Perona v. Volkswagen of America, Inc.

                                             FOURTH DIVISION     
                                             AUGUST 21, 1997











No. 1-92-2763

PAUL PERONA, MR. LEASING, INC.,      )
EDWARD ZUREK, ROBERT C. IZENSTARK,   )
GERALDINE STUMP, SILVERMAN &         )
MAILMAN, P.C., LYNN GARBER, RAYMOND  )
LORAN, DONALD S. MAWLER, ISADOR      )
WEISENFELNER, NASSAU-SUFFOLK FROZEN  )
FOOD CORP., AND JEROME D. O'CONNELL, )   Appeal from the Circuit
                                     )   Court of Cook County
          Plaintiffs-Appellants,     )
                                     )   
                  v.                 )   
                                     )
VOLKSWAGEN OF AMERICA, INC.,         )   Honorable Walter         
AUDI AG, VOLKSWAGEN AG,              )   Bieschke,
                                     )
          Defendants-Appellees.      )   Judge Presiding.


     JUSTICE CERDA delivered the opinion of the court:
     On remand from the Illinois Supreme Court.
     This appeal arises from a class action of plaintiffs who
purchased Audi 5000 automobiles during model years 1983 through
1987.  Defendants are Volkswagen of America, Inc., the importer
and distributor of Audis in the United States, Audi A.G., the
Audi manufacturer, and Volkswagen A.G., the parent corporation of
Audi A.G. and Volkswagen of America.  The claims arose out of
alleged unintended acceleration of the Audi 5000 automobiles.
     The trial court dismissed the fifth amended complaint for
failure to allege specific defects under the Consumer Fraud and
Deceptive Business Practices Act (Consumer Fraud Act)(815 ILCS
505/2 (West 1992))) and failure to allege proper notice on its
Uniform Commercial Code (U.C.C.) warranty claims (810 ILCS 5/2-
313, 2-314 (West 1992))) and Magnuson-Moss Warranty Act
(Magnuson-Moss) claims (15 U.S.C. par. 2301 et seq.). 
     On appeal, this court reversed the dismissal of the fifth
amended complaint and remanded the matter to the trial court for
further proceedings.  Perona v. Volkswagen of America, 276 Ill.
App. 3d 609, 658 N.E.2d 1349 (1995).  Defendants filed a Petition
for Leave to Appeal with the Illinois Supreme Court.  During the
pendency of the Petition for Leave to Appeal, our supreme court
issued an opinion in Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 675 N.E.2d 584 (1996), then vacated Perona, 276 Ill. App. 3d
609 and remanded it to this court for reconsideration in light of
its Connick opinion.  For the following reasons, we affirm the
trial court's dismissal of the U.C.C. and Magnuson-Moss claims
and reverse the trial court's dismissal of the Consumer Fraud Act
claims.
     In March 1987, three groups of plaintiffs filed class action
lawsuits.  The cases were later consolidated, and a consolidated
complaint, filed on October 1, 1987, was brought on behalf of a
class of all persons who purchased or leased 1983 through 1986
model Audi 5000 automobiles.  
     On May 5, 1988, the parties executed a settlement agreement
subject to court approval.  The trial court preliminarily
approved the settlement agreement on May 19, 1988, and certified
the class for purposes of settlement only.  
     On July 19, 1988, the case was transferred to another trial
judge, who on August 11, 1988, vacated the court order approving
the settlement.  Subsequently, plaintiffs filed third and fourth
amended consolidated class action complaints, which added model
years 1978-1982 and a subclass, which was comprised of
individuals who had allegedly experienced actual incidents of
unintended acceleration.  Ultimately, the third and fourth
amended complaints were dismissed.
     On March 4, 1992, a fifth amended complaint was filed by 12
plaintiffs purporting to represent a class of all purchasers and
lessees of Audi 5000 automobiles, model years 1983 through 1986,
and a subclass of persons whose automobiles allegedly experienced
an incident of unintended acceleration.  The facts alleged in the
complaint are that during the 1980's, owners of 1983 through 1986
automatic transmission Audi 5000 automobiles experienced
incidents where their automobiles accelerated from a stopped
position to full throttle at times when the automobile was at a
standstill or the driver had his or her foot on the brake pedal. 
At least 2,000 incidents of unintended acceleration occurred,
resulting in at least 513 accidents, 271 injuries, and five
deaths.  
     The complaint further alleges that these incidents were
caused by defects in the design or manufacture of Audi 5000
automobiles manufactured and sold during the model years 1983
through 1986.  The alleged defects include the lever and cable
system linking the transmission shift lever, the brake and gas
pedal placement and separation, the cruise control system, and
the shift lock system.
