HUU NGUYEN, individually, and on behalf of a class of similarly situated individuals, Plaintiff-Appellant, v. NISSAN NORTH AMERICA, INC., a California Corporation, Defendant-Appellee.
No. 18-16344
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
July 26, 2019
D.C. No. 5:16-cv-05591-LHK; Argued and Submitted June 11, 2019 San Francisco, California; Before: MARY M. SCHROEDER and MILAN D. SMITH, JR., Circuit Judges, and DOUGLAS L. RAYES, District Judge.
Opinion by Judge Milan D. Smith, Jr.
SUMMARY**
Class Certification
The panel reversed the district court‘s denial of class certification in an action against Nissan North America pursuant to state and federal warranty laws arising from an allegedly faulty hydraulic clutch system in plaintiff‘s 2012 Nissan vehicle.
The district court denied plaintiff‘s motion for class certification on the ground that he failed to satisfy the predominance requirement of
The panel held that plaintiff‘s proposed damages model based on the benefit of the bargain is cognizable under California‘s
COUNSEL
Ryan Wu (argued) and John E. Stobart, Capstone Law APC, Los Angeles, California, for Plaintiff-Appellant.
Alan J. Lazarus (argued) and Matthew J. Adler, Drinker Biddle & Reath LLP, San Francisco, California; Zoë K. Wilhelm and Adam J. Thurston, Drinker Biddle & Reath LLP, Los Angeles, California; Sherman Vance Wittie and E. Paul Cauley Jr., Drinker Biddle & Reath LLP, Dallas, Texas; for Defendant-Appellee.
Kathy A. Wisniewski and Stephen A. D‘Aunoy, Thompson Coburn LLP, St. Louis, Missouri, for Amicus Curiae FCA US LLC.
Philip S. Goldberg, Shook Hardy & Bacon LLP, Washington, D.C.; Andrew J. Trask, Shook Hardy & Bacon LLP, San Francisco, California; for Amici Curiae Alliance of Automobile Manufacturers and Association of Global Automakers.
Ashley C. Parrish, Jesse Snyder, and Jacqueline Glassman, King & Spalding LLP, Washington, D.C.; Jonathan D. Urick and Steven P. Lehotsky, U.S. Chamber of Litigation Center, Washington, D.C.; Leland P. Frost and Peter C. Tolsdorf, Manufacturers’ Center for Legal Action, Washington, D.C.; for Amici Curiae Chamber of Commerce of the United States and National Association of Manufacturers.
M. SMITH, Circuit Judge:
When Plaintiff Huu Nguyen purchased a new 2012 Nissan 370Z as a college graduation present for his son, he was unaware of what he alleges was a potentially catastrophic design defect hidden in the vehicle‘s hydraulic clutch system. After the clutch purportedly malfunctioned—and Plaintiff spent more than $700 replacing it—he filed a putative class action against Defendant Nissan North America, Inc. (Nissan), asserting causes of action under state and federal warranty laws.
FACTUAL AND PROCEDURAL BACKGROUND
I. Factual Background
A. Alleged Defect
This case involves an allegedly faulty hydraulic clutch system in various vehicles manufactured by Nissan (the Class Vehicles).1
The typical components of a hydraulic clutch system include a fluid reservoir, a clutch master cylinder (CMC), and a clutch slave cylinder (CSC), which is sometimes referred to as the release bearing.2 As explained by Plaintiff‘s expert, Michael Stapleford, P.E., the clutch system is a dry friction system that uses brake fluid in a discrete reservoir to transfer heat from the clutch components through the base of the CSC to the attached transmission front cover and the surrounding atmosphere. Such a system routinely generates heat ranging from 200 to 300 degrees Celsius, with hard use resulting in temperatures as high as 400 degrees Celsius.
Plaintiff alleges that, in reconfiguring the Class Vehicles’ factory-installed clutch system in 2007, Nissan failed to properly account for heat transfer and produced a defective aluminum/plastic composite CSC that causes the system to overheat. Consequently, the clutch fluid boils and generates air that causes failure of the clutch pedal, such that it sticks to the floor and prevents a driver from shifting gears. A “sticky” clutch can make it difficult to control a vehicle‘s speed, presenting both safety and performance issues.
