Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. N.J.: Ford escapes liability for claims based on Mustang hood corrosion , (Sep 11, 2015)

By Peter Reap, J.D., LL.M.

Claims brought by William Mickens and Mark Solomon—individually and on behalf of a putative class of Mustang owners—that Ford Motor Company engaged in unlawful and deceptive practices in violation of the New Jersey Consumer Fraud Act (“CFA”) by knowingly selling them Mustang automobiles with a design defect that exposed the aluminum hoods to galvanic corrosion that marred the hoods’ appearance, were without merit, the federal district court in Newark has determined (Mickens v. Ford Motor Company, September 10, 2015, McNulty, K.). Even the plaintiffs impliedly conceded that the galvanic corrosion theory fell apart upon examination. Just as fatal to the plaintiffs’ case, however, was their failure to establish any ascertainable loss.

Background. Mickens commenced this action against Ford on November 10, 2010, alleging that the hood of his 2006-model Mustang had sustained galvanic corrosion. Galvanic corrosion is “a process by which two metals with different electrode potentials come into contact in the presence of electricity.” Mickens sought to represent a putative class of all current owners or lessees who purchased or leased 14 different models of Ford, Lincoln, and Mercury vehicles between 2000 and 2007.

On September 4, 2013, Mickens filed an Amended Complaint (“AC”) that added Solomon as a plaintiff. The AC amended the class definition to include only those who had purchased new Mustangs in New Jersey between 2000 and 2012.

The AC alleged that in order to bring its 2000-model vehicles into compliance with Corporate Average Fuel Efficiency (“CAFÉ”) standards, Ford switched to aluminum hoods to save weight. The complaint stated that Ford then continued to employ the aluminum hood panel design in the subject vehicles through 2011. The defect inherent in this design, according to the AC, was that it failed to change the iron-based parts that connect to and support the now-aluminum hood. The plaintiffs alleged that this design change “caused all of the subject vehicles to experience a problem that [Ford] should have anticipated: the occurrence of galvanic corrosion.”

The AC also alleged that although Ford had prior knowledge of the likelihood of galvanic corrosion, it nonetheless adopted the aluminum hood design without adopting additional changes to deter or prevent such corrosion. The plaintiffs alleged that Ford deliberately failed to implement those changes because they were too expensive and threatened to delay the subject vehicles’ compliance with CAFE standards. At the same time, Ford intentionally crafted the vehicles’ warranties to limit its exposure to galvanic corrosion claims.

Based on these facts, Count I of the AC alleged that Ford violated the CFA by knowingly omitting material information about the galvanic corrosion defect from the information it gave the plaintiffs (and putative class members). Count II alleges that Ford violated the CFA by deliberately designing the applicable warranties to evade its exposure to claims for galvanic corrosion.

Analysis

“To state a prima facie case under the CFA, a plaintiff must demonstrate three elements: (1) unlawful conduct by the defendant; (2) an ascertainable loss by the plaintiff; and (3) a causal connection between the defendant’s unlawful conduct and the plaintiffs’ ascertainable loss.” Payan v. GreenPoint Mortgage Funding, 681 F. Supp. 2d 564 (D.N.J. 2010).

Count I – knowing omissions. The plaintiffs’ omissions claim required a showing that Ford knowingly concealed a material fact with the intention that the consumer rely on that omission, the court observed. The plaintiffs alleged that Ford knowingly concealed a host of material facts, all of them related to the occurrence of galvanic corrosion in the aluminum hood panels of the subject vehicles. Ford argued that it violated no duty to disclose the alleged material facts relating to steel-on-aluminum galvanic corrosion.

For model years 2004 and earlier, the issue is an easy one, the court remarked. Ford could not have had any knowledge—let alone certain knowledge—that galvanic corrosion of aluminum hoods would occur in the 2000-04 models. Those vehicles, discovery has revealed, did not have aluminum hoods. Rather, they had hoods made of “sheet molded compound.” Since Ford did not install aluminum hood panels on the Mustang until 2005, the alleged duty to disclose could not have arisen until the 2005 model year, at the earliest.

Turning to 2005 and subsequent model years, the evidence did not present a material factual dispute as to whether Ford knew “with certainty” that the Mustang’s aluminum hood would experience galvanic corrosion, the court held.

First, the evidence did not bear out the plaintiffs’ contention that Ford’s design choices led to galvanic corrosion. The plaintiffs alleged that the defect was inherent and its consequences inevitable: the “aluminum hood panel design change caused galvanic corrosion uniformly across all of the subject vehicles” because “whenever the.. .hood panels came into contact with iron-based parts, they sacrificed their electrons to the surrounding iron parts, thereby suffering a premature loss of structural integrity due to galvanic corrosion.”

Ford replied that whatever corrosion did develop was not galvanic. Ford’s expert metallurgist, Dr. Eric Guyer, states in a declaration that “there is no evidence of galvanic corrosion on Mustang hoods.”

