Rosa v. American Water Heater Co.

Citations: 177 F. Supp. 3d 1025; 2016 U.S. Dist. LEXIS 46924Docket: CIVIL ACTION NO. H-15-1898

Court: District Court, S.D. Texas; April 7, 2016; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs Robert J. Rosa and Karen F. Posey are suing American Water Heater Company and A.O. Smith Corporation for breach of express and implied warranties, violation of the Magnuson-Moss Warranty Act (MMWA), and seeking declaratory relief. The case involves a 50-gallon residential gas water heater purchased in March 2012, which came with a limited warranty for the inner tank and parts but no additional documentation. In September 2014, plaintiffs experienced a significant leak due to a failure of the heater's drain valve, which was later determined to be made of plastic and prone to brittleness. After incurring costs for repairs and replacement of the drain valve and attic cover, plaintiffs contacted the defendants for compensation under the warranty. The defendants offered a minimal reimbursement or a replacement valve of inferior quality, which the plaintiffs rejected. The plaintiffs allege that the use of plastic drain valves is inappropriate due to the conditions they are exposed to, constituting a breach of warranty and MMWA violations. They seek damages and/or injunctive relief for themselves and a proposed National Class and Texas Subclass of similarly affected purchasers. The court has pending motions to dismiss and strike class allegations, with the motion to dismiss being partially granted and the motion to strike being granted.

Defendants seek to dismiss Plaintiffs’ Amended Complaint based on Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Under Rule 12(b)(1), they argue that Plaintiffs lack standing for injunctive relief and that the claim is moot. The standard of review states that federal courts only have jurisdiction as defined by the Constitution and Congress, and a claim can be dismissed for lack of subject-matter jurisdiction if the court lacks the power to adjudicate the claim. Standing and ripeness are critical to federal jurisdiction, with the burden on the party asserting jurisdiction to prove its existence. The court must address jurisdiction before merits when both challenges are present. 

Defendants' motion constitutes a facial attack since it relies on documents referenced in the Amended Complaint, requiring the court to accept all allegations as true. Plaintiffs must demonstrate (1) an injury in fact, (2) a causal link between the injury and the defendant's conduct, and (3) that the injury is likely to be redressed by a favorable ruling. For injunctive relief, Plaintiffs also need to show they are likely to face future injury from the defendant and that the requested relief will prevent it. The court must assess standing for each claim individually, and lack of standing can be determined based solely on the complaint.

Plaintiffs seek an injunction to prevent Defendants from distributing defective water heaters and request the replacement of the plastic drain valve. Defendants contend that Plaintiffs lack standing for injunctive relief since their injury is past and not redressable. Plaintiffs counter that courts permit individuals with past injuries to pursue claims on behalf of absent class members at risk of future injuries. Standing and class certification issues must be examined on a claim-by-claim basis, with standing being a threshold jurisdictional matter. A class representative must be a member of the class at the time of certification; failure to establish standing precludes seeking relief for oneself or the class. Defendants cite a prior case, Brandner v. Abbott Laboratories, where the plaintiff lacked standing for injunctive relief related to a recalled product due to speculative future injury and failure to assert relevant claims. Consequently, similar standards apply to class actions, necessitating that a class plaintiff establishes individual standing. In this case, the individual plaintiff's disavowal of intent to use the product in question undermines his standing, as the sought injunctive relief would not address past injuries. Plaintiffs argue that Supreme Court cases allow for determining standing after Rule 23 analysis in class actions, but the current context suggests that past injuries do not warrant the requested relief.

Plaintiffs assert that some courts permit individuals with past injuries to file claims for class members facing similar future injuries. The Fifth Circuit has previously ruled that class certification issues can sometimes be addressed before Article III standing concerns, as they relate to statutory standing. However, in this case, the class certification issues are not outcome-determinative, thus they need not be prioritized. The plaintiffs failed to show that these issues require resolution prior to addressing Article III standing.

