Chicago Business Litigation Lawyer Blog

Arbitration provisions are appearing in more and more contracts lately, in everything from employment contracts to consumer contracts. With increasing frequency, companies are looking to block employees and consumers access to the courts, in the event that they have a complaint against the company.

In a recent class action lawsuit, Ganley Chevrolet and Ganley Automotive Stores, tried to force a consumer class action lawsuit against them into arbitration. The courts, on the other hand, have agreed that the dealership group’s sales agreement was “incomplete and misleading” and therefore unenforceable.

The dispute began in March 2001 when Jeffrey and Stacy Felix purchased a 2000 Chevy Blazer. Ganley allegedly told the Felixes that they were approved for 0.0% financing but that the offer would expire that evening. They agreed and traded in their van as part of the deal. Ganley allegedly insisted that they take the new car home with them. A few days later though. Ganley told the couple that the bank would approve only 1.9% financing, which they accepted. After having the car for more than a month, the Felixes were told that the bank had decided not to approve the 1.9% financing but that Ganley had found another bank which would give them a loan with a 9.44% financing rate. The Felixes refused to sign a new agreement at such a high rate. They kept the vehicle though, and have been putting money in escrow to purchase it.

Meanwhile, they filed a lawsuit against Ganley Chevrolet and Ganley Automotive Stores alleging “bait and switch tactics.” This is a practice in which a dealer will offer goods at one low price to get the customer interested, then suddenly raise the price at the last minute. It is also a violation of the Ohio Consumer Sales and Practices Act. The lawsuit further alleges misrepresentation and emotional distress. It includes individual claims as well as class action claims and challenges the validity of the arbitration provision in the sales agreement.

The lower court judge found the arbitration provision to be “ambiguous and misleading” and therefore rejected Ganley’s request for arbitration and approved class action status on behalf of all consumers whose sales agreement with any Ganley store had the same provision from June 1999 until the company changed the provision in 2007. The judge also awarded $200 in damages to each of the “thousands of members” of the certified class.

Ganley appealed the decision and the case went to the Ohio Court of Appeals which upheld the class certification in a 2-1 decision. The court found that class action status in this case was appropriate under the consumer protection law. The one dissenting judge agreed that, Ganley’s use of the arbitration provision might be an “unfair or deceptive practice” that would justify individual lawsuits in court. However, he argued that the plaintiffs failed to meet the requirements for class action status and such was his reason for dissent.

In order to qualify for class action status, the plaintiffs must meet certain criteria. These criteria include: 1) an identifiable class must exist, and its definition must be clear; 2) the named plaintiff representatives must be members of the class; 3) the class must be large enough to make joining all of the members practicable; 4) the class must have in common questions of law or fact; 5) the claims or defenses of the representatives must be typical of the claims or defenses of the class; and 6) the representative parties must fairly and adequately protect the interests of the class.

Ganley argues that the trial court should not have certified the class because the class definition and time period are too broad and ambiguous. Ganley also argued that the commonality, predominance, and typicality prerequisites to class certification had not been met. The Court of Appeals disagreed and upheld the lower court’s ruling.

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Ever since the Supreme Court’s rulings in Walmart and Comcast, denying class certification in those cases, courts have had to increasingly deny plaintiffs class certification. Recently, a rift has appeared between federal courts with different interpretations of what should be acceptable for a class action to proceed. Traditionally, all that plaintiffs have needed to secure class certification is a class with well-defined limits, proof that the members of the proposed class have a common complaint against the defendant, evidence that the named plaintiffs are sufficient representatives of the entire class, and proof that the plaintiffs’ counsel can adequately represent the class in a court of law. Only after the class has achieved certification do the plaintiffs worry about trying to include all potential class members.

On one side of the argument is the 7th Circuit Court of Appeals, which has consistently made rulings on the belief that class actions are an efficient mode of determining the liability of a defendant, particularly when individual claims are small. This court has ruled in favor of class actions in such cases as the one against Sears and Whirlpool for moldy washing machines, as well as a case addressing lack of properly displaying warnings for ATM fees. Both of these cases have been discussed on this blog.

On the other side of the debate is the 3rd Circuit Court of Appeals which has recently ruled that class actions may not be certified until individual class members can be ascertained. This decision comes in the case of Carrera v. Bayer in which consumers allege that they were deceived by Bayer’s claim that green tea extract in its One-A-Day WeightSmart supplements would boost consumers’ metabolism. The district judge, Jose Linares of Newark, New Jersey, denied class certification on a nationwide basis, but granted the plaintiff’s subsequent motion for certification of a class of Florida purchasers under that state’s trade practices suit.
On appeal at the 3rd Circuit Court, Bayer’s attorneys argued that the class should not have been certified because it is impossible to discern everyone who bought the product. Consumers purchasing a widely-distributed over-the-counter product are unlikely to have kept packages or receipts or any kind of record that they purchased the product. Bayer’s representatives therefore argued that membership of the class cannot be ascertained and, on these grounds, the class should not be certified.

The legal counsel for the plaintiffs argued that there are three methods by which they can determine class membership: pharmacy membership programs that track members’ purchases; and screening of affidavits from consumers who claim to have bought One-A-Day WeightSmart to eliminate fraudulent or duplicate claims. They also pointed out that Florida’s consumer law does not require proof of individual reliance. Therefore Bayer’s potential $14 million exposure should not be affected by how big the class is or how the class is defined.
In its decision, the three-judge panel of the 3rd Circuit Court ruled that, unless the plaintiffs could determine a real plan for determining buyers, certifying the class and allowing the case to proceed would be to violate Bayer’s rights of due process. This, according to the 3rd Circuit Court, gives the defendant the right “to raise individual challenges and defenses to claims”. They therefore remanded the case until the plaintiffs could provide sufficient evidence that the class is “ascertainable” despite the fact that the plaintiffs had already laid out a very clear plan for identifying and finding class members.

In the brief filed for the plaintiffs’ motion to reconsider, the controversial status of the 3rd Circuit Court’s decision is laid out. The brief points out that Rule 23 (for determining class certification) “does not require a roll call (nor, for that matter, does due process). The brief also states that, “In the half-century since the creation of the modern class action, the panel’s decision is the first by any federal circuit court to hold that class certification may be defeated on the basis of ‘ascertainability’ even when the existence of a well-defined class is not in doubt and the full extent of potential liability is known. … If allowed to stand, the panel’s decision will effectively wipe out most class actions involving small-dollar consumer products – cases for which class treatment has always been recognized as most essential.”

You can view the very well done motion for en banc rehearing before the 3rd Circuit here.

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