Toyota class plots route past obstacle

posted on:
June 21, 2010

author:
AMANDA BRONSTAD

As plaintiffs’ lawyers prepare to file their consolidated class action on behalf of Toyota consumers, they face an obstacle that has prevented similar claims from advancing in the past: Class members didn’t actually suffer physical injuries.

The class members assert that they suffered economic injuries because their vehicles declined in value following recalls tied to sudden acceleration problems. Courts have rejected similar argument in class actions brought under products liability laws, according to plaintiffs’ lawyers who spoke during a March conference on the Toyota litigation.

Those “no injury” rulings could influence how the lead plaintiffs’ attorneys in the multidistrict litigation (MDL) against Toyota Motor Corp. craft their first consolidated class action complaint, which is due on Aug. 2.

“This issue is stacked against the plaintiffs,” said Amanda Williams, a lawyer at Minneapolis-based Gustafson Gluek who addressed the matter during the conference. Her firm has filed three cases against Toyota. “I think we have good arguments, but it’s not going to be easy.”

Of course, the Toyota cases have more than one route to explore. Steve Berman, founding partner of Seattle’s Hagens Berman Sobol Shapiro, one of three co-lead counsel of the plaintiffs’ economic-loss committee, anticipated that the class would press claims under consumer fraud statutes in California, rather than products liability laws. Courts have been favorable to the plaintiffs in these cases, he said. “The cases I’m citing are very similar-in-type cases to the ones I’m bringing, where people are bringing economic-loss injuries, not personal injuries, not tort claims,” he said.

More than 200 lawsuits are pending in the MDL in Santa Ana, Calif. Some were brought on behalf of individuals who allegedly were injured or died after their Toyota accelerated out of control. But most have been brought on behalf of consumers seeking economic damages on the ground that their Toyotas are now worth less. Those cases will be the focus of the consolidated class action complaint.

Toyota spokeswoman Celeste Migliore declined to comment on the MDL or potential court rulings that might shape the litigation. “It is early in this MDL,” she said in an e-mailed statement. “However, Toyota is confident that as we move into this case the legal process will be conducted with integrity and fairness. We look forward to addressing the rulings and any court actions as they are decided.”

‘WE’LL BE IN TROUBLE’

During the March conference, Williams noted that economic-loss theories under products liability laws have been challenged in court. “There’s a line of cases out there that say: Until you experienced this defect, you haven’t been injured and don’t have a claim,” Williams said. “If we can’t get past this issue, we’ll be in trouble.”

One of the most cited cases is a 1999 ruling by the U.S. Court of Appeals for the 8th Circuit in Briehl v. General Motors Corp. The appellate panel found that the class members had failed to plead sufficient economic damages because they had not exhibited any defect in the anti-lock braking system of their vehicles. The plaintiffs had claimed that their brake pedals fell rapidly to the floor when they stepped on them, which made driving unsafe.

Robert A. Wallner, a partner at New York’s Milberg who argued that case for the plaintiffs, said that “one of the principal issues the panel raised is you couldn’t have a claim unless someone experienced a brake failure.”

Last year, in O’Neil v. Simplicity Inc., the 8th Circuit reached a similar conclusion after plaintiffs sought compensation for a baby crib that had been recalled due to a defective drop-down side. The plaintiffs alleged tort claims and violations of consumer fraud statutes in Minnesota. “The 8th Circuit said: ‘You bought a crib, you used it for four years, your kid wasn’t hurt, nobody was injured, and therefore you don’t have a tort claim,” said Joe Krasovec, a partner at Chicago’s Schiff Hardin who argued the case for the primary defendant, Graco Children’s Products Inc. As for the consumer claims, the court said the plaintiffs used the crib and got what they paid for.

“That is what Toyota would argue, just like what we argued in O’Neil: You bought a vehicle not subject to the recall, you’ve used it, you’ve driven it and you don’t have problems with it – or, it has been subject to the recall, and we’ve made it right,” Krasovec said. “There’s no injury here.”

