Friday, February 17, 2017

GM's defeat device is almost by definition fraudulent omission

Counts v. General Motors, LLC, No. 16-cv-12541, 2017 WL 588457 (E.D. Mich. Feb. 14, 2017)

Plaintiffs sued GM for deceptive advertising, breach of contract, and fraudulent concealment claims under the laws of thirty states based on GM’s alleged installation of a “defeat device” in the 2014 Chevrolet Cruze Diesel, which results in significantly higher emissions when the vehicle is in use compared to when it is being tested in laboratory conditions.  The court declined to apply the primary jurisdiction doctrine or find the claims preempted by the Clean Air Act, but did give GM some victories.

GM argued that the plaintiffs lacked Article III standing because they didn’t allege a concrete and particularized injury and because they brought claims arising under the law of states where none of the named plaintiffs reside or bought their vehicle.  GM characterized their claims as arising from alleged environmental harms and violation of government standards, but plaintiffs alleged a standard overpayment theory: if they’d known the truth about the defeat devices/the actual emissions levels, they wouldn’t have bought the supposedly “clean diesel” vehicles or would have paid less for them, especially given that GM charged more for the diesel model than a comparable gas model.  GM argued that this higher price came from the increased power and fuel efficiency that diesel engines feature.  The court agreed with the plaintiffs.

Plaintiffs plausibly pled deceptive behavior.  The complaint detailed “numerous studies and reports from European authorities finding that GM vehicles are noncompliant with European emission regulations, despite meeting those regulations when tested in laboratory settings.” It also alleged that plaintiffs’ own tests of a Cruze found that emissions were significantly higher than represented. Though plaintiffs did not specifically allege that the Cruze they tested was the 2014 diesel model, they plausibly alleged that GM’s vehicles share common designs, including engines; “common sense compels the conclusion that GM does not start anew each time it designs a vehicle.”

Nor did plaintiffs have to show reliance to show Article III standing:

The clean diesel features of the Cruze were an important component of the vehicle, as evidenced by GM’s advertising campaign which featured the clean diesel system. That system elevated the apparent value of the vehicle. Even if Plaintiffs did not specifically choose the Cruze because of its clean diesel system, they paid more for the vehicle because it included the system. If the system did not actually provide any value to the vehicle, then Plaintiffs suffered financial injury through overpayment regardless of whether they relied on GM’s alleged misrepresentations.

Turning to the fraudulent concealment claims, they had to be pled with particularity, even though they were omission-based.  However, particularity demands different things in different contexts.  “If a plaintiff’s theory for relief involves a failure to act, then requiring the plaintiff to specifically identify the point in time when the defendant should have acted may be unduly burdensome. … [T]he difficulty of obtaining proprietary GM information or pinpointing the point in time when a fraudulent omission occurred will be taken into account.”

Here, the complaint sufficiently alleged with particularity facts showing that GM fraudulently concealed or misrepresented that the functionality and effectiveness of the Cruze’s “clean diesel” system was substantially lower than a reasonable customer would expect, given the representations made in GM’s advertising campaign. Further, where omissions are at issue, showing reliance means showing that the facts deliberately withheld would be material to a reasonable consumer.

GM argued that the ad claims plaintiffs cited were mere puffery.  The more general a statement is, the more likely it is to be puffery. But numbers alone aren’t enough, if they’re still not believable.  GM’s statements about the “high-quality” and “safety” of its vehicles were inherently subjective and couldn’t form the basis of a fraud action, nor could “Turbocharged Clean Diesel” nor statements regarding cleanliness, “more efficient combustion,” and improved “performance.”  

Indeed, even claiming that the “turbocharged engine in Cruze Clean Turbo Diesel [sic] generates at least 90% less nitrogen oxide and particulate emissions when compared to previous-generation diesels” and that “Cruze Diesel emissions are below strict U.S. environmental standards” was nonactionable, because it wasn’t quantifiable by itself.  The purported comparison to previous-generation diesels wasn’t specific enough—did it mean past GM diesel vehicles, all diesel vehicles, or all diesel vehicles from before a certain date?  [This is ridiculous nitpicking.  A reasonable consumer might not have formed an opinion about the exact meaning, but could reasonably presume that there was a generally understood industry meaning, especially in combination with percentages and specific named pollutants.]  The court seemed to think it was important that no competitor was named (even though identifying a competitor is exactly when we might be able to rely on competitor suits to backstop consumer suits), nor was there a specific assertion that the claim was based on testing.  “One might argue that some type of testing is implicitly assumed by the language [indeed one might!], but the advertisement’s level of generality further supports a finding of puffery.”  The court thought it would be hard to prove the falsity of this claim, because the complaint included no data about the level at which “previous-general diesels,” however defined, produced emissions. And the Cruze might simultaneously produce more emissions than expected when being driven and still produce, in total, 90% less emissions than previous-generation diesels.

The final affirmative representation at issue was that “Cruze Diesel emissions are below strict U.S. environmental standards.” But a lawsuit against GM for producing a vehicle that produces emissions in noncompliance with EPA regulations would be preempted by the CAA.

On the other hand, fraudulent concealment, instead of affirmative misrepresentations, was adequately alleged.  A duty to disclose can arise under the laws of some states where there’s exclusive knowledge of a defect or active concealment of that defect.  The very nature of the “defeat device” suggests active concealment: “The only plausible purpose of such a device is to create the appearance of low emissions without the reality of low emissions,” and GM couldn’t reasonably argue that plaintiffs could have found out about it before buying.  Both common-law and statutory consumer protection claims based on omissions thus survived.

No comments:

Post a Comment