Guzman v. Ford Motor Company — Entry #54: RESPONSE to 53 MOTION to Dismiss Consolidated Complaint for Violations of the Federal Securities Laws filed by Clark D
Case: Guzman v. Ford Motor Company mied · 2:24-cv-12080
filed August 08, 2024
What this document is
Docket entry #54 · filed March 23, 2026
RESPONSE to 53 MOTION to Dismiss Consolidated Complaint for Violations of the Federal Securities Laws filed by Clark D. Crippen, Ronald Ferrante. (Attachments: # 1 Unpublished Cases) (Michaud, Thomas) (Entered: 03/23/2026)
Who is involved
- Albert Guzman
- Clark D. Crippen
- Ford Motor Company
- James D. Farley, Jr.
- John T. Lawler
- Michael M Press
- Robert Sklodowski
- Ronald Ferrante
- Teamsters Local 710 Pension Fund
Why we have it
We follow this case because it names a company we track, although that company is not a party:
- Marathon Digital: its name “Marathon Digital Holdings, Inc.” appears in a filing in this case.
…23-CV-00691 (D. Ariz); • Moreno, et al. v. Marathon Digital Holdings, Inc., et al. (D. Nev.) • SLF is also…
A free copy from the RECAP archive of federal court filings (mirrored at the Internet Archive), retrieved October 16, 2026. Federal court filings are public records.
Document text
53 page(s), 102,266 characters, converted from the PDF's text layer · plain text.
Full text
Case 2:24-cv-12080-LVP-KGA ECF No. 54, PageID.1993 Filed 03/23/26 Page 1 of 53
VANOVERBEKE, MICHAUD & TIMMONY, P.C.
THOMAS C. MICHAUD (P46787)
79 Alfred Street
Detroit, MI 48201
Telephone: 313/578-1200
[email protected]
Local Counsel
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ALBERT GUZMAN, Individually and ) Civ. No. 2:24-cv-12080-LVP-KGA
on Behalf of All Others Similarly ) (Consolidated with Civ. No. 2:24-cv-
Situated, ) 12492)
Plaintiff, )
) Honorable Linda V. Parker
vs.
)
Magistrate Judge Kimberly G. Altman
FORD MOTOR COMPANY, et al., )
) CLASS ACTION
Defendants. )
)
PLAINTIFFS’ OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
CONSOLIDATED COMPLAINT FOR VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
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TABLE OF CONTENTS
Page
I. INTRODUCTION ........................................................................................... 1
II. STATEMENT OF FACTS .............................................................................. 4
A. Defendants Promised to Improve Warranty Costs ................................ 4
B. Defendants Closely Monitored Warranty Costs ................................... 5
C. Defendants Delayed Recalls and Concealed the Magnitude of
Defects to Suppress Reserves and Report Positive Trends ................... 6
D. Defendants Falsely Touted Positive Warranty Trends ......................... 7
E. The Truth Is Revealed that Warranty Costs Remained Sky-High ........ 8
III. ARGUMENT ................................................................................................. 10
Legal Standards on a Motion to Dismiss ............................................ 10
The Complaint Adequately Alleges False and Misleading
Statements ........................................................................................... 10
1. Defendants Made False and Misleading Statements
Portraying Positive Quality and Warranty Trends.................... 11
2. Defendants Reported Suppressed Reserves in Violation
of GAAP ................................................................................... 17
3. Defendants’ Inflation Statements Were Misleading ................. 21
4. Defendants Provided False and Misleading Risk
Disclosures that Failed to Warn Investors of Reality ............... 22
5. Defendants’ Remaining Arguments Lack Merit....................... 24
a. The Statements Are Not Protected Under the Safe
Harbor ............................................................................. 24
b. The Statements Are Not Inactionable Opinions ............. 25
c. The Statements Are Not Immaterial Puffery .................. 28
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Page
The Totality of Allegations Sufficiently Plead a Strong
Inference of Scienter as to Each Defendant ........................................ 30
1. Defendants’ Admitted Focus, Close Monitoring, and
Frequent Statements Support Scienter ...................................... 31
2. The NHTSA Consent Order Supports Scienter ........................ 33
3. Defendants’ Admissions They Were Aware of Warranty
Issues Shortly After Vehicle Launch Support Scienter ............ 34
4. The Importance of Warranty Costs and Recalls Support
