In Little v. Kia Motors America, Inc., docket no. A-24-18, the New Jersey Supreme Court recently set out the examination New Jersey courts must undertake before admitting aggregate proof of damages, rather than individualized proof, in a class action. Siding with defendant Kia in a vehicle defect suit, the Court ruled that admission of aggregate proof of damages at trial was inappropriate because an unknown number of class members would have received a windfall, and the formula used to estimate such damages was unreliable. This case reviews the key principles courts and litigants should consider when choosing between individualized or aggregate proof of damages in a class action.

Background

A New Jersey resident alleged that the 1997 through 2000 model Kia Sephia vehicles had design and manufacturing flaws that caused the front brakes to prematurely wear out. According to the plaintiff, these flaws remained unresolved even after Kia attempted to fix the problems. The plaintiff asserted individual and class action claims against Kia under the California Business & Professions Code, New Jersey Consumer Fraud Act and the federal Magnuson-Moss Warranty Act, in addition to claims for breach of implied and express warranties. The class was limited to New Jersey residents who purchased or leased 1995 through 2000 Kia Sephia vehicles within six years preceding the filing of the complaint in 2001.

At the four-week trial, the plaintiff asserted two claims for class-wide damages: (1) decrease in value of the vehicles due to the brake defect and (2) out-of-pocket costs due to more frequent brake repairs. To calculate the aggregate repair cost damages, the plaintiff relied on an expert’s calculation taken from analyzing the average cost of one brake repair, the lifespan of a Kia Sephia, and the frequency of Sephia brake repairs compared with similar non-defective vehicles. The jury found that Kia Sephia vehicles did have a defect, Kia breached express and implied warranties, and class members were entitled to damages. The jury awarded no damages for alleged decrease in value of the Kia Sephia vehicles, but awarded $750 per class member for out-of-pocket repair costs.

The trial court granted Kia’s motion for a new trial on the issue of damages, finding it erred in admitting class-wide proof of damages “based on an estimate untethered to the experience” of the class. To resolve the error, the trial court decertified the class and appointed a special master to calculate the out-of-pocket repair costs of each individual class member. The plaintiff and Kia both appealed. The Appellate Division reinstated the original jury award, and the New Jersey Supreme Court ultimately took up the case.

New Jersey Supreme Court

The New Jersey Supreme Court scrutinized what measure of damages should have been permitted in this case, individualized or aggregate. The Court relied heavily on the New Jersey Appellate Division case Muise v. GPU, Inc. regarding a class action by electrical utility customers for heat-related power outages. The Muise court laid out the inquiry it believed was necessary before admitting aggregate proof of damages in a class action, and held that the aggregate damages estimate, based on customer surveys, to be an unreliable measure of damages for the class.

The New Jersey Supreme Court adopted the inquiry set forth in Muise and ruled that to determine when aggregate proof of damages is permitted, a court must consider the following three principles:

• The underlying cause of action for which the class seeks recovery

• The measure of damages that the law allows if there is a finding of liability for that claim

• The methodology by which the plaintiff seeks to prove damages on an aggregate basis.

The Court explained that if a plaintiff is unable to provide a foundation on which to conclude all class members were damaged, such aggregate proof raises the likelihood certain class members with no claim for damages will receive a windfall. Individualized proof of damages should be used in those circumstances. When aggregate proof is used, the Court found it imperative that the proof be based on a reliable mathematical formula.

Applying this inquiry to the case at bar, the Court highlighted how the plaintiff did not establish that all class members’ vehicles required excessive brake repairs. Notably, three satisfied New Jersey Kia Sephia owners even testified for Kia at trial. Using the aggregate measure of damages in this case would have given an unknown number of class members a windfall. The Court also determined the formula used to calculate the aggregate out-of-pocket repair costs was unreliable, largely because its bases were speculative. The Court held the trial court’s grant of motion for a new trial and decertification as to damages were proper.

This decision offers guidance for how to determine what measure of damages is most appropriate in a given class action. While aggregate proof may be an accurate and reliable measure in certain cases, litigants should expect that the courts will review it with a critical eye.