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Counts v. General Motors, LLC

United States District Court, E.D. Michigan, Northern Division

February 14, 2017

JASON COUNTS, et al, Plaintiff,


          THOMAS L. LUDINGTON United States District Judge

         On June 7, 2016, nine plaintiffs filed a 442-page complaint alleging deceptive advertising, breach of contract, and fraudulent concealment claims under the laws of thirty states against Defendant General Motors (“GM”). ECF No. 1. Fundamentally, Plaintiffs allege that GM installed a “defeat device” in the 2014 Chevrolet Cruze Diesel which results in significantly higher emissions when the vehicle is in use compared to when it is being tested in laboratory conditions. Plaintiffs purport to bring suit on behalf of a putative class of other 2014 Chevrolet Cruze Diesel buyers. On October 3, 2016, Defendant filed a motion to dismiss which argues that Plaintiff's suit should be dismissed because Plaintiffs lack standing to bring suit, the claims are preempted by the Clean Air Act, the primary jurisdiction doctrine mandates deference to an EPA investigation of the claims, and Plaintiffs have failed to state a claim upon which relief can be based. ECF No. 12. For the reasons stated below, that motion will be granted in part.


         When considering a motion to dismiss, the plaintiff's adequately pleaded factual allegations must be accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). That is, the veracity of the factual allegations in Plaintiffs' Complaint is to be assumed.


         Plaintiffs' complaint names nine plaintiffs: Jason Counts, Donald Klein, Oscar Zamora, Brandon Stone, Jason Silveus, John Miskelly, Thomas Hayduk, Joshua Hurst, and Joshua Rodriguez. Compl. at ¶ 20-44, ECF No. 1. The complaint alleges that each Plaintiff is similarly situated. All bought a Chevrolet Cruze[1] which was allegedly equipped with a “defeat device” that resulted in significantly increased emissions when tested during normal driving as compared to when tested in laboratory settings. Plaintiffs further allege that they purchased the vehicle on the “reasonable, but mistaken, belief that [the] vehicle was a ‘clean diesel' as compared to gasoline vehicles, complied with United States emissions standards, and would retain all of its operating characteristics throughout its useful life, including high fuel economy.” See Id. at ¶¶ 20, 23, 26, 27, 30, 33, 36, 39, 42. Further, Plaintiffs allege that they “selected and ultimately purchased [their] vehicles[s], in part, because of the Clean Diesel system, as represented through the advertisements and representations made by GM.” Id. Finally, Plaintiffs allege that if GM had disclosed the true details of the clean diesel system design or indicated that the 2014 Chevrolet Cruze actually “emitted pollutants at a much higher level than gasoline vehicles do, ” they “would not have purchased the vehicle, or would have paid less for it.” Id.

         Defendant General Motors designs, markets, manufactures, and distributes automobiles, including those marketed under the Chevrolet brand, worldwide. Id. at 46. GM designed and manufactured the 2014 Chevrolet Cruze Diesel. Id. GM also developed and disseminated the advertising campaign for the vehicle. Id.


         According to Plaintiffs, diesel engines offer increased torque, low-end power, drivability, and fuel efficiency compared to gasoline engines. Id. at ¶ 4. However, those advantages are offset by the dirtier, more harmful, emissions which diesel engines produce. Id. Specifically, diesel combustion creates oxides of nitrogen (NOx), a “toxic pollutant” that “contributes to nitrogen dioxide, particulate matter in the air” and certain health problems. Id. at ¶ 54. Generally speaking, the “greater the power and fuel efficiency” of the diesel engine, “the dirtier and more harmful the emissions.” Id. at ¶ 54.

         Because of the pollutants produced by diesel combustion, the Environmental Protection Agency has promulgated regulatory standards (pursuant to the Clean Air Act) which govern, among other things, the amount of NOx that diesel engine vehicles can produce. Id. at ¶ 56. GM, and other vehicle manufacturers, must obtain certifications that a new vehicle complies with EPA (and certain state) regulations before introducing the vehicle into the stream of commerce. Id.