Scienter...................................................................................... 35
5. The Magnitude of the Reserve Increases Supports
Scienter...................................................................................... 37
6. Defendants’ Motive Supports Scienter ..................................... 38
7. Defendants’ Competing Inference is Implausible .................... 39
The Control Person Claims Should Be Sustained ............................... 40
IV. CONCLUSION.............................................................................................. 40
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TABLE OF AUTHORITIES
Page
CASES
Berson v. Applied Signal Tech., Inc.,
527 F.3d 982 (9th Cir. 2008) .............................................................................. 36
Blatt v. Corn Prods. Int’l, Inc.,
2006 WL 1697013 (N.D. Ill. June 14, 2006) ...................................................... 24
Bond v. Clover Health Invs., Corp.,
587 F. Supp. 3d 641 (M.D. Tenn. 2022) .....................................................passim
Bondali v. Yum! Brands, Inc.,
620 F. App’x 483 (6th Cir. 2015) ....................................................................... 23
Carpenters Pension Tr. Fund for N. Cal. v. Allstate Corp.,
2018 WL 1071442 (N.D. Ill. Feb. 27, 2018) ................................................17, 22
Chapman v. Mueller Water Prods.,
466 F. Supp. 3d 382 (S.D.N.Y. 2020) ................................................................ 28
Chow v. Archer-Daniels-Midland,
2025 WL 790854 (N.D. Ill. Mar. 12, 2025) ....................................................... 30
City of Monroe Emps. Ret. Sys. v. Bridgestone Corp.,
399 F.3d 651 (6th Cir. 2005) .............................................................................. 13
City of Taylor Gen. Emps. Ret. Sys. v. Astec Indus.,
29 F.4th 802 (6th Cir. 2022) ............................................................................... 38
Constr. Indus. & Lab. Joint Pension Tr. v. Carbonite, Inc.,
22 F.4th 1 (1st Cir. 2021).................................................................................... 29
Franchi v. Smiledirectclub, Inc.,
633 F. Supp. 3d 1046 (M.D. Tenn. 2022) .......................................................... 36
Frank v. Dana Corp.,
547 F.3d 564 (6th Cir. 2008) .............................................................................. 30
Frank v. Dana Corp.,
646 F.3d 954 (6th Cir. 2011) ............................................................10, 30, 31, 32
- iii -
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Page
Godinez v. Alere Inc.,
272 F. Supp. 3d 201 (D. Mass. 2017) ................................................................. 18
Grae v. Corr. Corp. of Am.,
2017 WL 6442145 (M.D. Tenn. Dec. 18, 2017) ..........................................29, 32
Grae v. Corr. Corp. of Am.,
2021 WL 1100799 (M.D. Tenn. Mar. 23, 2021) ................................................ 15
Hedick v. Kraft Heinz Co.,
2021 WL 3566602 (N.D. Ill. Aug. 11, 2021) ...............................................29, 33
Helwig v. Vencor, Inc.,
251 F.3d 540 (6th Cir. 2001) (en banc),
abrogated on other grounds by
Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
551 U.S. 308 (2007) .....................................................................................passim
Hills v. BioXcel Therapeutics, Inc.,
2025 WL 2777129 (D. Conn. Sept. 29, 2025) .................................................... 27
IBEW v. Ltd. Brands, Inc.,
788 F. Supp. 2d 609 (S.D. Ohio 2011) ............................................................... 17
In re BioScrip, Inc. Sec. Litig.,
95 F. Supp. 3d 711 (S.D.N.Y. 2015) .................................................................. 33
In re Cardinal Health Inc. Sec. Litig.,
426 F. Supp. 2d 688 (S.D. Ohio 2006) .........................................................36, 38
In re Envision Healthcare Corp. Sec. Litig.,
2019 WL 6168254 (M.D. Tenn. Nov. 19, 2019) ....................................27, 35, 38
In re Envision Healthcare Corp. Sec. Litig.,
2022 WL 4551876 (M.D. Tenn. Sep. 29, 2022) ...........................................15, 34
In re Facebook, Inc. Sec. Litig.,
87 F.4th 934 (9th Cir. 2023) .........................................................................20, 22
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Page
In re Flag Telecom Holdings, Ltd. Sec. Litig.,
352 F. Supp. 2d 429 (S.D.N.Y. 2005) ................................................................ 19
In re Ford Motor Corp. Sec. Litig.,
