Class Action Defense Cases-Cole v. General Motors: Fifth Circuit Agrees With Defense That Lower Court Erred In Certifying Nationwide Class Action Because Of Numerous Differences In Several Jurisdictions

May 14, 2007 | By: Michael J. Hassen

District Court Abused its Discretion in Certifying Nationwide Class Action Because Numerous and Substantial Differences in Applicable Substantive laws Precluding Finding that Rule 23(b)(3) Predominance Test was Met Fifth Circuit Holds

Plaintiffs filed a putative class action against General Motors in Louisiana federal court, alleging that the sensors on 1998 and 1999 Cadillac DeVilles were defective. Cole v. General Motors Corp., 484 F.3d 717, 2007 WL 1054697, *1 (5th Cir. 2007). Plaintiffs’ moved to certify the lawsuit as a nationwide class action; defense attorneys opposed the motion, arguing in part that substantial differences in substantive laws among the 51 jurisdictions precluded a finding of predominance under FRCP Rule 23(b)(3). The district court rejected the defense arguments and certified a nationwide class action as requested. The defense filed an interlocutory appeal under Rule 23(f), arguing that the lower abused its discretion in certifying the class action, id., at *3. The Fifth Circuit agreed with the defense and reversed.

In September 2000, after receiving 300 reports of airbags deploying inadvertently, GM sent a voluntary recall notice to all 224,000 DeVille record owners/lessees stated that “a defect which relates to motor vehicle safety exists and may manifest itself in your 1998 or 1999 model year Cadillac DeVille” in that “the side impact air bags in your car [may] deploy unexpectedly, without a crash, as you start your car or during normal driving.” Cole, at *1. GM expected to have sufficient replacement parts by April 2001, but availability was delayed until May 2001, id. However, GM was able to replace 40,000 parts by November 2000, id. Plaintiffs Beverly Cole, Anita S. Perkins and Jewell P. Lowe received the voluntary recall notice: the Court of Appeals described them as follows: “Lowe is the mother of one of plaintiffs’ counsel, Perkins is a paralegal for another of plaintiffs’ counsel, and Cole is the paralegal’s cousin.” Id. None of them had experienced a side airbag deploying inadvertently, but they filed a federal court class action against GM one month after receiving GM’s September 2000 letter, id. In November 2000, GM offered to replace the sensors in plaintiffs’ cars, but the offer was rejected “because GM did not extend the offer to all DeVille owners and GM would not answer questions about the source of the parts, the number available, and whether the SISMs had been properly tested.” Id. Plaintiffs dismissed this class action but filed a new class action in Louisiana state court in December 2000; defense attorneys removed the class action to federal court in January 2001 on the basis of diversity jurisdiction, id., at *1-*2.

Plaintiffs moved the district court to certify a class action under Rule 23(b)(3); the proposed class was defined so as to expressly exclude any DeVille owners/lessees “who sustained bodily injury or death as the result of the unexpected or premature deployment of a side impact air bag.” Cole, at *2. During the pendency of the motion and discovery thereon, GM began a phased general recall of the affected DeVilles: “Lowe’s SISMs were replaced in September 2001, and Perkins’s and Coles’s SISMs were replaced in October 2001.” Id. The recall was complete by the end of 2001, and most DeVille owners had their sensors replaced. Id. Nonetheless, the class action complaint alleged that GM failed to replace the sensors “within a reasonable time after the sale and/or lease” of the vehicles, id. For reasons that are unclear, the district court did not rule on the motion for class certification until August 2005, at which time it granted the motion. Id., at *3.

Preliminarily, the Fifth Circuit addressed whether plaintiffs had standing to prosecute the class action. Defense attorneys argued that because the airbags in plaintiffs’ vehicles never deployed inadvertently, they had not suffered an injury in fact and thus lacked standing. Cole, at *4. The thrust of GM’s argument is that “without actual deployment, plaintiffs’ injury is speculative because plaintiffs can only claim that the [sensors] in their vehicles were potentially defective”; thus, this was a “no-injury products liability” suit that must be dismissed. Id. In response, “Plaintiffs claim that all DeVilles contained defective [sensors] at the moment of purchase and that therefore, their injury was concrete at the moment they purchased their DeVilles. They assert that their injury is that there is a difference between what they contracted for and what they actually received.” Id. The Circuit Court held that because plaintiffs allegedly suffered actual economic damage, they had standing to assert the breach of contract claims against GM, id., at *5.

