Insights

The Ohio Supreme Court has reversed an Ohio Court of Appeals decision that allowed certification of a nationwide class to stand in an action that included a claim for statutory damages under the Consumer Leasing Act based on excess wear and use inspection practices. The Court of Appeals, in its 2011 ruling in the case, made a distinction between the appropriateness of class certification for actual damages versus statutory damages claims, finding the statutory damages claim appropriate for class treatment but not the actual damages claim.

The Ohio Supreme Court's reversal in the CLA case was based on its reversal a month earlier of an Ohio Court of Appeals opinion in a different case involving windshield repairs that also relied on claims of standardized practices and policies to support class certification.

The CLA case stemmed from Sudesh Agrawal's lease of a minivan from Ford Motor Credit Company in 2000. The lease agreement provided that the lessee "may be charged for excessive wear based on our standard for normal use" and that the lessee is "responsible for repairs of All Damages which are not a result of normal wear and use." Agrawal returned the vehicle in 2003 at the scheduled lease end and was charged $2,658 for excess wear and use. Agrawal contested the excess wear and use charges, and Ford Credit sued to collect the charges when he failed to pay.

Agrawal filed a counterclaim against Ford Credit based on its method of assessing excess wear and use charges, including (1) failure to disclose the inspection standard; (2) failure to disclose the inspection method; and (3) utilization of an unreasonable standard.

In 2003, Ford Credit used its dealers to perform lease inspections. Ford Credit's inspection guidelines required dealers to use a "clean" rather than an "average" used vehicle standard. Additionally, Ford Credit's process included a "follow-up" inspection to be done at the auction. If the auction inspection identified excess wear and use charges that were at least $200 more than the amount identified by the dealer, Ford Credit held the dealer financially responsible. No adjustment was made if the excess wear and use charges were lower in the follow-up inspection.

In Agrawal's case, the follow-up inspection determined excess wear and use of $194. This fact was not disclosed to Agrawal nor was an adjustment made to his excess wear and use charges.

Agrawal's argument was that the "clean" standard used by dealers in their inspections was a more stringent standard than the "normal" standard included in Ford Credit's lease agreement. Agrawal also argued that the policy of holding dealers financially responsible for underestimates created incentives for inspections to be biased towards an overcharge.

The Supreme Court's reversal of the class certification sets a good precedent. While inspection practices may not be subject to class certification (at least in Ohio), as the facts of this case show, it is critical that excess wear provisions be enforced as disclosed in the lease agreement. With standardized lease agreements and third-party inspection vendors as common practice, it is important to pay particular attention to sync up inspection practices with the contractual requirements of the lease agreement.

Ford Motor Credit Company v. Agrawal, 2013 Ohio LEXIS 2953 (Ohio December 17, 2013).

Angela Maynard Shovein is a partner in the Ohio office of Hudson Cook, LLP. Angela can be reached at 216-221-8499 or by email at ashovein@hudco.com.