JEFFREY FELIX, ET AL. PLAINTIFFS-APPELLEES
GANLEY CHEVROLET, INC., ET AL. DEFENDANTS-APPELLANTS
Civil Appeal from the Cuyahoga County Court of Common Pleas Case Nos. CV-442143 and CV-454238
David D. Yeagley Elizabeth M. Hill Ulmer & Berne L.L.P., A. Steven Dever A. Steven Dever Co., L.P.A. ATTORNEYS FOR APPELLANTS
Lewis A. Zipkin Zipkin Whiting Co., L.P.A., Mark Schlachet ATTORNEYS FOR APPELLEES
BEFORE Kilbane, J., Jones, P.J., and Rocco, J.
MARY EILEEN KILBANE, J.
(¶ l} Defendants-appellants, Ganley Chevrolet, Inc. ("Ganley Chevrolet") and Ganley Management Company ("Ganley Management") (collectively referred to as "Ganley"), appeal from the trial court's order certifying a class action brought by plaintiffs-appellees, Jeffrey and Stacy Felix (collectively referred to as "the Felixes"), under the Ohio Consumer Sales Practices Act ("CSPA"). For the reasons set forth below, we affirm.
(¶ 2} The facts giving rise to the instant appeal were set forth by this court in Ganley's previous appeal, Felix v. Ganley Chevrolet, Inc., 8th Dist. Cuyahoga Nos. 86990 and 86991, 2006-Ohio-4500, discretionary appeal not allowed, 112 Ohio St.3d 1470, 2007-Ohio-388, 861 N.E.2d 144.
[The Felixes] brought two actions against Ganley. In both actions, the appellees filed class action complaints alleging consumer sales practices violations and seeking declaratory and injunctive relief.
The Felixes allege in the first action that on March 24, 2001, they went to Ganley to purchase a 2000 Chevy Blazer. The Felixes claim that as an incentive to sign the contract to purchase the vehicle, Ganley informed them that they were approved for 0.0% financing but that the offer would expire that evening. The purchase contract contained an arbitration clause that required "any dispute between you and dealer (seller) will be resolved by binding arbitration."
Jeffrey Felix signed under the arbitration clause and at the foot of the purchase contract, relying on Ganley's representation of 0.0% financing. The purchase contract provided that it was "not binding unless accepted by seller and credit is approved, if applicable, by financial institution." Jeffrey Felix also signed a conditional delivery agreement that specified that "the agreement for the sale/lease of the vehicle described above is not complete pending financing approval * * * and that the consummation of the transaction is specifically contingent on my credit worthiness and ability to be financed."
The Felixes traded in their van as part of the purchase. They allege Ganley insisted the Felixes take the Chevy Blazer home for the weekend. The Felixes claim that when they returned the following Monday to sign the promissory note and security agreement, they were told that GMAC (the financing institution) would only approve their financing at 1.9%, not at the 0.0% that was originally represented. The Felixes agreed to the 1.9% rate and signed the promissory note. More than a month later, the Felixes were informed that GMAC decided not to approve the 1.9% financing. Ganley then informed the Felixes that they could obtain 9.44% financing with Huntington Bank. The Felixes refused to execute a new agreement at the higher interest rate. The Felixes retained the vehicle and have been placing money into escrow for the purchase of the vehicle.
In the first action, under the fourth amended complaint, [the Felixes claim] that the arbitration clause utilized by Ganley was unconscionable and that various practices of Ganley pertaining to the clause violated the Ohio Consumer Sales Practices Act ("the Ohio CSPA"). The first three causes of action were raised as to the representative class. Count one alleges unconscionability of the arbitration clause; counts two and three allege unfair and deceptive consumer sales practices.
