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Asghari v. Volkswagen Group of Am., Inc.

United States District Court, C.D. California

November 4, 2013

ALI ASGHARI, AUGUSTINO LAMIA, BARBARA CALVER, SUPALAK PRASOBRATANA, and DANIEL TRAN, individually, and on behalf of all others similarly situated, Plaintiffs,
v.
VOLKSWAGEN GROUP OF AMERICA, INC., et al, Defendants

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For Ali Asghari, Augustino Lamia, Barbara Calver, Supalak Prasobratana, Daniel Tran, Plaintiffs: Payam Shahian, LEAD ATTORNEY, Christopher Swanson, Karen Emily Nakon, Ramtin Shahian, Strategic Legal Practices APC, Los Angeles, CA; Alison E Wilson, Strategic Legal Practices, Los Angeles, CA; Cody R Padgett, Jordan L Lurie, Capstone Law APC, Los Angeles, CA; Dara Tabesh, Erotech Law Group PC, San Francisco, CA.

For Yung Kim, Plaintiff: Daniel H Chang, Larry W Lee, LEAD ATTORNEYS, Diversity Law Group APC, Los Angeles, CA; Payam Shahian, Karen Emily Nakon, Strategic Legal Practices APC, Los Angeles, CA; Alison E Wilson, Strategic Legal Practices, Los Angeles, CA; Cody R Padgett, Jordan L Lurie, Capstone Law APC, Los Angeles, CA.

For Ara Dersarkissian, individually, and on behalf of class of similarly situated individuals, Plaintiff: Karen Emily Nakon, Payam Shahian, LEAD ATTORNEYS, Strategic Legal Practices APC, Los Angeles, CA; Cody R Padgett, Jordan L Lurie, Capstone Law APC, Los Angeles, CA.

For Volkswagen Group of America, Inc., Volkswagen AG, Defendants: Gary S Yates, LEAD ATTORNEY, Herzfeld and Rubin PC, Los Angeles, CA; Jeffrey L Chase, Michael B Gallub, LEAD ATTORNEYS, PRO HAC VICE, Herzfeld and Rubin PC, New York, NY; Larry Dean Smith, Jr, LEAD ATTORNEY, Craig L Winterman, Herzfeld and Rubin LLP, Los Angeles, CA.

For Audi Ag, Defendant: Craig L Winterman, Herzfeld and Rubin LLP, LEAD ATTORNEY, Los Angeles, CA; Jeffrey L Chase, Michael B Gallub, LEAD ATTORNEYS, PRO HAC VICE, Herzfeld and Rubin PC, New York, NY; Larry Dean Smith, Jr, LEAD ATTORNEY, Herzfeld and Rubin LLP, Los Angeles, CA.

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

MARGARET M. MORROW, UNITED STATES DISTRICT JUDGE.

On May 1, 2012, Ali Asghari filed this action on his own behalf and on behalf of a nationwide class of similarly situated individuals, against Volkswagen Group of America, Inc. (" VW Group" ), Volkswagen AG, and Audi AG (collectively, " defendants" ).[1] On August 10, 2012, Asghari filed a first amended complaint, joining Augustino Lamia, Barbara Calver, Supalak Prasobratana, and Daniel Tran as named plaintiffs (collectively, " plaintiffs" ).[2]

VW Group moved to dismiss the first amended complaint on March 1, 2013.[3] Plaintiffs oppose the motion.[4] Volkswagen AG and Audi AG (collectively, " VW/Audi AG" ) jointly filed a motion to dismiss the first amended complaint on May 16, 2013.[5] Plaintiffs oppose that motion as well.[6]

I. BACKGROUND

A. Facts Alleged in the First Amended Complaint

Plaintiffs are California citizens who leased or purchased allegedly defective

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Audi A4 and A5 vehicles designed, manufactured, distributed, marketed, sold and/or leased by defendants.[7] Plaintiffs bring this lawsuit on their behalf and on behalf of a nationwide class of all current and former owners or lessees of any 2007 through 2013 model year Audi or Volkswagen vehicle equipped with a 2.0 litre turbocharged engine (the " class vehicles" ).[8] Plaintiffs seek to represent three sub-classes: all members of the nationwide class who reside in the state of California (" the California sub-class" ); all members of the nationwide class who reside in the state of New York (" the New York sub-class" ); and all members of the nationwide class who purchased or leased their vehicles in the state of California (" the Implied Warranty sub-class" ).[9]

