken in their entirety, satisfy Twombly in fleshing out the necessary elements for an express warranty claim.  Regarding the existence of an express warranty, plaintiffs allege that Ford promised to repair, replace or adjust all defective vehicle parts free of charge.  Regarding the breach, plaintiffs allege that the problems they have experienced are not susceptible to repair or replacement and that Ford and Navistar have refused to repair certain defects and problems.  Regarding the question of damages, plaintiffs plead, inter alia, that similarly situated class members have been required to personally incur repair costs.

While further factual detail might have simplified the inquiry and provided Ford with better notice of the nature of the claim, the allegations, again, minimally suffice for the purposes of pleading an express warranty action.

Id. at *5.

The defendants also sought partial dismissal on the "diminution in value" damages and on consequential damages (which are disclaimed by the warranty), but the court held that such issues were better reserved for summary judgment.  In particular, the warranty's exclusion of consequential damages was "frequently imbued with some complexity, especially where a plaintiff, as here, asserts that a warranty has failed of its essential purpose, namely, repair or replacement that is, allegedly, ineffective."  Id. at *6.

The court reached the same conclusion on the implied warranty claim, refusing to dismiss the claim or rule on the types of damages that might be available.

As for the claim for negligence, gross negligence, and recklessness, the defendants argued that it was barred by the economic loss doctrine.  (Readers will remember that the economic loss doctrine basically says that you cannot sue in tort for purely economic loss associated with an allegedly defective product.  The theory is that the parties are able to assign risks of economic harm in contract, and allowing tort causes of action for such harm would disrupt such risk assignments.)

The court analyzed West Virginia law on the economic loss doctrine, which has exceptions for sudden calamitous events and for special relationships -- neither of which were present here.  Accordingly, the court dismissed the asserted tort clams.

There were a few curious items to note that were set forth at the end of the opinion.  First, plaintiffs had notified the court in early April of their intention NOT to seek class certification.  There is no explanation as to why.  Perhaps they acknowledge that the idiosyncratic nature of each class member's engine trouble could not be tried on a classwide basis?  Second, in a lawsuit that had been framed like a classic Lemon Law claim, plaintiffs only now were asking the court for leave to amend to assert a cause of action under West Virginia's Consumer Protection Act.

There no doubt will be further motion practice in this case, from which we will be able to glean more about these claims.

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Continuing that long line of cases rejecting claims by third party payors seeking to recover sums paid for medicines that allegedly were promoted for off-label uses is Southeast Laborers Health & Welfare Fund v. Bayer Corp., Case No. 08-1928-MD-Middlebrooks/Johnson, slip op. (S.D. Fla.) (registration with Law 360 required to access link).  In Southeast Laborers, the trial court had given plaintiff two extra opportunities to plead a claim under RICO or the New Jersey Consumer Fraud Act. 

Plaintiffs alleged that Bayer promoted the $1,000-per-dose drug Trasylol for off-label use in controlling surgical bleeding despite its knowledge that there were cheaper, more effective medicines that presented less risks of kidney damage and other harms.  In the Second Amended Complaint, plaintiff alleged that it "paid enormous sums of money to Bayer that they would not have paid had they been aware that Trasylol was not safer, more efficacious or of greater value than available alternatives that were significantly cheaper," and it "would never have incurred this expense had Bayer been honest about the safety and efficacy of Trasylol."  Slip op. at 10.  

The court held that this failed to plead the necessary proximate causation under RICO because it was tantamount to a "fraud-on-the-market" theory that nearly every court to consider the question has rejected outside of the securities context.  Slip op. at 12.  As the court explained:

Although Plaintiff argues that it had an independent choice of whether or not to pay for Trasylol, it does not explain how/why it made the choice to pay for Trasylol and how/why Bayer's alleged concealment of the dangers of Trasylol led Plaintiff to pay for Trasylol.  Ultimately, Plaintiff has not established a different premise of proximate causation and still has not met the Holmes requirement that it demonstrate a direct relation between its payment for Trasylol and Bayer's alleged fraudulent concealment.

