Chicago Business Litigation Lawyer BlogArticles Posted in Auto Fraud
Dodge Faces a Slew of Class Action Lawsuits Over Allegedly Defective Brakes — Our Chicago Class Action Lawyers Stand Ready to Bring Class Actions For Cars and Other Products with Design Defects
Chrysler’s Dodge Division has suffered a number of class action lawsuits recently regarding the brakes in its vehicles. In December of 2012, one such case was dismissed. Most recently, a class action lawsuit in California against the major car company survived a motion to dismiss, but the judge said the plaintiffs have to amend their complaint if the case is to continue.
U.S. District Judge James V. Selna gave the plaintiffs 30 days to re-plead their claims that Chrysler violated California’s Consumer Legal Remedies Act as well as its Unfair Competition Law and breach of express warranty.
The plaintiffs, Ronald Coleman and Giuliano Belle, sued Chrysler Group LLC for allegedly concealing a manufacturing or design error in their Dodge Journeys, which caused their brake pads or rotors to prematurely wear, requiring frequent and costly repairs. For obvious reasons, brake defects pose the greatest safety hazard in vehicles and the plaintiffs say they would never have bought the cars, had they known about the defects.
According to the lawsuit, Chrysler allegedly knew about the defects and, not only failed to disclose the information, but even went so far as to actively conceal it from consumers. Chrysler would have had this knowledge of the brake defect allegedly through pre-release testing data, consumer complaints, and data from authorized dealers and replacement part sales.
While Judge Selna determined that the plaintiffs adequately pled their cases that they suffered economic losses under the CLRA and UCL, he says that Coleman cannot bring his claims under those statutes because he bought his car in Texas. Belles express warranty claim, on the other hand, was denied because Belle did not allege that the brake repair he received under warranty was defective.
Lubin Austermuehle’s Chicago Class Action Attorneys Will Fight Against Unethical Confidentiality Provisions — CBA Advisory Opinion Concludes That Confidentiality Provision Used By Car Dealer Attorneys in the Chicago Area May Be Unethical
Under the First Amendment to the Constitution and lawyers’ ethics rules, the public and litigants have a right to know about about matters that are resolved in our court and litigation system. For instance a car dealer who repeatedly engages in consumer fraud, bait and switch and false advertising or who regularly sells lemon cars should not be able to hide litigation about its misconduct from the public though use of confidential settlement agreements. This is particularly true because the Supreme Court has allowed contracts of adhesion to force consumers to arbitrate claims in secret forums against big business such as car dealers and other businesses such as cell providers and cable television companies. The combination of secret arbitration proceedings and of defendants using confidentiality clauses in settlement agreements to hide misconduct that has been exposed through litigation is keeping misconduct by many businesses secret.
In a recent case our firm litigated a so called pro-consumer rights law firm that regularly litigates consumer fraud cases on behalf of consumer victims used such a confidentiality clause to refuse to cooperate and force us to go to court to uncover the details of repeated false advertising engaged in by a business whose pattern of misconduct had already been exposed through extensive litigation. This so called pro-consumer rights law firm had documents that were not publicly available which put the lie to false testimony provided by the owners of the deceptive business. These lawyers in this firm, who have a practice that should make them sympathetic to protecting consumer rights and freedom to obtain information about public lawsuits, participated in trying to hide the very misconduct that they had litigated to expose. This type of conduct according to a recent Chicago Bar Association ethics advisory opinion violates lawyer ethics rules.
At the request of Lubin Austermuehle’s long time co-counsel Dmitry Feofanov of ChicagoLemonLaw.com , the Chicago Bar Association just issued the below ethics advisory opinion concluding that use of certain confidentiality provisions in consumer rights, class action and other important litigation are unethical under Illinois attorney ethics rules. These same rules apply in many other states. There has been a recent trend among defendants to demand these confidentiality provisions.
You can click here for a copy of the opinion.
Below is the full text of this important advisory opinion in full:
Chicago Bar Association
Informal Ethics Opinion 2012-10
Committee on Professional Responsibility
Opinions Subcommittee
The Professional Responsibility Committee of the Chicago Bar Association has
issued the following informal legal ethics opinion as a public service to aid the inquiring
lawyer in interpreting the Illinois Rules of Professional Conduct. The opinion represents
the judgment of a member or members of the Committee and does not constitute an official
act of the Chicago Bar Association. The opinion is not binding upon the Attorney
Registration and Disciplinary Commission or on any court and should not be relied upon
as substitute for legal advice.The Committee has received the following inquiry:
(1) Is the confidentiality provision of the proposed settlement agreement attached
hereto as Exhibit A ethical under Illinois Rule of Professional Conduct 3.4(f)?
