Chin v. DaimlerChrysler Corp ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
8-7-2008
Chin v. DaimlerChrysler Corp
Precedential or Non-Precedential: Precedential
Docket No. 07-2760
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Precedential
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 07-2760
DAVID CHIN; KEVIN L. SULLIVAN; MARVIN
KIRSCHENBAUM; BRUCE MCCUTCHEON; DEBRA
DODGE; KEVIN L. DODGE; HOWARD BARKAN; BESSIE
COYNE; GEORGE HIGGINS; JULIE SZABOS; JIM
COFFEY; CLAUDE MEYER; SUSAN ROBINS; AL
ZEIDLER; FRAN STRYKOWSKI; JEFF BRADLEY; JERRY
GREEN; TONY SANCHEZ; KENNETH E. NEALY; CRAIG
M. DINSMORE; DAVID P. YEXLEY; ED MIKOLOAJCZYK;
MARTHA SINGLETON; CALVIN M. SINGLETON;
HOWARD G. SAUL; SCOTT A. HOLLENBECK; BERNARD
SIMELTON; WILLIAM KNUEVEN; GARY BERNER; JOHN
D. JAMES; MARY M. GAAR; DAVE ANDREWS; DENNIS
BEAM; CAROLYN A. BUTLER; GREG CARPS; CHRIS
CLARKSON; CYNTHIA COOPER; BYRCE CUSTODIO;
SGT. CHRISTOPHER B. DYE; KAREN ELLIOTT; KAREN
FALLIS; KIMBERLY S. FISH; DARLENE FLUKER; STEVE
FOLEY; WILLIAM FOWLER;J.V. FRANCK; THOMAS E.
GARDNER; RAYMOND C. GOMEZ; BENJAMIN M.
GOSSWILLER; MARK GOZA; J.E. GRAVENMIER; JIM
GREEN; SHARON GREEN; JEAN E. GRIMM; DR. MARK
HANDLE; MARY LYNN HANDLE; HYMAN HASS; JAMES
B. HASTY; JEAN PALMER HECK; DOUG HEINS;
ANTHONY A. HELM; BRENDA L. HELM; CAREY E.
HIDAKA; ERIC HOLMGREN; RON HOMMELSON; NAN
HUTCHINS; CHARLES JABBONSKY; GEORGE R. JONES;
LULA JONES; ROBERT JONES; DANIEL G. KAGAN;
JAMES E. KAY; BARBARA A. KAY; CHARLES KELLEY;
STEVE KELLY; JAMES KEMP; VICKY KEMP; THOMAS F.
KINDER; LLOYD J. KING; MARVIN KITCHEN; DELORES
KITCHEN; DR. LORA KRAVEC; DR. THOMAS KRAVEC;
MICHELLE LESSE; TIMOTHY MALONE; LORI MALONE;
MIKE MCINERNEY; C. STUART MCPHERSON; AAA
REALTY, INC.; WILLENE MITCHELL; NANCY
MOLHAGEN; WALTER H. MOORER, JR.; LEONARD
NELSON; KENNETH H. NORRIS; KHALEEL NURIDEEN;
CYNTHIA OLSEN; MAUREEN O'NEIL; DAVID C. POLICH;
SUSAN L. POMEROY; DAVID PRICE; NORMAN
REVOLINSKI; ROBERT T. REYES; JAMES REYNOLDS;
KATHY SCHOFIELD; WALTER SEMCHYSHYN; FRED
SHIMIZU; NANCY SHIMIZU; LOREINE SIMOPOULOS;
BERNIE K. SLOANE; PAUL T. SMITH; ERIC STOPPA;
DEBBIE STOPPA; SHEILA T. STRAUB; MARK SUDFELD;
JOSEPH TUCKER; ROSE TUCKER; PETER F. VON
SAVOYE, II; ERNEST C. WALSH; FRANK WALLACE
(WALLY) BROMBERG; PAUL NELSON WARE; SONNIE
WASHINGTON; KERMIT WORKMAN; SANDRA
WORKMAN; LANA ANDREWS; ROGER GAUTHIER;
GILBERG HELWIG; TONY OLIVER; BARBARA OLIVER;
ERNEST T. ODDO; DONALD BAILEY; LILLIAN BAILEY;
MARVIN WEIRICH; FREDDIE A. TATE; LINDA T.
