United States: District Court Puts A Stop To The Importation Of Products Liability Design Defect Principles Into The Consumer Fraud Context

On September 30 2016, Central District Court Judge André Birotte Jr. dismissed five related consumer fraud class actions against six automotive manufacturers. The plaintiffs in Lassen v. Nissan N. Am., Inc.1 claimed the automotive defendants were unjustly enriched and violated consumer protection and fraud laws when they failed to include an "auto off" feature that automatically shuts off a car's engine when the key fob is removed from the vehicle. Plaintiffs alleged the automakers had a duty to disclose this alleged defect—the absence of a safety feature that was never promised in the first instance—at the time of sale. Plaintiffs claimed this disclosure, if made, would have caused plaintiffs to not buy the subject vehicles or pay less for them.

The automakers filed motions to dismiss on several grounds, and the court's ensuing analysis reached only the issues arising under federal law: preemption, primary jurisdiction, and lack of standing.

Judge Birotte first explained plaintiffs' claims were not preempted by federal law under either field or conflict preemption. The automakers had argued plaintiffs' claims were preempted by the National Highway Transportation Safety Act ("Safety Act").2 But field preemption did not apply because the Safety Act was not intended to occupy the entire field of motor vehicle safety. Nor did the court find that conflict preemption applied. The automakers argued a rule proposed by the National Highway Transport Safety Administration ("NHTSA")—which would mandate an audible alarm feature (instead of an auto-off feature) to alert drivers when a keyless fob has been removed from a running vehicle—conflicted with state law. But Judge Birotte explained that because the rule had not yet been adopted, there was no actual conflict.

The automakers had also argued the Safety Act preempted the plaintiffs' request for a court-ordered recall because such a recall was under NHTSA's exclusive authority and would frustrate the objectives of the Safety Act. But the court declined to accept these arguments, explaining that nothing in the Safety Act indicated NHTSA's authority was exclusive, and the court-ordered recall would not frustrate the Safety Act's stated purpose of reducing traffic accidents and the injuries resulting from traffic accidents.3 The court also found the presumption against preemption applied. According to the court, a recall is a remedy, not a substantive field of regulation like motor vehicle safety, and Congress had not clearly or manifestly established an intent to preempt recall remedies under state law.

Similarly, the court determined the doctrine of primary jurisdiction did not bar plaintiffs' claims that neither arose under the Safety Act nor did they involve litigating a regulation or standard NHTSA had issued. The automakers also had not demonstrated any special agency competence would be required to adjudicate the plaintiffs' claims.

While the court declined to accept these preemption and primary jurisdiction arguments, it did agree the plaintiffs had failed to plead an injury in fact sufficient for Article III standing. The plaintiffs claimed they were injured because they experienced the alleged defect: on some occasions, their cars did not automatically turn off after they accidentally left the vehicles running and removed the key fobs from their vehicles. The plaintiffs also had expressed concern about the lack of an auto-off feature on the basis that others had suffered carbon monoxide poisoning from engines left running in enclosed spaces. Finally, plaintiffs claimed economic harm in the form of overpayment for and diminished value of their vehicles.

Important to the court's standing analysis was the fact that plaintiffs had expressly excluded from the class those people who had experienced physical injuries as a result of the claimed defect. This was a lawsuit for alleged economic injuries only allegedly sustained by consumers who did not get a safety benefit plaintiffs subjectively believed should have been included with their vehicles. Judge Birotte explained, in reliance on the Ninth Circuit's opinion in Birdsong v. Apple, Inc.,4 and a Northern District Court's ruling in Taragan v. Nissan,5 the plaintiffs received vehicles that functioned as designed and any potential injury was too attenuated because the "risk of harm manifests not because the vehicles malfunction or fail, but rather because of human error."6 Further, the alleged injury in fact could not be premised on the loss of a "safety" benefit that had not been "part of the bargain to begin with."7

Also problematic to the court was the plaintiffs' attempt to premise their legal theory of defect on the legal standards for determining the existence of a design defect in the products liability realm. What the plaintiffs' design defect theory boiled down to was that the lack of auto-off increased the risk that drivers would forget to turn off their vehicles (thereby increasing the risk of carbon monoxide poisoning). The court rejected the plaintiffs' request to apply products liability principles in the consumer-fraud realm because those principles are not "readily transferable" to consumer-fraud claims, "especially where the product in issue did not fail or malfunction but instead functioned as intended."8

The decision is an important one because Judge Birotte delineated the differing purposes of products liability and consumer fraud law. On the one hand, the purpose of products liability principles is to encourage manufacturers to maximize the safety of their products by giving consumers a remedy for property damage or personal injury caused by unsafe products. On the other hand, the "paramount concern" of consumer fraud law is preventing deception by sellers. These separate purposes therefore preclude application of products liability principles in cases like Lassen:

[W]here the basis of an alleged consumer fraud claim is that the seller failed to disclose a safety defect, and where gravamen of the defect is that the product does not malfunction but lacks certain additional safety features, the claim starts to become less about deception and more about consumer safety, which is not the immediate concern of consumer fraud law.9

Another distinction that gave the court "great pause" was that while any entity in the distribution chain can be held liable under products liability laws regardless of their knowledge of a defect, consumer fraud law requires a defendant to have known about the defect prior to selling a product to the consumer. Where, as in Lassen, the products never malfunctioned and instead functioned as designed, the automakers could not plausibly be charged with prior knowledge of a design defect.

Judge Birotte noted that importing products liability's design defect standards into consumer fraud law would essentially force sellers to disclose their products lack "all other safer alternative design features," which would go "far beyond" consumer fraud law's paramount concern with preventing deception (not protecting consumers from unsafe products).

Footnotes

1 2016 U.S. Dist. LEXIS 139512 (C.D. Cal. Sept. 30. 2016).

2 49 U.S.C. §§ 30101 et seq.

3 49 U.S.C. § 30101.

4 590 F.3d 955 (9th Cir. 2009).

5 2013 U.S. Dist. LEXIS 87148 (N.D. Cal. June 20, 2013).

6 2016 U.S. Dist. LEXIS 139512, at *39.

7 Id. at *40.

8 Id. at *47.

9 Id. at *49-50.

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