Counts four through six were the Felixes' individual claims. Counts four and five allege unfair and deceptive consumer sales practices concerning Ganley's "bait and switch tactics." Under count four, the Felixes claim that Ganley misrepresented to the Felixes that they were approved for financing, when no such approval was given, in order to get the Felixes to agree to purchase the vehicle later at higher interest rates. They further claim Ganley submitted a credit application to Huntington without authorization from the Felixes and in complete disregard of their privacy. Under count five, the Felixes allege that Ganley deceived Jeffrey Felix with respect to the conditional delivery agreement, and failed to incorporate into the security agreement that the Felixes were not, in fact, approved for financing with GMAC. Count six is a claim for intentional infliction of emotional distress with respect to the alleged misrepresentations Ganley made to the Felixes regarding the financing of the vehicle.
In the second action, the second amended complaint focuses entirely on the arbitration clause itself. Count one is a claim that the clause is unconscionable. Counts two through four claim unfair and deceptive consumer sales practices by Ganley with respect to the arbitration clause. Count five claims Ganley made false statements, representations, and disclosures of fact and defrauded customers as to the arbitration clause. In the second action, there are no direct allegations pertaining to the interest-rate representations made to the Felixes as were alleged in the first action.
In both cases, Ganley filed a motion for stay of proceedings, requesting that the matters be stayed pending arbitration in accordance with the arbitration agreement contained within the parties' purchase contract.
Following a consolidated hearing on the motions, the trial court denied the motions without opinion.
Id. at 12-10.
(¶3} Ganley appealed the trial court's denial of its motion to stay pending arbitration, arguing the trial court had erred in determining that the arbitration provision was unenforceable. The issue before us at that time was "whether the dispute between the parties is governed by a valid, enforceable agreement to arbitrate." Id. at ¶ 13. We affirmed the trial court's ruling, concluding that the arbitration provision included in the purchase agreement was substantively and procedurally unconscionable and was, therefore, unenforceable against appellees. Id. at ¶28.
(¶ 4} Following our decision, the Felixes filed a "Supplemental Motion for an Order of Class Certification and for Judgment on the Merits" at the trial court, requesting that the trial court certify a class under both Civ.R. 23(B)(2) and (B)(3) in October 2007. They argued that our ruling that the arbitration provision was unconscionable established "CSPA violations which apply to each and every class member." As to its class claim in the first action, the Felixes sought judgment in favor of the purported class on the CSPA claim and requested that each class member be awarded $200 in damages. They also requested that the court issue injunctive relief, enjoining the continued use of the arbitration provision and any substantially similar provisions. With respect to the second action, appellees sought a "final judgment on the merits for the entire case" in the form of a declaratory judgment stating that Ganley's inclusion of the unconscionable arbitration clause in its automobile sales agreements violated the CSPA.
(¶ 5} Ganley filed a brief in opposition, arguing the Felixes could not maintain a class action under R.C. 1345.09(B) and establish certain prerequisites to class certification under Civ.R. 23, and that due to the public policy favoring arbitration, inclusion of an arbitration provision in a sales agreement could not violate the CSPA. After several years of extensive litigation, the trial court issued judgment entries in both cases in September 2012. In its "Proposed Order of Class Certification and for Partial Judgment on the Merits, " the trial court certified the following plaintiff class under Civ.R. 23(B)(2) and (B)(3):
All consumers of Vehicles from any of the 25 Ganley Companies (see Plaintiffs Chart, Exhibit A, filed August 18, 2003) within the two-year period preceding commencement through the present date (the Class Period), who signed a purchase agreement containing the arbitration clause at suit or one substantially similar thereto.
(¶ 6} In addition to certifying the class, the trial court held that Ganley's inclusion of the subject arbitration provision in its purchase agreements with consumers violated the CSPA and established a basis for classwide relief under Civ.R. 23(B)(2) and (B)(3). In its rigorous opinion granting class certification, the trial court wrote:
The Court finds that the Ganley defendants have acted on grounds applicable to the class as a whole, thereby making appropriate final injunctive relief and corresponding declaratory relief. * * * [I]t is the use and enforcement of the arbitration clause which is at issue in this matter. The use of the said clause constitutes a threatened harm to class members as evidenced in the instant case by the litigation of the Defendants'] Motion to Stay and Motion to Compel Arbitration. The class is cohesive in that each class member executed the same or substantially same Purchase Agreement which failed to satisfy the requirements of the [CSPA], by failing to provide certain material information at the time it was due; and the Court will issue relief to protect those class members from prejudice thereby.