381 F. 3d 563 (6th Cir. 2004) ............................................................................. 29
In re Heritage Glob. Network L.A., Inc. v. Welch,
2024 WL 695772 (M.D. Tenn. Feb. 20, 2024) ................................................... 31
In re Hertz Glob. Holdings, Sec. Litig.,
2017 WL 1536223 (D.N.J. Apr. 27, 2017), aff’d,
905 F.3d 106 (3d Cir. 2018) ............................................................................... 28
In re Humana, Inc. Sec. Litig.,
2009 WL 1767193 (W.D. Ky. June 23, 2009) ................................................... 17
In re Huntington Bancshares Inc. Sec. Litig.,
674 F. Supp. 2d 951 (S.D. Ohio 2009) ............................................................... 28
In re Kindred Healthcare, Inc. Sec. Litig.,
299 F. Supp. 2d 724 (W.D. Ky. 2004) ................................................................ 25
In re LDK Solar Sec. Litig.,
584 F. Supp. 2d 1230 (N.D. Cal. 2008) .............................................................. 20
In re Omnicare, Inc. Sec. Litig.,
769 F.3d 455 (6th Cir. 2014) ........................................................................27, 40
In re Perrigo Co. PLC Sec. Litig.,
435 F. Supp. 3d 571 (S.D.N.Y. 2020) ................................................................ 20
In re Shoals Techs. Grp., Inc. Sec. Litig.,
802 F. Supp. 3d 1024 (M.D. Tenn. 2025) .......................................................... 25
In re Ulta Salon, Cosms. & Fragrance, Inc. Sec. Litig.,
604 F. Supp. 2d 1188 (N.D. Ill. 2009) ................................................................ 30
In re Upstart Holdings, Inc. Sec. Litig.,
2023 WL 6379810 (S.D. Ohio Sept. 29, 2023) ................................16, 25, 32, 35
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Page
In re Virtu Fin., Inc. Sec. Litig.,
770 F. Supp. 3d 482 (E.D.N.Y. 2025) ................................................................ 29
In re Vivendi Universal, S.A. Sec. Litig.,
765 F. Supp. 2d 512 (S.D.N.Y. 2011), aff’d,
838 F.3d 223 (2d Cir. 2016) ............................................................................... 34
In re Walmart Inc., Sec. Litig.,
151 F.4th 103 (3d Cir. 2025) .............................................................................. 28
Jonna v. GIBF GP, Inc.,
617 F. Supp. 3d 789 (E.D. Mich. 2022) ............................................................. 31
King v. Whitmer,
71 F.4th 511 (6th Cir. 2023) ............................................................................... 27
Knurr v. Orbital ATK Inc.,
294 F. Supp. 3d 498 (E.D. Va. 2018) ................................................................. 40
Kyrstek v. Ruby Tuesday, Inc.,
2016 WL 1274447 (M.D. Tenn. Mar. 31, 2016) ................................................ 32
Lim v. Hightower,
2025 WL 2965692 (6th Cir. Oct. 21, 2025) ....................................................... 39
Makor Issues & Rts., Ltd. v. Tellabs Inc.,
513 F.3d 702 (7th Cir. 2008) .......................................................................passim
Malin v. XL Cap.,
499 F. Supp. 2d 117 (D. Conn. 2007), aff’d,
312 F. App’x 400 (2d Cir. 2009) ........................................................................ 19
Mayer v. Mylod,
988 F.2d 635 (6th Cir. 1993) .............................................................................. 26
MJK Fam. LLC v. Corp. Eagle Mgmt. Servs.,
2009 WL 4506418 (E.D. Mich. Nov. 30, 2009) ...........................................11, 13
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Page
N. Port Firefighters’ Pension-Loc. Option Plan v.
Fushi Copperweld, Inc.,
929 F. Supp. 2d 740 (M.D. Tenn. 2013) ............................................................ 19
Omnicare, Inc. v. Laborers Dist. Council Constr.
Indus. Pension Fund,
575 U.S. 175 (2015) ............................................................................................ 26
Padilla v. Cmty. Health Sys., Inc.,
2022 WL 3452318 (M.D. Tenn. Aug. 17, 2022) .........................................passim
Pierrelouis v. Gogo,
2021 WL 1608342 (N.D. Ill. Apr. 26, 2021) ................................................16, 40
Pittman v. Unum Grp.,
861 F. App’x 51 (6th Cir. 2021) ......................................................................... 36
Police & Fire Ret. Sys. City of Detroit v. Argo Grp.
Int’l Holdings,
2024 WL 5089970 (S.D.N.Y. Dec. 12, 2024) .................................................... 28
Reese v. Malone,
747 F.3d 557 (9th Cir. 2014), overruled on other grounds by
City of Dearborn Heights Act 345 Police & Fire Ret Sys. v.
