In re Chrysler-Dodge-Jeep Ecodiesel Mktg.

• Decision Date: 15 March 2018
• Docket Number: Case No. 17–md–02777–EMC
• Citation: 295 F.Supp.3d 927
• Parties: IN RE CHRYSLER–DODGE–JEEP ECODIESEL MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION.
• Court: U.S. District Court — Northern District of California

295 F.Supp.3d 927

IN RE CHRYSLER–DODGE–JEEP ECODIESEL MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION.

Case No. 17–md–02777–EMC

United States District Court, N.D. California.

Signed March 15, 2018

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS

EDWARD M. CHEN, United States District Judge

TABLE OF CONTENTS

I. FACTUAL & PROCEDURAL BACKGROUND...941

A. Parties...941

B. Main Allegations in the FAC...947

C. Claims...944

II. STANDING...944

A. Injury-in-Fact...945

1. Promised Performance of Class Vehicles...946

2. More Than Regulatory Violation...946

3. Sufficiency of Allegations of Overpayment...947

a. Identification of Specific Advertisements...947

b. Decline in Vehicle Value...949

4. Theoretical Future Injuries...951

B. Traceability...951

C. Standing To Bring Certain State–Law Claims...953

1. In re Carrier IQ ...954

2. Melendres ...954

3. Analysis...955

D. Dealer Plaintiff Chatom's Standing...956

III. RICO CLAIMS...957

A. Statutory Standing...957

1. RICO's Injury Requirement...957

a. Theories of Injury...958

b. Injury to "Business or Property"...959

c. Concrete Financial Loss...961

i. Mendoza and Diaz ...961

ii. Application...962

iii. Out-of-Circuit Decisions...963

d. RICO Injury Summary...964

2. Proximate Cause...965

a. Fraud-on-the-Regulators Theory...965i. Bridge , Anza , and Rezner ...965

ii. Application...966

b. Direct Relationship Requirement...967

c. Difficulty Apportioning Damages...968

d. Fraud on the Market...969

B. Merits of the Section 1962(c) RICO Claim...972

1. Racketeering Activity...972

a. Knowing Participants in Scheme to Defraud...973

i. Bosch GmbH and Bosch LLC...973

ii. VW Italy and VM America...974

iii. FCA N.V. and FCA US...974

iv. Mr. Marchionne...976

v. Rule 9(b)...976

b. Specific Intent to Defraud...977

c. Use of the Mails and Wires...978

2. Pattern of Racketeering Activity...980

3. Enterprise Requirement...980

4. Conducting the Affairs of the Enterprise...982

C. RICO Conspiracy Claim...984

D. RICO Aider and Abettor Liability...984

IV. CLAIMS FOR COMMON LAW FRAUDULENT CONCEALMENT and VIOLATION OF CONSUMER PROTECTION STATUTES...986

A. Fraud on Consumers...986

1. Factual Predicate for Fraud-on-Consumer Claims...986

2. Mr. Marchionne...988

3. Bosch Defendants...989

B. Preemption...990

1. Express Preemption...990

a. Affirmative Misrepresentation Theory...992

b. Fraudulent Concealment Theory...998

c. Summary...1000

2. Field Preemption...1000

3. Conflict Preemption...1004

C. Common Law Fraud Claims...1003

1. Damages...1003

2. Intent to Deceive...1003

3. Affirmative Misrepresentation Theory: Puffery...1004

4. Fraudulent Concealment Theory: Cognizability of Fraudulent Concealment Claims...1007

5. Fraudulent Concealment Theory: Duty to Disclose...1008

a. Fiduciary Relationship...1008

b. Arm's Length Transaction...1010

c. Exclusive Knowledge...1012

6. Fraudulent Concealment Theory: Reliance...1012

D. Consumer Protection Claims...1015

1. Joint Appendix...1015

2. Prohibitions on Class Actions...1016

3. Prohibitions on Actions for Damages and Standing for Injunctive Relief...1017

4. Heightened Pleading Requirements re Injury and Scienter...1017

5. Economic Loss Doctrine...1020

6. Privity...1021

7. Punitive Damages...1023

8. Identification of False Advertisements...1023

9. Attorney General Approval...1023

V. Warranty Claims...1024

A. State Law Warranty Claims: Preemption...1024

B. Federal MMWA Warranty Claim...1026

VI. PERSONAL JURISDICTION...1027

VII. CONCLUSION...1030

The above-referenced case is a multidistrict litigation ("MDL"). Private Plaintiffs (hereinafter, "Plaintiffs") are individuals or companies who purchased certain trucks marketed under the Jeep and Ram 1500 model names. More specifically, these trucks (2014–2016 models) had diesel engines that were branded "EcoDiesel." Plaintiffs have brought class action claims against (1) the manufacturers of the cars and their chief executive (the FCA Defendants); (2) the companies who manufactured the EcoDiesel engines (the VM Motori Defendants); and (3) the companies who supplied the electronic diesel control ("EDC") units that were used to control the emissions from the engines (the Bosch Defendants). The gist of Plaintiffs' complaint is that Defendants concealed the fact that they had installed "defeat devices" in Plaintiffs' cars—i.e. , devices that reduced the effectiveness of the emissions control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use. In other words, Plaintiffs contend that the vehicles emit excessive emissions under normal driving conditions and that the vehicles are in fact not eco-friendly. Based on that allegation, Plaintiffs have brought (1) fraud-based claims and (2) warranty-based claims.¹

Currently pending before the Court are two motions to dismiss: one brought by the FCA and VM Defendants and the other brought by the Bosch Defendants. Having considered the parties' briefs as well as the oral argument of counsel, the Court hereby GRANTS in part and DENIES in part both motions.