         When it designed the 2014 Chevrolet Cruze Diesel, GM sought to feature all the advantages of diesel engines while minimizing the emission of harmful pollutants. Id. at ¶¶ 60- 62. By creating the “Cruze Clean Turbo Diesel” engine, GM apparently built a powerful, efficient, diesel engine that was environmentally-friendly. Id. Plaintiffs allege that GM marketed the 2014 Chevrolet Cruze as a “Clean Diesel” vehicle that was “environmentally friendly and fuel efficient.” Id. at ¶ 63. In their complaint, Plaintiffs include several images that GM disseminated during the advertising campaign. See Id. at ¶¶ 65-68. Those images include the words “clean diesel, ” indicate that the “Clean Turbo Diesel” engine “improves performance while decreasing emissions, ” and state that “[a]dvanced emissions-scrubbing technologies make today's diesels run clean.” Id. In one especially relevant image, GM advertised that “[t]he turbocharged engine in Cruze Clean Turbo Diesel [sic] generates at least 90% less nitrogen oxide and particulate emissions when compared to previous-generation diesels.” Id. at ¶ 68. Plaintiffs also cite numerous advertisements and public statements promulgated by GM which assert GM's commitment to high quality standards and environmental responsibility. Id. at ¶¶ 69-72.


         All parties agree that GM received a certification of compliance with the relevant regulations from the EPA prior to releasing the 2014 Chevrolet Cruze Diesel. However, Plaintiffs allege that, despite that certification and GM's “clean diesel” advertising campaign, the 2014 Chevrolet Cruze Diesel was equipped with a “defeat device” which triggered the Cruze Clean Turbo Diesel functions when the vehicle was being tested, but deactivated the system when the vehicle was actually in use. Id. at ¶¶ 73-75.

         Specifically, Plaintiffs allege that multiple reports and tests indicate that GM vehicles equipped with “clean diesel” systems “emit far more pollution on the road than in lab tests.” Id. at ¶ 73. In one alleged study that was conducted by “TNO” at the direction of the Dutch Ministry of Infrastructure, real-world testing indicated that the “GM Opel emits NOx at levels much higher than in controlled dynamometer tests and much higher than the ‘Euro 6 Standard, ' which is less stringent than the U.S. standard.” Id. at ¶ 74. The TNO study, which was released in May 2015, found that “on average [the GM Opel] vehicles were at eight times the [European] limit.” Id. at ¶ 75. Although the study involved European vehicles, Plaintiffs allege that the “core technologies of the Opel design are substantially similar to the Chevy Cruze.” Id. In one particularly relevant portion of the TNO report that Plaintiffs quote, TNO states: “‘In most circumstances arising in normal situations on the road, the systems scarcely succeed in any effective reduction of NOx emissions.'” Id. at ¶ 79.

         Plaintiffs also allege that the British Department of Transportation released a study in April 2016 which reached similar conclusions. Id. at ¶ 80. This study stated that “[r]eal world emissions of [GM's Opel] vehicles were found to be approximately 750 mg/km and 400 mg/km for the Insignia and Mokka, respectively. These emissions are well above the Euro 6 standard of 80 mg/km.” Id. A study conducted by the French Ministry of the Environment arrived at similar conclusions. Id. at ¶ 81. Likewise, Emissions Analytics, an U.K. company which has conducted testing on many European vehicles, found that the large disparity between real world emissions and laboratory emissions meant “‘that fuel economy on average is one quarter worse than advertised.'” Id. at ¶ 82. However, Plaintiffs do not allege that the quoted statement from Emissions Analytics was specifically applicable to GM's European vehicles, much less diesel engines generally.

         Plaintiffs also allege that testing by the Institute for Transport Studies, a U.K. organization, and by the German Federal Department of Motor Vehicles, found that certain GM vehicles were not in compliance with European NOx emissions standards. ¶¶ 83, 85. The testing by Germany has led to a “‘voluntary' recall of 630, 000 vehicles in Europe, including GM vehicles.” Id. at ¶ 85. Plaintiffs allege that after it became public that Volkswagen had utilized a defeat device in some of its vehicles, GM halted production of the Chevrolet Cruze. Id. at ¶ 86.

