Rehearing and Rehearing En Banc Denied June 5, 2002.
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
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, 61 S.Ct. 1020, 85 L.Ed. 1477 (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
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
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
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;
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
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 or settlements 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, 116 S.Ct. 1589; 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.
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.