B. Nissan‘s Response
A consumer complaint submitted as evidence by Plaintiff indicates that the Class Vehicles began to malfunction as early as June 2007, while Nissan‘s own records identified the issue starting in October of that year. An internal Nissan report suggested that “abnormal high-temperature [during] continued use of partial clutch engagement might be the cause.” Emails exchanged between Nissan employees in 2012 further discussed the sticky clutch problem and its potential causes, and in July 2012, a Nissan project engineer wrote,
This issue is great enough that it warrants a serious look by R&D as to how we can improve the feel, and function of the clutch system. . . . Customers are universally dissatisfied with the feel and performance of the system even when it is performing as designed. . . . Combine
that with the frequent claims of clutch pedal sticking to floor and you‘ve taken a dissatisfaction item and made it into a breakdown item. I think a wholesale approach to a whole new hydraulic system, including a new pedal, is warranted.
Plaintiff claims that “[d]espite its investigations and testing, or even the change to a higher quality hydraulic fluid in the Class Vehicles, Nissan never informed consumers that the clutch system in the Class Vehicles had an inherent defect that made it prone to heat-related problems.” In his complaint, Plaintiff asserted that if he and the other putative class members “knew about these defects at the time of sale or lease, [they] would not have purchased or leased the Class Vehicles or would have paid less for them.”
C. Plaintiff‘s 2012 Nissan 370Z
Plaintiff purchased a new 2012 Nissan 370Z from an authorized Nissan dealer in Santa Clara County, California, as a college graduation present for his son, Michael. In March 2014, Michael was driving the 370Z on the freeway when the clutch pedal lost pressure and did not return to its depressed position; Michael had to pull over to the shoulder of the freeway and slow down until the clutch allowed him to shift into second gear. The Nissan dealership replaced the CSC at no charge because the vehicle was still under warranty. When a similar situation developed two years later, however, the 370Z was no longer under warranty, and so Plaintiff had the CSC replaced by an auto repair shop for $721.75.
II. Procedural History
Plaintiff‘s first amended complaint alleged five causes of action against Nissan: (1) violations of California‘s
Plaintiff moved for class certification pursuant to
According to Plaintiff, his “damages model is based on the economic principle of benefit-of-the-bargain and is consistent with [his] theory of liability.” Assuming that class members would have either paid less than sticker price or not purchased a defective vehicle at all had the nature of the clutch system been divulged by Nissan, Plaintiff seeks “to recover the difference in value between the non-defective vehicles Nissan promised and the defective vehicles that were delivered based on the cost[] to
The district court agreed with Nissan and denied Plaintiff‘s motion for class certification. It concluded that “Plaintiff [] failed to satisfy the predominance requirement of
Under the proposed benefit of the bargain model, damages are the difference between the value Nissan represented and the value class members received, measured at the time of purchase. However, the difference between value represented and value received only equals the cost to replace the defective CSC if consumers would have deemed the defective part valueless.
(citation omitted). The court reasoned that, under Plaintiff‘s proposed model, if a class member “derived value from the defective CSC—be it by selling it, repurposing it, or simply driving a ways before replacing it—the class member will have received the full benefit of the bargain and the monetary value of the defective part. That is not an appropriate measure of damages.” Because the record contained no evidence that the defective clutch was valueless—but did contain evidence to the contrary, since “Plaintiff‘s vehicle was driven for approximately 26,629 miles before the original CSC malfunctioned“—the court rejected Plaintiff‘s damages model as being an improper measure of the benefit of the bargain. Therefore, the district court concluded that Plaintiff could not satisfy the predominance requirement of
We subsequently granted Plaintiff‘s timely petition for permission to appeal the denial of class certification pursuant to
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction pursuant to
“A district court‘s order denying class certification is reviewed for abuse of discretion.” Civil Rights Educ. & Enf‘t Ctr. v. Hosp. Props. Tr., 867 F.3d 1093, 1103 (9th Cir. 2017). “A district court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law.” United States v. Hinkson, 585 F.3d 1247, 1259 (9th Cir. 2009) (en banc) (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990)). But, if the district court “applied the correct legal standard,” then we will “set aside its decision only if the court‘s reasoning was ‘illogical, implausible, or without support in inferences that may be drawn from the facts in the record.‘” Civil Rights Educ. & Enf‘t Ctr., 867 F.3d at 1103 (quoting Jimenez v. Allstate Ins. Co., 765 F.3d 1161, 1164 (9th Cir. 2014)).