     Audi sent recall letters to its customers in April 1982,
September 1983, and January 1987, recalling the Audi 5000
automobiles for repair, advising the owners of the problem, and
instructing the drivers on certain vehicle safety procedures.  
Audi denied any mechanical or design defects.  Its position was
that driver error was responsible for the incidents of unintended
acceleration.  In addition, Audi released two press releases
regarding the unintended accelerations.
     Plaintiffs further allege that defendants' proposed
modifications are inadequate because Audi 5000 automobiles that
have already been modified have continued to experience instances
of sudden and unintended acceleration.  As a result of the
continuing alleged defects, plaintiffs claim that their Audi
5000s have lost their resale value.  For that reason, plaintiffs
are claiming damages in the amount of the full cost of their Audi
5000 automobiles.  If the problem is eventually remedied,
plaintiffs claim damages in the amount of the diminution of the
resale value.  
     Plaintiffs' first assertion is that their U.C.C. warranty
claims should not have been dismissed for failure to give notice. 
Because defendants were aware of the problem, sent notices and
recall letters to its customers, issued press releases, and
entered into a proposed national class settlement agreement in
relation to claims of unintended acceleration, plaintiffs claim
that the March 3, 1987, filing of their lawsuit was appropriate
notice of their complaints.  
     In Connick, the defendant automobile manufacturer argued
that the plaintiffs could not recover for a breach of warranty
under the U.C.C. because the complaint did not adequately allege
that they had notified the manufacturer of the breach, as
required by article II, section 2--607, of the Uniform Commercial
Code (810 ILCS 5/2--607(3)(a)(West 1994)).  Connick, 174 Ill. 2d 
at 491-92.  The plaintiffs responded that they were excused from
giving direct notice of breach of warranty because the
manufacturer had actual knowledge of the breach and because
notice was given by the filing of the plaintiffs' complaint. 
Connick, 174 Ill. 2d  at 492.  Those same arguments are made by
the parties in this case.
     Section 2-607(3)(a) of the Uniform Commercial Code provides
that a "buyer must within a reasonable time after he discovers or
should have discovered any breach notify the seller of breach or
be barred from any remedy."  810 ILCS 5/2-607(3)(a) (West 1992). 
The purpose of the notice is to allow the defendant an
opportunity to gather evidence, investigate facts, and negotiate
a possible settlement.  Goldstein v. G. D. Searle & Company, 62
Ill. App. 3d 344, 350, 378 N.E.2d 1083 (1978).  However, direct
notice to the seller is not required when (1) the seller has
actual knowledge of the defect of the particular product; or (2)
the seller is deemed to have been reasonably notified by the
filing of the buyer's complaint.  Connick, 174 Ill. 2d  at 492.  
     We first consider plaintiffs' argument that they were
excused from giving direct notice of the breach of warranty
because Audi had actual knowledge of the Audi 5000's alleged
safety risks.  In their complaint, plaintiffs alleged that
defendants had actual knowledge of the defect and attached
several recall notices and two press releases issued by Audi
addressing the excessive unintended accelerations.
     A federally mandated recall notice does not fulfill the
U.C.C.'s notice requirement.  A manufacturer recall does not
admit a defect in a particular product, but refers to the
possibility of a defect in a class of products.  Bagel v.
American Honda Motor Co., 132 Ill. App. 3d 82, 88, 477 N.E.2d 54
(1985).  Furthermore, the taking of precautions against the
future, such as issuance of recall letters, cannot be construed
as an admission of responsibility for the past.  Chase v. General
Motors Corp., 856 F.2d 17, 21 (4th Cir. 1988).  Therefore,
anything contained in a recall letter is not sufficient to
constitute notice.
     The press releases issued by Audi were public announcements
of the excessive unintended accelerations and evidence that Audi
was aware of the safety concerns of the Audi 5000 automobiles. 
However, as in Connick, Audi's generalized knowledge about the
safety concerns was insufficient to fulfill plaintiffs' U.C.C.
notice requirement.  Connick, 174 Ill. 2d  at 493.  The Connick
court explained:
          "While it is unnecessary to list specific claims of
          breach of warranty in giving notice under section 2--
          607 [cites omitted], it is essential that the seller be
          notified that this particular transaction is
          'troublesome and must be watched.'
