Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDCal: Mercedes May Be Liable For Failing to Disclose Gear Defect, (May 28, 2013)

By Jody Coultas, J.D.

Mercedes-Benz owners stated California Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) claims against Mercedes-Benz, USA, LLC for failing to disclose a defect that posed a safety risk to the vehicle occupants, according to a federal district court in San Francisco (Seifi v. Mercedes-Benz, USA, LLC, May 23, 2013, Henderson, T.).

The owners alleged that the Mercedes engines contained gears made of sintered steel alloy that wore out prematurely, causing the engines to misfire. The alleged defect required major repairs and allegedly posed a safety concern. In support of the CLRA claim, the owners argued that Mercedes had a duty to inform consumers of the likelihood that the defective gears would fail outside of the warranty period, and failed to do so.

The owners stated CLRA claims against Mercedes for failing to disclose the safety risks posed by the engines, according to the court. The CLRA prohibits unfair methods of competition and unfair or deceptive acts or practices in a transaction. Claims based on omissions require the plaintiff to show that the concealed information was contrary to a representation actually made or pertained to a fact the defendant was obligated to disclose. Manufacturers have a duty to disclose defects that pose an unreasonable safety risk to consumers. The allegations, undisputed for purposes of the present motion, that the gear defect could render the vehicle nondrivable without prior warning, constituted an unreasonable safety risk that Mercedes had a duty to disclose.

Mercedes’ argument that the owners lacked standing because they did not purchase their vehicles directly from Mercedes was dismissed based on evidence of a contractual relationship between the parties. Owners who purchased used cars, or who purchased cars from dealerships rather than directly from the manufacturer, have standing to bring CLRA claims against manufacturers, even though they never entered into transactions directly with the manufacturers.

Because the owners stated a claim under the CLRA, the court denied the motion to dismiss the UCL claim. The UCL prohibits any unlawful, unfair, or fraudulent business act or practice. The UCL claims were premised on breach of warranty claims and the CLRA claims, which were sufficiently stated.

The case is No. C12-5493 THE.

Attorneys: Roy A. Katriel (Katriel Law Firm, P.L.L.C. ) for Majeed Seifi. Troy Masami Yoshino (Carroll, Burdick & McDonough LLP) for Mercedes-Benz, USA, LLC.

Companies: Mercedes-Benz, USA, LLC

Cases: StateUnfairTradePractices CaliforniaNews