Tuesday, January 03, 2006

Systematic lemon law violations justify near-10x punitive multiplier

Johnson v. Ford Motor Co., --- Cal.Rptr.3d ----, 2005 WL 3508327 (Cal.App. 5 Dist.): On remand from the California Supreme Court, the Court of Appeals modifies its earlier verdict reducing a $10 million punitive damages award for concealing an automobile's history of transmission replacements and repairs, holding that just under 10 times the economic damages -- $175,000 in punitive damages on a verdict of $17,800 in economic damages – is an appropriate award under governing due process principles.

The jury initially awarded $10 million in punitive damages to Johnson based on evidence of Ford’s systematic attempts to circumvent California’s lemon law by (1) narrowly interpreting “repair attempts,” such that Ford determined that many troublesome vehicles returned to dealers for repairs didn’t qualify as lemons under the law and (2) instead of repurchasing such vehicles, which would trigger lemon reporting requirements, Ford called what it did a trade-in (not a normal trade-in, but a special program) and issued a credit to the customer rather than the dealer. In Johnson’s case, however, the customer never knew about the credit, which went straight to the dealer. The evidence was that (1) and (2) were formal Ford policies and that, if a vehicle that should have been deemed a lemon was instead treated as a trade-in, Ford saved about $10,000. There was no evidence, however, that trade-in credits routinely went to dealers rather than customers (an especially blatant flouting of the lemon law, which was designed to control dealer credits), nor was there evidence that all the several thousand vehicles a year that received trade-in credits under this program really were lemons, as opposed to troublesome vehicles that nonetheless weren’t quite so awful as to qualify as lemons and were legitimately traded in.

The Court of Appeals agreed that there was substantial evidence of Ford’s fraudulent concealment and attempts to evade the lemon law; the question was what sort of punitive damages award could be supported on these facts. The general tone of the opinion is: the California Supreme Court obviously wants us to award greater damages; Ford’s conduct was reprehensible, but the extent to which it actually damaged other people is unclear; a single-digit multiplier of economic damages to individual plaintiffs is generally constitutionally acceptable; so let’s try a 9.8 multiplier that produces a nice round number, bigger than our original multiplier of 3. The plaintiff’s theory of punitive damages offered to the jury – Ford’s overall profit from evading the lemon law – remains unacceptable, in part because of the lack of evidence that all vehicles in the special trade-in program were lemons, but also because punitive damages in individual plaintiff cases have to relate in some way to the harm suffered by the individual plaintiff.

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