ANALYSIS
The central issue before us is whether Plaintiff‘s proposed damages model—specifically, a benefit-of-the-bargain model as measured by the average cost of replacing the allegedly defective clutch system—satisfies
In order to certify a class under
Comcast did not alter our holding that individualized damages issues do not alone defeat certification. See Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 988 (9th Cir. 2015) (”Yokoyama remains the law of this court, even after Comcast.“); see also Jimenez, 765 F.3d at 1168 (“So long as the plaintiffs were harmed by the same conduct, disparities in how or by how much they were harmed did not defeat class certification.“). But Comcast requires that “plaintiffs [] be able to show that their damages stemmed from the defendant‘s actions that created the legal liability.” Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013); see also Just Film, Inc. v. Buono, 847 F.3d 1108, 1120 (9th Cir. 2017) (“[P]laintiffs must show that ‘damages are capable of measurement on a classwide basis,’ in the sense that the whole class suffered damages traceable to the same injurious course of conduct underlying the plaintiffs’ legal theory.” (quoting Comcast, 569 U.S. at 34)). In short, “[u]ncertainty regarding class members’ damages does not prevent certification of a class as long as a valid method has been proposed for calculating those damages.” Lambert v. Nutraceutical Corp., 870 F.3d 1170, 1182 (9th Cir. 2017), rev‘d on other grounds, 139 S. Ct. 710 (2019).
I. Plaintiff‘s Causes of Action
We must first consider Plaintiff‘s causes of action in order to determine whether they permit recovery based on the benefit of the bargain. Following the district court‘s partial grant of Nissan‘s motion to dismiss, Plaintiff was left with three viable causes of action at the time of class certification: claims under the CLRA, the Song-Beverly Act, and the Magnuson-Moss Act.3
A. The CLRA
The CLRA “shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices
Here, we are satisfied that Plaintiff‘s proposed benefit-of-the-bargain measure of damages is both cognizable under the CLRA and a reasonable basis of computation. Courts have viewed similar models of recovery favorably in the past. See, e.g., Colgan v. Leatherman Tool Grp., Inc., 38 Cal. Rptr. 3d 36, 42–43 (Ct. App. 2006) (describing a “market approach” for “determin[ing] the amount of actual damages for a CLRA award,” which provides that “[o]ne defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction” (quoting
B. The Song-Beverly Act
Plaintiff‘s damages model is similarly cognizable under the Song-Beverly Act, which provides that “[t]he measure of the buyer‘s damages in an action . . . shall include the rights of replacement or reimbursement.”
II. Plaintiff‘s Theory of Liability
Having determined that recovery based on the benefit of the bargain is cognizable under Plaintiff‘s causes of action, we must now determine whether this damages model flows from his theory of liability. See Comcast, 569 U.S. at 35.
In his motion for class certification, Plaintiff asserted that he
has alleged, and can prove through common evidence, that the Class Vehicles were sold with defective CSCs. That allegation is susceptible to common proof regarding the design of the CSC, which is substantially the same for all Class Vehicles, and individual factors do not affect whether the Class [V]ehicles were sold with a defective CSC.
