Appeals court: Ford committed fraud by selling defective Super Duty trucks
The owner of a 2006 Ford F-350 argued for years that Ford Motor Co. sold Super Duty trucks with defective 6.0L diesel engines to thousands of unsuspecting buyers and then concealed the known problems, saddling customers with repair bills and exposing them to engine failure.
Now an appeals court has agreed with Charles Brian Margeson, 41, of Torrance, California.
He is the first Super Duty truck owner with a 6.0L diesel engine to have a fraud claim against Ford affirmed on appeal. The California Court of Appeal late last month upheld a lower court's ruling in Margeson's favor. Five other jury awards against Ford in similar cases are pending appeals.
"I bought my truck new. It must've broken down a couple dozen times and the turbo even blew up," Margeson told the Free Press. "I started carrying spare hoses with me and leather gloves because everything was super hot and I had to repair it myself on the side of the freeways. We would lose power. I mentioned it to Ford a couple times, saying, 'Hey, this is a lemon.' They just laughed it off. I just wanted a truck that worked."
He decided to opt out of a class action case involving unhappy Super Duty owners who eventually settled in 2013.
On his own, Margeson filed a lawsuit in June 2014. He was awarded a total of $940,177.74 in June 2017, but the appeals court determined expert testimony about punitive damages was improper and tossed out that piece of his award — about $726,000. But a new jury, in a trial not yet scheduled, will determine how much Ford must pay him in punitive damages, which by definition is designed to punish the defendant.
A top legal expert in the U.S. told the Free Press that Margeson's victory is a powerful example of how a class action case can be used to prevent potentially billions in costs when things go wrong with consumers, in this case for Ford.
"The company dodged a bullet," said Brian Fitzpatrick, a law professor at Vanderbilt University who clerked for the late U.S. Supreme Court Justice Antonin Scalia.
In Margeson's case, the Court of Appeal in California on Sept. 22 upheld the Los Angeles County Superior Court jury verdict that found Ford acted with malice, oppression or fraud by deliberately concealing known defects in its Power Stroke diesel engine. The engine was made by Navistar and used primarily in Super Duty trucks for model years 2003-07.
Margeson, a technician who maintains the electrical grid for Southern California Edison, used internal Ford documents to prove in court the Dearborn automaker knew its diesel engines were bad and put them in the heavy-duty pickups anyway for years.
Owners reported problems including loss of engine power, blown head gasket, warped or disfigured head bolts and oil cooler failure. Frequent breakdowns and decreased resale value dominated pickup discussion groups.
The jury award to Margeson included the maximum amount allowed for Ford’s violation of California’s lemon law, totaling $214,537.34, plus legal fees. That amount is not in dispute and will go to Margeson.
It could've been avoided if Ford had taken his pleas seriously, Margeson said. "Every time I would tow, the thing would break down."
Bryan Altman of Los Angeles, Margeson's lawyer, said the new jury will determine how much Ford should be punished monetarily.
"There's no built-in ceiling on this," Altman said. "The jury will be tasked with considering how heinous and repetitive their fraudulent conduct was. They put this 6.0 engine in over 1 million Ford vehicles, with estimates in sales ranging as high as $60 billion."
A Ford spokesman declined to comment on details of the case. Ian Thibodeau told the Free Press in a statement, "We are happy that the appellate court struck down the punitive damage award. Ford looks forward to the opportunity for a retrial.”
Of the nearly $215,000 the jury awarded Margeson under the lemon law, $72,564.04 was in compensatory damages that essentially repay Margeson for his truck, which was among the priciest on the market at the time. The rest was a civil penalty.
For years, he and other owners of the heavy-duty pickups reported the engines would break down and emit black smoke.
Margeson decided to sue, he said, after the truck stranded him on the side of a highway with his wife and baby as semis roared past. He broke down in tears on the stand while testifying under examination.
"It was really scary," said Margeson, who declined an offer from Ford for a few hundred dollars after he had spent thousands in repairs. "I understand they're a business and they care about their shareholders. But, at some point, they need to be worried about their customers."
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Ford initially denied a problem existed, then claimed there was insufficient evidence to prove the claim and finally maintained the company wasn't aware of the extent of the diesel engine problem. Internal emails written by upper level management shattered the Ford defense.
One email presented during trial was dated five months before Margeson purchased his truck. John Koszewnik, Ford's North American diesel division director, wrote on Feb. 5, 2006, that warranty repairs on the 6.0L engine were running "as high as $5 million a month" and added Ford would not invest in an engine upgrade. Two hours later, according to court records, Koszewnik warned people not to forward his email.
Mike Frommann, the Ford warranty manager, emailed his colleagues warning that the diesel engine could lead to a class action lawsuit if its cylinder pressure specifications went public.
He wrote in an email to colleagues dated July 13, 2006, "I recommend we delete all these emails."
By February 2007, warranty repair costs on the engine exceeded $400 million, including more than $227 million to fix fuel injectors and more than $182 million on turbochargers, which was the largest repair rate ever seen for any Ford engine. This information was taken from an affidavit by one of Ford's own officials in a lawsuit it filed against Navistar. Despite this testimony, Ford later denied engine problems when it was being sued over the Navistar engine.