Plaintiffs allege that prior to 2007, defendants knew of the following design and/or manufacturing defects in the class vehicles: (1) that the engine is unable to utilize engine oil properly; and (2) that the engine improperly burns off and consumes " abnormally high amounts of oil" (collectively " the oil consumption defect" ).[10] Plaintiffs assert that an appropriate amount of oil is essential for the engine to function properly and safely, and that the oil consumption defect prevents the engine from maintaining the proper level of oil.[11] They allege that the defect thus creates a safety risk, because it can cause engine failure while the vehicle is in operation.[12] Because the engine can allegedly fail at any time, under any driving condition, and at any speed, plaintiffs assert that the defect creates a serious risk of injury.[13]

Plaintiffs contend that the rate of oil consumption can be as high as one quart every 500 miles.[14] This high rate of consumption purportedly requires that the engine receive " substantial amounts of oil" between scheduled oil changes.[15] As a result, many consumers report that they carry an extra supply of oil in their vehicles at all times.[16]

Plaintiffs allege that the oil consumption defect was not reasonably foreseeable to the named plaintiffs or to class members,[17] and that consumers reasonably expected there would be no such defect.[18] Finally, plaintiffs assert that: (1) defendants knew or should have known of the defect; [19] (2) knew about and concealed the defect, and its attendant safety hazards, from plaintiffs and class members, at the time of sale and thereafter; [20] and (3) did not recall class vehicles despite receiving notice of the defect from internal sources.[21]

Plaintiffs plead the following claims against all defendants on their own behalf and on behalf of the nationwide class and California sub-class: (1) violation of California's Consumer Legal Remedies Act (" CLRA" ), California Civil Code § 1750, et seq.,

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and (2) violation of California's Unfair Competition Law (" UCL" ), California Business & Professions Code § 17200, et seq. They plead claims against Volkswagen for breach of written warranty under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310, et seq., and breach of express warranty under California Commercial Code § 2313. On their own behalf and on behalf of the Implied Warranty sub-class, plaintiffs plead a claim for breach of implied warranty against all defendants under the Song-Beverly Consumer Warranty Act, California Civil Code § § 1792 and 1791.1, et seq. Asghari, on his behalf and on behalf of the New York sub-class, pleads a claim against all defendants for violation of the Consumer Protection from Deceptive Acts and Practices Act, New York General Business Law § 349, et seq., as well as a claim against Volkswagen for violation of express warranty under § 2-313 of New York's U.C.C. Law.

II. DISCUSSION

A. Legal Standard Governing Motions to Dismiss under Rule 12(b)(6)

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in a complaint. A Rule 12(b)(6) dismissal is proper only where there is either a " lack of a cognizable legal theory" or " the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1988). In deciding a Rule 12(b)(6) motion, the court generally looks only to the face of the complaint and documents attached thereto. Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir.1990).

The court must accept all factual allegations pleaded in the complaint as true, and construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Insurance Co., 80 F.3d 336, 337-38 (9th Cir. 1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir. 1995). It need not, however, accept as true unreasonable inferences or legal conclusions cast in the form of factual allegations. See Ashcroft v. Iqbal, 556 U.S. 662, 681, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (" [B]are assertions . . . amount[ing] to nothing more than a 'formulaic recitation of the elements' of a constitutional discrimination claim" are not entitled to an assumption of truth, quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see also Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009) (" Such allegations are not to be discounted because they are 'unrealistic or nonsensical,' but rather because they do nothing more than state a legal conclusion -- even if that conclusion is cast in the form of a factual allegation" ).

To survive a motion to dismiss, plaintiff's complaint must " contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' . . . A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. See also id. (" The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully. . . . Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of " entitlement to relief," '" quoting Twombly, 550 U.S. at 557); Twombly, 550 U.S. at 545 (" While a complaint attacked by a Rule 12(b)(6)

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motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)" (citations omitted)). See also, e.g., Moss, 572 F.3d at 969 (" [F]or a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief," citing Iqbal and Twombly ).

B. Whether Plaintiffs State a Claim under the CLRA or the UCL

1. Legal Standard Governing CLRA Claims

The CLRA makes illegal various " unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer." Cal. Civ. Code § 1770(a). Conduct that is " likely to mislead a reasonable consumer" violates the CLRA. Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663, 680, 38 Cal.Rptr.3d 36 (2006) (quoting Nagel v. Twin Laboratories, Inc., 109 Cal.App.4th 39, 54, 134 Cal.Rptr.2d 420 (2003)). A " reasonable consumer" is an " ordinary consumer acting reasonably under the circumstances," who " is not versed in the art of inspecting and judging a product, [or] in the process of its preparation or manufacture. . . ." Id. (citing 1A Callmann on Unfair Competition, Trademarks and Monopolies § 5:17 (4th ed. 2004)).

