Posts belonging to Category Caselaw Developments

Distinguishing Williams v. Yamaha Motor Co. in Car Defect Cases

In Williams v. Yamaha Motor Co., the Ninth Circuit held that an alleged defect that results in “premature” failure of vehicle component cannot create a safety issue that is “unreasonable” and thus does not trigger a duty to disclose under California’s Unfair Competition Law (“UCL”) and Consumers Legal Remedies Act (“CLRA”)—at least, this is how defendants interpret Williams. No. 15-55924, 851 F.3d 1015 (9th Cir. 2017) (slip op. available here). In Williams, the consumer plaintiffs asserted claims that their Yamaha boat engines contained a design defect that resulted in severe corrosion, which could cause a sudden loss of steering control. In affirming an order granting the motion to dismiss, the Ninth Circuit noted that the liability standard is an “unreasonable safety risk,” not just any safety risk, and that a defect premised on “accelerated timing” of a failure, rather than a “wholly abnormal” condition that a consumer would never expect, cannot give rise to duty to disclose. Id. at 24. Predictably, since Williams issued, defendants in car cases have attempted to leverage Williams to argue that plaintiffs’ defect claims are simply “premature” failures of vehicle components and therefore not actionable.

However, Williams does not support these defendants’ attempts at extending Williams for several reasons. First, in Williams, the plaintiffs admitted that it was “normal and expected” that the boat engines would suffer from some corrosion or wear out at some point. Slip op. at 23. The court noted that the plaintiffs’ “’own characterization of the defect’ was that it “merely accelerated the normal and expected process of corrosion” and absent the defect, there was no allegation that corrosion would not occur.” Id. The panel reasoned that, were it to conclude that plaintiffs’ allegations of premature, but otherwise normal, wear and tear, plausibly establish an unreasonable safety hazard, the court would effectively open the door to claims that all of Yamaha’s motors eventually pose an unreasonable safety hazard. Thus, the first practice tip for plaintiffs is to not allege or acknowledge (or even bring an action) that the claimed defect is “normal or expected” or the result of typical “wear and tear.” Indeed, the crux of a failure to disclose action is that the vehicle component is defectively designed and would not fail prematurely absent the design defect, irrespective of wear and tear.

Second, Williams simply does not apply where plaintiffs properly allege that the vehicle component is defectively designed, as opposed to the acceleration of a normal condition. A consumer class action plaintiff should emphasize that her case is unequivocally not about premature wear, but rather is about an abnormal condition caused by a design defect: car components that otherwise should function properly, but fail specifically due to a defect in their design. Borkman, et al. v. BMW of North Am., LLC is instructive in discerning between an alleged defect based on normal wear and tear, and the Borkman plaintiffs’ contention that the component was defective in design. 2017 WL 4082420 *7 (C.D. Cal. Aug. 28, 2017) (Mr. Borkman was represented by Capstone Law APC). In Borkman, the plaintiffs alleged that certain vehicles contained a “design or manufacturing defect that causes the oil filter housing gaskets to prematurely break.” 2017 WL 4082420 at *1. The gaskets were allegedly defective because they were composed of a material that was “prone to premature wear and deterioration” when exposed to heat. Id. Citing Williams, BMW argued that the allegations were based on normal wear and tear that happened to occur prematurely, and thus the plaintiffs failed to establish a safety risk. Rejecting BMW’s argument, the court distinguished Williams because the plaintiffs alleged that the parts at issue were themselves defective, stating, “[h]ere, plaintiff does not allege that the [defect] merely accelerated the normal and expected process of cracking and breaking gaskets. Rather, plaintiff alleges that the oil filter housing units and its gaskets are defective due to their proximity to engine heat sources . . . .” Id. at 7. In Keegan v. American Honda Motor Co., Inc., decided prior to Williams, the district court made a similar determination, finding that “[w]hile tires must be replaced periodically . . ., [the rear suspension] is neither a maintenance item nor a part whose defect would be open and obvious to the regular driver. Moreover, the mere fact that a tire is a maintenance item does not foreclose the possibility that there are safety concerns with the class vehicles.” 838 F. Supp. 2d 929, 942 (C.D. Cal. 2012).

