Federal district courts rule that comprehensive voluntary recalls can short-circuit costly class action litigation.

Since the start of the year, voluntary recalls have lead to early dismissals of putative class action litigation. Courts have dismissed these suits based on one of two grounds: (1) the prudential mootness doctrine, and (2) lack of Article III standing.

Ford Motor Company is a recent beneficiary. 14 consumers from 11 states sued Ford in the U.S. District Court for the Eastern District of Michigan over an alleged engine defect affecting certain hybrid vehicles. In Pacheco, et al. v. Ford Motor Co., No. 2:22-cv-11927 (E.D. Mich.). These plaintiffs alleged that their engines allowed oil and fuel vapors to leak near ignition sources, creating a “spontaneous fire risk.” They asserted claims for fraud, unjust enrichment and breach of warranty, as well as violations of the Magnuson Moss Warranty Act and several consumer protection statutes.

However, on July 7, 2022, a month before the suit was filed, Ford voluntarily recalled approximately 100,000 vehicles. The recall, supervised by the National Highway Traffic Safety Administration (“NHTSA”), directed owners to bring their vehicles to dealerships for repairs at no charge. Moving to dismiss the suit, Ford pointed to the recall to argue that Plaintiffs’ claims were prudentially moot. 

The district court agreed. The court embraced the Tenth Circuit’s analysis in Winzler v. Toyota, a 2012 decision in which then-Judge Gorsuch explained that where a company “sets into motion the great grinding gears of a statutorily mandated and administratively overseen national recall processs,” there is generally no reason for the courts to jump in. Here, the court ackowledged the doctrine would not bar suit where a recall fails to provide the plaintiffs “complete relief.” However, plaintiffs had failed to allege any risk remained in light of the remedy at hand. Plaintiffs also insisted the repair created a new and separate risk—fluids leaking onto roadways. But none had actually experienced this, so there was simply no actual, concrete injury on this basis. 

The Court went on to reject plaintiffs’ claims to “overpayment” damages. Here too, the recall remedy—overseen by a coordinate branch of government—addressed the alleged defect giving rise to their diminished value claim. Because there was “no effective relief” left for the court to provide, the court granted Ford’s motion to dismiss in its entirety.

Meanwhile, in January, the District Court for the Southern District of California arguably went further, holding that participation in the CPSC’s Fast Track Recall Program stripped a would-be lead plaintiff of Article III standing. Charlton v. LG Energy Sol. Michigan, Inc. involved LG’s December 16, 2020, and August 4, 2021, voluntary Consumer Product Safety Commission (“CPSC”) recalls pursuant to the CPSC’s Fast Track Recall program. Specifically, the recalls addressed defective Residential Energy Storage Unit (“RESU”) batteries that provide energy storage and backup power for homes. The RESU batteries cost several thousand dollars, and LG offered consumers replacement products and renewed warranties.

Despite the recalls’ robust remedies, on October 6, 2021, the Plaintiff served LG with a letter demanding additional remedies and threatening suit. LG provided a timely written response advising Plaintiff of the Recalls and its commitment to providing a remedy through the CPSC’s Fast Track Recall program.

The Plaintiff filed a putative class action complaint on November 12, 2021. The Plaintiff asserted violations of California’s Consumers Legal Remedies Act (“CLRA”) and Unfair Competition Law (“UCL”) because LG admitted the RESU batteries were defective and offered to replace them. However, the Plaintiff asserted that LG had not done so for approximately one year, claiming the inability to obtain adequate replacement parts while at the same time selling new, non-defective batteries to new customers.

After removing the case to the Southern District of California, LG moved to dismiss on various grounds, including standing. LG explained that in conjunction with the CPSC, in 2020 and 2021, it announced the Recalls for RESU batteries purchased by consumers in the United States, including consumers in California. The Recalls’ terms included stopping the sale of RESU batteries that incorporated defective battery cells, offering replacement RESU batteries to consumers at no cost, and including a new 10-year warranty for each RESU replaced. The Recalls were publicly announced and widely disseminated to distributors and customers alike.

The Court held LG “provided a timely response to [Plaintiff] and had already initiated its recall program, which is being monitored by CPSC, and will provide replacement products and renewed warranties to consumers. Therefore, [Plaintiff’s] CLRA and UCL claims should be dismissed because there is no live case or controversy required under Article III.”

Besides the legal and business considerations that may lead a company to participate in a voluntary recall, Charlton and Pacheco powerfully illustrate additional legal protections flowing from a choice to remove defective products from the marketplace and provide a robust consumer remedy. These decisions suggest that prudential mootness and/or lack of standing arguments will become even more popular among manufacturers who have voluntarily recalled their products.