Trial News

In a plaintiff’s bid to certify a class of vehicle drivers with a latent defect in their hydraulic clutch systems, the Ninth Circuit has ruled that the plaintiff’s proposed “benefit-of-the-bargain” damages model—which would compensate class members for the average cost of replacing the allegedly defective clutch system—is reasonable. The court also found that the defect does not have to have manifested for all class members for the action to proceed because “the allegedly defective clutch was itself the injury.” The decision clarifies that damages are cognizable in defective products class actions even for class members who have not yet experienced the defect. (Nguyen v. Nissan N. Am., Inc., 2019 WL 3368918 (9th Cir. July 26, 2019).)

Huu Nguyen purchased a 2012 Nissan 370Z from a California dealership for his son, Michael, as a college graduation present. In March 2014, Michael was driving on a freeway when the car’s clutch pedal became sticky and lost pressure. He slowed down and pulled over to the shoulder of the freeway until the clutch allowed him to shift to second gear. Because the car was still under warranty, the Nissan dealership that had sold the car replaced a component of the clutch at no cost. Almost two years later the same issue occurred, but this time the Nguyens paid $721.75 to replace the faulty clutch component.    

In 2016, Huu Nguyen filed a class action against Nissan in California district court, alleging breach of implied warranty, unjust enrichment, and violation of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL).

The class alleged the clutch system is faulty because it inadequately accounts for heat transfer and its defective aluminum-plastic composite clutch slave cylinder (CSC) causes the system to overheat. When the system overheats, the clutch fluid boils and generates air that causes the clutch to stick to the floor and prevent the driver from shifting gears. Nissan’s records of driver complaints indicate it was aware of the issue as early as October 2007. An internal email from July 2012 showed that a Nissan project engineer recommended “a wholesale approach to a whole new hydraulic system, including a new pedal, is warranted” due to frequent claims of the clutch pedal sticking. However, Nissan failed to inform consumers of the defect, and Nguyen claims this information would have led him and other class members to pay less for or avoid purchasing their vehicles.

The federal district court dismissed the unjust enrichment and UCL claims as well as Nguyen’s claim for injunctive relief under the CLRA, leaving intact the implied warranty and CLRA damages claims. Nguyen moved to certify a class of consumers in California who purchased or leased a new vehicle equipped with the defective clutch from a Nissan dealer and proposed a “benefit of the bargain” damages model that would compensate all class members for the estimated cost to replace the defective CSC. This model sets damages at “the difference between the value Nissan represented and the value class members received, measured at the time of purchase.”

The district court denied class certification, finding that the damages model failed to satisfy Federal Rule of Civil Procedure 23(b)(3), which requires that questions of law or fact common to class members predominate over any questions affecting only individual members. The court held that this damages model would presume that all consumers “deemed the defective part valueless” although many never experienced a sticky clutch and drove thousands of miles in cars containing the allegedly defective CSC.

On appeal, the Ninth Circuit evaluated whether the district court had “based its ruling on an erroneous view of the law.” First looking at whether recovery based on the benefit of the bargain model is permitted, the Ninth Circuit found that under the CLRA, courts are given wide discretion to determine an appropriate remedy so long as the remedy is “consistent with the purpose of restoring to the plaintiff the amount that the defendant wrongfully acquired.” And under California’s lemon law, the Song-Beverly Act, the court said, a buyer’s damages “shall include the rights of replacement or reimbursement.” (Cal. Civ. Code §1794(b)).

The Ninth Circuit then turned to whether the benefit of the bargain damages model is appropriate given Nguyen’s theory of liability. Here, the court found, Nguyen is not claiming damages “based on the performance of the allegedly defective clutch system, but instead the system itself, which he claims is defective.” Claiming performance-based damages in a class action would have been problematic because class members did not all experience the sticky clutch problem. Nguyen’s damages theory does not rely on manifestation of the alleged defect, the Ninth Circuit said, and Nissan’s argument “conflates cases where a defect causes an injury, and those, like this one, where the defect itself is the injury.” The Ninth Circuit reversed and remanded.

Los Angeles attorney Ryan Wu, who represented Nguyen, is “hopeful that Nguyen and the thousands of California consumers who purchased the Nissan 350Z and 370Z and Infiniti G35, G37, and Q60 with an undisclosed defect in the clutch system can recover their damages.” Wu added that “in reversing the district court, the Ninth Circuit has hopefully turned back the tide of lower courts denying class certification in consumer fraud cases based on the damages model alone, rather than determining whether the plaintiff’s proposed damages model is traceable to his or her theory of liability. This case will definitely help consumers seeking to vindicate their rights under state consumer fraud laws.”