More than 1.9 million unhappy customers who purchased or leased a Ford Focus or Fiesta say the company lied to unload cars with faulty transmissions on unsuspecting buyers and then blamed the drivers for problems they experienced.
As a result, Ford Motor Co. faces a potential $4 billion liability, lawyer Ryan Wu said last month during a U.S. Court of Appeals hearing during heated discussion with judges.
He was trying to convince a panel of appellate judges in Pasadena, California, on April 8 to leave in place a $35 million settlement his law firm negotiated to resolve a class-action lawsuit against Ford.
At the hearing, Michael Kirkpatrick of Public Citizen, a nonprofit Washington, D.C.-based consumer group handling the case for free, argued that the proposed settlement provided a sweet deal for Ford and a raw deal for its customers.
Ford customers claim in legal filings their 2012-16 Focus and 2011-16 Fiesta sedans were built with dual-clutch transmissions prone to “shuddering, slipping, bucking, jerking, hesitation while changing gears, premature internal wear, delays in downshifting and, in some cases, sudden or delayed acceleration.”
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In a statement to the Free Press on Wednesday, the company said, “Ford is committed to providing our customers with top-quality vehicles. We continue to deny the allegations in this lawsuit, but rather than continuing with the litigation, Ford entered into a settlement agreement with lawyers representing these plaintiffs. That settlement is fair and appropriate and we look forward to final court approval.”
Judges are deciding now whether to uphold or toss the settlement. Lawyers involved with the case say a ruling will likely come by December.
Judges challenged Wu on whether the deal he negotiated was fair, and if the lower court correctly assessed the value of the settlement. Wu said yes, noting previous courts have upheld the fairness of class-action cases where only 3% of the plaintiffs were were compensated, as he worked to bring closure to a case filed in 2012.
Warning to stockholders
Then, less than three weeks after the California hearing, Ford warned shareholders of legal exposure in a Securities and Exchange Commission filing under the subhead, “Consumer Matters.”
“We are currently a defendant in a significant number of litigation matters relating to the performance of vehicles equipped with DPS6 transmissions,” said the last item on a 70-page document dated April 25 and signed by Cathy O’Callaghan, Ford vice president and controller.
“We are a defendant in numerous actions in state and federal courts alleging damages based on state and federal consumer protection laws and breach of warranty obligations. Remedies under these statutes may include repurchase, civil penalties, and plaintiff’s attorney fees. In some cases, plaintiffs also include an allegation of fraud.”
Stranded with Mom
Kirkpatrick said the timing “would suggest Ford thinks the settlement is going to be vacated. That’s what we’ve asked the Court of Appeals to do, send it all back down to the district court. Given the way the oral argument went, Ford’s lawyers anticipate losing the appeal. And they want to get out ahead of this. They have this huge liability they thought they had put to bed through a class-action settlement that was an exceptionally good deal for them.”
If history is any indication, the situation facing Ford is grim.
A California jury awarded Ariel Myers of Los Angeles $550,000 after finding that Ford acted with malice and committed fraud by concealing that the transmission in his 2014 Ford Focus was seriously defective, inducing him to purchase the car, despite a history of massive numbers of transmission failures, according a news release after the April 6, 2018, verdict from the nonprofit Consumers for Auto Reliability and Safety based in Sacramento.
Within three days of purchasing his car for $40,007 on July 29, 2014, the transmission began to slip and shudder. Myers went back repeatedly for repairs, but the transmission continued to overheat, slip and make the car dangerous to drive, the news release said at the time. Myers needed the car to get to work and take his mother to dialysis. When the transmission overheated, his mother missed her appointment as they sat on the side of the road for help.
When Myers sought a refund, Ford refused. Just before the trial jury was selected, Ford admitted it had violated lemon laws, the consumer advocacy group noted.
“Ford has appealed the Myers judgment,” Kirkpatrick said. “But remember that Ford agreed to pay Myers $132,141 on the breach-of-warranty claims before going to trial on the consumer fraud claims. Even if Myers loses on appeal, Ford will have to pay $132,141 plus costs and attorneys’ fees.”
That’s just one guy.
In addition to the class-action case, an estimated 1,200 individual consumer fraud cases are pending in California, and a “mass action” lawsuit on behalf of 12,300 buyers has been filed in Wayne County Circuit Court by drivers from throughout the United States who declined to join the class action lawsuit.
Ruling: ‘Unconscionable’ conduct
While cases simmer in the U.S., Ford has been penalized globally.
The company engaged in “unconscionable and misleading or deceptive conduct” and made “false or misleading representations in its response to customer complaints,” according to the Australian Competition and Consumer Commission. It hit Ford with a $10 million fine (about $7.5 million in U.S. dollars) on April 26, 2018, in response to the company’s handling of thousands of complaints between May 2015 and November 2016 — one of the largest fines in Australian history handed down under consumer law.
