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No. 10-17321 In the

United States Court of Appeals


for the Ninth Circuit --------------------------------Richard Smith and Rebecca Klein, Plaintiffs-Appellants, v. Ford Motor Company Defendant-Appellee

On Appeal from the United States District Court for the Northern District of California Hon. Maxine M. Chesney Case No. 3:06-cv-00497

MOTION FOR ORDER CERTIFYING QUESTIONS TO CALIFORNIA SUPREME COURT

Jeffrey L. Fazio (146043) Dina E. Micheletti (184141)

FAZIO | MICHELETTI LLP


2410 CAMINO RAMON, SUITE 315 SAN RAMON, CA 94583 T: 925.543.2555 F: 925.369.0344

Michael von Loewenfeldt (178665) Michael Ng (237915) KERR & WAGSTAFFE LLP 100 SPEAR STREET, SUITE 1800 SAN FRANCISCO, CA 941051528 T: 415.371.8500 F: 415.371.0500

Attorneys for Plaintiffs/Appellants Richard Smith and Rebecca Klein

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TABLE OF CONTENTS I. II. III. Grounds for Motion and Relief Sought............................................................... 1 Background .......................................................................................................... 6 Argument ........................................................................................................... 11 A. B. The Questions Presented by This Motion Satisfy the Criteria for Certification ............................................................................................ 11 The Split Among Courts Applying California Law is Based on a Dubious Reading of California Authority and a Misapplication of the Policies That Inform It, Which Favors Certification ..................... 12

IV.

Conclusion ......................................................................................................... 20

Certificate of Service .................................................................................................... 21

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TABLE OF AUTHORITIES
CASES

Baggett v. Hewlett-Packard Co., 2009 U.S. Dist. LEXIS 95241 (C.D. Cal. Sept. 29, 2009) ........................... 16 Bardin v. DaimlerChrysler Corp., 136 Cal. App. 4th 1255 (2006) .............................................................. passim Clemens v. DaimlerChrysler Corp., 530 F.3d 852 (9th Cir. 2008) ........................................................................ 19 Daugherty v. Am. Honda Motor Co., Inc., 144 Cal. App. 4th 824 (2006) ................................................................ passim Daugherty v. Honda Motor Co., Ltd., 2007 Daily Journal DAR 1859 (Feb. 7, 2007) ............................................. 14 DeSpirito v. Andrews, 151 Cal. App. 2d 126 (1957) ........................................................................ 13 Hovsepian v. Apple, Inc., 2009 U.S. Dist. LEXIS 117562 (N.D. Cal. Dec. 17, 2009).......................... 14 In re Medscan Research, Ltd., 940 F.2d 558 (9th Cir. 1991) ....................................................................... 13 In re Sony VAIO Computer Notebook Trackpad Litig., 2010 U.S. Dist. LEXIS 115142 (S.D. Cal. Oct. 27, 2010) ........................... 13 In re Tobacco II Cases, 46 Cal. 4th 298 (2009) .................................................................................. 20 K F Dairies, Inc. & Affiliates v. Firemans Fund Ins. Co., 179 F.3d 1226 (9th Cir. 1999) ................................................................ 12, 20 Khan v. Shiley, Inc., 217 Cal. App. 3d 848 (1990) ........................................................................ 13

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Kremen v. Cohen, 325 F. 3d 1035 (9th Cir. 2003) ..................................................................... 11 LiMandri v. Judkins, 52 Cal. App. 4th 326 (1997) ......................................................................... 13 Lingsch v. Savage, 213 Cal. App. 2d 729 (1963) ........................................................................ 13 Lovejoy v. AT&T Corp., 119 Cal. App. 4th 151 (2004) ....................................................................... 13 Marketing West, Inc. v. Sanyo Fisher (USA) Corp., 6 Cal. App. 4th 603 (1992) ........................................................................... 13 Massei v. Lettunich, 248 Cal. App. 2d 68 (1967) .......................................................................... 13 Minkler v. Safeco Ins. Co., 561 F.3d 1033 (9th Cir. 2009) ...................................................................... 18 Morgan v. AT&T Wireless Services, Inc., 177 Cal. App. 4th 1235 (2009) ........................................................... 4, 13, 19 Morgan v. Harmonix Music Sys., 2009 U.S. Dist. LEXIS 57528 (N.D. Cal. July 7, 2009 .................................. 4 Oestreicher v. Alienware Corp., 544 F. Supp. 2d 964 (N.D. Cal. 2008), affd, 322 Fed. Appx. 489 (9th Cir. 2009) ........................................ 13, 14, 16 Pooshs v. Phillip Morris, USA, Inc., 561 F.3d 964 (9th Cir. 2009) ........................................................................ 18 Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979 (Cal. 2004) .......................................................................... 17 Seely v. White Motor Co., 63 Cal.2d 9 (1965) ............................................................................... 4. 16-17