Id. at 13.  The court thus dismissed the RICO claim with prejudice.

For similar reasons, the court dismissed the New Jersey Consumer Fraud Act claim with prejudice, holding that plaintiff had failed to properly allege proximate causation.  Id. at 16 ("Plaintiff has not alleged a premise of proximate causation that is distinguishable from one that relies on a fraud-on-the-market analysis.").  Plaintiff argued that a fraud-on-the-market analysis applies only where a plaintiff argues that the price was inflated by the alleged misrepresentations.  But the court rejected this argument, saying that even where plaintiff alleges that it would not have paid any amount for the medicine and seeks a complete rescission of all sales, this, too, is a fraud-on-the-market analysis that has been rejected repeatedly.  Id.

Plaintiff had added to the Second Amended Complaint express and implied warranty theories.  The court dismissed the express warranty theory without prejudice for plaintiff's failure to identify any affirmation of fact, promise, or description of Trasylol that it had received that had become part of the basis of the bargain.   Id. at 18-19.  The court dismissed the implied warranty claim without prejudice because the complaint did not allege that Trasylol was unfit for the intended purpose of preventing perioperative bleeding.  Id. at 20.

The court dismissed plaintiff's common law fraud and negligent misrepresentation claims with prejudice for failure to identify any reasonable reliance and/or proximate causation.  Id. at 22.

And the court dismissed the unjust enrichment count because such claims generally are "not allowed to proceed where all of the plaintiff's other tort claims have failed because of the remoteness of a plaintiff's injuries from a defendant's wrongdoing.  Id. at 23.

Southeast Laborers joins a growing body of law that prevents remote parties from bringing suits for speculative harm allegedly arising out of hundreds or thousands of individual doctor-patient decisions.

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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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No issue of science has been more of a political football in recent years than Bisphenol-A (“BPA”), a chemical used to create certain kinds of plastic bottles and epoxy linings that prevent food and beverage canisters from rusting and degrading from within.  BPA is present in trace amounts of a number of food and beverage products that we use, and the media frequently report that microscopic amounts of BPA can be found in the urine of most Americans.  However, Japan, Norway, the European Union, Germany, Australia, New Zealand, Canada, and, notably, the FDA – and more recently, the EPA – have conducted studies or reviews that have concluded that there is no known health risk from low-dose exposure to BPA.  

Despite this fact, a number of advocacy groups and a handful of scientists have fanned the political flames, criticizing the work done by the FDA and advocating for bans on BPA in consumer products.  In particular, critics have raised concerns that low-dose exposure to BPA can affect embryos in utero and small children, altering their hormones and impacting their development and later reproductive function.  (Recently, a major independently-funded study by the EPA failed to find evidence of low-dose effects from BPA.)

It’s little surprise that this debate about science has played out not only in regulatory and legislative circles, but also in American courts.  Last year, a number of putative consumer fraud class actions were filed against baby bottle manufacturers and baby formula producers, and the Joint Panel on Multidistrict Litigation created an MDL.  Some 48 cases are now consolidated before the Western District of Missouri.  None of them has asserted actual physical injury; rather, they assert consumer fraud, misrepresentation, and breach of warranties.  Recently, the court ruled on the defendants’ motions to dismiss.

In In re Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, MDL No. 1967, Slip Op. 1 (W.D. Mo. Nov. 9, 2009), the court considered the defendants’ motions to dismiss on the grounds of primary jurisdiction and federal preemption.  The court explained the regulatory background for BPA.  Slip op. 1 at 2-3.  The FDA has issued regulations prescribing the safe use of resinous and polymeric coatings, which are an approved “food additive” under the Food Drug and Cosmetics Act.  The court noted that it was reasonable to infer that the FDA has determined that food additives containing BPA can be used safely without labeling because the FDA is obligated under the FDCA to require labeling if it were necessary for safety.  Id. at 3.

