Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DNJ: Car Lessee Does Not Have to Be in Strict Privity with BMW of North America to Bring Florida Express Warranty Claim, (Mar 4, 2013)

By Tobias J. Gillett. J.D., LLM.

A Florida resident can proceed with claims for violations of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) and breach of express warranty against BMW North America (BMWNA) over BMW’s alleged refusal to replace a battery under its warranty program, the federal district court in Newark, New Jersey, has ruled (Morano v. BMW of North America, LLC, February 28, 2013, McNulty, K.) .

The Florida resident filed a putative class action complaint on behalf of all Florida BMW purchasers in the preceding four years against BMWNA, asserting claims for violations of the FDUTPA, breach of express warranty, and other claims. BMWNA filed a motion to dismiss.

FRCP 9(b). BMWNA first contended that the Florida resident’s FDUTPA claim did not satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). The court initially observed that Rule 9(b) did not apply merely because a plaintiff brought a suit under the FDUTPA. Although Rule 9(b) would apply to FDUTPA claims that sounded in fraud, the FDUTPA encompassed a much broader range of activities through its prohibition of “deceptive act[s] or unfair practice[s]” than those covered by common law fraud.

Nonetheless, even assuming the Rule 9(b) standard applied, the court determined the Florida resident had satisfied it. He had alleged that BMW provided a Maintenance Program and Warranty, that specific language in the Program and Warranty and related marketing materials “would lead reasonable consumers to believe that they were covered in the event that their cars’ batteries died under normal operating conditions,” that BMWNA had leased him a vehicle whose battery would not retain a charge under those conditions, that “BMWNA unfairly and deceptively relied on vague exclusions in the Maintenance Program and Warranty to deny the “no-cost coverage that consumers bargained for,” and that he suffered injury as a result. These allegations were sufficient to meet Rule 9(b)’s standard.

Breach of Warranty. BMW also argued that the Florida resident’s breach of express warranty claim should be dismissed (1) because the battery’s failure was caused by the Florida resident’s own conduct and (2) because the Florida resident was not in privity with BMWNA.

The court rejected the first argument. The argument was not one for a motion to dismiss, in that it “consist[ed] of contestable factual matters that rest on sources extrinsic to the complaint.” Even if the court were to consider BMWNA’s evidence at face value, BMWNA had “assert[ed] that 85% (not all) of the trips were for 12.5 miles (not 10 miles) or less, for 32 days (which may or may not be defined as a ‘prolonged period of time’).” Moreover, “diagnostic data suggest[ed] that as many as 66% of the trips could have been longer than 10 miles.”

Noting that “[i]t is perhaps fortunate for BMWNA,” since otherwise it might have been found to have “propounded an apparently generous but actually meaningless warranty,” the court also rejected the argument that the Florida resident was not in privity with BMWNA. The court noted that its decision would require predicting how the Florida Supreme Court would decide the question.

The court observed that in Manheim v. Ford Motor Co., 201 So. 2d 440 (Fla. 1967), the Florida Supreme Court, in an implied warranty case, had “held that neither the absence of privity between the manufacturer and purchaser nor the disclaimer of warranty between the manufacturer and dealership precluded an implied warranty claim by the purchaser against the manufacturer.” The court noted, however, that Florida law with regard to privity in express warranty claims remained “murky.” Moreover, the court found that the Magnuson-Moss Warranty Act (MMWA), “which subsumes many (if not all) express warranty claims, loosens vertical privity requirements.” The court pointed to a line of cases that had “dismissed implied warranty claims against a manufacturer for lack of privity while allowing express warranty claims under the MMWA to go forward.”

The court concluded that the rationale in these cases, combined with the Florida Supreme Court’s “apparent willingness to relax strict privity requirements in a proper case,” led it to predict that the Florida Supreme Court would hold that vertical privity was not required in the present case. BMWNA and its dealers functioned as integrated, two-part sellers. All BMWNA consumer sales and leases occurred at BMW dealers, accompanied by an express warranty developed by BMWNA and identifying BMWNA as the warrantor. Furthermore, the warranty explicitly stated that it ran to the first retail purchaser and subsequent purchasers. The court found it would be “simply unconscionable” under these circumstances to say the warranty was unenforceable against the warrantor.

BMWNA advertised its warranty program to attract customers, and the customers would reasonably rely on the warranties. BMWNA presumably obtained an economic benefit from the warranties it extended. The court did note that discovery could determine how much control BMWNA had over how its dealers offer manufacturer’s warranties. Therefore, the court held that the Florida Supreme Court would not find the warranty unenforceable for lack of privity.

The court also declined to dismiss a claim for breach of contract and a claim for punitive damages based on BMWNA’s “alleged wanton and willful disregard for plaintiff’s rights. The court also declined to dismiss the class allegations, concluding that it would address those claims on a motion for class certification.

The case is Civ. No. 2:12-CV-00606 (KM)(MAH).

Attorneys: David C. Berman for John J. Morano. Christopher J. Dalton (Buchanan, Ingersoll & Rooney, PC) for BMW of North America, LLC.

Companies: BMW of North America, LLC

Cases: ConsumerProtection StateUnfairTradePractices NewJerseyNews