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Sime v. Malouf, 95 Cal. App. 2d 82 (1949) ............................................................................ 13 Stevens v. Superior Court, 180 Cal. App. 3d 605 (1986) ........................................................................ 13 Tietsworth v. Sears, Roebuck and Co., 720 F. Supp. 2d 1123 (N.D. Cal. 2010) .......................................................... 5 Varwig v. Anderson-Behel Porsche/Audi, Inc., 74 Cal. App. 3d 578 (1977) .......................................................................... 13
OTHER AUTHORITIES

Cal. Civ. Jury Inst. 1901 ......................................................................................... 14


RULES

Cal. R. Ct. 8.548 ..................................................................................................... 11

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I.

GROUNDS FOR MOTION AND RELIEF SOUGHT In this case, Plaintiffs and Appellants Richard Smith and Rebecca Klein

alleged that, before Defendant and Appellee Ford Motor Company introduced the Ford Focus to the North American market, Ford became aware that the ignition locks it had designed for and installed in the Focus had a defect that causes those locks to freeze, making it impossible to turn the ignition key, and immobilizing the vehicle (the ignition-lock defect). Ford also knew that the nature of the ignitionlock-defect would cause locks to fail at extraordinarily high rates, which would increase with usage. Thus, Ford had a choice to make: (a) to correct the ignitionlock defect before selling the Focus, or (b) to tell prospective Focus buyers what it knew about the ignition-lock defect, allowing them to make informed decisions about whether to buy one. Ford chose to do neither. Instead, it simply sold the Focus without

disclosing the problem, and quietly sought to reduce and offset the enormous warranty costs created by the need to replace thousands of Focus ignition locks which often requires hours of labor by even the most experienced mechanicsby shifting the costs wherever possible. Ford assembled special teams of engineers to modify the ignition locks to increase the likelihood that they would continue to function until after the warranty expired (which led to customers replacing their locks multiple times in the same vehicle at their own expense); it marked up the

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price of replacement ignition locks nearly 300 percent, thereby generating a revenue stream that would offset the costs Ford incurred as a result of replacing the locks that failed during the three-year/36,000-mile warranty period; it demanded that its dealers charge Ford only a fraction of the time it took to replace the locks under warranty (while imposing no such limits for ignition locks that were repaired outside of warranty and paid for by customers); and it demanded (and received) millions of dollars from the supplier of the defective locks, despite the fact that Ford designed them, while deciding not to make necessary design changes until the 2008 model year. Plaintiffs brought this action on behalf of themselves and all similarly situated California residents to address the ignition lock-defect in the 2000 through 2006 model-year Ford Focus (Class Vehicles). The principal thrust of Plaintiffs case is that, by actively concealing its exclusive knowledge of the ignition-lock defect, Ford breached its common law disclosure duties and violated the Consumers Legal Remedies Act (CLRA) and the Unfair Competition Law (UCL). Ford moved to dispose of Plaintiffs claims by way of a motion for judgment on the pleadings, arguing that it was entitled to dismissal, primarily on the grounds that (a) Ford had no duty to disclose the ignition-lock defect because Plaintiffs had not established that it posed a safety risk, and (b) that Plaintiffs could have had no reasonable expectation that their locks would continue functioning

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after the warranty expired, notwithstanding that the Focus ignition locks are designed to last longer than the life of the vehicle (i.e., 10 years or 150,000 miles). At the outset of a lengthy hearing on that motion, the District Court noted the diverging opinions that the federal courts had reached on those issues as a result of their construction and application of two decisions by the California Court of Appeal, Bardin v. DaimlerChrysler Corp., 136 Cal. App. 4th 1255 (2006), and Daugherty v. Am. Honda Motor Co., Inc., 144 Cal. App. 4th 824 (2006), and observed that the resulting conflict could only be resolved by a definitive ruling by the California Supreme Court. At the conclusion of that hearing, the District Court declined to adopt either of Fords arguments and denied Fords motion. Several months later, Ford moved for summary judgment on the same grounds. Plaintiffs responded to the motions by supporting their allegations with internal Ford documents and testimony from Ford engineers, the vast majority of which Ford urged the District Court to ignore on the ground that the law required dismissal of Plaintiffs claims irrespective of the evidencenotwithstanding that there had been no significant developments in the law since the prior motion. Approximately one year after the summary judgment motions had been fully briefed, the District Court issued an order granting them. This time, the District Court ruled that a safety concern is a prerequisite to an intentional concealment claim against a manufacturer as a matter of law under the CLRA, UCL and the

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common law.