Align Tech.,
856 F.3d 605 (9th Cir. 2017) .............................................................................. 32
Ret. Sys. v. Ernst & Young, LLP,
622 F.3d 471 (6th Cir. 2010) .............................................................................. 37
Roofers Loc. No. 149 Pen. Fund v. Amgen Inc.,
751 F. Supp. 3d 330 (S.D.N.Y. 2024) ................................................................ 15
Ross v. Abercrombie & Fitch Co.,
501 F. Supp. 2d 1102 (S.D. Ohio 2007) ............................................................. 39
Roth v. OfficeMax, Inc.,
527 F. Supp. 2d 791 (N.D. Ill. 2007) .................................................................. 27
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Page
S. Ferry LP #2 v. Killinger,
687 F. Supp. 2d 1248 (W.D. Wash. 2009) ......................................................... 33
Shulman v. Weston,
__ F. Supp. 3d __, 2025 WL 3754159 (D.N.J. Dec. 29, 2025) .......................... 24
Shupe v. Rocket Cos.,
660 F. Supp. 3d 647 (E.D. Mich. 2023) ...........................................14, 31, 34, 38
Silverman v. Motorola, Inc.,
2008 WL 4360648 (N.D. Ill. Sept. 23, 2008) ..................................................... 23
Smilovits v. First Solar, Inc.,
119 F. Supp. 3d 978 (D. Ariz. 2015), aff’d sub nom. by
Mineworkers’ Pension Scheme v. First Solar Inc.,
881 F.3d 150 (9th Cir. 2018) ........................................................................18, 19
Smilovits v. First Solar, Inc.,
2012 WL 6574410 (D. Ariz. Dec. 17, 2012) ...................................................... 13
Teamsters Loc. 237 Welfare Fund v. ServiceMaster Glob. Holdings,
83 F.4th 514 (6th Cir. 2023) ............................................................................... 35
Underland v. Alter,
2011 WL 4017908 (E.D. Pa. Sept. 9, 2011) .................................................23, 25
Wilkof v. Caraco Pharm. Laby’s, Ltd.,
2010 WL 4184465 (E.D. Mich. Oct. 21, 2010) ............................................14, 33
Winslow v. BancorpSouth, Inc.,
2011 WL 7090820 (M.D. Tenn. Apr. 26, 2011) ....................................24, 25, 32
Woolgar v. Kingstone Cos.,
477 F. Supp. 3d 193 (S.D.N.Y. 2020) ................................................................ 19
STATUTES, RULES, AND REGULATIONS
15 U.S.C.
§78j(b) .....................................................................................................10, 14, 40
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Page
17 C.F.R.
§240.10b-5 .......................................................................................................... 10
Federal Rules of Civil Procedure
Rule 12(b)(6).................................................................................................10, 13
Private Securities Litigation Reform Act of 1995
Pub. L. No. 104-67, 109 Stat. 737 (1995) ....................................................16, 24
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STATEMENT OF THE ISSUES PRESENTED
1. Whether the allegations in the Consolidated Complaint for Violations of
the Federal Securities Laws (ECF 48) (“Complaint”), accepted as true, sufficiently
plead that each defendant made at least one actionable false or misleading statement
or omission within the meaning of §10(b) of the Securities Exchange Act of 1934
(“Exchange Act”) and U.S. Securities and Exchange Commission (“SEC”) Rule 10b-5
promulgated thereunder?
2. Whether the allegations in the Complaint, accepted as true and
considered holistically, raise a strong inference of Defendants’ scienter within the
meaning of §10(b) of the Exchange Act and SEC Rule 10b-5?
3. Whether the allegations in the Complaint, accepted as true, sufficiently
plead a “control person” claim under §20(a) of the Exchange Act?
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CONTROLLING OR MOST APPROPRIATE AUTHORITIES
15 U.S.C. §78u-4
15 U.S.C. §78j(b)
17 C.F.R. §240.15b-5
Fed. R. Civ. P. 9(b)
Fed. R. Civ. P. 12(b)(6)
Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007)
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175
(2015)
City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651 (6th Cir. 2005)
City of Taylor Gen. Emps. Ret. Sys. v. Astec Indus., 29 F.4th 802 (6th Cir. 2022)
Frank v. Dana Corp., 646 F.3d 954 (6th Cir. 2011)
Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir. 2001) (en banc)
Makor Issues & Rts., Ltd. v. Tellabs Inc., 513 F.3d 702, 705 (7th Cir. 2008)
Bond v. Clover Health Invs., Corp., 587 F. Supp. 3d 641 (M.D. Tenn. 2022)
Carpenters Pension Tr. Fund for N. Cal. v. Allstate Corp., 2018 WL 1071442 (N.D.
Ill. Feb. 27, 2018)
Grae v. Corr. Corp. of Am., 2017 WL 6442145 (M.D. Tenn. Dec. 18, 2017)
In re Upstart Holdings, Inc. Sec. Litig., 2023 WL 6379810 (S.D. Ohio Sept. 29, 2023)
Padilla v. Cmty. Health Sys., Inc., 2022 WL 3452318 (M.D. Tenn. Aug. 17, 2022)
Shupe v. Rocket Cos., 660 F. Supp. 3d 647 (E.D. Mich. 2023)
Wilkof v. Caraco Pharm. Laby’s, Ltd., 2010 WL 4184465 (E.D. Mich. Oct. 21, 2010)
Winslow v. BancorpSouth, Inc., 2011 WL 7090820 (M.D. Tenn. Apr. 26, 2011), R&R
adopted, 2012 WL 214635 (M.D. Tenn. Jan. 24, 2012)
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Plaintiffs respectfully submit this response to Defendants’ Motion to Dismiss
the Complaint (ECF 53) (“Motion” or “MD”).1
I. INTRODUCTION
Upon being promoted to leadership in 2020, defendants Farley and Lawler
promised to fix Ford’s biggest problem: industry-high warranty costs from poor-
quality vehicles. Ford’s legacy gas vehicles business was strangled by a “$2 billion
headwind” of warranty costs – a problem so severe it cost Defendants’ predecessors
their jobs. Ford needed to lower repair costs on its gas vehicles to boost profitability
and fund its “$30 billion” pivot to electric vehicles (“EVs”). Defendants promised
they had a “very concrete plan” and a “laser focus” on fixing quality.
