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Ford Damages to Be Refigured

State high court says judges must consider the firm's practice of hiding used cars' repair logs.

June 17, 2005|From Bloomberg News

Ford Motor Co.'s practice of hiding a used car's repair history must be weighed in setting punitive damages for a couple who said the 1997 Ford Taurus they bought was a lemon, the California Supreme Court ruled Thursday.

A state appellate court had reduced a punitive award against Ford to $53,435 from $10 million. The original award was handed down by a jury in 1991 after it determined that Ford, the No. 2 U.S. automaker, didn't disclose the repair history of used cars it sold, a practice that earned the company millions of dollars in California, according to court documents.

The California Supreme Court sent the case back to the appellate court to recalculate the award, saying it must reapply a formula arrived at by the U.S. Supreme Court that limits punitive damages.

Both sides claimed victory.

"The bottom line, this is a win" for plaintiffs Greg and Jo Ann Johnson "and a loss for Ford," said Erwin Chemerinsky, a professor at Duke University School of Law who represented the Johnsons. "The California Court of Appeal's decision, if it stood, would radically limit punitive damages in California. The California Supreme Court decision says punitive damages should deter and punish the overall course of wrongful conduct."

Theodore J. Boutrous Jr., a lawyer for Dearborn, Mich.- based Ford, said Thursday's ruling was a victory for his client because the appellate court already had applied the U.S. Supreme Court's formula for punitive damages. Once that court explains its reasoning, it will be "entitled to reach the same result," he said.

"This is a very important ruling that says one plaintiff can't come into court and try to disgorge all of a company's profits from a business practice," said Boutros, a partner at Los Angeles law firm Gibson, Dunn & Crutcher. "That would be a windfall and violate due process and be unfair to other consumers."

When they bought their used Taurus in 1998, the Johnsons, of Clovis, Calif., asked to see the repair history of the car, according to court documents. They weren't told that the previous drivers reported serious problems and that the car's transmission had been replaced, the documents said. The jury awarded the Johnsons $17,811.60 in compensatory damages and $10 million in punitive damages.

The state's 5th District Court of Appeal in Fresno limited the damages to "punish only the conduct that injured the present plaintiffs," according to Thursday's decision. The appellate court reduced the punitive award to three times the compensatory damages.

The reduction was based on a U.S. Supreme Court ruling that said in most cases punitive damages couldn't exceed the amount of compensatory damages by more than three to four times and should never exceed a 10-1 ratio, Boutros said.

In Thursday's decision, the state Supreme Court said courts reviewing punitive damages must make "an independent assessment" of the award and the reprehensibility of the conduct.

Although a reduction of the $10-million award may be justified, the justices said, the appeals court "apparently failed to adequately consider that Ford's fraud was more reprehensible because it was part of a repeated corporate practice rather than an isolated incident."

The justices also said the Johnsons were wrong to base their original claim on "a thousand or more" transactions without proving fraud in those cases.

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