In re Caterpillar, Inc.

Decision Date29 July 2015
Docket NumberMDL No. 2540,Master Docket No. 1:14-cv-3722 (JBS-JS)
PartiesIn Re: CATERPILLAR, INC., C13 AND C15 ENGINE PRODUCTS LIABILITY LITIGATION
CourtU.S. District Court — District of New Jersey

HONORABLE JEROME B. SIMANDLE

OPINION

APPEARANCES:

James E. Cecchi, Esq.

Zach S. Bower, Esq.

Lindsey H. Taylor, Esq.

CARELLA BYRNE CECCHI OLSTEIN BRODY & AGNELLO, P.C.

5 Becker Farm Road

Roseland, NJ 07068

-and-

Natalie Finkelman Bennett, Esq.

James C. Shah, Esq.

SHEPHERD, FINKELMAN, MILLER & SHAH, LLP

475 White Horse Pike

Collingswood, NJ 08107

-and-

Leslie Kroeger, Esq.

Theodore Jon Leopold, Esq.

Douglas J. McNamara, Esq.

COHEN MILSTEIN SELLERS & TOLL PLLC

2925 PGA Boulevard, Suite 200

Palm Beach Gardens, FL 33410

-and-

Richard J. Burke, Esq.

Zachary A. Jacobs, Esq.

QUANTUM LEGAL LLC

513 Central Avenue, Suite 300

Highland Park, IL 60035

Attorneys for Plaintiffs

Joseph F. Falgiani, Esq.

James Holsey Keale, Esq.

SEDGWICK LLP

One Newark Center

1085 Raymond Boulevard, 16th Floor

Newark, NJ 07102

-and-

Robert G. Abrams, Esq.

Darin R. Bartram, Esq.

Robert J. Brookhiser, Jr., Esq.

Gilbert S. Keteltas, Esq.

Jonathan L. Lewis, Esq.

Elliot Morrison, Esq.

BAKER & HOSTETLER LLP

1050 Connecticut Avenue, N.W., Suite 1110

Washington, D.C. 20036

Attorneys for Defendant

SIMANDLE, Chief Judge:

I . INTRODUCTION .............................................. 3

II . BACKGROUND ................................................ 7

A. Facts ...................................................... 7
1. The MY 2007 CAT Engine Emission System .................... 7
2. Alleged defects in the Engine Emissions System ............ 9
3. Caterpillar's knowledge of the alleged defect ............ 10
4. Warranty coverage associated with the Engines ............ 12
B. Procedural history ........................................ 14
C. Parties' arguments ........................................ 17

III. STANDARD OF REVIEW ....................................... 21

IV. DISCUSSION .............................................. 22

A. Caterpillar's motion to dismiss or for judgment on the pleadings based on preemption ............................. 22

1. The Clean Air Act and associated regulations ............. 23 2. Express preemption ....................................... 26

3. Implied preemption ....................................... 39

4. Subject matter jurisdiction .............................. 47

5. Failure to allege a failed emissions test ................ 49

B. Caterpillar's motion to dismiss ........................... 54

1. Express warranty ......................................... 54

2. Implied warranty ......................................... 89

3. Breach of contract claims ................................ 95

4. Consumer protection claims ............................... 97

5. Specific state law issues ............................... 114

6. New Jersey good faith and fair dealing claim ............ 122

7. Ohio negligent design ................................... 124

8. Statute of limitations .................................. 126

V. CONCLUSION .............................................. 135

I. INTRODUCTION

In this consolidated multi-district litigation ("MDL"), Plaintiffs1 are initial or subsequent users, purchasers, owners,and lessors of vehicles with a 2007, 2008, 2009, or 2010 C13 or C15 heavy duty on-highway diesel engine (collectively, "MY 2007 CAT Engines") manufactured by Defendant Caterpillar, Inc. ("Caterpillar" or "CAT"). Plaintiffs allege that the MY 2007 CAT Engines, equipped with an emissions control system specifically designed to comply with the Environmental Protection Agency's ("EPA") 2007 Heavy Duty On-Highway Emissions Standard ("2007 Emissions Standard"), are defective and render Plaintiffs' vehicles inoperative on account of repeated and endemic engine failure, deratings, and shutdowns. Plaintiffs contend that Caterpillar knew that the Engines were defective prior to marketing, selling, and warranting them to Plaintiffs. After repeated failed attempts at repair, including thousands of repairs involving the 34 Plaintiffs in this action, it is apparent, according to Plaintiffs, that the defect is irreparable, causing significant repair costs and substantialdiminution in the value of Plaintiffs' vehicles. Due to the irremediable defect in the MY 2007 CAT Engines, Caterpillar has allegedly ceased the sale of these Engines.

