Court Opinion

ID: 2995669
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:21:38.12937+00
Date Added: 2024-06-11T11:45:25.782997
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

Nos. 02-1437, 02-1438 & 02-1439

In the Matter of:

Bridgestone/Firestone, Inc., Tires Products
Liability Litigation

Appeals of:

Bridgestone/Firestone, Inc., Bridgestone
Corporation, and Ford Motor Company

Appeals from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. IP 00-9373-C-B/S (MDL No. 1373)--Sarah Evans Barker, Judge.

Argued April 17, 2002--Decided May 2, 2002

  Before Easterbrook, Manion, and Kanne,
Circuit Judges.

  Easterbrook, Circuit Judge. Firestone
tires on Ford Explorer SUVs experienced
an abnormally high failure rate during
the late 1990s. In August 2000, while the
National Highway Transportation Safety
Administration was investigating,
Firestone recalled and replaced some of
those tires. Ford and Firestone replaced
additional tires during 2001. Many suits
have been filed as a result of injuries
and deaths related to the tire failures.
Other suits were filed by persons who own
(or owned) Ford Explorers or Firestone
tires that have so far performed
properly; these persons seek compensation
for the risk of failure, which may be
reflected in diminished resale value of
the vehicles and perhaps in mental
stress. The Judicial Panel on
Multidistrict Litigation transferred
suits filed in, or removed to, federal
court to the Southern District of Indiana
for consolidated pretrial proceedings
under 28 U.S.C. sec.1407(a). Once these
have been completed, the cases must be
returned to the originating districts for
decision on the merits. See Lexecon Inc.
v. Milberg Weiss Bershad Hynes & Lerach,
523 U.S. 26 (1998). In an effort to
prevent retransfer, counsel representing
many of the plaintiffs filed a new
consolidated suit in Indianapolis and
asked the judge to certify it as a
nationwide class action, which would make
all other suits redundant. The district
court obliged and certified two
nationwide classes: the first includes
everyone who owns, owned, leases, or
leased a Ford Explorer of model year 1991
through 2001 anytime before the first
recall, and the second includes all
owners and lessees from 1990 until today
of Firestone ATX, ATX II, Firehawk ATX,
ATX 23 Degree, Widetrack Radial Baja, or
Wilderness tire models, or any other
Firestone tire "substantially similar" to
them. In re Bridgestone/Firestone, Inc.,
Tire Products Liability Litigation, 205
F.R.D. 503 (S.D. Ind. 2001); see also 155
F. Supp. 2d 1069 (S.D. Ind. 2001). More
than 60 million tires and 3 million
vehicles fit these definitions.

  No class action is proper unless all
litigants are governed by the same legal
rules. Otherwise the class cannot satisfy
the commonality and superiority
requirements of Fed. R. Civ. P. 23(a),
(b)(3). Yet state laws about theories
such as those presented by our plaintiffs
differ, and such differences have led us
to hold that other warranty, fraud, or
products-liability suits may not proceed
as nationwide classes. See, e.g., Isaacs
v. Sprint Corp., 261 F.3d 679 (7th Cir.
2001); Szabo v. Bridgeport Machines,
Inc., 249 F.3d 672 (7th Cir. 2001); In re
Rhone-Poulenc Rorer Inc., 51 F.3d 1293
(7th Cir. 1995). See also In re Mexico
Money Transfer Litigation, 267 F.3d 743,
746-47 (7th Cir. 2001). The district
judge, well aware of this principle,
recognized that uniform law would be
essential to class certification. Because
plaintiffs’ claims rest on state law, the
choice-of-law rules come from the state
in which the federal court sits. See
Klaxon v. Stentor Electric Manufacturing
Co., 313 U.S. 487 (1941). The district
judge concluded that Indiana law points
to the headquarters of the defendants,
because that is where the products are
designed and the important decisions
about disclosures and sales are made.
Ford and Firestone engaged in conduct
that was uniform across the nation, which
the district court took to imply the
appropriateness of uniform law. This
ruling means that all claims by the
Explorer class will be resolved under
Michigan law and all claims by the tire
class will be resolved under Tennessee
law. According to the district court,
other obstacles (such as the fact that
the six named tire models represent 67
designs for different sizes and
performance criteria, and that half of
all 1996 and 1997 model Explorers came
with Goodyear tires) are worth overcoming
in light of the efficiency of class
treatment. Nor did the district court
deem it important that Firestone’s tires
were designed in Ohio, and many were
manufactured outside Tennessee, as many
of Ford’s vehicles are manufactured
outside Michigan.

