Arguing Class Actions is a monthly column by Adam J. Levitt for the National Law Journal.
Reprinted with permission from the June 5, 2023 edition of the National Law Journal. © 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
In product defect class actions filed in federal court, plaintiffs often allege that the presence of a defect reduces a product’s value and causes economic injury. In response, defendants and some courts have taken the position that a product defect must be “manifest” (that the product not only be defective, but also fail in some severe way) for there to be concrete injury sufficient for Article III standing.
The U.S. Supreme Court has not directly addressed this issue, but it may be called upon to do so, as defendants are likely to continue to press the argument due to its potential to thwart a broad segment of class cases at the earliest stage.
Our view is that, so long as a defect is alleged to have caused economic injury, whether that defect is manifest or latent is irrelevant to a plaintiff’s standing to bring a claim in federal court under Article III of the Constitution.
Product defect claims generally fall into two categories. In the first, the defective product harms a person or some property other than the defective product itself. For example, a defective gas grill explodes, burning the purchaser and setting his garage aflame. The purchaser sues the defective grill’s manufacturer seeking to recover for his pain and suffering, his disfiguration, and the loss of his garage.
In the second, the plaintiff claims that, because of an undisclosed defect, a product is worth less than what the plaintiff paid. For example, a gas grill cannot generate enough heat to grill effectively. The purchaser sues the defective grill’s manufacturer seeking to recover economic damages for not getting the functional grill for which he paid. This type of claim, which may be called an economic loss product defect claim, can sound in breach of contract or fraud. Either way, the essence of the plaintiff’s complaint is that he did not get what he thought he was buying. This second category of product defect claim is generally more susceptible to class treatment than the former and, thus, more commonly brought on a class-wide basis.
It is rarely the case, however, that every class member in an economic loss product defect case will have the exact same experience with a defect. For some class members, the defect will have caused the product to fail. For others, it may not. Now, in practice, the issue of whether any given defect is “manifest” or “latent” may be unclear and hotly disputed. But, for simplicity’s sake, a manifest defect can be defined as one that has caused a product to break or malfunction, and a latent defect as one that may or will cause a product to break or malfunction in the future. Because it is so often true that some or all class members in product defect class actions will own products with only latent defects, if the federal judiciary were to decisively hold that these class members lack Article III standing, the impact on product defect class actions would be enormous—leaving consumers without an avenue to seek recourse for clearly defective products and giving product manufacturers a “free pass” from liability only because the product’s failure rate is less than 100%.
As it stands, courts have reached differing conclusions. In two cases involving allegedly defective ATVs, the Eighth Circuit expressly adopted a “manifest defect rule” for the purposes of Article III standing in economic loss product defect actions. Johannessohn v. Polaris Indus. Inc., 9 F.4th 981, 987–88 (8th Cir. 2021); In re Polaris Mktg., Sales Practices., & Prods. Liab. Litig., 9 F.4th 793, 796–97 (8th Cir. 2021). In the Polaris cases, the plaintiffs alleged that they purchased ATVs that were defective because the engine compartments reached dangerously high temperatures, which created an inordinate risk that the vehicles would catch fire. The Eighth Circuit affirmed the district court’s, frankly bewildering, ruling that only plaintiffs whose vehicles had actually caught fire had Article III standing. The court rejected the argument that plaintiffs suffered economic injury by not receiving the benefit of their bargain when they received vehicles that had an unreasonable risk of catching fire. In the Eighth Circuit’s eyes, if a product “has not exhibited the alleged defect, [the product owner] has necessarily received the benefit of their bargain.” Johannessohn, 9 F.4th at 988 (quoting O’Neil v. Simplicity, Inc., 574 F.3d 501, 504 (8th Cir. 2009)).