The District Court explained that imposing this additional

requirement in cases involving the concealment of a product defect is consistent with the economic loss rule Justice Traynor articulated in Seely v. White Motor Co., 63 Cal.2d 9 (1965), which also appears to explain why the District Court went further than any other court has gone with this requirementdismissing not only Plaintiffs statutory claims, but their common law fraudulent concealment claim as well. The District Court also dismissed Plaintiffs claim under the fraud prong of the UCL by rulingas a matter of law (irrespective of the facts, which the District Court did not analyze in its order)that Plaintiffs could not reasonably expect that their ignition locks would continue to function after Fords warranty had expired. Thus, the District Court went further than the same court that decided Daugherty (see Morgan v. AT&T Wireless Services, Inc., 177 Cal. App. 4th 1235, 1257 (2009)), which ruled that deciding that issue as a matter of law is improper in cases like this one. The safety issue that arose in the wake of Bardin and Daugherty has yet to be resolved by any California court, and it continues to divide an ever-increasing number of federal courts that apply those decisions to cases like this one. Compare, e.g., Morgan v. Harmonix Music Sys., 2009 U.S. Dist. LEXIS 57528, *11-12 (N.D. Cal. July 7, 2009) (According to all relevant case law, defendants are only under a duty to disclose a known defect in a consumer product when there

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are safety concerns associated with the products use) with Tietsworth v. Sears, Roebuck and Co., 720 F. Supp. 2d 1123, 1133-39 (N.D. Cal. 2010) (Plaintiffs successfully have alleged the existence of a duty and have stated a claim for fraudulent concealment under the common law, CLRA, and UCL,

notwithstanding the absence of a safety risk).

And in light of the Court of

Appeals ruling that consumers reasonable expectations cannot be decided as a matter of law, the District Courts order to the contrary reveals that the courts remain split as to that issue as well. California law provides no clear, controlling precedent as to these issues, which implicate important questions of state public policy that will affect California consumers and manufacturers doing business in this State alike. Because answers to these questions will determine the outcome of this appeal as well as numerous other cases pending in state and federal courts, Plaintiffs hereby move this Court to certify the following questions to the California Supreme Court: 1. When a manufacturer intentionally conceals the existence of a defect that does not become manifest until after the warranty expires, does California law require a plaintiff to demonstrate that the defect has the potential to injure or kill as a prerequisite to bringing a fraudulent concealment claim at common law or as a violation of the CLRA, or the UCL? Does California law require a court to dismiss a claim that a manufacturer has violated the UCLs fraud prong by concealing a defect that became manifest after the products warranty expired because a consumer cannot, as a matter of law, reasonably expect a product to continue functioning after its warranty has expired?

2.

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II.

BACKGROUND1 An ignition lock enables the driver to insert the key into it, activate the

ignition, and start the engine, making it one of the most basic component parts in any automobile. Yet, according to the Ford engineer who was in charge of the ignition locks Ford installed in all vehicles it manufactured for sale in the North American market, Ford treated the design of this critical component in the Focus as an afterthought. Declaration of Jeffrey L. Fazio, Ex. E at 4:18-5:1.