  Both Ford and Firestone petitioned for
interlocutory review under Fed. R. Civ.
P. 23(f). We granted these requests
because, as in Rhone-Poulenc and other
cases (e.g., West v. Prudential
Securities, Inc., 282 F.3d 935 (7th Cir.
2002)) the suit is exceedingly unlikely
to be tried. Aggregating millions of
claims on account of multiple products
manufactured and sold across more than
ten years makes the case so unwieldy, and
the stakes so large, that settlement
becomes almost inevitable--and at a price
that reflects the risk of a catastrophic
judgment as much as, if not more than,
the actual merit of the claims.
Permitting appellate review before class
certification can precipitate such a set
tlement is a principal function of Rule
23(f). See Blair v. Equifax Check
Services, Inc., 181 F.3d 832, 834-35 (7th
Cir. 1999). Another function is
permitting appellate review of important
legal issues that otherwise might prove
elusive. The district court’s conclusion
that one state’s law would apply to
claims by consumers throughout the
country--not just those in Indiana, but
also those in California, New Jersey, and
Mississippi--is a novelty, and, if
followed, would be of considerable import
to other suits. Our review of this
choice-of-law question is plenary, so we
start there.

  Indiana is a lex loci delicti state: in
all but exceptional cases it applies the
law of the place where harm occurred. See
Hubbard Manufacturing Co. v. Greeson, 515
N.E.2d 1071 (Ind. 1987). Those class
members who suffered injury or death as a
result of defects were harmed in the
states where the tires failed. As a
practical matter, these class members can
be ignored; they are sure to opt out and
litigate independently. These classes
therefore effectively include only those
consumers whose loss (if any) is
financial rather than physical: it is the
class of persons whose tires did not
fail, whose vehicles did not roll over.
Many class members face no future threat
of failure either, because about 30
million tires were recalled and replaced,
while other tires have been used up and
discarded. Financial loss (if any, a
qualification we will not repeat) was
suffered in the places where the vehicles
and tires were purchased at excessive
prices or resold at depressed prices.
Those injuries occurred in all 50 states,
the District of Columbia, Puerto Rico,
and U.S. territories such as Guam. The
lex loci delicti principle points to the
places of these injuries, not the
defendants’ corporate headquarters, as
the source of law.

  Plaintiffs concede that until 1987 this
would have been Indiana’s approach. They
contend, however, that Hubbard changed
everything by holding that when the place
of the injury "bears little connection to
the legal action" a court may consider
other factors, such as the place of the
conduct causing the injury and the
residence of the parties. It is
conceivable, we suppose, that Indiana
might think that a financial (or
physical) injury to one of its residents,
occurring within the state’s borders,
"bears little connection to the legal
action", but the proof of that pudding is
in the eating. Has Indiana since 1987
applied the law of a state where a
product was designed, or promotional
materials drafted, to a suit arising out
of an injury in Indiana? As far as we can
tell, the answer is no--not even once,
and the state has had plenty of
opportunities. Yet since 1987 both
Indiana and this court have routinely
applied Indiana law when injury caused by
a defective product occurred in Indiana
to Indiana residents. See, e.g., Land v.
Yamaha Motor Corp., 272 F.3d 514, 517
(7th Cir. 2001) (Indiana law); Morgen v.
Ford Motor Co., 762 N.E.2d 137 (Ind. App.
2002). Neither Indiana nor any other
state has applied a uniform place-of-the-
defendant’s-headquarters rule to
products-liability cases. It is not hard
to devise an argument that such a uniform
rule would be good on many dimensions,
but that argument has not carried the day
with state judges, and it is state law
rather than a quest for efficiency in
litigation (or in product design
decisions) that controls.