By contrast, in the long-running Takata airbag litigation, the court has found that purchasers of a product with a latent defect have Article III standing. The Takata litigation is centered on airbag inflators that have an allegedly unreasonable tendency to burst upon airbag deployment, causing metal from the inflators’ housing to fly into the passenger cabin, maiming or killing the driver or other passengers. See, e.g., In re Takata Airbag Prods. Liab. Litig., 193 F. Supp. 3d 1324, 1335, 1336 (S.D. Fla. 2016). For most class members, however, the Takata inflators in their vehicles did not rupture and did not maim or kill. Confronted with an Article III standing challenge, the court held that these class members had standing based on their allegations that they did not receive the benefit of their bargain when they purchased vehicles with defectively designed airbag inflators that carry a small risk of an airbag inflator expelling shrapnel into the occupant cabin. In re Takata Airbag Prods. Liab. Litig., 396 F. Supp. 3d 1101, 1125 (S.D. Fla. 2019).
Significantly, the Takata court’s holding mirrors Judge Furman’s holding on the same issue in In re General Motors LLC Ignition Switch Litigation, 339 F. Supp. 3d 262 (S.D.N.Y. 2018), where, following an analysis of 27 states’ laws, he concluded “that manifestation is not a requirement” in each one, and that “there is no legal or logical ground to bar Plaintiffs’ recovery if they can prove that they suffered economic loss.” Id. In other words, these courts reached the conclusion that a consumer asserting an economic loss claim with respect to a defective product is not required to suffer the actual, physical injury arising from that defective product in order to have standing to assert a claim.
So, which of these opposing views is correct? Should a latent defect, and the risk of future malfunction, be permitted to serve as a basis for Article III standing in product defect case? The answer turns on the reasoning behind the Article III standing requirement.
“[T]he law of Art. III standing is built on a single basic idea—the idea of separation of powers.” Allen v. Wright, 468 U.S. 737, 752 (1984). Under Article III of the Constitution, federal courts are limited to adjudicating actual “cases” and “controversies.” Id. at 750. Federal courts are not to “adjudicate hypothetical or abstract disputes.” TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2203 (2021). “Federal courts do not possess a roving commission to publicly opine on every legal question.” Id. Instead, and pursuant to the authority granted to them under Article III, federal courts only adjudicate “real controvers[ies] with real impact on real persons.” Am. Legion v. Am. Humanist Ass’n., 139 S. Ct. 2067, 2103 (2019) (Gorsuch, J., concurring).
So, if a plaintiff alleges that she did not receive the benefit of her bargain because she received a product with a latent defect, is she bringing a real controversy to a court or asking the court to opine on a hypothetical dispute? Certainly, she is bringing a real controversy. No matter how insignificant a latent defect might seem, and no matter how preposterous a claim might be, the plaintiff is not asking the court to opine on whether a defendant would hypothetically be liable if the defendant had sold a defective product. The plaintiff is asking the court to decide whether a defendant is liable for actually selling a product with an alleged defect that affected the product’s true value.
To find that there is no real controversy, and no Article III standing, a court would have to first find that a latent defect does not reduce a product’s value such that it could possibly cause economic injury. Indeed, this is what the Eighth Circuit seems to have done in holding that if a product “has not exhibited the alleged defect, [the product owner] has necessarily received the benefit of their bargain.” Johannessohn, 9 F.4th at 988 (quoting O’Neil, 574 F.3d at 504). But this is a merits determination; and for a court to make a merits determination as a prerequisite to determining that it has no Article III jurisdiction to adjudicate the parties’ dispute illogically puts the cart before the horse. Article III is not an appropriate framework for determining how an alleged defect’s manifestation, or lack thereof, affects the viability of an economic loss class action.
We thus urge courts confronted with manifestation arguments to adopt the common sense (and legally correct) position that allegations of economic loss are sufficient establish Article III standing, regardless of whether the products have caused physical injury to every plaintiff or class member. This understanding of Article III is most consistent with its separation-of-powers foundation. Indeed, to hold otherwise creates a slippery slope, allowing federal judges to invade the province of state law by invalidating claims that are inconsistent with their own notions of recoverable loss.
Thank you to DiCello Levitt partner Dan Ferri and associate Blake Stubbs for contributing to this column.
Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups. He can be reached at [email protected].