Lawsuits per Gallon

A few weeks ago I recall reading a news story online about a Honda hybrid owner out in California who had decided to opt out of the huge class-action lawsuit against Honda and sue the company in Small Claims court instead. If you’ve been following the larger case in the news you already know that the plaintiffs were successful, and each member of the class stands to receive a $100 to $200 payment and a voucher good for up to $1,000 on their next Honda purchase – which seems absurd when you consider that the lower gas mileage (the hybrid Civic gets significantly lower gas mileage than the manufacturer claims it does) will cost each owner somewhere between $4,140 and $16,560 per year. It could even be argued that this judgment does the defendants more good than the plaintiffs, since it encourages the plaintiffs to purchase additional Honda products in the future. The company is well pleased with itself for the class-action case outcome, as well they should be – but the Small Claims case appears to have them worried…

In a Small Claims action the plaintiffs are limited in the amount of damages they can seek – in California the cap is set at $10,000 – and neither party is allowed to have legal representation, which lowers the costs involved. Most people use these actions to settle personal and small business disputes which would cost far more to litigate than the total amount they’re arguing over, but there is no reason you can’t use such a suit against a giant corporation – especially if the alternative is “winning” a week’s worth of gasoline and a discount coupon for a car from a company you’re probably going to avoid from now on anyway…

Most people don’t bring product lawsuits in Small Claims court because of the low awards cap; if you drive 12,000 miles per year (normal for Los Angeles) and your gas mileage is 30 instead of 50, and gas is $3.45 a gallon, each year you own the car it will cost you $16,560 over what the sticker MPG suggested. That’s $6,560 more than the Small Claims total, just in the first year; if you own the car for 5 years the total will be more like $82,000, or $72,000 more than the total possible in Small Claims court. But while $10,000 doesn’t sound like a good compromise over $82,000 that somebody owes you, it’s only fair to note that this is 50 to 100 times better than you would do as part of the class action lawsuit, assuming that you don’t want to purchase a new Honda in the next year or so…

From the company’s point of view, the problem is that while a single $10,000 settlement is no big deal, and spending $100 to $200 per customer when there’s an excellent chance of getting them to buy another car is practically a loss-leader, a thousand customers filing $10,000 Small Claims actions quickly turns into $10,000,000 in losses – and there are considerably more than 1,000 owners of Honda Civic hybrid models who could conceivably get into the act. Even worse, if the traditional defense of just putting the EPA estimate on the window sticker and then blaming the EPA for any differential between the sticker and your actual mileage is no longer valid – and it wasn’t accepted in this case – there’s no telling how many other customers, hybrid or not, may successfully sue the company using this logic…

My father told me once that the only people who ever get anything out of a class-action lawsuit are the lawyers – and in this case, unless there are more than 50,000 plaintiffs in the class, the $8,500,000 the lawyers are getting out of the settlement is more than all of the actual plaintiffs put together stand to receive. And while the company can use lawyers to appeal the Small Claims case, assuming that they do, this could backfire on them badly in the courts, let alone in public relations terms. I don’t know much about legal strategy, and I don’t even pretend to advise people on legal issues – but unless this issue is much more complicated than it appears, I’d have to suggest that the best business strategy here would be to just change the window stickers…