JEROME B. SIMANDLE, Chief District Judge.
The nine named plaintiffs in this case are owners and lessees of various Subaru vehicles who allege that their vehicles suffer from an engine defect that caused these vehicles to consume excessive engine oil. Through their Master Consolidated Complaint filed herein on November 17, 2014 [Docket Item 29] ("Complaint"), plaintiffs sought certification of a nationwide class of similarly situated persons and the grant of classwide relief against defendants Subaru of America, Inc. and Fuji Heavy Industries, Ltd.
The parties reached a Settlement Agreement in November 2015 to certify a nationwide class for settlement purposes and to afford significant relief to the class including oil consumption testing, certain repairs and replacements of engine components, reimbursements for certain past expenses including for excess oil consumption, and an extension of the warranty to cover repairs and replacements of parts necessary to address the oil consumption problem in class members' vehicles, all as described further below.
This Court gave preliminary approval to the proposed settlement and required due notice to members of the proposed class by Order entered January 19, 2016 [Docket Item 53], as amended January 27, 2016 [Docket Item 55]. Following notice of the proposed settlement to the owners and lessees of over 550,000 Subaru vehicles in the settlement class
Specifically, in this Opinion, the Court will address Plaintiffs' Motion for an Order Granting Final Approval of the Class Action Settlement and Certifying a Settlement Class [Docket Items 85 & 99], statements objecting to the proposed settlement submitted by 34 individual class members [Docket Items 57-62, 64-68, 70-74, 76-81, 83-87, 91-97], one of whom (Jose Melgar) is represented by counsel [Docket Item 90], and the Defendants' Response [Docket Item 98], together with exhibits received at the hearing [Exs. C-1, C-2, and C-3], as well as the materials submitted in connection with the earlier Motion for Preliminary Approval of the Class Action Settlement [Docket Items 49 and 51].
Defendants join in these motions and have responded to the objectors, both in writing [Docket Item 98] and at the final hearing, as discussed below.
No party or putative class member objects to the attorneys' fees and costs, to be paid by Defendants and capped at $1,500,000, or to the payment of incentive awards of $3,500 to each of the named class representatives, or to any aspect of the notice, timing or opportunity to be heard. The Court independently reviews the requests for attorneys' fees and costs pursuant to Rule 23(h), Fed. R. Civ. P., in a separate Memorandum Opinion to be filed.
The principal issues to be decided are whether the proposed settlement class should be certified under Rule 23(a) & (b)(3), Fed. R. Civ. P.; and whether the proposed settlement is fair, reasonable, and adequate under Rule 23(e)(2), Fed. R. Civ. P.
The operative Complaint alleged that Subaru warranted and sold certain vehicles with a new generation "FB" engine in five of its models (certain models of the Forester, Legacy, Outback, Impeza, and Crosstrek) during model years between 2011 and 2014 which had a defect causing over-consumption of engine oil. Plaintiffs alleged that Subaru knew that these engines tended to burn excessive amounts of oil and that Subaru did not acknowledge and fix the problems as allegedly required by warranty and by various states' consumer protection laws.
Plaintiffs alleged that Subaru's dealers were unresponsive to their complaints about the oil consumption problem and that Subaru set an unreasonably high threshold in oil consumption testing before it would acknowledge a problem in a particular vehicle.
The Complaint defined two classes. The first was a nationwide class comprised of all consumers in the United States who purchased or leased a class vehicle. The second was an "Emissions Warranty Class" comprised of consumers from eleven specified states who purchased or leased a class vehicle that required or will require repair of the alleged defect during the applicable emissions warranty period.
Plaintiffs asserted five causes of action on behalf of the putative nationwide classes.
Defendants moved to dismiss various claims (arguing that injunctive relief is preempted by federal law) on grounds including preemption and failure to state a claim, and to narrow other claims on choice of law grounds. See Def. Br. in Support of Motion to Dismiss [Docket Item 31-1]. After the partial dismissal motion was fully briefed and set for oral argument, counsel requested that the argument be deferred pending ongoing settlement negotiations [Docket Items 41, 44]. Counsel announced on December 16, 2015 that they had reached a tentative agreement [Docket Item 47]. Plaintiffs' motion for preliminary approval of a proposed class action settlement was filed on January 4, 2016 [Docket Item 49] and granted after a hearing on January 19, 2016 [Docket Item 53 amended at Docket Item 55].
As directed by the Court, Subaru sent the court-approved notice of the proposed settlement to owners or lessees of the 577,860 Settlement Class Vehicles. Because some vehicles have been resold, a total of 665,730 notices were disseminated. See Decl. of Terri Woodard Claybrook, ¶ 2 [Docket Item 98-1]. After making follow-up efforts such as through the USPS National Change of Address database and the Coding Accuracy Support System, it is quite impressive that only 94 notices were returned as undeliverable out of 665,730 notices sent. Id. ¶¶ 3-4.