         Finally, Plaintiffs allege that they have tested the Chevrolet Cruze “using a Portable Emissions Measurement System.” Id. at ¶ 87. According to Plaintiffs, that testing revealed that the Cruze was noncompliant with U.S. emissions standards during highway driving (especially speeds over 70 miles per hour), stop-and-go driving, temperatures below 50° fahrenheit, and temperatures over 85° fahrenheit. Id.


         Besides the potential environmental impacts of the NOx emissions, Plaintiffs allege that GM's misrepresentations inflicted certain other damages on Plaintiffs. First, Plaintiffs allege that, if GM is forced to alter the 2014 Chevrolet Cruze vehicles to make them compliant with U.S. emissions standards, vehicle performance will be substantially downgraded. Id. at ¶ 90. Because the vehicles “will no longer perform as they did when purchased and as advertised, ” the vehicles' value will be diminished and owners will be forced to “pay more for fuel.” Id. Second, Plaintiffs allege that GM “charged more for its diesel car than a comparable gas car.” Id. at ¶ 91. According to Plaintiffs, if they had “known of the higher emissions at the time they purchased or leased their [Cruze], they would not have purchased or leased those vehicles, or would have paid substantially less for the vehicles.” Id. at ¶ 92.


         Defendant is moving for dismissal under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Rule 12(b)(1) provides the means by which a party may assert lack of subject-matter jurisdiction as a defense. “A Rule 12(b)(1) motion for lack of subject matter jurisdiction can challenge the sufficiency of the pleading itself (facial attack) or the factual existence of subject matter jurisdiction (factual attack).” Cartwright v. Garner, 751 F.3d 752, 759 (6th Cir. 2014) (citing United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.1994)). “A facial attack goes to the question of whether the plaintiff has alleged a basis for subject matter jurisdiction, and the court takes the allegations of the complaint as true for purposes of Rule 12(b)(1) analysis.” Id. However, a “factual attack challenges the factual existence of subject matter jurisdiction.” Id. In that case, “the district court has broad discretion over what evidence to consider and may look outside the pleadings to determine whether subject-matter jurisdiction exists.” Adkisson v. Jacobs Eng'g Grp., Inc., 790 F.3d 641, 647 (6th Cir. 2015). Regardless, “the plaintiff bears the burden of proving that jurisdiction exists.” DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir. 2004).

         A pleading fails to state a claim under Rule 12(b)(6) if it does not contain allegations that support recovery under any recognizable legal theory. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In considering a Rule 12(b)(6) motion, the Court construes the pleading in the non-movant's favor and accepts the allegations of facts therein as true. See Lambert, 517 F.3d at 439. The pleader need not provide “detailed factual allegations” to survive dismissal, but the “obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In essence, the pleading “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face” and “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678-79 (quotations and citation omitted).

         Federal Rule of Civil Procedure 9(b) provides a heightened pleading standard for claims of fraud. “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Id. As explained by the Sixth Circuit in Frank v. Dana Corp. 547 F.3d 564 (6th Cir. 2008), claims of fraud must meet the following requirements: “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” Id. at 569 (citation omitted). At a minimum, a claimant must allege “the time, place and contents” of the alleged fraud. Id.


         GM bases its motion to dismiss on four grounds. First, GM argues that Plaintiffs lack Article III standing. Second, GM argues that Plaintiffs claims are preempted by the Clean Air Act. Third, GM argues that Plaintiff's claims should be stayed under the primary jurisdiction doctrine. Finally, GM argues that Plaintiffs have failed to state a claim upon which relief can be based. GM's arguments will be addressed in turn, starting with standing because it is a “threshold question in every federal case.” Miller v. City of Cincinnati, 622 F.3d 524, 531 (6th Cir. 2010) (quoting Planned Parenthood Ass'n v. City of Cincinnati, 822 F.2d 1390, 1394 (6th Cir.1987)).