(citation omitted). This characterization is crucial. Plaintiff‘s legal theory is not based on the performance of the allegedly defective clutch system, but instead the system itself, which he claims is defective. Had Plaintiff alleged that performance problems constituted the defect and caused his and the class members’ injuries, then the benefit of the bargain would not be the appropriate measure of damages because, as the district court noted, class members might have received varying levels of value based on if and when they experienced a sticky clutch problem. But Plaintiff‘s theory is that Nissan knowingly designed a defective clutch system and did not inform consumers of the defect. His expert explained that the CSC “is defectively designed because its wrought aluminum cylinder and plastic base assembly does not provide enough thermal conductivity to effectively transfer heat from the clutch components to the transmission front cover and surrounding air during clutch engagement.” This allegedly defective clutch system “is the same or substantially similar in all of the Class Vehicles.” Accordingly, as Plaintiff argues, “under [his] theory, the defect exists—and must be remedied—whether or not the symptoms have manifested yet.”
Both Nissan and the district court mischaracterized Plaintiff‘s theory as being centered on performance issues, rather than the defective system itself. Nissan argues that Plaintiff‘s “model assumed that 100% of the vehicles would manifest a clutch assembly defect, and none of them would malfunction but for the design flaw.” But this is not accurate; Plaintiff‘s theory is that the defect was inherent in each of the Class Vehicles at the time of purchase, regardless of when and if the defect manifested. He alleges that Nissan violated the CLRA because it knew about the defective clutch system and failed to disclose it at the point of sale, that “a reasonable person would have considered [the fact of the alleged defect] to be important in deciding whether to purchase or lease Class Vehicles,” and thus that Plaintiff and class members “would not have purchased or leased Class Vehicles equipped with transmissions, or would have paid less for them.” See Soule v. Gen. Motors Corp., 882 P.2d 298, 308 n.3 (Cal. 1994) (“[T]he ordinary consumers of modern automobiles may and do expect that such vehicles will be designed so as not to explode while idling at stoplights, experience sudden steering or brake failure as they leave the dealership, or roll over and catch fire in two-mile-per-hour collisions.“). Plaintiff further alleges that, under the Song-Beverly Act, the Class Vehicles “suffered from an inherent defect at the time of sale.” Plaintiff correctly contends that “under both causes of action, the sale of the vehicle with the known defect is the liability-triggering event, not when the overheating manifests.” See Daniel v. Ford Motor Co., No. 2:11-02890 WBS EFB, 2016 WL 2899026, at *7 (E.D. Cal. May 18, 2016) (“[A] reasonable jury could conclude that a consumer would demand that the purchase price of a vehicle with a defect be reduced by the cost of remedying that defect.“); Kearney v. Hyundai Motor Co., No. SACV 09-1298 DOC (MLGx), 2010 WL 9093204, at *5 (C.D. Cal. June 4, 2010) (determining that if “the receipt of a vehicle whose alleged defects reduced the car‘s value and deprived the consumer of the benefit of the bargain, even when the alleged defects did not later materialize,” then “the loss was suffered ‘at the moment’ of purchase” (citing Cole v. Gen. Motors Corp., 484 F.3d 717, 723 (5th Cir. 2007))).
Plaintiff‘s theory is consistent with our opinion in Wolin v. Jaguar Land Rover North America, LLC, in which we concluded that “[t]he district court erred when it concluded, without discussion, that certification is inappropriate because [the plaintiffs] did not prove that the defect manifested in a majority of the class‘s vehicles.” 617 F.3d 1168, 1173 (9th Cir. 2010). We explained that the plaintiff
alleges breach of implied warranty because the vehicles were defective and not of merchantable quality at the time they left Land Rover‘s possession. Common issues predominate such as whether Land Rover was aware of the existence of the alleged defect, whether Land Rover had a duty to disclose its knowledge and whether it violated consumer protection laws when it failed to do so. . . . [W]e have held that proof of the manifestation of a defect is not a prerequisite to class certification.
Id. Moreover, in Pulaski, we clarified that a restitution calculation under California law
need not account for benefits received after purchase [where] the focus is on the value of the service at the time of purchase. Instead . . . the focus is on the difference between what was paid and what a reasonable consumer would have paid at the time of purchase without the fraudulent or omitted information.
