By Jacob Regar
For more than a year automotive enthusiasts and consumer rights advocates have been following the Mercedes Benz class action involving allegedly defective valve train parts in the award-winning Mercedes Benz AMG M156 V8 engine. The engine, twice named "Best Performance Engine of the Year," has recently come under much scrutiny for the materials used in its construction.
The lawsuit titled, CEDRIC CHAN v. DAIMLER AG, MERCEDES-BENZ, MERCEDES-BENZ USA, LLC and MERCEDES-AMG GMBH, was filed in United States District Court District of New Jersey on September 19, 2011. The plaintiffs filed a class action because it is believed the M156 engine contains defective parts which cause premature engine damage. The damage could affect thousands of vehicle owners because the defective parts were used in the manufacture of all M156 engines produced between the years 2007 and 2011. M156 engines were used in the entire "6.3 AMG" Mercedes Benz model lineup. (Of note, M156 engines were used in the production of model year 2012 and newer C63 AMG's, but M156 engines produced for those years are not believed to contain the allegedly defective engine parts. Further, none of the vehicle models owned by plaintiffs were built with M156's after 2011.)
The number one fear for any vehicle owner of a 6.3L AMG model equipped with an M156 V8 engine is having to pay for engine repair. The M156 is a race-inspired engine, the first of its kind, built entirely in-house by Mercedes Benz's performance division AMG. Fortunately, Mercedes Benz sells there vehicles with a 4-year/50,000 mile express warranty. The problem arises for vehicle owners whose engines malfunction due to the allegedly defective parts outside of the express warranty period.
Mercedes Benz does not officially take responsibility for engine damage and engine failure that occurs post-warranty, even if engine damage is caused by latent defects that existed during the warranty period. This wouldn't be so troubling and it wouldn't register as a consumer law issue if it wasn't believed that the engine damage was caused by defectively designed parts that were allegedly known to Mercedes Benz at the time of sale.
Procedural History of Lawsuit
In CHAN v. DAIMLER AG, et al., four plaintiffs filed suit on behalf of themselves and a class of other owners and lessees of Mercedes Benz 6.3 AMG vehicles built with M156 engines. Two of the plaintiffs (Chan and Figueroa) were California residents, one (Earls) was a resident of Texas and one (Bartok) a resident of New Jersey. The suit also included three other classes of plaintiffs: owners and lessees of 2007-2011 6.3 AMG's purchased or leased in (1) California, (2) Texas, and (3) New Jersey, respectively.
The plaintiffs' suit did not reach the stage of class certification. The defendants filed motions to strike the first amended complaint (FAC) for lack of standing, motions to dismiss the FAC for failure to state a claim upon which relief can be granted, and motions to strike the class allegations in the FAC.
The New Jersey District Court granted defendants' motions to strike the FAC for lack of standing and dismissed the FAC without prejudice. The defendants' other motions were denied as moot because plaintiff's complaint was dismissed.
Defective M156 Engine Parts
The M156 engine's alleged defects include defective camshaft adjusters and the engine's camshaft lobes made of iron are incompatible – through extended use – with the engine's valve lifters, which are made of harder steel.
M156's have long been known to be noisy engines on start-up because of the allegedly defective design of the engine's valve lifters, also known as valve buckets. As explained by Marcus Fitzhugh's on his website, Mercedes Benz and other related hobbies, one of the problems with the defective lifters has to do with something called bleed down. This occurs when the engine is shut off and oil bleeds down from the lifters, creating a space between the camshaft lobes and the lifters. When the engine is started up, oil is missing from the space between the cam lobes and lifters, and friction can cause premature wear of the softer cam lobes and [puncturing of the harder lifters]. Fitzhugh, Marcus Blair. "The Mercedes Benz AMG 63 V8." Mercedes Benz and other related hobbies. 2007 (2012 Addendum) http://www.marcusfitzhugh.com/CLK/63.html
According to Fitzhugh, the lifters have since been improved [by Mercedes Benz performance wing AMG]. A newer version, used in the more advanced AMG engine called the M159 (which is built in the SLS AMG) reduces bleed down when the engine is off, thus reducing the chance of premature wear in the valve train when the engine is restarted.