The excerpt references *Shahinian v. Kimberly-Clark Corp.*, where the court determined that a plaintiff need not demonstrate a willingness to incur future injury to seek injunctive relief for a class, given that some class members might not have the same knowledge as the plaintiff. The court supported its reasoning with *NECA-IBEW Health and Welfare Fund v. Goldman Sachs & Co.*, which affirmed that a plaintiff has standing to assert class claims if they have personally suffered an injury related to the defendants' alleged conduct affecting other class members.

Despite this, the court concluded that the plaintiffs in the current case cannot establish Article III standing for injunctive relief, as the relief would not address their injury and they failed to show a likelihood of future harm. The general principle remains that standing must be addressed before class certification, as it pertains to the court’s jurisdiction. Thus, the court emphasized the necessity for representative plaintiffs to establish standing prior to seeking class certification.

Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss for failure to state a claim assesses the sufficiency of a complaint. A pleading must provide a short and plain statement showing entitlement to relief, with factual allegations assumed true and viewed favorably toward the plaintiff. To survive a motion to dismiss, a plaintiff must present enough facts to establish a claim that is plausible on its face; this requires more than mere possibility but does not demand a probability of unlawful action. If the allegations merely suggest a defendant's liability without crossing into plausibility, the claim may be dismissed.

District courts are restricted to evaluating the complaint and documents central to the claim, including those referenced in the complaint. Claims based on invalid legal theories must be dismissed, even if well-pleaded. Plaintiffs contend that defendants cannot rely on external documents not included in the complaint, such as the Limited Warranty Terms, which they assert are subject to dispute and not incorporated appropriately. They claim they were not provided with any warranty documentation prior to their purchase of the water heater, although the product itself indicated a six-year limited warranty. Additionally, while defendants provide a 'Warranty Sheet' with further warranty details after the sale, plaintiffs argue that consumers are unaware of these terms at the time of purchase and are not required to consent to them subsequently.

Defendants’ six-year warranty, as detailed in the Warranty Sheet, is limited to defects in materials and labor, allows for the replacement of defective parts with non-defective equivalents, restricts the remedy to a single part replacement, and excludes coverage for labor or damages related to defects. Plaintiffs assert that this limited warranty fails to fulfill its intended purpose and contradicts the express warranty presented with their water heaters. The enforceability and scope of the Limited Warranty Terms are contested, with Plaintiffs claiming they were not provided these terms prior to purchase. Plaintiffs seek a declaration regarding the binding nature of the warranty terms, arguing that the "LIMITED WARRANTY" statement on the Data Plate Label constitutes an express warranty. Defendants counter that this label merely refers to the Limited Warranty Terms and does not create an express warranty without inclusion of those terms. They maintain that the timing of the terms' receipt is irrelevant since the warranty was part of the purchase agreement. Despite conflicting positions in the Amended Complaint regarding the Limited Warranty Terms, the court finds that sufficient facts have been alleged to warrant plausible claims for relief. Consequently, an actual controversy exists, justifying a claim for declaratory relief concerning the limited warranty’s validity and enforceability.

Plaintiffs’ Amended Complaint seeks various damages, including consequential damages, asserting that they should be compensated in an amount to be determined at trial. Defendants contend that the claim for consequential damages should be dismissed based on Texas law, which allows manufacturers to exclude such damages in written warranties, provided the terms are not unconscionable. The Limited Warranty Terms explicitly state that the manufacturer is not liable for any incidental or consequential damages arising from defects or use of the water heater. 

Plaintiffs argue that Texas law mandates that warranty terms must be disclosed to the consumer before sale. Most cited legal authorities pertain to disclaimers of implied warranties rather than limitations on damages. For a disclaimer of an implied warranty to be valid, it must be communicated to the buyer before the contract is finalized. If not disclosed beforehand, it is ineffective unless agreed upon later. Disclaimers and limitations on damages are legally distinct; Texas law permits the exclusion of consequential damages even if details were not provided prior to the transaction.