I. FACTUAL & PROCEDURAL BACKGROUND

A. Parties

The operative complaint is the first amended consolidated consumer class action complaint ("FAC"). See Docket No. 225 (FAC). The named plaintiffs in the FAC are primarily individual consumers but also include a dealer/reseller of motor vehicles (Chatom Motor Co., Inc.).

As for Defendants, as indicated above, there are three groups: (1) the FCA Defendants, (2) the VM Motori Defendants, and (3) the Bosch Defendants.

The FCA Defendants are:

(1) FCA US LLC ("FCA US");

(2) Fiat Chrysler Automobiles N.V. ("FCA N.V."), the corporate parent of FCA; and

(3) Sergio Marchionne, the CEO of both FCA US and FCA N.V.

As alleged in the complaint, FCA US is a motor vehicle manufacturer. It distributes and sells motor vehicles under various brands, including Jeep and Ram. See FAC ¶ 13. The motor vehicles at issue in the instant case are the 2014–2016 EcoDiesel trucks marketed under the Jeep Grand Cherokee and Ram 1500 model names (the "Class Vehicles"). See FAC ¶¶ 1, 14, 105.

The VM Motori Defendants are:

(1) VM Motori S.p.A. ("VM Italy"); and

(2) VM North America, Inc. ("VM America").

As alleged in the complaint, FCA N.V. owns both VM Italy and VM America. VM Italy is an auto parts manufacturer. It designed and manufactured the diesel engines at issue in the instant case (i.e. , the EcoDiesel). See FAC ¶ 19. VM America supports VM Italy customers and activities in North America. See FAC ¶ 20.

The Bosch Defendants are:

(1) Robert Bosch LLC ("Bosch LLC"); and

(2) Robert Bosch GmbH ("Bosch GmbH"), the parent of Bosch LLC.²

As alleged in the complaint, the Bosch Defendants developed and manufactured the EDC unit (known as EDC Unit 17) which they supplied to the FCA Defendants and/or VM Defendants for use in the Class Vehicles to control emissions. See FAC ¶ 30.

B. Main Allegations in the FAC

The main allegations in Plaintiffs' operative complaint are as follows.

Emission standards for motor vehicles are set by the Environmental Protection Agency ("EPA") or the California Air Resources Board ("CARB").³ Motor vehicle manufacturers must certify to the EPA or CARB that their motor vehicles comply with the applicable emission standards. See FAC ¶¶ 2, 108.

Every motor vehicle sold in the United States must be covered by an EPA-issued Certificate of Conformity ("COC") and every vehicle sold in California must be covered by a CARB-issued Executive Order ("EO"). See FAC ¶¶ 2, 108. To obtain a COC or EO, an automaker "must submit an application, which lists all auxiliary emission control devices installed in the vehicle, a justification for each, and an explanation of why the control device is not a defeat device." FAC ¶ 128. A defeat device is generally "defined as any auxiliary emission control device ‘that reduces the effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use.’ " FAC ¶ 128 (quoting 40 C.F.R. § 86.1803–01 ).

"Diesel engines pose a unique challenge" with respect to emissions because "the greater the power and fuel efficiency [i.e. , the benefits of a diesel engine], the dirtier and more harmful the emissions." FAC ¶ 110. Notably, "[d]iesel combustion produces NOx"; "NOx pollution contributes to nitrogen dioxide [and] particulate matter in the air, and reacts with sunlight in the atmosphere to form ozone. Exposure to these pollutants has been linked with serious health dangers." FAC ¶ 111.

"Given the [health] risks, minimizing NOx is paramount." FAC ¶ 112. For the Class Vehicles, FCA US sought to minimize NOx through the EcoDiesel engine (supplied by the FCA N.V.-owned VM Motori Defendants). See FAC ¶ 113 (alleging that "[e]mission reductions start in the cylinder with advanced fuel injection strategies" and, "[a]fter the byproducts of combust ion leave the engine, the EcoDiesel® technology treats these emissions using a diesel oxidation catalyst, diesel particulate filter, and SCR [selective catalytic reduction]"). To control emissions from the EcoDiesel engine, the FCA entities used Bosch Defendants' EDC Unit 17. See FAC ¶¶ 114–15.

Bosch's EDC Unit 17 controls emissions by periodically reading sensor values, evaluating a control function, and controlling actuators based on the control signal. Sensor readings include crankshaft position, air pressure, air temperature, air mass, fuel temperature, oil temperature, coolant temperature, vehicle speed, exhaust oxygen content, as well as driver inputs such as accelerator pedal position, brake pedal position, cruise control setting, and selected gear. Based on sensor input, EDC [Unit] 17 controls and influences the fuel combustion process including, in particular, fuel injection timing, which affects engine power, fuel consumption, and the composition of the exhaust gas.

FAC ¶ 116.

According to Plaintiffs, the FCA Defendants worked with the VM Motori Defendants and the Bosch Defendants

to customize the EDC Unit 17 to allow Class Vehicles to simulate "passing" the EPA and CARB [emission] testing

...