Beyond the extensive plain-language notice, the consumers were also invited to visit the class litigation website at www.oilconsumption.settlementclass.com, or to contact class counsel with any questions or concerns.
Out of the 665,730 recipients, a total of 2,328 individuals have elected to opt out (representing approximately 0.35% of the class), and approximately 34 filed objections to the settlement (a rate of 0.005%).
The Court finds that the notice procedures fully comply with Rules 23(c)(2) and 23(e)(1), Fed. R. Civ. P., as well as due process with respect to all parties and the members of the proposed class.
The proposed Settlement Agreement [Docket Item 49-2] stipulates to certification of a Settlement Class defined as follows:
The principal terms of the settlement agreement's benefits to the class may be summarized as follows:
The proposed Settlement Agreement also states the claims that Settlement Claim Members will be deemed to have settled and released. The Settlement Agreement's lengthy definition of "Released Claims" or "Settled Claims", see Settlement Agreement at ¶ 29, contains the operative language. It can be best described as a release of all claims and causes of action whether known or unknown, existing now or in the future, based on oil consumption of settlement class vehicles, whether arising under federal, state, or local law, statute, rule, or regulation (several of which are enumerated at length as examples). Claims for death, personal injuries, or property damage (other than damage to the Settlement Class Vehicle) are exempted from the release, as are pending automobile lemon law suits pertaining to oil consumption.
The Settlement Agreement proposes "Service Awards," sometimes elsewhere referred to as "incentive awards," to be paid by Subaru to each of the nine class representatives in the sum of $3,500 each, for a total of $31,500, subject to Court approval.
The Settlement Agreement also contains Subaru's promise to pay an award of reasonable attorneys' fees and expenses of class counsel in an amount not to exceed $1,500,000 as determined by the Court upon application of class counsel.
Importantly, the Settlement Agreement provides that Subaru's payments of the class representatives' incentive fees and class counsel's attorneys' fees and costs do not diminish the benefits to the Settlement Class.
Likewise, the Settlement Agreement provides that Subaru bears all costs of notification of the class and administration of the claims process, including provisions for any second reviews and appeals therefrom by class members to the Better Business Bureau (except that Subaru is not responsible for a class member's attorney's fees and expenses if the member retains counsel in the Better Business Bureau proceeding).
In other words, Subaru's payments of incentive awards, attorneys' fees and costs awards, and costs of class notice, administration of the claims process, and costs of the claims appeals procedures, are not from a common settlement fund but are instead beyond, and separate from, the benefits promised to the Settlement Class. Further, the Settlement Agreement places no cap upon the aggregate expense to Subaru in fulfilling its obligations to the class such as for future repairs of class vehicles and reimbursements to class members. Subaru, and not the Settlement Class, bears the risk that the incidence of such covered repairs and reimbursements will be larger than currently foreseen.
Against this background, the Court first examines whether the proposed settlement class should be certified.
To certify a settlement class, the plaintiffs must satisfy the four threshold requirements of Rule 23(a) — namely numerosity, commonality, typicality, and adequacy — and one of the subparts of Rule 23(b) — in this case, the requirements of Rule 23(b)(3) that the "questions of law or fact common to class members predominate over questions affecting only individual members [predominance], and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy [superiority]." Fed. R. Civ. P. 23(b)(3).
Rule 23(a)(1) requires that the class be "so numerous that joinder of all members is impracticable." The total number of Settlement Class Vehicles is approximately 577,860, and the number of eligible past and present owners and lessees of these vehicles is approximately 665,730, easily satisfying the numerosity requirement.
The Rule 23(a)(2) requirement of commonality is satisfied where the plaintiffs assert claims that "depend upon a common contention" that is "of such a nature that it is capable of class wide resolution — which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke."
The common questions of law and fact are many. They include: (1) whether the Settlement Class Vehicles were subject to a common defect; (2) whether Subaru failed to adequately disclose material facts related to the Settlement Class Vehicles prior to sale; (3) whether Subaru's conduct was unlawful; and (4) how any resulting monetary damages to consumers should be calculated, just to name a few. The proposed class easily satisfies the commonality requirement.
The representative plaintiff's claims must be "typical" of those of other class members under Rule 23(a)(3). Typicality is found, for example, where the claims of the representative plaintiffs arise from the same event or course of conduct and are based on the same legal theories.
The proposed class thus meets the typicality requirement.
Plaintiffs must demonstrate that "the representative part[y] will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). Adequacy depends on the class representative having the ability and incentive to protect class wide interests, as well as having obtained able and experienced counsel.