‘IT’S GOOD TO BE IN CALIFORNIA’

The plaintiffs’ attorneys in Toyota have one thing in their favor: They’re in California, where rulings based on state consumer fraud statutes have been more favorable to plaintiffs. “California is pretty much on the cutting edge of class action law and has been for a long time,” said W. Daniel “Dee” Miles, a shareholder at Montgomery, Ala.-based Beasley, Allen, Crow, Methvin, Portis & Miles who now sits on the plaintiffs’ steering committee in the personal injury and wrongful death cases against Toyota. “They are the ones blazing the trail in these cases, which is why it’s good to be in California.”

The consolidated class action complaint will be based on California’s consumer fraud statutes, specifically the Unfair Competition Law (UCL) and the Consumers Legal Remedies Act (CLRA), Berman said. The UCL prohibits businesses from engaging in “unlawful,” “unfair” or “fraudulent” practices, including misleading advertising. The CLRA prohibits “unfair methods of competition and unfair or deceptive acts or practices.” Both provide consumers with potential damages.

“In our case, we’re not seeking personal injuries, so we will be seeking consumer fraud statutes of various states,” Berman said. “And the remedies under California law are extremely broad.”

Among those cases is Trew v. Volvo Cars of North America, in which a federal judge in the Eastern District of California refused to dismiss claims brought on behalf of consumers whose vehicles had a defective electronic throttle system – not unlike the problems alleged against Toyota. In Trew, the judge found that the lead plaintiff, while not experiencing any defect, nevertheless suffered injuries under California’s UCL and CLRA because she anticipated that the defective part would fail and, had she known about the problem beforehand, she would not have paid so much for her vehicle.

“Toyota is going to argue that, for consumers who haven’t had an unintended acceleration, they don’t have a defective product,” Berman said. “There are many cases that have held that you don’t have to wait until you’ve suffered such an injury.”

Williams identified another successful case for the plaintiffs that involved “no injury” claims.

In 2008, a federal judge in the Eastern District of California in Sanchez v. Wal-Mart Stores Inc. denied Wal-Mart’s motion for summary judgment, rejecting a line of “no injury” rulings involving products liability claims. The judge found that the lead plaintiff suffered injuries under California’s UCL and CLRA because she was forced to purchase another baby stroller after the first one was recalled due to a defect that Wal-Mart had failed to disclose.

One year later, in Whitson v. Bumbo Ltd., a federal judge in the Northern District of California rejected similar claims involving a recalled baby seat. The judge found the case dissimilar to Sanchez because the plaintiffs had not been forced to replace the defective seat after it was recalled and, therefore, suffered no injuries. “The plaintiffs apparently believe that if they keep oscillating between tort and contract law claims, they can obscure the fact that they have asserted no concrete injury,” the judge wrote. “Such artful pleading, however, is not enough to create an injury in fact.”

In another defeat for plaintiffs, California’s 2d District Court of Appeal in Daugherty v. American Honda Motor Co. Inc. upheld demurrer of a class action alleging that Honda failed to warn about or fix an engine defect. The panel noted that class members had brought claims involving a defect that occurred after the warranties on their vehicles had expired – when most cars begin falling apart. Also, the panel found that the potential for injuries caused by the defect was slim. “No one was saying this was a risk to health, or you might be in a wreck because of this,” said C. Brooks Cutter, a partner at Kershaw, Cutter & Ratinoff who cited the case during the conference. Cutter’s Sacramento, Calif., firm has a suit pending against Toyota.

One year later, he said, a federal judge in the Northern District of California ruled differently in Falk v. General Motors, which also involved vehicles whose warranties had expired. A class of consumers alleged that General Motors Co. had a duty under the UCL and CLRA to disclose that the speedometers on its vehicles malfunctioned. The judge refused to grant GM’s motion to dismiss because, unlike in Daugherty, the defect involved a serious safety issue. “Speed kills. This is a safety issue,” said Michael Ram, name partner at San Francisco’s Ram & Olson who represented the plaintiffs in Falk. “This is material to a reasonable consumer.”

Cutter said the Toyota case falls close in line with Falk because sudden acceleration, like defective speedometers, poses a significant safety risk. “The claims implicate the very core of what the person relies upon when they buy a vehicle: that it will be safe to drive,” he said.

Contact Amanda Bronstad at abronstad@-alm.com. The writer owns a Toyota subject to recall but has not joined any litigation.

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