                         *    *    *    *
          Thus, even if a manufacturer is aware of problems with
          a particular product line, the notice requirement of
          section 2--607 is satisfied only where the manufacturer
          is somehow apprised of the trouble with the particular
          product purchased by a particular buyer."  Connick, 174 Ill. 2d  at 493-94.  Emphasis in original.
     Because plaintiffs' complaint does not specifically allege
that Audi had actual knowledge of the alleged breach of the
particular automobiles purchased by the named plaintiffs in this
lawsuit, it does not sufficiently allege notice.
     Next, we address plaintiff's assertion that Audi was deemed
to be notified of the breach of warranty when plaintiffs'
complaint was filed.  That argument fails because the
commencement of a lawsuit does not satisfy the notice requirement
unless the consumer sues for personal injuries.  Connick, 174 Ill. 2d  at 495; Board of Education v. A, C & S, Inc., 131 Ill. 2d 428, 462-63, 546 N.E.2d 580 (1989).  Since plaintiffs did not
allege that they suffered any personal injuries as a result of
the Audi 5000's unintended acceleration, the section 2--607
notice requirement was not fulfilled by filing the breach of
warranty complaint.  
     Plaintiffs' failure to allege sufficient notice, either
direct notice, actual knowledge, or filing a complaint alleging
personal injuries, is fatal to plaintiffs' breach of warranty
claims.  Therefore, we affirm the circuit court's finding that
plaintiffs did not adequately plead notice and hold that the
breach of warranty counts in the fifth amended complaint were
properly dismissed by the circuit court.
     We next consider plaintiffs' Magnuson-Moss claims.  On
remand, plaintiffs contend that Magnuson-Moss does not require
notice in the same manner as the U.C.C.  Plaintiffs' waived this
issue because this is the first time they have raised it. 
Arguments not raised in the initial brief are deemed waived for
purposes of review.  Axia, Inc. v. I. C. Harbour Construction
Co., 150 Ill. App. 3d 645, 650, 501 N.E.2d 1339 (1986).
     Even if the issue had not been waived, we would reject
plaintiffs' argument because Magnuson-Moss incorporates the
relevant state law on U.C.C. notice.  See Walsh v. Ford Motor
Co., 807 F.2d 1000, 1012 (D.C. Cir. 1986).  For that reason,
plaintiffs' failure to allege proper notice of breach under the
Illinois U.C.C. also defeats their claims under Magnuson-Moss.
     Next, we consider plaintiffs' claims under the Illinois
Consumer Fraud Act.  Plaintiffs argue that their complaint
properly pleaded a cause of action for consumer fraud, which was
dismissed by the trial court on the basis that the complaint
lacked the specificity required to plead fraudulent conduct under
the Consumer Fraud Act.  
     The Consumer Fraud Act prohibits any "concealment,
suppression or omission of any material fact, with intent that
others rely upon the concealment***in the conduct of any trade or
commerce."  815 ILCS 505/2 (West 1992).  To state a claim under
the Consumer Fraud Act, a complaint must set forth specific facts
that show (1) a deceptive act or practice by the defendant; (2)
the defendant's intent that the plaintiff rely on the deception;
(3) the deception occurred in the course of conduct involving a
trade or commerce; and (4) the consumer fraud proximately caused
the plaintiff's injury.  Connick, 174 Ill. 2d  at 501; People ex
rel. Hartigan v. E & E Hauling, Inc., 153 Ill. 2d 473, 492, 607 N.E.2d 165 (1992).  A plaintiff must at least plead with
sufficient particularity and specificity, facts establishing the
elements of fraud, including what misrepresentations were made,
when they were made, who made the misrepresentations, and to whom
they were made.  Connick, 174 Ill. 2d  at 496-97, 501; Board of
Education, 131 Ill. 2d  at 457.  
     The policy of the Consumer Fraud Act is to give broader
protection than common law fraud or negligent misrepresentation. 
Eshaghi v. Hanley Dawson Cadillac, 214 Ill. App. 3d 995, 1001,
574 N.E.2d 760 (1991).  The legislature mandated the courts to
use the Act to the greatest extent possible to eliminate all
forms of deceptive or unfair business practices and provide
appropriate relief to consumers.  Totz v. Continental Du Page
Acura, 236 Ill. App. 3d 891, 901, 602 N.E.2d 1374 (1992).
     Plaintiffs argue that their complaint adequately pleaded the
existence of a specific defect and that defendants knowingly
concealed those defects from the public.  In their complaint,
they alleged in pertinent part:
               "26.  The Audi 5000 automobiles with
          automatic transmission manufactured in model
          years 1983-1986 are defective in design or
          production in that they suddenly and
          unintendedly surge, and/or accelerate when
          the driver shifts into the forward or reverse
          gear.  In addition, or in the alternative,
          the design of the Audi is such as to cause an
          increased, unprecedented likelihood of driver
          error, such increased likelihood causing an
          unreasonable risk of harm.
