No Harm No Foul: Supreme Court Says Class Action Members Must Show Evidence of Injury to Proceed

Posted on September 3rd, 2015 by Kevin W. KitaKevin Kita

In a 6-1 decision, the Ohio Supreme Court in Felix et al., v. Ganley Chevrolet, Inc. et al., held that each plaintiff in a proposed class must show evidence of individual injury or damages in order to warrant certification of the class under the Ohio Civil Rules.  The decision further defines the scope of the investigation required by the trial court in the class certification process.  More importantly, however, it adds another arrow to defense counsel’s quiver in opposing class certification, reducing the size of improperly inflated classes and increasing their ability to protect their client’s interests.

The case arose from a class-action lawsuit involving customers who purchased vehicles from  Cleveland automobile dealership Ganley Chevrolet, challenging a binding arbitration clause in their purchase contracts.  The proposed class representatives, Jeffery and Stacy Felix described the class as:

All consumers of vehicles from any of the Ganley companies, within the two year period preceding commencement or since, who signed a purchase agreement containing the following arbitration clause or anything substantially similar to it.

The plaintiffs sought declaratory judgment that the clause was unconscionable and monetary damages for all class members: either three times the actual damages suffered or $200.00 per violation, whichever was greater.  The trial court certified the class, decided that Ganley’s arbitration provision violated the OCSPA and awarded each class member $200.00.

Ganley appealed to the Eighth District (Ohio) Court of Appeals arguing that the class definition and time frame were overbroad and ambiguous.  The appellate court, however, affirmed the decision below and refused to analyze the damages award, declaring it beyond its scope of review.  Ganley then appealed to the Ohio Supreme Court arguing, in pertinent part, that the class should not have been certified because, by definition, it included individuals who had not sustained any actual damages as a result of the inclusion of the arbitration clause.

The majority of the Supreme Court agreed.   Chief Justice O’Connor authored the opinion of the Court and held Ohio Civil Rule 23 requires trial courts to perform a rigorous analysis when determining whether to certify a class of plaintiffs.  This includes looking to the merits of the case for the purpose of determining whether the class members share common questions of law or fact that predominate over issues affecting only individual members.

Looking to the plaintiff’s invocation of the Ohio Consumer Sales Practices Act (OCSPA), Chief Justice O’Connor noted, at the time of the lawsuit, the statute did not permit treble or statutory damages in class action suits as had been awarded by the court below.  Instead, the statute limited awards to actual damages suffered by individual plaintiffs seeking recovery. Thus, in order to meet the predominance element under Civil Rule 23, the Court held “plaintiffs must adduce common evidence that shows all class members suffered some injury.”  Notably, the plaintiffs need not, however, produce evidence relating to the amount of damages incurred.

It will likely take several years to determine whether the Court’s decision will impact the number of OCSPA class-action cases filed. However, there is little doubt that it will change the way such cases are evaluated.  The Felix decision provides defense counsel with an additional vehicle for ensuring class sizes are not improperly inflated by removing from the field of plaintiffs those consumers who have enjoyed the benefit of their bargain without any harm or injury.  This is especially true in cases involving challenges to arbitration clauses, which have proven a popular target of the Plaintiff’s bar in recent years.  This should, in turn, reduce potential exposure and encourage more reasonable settlement discussions in meritorious cases.

The text of the full opinion can be found here.