The Supreme Court of Ohio has been asked by Ford Motor Credit Company to accept jurisdiction over an appeal of an order certifying a nationwide class action challenging its inspection policy for lease-end vehicles. This case presents the Ohio Supreme Court with the opportunity to decide whether it will affirmatively adopt and apply the United States Supreme Court’s decision in Wal-Mart v. Dukes as the analytical standard for determining whether a class may be certified under Ohio law, rejecting classes defined in terms of an allegation of a common practice that fails to further common resolution of any of the claims in the case.
In Ford Motor Credit Co. v. Agrawal, Eighth Dist. No. 96413, 2011 Ohio 6474 (Dec. 15, 2011), Ford Credit assessed Agrawal a charge of $2,658 for excess wear and use on the Ford Windstar minivan that Agrawal leased from 2000 to 2003 through Ford Credit’s Red Carpet Lease program. When Agrawal contested the charge, Ford Credit sued Agrawal to collect the amount without disclosing that a second “verifying inspection” had appraised the Windstar’s excess wear and use at only $194.
Agrawal counterclaimed against Ford Credit for breach of contract, fraud, violation of the federal Consumer Leasing Act (CLA), and other claims. The counterclaim asserted the standard form leases used by Ford Credit required inspections “based on our standards for normal use,” with no charge for vehicles returned with “average” use. Agrawal claimed Ford Credit’s dealer handbook and templates, however, applied a stricter “clean” criterion, meaning “the vehicle is in great condition with only minor dents and chips.” Agrawal also asserted Ford Credit held dealerships financially responsible for underestimates for wear, creating incentives for inspections “biased towards an overcharge.” The result, Agrawal contended, was a systematic overcharge of lessees.
A Cuyahoga County judge certified a national class of Ford Credit lessees, as well as a subclass of Ohio lessees seeking punitive damages for fraud or misrepresentation based on Ohio law. On appeal, Ford Credit unsuccessfully argued that whether more than 2 million vehicles were incorrectly appraised for excess use and wear “cannot be determined in a single proceeding” and that appraisal cases are not well suited for class treatment.
But the appeals court disagreed, ruling that class treatment was appropriate because the “standard” leases and inspection procedures supposedly demonstrate a “class-wide injury.” The panel found it unnecessary to determine on an individualized, case-by-case basis whether Ford Credit violated the Consumer Leasing Act (CLA) by failing to disclose its inspection standard and method:
As discussed above, Ford Credit’s lease agreement affirmatively states that it will use a ‘normal’ EWU inspection standard, while its procedures mandate the use of a higher and undisclosed ‘clean’ standard. Accordingly, appellant’s allegation that Ford Credit’s failure to disclose its inspection method and the ‘clean’ EWU inspection standard in its lease agreements violated the CLA does not require individualized inquiry to the actual inspections conducted on specific vehicles.
2011 Ohio 6474, ¶47.
The two sides have not agreed on how many customers could be affected, but Ford Credit’s brief indicates the company had about 2.5 million leases between 1993 and 2006, and that, under Agrawal’s theory, about 11% — or over 250,000 lessees — were overcharged.
The decisions of the trial court and court of appeals in Ford Motor Credit raise serious issues concerning the ability of a trier of fact to decide the important issues of the case on a class-wide basis. The trial court would have to engage in a fact-specific inquiry into the details of every lease-end inspection performed to determine whether the dealer, in fact, applied the “clean” standard or the more lenient “normal wear” standard. This case-by-case inquiry would necessarily have to be done because those for whom the more lenient “normal wear” standard was used would have no harm and thus could not be in the class.
Worse yet, this analysis would have to be performed not just for the 250,000 lessees who were overcharged; all 2.5 million leases would have to be inspected to determine whether the “clean” inspection standard was used (i.e., whether the lessee was actually overcharged).
Ford Credit’s petition to the Ohio Supreme Court correctly points out that while Agrawal’s claims necessarily require him to prove both (1) that his dealer applied the incorrect standard and (2) that the incorrect standard resulted in a higher charge to him, the current class certification decision absolves him and other putative class members of having to prove these requirements. The Eighth District believes it is sufficient for there to be liability based solely on the difference between the “normal” use standard in the lease and the “clean” standard in Ford Credit’s handbook.
The problem with the class certification decision is that the common issue identified — whether there is a class-wide violation of a standardized contract — does nothing to resolve the issue of whether Ford Credit applied the “clean” standard in a particular case as to a particular lease. It only raises the question of whether a given class member experienced an injury resulting from an improper inspection; it does not answer that question.
It is quite clear Ford Credit applied the heightened inspection standard to certain lessees, while applying the lease’s “normal” use standard to other lessees. Trying and resolving Agrawal’s claim will do nothing to answer whether the next class member suffered from the heightened inspection standard and thus had an injury. And certifying the class based solely on the difference between the lease language and the handbook language absolves Agrawal and other class members from having to prove harm, while prejudicing Ford Credit’s ability to offer individualized defenses in certain instances.
Ford Motor Credit v. Agrawal falls squarely within the United States Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes. There, the Supreme Court held that the company-wide policy of imbuing store managers with discretion over hiring practices, which was identified by Dukes as the common issue, was insufficient because that common question did nothing to prove the discretion was actually exercised. Similarly here, the policy identified by Agrawal cannot prove whether Ford Credit actually overcharged anyone.
The Supreme Court is likely to decide within the next several weeks whether to accept the case. Should it accept the case, it would doubtless provide clarity to class jurisprudence in Ohio. Stay tuned to see if the Supreme Court accepts this and other pending cases. More clarity in Ohio class jurisprudence may be just around the corner.