O'Keefe v. Mercedes-Benz USA, CIVIL ACTION No. 01-CV-2902 (E.D. Pa. 4/2/2003)

Decision Date02 April 2003
Docket NumberCIVIL ACTION No. 03-CV-1480.,CIVIL ACTION No. 01-CV-2902.
PartiesJOSEPH A. O'KEEFE Plaintiff, v. MERCEDES-BENZ USA, LLC, Defendant.
CourtU.S. District Court — Eastern District of Pennsylvania


This class action case has been brought to settlement within just sixteen months due to the hard work and skill of both Plaintiff and Defense counsels. Presently before this court is Plaintiff and Defendant's Joint Motion for Approval of the Proposed Settlement filed on November 11, 2002. We held a settlement hearing on December 20, 2002. Arguments were heard from Plaintiff's counsel, Defendant's counsel and several attorneys representing various objectors. Over one-hundred docket entries have been submitted since the Joint Motion for Approval of the Proposed Settlement was filed in August 2002. This Memorandum and Order will certify the proposed settlement class, approve the settlement and set the attorney's fees. None of objectors' arguments have altered the certification process, the settlement or the attorney's fees award. Although it can be helpful to have opposing counsel probe the issues, the objectors in this case have only succeeded in lengthening our memorandum and unnecessarily requiring class counsel and the Defendant to expend additional resources.

I. Background & Procedural History

On May 4, 2001, Plaintiff Joseph A. O'Keefe filed a class action suit against Mercedes-Benz USA, LLC ("MBUSA") in the Court of Common Pleas for Philadelphia County, Pennsylvania. The complaint alleged violation of the Pennsylvania's Unfair Trade Practices and Consumer Protection Laws, 73 P.S. § 201-1 ("UTPCPL"), breach of express and implied warranties, fraudulent concealment and declaratory relief on behalf of a class of all persons in the Commonwealth of Pennsylvania who purchased or leased 1998 or 1999 model year Mercedes-Benz vehicles equipped with a Flexible Service System ("FSS"). Plaintiff claimed that MBUSA failed to disclose that vehicles equipped with FSS would "evidence premature and/or bearings wear, and other internal defects." See Def.'s Notice of Removal filed on June 12, 2001: Ex. 2 at 2 (May 4, 2001).

On June 12, 2001 the case was removed to this court based upon diversity of citizenship. After removal, Plaintiff amended his complaint pursuant to our December 17, 2001 Order. The complaint added a claim under the Magnuson-Moss Warranty Act and expanded the proposed class to include all persons throughout the United States who purchased or leased 1998 or 1999 Mercedes-Benz vehicles equipped with the FSS. In January 2002, we dismissed Plaintiff's newly added Magnuson-Moss Warranty Act claim without prejudice because we lacked subject matter jurisdiction pursuant to 15 U.S.C. § 2310(d)(3)(C). See O'Keefe v. Mercedes-Benz USA, LLC, No. 01-CV-2902, 2002 WL 377122 (E.D.Pa. Jan. 31, 2002). Section 2310(d)(3)(C) prohibits class actions under Magnuson-Moss in federal court when there are less than 100 named plaintiffs. Id. at *4.

Plaintiff filed a Second Amended Class Action Complaint on July 23, 2002. As the case stands now, Plaintiff's complaint contains four counts against MBUSA: (1) violation of various state consumer protection statutes; (2) breach of express warranty; (3) breach of implied warranty; and (4) unjust enrichment. The complaint alleges that MBUSA made intentional misrepresentations as part of a fraudulent scheme. Plaintiff seeks actual damages, reasonable attorney's fees, punitive or treble damages and any other relief that the Court deems appropriate. More importantly, the Second Amended Complaint altered the proposed class to include "[a]ll persons throughout the United States (including Puerto Rico and U.S. territories) who own or lease a model year 1998, 1999, 2000 or 2001 (first purchased or leased before March 31, 2001) Mercedes-Benz vehicle equipped with the FSS." See Pl.'s Second Amended Class Action Complaint at ¶ 9 filed on July 23, 2002. To date, we have not ruled on our subject matter jurisdiction over the newly proposed class.

The Second Amended Class Action Complaint alleges that:

[t]hrough a common and uniform course of conduct utilizing common documents, defendant manufactured, supplied, promoted, sold and leased vehicles when it knew or should have known that its vehicles equipped with the FSS would experience premature and/or abnormal rod bearings wear, excessive oil consumption, sludge buildup, and other internal defects, if the FSS oil service intervals recommended by defendant utilizing Mercedes-Benz approved conventional motor oils were strictly followed by the owners and lessees of the vehicles.

Second Am. Compl. at ¶ 2.