The class representatives have each participated in pursuing this litigation, including active assistance to counsel in preparing for litigation and for settlement negotiations. It appears there is no conflict or antagonism between the named plaintiffs and the settlement class members, and there is no substantial prospect that time will be wasted to sort out atypical aspects of any named plaintiff's circumstances or claims.
Regarding class counsel, the Court observes that lead counsel Richard McCune, Esq., from the law firm of McCune Wright LLP; Matthew Schelkopf, Esq., formerly of Chimicles & Tikellis LLP and currently of McCune Wright LLP; and Eric Gibbs, Esq., of the firm of Girard Gibbs LLP are all experienced class action counsel who have worked efficiently to bring this case to conclusion. Messrs. McCune, Schelkopf, and Gibbs shall continue as Class Counsel.
To establish predominance, plaintiffs must demonstrate that the common questions predominate over individual issues. When assessing predominance, as well as superiority, in the settlement class context, a showing of the manageability of a class trial is not required, "for the proposal is that there be no trial."
The common issues of law and fact identified above in Part II.B present the dominant determinations to be made. Do the class vehicles tend to exhibit excessive oil consumption, and by what measure or test? Does this amount to a design defect? Did defendants market the class vehicles without adequate warning of the possibility of this defect? Is this condition covered by the vehicle's limited warranty and/or the powertrain warranty? What compensation, if any, is due to class members?
Although one can also imagine individual situations that do not seem to fit the paradigm of plaintiffs' allegations, the proposed settlement is all-encompassing, including all class vehicles, so that there will be no need for individual trials. Quite simply, if the problem of excessive oil consumption is manifested through an objective, reasonable, and free test, within the extended warranty period, then the defendants will repair and reimburse in accordance with the class settlement. Common engineering issues of the existence, causation, and cure of the problem are resolved in the settlement and need not be proved in individual cases, while the particular class member's compensation will be determined in a simple claim process.
The Court finds that the common questions of law and fact predominate over the individual questions in specific vehicles, and that the proposed settlement indeed resolves the common questions and accommodates the individual vehicle experiences. Predominance is clearly satisfied under Rule 23(b)(3).
There can likewise be little doubt that the settlement class certification would satisfy the superiority requirement when considering the relevant Rule 23(b)(3) factors. The proposed settlement provides class members with the means to obtain prompt and predictable relief, which a plethora of individual cases would not. The settlement dispenses with the need for individualized expert witness assessments of the alleged engine problems and fixes. The settlement provides an evaluation and repair scheme of a current problem avoiding the delays inherent in litigation and appeals. Within the settlement's compensatory claim process, due process is met in the individual cases through administrative procedures including appeal in an alternative dispute resolution forum. Finally, the savings in time and expense needed to litigate individual cases is realized through class-based relief. The class action status is probably the only feasible way to seek to establish liability and damages in a case of this type where the harm to an individual class member is generally in the realm of a fraction of the price of the class vehicle. The superiority prong of Rule 23(b)(3) is well satisfied.
In conclusion, the Court finds that certification of the proposed settlement class is appropriate under Rules 23(a) & 23(b)(3).
In reviewing proposed class action settlements, Federal Rule of Civil Procedure 23(e)(2) compels an inquiry into the fairness, reasonableness, and adequacy of a proposed settlement to "`protect[]'" absent class members through "`the court's assur[ance] that the settlement represents adequate compensation for the release of the class claims.'"
In
521 F.2d 153, 157 (3d Cir. 1975) (internal quotation marks and ellipses omitted) (hereinafter, "the
Then, in
148 F.3d 283, 323 (3d Cir. 1998) (hereinafter, "the
In this case, where the settlement class certification, the proposed settlement, the incentive fees to class representative plaintiffs, and the uncontested cap on reimbursement of attorneys' fees and costs were simultaneously negotiated, there must be a heightened standard of review to determine the fairness of the proposed settlement.
"The first [
"The second
Out of approximately 665,730 notices, only 34 filed comments, of which 28 can fairly be characterized as specific objections. (
The objections will be further addressed in Part III.B, below.
"The third
Plaintiffs' counsel had conducted its own investigation, researched and responded to numerous inquiries from class members, received and analyzed documents produced by defendants, and conducted confirmatory deposition discovery of defendant's Rule 30(b)(6) designated deponent.
Although plenary discovery was in its early stages, class counsel were sufficiently well prepared and informed enough to engage in robust settlement negotiations. They did not need further adversarial litigation to learn the engineering principles, the scope of defendants' conduct in design, marketing and manufacture, the overall scope of the issues, and the uncertainties and difficulties of proof that would lie ahead if the case was not resolved. More than that was not required here, especially in view of the fact that greater knowledge, gained at the expense of delay in the resolution of these claims, would likely not have led to any substantial change of the legal and factual landscape. The amount of discovery completed is thus a neutral factor overall.