The plaintiffs submitted no expert report in response. Indeed, the plaintiffs stated in their Counter Statement of Material Facts that they “generally agree” with Ford’s explanation. Moreover, in their opposition brief, the plaintiffs appeared to concede that the record evidence conclusively showed that the subject vehicles did not experience galvanic corrosion. That fact was fatal to their claims, the court decided. The mere presence of some kind of corrosion was not proof of a defect, or of consumer fraud; corrosion happens and was covered by Ford’s warranty. What must be shown was concealment of a problem that Ford knew was bound to occur. Here the alleged defect was steel-on-aluminum galvanic corrosion, which was disproven.

“So What?” said the plaintiffs;” corrosion is corrosion, the court recounted. That amounted to a request that the court stretch the AC to allege that Ford knowingly concealed the subject vehicles’ susceptibility to aluminum corrosion in general rather than—as the AC expressly alleged—”facts about the galvanic corrosion defect.” Even if the court did that, the plaintiffs would be unable to raise a material factual dispute as to whether Ford had a duty to disclose, the court reasoned.

In short, the undisputed evidence, taken in the light most favorable to plaintiffs, suggested not a certainty of corrosion, but an incidence of 1.5—2%. Some level of corrosion would inevitably occur, even absent any concealed defect. Galvanic corrosion was off the table, and plaintiffs suggested no other design defect. Moreover, corrosion was covered under Ford’s warranty. A fact finder could not conclude from the record that Ford fell short of what a manufacturer must do.

Count II – deceptive conduct. The plaintiffs’ deceptive conduct claim, fell under the “affirmative act” branch of the unlawful conduct prohibited by the CFA. The plaintiffs alleged that Ford deceived the putative class members by failing to update a technical service bulletin (“TSB”) that was issued in 2006. The 2006 TSB stated that “[s]ome vehicles”—including the Mustang—”may exhibit a bubbling or blistering under the paint on aluminum body parts.” It then prescribed a repair procedure. The plaintiffs claimed that the Ford knew this repair procedure was ineffective and could even exacerbate the damage. In 2010, for example, Ford began using a different repair procedure—an “overhem sealer”—to treat corrosion. The plaintiffs asserted that although Ford made the sealer mandatory for all vehicles in 2013, it never updated the TSB to include the new repair method.

The plaintiffs’ deceptive conduct claims failed because the plaintiffs were unable to show that they suffered an ascertainable loss, the court held. Solomon sought to recover the cost of replacing his hood. He did not dispute that Ford offered to repair Solomon’s hood under the warranty at no cost to him. Solomon admittedly refused that offer because he personally believed it “was not going to fix the problem.” Under these facts, the amount Solomon spent on a replacement hood was not an ascertainable loss. The warranty offered by Ford in connection with the sale of the Mustang was part of the benefit of the bargain between the parties. Pursuant to that warranty, Ford reserved the right to “repair, replace, or adjust all parts of [the] vehicle that malfunction or fail” during the term of coverage. Ford opted to repair the hood at its own expense; it was not liable for the cost of a replacement, carbon-fiber hood simply because that was what Solomon preferred, the court explained.

Mickens also was unable to demonstrate ascertainable loss, although for different reasons. Mickens did not dispute that the corrosion on his car hood was repeatedly repaired under warranty—on one occasion even after the warranty had lapsed. But although those repairs were performed at no cost, Mickens proffered sufficient evidence that they were cosmetically inadequate.

However, Mickens cited no evidence sufficient to create an issue of fact that he received less than the fair value of a Mustang without hood corrosion. Mickens’s own unadorned opinion that the car was worth more than the $17,000 he got for trading in his 2006 Mustang was not entitled to any weight, the court said. He proffered the report of an expert, Charlie Barone, who estimated that the corrosion problem reduced the value of the 2006-model Mustang by “approximately 25% of the purchase price.” That report was fatally deficient, according to the court. Mr. Barone spent three pages of his four-page report describing the corrosion problem, stated that the appearance of a car was important to its value, and, in the final paragraph, announced that the vehicle’s value is diminished by 25%. Barone did not disclose any methodology or valuation process by which he arrived at that figure. He did no analysis, offered no comparisons, cited no data and did not allude to the car’s Blue Book value.

Mickens thus failed to submit admissible proofs having a sufficient degree of reliability to enable the factfinder to conclude that he suffered an ascertainable loss, the court decided. Mickens’s deceptive conduct claim, like that of Solomon, failed as a matter of law.

The case is No. 10-cv-5842.

Attorneys: David J. Cohen (Saltz, Mongeluzzi, Barrett & Bendesky, PC) for William Mickens. James Steven Dobis (Dobis Russell & Peterson) for Ford Motor Co.

Companies: Ford Motor Co.

Cases: StateUnfairTradePractices NewJerseyNews