Third, the Court’s holding in Williams can be avoided entirely where the alleged defect arose during the warranty period. Courts have confirmed that plaintiffs are not required to plead or prove an “unreasonable safety defect” where a defect arises during the warranty period. See Salas v. Toyota Motor Sales, U.S.A., Inc., No. 15-CV-8629, 2016 WL 7486600 *8 (C.D. Cal. Sept. 27, 2016), and Salas v. Toyota Motor Sales, U.S.A., Inc., No. 15-CV-8629, Dkt. No. 81, n.8 (C.D. Cal. Sept. 27, 2017) (finding Williams does not hold that a safety-related defect is required for defects that manifest during the warranty period).

Finally, a California Court of Appeal decision calls into question whether a safety concern is even required at all to trigger a duty to disclose. In Rutledge v. Hewlett-Packard Co., 238 Cal. App. 4th 1164 (2015), as modified on denial of reh’g (Aug. 21, 2015), review denied (Nov. 10, 2015), the court held that a duty to disclose material information exists regardless of a safety concern. The court rejected defendant’s argument that “manufacturers do not have an independent duty to disclose a product defect absent an unreasonable risk of physical injury or other safety concern” and confirmed that a duty to disclose material information exists regardless of a safety concern. Rutledge, 238 Cal. App. 4th at 1173-74. Rutledge explained further that a manufacturer has “a duty to disclose a material defect in it product” where the allegedly defective component “is central and necessary” to the product’s function. Id. at 1174-1175.

Plaintiffs who allege failures to disclose design defects in car cases should bear in mind these pleading tips to avoid the Ninth Circuit’s Williams decision.

Authored By:
Jordan Lurie, Of Counsel

Flores v. Southcoast Automotive: UCL and CLRA Remedies Are Cumulative

In Flores v. Southcoast Automotive Liquidators, Inc., No. B268271 (2nd District, Div. 5, Nov. 27, 2017) (slip op. available here), the California Court of Appeal affirmed that “an appropriate correction offer under the Consumers Legal Remedies Act [“CLRA”] does not prevent a consumer from pursuing causes of action for fraud and violation of the UCL [Unfair Competition Law] based on the same conduct, because the remedies are cumulative.” Slip op. at 2.

In 2013, defendant-appellant Southcoast Automotive Liquidators, a car dealership, marketed its inventory of used cars in print and online. Print ads included the caveat that the advertised price expires at 12:00 p.m. on the day of publication, though online advertisements (which were only posted for three hours at a time) did not contain this fine print regarding expiration. Slip op. at 3. Plaintiff-respondent Flores saw and printed an internet ad offering the car she intended to purchase the next day for $9,995. Ms. Flores, who was buying her first car, was assisted by her parents, who spoke to the dealership’s employees by phone to confirm the car’s price and condition. Id. at 3-4. When they arrived the following day, the advertised vehicle was not available, but the dealer offered the same model with more than twice as many miles and in worse condition for the same price. Id. at 4. The plaintiff accepted the deal; although the loan paperwork she signed listed higher prices, the dealership assured her the correct price would be inserted later. Id. at 5. The vehicle broke down almost immediately, and Ms. Flores eventually retained counsel, who sent the dealer a letter on May 31, 2013, asserting “that Dealer’s acts constituted unfair methods of competition and/or unfair or deceptive acts in violation of the CLRA.” Id. at 6.