"`The fourth and fifth
The Court had a preview of the breadth and complexity of the legal issues raised by Plaintiffs' pleadings. Defendant Subaru moved to dismiss many of Plaintiffs' claims in a comprehensive motion filed in December 2014 [Docket Item 31] which was addressed in Plaintiffs' Memorandum in Opposition in January 2015 [Docket Item 34.] While Plaintiffs conceded to the dismissal of a few claims, the remainder of the motion was strenuously contested. Also, Subaru had not sought dismissal of other claims enumerated by Plaintiffs' Memorandum in Opposition [Docket Item 34 at 2], which would have gone forward for factual development and probably summary judgment motion practice. Further, Plaintiffs had not sought class certification by the time the parties entered into negotiations, and the outcome of any contested motion to certify the class would have depended upon further class-based discovery consuming many more months.
When considering the risks of establishing liability and damages, the Court is not called upon to resolve the parties' disputed legal and factual contentions at this time. That would have been the function and goal of protracted and expensive litigation over coming months and years. What must be said, however, is that the outcome was uncertain. A few further observations are in order.
The Court recognizes, as do class counsel, that defendants' liability for fraud — the gravamen of the case — is not clear. For example, without proof defendants knew of the alleged design defect before selling the vehicles, a plaintiff cannot recover under the New Jersey Consumer Fraud Act and other similar state consumer fraud statutes.
The Court also agrees with class counsel's assessment that even if liability were established, "Plaintiffs still would have likely met substantial challenges in proving damages, and doing so on a class-wide basis." Pl. Mem. in Support, p. 32. Establishing damages on a classwide basis would have required winning a battle of experts, which is not a foregone conclusion. All of this would have taken additional years, and may have resulted in no classwide recovery.
Due to these real and substantial difficulties in getting a class certified and proving liability and damages, the Court finds these Fourth and Fifth
Although an aspect of the
The seventh
In evaluating the eighth and ninth
The proposed settlement reflects a compromise between the parties' respective litigation positions, as do all settlements. It is not possible to forecast the precise value of the damages plaintiffs would likely recover if successful. Perhaps the strongest theory of recovery, in relative terms, was breach of the warranty, since the parts involved herein, if defective, would be eligible for warranty repairs. The fraud-based theories may be difficult or impossible to prove, as Subaru's knowledge of the defect at or before the time of sale would be required; there is scant, if any, such knowledge prior to sale or lease of the class vehicles. At most, the data reflected that Subaru received an elevated number of warranty claims of excess oil consumption involving fewer than 1% of the vehicles in production after introduction of the FB engine platform in 2010.
Whether Plaintiffs would have been able to prove that Subaru dishonored its own warranty is also quite uncertain at this stage. Subaru's documentation, exchanged in discovery and analyzed by its retained automotive expert, Robert Kuhn, similarly reflects that many claims were not confirmed — they turned out to be "false positives" for which no warranty remedy was necessary.
Moreover, Subaru would also take the position that development of future oil consumption problems in class vehicles is unlikely because of the nature of the engineering involved. Based upon analysis of FB engine oil consumption warranty claims, Subaru posits that the date shows a greatly diminished claim trend, peaking in the 20-30,000 mile interval and declining rapidly. Thus, Subaru's expert would opine that these issues "typically affect a specified portion of the subject population early in their service life and do not occur at a later date in the remaining portion of the population."
The proposed settlement falls within a range of reasonableness, given the risks to plaintiffs of achieving a worse outcome and the possibility of a more favorable outcome if the case went to trial. Without the settlement, plaintiffs would face the hurdles of obtaining class certification, which Subaru would oppose and which may present a closer question if manageability of a nationwide class were to be considered; without a class, each plaintiff feeling aggrieved would have to bring an individual action seeking compensation and injunctive relief, including replacement or exchange of the vehicle. If fraud could be shown at the time of the purchase of the particular vehicle — a difficult prospect under the present facts — there could be a double damage award under the consumer protection laws of many states. The proposed settlement, on the other hand, includes compensation for out-of-pocket expenses incurred for oil consumption tests or previous Technical Service Bulletin (TSB) Repairs, as well as reimbursement for additional oil consumed up to six quarts, plus towing costs and rental car fees up to $45 per day, but the compensatory sum is not doubled or trebled.