(2) Is the confidentiality provision of the proposed settlement agreement attached
hereto as Exhibit A ethical under Illinois Rule of Professional Conduct 5.6(b)?
(3) May a defendant’s lawyer, as part of settlement discussions, demand that the
settlement agreement include a provision that prohibits plaintiffs counsel
from disclosing publicly available facts about the case on plaintiffs counsel’s
website or through a press release?Opinion
Inquiry 1: Settlement Agreement Non-Cooperation Provisions and Rule 3.4(f)
Illinois Rule of Professional Conduct 3.4(f) states that a “lawyer shall not. . . request a person
other than a client to refrain from voluntarily giving relevant information to another party” unless
that person is a relative or agent of the client and the lawyer reasonably believes that the person’s interests will not be adversely affected by refraining from disclosure. I I I . R. PROF’L CONDUCT R. 3.4(f) (2010). As the comments to Rule 3.4 explain, the rule is based on the belief that “[fjair competition in the adversary system is secured by prohibitions against destruction or concealment of evidence, improperly influencing witnesses, obstructive tactics in discovery
procedure, and the like.” Id. cmt. 1.Settlement agreements are not exempt from Rule 3.4(f). S.C Ethics Advisory Comm. Op. 93-20
(1993). Therefore, when negotiating a settlement agreement, a lawyer cannot ethically request
that the opposing party agree that it will not disclose potentially relevant information to another
party. Id. The Committee believes that “another party” in Rule 3.4(f) means more than just the
named parties to the present litigation. Rather, it should be interpreted more broadly to include
any person or entity with a current or potential claim against one of the parties to the settlement
agreement. A more narrow interpretation would undermine the purpose of the rule and the proper functioning of the justice system by allowing a party to a settlement agreement to conceal important information and thus obstruct meritorious lawsuits.Here, the defendant has proposed a settlement provision that would prohibit the plaintiff from,
among other things, disclosing the “existence, substance and content of the claims” and “all
information produced or located in the discovery processes in the Action” unless “disclosure is
ordered by a court of competent jurisdiction, and only if the other party has been given prior
notice of the disclosure request and an opportunity to appear and defend against disclosure . . .”
That proposed settlement provision therefore precludes the plaintiff from voluntarily disclosing
relevant information to other parties. As a result, it violates Rule 3.4(f) and a lawyer cannot
propose or accept it. I I I . R. PROF’L CONDUCT R. 3.4(f); S.C. Ethics Advisory Comm. Op. 93-20 (1993).Inquiry 2: Settlement Agreement Confidentiality Provisions and Rule 5.6(b) llinois Rule of Professional Conduct 5.6(b) states that a “lawyer shall not participate in offering or making . . . an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.” I I I . R. PROF’L CONDUCT R. 5.6(b).There are three main public policy rationales for Rule 5.6(b): (i) to ensure the public will have broad access to legal representation; (ii) to prevent awards to plaintiffs that are based on the value of keeping plaintiffs’ counsel out of future litigation, rather than the merits of plaintiffs case; and (iii) to limit conflicts of interest.
By its own terms, Rule 5.6(b) plainly applies to direct restrictions on the right to practice law.
Moreover, certain indirect restrictions on the right to practice law violate Rule 5.6(b) as well,
namely, a lawyer agreeing not to bring future claims against a defendant, and a number of ethics
authorities have determined that some confidentiality provisions in settlement agreements violate
Rule 5.6(b).According to the American Bar Association’s Ethics Opinion 00-417, a provision in a settlement
agreement that prohibits a lawyer’s future “use” of information learned during the litigation
violates Rule 5.6(b), because preventing a lawyer from using information is no different than
prohibiting a lawyer from representing certain persons. ABA Standing Comm. on Ethics &
Prof 1 Responsibility, Formal Op. 00-417 (2000). That same opinion further determined that a
settlement provision that prohibits a lawyer’s future “disclosure” of such information generally is
permissible, because without client consent the lawyer already generally is foreclosed from
disclosing information about the representation. Id.However, not all limitations on the disclosure of information are ethical. Rather, as several
authorities have stated, whether a settlement provision restricting a lawyer’s “disclosure” of
information violates Rule 5.6(b) depends on the nature of the information. Numerous ethics
authorities have determined that settlement provisions may prohibit a party’s lawyer from
disclosing the amount and terms of the settlement (provided that information is not otherwise
known to the public), because that information generally is a client confidence and consequently
is required by the rules of professional conduct to be kept confidential absent client consent.