Consequently, as another Ford engineer affirmed in early 2005, the ignition locks in the Focus failed for years after Ford began selling it in the 2000 model year. E.g., id. at 17:17-24 (we built Focus vehicles from 2000 through 2004 [model year] with a durability issue with the ignition tumbler that would immobilize the vehicle and necessitate the drilling out and replacement of the ignition tumbler). The nature of the ignition-lock defect is such that it becomes progressively worse with use, causing the locks to fail more frequently with time in service, notwithstanding that the ignition lock is designed to last at least as long as the vehicle itself without service or maintenance. Id. at 3:1-6:2. Because resolution of this motion does not turn on the evidence presented on summary judgment, Plaintiffs have cited to their opposition brief for the factual background and procedural history, as opposed to submitting the hundreds of pages of evidence that comprise the factual record. (Unless otherwise indicated, all references to Ex. __ are to the exhibits attached to the Fazio declaration filed with this motion.)
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Ford knew the Focus ignition lock was defective before it introduced it to the North American market in August 1999. For example, Focus test drivers complained to Ford management about the high effort required to insert[] key to ignition, no later than June 1999. Id. at 6:3-11. By July 1999, Ford had already begun paying to replace defective ignition locks, and by November 1999, so many Focus ignition locks had failed that replacement locks were already on national back-order, and the part remained on back-order at various times over the next several years. Id. Moreover, in October 2005 Ford issued a Technical Service Bulletin that addressed the ignition-lock defect in all Focus vehicles sold through the 2005 model year. Id. at 9:5-11; Ex. B at Ex. 1.2 When the ignition-lock defect becomes manifest, it most commonly As mentioned above, ignition locks are so basic to a vehicles functionality that they are expected to last even longer than the vehicle itself, a minimum of 10 years or 150,000 miles. Id. at 3:14-4:1. According to Fords Failure Mode Effects Analysis (FMEA), a failure-rate between one and two percent within 10 years or 150,000 miles is high or frequent. Id. at 4:2-16. Failure rates between five and 10 percent within 10 years or 150,000 miles are very high and persistent, and are ranked 9 or 10 on the FMEA scale. Id. Focus ignition locks failed at astronomically high rates. For example, ignition locks in the 2000 model-year Focus had failed at the rate of 24.3 percent within the three-year/36,000-mile warranty period and, as Ford knew, those failure rates continued to climb after the warranty expired because of the nature of the defect. Id. at 4:18-6:20. Ignition-lock failure that occurred within the warranty period during subsequent model years was as least as high as 12% for the 2003 model-year Focuses owned by Mr. Smith and Ms. Klein, and 7.7% for the 2004 model-year Focus. Id. at 6:21-7:1. All these failure rates ranked the worsta 9 or 10on Fords FMEA occurrence scale.
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becomes impossible to turn the ignition key or to start the engine, leaving the vehicle immobilized and its driver stranded. Id. at 18:11-14:2, 28:16-29:16.

Internally, Ford acknowledges that the ability to start the car is a basic quality requirement, which, according to Ford, must be met by product or process through its design . . . to ensure that there are no failure modes associated with any of them. Id. at 3:2-13. Ford also acknowledges internally that, because the ability to start the car is a basic quality requirement, parts like the ignition lock are expected or assumed to work, thus, the average consumer does not think about them when buying a car and would not typically mention these items when asked for his or her requirements. Id. This does not mean, however, that consumers have no expectations about those parts; to the contrary, the customer satisfaction score card upon which Ford relies to help determine what customers want in vehicles (called the Kano Model) is predicated on the awareness that certain core components of a car are so basic that customers do not ask about them, and that defect-free performance of these core components is crucial to customer satisfaction. Id. at 20:21-26, 26:14-27:5. According to Fords own quality standards, [w]hen Basic Quality is not achieved, customers are dissatisfied. Id. at 26:22-24.3

A Ford engineer whose ignition lock failed in his own Focus twice (footnote continues on next page) 8

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Cost is another material aspect of the ignition-lock defect: Failed ignition locks are expensive to replace, particularly in light of the fact that the Focus is sold as an economy car. Mr. Smith paid $521 to replace his lock, and Ms. Klein paid well over $200 for each of her two replacement locks. Id. at 19:23-20:12.4 After discovering the magnitude of the ignition-lock defect and the tremendous warranty costs it would be forced to incur, Ford assembled several special teams of engineers to determine how to minimize and contain those costs. Id. at 9:26-10:15 & nn. 9-10. Among the efforts Fords engineers made over the years was to modify the Focus ignition lock to increase the likelihood that it would last until its warranty expired, thereby shifting the cost of replacement from Ford to its customers. Id. at 9:15-14:13.