The proposed Settlement Agreement's objective standard for ascertaining excess oil consumption — namely, loss of one-third of a quart of oil in 1,200 miles determines by the Subaru oil consumption test — is the product of negotiations. Obviously, a standard that recognized the oil consumption problem at any level of detectable oil loss would be more beneficial to class members, but would also be unrealistic. All vehicles consume at least some engine oil in normal operations and no one suggests that normal loss of oil is covered by the warranty. This standard strikes a balance, with Subaru agreeing to substantially liberalize the oil consumption test standard compared with its prior level, while removing the subjectivity from the determination of what is excessive. This standard of measurement appears to be a reasonable compromise of the best and worst that might emerge from continued litigation on the subject.
The settlement extends the warranty for current owners to obtain free oil consumption testing and TSB Repairs, while confirming the right to obtain much testing and repairs within the original warranty period, as well. The settlement does not provide compensation for possible diminution of value of class vehicles by alleged stigma, but such an outcome may be unlikely given the rather limited incidence (perhaps 1%)
The Court finds that the proposed settlement is within the zone of reasonable compromise satisfying the eighth and ninth Girsh factors.
The Court has considered each of the 28 objections to the proposed settlement. Such objections are sought and considered before a court determines whether to approve a class settlement, pursuant to Rule 23(e)(5). They are generally detailed and often attach documents such as relevant service records of their oil consumption and Subaru's reactions to their problems. The most developed objection was submitted on behalf of Jose Melgar [Docket Item 90], represented by the law firm of Kimmel & Silverman, P.C., through attorney Shannon Harkins, Esq., the only objector appearing at the fairness hearing on July 26, 2016.
The other 27 written objections reflect concerns with specific aspects of the proposed settlement, falling into several common themes: (1) the settlement is too strict in requiring documentation for reimbursement of oil change expenditures; (2) the settlement does not reimburse class members who purchased an extended warranty; (3) the settlement does not address the diminished vehicle value associated with the excessive oil consumption issue; and (4) the extended warranty is not long enough; and (5) Subaru is not to be trusted to administer the testing and repair program fairly.
First, several objectors oppose the requirements for documentation of past repairs for which reimbursement is sought. For example, objector Stacy Goss [Docket Item 64] indicates she had to add a quart of oil between changes and did not save her receipts for the extra oil, and she expects to continue to need extra oil in the future for which the settlement will not reimburse her. The settlement's requirement for documentation "Proof of Purchase must be submitted," see Settlement Agreement, § V.D.2(b)), is reasonable to prevent fraudulent claims. At the final hearing, class counsel also clarified that an acceptable proof of purchase may include a credit card statement for the oil purchase or for prior reimbursable repairs, accompanied by the claimant's declaration that the claim is true. (Tr. 10:8-17). The proof can be "anything that can be used to corroborate that an individual paid for a repair." (
Second, several objectors (
Several of the objectors who have extended warranties also have not had oil consumption problems (or at least none are mentioned in their letters and attachments) [for example,
Finally, several of the objecting extended warranty purchasers apparently misunderstood the nature of the class settlement's extended warranty. [
Overall, the Court finds that the failure of the proposed class settlement to provide reimbursement to class members who have purchased extended warranties is not unfair, and that it strikes a reasonable compromise.
Third, a number of objectors would like to receive compensation for the allegedly diminished value of settlement class vehicles. [
The objection on behalf of Mr. Melgar raises various issues (discussed herein and
If the case were tried, Subaru would argue that such a reduced value is speculative and untethered to the facts of the case. Its expert, Mr. Kuhn, has opined that the countermeasures Subaru is undertaking as part of the settlement are "appropriate and effective in correcting the root cause" of the excess oil consumption, with the data showing a "steady and measurable reduction" in oil consumption claims "back to a typical background level." Kuhn Report at 12 [Docket Item 51-2]. If the problem no longer manifests itself after repair, this problem is unlikely to be of concern or affect the resale value. Further, if the repair includes a new redesigned short block for the engine, a vehicle with a new engine may be worth
Plaintiffs' class counsel, Mr. Schelkopf, also examined the "diminished resale value" issue and stated at the hearing that he found no evidence of diminished value due to the short block replacement. (Tr. 7/26/16 at 40:10-14). The premise of diminished value articulated by Melgar's expert Scot Turner is that the vehicles "remain unrepaired." Obj. of Melgar,
Overall, the Court finds that the proposed settlement's silence as to diminished value does not impair the fairness and adequacy of the proposed settlement. First, the evidence of diminished value of a particular vehicle, given the multiple variables determining market value, may be difficult to obtain and to prove. Whether there is likely to be any reduced value for settlement class vehicles would be hotly contested if the case were to be tried. Second, even assuming a diminished value for a vehicle that remains unrepaired, the settlement assures proper repairs during the life of the extended warranty. Third, as discussed above, the likelihood that excessive oil consumption problems beyond the normal background level will manifest themselves for the first time beyond the class settlement's extended warranty period is remote, thereby further diminishing the prospect of excess loss of value.