NELSON; NANCY WOOD LOENING; STEPHEN CLINE;
TERRI CLINE; JAMES PETERS;
v.
*CHRYSLER LLC,
Appellant
*(Per Clerk's Order 10/24/07)
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civil No. 95-cv-05569)
District Judge: The Honorable John C. Lifland
Argued: June 24, 2008
Before: SLOVITER, BARRY and ROTH, Circuit Judges
(Opinion Filed: August 7, 2008 )
2
D. Brian Hufford, Esq. (Argued)
Pomerantz, Haudek, Block, Grossman & Gross
100 Park Avenue, 26 th Floor
New York, NY 10017-0000
-AND-
Bruce D. Greenberg, Esq.
Allyn Z. Lite, Esq.
Lite, De Palma, Greenberg & Rivas
Two Gateway Center, 12 th Floor
Newark, NJ 07102-0000
Counsel for Appellant
Theodore J. Boutrous, Jr., Esq. (Argued)
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-0000
-AND-
Thomas R. Curtin, Esq.
Graham Curtin
Four Headquarters Plaza
P.O. Box 1991
Morristown, NJ 07962-0000
Counsel for Appellees
OPINION OF THE COURT
BARRY, Circuit Judge
Appellees are a putative class of owners of cars
manufactured by appellant, Chrysler LLC (“Chrysler”). Almost
thirteen years ago, they brought a products-liability action against
Chrysler, claiming that certain braking systems in Chrysler’s cars
were defective. More specifically, in a complaint that was later
3
amended three times, appellees asserted a cause of action under the
M agnuson-M oss W arranty-Federal Trade Commission
Improvement Act (the “Magnuson-Moss Act” or the “Act”), 15
U.S.C. §§ 2301-12, and causes of action for common-law fraud and
breach of implied and express warranties. Approximately one
month after the first amended complaint was filed, however,
Chrysler recalled the affected cars. Appellees voluntarily
dismissed their complaint and moved for an award of attorneys’
fees under the Act. Only after that motion was denied did
appellees seek an award of attorneys’ fees under California state
law, although no substantive claim under California law had been
pled, much less decided. The District Court granted the motion and
awarded attorneys’ fees and expenses in the amount of
$4,654,433.14. Chrysler appeals that order. We will reverse.
I. Factual and Procedural History
We put some meat on the bare bones of the history we have
summarized above. Appellees filed their initial complaint on
October 27, 1995. The complaint alleged that certain cars
manufactured by Chrysler between 1990 and 1995 were equipped
with a defective anti-lock braking system referred to as the “Bendix
10 ABS”; that in 1990 Chrysler began receiving complaints and
requests for brake repairs but denied that the braking systems were
prone to failure; and that, in response to Chrysler’s inaction,
appellees lodged complaints with the National Highway Traffic
Safety Administration (“NHTSA”) and the Center for Auto Safety.
Appellees brought their Magnuson-Moss Act claim “on their own
behalf” and their common-law fraud and breach of express and
implied warranty claims “as a class action on behalf of all others
similarly situated (the ‘Class’).” (J.A. 196.) They sought a
declaration “that this action may properly proceed as a class
action”; an injunction effectively requiring Chrysler to comply
either with its obligations under the Act and the common law or to
rescind the sales of the affected cars; payment of restitution and
punitive damages; and an award of attorneys’ fees and costs.
Appellees amended their complaint on March 8, 1996 in order to
broaden the class of affected car owners to include owners of
Chrysler cars equipped with another, similar braking system that
4
they alleged was also defective: the “Bendix 9 ABS.” 1 Appellees
moved to certify the class on July 26, 1996, a motion denied by the
District Court by order dated September 11, 1998. Chin v.
