A recent 40-page opinion from the Central District of California illustrates how a Rule 12(b)(6) motion is still a viable vehicle to fight back against putative class actions. We have seen an increase in the number of product liability consumer class actions over the past ten or so years where plaintiffs expressly disclaim personal injury and wrongful death damages and only allege damages of repair of the product, diminution in value of the product, overpayment of the product, or some combination of those. In a large number of these consumer class actions, the plaintiffs assert claims of fraudulent concealment, fraudulent omission, and a variety of state-specific fraud-based causes of actions like false advertising claims and unfair and deceptive trade practices claims. Hyundai Motor America, Inc., recently scored a substantial victory in the Central District of California in getting an entire putative class dismissed at the Federal Rule of Civil Procedure 12(b)(6) stage.
In Resnick v. Hyundai Motor America, Inc., Judge O’Connell of the Central District of California dismissed without prejudice a putative class action that alleged Hyundai sold cars with defective “self-healing” paint that would bubble, flake, and not fix the scratches it was advertised as being able to “self-heal” or “self-fix.”
While Judge O’Connell dismissed the entire, 14-count, putative class action, we focus here on the fraud causes of action that Judge O’Connell dismissed. Judge O’Connell concentrated her analysis of the fraud claims on the allegations concerning Hyundai’s knowledge of the purported paint defect pre-sale. Judge O’Connell relied on, Williams v. Yamaha Motor Corp. There, the Ninth Circuit upheld Judge O’Connell’s decision dismissing a proposed class action at the Rule 12(b)(6) stage. Williams reiterated the requirement that a plaintiff must establish pre-sale knowledge of a defect. However, in Hyundai, the plaintiffs’ allegations went a step further and alleged Hyundai’s potential knowledge. Judge O’Connell found these allegations were likewise insufficient to state a fraud claim under Rule 9(b) because there were no allegations demonstrating any direct link to Hyundai having pre-sale knowledge of any defect. The plaintiffs attempted to allege knowledge, but Judge O’Connell found those allegations were insufficient because they lacked any link to Hyundai’s actual pre-sale knowledge. Specifically, the following allegations failed to state a claim for fraud, as they did not establish pre-sale knowledge to Hyundai:
|Allegation||Reason Legally Insufficient to State Claim|
|1.||Defendants’ “concerns’ regarding the possibility of self-healing paints or coats.” Resnick, at 24.||
Plaintiffs “do not allege who had these concerns, the substance of the concerns, or whether the concerns were ever communicated to Hyundai. Id.
|2.||Defendants had quality-control monitoring processes. Resnick, at 24-25.||
Plaintiffs did not allege how any of the quality-control “mechanisms placed Defendants on notice that there was a possible paint defect in their vehicles.” Id.
|3.||Complaints to third-party websites like “Hyundai-Forums.com” and “Edmunds.com.” Resnick, at 25.||
Plaintiffs did not pled any facts that Hyundai monitored these websites or was aware of the complaints. Id.
|4.||Complaints were made directly to the dealerships. Resnick, at 25-26.||
Complaints were undated and anonymous and thereby were not sufficient to establish Defendants’ knowledge. Id.
|5.||“‘Hyundai did or should have conducted testing of components, including paints and coatings, to verify that the materials are free from defects.” Resnick, at 27.||
Allegations are insufficient to establish knowledge because they are entirely speculative as they do not indicate how any testing would have placed Defendants on notice of an alleged paint defect, they do not establish when any testing occurred, and finally, even if Defendants had performed testing, Plaintiffs’ allegations fail to establish if it would have informed Hyundai of a possible, post-warranty failure of its paint. Id.
The Court conducted a detailed analysis of the Plaintiffs’ allegations in ultimately holding that they failed to state a fraud-based claim. It is clear from the Court’s lengthy order that Plaintiffs at least attempted to allege facts that established Hyundai’s knowledge regarding the alleged defect. Yet, it is also equally clear that the Court’s analysis did more than simply take the plaintiff’s allegations at face value as the Supreme Court’s holdings in Ashcroft v. Iqbal, 556 U.S. 662 (2009), mandates. The Court applied the heightened Rule 9(b) standards in analyzing whether the plaintiffs’ allegations met the heightened pleading requirements of Rule 9(b). This is a very positive development for putative class actions in California and everywhere for defendants.