Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Cal.: California consumer protection claims proceed against GM over alleged steering wheel defect, (Oct 17, 2013)

By Tobias J. Gillett, J.D., LL.M.

A purchaser of a 2010 Chevrolet Traverse sufficiently alleged claims under California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) against General Motors LLC over its alleged failure to disclose a steering wheel defect in several models of GM vehicles, and its failure to repair the defect or replace the vehicles, the federal district court in Fresno has ruled (Aguilar v. General Motors LLC, October 16, 2013, O’Neill, L.). The purchaser also stated a claim for breach of implied warranty, but not a claim for breach of express warranty under the Magnuson-Moss Warranty Act and California law.

Chris Aguilar filed a putative class action lawsuit against GM under the CLRA, the UCL, the Magnuson-Moss Warranty Act, and other laws, alleging that GM’s 2009 through 2012 GMC Acadia, Chevrolet Traverse, and Buick Enclave vehicles contained a steering wheel defect resulting in steering wheel locking; loss of power steering while in motion; steering wheel instability; knocking, bumping, or grinding noises while turning; and/or total steering wheel failure. Aguilar further alleged that, rather than fixing the defect or replacing the vehicles, GM would merely replace defective steering system parts with the same defective components, as a temporary means of ensuring that the defect would manifest outside of the vehicles’ express warranty period.

Duty to disclose. Aguilar adequately alleged that GM had a duty to disclose the defect for purposes of his UCL and CLRA claims, according to the court. GM contended that it only had to disclose facts related to safety concerns, while Aguilar contended that GM had to disclose all facts that, if they had been disclosed, would have caused a reasonable consumer to behave differently. Under either interpretation, however, GM would have to disclose the defect because it could both cause a reasonable consumer to behave differently and lead to unsafe conditions.

GM was alleged to have had knowledge of the defect at the time of sale. The knowledge was purportedly acquired “through sources unavailable to Aguilar and the class members, including pre-release testing data, earlier model year versions of the class vehicles equipped with similar steering systems, testing conducted in response to reported complaints, and aggregate data from GM dealers, such as early consumer complaints.” These allegations were sufficient to allege that GM knew of the defect at the time Aguilar purchased his vehicle.

UCL unlawful claim. Aguilar stated a claim under the unlawful prong of the UCL based on GM’s alleged warranty law violations, because, although his express warranty claims were dismissed, he sufficiently stated a claim for violation of California’s Song-Beverly Consumer Warranty Act.

UCL unfair claim. The court noted that the California courts disagreed on the appropriate definition of an “unfair” act or practice, with some holding that the practice must offend “an established public policy” or be “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” with the policy “tethered to specific constitutional, statutory or regulatory provisions,” and others holding that the court must “weigh the utility of the defendant’s conduct against the gravity of harm to the alleged victim.”

Here, the court applied the balancing test, “[b]ecause it has been used more widely and analyzed more thoroughly by California courts.” The court found Aguilar’s allegations that GM sold vehicles with a defect that could result in serious safety issues, and that GM merely replaced defective components with other defective components in response, sufficiently alleged business practices that were “unscrupulous or substantially injurious to consumers.”

Warranty claims. Aguilar sufficiently alleged a claim for breach of implied warranty under the Song-Beverly Act, but failed to allege his claims for breach of express warranty under the Magnuson-Moss Act and California law. Aguilar had failed to allege that GM had charged him or any class members for repair or parts during the express warranty period, and the California courts had “made clear that an express warranty claim cannot be based on defects that lead to a malfunction after the term of the warranty.” Since Aguilar did not allege that GM otherwise violated the Magnuson-Moss Act, his federal claim failed along with his state law claim. Therefore, the court dismissed the express warranty claims with prejudice.

The case is No. 1:13-CV-00437-LJO-GSA.

Attorneys: Cody Robert Padgett (Capstone Law APC) for Chris Aguilar. Gregory Oxford (Issacs Clouse Crose & Oxford) for General Motors LLC.

Companies: General Motors LLC

Cases: StateUnfairTradePractices CaliforniaNews