GM’s defeat device is almost by definition fraudulent omission

Counts v. General Motors, LLC, No. 16-cv-12541, 2017 WL
588457 (E.D. Mich. Feb. 14, 2017)
Plaintiffs sued GM for deceptive advertising, breach of
contract, and fraudulent concealment claims under the laws of thirty states based
on GM’s alleged installation of a “defeat device” in the 2014 Chevrolet Cruze
Diesel, which results in significantly higher emissions when the vehicle is in
use compared to when it is being tested in laboratory conditions.  The court declined to apply the primary
jurisdiction doctrine or find the claims preempted by the Clean Air Act, but
did give GM some victories.
GM argued that the plaintiffs lacked Article III standing
because they didn’t allege a concrete and particularized injury and because
they brought claims arising under the law of states where none of the named plaintiffs
reside or bought their vehicle.  GM
characterized their claims as arising from alleged environmental harms and
violation of government standards, but plaintiffs alleged a standard
overpayment theory: if they’d known the truth about the defeat devices/the
actual emissions levels, they wouldn’t have bought the supposedly “clean diesel”
vehicles or would have paid less for them, especially given that GM charged
more for the diesel model than a comparable gas model.  GM argued that this higher price came from the
increased power and fuel efficiency that diesel engines feature.  The court agreed with the plaintiffs.
Plaintiffs plausibly pled deceptive behavior.  The complaint detailed “numerous studies and
reports from European authorities finding that GM vehicles are noncompliant
with European emission regulations, despite meeting those regulations when
tested in laboratory settings.” It also alleged that plaintiffs’ own tests of a
Cruze found that emissions were significantly higher than represented. Though
plaintiffs did not specifically allege that the Cruze they tested was the 2014
diesel model, they plausibly alleged that GM’s vehicles share common designs,
including engines; “common sense compels the conclusion that GM does not start
anew each time it designs a vehicle.”
Nor did plaintiffs have to show reliance to show Article III
standing:
The clean diesel features of the
Cruze were an important component of the vehicle, as evidenced by GM’s
advertising campaign which featured the clean diesel system. That system
elevated the apparent value of the vehicle. Even if Plaintiffs did not
specifically choose the Cruze because of its clean diesel system, they paid
more for the vehicle because it included the system. If the system did not
actually provide any value to the vehicle, then Plaintiffs suffered financial
injury through overpayment regardless of whether they relied on GM’s alleged
misrepresentations.
Turning to the fraudulent concealment claims, they had to be
pled with particularity, even though they were omission-based.  However, particularity demands different
things in different contexts.  “If a
plaintiff’s theory for relief involves a failure to act, then requiring the
plaintiff to specifically identify the point in time when the defendant should
have acted may be unduly burdensome. … [T]he difficulty of obtaining proprietary
GM information or pinpointing the point in time when a fraudulent omission
occurred will be taken into account.”
Here, the complaint sufficiently alleged with particularity
facts showing that GM fraudulently concealed or misrepresented that the functionality
and effectiveness of the Cruze’s “clean diesel” system was substantially lower
than a reasonable customer would expect, given the representations made in GM’s
advertising campaign. Further, where omissions are at issue, showing reliance
means showing that the facts deliberately withheld would be material to a
reasonable consumer.
GM argued that the ad claims plaintiffs cited were mere
puffery.  The more general a statement
is, the more likely it is to be puffery. But numbers alone aren’t enough, if
they’re still not believable.  GM’s
statements about the “high-quality” and “safety” of its vehicles were
inherently subjective and couldn’t form the basis of a fraud action, nor could
“Turbocharged Clean Diesel” nor statements regarding cleanliness, “more
efficient combustion,” and improved “performance.”  
Indeed, even claiming that the “turbocharged engine in Cruze
Clean Turbo Diesel [sic] generates at least 90% less nitrogen oxide and
particulate emissions when compared to previous-generation diesels” and that
“Cruze Diesel emissions are below strict U.S. environmental standards” was
nonactionable, because it wasn’t quantifiable by itself.  The purported comparison to
previous-generation diesels wasn’t specific enough—did it mean past GM diesel
vehicles, all diesel vehicles, or all diesel vehicles from before a certain
date?  [This is ridiculous
nitpicking.  A reasonable consumer might
not have formed an opinion about the exact meaning, but could reasonably
presume that there was a generally understood industry meaning, especially in
combination with percentages and specific named pollutants.]  The court seemed to think it was important
that no competitor was named (even though identifying a competitor is exactly
when we might be able to rely on competitor suits to backstop consumer suits),
nor was there a specific assertion that the claim was based on testing.  “One might argue that some type of testing is
implicitly assumed by the language [indeed one might!], but the advertisement’s
level of generality further supports a finding of puffery.”  The court thought it would be hard to prove
the falsity of this claim, because the complaint included no data about the
level at which “previous-general diesels,” however defined, produced emissions.
And the Cruze might simultaneously
produce more emissions than expected when being driven and still produce, in
total, 90% less emissions than previous-generation diesels.
The final affirmative representation at issue was that
“Cruze Diesel emissions are below strict U.S. environmental standards.” But a
lawsuit against GM for producing a vehicle that produces emissions in
noncompliance with EPA regulations would be preempted by the CAA.

On the other hand, fraudulent concealment, instead of
affirmative misrepresentations, was adequately alleged.  A duty to disclose can arise under the laws
of some states where there’s exclusive knowledge of a defect or active
concealment of that defect.  The very
nature of the “defeat device” suggests active concealment: “The only plausible
purpose of such a device is to create the appearance of low emissions without
the reality of low emissions,” and GM couldn’t reasonably argue that plaintiffs
could have found out about it before buying. 
Both common-law and statutory consumer protection claims based on
omissions thus survived.

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