         Defendant argues that Plaintiffs lack Article III standing because they have not alleged a concrete and particularized injury and because they are asserting claims arising under the law of states where none of the named Plaintiffs reside or bought their vehicle. Article III, § 2 of the United States Constitution limits federal court jurisdiction to “Cases” and “Controversies.” The Supreme Court has interpreted Art. III, § 2 as creating the doctrine of standing, which provides that federal jurisdiction exists only if the dispute is one “which [is] appropriately resolved through the judicial process.” Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). For standing to exist, three elements must be satisfied: injury in fact, causation, and redressability. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61(1992). Injury in fact exists when the plaintiff has suffered “an invasion of a legally protected interest” that is both “concrete and particularized” and “actual or imminent, ” not “conjectural or hypothetical.” Id. at 560 (citations omitted). Causation exists if the injury is one “that fairly can be traced to the challenged action of the defendant.” Simon v. E. Kentucky Welfare Rights Org., 426 U.S. 26, 41 (1976). The redressability requirement is satisfied if the plaintiff's injury is “likely to be redressed by a favorable decision.” Id. at 38.

         GM argues that Plaintiffs' allegations of damages are generalized and speculative. According to Defendant, Plaintiffs' “complaint focuses on vehicle makes they do not own (Opel and Vauxhall) that are manufactured, sold and marketed by different entities exclusively in Europe, not the United States.” Mot. Dismiss at 13, ECF No. 12. Defendants argue that Plaintiffs have not plausibly alleged that GM vehicles are in noncompliance with European regulatory standards, much less U.S. regulatory standards. Defendants further assert that Plaintiffs' alleged damages are based on “speculative future injuries” that rest on “multiple contingencies.” Id. at 16. Specifically, Defendants characterize Plaintiffs' alleged damages as follows: Because certain European vehicles purportedly exceed European emission standards, the diesel Chevrolet Cruze likewise must exceed U.S. emission standards. Because the Cruze exceeds emissions standards, GM may have to recall the vehicle in the future and alter the engine to ensure compliance. If that is done, the Plaintiffs argue, their vehicles will have decreased performance and fuel efficiency, meaning their vehicles will be worth less. Finally, Defendants argue that Plaintiffs' allegations regarding environmental and health harms caused by increased emissions are generalized grievances which, because suffered by the public at large, cannot establish standing.

         Plaintiffs characterize their injury in fact allegations differently. Rather than relying on environmental harms or noncompliance with government regulation, Plaintiffs assert an overpayment theory. That theory is explained as follows: GM promised a clean diesel engine- including “at least 90% less nitrogen oxide and particulate emissions”-but actually delivered a vehicle that turns off its emissions reduction system when in use. GM charged more for the diesel Chevrolet Cruze model than a comparable gasoline model and Plaintiffs chose the diesel model based at least in part on its “clean diesel” features. Accordingly, Plaintiffs allege that GM's misrepresentations resulted in their overpaying for a vehicle because the vehicle did not work in the way GM promised it would.

         In response, GM admits that overpayment can constitute an Article III injury, but assert that Plaintiffs' theory requires, when challenged by a motion to dismiss, that they plausibly allege the falsity of the representations. According to GM, Plaintiffs have not plausibly alleged that “GM made actionable false statements about Diesel Cruze emissions or that any plaintiffs saw and relied to their detriment on misrepresentations about the vehicles' emissions.” Def. Reply Br. at 12, ECF No. 18. GM presents an alternative explanation for the diesel model's higher price: the increased power and fuel efficiency that diesel engines feature.

