Ford Overcharged Trucker Dealers, Jury Told in RetrialMargaret Cronin Fisk and Harlan Spector
Ford Motor Co. overcharged commercial truck dealers for 11 years, a lawyer said in the retrial of a lawsuit that initially resulted in a $2 billion judgment against the automaker.
“This case is about Ford breaking a contract promise it made to treat all of its dealers equally,” Dennis Mulvihill, an attorney for the dealers, said yesterday in his opening statement in Ohio state court in Cleveland. He said Ford engaged in “a secret pricing scheme” that allowed it to take retail profits from dealers.
“They charged dealers too much money for these trucks,” Mulvihill told the jury of three men and five women. Ford’s legal team will deliver an opening statement Aug. 26.
The dealers sued Dearborn, Michigan-based Ford in 2002, claiming the company broke an agreement to sell trucks at published prices, which forced them to pay more from 1987 through 1998. Cuyahoga County Judge Peter J. Corrigan in 2011 awarded $2 billion, including about $1.2 billion in interest, to a class of about 3,000 dealers.
A state appeals court ordered a new trial last year, finding Corrigan improperly excluded evidence that might have helped the company. The dealers will be seeking $2 billion again, plus additional interest, James Lowe, another lawyer for the plaintiffs, said in an interview before trial.
The liability is “pretty clear,” Lowe said. “The contract was breached and if not for that breach the dealers would have gotten lower prices.”
Jay Cooney, a Ford spokesman, declined to comment on the case because it’s in trial.
Ford has denied any breaches or overcharging. The company has also asked Corrigan, who is conducting the new trial, to reverse his 2005 decision allowing the dealers to pursue the claims as a group.
Corrigan said he would consider Ford’s motion to decertify the class after evidence is presented and before the jury deliberates.
“That will be a legal question the court will determine,” he said Aug. 19.
A $2 billion Ford loss in the retrial might slow down stock buybacks or new model development, said Matthew Stover, a Boston-based auto analyst for Guggenheim Securities.
“The biggest impact may be on the shareholder who wants a share repurchase,” Stover said in a phone interview. “They’ve said don’t be looking for anything until the 2015 timeframe and you’d probably have to push that out to 2016.”
Ford is profitable and its automotive business has $25.7 billion in cash, which leaves the company in better shape to withstand such a judgment now than when it was losing $30.1 billion from 2006 through 2008, Stover said.
“It’s not a massive risk given the company’s balance sheet and cash flow,” he said.
Ford is accused of breaching an agreement with the truck dealers by failing to publish to all of them all price concessions that were approved for any dealer. This cut into their profits, the dealers, including lead plaintiff Youngstown, Ohio-based Westgate Ford Truck Sales Inc., claimed.
“Ford broke a written promise to Westgate and other dealers to sell trucks to dealerships at published prices,” Mulvihill told the jury yesterday. “Ford determined what the dealer profit would be.”
Corrigan allowed the dealers to pursue claims against Ford on behalf of a class in 2005, a decision that was upheld on appeal. The class includes Ford dealers who bought from the company any 600 series or higher truck over a period of about 11 years, starting in 1987.
The first trial considered the claims by one dealer, Westgate. Corrigan found Ford liable before trial for breach of contract and a Cleveland jury in February 2011 awarded $4.5 million in damages to Westgate.
Four months later, Corrigan added $6.65 million in interest to the Westgate award and applied the damages finding to the rest of the class, entering the $2 billion judgment.
“Because every potential price was not published, each sale is affected by hidden discounts in each negotiation of the artificially inflated published price,” Corrigan said in upholding the verdict to Westgate. “As to all class members, it is undisputed that the franchise agreements were identical in all material aspects.”
Ford contended on appeal that the judge had improperly found Ford liable before trial and prevented the company from defending itself on damages.
A Cleveland-based appeals court found that the contract was ambiguous and Corrigan shouldn’t have decided the issue before trial. The appeals court also questioned whether the evidence could support allowing the plaintiffs to pursue class-action claims.
“Once the trial court admits the previously excluded evidence, it will need to determine whether it can continue to certify the class,” the appellate court said.
The $2 billion award was five times higher than the largest-ever jury award against Ford in a lawsuit, according to data compiled by Bloomberg News. The largest jury verdict against Ford was for $369 million in a products-defect case awarded in California in 2004. That verdict was later reduced by trial and appellate courts.
The case is Westgate Ford Truck Sales Inc. v. Ford Motor Co., CV 02-483526, Court of Common Pleas, Cuyahoga County, Ohio (Cleveland). The appellate case is Westgate Ford Truck Sales Inc. v. Ford Motor Co., 2012-Ohio-1942, Court of Appeals of Ohio, Eighth Appellate District, County of Cuyahoga (Cleveland).