On November 12, 2020, Judge Charles R. Breyer of the U.S. District Court for the Northern District of California granted Volkswagen’s motion to exclude the testimony of the plaintiffs’ damages experts and dismissed the plaintiffs’ claims for lack of jurisdiction, finding that without a reliable damages model, the plaintiffs could not prove that they suffered a cognizable injury. The case represents another high-profile example of a federal court repudiating a faulty conjoint analysis—a survey-based damages model that experts retained by consumer class-action plaintiffs commonly employ to establish “class-wide” damages.

• In 2016, Volkswagen reached a massive settlement to resolve the claims of a putative class of individuals who purchased Volkswagen- and Audi-branded “clean diesel” vehicles that were marketed as environmentally friendly, fuel efficient, and high performing, even though the vehicles were equipped with a “defeat device” that allowed Volkswagen to bypass emissions standards set by the U.S. Environmental Protection Agency and the California Air Resources Board.
• Individuals who owned or leased an affected car, but who resold the car or exited their leases before the date on which the public learned of the “defeat devices,” were not part of the settlement and continued to pursue their claims. Volkswagen moved to dismiss these claims for lack of subject-matter jurisdiction, contending that these individuals had not suffered any cognizable injury as a result of Volkswagen’s alleged fraud.
• The court denied Volkswagen’s motion to dismiss, finding that the plaintiffs had adequately pled several damages theories, which were largely premised on the allegation that the plaintiffs paid a price premium for low-emission vehicles. Given the significant uncertainty concerning whether the plaintiffs could prove such damages, however, the court ordered the parties to select bellwether plaintiffs who would be required to offer proof of their damages before the case proceeded further.
• The plaintiffs presented various expert analyses, including a conjoint analysis that attempted to quantify the price premium the plaintiffs paid. The conjoint analysis concluded that the plaintiffs overpaid for their vehicles by 8.5% to 60.5%, depending on their vehicles’ price. Volkswagen responded by presenting expert evidence that the plaintiffs were not injured because they sold or otherwise disposed of their vehicles before the existence of the defeat device was disclosed. Thus, although the plaintiffs may have overpaid for their vehicles, they also benefitted from inflated resale values (in the case of vehicle owners) and inflated residual values (in the case of vehicle lessees). Volkswagen further argued that the plaintiffs’ damages models were inadmissible because they did not reliably isolate and measure the depreciation of the price premium the plaintiffs allegedly paid.
• The court granted Volkswagen’s motion to exclude the plaintiffs’ expert evidence, finding their conjoint analysis inadmissible for several reasons:
  • First, the plaintiffs’ experts did not actually calculate a market price premium. Instead, they only compared the actual price of vehicles sold with defeat devices with the amount consumers said they would be willing to pay for vehicles with the defeat devices—an “apples and oranges” comparison that ignored the supply side of the market. In support, the court relied on opinions in MacDougall v. Am. Honda Motor Co., 2020 WL 5583534 (C.D. Cal. Sept. 11, 2020), and In re General Motors LLC Ignition Switch Litig., 407 F. Supp. 3d 212 (S.D.N.Y. 2019), which we featured in our September 2020 and August 2019 issues, respectively.
  • Second, the conclusion that the plaintiffs overpaid for their vehicles by a range of 8.5% to 60% was inherently suspect. As the court explained, “[a]n overpayment ratio might sensibly vary depending on price … but a range that resembles ‘somewhere between almost nothing and almost everything’ is facially unrealistic.” Moreover, it was immaterial that the expert picked the “most conservative” estimate of 8.5% because “[a]rbitrarily picking the most conservative figure from an unreliably determined range does not make the result more reliable.”
  • Third, the consumer survey on which the experts’ conjoint analysis depended did not isolate a price premium based solely on the vehicles’ low emissions performance. Instead, the survey also invited respondents to consider a potential reduction in other performance measures—such as a degradation in fuel economy and performance of the vehicle—under vague and speculative circumstances.
  • Finally, the “pretest” used to ensure that the questions posed in the consumer survey were not confusing or misleading was not standardized but instead consisted of “free form conversations” that varied from respondent to respondent.
• The court also rejected the plaintiffs’ depreciation analysis because, among other things, it assumed that the value of the emissions-related price premium depreciated at the same rate as the value of the vehicle as a whole. As the court explained, this assumption was “plainly wrong” because “low emissions might hold a relatively stable value over a vehicle’s lifetime compared to features that naturally wear down.”
• Having concluded that the plaintiffs presented no admissible evidence that they suffered any damages, the court dismissed their claims for lack of subject-matter jurisdiction.
• Judge Breyer’s decision illustrates the many pitfalls associated with conjoint damages models. Among other issues, the survey underlying the conjoint analysis often yields irrational responses that raise serious questions about the reliability of the model.
  • For instance, Judge Breyer noted that certain surveyed consumers valued a $2,000 navigation system in a $16,000 vehicle at $9,000. Similarly, the courts in MacDougall and In re General Motors rejected conjoint analyses showing that certain customers’ damages would exceed the purchase price of the vehicles, resulting in the absurd conclusion that the manufacturer would have been willing to pay those customers to accept their vehicles.
• The case is In re Volkswagen Clean Diesel Mktg., Sales, Pracs. & Prods. Liab. Litig., No. 15-md-02672 (N.D. Cal.), and the decision can be read here.