         If Plaintiffs were alleging that they are entitled to relief based on the 2014 Chevrolet Cruze Diesel's noncompliance with EPA emissions regulations or the environmental harms caused by increased NOx emissions, they would lack standing. Absent allegations that Plaintiffs actually use a defined location which has been “affected by the challenged activity, ” alleged environmental harms do not establish standing. Lujan, 504 U.S. at 566. A plaintiff cannot establish standing by merely alleging that they use or are part of a “continuous ecosystem” which is adversely affected by the challenged behavior. Id. at 565. Plaintiffs' environmental allegations lack a specific geographic nexus and are thus insufficient to create standing. Likewise, Plaintiffs' allegations that the 2014 Chevrolet Cruze Diesel is in noncompliance with EPA regulations does not establish standing. Generally speaking, a citizen does not have standing to sue an entity for legal or regulatory violations which do not directly impact the citizen. See Schlesinger v. Reservists Comm. to Stop the War, 418 U.S. 208, 223 (1974) (holding that citizens cannot “call on the courts to resolve abstract questions”). By itself, GM's alleged noncompliance with EPA regulations does not constitute a sufficiently particularized injury to establish Plaintiffs' standing.

         Plaintiffs, however, are not relying on either of those theories to establish standing. Rather, Plaintiffs allege that GM misrepresented that the 2014 Chevrolet Cruze was a “clean diesel” vehicle and that, in reliance on those misleading representations, they overpaid for the vehicle. An economic injury can suffice to furnish Article III standing. Rikos v. Procter & Gamble Co., 799 F.3d 497, 524 (6th Cir. 2015) (finding that standing existed in a class action because the plaintiffs alleged that the defendant falsely advertised to every purchaser of a health product and because there was no reason to purchase the product “except for its promised digestive health benefits”); Loreto v. Procter & Gamble Co., 515 F. App'x 576, 581 (6th Cir. 2013) (finding that allegations that the plaintiffs purchased a product in reliance on the defendant's misrepresentations established a cognizable injury); Mazza v. Am. Honda Motor Co., 666 F.3d 581, 595 (9th Cir. 2012) (finding that standing existed where plaintiffs alleged that they paid more for the product than they otherwise would have because the defendant “made deceptive claims and failed to disclose the system's limitations”). Plaintiffs' allegations that they overpaid for the vehicle[2] based on GM's representations constitute economic injury sufficient to establish Article III standing.


         First, GM argues that Plaintiffs have not suffered an economic injury because they have not alleged that GM actually engaged in deceptive behavior. That argument is without merit. The Complaint describes, in detail, numerous studies and reports from European authorities finding that GM vehicles are noncompliant with European emission regulations, despite meeting those regulations when tested in laboratory settings. Importantly, the Complaint also alleges that Plaintiffs have tested a Chevrolet Cruze themselves and found that emissions were significantly higher than represented (given the regulatory standards the Cruze is purportedly in compliance with). GM makes much of the fact that the European studies involved different vehicles and that some of the studies expressly stated that the findings should not be interpreted to stand for the legal proposition that the vehicles were not in compliance with emission regulations. GM also emphasizes that Plaintiffs did not specifically allege that the Cruze they tested was the 2014 diesel model. But Plaintiffs' assert that GM's vehicles share common designs, including engines. That is plausible: common sense compels the conclusion that GM does not start anew each time it designs a vehicle.

         Likewise, Plaintiffs' failure to specifically allege that they tested a 2014 Diesel Cruze is not fatal to their assertion of standing. The Complaint, read in its entirety, is unmistakably making allegations about the 2014 Diesel Cruze. In many paragraphs of the Complaint, Plaintiffs refer to the vehicle as the “Cruze” without specifying its year and model. To punish Plaintiffs for using shorthand at times in their Complaint would elevate form over substance. At the motion to dismiss level, plausible factual allegations are assumed to be true. Here, Plaintiffs have referenced and described multiple studies which found that GM vehicles that share engine technology with the Cruze produce significantly higher emissions than represented. That is enough to raise a plausible allegation that GM's promises of “Clean Diesel” and “90% less nitrogen oxide and particulate emissions” were deceptive. Likewise, the alleged disparity between emissions during laboratory testing and emissions during real-world testing makes Plaintiff's allegations of the existence of a “defeat device” plausible. If Plaintiffs' claims are challenged at summary judgment, they will be required to produce sufficient evidence to demonstrate genuine issues of fact, but that standard is not now applicable. At this stage, GM's attempts to challenge the methodology or conclusions of the studies have no traction.

