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Cardenas v. Toyota Motor Corp.

United States District Court, S.D. Florida, Miami Division

September 30, 2019

JAVIER CARDENAS and KURT KIRTON, Plaintiffs,
v.
TOYOTA MOTOR CORPORATION, TOYOTA MOTOR SALES, U.S.A., INC., TOYOTA MOTOR ENGINEERING & MANUFACTURING, INC., and SOUTHEAST TOYOTA DISTRIBUTORS, LLC, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFEND ANTS' MOTIONS TO DISMISS

          FEDERICO A. MORENO, UNITED STATES DISTRICT JUDGE.

         This class action lawsuit is about whether certain Toyota entities defrauded consumers and engaged in unfair trade practices by concealing a defect in the Heating, Ventilation, and Air Conditioning Systems installed in 2012-2017 Toyota Camrys and Camry Hybrids. The Plaintiffs claim the Toyota entities' conduct constitutes common law fraud or fraudulent concealment, and violates the Racketeering Influenced and Corrupt Organizations Act, the Magnuson-Moss Warranty Act, Florida's Deceptive and Unfair Trade Practices Act, and the Tennessee Consumer Protection Act. The Plaintiffs also claim the Defendants have breached the implied warranty of merchantability.

         For the reasons below, the Defendants' Motions to Dismiss (D.E. 26, 27) are GRANTED IN PART AND DENIED IN PART. Specifically, the Motions are GRANTED as to Counts III, IV, V, and VI, and thus these Counts are DISMISSED, and the Motions are DENIED as to Counts I, II, VII, and VIII.

         I. BACKGROUND

         The Plaintiffs allege the Defendants[1] marketed, sold, and leased millions of 2012-2017 Toyota Camrys and Camry Hybrids throughout the United States despite knowing the vehicles had a defective Heating, Ventilation, and Air Conditioning System. According to the Plaintiffs, the Heating, Ventilation, and Air Conditioning Systems were defective because they failed to properly remove all humidity and water; and consequently, emitted foul, noxious, and toxic odors into the vehicle passenger compartment, which exposed passengers to serious health and safety hazards, such as mold and other contaminants.

         In August 2014, Plaintiff Javier Cardenas purchased a new 2014 Toyota Camry from' Kendall Toyota near Miami, Florida, while he was a Florida resident. In March 2017, Plaintiff Kurt Kirton purchased a used 2015 Toyota Camry from a Wyatt Johnson Toyota dealership in Clarkesville, Tennessee. Both Plaintiffs allege they were unaware their vehicles had a Defective Heating, Ventilation, and Air Conditioning System at the time of purchase, and that had they known about the Defect, they would not have purchased their vehicles.

         The Complaint alleges the Defendants possessed exclusive and superior knowledge about the Defect based upon: (1) consumer complaints filed with the National Highway Traffic Safety Administration and with Toyota Motor Sales's network of exclusive dealers; (2) testing performed by Toyota Engineering and Manufacturing in response to consumer complaints; (3) Technical Service Bulletins issued by Toyota to its network of distributors and dealers; and (4) repair orders, aggregate warranty data, and parts data compiled by and received from those dealers. Despite having this information, the Complaint alleges the Defendants failed to disclose, and actively concealed the Defect and its health and safety hazards from the Plaintiffs and putative class members.

         As a result, the Plaintiffs filed an 8-count Class Action Complaint seeking economic loss damages and alleging that the Defendants' nondisclosure and active concealment of the Defect violates federal and state law. The Toyota Defendants and Southeast Toyota filed separate motions to dismiss. This Order resolves both motions.

         II. LEGAL STANDARD

         "A pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). To survive a motion to dismiss, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Ail. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Id. at 679. Detailed factual allegations are not required, but a complaint must offer more than "labels and conclusions" or "a formulaic recitation of the elements of the cause of action." Twombly, 550 U.S. at 555 (citation omitted). The factual allegations must be enough to "raise a right to relief above the speculative level." Id. (citations omitted).

         Where a cause of action sounds in fraud, the allegations in a complaint must satisfy Federal Rule of Civil Procedure 9(b). Under Rule 9(b), "a party must state with particularity the circumstances constituting fraud or mistake"; although "conditions of a person's mind," such as malice, intent, and knowledge may be alleged generally. Fed.R.Civ.P. 9(b). To comply with Rule 9(b), a plaintiff must allege: "(1) the precise statements, documents, or misrepresentations made; (2) the time, place, and person responsible for the statement; (3) the content and manner in which these statements misled the Plaintiffs; and (4) what the defendants gained by the alleged fraud." Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1380-81 (11th Cir. 1997) (per curiam) (citation omitted). In other words, a plaintiff is required to plead the "who, what, when, where, and how" pertaining to the underlying fraud. Garfield v. NDC Health Corp., 466 F.3d 1255, 1262 (11th Cir. 2006) (citation omitted). At bottom, the purpose of particularity pleading is to alert defendants to their precise misconduct and protect them against baseless charges of fraudulent behavior. See Durham v. Bus. Mgmt. Assocs., 847 F.2d 1505, 1511 (11th Cir. 1988) (citation omitted).