The appeals court affirmed there was "adequate evidence of intentional concealment of these problems by Ford to the detriment of consumers."
Super Duty trucks, which are purchased for both personal and commercial work, are bigger and more powerful than their bestselling F-150 little brother. The F-250 and F-350 are marketed as being capable of pulling more weight and carrying heavier loads.
Ford Super Duty owners have claimed since it came out that the Navistar engine was troubled. At the same time, the faulty engine was touted as best in class by Ford with the most horsepower, most torque and other high-performance claims. The Free Press was unable to confirm how many of the vehicles remain on the road today.
Class action settlement
While the young father sued Ford himself, other truck owners chose a different route.
Dozens of class-action lawsuits involving the 6.0L diesel engine were consolidated and settled in 2013 by Ford. It entitled F-250 and F-350 owners to claim between $50 and $825 in reimbursement for post-warranty repairs.
Ford agreed to pay the 16 truck owners who brought the class action lawsuit on behalf of Super Duty owners nationally a total of $150,000, which is separate from the relief money provided to all people included in the class group, Automotive News reported.
Compare $150,000 total for 16 plaintiffs with nearly $215,000 for one plaintiff, not including punitive damages.
Super Duty owners were included in the class action and qualified for limited repair reimbursement unless they opted out.
Win for Ford
The Super Duty class action settlement was a huge win for Ford, especially in light of the recent court ruling, said Fitzpatrick, author of "The Conservative Case for Class Actions."
"That opens up the question, could every single class member have gotten the price of their car back?" he said. "If they had to pay every class member the price of their car back, it would be like the Volkswagen situation and Volkswagen paid billions of dollars. They ended up paying every class member the price of their car — 500,000 people."
The case against Ford appears to have been a lot more valuable than the Super Duty class members knew at the time, FItzpatrick said.
"One of the virtues of class action, from the defendant's perspective, is 'global peace,' ” Fitzpatrick said. “You can wipe something off your balance sheet in one fell swoop. That's why a lot of companies like class action. But every once in a while, someone will opt out. So the loose ends weren't quite tied up this time. But pretty close. One got away, but that's OK. The company still got a lot of global peace for the settlement."
Meanwhile, the F-350 case involving Margeson is the first of six Super Duty cases led by Altman and the Knight Law Group, laying the groundwork for potential issues for Ford in the future.
In addition to Margeson, five other consumers who owned Super Duty trucks with 6.0L diesel engines collectively have been awarded more than $10 million by juries. Ford is appealing all of these cases.
Fitzpatrick said Ford would be wise to settle with remaining Super Duty owners suing over the Navistar engine. He said the company could cut its losses and reduce time and money by closing the books.
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Auto critics knew
"The dark times began in 2003," wrote Chris Riley in an historical overview of engines posted on autowise.com in early 2018.
"Faced with more stringent emissions standards, Ford introduced its least reputable diesel engine to date —the 6.0L Power Stroke. This engine was so bad that Ford and Navistar eventually went to court over it," Riley wrote. "It featured a glut of emissions equipment never before used, such as an exhaust gas recirculation (EGR) valve."
$1B on repairs
By January 2009, Mike Levine wrote as then-editor of PickupTrucks.com, "Ford said it had spent $1 billion on repairs and recalls to fix problems with legacy 6.0-liter Power Stroke diesel engines."
Loss of power steering and power brakes because of engine problems resonated with jurors in multiple cases, not just Margeson's, Altman said. "Ford would deny the problem" but their internal emails indicated the company concealed what it knew.
"They were even keeping repair people at Ford facilities in the dark so information never got out to the public, according to testimony," he said.
Bob Fascetti, who oversaw diesel engine products as director of V-engine and diesel engineering for Ford North America, said in a Feb. 28, 2007, affidavit: "Ford has experienced unprecedented repair rates with the 6.0L engines. The 6.0L has had the largest R/1000 (repairs per thousand) rate ever experienced by Ford for an engine in widespread production. In fact, the 6.0L, which represents only 10% of Ford's total engine volume, accounts for approximately 80% of all of Ford's warranty spending on engines. Additionally, warranty spending on the 6.0L accounts for approximately 25% of Ford's overall warranty spending."
Jon Gabrielsen, a market analyst who has interviewed hundreds of commercial truck buyers in North America on how they rank factors that influence their purchase, said these Navistar cases may be more sensitive than casual observers realize.
This is not just about individual Super Duty owners who have suffered financially but the situation has the potential to affect future business targeted by new CEO Jim Farley.
“It is a new day at Ford with new leadership and a more focused strategy, specifically including significant focus on the commercial end of the truck business," Gabrielsen said. "These F-250 and F-350 trucks are the volume leaders within the business-to-business commercial vehicle offering for Ford. And commercial business buyers are intensively focused on quality, reliability, durability and total cost of ownership of their fleets.
"So it would seem to be in Ford’s best interest to clean up and close out this unfortunate chapter in history on any last open lawsuits in this area so that they can focus purely on growing this mission critical segment without the lingering taint on the Super Duty brand.”
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