Thursday, August 29, 2019

benefit of the bargain damages can be measured by cost of repair in car class action

Nguyen v. Nissan North America, Inc., 932 F.3d 811 (9th Cir. 2019)

Nguyen bought a new 2012 Nissan 370Z with an allegedly potentially catastrophic design defect hidden in the vehicle’s hydraulic clutch system. “After the clutch purportedly malfunctioned—and Plaintiff spent more than $700 replacing it—he filed a putative class action” asserting consumer protection and warranty claims. The court noted evidence supporting the idea of a general defect of which Nissan was aware since 2007 or so, such as a project engineer’s internal email: “This issue is great enough that it warrants a serious look by R&D as to how we can improve the feel, and function of the clutch system. ... Customers are universally dissatisfied with the feel and performance of the system even when it is performing as designed. ... Combine that with the frequent claims of clutch pedal sticking to floor and you’ve taken a dissatisfaction item and made it into a breakdown item.” Nguyen’s son experienced a scary instance of this when the clutch stopped working on the highway, though fortunately he was able to move to the shoulder without physical injury.

The district court denied class certification based on what it saw as inadequacies in Nguyen’s damages model based on the cost of repairing the clutch to fix the problem.  The district court reasoned that the benefit of the bargain would only equal the cost of replacing the defective clutch if consumers would’ve deemed the defective part valueless, which was implausible because even Nguyen drove the vehicle for nearly 27,000 miles before replacing the part.

The court of appeals reversed, finding that a benefit-of-the-bargain model as measured by the average cost of replacing the allegedly defective clutch system was appropriate to satisfy Rule 23(b)(3)’s predominance requirement. The Supreme Court has emphasized that “at the class-certification stage (as at trial), any model supporting a ‘plaintiff’s damages case must be consistent with its liability case.’ ”

Damages under the CLRA, the Song-Beverly Act (California’s warranty law), and the Magnuson-Moss Act could all be measured using a benefit of the bargain theory.  And that was consistent with Nguyen’s liability theory. “Plaintiff’s legal theory is not based on the performance of the allegedly defective clutch system, but instead the system itself, which he claims is defective. Had Plaintiff alleged that performance problems constituted the defect and caused his and the class members’ injuries, then the benefit of the bargain would not be the appropriate measure of damages because, as the district court noted, class members might have received varying levels of value based on if and when they experienced a sticky clutch problem.”  But under Nguyen’s theory, the defect exists whether or not the symptoms have manifested.  Further, he alleged, “a reasonable person would have considered [the fact of the alleged defect] to be important in deciding whether to purchase or lease Class Vehicles,” and thus that Plaintiff and class members “would not have purchased or leased Class Vehicles equipped with transmissions, or would have paid less for them.” Thus, “under both causes of action, the sale of the vehicle with the known defect is the liability-triggering event, not when the [defect] manifests.” It’s at that point that a consumer paid more than she would’ve paid had she known the truth. “[T]he focus is on the difference between what was paid and what a reasonable consumer would have paid at the time of purchase without the fraudulent or omitted information.”  Thus, it was incorrect to say that repair costs wouldn’t measure the harm unless consumers would’ve deemed the defective part valueless. 

Cases from other circuits have also found similar questions “amenable to classwide resolution,” explaining that “a manufacturer’s misrepresentation may allow it to command a price premium and to overcharge customers systematically. Even if an individual class member subjectively valued the vehicle equally with or without the accurate [information], she could have suffered a loss in negotiating leverage if a vehicle with perfect safety ratings is worth more on the open market.”  Technically, I can see why the cost-to-fix might not completely match up with the price drop in the overall negotiated price—though that’s how it works in buying a house, buying a car might be different—but the court noted that cost-to-fix “is a proxy for [his] overpayment of the vehicle at the point of sale.”  In reality, probably many people would’ve gone with a different car instead of one with a clutch so potentially nonfunctional it needed to be replaced, but since we can’t rewind that transaction the cost-to-fix seems like a decent proxy for what they would’ve demanded to take this car instead.

Anyway, Nguyen was seeking to vindicate “the right to take a product free from defect. The defect did not cause the plaintiffs’ injury; the defect was the injury.”  Damages for actual faulty performance would indeed require an individualized analysis that might defeat predominance. The faulty design, however, didn’t pose that problem for class treatment. Reversed and remanded.

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