Several objectors assert that the proposed settlement is inadequate because it is not long enough. The proposed settlement's extended warranty for oil consumption issues extends to eight years and 100,000 miles, whichever comes first, and one extra year regardless of mileage for a class vehicle that has exceeded 100,000 miles, measured from the settlement notice date, as described above.
For example, Mr. Jalbert [Docket Item 57] seeks a warranty of an additional three years after oil consumption repairs are made, citing the complexity of disassembling and reassembling the engines. Dr. Kreider [Docket Item 65] indicates that his 2014 Impreza has twice shown low oil levels in its first 40,000 miles, that the Subaru dealer has not recognized the problem, and that he has twice been stranded due to the problem of oil loss. (
Mr. Martin [Docket Item 92] also believes the extended warranty should extend for 100,000 miles from the installation of any replacement engine, as his 2012 Impreza engine has already been replaced twice. His vehicle had almost 62,000 miles as of May 31, 2016. (
Subaru's counsel confirmed at the final hearing that class vehicles will be entitled to the coverage of oil consumption repairs as defined in the settlement, including replacements of any new parts that fail to solve the problem. Counsel confirmed that such new parts are themselves warranted by Subaru for 12,000 miles, even if that period goes beyond the extended class warranty. (Tr. 7/26/16 at 23:32 to 24:3). If, for example, the replacement engine fails to resolve the problem, that defect will have to be cured either within the extended warranty period or within 12,000 miles of the new part's installation under Subaru's normal new parts warranty. The proposed settlement makes clear that the Settlement Agreement does not diminish or affect any other Subaru warranty, duty, or contractual obligation, see Settlement Agreement [Docket Item 49-2, ¶ V.A.5].
Likewise, Plaintiffs' Class Counsel indicated their belief that the oil consumption issue is resolved by the redesigned short block and other parts contemplated by the TSB measures under the proposed settlement, indicating, "Our position on that is the oil consumption issue is now resolved." (Tr. 21:22-23). Anecdotes of the failure of the replacement engine block described by Mr. Martin appear to be exceptionally rare, as the oil consumption condition has affected approximately 1% of class vehicles since the introduction of Subaru FB engine in 2010. Since the new engine block was redesigned with countermeasures, as explained in the expert report of Robert Kuhn, PE [Docket Item 51-2], which have brought about a significant reduction of oil consumption, one would expect the oil defect rate to become negligible, and the prospect of a second replacement to be very small.
The Court acknowledges that providing a second warranty upon a replacement engine (beyond the 12,000 mile new part warranty) is not an unreasonable objective. A replacement engine will also be covered for the duration of the extended class settlement warranty already in existence if the class settlement is approved. Certainly, the proposed settlement contains advantages to class members that will not otherwise exist if the settlement is rejected, as already discussed.
Subaru's concessions in the settlement, including installation of the redesigned short block and other countermeasures, together with reimbursements for prior TSB repairs, which benefit the class, are part of a negotiated compromise which draws a line at the eight-year/100,000 mile extended warranty term with the 12,000 mile addendum for vehicles with 100,000 miles on the class notice date. Like any compromise, a case could be made for the longer warranty period advocated by these objectors, or for the status quo that Subaru might achieve if the settlement were rejected and it ultimately prevails on its legal and factual arguments. Also, like any compromise, the result may be disappointing to those in rare situations, such as Mr. Martin, whose replacement engine also failed to meet oil consumption standards. Of course, for those in aggravated situations there was the opportunity to opt out of this class and to pursue one's own remedies. That the proposed settlement does not provide a second 100,000 mile warranty upon the remedial parts is not reason for this Court to reject it.
The Court has considered various other objections raised in response to the notice of proposed settlement. For example, several objectors do not trust their Subaru dealer to carry out the terms of the settlement in a proper fashion because they feel that dealers have been deceptive on oil consumption testing and remediation,
One objector, Mr. Becker [Docket Item 84], asserts that his 2011 Subaru Forester should be included in the class but is not because its VIN number is too low. Mr. Becker has misread the notice, in which
Finally, several objectors have suggested that the Court should insert other, more favorable terms into the proposed settlement. The Court does not have the power to alter the terms of the proposed settlement.
In summary, the response of the class members has produced only about 28 objectors out of about 665,730 recipients, showing strong overall acceptance. Each of the objections has been considered, and those raised by at least a few objectors have been discussed herein and found not to undermine the overall fairness, reasonableness, and adequacy of the proposed settlement. The Class Representatives and Defendant Subaru have sustained their burden, as proponents of the class settlement, in the face of the objections.
