Philip Gotthelf v. Toyota Mtr Sales USAPhilip Gotthelf v. Toyota Mtr Sales USA
Jodi R. Sarowitz, Esq., Loeb & Loeb, New York, NY, Michael L. Mallow, Esq., Michael B. Shortnacy, Esq., Loeb & Loeb, Los Angeles, CA, for Toyota Motor Sales, U.S.A., Inc., Toyota Motor North America, Inc., and Toyota Motor Corporation.
Before: SMITH, GREENAWAY, JR., and VAN ANTWERPEN, Circuit Judges.
OPINION
GREENAWAY, JR., Circuit Judge.
Philip Gotthelf (“Gotthelf“) and Nathan Guedalia (“Guedalia“), (collectively, “Appellants“),1 appeal the District Court‘s Order dismissing their Complaint under
I. BACKGROUND
Because we write primarily for the benefit of the parties, we recount only the essential facts.
This case is related to two other class action suits, Collado v. Toyota Motor Sales, U.S.A., Inc. (No. 10-cv-03113) (the “Collado action“), and Fixler v. Toyota Motor Sales, U.S.A., Inc. (No. 10-cv-03124) (the “Fixler action“). The Collado and Fixler actions were consolidated (the “Collado-Fixler action“) in the Central District of California (the “California District Court“), and were settled on behalf of a nationwide class on October 17, 2011.2
On August 30, 2010, approximately sixteen months after the Collado action was filed, Appellants filed their putative class action Complaint (the “Gotthelf action“) in the District of New Jersey, on behalf of themselves and “[a]ll persons in the United States who own or lease, or who have owned or leased, model years [2006-2009] Toyota Prius motor vehicles equipped with an optional factory-installed HID Headlamp System (‘Nationwide Class‘).”3 (App. 100.)
A. Factual Allegations in the Gotthelf Action
The allegations in the Complaint center around an alleged defect in the Toyota Prius‘s optional, factory-installed, high-intensity discharge (“HID“) headlamp system, which caused the HID headlamp bulbs to stop working without warning (“Unexpected Extinguishment“). This is the same defect that was at issue in the
On May 6, 2009, the National Highway Transportation Safety Association (“NHTSA“) notified Toyota that it had opened an investigation into HID headlamp failures in the 2006 and 2007 model year Toyota Prius, based on 338 reports it had received of such failures. Appellants include in their Complaint several of the customer reports filed with the NHTSA, the earliest of which is dated July 1, 2007. Appellants also allege that the NHTSA investigation uncovered approximately 2,200 consumer complaints regarding failed HID headlamps, some filed with the NHTSA and some with Toyota, and that additionally, as of September 2009, Toyota had received about 27,600 warranty claims on the issue. The NHTSA investigation found that in most cases of Unexpected Extinguishment, one bulb would extinguish at a time, and that toggling the headlamp switch on and off would temporarily restore lighting, thereby making it feasible to get the vehicle to a repair facility. In August 2009, the NHTSA closed its investigation, concluding that “a safety defect trend [had] not been identified at [that] time.” (App. 566, 803.)
In December 2009, Toyota initiated a Customer Support Program, offering to fully reimburse owners of 2006-2009 Priuses who had replaced the headlight electronic control unit (“ECU“), and to partially reimburse customers who had replaced one or more of the HID headlamp bulbs. It sent the Customer Support letter to customers on December 28, 2009. In the letter, Toyota stated that the HID headlamp failure occurred toward the end of the HID bulb‘s useful life, and explained that replacing the HID bulbs was “sufficient to curtail the intermittent operation.” (App. 263.) The letter also gave customers several suggestions on how to extend the life of the HID bulbs. Customers wishing to participate in the Support Program were required to submit claims no later than March 31, 2010.
Gotthelf purchased a new Toyota Prius on April 28, 2006, and Guedalia leased a new Toyota Prius on August 30, 2006. Each paid more for the optional HID headlamp system. The HID headlamps were covered under Toyota‘s 36-month or 36,000-mile warranty.
