Wallis v. Ford Motor Co.

• Decision Date: 12 May 2005
• Docket Number: No. 04-506.,04-506.
• Citation: 208 S.W.3d 153
• Parties: D.R. "Buddy" WALLIS, Appellant v. FORD MOTOR COMPANY, Appellee.
• Court: Arkansas Supreme Court

Page 153

208 S.W.3d 153

D.R. "Buddy" WALLIS, Appellant v. FORD MOTOR COMPANY, Appellee.

No. 04-506.

Supreme Court of Arkansas.

May 12, 2005.

Turner & Associates, by: Tab Turner, North Little Rock; and Thrash Law Firm, by: Thomas P. Thrash, Little Rock, for appellant.

Wright, Lindsey & Jennings, by: Edwin L. Lowther, Jr., and Troy A. Price, Little Rock; O'Melreny & Myers, LLP, by: Stephan J. Harburg and Katherine H. Wang (of counsel, Washington, D.C.), for appellee.

ANNABELLE CLINTON IMBER, Justice.

The instant appeal involves an issue of first impression. This court is asked to determine whether the circuit court erred in dismissing a class-action fraud and statutory deceptive trade practices lawsuit arising out of the purchase or lease of an allegedly defective vehicle where the only injury complained of is a diminution in value of the vehicle. We hold that the complaint was properly dismissed by the circuit court.

Appellant D.R. "Buddy" Wallis filed a class-action lawsuit against Appellee Ford Motor Company ("Ford") for common-law fraud and deceptive trade practices under the Arkansas Deceptive Trade Practices Act (ADTPA), codified at Ark.Code Ann. §§ 4-88-101 et seq. (Repl.2001).¹ In his complaint, Wallis seeks to certify a class consisting of "all persons and entities in the State of Arkansas who now own or lease, or owned or leased, model year 1991 through 2001 Ford Explorer sport utility vehicles (`Explorers') purchased or leased in the State of Arkansas." Specifically, he asserts Ford knowingly concealed the fact that the Explorer had a dangerous design defect that caused it to roll over under normal operations. Wallis also alleges in the complaint that,

[Ford's] cover up of the inherent design problems and resulting accidents, combined with its Explorer brand imaging, led millions of consumers to purchase or lease Ford Explorers at prices far in excess of the values which would have been assigned to such vehicles had these dangers been disclosed. Furthermore, thousands of Arkansas residents still own or lease Explorers, which are of substantially diminished value solely as a result of Ford's fraudulent and deceptive scheme.

Wallis does not allege any personal injury or property damage caused by the design defect, nor does he allege that the Explorer malfunctioned in any way. Instead, his entire damage claim rests on the assertion that the design defect "substantially diminished" the value of the Explorer.

Ford filed a motion to dismiss under Ark. R. Civ. P. 12(b)(6) for failure to state a claim. The circuit court granted the motion and in its order ruled that Wallis failed to "state a legally cognizable cause of action. Because the court finds that [Wallis] has not experienced a cognizable injury or damages as a result of the alleged defect, he has no cause of action." From that order, Wallis now appeals.

The case has been certified to us by the Arkansas Court of Appeals pursuant to Ark. Sup.Ct. R. 1-2(b)(1), (4) and (6) as a case involving issues of first impression, an issue of significant public interest, and substantial questions of law concerning the interpretation of an act of the General Assembly. In reviewing the circuit court's decision on a motion to dismiss under Ark. R. Civ. P. 12(b)(6), this court treats the facts alleged in the complaint as true and views them in the light most favorable to the party who filed the complaint. Travelers Casualty & Surety Co. of America v. Ark. State Highway Comm'n., 353 Ark. 721, 120 S.W.3d 50 (2003).

The sum and substance of Wallis's argument on appeal is that no case law requires an "injury which fraud plaintiffs must suffer other than the benefit of the bargain-style losses Appellant seeks." He therefore seeks reversal of the circuit court's order, contending that a cognizable injury under a fraud or ADTPA claim can be based solely on a product's diminution in value. We disagree and affirm.