In moving to dismiss, Defendants claim they never reported positive quality and
warranty trends, yet, throughout the Class Period, Defendants made false and
misleading claims, such as Lawler touting that “lower warranty costs” had contributed
to “offset[ting] production losses and higher commodity costs” and that “we’re
improving our quality . . . and we saw that come through this year from a year-over-
year warranty standpoint it was down roughly $1.4 billion.” Defendants repeatedly
assured investors that warranty costs were declining, as new technologies were
1
Citations to “¶__” or “¶¶__” are to paragraphs of the Complaint. Unless
otherwise indicated, emphasis is added, internal citations are omitted, and capitalized
terms shall have the same meaning as in the Complaint. Bold and italics have been
added to identify the specific statements alleged as false and misleading statements.
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reducing repair costs because dealers were “making much more frequent use of over-
the-air updates [“OTA”] [a]nd boy, has that worked for us.” These misleading
words were backed by misleading numbers, as Ford reported inflated profits by
recording much lower warranty reserve increases than in years prior. E.g., ¶8.
In truth, Ford was facing massive unreserved liabilities from widespread,
expensive defects on older vehicles – including failing rear axles on the flagship F-
150 dating back to 2020, catastrophic oil pump failures on vehicles dating back to
2016, and defective rearview cameras dating back to 2019, none of which were
repairable through OTAs. In order to suppress reserves, Defendants engaged in a
scheme in which they concealed the defects, delayed recalls, and misled their
regulator (the NHTSA) about recalls, leading to a historic $165 million fine. Since
Ford’s reserves were calculated based on historical costs, by excluding defects and
delaying recalls, they delayed booking the necessary reserve increases, thereby
inflating profits. Such a scheme does not happen by accident, especially since
Defendants had promised investors that they had a granular focus on warranties,
discussed costs at weekly meetings, had real-time access to warranty and cost data,
and were under NHTSA investigation throughout the Class Period.
The truth emerged through disclosures in October 2023 and July 2024,
apparently forced by the ongoing NHTSA investigation, when Ford shocked investors
by recording billions of dollars in warranty charges that Defendants admitted were
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from long-existing issues on Ford’s “older models,” not new cars or unforeseen issues.
Booking these old liabilities caused the short-term boost in profits to reverse and the
stock price to crash.
Unable to muster grounds to dismiss such a coordinated scheme, Defendants
inject alternate facts that have no place at the pleading stage. For example,
Defendants point to irrelevant disclosures to claim investors were fully informed of
the warranty problems (MD PageID.1277-78), yet that is refuted by the massive stock
drop when the warranty troubles were belatedly disclosed. ¶¶133-142. Defendants
offer unsworn speculation about their auditors and cite multiple exhibits. See MD
PageID.1284-85. Not only are these disputed facts inappropriate for consideration on
a motion to dismiss, but they are unpersuasive because auditors have frequently been
misled by management in frauds, just as Ford misled regulators here. Defendants
even claim they did not “participate[] in setting warranty accruals” (MD PageID.1264-
65), which is contrary to their SOX certifications and signatures attesting to the
accuracy of the financial statements and their admissions that they held weekly “deep
dive[]” meetings specifically to monitor costs. ¶¶48, 146-147.
In short, because the Complaint details Defendants’ specific, corroborated fraud
to misleadingly portray success in controlling Ford’s warranty problems while
suppressing the true defects and costs, Defendants’ Motion should be denied.
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II. STATEMENT OF FACTS
A. Defendants Promised to Improve Warranty Costs
Ford incurs costs for repairs or replacements to address: (i) problems covered
by warranties; and (ii) recalls and fixes outside of warranty coverage, called Field
Service Actions (“FSA”). ¶¶32-33, 126. Ford estimates these collective costs as
warranty reserves at the time of sale, and purportedly adjusts those reserves “on a
regular basis” based on “actual experience.” ¶¶34-37. So, as more defects arise,
“actual experience” of repairs increases, which under Ford’s formula results in
increases to the reserves, and, if a costly recall of all affected vehicles is issued, then
reserve increases will be substantial. E.g., ¶¶75(c), 138. Conversely, delaying or
failing to issue recalls will limit the costs in the “actual experience,” which results in
artificially reduced warranty reserves far below reality. ¶36. Since reserves are
charged against income, suppressing reserves is a way to artificially boost reported
profitability. ¶¶7, 119.