As noted above, a controversial objection was filed on behalf of Jose Melgar by the law firm Kimmel & Silverman, P.C., on July 6, 2016 [Docket Item 90 & 90-1 through -4], containing objections similar to those addressed above.
Finally, the Affidavit of Robert Silverman
Subaru's counsel responded to the Melgar objection by letter of July 18, 2016 [Docket Item 98]. Subaru's response is accompanied by the Declaration of John Gray [Docket Item 98-2], who is Subaru's Field Quality Assurance Analysis Manager; and the Declaration of Charles McEntee [Docket Item 98-3], who is Subaru's Director, Customer Retailer Services, which handles records of lemon law claims.
Two threshold issues must be addressed. First, as Plaintiffs' class counsel argued at the hearing based on the Robert Tedesco Affidavit [Ex. C-1], which was unrebutted by objecting counsel from Kimmel & Silverman, it appears that Kimmel & Silverman may have a conflict in both having represented plaintiffs' class representative Robert Tedesco, Jr. in connection with Tedesco's oil consumption issues alleged in this case, and then representing Jose Melgar in opposing the class action settlement that Mr. Tedesco, as class representative, strongly supports. According to Mr. Tedesco, he consulted Kimmel & Silverman with regard to his oil consumption problems in his 2013 Subaru XV Crosstrek 2.0i in September 2014, and that firm referred him to the firm of Berger & Montague, P.C., for purposes of filing the class action complaint in this Court. (Tedesco Aff., Ex. C-1, ¶¶ 7-9). Berger & Montague filed that complaint, with Mr. Tedesco as plaintiff's class representative, Civil No. 14-6317 (JBS), which was later consolidated into the present case. (
Second, it appears that Mr. Melgar lacks standing to object that the proposed settlement precludes future lemon law claims by class members (other than Lemon Law lawsuits already pending pertaining to oil consumption, see Settlement ¶ II.29). Mr. Melgar, it turns out, "has already signed a release as to his own potential lemon law claims. Specifically, in exchange for certain consideration, Mr. Melgar signed a complete release of his lemon law claims, and Subaru paid fees to his attorneys — Kimmel & Silverman," according to the letter of Michael Carroll, Esq., dated July 18, 2016 [Docket Item 98 at 2]. While the terms of that settlement are confidential, Subaru offered to submit the settlement documents under seal for
Turning to the merits, the Court finds Mr. Silverman's objections to the effect that Subaru "routinely" provides his clients, in "hundreds of claims" about oil consumption, with "full replacements or repurchases of their vehicles" and "substantial case for the diminished value of their vehicles" [Silverman Aff. (Docket Item 90-4) at ¶¶ 3-6] appear to be gross overstatements. Subaru's Charles McEntee declares that "[a] review of Subaru's files reveals that 152 cases by the law firm of Kimmel & Silverman, P.C. in which the complaint related to engine oil consumption." [McEntee Decl. (Docket Item 98-3) at ¶ 2]. Further, "[o]f those 152 cases, Subaru repurchased the vehicle in 6 cases. As good will, Subaru provided trade assistance in another 4 cases." [
Finally, the Kimmel & Silverman press release reprinted from the prweb.com website, Ex. C-3,
This press release says, in relevant part:
"Subaru Oil Consumption Class Action Settlement May Leave Certain Drivers Stranded When it Comes to their Lemon Law Rights," PRWeb, Ex. C-3 (May 26, 2016). Plaintiffs' counsel has alleged that Kimmel & Silverman's publication of this information, giving the impression that Subaru already routinely gives better relief to oil consumption problems than does the proposed settlement, may have caused putative class members to opt out in reliance upon the Kimmel & Silverman overstatements, which appeared about 18 days before the June 13, 2016 opt-out deadline. Counsel pointed out that approximately one-half of the 2,328 opt-outs reside in the states where Kimmel & Silverman practice.
Additional points asserted as objections on behalf of Mr. Melgar have already been considered and rejected above and will not be repeated here.
As discussed above, the Court finds that certification of the proposed settlement class is appropriate. Such certification recognizes, pursuant to Rules 23(a) & (b)(3), Fed. R. Civ. P., that the proposed class has numerosity (with approximately 665,000 members); that the contentions share commonality; that the representative plaintiffs' claims are typical of the class members; that the class representatives and class counsel are more than adequate to the task and faithful to the interests of absent class members; that common questions predominate over individual issues (and that manageability of a class trial is not at issue where there will be no trial); and that the certification of the proposed class provides a means of determining the disputes which is far superior to individualized proceedings in timeliness, effectiveness and practicality.