The court rejected the defendants’ argument that the FDA has primary jurisdiction of the BPA issue and the plaintiffs’ lawsuit thus should be dismissed under the primary jurisdiction doctrine.  In doing so, however, the court tried to draw what seems to be a false distinction between what the court is being asked to do and what the FDA has regulatory authority for:

"However, the ultimate issues in these cases are whether defendants failed to disclose material facts to Plaintiffs and whether Defendants breached the implied warranty of merchantability through the sale of products containing BPA.  The FDA cannot resolve these questions, and the FDA’s determination that BPA is 'safe' is not determinative of any of those issues."

Id. at 4.

That is manifestly wrong, however.  Safety is the key to both the “materiality” of the information that allegedly was not disclosed and the merchantability of the defendants’ products.  If the use of BPA is safe at trace levels – as the FDA has indisputably concluded – then the fact that the products contain trace amounts of BPA cannot be “material” and no legal duty can be imposed upon defendants – who have no fiduciary relationship with the plaintiffs – to disclose its presence in the product.  Similarly, for a product to be unmerchantable under the Uniform Commercial Code, it must fail of its essential purpose.  Here, the baby bottles work properly, and the baby formula nourishes the infants.  The only way in which, under plaintiffs’ theory, the products could be unmerchantable is if they were unsafe – but the FDA already has considered the issue and determined conclusively that they are safe.  As such, the court’s conclusion that it is being asked to resolve a question that is somehow different from the safety issue already resolved by the FDA is incomprehensible.  (Notably, the FDA is planning to release another report on BPA at the end of November.)  Accordingly, the court’s rejection of the primary jurisdiction argument seems incorrect.

The court next examined the defendants’ federal preemption argument.  The court rejected the defendants’ reasoning based on Geier v. American Honda Motor Co., 529 U.S. 861 (2000), in which the Supreme Court held that a plaintiff’s claim against an auto manufacturer was subject to conflict preemption because allowing a state law claim would preclude the types of choice in safety restraints that the federal agency had allowed manufacturers.   Instead, the court held that the issue was controlled by the Supreme Court’s recent decision in Wyeth v. Levine, 129 S. Ct. 1187 (2009), in which the court held that the federal regulation represented a “floor” above which states could impose additional requirements.  Slip op. 1 at 7.

The court reached a different conclusion, however, with respect to the infant formula defendants, who rested their preemption argument not on conflict preemption, but rather on the express preemption provisions involving the FDCA’s misbranding provisions and accompanying regulations.  The infant formula defendants cited the FDA’s determination that epoxy resins are exempt from disclosure under the FDA’s regulation governing incidental additives.  Id. at 8.  The FDCA expressly prohibits states from establishing labeling requirements for food that are not identical to the federal requirements.  Id. at 9.  Thus, the court concluded that the plaintiffs’ claims would embody a disclosure requirement that is the exact opposite of the nondisclosure of incidental additives that the FDA’s regulation provides.

Plaintiffs argued that they fell within a “safety exemption” to the FDCA’s express preemption provision, but the court fell back on its earlier conclusion that the FDA already had concluded that the use of BPA as an incidental additive is safe.  Id. at 9.  Thus, the court held that the claims against the infant formula defendants are expressly preempted, but the claims against the baby bottle defendants are not.

In a second opinion, the court addressed the motions to dismiss the individual counts of the complaint:  violation of state consumer fraud laws, breach of express warranties, breach of implied warranties, intentional misrepresentation, negligent misrepresentation, and unjust enrichment.  See In re Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, MDL No. 1967, Slip op. 2 (W.D. Mo. Nov. 9, 2009).  

To begin with, the court held that the plaintiffs failed to plead with the particularity required by Federal Rules of Civil Procedure 8 and 9(b) the express statements that formed the basis of their fraud, misrepresentation, and breach of express warranty claims.  Slip op. 2 at 4.  The court noted that “platitudes about a particular Defendant’s commitment to safety and quality or general allegations about a particular Defendant’s marketing and advertising strategy” were insufficient to state a claim for misrepresentation.  Similarly, the court noted that the same failure to plead specific statements failed the requirement that a plaintiff pleading a breach of express warranty claim plead that it was part of the “basis of the bargain.”  Id. at 9.

