May 4, 2018

Lit Alerts—May 2018

A Publication of the Litigation Practice Group

Attorney's Fees: California Court of Appeal Denies Fees to Consumer Warranty Plaintiff Who Obtained Confidential Settlement

In Garcia v. Mercedes-Benz USA, Inc., a California Court of Appeal declined to award attorney's fees to a plaintiff pursuant to the Song-Beverly Consumer Warranty Act (the Act) when the plaintiff claimed she had prevailed by achieving a confidential settlement with the defendant as a result of her lawsuit.

The plaintiff sued an auto manufacturer seeking reimbursement for the cost of her car and additional add-ons she purchased from a dealership independently of her car purchase from the manufacturer. Eventually the parties signed a confidential settlement that left the issue of attorney's fees open for resolution by a court. When the plaintiff moved for attorney's fees and costs, the trial court denied both.

The plaintiff's right to recover attorney's fees depended on whether she was a "prevailing party" according to the Act. The Court of Appeal discussed a split among the California appellate courts, with one side requiring that a plaintiff obtain a "net monetary recovery" and the other looking to the "extent…the buyer achieves her litigation objectives." The Court chose the latter view, and consequently held that the plaintiff was not entitled to fees because she could not prove that she had prevailed in her litigation: the settlement she obtained was confidential and the defendant had offered to repurchase the car prior to the plaintiff's filing her case. The plaintiff was entitled to recover her costs, however, as she demonstrated that she at least obtained a "partial recovery, as long as it is a net monetary recovery," which the Court found is the applicable standard for recovering costs.

Patent Litigation: Federal Circuit Rules That USPTO May Intervene to Defend PTAB Decisions

Ordinarily, an appeal involves an appellant who challenges the lower court's ruling, and an appellee who argues that the lower court's ruling should be affirmed. Not so in Knowles Elecs. LLC v. Iancu, an appeal from a Patent Trial and Appeal Board (PTAB) decision in which the Federal Circuit ruled that it may consider an appeal in which the only remaining litigants are the appellant and an intervenor arguing in the place of the absent appellee.

In this case, when the patent owner, Knowles Electronics, appealed from the PTAB's decision affirming the rejection of its patent claims, the would-be appellee—the third-party requester that initiated the inter partes reexamination that resulted in the rejection of the claims—declined to appear. Instead, the Director of the United States Patent and Trademark Office intervened in order to present written and oral argument in support of the PTAB's decision. (Since the passage of the America Invents Act, patent law has provided the Director with the right to intervene in certain appeals of PTAB decisions to the Federal Circuit.)

The Federal Circuit requested additional briefing on the Director's standing to intervene, and the majority of the three-judge panel ultimately determined that the Director had standing. It addressed the issue in a short footnote, which relies in part on the Supreme Court's recent decision in Cuozzo Speed Techs. LLC v. Lee. In Cuozzo, the Court explained that "the Patent Office may intervene in a later judicial proceeding to defend its decision—even if the private challengers drop out."

Judge Newman dissented, arguing that the majority gave this precedent an overly broad reading, overlooking a key distinction between Cuozzo and the present case. In Cuozzo, the Director defended not just the PTAB's decision, but also its legal authority to issue a regulation on which the PTAB had relied in its decision. The dissent argued that the challenge to the regulation presented a specific harm to the USPTO's interests and therefore provided a basis for the Director's standing that is not present when the Director's only interest is to defend the PTAB's decision on the merits. In these circumstances, "the intervenor does not have an independent interest or injury" and "the requirements of intervenor status are not met."

The majority opinion affirms the PTAB's decision to affirm the rejection of the patent claims at issue.Patent Litigation: Federal Circuit Rules That USPTO May Intervene to Defend PTAB Decisions.

Class Actions: California District Court Denies Class Certification Citing Plaintiff's Inappropriate Damages Model

In April, Judge Lucy Koh of the Northern District of California denied a plaintiff's motion to certify a class of consumers who alleged that certain Nissan manual transmissions suffered from design defects that caused "the clutch to lose hydraulic pressure and fail to engage/disengage gears." In Nguyen v. Nissan North America, Inc., Case No. 16-CV-05591-LHK (N.D. Cal. Apr. 9, 2018), the plaintiff alleged violations of California's Consumers Legal Remedies Act, Song-Beverly Act, and Magnusson-Moss Act.

The Court declined to certify the putative class under Federal Rule of Civil Procedure 23(b)(3), holding that the plaintiff's proposed "benefit of the bargain" damages model was not an appropriate measure of damages. In particular, the plaintiff's damages theory—which set damages as equal to the cost of replacing the defective part with a working part—was problematic because it assumed that not a single class member received any benefit from the allegedly defective manual transmissions. Noting that the named plaintiff had driven more than 26,000 miles before the part malfunctioned, the Court recognized that under the plaintiff's model, "if the class also derived value from the defective [part]—be it by selling it, repurposing it, or simply driving a ways before replacing it—the class member will have received the full benefit of the bargain and the monetary value of the defective part."

The Court also criticized the plaintiff's damages expert for failing to state any basis for his assumption that the part was actually valueless. Hence, "[a]bsent any justification for this assumption, the benefit of the bargain damages model fails to 'measure only those damages attributable to' Plaintiff's theory of liability because it awards damages equal to the value of a non-defective [product] (the benefit of the bargain) without deducting the value of the defective [product]."

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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