A federal judge has dismissed a class action against Ford Motor Co. over allegedly defective ignition locks. Richard Smith, et al. v. Ford Motor Co., No. 06-00497 (N.D. Calif. 9/13/10).  The case offers an interesting take on the interplay of express warranties and fraud/failure to disclose claims.

Plaintiffs alleged that Ford unlawfully concealed information concerning the failure rate of the ignition locks in its Focus vehicles. An ignition lock is the vehicle part in which the key is inserted and turned to activate the ignition; its purpose is to start the car. When an ignition lock fails, the driver is prevented from turning the key. Following the launch of the Focus, there was a spike in warranty claims related to the ignition locks. In order to counter the relatively high warranty repair rates, Ford and its ignition lock manufacturer made manufacturing and design changes to the subject ignition locks, which resulted in a substantial decrease in the warranty repair rates. Specifically, from a warranty repair rate of 24.3 % for its 2000 model year Focus vehicles, Ford saw the rate drop to 6.9% for its 2001model year vehicles, then drop again to 3.1% for its 2002 model year vehicles.

In their complaint, plaintiffs asserted state law claims against Ford for, inter alia, Unfair and
Deceptive Acts and Practices in Violation of California’s Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et. seq.; and Unfair, Fraudulent, and Unlawful Practices under the Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code sections 17200-17209.

Ford moved for summary judgment, arguing that it had no legal duty to disclose the risk that the subject ignition locks would fail, and could stand on its standard three-year, 36,000 mile warranty.

The district court agreed, granting summary judgment.  The court noted first that  under California law, a manufacturer cannot be found liable under the CLRA for failure to disclose a defect that manifests itself after expiration of the warranty period unless such omission (1) is contrary to an express representation actually made by the defendant, or (2) pertains to a fact the defendant was obligated to disclose.  Plaintiffs argued there was an obligation to disclose “material” risks.  But where, as here, a plaintiff’s claim is predicated on a manufacturer’s failure to inform its customers of a product’s likelihood of failing outside the warranty period, the risk posed by such asserted defect cannot be “merely” the cost of the item’s repair.  Rather, for the omission to be material, the failure must pose “safety concerns.”  In other words, under California law, a manufacturer’s duty to consumers is limited to its warranty obligations absent either an affirmative misrepresentation or a safety issue.

Accordingly, because plaintiffs’ CLRA claim here was not based on any misrepresentation made by Ford, but rather was based on an allegation that Ford had a duty to disclose the risk its ignition locks would fail, plaintiffs’ claim, absent evidence of a safety concern, could not succeed. Plaintiffs argued that the ignition lock issue was a substantial “safety concern” because such locks can (1) prevent drivers from starting their vehicles, and (2) prevent drivers from shutting off their vehicles’ engines — despite the fact that there were no reports that anyone has ever been injured by the failure of an ignition lock.  Plaintiffs hypothesized drivers getting stranded in unsafe locales. Ford argued that the dangers described by plaintiffs were too speculative to amount to a safety issue giving rise to a duty of disclosure.

The court agreed with Ford, noting “security” concerns are distinguishable from “safety” concerns. The dangers envisioned by plaintiffs were speculative in nature, deriving in each instance from the particular location at which the driver initially had parked the vehicle and/or the driver’s individual circumstances. Plaintiffs offered no evidence that the ignition-lock defect causes engines to shut off unexpectedly or causes individuals to stop their vehicles under dangerous conditions.

Similarly, to the extent plaintiffs’ fraudulent concealment claim was based on Ford’s alleged duty to disclose the risk of failure of the subject ignition locks, Ford was entitled to summary judgment on that claim also as there was no duty to disclose a failure rate, post-warranty, for a non-safety issue.  Again, as plaintiffs have failed to show an affirmative duty to disclose the risk of post-warranty failure of the ignition locks, plaintiffs also had not shown that a reasonable customer could have been deceived; as a matter of law, the only reasonable expectation customers could have had about the subject ignition locks was that they would function for the length of Ford’s express warranty.