Before the Class Period, Ford faced a profitability crisis driven by industry-
leading warranty costs – a “~$2 [billion] headwind” that had plagued Ford since 2017
and made it lag behind rival General Motors. ¶¶3, 38-40, 42. Farley and Lawler were
promoted in 2020 to reverse Ford’s “unacceptably high” costs. ¶¶43-44. They
promised investors they had a “very concrete plan” and were “laser focused” on
reducing the warranty costs that were hindering Ford. ¶¶3, 6, 43-45.
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Reducing these costs was also necessary to fund Farley and Lawler’s “Ford+”
strategy. Launched in May 2021, Ford+ was a $30 billion pivot to EVs that Farley
touted as Ford’s “‘biggest opportunity for growth’” since the Model T. ¶¶4, 29-30.
Defendants, media, and analysts understood that reducing warranty costs was Ford’s
only viable lever to generate the billions in necessary capital, creating immense
pressure on Defendants to demonstrate immediate progress. ¶¶4-6, 46, 83, 85.
B. Defendants Closely Monitored Warranty Costs
Defendants established the goal and then personally participated in the
processes to try to lower warranty costs. ¶¶44-46. Farley confirmed his and Lawler’s
granular focus, stating they “look at the root causes” of warranty issues and “go
through . . . hundreds” of them. ¶47. Senior management, including Farley and
Lawler, attended weekly cost meetings where they dedicated “Tuesday once a month
on costs” and the remaining Tuesdays to “doing deep dives” into specific cost issues.
¶48. Defendants also employed a Critical Concern Review Group (“CCRG”) tasked
with reviewing potential defects and safety issues. Id.
Defendants monitored progress utilizing sophisticated data, including Ford’s
Global Warranty Measurement System (“GWMS”), which provided real-time
warranty claims, costs, and trends from dealers “in aggregate on a weekly basis” to
“gauge if the dealer network [was] on track to meet Ford’s quality improvement
goals.” ¶¶49-50. Ford also received “service details, repair history, applicable recall
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repairs” and “warranty . . . information” from dealers and monitored the internet for
defect issues. ¶¶51-52. Farley and Lawler were directly involved in analyzing the
data to set reserves and monitor warranty trends. Farley contacted Ford’s Executive
Director of Quality “several times a week” to engage on quality efforts. ¶52. Farley
and Lawler conducted quarterly reserve reviews “as the actual claims [we]re incurred”
to “compare this experience with the historic spend and the trends” to identify issues.
¶152. Defendants later acknowledged they had tracked “internal data” on the relevant
warranty and reliability issues “for quite some time,” and that “if these things come
through . . . we’re made aware of them,” confirming their knowledge of issues with
older models as they arose in the field. ¶¶169, 172.
C. Defendants Delayed Recalls and Concealed the Magnitude
of Defects to Suppress Reserves and Report Positive Trends
Ford was facing specific and costly defects in certain “older” vehicles that were
concealed from investors. See ¶¶13, 138. First, a defective rear axle bolt design for
Ford’s flagship F-150 pickup truck (launched in 2020), caused the bolt to shear off.
¶¶59-64, 75(a)-(b), 138. This dangerous design failure, impacting more than 200,000
vehicles, could render the truck “undriveable.” ¶75(a). Farley admitted knowing such
repairs were “super expensive” and “complicated” (¶53), and indeed, the defect
required a complete redesign (¶75(b)). By January 2022, the defect had reached
internet forums, where Ford communicated with numerous F-150 owners impacted by
the axle bolt issue. ¶¶58-61. As early as June 2022, Ford dealers were attempting
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fixes and NHTSA met twice with Ford about the issue. ¶¶59-61, 64, 75(c). Yet, Ford
continued to sell F-150s with the defective design, while failing to issue a recall (until
December 15, 2023) and book adequate reserves. ¶75(c).
Second, a catastrophic oil pump design defect impacted more than 100,000
vehicles, beginning with “2016 launched vehicles” equipped with the 1.0L EcoBoost
engine. ¶¶58, 65-66, 75(d), 138. This defect clogged the oil pump, often leading to
engine failure and requiring engine replacement costing $7,000 or more per vehicle.
¶¶54, 65-67, 75(d)-(f). Customers from at least June 2020 onward complained of, and
Ford’s CCRG investigated by early 2022, the oil pump issue. ¶¶66, 68. Yet,
Defendants failed to issue a recall (until December 22, 2023) (see ¶65 n.17) or accrue
necessary reserves for these “long-standing” liabilities. ¶¶13, 65-68, 138-139.
