Hamm v. Mercedes-Benz USA, LLC

Background

Terry Hamm and Bryce Meeker alleged that Mercedes-Benz USA, LLC (MBUSA) knew about and concealed defects in the 722.9 7G-Tronic automatic transmission used in their Mercedes-Benz vehicles. They alleged that the defect could cause a vehicle to enter “limp mode,” preventing it from shifting or accelerating. Their claims arose under the California Consumer Legal Remedies Act, the California Unfair Competition Law, and, as to Meeker, the Kansas Consumer Protection Act.

Hamm bought a used 2006 CLK350 in December 2012 from Stevens Creek Toyota in San Jose, California. He was the vehicle’s fourth owner and did not buy it from MBUSA or a Mercedes-Benz dealership. After the transmission problem occurred, he paid $1,051.18 for repairs. Hamm sought to represent a class of California owners and lessees of Mercedes-Benz vehicles equipped with the 722.9 transmission.

Meeker bought a used 2007 Mercedes-Benz C230 from his sister-in-law, Katie Leydon, in 2014. The parties arranged the transaction while Meeker was in Chicago, and Meeker drove the vehicle to Kansas. He later paid for it from Kansas and paid $1,475.80 to replace the transmission valve body. Meeker sought to represent a class of Kansas owners and lessees of Mercedes-Benz vehicles equipped with the 722.9 transmission.

MBUSA moved for summary judgment, arguing that the plaintiffs had not purchased their vehicles from MBUSA and therefore had no transaction with it creating a duty to disclose defects. MBUSA also argued that Hamm could not prove reliance and that Meeker’s purchase did not qualify as a Kansas consumer transaction. The plaintiffs cross-moved for partial summary judgment or summary adjudication on liability and specified issues, including the existence of the defect, MBUSA’s knowledge, its duty to disclose, and their resulting harm.

Hamm’s California Claims

The court held that, under California law, a vehicle manufacturer has a duty to disclose a defect that poses an unreasonable safety risk even when the manufacturer did not have a direct transactional relationship with the vehicle owner. The court concluded that the absence of a direct transaction between Hamm and MBUSA therefore did not by itself defeat Hamm’s claims under the California Consumer Legal Remedies Act and California Unfair Competition Law.

The court did not decide Hamm’s alternative theory that California law imposed a separate duty to disclose under Rutledge because its ruling on the unreasonable-safety-risk theory was sufficient for purposes of MBUSA’s motion.

The court rejected Hamm’s argument that he did not need to prove reliance. It explained that actual reliance is required for claims based on a fraudulent omission. A plaintiff may show reliance by demonstrating that, if the omitted information had been disclosed, the plaintiff would have known about it and acted differently.

MBUSA argued that Hamm could not satisfy this requirement because he had not reviewed MBUSA’s brochures or advertising, had not spoken with MBUSA or a Mercedes-Benz dealership, and had bought the seven-year-old vehicle fourth-hand from a Toyota dealership. The court found that this evidence could support a verdict for MBUSA. But Hamm testified that he searched for information about the vehicle on websites and in magazines and received information from the dealership. The court held that a reasonable jury could infer from this evidence that Hamm would have learned about the alleged defect if it had been disclosed. That genuine factual dispute prevented summary judgment on Hamm’s California claims.

Meeker’s Kansas Claim

The Kansas Consumer Protection Act prohibits deceptive practices connected with a “consumer transaction.” The court held that the Act covers a sale or other disposition of property occurring within Kansas.

The court determined that Meeker’s transaction occurred in Illinois. Leydon gave Meeker possession of the vehicle, its title, and its keys in Chicago and allowed him to drive it to Kansas. Applying the governing sales law, the court held that title passed in Illinois when Leydon delivered the vehicle there. Meeker’s later payment from Kansas and his subjective understanding that the purchase had not yet been completed did not change that conclusion. Because there was no consumer transaction within Kansas, the court held that Meeker’s Kansas Consumer Protection Act claim failed.

Plaintiffs’ Cross-Motion

The court denied the plaintiffs’ motion for partial summary judgment or summary adjudication. It applied the one-way intervention rule, which prevents proposed class members from benefiting from a ruling establishing liability before the court decides whether to certify the class, while avoiding the effect of an unfavorable ruling. The court had not yet ruled on class certification, so the plaintiffs’ motion was denied.

Disposition

Judge Edward J. Davila’s order granted in part and denied in part MBUSA’s motion for summary judgment. Specifically, the motion was granted as to Meeker’s Kansas Consumer Protection Act claim and denied in all other respects. The plaintiffs’ motion for partial summary judgment or summary adjudication of issues was denied. The court also required the parties to jointly file a proposed schedule for class-certification briefing and a proposed hearing date within ten days after entry of the order.