expressed the frustration of being unable to start [an] otherwise perfectly functional vehicle and that it was the type of problem that drives customers away from our showrooms and towards Toyota and Honda. Id. at 18:11-21. Another Ford engineer commented: Personally, I am surprised there are this many problems with this lock cylinder. My 1924 Model T has the same flat plates and cylinder system and it has yet to jam even though it is the original lock. Id. at 3:27-28 n. 2 (emphasis added). Plaintiffs submitted evidence showing that ignition-lock failure does pose a safety risk for at least three reasons: (a) it immobilizes the vehicle and leaves drivers stranded; (b) it can prevent a consumer from shutting off the engine; and (c) it can prevent a consumer from removing the lock from the ignition, leaving the vehicle susceptible to being driven by anyone who can turn the key. Id. at 18:1119:8, 28:15-30:8.
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Fords cost containment actions also included (a) demanding compensation from the manufacturer of the Focus ignition locks for supplying locks Ford characterized as plagued with quality and design defects, and clearly not fit enough for use, id. at 14:14-15:2; (b) delaying proposed design changes to eliminate the ignition-lock defect until 2008 (when the Focus was scheduled for a pre-planned design overhaul) because the cost of those changes could not be recouped by warranty savings, id. at 7:19-9:4; (c) limiting the amount Ford would reimburse its dealers for replacing defective locks under warranty, but not imposing the same limits on amounts dealers charged consumers for after-warranty repairs, id. at 15:3-18; (d) rejecting multiple requests by Ford of Mexico (FoM) to recall or extend the warranty on the Focus ignition locksrequests FoM made because it recognized that the ignition-lock defect results in a high degree of customer dissatisfaction due to the nature of the concern such as inoperable vehicle, id. at 16:3-18:5; (e) marking up the cost of replacement locks by nearly 300 percent and refusing to reduce the price because replacement-lock sales constitute a substantial stream of revenue for Ford, id. at 15:18-16:2, and (f) actively concealing the existence of the ignition-lock defect to protect sales, including stifling the complaints of certain vocal consumers by compensating them under an undisclosed After Warranty Adjustment Program if they meet certain criteria, one of which is whether the case represent[s] high potential for litigation

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. . . or public relations impact, e.g., id. at 9:5-14, 40:8-41:4, 49:3-22. III. ARGUMENT A. THE QUESTIONS PRESENTED CRITERIA FOR CERTIFICATION THIS MOTION SATISFY

BY

THE

This Court may certify important questions of state law to the California Supreme Court if the answers to those questions will determine the outcome of an appeal and California law provides no clear, controlling precedent. Cal. R. Ct. 8.548(a)(1)-(2); Kremen v. Cohen, 325 F. 3d 1035, 1037 (9th Cir. 2003) (requests for certification are reserved for state law questions that present significant issues, including those with important public policy ramifications, and that have not yet been resolved by the state courts). Here, resolution of these questions will be dispositive of Plaintiffs appeal, thus the first criteria is satisfied. In addition to resolving the primary issues in the present appeal, answers to the questions presented by this motion are profoundly significant and have substantial policy implications for consumers and manufacturers doing business in in California. Varying interpretations of Bardin and Daugherty have led an everincreasing number of federal courts to reach widely divergent conclusions about some of the most fundamental issues in California consumer-protection law. The text of the decisions in Bardin and Daugherty can be read to support both an affirmative and a negative answer to both of these questions, but only one answer is consistent with decades of California law and the policies that inform it. Yet,

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more than four years after these decisions were issued, there is no clear, controlling precedent.5 The confusion engendered by the lack of such precedent is aptly illustrated in this case, in which the District Court relied on Bardin and Daugherty to answer these questions in the negative when it ruled on Fords motions for judgment on the pleadings, and in the affirmative when it ruled on Fords summary judgment motions. As the District Court specifically recognized during the hearing of Fords motion for judgment on the pleadings, the uncertainty among the bench and bar concerning the appropriate application of Bardin and Daugherty underscores the need for guidance from the California Supreme Court. Ex. A at 4:6-5:7, 38:2439:8, 63:1-10. B. THE SPLIT AMONG COURTS APPLYING CALIFORNIA LAW IS BASED ON A DUBIOUS READING OF CALIFORNIA AUTHORITY AND A MISAPPLICATION OF THE POLICIES THAT INFORM IT, WHICH FAVORS CERTIFICATION

As the District Court observed in its order granting summary judgment (see Ex. A at 7:13-24), it is well established that under California law that As this Court has recognized, certification is appropriate where, as here, the questions to be certified present questions to which California Courts of Appeal have responded with answers that may conflict with California Supreme Court precedent that, while not directly on point, strongly suggests a different outcome is warranted. See, e.g., K F Dairies, Inc. & Affiliates v. Firemans Fund Ins. Co., 179 F.3d 1226, 1226-27 (9th Cir. 1999).
5

