September 13, 2018 / 7:29 PM / 8 months ago

GM ignition judge: Owners of unaffected cars can sue for economic loss (in 27 states)

(Reuters) - How often does this happen? In an exhaustive, 113-page opinion on Wednesday, U.S. District Judge Jesse Furman of Manhattan, who is overseeing consolidated litigation over faulty GM ignition switches, ruled that under the laws of 27 states, the owners of cars without the defect can nevertheless sue over the value their cars allegedly lost when the flaw was revealed. Judge Furman also admitted that his previous ruling (257 F.Supp.3d 372) on economic loss claims, in June 2017, was wrong.

In that ruling, which partially granted GM’s motion to dismiss car owners’ claims, the judge quoted a leading class action treatise for the proposition that most courts have found “there is no legally cognizable injury in a product defect case, regardless of whether the claim is for fraud, violation of consumer protection statutes, breach of warranty, or any other theory, unless the alleged defect has manifested itself in the product used by the claimant.”

But Judge Furman, to his everlasting credit, said that when he actually dug into state precedent, he realized that “neither this court’s nor the treatise’s conclusion was based on a comprehensive analysis of the law.” Furman said he could “no longer say with confidence” that there is a “majority view” restricting economic loss claims for nondefective products. In fact, the judge said, it turns out that purchasers in the 27 states he surveyed don’t have to allege a product defect to claim economic losses, regardless of whether the claim is for fraud, violation of consumer protection laws or breach of warranty.

“In the absence of state law to the contrary, there is no legal or logical ground to bar plaintiffs’ recovery if they can prove that they suffered economic loss,” Judge Furman wrote. “If plaintiffs paid x for their cars and can prove that their cars are now worth x minus y as the result of the alleged defects, it is arbitrary to prevent them from recovering the difference between x and y simply because the defect did not manifest itself in property damage or personal injury.”

Judge Furman sided mostly with GM on two other sets of consumer allegations. He ruled that only a handful of states allow claims for lost personal time, as opposed to lost work time. (The discussion includes an abstruse but fascinating look at how courts have handled the issue of lost time to spend on unpaid housework and childcare.) The judge also said plaintiffs can’t, for the most part, pursue unjust enrichment claims against GM because they have alternative routes to the same damages.

But I think the part of the opinion that will have lasting impact is Judge Furman’s economic loss analysis, which hits two hot-button class-action issues: damages for nondefective products and state-by-state examination of precedent.

As you know, there’s ongoing debate, even up to the U.S. Supreme Court in the infamous moldy washing machine litigation, about whether consumers whose products are working exactly as intended can nonetheless claim damages for the decline in the value of the product. That’s an especially tough question in sweeping class actions that involve consumers from different states.

Last January, the 9th U.S. Circuit Court of Appeals rejected a big class action settlement (2018 WL 505343) in a case alleging that Hyundai and Kia exaggerated their fuel efficiency because, according to the appellate panel, the trial judge didn’t pay adequate attention to differences in state law. (The 9th Circuit has since agreed to rehear the Hyundai case en banc.)

Judge Furman did his judicial brethren the favor of analyzing the law on economic damages in 27 states, giving future MDL and class action judges a starting point for subsequent examinations. GM plaintiffs’ lawyer Steve Berman of Hagens Berman Sobol Shapiro told me in an email that he certainly intends to tell other judges about Judge Furman’s ruling. “This issue is a constant one in auto defect consumer cases,” he said. “It will be cited by plaintiffs in many cases.” Berman also said that from a policy standpoint, Judge Furman reached the only logical conclusion: “If GM were correct, car manufacturers would be undeterred from lying,” he wrote. “The judge found that isn’t the law - and it shouldn’t be, given the intent of consumer protection statutes.”

GM plaintiffs still have a long way to go to recover on their economic damages, of course. Judge Furman pointed out that they still have to prove cars with no defect lost value because other cars had allegedly faulty ignition switches. They may not be able to meet that standard, the judge said.

A GM spokesman declined to provide a statement on Wednesday’s ruling.

The views expressed in this article are not those of Reuters News.

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