Ford’s settlement with 2 million consumers is questioned

After a series of events, Ford Motor Co. finds itself in a precarious situation where a $35 million settlement with about 2 million consumers who say they were sold cars with defective transmissions could turn into a $4 billion litigation liability.

Ford is facing a cascade of lawsuits arising from faulty transmissions in its Focus and Fiesta models made between 2011 and 2016. Litigants who say their vehicles "shudder, buck, and jerk" uncontrollably have for the most part either joined the nearly 2 million class members involved in the settlement or are bringing individual claims in a multi-district litigation.

The settlement, which included a buy-back program for eligible class members and a $35 million cash payment for repairs, was approved by U.S. District Judge Andre Birotte Jr. in 2017. But in a rare instance it was rejected by the 9th U.S. Circuit Court of Appeals in September. A 9th Circuit panel ruled 2-1 to vacate the settlement approval after Washington D.C. attorney Michael Kirkpatrick of Public Citizen challenged the amount class members would receive.

Now the multi-district litigation, also in Birotte's Los Angeles federal courtroom, may have a major impact on the settlement and could sway Birotte to nullify it completely. If that happens, class members could jump ship from the settlement and join the litigation, leaving Ford with a potential liability in the billions based on reports from the Detroit Free Press.

If litigants continue to win jury trials, as one did last week, the argument for killing the settlement entirely becomes stronger and stronger, especially considering a Detroit Free Press report that the Department of Justice opened a fraud investigation this month, looking into allegations that Ford was fully aware of the faulty transmission before selling the cars. All of this is happening before the upcoming February hearing to renegotiate the settlement.

"At the time of the original fairness hearing, we had zero info about how much these cases were worth if litigated to a judgment because none had gone to trial," Kirkpatrick said. "From the time the district court originally evaluated the settlement and now, we have learned so much more information. That is why we think the risk to Ford has increased."

In the latest multi-district litigation, the jury awarded Ford Focus-owner Mark Pedante, represented by Bryan C. Altman of the Altman Law Group and Radomir R. Kirnos of the Knight Law Group, the maximum civil penalty of $64,000, after finding Ford willfully violated the Song-Beverly Consumer Warranty Act. Mark Pedante v. Ford Motor Company, 17-CV06656 (C.D. Cal., filed Sept. 8, 2017).

Although the size of the award is less than the $75,000 Ford offered Pedante before the trial, it would have been zero if Pedante had stayed in the class-settlement under his particular set of facts, said Kirnos.

"Ford would like the class action to sweep up millions of people who will not have any claims or any financial compensation," he said. "Of course Ford would like to sweep this under the rug and are unhappy that consumer lawyers ... would actually defend people who can't otherwise afford to get their defense."

However lead class counsel Ryan Wu of Capstone Law APC said he spoke to class members and, "They do not want objectors [to the settlement] to continue to hold up payments."

"We continue to believe that our settlement is fair and reasonable in light of the risk of further class litigation and is an excellent deal for class members overall," Wu said in an email last week. "We've had contact with tens of thousands of class members, and they're eager to collect their settlement benefits, which include cash payments and potential buybacks."

Although the 9th Circuit panel judges noted they were unable to comment on the merits of the settlement in September, they found Birotte had not thoroughly investigated the settlement. The panel said because the settlement included a clear sailing provision in which Ford agreed not to object to the plaintiffs' attorney fees and because the fees were disproportionately high compared to the amount litigants would receive, Birotte should have applied a higher level of scrutiny.

One factor which may prove crucial is whether Birotte, in considering a new settlement, gives credence to fraud claims that Ford actively knew about and concealed defective transmissions and sold the cars anyway.

In May, a California jury awarded Ariel Myers of Los Angeles over $500,000 after finding Ford committed fraud by concealing defects in his 2014 Ford Focus.

In Pedante, despite Altman and Kirnos arguing in a motion for summary judgment to include fraud claims that Ford knew its vehicles had transmission problems, Birotte ruled to exclude them. Parties are waiting to see if he changes his stance regarding the fraud claims in the next multi-district litigation jury trial beginning in December.

Despite the new developments, Wu said there is no inherent conflict between the settlement and the individual lawsuits.

"We can and should co-exist. The vast majority of class members would not be able to qualify for a buyback in court anyway. With the class action settlement, these class members would have the opportunity to receive cash payments," Wu said. "And those who can obtain a buyback in court can also do so through the settlement's arbitration program, which would only take a couple of months rather than years of litigation."

However Altman calls the existing settlement a "sweetheart deal" for Ford and questions whether class members have been fully informed of the results in Pedante and Myers.

"There is simply no validity to the claim that 'the vast majority of class members would not be able to qualify for a buyback in court anyway,' if that was meant to include California consumers who purchased or leased one of these vehicles," Altman said, when asked to respond to Wu's statement. "As there is no basis for that claim, there cannot be any basis for the other meritless claim that 'there's no inherent conflict between class action settlement and the individual lawsuits,' especially taking into account the practical compensation that class members may end up receiving."

Attorneys representing Ford were unavailable for comment Friday.