Turning to whether the matter should have been certified as a class action, the Fifth Circuit explained at page *6:

Although “the strength of a plaintiff’s claim should not affect the certification decision,” it is necessary for the district court to go beyond the pleadings to determine whether the requirements of Rule 23 have been met: “a court must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.” … The court must also consider “how a trial on the merits would be conducted” if the class were certified… . (Citations omitted.)

The Circuit Court concluded that the district court “abused its discretion in determining that the predominance requirement [of Rule 23(b)(3)] was satisfied,” so it did not address the balance of the defense arguments on appeal. Cole, at *7. And the appellate court began by explaining at page *7:

To satisfy the predominance requirement, plaintiffs must demonstrate that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members.” … In a diversity class action, as is the case here, inherent in the predominance inquiry is a determination of which states’ substantive laws will apply to the claims. This is because if multiple states’ laws apply and those laws vary, the variations may impact whether common issues of law and fact predominate among the class members. The Rule 23(b)(3) certification inquiry must therefore consider how “variations in state law affect predominance.” … (Citations omitted.)

Under Louisiana’s choice of law rules, the laws of all 51 jurisdictions (the 50 states and the District of Columbia) are implicated in this class action. Cole, at *7. Plaintiffs insisted that an analysis of these jurisdictions shows that the substantive laws are “virtually the same,” id. Defense attorneys disagreed, arguing that substantive law varied with respect to reliance, notice of breach vertical privity and presumptions of merchantability, id., at *8. In summarizing its holding, the Circuit Court explained at page *8:

Although plaintiffs assert that the laws of the fifty-one jurisdictions are “virtually the same,” such that “no complex jury instructions” or “multiple separate trials” would be necessary, we note that many of the variations in state law raise the potential for the application of multiple and diverse legal standards and a related need for multiple jury instructions. For some issues, variations in state law also multiply the individualized factual determinations that the court would be required to undertake in individualized hearings. Specifically, the laws of the jurisdictions vary with regards to (1) whether plaintiffs must demonstrate reliance, (2) whether plaintiffs must provide notice of breach, (3) whether there must be privity of contract, (4) whether plaintiffs may recover for unmanifested vehicle defects, (5) whether merchantability may be presumed and (6) whether warranty protections extend to used vehicles. Plaintiffs failed to articulate adequately how these variations in state law would not preclude predominance in this case.

With respect to reliance, plaintiffs’ ignored the fact that some jurisdictions do not require reliance, others “require a strict showing of reliance,” and “still other jurisdictions have applied a rebuttable presumption of reliance.” Cole, at *9. With respect to notice of breach, the district court merely assumed that class members would not be required to give GM such notice, but the Fifth Circuit was “not convinced” that this was true: “State law varies on what constitutes reasonable notice and to whom notice should be given, and other courts considering the issue in the class certification context have noted that these variations impact predominance.” Id., at *10. Put simply, “Given the variations among the states regarding the notice requirement, plaintiffs failed to adequately analyze the impact of these variations on predominance.” Id. With respect to privity of contract, the appellate court found “a ‘sharp split of authority’ as to whether a purchaser may recover economic loss from a remote manufacturer when there is no privity of contract between the parties.” Id. Defense attorneys identified a “significant number of jurisdictions” that require vertical privity in this case, while other jurisdictions “have eliminated the privity of contract requirement and allow recovery of economic loss from remote manufacturers.” Id., at *11. These differences would necessitate separate jury instructions, id.

With respect to recovery for unmanifest vehicle defects, plaintiffs again failed to address differences in state law even though the “vast majority” of the class members never experienced an inadvertent deployment of their DeVille’s airbags. Cole, at *12. Again, the appellate court held that variations in state law “are likely to preclude recovery for some class members,” supporting its holding that the district court erred in concluding that common issues of law would predominate. Id. With respect to presumptions of merchantability, the Fifth Circuit again found differences among state laws, including the fact that “use of a vehicle for a certain period of time without experiencing a defect gives rise to a presumption that the vehicle is merchantable.” Id., at *13. Finally, with respect to warranty protection for used vehicles, the Circuit Court held that “jurisdictions vary in regard to whether an implied warranty extends from a remote manufacturer to a purchaser of used goods.” Id.

Accordingly, the district court erred in granting plaintiffs’ motion for class certification, the Fifth Circuit reversed and remanded. Cole, at *13.

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