Federal Judge William Martini, Newark, NJ
Federal Judge William Martini, Newark, NJ ()

A putative class action against BMW over allegedly defective convertible tops has been dealt a serious blow thanks to a New Jersey federal judge’s ruling.

U.S. District Judge William Martini struck a number of the plaintiffs’ claims in Gray v. BMW of North America, including one filed under the New Jersey Consumer Fraud Act (CFA), and sided with the automaker in a choice-of-law dispute, stopping the plaintiffs from establishing a nationwide class.

The judge, however, did let some counts survive, and declined to strike the class claims at this stage.

“Accepting the pleadings as true, the convertible top is a safety issue,” Martini wrote. “Although BMW’s papers deny that the convertible top defect is a safety issue, plaintiff has pleaded the existence of evidence in which BMW admits this defect is a safety hazard.”

The suit was lodged in October 2013 on behalf of all those who bought or leased a 2004 to 2010 model year E64—a two-door convertible.

The plaintiffs, California residents Robert Gray and Markum George who bought the vehicles, claim they encountered a multitude of problems, according to the opinion.

BMW’s North American subsidiary is headquartered in Woodcliff Lake.

George claims his vehicle, bought in 2009, repeatedly flashed a dashboard warning message that the convertible top was not locked, leading to several repairs—including replacement of a convertible sensor and hydraulic lift—that added up to more than $3,300.

Gray claims he saw the same warning message in his vehicle, bought in 2010, and had a repair performed that cost nearly $1,100 but didn’t fix the problem. He allegedly sold the vehicle back to the dealer and purchased another convertible in 2011, experienced the same issue, and chose not to repair when told it would cost $3,000.

Gray claims the shop that repaired his first vehicle told him the convertible top problem was common among that model.

In their suit, George and Gray alleged that BMW was aware of the defect as far back as 2004—through customer complaints, test results, sales data as to replacement parts, warranty reimbursement claims and other sources—but failed to disclose the defect.

They asserted claims under the CFA and California statutes. The complaint also included common-law counts of fraud, unjust enrichment and breach of the duty of good faith and fair dealing.

BMW sought dismissal and argued that California law should apply to the case, while the plaintiffs contended that New Jersey law should apply.

According to Federal Rule of Civil Procedure 23, applicability of New Jersey law would allow them to represent a nationwide class, rather than a series of subclasses suing under individual state laws, said the plaintiffs’ lawyer, Matthew Mendelsohn of Mazie Slater Katz & Freeman in Roseland.

On Wednesday, Martini, sitting in Newark, granted most of BMW’s requests but allowed the suit to move forward.

The judge, finding New Jersey’s and California’s consumer-protection statutes in conflict, applied California law, and on that basis dismissed the CFA count.

Numerous factors weigh in favor of applying California law, he said, mainly that the vehicle sales and damages occurred there.

BMW of North America is domiciled, and the alleged scheme to defraud originated in, New Jersey, but “[t]hese ties…do not outweigh the much more significant ties to California,” Martini said. “In choosing California law, the court follows a long line of case law on consumer fraud statutes and warranty claims that hold the law of the consumers’ home state should govern.”

The plaintiffs acknowledged that their vehicles were off their general warranties when they owned them, but argued that California’s Song-Beverly Act, which expands implied warranty protections, should apply because secondary warranties for rust and emissions still were in effect.

But Martini struck that count, calling that warranty interpretation “bootstrapping,” which would render delineations between different types of warranties meaningless. He noted that the plaintiffs didn’t allege that the roof issues made the vehicles unusable.

Martini also dismissed the unjust enrichment count, because the vehicles were bought from used car dealers rather than BMW, and the breach of duty of good faith and fair dealing count, because no contract existed between the plaintiffs and BMW.

The judge let stand a claim under California’s Consumer Legal Remedies Act, which may impose a duty on manufacturers of goods already off warranty if the alleged defect poses a safety issue. The plaintiffs cited owner’s manual passages warning that driving with an unlocked convertible roof poses a safety hazard, Martini pointed out.

He said the plaintiffs successfully pleaded a material defect, as well as BMW’s exclusive knowledge and active concealment of it. They also claimed that BMW directed dealers to make short-term repairs that would last until warranty periods ran out, the judge noted.

Martini also let stand a count lodged under California’s Unfair Competition Law, which hinges on successful pleading of a Consumer Legal Remedies Act claim.

The common-law fraud claim also survived.

Martini said it was “premature” to strike the plaintiffs’ class allegations until the class certification stage.

In all, Martini dismissed four of the plaintiffs’ seven counts.

The California consumer-protection statutes, like the CFA, do provide for fee-shifting and enhanced damages, and are strong laws, Mendelsohn pointed out.

Mendelsohn said he has heard from prospective class members in other states, but for now they’ll proceed with a California-only class.

Rosemary Bruno of Buchanan, Ingersoll & Rooney in Newark, BMW’s counsel, declined comment.

Contact the reporter at dgialanella@alm.com.