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).… Read more
Here is a noteworthy excerpt from Judge Whyte’s motion to dismiss and class certification ruling in the pending MDL class action involving Lenovo computers that came pre-installed with adware. The excerpt below pertains to the California safety requirement in duty to disclose cases – a topic about which we have written several times. (The excerpt is otherwise offered without commentary since Girard Gibbs LLP is court-appointed class counsel in the litigation.)
Lenovo argues that plaintiffs cannot allege a duty to disclose because a “manufacturer’s duty to consumers is limited to its warranty obligations absent either an affirmative misrepresentation or a safety issue.” Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1141 (9th Cir. 2012).
This court must apply California law. In Wilson, cited by Lenovo, the Ninth Circuit noted that California federal courts have generally interpreted Daugherty, a California Court of Appeal decision, as limiting a manufacturer’s duty to disclose “to its warranty obligations absent either an affirmative misrepresentation or a safety issue.” 668 F.3d at 1141 (citing Daugherty v. Am. Honda Motor Co., 144 Cal. App. 4th 824 (2006), as modified (Nov. 8, 2006)). In Norcia, cited by plaintiffs, the district court noted that “the California Court of Appeal itself has very recently clarified that this is a misreading of California law.
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Judge Dean D. Pregerson certified the class under Rule 23(b)(3) in a suit alleging an undisclosed defect in certain Nissan vehicles. The court certified California consumer protection and implied warranty claims, a Washington consumer protection claim, and a claim for common law fraud. The case is Falco v. Nissan N. Am. Inc., 2016 WL 1327474 (C.D. Cal. Apr. 5, 2016).
Several times, the court relied on the ample Ninth Circuit precedent for certifying automotive defect cases:
The Court finds this case raises similar common questions of fact and law to the common questions alleged in another consumer automobile defect class certification case, Chamberlan v. Ford Motor Co., 402 F.3d 952, 962 (9th Cir. 2005). … In these consumer defect cases, commonality can be found in the very legal and factual question of the defect. See, e.g., id.; see also Wolin v. Jaguar Land Rover N. Am. LLC, 617 F.3d 1168, 1172 (9th Cir. 2010); Doyle v. Chrysler Grp. LLC, No. SACV 13-00620, 2014 WL 7690155, at *6-7 (C.D. Cal. Oct. 9, 2014); Parkinson v. Hyundai Motor Am., 258 F.R.D. 580, 595-96 (C.D. Cal. 2008).
The court also approved Plaintiffs’ two closely-related damages methodologies. First, class members who already spent money on repairs and diagnoses can be provided restitution based on “the average cost of repair.” Second, class members who had not already paid for repairs could still receive restitution based on the same figure because
the class would be getting the benefit of their bargain because they would be put in the same position they would have been had the car not been sold with the defective timing chain system — it is the cost necessary to make the vehicles conform to the value Plaintiffs thought they were getting in the price tendered.
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In class actions alleging a failure to disclose a product defect, defendants often argue that consumers’ reasonable expectations should be defined by the product’s warranty. In other words, if a defect causes out-of-warranty failures only, the defect can’t possibly matter to consumers and defendants have no legal duty to disclose the defect in advance.
This argument drew considerable traction in California in recent years, often requiring plaintiffs to plead the defect posed a safety hazard in order to state a claim. See, e.g., Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1142-43 (9th Cir. 2012). That pendulum now appears to be swinging back in California, however, with courts recognizing a broader duty to disclose under California law. Rutledge v. Hewlett Packard, 238 Cal.App.4th 1164 (July 2015); see also Norcia v. Samsung Telecommunications Am., 2015 WL 4967247 (N.D. Cal. Aug. 20, 2015).
In Chiarelli v. Nissan N. Am., 2015 WL 5686507 (E.D.N.Y. Sept. 25, 2015), Judge Nicholas Garaufis recently had occasion to consider the argument in the context of New York, Florida, and Maryland law, and he rejected the argument nearly in full:
Nissan next argues that the terms of the express warranty set the consumer’s expectations as a matter of law, and therefore there can be no claim that Nissan’s omissions could be viewed as a practice likely to mislead a reasonable consumer acting reasonably under the circumstances. … Read more