Section 1770(a)(5) prohibits " [r]epresenting that goods or services have . . . characteristics, ingredients, uses, benefits, or quantities which they do not have. . . ." In addition, § 1770(a)(7) prohibits " [r]epresenting that goods or services are of a particular standard, quality, or grade . . . if they are of another." These sections of the CLRA encompass deceptive omissions as well as deceptive representations. Mui Ho v. Toyota Motor Corp., 931 F.Supp.2d 987, 2013 WL 1087846, *6 (N.D. Cal. 2013) (citing Daugherty v. American Honda Motor Company Inc., 144 Cal.App.4th 824, 835, 51 Cal.Rptr.3d 118 (2006)). The CLRA is to be " liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection." Colgan, 135 Cal.App.4th at 680.

2. Legal Standard Governing UCL Claims

Under the UCL, any person or entity that has engaged, is engaging, or threatens to engage " in unfair competition may be enjoined in any court of competent jurisdiction." Cal. Bus. & Prof. Code § § 17201, 17203. " Unfair competition" includes " any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Id., § 17200. The California Supreme Court has construed the term broadly. See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999) (" [Section 17200] defines 'unfair competition to include any unlawful, unfair or fraudulent business act or practice. . . . Its coverage is sweeping, embracing anything that can properly be called a business practice and that at the same time is forbidden by law. . . . By proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats

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them as unlawful practices that the unfair competition law makes independently actionable. . . . However, the law does more than just borrow. The statutory language referring to any unlawful, unfair or fraudulent practice . . . makes clear that a practice may be deemed unfair even if not specifically proscribed by some other law. Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition -- acts or practices which are unlawful, or unfair, or fraudulent" (internal quotations omitted)); see also Paulus v. Bob Lynch Ford, Inc., 139 Cal.App.4th 659, 676-77, 43 Cal.Rptr.3d 148 (2006) (" The purpose of the UCL 'is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. . . .' Thus, the scope of the UCL (Bus. & Prof. Code, § 17200 et seq.) is 'broad.' It 'covers a wide range of conduct'" (citations and footnote omitted)).

3. Whether Asghari Can Assert Claims Under the CLRA or the UCL

In their moving papers, defendants argued that Asghari could not assert claims under the CLRA or the UCL, on behalf of himself or the class, because he purchased his vehicle in New York.[22] Citing the Ninth Circuit's decision in Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012), defendants asserted that " a consumer protection claim should be governed by the consumer protection laws of the jurisdiction in which the transaction took place." [23] Because the transaction that gives rise to the claims did not take place in California, they contended, Asghari's CLRA and UCL claims should be dismissed.[24]

Plaintiffs countered that Asghari had stated viable CLRA and UCL claims despite the fact that he did not lease his vehicle in California.[25] They argued that Mazza is distinguishable because the transaction in that case occurred outside California and plaintiff was not a California resident.[26] Here, by contrast, Asghari is a California resident who uses his vehicle in California.[27] Plaintiffs also asserted that Mazza precludes the application of California law only to class members who reside in states whose consumer protection laws differ materially from California's.[28] They contended defendants had not shown that New York's consumer protection laws differ materially from the CLRA and/or the UCL.[29]

In Mazza, the Ninth Circuit considered a case in which plaintiffs successfully sought certification of a nationwide class whose members resided in 44 jurisdictions. Id. at 587 n. 1. The court examined the consumer protection laws of those jurisdictions and concluded that there were material differences between the California laws under which plaintiffs sued and the laws of the other states in which class members resided. See id. at 591 (describing differences between California's consumer protection laws and the laws of the other states). The court also noted that states have " an interest in applying [their] law to transactions within [their] borders," and that application of California law to

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class members residing in other states would " impair[ ] [states'] . . . ability to calibrate liability to foster commerce." Id. at 593. For these reasons, it held that each class member's consumer protection claim was governed by the consumer protection laws of the jurisdiction in which the transaction took place. Id. at 594. Accordingly, it vacated the district court's class certification order. Id.

The principle articulated in Mazza " applies generally and is instructive even when addressing a motion to dismiss." Frezza v. Google Inc., No. 5:12-cv-00237-RMW, 2013 WL 1736788, *6 (N.D. Cal. 2013). Applying Mazza, other courts have held that non-California residents injured by transactions that occurred outside California are precluded from asserting claims under California's consumer protection laws. See id.; Granfield v. NVIDIA Corp., No. C 11-05403 JW, 2012 WL 2847575, *3 (N.D. Cal. July 11, 2012) (dismissing CLRA and UCL claims asserted by a Massachusetts resident who purchased her computer in that state as barred by Mazza ); Horvath v. LG Elecs. Mobile Comm. U.S.A., No. 3:11-CV-01576-H-RBB, 2012 WL 2861160, *3-4 (S.D. Cal. Feb. 13, 2012) (same).