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[t]here are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. LiMandri v. Judkins, 52 Cal. App. 4th 326, 336 (1997) (inner quotation marks and citations omitted); see also In re Sony VAIO Computer Notebook Trackpad Litig., 2010 U.S. Dist. LEXIS 115142 at *14-15 (S.D. Cal. Oct. 27, 2010); Oestreicher v. Alienware Corp., 544 F. Supp. 2d 964, 970-71 (N.D. Cal. 2008), affd, 322 Fed. Appx. 489 (9th Cir. 2009).6 Until Bardin and Daugherty were decided, not a single case involving the duty to disclose depended on the existence of a safety risk, nor does the California There are myriad cases in which these disclosure duties are applied to concealment claims in a variety of contexts that range from the provision of cellular phone service to the purchase of a used car. See, e.g., Morgan, 177 Cal. App. 4th at 1240, 1255-62; Lovejoy v. AT&T Corp., 119 Cal. App. 4th 151, 153, 158-61 (2004); Marketing West, Inc. v. Sanyo Fisher (USA) Corp., 6 Cal. App. 4th 603, 612-13 (1992); Khan v. Shiley, Inc., 217 Cal. App. 3d 848, 858 (1990); Stevens v. Superior Court, 180 Cal. App. 3d 605, 609 (1986); Varwig v. AndersonBehel Porsche/Audi, Inc., 74 Cal. App. 3d 578, 580-82 (1977); Outboard Marine Corp. v. Superior Court, 52 Cal. App. 3d 30, 36-37 (1975); Massei v. Lettunich, 248 Cal. App. 2d 68, 72-73 (1967); Lingsch v. Savage, 213 Cal. App. 2d 729, 74042 (1963); DeSpirito v. Andrews, 151 Cal. App. 2d 126, 130-31 (1957); Sime v. Malouf, 95 Cal. App. 2d 82, 99-100 (1949). See also In re Medscan Research, Ltd., 940 F.2d 558, 563 n. 4 (9th Cir. 1991) (concealment may constitute actionable fraud where [the] seller knows of facts which materially affect the desirability of the property, which he knows are unknown to the buyer).
6

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Judicial Councils official jury instruction, which pertains to the elements that must be established to prevail on a claim for fraudulent concealment in this State. See Cal. Civ. Jury Inst. 1901. Since Bardin and Daugherty issued, however, a number of federal courts have construed those decisions to mean that a safety issue is a prerequisite to a duty to disclose the existence of a defect that causes a product to fail after the expiration of its warranty. E.g., Hovsepian v. Apple, Inc., 2009 U.S. Dist. LEXIS 117562, *10 n. 3 (N.D. Cal. Dec. 17, 2009); Morgan, 2009 U.S. Dist. LEXIS 57528 at *11-12; Hoey v. Sony Electronics, Inc., 515 F.Supp. 2d 1099 (N.D. Cal. 2007); Oestreicher, 544 F. Supp. 2d at 972.7 The question, then, is whether Bardin and Daugherty established a new legal standard in California that governs claims where a manufacturer is alleged to have fraudulently concealed a defect that causes a product to fail after its warranty expires; or whether those decisions reflect nothing more than that the plaintiffs in The first time the District Court considered these questions, it noted that until we get a ruling out of the California Supreme Court clarifying this whole matter, I dont know if we ever will, if we ever do that will be a big help. Ex. C at 4:18-20 (emphasis added). Toward that end, both sides in the present case have taken an active role. Plaintiffs counsel were retained as appellate counsel for the plaintiffs in Daugherty for the sole purpose of petitioning the California Supreme Court for review or depublication. The petition was denied, with Justice Kennard expressing the opinion that it should be granted. Daugherty v. Honda Motor Co., Ltd., 2007 Daily Journal DAR 1859 (Feb. 7, 2007). Similarly, Fords counsel petitioned this Court to publish its order in Oestreicher, 322 Fed. Appx. 489 (9th Cir. 2009), for the specific purpose of resolving the disputed issues in the present case. See Ex. F (request for publication); Ex. G (order denying request).
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those cases failed to plead facts that were material enough to require disclosure, and that a safety risk was the only way the duty to disclose the purported defects may have been triggered under those particular circumstances.8 Although the District Court answered this question by embracing the latter view the first time it was presented in this case, see Ex. C at 15:4-16:8, 28:4-6, 38:24-39:11, 63:20-64:17, it embraced the former view the next time, finding that Fords liability for concealing the ignition-lock defect turned on whether it posed a safety concern, Ex. A at 7:15-8:16. 9 The District Court joined other federal courts In Bardin and Daugherty, both courts found that the plaintiffs had not alleged facts that would give rise to a duty to disclose them. In Bardin, the plaintiffs alleged that the defendant failed to disclose that it had manufactured exhaust manifolds out of tubular steel rather than cast iron, see 136 Cal. App. 4th at 1276; and, in Daugherty, the plaintiffs alleged that the defendant had failed to disclose that oil seals in certain vehicles might leak, even though there was no indication that they were designed to last the life of the vehicle, see 144 Cal. App. 4th at 836. Given the facts as the courts found them, the existence of a safety issue was the only way the alleged defects could have been deemed material. In Bardin, the plaintiffs did not make such safety allegations, 136 Cal. App. 4th at 1270; in Daugherty, the plaintiffs argued that they had made safety allegations, but the court found that plaintiffs allegations were insufficient, 144 Cal. App. 4th at 836. Thus, the Bardin court found that the defendant was under no obligation to tell anyone what kind of metal it had used in its exhaust manifolds, see 136 Cal. App. 4th at 1270; and the Daugherty court found that, without more, the defendant was under no obligation to tell anyone that the oil seals in its vehicles might leak, see 144 Cal. App. at 828. During the hearing of Fords first motion, the District Court observed that the cases imposing a safety prerequisite applied it only to claims under the UCL and CLRA, and that it doesnt have an effect on [Plaintiffs] common law fraud claim. Ex. C at 12:23-13:7. The District Court was correct. See e.g., Oestricher, (footnote continues on next page) 15
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that have interpreted Bardin and Daugherty as imposing safety as a prerequisite to a concealment claim, expressing concern shared by some that allowing claims involving the concealment of a product defect to proceed without a safety requirement could blur the line between warranty and tort law. See Ex. A at 7:259:16; Baggett v. Hewlett-Packard Co., 2009 U.S. Dist. LEXIS 95241, *5-7 (C.D. Cal. Sept. 29, 2009) Oestreicher, 544 F. Supp. 2d at 972. According to the District Court, adding a safety prerequisite to such claims is consistent with the policy that precludes tort recovery against a manufacturer unless a product defect poses a risk of physical injury. Ex. A at 7:25-9:16 (quoting Seely, 63 Cal. 2d at 18). The District Court was mistaken. As the California Supreme Court

