In re Toyota Motor Corp.: Plaintiffs Win Major Victory in Economic Loss Ruling

The labyrinthine class action alleging sudden, unintended acceleration of Toyota vehicles yielded a major victory for the plaintiffs with Judge James Selna’s recent ruling that accepted an “economic loss” theory of liability. See In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, and Products Liab. Litig., No. 8:10ML-02151, 2011 U.S. Dist. LEXIS 52529 (C.D. Cal. May 13, 2011). The detailed and meticulously-reasoned Order is available here.

Under the economic loss theory, damages resulting from the alleged unintended acceleration are not limited to circumstances in which this defect proximately caused either property or bodily damage. Rather, the spectrum of compensable damages includes “overpayment, loss in value, or loss in usefulness.” Order at 14-15. Accordingly, those who either would not have bought a Toyota vehicle, or would not have paid as much for the car, had they known of the sudden acceleration defect, are entitled to compensation, even if they have not tangibly realized the decreased value attributed to the defect.

Apart from substantially expanding the size of a prospective class to essentially everyone who bought one of the at-issue Toyota cars, the ruling represents a victory for plaintiffs generally. First, the ruling affirms that economic loss satisfies the Article III “injury in fact” standing requirement. See Order at 14-16. In so holding, the California Supreme Court’s ruling in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (Cal. 2011) realizes its most direct and unadulterated application to a standing ruling in federal court. Second, Judge Selna rejected Toyota’s argument—made in innumerable other class actions pending in federal court—that Bell Atl. Corp. v. Twombly, 550 U.S. 554 (U.S. 2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) require that Plaintiffs provide a detailed level of pleading as to economic loss in order to “allege enough facts to plausibly infer that the pleader is entitled to relief.” See Order at 21-25. Reaffirming the essence of the notice pleading that has prevailed in modern civil jurisprudence, Judge Selna concluded that “[b]ecause every lead Plaintiff alleges a safety defect, and defective cars are not worth as much as defect-free cars, Plaintiffs plausibly establish an economic loss.” Order at 25.

While binding on neither other federal district courts nor California’s trial courts, the rulings in In re Toyota are likely to influence other judges, not least owing to Judge Selna’s characteristic thoroughness.