Mazza did not, however, create a " general rule that 'where an out-of-state plaintiff claims to have been deceived or harmed as a result of misrepresentations or omissions received outside of California, that plaintiff's consumer protection claims must be brought under that plaintiff's own state laws.'" Forcellati v. Hyland's, Inc.., 876 F.Supp.2d 1155, 1161 (C.D. Cal. 2012); Allen v. Hylands, Inc., No. CV 12-01150 DMG, 2012 WL 1656750, *2 (C.D. Cal. May 2, 2012). Rather, " Mazza merely precludes application of California law to class members from states whose consumer protection laws differ materially from California's." Allen, 2012 WL 1656750 at *2; see also Frezza v. Google, Inc., No. 5:12-cv-00237-RMW, 2013 WL 1736788, *6-7 (N.D. Cal. Apr. 22, 2013) (" Applying the Mazza principles and California's choice-of-law analysis to the facts of this case, it is readily apparent that plaintiffs' UCL claims are precluded. . . . [M]aterial differences . . . exist between the two states' consumer protection laws" ); see also Washington Mutual Bank, FA v. Superior Court, 24 Cal.4th 906, 919-20, 103 Cal.Rptr.2d 320, 15 P.3d 1071 (2001) (" Under the first step of the governmental interest approach, the foreign law proponent must identify the applicable rule of law in each potentially concerned state and must show it materially differs from the law of California. The fact that two or more states are involved does not in itself indicate there is a conflict of laws problem" ).

In their motion, defendants did not argue that the CLRA and the UCL differed materially from equivalent New York consumer protection laws. They thus gave the court no basis to conclude that Asghari could not assert claims under California law. See Allen, 2012 WL 1656750 at *2 (" Defendants do not argue that Florida or Georgia have materially different consumer protection laws than California. Accordingly, there is no basis at this time for the Court to conclude that it would be inappropriate to apply California law to Plaintiffs' claims" ); see also Keegan v. American Honda Motor Co., Inc., 284 F.R.D. 504, 539 (C.D. Cal. 2012) (" [D]efendants bear the burden of showing that foreign law, rather than California law, should apply" ); Bruno v. Quten Research Inst., LLC, 280 F.R.D. 524, 540 (C.D. Cal. 2011) (" Defendant has the burden . . . . to convince this Court of 'material' differences in the law, as shown 'on the facts of this case.' . . . Because Defendants have not identified any specific state's law or articulated any argument, beyond citation to other cases, to indicate there is a conflict,

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Defendants have not met their burden" ); Church v. Consolidated Freightways, No. C-90-2290 DLJ, 1992 WL 370829, *4 (N.D. Cal. Sept. 14, 1992) (" This Court generally presumes that California law will apply unless defendants demonstrate conclusively that the laws of the other states will apply" ).

Courts have, however, recognized that there are material differences between California and New York consumer protection laws. See Mazza, 666 F.3d at 591 (" California also requires named class plaintiffs to demonstrate reliance, while some other states' consumer protection statutes do not," citing Stutman v. Chem. Bank, 95 N.Y.2d 24, 731 N.E.2d 608, 709 N.Y.S.2d 892 (2000)); Keegan, 284 F.R.D. at 544-45 (" If the court were to certify a single UCL/CLRA class to which California law -- including the statutes of limitations for UCL and CLRA claims -- applies, [it] would undoubtedly include New York and Florida plaintiffs whose claims are time-barred under their own states' laws. This would expand defendants' liability beyond the liability they would face if Florida and New York plaintiffs sued under the laws of those states" ). The parties' briefs, however, did not highlight whether there were actual variations in the state laws at issue in this litigation. Compare Mazza, 666 F.3d 581, 2012 WL 89176 at *6 (" In its briefing, Honda exhaustively detailed the ways in which California law differs from the laws of the 43 other jurisdictions in which class members reside" ). The court therefore deferred ruling on defendants' motion to dismiss Asghari's California claims and directed the parties to submit supplemental briefing as to whether there are material differences between the consumer protection and express and implied warranty laws of New York and California, so that the court could determine whether substantive variations between the two states' laws weighed against the extraterritorial application of California law to Asghari's claims. Defendants filed a supplemental brief on August 8, 2013.[30] On August 19, 2013, plaintiffs filed a response, in which Asghari elected to proceed under New York law only and withdrew his California claims.[31]

4. Whether Plaintiffs' CLRA Claims Should Be Dismissed for Failure to Comply with Statutory Notice Requirements

A plaintiff seeking damages under the CLRA must provide notice to the defendant under California Civil Code § 1782(a). The statute states that at least thirty days prior to commencing an action for damages under the CLRA, the consumer must (1) notify the person alleged to have committed the violations, and (2) demand that the person " correct, repair, replace, or otherwise rectify the goods or services" in question. Cal. Civ. Code § 1782(a). The notice must " be in writing and . . . be sent by certified or registered mail, return receipt ...


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