Chrysler Corp., 182 F.R.D. 448 (D.N.J. 1998).
In March 1994, before appellees filed their initial complaint,
the NHTSA had, pursuant to its authority under the Motor Vehicle
Safety Act, 49 U.S.C. § 30101 et seq., initiated a preliminary
evaluation of the braking systems installed on certain Chrysler cars
for model years 1991 through 1993. After a two-year investigation,
the NHTSA determined that, in some instances, due to the
deterioration to a part of the braking systems, the brakes’ function
“may be lost and reduced power assist may be experienced
progressively during braking.” Id. at 452. On April 15, 1996, a
little more than a month after appellees filed their first amended
complaint, Chrysler voluntarily recalled cars equipped with the
Bendix 10 ABS. In September 1996, the NHTSA began an inquiry
into Chrysler cars equipped with the Bendix 9 ABS and, as a result,
extended the recall to include those cars as well. The recall
required Chrysler to notify all affected consumers of the recalls and
then to inspect all affected cars; replace any malfunctioning
braking systems for free; extend the warranty on such braking
systems to 10 years or 100,000 miles, whichever came first; and
reimburse prior and current owners for any expenses car owners
previously incurred in fixing their faulty braking systems.2 Id.On January 29, 1999, appellees moved for a declaration that
they could recover attorneys’ fees under the fee-shifting provision
of the Magnuson-Moss Act, see 15 U.S.C. § 2310(d)(2). They
relied on a “catalyst” theory, i.e. although they had voluntarily
dismissed their claims against Chrysler, they nonetheless were a
1
Appellees amended their complaint for a second time on
June 27, 1996 and for a third time on April 16, 1998.
2
Appellees argue that, while Chrysler had afforded them
part of the relief they were seeking by implementing the two
recalls, they “continued to pursue the remainder of the case, in part
to ensure that the recalls were fully implemented so that Chrysler
consumers would receive the benefits that Chrysler had
‘voluntarily’ agreed to provide.” (Appellees’ Br. 6.)
5
“prevailing party” for attorneys’ fees purposes because they had
catalyzed Chrysler to provide them (at least in part) the relief they
sought—a recall of all cars equipped with either the Bendix 10
ABS or Bendix 9 ABS. The motion was denied by a magistrate
judge on August 24, 1999 and appellees appealed the decision to
the District Court. Three months later, the Court granted appellees’
unopposed motion for entry of a final judgment and order of
dismissal purportedly under Rule 41(a)(2). The Court stated,
however, that it would determine in a separate order appellees’
appeal of the magistrate judge’s order denying their motion for a
declaration of a right to attorneys’ fees under the Act.
The District Court reversed the magistrate judge’s August
24, 1999 order by opinion and order dated December 14, 1999,
declaring as a matter of law that appellees could proceed to seek
attorneys’ fees under the Act on a catalyst theory. The Court
granted appellees’ motion for additional discovery on the factual
question of whether their lawsuit had actually catalyzed Chrysler
to recall the faulty braking system-equipped cars. After discovery,
appellees moved for a declaration that Chrysler was liable to them
for attorneys’ fees because appellees had, in fact, catalyzed
Chrysler to act.
While this motion was pending, however, the Supreme
Court held in Buckhannon Board & Care Home, Inc. v. West
Virginia Department of Health & Human Resources, 532 U.S. 598,
605 (2001), that a party may not recover attorneys’ fees under
certain federal laws on a catalyst theory. Consequently, Chrysler
moved for reconsideration of the December 14, 1999 order in light
of Buckhannon. Appellees opposed the motion and cross-moved
for an award of attorneys’ fees under § 1021.5 of California’s Civil
Procedure Code, arguing that 25 of the more than 100 named
plaintiffs were residents of California and entitled to fees under the
“private attorney general” doctrine because they were a catalyst in
providing a benefit to a large class of persons. Section 1021.5
provides as follows:
Upon motion, a court may award attorneys’ fees to a
successful party against one or more opposing
parties in any action which has resulted in the
6
enforcement of an important right affecting the
public interest if: (a) a significant benefit, whether
pecuniary or nonpecuniary, has been conferred on
the general public or a large class of persons, (b) the
necessity and financial burden of private
enforcement, or of enforcement by one public entity
against another public entity, are such as to make the
award appropriate, and (c) such fees should not in
the interest of justice be paid out of the recovery, if
any.