Nevertheless, the court refused to dismiss the consumer fraud and misrepresentation claims to the extend they were based on the failure to disclose the presence of BPA in the products, reasoning that “all jurisdictions surveyed create a duty to disclose material facts that are more readily known by one side of the transaction.”  Id. at 10.  But the imposition of a duty to disclose is not based just on so-called “superior” knowledge.  If it were, a manufacturer would always have a duty to disclose every ingredient or component of a product – something that plainly is not the law.  No, the key is that the information must be “material.”  Here, the FDA already has determined that the presence of trace amounts of BPA in bottles or formula is “safe.”  Accordingly, BPA's presence – which is readily ascertainable from public sources – cannot be “material” as a matter of law.

The MDL court’s approach to other legal issues is particularly disappointing because – although the pleadings are obviously deficient as a matter of law – the court chose to defer ruling on these deficiencies until the class certification stage because of the number of states involved and the varieties in state law.  But the fact that the conduct alleged falls within a consumer protection statute’s safe harbor, or that a buyer lacks privity with the seller, or that a claim is obviously untimely from the face of the complaint, compels dismissal as a matter of law.  Id. at 15.   By failing to rule on these issues merely because of the number of complaints or states involved, the court improperly forced the defendants to throw open the doors of discovery to plaintiffs armed only with general conclusions.  See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).  

The court did, however, dismiss the claims for breach of the implied warranty of fitness for a particular purpose because plaintiffs failed to identify a purpose other than the typical one for the subject products.  But the court failed to examine the specifics of state unjust enrichment law to reach determinations on the defendants’ motion regarding this count.  

The court also had a curious analysis of the so-called “unmanifested defect” argument.  Defendants argued that without a plaintiff having actually experienced a physical harm from the product, he suffered no cognizable harm whatsoever.  The court disagreed, suggesting:

"The buyer has been damaged regardless of whether he replaces or disposes of the product because, either way, he has paid the seller for a product that he would not have purchased had he known that the poison was present, and has received no use from the product.  The poison may not injure him, but the condition complained of – poison’s presence – is known to exist.  Similarly, the Plaintiffs in this category purchased a product they allege they would not have purchased had they known the true facts."

Id. at 19.  Based on this analysis, the court held that plaintiffs how had not used their products still had a claim, while those who had used their products had obtained the full value of their products and had not suffered any damage.  Id. at 20.

But once again, this conclusion is difficult to reconcile with the court’s determination regarding the FDA’s determination of the “safety” of food additives like BPA.  A legal claim premised on “know[ledge] that the poison was present” is wholly inconsistent with the FDA’s safety determination that BPA is not a “poison” at all.

The court’s decisions in the BPA MDL ensure that there will be discovery and another chance for the court to consider the defendant’s arguments about the required elements of plaintiffs’ claims at the class certification stage.  Maybe next time it will get the decision more than half right.

 

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It's not every day an MDL transferee dismisses the entire litigation on the pleadings.  Too often their job is viewed as assembling a document depository and presiding over copious amounts of discovery.  But some cases are just meant to die with the pleadings -- even where there are enough of the cases to warrant creating an MDL.

Judge Dickinson Debevoise has served in the District of New Jersey for nearly 30 years, and for almost half of that time he has been the court's senior member.  Thus, it should come as no surprise that he, as an MDL transferee judge, exhibited no reticence whatsoever in dismissing a consolidated class action complaint on the pleadings where the statements that formed the bedrock of the litigation were obvious puffery.

In In re Toshiba HD DVD Marketing and Sales Practices Litigation, 2009 WL 2940081 (D.N.J. Sept. 11, 2009), the plaintiffs alleged that Toshiba had misled customers by not disclosing that it was going to throw in the towel in the high-def DVD format war it was waging against Sony's Blu-ray technology.  They claimed that months, if not years, before the company's decision to discontinue making its HD DVD players, the company knew that most of the Hollywood studios had embraced Sony's technology and that it was just a matter of time before Toshiba would be forced to abandon the field to Blu-ray, much as Betamax abandoned the field to VHS.  Plaintiffs alleged that, had they known this fact, they would not have paid a premium price above ordinary DVD players to buy Toshiba's HD DVD players. They alleged 4 causes of action:  (1) violation of New Jersey's Consumer Fraud Act, (2) unjust enrichment, (3) breach of express and implied warranties, and (4) violation of the Magnuson-Moss Warranty Act.