  "Ah, but this is not a products-
liability case!" So plaintiffs respond to
the conspicuous lack of support from
state decisions. And indeed it is not a
products-liability suit, since all who
suffered physical injury are bound to opt
out. No injury, no tort, is an ingredient
of every state’s law. See, e.g., Fogel v.
Zell, 221 F.3d 955, 960-62 (7th Cir.
2000); In re Orthopedic Bone Screw
Products Liability Litigation, 193 F.3d
781, 789 (3d Cir. 1999); Travelers
Insurance Co. v. Eljer Manufacturing,
Inc., 197 Ill. 2d 278, 757 N.E.2d 481
(2001). Plaintiffs describe the injury as
financial rather than physical and seek
to move the suit out of the tort domain
and into that of contract (the vehicle
was not the flawless one described and
thus is not merchantable, a warranty
theory) and consumer fraud (on the theory
that selling products with undisclosed
attributes, and thus worth less than
represented, is fraudulent). It is not
clear that this maneuver actually moves
the locus from tort to contract. If tort
law fully compensates those who are
physically injured, then any recoveries
by those whose products function properly
mean excess compensation./1 As a
result, most states would not entertain
the sort of theory that plaintiffs press.
See, e.g., Briehl v. General Motors
Corp., 172 F.3d 623, 628 (8th Cir. 1999)
(Mississippi, New York, Pennsylvania, and
Texas law); Angus v. Shiley, Inc., 989
F.2d 142, 147-48 (3d Cir. 1993)
(Pennsylvania law); Willett v. Baxter
International, Inc., 929 F.2d 1094, 1099-
1100 (5th Cir. 1991) (Louisiana law);
Carlson v. General Motors Corp., 883 F.2d
287, 298 (4th Cir. 1989) (South Carolina
law); American Suzuki Motor Corp. v.
Superior Court, 44 Cal. Rptr. 2d 526 (Ct.
App. 1995); Ford Motor Co. v. Rice, 726
So. 2d 626, 627, 631 (Ala. 1998); Yu v.
IBM Corp., 314 Ill. App. 3d 892, 732
N.E.2d 1173 (1st Dist. 2000); Capital
Holding Corp. v. Bailey, 873 S.W.2d 187,
192 (Ky. 1994).

  Obviously plaintiffs believe that
Michigan and Tennessee are in the
favorable minority; we need not decide.
If recovery for breach of warranty or
consumer fraud is possible, the injury is
decidedly where the consumer is located,
rather than where the seller maintains
its headquarters. A contract for the sale
of a car in Indiana is governed by
Indiana law unless it contains a choice-
of-law clause, and plaintiffs do not want
to enforce any choice-of-law clause.
Plaintiffs have not cited, and we could
not find, any Indiana case applying any
law other than Indiana’s to warranty or
fraud claims arising from consumer
products designed (or contract terms
written) out of state, unless a choice-
of-law clause was involved. State
consumer-protection laws vary
considerably, and courts must respect
these differences rather than apply one
state’s law to sales in other states with
different rules. See BMW of North
America, Inc. v. Gore, 517 U.S. 559, 568-
73 (1996). We do not for a second suppose
that Indiana would apply Michigan law to
an auto sale if Michigan permitted auto
companies to conceal defects from
customers; nor do we think it likely that
Indiana would apply Korean law (no matter
what Korean law on the subject may
provide) to claims of deceit in the sale
of Hyundai automobiles, in Indiana, to
residents of Indiana, or French law to
the sale of cars equipped with Michelin
tires. Indiana has consistently said that
sales of products in Indiana must conform
to Indiana’s consumer-protection laws and
its rules of contract law. See, e.g.,
A.J.’s Automotive Sales, Inc. v. Freet,
725 N.E.2d 955, 963 (Ind. App. 2000)
(consumer-protection law); Dohm & Nelke
v. Wilson Foods Corp., 531 N.E.2d 512,
513-14 (Ind. App. 1988) (contract law).
It follows that Indiana’s choice-of-law
rule selects the 50 states and multiple
territories where the buyers live, and
not the place of the sellers’
headquarters, for these suits.

