Six years after Wilson v. Hewlett-Packard, the Ninth Circuit has reversed course. Plaintiffs are no longer required to allege a safety hazard in order to state an omission claim under California law.
Briefly by way of background, California’s state appellate courts have never expressly adopted a safety requirement in omissions cases. But federal district courts in the Ninth Circuit did so to such an extent that the Ninth Circuit in Wilson adopted the requirement based primarily on the strength of their consensus. The district courts developed their interpretation based on the implied holdings in Bardin v. Daimlerchrysler Corp., 136 Cal. App. 4th 1255 (2006), and Daugherty v. American Honda Motor Co., 144 Cal. App. 4th 824 (2006).
Even after the Ninth Circuit codified the safety requirement in Wilson, California state courts did not. In a recent decision, Rutledge v. Hewlett-Packard, the court appeared to outright reject it, holding that neither Daugherty nor Bardin “preclude a duty to disclose material information” outside the safety context. The court continued: “the Bardin court did not hold that a defect must be related to a safety concern to be material for purposes of fraudulent omission.” 238 Cal. App. 4th 1164, 1174 (2015).
Now, with the benefit of Rutledge, the Ninth Circuit has moved away from the focus on safety in Hodsdon v. Mars, Inc., 2018 WL 2473486 (9th Cir. June 4, 2018). The Hodsdon panel acknowledged, “recent state-court cases have cast doubt on the breadth of this Circuit’s precedent about the duty to disclose.”
Hodson applies a new three-part test. Two of the parts are familiar, and one is new. Under the first two parts, (i) the omission must be material, and (ii) the omitted information must meet one of the Limandri v. Judkins factors (e.g., because the information was actively concealed by the defendant).
The third element – the new part of the test – requires the omitted information to be “central to the product’s function.” The question of what “central to functionality” means is likely to spur considerable motion practice. For instance, Hodsdon is based on allegations about chocolate bars. One might ask: What is the “central function” of a chocolate bar? To be eaten, perhaps? Does that mean, under Hodsdon, that a chocolate bar must be inedible for there to be an actionable omission? This will be the question for future courts.
One important footnote. Hodsdon did not kill the safety requirement entirely. Instead, where the new “central to functionality” element cannot be established, plaintiffs can still rely on a safety hazard in the alternative: “where the challenged omission does not concern a central functional defect, the plaintiff may still have to plead a safety hazard to establish that the defendant had a duty to disclose.” Hodsdon, 2018 WL 2473486, at *6. So even if a chocolate bar is edible, such that it maintains its central functionality, its maker will have to disclose information about safety hazards not already known to the public.
The district courts in the Ninth Circuit have spent years deciding which defects pose safety hazards. Now, they are likely to spend the coming years deciding which defects affect products’ core functionality.