Court Opinion

ID: 4911192
Source: CourtListenerOpinion
Date Created: 2021-09-15 16:01:06.358813+00
Date Added: 2024-06-11T08:13:30.462683
License: Public Domain

United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 20-1355
                         ___________________________

   John Penrod; Gus Erpenbach; Juan Welsh, all individually and on behalf of
                 themselves and all others similarly situated

                       lllllllllllllllllllllPlaintiffs - Appellants

                                           v.

                               K&N Engineering, Inc.

                        lllllllllllllllllllllDefendant - Appellee
                                       ____________

                     Appeal from United States District Court
                          for the District of Minnesota
                                  ____________

                            Submitted: March 17, 2021
                            Filed: September 15, 2021
                                  ____________

Before SHEPHERD, ERICKSON, and KOBES, Circuit Judges.
                         ____________

ERICKSON, Circuit Judge.

      Plaintiffs are three individuals who purchased oil filters designed by defendant
K&N Engineering, Inc. (“K&N”). They seek to represent a nationwide class of all
purchasers of three styles of K&N oil filters that they allege share a common defect,
although most proposed class members had oil filters that never exhibited the alleged
defect. The district court1 found that plaintiffs failed to plausibly allege the amount
in controversy exceeded $5 million and on that basis concluded that it lacked
jurisdiction under the Class Action Fairness Act (“CAFA”). See 28 U.S.C.
§ 1332(d)(6). Plaintiffs appeal, and we affirm.

I.    BACKGROUND

      John Penrod, Gus Erpenbach, and Juan Welsh are the named plaintiffs in this
case. Each of them purchased a K&N designed KN-204 oil filter that failed, causing
varying levels of damage to their motorcycles. Specifically, in the cases of Penrod
and Erpenbach, the failure caused oil to leak onto the rear tire of their motorcycles.
In Welsh’s case, the failure caused catastrophic damage requiring him to replace his
motorcycle’s engine at a cost of about $10,000.

       Plaintiffs filed suit in the District of Minnesota and sought to represent a broad
class of purchasers of three different styles of oil filters designed by K&N and sold
throughout the United States. Plaintiffs allege that K&N failed to disclose a
structural and manufacturing defect that can cause these oil filters to suddenly
separate or fracture. According to plaintiffs, the defect made the oil filters susceptible
to failure and increased the risk of catastrophic failure such that, had K&N disclosed
the defect, purchasers would have found the risk unacceptable. Because of the defect,
plaintiffs claim they either paid too much for their filters or would not have purchased
them at all. While the named plaintiffs purchased oil filters that failed, their proposed
class includes purchasers whose oil filters never failed.

       Plaintiffs assert a number of different tort claims, including breach of warranty,
fraud, negligence, and strict liability. Each claim is dependant upon CAFA as the

      1
      The Honorable Eric C. Tostrud, United States District Judge for the District
of Minnesota.

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source of federal jurisdiction. The district court found that plaintiffs’ reliance on
CAFA was ineffectual because they failed to plausibly plead an aggregate amount in
controversy exceeding $5 million. In particular, the court accepted as plausible
plaintiffs’ estimation of 2.5 million oil filters sold during the class period. Plaintiffs
estimate that only 3/100ths of 1% of the oil filters at issue failed. With approximately
750 alleged defective oil filters, the damages must exceed $6,666.66 per oil filter
failure to meet the jurisdictional threshold. The court found plaintiffs’ assumption
that each defective filter caused $10,000 in damages was not plausible and neither
was $6,666.66 per failure. Plaintiffs appeal, arguing they plausibly pleaded an
amount in controversy in excess of $5 million.

II.   ANALYSIS

      Under CAFA, federal courts have jurisdiction over class actions in which the
amount in controversy plausibly exceeds $5 million in the aggregate. 28 U.S.C.
§ 1332(d)(6); see also Raskas v. Johnson & Johnson, 719 F.3d 884, 888 (8th Cir.
2013) (noting the proponent of federal jurisdiction must plausibly explain how the
damages exceed $5 million). We review de novo a district court’s determination
regarding whether CAFA’s jurisdictional threshold has been satisfied. Raskas, 719
F.3d at 886.