One of Gotthelf‘s HID headlamps first experienced Unexpected Extinguishment in October 2009, after his Prius had been driven 49,907 miles and was no longer under warranty. When Gotthelf replaced the driver‘s side HID headlamp bulb, the Toyota representative informed Gotthelf that Toyota was aware of the problem with the HID headlamps. In November 2009, the passenger side headlamp began to experience Unexpected Extinguishment, but as of the filing of the Complaint, Gotthelf had not replaced it.
Unexpected Extinguishment first occurred in Guedalia‘s passenger side HID headlamp in July 2009, after his Prius had been driven 59,021 miles and was no longer under warranty. In August 2009, Guedalia replaced one HID headlamp bulb, and in February 2010, he replaced the other. Both Gotthelf and Guedalia received Toyota‘s December 28, 2009 Customer Support letter.
In the Complaint, Appellants argue that Toyota had knowledge of the HID headlamp defect and concealed the defect from its customers. Appellants allege that Toyota marketed the more expensive HID headlamps as superior to standard halogen bulbs, claiming that the HID headlamps provide better visibility, use less power, and last longer than halogen bulbs. They
B. Procedural History of the Collado-Fixler and Gotthelf Actions
When Appellants filed their Complaint, the Collado-Fixler action, which sought to represent the same nationwide class, was already pending in the Central District of California, and the parties were already engaged in settlement discussions.
On September 17, 2010, Appellants filed a motion with the Judicial Panel on Multidistrict Litigation (“JPML“), seeking to have all the “Unexpected Extinguishment” cases, including Collado-Fixler, transferred to the District of New Jersey for consolidated and coordinated pretrial proceedings. The Panel denied the motion on November 30, 2010, because the Panel found that “the parties in the Central District of California actions are on the cusp of a settlement,” and “[t]here are more suitable mechanisms in place by which class members can object to or opt out of a class settlement.” (App. 668.) Appellants also filed a motion with the California District Court to intervene in the Collado-Fixler action, which was denied.
On December 30, 2010, the parties in the Collado-Fixler action reached a formal settlement agreement (the “Settlement Agreement“), which purported to settle all claims related to the HID headlamps for owners of model years 2006-2009 Toyota Priuses. On January 10, 2011, the California District Court approved the Collado-Fixler plaintiffs’ motion for certification of a settlement class under
The California District Court held a fairness hearing on October 17, 2011, and approved the Settlement Agreement, finding it “fair, adequate, and reasonable” under
II. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction under
III. ANALYSIS
A. Res Judicata and Due Process
Guedalia argues that the District Court erred by dismissing his and the putative class‘s claims as barred by res judicata, and that he is entitled to collaterally attack the Settlement Agreement. He claims that he and the putative class are not bound by the Settlement Agreement because they were denied due process in the resolution of the Collado-Fixler action as a result of inadequate representation.7
It is well-settled that under the doctrine of res judicata, “a judgment pursuant to a class settlement can bar later claims based on the allegations underlying the claims in the settled class action.” In re Prudential Ins. Co. of Am. Sales Practice Litig., 261 F.3d 355, 366 (3d Cir.2001). To be bound by a class settlement agreement under the principles of res judicata, however, the absent class member must have been afforded certain due process protections. In re Diet Drugs Prods. Liab. Litig., 431 F.3d 141, 145 (3d Cir.2005).8 Generally, “there has been a failure of due process only in those cases where it cannot be said that the procedure adopted, fairly insures the protection of the interests of absent parties who are to be bound by it.” Id. (quoting Hansberry v. Lee, 311 U.S. 32, 42, 61 S.Ct. 115, 85 L.Ed. 22 (1940)). In a class action settlement where opt-out rights are given, due process requires: (1) adequate representation by the class representatives, (2) notice of the class proceedings, and (3) the opportunity to be heard and to participate in the class proceedings. Id. (citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985)). Therefore, if the settlement of the Collado-Fixler action comported with due process, res judicata will apply to bar Guedalia‘s and the putative class‘s claims.
