Articles Posted in Consumer Fraud/Consumer Protection

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For a person seeking to sue for car fraud, it’s not enough to know who swindled you and how they did it. You also need to know what claims to raise in order to recover your losses. In Martin v. Ford Motor Co., the district court for the Eastern District of Pennsylvania explains that fraud claims may not always do the trick.

Plaintiff Aaron D. Martin filed a Complaint against Defendant Ford Motor Company, including class action claims brought “on behalf of himself and other similarly situated.” He claims that Ford failed to disclose a known defect in its 1999-2003 Ford Windstar model cars. Specifically, Plaintiff argues that although Ford expressly warranted that the 2001 Windstar that Plaintiff purchased from an authorized dealer was free of defects, the car’s rear axle is allegedly unsealed, causing it to rust and corrode over time before ultimately cracking. The defect is allegedly widely known and much discussed in the automotive industry, according to Plaintiff, and therefore Ford should have been aware of it. Three months after the complaint was filed, Ford recalled all Windstars manufactured between 1998 and 2002 in order to fix the rear axle problem.

Plaintiff’s many claims against Ford include a general fraud claim as well as those for intentional misrepresentation or omission, false statements and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Defendants countered by arguing that these claims are barred by the “economic loss” doctrine, which in Pennsylvania prohibits a Plaintiff from recovering economic losses in a tort claim where the entitlement to the money is based in contract. In other words, because Plaintiff’s right to recover any losses from Ford is based on the parties’ contract, the company argued that he cannot seek to recover these losses in tort (i.e., via the fraud claims).

While the court noted that the economic loss doctrine does not apply to intentional misconduct, such as fraud, it also held that this exception is not available where the intentional misconduct alleged concerns the quality of a good being sold. In this case the intentional misconduct – Ford’s alleged misrepresentations – concerned the quality of the vehicle, a good offered for sale. As a result, the economic loss doctrine barred Plaintiff’s fraud claims under state law, which the court dismissed.

The ruling does not mean, however, that Plaintiff cannot recover damages against Ford. The court refused to dismiss Plaintiff’s fraud claims raised under the laws of various states other than Pennsylvania. Nor did it dismiss his claim for unjust enrichment. Plaintiff also retains the right to sue for breach of contract.

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Solid evidence and strong legal arguments are all well and good, but in order to successfully sue a car dealer for fraud, you first have to bring the action in the right venue. In Tolbert v. Coast to Coast Dealer Services, Inc., the Northern District of Ohio explains that it will enforce an arbitration clause requiring a dispute to be resolved via arbitration unless the provision is “unconscionable.”

Plaintiffs Leah Tolbert and Diana Barker bought a 2004 Jeep Sports Liberty Truck from Defendant Coast to Coast Dealer Services, Inc. (Coast to Coast), a used car dealership. Plaintiffs made a $3,500 down payment and agreed to pay the remaining purchase price ($4,400) in $300 monthly payments. They also purchased a Vehicle Service Agreement (VSA), under which Defendant agreed to service and repair the car. The VSA included an arbitration clause providing that “any and all claims, disputes, or controversies of any nature whatsoever” between the parties is subject to arbitration, a dispute resolution format in which parties submit the matter to one or more private arbitrators.

Plaintiffs allegedly began having trouble with the car shortly after driving it off of the lot. The “check engine” light allegedly went on within a day of the purchase, the first of what would be a long string of alleged issues related to the car. According to the court, Plaintiffs “had to bring the vehicle back to [the dealership] over ten different times for various problems, including the engine light, engine smoke, fan relay system, and replacement of the water pump and thermostat.” Plaintiffs stopped making the monthly payments on the car when it allegedly became inoperable due to an engine problem and Coast to Coast repossessed the vehicle after performing repairs on it.

Plaintiffs filed the lawsuit, alleging that Defendant committed fraud by selling the car without disclosing various mechanical defects and by offering the VSA with no intent of honoring it. Whether or not this was the case, however, will be decided elsewhere. The court granted Defendant’s motion to compel arbitration, finding that the VSA’s arbitration clause is valid and requires that Plaintiffs’ claims be resolved by an arbitrator.

While Plaintiffs argued that the arbitration clause was “unconscionable” – because it forces them to give up their right to be awarded attorneys’ fees and punitive damages and arbitration proceedings will result in significantly higher costs – and therefore unenforceable, the court disagreed. “An unconscionable contract is one in which there is an absence of meaningful choice on the part of one of the parties to a contract, combined with contract terms that are unreasonably favorable to the other party,” the court stated. In an arbitration proceeding, the court found that Plaintiffs retained the full slate of remedies available under Ohio law and noted that the arbitration clause includes a provision requiring Defendant to advance Plaintiffs’ arbitration costs if they are unable to pay them. As a result, the arbitration clause was not unconscionable.

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We recently had a win in the Illinois Appellate Court in S37 v. Advanced Refrigeration. The Appellate Court affirmed the trial court’s decision to certifiy a class action regarding the claims in that. Advanced sells appliances to various businesses and added a charge on its invoices called government processing requirment. This fee was not required to be paid by the government and was not a government mandated fee. Advanced created the fee to recover costs it allegedly incurrs in complying with government requirements. The Class-Action Complaint alleged that the fee was deceptive in that it allegedly made a profit generating fee appear as if it were a government required fee. Advanced denied these allegations and opposed class-certification. The trial court denied Advanced’s motion to dismiss and then certified the case as a class-action.

The Appellate Court granted leave for an appeal of the class-certification decision. Advanced argued that it disclosed the true nature of the fee to all customers and that such alleged disclosure gave rise to individual issues blocking class certification. The Class argued that this defense did not create invididual issues barring class-certification as the defense of full disclosure was common the entire class given Advanced’s claim that it told all customers that the fee wasn’t a government mandated fee or tax as the fee’s name allegedly suggested it was.

The Appellate Court rejected Advanced’s arguments and found that the trial court properly exercised its discretion in certifying the class-action.

The Appellate Court held:

We agree with the plaintiff that this case fits the pattern of cases routinely certified as
class actions by Illinois courts. See Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33, 643
N.E.2d 734 (1994) (resolved as a class action, the court held the commodity option contracts
broker’s disclosure statement was misleading, in violation of the Illinois Consumer Fraud Act,
because the “foreign service fee” to be charged investors was a commission from which it would receive compensation); Harrison Sheet Steel Co. v. Lyons, 15 Ill. 2d 532, 155 N.E.2d 595 (1959)(class action was proper where the defendant refused to refund illegal occupation taxes collected from its customers); P.J.’s Concrete Pumping Service, Inc. v. Nextel West Corp., 345 Ill. App. 3d 992, 1003, 803 N.E.2d 1020 (2004) (“The primary factual issue in this case is a uniform billing practice that allegedly violated the Consumer Fraud Act in the same manner as to all class members. The propriety of such a uniform practice is amendable to being resolved in a class action.”).

The Appelalte Court also noted that the brief of the National Association of Consumer Advocates (which filed a friend of the court submission) stated that class-actions provided a way for small claims like this to proceed to court and to obtain justice when small alleged wrongs in the aggregate allegedly harm many consumers:

“ ‘The policy at the very core of the class action mechanism
is to overcome the problem that small recoveries do not provide the
incentive for any individual to bring a solo action prosecuting his or
her rights. A class action solves this problem by aggregating the
relatively paltry potential recoveries into something worth
someone’s (usually an attorney’s) labor.’ ” Amchem Products, Inc. v. Windsor, 521
U.S. 591, 617 (1997), quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997).

You can view the full opinion of the Appellate Court by clicking here.

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