In deciding the Rule 12(b)(6) motion, the Court relied heavily on the Supreme Court's recent decision in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), refusing to credit plaintiffs' legal conclusions or other "threadbare recitals of a cause of action."  Rather, it demanded factual allegations, and found the plaintiffs' complaint lacking.

In analyzing the New Jersey CFA, the court looked first to the affirmative acts that were pled, namely, "(1) representing that HD DVD offered the best of high-definition television and DVD; and (2) representing that HD DVD was a format for today, tomorrow, and beyond, and that Toshiba was committed to supporting the HD DVD format into the future."  Id. at *9.  The court held that these were not actionable misrepresentations of fact, but rather were mere puffery, i.e., subjective statements of opinion.  In so holding, the court was mindful of how widely publicized the war between the HD DVD and Blu Ray formats was:

It defies logic that a consumer would believe, based on the tag line "For Today, Tomorrow and Beyond" that Toshiba was committed to producing HD DVD Players indefinitely, particularly given the well-publicized format war with Blu-ray, wherein both Sony and Toshiba were trying to capture the next generation DVD market.

Id. at *10.  The court concluded that the complaint failed

"to allege sufficient facts to claim that an 'ordinary' consumer -- who they admit would have been aware of the format war between HD DVD and Blu-ray -- would have expected to remain in the market indefinitely regardless of the implications of doing so.  On the contrary, the numerous articles referenced in the [complaint] provide support for the notion that the struggle to capture the next generation DVD market was seen as a winner-take-all battle.

Id.

Plaintiffs also asserted two basic "omissions" that Toshiba failed to warn consumers about:  (1) that "major motion pictures would not be released on HD DVD," and (2) that Toshiba planned to withdraw its support from HD DVD technology by exiting the market.  The court once again relied upon the many articles describing the format war between Sony and Toshiba, which "was characterized as a battle which would result in only the 'winning' format continuing in the marketplace."  Id. at 12.  The court said that it "defies logic" that Toshiba's potential market withdrawal could have been concealed in the face of such articles.

Besides puffery, the court held that the New Jersey CFA claim failed because plaintiffs failed to allege sufficient facts under Rule 9(b) to establish an ascertainable loss and causation; they failed to plead where they bought the players, how much they paid, how much ordinary DVD players cost, and whether plaintiffs were ever exposed to the alleged misrepresentations and made their decision because of those misrepresentations.

With respect to the unjust enrichment count, the court held that plaintiffs failed to plead it adequately because they got exactly what they paid for:  a DVD player that played HD DVDs at a higher quality than ordinary DVDs.  The court noted that Toshiba did not control the fact that movie studios opted for Blu-ray technology, and it relied on the fact that the format war was well-publicized.

With respect to the express warranty claim, the court held that the statement "Today, Tomorrow and Beyond" did not create an express warranty and was, in fact, puffery.  Similarly, on the implied warranty claim, the court noted that for an implied warranty of merchantability to be breached, the product actually has to be defective or not be fit for the ordinary purpose for which it was intended.  The complaint does not allege that the players fail to work, but merely that third parties have stopped providing new DVDs in that format.  Thus, it does not allege a breach of implied warranty claim.

Finally, the court held that because there was no implied warranty claim under state law, there could be no Magnuson Moss claim under federal law.

Judge Debevoise's opinion is important not only for its recognition that the statements at issue were mere puffery, but also because it recognizes the context in which consumers were making their choices.  Where the format war was obvious and consumers could be expected to pay attention to it in making their selection, any basic statement in support of the superiority of that technology could not be actionable.  The court refused to impose on a company fighting for the survival of its product line a legal duty to broadcast to consumers (and competitors) that it was considering exiting the market in a period of months.

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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.

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