Mercedes Benz and AMG Allegedly Knew of the Defects
In their suit, the plaintiffs contended that the defendants knew of the defect since 2007 and continued to build M156 engines with defective parts. Further, plaintiffs stated that Mercedes Benz breached the new vehicle warranty attached to each new vehicle when a vehicle owner would present to a Mercedes Benz authorized service center with complaints of ticking coming from the engine's valve train and the service center – allegedly acting pursuant to MBUSA's directives – would tell the vehicle owner that the noise was "normal," despite their apparent knowledge to the contrary.
There is also evidence of Mercedes Benz service bulletins dating from 2007 and 2010 which address the M156 camshaft adjusters and ticking sounds in the engine, respectively. As you will see, the New Jersey District Court was not convinced that the service bulletins tended to prove the existence of defective parts.
The Mercedes Benz express warranty provides for authorized Mercedes Benz service centers to repair or replace product defects that manifest during the express warranty period.
Legal Claims
The causes of action stated by plaintiffs in the suit included breach of express and implied warranties under the Magnuson-Moss Act, breach of express and implied common law warranties, and violation of New Jersey Consumer Fraud Act.
Plaintiffs contended that the defective parts used in the manufacturing of their vehicles' engines affected their engines' performance and substantially reduced the value of their vehicles. They each stated that had they been told about the vehicle defects by the defendant when they purchased their cars, they would not have gone through with the purchase.
All four plaintiffs had brought their cars to MBUSA authorized service centers with complaints of ticking noises coming from their vehicles' engines and they were told that the sound was normal. One of the plaintiffs' vehicles suffered engine failure in 2010, which was still during the period when Mercedes Benz was installing allegedly defective parts in the M156 engines. The plaintiff brought his vehicle to an authorized service center while his vehicle was under express warranty. Repairs were made, but the replacement parts were of the allegedly defective batch.
To Sue on Behalf of Others Plaintiff Must have Standing to Sue in their Own Right.
The plaintiffs' complaint was dismissed because none of the plaintiffs could show that they had standing to sue. Standing is a jurisdictional issue. A federal court does not have subject matter jurisdiction to decide the merits of a case if the plaintiff cannot establish standing to sue. That is, the plaintiff must show that they have suffered an actual, concrete, injury-in-fact (their rights were affected), that was caused by the defendant's complained-of conduct which is capable of redress by a favorable judicial decision.
Could Plaintiffs Show Injury-In-Fact?
Read this string of case citations upon which the New Jersey District Court relied in reaching their opinion and see where you think the court will go with their reasoning:
"Courts throughout the country have 'almost uniformly [held] that time-limited [and mileage-limited] warranties do not protect buyers against hidden defects – defects that may exist before, but typically are not discovered until after, the expiration of the warranty period." See, Dewey v. Volkswagen AG, 558 F. Supp. 2d 505, 519 (D.N.J. 2008) (quoting Canal Elec. Co. v. Westinghouse Elec. Co., 973 F.2d 988, 993 (1st Cir. 1992)); see also Abraham v. Volkswagen of Am., Inc., 795 F.2d 238, 250 (2d Cir. 1986) (holding that express warranties did not cover automobile defects manifesting themselves after the expiration of the time and mileage limits of the relevant warranties); Daugherty v. Am. Honda Motor Co., Inc., 144 Cal. App. 4th 830 (2d DCA 2006) ("Several courts have expressly rejected the proposition that a latent defect, discovered outside the limits of a written warranty, may form the basis for a valid express warranty claim if the warrantor knew of the defect at the time of sale.")
A seller may knowingly sell a defective product covered by an express warranty, and if the product fails after the expiration of the warranty term and the buyer has to pay for repair of the product, the seller is not in breach of warranty.
Breach of Warranty
Plaintiffs: Chan (CA resident) and Figueroa (CA resident)
Injury: Being denied free repair during warranty period
Were they injured? No.
Reason: Chan's car had too many miles on the odometer when he presented it to the dealership for repair, thus his car wasn't covered by the express warranty. Figueroa's car was too old when he took his car to the dealer, and also not covered under express warranty.
The warranty covers and Mercedes Benz will repair defects that arise during the warranty period. Plaintiffs argued that proof exists that the defects in their engines manifested during the warranty period. They pointed to the 2007 service bulletin dealing with inspection of the camshaft adjusters as evidence of Mercedes Benz's acknowledgement of a known defect that existed during the warranty period.