Cal. Civ. Proc. Code § 1021.5.
The District Court granted Chrysler’s motion for
reconsideration on August 13, 2003, holding that Buckhannon
foreclosed an award of attorneys’ fees under the Act on a catalyst
theory. The Court also held, however, that appellees could, as a
general matter, seek attorneys’ fees under § 1021.5 but that it
would defer final determination of whether appellees could
specifically proceed on a catalyst theory pending forthcoming
decisions of the California Supreme Court that were expected to
decide whether doing so would be permissible under California law
in light of Buckhannon.
On February 24, 2005, appellees advised the District Court
that the California Supreme Court had decided the pending cases
in their favor: Buckhannon did not foreclose a party’s ability to
recover fees under § 1021.5 on a catalyst theory.3 In a subsequent
letter brief to the Court, Chrysler argued, among other things, that
New Jersey’s choice-of-law rules precluded application of § 1021.5
in this case and that the Court was required to apply either federal
procedural law or New Jersey state law. In a Memorandum and
Order filed on July 19, 2006, the Court held that it would apply §
1021.5 and that appellees could proceed under that statute on a
catalyst theory. After receiving evidence, the Court, by opinion
and order dated November 9, 2006, held that appellees had in fact
3
See Tipton-Whittingham v. City of Los Angeles, 101 P.3d
174 (Cal. 2004); Graham v. DaimlerChrysler Corp., 101 P.3d 140(Cal. 2004).
7
catalyzed Chrysler’s corrective actions for purposes of § 1021.5,
and that, accordingly, the Court would determine the amount of the
attorneys’ fees to be awarded. On May 14, 2007, the Court
awarded appellees $4,478,421.38 in fees and $176,011.76 in
expenses, for a total of $4,654,433.14.
II. Standard of Review
We have jurisdiction under 28 U.S.C. § 1291. On this
appeal, we need only decide questions of law over which we
exercise plenary review. Berg Chilling Sys., Inc. v. Hull Corp, 435
F.3d 455, 462 (3d Cir. 2006).
III. Discussion
Section 1021.5, the California fee-shifting statute, does not
apply for the very fundamental reason that no substantive provision
of California law was ever pled, much less was any violation of an
underlying California cause of action ever found. Without more,
this should have been game, set, and match. And there was no
more. Indeed, given that the only connection between California
and this action alleged by appellees was the fact that 25 of the
appellees lived in that state, it is not surprising that § 1021.5 was
mentioned for the first time only after the Supreme Court decided
Buckhannon and the District Court found that, as a result, fees were
foreclosed under the Act.
But even if a claim under California law had been
specifically decided in appellees’ favor—which is what Chrysler
over these many years has wrongly assumed to have
happened—Chrysler argues, correctly, that the District Court erred
in holding that it could apply the California fee-shifting statute to
this action because the Court applied the wrong state’s law. The
District Court sits in New Jersey, the argument goes, and thus was
bound to apply New Jersey’s choice-of-law rules. Had the Court
applied those rules to this dispute, it would have determined that it
was bound to apply New Jersey law to all procedural matters,
8
including a motion for attorneys’ fees.4 We agree.
A. Erie and Choice-of-Law Principles
When a district court’s jurisdiction is predicated on diversity
of the parties, or when the court hears a state-law claim based on
its supplemental jurisdiction, as we will assume it did here, the
court must determine whether, under Erie Railroad Co. v.