Third, hundreds of thousands of Ford vehicles had defective rear-view cameras
(“RVCs”). ¶¶69, 75(g). While Defendants touted their ability to fix issues cheaply
via OTA updates, the RVC defect required physical replacement of the camera. ¶¶9
n.5, 34, 69. Defendants delayed RVC recalls since late 2020, leading to a historic
$165 million NHTSA penalty and finding that Ford was aware of defects but failed to
timely recall vehicles and misled NHTSA and the public. ¶¶175-179.
D. Defendants Falsely Touted Positive Warranty Trends
Before the Class Period, in 2019 and 2020, Ford had booked reserve increases
of $1.9 billion and $2.4 billion, respectively, to address defects in “older” vehicles.
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See ¶¶8, 84. After the Class Period began, Defendants delayed recalls and concealed
the magnitude of existing defects on hundreds of thousands of older vehicles. §II.C.
By removing costs of defects and recalls from Ford’s “actual experience” to set
warranty reserves, Defendants were able to record significantly smaller reserve
increases in 2021 and 2022, which signaled that quality was improving and warranty
costs were going down. See, e.g., ¶¶77, 80, 84, 86, 88-89, 93, 101. Leaving no doubt
what the numbers meant, Defendants boasted of “improvement in warranty costs” of
“about $1.4 billion” (¶¶78, 82), which they claimed “more than offset the effects of
production losses and higher commodity costs” (¶81), drawing positive reactions
from analysts regarding the purported success of the Ford+ plan (¶¶83, 85).
Defendants also claimed that warranty costs were improving due to Ford’s
“quality improvements” (e.g., ¶¶90, 99, 102) and technological advancements like
OTA updates (e.g., ¶¶9, 82(b), 87). They claimed Ford could use remote OTA
updates, which reduced repair costs by 95%, to quickly and cheaply resolve quality
issues, stating, “boy, has that worked for us.” ¶¶9, 87. However, dealerships were
continuing to opt for physical repairs rather than OTAs, and the concealed defects
plaguing Ford were not fixable by cheaper OTAs. ¶¶58, 69, 71, 91(b), 139.
E. The Truth Is Revealed that Warranty Costs Remained Sky-
High
As the NHTSA investigation progressed, Ford began to disclose the truth when,
on October 26, 2023, the Company reported a $1.2 billion increase in warranty costs
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for the third quarter – more than double the first two quarters combined. ¶¶10, 133.
Ford’s stock price declined by 12%, wiping out more than $5 billion in market
capitalization, and analysts attributed the decline to a “Q3 miss driven by more
warranty issues.” ¶¶10, 133-134. In discussing the increased warranty costs, Farley
stated that Ford’s RVCs were a “huge burden,” but did not disclose RVC recalls had
been delayed or the full extent of the problems. ¶133.
The full truth was revealed on July 24, 2024, when Defendants again shocked
investors by reporting that Ford Blue’s EBIT had plummeted nearly 50%, as
“[p]rofitability was affected by” a $1.4 billion increase in warranty reserves. ¶¶136-
137. Defendants admitted this was due to long-standing issues in “older model[]”
vehicles, not new cars or unforeseen defects. ¶¶13, 58, 138. Lawler said the “largest”
impact was from the “axle bolt [issue]” and the “oil pump issue” in vehicles launched
as far back as 2016. ¶138. These admissions confirmed that Ford was facing “super
expensive” physical repairs for which they had failed to adequately reserve. ¶¶13, 53,
58-75. Following the July 24, 2024 admissions, Ford’s stock price sank by 18%, the
largest one-day decline since the 2008 financial crisis. ¶¶15, 140.
Shortly after these disclosures and the conclusion of the NHTSA investigation,
Ford announced in November 2024 it had entered a Consent Order with NHTSA,
paying a $165 million fine. ¶175. The Consent Order revealed that Ford had failed to
comply with federal regulations for its defective RVCs, provided inaccurate
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information regarding RVCs and other defects dating back to late 2020, and delayed
needed RVC recalls. ¶¶177-179. This regulatory finding, combined with Defendants’
promises that they “look at the root causes” of warranty issues (¶47), make clear
Defendants acted with scienter, not neglect. See also ¶¶47, 52, 148-150.
III. ARGUMENT
Legal Standards on a Motion to Dismiss
The Complaint alleges violations of §10(b) of the Exchange Act and SEC Rule
10b-5. ¶¶206-210. Defendants only contest falsity and scienter, conceding all other
elements of a §10(b)/Rule 10b-5 claim were adequately pled. Although the Private
Securities Litigation Reform Act (“PSLRA”) requires specific pleading standards for
§10(b) claims, they “are still pleading standards – not evidentiary ones” and “do[] not
override the principle that, when a court considers a Rule 12(b)(6) motion, it must
‘accept plaintiff’s allegations as true and construe the complaint in its favor.’” Bond
v. Clover Health Invs., Corp., 587 F. Supp. 3d 641, 667 (M.D. Tenn. 2022) (emphasis
in original); see also Frank v. Dana Corp., 646 F.3d 954, 958 (6th Cir. 2011) (“Dana
II”) (holding “[a]ll facts in the complaint must be accepted as true”).