An absent class member must have some mechanism by which to challenge whether his due process rights were upheld during a class action settlement. See Grimes v. Vitalink Commc‘ns Corp., 17 F.3d 1553, 1558 (3d Cir.1994). “This challenge can take the form of an appeal of the class certification itself, a collateral attack on an already-certified class, or a
1. Notice and Opportunity to be Heard
Guedalia does not, and cannot, challenge that class members were provided with sufficient notice and had ample opportunity to be heard and to participate in the class proceedings. Guedalia clearly was apprised of the terms of the settlement, decided not to opt out, and exercised his right to object to the class certification and Settlement Agreement. See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 791 (3d Cir.1995) (explaining that when simultaneous notice of the class and the settlement is distributed to the proposed class, class members may object to both the terms of the proposed settlement and the class certification itself). Moreover, the District Court considered his specific objections before approving the Settlement Agreement. Guedalia‘s only due process objection relates to the adequacy of representation. See Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 396, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996) (Ginsburg, J., concurring in part and dissenting in part) (“Final judgments, however, remain vulnerable to collateral attack for failure to satisfy the adequate representation requirement.“).10
2. Adequate Representation11
The adequate representation requirement in
“Although questions concerning the adequacy of class counsel were traditionally analyzed under the aegis of the adequate representation requirement of Rule 23(a)(4) ... those questions have, since 2003, been governed by Rule 23(g).” Id. at 292 (quoting Sheinberg v. Sorensen, 606 F.3d 130, 132 (3d Cir.2010)).
Guedalia has identified no “divergent or conflicting interests” between the named plaintiffs and the putative class. In re Cmty. Bank, 622 F.3d at 291. All plaintiffs and class members were owners or lessees of model years 2006-2009 Toyota Priuses who experienced the same malfunction with their HID headlamp system. Guedalia‘s claims of inadequate representation focus mainly on the adequacy of representation by class counsel and are two-fold. First, he argues that class counsel was deficient for failing to conduct adequate discovery before settling the Collado-Fixler action. Second, he argues that the “unfair, unreasonable, and inadequate” Settlement Agreement supports a claim of inadequate representation, and demonstrates that the named plaintiffs and class counsel did not vigorously represent the interests of the class.
a. Guedalia‘s Challenge to the Adequacy of Discovery
Guedalia‘s claim of inadequate representation for failure to conduct sufficient discovery fails because the issue was presented to, and resolved by, the California District Court. As we explained in In re Diet Drugs,
No collateral review is available when class members have had a full and fair hearing and have generally had their procedural rights protected during the approval of the Settlement Agreement. Collateral review is only available when class members are raising an issue that was not properly considered by the District Court at an earlier stage in the litigation.
Id. at 146. Guedalia raised the same issue regarding the adequacy of discovery in his objection to the Settlement Agreement. He argued that discovery in the Collado-Fixler action had only occurred for two months, was limited to discovery relating to class certification, and that therefore, any settlement was premature and inappropriate. In its Final Approval of Settlement, issued after the fairness hearing, the California District Court considered the arguments raised by the objectors and rejected them. The court explained:
Some discovery has taken place, the parties have propounded and responded to interrogatories, and Plaintiffs’ counsel
appear to have a firm grasp on the strengths and weaknesses of the case. Given counsel‘s substantial experience with class action settlements and opinion that the settlement is in the best interest of the class, the Court likewise agrees.