In evaluating Defendants’ Rule 12(b)(6) motion, the court must accept Plaintiffs' factual assertions as true. Plaintiffs claim they did not receive any documentation regarding the Limited Warranty Terms prior to purchasing the water heater. Despite inconsistencies in their arguments, if accepted as true, this lack of disclosure means the consequential damages claim cannot be dismissed under Rule 12(b)(6). Consequently, claims for consequential damages and declaratory relief will proceed, while the request for injunctive relief will be dismissed.

Additionally, Defendants seek to strike the class claim for breach of warranty under the Magnuson-Moss Warranty Act (MMWA), citing failure to meet the pre-litigation notice requirement, inability to maintain national class claims, and challenges to the Texas class allegations concerning unmanifested defects. Class certification is subject to Federal Rule of Civil Procedure 23, which requires demonstration of numerosity, commonality of legal or factual questions, typicality of claims, and adequate representation for class interests, along with satisfying at least one requirement from Rule 23(b).

The party seeking class certification must demonstrate compliance with Rule 23, showing sufficient numbers of parties and common legal or factual questions. Certification requires the trial court to conduct a rigorous analysis of Rule 23(a) prerequisites, which may involve examining the merits of the plaintiff's claims. The court interprets the defendants' Motion to Strike under Rule 12(b)(6) standards, which applies when a complaint fails to state a legally cognizable claim. An ascertainable class is an implied prerequisite of Rule 23; if no such class is evident from the pleadings, the district court can dismiss class allegations. Courts may need to evaluate beyond the pleadings to assess compliance with Rule 23 requirements. The MMWA stipulates that no class action can proceed for warranty claims unless the obligated party has had a reasonable opportunity to address the failure to comply. The named plaintiffs must notify the defendant of their representative capacity on behalf of the class. Defendants argue that plaintiffs failed to provide necessary pre-litigation notice, referencing a split in authority, including Bearden v. Honeywell International Inc., where plaintiffs could not maintain an MMWA claim on behalf of a class due to lack of pre-suit notice to the manufacturer.

A class action claim under the Magnuson-Moss Warranty Act (MMWA) does not require plaintiffs to provide pre-suit notice to the defendant that they are acting on behalf of a class before filing the suit. This differs from individual plaintiffs, who must satisfy the opportunity to cure requirement unless the warrantor has an informal dispute settlement procedure in place. Courts have interpreted Section 2310(e) to allow class actions to be filed prior to the defendant being given an opportunity to cure, specifically for the purpose of establishing the representative capacity of the named plaintiffs. However, once a court confirms this capacity, the defendant must be afforded an opportunity to cure the alleged breach before the class action can proceed. The statutory language indicates that without allowing for this process, the concept of a class action would be rendered meaningless. Consequently, the court ruled that the plaintiffs' MMWA claim will not be dismissed for failing to provide pre-suit notice as required by individual plaintiff standards. If the class is certified, the plaintiffs must then provide notice and an opportunity to cure to the defendant, in accordance with the MMWA.

Section 2310(e) mandates that sellers be given an opportunity to cure defects before consumers can initiate action under the Magnuson-Moss Warranty Act (MMWA). However, this requirement does not preclude a named plaintiff from filing a class action to establish representative capacity without first allowing the seller to cure the defect. A proposed "National Class" encompasses all individuals who purchased American Water Heater Company gas water heaters with a plastic drain valve from July 2, 2011, to the present. Defendants contend that the MMWA claims for this class should be dismissed due to the plaintiffs' failure to meet the predominance requirement of Federal Rule of Civil Procedure 23(b)(3). They argue that differing state laws governing warranty claims create insurmountable variations that would disrupt class certification, as established in precedents like Cole v. GM, which highlighted the need for a thorough analysis of state law variations impacting predominance. Plaintiffs counter that the MMWA establishes a federal cause of action, implying that federal express warranty law should govern these claims rather than state laws. The MMWA distinctly defines both "written" and "implied" warranties.