D.C. Bar Ethics Op. 335 (2006); N.Y. State Bar Ass’n Comm. on Prof 1 Ethics Op. 730 (2000);
N.D. State Bar Ass’n Ethics Comm Op. 97-05 (1997); Col. Bar Ass’n Ethics Comm. Op. 92 (1993); N.M. Bar Ass’n Advisory Ops. Comm. Op. 1985-5 (1985). On the other hand, ethics
authorities have found that a settlement agreement may not prohibit a party’s lawyer from disclosing information that is publicly available or that would be available through discovery in
other cases. D.C. Bar Ethics Op. 335 (2006); N.Y. State Bar Ass’n Comm. on Prof 1 Ethics Op.
730 (2000); N.D. State Bar Ass’n Ethics Comm. Op. 97-05 (1997).Based on the foregoing authority, the Committee believes that under Rule 5.6(b), a settlement
agreement may not prohibit a party’s lawyer from using information learned during the instant
litigation in the future representation of clients. The Committee agrees with the American Bar
Association that prohibiting a lawyer from using such information essentially is no different than
prohibiting a lawyer from representing certain clients in the future, and thus such a settlement
provision is an impermissible restriction on the practice of law in violation of Rule 5.6(b).
In addition, the Committee believes that pursuant to Rule 5.6(b) a settlement agreement may not
prohibit a party’s lawyer from disclosing publicly available information or information that
would be obtainable through the course of discovery in future cases. The Committee agrees with
the District of Columbia Ethics Committee, and other ethics authorities cited above, that drawing
such a line strikes an appropriate balance between the genuine interests of parties who wish to
keep truly confidential information confidential and the important policy of preserving the
public’s access to, and ability to identify, lawyers whose background and experience may make
them the best available persons to represent future litigants in similar cases.Applying those principles here, the Committee believes that the settlement provision as currently
drafted does not comply with Rule 5.6(b). While it is permissible for the settlement agreement to
prohibit the disclosure of the “substance, terms and content of the settlement agreement
(assuming that information is not otherwise publicly known), the settlement agreement violates
Rule 5.6(b) because it broadly forecloses the lawyer’s disclosure of information that appears to
be publicly available already, such as the fact that a lawsuit was filed and certain claims were
asserted, as well as other information that could be obtained (and in fact was obtained) in
discovery. The settlement agreement therefore should be re-written to permit the lawyer’s use of
information learned during the dispute and to permit the lawyer’s disclosure of publicly available
information and information that would be available through discovery in other litigation.
Inquiry 3: Settlement Agreement Restrictions on Attorney Advertising and Rule 5.6(b)
Based on the principles discussed above, the Committee believes that under Rule 5.6(b), a
settlement agreement may not prohibit a party’s lawyer from disclosing publicly available facts
about the case (such as the parties’ names and the allegations of the complaint) on the lawyer’s
website or through a press release. See, e.g., D.C. Bar Ethics Op. 335 (2006).Dated: February 12,2013
CHICAGO BAR ASSOCIATION
PROFESSIONAL RESPONSIBILITY COMMITTEE
OPINIONS SUBCOMMITTEEEXHIBIT A – Proposed Confidentiality Provision in Settlement Agreement
8. Plaintiff and his counsel agree that the existence, substance and content of the
claims of the Action, as well as all information produced or located in the discovery processes in
the Action shall be completely confidential from and after the date of this Agreement. Similarly,
the existence, substance, terms and content of this Agreement shall be and remain completely
confidential. Plaintiff shall not disclose to anyone any information described in this paragraph,
except: (a) if disclosure is ordered by a court of competent jurisdiction, and only if the other
party has been given prior notice of the disclosure request and an opportunity to appear and
defend against disclosure and/or to arrange for a protective order; (b) Plaintiff may disclose the
contents of this Agreement to his attorneys, accounting and/or tax professionals as may be
necessary for tax or accounting purposes, subject to an express agreement to become obligated
under and abide by this confidential and non-disclosure restriction; and (c) Plaintiff may disclose
that the Action has been dismissed.
Alleged Over Stated Mileage Class Actions Consolidated in Federal Court in Central Califormia
Mileage is a big issue these days. While some want higher mileage in their cars to try to protect the environment, others simply want to save some cash at the gas station. Whichever reason you use, it is enough for consumers to get testy when they discover the new car they bought does not get the mileage they were promised.
