Car Fraud Cases and the "Economic Loss" Doctrine - Martin v. Ford Motor Co.

For a person seeking to sue for car fraud, it's not enough to know who swindled you and how they did it. You also need to know what claims to raise in order to recover your losses. In Martin v. Ford Motor Co., the district court for the Eastern District of Pennsylvania explains that fraud claims may not always do the trick.

Plaintiff Aaron D. Martin filed a Complaint against Defendant Ford Motor Company, including class action claims brought "on behalf of himself and other similarly situated." He claims that Ford failed to disclose a known defect in its 1999-2003 Ford Windstar model cars. Specifically, Plaintiff argues that although Ford expressly warranted that the 2001 Windstar that Plaintiff purchased from an authorized dealer was free of defects, the car's rear axle is allegedly unsealed, causing it to rust and corrode over time before ultimately cracking. The defect is allegedly widely known and much discussed in the automotive industry, according to Plaintiff, and therefore Ford should have been aware of it. Three months after the complaint was filed, Ford recalled all Windstars manufactured between 1998 and 2002 in order to fix the rear axle problem.

Plaintiff's many claims against Ford include a general fraud claim as well as those for intentional misrepresentation or omission, false statements and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Defendants countered by arguing that these claims are barred by the "economic loss" doctrine, which in Pennsylvania prohibits a Plaintiff from recovering economic losses in a tort claim where the entitlement to the money is based in contract. In other words, because Plaintiff's right to recover any losses from Ford is based on the parties' contract, the company argued that he cannot seek to recover these losses in tort (i.e., via the fraud claims).

92730_pinata_party_2.jpgWhile the court noted that the economic loss doctrine does not apply to intentional misconduct, such as fraud, it also held that this exception is not available where the intentional misconduct alleged concerns the quality of a good being sold. In this case the intentional misconduct - Ford's alleged misrepresentations - concerned the quality of the vehicle, a good offered for sale. As a result, the economic loss doctrine barred Plaintiff's fraud claims under state law, which the court dismissed.

The ruling does not mean, however, that Plaintiff cannot recover damages against Ford. The court refused to dismiss Plaintiff's fraud claims raised under the laws of various states other than Pennsylvania. Nor did it dismiss his claim for unjust enrichment. Plaintiff also retains the right to sue for breach of contract.

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Retired Supreme Court Justice Stevens Discusses Bush v. Gore

Justice Stevens conducted a detailed analysis of Bush v. Gore, finding it hard to square with the Court's reticence to date to view partisan gerrymandering as justiciable:

If a mere defect in the standards governing voting recount practices can violate the state’s duty to govern impartially, surely it must follow that the intentional practice of drawing bizarre boundaries of electoral districts in order to enhance the political power of the dominant party is unconstitutional.

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Video: Used Car Rip-Off

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Video: Avoid Used Car Scams

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Today Show Reports: Vin Number Cloning: The Nation's Biggest Used Car Scam

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7th Circuit Finds that Dunning Letter Containing Puffery Does not Violate the FDCPA


Debt collector letters to consumers can violate the Fair Debt Collection Practices Act otherwise known as the FDCPA if they confuse unsophisticated consumers and set time lines that contradict or over shadow the time lines provided in the FDC for validation of debts.

Under the FDCPA, a debt collector’s dunning letter to a debtor must contain:

(1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and (5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor. 15 U.S.C. § 692g(a).

The FDCPA also dictates that“[a]ny collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt or request the name and address of the original creditor.” 15 U.S.C. § 1692g(b).

The 7th Circuit in a new opinion has rejected a claim that a dunning letter from a debt collector for Capital One was overshadowed a consumer's notice rights under the FDCP. In Zemeckis v. Global Credit Collection Corp., Capital One retained Global, a collection agency, which sent plaintiff, its debtor, a dunning letter with notice of her debt validation rights. Plaintiff claimed that the content as a whole over-shadowed the debt validation notice, violating the Fair Debt Collection Practices Act, 15 U.S.C. 1692g. The district court dismissed, stating that language like "act now" is only puffery and that placement of the notice on the back of the letter complies with the Act. The Seventh Circuit affirmed, upholding the district court's rejection of a request to conduct a consumer survey to prove that the letter was confusing. However, the 7th Circuit recognized that in cases where it is not easily apparent that the dunning letter contains mere puffery consumer surveys are useful. It also recognized that placing deadlines with exact time frames such as one week to act or referencing set number of days to act that do not conform with the FDCPA timelines do violate the FDCPA.

You can see the entire 7th Circuit opinion in Zemeckis v Global Credit Collection Corp. by downloading the file here.

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7th Circuit Holds that Debt Collectors Cannot Call Cell Phones with Robo Callers to Collect Debts Once the Cell Phone Number No Longer Belongs to the Person Who Owes the Money


The Telephone Consumer Protection Act often referred to simply as the TCPA protects consumers from unwanted prerecorded calls from advertisers and bill collectors. It is intended to stop use of automated dialers and prerecorded messages to cell phones, whose subscribers often are billed for the call and do not want to be harassed with unwanted calls.

