LEGAL FILE

Ford Credit loses appeal of class-action status in dispute over lease-end policies


Automotive News | January 25, 2012 - 12:01 am EST

Ford Credit has lost its bid to overturn class-action status in an action challenging its inspection policy for lease-end vehicles.

A unanimous three-judge Ohio Court of Appeals panel let the case proceed on behalf of hundreds of thousands of lessees who were assessed for excess wear and use at the end of their lease terms.

Ford Motor Credit Inc. has denied liability. It has asked the full appeals court to reconsider the case, company spokeswoman Margaret Mellott said.

The dispute is rooted in Ford Credit's assessment of $2,658 for excess wear and use on a Windstar that Sudesh Agrawal leased from 2000 to 2003 through Ford Credit's Red Carpet program.

Dealerships conducted lease-end inspections until 2006, when the lender switched to third-party inspectors.

When Agrawal contested the charge, the lender sued to collect the full amount without disclosing that a second "verifying inspection" had appraised the Windstar's excess use and wear at only $194.

Agrawal, in turn, counterclaimed for breach of contract, violation of the federal Consumer Leasing Act and other allegations.

In part, he asserts that the standard leases required inspections "based on our standards for normal use," with no charge for vehicles returned with "average" use. However, Ford Credit's dealer handbook and templates applied a stricter "clean" criterion, meaning "the vehicle is in great condition with only minor dents and chips."

The counterclaims also assert that the lender's operating procedure that held dealerships financially responsible for underestimates created incentives for inspections "biased towards an overcharge." The result, Agrawal contends, was a systematic overcharge of lessees.

A Cuyahoga County judge certified a national class of lessees. In addition, a certified subclass of Ohio lessees seeks punitive damages for fraud or misrepresentation under state 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 suited for class-action treatment.

But the appeals court disagreed, ruling that class-action status is justified because the standard leases and inspection procedures demonstrate a "class-wide injury." The panel also found it unnecessary to determine on an individual basis whether Ford Credit violated the Consumer Leasing Act by failing to disclose its inspection standard and method.

Agrawal's lawyer, Robert Belovich of Broadview Heights, Ohio, said that if a jury holds Ford Credit liable for breach of contract, the lender would be required to refund all excess wear and use charges collected from its lessees.

Ford Credit could also be liable for statutory damages if a jury finds its wear and use standards were unreasonable, Belovich said.

The two sides have not agreed on how many customers could be affected, but Ford Credit's brief said the company had about 2.5 million leases between 1993 and 2006, and that "only 11 percent" were "overcharged under Agrawal's theory."

The brief said that overcharge assessments were the exception, not the rule.

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