In November of 2012, the Environmental Protection Agency announced that Hyundai and Kia carmakers had exaggerated the mileage on the window stickers on nearly 1.1 million 2011-2013 model-year vehicles. Most vehicles were receiving an average of 1 mpg less than advertised but others, such as the Kia Soul, were getting as much as 6 mpg less than advertised.
Both automakers made public apologies, calling the discrepancies “procedural errors” but the class action lawsuits allege that Hyundai and Kia knowingly overstated the estimated mileage of their vehicles in order to get customers to buy them.
Recently, 12 class actions against the two car companies which are currently pending in Alabama, California, Illinois, New Jersey, and Ohio have been consolidated into one multidistrict litigation (MDL) in the Central District of California. An additional 22 class action lawsuits pending in 12 different districts may join the MDL.
The Espinosa case was the first filed and is the most advanced in litigation. For these reasons, they wished to abstain from the MDL but the panel on MDL did not deem their case advanced enough to warrant granting that request.
According to the U.S. Judicial Panel on Multidistrict Litigation, consolidating the class actions into one “will eliminate duplicative discovery; prevent inconsistent pretrial rulings, including with respect to class certification; and conserve the resources of the parties, their counsel, and the judiciary.”
Certain plaintiffs against Kia wanted a separate MDL for Kia-only classes. This motion was denied for three reasons: 1) Hyundai and Kia share a parent company, 2) the testing for both companies was done at the same facility in Korea, and 3) the announcement made on November 2, 2012 regarding the procedural errors in the mileage estimates and launch of the related mileage reimbursement programs were made on behalf of both Kia and Hyundai.
The case is being transferred to the Central District of California because that is where the defendants are based as well as where the majority of the lawsuits have been filed. Judge George H. Wu has been presiding over the Espinosa action for over a year and is therefore the most qualified to act as the transferee judge for the MDL.
Beware of Flood Car Scams
Many of us are familiar with the stereotype of the dishonest used car salesman. They take advantage of those who know little about cars and the fact that we have no way of really knowing the history of the car we are purchasing. Websites such as CarFax makes us feel that these practices can be stopped but leave off a lot of information and can often be incomplete allowing used car salesmen to still find victims for their questionable merchandise.
The most recent scam is the reselling of vehicles that were damaged by Hurricane Sandy in New York. Saltwater is corrosive and can leave cars rusting and dangerous to drive. However, even though many of these cars have been deemed a total loss by insurance companies, they are being dried out and resold in other states.
In most states, cars that have been ruined by flooding are required to indicate that on their titles. However, in some states a car can be re-registered for another title without requiring the flood-brand carry-over. This is known as “title washing” and there’s no shortage of used car dealers who are eager to load up the damaged vehicles and pack them off to states without the required carry-over, such as Colorado and Vermont.
At one recent auction at Manheim, damaged cars had been dried out and scrubbed clean, but many of them showed tell tale signs of damage. For example, on some, the leather seating was puckered, while others had condensation beading their headlights. While this kept away some buyers, others were unhindered and some of the damaged cars went for more than $5,000.
Certain groups that keep a look-out for these issues say that insurance companies sometimes exacerbate the problem by underplaying the damage to a car at auction. In 2005, the State Farm insurance company reached an agreement with the attorneys general of 49 states and the District of Columbia for failing to properly title their cars. In the agreement, State Farm said the company is complying with all of the laws in each state affected by Hurricane Sandy.
However, once a car has been deemed a total loss, insurance companies hire special firms to collect the damaged vehicle, tow it away, spruce it up, and resell it. One such company, Insurance Auto Auctions, employs people to study weather forecasts and predict where the next disaster will be. Before Hurricane Sandy even hit the shore, Insurance Auto Auctions already had 400 tow trucks dispatched to the area and had leased huge holding facilities nearby. One of these holding facilities was an airport on Long Island where the runways were leased for $2.7 million for the year. After the hurricane, about 18,000 cars have packed the tarmac from end to end.
Now, consumers all over the country are being warned about the vehicles they are buying. Officials have warned used car shoppers in Georgia, North Carolina, and Illinois where the secretary of state’s office is scrutinizing new title applications for cars coming in from states affected by the hurricane. In addition to the state issue is the foreign market for these cars, entirely unhindered by U.S. regulations.
California Court Rejects “Harsh” Arbitration Clause in Car Fraud Case – Sanchez v. Valencia Holding Company, LLC.
