In Powers v. Lycoming Engines, 2011 WL 504786 (E.D. Pa. Feb. 9, 2011), plaintiffs sought to represent a class of owners or previous owners of aircraft equipped with engines designed and built by Lycoming Engines. Plaintiffs alleged Lycoming manufactured the engines with defective crankshafts that could cause a total loss of engine power and in-flight engine failures. Plaintiffs filed the case in federal court in Pennsylvania, Lycoming’s place of business. The proposed class included members from the District of Columbia and every state except California. Plaintiffs sought damages for breach of the implied warranty of merchantability and contended the court could apply Pennsylvania law to the claims of all class members.
The district court initially certified a class of all residents of the District of Columbia or any state except California who purchased the allegedly defective engines before April 11, 2006. Lycoming appealed the certification order, arguing that variation in the laws of the 50 jurisdictions included in the class created overwhelming individual issues and made the case unmanageable as a class action. The Third Circuit vacated the order and directed the district court to conduct a new choice-of-law analysis. Powers v. Lycoming Engines, Inc., 328 F.App'x 121, 128 (3d Cir.2009).
Because it had diversity jurisdiction, the Pennsylvania-based federal court applied Pennsylvania choice-of- law rules, using a two-step process. First, the court had to decide if a real, outcome-determinative conflict existed. There is no conflict where the application of different states’ laws produces the same result. Only where a state's governmental interests are frustrated by application of another state's law is there an actual conflict. Second, if such a real conflict exists, the court must apply the law of the state that has the greater interest in having its law apply.
The court initially determined that, even though all states but Louisiana had adopted the Uniform Commercial Code’s implied warranty of merchantability, there were significant differences among the states in how they apply the UCC provision. The most fundamental difference is whether a state requires the plaintiff to be in privity of contract with the defendant. Thirty-one of the involved states, including Pennsylvania, do not require a plaintiff to establish a direct contractual relationship with the defendant to prevail on a breach of implied warranty claim. Eighteen states, however, do require the plaintiff to prove direct contractual dealings with the defendant to prevail on a claim for breach of implied warranty.
The court held this to be a true, meaningful conflict that reflected basic policy decisions regarding the extent to which contractual liabilities should be imposed on remote manufacturers. Applying Pennsylvania law and allowing the plaintiffs to sue a manufacturer with whom they did not deal directly would frustrate the interests of the eighteen states that protect remote manufacturers by requiring privity of contract before imposing liability. Requiring privity, however, would shield Lycoming from suit by remote purchasers and frustrate Pennsylvania's interest in holding responsible an in-state manufacturer that placed a defective product in the stream of commerce. Therefore, a real conflict existed, requiring an analysis of which state had the most significant relationship to the contract and therefore the greater interest in the application of its law.
The court concluded that each state where a plaintiff purchased the defective engine, and where a contract was formed and performed, had the most significant relationship with the transaction involving that plaintiff. While Pennsylvania did have an interest in regulating the conduct of an in-state manufacturer, this interest was outweighed by the other states’ interests in regulating business conducted within their borders by their citizens. Therefore, the laws of each state where a plaintiff took delivery of the engine would govern the transaction involving that plaintiff.
Having decided that it would need to apply the implied warranty law of fifty jurisdictions to resolve all class member claims, the court rather easily concluded it could not certify the class. In addition to the privity issue, there are additional significant differences as to how the states apply their laws. Although most states require a claimant to give advance notice of a breach of warranty claim, they differ as to what constitutes adequate notice. The states differ as to how, or whether, a seller may disclaim the implied warranty. They differ as to how, or whether, a seller may limit liability in the event of a breach. Moreover, the states differ as to how they deal with defenses to breach of warranty claims, such as misuse of the product, assumption of the risk, or the adequacy of warnings given with a product. The court would even need to conduct individual inquiries to determine where each plaintiff purchased an engine before it could decide which state’s law applies.
“Given the multitude of differences in the legal standards applicable to each class member's claim, determining liability at trial would require an individualized factual inquiry. The fact finder would have to determine where each class member purchased the aircraft or engine and then apply that state's law, which in turn requires sifting through differing definitions of merchantability, limitations of liability, and various defenses. These many differences among the class members overwhelm the common legal issues. In other words, the common issues do not predominate.” 2011 WL 504786 at *11. The multitude of individual issues also made the case unmanageable as a class action, so a class action was not superior to other methods of adjudicating the controversy. Therefore, a class could not be certified.
Powers is a carefully considered decision that highlights the importance of choice of law issues in class certification proceedings. Facing a proposed multi-state class, a comprehensive analysis of the differences in the potentially applicable state laws is essential to the proper prosecution or defense of a class certification motion.