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

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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