883 F.2d 287 (4th Cir. 1989), 88-2168, Carlson v. General Motors Corp.

Docket Nº:88-2168.
Citation:883 F.2d 287
Party Name:Mary A. CARLSON; Romana Stazen; Kenneth Owens; Richard B. Allen; C.V. Alston; Charles Armour, Jr.; Pierce Beauzay; Lewis O. Beck; Claude A. Black; Charles A. Blau; Raymond E. Booker; Robert L. Branham; Thomas R. Brown; Davis W. Brunson, Sr.; William E. Bubsey; Jimmy B. Burrell; Thomas H. Burrell; Frank Carruth; Willie Casey, Sr.; James F. Causey; L
Case Date:August 22, 1989
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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883 F.2d 287 (4th Cir. 1989)

Mary A. CARLSON; Romana Stazen; Kenneth Owens; Richard B.

Allen; C.V. Alston; Charles Armour, Jr.; Pierce Beauzay;

Lewis O. Beck; Claude A. Black; Charles A. Blau; Raymond

E. Booker; Robert L. Branham; Thomas R. Brown; Davis W.

Brunson, Sr.; William E. Bubsey; Jimmy B. Burrell; Thomas

H. Burrell; Frank Carruth; Willie Casey, Sr.; James F.

Causey; Levi Chavous; Ruth D. Cooke; James W. Davis;

John E. Driggers; William E. Dukes; Adelaide Dupre;

Douglas T. Elkins; Bernest Ellerbe; Lois Elmore; John

Erickson; Don Eykyn; Mary J. Fahey; Dr. Leslie E. Figa;

George W. Fulmer; Charlaine Glover; Louise Grady; H.M.

Grice; Grooms Oil Company; Dennis Harrison, Jr.; John

Harte; Doyle C. Hayden; Lillian Hayes; George Hendricks;

Jesse Herron; G.E. Hinson; Floyd Hiott; Kathleen

Holliday; Robert Hudson; Paul Hughes, Jr.; Alfreda James;

Larry Jenkins; Henry S. Johnson; George C. Kosko; Jim

Leathenwood; Robert H. Lehman; Michael R. Lepors; Bobby

G. Lott; Joe Lubelsky; T.W. Lyband; Daniel L. McAlpin;

David McLellan; Purdy McLeod; Marvin Mabry; William Mapp,

Jr.; Robert Marina, Jr.; Elizabeth J. Martin; W. Mason,

Jr.; George Massey, Sr.; Samuel Masters; Elizabeth

Mauney; James E. Mays; Vicki Mays; Merle Mellins; Fred

Meyers; W. Irvin Molony; Dr. Carl Moore; Harry Morrow;

Phillip Noel; Thomas O'Connor; Billy Parker; Jack L.

Payne; Richard Pearl; Zelma Pettit; T.H. Preston; Harold

B. Pruitt; Richard Puckharber; Laurie Quinn; Robert G.

Richards; Walter L. Roark, Jr.; Rev. Daniel Runion; Oscar

Russell; Robert F. Scholl; Livingston Scott; Frank D.

Sellers; Jimmy Sheorn, Jr.; Dr. F.L. Shuler; Irene F.

Simpson; Henry R. Sims; Paul C. Sova; Alex Stackhouse,

Jr.; Sunbelt Thread & Tape, Inc.; Ann Sterne; Joshua

Taylor; Paul Thode; Ann Thode; Bernice Todd; Doretha J.

Todd; Mary Torrence; Early Vincent; Donald Wade; Dr.

William Weathers; Mrs. David Weigle; George E. White;

Leroy White; Horace Whitmire; Marvin Williams; David J.

Worthington; Roy C. Young; Columbia Wholesale Company;

David Ferguson; Robert E. Malpass; William J. Shepard,

Jr.; Carl Shokes, Plaintiffs-Appellants,

and

Vivian Chester; Henry H. Freudenberg; Robert Gotterba;

E.M. Hanna; Gerald Harley; S. Todd and Judy Lewis; Karen

Lucas; Courtney Plante; W.H. Singleton; Major R.C. Smith;

Berneta Thames, Plaintiffs,

v.

GENERAL MOTORS CORPORATION, Defendant-Appellee.

No. 88-2168.

United States Court of Appeals, Fourth Circuit

August 22, 1989

Argued March 6, 1989.

Rehearing and Rehearing In Banc Denied Sept. 27, 1989.

Rehearing Denied Oct. 24, 1989.

Page 288

Richard A. Lockridge (Vance K. Opperman, William Gengler, Opperman & Paquin, Minneapolis, Minn., Armand G. Derfner, Law Office of Armand Derfner, P.A., Charleston, S.C., B. Ervin Brown, II, Winston Salem, N.C., Beverly C. Moore, Jr., Sandra D. Benson, Stuart J. Logan, Moore & Brown, Washington, D.C., Arthur M. Kaplan, Edward B. Rock, David A. Kahne, Fine, Kaplan & Black, Philadelphia, Pa., on brief) for plaintiffs-appellants.

James H. Schink (Kirkland & Ellis, Chicago, Ill., Wade H. Logan, III, Holmes & Thomson, Charleston, S.C., Lee A. Schutzman,

Page 289

Detroit, Mich., on brief), for defendant-appellee.