Specifically, it was Defendants' common course of conduct under the direction of defendant Ganley Management Co. and its General Counsel * * *which brought forth and regulated the use of the arbitration clause. The use of the arbitration clause, i.e., the Defendants' conduct, is itself the basis for relief. Re-litigating a class member's right to relief over and over again would be a drain on the judiciary and serve no valid purpose. Few if any class members would likely be able to effectively challenge the Defendants due to the cost of litigation. If they could challenge Defendants, those costs would be improvident, since the illegality of the clause has been decided and affirmed by the Court of Appeals, and the cost of further litigation would be wasteful of judicial and party resources.
(¶ 7} The trial court also ruled that, based on Ganley's conduct, a classwide award of damages was warranted under the CSPA:
The Court finds that CSPA permits, if it does not require, the Court to award monetary damages to consumers victimized by Defendants' violation of law. To allow Defendants to emerge from this seven-year legal battle, during which time they continued to use the offending clause, without sanction, would defeat the policies underlying CSPA and the rule of law. It would reward lawlessness aimed primarily at consumers.
Concluding that the case "presents a significant violation of law, " the court "exercise[d] its discretion" and awarded $200 in damages per transaction to each class member.
(¶ 8} It is from this order that Ganley now appeals, raising the following single assignment of error for review.
Assignment of Error
[T]he trial court erred as a matter of law and abused its discretion in certifying, for purposes of a claim under the [CSPA], a class of customers who signed purchase agreements that included an arbitration provision.
Standard of Review
(¶ 9} A trial court has broad discretion in determining whether to certify a class action, and an appellate court should not disturb that determination absent an abuse of discretion. Marks v. C.P. Chem. Co., 31 Ohio St.3d 200, 509 N.E.2d 1249 (1987), syllabus. "The term 'abuse of discretion' connotes more than an error of law or judgment; it implies that the court's attitude is unreasonable, arbitrary or unconscionable.'" (Citations omitted.) Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983), quoting State v. Adams, 62 Ohio St.2d 151, 404 N.E.2d 144 (1980). In Hamilton v. Ohio Sav. Bank, 82 Ohio St.3d 67, 694 N.E.2d 442 (1998), the Ohio Supreme Court noted that "the appropriateness of applying the abuse-of-discretion standard in reviewing class action determinations is grounded * * * in the trial court's special expertise and familiarity with case-management problems and its inherent power to manage its own docket." Id. at 70, citing Marks; In re NLO, Inc., 5 F.3d 154 (6th Cir.1993). "A finding of abuse of discretion * * * should be made cautiously." Marks at 201.
(¶10} The Hamilton court further noted that the trial court's discretion in deciding whether to certify a class must be exercised within the framework of Civ.R. 23. Id. The trial court is required to "carefully apply the class action requirements" and to conduct a "rigorous analysis" into whether the prerequisites for class certification under Civ.R. 23 have been satisfied. Id.
Requirements for Class Action Certification
(¶ 11} In determining whether a class action is properly certified, the first step is to ascertain whether the threshold requirements of Civ.R. 23(A) have been met. Once those requirements are established, the trial court must turn to Civ.R. 23(B) to discern whether the purported class comports with the factors specified therein. Accordingly, before a class may be properly certified as a class action, the following seven prerequisites must be met: (1) an identifiable class must exist, and the definition of the class must be unambiguous; (2) the named plaintiff representatives must be members of the class; (3) the class must be so numerous that joinder of all the members is impracticable; (4) there must be questions of law or fact common to the class; (5) the claims or defenses of the representatives must be typical of the claims or defenses of the class; (6) the representative parties must fairly and adequately protect the interests of the class; and (7) one of the three requirements under Civ.R. 23(B) must be met. Hamilton at 71, citing Civ.R. 23(A) and (B); Warner v. Waste Mgt. Inc., 36 Ohio St.3d 91, 96, 521 N.E.2d 1091 (1988).