       The district court found that most of plaintiffs’ proposed class members did not
suffer any cognizable injuries or damages, and that the remaining class members did
not plausibly allege damages in excess of $5 million. Plaintiffs contend the district
court erred in its analysis because the proper measure of damages is the monetary
difference between what the proposed class members should have paid for the
potentially defective oil filters, in light of the design defect and increased risk of
catastrophic failure, and what they actually paid for them.

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       Plaintiffs’ contention is unavailing and contrary to the long-standing rule that
no tort claim for economic damages lies when a product is merely at risk of failing.
In Briehl v. General Motors Corp., 172 F.3d 623 (8th Cir. 1999), for example, this
Court concluded that a purported class of General Motors vehicle owners had failed
to state a claim for relief when the alleged defect in the braking system had not
manifested itself in the vehicles they owned. Id. at 628. Similarly, in O’Neil v.
Simplicity, Inc., 574 F.3d 501 (8th Cir. 2009), the plaintiffs brought suit against a crib
manufacturer premised on an alleged hardware defect in a crib that “made it possible
for the drop-side to detach from the crib, creating a dangerous gap in which a child
could get caught.” Id. at 502. The Court reiterated that no cause of action lies for
products merely at risk for manifesting a defect. Id. at 503. Under our precedent, a
cognizable tort claim arises when a defective product has actually malfunctioned or
failed, not merely when a defect poses a risk or possibility of injury or damage.

        According to its plain language, plaintiffs’ complaint alleges a defect in the oil
filters makes them “susceptible” or at “risk” to fail. See Am. Compl. at ¶ 3 (alleging
oil filters “can suddenly” fail); at ¶ 90 (alleging oil filters possess a “trait rendering
them susceptible to failure”); at ¶ 94 (alleging that if the “defective nature” of the oil
filters was disclosed to plaintiffs, they “would not have accepted the risk of sudden
failure of the oil filter”). Oil filters being susceptible to fail, or at risk of failing, is
not the same thing as being sure to fail. Cf. In re Zurn Pex Plumbing Prod. Liab.
Litig., 644 F.3d 604, 617 (8th Cir. 2011).

       Plaintiffs’ theory that every proposed class member sustained damages fails in
light of their complaint and our precedent. The class members whose oil filters never
failed have not sustained injury or damages and cannot assist plaintiffs in meeting the
$5 million jurisdictional threshold. Without these “losses” to aggregate, plaintiffs do
not plausibly allege an amount in controversy in excess of $5 million.

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       Whether the analysis is under Article III standing, see In Re: Polaris Mktg.,
Sales Pracs., & Prods. Liab. Litig., No. 20-2518, __ F.4th __, 2021 WL 3612758 (8th
Cir. Aug. 16, 2021), or plaintiffs’ inability to plausibly plead $5 million in damages
under CAFA is a somewhat academic question in this particular case. Here, the
determinative issue is whether the plaintiffs have alleged an injury sufficient to confer
jurisdiction. In order for us to have jurisdiction under CAFA, there must be a
plausible allegation of $5 million in damages. It is indisputably true that some of the
proposed class members lack standing. See In Re: Polaris, 2021 WL 3612758, at *3
(concluding that the seven purchasers of Polaris off-road vehicles that have not
exhibited the alleged defect—the accelerated degradation of parts caused by allegedly
excessive heat—have alleged nothing more than the existence of a product that is at
risk for manifesting a defect, which is not an injury sufficient to confer standing).
That said, how many of the proposed class members lack standing is a question that
need not be decided by us because the determinative jurisdictional question is
whether the plaintiffs have plausibly alleged $5 million in damages, as most of their
proposed class members have no injury.