A written affirmation or promise made by a supplier in the sale of a consumer product pertains to the quality of materials or workmanship, ensuring they are free from defects or meet specified performance standards for a set duration. Additionally, any written commitment regarding refunds, repairs, or replacements if the product fails to meet the outlined specifications also constitutes part of the sales agreement, excluding resale situations. The term "implied warranty" refers to warranties implied by state law, modified by specific sections of the Magnuson-Moss Warranty Act (MMWA). Consumers may sue for damages if a supplier or warrantor fails to uphold obligations under the MMWA or any warranty, as stated in 15 U.S.C. 2310(d)(1). 

The D.C. Circuit vacated a nationwide class certification due to a flawed predominance analysis in a case concerning the MMWA, emphasizing that the Act primarily relies on state warranty law unless explicitly stated otherwise. The court noted the legislative intent behind the MMWA's definitions of "written warranty" and "implied warranty," clarifying that while the MMWA provides a specific definition for written warranties, it does not supplant state law. The Conference Report indicates that if a state law deems a written affirmation or promise to exist, it will be recognized under the MMWA's consumer remedies. This suggests that Congress did not intend to displace state law beyond what the MMWA explicitly addresses, particularly in areas traditionally governed by state law, such as sales.

Congress did not intend to deviate from the established framework of state warranty law when enacting the Magnuson-Moss Warranty Act (MMWA). The court recognized that state law underpins all warranty claims made under the MMWA and that the Act was designed to supplement state law by setting minimum standards for warranties and providing consumers with additional avenues for recourse. The MMWA allows consumers to seek recovery from suppliers, warrantors, or service contractors who fail to meet obligations under the Act or any associated warranties. The dual references to obligations under the MMWA and state laws suggest that both sources of regulation are meant to coexist rather than the federal law replacing state law. The jurisdictional threshold of $50,000 for federal court cases under the MMWA indicates that most consumer warranty actions will be handled in state courts.

The Fifth Circuit has similarly interpreted the MMWA, noting it was Congress’s first comprehensive federal effort to address consumer warranties, which were often too complex and restrictive for consumers. The Act establishes minimum disclosure and content standards for warranties but does not mandate that a warranty be provided. If a warranty exists, it must comply with the Act's requirements. Claims made under the MMWA related to breach of warranty are typically based on state law rather than asserting a violation of the MMWA’s substantive obligations. The court highlighted the distinction between claims for breach of warranty and violations of the MMWA's substantive requirements, such as improper disclaimers of implied warranties.

A warrantee may sue for personal injury damages due to a violation of the Magnuson-Moss Warranty Act (MMWA), as exceptions in § 2311(b)(2) permit such actions. However, these lawsuits are categorized under § 2310(d)(1) for failing to meet obligations set forth in §§ 2308 and 2304, and not as claims for breach of written or implied warranties. The MMWA prohibits personal injury claims solely based on warranty breaches, but allows recovery if substantive provisions are violated. Punitive damages for warranty breaches under the MMWA can only be sought if recoverable under the relevant state law. Courts are divided on whether the MMWA creates an independent cause of action for written warranties or relies on state law. The MMWA is intended to complement state law, requiring state law to be applied unless the Act specifies otherwise. The reasoning established in Walsh and subsequent cases is favored, emphasizing the need for state law in warranty claims under the MMWA. The court determined that common issues do not predominate regarding warranty claims under both California law and the MMWA, and previous cases cited by plaintiffs were found irrelevant to the predominance requirement for class certification.

The Amended Complaint asserts that under 15 U.S.C. § 2310(d)(1), consumers can seek damages if a warrantor fails to comply with a written or implied warranty. The court notes that state express warranty laws apply, and in the Fifth Circuit, the differing laws across jurisdictions hinder the ability to certify a national class, leading to the dismissal of claims under the Magnuson-Moss Warranty Act (MMWA) for a National Class.

For the Texas Class, defined as individuals and entities who purchased certain American Water Heater Company gas water heaters in Texas since July 2, 2011, the Defendants contest the viability of warranty claims for unmanifested defects under Texas law. To establish a breach of warranty claim, plaintiffs must demonstrate the existence of a warranty and that its breach resulted in injuries. Texas law is ambiguous regarding whether express warranty claims can be made for defects that have not manifested. The Texas Supreme Court has acknowledged inconsistencies in lower court rulings about recovery for unmanifested defects, with some cases allowing claims and others rejecting them. 

