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By John Kristensen of Kristensen, LLP posted in Employment Law -- Employee on Saturday, March 2, 2013.
When a Manufacturer Must Report a Defect

Barely a week goes by without a headline reporting a large group of vehicles are being recalled. The manufacturers nearly always report the recalls are “voluntary” and done in an abundance of caution. In reality, two sections of the law serve to motivate auto-manufacturers to issue the recalls. The first requirement is when must an auto-manufacturer are required to inform the public about a defect. The second is under what circumstances the National Highway Traffic Safety Administration (“NHTSA”) can order a recall. The former situation has turned into the de facto method of issuing all recalls.

When a Manufacturer Must Report a Defect

The National Traffic and Motor Vehicle Safety Act of 1966 (“Safety Act”), the Transportation Recall Enhancement, Accountability and Documentation Act (“Tread Act”) and the resulting regulations requires manufacturers inform NHTSA within five (5) working days of discovering “a defect in a vehicle or item of equipment has been determined to be safety related, or a noncompliance with a motor vehicle safety standard has been determined to exist.” 49 CFR 573.6(b); see 49 U.S.C. § 30118(c). The report to NHTSA must immediately include the following:

The manufacturer’s name; the identification of the vehicles or equipment containing the defect, including; the make, line, model year and years of manufacturing; a description of the basis for the determination of the recall population; how those vehicles differ from similar vehicles that the manufacturer excluded from the recall; and a description of the defect, including both a brief summary and a detailed description, with graphic aids as necessary, of the nature and physical location (if applicable) of the defect or noncompliance.

The manufacturer must also inform NHTSA as soon as available:

The total number of vehicles or equipment potentially containing the defect; the percentage of vehicles estimated to contain the defect; in the case of a defect, a chronology of all principle events that were the basis for the  determination that the defect related to motor vehicle safety, including a summary of all warranty claims, field or service reports, and other information, with their dates of receipt; and a description of the plan to remedy the defect.

The main dispute in cases involving the timing of a defect is when the manufacturer makes a good faith “determination” the defect was safety related. Auto manufacturers provide NHTSA with what is called a Defect Information Report, also known as a “DIR.”

When can NHTSA Order a Recall

NHTSA has limits on when it may order a manufacturer to recall its vehicles. It must take two procedural steps. In reality, NHTSA informally will conduct a larger number of steps. The steps required by NHTSA before it can Order a recall were illustrated in Center for Auto Safety v. Lewis, 685 F.2d . 656 (D.C. Cir. 1982) (“Center”). The Center for Auto Safety sued NHTSA‘s parent agency, the Department of Transportation, and requested a Court Order that NHTSA was acting arbitrary and capricious when it compromised with Ford and refused to issue a recall. The case involved the alleged “park to reverse” defect. NHTSA had received 23,000 complaints regarding five types of Ford transmissions dating back to 1970, including reports of 6,000 accidents, 1,710 injuries, and 98 fatalities. “Park to Reverse” is a phenomenon when individuals place their vehicle in park, and the gears do not hold and the car slips into reverse. The injuries generally occur when someone gets out of a vehicle and is mauled when their truck rolls over them in reverse. NHTSA had initiated the first of two steps to initiate a recall. Under 49 U.S.C. § 30118, the Secretary of Transportation informed a manufacturer that NHTSA has made an initial decision (through testing, inspection, investigation, or research carried out under this chapter, examining communications under section 30166(f) of this title, or otherwise) that there is a defect, and that it relates to motor vehicle safety. The Secretary of Transportation must publish the notice, including the information it is based on, in the Federal Register. The Secretary of Transportation made such an initial finding in Center. However, a manufacture (and interested individuals) is given an opportunity to present NHTSA with its position on the defect. 49 U.S.C. § 30118(b). Only them may the Secretary order the manufacture to provide notice of the finding and remedy the defect. 49 U.S.C. § 30118(b)(1). Ford fought tooth and nail over the contested “Park to Reverse” defect. In the waning weeks of the Carter Administration, Ford and NHTSA reached a compromise. Ford would provide owners of the 23 million vehicles with stickers warning of the potential danger of “Park to Reverse,” including telling them to turn the vehicle off prior to stepping outside. NHTSA cannot order the recall until after it has given the manufacturer notice and then NHTSA makes a determination about a defect. The settlement was in lieu of a full recall which would require one of three forms of remedies: (1) by repairing vehicles (in this instance changing 23 million transmissions; (2) replacing the vehicles without charge, with an identical or reasonably equivalent vehicle; and (3) by refunding the purchase price of such motor vehicle in full (with a reasonable allowance for depreciation). 49 U.S.C. § 30120(A) The Court of Appeals in Center found that the settlement was within the discretion of the Secretary of Transportation. Center, supra, 85 F.2d at 663-664. The fact that the recall involved nearly twice the vehicles annually sold in the United States obviously weighed in on the decision by the Court and NHTSA.

Park to Reverse Cases

In 2009, a Georgia jury award paralyzed Jessica Mundy $40,000,000.00 against Ford Motor Company. Ms. Mundy was paralyzed after she parked her 2004 Ford Explorer to drop of a Fed-Ex package. The jury heard evidence of 751 complaints of Fords shifting themselves into reverse, including three others who were injured. Ford argued in part any defect was resolved after the NHTSA investigation in Center. During the Mundy trial, NHTSA opened up an investigation into “Park to Reverse” complaints involving 2000-2005 Ford Explorers.