General Publications March 4, 2015

“Emerging Threats In Recall-Based Auto Class Actions,” Law360, March 4, 2015.

Extracted from Law360

Last year a record 62.9 million vehicles were recalled. To put this number in context, it is more than two times the prior record; and that stood for more than a decade.[1] Last year’s recalls spanned more than 800 campaigns, some of which have been used as the basis for putative class actions. Following a larger trend in class action law, these recall-based class actions allege violations of state consumer protection laws. Typically, plaintiffs argue that the need for a recall shows an “unfair business practice” occurred.

Within these recall-based class actions, another trend has emerged: plaintiffs are trying to take advantage of the recall process itself. For example, plaintiffs have argued that sharing information with the National Highway Traffic Safety Administration during a recall destroys privilege. Plaintiffs have also asked courts to control the manner in which recalls occur. To date, courts have rejected these efforts, but the increasing number of recalls and related class actions increases the odds that different courts will reach different conclusions.

Argument: Sharing Information With NHTSA Destroys Privilege

In response to the highly publicized recalls of General Motors Co. vehicles for ignition switch issues, that manufacturer hired a law firm to conduct an internal investigation.[2] These attorneys collected millions of documents and interviewed hundreds of witnesses, including GM employees and outside counsel.[3] In related class action litigation, plaintiffs sought production of the attorneys’ notes of these interviews, as well as summaries and memoranda created by attorneys after each interview.[4] Although these interview materials were kept confidential, GM did produce a final report of its investigation to the NHTSA in connection with the recalls.

The plaintiffs moved to compel production of the interview materials, arguing among other things that GM did not intend to keep those materials confidential and indeed had shared the final report of the investigation with the NHTSA.[5] The court disagreed because the final report only disclosed facts discovered during the investigation. At no time did GM disclose the confidential communications that were recorded by its attorneys in the interview materials.[6] The court reasoned that producing the end result of the attorneys’ investigation and analysis did not destroy privilege for the underlying communications. If it did, the attorney-client privilege would all but cease to exist. Every motion is the result of communication between attorneys and clients, yet motions are filed in the public record. If the law were as the plaintiffs advocated, filing a motion would destroy the underlying privilege.

In this case, the court recognized that GM did not waive privilege by providing information to the NHTSA in connection with a recall. However, as with privilege matters in general, there is a risk that different courts in different jurisdictions will reach different results. Thus, the increase in recalls and related class action litigation creates an increased risk that manufacturers will not be able to communicate as freely with the NHTSA or will not be able to use attorneys to help investigate the facts and determine how they apply to the law. Neither outcome will enhance the recall process.

Argument: Courts Should Control How Recalls Are Performed

Chrysler Group LLC was recently named in a putative class action related to its recall of alternators that allegedly cause vehicles to shut down while driving or catch fire while parked.[7] The plaintiffs expressed concern about the timeline of replacement part availability and used state consumer protection laws as a basis to ask the court to control the recall. Specifically, the plaintiffs ask the court to order Chrysler to provide notice (of the recall), to repair or replace the alternators and to provide rental or loaner vehicles until replacement is fulfilled.[8]

Chrysler is not the first manufacturer to face a class action that asks a court to control how a recall is run. Toyota Motor Corp. faced similar claims in a class action related to its recall of engine control modules.[9] In that case, the plaintiffs sought equitable relief similar to a recall, demanding that Toyota give notice to the class and pay for repairs.[10] After the class action was filed, Toyota announced a nationwide recall. Yet the plaintiffs still argued for the right to continue with their class action because they were worried that the NHTSA might not do an adequate job (e.g., might not exercise its discretion to issue sanctions if Toyota failed to carry out its notice and repair duties).[11]

The Tenth Circuit held that the recall rendered the plaintiffs’ request for equitable relief prudentially moot. In so doing, it reasoned that the recall provided the precise relief the plaintiffs sought — it made no sense for the court to duplicate these efforts or create interbranch turf battles over how recalls should be run.[12] The Tenth Circuit also noted that allowing class actions to proceed after a recall could reduce the manufacturer’s incentive to voluntarily initiate recalls, a result that the court did not believe would benefit the owners of recalled vehicles.[13]

Although the Tenth Circuit was careful to respect the NHTSA’s autonomy, it is not clear that every court to examine the issue will reach the same result. For example, the case recently filed against Chrysler is not in the Tenth Circuit. Thus, there is a risk that the court may accept the plaintiffs’ invitation to duplicate or otherwise control the recall process. And these risks grow as the number of recalls and follow-on class action lawsuits continue to grow.

Conclusion

In recent cases, courts have been careful to respect the recall process and NHTSA’s autonomy. While one would hope this trend continues, it would be just that — a hope. Some court, somewhere, may decide that turning information over to the NHTSA vitiates privilege or that a recall isn’t moving fast enough and equity demands that the court take over. And once that occurs, class actions will uniquely target that favorable jurisdiction. None of this would help the NHTSA fulfill its mission of conducting efficient and effective recalls. Rather, as the Tenth Circuit aptly noted: “Perhaps the lawyers would benefit ... [b]ut it’s hard to see how anyone else could.”[14]


[1] “NHTSA Reports Decade-High 64M Cars Recalled In 2014,” Law360, Feb. 17, 2015.
[2] In re GM LLC Ignition Switch Litig., 2015 U.S. Dist. LEXIS 5199, *219, 221 (S.D.N.Y. Jan. 15, 2015)
[3] Id., at *222.
[4] Id., at *223-225.
[5] Id., at 233-235.
[6] Id., at 235-236.
[7] Madatyan v. Chrysler Group LLC, et al., California Superior Court for the County of Los Angeles Case No. BC571830 (Feb. 9, 2015).
[8] Madatyan Complaint, at p. 15:17-21.
[9] Winzler v. Toyota Motor Sales USA Inc., 681 F.3d 1208 (10th Cir. 2012).
[10] Id., at 1209.
[11] Id., at 1213-1214.
[12] Id., at 1211.
[13] Id.
[14] Id.

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