Imagine the U.S. Department of Energy establishes aggressive new energy-efficiency standards for your product. As a result, you spend millions on R&D to meet the challenge.
But it’s all good. You introduce a new product that consumes much less energy than previous models, saving consumers hundreds of dollars over the life of the product. Consumer Reports rates the product among the best. The product becomes a best-seller, and you invest additional millions in plants and people to keep up with demand. You even reshore some production from overseas. Between November 2011 and July 2013, your stock price nearly triples.
Then the other shoe drops. Suddenly, you’re facing a pair of lawsuits alleging a defect in your product. The suits are given class action status, even though the alleged defect has only been reported by a small amount of people who bought your product and the problem may, in fact, be more related to poor maintenance than a manufacturing or design flaw.
Sadly, that’s the scenario faced by Whirlpool Corp. today. When the company introduced a new front-loading washer, consumers bought millions of them. Front-loaders use less water and energy than traditional top-loaders. But because the door gasket is on the side of the machine instead of the top, water can collect around it. If the consumer does not wipe the door clean between uses, mold can develop and give off a musty smell. The problem affects a small percentage of washers, and consumers can prevent the problem by leaving the door open to dry and by cleaning it regularly.
Nevertheless, Whirlpool faces two class action lawsuits. (One is against the company itself; the other is against Sears, for which Whirlpool makes washers under the Kenmore brand.) The plaintiffs claim that the fact that mold can grow at all demonstrates the washers are defective. Therefore, every owner is entitled to damages, whether or not they’ve encountered mold.
Class actions have the benefit of allowing plaintiffs with similar claims that would be too small to bring individually to aggregate their grievances in a single lawsuit. But they only work fairly if courts follow the rules for certifying classes. For example, the rules require that questions of law or fact common to the class members predominate over any question affecting only individual members. If this rule is not followed, defendants may find it impossible to raise legitimate defenses that affect some, but not all, of the class members.
In November 2012, the U.S. Court of Appeals in Chicago overturned a district court ruling and granted class action in the Sears case, which covers some 21 models produced over several years. The district court had denied the class, ruling that the predominance requirement had not been met. In June, the U.S. Supreme Court sent the case back to the appellate court for reconsideration.
Hopefully, the truth will come out in the wash. What stinks more than mold is the thousands of dollars Whirpool has spent defending itself against pointless lawsuits. That’s money that could have gone to R&D, assembly technology and jobs.