802 F.3d 989.6 Here, in denying Plaintiff‘s motion for class certification, the district court focused on potential post-purchase value, suggesting that “the difference between value represented and value received only equals the cost to replace the defective CSC if consumers would have deemed the defective part valueless.” Given Plaintiff‘s theory of liability,
Plaintiff alleges that Nissan concealed the clutch system‘s defects from consumers, that the defect was material because it adversely affected the “safety and reliability” of the Class Vehicles, and that he did not get what he bargained for—a transmission “fit for [its] intended use.” A benefit-of-the-bargain model of damages aligns with this legal theory; that measure
is concerned with satisfying the expectancy interest of the defrauded plaintiff by putting him in the position he would have enjoyed if the false representation relied upon had been true; it awards the difference in value between what the plaintiff actually received and what he was fraudulently led to believe he would receive.
Stout v. Turney, 586 P.2d 1228, 1232 (Cal. 1978). Plaintiff seeks to recover damages equaling the amount he purportedly overpaid in purchasing a vehicle with a defective clutch; he “is not seeking a full refund for the vehicle purchase, but for the cost of replacing [] a defective component, which is a proxy for [his] overpayment of the vehicle at the point of sale.” Whether his proposed calculation of the replacement cost is accurate, whether the clutch was actually defective, and whether Nissan knew of the alleged defect are merits inquiries unrelated to class certification. For now, it is sufficient that Plaintiff has demonstrated the nexus between his legal theory—that Nissan violated California law by selling vehicles with a defective clutch system that was not reflected in the sale price—and his damages model—the average cost of repair.
In response, Nissan maintains that “[t]he manifestation requirement [] impacts the damages analysis.” It cites Cardinal Health 301, Inc. v. Tyco Electronics Corp., in which the California Court of Appeal noted that “[u]nless a product actually manifests an alleged defect, the plaintiff
There the plaintiffs did not seek to recover for physical injury or property damage caused by the defect in the truck wheels. Rather, they sought to recover the cost of replacing the defective wheels. The primary right alleged to have been violated in Anthony, as in the case before us, was the right to take a product free from defect. The defect did not cause the plaintiffs’ injury; the defect was the injury.
Hicks, 107 Cal. Rptr. 2d at 771–72.
This distinction is key, and it underscores the fundamental disconnect between Plaintiff‘s damages theory and Nissan‘s mischaracterization of what it entails. As we have explained, Plaintiff does not seek damages for the faulty performance of the clutch system; such a theory of liability would, pursuant to Cardinal Health, Hicks, and the district court‘s analysis, require individualized analysis that might defeat predominance. Instead, Plaintiff‘s theory is that the allegedly defective clutch is itself the injury, regardless of whether the faulty clutch caused performance issues. Accordingly, Nissan‘s argument is unavailing.8
CONCLUSION
Plaintiff‘s theory of liability—that Nissan‘s manufacture and concealment of a defective clutch system injured class members at the time of sale—is consistent with his proposed recovery based on the benefit of the bargain. We conclude that the district court abused its discretion when it denied class certification based on a misconception of Plaintiff‘s legal theory. We therefore REVERSE the district court‘s denial of class certification and REMAND for further proceedings.
Notes
a manufacturer‘s misrepresentation may allow it to command a price premium and to overcharge customers systematically. Even if an individual class member subjectively valued the vehicle equally with or without the accurate [safety information] sticker, she could have suffered a loss in negotiating leverage if a vehicle with perfect safety ratings is worth more on the open market.Id. The court therefore rejected the defendant‘s argument that “the liability determination will be highly individualized because the buying and leasing experiences of each proposed class member were not uniform.” Id. at 985. Instead, the court concluded that “damages should reflect the difference between the market value” of what was promised and what was delivered; “[u]nlike the calculation of an individual consumer‘s direct pecuniary loss, which would limit the plaintiff to the difference of what she paid and the actual value received, the [applicable] ‘benefit of the bargain’ model provides a standardized class-wide damages figure because the plaintiff‘s out-of-pocket payment is immaterial.” Id. at 986; see also In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838, 856–57 (6th Cir. 2013) (“Because all Duet owners were injured at the point of sale upon paying a premium price for the Duets as designed, even those owners who have not experienced a mold problem are properly included within the certified class.“).