Application of Class Action Requirements
(¶ 12} Ganley argues that the trial court erred in certifying the class because the class definition and time period are overbroad and ambiguous. Ganley further argues that the commonality, predominance, and typicality prerequisites to class certification under Civ.R. 23(A) and (B)(3) were not established and that there was no showing that "final injunctive relief or corresponding declaratory relief was appropriate "with respect to the class as a whole" for class certification under Civ.R. 23(B)(2). We disagree.
(¶ 13} As an initial matter, we note that a recurring theme in Ganley's argument is the notion that, due to the public policy favoring arbitration of disputes, "there is and can be no [CSPA] violation based upon the inclusion of an arbitration provision in a contract." Ganley, however, misconstrues the Felixes' theory of liability under the CSPA. The Felixes do not contend that Ganley's inclusion of any arbitration clause in a consumer sales contract violates the CSPA. Rather, they contend that Ganley's inclusion of this particular arbitration provision, which this court found to be misleading, confusing, and substantively unconscionable, or a substantially similar provision, in its automobile sales agreements constitutes an unfair and deceptive practice under the CSPA. We agree that such allegations constitute an unfair or deceptive practice giving rise to a claim under the CSPA. See also Eagle v. Fred Martin Motor Co., 157 Ohio App.3d 150, 2004-Ohio-829, 809 N.E.2d 1161, ¶28 (9th Dist.) (stating that "it is conceivable that a complainant may allege that an arbitration clause itself may violate R.C. Chapter 1345[.]")
(¶ 14} Ganley further argues that the individualized assessment necessary for a determination of procedural unconscionability must, in and of itself, preclude any form of classwide relief. However, there is a difference between the proof required to establish an unfair and deceptive practice under the CSPA and the proof required to establish the contractual defense of unconscionability. The fact that an arbitration provision is generally "presumed valid" or that the contractual defense of unconscionability requires both substantive unconscionability and an individualized, case-by-case assessment of procedural unconscionability before a contract provision is determined to be unenforceable does not preclude a finding that inclusion of a misleading, confusing, and substantively unconscionable arbitration provision in a consumer sales contract constitutes an unfair and deceptive practice under the CSPA. As it relates to the claims of the putative class, the issue in the instant case is not whether the arbitration provision was substantively and procedurally unconscionable, and thus unenforceable, under contract law principles, but rather, whether the provision violated the CSPA for reasons that apply classwide, irrespective of procedural unconscionability.
(¶ l5} Therefore, Ganley's arguments based on the public policy favoring arbitration and the requirements for establishing procedural unconscionability as a matter of contract law do not preclude class certification in this case.
(¶ 16} We now review the detailed findings made by the trial court.
(1) Identifiable Class
(¶ 17} Civ.R. 23 requires that an identifiable class must exist and the definition of the class must be unambiguous. This requirement "will not be deemed satisfied unless the description of [the class] is sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member. Thus, the class definition must be precise enough to permit identification within a reasonable effort." (Internal quotations and citations omitted.) Hamilton, 82 Ohio St.3d at 71-72, 694 N.E.2d 442.
(¶ 18} In the instant case, the trial court found that the Felixes' proposed class was identifiable, consisting of:
All consumers of Vehicles from any of the 25 Ganley Companies (see plaintiffs chart, Exhibit A, filed August 18, 2003) within the two-year period preceding commencement through the present date (the Class Period), who signed a purchase agreement containing ...