The FSS monitors the car's driving conditions. It then determines when the vehicle requires an oil change. A dashboard panel indicator lights up to inform the driver that a service is needed. The alleged problem occurs when the driver uses conventional oil instead of synthetic oil with the FSS system. Typically the FSS recommends oil changes somewhere between 10,000 and 20,000 miles with a 12,000 mile average depending on each vehicle's operation and driving conditions. Allegedly, conventional oil will cause engine damage when used for FSS recommended drain intervals. In March 2001, MBUSA sent all vehicle owners a letter that strongly recommended switching over to pure synthetic oils for all FSS equipped vehicles to prevent excessive oil consumption and oil sludging.

The parties reached a settlement and submitted it for approval in August 2002.

Under the terms of the agreement, MBUSA has agreed to provide the class with three main benefits. First, MBUSA will give the owners and lessees of 1998 and 1999 Maintenance Service Certificates which will entitle class members to a thirty-five dollar discount off a scheduled service which includes an oil change. See Global Class Action Settlement Agreement, at ¶ 12. Owners and lessees of 2000 and 2001 vehicles will not receive the certificates because these class members are still covered by MBUSA's Maintenance Program whereby MBUSA bears the cost of routine maintenance. See Pl.'s Mem. of Law in Support, at 6 filed on Aug. 7, 2002 [61-1]. The voucher is tied to the each vehicle's Vehicle Identification Number ("VIN") and can be transferred to its subsequent owners or lessees. The vouchers expire in December 2004. See Parties' Joint Motion for Preliminary Approval, at 9-10 filed Aug. 7, 2002 [60-1] [hereinafter "Joint Approval"]. O'Keefe and MBUSA agree that the vouchers are worth $12.3 million to the class. See Def.'s Post-Hearing Br., at 23, filed Feb. 5, 2002[150-1]; Pl.'s Post-Hearing Br., at 48, filed Jan. 22, 2003 [144-1].

Second, MBUSA will provide a unique warranty that "will cover engine damage caused by use of API SH or SJ conventional motor oil" in the FSS equipped vehicles. The warranties, like the vouchers, are tied to the vehicle and are transferable. The warranty coverage will apply up to 10 years or 150,000 miles. See Joint Approval at 8-9. O'Keefe claims that this is a limited "extended warranty." See Pl.'s Proposed Findings of Fact, at 12, filed Jan. 22, 2003 [143-1]. MBUSA labels the warranty a "coverage program." See Def.'s Proposed Findings of Fact, at 9-10, filed Feb. 5, 2002 [149-1]. Whatever the label, the Extended Warranty Coverage Program only covers damage associated with the allegedly defective FSS system caused by using conventional motor oil instead of synthetic motor oil.

Third, MBUSA has agreed pay to certain litigation expenses that are normally borne by the class in Rule 23(b)(3) class actions. MBUSA agreed to pay class counsel reasonable court awarded attorney's fees and not appeal any fee award under $7.5 million. See Joint Approval at 14-15. Additionally, MBUSA paid for the printing and initial mailing of notifications to the class members. It also paid for the re-mailing that was necessitated by a database error was discovered. See Pl.'s Proposed Findings of Fact, at 14-15.

In exchange, the class has released MBUSA from most but not all claims. It states as follows:

[A]ll Class members who do not opt out of the proposed Settlement Class, . . ., hereby releases and forever discharges MBUSA from any and all claims, demands, causes of action of eery kind nature, obligations, damages, losses and costs, whether known or unknown, actual or potential, suspected or unsuspected, contingent or fixed, that were or could have been asserted or sought in the Actions, relating to the use of conventional motor oil in Vehicles equipped with the FSS, including, but not limited to, claims for negligence, strict liability, breach of express or implied warranty, and violation of state consumer protection or deceptive trade practices statutes.

Joint Approval, at 13-14. The release is not a general release because it does not release personal injury claims.1 The parties doubt that any personal injuries would result because the type of potential damage in this case is unrelated to vehicle safety. We discussed this topic when we denied Plaintiff's motion for a preliminary injunction. See O'Keefe, 2002 WL 377122, at **2-4. We found it unlikely that irreparable harm would result because the alleged defect was not a safety concern. Id. at *3. We also found that public interest considerations did not weigh in favor of an injunction because the alleged defect did not pose a safety problem to vehicle occupants or the public. Id. at *4.

This court held a Settlement Hearing on December 20, 2002 which included: (1) Plaintiff's counsel; (2) Defendant's counsel; (3) counsel for Objectors Ronald Pitts, Sandra Pitts, Shoals Provision and Horace Connor (collectively "Pitts");2 (4) counsel for Objector Nicole Yatooma; and (5) counsel for Objectors Arthur Haberberger, Joanne Haberberger, David Irmer and Martha Irmer (collectively "Haberbergers"). The oral arguments covered both the proposed settlement and the petition for attorney's fees.


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