(App. 596.) The California District Court also considered the costs of additional discovery and litigation, and determined that “[t]he potential costs of continuing the lawsuit could greatly overshadow any judgment Plaintiffs may be able to recover.” (Id.)12 Because the extent of discovery conducted was “properly considered by the District Court at an earlier stage in the litigation,” we will not revisit that issue on collateral review. In re Diet Drugs, 431 F.3d at 146.
b. Guedalia‘s Challenge to the Fairness of the Settlement Agreement
Guedalia also argues that the settlement was “[u]nfair, inadequate, and unreasonable,” which he claims is clear evidence that the named plaintiffs and class counsel “failed to prosecute the action with due diligence and reasonable prudence.” (Appellants’ Br. 31.) Because Guedalia‘s challenge takes the form of a collateral attack, our scope of review is more circumscribed than it would be on direct appeal. The California District Court‘s order approving the Settlement Agreement is now final and unappealable, and therefore “[a]ny challenges to the [substance] of the [S]ettlement [A]greement itself ... are no longer timely.” Orthopedic Bone Screw Prods. Liab. Litig., 350 F.3d 360, 363 (3d Cir.2003).
Guedalia, under the guise of “adequate representation,” is attempting to challenge “the terms of [the] settlement agreement, itself,” which “is clearly inappropriate as it is not a component of a due process challenge, appropriate for collateral attack.” In re Diet Drugs, 431 F.3d at 146, 149. Had Guedalia wished to challenge the fairness, adequacy, and reasonableness of the Settlement Agreement, he could have appealed the Collado-Fixler action to the Ninth Circuit. He chose not to do so, and this Court is not the appropriate forum in which to litigate those claims.13
Guedalia has not identified a conflict of interest between the named plaintiffs and the rest of the class and has not demon-
B. Gotthelf‘s Individual Claims
Because Gotthelf opted out of the Settlement Agreement, he is not barred by res judicata from pursuing his individual claims for relief.14 Gotthelf brings four claims under New Jersey law: violations of the NJCFA, common law fraud, breach of express warranty, and breach of the implied covenant of good faith and fair dealing. For substantially the same reasons provided by the District Court, we will affirm the dismissal of Gotthelf‘s claims.15
One crucial deficiency in Gotthelf‘s pleadings dooms all four of his claims: Gotthelf has not alleged any facts that demonstrate that Toyota had knowledge of, and intentionally concealed, the alleged defect in the HID headlamps, either before Gotthelf leased his Prius, or prior to the expiration of Gotthelf‘s 3-year/36,000 mile warranty. As such, each of his claims fails.
1. NJCFA
The New Jersey Consumer Fraud Act “provides a private cause of action to consumers who are victimized by fraudulent practices in the marketplace.” Gonzalez v. Wilshire Credit Corp., 207 N.J. 557, 25 A.3d 1103, 1114 (2011). To constitute consumer fraud, “the business practice in question must be ‘misleading’ and stand outside the norm of reasonable business practice in that it will victimize the average consumer.” Turf Lawnmower Repair, Inc. v. Bergen Record Corp., 139 N.J. 392, 655 A.2d 417, 430 (1995). The elements of a NJCFA claim are: “(1) an unlawful practice, (2) an ascertainable loss, and (3) a causal relationship between the unlawful conduct and the ascertainable loss.” Gonzalez, 25 A.3d at 1115. The statute defines an “unlawful practice” as:
any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression[,] or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person
has in fact been misled, deceived[,] or damaged thereby.
Gotthelf claims that Toyota knew of the HID headlamp defect “for years while Plaintiffs[‘] warranties were in full force and effect.” (Appellants’ Br. 48-49.) Nothing in the Complaint provides factual support for Toyota‘s alleged knowledge and concealment of the defect, either before Gotthelf leased his Prius, or during Gotthelf‘s warranty period. To the contrary, the facts demonstrate that once Toyota became aware of the defect during the NHTSA investigation, it initiated a Customer Support program to notify customers of the problem with the HID headlamps.
