Last month, the Ninth Circuit held that a district court in the Western District of Washington erred by striking class allegations from a complaint because a product defect did not manifest in the vast majority of products purchased.
District Court Strikes Class Allegations From Complaint
In the case, several named plaintiffs filed a class action complaint alleging that a design defect in the Xbox 360 video game console gouged and scratched game disks, making the disks unplayable. Defendant argued that only 0.4% of Xbox owners reported the defect in the product and that any scratching was caused by consumer error.
In striking the allegations, Judge Martinez relied on the opinion in In re Scratched Disc Litigation, which in turn relied on the decision in Gable v. Land Rover N. Am., Inc. Essentially, the lower court in Gable denied class certification, holding that because an alleged defect in the cars did not manifest in every vehicle, an individual inquiry was necessary to determine if class members experienced the defect. The court in the Scratched Disc Litigation used Gable to similarly deny class certification, ruling that because the majority of purchasers (more than 99%) never experienced a scratched disk, the need to consider damages on an individual basis precluded class certification.
Employing this same reasoning, Judge Martinez struck class allegations from the complaint because of the predominance of individual issues of causation.
Ninth Circuit Reversal
Finding that the district court abused its discretion by striking the class action allegations, the Ninth Circuit reversed Judge Martinez’s ruling.
Central to this decision was the panel’s palpable ire that the heavily relied on Gable decision was reversed by the Ninth Circuit’s holding in Wolin v. Jaguar Land Rover N. Am., LLC. Citing the aging class cert decision Blackie v. Barrack, the Wolin court reasoned that “proof of the manifestation of a defect is not a prerequisite to class certification.”
Though the district court attempted to distinguish Wolin, saying that it did not undermine the “causation analysis” in Scratched Disc (and, consequently, its own decision to strike the class action allegations), the Ninth Circuit disagreed, stating that “[i]n Wolin, we expressly and specifically rejected the notion that individual manifestations of the defect precluded resolution of the claims on a class-wide basis.”
Using Wolin, the Ninth Circuit found that just because disk scratching may not manifest in the majority of products does not mean that Xboxes were not sold with a defective disk system. Therefore, reasoned the Court, this leaves two questions susceptible to proof by common evidence (without the need for individualized proof of causation): (1) is the Xbox defectively designed; and (2) does the design defect breach an express of implied warranty.
Decision Could Mean Problems For Application Of Comcast
An implicit extension of the Ninth Circuit’s holding here – that the failure of a defect to manifest for most class members does not defeat class certification – could be problematic down the road in light of the Supreme Court’s ruling in Comcast, which requires that would-be class representatives demonstrate the ability to prove damages on a classwide basis.
As we have previously reported, there are already significant splits between different courts in how to apply Comcast, whether it be the type of proof needed to establish that a classwide model exists, or in some cases, whether Comcast even requires presentation of a viable model. This decision certainly doesn’t do anything to help the confusion.
Though the Ninth Circuit was careful to note that it was not making any determination about the propriety of class certification, it is impossible to believe that the holding will not be used to argue that class representatives need not prove individual class members were actually damaged as part of a damages model.
Indeed, when defendant tried to argue that “Plaintiffs neither claimed the alleged defect made Xbox 360 consoles worth less nor offered common evidence of damage or loss to the proposed class,” – inviting a Comcast analysis – the Ninth Circuit essentially sidestepped the issue, stating that this misconstrued the allegations because “plaintiffs in this case alleged that a design defect diminished the value of the Xbox.” Under this analysis, it seems that just alleging a defect uniformly exists, no matter if it ever surfaces or harms anyone, is enough.
This leaves the unanswered question: can there be classwide damages for the existence of a defect that never manifests, and never causes any damage (in the form of scratched disks, etc.) to the vast majority of class members? And, what would an acceptable Comcast damages model for “unmanifested” defects that never surface actually look like?
I’m sure plenty of damages experts will be scratching their heads on that one.