Class Action Defense Cases–Vasilas v. Subaru: New York Federal Court Denies Motion To Dismiss Class Action For Violation Of Federal Odometer Act Holding Class Action Complaint Adequately Alleged Fraud

Sep 1, 2009 | By: Michael J. Hassen

Class Action Complaint Alleging Violation of Federal Odometer Act Survives Defense Motion to Dismiss because Class Action’s Claim under the Act Pleaded Fraud with Requisite Particularity New York Federal Court Holds

Plaintiffs filed a putative class action against Subaru of America alleging violations of the Federal Odometer Act and related state laws; specifically, the class action complaint alleged that Subaru manufactured vehicles “with defective odometers that deliberately overstated the vehicles’ mileage.” Vasilas v. Subaru of America, Inc., ___ F.Supp.2d ___ (S.D.N.Y. August 5, 2009) [Slip Opn., at 1]. According to the allegations underlying the class action complaint, Subaru’s conduct resulted in “shortening the life span of the vehicles’ warranty coverage, decreasing the resale value of their automobiles, and penalizing plaintiffs with unwarranted ‘excessive mileage’ charges on leased automobiles.” Id. Defense attorneys moved to dismiss the class action on the grounds that the Odometer Act “is inapplicable to original factory-installed odometers which, regardless of their inaccuracy, are performing consistent with the manner that they were designed and manufactured to operate.” Id. The district court denied the motion, ruling that a claim for relief may be pursued for alleged violations of the Odometer Act.

The district court noted that the class action complaint did not allege that the odometers installed by Subaru were defective; rather, the gravamen of the class action was that “Subaru knowingly and purposefully (a) used, (b) installed or © had installed into the vehicle a device that biased, altered and inflated the mileage recorded on the vehicle’s odometer from the actual mileage traveled by the vehicle.” Vasilas, at 2. Further, when customers began complaining about possible inaccuracies in the mileage reported, “Subaru expressly, but falsely, represented to its customers that its odometers accurately recorded the actual mileage,” id. In considering Subaru’s motion to dismiss, the federal court noted that “a private plaintiff suing for violations of the Odometer Act must adequately plead that defendant acted with an intent to defraud,” id., at 3-4 (citation omitted), and that fraud must be pleaded with particularity under Rule 9(b), id., at 4.

In rejecting Subaru’s arguments, the district court stated, “Simply because Congress, in enacting the Odometer Act, may not have specifically contemplated that consumers could potentially fall victim to, and suffer damages from, pre-assembly tampering to understate mileage, does not render the Act inapplicable.” Vasilas, at 6. And based on its analysis of the statute, the court concluded that plaintiffs’ allegations were sufficient to state a claim for relief under the Odometer Act, id., at 8. Additionally, the allegation that Subaru “deliberately manufactured” odometers” so as not to meet the design specifications of a properly functioning odometer” is sufficient to state a violation of the Act. Id., at 10. Accordingly, the class action pleaded fraud under the Act with the requisite particularity, id., at 11. And while the district court granted Subaru’s motion to dismiss the class action’s state-law “unjust enrichment” claim, it otherwise denied the motion to dismiss the other state law claims. See id., at 11-14.

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