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From Products Liability Law Daily, April 21, 2017

Chevy Cruze owners’ fraudulent concealment claims against GM not preempted by EPA regulations

By Kathleen Kennedy-Luczak, J.D.

Fraudulent concealment claims brought by a group of Chevrolet Cruze owners against General Motors regarding the company’s alleged installation of an emissions "defeat device" were not preempted by U.S. Environmental Protection Agency regulations because the owners were not required to prove noncompliance with regulatory standards to establish their fraudulent concealment claims, a federal district court in Michigan ruled in denying GM’s motion for clarification of an earlier order. The owners’ claims did not depend on proof that the Cruze was equipped with a "defeat device" as defined by federal law (Counts v. General Motors, LLC, April 20, 2017, Ludington, T.).

Nine 2014 Chevrolet Cruze owners alleged that GM equipped the vehicle with a "defeat device." The device allegedly resulted in higher emissions when the vehicle was in regular use as compared to when placed under laboratory conditions. The owners filed suit, alleging that they purchased the vehicle with the belief that it was a "clean diesel," complied with federal emissions standards, and would provide high fuel economy. Specifically, the owners claimed that they purchased their vehicles because of the representations and advertisements made by GM regarding the car’s clean diesel system. Further, the owners alleged that they would not have purchased the vehicle or paid less if GM had disclosed the diesel system’s design and the high level of pollutants emitted by the 2014 Chevrolet Cruze.

GM filed a motion to dismiss, arguing that the owners’ claims were preempted by the Clean Air Act (CAA) and federal Environmental Protection Agency (EPA) emissions regulations. The court granted in part the motion to dismiss but rejected GM’s argument that the claims were preempted [see Products Liability Law Daily’s February 15, 2017 analysis]. The court dismissed the owners’ breach of contract and fraudulent misrepresentation claims for failure to state a claim. However, the court concluded that the owners’ fraudulent concealment claims could proceed.

Asserting there were ambiguities in the court’s opinion and order, GM filed a motion seeking clarification regarding whether the owners’ claims were preempted to the extent that they depend on proving that the Cruze contained a "defeat device" as defined in EPA regulations.

Fraudulent concealment. In responding, the court found that GM’s motion for clarification was based on the same misunderstanding as in its motion to dismiss. GM argued that the owners’ claims require proof that the Cruze contained a "defeat device" as defined by federal regulations. However, GM failed to demonstrate that such proof is required under the fraudulent concealment or consumer protection law claims. The court conceded that if the owners’ suit was premised on GM manufacturing a vehicle that emits pollutants in violation of EPA standards or is not equipped with required emission-control technology, their claims would be preempted by the EPA. Yet, the court explained, the owners’ allegations do not depend on proof of noncompliance with federal standards. Allegations of false representations by GM, rather than the adequacy of emissions standards, form the basis of the owners’ complaint.

Moreover, the use of the phrase "defeat device" was meant as a term of art to explain the notion of a component in the vehicle that could create the appearance of low emissions. The court noted that the order did not state that the owners’ fraudulent concealment claim was seeking recovery for GM’s concealment of a "defeat device." The order stated that the owners must allege facts that show GM fraudulently concealed or misrepresented that the effectiveness of its clean diesel system was less than what a reasonable consumer would expect.

Reasonable consumer standard. The court reiterated that the reasonable consumer standard applies to both fraudulent concealment as well as fraudulent misrepresentation claims. Proof of fraudulent concealment requires a showing that material facts were concealed in a way that would mislead a reasonable consumer about the condition of the property, thus causing damage. Although proof that the Cruze contained a "defeat device" as defined by federal law would be beneficial to the owners’ fraudulent concealment claim, such proof is not required in order to prevail.

Finally, the court was unpersuaded by GM’s argument that the owners’ claims still would be preempted even if construed as only alleging that GM failed to disclose lawful emissions technology because otherwise individual states could set forth their own emissions standards. The court emphasized that the owners are trying to hold GM accountable for allegedly concealing the functionality of certain technology in the Cruze, not trying to strengthen emissions regulations. The motion for clarification was denied.

The case is No. 16-cv-12541.

Attorneys: Scott A. George (Seeger Weiss LLP) for Jason Counts. April N. Ross (Corwell & Moring LLP) and Christopher V. Burtley (Dykema Gossett PLLC) for General Motors, LLC.

Companies: General Motors, LLC

MainStory: TopStory ClassActLitigationNews PreemptionNews DesignManufacturingNews MotorVehiclesNews MotorEquipmentNews MichiganNews

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