Tompkins, 304 U.S. 64 (1938), a matter is substantive or
procedural. Simmons v. City of Phila., 947 F.2d 1042, 1085 (3d
Cir. 1991). If the matter is determined to be substantive, and a
choice-of-law question is presented, the court must then perform a
choice-of-law analysis to determine which state’s substantive law
applies. The Supreme Court has made plain that these are two
distinct questions. In Sun Oil Co. v. Wortman, the Court held that
Guaranty Trust Co. v. York, 326 U.S. 99 (1945) had
reject[ed] the notion that there is an equivalence
between what is substantive under the Erie doctrine
and what is substantive for purposes of conflict of
laws. Except at the extremes, the terms “substance”
and “procedure” precisely describe very little except
a dichotomy, and what they mean in a particular
context is largely determined by the purposes for
which the dichotomy is drawn.
486 U.S. 717, 726 (1988) (citation omitted).
We emphasize that there are two distinct questions. The
first question, as suggested above, is for a court to determine
whether, under Erie, the matter is procedural or substantive. If the
matter is procedural, and an applicable federal statute, rule, or
4
Albeit belatedly, Chrysler argued in the District Court, and
argues to us, that the District Court lacked subject matter
jurisdiction because the initial complaint had pled a class claim
under the Act but had not adequately alleged the Act’s
jurisdictional requisites. We have reviewed the parties’ contentions
and are satisfied that the District Court had subject matter
jurisdiction.
9
policy exists, then federal procedural law applies; if the matter is
substantive, the court must apply the substantive law of the forum
state. See Abrams v. Lightolier Inc., 50 F.3d 1204, 1223 (3d Cir.
1995).
If the court determines that it must apply the law of the
forum state, and a choice-of-law question exists, the court must, at
the second step, apply the choice-of-law rules of the forum state to
determine which state’s law applies. Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496 (1941). A district court may find a
particular state law to be substantive for Erie purposes but
procedural for purposes of a choice-of-law analysis. See, e.g.,
Boyd Rosene & Assocs., Inc. v. Kan. Mun. Gas Agency, 174 F.3d
1115, 1118 (10th Cir. 1999).
B. New Jersey’s Attorneys’ Fees Rule Applied
Appellees were seeking attorneys’ fees under the generous
fee-shifting provision of California law based only on the fact that
25 of the plaintiffs were residents of that state. They argued that
“state law must be applied in the interpretation of state law causes
of action” (J.A. 48) and the District Court held that “[w]hen a state
law claim is brought in federal court, that state’s law should also be
applied in determining whether to award attorneys’ fees” (J.A. 28-
29). In so holding, the Court also effectively held that for Erie
purposes, the matter before it—a motion for attorneys’ fees—was
one of substantive state law. While the Court relied solely on a
decision of the Ninth Circuit, the parties do not dispute that the
proposition cited by the Court was correct. Indeed, we have held
that, for Erie purposes, a party’s asserted right to attorneys’ fees is
a matter of substantive state law. Abrams, 50 F.3d at 1223. Had
this been a different kind of case in which no choice-of-law
question existed, it might well have been proper for the Court to
then proceed by applying an indisputably applicable state law
(assuming, of course, that, unlike here, the law of a specific state
had been pled).
But the District Court was confronted with a choice-of-law
question—because the District Court sits in New Jersey, it was
bound, Chrysler argued, to apply New Jersey’s choice-of-law rules,
10
which precluded the application of California law and required the
application of New Jersey law. As mentioned above, when a
choice-of law question exists, a district court must apply the
choice-of-law rules of the state in which it sits in order to
determine which state’s law applies. Klaxon, 313 U.S. at 496.
Under New Jersey’s choice-of-law rules, a court sitting in New
Jersey is required to apply New Jersey rules to procedural matters
even where those same rules require the application of the
substantive law of another state. N. Bergen Rex Transport, Inc. v.
Trailer Leasing Co., 730 A.2d 843, 848 (N.J. 1999) (stating that
under New Jersey’s choice-of-law rules, “the procedural law of the
forum state applies even when a different state’s substantive law
must govern”). The Supreme Court of New Jersey has made clear
that an award of attorneys’ fees is a procedural matter to which its
court rules shall apply. State v. Otis Elevator Co., 95 A.2d 715,
717 (N.J. 1953) (“From the outset in New Jersey, following
English precedents, the allowance of costs and counsel fees had
been uniformly considered by the courts of this State to be a matter
of procedure rather than of substantive law.”); see also Mitzel v.