Before PHILLIPS and CHAPMAN, Circuit Judges, and WILLIAMS, United States District Judge for the Eastern District of Virginia, sitting by designation.

PHILLIPS, Circuit Judge:

This case involves alleged defects in 5.7-liter diesel automobile engines manufactured by the defendant-appellee, the General Motors Corporation (GM), in model years 1981 through 1985. In a seventy-four page amended complaint filed on behalf of 183 named claimants and a prospective class of "similarly situated" car owners 1--all of whom at one time purchased GM products equipped with diesel engines--plaintiffs charged that the engines were inherently defective and subject to frequent breakdowns, necessitating extensive and expensive repairs. Plaintiffs claimed, moreover, that GM's failure to correct these defects constituted a breach of the implied warranty of merchantability on the engines, hence a remediable violation of the Magnuson-Moss Warranty Act (the Act). 2

In response to Rule 12(b)(6) motions filed by the defendant, the district court dismissed the claims of 130 of the named plaintiffs. At the same time, it denied plaintiffs' motion to amend the complaint and name additional claimants. 3 This appeal followed 4 and required us to decide: (1) whether GM diesel car owners who did not themselves encounter engine difficulties are nevertheless entitled to maintain actions for the recovery of "lost resale value"; and (2) whether the district court erred by dismissing the separate claims of some plaintiffs that GM's durational limitations on any and all implied warranties of merchantability were "unreasonable" and "unconscionable." Because we agree with the district court that the implied warranty of merchantability does not encompass claims for "lost resale value," we affirm its dismissal of those plaintiffs who alleged damages attributable only to the "poor reputation" of GM's diesel products. We also hold, however, that the district court erred by dismissing the "unconscionability" claims of other plaintiffs solely on the basis of the pleadings. We therefore reverse as to those claims and remand them for further proceedings.

I

For present purposes, we treat the named plaintiffs in this case as falling into three separate categories: (1) those who alleged that they encountered significant mechanical difficulties with the diesel engines in their GM cars before the applicable written warranties had expired; (2) those who alleged that they encountered engine problems only after all express warranties had expired; and (3) those who did not specifically allege that their diesel vehicles were defective, but instead only that the "poor reputation" of GM's diesel products resulted in compensable losses of "resale value." In a single order, the district court dismissed all named plaintiffs in the latter two categories. Because it did so for conceptually distinct reasons, however, we set

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out separately the salient facts underlying the claims of each group.

A. Plaintiffs Claiming that GM's "Durational Limitations" on the Operation of Implied Warranties Were Unreasonable and Unconscionable.

Included in the first group are those plaintiffs who challenge GM's attempt to impose "durational limitations" on any and all implied warranties covering the diesel-equipped vehicles that are the subject of this dispute.

GM's express warranties on the diesel engines it manufactured in the 1981 and 1982 model years expired by their terms after 24 months or 24,000 miles. For model years 1983 through 1985, all express warranties on the engines expired after 36 months or 50,000 miles. Critical for present purposes, however, is that the warranty documents provided to purchasers of diesel-equipped GM vehicles included provisions purporting also to limit the operation of any implied warranties to the periods covered by the express guarantees.

Of the 183 plaintiffs named in the amended complaint, 107 alleged that they had first encountered substantial difficulties with their diesel cars only after all applicable express warranties had expired--hence after the purportedly "simultaneous" expiration of any implied warranties. Plaintiffs sought to avoid the obvious difficulties associated with GM's written disclaimers, however, by alleging further that the underlying "durational limitations" on the operation of any implied warranties were, as a matter of law, both "unreasonable" and "unconscionable"--hence "ineffective" under Sec. 2308 of the Act:

Sec. 2308. Implied warranties.

(a) No supplier may disclaim or modify (except as provided in subsection (b) of this section ) any implied warranty to a consumer with respect to [a] consumer product if (1) such supplier makes any written warranty to the consumer with respect to such consumer product, or (2) at the time of sale, or within 90 days thereafter, such supplier enters into a service contract with the consumer which applies to such consumer product.

(b) For purposes of this chapter ..., implied warranties may be limited in duration to the duration of a written warranty of reasonable duration, if such limitation is conscionable and is set forth in clear and unmistakable language and prominently displayed on the face of the warranty.

(c) A disclaimer, modification, or limitation made in violation of this section shall be ineffective for purposes of this chapter and State law.

15 U.S.C. Sec. 2308 (emphasis supplied). In response to GM's Rule 12(b)(6) motion to dismiss, however, the district court held that the implied warranty disclaimers were indeed both "reasonable" and "conscionable." Rejecting plaintiffs' claim that "the warranty limitations were unconscionable and of unreasonabl[y limited] duration because GM knew when it sold the cars that the diesel engines were defective," the court reasoned as follows:

A durational limitation on an implied warranty can mean only that the manufacturer warrants that the car is fit for ordinary purposes only for the duration of that warranty. In other words, the limitation can mean only that the unmerchantability must manifest itself in some manner during the period of the warranty in order for the purchaser to have a cause of action.

If the court accepted plaintiffs' argument, a plaintiff would need only to show that a manufacturer knew that a product would fail some time after the expiration of the implied warranty in order to recover for unmerchantability.... [T]his...

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