The 7th Circuit Court of Appeals in Chicago has ruled that bill collectors violate the TCPA when they use predictive dial machines to automatically call the old phone number of persons who didn't pay their cell phone bills after those numbers are reassigned to new people who don't owe any money. The Court ruled that this practice was no different than a repo man breaking into a garage and taking the car of the new owner of the house once the old owner who hadn't paid her car payments moved out. It commented on the nuisance created by predictive dialers that debt collectors uses to repeatedly make phone calls to the wrong cell phone numbers of innocent people who don't owe AT&T a dime:

Predictive dialers lack human intelligence and, like the buckets enchanted by the Sorcerer’s Apprentice, continue until stopped by their true master. Meanwhile Bystander is out of pocket the cost of the airtime minutes and has had to listen to a lot of useless voicemail.

In this case, AT&T hired a bill collector to call cell phone numbers at which customers had agreed to receive calls. The collection agency used a predictive dialer that works autonomously until a human voice answers. Predictive dialers continue to call numbers that no longer belong to the customers and have been reassigned to individuals who had not contracted with AT&T.

The district court certified a class of individuals receiving automated calls after the numbers were reassigned and held that only consent of the subscriber assigned the number at the time of the call justifies an automated or recorded call. The Seventh Circuit affirmed. With regard to the TCPA violation it had this to say: "An automated call to a land line phone can be an annoyance; an automated call to a cell phone adds expense to annoyance." You can read the 7th Circuit's opinion in Soppet v. Enhanced Recovery by downloading the file here.

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Court of Appeals Upholds Bonus Award Against Suit by Minority Shareholders, Applying Safe Harbor and Business Judgment Rules - Warren v. Campbell Farming Corp.

1381825_45117768.jpgThe Tenth Circuit Court of Appeals reviewed a dispute among shareholders of a closely-held corporation in Warren v. Campbell Farming Corporation. It affirmed a district court ruling that the majority shareholder did not breach fiduciary or statutory duties to the corporation by approving a bonus proposal over the minority shareholders’ objections. The court considered arguments relating to conflicts of interest and fairness, the business judgment rule, and the majority shareholder’s fiduciary duty.

Campbell Farming Corporation is a closely-held Montana corporation whose principal place of business is in New Mexico. The plaintiffs, H. Robert Warren and Joan Crocker, were minority shareholders with 49% of the shares, while defendant Stephanie Gately controlled 51%. Warren and Gately served as directors with Gately’s son, Robert Gately, who also served as the president. Stephanie Gately proposed a bonus to her son totalling $1.2 million in cash and company stock, in part to prevent him from leaving the company. Stephanie Gately voted all of her shares in favor of the proposal, so it passed despite Warren and Crocker’s votes in opposition.

Warren and Crocker filed suit in New Mexico federal court, asserting breach of fiduciary duties and various common law claims. The district court ruled in favor of the defendants after a bench trial. It found that, while the bonus met Montana’s definition of a “conflict of interest,” it was permissible under a safe-harbor statute that allowed conflict-of-interest transactions if they were “fair to the corporation.” Mont. Code. Ann. §§ 35-1-461(2), 35-1-462(2)(c). The court also found that the bonus was permitted by the business judgment rule and that the defendants did not breach any fiduciary duties. The plaintiffs appealed to the Tenth Circuit.

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Business Owners Beware: Tips are for Employees Only - Gionfriddo v. Jason Zink, LLC. (D MD 2011)

In Gionfriddo v. Jason Zink, LLC., the District Court for the District of Maryland became the latest in a chorus of courts in business litigation to warn business owners/operators that the Fair Labor Standards Act (FLSA) - and often state law - prohibits them from participating in employee tip pools.

126301_tips_cup.jpgPlaintiffs are three former bartenders at two Baltimore bar and restaurants owned by Defendant Jason Zink: the Don't Know Tavern and the No Idea Tavern. Mr. Zink also works as a manager and bartender at both establishments. The bartenders at both taverns, including Mr. Zink, participate in a tip pool, through which tips received are contributed to a collective pool and then divided among the bartenders each week based on the number of hours worked. Since Mr. Zink does not draw a salary from the businesses, the court noted that the tip pool "appears to be his primary mode of compensation from his tavern businesses."

Plaintiffs sued, alleging that because Zink owns the businesses, he's precluded under both the FLSA and the Maryland Wage and Hour Law from receiving tips from the tip pool. The FLSA establishes a federal minimum hourly wage ($7.25) for employees. "Tipped employees" - those working in positions where they "customarily and regularly" receive more than $30 a month in tips - are exempted from the minimum wage requirement. These employees may be paid $2.13 per hour, so long as their tips make up the difference. The difference between the amount paid to tipped employees and the $7.25 minimum wage is called the employer's "tip credit." The FLSA permits tipped employees to participate in a tip pool, as long as each employee customarily receives more than $30 per month in tips. Furthermore, the employer cannot take a tip credit where the tip pool involves employees who don't usually receive tips.

