DETROIT — The U.S 9th Circuit Court of Appeals on Friday declined to approve a class-action settlement involving Ford Motor Co. and nearly 2 million owners and former owners of Focus and Fiesta vehicles with defective dual-clutch transmissions known as DPS6.
The judges vacated “final settlement approval” after Public Citizen, a nonprofit consumer advocacy group, challenged how much money would be awarded to consumers and the fact that the vast majority of the car owners would have received nothing.
The entry-level Fiesta and Focus vehicles, built over the past decade, have a history of costly repair for failing clutches and other problems. A Detroit Free Press “Out of Gear” investigation published in July revealed for the first time internal company documents and emails showing that the Dearborn automaker knew the transmissions were defective from the start and continued building and selling them anyway.
The court decision means the terms of the settlement must now go back to U.S. district court for “more searching inquiry.”
The 2-1 decision questioned the district court’s scrutiny of the class-action attorneys and the terms of the settlement, suggesting that the lawyers didn’t adequately represent consumers but rather pushed through the settlement based on their own financial interests. The agreement called for them to get $8,856,000 in fees.
Ryan H. Wu, lead class counsel at Capstone Law, in April urged the Court of Appeals to keep the settlement. He declined to comment Friday.
Ford spokesman T.R. Reid said, “The proposed settlement was not changed by the opinion. As we have all along, we think the proposed settlement is fair. We look forward to the court’s final action on the settlement.”
Ford had agreed not to object to the plaintiffs attorneys’ fees, the decision noted. The Ninth Circuit “has warned district courts to be alert for certain ‘subtle signs that class counsel have allowed pursuit of their own self interests and that of certain class members to infect the negotiations.’ At least two of those signs are present in this settlement, which includes a fee award disproportionate to the class recovery and a ‘clear sailing’ provision whereby (Ford) agreed not to object to the fee award sought by class counsel.”
The judges questioned whether the court adequately scrutinized the calculation of the settlement amount. “The court adopted the estimate of class counsel’s expert that the cash payments were worth around $35 million.”
But that calculation was based on total payments to every eligible vehicle owner, while the actual claims rate was expected to be much lower, resulting in an even smaller payment by Ford, the judges noted.
The original lawsuit alleges Ford lied to unload cars with faulty transmissions on unsuspecting buyers and then blamed the drivers for problems they experienced.
Ford customers claim in legal filings their 2012-16 Focus and 2011-16 Fiesta sedans were built with dual-clutch transmissions prone to “shuddering, slipping, bucking, jerking, hesitation while changing gears, premature internal wear, delays in downshifting and, in some cases, sudden or delayed acceleration.”
Ford in April warned its shareholders of legal exposure related to the DPS6 in a Securities and Exchange Commission filing under the subhead, “Consumer Matters.”
“We are currently a defendant in a significant number of litigation matters relating to the performance of vehicles equipped with DPS6 transmissions,” said the last item on a 70-page document dated April 25 and signed by Cathy O’Callaghan, Ford vice president and controller.
“We are a defendant in numerous actions in state and federal courts alleging damages based on state and federal consumer protection laws and breach of warranty obligations. Remedies under these statutes may include repurchase, civil penalties, and plaintiff’s attorney fees. In some cases, plaintiffs also include an allegation of fraud.”
Wu argued to the court in April that if the settlement was thrown out, Ford could face a potential $4 billion liability.
If the settlement ultimately is rejected, it may create an opportunity for consumers to file individual claims against Ford that were restricted until now.
Under the terms of the class-action settlement, individuals were required to opt out of the deal or be subject to its terms with no further recourse.
Michael Kirkpatrick, who argued in court against both Ford and the class-action firm on behalf of Public Citizen, said Friday, “We are confident that, once the district judge takes a closer look and considers further the evidence about the value of the claims that would be released by the settlement, the district court will agree … that the settlement is not fair, reasonable and adequate, and will not grant final approval.”
It could take up to a year or more for this issue to be resolved.
Ford has tried, repeatedly, to repair the vehicles, and continues those efforts. In 2014, it extended the warranties on transmission-related parts to seven years and 100,000 miles on Focuses and Fiestas built before mid-2013. A month after Free Press publication of “Out of Gear,” the automaker extended the warranty for 2014-16 Focuses and 2014-15 Fiestas built after that.
Federal safety regulators have reviewed the transmission troubles twice — once in 2014 and again this summer, and have found no “unreasonable” safety risk, the legal standard that triggers a recall. The agency has received a minimum of 4,377 consumer complaints about the cars that include reports of 50 injuries, a Free Press analysis found.