explained in Seely, allowing recovery for purely economic loss under strict liability or negligence principles would make it impossible for a manufacturer to order its business affairs, because of the potential for liability even for unforeseeable economic injuries (which could not be disclaimed), 63 Cal. 2d at 17, and because it would require the consuming public ultimately to bear the cost of insuring the satisfaction of each consumers personal predilections, id. at 18-19. But those

544 F. Supp 2d at 970 (even after Daugherty, safety issue does not apply to duty to disclose material facts under the common law). When ruling on Fords summary judgment motions, however, the District Court not only reversed itself on the statutory claims, but dismissed the common law fraudulent concealment claim without explanation or analysis. Ex. A at 15:17-16:7.

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concerns are inapplicable to cases, such as this one, that involve intentional concealment of a known product defect and do not involve a disgruntled commercial actor that wants its money back because the product it bought did not meet its peculiar needs. At the very core of this case is intentional concealment of a known design defect that could have been remedied, but Ford chose not to do so because it cost too much. Unlike the defendant in Seely, Ford made a conscious decision to conceal the existence of the ignition-lock defect from consumers as a means of shifting the cost of repair to purchasers, thereby preventing them from making an informed purchase decision in the first place. As the California Supreme Court has recognized in a case involving fraudulent misrepresentations, applying Seely as a bar to liability for such intentional conduct would accomplish no legitimate societal objective: No rational party would enter into a contract anticipating that they are or will be lied to. While parties, perhaps because of their technical expertise and sophistication, can be presumed to understand and allocate the risks relating to negligent product design or manufacture, those same parties cannot, and should not, be expected to anticipate fraud and dishonesty in every transaction. Danas argument therefore proposes to increase the certainty in contractual relationships by encouraging fraudulent conduct at the expense of an innocent party. No public policy supports such an outcome. Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 991-92 & n. 7 (Cal. 2004) (inner quotation marks and citations omitted; emphasis added). Robinson involved claims of affirmative misrepresentations and intentional

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concealment, and the court did not reach the question as it pertained to fraudulent concealment. Id. at 991; see also id. at 1000 (Werdeger, J., dissenting) (noting that the issue ultimately will have to be decided, in this or a future case). As this Court has recognized, certification is particularly appropriate where the California Supreme Court has specifically reserved an issue. Pooshs v. Phillip Morris, USA, Inc., 561 F.3d 964, 968 (9th Cir. 2009). Certification is also appropriate where two California Court of Appeal decisions have addressed the same issue and have not resolved it. Minkler v. Safeco Ins. Co., 561 F.3d 1033, 1035-36 (9th Cir. 2009). Here, the District Court relied on Daugherty to conclude, as a matter of law, that no consumer could reasonably expect a product to last longer than its warranty under the UCL, Ex. A at 21:15-22:4, notwithstanding that it rejected this construction of Daugherty in the context of Fords motions for judgment on the pleadings, Ex. C at 22:1-17, 37:2338:11. The District Court correctly had observed that it may not be reasonable to expect that a part will not fail after its warranty expires if it is supposed to wear out through ordinary use (e.g., tires, shock absorbers, and brake pads (or, as in Daugherty, gaskets)), but if the part is designed to last for the life of the vehicle without the need for service or maintenance (e.g., speedometers and the ignition locks at issue in the present case), then they might well be pleading a quoteunquote defect as opposed to something that just didnt live up to their hopes and

