United States: Court Dismisses Peeling Paint Class Action Against Hyundai, But Grants Third Opportunity To Amend

On April 13, 2017, United States District Judge Beverly Reid O'Connell for the Central District of California granted a motion to dismiss a class action complaint alleging that Hyundai sold cars with an alleged latent paint defect that caused the "self-healing" paint to bubble, peel, and flake.  Resnick et al. v. Hyundai Motor Am., Inc. et al., No. 8:16-cv-00593-BRO (PJWx), Dkt. No. 80.  The court dismissed plaintiffs' warranty, negligent misrepresentation, fraudulent concealment, and state consumer protection claims without prejudice, with the exception of a Massachusetts Unfair and Deceptive Trade Practice Act claim, which was dismissed with prejudice.

Consumers Challenge Alleged Paint Defect Under State Consumer Protection Laws.

In March 2016, 15 individuals from 10 different states sued defendants Hyundai Motor America, Inc. and Hyundai Motor Co., Ltd.  Plaintiffs are current owners of 2006-2016 Hyundai Santa Fe, Sonata, and Elantra automobiles manufactured in the United States that have an alleged paint defect that manifests itself over time and causes the paint to bubble, peel, and flake.  Plaintiffs claim that Hyundai fraudulently concealed the alleged paint defect when plaintiffs purchased their vehicles and refused to offer plaintiffs or the putative class any relief.

In November 2016, the court granted defendants' motion to dismiss plaintiffs' First Amended Complaint.  (Dkt. No. 57.)  Plaintiffs filed a Second Amended Complaint in November 2016, and stipulated to consolidate two cases against defendants in January 2017.  In February 2017, plaintiffs filed a Consolidated Class Action Complaint, alleging fourteen causes of action, including for breach of warranty, negligent misrepresentation, fraudulent concealment, and violations of various state consumer protection laws.

Court Dismisses Express and Implied Warranty Claims.

For the majority of plaintiffs, the court dismissed without prejudice the breach of express warranty claims because the alleged defect occurred outside Hyundai's warranty period.  The court rejected plaintiffs' argument that an exception should apply to hold Hyundai liable for latent defects outside the warranty period.  The court also dismissed plaintiffs' warranty claims based on representations on Hyundai's corporate website and advertising campaigns regarding the quality of the paint as outside the warranty period, which the court limited to the express warranty period.  The court granted leave to amend for two plaintiffs who may have experienced the alleged defect during the warranty period, but did not clearly allege those facts.

The court dismissed without prejudice claims for breach of implied warranty of merchantability under California's Song-Beverly Consumer Warranty Act.  The court held that the implied warranty of merchantability requires "something beyond mere aesthetic concerns," and that plaintiffs only allege that the paint defect affected their vehicles' aesthetics.  The court rejected plaintiffs' argument that a breach of implied warranty of merchantability arises whenever a vehicle's behavior fails to comport with industry standards.

Court Dismisses Negligent Misrepresentation Claims Under the Economic Loss Rule.

The court dismissed without prejudice plaintiffs' negligent misrepresentation claims as barred under the economic loss rule.  Plaintiffs alleged that the paint defect caused "out of pocket losses associated with the paint defect, corrosion repairs and diminished value of [their] vehicle[s]."  Under the economic loss rule, the court held that these alleged damages were insufficient to support a negligent misrepresentation claim because they arose from harm to the product itself (i.e., the body of the car).  The court rejected plaintiffs' argument that the economic loss rule did not apply because of the "special relationship" exception, which does not apply to those who have a direct contractual relationship with the defendants (like plaintiffs).

Court Dismisses State Consumer Protection and Fraudulent Concealment Claims. 

Plaintiffs also brought claims based on fraudulent concealment and violations of California's Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act based on the allegations that:  (1) defendants made affirmative misrepresentations of fact, and (2) defendants fraudulently concealed their knowledge of the alleged paint defect.  The court dismissed these claims without prejudice based on plaintiffs' failure to allege facts indicating that defendants knew or should have known of the alleged defect at the time of sale.  Plaintiffs' general allegations that there were "concerns" regarding the possibility of self-healing paints peeling were insufficient to establish presale knowledge.  Plaintiffs failed to allege "who had these concerns, the substance of the concerns, or whether the concerns were ever communicated to Hyundai."  The court also found that allegations regarding anonymous online complaints were not sufficient to establish defendants' knowledge of the alleged defect.  The court further emphasized that, even if plaintiffs' sufficiently pleaded knowledge, plaintiffs did not adequately plead specific reliance on the alleged affirmative misrepresentations.  The court dismissed plaintiffs' non-California state consumer protection law claims without prejudice on similar grounds.

Hyundai Takeaway.

The opinion is quite rigorous in holding plaintiffs to their pleading burden.  As was done here, courts typically allow plaintiffs an opportunity to amend.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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