               27.  The Audi 5000 vehicles manufactured
          and sold in model years 1983 through 1986
          contain manufacturing and/or design defects
          which cause said unintended acceleration.
               28.  The defects in design or
          manufacture include the following which
          independently or in connection with each
          other cause said "unintended acceleration"
          and/or create a likelihood of driver error
          causing an unreasonable risk of harm:
               a) the lever and cable system linking    
                  the transmission shift lever;
               b) the break [sic] and gas pedal placement and
                  separation;
               c) the cruise control system;
               d) the shift lock system.
               29.  These defects in design or
          manufacture are common to all vehicle models
          of a given model year.
               30.   These defects existed in the
          vehicles at the time all plaintiffs purchased
          these cars.
               31.  Said defects were hidden or latent
          and not discoverable by plaintiffs with
          reasonable diligence.
                         *    *    *
               [34.] Despite [Audi's] knowledge of the
          defect, defendants repeatedly and publicly
          denied the existence of any defect, failed to
          inform its owners and purchasers of the Audi
          5000 of said defect, and blamed 'driver
          error' for the mayhem cause by the Audi 5000,
          without acknowledging the role of its own
          design problems.  Despite their claim that
          the cars were not defective, in April 1982
          and again in September 1983 defendants
          recalled the cars to make minor changes that
          defendants claimed would reduce the
          likelihood of 'driver error.'  These recalls
          failed to correct the defect.
               35.  On information and belief,
          defendants, with knowledge of claims of
          unintended acceleration and with actual
          knowledge of a latent defect(s) in the Audi
          5000, concealed information on said defect
          from the public knowing such information
          would effect [sic] the value of the Audi 5000
          vehicle.
               36.  In early 1987, defendants recalled
          all Audi 5000 series manufactured between
          1978 and 1986 explaining that 'Audi considers
          the number of complaints of Audi 5000
          unintended acceleration to be too high'
          ('Recall campaign GD' letter from Audi of
          America, Inc. attached hereto as Exhibit 'A')
          and offering to install an automatic shift
          lock designed to prevent the transmission
          shift lever from being moved from 'park' to
          'reverse' or 'drive' unless the brake pedal
          is applied simultaneously."
                         *    *    *
               51.  The conduct of the defendant
          described in Count I was unfair or deceptive,
          or misleading, or an improper concealment, or
          suppression, or omission of a material fact,
          in violation of the Consumer Fraud Acts
          herein above quoted in the following
          particulars:
               (a)  Fraudulently and deceptively
          withheld from the purchasing public the fact
          that the Audi 5000 S automobile contained
          dangerous and defective conditions as stated
          above;
               (b)  Fraudulently and deceptively
          refused to make known to the purchasers of
          said automobile that the same had dangerous
          and defective conditions that caused sudden
          acceleration without warning;
               (c)  Fraudulently and deceptively
          attempted to mislead the Plaintiffs and the
          class members herein that there was no defect
          in the said automobile and the same was
          primarily and/or exclusively driver's error
          which caused the accidents with the said
          automobile;
               (d)  Fraudulently and deceptively
          refused to bring to the attention of the
          class members the defect in the said
          automobile until ordered and directed to do
          so by the requirements of the National
          Traffic and Motor Vehicle Safety Act."
     In a motion to dismiss (735 ILCS 5/2-615 (West 1992)), all
well-pleaded facts are taken as true and all reasonable
inferences from those facts are drawn in favor of the plaintiff. 
Kolegas v. Heftel Broadcasting Corporation, 154 Ill. 2d 1, 9, 607 N.E.2d 201 (1992); Fellhauer v. City of Geneva, 142 Ill. 2d 495,
499, 568 N.E.2d 870 (1991).  A complaint should not be dismissed
unless the pleadings disclose that no set of facts could be
proved that will entitle the plaintiff to relief.  Urbaitis v.
Commonwealth Edison, 143 Ill. 2d 458, 475, 575 N.E.2d 548 (1991).
     In this case, the complaint alleged at least one specific
defect, which was the placement and separation of the brake and
gas pedals.  The complaint further alleged that defendants knew
of the defect, yet fraudulently and deceptively withheld that
information from the purchasing public.  
