Court Applies 'Catalyst Theory' to The Magnuson-Moss Act in Decision Against Chrysler Corporation
27 December 1999
Court Applies 'Catalyst Theory' to The Magnuson-Moss Act in Decision Against Chrysler Corporation NEW YORK, Dec. 27 The following release was issued on
behalf of Pomerantz Haudek Block Grossman & Gross, LLP:
In October 1995, a group of consumers filed suit against Chrysler
Corporation for alleged defects in the antilock brake system Chrysler used in
a number of vehicles manufactured between 1989 and 1993. While Chrysler
initially claimed that there were no defects in the brakes, and publicly
stated in December 1995 that no recall was "in the works," Chrysler reversed
its position in April 1996, announcing the issuance of a Safety Recall for the
Bendix 10 ABS. In October 1996, Chrysler followed this up with a Safety
Recall of the Bendix 9 ABS. Given that Chrysler had only acknowledged the
safety defects in the ABS, and issued the recalls, after it had been sued by
consumers for just such a remedy, plaintiffs moved for attorneys' fees under
the Magnuson-Moss Act, which authorizes consumers to commence civil actions
for damages or other relief for the breach of any express or implied warranty
or service contract by the provider of consumer goods and provides that the
defendant may be ordered to pay attorneys' fees to the plaintiffs in the event
that they prevail in the case.
In a landmark decision that reinforces the rights of all consumers to
bring actions to protect their interests, Judge Lifland of the United States
District Court for the District of New Jersey, on December 14, 1999, became
the first federal district court to hold that consumers bringing claims under
the Magnuson Moss Act may be awarded attorneys' fees under what is known as
the "catalyst theory." Judge Lifland held that when the defendant refuses to
settle a meritorious case, and instead ceases the challenged conduct before
the case is resolved, plaintiff consumers may still be awarded attorneys' fees
under the Act, so long as they "prevailed" by obtaining some of the relief
they sought and the lawsuit was one of the motivating factors underlying the
defendant's action. The Court recognized that under all of the federal
"citizen protection" statutes authorizing consumers to act as private
attorneys general in the public interest, the award of attorneys' fees in
meritorious cases is "essential to enforcement" of the laws, stating:
This Court believes that ruling out the catalyst theory under the
Magnuson-Moss (Act) could encourage defendants who find that their case is
going poorly to take voluntary action to moot the case and thereby deprive
plaintiffs of the opportunity to recover attorneys' fees. This could
deter consumers from bringing meritorious claims because they could risk
being left with a large bill for attorneys' fees. That is inconsistent
with the civil enforcement rationale of the Act and the legislative policy
goals of compensating injured consumers and encouraging a safer
marketplace. Allowing defendants to escape from meritorious claims and
leave consumers with the legal bills would work against Congress' purpose
that the Act should "make the pursuit of consumer rights involving
inexpensive products economically feasible."
The case against Chrysler was brought by 122 owners of Chrysler, Dodge,
Plymouth and Jeep minivans and passenger cars for model years 1989 through
1993 equipped with Bendix 9 and 10 anti-lock braking systems who had
experienced serious braking failures and other braking problems. Although the
National Highway Traffic Safety Administration had conducted a 19-month
investigation of Chrysler's Bendix 10 anti-lock braking system as a result of
more than 3,000 consumer complaints of defective brakes, the Court noted
plaintiffs' claim that Chrysler "showed no interest in recalling the system
until the plaintiff consumers filed their lawsuit." Moreover, as the Court
pointed out, plaintiffs argued that their lawsuit "called for a recall of the
Bendix 9 braking system a year before the NHTSA began its inquiry into that
system." The Court therefore concluded that, if plaintiffs were a "material
contributing factor" in Chrysler's decision to issue the recalls, they would
be entitled to attorneys' fees, and the Court granted plaintiffs' motion for
further discovery "into the motivations and decision-making process for
Chrysler's remedial actions."
The decision sends a strong message to Chrysler, and to all other
manufacturers of defective products, that the consumer protection statutes may
not be undermined and that litigation tactics to avoid attorneys' fees in
meritorious cases will not be tolerated by the federal courts.