On June 7, 2013, the plaintiff sued Southcoast Automotive alleging several causes of action, including violations of the CLRA, UCL, and Song-Beverly Consumer Warranty Act (Cal. Civ. Code, § 1790, et seq.); she sought an injunction under the CLRA and alleged violations of all three prongs of the UCL (unlawful, unfair, and fraudulent). On June 25, 2013, the dealership offered complete rescission of the purchase agreement with no offset for the payments Flores already made, plus $1,500 for incidental costs (a negotiable amount, so long as Flores provided receipts for incidental damages such as civil penalties and attorney fees). Then, on July 3, 2013, in response to the counter-demand for $15,000 for civil penalties and attorneys’ fees, the dealer fully denied her claims but offered to rescind the contract, refund all payments, and pay $1,500 for incidental costs. If Ms. Flores rejected the offer, Southcoast Automotive stated it “would deposit with the court the amount that Dealer believed to be a full remedy and seek a determination that it was the prevailing party entitled to fees and costs, including attorney fees, for being forced to respond to a complaint after a full remedy was offered.” Slip op. at 7-8.

Unable to resolve her claims, in February 2015, Ms. Flores filed an ex parte motion for permission to file an amended complaint seeking damages and restitution under the CLRA, in addition to injunctive relief. The defendant argued that Ms. Flores’ claims under the UCL were derivative of and precluded by the claim under the CLRA. Slip op. at 7-8. Ultimately, in a revised judgment entered on June 9, 2015, from which the Southcoast Automotive appealed, the trial court found in favor of the plaintiff but held that the dealership had made a valid settlement offer in good faith that precluded damages under the CLRA. Id. at 9. Relief included rescission of the purchase contract and a permanent injunction against the dealer under the UCL, “enjoining advertising any vehicle for sale in print or on the internet without clearly stating the date and time of any expiration.” Id. at 12.

The Court of Appeal subsequently affirmed the judgment in a decision based on the dealer’s contention that the CLRA is the exclusive remedy for the misconduct at issue. Slip op. at 14. Offering an extensive analysis of the statute, the court held that the CLRA expressly provides that remedies are cumulative, even for the same set of facts, noting that “plaintiffs routinely plead fraud, UCL, and CLRA claims based on similar allegations.” Id. at 15-16. Because the UCL claim “was based directly on evidence of fraudulent advertising practices [pursuant to statute] and was not dependent on finding an underlying violation of the CLRA,” the fact that damages under the CLRA were precluded by a reasonable correction offer had no effect on the viability of the plaintiff’s other causes of action. Id. at 18.

The Flores decision is good news for the plaintiffs’ bar, confirming that claims may be pleaded under the CLRA, UCL, and fraud for the same nucleus of operative facts, provided that they are applied appropriately to each cause of action.

Authored by:
Karen Wallace, Associate

7th Cir. Reinstates Class Action for Volvo Plug-In Hybrid Range Misrepresentations

In the Seventh Circuit Court of Appeals’ recent opinion in Laurens, et al. v. Volvo Cars of North America, LLC, et al., the court relied on the notion of common sense (and basic contract formation principles) to cudgel Volvo’s and other automakers’ attempts to moot consumer class actions through the trend of “picking off” plaintiffs. Case No. 16-3829 (7th Cir. Aug. 22, 2017) (slip op. available here). At issue was the advertised mileage capability of a Volvo Model XC90 T8, a hybrid plug-in SUV, when running solely on battery power. The plug-in hybrid was sold at a $20,000 premium as compared to its non-hybrid counterpart, the XC90.

The court referred to the process of “picking off plaintiffs” as a “theme” with many variations, several of which “have been tried and have failed.” Slip op. at 1. In Laurens, Volvo contended, in a motion to dismiss under Fed. Rule 12(b)(1), that Khadija Laurens, one of the now-plaintiffs, lacked standing because Volvo had sent her a letter offering complete relief before she had been added to the current lawsuit (her husband, Xavier, was the initial named plaintiff). The district court agreed that the defendant’s offer had redressed her injury before she became a party to the suit, and thus dismissed the action.