  Against all of this plaintiffs set a
single decision: KPMG Peat Marwick v.
Asher, 689 N.E.2d 1283 (Ind. App. 1997).
This decision holds that the adequacy of
services rendered by an accountant in
Missouri to a business whose headquarters
were in Missouri is governed by Missouri
law, even when a suit is filed by unpaid
lenders who live in Indiana. This is a
straightforward application of lex loci
delicti. The injury, if any, was suffered
by the business, which hired and paid the
accountant for professional services
rendered directly to the client; those
who dealt with the audited firm, such as
the plaintiffs in KPMG Peat Marwick,
suffer a derivative injury. Similarly a
malpractice claim against a firm’s lawyer
is determined by the law of the state
where the services are performed, for
that state’s law supplies the standard of
performance and that is where the client
normally would suffer injury. Investors
may be able to step into a corporation’s
shoes and assert a derivative claim, and
in some states (those that have rejected
the Ultramares doctrine, see Ultramares
Corp. v. Touche, Niven & Co., 255 N.Y.
170, 174 N.E. 441 (1931) (Cardozo, J.))
investors may have a direct claim too;
but because the firm remains the lawyer’s
or accountant’s client one body of law
must apply to this single transaction.
Sales of a consumer product in 50 states
do not lead to derivative claims, and
each sale is a separate transaction in
the place of the sale. KPMG Peat Marwick
accordingly has no bearing on consumers’
suits against manufacturers of allegedly
defective products.

  Because these claims must be adjudicated
under the law of so many jurisdictions, a
single nationwide class is not
manageable. Lest we soon see a Rule 23(f)
petition to review the certification of
50 state classes, we add that this
litigation is not manageable as a class
action even on a statewide basis. About
20% of the Ford Explorers were shipped
without Firestone tires. The Firestone
tires supplied with the majority of the
vehicles were recalled at different
times;/2 they may well have differed in
their propensity to fail, and this would
require sub-subclassing among those
owners of Ford Explorers with Firestone
tires. Some of the vehicles were resold
and others have not been; the resales may
have reflected different discounts that
could require vehicle-specific
litigation. Plaintiffs contend that many
of the failures occurred because Ford and
Firestone advised the owners to
underinflate their tires, leading them to
overheat. Other factors also affect
heating; the failure rate (and hence the
discount) may have been higher in Arizona
than in Alaska. Of those vehicles that
have not yet been resold, some will be
resold in the future (by which time the
tire replacements may have alleviated or
eliminated any discount) and some never
will be resold. Owners who wring the last
possible mile out of their vehicles
receive everything they paid for and have
claims that differ from owners who sold
their Explorers to the second-hand market
during the height of the publicity in
2000. Some owners drove their SUVs off
the road over rugged terrain, while
others never used the "sport" or
"utility" features; these differences
also affect resale prices.