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dreams. Id. at 37:23-38:11. This is not a case of a product failing to meet a plaintiffs hopes and dreams; this is a case in which an automaker intentionally concealed a defect in a lifetime component whose failure prevented Plaintiffs vehiclesand hundreds of thousands of othersfrom being driven at all after a few years of service, just as Ford knew that they would. But it was not only Plaintiffs who believed this was an important fact that should have been disclosed to them before they purchased their Focus (both Plaintiffs testified they would not have bought the Focus had they known about the ignition-lock defect, Ex. E at 19:18-22); Plaintiffs submitted a wealth of other evidence that established that fact, see Section II., supra, at 6-10, just as this Court prescribed in Clemens v. DaimlerChrysler Corp., 530 F.3d 852, 860-61 (9th Cir. 2008). Yet, without addressing the evidence, the District Court relied on Daugherty to reverse its prior ruling and decided the issue against Plaintiffs as a matter of law. Ex. A at 21:16-22:4. That decision clashes with a subsequent decision by the same District Court of Appeal that decided Daugherty, which ruled that the issue may not be decided as a matter of law under such circumstances. Morgan, 177 Cal. App. 4th at 1257.10

To the extent the District Court read Daugherty as establishing a new rule of law under the UCL, its decision clashes with the spirit, if not the letter, of decades of UCL jurisprudence, including the California Supreme Courts ruling in (footnote continues on next page) 19

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IV.

CONCLUSION The District Court was correct when it observed that the questions presented

by this motion need to be resolved, once and for all: As the two diametrically opposite rulings in this case so aptly illustrate, those questions have created confusion and uncertainty about extraordinarily important issues concerning California consumer-protection law. Plaintiffs respectfully request that this Court grant this motion and certify those questions to the California Supreme Court. DATED: January 26, 2011 FAZIO | MICHELETTI LLP by s/ Jeffrey L. Fazio Jeffrey L. Fazio Attorneys for Plaintiffs/Appellants In re Tobacco II Cases, 46 Cal. 4th 298 (2009), thus certification is warranted for that reason as well. In Tobacco II, a case in which tobacco companies allegedly violated the UCL by conducting a long campaign of deceptive advertising about the relationship between tobacco use and disease, the court explained that a misrepresentation is judged to be material if a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question, and as such materiality is generally a question of fact unless the fact misrepresented is so obviously unimportant that the jury could not reasonably find that a reasonable man would have been influenced by it. Id. at 327 (emphasis added; internal quotation marks and citation omitted). Indeed, the court specifically found materiality was not defeated even though the public has known for years that cigarette smoking can cause cancer. Id. at 328. Accordingly, Tobacco II cannot be reasonably read to support a rule of law that would preclude a UCL claim for fraudulent concealment against a defendant who intentionally conceals the existence of a material defect simply because the product happens to outlast its limited warranty, however short that might be. Certification is, therefore, warranted. See, e.g., K F Dairies, Inc. & Affiliates v. Firemans Fund Ins. Co., 179 F.3d 1226, 1226-27 (9th Cir. 1999).

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CERTIFICATE OF SERVICE Undersigned counsel hereby certifies as follows: I am a citizen of the United States, a resident of the State of California, over the age of eighteen years, and not a party to the action. My business address is 2410 Camino Ramon, Suite 315, San Ramon, California, 94583. On the date set forth below, I used the appellate CM/ECF system to file electronically the foregoing Motion for Order Certifying Questions to California Supreme Court and the accompanying Declaration of Jeffrey L. Fazio on behalf of Plaintiffs/Appellants with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit. I understand that, with the exception of the person set forth below, all principal participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF System. The following person does not appear to be registered participants in the CM/ECF system, hence I served him via electronic mail (per the parties agreement that this medium is acceptable for service of all documents in this matter) at the email address set forth next to his name, below: Warren E. Platt (wplatt@swlaw.com) Snell & Wilmer LLP 600 Anton Blvd., Suite 1400 Costa Mesa, CA 92626-7689

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Executed on January 26, 2011, at San Ramon, California. /s Jeffrey L. Fazio Jeffrey L. Fazio

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