The Supreme Court rejected the definition of which customers can sue in a class action contesting the language used by a Cleveland auto dealership in its contracts.

The Supreme Court rejected the definition of which customers can sue in a class action contesting the language used by a Cleveland auto dealership in its contracts.

The Ohio Supreme Court ruled today in a class-action lawsuit in which customers who bought vehicles from a Cleveland car dealership challenged a purchase contract clause requiring arbitration of disputes.

The Supreme Court reviewed the trial court’s certification of the group suing and concluded that the class members did not all show they were injured by, or suffered any damages from, the arbitration provision. While class members alleging violations of the Ohio Consumer Sales Practices Act (OCSPA) do not have to specify an amount of damages, they must establish that an injury occurred, Chief Justice Maureen O’Connor explained in the 6-1 decision.

The ruling reverses the Eighth District Court of Appeals judgment, sets aside the order certifying the class, and returns the case to the trial court to hold proceedings and apply the Supreme Court’s guidance in the opinion.

Car Dealership Adjusts Financing Rate Twice
In March 2001, Jeffrey and Stacy Felix visited Ganley Chevrolet. They contend that the dealership offered financing at 0 percent interest to encourage them to purchase a vehicle, and they decided to buy a 2000 Chevy Blazer.

The purchase contract stated it was “not binding unless accepted by seller and credit is approved, if applicable, by financial institution” and included a clause requiring resolution of any dispute through binding arbitration. The arbitration provision was placed after the heading “Optional Equipment.”

The Felixes went back to Ganley a few days later to sign paperwork, and they said the dealership informed them the financing institution would approve only a higher 1.9 percent interest rate for the loan. The Felixes reluctantly accepted that rate. Then, more than a month later, Ganley told them they had been declined at 1.9 percent, though they could get a 9 percent interest loan from a bank. The Felixes rejected the offer.

Customers Seek Damages in Class Action
The Felixes subsequently filed two lawsuits in Cuyahoga County, both against Ganley Chevrolet, Inc., and Ganley Management Company. The suits evolved into class actions.

The lawsuit in this case alleged that Ganley’s arbitration clause was unconscionable, Ganley’s practices related to the clause violated the OCSPA, and Ganley had committed unfair and deceptive consumer sales practices against the class. The customers requested damages.

Ganley asked the trial court to stay both cases to allow arbitration, but the trial court denied the motion. On appeal, the Eighth District agreed, concluding that the Ganley arbitration clause was unconscionable and returning the cases to the trial court. Because the Ohio Supreme Court declined to review an appeal of the decision, the unconscionability of the arbitration clause is not an issue in the current case.

Trial Court Approves Definition of Class
The case continued for years. The trial court then certified the class of consumers to be included in the lawsuit and decided that Ganley’s arbitration provision in its contracts violated the OCSPA. The court awarded $200 to each class member.

Ganley appealed to the Eighth District, which upheld the class certification and rejected the dealer’s assertions that the class definition and timeframe were overbroad and ambiguous. The appeals court also concluded that the damages award was beyond its scope of review.

The Ohio Supreme Court considered Ganley’s appeal at an off-site court session held last September in Portage County.

Supreme Court Gives Guidance for Class Certification
The chief justice noted that trial courts must do a rigorous analysis when deciding whether to approve the definition of who is included in a class action. The analysis often involves examining legal and factual issues related to the merits of the alleged claims, she reasoned. However, when certifying a class, a trial court may look into a case’s merits only to determine whether the class has met legal rules for bringing a class action.

She also explained that the OSCPA at the time of this lawsuit limited the type of damages allowed to be awarded in a class action. The plaintiffs in this case asked for three times the amount of actual damages or $200, whichever was greater, for each unlawful act. However, while individuals can seek these types of damages for OSCPA violations, such damages are specifically prohibited in OSCPA class actions, the chief justice added.

“Proof of actual damages is required before a court may properly certify a class action,” she wrote. “Although plaintiffs at the class-certification stage need not demonstrate through common evidence the precise amount of damages incurred by each class member …, they must adduce common evidence that shows all class members suffered some injury.”

The fact of damage reflects the existence of an injury, as grounds for establishing that a party may be liable, while actual damages involve a specific amount to compensate a plaintiff, she explained.

“Here, the class, as certified, fails because there is no showing that all class members suffered an injury in fact,” she reasoned. “The broadly defined class encompasses consumers who purchased a vehicle at Ganley through a purchase contract that contained the unconscionable arbitration provision. But there is absolutely no showing that all of the consumers who purchased vehicles through a contract with the offensive arbitration provision were injured by it or suffered any damages.”

“Although trial judges enjoy broad discretion in determining whether a class can be certified, that discretion is not unlimited, particularly when, as here, the trial judge completely misconstrues the letter and spirit of the law,” she concluded.

Votes of the Court
Chief Justice O’Connor’s opinion was joined by Justices Paul E. Pfeifer, Terrence O’Donnell, Judith Ann Lanzinger, Sharon L. Kennedy, and Judith L. French. Justice William M. O’Neill dissented.

Dissent: Customers Did Not Have to Prove Merits Up Front
In Justice O’Neill’s view, the majority has “muddl[ed]” court rules for certifying a class by requiring a showing of actual damages and compelling trial courts to dig into a class action’s merits before the case has begun.

“The majority … elevates the preliminary inquiry into a full-blown examination of whether damages have been proved,” he wrote. “This is simply not required in a preliminary inquiry under Civ.R. 23(B)(3). In effect, the majority touches on the merits in order to decide the merits at the class-certification phase. Under the rule announced today by the court, class-action plaintiffs will have to prove their case before they are given the opportunity to prove their case.”

“Ganley … allegedly used unconscionable arbitration terms in contracts with the putative-class members,” he continued. “The legal issue — whether use of an unconscionable arbitration term is a violation of the OCSPA — is overwhelmingly and obviously common to the class members because every single class member’s claim would be won or lost on the answer to that question. Appellees did not fail to show a class for whom common questions of law or fact predominate over any individual questions; every member of the class could lose on the question of damages at the same time.”

Noting concern about the majority’s blurring of how to establish a class action versus how to prove damages in an OSCPA class action, Justice O’Neill concluded that “[c]lass certification is, and should remain, an issue distinct from the resolution of the merits.”

2013-1746. Felix v. Ganley Chevrolet, Inc., Slip Opinion No. 2015-Ohio-3430.

View oral argument video of this case.

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