First, the Complaint alleges that Toyota should have been aware of the HID headlamp defect through its own “[b]ooks of [k]nowledge, internal testing, information on dealership repair orders, warranty data, [and] records of customer complaints.” (App. 86.) However, Gotthelf provides no factual support for this assertion—he does not state when the alleged complaints were received, or to whom at Toyota these alleged complaints were sent. Nor does he provide any facts relating to the alleged books of knowledge, internal testing, or dealership repair orders.16 Such conclusory allegations are insufficient to establish Toyota‘s knowledge, and concealment, of the HID headlamp defect. See Iqbal, 556 U.S. at 678-79.
Second, Gotthelf relies on the complaints submitted to the NHTSA to establish Toyota‘s knowledge, and alleged concealment, of the defect. The Complaint includes several customer complaints filed with the NHTSA, the earliest of which dates to July 1, 2007. However, these complaints were filed with the NHTSA, not with Toyota, and the NHTSA did not notify Toyota of its investigation until May 6, 2009. Gotthelf has provided no facts to support his assertion that Toyota should have known about the defect based on these complaints. Based on the facts provided in the Complaint, May 6, 2009 is the earliest date that knowledge of the alleged defect can be attributed to Toyota. However, by this time, Gotthelf‘s warranty period had ended.
Third, the Customer Support letter in no way helps Gotthelf‘s argument that Toyota had knowledge of, and concealed, the defect. The Customer Support letter was sent after the expiration of Gotthelf‘s warranty period and informed customers of the problem with the HID headlamps. Gotthelf‘s assertions that the letter was sent in bad faith, or as a “cover up,” lack factual support.
2. Common Law Fraud
Gotthelf‘s common law fraud claim was properly dismissed for substantially the same reasons as his NJCFA claim. The elements of a common law fraud claim under New Jersey law are: “(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.” Gennari v. Weichert Co. Realtors, 148 N.J. 582, 691 A.2d 350, 367 (1997). Because Gotthelf has not demonstrated that Toyota made any material misrepresentations or omissions of material fact, his claim fails.
3. Breach of Express Warranty
Gotthelf‘s breach of express warranty claim was also properly dismissed. The Unexpected Extinguishment occurred in Gotthelf‘s HID headlamps after the 3-year/36,000 mile warranty period had elapsed.
In New Jersey, “[a] breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.”
New Jersey courts have intimated that plaintiffs can only recover for breach of warranty if the defects were discovered during the warranty period. Cf. Comm‘rs of Fire Dist. No. 9 v. Am. La France, 176 N.J.Super. 566, 424 A.2d 441, 444 (N.J.Super.Ct.App.Div.1980) (“[I]f the warranty explicitly extended to future performance of the truck, the four-year limitations period did not begin to run until the breach—the paint defect—was or should have been discovered by the plaintiff, provided the defect arose within the warranty period.” (emphasis added)); ACH Enters. 1 LLC v. Viking Yacht Co., 817 F.Supp.2d 465, 470 (D.N.J.2011) (“[T]he future performance exception found in N.J.S.A. § 12A:2-725(2) only applies if the defect is discovered during the warranty period.“). Furthermore, this interpretation is consistent with
4. Breach of the Implied Covenant of Good Faith and Fair Dealing
Finally, Gotthelf has alleged no facts which show that Toyota breached the implied covenant of good faith and fair dealing. Every contract in New Jersey contains an implied covenant of good faith and fair dealing. See Kalogeras v. 239 Broad Ave., L.L.C., 202 N.J. 349, 997 A.2d 943, 953 (2010). “The party claiming a breach of the covenant of good faith and fair dealing must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.” Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Cntr. Assocs., 182 N.J. 210, 864 A.2d 387, 396 (2005) (internal quotation marks omitted). Gotthelf‘s warranty agreement with Toyota is a contract. He claims that Toyota breached the covenant of good faith and fair dealing in the warranty contract by failing to provide him notice of the defect within the warranty period. Because Gotthelf has not shown that Toyota had knowledge of the defect during Gotthelf‘s warranty period, this claim was properly dismissed.
IV. CONCLUSION
For the foregoing reasons, we will affirm the District Court‘s Order.