Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D.N.J.: Some class claims against Samsung for defective refrigerators survive, (Aug 28, 2014)

By Edward L. Puzzo, J.D.

In a putative class action brought by Washington, Minnesota, Illinois, California and Ohio purchasers of Samsung refrigerators, the federal district court in Newark, New Jersey granted or denied Samsung’s motions to dismiss based on differing requirements for the consumer fraud claims in each named plaintiff’s state (Weske v. Samsung Electronics America, Inc., August 27, 2014, Martini, W.).

A number of plaintiffs in multiple states brought a putative class action, alleging that Samsung Electronics had manufactured and sold faulty refrigerators. Specifically, it was alleged that various models of Samsung refrigerators stopped cooling within one to three years after purchase. It was alleged that cooling would stop after ice formed on the refrigerators’ cooling coils, but that cooling would be restored if the refrigerators were unplugged, the ice was allowed to melt, and then the refrigerators were again plugged in. According to plaintiffs’ expert, electrical engineer Dr. Silzars, these results indicated that the defect was not mechanical in nature, such as a faulty compressor or low refrigerant levels, but instead demonstrated a defective circuit board that could be reset by the unplugging of the refrigerators. Plaintiffs alleged that Samsung knew of the circuit board defect and failed to disclose it to consumers. They brought a number of claims against Samsung, including claims under various state consumer fraud acts. Samsung moved to dismiss.

Washington and Minnesota claims. Plaintiffs in Washington and Minnesota brought their claims against Samsung under, respectively, the Washington Consumer Protection Act (WCPA), and the Minnesota Uniform Deceptive Trade Practices Act (MUDTPA), and the Minnesota Consumer Fraud Act (MCFA).

Samsung argued that the Washington and Minnesota plaintiffs failed to plead causation, because they did not allege that they received a communication from Samsung before making their purchases.

Causation in Washington. The court explained that causation could be established in various ways, including by establishing reliance. Washington courts do not require a plaintiff to allege individual reliance on defendant’s conduct, particularly where the non-disclosure of a material fact is alleged. In the class action context, Washington courts have recognized a presumption of reliance in omission-based claims brought under the WCPA. Citing a California case, Clark v. LG Elecs., the court stated that it would be nonsensical to require a plaintiff to have received a communication from the defendant manufacturer in order to plead causation, because it would require the manufacturer to advertise that its product tended to fail, something that defied common sense. The court ruled that the Washington plaintiff would not be required to plead that he received a communication from Samsung.

Causation in Minnesota. Although causation remains an element of the claim under the MUDTPA and MCFA, the court explained, the plaintiff need only prove a causal nexus between his damages and the alleged wrongful conduct. Although this would most likely be proven through reliance, it was not necessary to plead reliance to state a claim for damages, the court stated. Here, the Minnesota plaintiff sufficiently pleaded the causal nexus by alleging that Samsung’s failure to disclose the defect played a causal role in his refrigerator purchase.

Knowledge. Samsung also argued that the Washington and Minnesota plaintiffs failed to plead knowledge—that Samsung knew of the defect—with the particularity required by Fed. Rule Civ. Proc. 9(b) and plausibility required by Rule 8(a). The court disagreed, noting that the plaintiffs’ allegation that Samsung knew about the defect was based on complaints made to them, repairs made by authorized technicians who reported the repairs to Samsung, and a sudden in certain part orders for the refrigerators. These allegations were a sufficient pleading of knowledge on the part of Samsung, the court ruled.

Expert analysis. Samsung further argued that the Washington and Minnesota plaintiffs improperly relied on the declaration of expert Dr. Silzars. Samsung claimed that Dr. Silzars’ analysis was wildly speculative and wanting in factual basis. The court agreed that Dr. Silzars had not specifically examined Samsung refrigerators. However, he did base his opinion on reports of ice forming in refrigerators that stopped cooling, leading him to conclude that the logic circuitry in the control module was causing the faulty operation. For purposes of a motion to dismiss, the court ruled, this was an adequate pleading of a control board defect.

Specificity. Samsung finally argued that the Washington and Minnesota plaintiffs failed to plead the necessary “who, what, where, when, why and how” of the alleged fraud. The court did not agree. The allegation that Samsung concealed the defect from consumers provided the ‘what” and “how”; the ‘when” by the refrigerator purchase dates; and the “who” being Samsung, the court stated. While plaintiffs provided little concerning Samsung employees learning of the defect, these facts can be identified through discovery, the court stated. In addition, plaintiffs pleading a fraud by omission claim are not required to plead fraud as precisely as they would for a false representation claim, the court stated. For purposes of a motion to dismiss, the court ruled, plaintiffs had pleaded fraud with sufficient specificity, the court ruled.

Illinois claims. Plaintiffs in Illinois brought their claims against Samsung under the Illinois Consumer Fraud Act (ICFA). The Illinois plaintiffs made no allegations that they ever received communications from Samsung before they purchased their refrigerators, the court stated. Under the Illinois Supreme Court case of DeBouse v. Bayer, the court continued, the plaintiff cannot prove proximate cause without pleading that they were actually deceived by a statement or omission from the defendant. Likewise, the court stated, most federal courts have dismissed ICFA claims where the plaintiffs failed to specifically plead that they received communications from defendants. Accordingly, the court dismissed, with prejudice, the claims the Illinois plaintiffs brought under the ICFA.

California claims. A California plaintiff brought claims against Samsung under the California Legal Remedies Act (CLRA) and the California Unfair Competition Law (UCL), for defects that only manifested after the expiration of the one-year warranty period.

The plaintiffs argued that they adequately pleaded CLRA and UCL claims because they were not alleging fraud but rather a more generalized deceptive practice. The court did not accept this argument, ruling that lawsuits under the CLRA and UCL cannot be based on defects that do not implicate safety, and which manifest themselves after a warranty expires.

The plaintiffs argued that the alleged defect did constitute a safety problem, but the court found no plausible prospect of a safety problem that could give rise to an off-warranty claim.

Finally, the plaintiffs alleged that their claims fell within the five-year warranty period and thus were not outside warranty. But the court noted that the five-year warranty only applied to the sealed refrigeration system, including the compressor and condenser. But since the alleged defect was in the circuit board, as per Dr. Silzars, and not the sealed refrigeration system, plaintiffs did not experience a loss within the applicable one-year warranty period. Thus the court dismissed the California plaintiffs’ CLRA and UCL claims with prejudice.

Ohio claims. An Ohio plaintiff brought claims against Samsung under the Ohio Consumer Sales Practices Act (OCSPA). Samsung moved to dismiss based on a failure to plead causation. But, as in the cases of the Minnesota and Washington plaintiffs, the court stated, a showing of subjective reliance was not necessary to prove an OCSPA violation, and the plaintiff had satisfied the minimal proximate cause requirement required to sustain her OCSPA violation at this time, the court ruled. Regarding notice requirements for class actions under the OCSPA, that issue was better addressed on a motion for class certification than on a motion to dismiss, the court added.

The case is Civil Action No. 2:10-4811 (WJM).

Attorneys: James E. Cecchi (Carella Byrne Cecchi Olstein Brody & Agnello, PC) for Jeff Weske. George C. Jones (Graham Curtin, PA) for Samsung Electronics America, Inc., and Samsung Electronics Co., Ltd.

Companies: Samsung Electronics America, Inc.; Samsung Electronics Co., Ltd.

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