This matter comes before the Court on two motions to dismiss by Caterpillar. Caterpillar's motion to dismiss or for judgment on the pleadings argues that Plaintiffs' claims are entirely preempted by federal law, namely the regulatory scheme empowering the EPA to regulate on-highway diesel emissions, through which the EPA certified the Engines as compliant with the 2007 Emissions Standard. [Docket Item 121.] Alternatively, in Caterpillar's motion to dismiss pursuant to Rule 12(b)(6), Fed. R. Civ. P., Caterpillar contends that Plaintiffs' claims for breach of express and implied warranties, as well as their claims under the various state consumer protection laws must fail as a matter of law.2 [Docket Item 120.]

Caterpillar's preemption argument requires the Court to determine the nature of Plaintiffs' claims and the relief sought and whether such claims are expressly or impliedly preempted by the EPA's emissions regulatory scheme. The Court is largely unpersuaded by Caterpillar's preemption argument because, as expressly stated in the ACCAC, this is not a case aboutemissions. Plaintiffs do not allege that defects in the Engines caused Plaintiffs' vehicles to exceed the 2007 Emissions Standard. Instead, this case is about defects in the Engines which, in many cases, caused Plaintiffs' vehicles to completely shut down, rendering them undrivable. Plaintiffs' principal allegation is that the Engines emit no emissions at all because they are entirely defective. Far from a court order substantively altering the EPA's emissions standards or the enforcement thereof, Plaintiffs in this action seek compensatory damages for what they allegedly never received - a minimally functioning vehicle.

Caterpillar's contentions regarding the substance of Plaintiffs' claims turn on the language of the two express warranties associated with the Engines and various state law principles regarding implied warranties and consumer protection in 23 states.

For the reasons discussed below, the Court will grant in part and deny in part Caterpillar's motion to dismiss or for judgment on the pleadings based on preemption. The Court finds only Plaintiffs' claim for breach of the Federal Emissions Control Warranty preempted by federal law because, unlike their other claims, this claim requires a showing that the Engines failed to conform to EPA regulations and clearly implicates the EPA's extensive vehicle emissions enforcement regime. Likewise,the Court will grant in part and deny in part Caterpillar's motion to dismiss under Rule 12(b)(6). Although the Court will dismiss Plaintiffs' breach of implied warranty claims and certain other state law claims, the Court will permit Plaintiffs' express warranty claims to proceed based on an alleged breach of the Engine Warranty, as well as the majority of Plaintiffs' consumer protection claims based on a failure to disclose a known defect in the Engines.

II. BACKGROUND
A. Facts

The Court accepts as true for purposes of the instant motions the following facts from Plaintiffs' Amended Consolidated Class Action Complaint ("ACCAC"). Plaintiffs are users, purchasers, subsequent purchasers, owners, subsequent owners, and lessors of vehicles with a MY 2007 CAT Engine certified as compliant with the EPA's 2007 Emissions Standard manufactured by Caterpillar. (ACCAC [Docket Item 105] at 1-2.)

1. The MY 2007 CAT Engine Emission System

Caterpillar designed, manufactured, sold, and warranted MY 2007 CAT Engines with an exhaust emission control system, known as the Caterpillar Regeneration System ("CRS"), intended to reduce air pollutants, particularly oxides of nitrogen and particulate matter, in compliance with the EPA's 2007 Emissions Standard. (Id. ¶ 1.) Caterpillar designed the CRS, branded"ACERT" (Advanced Combustion Emissions Reduction Technology), to reduce emissions by trapping particulate matter ("PM") (i.e., soot) from the combustion process in the Diesel Particulate Filter ("DPF"). (Id. ¶ 47.) The PM is then supposed to be burned off and oxidized through a "regeneration" process which requires consistent temperatures in excess of 1,000 degrees Fahrenheit. (Id.) In designing the CRS, Caterpillar opted not to utilize a Diesel Oxidation Catalyst ("DOC") to facilitate regeneration, technology which Caterpillar used in heavy duty on-highway diesel engines produced before 2007 and which Caterpillar currently uses in such engines. (Id. ¶ 50.) Instead, the CRS utilizes an Aftertreatment Regeneration Device ("ARD") to provide additional heat for regeneration. (Id. ¶ 51.)

Constant monitoring and control of the exhaust temperature is essential to the proper function of the CRS. (Id. ¶ 52.) For this purpose, the CRS uses an Electronic Control Module ("ECM") which continuously monitors all systems of the MY 2007 CAT Engine and ensures that soot levels remain at operational levels. (Id. ¶ 53.) The ECM is programmed to recognize and record regeneration failures, inform the operator of same, and initiate protective action when necessary to prevent exceeding the EPA emissions standards. (Id.) When a CRS regeneration failure occurs, the ECM diagnoses the failure, then triggers the Check Engine Light, derates the engine, or initiates an engineshutdown protocol. (Id. ¶ 54.) If the failure goes uncorrected, the ECM proceeds through these protective measures. (Id.) Engine "derating" involves decreasing engine horsepower and speed, theoretically permitting the vehicle to proceed to an authorized dealer/repair facility. (Id.) Engine shutdown renders the engine inoperable. (Id.) When a regeneration failure occurs, the vehicle must be serviced at an authorized CAT repair...

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