August 3, 2020

In a detailed opinion, the New Jersey Supreme Court considered the legal principals with respect to determination of damages in class action litigation. Little v. Kia Motors Am., Inc ., __ N.J. __ (2020). The Court announced a framework for courts to apply in deciding whether to permit aggregate proof of class-wide damages: “(1) the underlying cause of action for which the class seeks recovery; (2) the measure of damages that the law allows if there is a finding of liability for that claim; and (3) the methodology by which the plaintiff seeks to prove damages on an aggregate basis.” The Court cautioned that if a plaintiff cannot establish a basis to presume all class members have sustained damage then “aggregate proof of damages raises the specter that an individual with no viable claim will recover a windfall”. In such settings, individualized proof of damages is required.
Plaintiff asserted claims on her own behalf and on behalf of other New Jersey owners and lessees of 1997 through 2000 Kia Sephia vehicles distributed by defendant Kia Motors America, Inc. Plaintiff alleged that Kia Sephia­ vehicles, manufactured in those relevant years, had a defective brake system. She alleged the brakes in her new Kia Sephia vehicle constantly malfunctioned, requiring her to return her car to Kia dealers for repairs on at least five occasions, and that defendant failed to correct the problem. The Complaint alleged violations of the New Jersey Consumer Fraud Act (CFA), N.J.S.A . 56:8-1 to -224; breach of an express warranty; breach of the implied warranty of merchantability; and violation of the federal Magnuson-Moss Warranty--Federal Trade Commission Improvement Act, 15 U.S.C. §§ 2301 to 2312 (Magnuson-Moss Act).

At trial, plaintiff presented two separate claims for damages. First, she alleged that each class member sustained damages that were caused by the defective brakes accelerating each Kia Sephia’s depreciation and forcing every class member to overpay for their vehicle. Second, plaintiff averred that each class member also incurred out-of-pocket costs for more frequent brake repairs than they would have incurred absent the alleged defect. Plaintiff premised that second damages claim not on individualized proof of class members’ repair costs, but on an expert’s estimate of the average break repair cost in New Jersey during the relevant time-frame, the life span of the average Kia Sephia in the relevant model years, and the frequency of a break repair.

The jury found that the Kia Sephia had a brake defect, that defendant had breached express and implied warranties, and that the class had sustained damages because of the brake defect. The jury however determined that the class members suffered no damages due to their vehicles’ diminution in value; but awarded damages in the amount of $750 per class member based on plaintiff’s claim to recoup out-of-pocket repair costs. 

Post-verdict, the trial court left the jury’s liability verdict undisturbed but granted defendant’s motion for a new trial pursuant to Rule 4:49-1, as to the amount of out-of-pocket damages incurred by class members as plaintiff should have been required to present individualized proof of damages for the class members’ brake repairs. The trial court also decertified the class as to that limited issue and ordered individualized assessments of out-of-pocket expenses incurred by the class members.

Thereafter, a court-appointed Special Master conducted a claims process, evaluated the class members’ individual claims, and recommended to the trial court that it award damages in the amount of $46,197.03 for the cost of repairs . The trial court accepted that recommendation, and final judgment was entered in plaintiff’s favor in that amount plus attorneys’ fees and costs. Both parties then filed appeals.

The Appellate Division reversed the trial court’s post-trial determinations, reinstated the jury’s award for out-of-pocket repair costs based on plaintiff’s aggregate proofs, and remanded for an award of attorneys’ fees. Little v. Kia Motors Am., Inc., 455 N.J. Super. 411, 416-36 (App. Div. 2018). The Supreme Court of New Jersey granted defendant’s petition for certification.

The pivotal question before the New Jersey Supreme Court was whether the trial court properly permitted plaintiff’s theory of damages based on the cost of brake repairs to be asserted class-wide, supported only by aggregate proofs. The Court determined it must conduct an analysis of some additional, more particularized, sub-inquiries: (1) whether a class action dispenses with traditional burdens of proof; (2) whether it would be proper for the court to permit class-wide proof of damages; (3) whether a court may permit an attempt to redefine the brake-repair measure of diminution-of-value claim that does not require individualized proof; (4) whether plaintiff established a basis for a presumption that all members of the class suffered damages for out-of-pocket brake repairs necessitated by Kia Sephia’s brake defect; (5) whether the trial court properly re-assessed the question of predominance under Rule 4:32-1(b)(3) in holding that for the purposes of new trial on class members’ out-of-pocket costs, common questions no longer predominated over individualized inquiries, as to class damages; and (6) whether the trial court properly adopted the Report and Recommendations of Special Master on the basis of class-wide damages.

The Supreme Court, contrary to the Appellate Division, distinguished this case from the occasional setting where courts have found aggregate proof of damages appropriate. Indeed, the Supreme Court agreed with the trial court that it was a “miscarriage of justice” when it allowed plaintiff to prove class-members’ out-of-pocket costs for brake repairs merely by an estimate “untethered” to the experience of plaintiff’s class. “Even if plaintiff [had demonstrated] that all class members sustained [some] out-of-pocket loss,” plaintiff failed to “present any reliable mathematical formula by which the jury could quantify such a loss” in accordance with the standard articulated by the court in Muise v. GPU, Inc ., 371 N.J. Super. 13 (App. Div. 2004). Thus, the Supreme Court noted that class actions do not dispense with traditional burdens of proof, and the trial court properly ordered individualized proof of damages based on the actual costs incurred by the class members.

Furthermore, the Court agreed with the trial court’s grant of defendant’s motions for a new trial and for partial decertification of the class as a proper exercise of the trial court’s discretion. Finally, the Supreme Court found that the claims proceeding was carefully conducted by the Special Master, whose Report and Recommendations proved equitable to all parties, and were properly adopted by the trial court.

If you have any questions regarding this decision or any class action defense please contact Hardin Kundla McKeon & Poletto at www.hkmpp.com

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