Westinghouse Elec. Corp., 72 F.3d 414, 418 (3d Cir. 1995); Du-
Wel Prods., Inc. v. U.S. Fire Ins. Co., 565 A.2d 1113, 1120 (N.J.
Super. Ct. App. Div. 1989).
New Jersey’s attorneys’ fees rule, New Jersey Court Rule
4:42-9(a), states that “[n]o fee for legal services shall be allowed
in the taxed costs or otherwise” unless one of eight enumerated
exceptions apply. This rule reflects the New Jersey courts’ long
held view that, as a general matter, “New Jersey has a strong policy
disfavoring shifting of attorneys’ fees. We have generally adhered
to the so-called ‘American Rule,’ meaning that the prevailing
litigant is ordinarily not entitled to collect a reasonable attorneys’
fee from the loser.” N. Bergen, 730 A.2d at 848 (internal quotation
marks and citation omitted); Van Horn v. City of Trenton, 404 A.2d
615, 620 (N.J. 1979) (“Our rule of court, R. 4:42-9(a)[,] embodies
the traditional ‘American rule’ that the prevailing litigant is
ordinarily not entitled to collect a reasonable attorneys’ fee from
the loser.”) (internal quotation marks and citation omitted); State
v. Otis Elevator Co., 95 A.2d 715, 728 (N.J. 1953).
The District Court erred in granting appellees’ motion for
11
attorneys’ fees under § 1021.5 of California law without having
first performed a choice-of-law analysis to determine whether
California law could even be applied. Had the Court undertaken
that analysis, it would have determined that it was required to apply
the procedural rules of New Jersey, which in turn would have
required the application of Rule 4:42-9(a). Moreover, we reject
appellees’ argument, raised for the first time on appeal, that even
if Rule 4:42-9(a) is applicable, they are still entitled to an award of
attorneys’ fees because sub-section (8) of that Rule provides an
exception to the general prohibition against an award of attorneys’
fees “[i]n all cases where counsel fees are permitted by statute.”
They argue that because counsel fees are permitted by a statute—§
1021.5, the sub-section(8) exception is applicable, in effect arguing
that under § 1021.5, a court anywhere may award attorneys’ fees
to a successful party in any action anywhere where the requisites
of § 1021.5 have been met as long as the successful party lives in
California.
The Supreme Court of New Jersey’s decisions over the
years have resoundingly reaffirmed New Jersey’s adherence to the
traditional American Rule disfavoring the award of attorneys’ fees
and the Court’s reluctance to diverge from that rule. Moreover, the
Court has “rigorously enforced” the narrow and specific exceptions
to Rule 4:42-9(a) “lest they grow to consume the general rule
itself.” Van Horn, 404 A.2d at 620. We conclude, as a matter of
law, that under the circumstances of this case, the exception
invoked here is wholly inapplicable and, thus, that attorneys’ fees
are disallowed under Rule 4:42-9(a).5
5
Appellees have brought a recent decision of the Supreme
Court of New Jersey to our attention—Mason v. City of Hoboken,
___ N.J. ___, No. A-22-07, 2008 N.J. LEXIS 887 (N.J. July 22,
2008). The Supreme Court observed in Mason that New Jersey has
long recognized the catalyst theory and its application to certain
causes of action brought in the New Jersey courts, and applied it in
Mason to an action brought under The Open Public Records Act,
N.J.S.A. 47:1A1, and to “common law suits,” presumably those
invoking the common law right of access to records. Id. at *45,
*50. Chrysler responds that Mason cannot save appellees’
deficient fee award because, among other reasons, appellees never
12
IV. Conclusion
We will reverse the order of the District Court awarding
attorneys’ fees and expenses.
brought an action under New Jersey law much less ever sought fees
under New Jersey law. We agree.
13