Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. N.J.: Whirlpool unable to wash away state law breach of warranty and consumer fraud claims, (Aug 5, 2015)

By Michael Menzhuber, J.D., LL.M.

A motion to dismiss state law breach of warranty and consumer fraud claims against Whirlpool Corporation (Whirlpool) and retail sellers of Whirlpool washing machines that did not meet Energy Star standards was denied by the federal district court in Newark, New Jersey. The court determined that the Environmental Protection Agency’s (EPA) failure to order compensation, after finding that certain of Whirlpool’s washing machines, despite being advertised as such, were not Energy Star compliant, was not a federal “law” for purposes of preempting state law claims. The court, however, dismissed a claim under the Magnuson-Moss Warranty Act (MMWA) because it does not apply to warranties that are governed by other federal law (Dzielak v. Whirlpool Corporation, July 31, 2015, McNulty, K.).

Background. The plaintiffs purchased clothes washers that were manufactured by Whirlpool and that bore the Energy Star logo. Energy Star products often cost more than non-Energy Star products and an appliance manufacturer is permitted to affix the Energy Star logo to a product if the product meets certain efficiency standards. The EPA determined that the washer models purchased by the plaintiffs did not comply with Energy Star requirements. Although the models were disqualified from the Energy Star program, the EPA did not require Whirlpool or the retail sellers to pay any compensation to the purchasers.

The plaintiffs brought an action against Whirlpool and the retail sellers of the Whirlpool washing machines that alleged: (1) violation of the MMWA; (2) breach of express warranty; (3) breach of implied warranty of merchantability; (4) state law claim of unjust enrichment; and (4) violation of the consumer protection statutes of the plaintiffs’ home states.

Preemption. Whirlpool argued that the federal laws and regulations governing the Energy Star program preempted all of the state law claims. Therefore, the EPA’s failure to require that compensation be paid to the purchasers of the washing machines that were determined to not be Energy Star compliant preempted any state law requirement that such compensation should be paid. In determining whether the plaintiffs’ state law claims should be preempted, the court considered whether: (1) the EPA’s action was the kind of federal “law” that has a preemptive effect; (2) the plaintiffs’ state law claims were claims traditionally reserved to states that give rise to a presumption against preemption; (3) whether federal law so occupies this particular field that there is no room for state law involvement; and (4) whether state law “stands as an obstacle to the accomplishment and execution of the full purposes and powers of Congress.”

A state law can be preempted when an agency engages in a formal notice-and-comment rulemaking or adjudication. Whether less formal actions are capable of preempting state law requires a case-by-case analysis. In analyzing the present case, the court determined that the EPA’s failure to order the payment of compensation did not give rise to the level of a federal “law” that could be give preemptive effect. The court observed that, while there are extensive regulations defining the Energy Star efficiency standards and testing procedures, a formal policy regarding remedies or punishments has never been issued. It, therefore, determined that the EPA’s inaction was most akin to the informal actions that have been found to lack preemptive effect.

The court determined the case was more about warranties made to consumers than about federal energy requirements. Since actions for breach of warranty are traditionally a matter of state law, field preemption did not apply.

The court also found the plaintiffs’ state law causes of action would not tend to disrupt the policy balancing inherent in the Energy Star program. Whirlpool argued that the EPA’s decision to not require the payment of compensation was reflective of its balancing of three objectives: (1) keeping participation in the Energy Star program inexpensive; (2) protecting the integrity of the Energy Star mark; and (3) treating Energy Star partners equally. The court, however, determined that these factors fell short of requiring obstacle preemption because: (1) such informal guidance lacked the force of law; and (2) there was no indication that the EPA undertook a balancing of these factors when it did not order the defendants to compensate consumers.

Magnuson-Moss Warranty Act (MMWA). The court noted that MMWA claims of deceptive labeling failed because the Food, Drug, and Cosmetic Act (FDCA) governs the contents of labeling. Similarly, the EPA governs the Energy Star program. The court did observe that the MMWA contains a savings provision where only a portion of a written warranty is governed by federal law. However, although Energy Star’s coverage could be regarded as partial, because it does not impose mandatory sanctions or remedies for misusing the Energy Star logo, the MMWA’ “other federal warranty laws” provision is not conditioned on the competing federal law’s having sufficiently robust enforcement provisions. The court, therefore, determined that nothing in the MMWA suggests that it is intended to override remedial policy choices in other statutes and that the MMWA is only intended to operate where no other federal warranty law applies.

The case is No. 2:12-0089 (KM) (JBC)

Attorneys: Antonio Vozzolo (Faruqi & Faruqi, LLP) for Charlene Dzielak. David R. Kott (McCarter & English, LLP) for Whirlpool Corp., Sears Holdings Corp., Fry's Electronics, Inc., and Lowe's Home Center, LLC. Nicholas Stevens (Starr, Gern, Davison & Rubin, PC) for The Home Depot, Inc.

Companies: Whirlpool Corp.; Sears Holdings Corp.; Fry's Electronics, Inc.; Lowe's Home Center, LLC; The Home Depot, Inc.; Appliance Recycling Centers of America, Inc.

Cases: Advertising StateUnfairTradePractices NewJerseyNews