In Sanchez v. Valencia Holding Company, LLC., California’s Second District Court of Appeals explains that while a car buyer is generally bound by the terms of a sale contract, Golden State courts will not enforce terms that it deems unconscionable.
Gil Sanchez is the lead Plaintiff in a class action against Defendant car dealer Valencia Holding Company, LLC. He bought a pre-owned Mercedes-Benz from the dealer at a sales price of more than $53,000 and made a $15,000 down payment. Soon thereafter, Plaintiff allegedly experienced a wide range of problems with the vehicle, including engine failure. When the dealer allegedly was unable to repair the vehicle and indicated that the necessary repairs would not be covered under Plaintiff’s warranty, he filed the present action.
Plaintiff alleges that Defendant engaged in widespread fraud and unfair business practices in violation of California law by: (1) failing to separately itemize the amount of down payments that was to be deferred to a date after the execution of the parties’ Sale Contract; (2) failing to distinguish registration, transfer and titling fees from license fees; (3) charging buyers an “Optional DMV Electronic Filing Fee” without asking the buyer if he or she wanted to pay it; (4) charging new tire fees for used tires; and (5) telling Plaintiff to pay $3,700 to have the vehicle certified so he could qualify for a lower interest rate when that payment was actually for an optional extended warranty unrelated to the rate. In response, the dealer filed a motion to compel arbitration, asserting that the matter was subject to arbitration under the Sale Contract.
The trial court denied the motion to compel, ruling that a plaintiff suing under the state’s Consumers Legal Remedies Act has the right to maintain the suit as a class action, and therefore cannot be required to arbitrate his or her claims individually. On appeal, the Second District affirmed the lower court’s decision. However, the Court’s decision was based on the Sale Contract’s specific terms, rather than Plaintiff’s right to maintain a class action.
California law empowers a court to refuse to enforce any contractual provision that it deems both procedurally and substantively unconscionable. In this case, according to the Court, the Sale Contract’s arbitration provision “contains multiple invalid clauses, it is permeated by unconscionability and is unenforceable.” Specifically, the Court explained that “[t]he provision is unconscionable because it is adhesive and satisfies the elements of oppression and surprise; it is substantively unconscionable because it contains harsh terms that are one sided in favor of the car dealer to the detriment of the buyer.”
Suing an Auto Insurer for Underpaying on an Accident Claim – Greenberger v. Geico
In previous posts, we’ve explained some of the ways in which car buyers who have been hoodwinked by dealers and manufacturers can seek to get their money back. The Seventh Circuit Court of Appeal’s ruling in Greenberger v. Geico concerns another player in the auto industry accused of fraud: an auto insurance company. The ruling explains that a plaintiff looking to sue an insurance company for breach of contract or fraud for low-balling a damage estimate must have the physical evidence to prove that the money paid by the insurer was not enough to fix the car.
Plaintiff Steven Greenberger sued Defendant Geico, his car insurance carrier, alleging breach of contract, consumer fraud in violation Illinois law and common-law fraud. In 2002, Plaintiff was involved in an auto accident, which left his 1994 Acura with bumper, steering box, suspension and lower body damage. After inspecting the car, a Geico adjuster issued Plaintiff a check for just over $3,000. Plaintiff did not repair the car. An individual later approached Plaintiff about buying the car, but when the potential buyer had it inspected by a mechanic, the mechanic indicated that the car needed more than $5,000 worth of repairs.
Plaintiff filed a proposed class action, claiming that Geico systematically violates its promise to restore policyholders’ vehicles to pre-loss condition by omitting certain necessary repairs from it collision damage estimates. A district court dismissed Plaintiff’s claims.
On appeal, the Seventh Circuit affirmed the lower court’s decision, finding that Plaintiff’s claims are barred by the Illinois Supreme Court’s decision in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, (2005). In Avery, the Supreme Court held that a policyholder’s suit against his insurer for failing to restore his collision-damaged car to its pre-loss condition cannot succeed without an examination of the car to determine whether the money paid by the insurer to cover the claim is sufficient to repair it. In the present matter, Plaintiff’s car was damaged in an accident; Geico inspected it and issued a check to cover Plaintiff’s insurance claim. Instead of repairing the car, however, Plaintiff donated it to charity. Thus the car was not available for examination.
Avery also established, according to the court, that a fraud claim cannot be simply a reformulated breach of contract claim. In other words, a fraud claim must allege more than simple failure to follow through on a promise. Since Plaintiff’s claims are limited to allegations concerning Geico’s promise to restore damaged cars to pre-loss condition, these are essentially contract claims that cannot also be alleged as fraud.