Both parties filed motions for summary judgment, asserting that there is no dispute over material facts in the case and that each is entitled to judgment in its favor as a matter of law. The court ruled in favor of Plaintiffs, finding that Defendant is not permitted to participate in the tip pool because, as employer, he doesn't typically receive tips. "Congress, in crafting the tip credit provision...of the FLSA did not create a middle ground allowing an employer both to take the tip credit and share employees' tips," the court ruled, quoting the Southern District of New York's decision in Chung v. New River Palace Restaurant, Inc. For the same reasons, the court concluded that Defendant also violated the MWHL by participating in the tip pool.

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Medical Debt Collectors Stoop to New Lows According to the New York TImes

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Colbert commented on an interesting New York Times article which reported on how debt collectors are now secretly embedded in hospitals posing as hospital staff to collect on hospital bills and other medical debts.

Our law firm fights to stop these illegal practices when the debt collectors cross the line and engage in illegal collection practices such as those described by the New York Times.

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Car Fraud, Arbitration Clauses and Unconscionability - Tolbert v. Coast to Coast Dealer Services, Inc.

Solid evidence and strong legal arguments are all well and good, but in order to successfully sue a car dealer for fraud, you first have to bring the action in the right venue. In Tolbert v. Coast to Coast Dealer Services, Inc., the Northern District of Ohio explains that it will enforce an arbitration clause requiring a dispute to be resolved via arbitration unless the provision is "unconscionable."
Plaintiffs Leah Tolbert and Diana Barker bought a 2004 Jeep Sports Liberty Truck from Defendant Coast to Coast Dealer Services, Inc. (Coast to Coast), a used car dealership. Plaintiffs made a $3,500 down payment and agreed to pay the remaining purchase price ($4,400) in $300 monthly payments. They also purchased a Vehicle Service Agreement (VSA), under which Defendant agreed to service and repair the car. The VSA included an arbitration clause providing that "any and all claims, disputes, or controversies of any nature whatsoever" between the parties is subject to arbitration, a dispute resolution format in which parties submit the matter to one or more private arbitrators.

Plaintiffs allegedly began having trouble with the car shortly after driving it off of the lot. The "check engine" light allegedly went on within a day of the purchase, the first of what would be a long string of alleged issues related to the car. According to the court, Plaintiffs "had to bring the vehicle back to [the dealership] over ten different times for various problems, including the engine light, engine smoke, fan relay system, and replacement of the water pump and thermostat." Plaintiffs stopped making the monthly payments on the car when it allegedly became inoperable due to an engine problem and Coast to Coast repossessed the vehicle after performing repairs on it.

Plaintiffs filed the lawsuit, alleging that Defendant committed fraud by selling the car without disclosing various mechanical defects and by offering the VSA with no intent of honoring it. Whether or not this was the case, however, will be decided elsewhere. The court granted Defendant's motion to compel arbitration, finding that the VSA's arbitration clause is valid and requires that Plaintiffs' claims be resolved by an arbitrator.

While Plaintiffs argued that the arbitration clause was "unconscionable" - because it forces them to give up their right to be awarded attorneys' fees and punitive damages and arbitration proceedings will result in significantly higher costs - and therefore unenforceable, the court disagreed. "An unconscionable contract is one in which there is an absence of meaningful choice on the part of one of the parties to a contract, combined with contract terms that are unreasonably favorable to the other party," the court stated. In an arbitration proceeding, the court found that Plaintiffs retained the full slate of remedies available under Ohio law and noted that the arbitration clause includes a provision requiring Defendant to advance Plaintiffs' arbitration costs if they are unable to pay them. As a result, the arbitration clause was not unconscionable.

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7th Circuit Reverses its Decision in Sears Class-Action


The Thorogood lawsuit against Sears, characterized by the 7th Circuit as purportedly "near frivolous," concerned marketing of a clothes dryer. It was certified and later decertified as a class action on the ground that no issues could be resolved in a single, class-wide evidentiary hearing, and was ultimately dismissed. Murray, a member of the proposed class, who did not become a party, filed a "copycat" class action, using the same attorney. Following a third visit to the Seventh Circuit, the district court enjoined the Murray suit as defiant of the decertification. The Supreme Court remanded. The Seventh Circuit consolidated the Thorogood and Murray cases for its fourth opinion. On the merits, the court stated that "One would have to have a neurotic obsession with rust stains (or be a highly imaginative class action lawyer) to worry about Sears' drum," and that it would "unsay nothing," in its previous opinions, but vacated the injunction. "We were wrong. The Supreme Court’s decision—rendered after we ordered the injunction … although it does not refer to the All Writs Act, inclines us to doubt that Murray, not having been a party to the Thorogood suit, can nevertheless be bound by a ruling in it, including the ruling decertifying the class." You can view the 7th Circuit's decision here.

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