Ninth Circuit Upholds Point of Sale Damages Theory in Products Liability Class Action

The Nguyen case arises from an allegedly defective clutch in certain Nissan vehicles. The plaintiff, Huu Nguyen, bought a 2012 Nissan 370Z as a graduation present for his son. The car’s clutch malfunctioned after the warranty expired, requiring Nguyen to pay more than $700 to fix it. He brought a class action against Nissan on behalf of himself and others who purchased a vehicles suffering from the same alleged defect.

Ngyuen asserted claims for violations of California’s Consumers Legal Remedies Act breaches of implied warranty pursuant to the Song-Beverly Consumer Warranty Act and the Magnuson-Moss Warranty Act. He pursued a “benefit-of-the-bargain” damages model seeking to recover the difference in value between the vehicles Nissan promised and the defective vehicles Nissan delivered, as measured by the cost to replace the defective clutch with a non-defective clutch.

The district court rejected the plaintiff’s proposed damages model, holding that “the difference between value represented and value received only equals the cost to replace the defective [clutch system] if consumers would have deemed the defective part valueless.” Reasoning that different class members drove their vehicles for different amounts of time prior to experiencing the defect (if they experienced it at all), the district court denied class certification on predominance grounds, finding that individualized inquiries into what value each class member derived would be necessary.

Focusing on Ngyuen’s legal theory—"that the Class Vehicles were sold with defective [clutch systems],”—the Ninth Circuit found that Ngyuen’s theory was “not based on performance of the allegedly defective clutch system, but instead on the system itself, which he claims is defective.” In its predominance analysis, the Ninth Circuit reasoned that had Ngyuen based the theory on performance, then a benefit-of-the-bargain theory would have been inappropriate because class members may have received varying levels of value based on when and whether the clutch system malfunctioned. “But Plaintiff’s theory is that Nissan knowingly designed a defective clutch system and did not inform consumers of the defect.” In other words, the defect exists, has always existed and must be remedied regardless of whether a malfunction has occurred. Under Ngyuen’s warranty claims, “the sale of the vehicle with the known defect is the liability-triggering event, not when the overheating manifests. . . . The defect itself is the injury.”

Accordingly, the Ninth Circuit reversed the district court’s denial of class certification and remanded the case.

Jason Kellogg is a partner at Levine Kellogg Lehman Schneider + Grossman LLP in Miami, Florida.

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