LOS ANGELES, California – Yesterday, the Second Court of Appeals agreed with a lower court ruling that Ford committed fraud and acted with malice by deliberately concealing known defects in its 6.0-liter diesel engines.
Ford’s Navistar 6.0L diesel has been plagued with problems. Between 2002 and 2007, the 6.0-liter engine accounted for 80% of Ford warranty spending on engines, even though it was only in 10% of Ford vehicles produced. The Court found “adequate evidence of intentional concealment of these problems by Ford to the detriment of consumers,” agreeing with the jury that “fraud supporting punitive damages was attributable to Ford as a corporate entity.” The amount of punitive damages was reduced from $1,451,973.30 to $725,640.40.
Mr. Margeson’s F-350
Prior to purchase, the plaintiff Charles Margeson had been considering a Ford or Chevy truck to tow a fifth-wheel trailer, ultimately opting for the F-350 after his review of Ford’s promotional material and assurances from Ford salespeople convinced him that the truck’s engine was powerful enough for the job. One month after purchase, Margeson’s truck began emitting black smoke and losing power while towing the trailer. For over 6 years he repeatedly experienced engine problems while towing the trailer. He decided to sue the automaker under California’s Lemon Law and was represented by Knight Law Group.
During the trial, Margeson’s damages expert, Barbara Luna, highlighted internal Ford documents that left little doubt that the automaker was aware that the 6.0-liter diesel engines were defective, yet chose to cover up the problem. In an internal email dated February 5, 2006 (five months before Margeson purchased his truck), John Koszewnik, Ford’s North American diesel division director, complained of runaway warranty repairs on the 6.0-liter engine of “about $36 million a year but…have been as high as $5 million a month!” but added that Ford would not invest in an engine upgrade. To further the cover-up, two hours later Koszewnik warned the recipients not to forward or reference his original email.
In another damning revelation that emerged at trial, Mike Frommann, a Ford warranty manager, sent an email to his colleagues warning that the problematic 6.0-liter diesel engine could lead to a class action if its cylinder pressure specifications were made public, and instructed them to delete emails referencing the 6.0-liter’s problems.
Worst Repair Rate of any Ford Engine
By February 2007, warranty repair costs on the 6.0-liter engine exceeded $400 million (more than $227 million in repair costs for the engine’s fuel injectors and more than $182 million on repairs to the engine’s turbochargers), which was the largest repair rate ever experienced by any Ford engine.
Ford contended that Margeson’s damages expert had improperly influenced the jury’s calculation of the amount of punitive damages.
Although Luna’s prior testimony regarding indicators of fraud was deemed admissable, her prior testimony regarding punitive damages—in which she stated that punitive damages should be nine times the award for compensatory damages–was determined to be inadmissible. Luna’s expertise in fraud detection, in other words, afforded her no special expertise in calculating punitive damages, and that this testimony should not have been admitted by the lower court. On that basis, the amount of punitive damages was reduced, although the Court of Appeals agreed that punitive damages were appropriate given the scope of the fraud.
The Court ordered a retrial of the punitive damages to determine the amount to be awarded as a result of Ford’s fraudulent conduct. After the ruling, Bryan Altman, lead counsel for the plaintiff in this case, commented that “Ford’s arguments that the evidence was insufficient that it was either aware of the systemic issues plaguing this engine or, alternatively, the evidence did not establish that upper level management was aware of the issues, the fraudulent conduct or the intentional concealment of these problems from the public were all rejected by the Court of Appeal. We would welcome the opportunity on behalf of the plaintiff to expose further Ford’s reprehensible conduct and the mass scale of it to another jury which will determine the punitive damages.”
Rosner, Barry & Babbitt, Hallen D. Rosner and Arlyn L. Escalante; Knight Law Group, Steve Mikhov and Roger Kirnos, for Plaintiff and Respondent.
Horvitz & Levy, Frederic D. Cohen, Lisa Perrochet, and Allison W. Meredith; Gordon & Rees, Kevin W. Alexander and Spencer P. Hugret, for Defendant and Appellant.
The case is Margeson v. Ford Motor Company (B287445). Trial Court Case No: BC549430.