Further, the Court has closely examined the proposed settlement by applying the
The Court finds the proposed Settlement Agreement to be fair, reasonable, and adequate under Rule 23(e)(2). Most of the relevant factors militate strongly in favor of approval. Namely, the proposed settlement produces a huge savings of time and money compared with litigating each claim to a final outcome; the reaction of the class has been favorable, with an objection rate of 0.0005% and an opt-out rate of 0.35% of the class members, while approximately 2,900 class members have already begun to present claims for reimbursement; the settlement strikes a reasonable balance for the class recovery given the risks of establishing liability and damages; and the administrative claims process is fair, prompt, straightforward and subject to monitoring by Plaintiff's Class Counsel and to judicial oversight.
Several factors are neutral, pointing toward neither acceptance nor rejection of the settlement. Namely, this settlement was reached at an early stage of the case before much discovery was completed, but Plaintiffs' counsel had the benefit of sufficient analysis of the facts and law to form an educated view of how the settlement should be structured to obtain a reasonable result for the class. The incremental benefit to the class from dragging this case into plenary discovery and motion practice does not exceed the benefit of achieving a rapid and certain resolution. A second neutral factor is Subaru's ability to pay a greater judgment if awarded at trial; however, Plaintiffs have seized upon Subaru's financial strength by placing upon Subaru the financial risk that more class vehicles will require costlier repairs than anticipated, since there is no overall monetary cap upon future repairs and reimbursements. This open-ended financial obligation protects the class because this settlement is not constrained by a common fund and the obligations to bear the expenses of testing, expensive replacement and repairs (the cost of short block engine replacement is about $4,000), and reimbursement of past oil purchases and for eligible repairs, as well as towing and car rental, falls only upon Subaru and is secured by Subaru's financial strength. To some degree, as class counsel and Subaru's counsel have both noted, the integrity of Subaru's undertakings is also secured by Subaru's desire to preserve its reputation for dependable vehicles and its commitment to its loyal customer base. These are favorable factors giving confidence in the class settlement and its administration by Subaru.
The Court also examined whether engineering countermeasures and replacement parts will fix oil consumption problems, recognizing that the proposed settlement is of diminished value if the replacement scheme is substandard. Although the record has several anecdotes of owners claiming that the fix did not succeed in their vehicles, the evidence supports the views of class counsel, the class representatives, and Subaru's counsel that the fix does work. If in some unusual cases it fails, adequate mechanisms are in place to "fix the fix" at no cost to class members, during the extended warranty term.
The simultaneous negotiations of class certification, the merits, incentive awards for the class representatives, and reimbursement of class counsel's fees and costs have not created a distorted or unfair settlement. The representatives' incentive fee of $3,500 each is proportional to their contributions to the litigation effort as well as to the expected benefit to a class member whose excess oil consumption problems are resolved through the settlement (
Finally, as further protection to the class, the Court will retain jurisdiction to enforce its terms, monitoring the overall implementation and administration, as the Settlement Agreement provides.
Within this continuing jurisdiction, the Court will require Defendant Subaru to file quarterly reports of settlement administration progress, which shall also be monitored by Plaintiffs' Class Counsel. Under the Settlement Agreement at Section V.F, the parties have agreed that Subaru shall be responsible for the costs of settlement administration, and that "Plaintiffs retain the right to audit and review the handling of the claims by Subaru." (Settlement Agreement, § V.F and Docket Item 49-2). Further, the parties have agreed that Class Counsel "have the right to reasonably monitor the claims administration process and ensure that Subaru is acting in accordance with the Settlement Agreement." (
Subaru's quarterly report shall at a minimum summarize the numbers of claims for reimbursement received and pending under Section VI.A; the numbers of claims granted in full, granted in part and denied; the number pending under the Second Review procedure of Section VI.A.3 & B; and the number of claims appealed to the Better Business Bureau Appeals process of Section VI.C, and the outcomes of such appeals. The quarterly report shall also summarize the nationwide experience with repairs performed pursuant to the Extended Warranty, including the number of Oil Consumption Tests and TSB Repairs performed on class vehicles during the reporting period, if such data can reasonably be gathered by Subaru.
The first quarterly report will be due on October 15, 2016 and will cover the three-month period ending September 30, 2016. Subsequent reports are due at three-month intervals covering the experiences of the analogous three-month periods.
For the foregoing reasons, the Court finds that the proposed Settlement Class should be certified under Rules 23(a) & (b)(3), that the objections to the settlement should be overruled, and that the proposed Settlement Agreement should be approved as fair, reasonable, and adequate under Rule 23(e)(2). The Court further finds that those who have timely filed opt-out notices as listed in
Final judgment will be entered accordingly as set forth in the accompanying Order.