The District Court did not agree that the service bulletins represented admissions of a known defect. The Court stated that service bulletins are generated in response to consumer complaints which cause the manufacturer to investigate and diagnose potential issues. They reasoned that if the mere act of making a bulletin equaled an admission of liability, manufacturers would be unwilling to deal with their customers' complaints.
The Court's reasoning seems too broad. If the manufacturer did not respond in good faith to their customers' warranty claims, they would be in breach of warranty. Service bulletins can very well serve as a basis for a manufacturer's acknowledgement of a known problem with their products. But, additional circumstantial evidence would be needed to support such a finding. And, here, plaintiffs Chan and Figueroa did not complain about engine failure during their warranty term.
The Court went on to explain in their opinion that they do not believe there is good reason to change their view that express warranties do not cover repairs that are necessitated by latent defects that existed during the time and mileage warranty period, but caused product failure outside of the express warranty term.
The Court reasoned that all product failures that manifest after the warranty period can be traced to a latent defect that existed during the warranty period. But, the court does not distinguish between latent design defects that are known to cause product failure but are still used for production and products that are not known to be defectively designed but naturally fail according to a defective incidence rate.
Nevertheless, the Court reasoned that for a vehicle owner to prove injury-in-fact sufficient to satisfy the constitutional requirement of standing, the vehicle must not have performed as promised during the warranty period. Despite plaintiffs' insistence that their engines' were wearing prematurely during the warranty period, they could not show how they were injured during that time. Even if Mercedes Benz knew of a latent defect during the warranty period, the court would not adopt a rule that would "make failure of a part actionable based on such 'knowledge,' as it would render meaningless time/mileage limitations in warranty coverage." Abraham v. Volkswagen of Am., Inc., p. 750, supra.
Economic Harm
Plaintiffs: Bartok (NJ resident), Figueroa (CA resident), Earls (TX resident), Chan (CA resident)
Injury:
(a) Diminution of value of vehicles caused by alleged engine defects.
Were they injured? No
Reason: None of the plaintiffs presented any facts to support the inference that they either traded in or sold their vehicles for a loss because of the defective parts. In addition, the Court was not persuaded by the plaintiffs' claims that had they known about the defects they would not have purchased their vehicles.
It is a very difficult proposition to collect proof of a vehicle's presumed reduced market value that is tied to public perception of an unreliable engine. This is especially true when the only facts alleged by plaintiffs to show defective parts in the M156 engine are the Mercedes Benz service bulletins that mention customer complaints and that allegedly instruct technicians to repair valve train parts upon failure.
(b) Repair costs associated with product defects.
Were they injured? No
Reason: None of the plaintiffs spent money during the warranty period to repair their vehicles.
New Jersey Consumer Fraud Act (NJCFA)
Plaintiffs: Chan (CA resident), Figueroa (CA resident), Earls (TX resident),
Injury: Mercedes Benz allegedly concealed and/or misrepresented the condition of the vehicles to buyers.
Were they injured? The out-of-state plaintiffs did not raise facts in the FAC to link a sufficient connection with New Jersey that would allow them to sue under New Jersey Law.
Reason: The New Jersey District Court could only look to the facts alleged in the plaintiffs' First Amended Complaint to determine whether they had standing. Based on the facts so provided, the court did not find the out-of-court plaintiffs' vehicle purchases and/or repairs had a sufficient connection with New Jersey. Therefore, the plaintiffs lacked standing to sue under the New Jersey law.
In the plaintiffs' opposition brief to defendants' motion to dismiss, the out-of-state plaintiffs alleged facts that they believed supported a finding that their transactions had a sufficient connection with New Jersey. These facts may give them standing to sue under the NJCFA. But, these facts were not included in the FAC, and therefore, the Court could not consider them in determining the issue of standing.
Disposition of Case
The Court's opinion dismissing the plaintiffs' FAC was signed on 11/09/12. The plaintiffs had 30 days from that date to cure the deficiencies in their complaint and file another amended complaint. No further filings were made by plaintiffs. Thus, on 1/07/13, the Court signed an order to close the file for the case.