In a refreshingly straightforward analysis, applying basic contract law, the Court of Appeals held that simply making an unaccepted pre-litigation offer of redress does not result in a loss of Article III standing. As the court explained: “Any first-year law student knows that contract formation requires offer, acceptance and consideration. . . .  Consider what this case would look if the parties were reversed. [Plaintiff] could not argue that she had the right unilaterally to compel an unwilling Volvo to trade a full refund in exchange for her claim.” Slip op. at 11-12. This latest variety of attempting to moot a class action via unaccepted pre-litigation offers met a demise similar to Campbell-Ewald, where the Supreme Court of the United States clearly found that a case was not mooted by an unaccepted Rule 68 offer of judgment; thus, the plaintiff still had standing in a Telephone Consumer Protection Act case. Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016).

After the appeals court reversed and remanded the Laurens action, the district court applied the ruling and, for the most part, denied the defendant’s motion to dismiss. Such uncomplicated analysis by the Seventh Circuit is welcome in the often convoluted world of Article III standing.

Authored by:
Tarek Zohdy, Associate

Monroy v. Yoshinoya: Reporting Time Gets Modernized

Yoshinoya—the Japanese-inspired fast food restaurant chain, like many modern companies, has tried to maximize its own flexibility while minimizing labor costs through an uncompensated “on-call” scheduling system. Specifically, in Monroy v. Yoshinoya, Case No. BC653419 (Los Angeles Superior Court), the plaintiff alleged that the restaurant would schedule employees for “on-call” shifts, where the employee is expected to call the manager at a specific time or two hours prior to his or her scheduled start time. If the employee is needed, he or she is called into work; if not needed, he or she is informed that he or she will not be working that day. If an employee does not call in and report to work when needed, the employee is subject to discipline. Employees do not receive any compensation for the “on-call” shifts, unless they were called into work.

Although “on-call” scheduling is a commonly-utilized practice, on November 27, 2017, Judge Elihu M. Berle denied Yoshinoya’s motion for summary judgment and ruled that its scheduling system was a violation of California’s reporting time laws. See Notice of Ruling on Defendant’s Motion for Summary Adjudication, available here. Wage Order No. 5-2001(5)(A)[1] provides that:

[E]ach workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours not more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage.

Employers have consistently argued that an employee does not “report for work” unless he or she physically shows up at the work site. Employees, on the other hand, have argued that the Wage Order encompasses any time an employee is required to reserve his or her day, check in, and be prepared to work—whether that be by physically reporting or checking in by phone or other electronic means.

Prior to Judge Berle’s ruling, two federal court cases had addressed this issue: Casas v. Victoria’s Secret, LLC (C.D. Cal. April 9, 2015), No. 2:14-cv-06412-GW-VBK, and Bernal v. Zumiez, Inc., 2017 WL 3585230 (E.D. Cal. Aug. 17, 2017). In Casas, the court found that reporting for work required physically appearing at the work site, whereas Bernal found the opposite and found that “reporting for work may be accomplished telephonically.” There is not yet any California appellate authority addressing this issue.

At oral argument, Judge Berle focused on two issues: first, the fundamental fairness of requiring employees to block off their day because they may be called to work. Judge Berle pointed out that by doing so, the employee is not free to make a doctor’s appointment, agree to take care of a family member, or schedule other appointments, because he or she must reserve the day or part of the day to be available to work. Second, the judge noted that, in this case, there was the threat of discipline if the employee failed to call in or report to work if called, which created a “right to control.” Judge Berle characterized Yoshinoya’s position as amounting to employer control “without compensation.”

What this means is quite simple: employers can no longer assume that unless an employee physically reports to work, that they are not responsible for reporting time pay. Reporting for work can now potentially encompass any time an employee is required to make himself or herself available to work and report in—no matter the means of reporting.

[1] All of California’s wage orders contain the same reporting time requirement.

Authored by:
Arnab Banerjee, Senior Counsel