Milstead v. General Motors LLC

Background

James Milstead, Arthur Ray, and Richard Vargas brought the action for themselves and a proposed class of persons and entities that purchased or leased General Motors trucks or sport utility vehicles in California for model years 1999 through 2018. They alleged that a defect in the vehicles’ airbag control unit—also called the Sending and Diagnostic Module—caused software to shut off the ability to deploy airbags and seatbelts shortly after a crash began. They also alleged that General Motors knew about the defect, concealed it, and failed to recall or repair the vehicles.

The second amended complaint asserted claims for fraud by concealment, unjust enrichment, violations of California’s Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Law, breach of express warranty, and breach of implied warranty of merchantability under the Song-Beverly Consumer Warranty Act. General Motors moved to dismiss under the federal pleading rules requiring a complaint to state a plausible claim and requiring fraud allegations to describe the circumstances of the alleged misconduct with particularity.

Incorporation by Reference

The court considered an expert report by Chris Caruso because the second amended complaint referred to it extensively, attached it, and relied on it as a basis for the claims. The court did not consider Caruso’s deposition transcript because the complaint referred to it only once and did not rely on its testimony as a basis for the claims.

Alleged Defect

The court held that the plaintiffs still did not plausibly plead a well-defined defect. In their complaint, they repeatedly described the defect as software that stopped airbag and seatbelt deployment precisely 45 milliseconds after a crash began. In their opposition to dismissal, however, they described varying cutoff times, including times ranging from 16 to 50 milliseconds. The court held that the plaintiffs could not use their opposition brief to change the defect’s definition.

The court also held that the allegations did not plausibly show that the same defective software continued to be used for decades across all of the vehicles in the proposed class. The court found sufficient information to infer that a related defect existed in 1999, but concluded that the allegations did not adequately connect that defect to all later model years. The court noted that Caruso’s report could support a future allegation that the later premature cutoff times constituted a defect, so amendment would not be futile.

The court rejected General Motors’ argument that the alleged safety issue was not actionable because the plaintiffs had not alleged unusually high airbag non-deployment rates. Relying on its earlier ruling, the court concluded that the alleged defect created an unreasonable safety risk because airbags might not deploy in certain moderate-to-severe accidents, potentially causing injury or death.

Equitable Claims

The court declined to dismiss Ray’s and Vargas’s unjust-enrichment claims. It held that those claims were based on alleged concealment before the vehicle purchases and therefore addressed conduct outside the express warranties.

The court also declined to revisit its earlier conclusion that the plaintiffs adequately pleaded that they lacked an adequate remedy at law, a requirement for the equitable relief they sought at the pleading stage. The court concluded that later Ninth Circuit precedent did not establish stricter requirements at that stage.

Warranty Claims

The court held that Ray’s and Vargas’s implied-warranty claims were adequately pleaded. It found that the plaintiffs sufficiently alleged fraudulent concealment to delay the limitations period, including when and how they discovered the alleged fraud and why they could not have discovered the technical defect earlier. The court also held that the plaintiffs did not need to allege an actual malfunction or a substantial certainty of future malfunction because their theory treated the allegedly defective airbag-control unit itself as the injury.

The court dismissed Vargas’s express-warranty claim with prejudice. Vargas presented his vehicle for repair in January 2023, but the warranty period had ended in December 2015. The court held that alleged concealment did not excuse presentation after the warranty period.

Economic Loss Rule

The court rejected General Motors’ argument that the economic-loss rule barred the fraudulent-concealment claims. The court concluded that, pending further clarification from the California Supreme Court, intentional omissions were not barred by that rule on the allegations presented.

Disposition

The court granted General Motors’ motion to dismiss without prejudice for failure to allege a plausible defect. It separately dismissed Vargas’s express-warranty claim with prejudice because he did not present his vehicle within the warranty’s required period. The plaintiffs were allowed to file an amended complaint within 21 days, limited to correcting the deficiencies identified in the order. The order states that failure to amend on time will result in dismissal of the case with prejudice.