       Plaintiffs rely on various contract cases and theories to argue that the uninjured
class members do, in fact, have cognizable injuries. The plaintiffs, however, have not
alleged a claim for breach of contract in their complaint. They cannot now recast
their product liability claim into a non-existent breach of contract claim. Plaintiffs
also refer to an alleged economic injury that was suffered based on the difference in
the price between the defective oil filter and a non-defective one. This is an argument
based in contract. In rejecting a similar argument in O’Neil, the Court noted that until
the product fails or causes injury, the purchasers of the drop-side crib have received
the benefit of their bargain. O’Neil, 574 F.3d at 504; see In Re: Polaris, 2021 WL
3612758, at *3. While the Court characterized the O’Neil plaintiffs as “no-injury”
plaintiffs and the Polaris plaintiffs as “no-fire purchasers,” despite having alleged
“benefit of the bargain” damages (as in this case), the Court determined the plaintiffs
had not stated a claim or suffered an injury in fact because they had not alleged the

                                          -5-
product had failed. O’Neil,574 F.3d at 502–05; In Re: Polaris, 2021 WL 3612758,
at *3.

       Here, most of the oil filters at issue never failed. The filters are like the drop-
side crib in O’Neil and the off-road vehicles in Polaris that were at risk of failing, but
did not. Plaintiffs have not stated a products liability claim, and they cannot “recast
their product liability claim in the language of contract” to state a claim. Rivera v.
Wyeth-Ayerst Lab’ys., 283 F.3d 315, 320 (5th Cir. 2002); see also Wallace v.
ConAgra Foods, Inc., 747 F.3d 1025, 1030 (8th Cir. 2014) (plaintiffs could not bring
suit under CAFA based on a general allegation that the non-kosher status of some
packages of beef tainted all of Hebrew National’s products).

        Excluding the no-injury proposed class members, and even accepting as
plausible plaintiffs’ estimation that 3/100ths of 1% of the oil filters at issue were
defective and failed (750 oil filters), they simply cannot meet the jurisdictional
threshold for damages. Of the three named class members, only one sustained engine
failure that cost $10,000. The filter failure on the other two motorcycles resulted in
oil leaking onto their rear tires. Contrary to plaintiffs’ argument, this situation is not
similar to George v. Omega Flex, Inc., 874 F.3d 1031 (8th Cir. 2017) (per curiam),
in which diminution in value could be appropriate. The plaintiffs in George alleged
corrugated stainless steel tubing installed in their buildings for distribution of natural
or propane gas caused their buildings to be susceptible to failure when exposed to
electrical arcing or direct or indirect lightning strikes. This Court determined that the
plaintiffs had standing to bring a claim based on diminution in value. Here, at issue
is a consumable K&N oil filter that failed occasionally or was otherwise used for its
normal life and replaced with a different oil filter as scheduled. The putative class
members’ motorcycles are not now worth less due to their use of a particular K&N
oil filter. This situation is different in both kind and degree from owning a building
whose value is permanently decreased due to faulty tubing.

                                           -6-
       Lastly, we reject plaintiffs’ argument that separately analyzing their claims
under state consumer protection laws impacts the analysis. Plaintiffs’ complaint still
fails to plausibly allege damages to satisfy the jurisdictional threshold. As to
plaintiffs’ proposed Oregon subclass, Oregon’s Unlawful Trade Practices Act
(“UTPA”) allows consumers to recover $200 in statutory damages if an individual
suffers an “ascertainable loss.” See Or. Rev. Stat. § 646.638(1). Because most of the
putative class members did not suffer any loss, they got what they bargained for.
They did not suffer an “ascertainable loss” entitling them to recover under Oregon’s
UTPA. See Simonsen v. Sandy River Auto, LLC, 413 P.3d 982, 985 (Or. Ct. App.
2018) (loss under Oregon’s UTPA occurs whenever a consumer has received
something other than what he bargained for). With regard to the Minnesota and
Missouri subclasses, even assuming a viable claim, plaintiffs do not plead any facts
regarding the size of these subclasses and, as pled, it is impossible for us to conclude
that plaintiffs have plausibly alleged the requisite amount of damages. Given that we
know nothing about the size of two of the subclasses and the Oregon statute requires
an “ascertainable loss,” we do not find jurisdiction plausible in the three subclasses.

III.   CONCLUSION

      Plaintiffs’ complaint does not plausibly allege damages in excess of $5 million.
The federal courts are without CAFA jurisdiction to redress their defective product
claims. We affirm the judgment of the district court.
                       ______________________________

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