Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—C.D. Cal.: Consumers get “green light” to pursue omissions claims against Chrysler, (Aug 25, 2014)

By Linda O’Brien, J.D., LL.M.

In a putative class action against Chrysler for allegedly failing to disclose that certain Chrysler vehicles were manufactured with electrical system power modules, a group of consumers could proceed with claims under various state consumer protection statutes, the federal district court in Los Angeles has held. However, the consumers’ fraud claim under the New Jersey Consumer Fraud Act was dismissed (Velasco v. Chrysler Group LLC, August 22, 2014, Pregerson, D.).

Peter Velasco, Christopher White, Jacqueline Young and Christopher Light resided and purchased Chrysler vehicles from dealerships in different states. The consumers filed suit against Chrysler, alleging fraud under the New Jersey Consumer Fraud Act, and violations of the Florida, Massachusetts, Maryland, New Jersey, and California consumer protection statutes. Specifically, the consumers asserted that Chrysler failed to disclose that certain Chrysler vehicles were manufactured with a defective total integrated power module (TIPM), which, consisting of a computer, relays, and fuses, controls power to a vehicle’s electrical systems. Chrysler moved for dismissal.

Omissions claims. The court found that the consumers sufficiently pleaded their omissions claims under state consumer protection statutes with the specificity required under Federal Rule of Civil Procedure 9(b). The plaintiffs sufficiently alleged facts to identify (1) “who” (Chrysler); (2) “what” (knowingly failed to disclose the defect to customers at the point of sale); (3) “when” (the time of the sale to present day); and (4) “where” (the various distribution channels, including authorized dealers) to allow Chrysler to adequately answer the complaint.

In rejecting Chrysler’s argument that it was not a direct seller of the vehicles containing the alleged defect, the court noted that, in this case, the plaintiffs purchased vehicles Chrysler manufactured and warranted from authorized dealerships, which was a sufficient business relationship to trigger a duty to disclose.

Additionally, Chrysler’s contention that the plaintiffs were required to show that Chrysler stood in a fiduciary relationship relative to the plaintiffs in order to owe a duty to disclose was rejected. The plaintiffs alleged that they purchased vehicles manufactured and warranted by Chrysler at authorized Chrysler dealerships. The adoption of Chrysler’s approach to read into each of the state statutes a fiduciary relationship requirement, where none was expressly stated, would effectively nullify the states’ consumer protection statutes where a manufacturer failed to disclose a known defect to consumers who purchase its products, according to the court. Moreover, an arms-length commercial transaction did not usually give rise to a fiduciary relationship.

Fraud claim. The consumers failed to state a claim under the New Jersey Consumer Fraud Act (NJCFA) that the defect manifested itself after the expiration of the basic limited warranty issued by Chrysler, according to the court. The TIPM was not covered by the state statutory emissions-related warranties. A manufacturer’s alleged failure to inform consumers of a defect that became apparent after the life of the warranty issued by the manufacturer could not be the basis for an omissions-related claim against the manufacturer under the NJCFA. Furthermore, there was no safety exception for omissions-based claims under the NJCFA and the plaintiffs did not allege having experienced any safety issues resulting from the alleged TIPM defect.

The case is No. CV 13-08080.

Attorneys: Caitlyn D. Finley (Girard Gibbs LLP) for Jacqueline Young, and Peter Velasco. John Woodson Rogers (Thompson Coburn LLP) for Chrysler Group LLC.

Companies: Chrysler Group LLC

Cases: StateUnfairTradePractices CaliforniaNews