  Firestone’s tires likewise exhibit
variability; that’s why fewer than half
of those included in the tire class were
recalled. The tire class includes many
buyers who used Firestone tires on
vehicles other than Ford Explorers, and
who therefore were not advised to
underinflate their tires. (Note that this
description does not reflect any view of
the merits; we are repeating rather than
endorsing plaintiffs’ contention that
Ford counseled "underinflation.") The six
trade names listed in the class
certification order comprise 67 master
tire specifications: "Firehawk ATX"
tires, for example, come in multiple
diameters, widths, and tread designs;
their safety features and failure modes
differ accordingly. Plaintiffs say that
all 67 specifications had three
particular shortcomings that led to
excess failures. But whether a particular
feature is required for safe operation
depends on other attributes of the tires,
and as these other attributes varied
across the 67 master specifications it
would not be possible to make a once-and-
for-all decision about whether all 60
million tires were defective, even if the
law were uniform. There are other
differences too, but the ones we have
mentioned preclude any finding "that the
questions of law or fact common to the
members of the class predominate over any
questions affecting only individual
members, and that a class action is
superior to other available methods for
the fair and efficient adjudication of
the controversy." Fed. R. Civ. P.
23(b)(3). Regulation by the nhtsa, coupled
with tort litigation by persons suffering
physical injury, is far superior to a
suit by millions of uninjured buyers for
dealing with consumer products that are
said to be failure-prone.

  The district judge did not doubt that
differences within the class would lead
to difficulties in managing the
litigation. But the judge thought it
better to cope with these differences
than to scatter the suits to the winds
and require hundreds of judges to resolve
thousands of claims under 50 or more
bodies of law. Efficiency is a vital goal
in any legal system--but the vision of
"efficiency" underlying this class
certification is the model of the central
planner. Plaintiffs share the premise of
the ALI’s Complex Litigation Project
(1993), which devotes more than 700 pages
to an analysis of means to consolidate
litigation as quickly as possible, by
which the authors mean, before multiple
trials break out. The authors take as
given the benefits of that step. Yet the
benefits are elusive. The central
planning model--one case, one court, one
set of rules, one settlement price for
all involved--suppresses information that
is vital to accurate resolution. What is
the law of Michigan, or Arkansas, or
Guam, as applied to this problem? Judges
and lawyers will have to guess, because
the central planning model keeps the
litigation far away from state courts.
(Ford asked us to certify legal questions
to the Supreme Court of Michigan, to
ensure that genuine state law was applied
if Michigan’s law were to govern the
whole country; the plaintiffs stoutly
resisted that proposal.) And if the law
were clear, how would the facts (and thus
the damages per plaintiff) be
ascertained? One suit is an all-or-none
affair, with high risk even if the
parties supply all the information at
their disposal. Getting things right the
first time would be an accident.
Similarly Gosplan or another central
planner may hit on the price of wheat,
but that would be serendipity. Markets
instead use diversified decisionmaking to
supply and evaluate information.
Thousands of traders affect prices by
their purchases and sales over the course
of a crop year. This method looks
"inefficient" from the planner’s
perspective, but it produces more
information, more accurate prices, and a
vibrant, growing economy. See Thomas
Sowell, Knowledge and Decisions (1980).
When courts think of efficiency, they
should think of market models rather than
central-planning models.

  Our decision in Rhone-Poulenc Rorer made
this point, and it is worth reiterating:
only "a decentralized process of multiple
trials, involving different juries, and
different standards of liability, in
different jurisdictions" (51 F.3d at
1299) will yield the information needed
for accurate evaluation of mass tort
claims. Once a series of decisions
orsettlements has produced an accurate
evaluation of a subset of the claims
(say, 1995 Explorers in Arizona equipped
with a particular tire specification) the
others in that subset can be settled or
resolved at an established price. See
David Friedman, More Justice for Less
Money, 39 J.L. & Econ. 211 (1996).