The distinction is drawn between tangible products like boats and cars, which have a limited lifespan, and software, which may have indefinite usability. The court suggests that if a defect exists in software, it may not need to manifest for consumers to claim damages, as they did not receive what they paid for, contrasting this with the more limited nature of tangible goods.

A water heater, similar to other consumer products, has a finite usable lifespan, as recognized by federal courts. In *Coghlan v. Aquasport Marine Corp.*, the court determined that plaintiffs must demonstrate actual, concrete injuries rather than speculative harm when alleging damages under the Magnuson-Moss Warranty Act (MMWA). The plaintiffs in that case claimed their boat's fiberglass deck had potential deterioration issues, which the court found insufficient for a valid claim due to lack of concrete injury. Similarly, in *In re General Motors Type III Door Latch Litigation*, the court ruled that plaintiffs need to show compensable injuries to proceed with their claims, noting that Texas courts generally do not allow recovery for defects that have not yet resulted in harm. Plaintiffs in another case argued they could sue for warranty claims based on "benefit of the bargain" damages, referencing the Texas Business and Commerce Code. They cited a dissenting opinion in *DaimlerChrysler Corp.*, which suggested that claims should not be based on hypothetical future defects but rather on actual sales issues. The overall legal precedent emphasizes that without demonstrated injury, claims related to defective products are unlikely to succeed.

Buckles were found to have breached warranties and consumer remedies due to violations of federal, industry, and internal standards, with the breach evident since sale. The appellate majority ruled that plaintiffs lacked standing for class claims, dismissing the case while acknowledging that while consumers can sue for defective products, the legal threshold for actionable defects is unclear. Justice Jefferson's dissent argued against dismissing the plaintiffs' claims of economic injury without a full record, noting distinctions between no-injury product liability and warranty claims tied to unmanifested defects. Plaintiffs asserted that the water heaters were defective upon purchase, with the defect currently manifesting as diminished economic value. They referenced a Fifth Circuit decision that previously allowed a nationwide class claim for non-deployed airbags, but the predominance for class certification was ultimately rejected because many jurisdictions do not allow recovery for economic loss without a manifested defect. The Fifth Circuit also noted that Texas law likely requires manifestation of defects for recovery. Consequently, the court dismissed claims from Texas class members whose water heaters showed no defects and granted the defendants' motion to dismiss in part while denying it in part, also dismissing claims for injunctive relief and striking class allegations, citing lack of standing and failure to meet class certification prerequisites.

The court expresses skepticism regarding the Plaintiffs' ability to maintain a Texas class for their Magnuson-Moss Warranty Act (MMWA) claim. Despite this skepticism, the court permits Plaintiffs twenty days to amend their complaint to properly establish a Texas class and move for certification that meets the standards set forth in Federal Rule of Civil Procedure 23(a) and (b), as well as the additional requirements of 15 U.S.C. 2310(d) related to MMWA claims. The Plaintiffs claim A.O. Smith operates American Water Heater, which the Defendants dispute. Additionally, the Plaintiffs allege that warranty terms are provided on a Warranty Sheet given post-purchase, which is contested by the Defendants. Various motions and responses have been filed by both parties, including motions to dismiss and strike certain claims. The court notes that class certification issues should be resolved prior to addressing Article III standing, as outlined in relevant case law, emphasizing the need for compliance with the requirements of Rule 23 within the context of jurisdictional constraints.