The fine in Australia also covered complaints involving Ford EcoSport owners.
“In most cases, Ford refused to provide a refund or a no-cost replacement vehicle to consumers, even after vehicles had undergone multiple repairs that had not resolved consumers’ complaints,” Rod Sims, commission chairman, said at the time.
Ford told customers that “shuddering” in the vehicle was the result of the way that buyers had been driving, he noted.
‘Overwhelmed’ with complaints
Ford acknowledged at the time, “We took too long to identify the issues and we acknowledge that PowerShift customers did not have complaints handled appropriately. … We were overwhelmed with the volume of complaints. … Our processes were inadequate and information provided was either inaccurate or incomplete. We let our customers down and for that we are sorry.”
Now Ford awaits a ruling on the class-action settlement involving 1.5 million current and 400,000 former owners. One solo plaintiff won more than $130,000. The current settlement provides class members with much, much less.
“This was a windfall release for Ford,” Kirkpatrick told the Free Press. “People would be giving up their claims of very high value. We know Ford has been settling cases for $75,000 right off the bat when people bring their own lawsuits under California consumer protection law.”
“Once Ford is released, they’re no longer bound. This is about fairness. Ford is purchasing a release from liability at a very low price. Most ‘class’ members will get nothing, and the attorneys make big fees.”
Wu said in court, “If everyone were to actually submit a claim, it would be $4 billion.”
What makes this case potentially costly is not the faulty manufacturing but the idea that Ford hid the problem, said multiple lawyers interviewed who are working on the case.
“This is about deceptive practices,” Kirkpatrick said. “And these problems actually can’t be fixed. Ford kept giving extended warranties. Why isn’t that good enough? Because this isn’t like having worn out brake pads and replacing the pads. These cars are notorious for transmission problems. It’s because Ford lied.”
Companies get hit with higher penalties in these cases, which is why Ford might offer $75,000 for a $25,000 car, Kirkpatrick said.
20 service visits, no fix
The company issued more than 20 technical service bulletins relating to the Focus and Fiesta models, with none of them being a “consistently reliable repair,” reported Carscoops in 2017. Ford extended the powertrain warranty from five years and 60,000 miles to seven years and 100,000 miles in 2014.
Ford never issued a recall or offered to buy back the vehicles, lawyers said.
“Ford must be held accountable for design and manufacturing defects of the PowerShift transmission that has compromised the safety of the vehicles and cost owners significant loss in vehicle value, reliable transportation and time,” Ken Stern, the Novi lawyer representing the 12,300 Focus and Fiesta owners suing Ford in the Wayne County litigation, told Autoweek in 2017.
The transmission system, which replaces a traditional automatic transmission, was marketed as having efficient and fast-shifting gears.
The “mass action claim” filed in Michigan in April 2017 seeks to have Ford award damages individually rather than to a single class. Stern declined to be quoted in deference to a protective order in the ongoing case.
2,406 complaints, collisions
Through May 6, the National Highway Traffic Safety Administration had received 2,406 complaints about the transmissions, which included reports of vehicles lurching into intersections, failing to decelerate or suddenly accelerating, causing collisions and near misses.
A snapshot of experiences reported this year with the 2016 Ford Focus:
- On Feb. 7, an Ionia, Michigan, owner said, “While driving 11 miles per hour in first gear, the vehicle vibrated violently.”
- On March 29, a Fayetteville, North Carolina, driver said, “While the gear was in reverse, the vehicle accelerated forward instead of in reverse.”
- On April 28, a Naperville, Illinois, owner said the car’s transmission wouldn’t shift from second to third gear despite being only 3 years old with 55,000 miles.
Ford lost in the first-class action ruling in Thailand in September 2018 for producing vehicles deemed “unsafe, substandard and defective,” according to the Chiang Rai Times.
The automaker released a statement in Thai, the overseas news media noted at the time, that the company respected the court’s verdict. “We apologise for the inconvenience.”
These transmission claims against Ford are damning, said Jason Levine, executive director of the Center for Auto Safety based in Washington, D.C.
“There are some basics that we all expect to not have to worry about with our cars: Do they start? Are they safe? Will it drive as if it was built in the 21st Century and not as if it had a transmission built by the first assembly line conceived of by Henry Ford?” Levine told the Free Press. “The thousands of complaints by Ford owners about the transmission problems in these vehicles, and a lack of a comprehensive fix being put forth by the manufacturer, speaks volumes about the way Ford treats its customers.“
Despite the pending litigation, Ford can likely handle anything that unfolds in the courts, industry observers said.
“When Ford got in trouble with the Pinto, Ford was vilified for knowingly not doing something,” said John McElroy, “Autoline After Hours” host. “They don’t want to pay out if they can avoid it. But would this cripple the company? Absolutely not. They literally budget for this sort of stuff.”
The $4 billion figure was calculated based on a maximum-allowed cash payment of $2,325 per class action member, not including the payouts for buybacks.