         Finally, at the motion to dismiss stage, the Court must view the allegations in the complaint in the light most favorable to the plaintiffs and accept well-pleaded facts as true. See St. Joseph's Hosp., Inc. v. Hosp. Corp. of Am., 795 F.2d 948, 954 (11th Cir. 1986).

         III. DISCUSSION

         A. RACKETEERING INFLUENCED AND CORRUPT ORGANIZATIONS ACT

         1. Racketeering (Count I)

         In Count I, the Plaintiffs assert a federal RICO claim under 18 U.S.C. Section 1962(c) against the Toyota Defendants. To state a plausible Section 1962(c) claim, a plaintiff must allege that defendants: (1) engaged in conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Williams v. Mohawk Indus., Inc., 465 F.3d 1277, 1282 (11th Cir. 2006), abrogated on other grounds by Ray v. Spirit Airlines, Inc., 836 F.3d 1340, 1349 (11th Cir. 2016).

         In this case, the Plaintiffs' racketeering claim is predicated on mail and wire fraud. Thus, the allegations in the Complaint must comply not only with the plausibility criteria articulated in Twombly and Iqbal, but also with Rule 9(b)'s heightened pleading standard. Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1291 (11th Cir. 2010) (quoting Ambrosia Coal & Constr. Co. v. Pages Morales, 482 F.3d 1309, 1316 (11th Cir. 2007)). Notwithstanding, because particularity pleading under Rule 9(b) is limited to "the circumstances constituting fraud," the non-fraud elements of a RICO claim can be alleged under Rule 8(a) standards. See D. Penguin Bros. v. City Nat. Bank, 587 Fed.Appx. 663, 666 (2d Cir. 2014); Audette-Weaver v. J.G. Wentworth, S.S.C, L.P., No. 8:07-cv-2056-T-26MAP, 2008 WL 11336685, at *6 (M.D. Fla. Feb. 26, 2008).

         a) Racketeering Activity

         Racketeering activity is defined as any act indictable under any of the statutory provisions listed in 18 U.S.C. Section 1961(1), which includes mail and wire fraud in violation of 18 U.S.C. Sections 1341 and 1343. See Kemp v. Am. Tel. & Tel. Co., 393 F.3d 1354, 1359 (11th Cir. 2004). A "pattern of racketeering activity" requires the commission of at least two such acts within a ten-year period. See 18 U.S.C. § 1961(5); Rajput v. City Trading, LLC, 476 Fed.Appx. 177, 180 (11th Cir. 2012) (per curiam).

         The Plaintiffs' racketeering claim is predicated on mail and wire fraud, and thus they must allege: (1) intentional participation in a scheme to defraud; and (2) the use of the interstate mails or wires in furtherance of that scheme. United States v. Maxwell, 579 F.3d 1282, 1299 (11th Cir. 2009) (citing United States v. Hasson, 333 F.3d 1264, 1270 and n.7 (11th Cir. 2003); United States v. Ellington, 348 F.3d 984, 990 (11th Cir. 2003)). A "scheme to defraud" requires proof of a material misrepresentation, or the omission or concealment of a material fact calculated to deceive another out of money or property. Id. (citing United States v. Svete, 556 F.3d 1157, 1161, 1169 (11th Cir. 2009) (en banc)).

         In this case, the Court finds that the Plaintiffs adequately allege mail and wire fraud against the Toyota Defendants. The Complaint sets forth numerous allegations establishing the Toyota Defendants' exclusive and superior knowledge of the Defect. By way of examples, the Complaint alleges the Toyota Defendants were aware of the Defect based upon numerous complaints filed with the National Highway Traffic Safety Administration by consumers complaining about foul, moldy odors coming from the Heating, Ventilation, and Air Conditioning System in their vehicle. (See D.E. 1 at ¶¶ 65-67.) The Complaint also alleges the Toyota Defendants used their knowledge of the Defect to share Technical Service Bulletins with its network of distributors in 1997, 2009, 2011, 2013, and 2015. See Id. at ¶¶ 68-74, 125b-c, e, j, l.

         According to the Complaint, a 1997 Technical Service Bulletin described the Heating, Ventilation, and Air Conditioning System Defect as a "musty odor ... emitted from the air conditioning system of some vehicles which are usually operated in areas with high temperature and humidity." Id. at ¶¶ 69, 125b. This Technical Service Bulletin noted that the odor could result from "[b]lockage of the evaporator housing drain pipe, resulting in the build up of condensate" or "[m]icrobial growth in the evaporator, arising from dampness in the evaporator housing where the cooling air flow is dehumidified." Id. at ¶ 69.

         Then, the Complaint alleges that in 2009 and 2011, new Technical Service Bulletins were issued, stating that a "newly designed evaporator sub-assembly [had] been made available to decrease the potential for HVAC odor" and that this repair was "covered under the Toyota Comprehensive Warranty ... in effect for 36 months or 36, 000 miles, whichever occurs first." Id. at ¶¶ 70-71, 125c, e. The 2009 Bulletin also stated that certain "Camry, Camry HV, and Prius models may exhibit an intermittent HVAC system odor." Id. at ¶¶ 70, 125c.