         GM also argues that Plaintiffs do not have standing because they did not plausibly allege that Plaintiffs saw and relied upon specific advertisement or other false statements in deciding to buy the Cruze. But GM has not established that Plaintiffs must actually plead reliance in order to establish standing. The Plaintiffs suffered financial injury because they paid a price for the Diesel Cruze that included a premium for its clean diesel technology. See Compl. at ¶ 91 (“Plaintiffs and members of the class paid a premium for a diesel Cruze, as GM charged more for its diesel car than a comparable gas car. Depending on the trim level, the premium was as much as $2, 400.”). In Muir v. Playtex Prod., LLC, the court held that plaintiffs had standing even though they did not allege injury based on the actual performance of the product or identified which less expensive product they would have purchased absent the “purported misrepresentations.” 983 F.Supp.2d 980, 987 (N.D. Ill. 2013). The district court held that “[Plaintiff's] standing was established at the time of purchase, regardless of whether he later was dissatisfied with the [product] and regardless of whether he would have purchased a substitute product.” Id.

         When the economics of the transaction are analyzed, this outcome is logical. The clean diesel features of the Cruze were an important component of the vehicle, as evidenced by GM's advertising campaign which featured the clean diesel system. That system elevated the apparent value of the vehicle. Even if Plaintiffs did not specifically choose the Cruze because of its clean diesel system, they paid more for the vehicle because it included the system. If the system did not actually provide any value to the vehicle, then Plaintiffs suffered financial injury through overpayment regardless of whether they relied on GM's alleged misrepresentations. Had the true functionality of the clean diesel system been public knowledge, the Cruze's fair market value would have been lower, and the Plaintiffs would have paid a lower price. As recognized in Muir, that is enough to furnish standing. See also In re Aqua Dots Prod. Liab. Litig., 654 F.3d 748, 751 (7th Cir. 2011) (‘”The plaintiffs' loss is financial: they paid more for the toys than they would have, had they known of the risks the beads posed to children.”).


         GM does not specifically argue that Plaintiffs lack standing because they have not established that GM's alleged conduct is traceable to Plaintiffs' injury or that ruling for Plaintiffs would not redress their injury. However, on December 12, 2016, GM filed a notice of supplemental authority, ECF No. 19, identifying a decision by the District Court for the District of New Jersey dismissing a substantially similar suit against Mercedes-Benz. See In re Mercedes-benz Emissions Litig., No. CV 16-881 (JLL)(JAD), 2016 WL 7106020, at *1 (D.N.J. Dec. 6, 2016). Like in the present case, the plaintiffs in the Mercedes-Benz Emissions Litigation were alleging breach of contract, fraudulent concealment, and state consumer protection statute violations by Mercedes-Benz because their “clean diesel” vehicles employed a defeat device. The court found that the plaintiffs had adequately alleged an injury in fact because they “plausibly pled that the products received did not live up to the claims made by Defendants.” Id. at *4.

         However, the court found that the alleged injury was not “fairly traceable” to the defendant's conduct. Id. at *6. Specifically, the court faulted the plaintiffs' complaint for not alleging the “‘general type or medium of advertising to which they were [personally] allegedly exposed.'” Id. at *8 (quoting In re Gerber Probiotic Sales Practices Litig., No. CIV.A. 12-835 JLL, 2013 WL 4517994, at *6 (D.N.J. Aug. 23, 2013). The court went on:

For example, Plaintiffs have not alleged that they actually viewed any category of advertisements-i.e., Defendants' website, press releases, etc.-that contained the alleged misrepresentations. Accordingly, the Court finds that the [consolidated amended complaint] does not contain sufficient facts to allege that ...

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