The Court focused on the constitutional implications of mandatory class and global settlements in mass tort cases with limited funds, particularly in the context of extensive asbestos litigation. It highlighted a conflict between adequacy of representation in class actions and Article III standing, referencing relevant jurisprudence. The Court noted that a prior case (Sosna) did not support the plaintiffs' position since the named plaintiff had a justiciable claim for injunctive relief at the outset, in contrast to the current plaintiffs who lacked standing for such relief when the action began. The defendants argued that the plaintiffs' request for injunctive relief was moot, while plaintiffs contended their warranty claims were not moot due to the "capable of repetition, yet evading review" exception. This exception applies to claims that may evade judicial review due to their temporary nature or when the named plaintiff may again be involved in the controversy. However, the Court concluded that the plaintiffs' claim for injunctive relief did not meet this narrow exception. Additionally, the plaintiffs argued that warranty terms were not known to consumers at the time of purchase, thus not forming part of the warranty agreement, despite claiming that defendants warranted their products were free from defects throughout the class period. The plaintiffs failed to specify the source of this express warranty language.

The water heater came with a six-year limited warranty covering both the unit and its tank. Plaintiffs did not receive any additional warranty documentation or owner’s manual prior to their purchase. Defendants allegedly breached this express warranty by installing defective plastic drain valves, with their proposed remedy—replacing these valves with identical defective ones—considered ineffective and failing to fulfill the warranty’s essential purpose. Disagreement exists over the warranty terms and coverage, particularly regarding whether a single replacement suffices to satisfy warranty obligations. Plaintiffs argue that the defective drain valve's nature undermines the adequacy of the proposed remedy. Additionally, the plaintiffs raise issues concerning the Uniform Commercial Code (UCC) and the Magnuson-Moss Warranty Act (MMWA), specifically around the enforceability of disclaimers related to damages. The court, however, notes that its ruling does not depend on the placement of these disclaimers. It cites that limitations on consequential damages may still hold even if the warranty fails to meet its essential purpose. Jurisprudence indicates that express warranties can be established before or after a sale, contingent on the relationship between the sale and seller affirmations, with a precedent suggesting that a warranty presented at delivery can still be integral to the transaction.

In Enpro, the court determined that a warranty provided after a sale was sufficiently connected to the transaction to be considered part of the bargain. Additional warranty details are included in a 'Warranty Sheet' given to customers post-purchase, though not consistently. If the action is certified as a class action, plaintiffs will notify defendants of their claims. The defendants assert that, as a federal court in diversity jurisdiction, Texas law must be applied, particularly its "most-significant relationship test" for determining the applicability of the Texas UCC in breach of warranty cases. A.O. Smith and American Water Heater are corporations based in Delaware and Nevada, respectively, making it unlikely that Texas law applies universally to all transactions. The variations in state laws affect several factors, including reliance, notice of breach, privity of contract, and warranty protections. The plaintiffs clarify that their class action claims do not rely solely on Texas law but instead on violations of the Magnuson-Moss Warranty Act (MMWA) related to the defendants’ warranty. Three federal circuit courts have ruled that state law governs warranty claims under the MMWA unless explicitly stated otherwise in the statute. The Fifth Circuit has not specifically ruled on whether federal or state law applies to warranty limitations' conscionability but has emphasized the need for a clear Congressional intent to preempt state regulations.

The Fifth Circuit maintains a presumption in favor of state law validity, avoiding interpretations of the Magnuson-Moss Warranty Act (MMWA) that could disrupt federal-state balance. No Louisiana court has determined how the MMWA impacts Louisiana's laws regarding contract conscionability or warranty limitations. Absent clear MMWA preemption of Louisiana law, the court seeks to apply relevant state law. The plaintiffs allege breach of express and implied warranties, MMWA violations, and seek declaratory relief for the Texas Subclass. Texas law does not permit damages for anticipated property injury, as established in City of Tyler v. Likes. The plaintiffs claim economic injury from misrepresentation at the time of purchase, arguing that knowledge of the boats' wood composition would have diminished their value due to potential future rotting issues. The Seventh Circuit suggests that such claims are unlikely to be recognized, resembling a fear of future injury, which Texas law rejects. Courts require plaintiffs to demonstrate actual damages, and negligence or products liability claims are not actionable without concrete loss. The Fifth Circuit previously addressed benefit-of-the-bargain damages but did not cover breach of warranty. If the plaintiffs establish their standing, they must notify defendants and allow them the opportunity to rectify any issues before pursuing MMWA claims, as mandated by 15 U.S.C. 2310(e).