Tuesday, October 31, 2017

Consumers can't recover for GM's self-tarnishment

In re General Motors LLC Ignition Switch Litigation, --- F.Supp.3d ---- 2017 WL 2839154, No. 14–MD–2543 (S.D.N.Y. Jun. 30, 2017)

This multidistrict litigation arose from the 2014 recall by General Motors LLC (New GM) of General Motors (GM) vehicles that had been manufactured with a defective ignition switch, which could cause moving stalls and disable critical safety systems such as the airbag. After that recall, New GM recalled millions of other vehicles, some for ignition switch-related defects and some for other defects. The putative class plaintiffs sought recovery on behalf of GM car owners and lessors, arguing that they were harmed by, among other things, a drop in their vehicles’ value due to the ignition switch defect and other defects.  While brand owners can be protected against reputational injury, the court here holds that a brand’s self-tarnishment provides its consumers no remedy. 

The lost brand value theory was “unprecedented and unsound.” Brand owners don’t have to provide an indefinite guarantee of both “the product’s resale value and the brand’s continuing good name.” It’s true that “labels and brands have independent economic value,” but “it does not follow that a consumer can recover if he or she buys a defect-free and functional product that performs as expected, but the company’s actions somehow affect the value of the company’s brand.” To do so might even over-deter manufacturers and “diminish the resources available to plaintiffs who have been more directly injured by the manufacturer’s products.”  

Plaintiffs attempted to amend their brand devaluation claims to only those putative class members who have or had defective cars, but there was no logical reason that only such people would have suffered from the brand devaluation.  In addition, plaintiffs pled facts from the work of a brand expert “about how the repeated recalls had a negative impact on the brands and models that were recalled, about the relationship of New GM to its sub-brands, about New GM’s brand architecture, and … the primary variables that will inform the calculation of the spillover effect of the ignition switch recalls to other recalled cars.”  These allegations merely provided a factual basis for the proposition that “labels and brands have independent economic value,” which the court accepted, while still rejecting the idea that consumers purchase a guarantee of both “the product’s resale value and the brand’s continuing good name.”

However, the court did allow certain claims to proceed, including claims for the value of time lost to repairs, and some state law claims if the relevant state allowed claims in the absence of a manifested defect; did not require a special trust relationship between the parties for a duty to disclose to arise; and/or permitted plaintiffs to plead both contract claims and unjust enrichment claims. Most of plaintiffs’ consumer fraud, fraudulent concealment, and breach of implied warranty claims survived, while most of their unjust enrichment claims didn’t.  As the court noted, “most state courts construe their consumer protection statutes to permit recovery beyond actual damages, including incidental and consequential damages,” which would generally permit lost time claims.

Nonetheless, plaintiffs who bought their cars before July 10, 2009—the date on which New GM purchased most of the assets of Old GM as part of the bankruptcy proceedings—couldn’t pursue claims for economic loss, because the economic injury took place at the time of sale. New GM’s alleged concealment of the ignition defect couldn’t cause economic injury to people who bought before New GM came into existence.  Likewise, plaintiffs who sold, traded in, or returned their vehicles prior to New GM’s announcement of the recalls beginning in 2014 couldn’t pursue such claims. Because they didn’t own any affected GM vehicles at the time of the recall, they couldn’t suffer diminished value as the result of the market correcting for the true value of the defective vehicles.  However, a plaintiff who bought her car after New GM bought GM and sold it before the recall was announced could still plead and prove damages in the form of out-of-pocket expenses and lost time, such as a plaintiff who experienced shutoffs while driving and had to go to the service shop often.

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