I. Common-Law Fraud

It is a well-settled principle under our case law that damages are an essential element of fraud, and there must be an allegation of sufficient facts to satisfy the damage element or the case is subject to a motion to dismiss. Tyson Foods, Inc. v. Davis, 347 Ark. 566, 66 S.W.3d 568 (2002); See also Grendell v. Kiehl, 291 Ark. 228, 723 S.W.2d 830 (1987). Wallis, however, contends that under our case law such damages are calculable without a manifestation of the product defect. As support for that position, he relies on our decision in Smith v. Walt Bennett Ford, Inc., 314 Ark. 591, 864 S.W.2d 817 (1993). In Smith v. Walt Bennett Ford, Inc., supra, we noted that this court has applied two measures of damages for common-law fraud: (1) the benefit-of-the-bargain measure (the difference in value of the property as represented and the property's actual value at the time of the purchase) and (2) the out-of-pocket measure (the difference between the price paid for the property and the property's actual value when received).²

Our application of benefit-of-the-bargain damages in common-law fraud cases has nonetheless been limited to instances where the actual product received by the purchaser manifests that it is different from that which was promised. For instance, in Currier v. Spencer, 299 Ark. 182, 772 S.W.2d 309 (1989), Currier, a car dealer, placed an advertisement to sell a one-owner 1984 Datsun 300 ZX. Spencer responded to the advertisement and purchased the car for $8,250, with $5,000 paid in cash and the other $3,250 paid by check. Before the check cleared, Spencer experienced problems with his car and discovered the car had been wrecked and consisted of two cars welded together. He stopped payment on the check, whereupon Currier filed a lawsuit in contract to recover the unpaid balance due under the purchase agreement. Spencer responded by filing a counterclaim that included claims for misrepresentation, and breach of express and implied warranties. The trial court dismissed Currier's contract claim but awarded damages of $1,500 on Spencer's breach of warranty and misrepresentation claims. That amount represented the difference between the purchase price of the car, $8,250, and its actual value, $6,750. On appeal, we affirmed the award and said, "the standard measure of damages for either breach of warranty or misrepresentation is the difference in value between the product as warranted and its actual value." Likewise, in Moore Ford Co. v. Smith, 270 Ark. 340, 604 S.W.2d 943 (1980), another misrepresentation action, the appellee brought suit when she discovered that her "new car" had prior body work done on the hood and fender. The jury awarded her $1,250 in compensatory damages, and we affirmed.

Similarly, in Union Motors v. Phillips, 241 Ark. 857, 410 S.W.2d 747 (1967), the plaintiff brought suit for fraud, claiming that his car, prior to purchase, was represented to him as a new car with low mileage. In that case we said,

Union Motors' contention that no damage resulted to Phillips is without merit. It is true Union offered testimony to the effect that in its repaired condition the car was like new. . . . In this suit Phillips was asking compensatory damages based on the difference in the market value of the car, as warranted, and its value as a wrecked car. This measure of damages is proper.

Id. at 861, 410 S.W.2d at 749. In Greiner Motor Co. v. Sumpter, 244 Ark. 736, 427 S.W.2d 8 (1968), also a misrepresentation case, we affirmed a jury's award of $1,497 in damages. In that case, Sumpter and his wife believed they were buying a new car. Upon discovering that it was not new, they decided to keep the car and bring an action for misrepresentation. The damages formula submitted to the jury was the difference between the market value of the car as warranted and its market value in its condition at the time of the sale, and we affirmed. In sum, the principle undergirding our case law is that benefit-of-the-bargain damages are only awarded in fraud cases where a party proves that the product received is not what was bargained for; that is, the product received in fact manifests that it is different from that which was promised.

Several other jurisdictions have addressed what type of damages must be alleged in order for a plaintiff to successfully bring a common-law fraud claim for allegedly defective products. In Briehl v. General Motors Corp., 172 F.3d 623 (8th Cir.1999), the plaintiffs brought a class-action fraud lawsuit based on an allegedly defective anti-lock brake system (ABS) in vehicles manufactured by General Motors. As in this case, the plaintiffs did not allege that the brake system had ever malfunctioned or failed. The Eighth Circuit Court of Appeals held that "[t]he Plaintiff's conclusory assertions that they, as a class, have experienced damages . . . are simply too speculative to allow this case to go forward. The Plaintiffs' assertions that their ABS-equipped vehicles are defective and that they have suffered a loss in resale value as a result of the defect is insufficient as a matter of law to plead a claim under any theory the plaintiffs have advanced." Id. at 629.

More recently, the Wisconsin Supreme Court has held that the mere "propensity" for premature product failure is not enough to constitute cognizable damages. Tietsworth v. Harley-Davidson, Inc., 270 Wis.2d 146, 677 N.W.2d 233 (2004). In Tietsworth, a class-action lawsuit was filed on behalf of certain Harley-Davidson motorcycle owners seeking damages for an alleged defect in the motorcycles' engines. In the original complaint, the plaintiffs pleaded claims based on negligence, strict products liability, fraud, and deceptive trade practices. Once again, as in this case, the plaintiffs did not allege any personal injury or property damage arising out of the engine defect; nor did they allege that the motorcycle engines had actually failed or malfunctioned in any way. Rather, they alleged that their motorcycles were diminished in value because the...