     An omission or concealment of a material fact in the conduct
of trade or commerce constitutes consumer fraud.  Connick, 174 Ill. 2d  at 504; 815 ILCS 505/2 (West 1994).  A material fact
exists where a buyer would have acted differently knowing the
information, or if it concerned the type of information on which
a buyer would be expected to rely in making a decision, whether
to purchase the product.  Connick, 174 Ill. 2d  at 505.  Our
supreme court found in Connick that the plaintiffs had adequately
pled a consumer fraud violation based on a material omission by
Suzuki.  Connick, 174 Ill. 2d  at 505.  It stated:
          "Plaintiffs alleged that Suzuki was aware of the
          Samurai's safety problems, including its tendency to
          roll over and its inadequate protection for passengers.
          Plaintiffs further alleged that Suzuki failed to
          disclose these defects.  Finally, plaintiffs alleged
          that the safety problems of the Samurai were a material
          fact in that they would not have purchased the vehicles
          if Suzuki had disclosed the Samurai's safety risk. 
          Accordingly, we affirm the appellate court insofar as
          it reinstated the count alleging that Suzuki committed
          consumer fraud by concealing material facts about the
          Samurai's safety risks."  Connick, 174 Ill. 2d  at 505.
     Similarly, in this case, plaintiffs adequately alleged a
consumer fraud violation based on a material omission by Audi. 
First, plaintiffs alleged that Audi was aware of the Audi 5000's
safety problems, including its tendency to accelerate
unintentionally.  Attached to the complaint were two press
releases issued by Audi acknowledging the existence of excessive
unintended accelerations of the Audi 5000 automobile.  The first
press release stated, in pertinent part:
          "1978 through 1983 Audi 5000 vehicles equipped with
          automatic transmissions will be recalled for
          installation of a thicker pedal pad which raises the
          height of the brake pedal.  The safety recall affects
          117,000 vehicles and is in response to reports that
          drivers inadvertently have stepped on both gas and
          brake pedals when they intended to operate the brakes. 
          Analysis indicated that some vehicles have brake pedals
          that are not high enough, and a driver could step on
          both pedals at once and possibly lose control of the
          vehicle."
     The second press release stated in part:  
          "The Automatic Shift Lock is a unique device designed
          by Audi to substantially reduce the incidence of
          unintended acceleration in its automatic transmission
          Audi 5000 models.  
                         *    *    *    *
               John B. Damoose, new corporate vice president
          responsible for Audi of America, said:  'We recognize
          that the number of incidents of unintended acceleration
          is too high and we want to reduce it.'
                              *    *    *    *
               Unintended acceleration is said to occur when a
          driver shifts an automatic transmission car from 'park'
          to 'drive' or 'reverse.'  Drivers say the car
          unexpectedly accelerates and simultaneously cannot be
          stopped by applying the brakes.
               Audi has demonstrated that the brake system in the
          Audi 5000 will override engine output and is capable of
          bringing the vehicle even at full throttle to a
          complete stop.  The Automatic Shift Lock keeps the
          transmission locked in 'park' until the brake is
          depressed.  Therefore, to assure that the driver can
          have the brakes immediately available, the Automatic
          Shift Lock keeps the transmission locked in 'park'
          until the brake is depressed."
     Plaintiffs further alleged that Audi failed to disclose
these defects.  Finally, plaintiffs alleged that the unintended
acceleration was a material fact in that they would not have
purchased their Audi 5000 automobiles if Audi had previously
disclosed the safety risk.  Those allegations are sufficient as
they apply to Audi 5000s purchased before the two press releases
were issued by Audi.  Once the press releases were issued, it
could not be said that Audi failed to disclose the defects. 
Moreover, proximate cause could not be shown.  Once the press
releases were published, a prospective buyer could no longer
claim that Audi was concealing the excessive number of unintended
acceleration incidents.  Hence, there would be no fraudulent
concealment conduct by Audi.   
     Accordingly, we reverse the circuit court insofar as it
dismissed the claims of consumer fraud by concealing material
facts about the Audi's safety risks.  However, valid claims are
limited to those automobiles purchased before Audi issued the two
press releases.
     Based on the foregoing, we find that the claims based on
U.C.C. breach of warranty and Magnuson-Moss were properly
dismissed.  We reverse the dismissal of the Consumer Fraud Act
claims, but only insofar as they were based on Audi's concealment
of material facts regarding the Audi 5000's safety risk. 
Further, we limit the Consumer Fraud Act claims to those
automobiles purchased before the press releases were issued.  We
remand this cause to the circuit court for further proceedings.
     Affirmed in part; reversed in part; remanded.
     Greiman, J., and Gallagher, J., concur.