         The Complaint further alleges that a 2013 Bulletin explained the odors as "naturally occurring from the HVAC system and/or related environmental factors" and then informed dealers there was "no way to eliminate these odors." Id. at ¶¶72, 125j. That Bulletin further provided procedures to "minimize" the odors, but noted the procedures would "NOT eliminate the odors experienced, but [were] provided to help reduce the intensity of [the] odors." Id. The Complaint also alleges that a 2015 Bulletin revised the 2013 Bulletin to include 2007-2015 Camry and Camry Hybrid vehicles. Id. at ¶¶ 73, 1251. Finally, the Complaint alleges that despite this exclusive and superior knowledge of the Defect, members of the Toyota RICO enterprise "encouraged Plaintiffs and Class members to pay for remedies that would fail to completely repair the HVAC System Defect, to increase Defendants' and other members of the Toyota RICO Enterprises' profits." Id. at ¶ 1251.

         The Complaint juxtaposes the consumer complaints filed with the National Highway Traffic Safety Administration and the Technical Service Bulletins, with numerous internal communications supporting the reasonable inference that the Toyota Defendants took actions to mislead consumers, or conceal from them, the existence and/or full nature of the Heating, Ventilation, and Air Conditioning System Defect in order to avoid liability and to maintain revenue. Several allegations stand out to the Court. First, the Complaint alleges that on September 19, 2012, a communication was transmitted via wire by a Toyota Motor Sales Product Engineer between Toyota's offices in California and Texas, which summarized communications with Southeast Toyota as follows:

AC has been one of the top issues for [Southeast Toyota] for the last few years .... [Southeast Toyota] stopped attempting to repair vehicles with AC odor, because of the severity of the Lemon Law in the state of Florida. [Southeast Toyota] started to tell customers the condition was normal.

Id. at ¶¶ 77, 125g (emphasis added). Relatedly, the Complaint alleges that on January 23, 2013, Toyota transmitted a communication via wire to its offices in Australia and Japan, explaining that Toyota and its dealers were "hesitant" to attempt repairing the Heating, Ventilation, and Air Conditioning Systems, because the odors would come back, and it would subject Toyota to Lemon Law liability. Id. at¶ 125h.

         Second, the Complaint alleges that on July 25, 2013, Toyota's office in Kansas transmitted a communication via wire to Southeast Toyota in Florida, which provided standardized language to give complaining customers; specifically, that the odor was not a defect, but rather, "an industrywide condition." Id. at ¶ 125i. That communication also advised that customers should be encouraged to "contact [their] local Toyota dealership for a thorough evaluation of the condition." Id.

         Third, the Complaint alleges that on September 9, 2015, a Toyota Pricing Manager emailed the National Product Planning Manager, stating that he agreed with Southeast Toyota, and asked:

[I]f this is a known issue with a [Technical Service Bulletin] for how to repair, why are we asking to charge customers. ... it does seem challenging to explain why to get what a customer should expect as a standard condition for the air conditioner (no odor) we charge more?

Id. at ¶ 81; ¶ 125m (noting the same communication described the Defect as an engineering problem affecting "a basic requirement of the system").

         Next, the Complaint alleges that the while the Toyota Defendants knew about and wrestled with the Heating, Ventilation, and Air Conditioning System Defect internally, but did not publicly disclose it, they continued to tout the Canary's "legendary quality" (2011), described the interior as "a space that is rewarding and enhances the driver experience" (2013), and marketed Camrys as providing "maximum comfort" "ready for your next road trip," and as "[c]ommitted to safety" (2016). See Id. at ¶¶ 125d, 125k, 125n. The Complaint also avers that the Toyota Defendants marketed the 2017 Camry as offering "the best combination of roominess, comfort, quality safety and performance" and that it upheld "its well-earned reputation for comfort," which came with "[p]eace of [m]ind [w]arranty [protection." Id. at ¶ 125o. Finally, despite its knowledge of the Defect and continued marketing of Camry vehicles, the Complaint alleges that "[b]y concealing the scope and nature of the HVAC System Defect contained in millions of vehicles, the Toyota Defendants also maintained and boosted consumer confidence in the Toyota brand" and "avoid[ed] the costs and bad publicity associated with a recall or lemon law suit." Id. at ¶¶ 120, 125f.

         Taking all these allegations as true, as the Court must at the dismissal stage, the Court finds the Complaint sufficiently alleges a scheme to defraud based on "material misrepresentations" or the "omission or concealment" of material facts from the Plaintiffs and the putative class members. Cf. Stockinger v. Toyota Motor Sales U.S.A., Inc., No. LACV 17-00035-VAP (KLSx), 2017 WL 10574372, at *15-19 (CD. Cal. July 7, 2017) (denying motion to dismiss common law fraud claims under similar, if not lesser, allegations); Salas v. Toyota Motor Sales, ...


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