  No matter what one makes of the
decentralized approach as an original
matter, it is hard to adopt the central-
planner model without violence not only
to Rule 23 but also to principles of
federalism. Differences across states may
be costly for courts and litigants alike,
but they are a fundamental aspect of our
federal republic and must not be
overridden in a quest to clear the queue
in court. See BMW v. Gore, 517 U.S. at
568-73; Szabo (reversing a nationwide
warranty class certification); Spence v.
Glock, G.m.b.H., 227 F.3d 308 (5th Cir.
2000) (reversing a nationwide tort class
certification); Larry Kramer, Choice of
Law in Complex Litigation, 71 N.Y.U. L.
Rev. 547, 579 (1996); Linda S. Mullenix,
Mass Tort Litigation and the Dilemma of
Federalization, 44 DePaul L. Rev. 755,
781 (1995); Robert A. Sedler, The Complex
Litigation Project’s Proposal for
Federally-Mandated Choice of Law in Mass
Torts Cases: Another Assault on State
Sovereignty, 54 La. L. Rev. 1085 (1994).
Tempting as it is to alter doctrine in
order to facilitate class treatment,
judges must resist so that all parties’
legal rights may be respected. Amchem
Products, Inc. v. Windsor, 521 U.S. 591,
613 (1997).

  The motion to certify questions of law
to the Supreme Court of Michigan is
denied as unnecessary in light of this
opinion. The district court’s order
certifying two nationwide classes is
reversed.

FOOTNOTES

/1 Consider   an example. Defendant sells 1,000
widgets for   $10,000 apiece. If 1% of the widgets
fail as the   result of an avoidable defect, and
each injury   creates a loss of $50,000, then the
group will experience 10 failures, and the in-
jured buyers will be entitled to $500,000 in tort
damages. That is full compensation for the entire
loss; a manufacturer should not spend more than
$500,000 to make the widgets safer. See Bammerlin
v. Navistar International Transportation Corp.,
30 F.3d 898, 902 (7th Cir. 1994); United States
v. Carroll Towing Co., 159 F.2d 169, 173 (2d Cir.
1947) (L. Hand, J.). Suppose, however, that
uninjured buyers could collect damages on the
theory that the risk of failure made each widget
less valuable; had they known of the risk of
injury, these buyers contend, they would have
paid only $9,500 per widget--for the expected
per-widget cost of injury is $500, and each buyer
could have used the difference in price to pur-
chase insurance (or to self-insure, bearing the
risk in exchange for the lower price). On this
theory the 990 uninjured buyers would collect a
total of $495,000. The manufacturer’s full
outlay of $995,000 ($500,000 to the 10 injured
buyers + $495,000 to the 990 uninjured buyers)
would be nearly double the total loss created by
the product’s defect. This would both overcompen-
sate buyers as a class and induce manufacturers
to spend inefficiently much to reduce the risks
of defects. A consistent system--$500 in damages
to every buyer, or $50,000 in damages to every
injured buyer--creates both the right compensa-
tion and the right incentives. A mixed system
overcompensates buyers and leads to excess pre-
cautions.

/2 On August 9, 2000, Firestone recalled its Radial
ATX and Radial ATX II tires, but only in size
P235/75R15, plus its Wilderness AT tires in size
P235/75R15 (but only if they had been made in
Decatur, Illinois). On January 2, 2001, Firestone
recalled Wilderness LE tires, size P265/70R16,
that had been manufactured the week of April 23,
2000, in Cuernavaca, Mexico. In February 2001 it
recalled approximately 98,500 P205/55R16 Firehawk
GTA-02 tires, most of which had been installed on
Nissan Altima SE cars sold in the United States,
Canada, Puerto Rico, and Guam. Finally, on May
22, 2001, Ford began a replacement program for
all Firestone Wilderness AT tires in 15-inch, 16-
inch, and 17-inch sizes. Other Firestone models,
sizes, and plants were not involved in any recall
program and these tires, though included in the
class definition, may exhibit different (and
lower) failure rates. The nhtsa was satisfied
that these recalls removed all potentially defec-
tive tires from the road and did not require
further action. Yet the tire class includes more
than twice as many Firestone tires as were re-
called.