Cal. U.C.C. Implied Warranty Claim: Privity Not a Barrier?

California allows for two different types of implied warranty claims.  The first arises under the Uniform Commercial Code, and the second arises under the Song Beverly Consumer Warranty Act.  Claims under the two statutes differ in a few ways, but perhaps most notably is the privity requirement that exists for the U.C.C. claim, but not for the Song Beverly Claim.  Several recent opinions have undermined the U.C.C.’s privity requirement in the context of automotive defect class actions.

In Bryde v. General Motors, the plaintiffs alleged they bought vehicles with defective airbag systems.  2016 WL 6804584, at *15 (N.D. Cal. Nov. 17, 2016).  Plaintiffs brought several claims, including a California U.C.C. implied warranty claim.  GM sought to dismiss the U.C.C. claim on the grounds that a claim under California Commercial Code section 2314 requires vertical privity.  See Sec. 2314 (“a plaintiff asserting breach of warranty claims must stand in vertical contractual privity with the defendant”).  Rather than contesting the privity requirement, plaintiffs argued that an exception applies where plaintiff is a third-party beneficiary to a contract that gives rise to the implied warranty.

Judge William H. Orrick agreed.  He noted first that “in a previous decision, I declined to recognize the third-party beneficiary exception under California law,” interpreting prior cases as foreclosing the exception.  He went on to note, however, that

Other courts reviewing the same issue have … found that a third-party beneficiary exception exists. See In re Toyota, 754 F. Supp. 2d at 1184-85; In re MyFord Touch Consumer Litig., 46 F. Supp. 3d 936, 984 (N.D. Cal. 2014) (Chen, J.); see also In re Google Phone Litig., No. 10-cv-01177-EJD, 2012 WL 3155571, at *9 (N.D. Cal. Aug. 2, 2012) (citing In re Toyota and recognizing exception); Castro Valley Union 76, Inc. v. Vapor Sys. Techs., Inc., No. 11-cv-0299 PJH, 2012 WL 5199458, at *13 (N.D. Cal. Oct. 22, 2012) (same). …
Also, California Civil Code section 1559 allows a third-party beneficiary to enforce a contract made expressly for his or her benefit. Interpreting this statute, “California cases permit a third party to bring an action even though he is not specifically named as a beneficiary, if he is more than incidentally benefitted by the contract.” Gilbert Fin. Corp. v. Steelform Contracting Co., 82 Cal. App. 3d 65, 69-70 (1978). Upon further consideration, I conclude that the third-party beneficiary exception is viable under California law.

(emphasis added).  Judge Orrick went on to find that plaintiffs plausibly alleged that the GM dealers are GM’s agents, and thus declined to dismiss the U.C.C. claim on privity grounds.