The Complaint Adequately Alleges False and Misleading
Statements
Corporate actors must “‘provide complete and non-misleading information with
respect to the subjects on which [they] undertake[] to speak.’” Helwig v. Vencor, Inc.,
251 F.3d 540, 560-61 (6th Cir. 2001) (en banc) (reversing dismissal), abrogated on
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other grounds by Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007)
(“Tellabs II”). “When determining whether an omission renders prior statements
misleading, context matters” because “‘[s]ome statements, although literally accurate,
can become, through their context and manner of presentation, devices which mislead
investors.’” MJK Fam. LLC v. Corp. Eagle Mgmt. Servs., 2009 WL 4506418, at *7
(E.D. Mich. Nov. 30, 2009) (alteration in original).
1. Defendants Made False and Misleading Statements
Portraying Positive Quality and Warranty Trends
The following chart (¶56) shows Defendants reported drastically improved (and
suppressed) warranty reserves during the Class Period, boosting profitability:
This purportedly positive reversal of prior trends in Ford’s “pre-existing”
warranty reserves signaled that warranty costs for older vehicles were significantly
improving,2 which matched Defendants’ words. For example, Ford claimed that
2
Defendants reported favorable comparative metrics such as, in October 2021,
reporting “changes in accrual related to pre-existing warranties” of only $44
million, compared to the $1.4 billion increase in the prior year. ¶77; see also ¶78
(Lawler emphasizing “our warranty will improve in the fourth quarter and full year”
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“lower warranty costs” had “more than offset the effects of production losses and
higher commodity costs” (¶81), and Lawler likewise touted that Ford achieved
“improvement in warranty costs” that “offset commodity headwinds and supply
chain-related production losses” (¶82(a)) and “contribution costs improved by about
4 points driven by . . . warranty” (¶94).
Defendants attributed the positive trend of lower warranty costs to improved
quality and increased OTA usage. For example, Lawler said “we’re improving our
quality . . . . We saw that come through this year, from a year-over-year warranty
standpoint was down roughly $1.4 billion” and Ford was “leveraging what we have
from the connected vehicle [OTAs] to improve warranty even further.” ¶82(b).
Similarly, Farley assured investors costs were declining because Ford identifies
defects and “takes actions quickly to resolve them” with “much more frequent use of
OTAs” which had “worked for us” (¶87), and Defendants had “overhauled” Ford’s
“entire enterprise quality operating system” and were “seeing improvements in
initial quality” (¶90).3 In early 2024, Lawler assured investors that “from a warranty
and “we expect to be good by about $1.4 billion”). In February 2022, Defendants
reported “changes in accrual related to pre-existing warranties” of $221 million, a
$2.2 billion improvement. ¶80. Lawler stated that for warranty costs, “in 2021, we
improved by about $1 billion” and “we were about flat” in 2022. ¶92(a).
3
Farley also said “our quality is making real progress” and “initial quality is
10% better” (¶102), that “on warranty . . . you’ll see very quick progress on initial
quality” because “our fitness . . . will show up there first” (¶92(b)), and that Ford “so
far . . . avoided about 12 recalls on F-150” (¶102).
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standpoint, costs are probably going to be about flat” because “we’re starting to see
green shoots [positive signs] in the quality improvements.” ¶99.
The chart (¶56) and Defendants’ prior statements refute their present claim that
they accurately disclosed negative trends and increasing warranty costs (MD
PageID.1277-79). See §§II.B.-D.; Helwig, 251 F. 3d at 565 (rejecting defense
interpretation because “[f]act-splitting is hardly persuasive or appropriate considering
the Rule 12(b)(6) posture of this case”). Defendants’ statements were misleading
because they omitted to disclose that there was no billion-dollar improvement in
warranty costs. Rather, Defendants artificially suppressed the warranty reserve
calculation by delaying recalls on then-existing costly defects plaguing older vehicles
(and could not be remedied with OTAs). See §§II.C.-E.; Padilla v. Cmty. Health Sys.,
Inc., 2022 WL 3452318, at *20 (M.D. Tenn. Aug. 17, 2022) (upholding statements
concealing understatement of bad debt because plaintiffs “plausibly alleged that
[d]efendants distorted certain figures disclosed to the public and stated what the
practices were and how they allegedly distorted the data”); MJK, 2009 WL 4506418,
at *8 (finding incomplete disclosures of some conflicts were actionable because they
concealed other, serious conflicts).4
4
See also City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651,
669-81 (6th Cir. 2005) (reversing dismissal of statement that misleadingly understated
exposure to claims for defective tires); Smilovits v. First Solar, Inc., 2012 WL
6574410, at *4 (D. Ariz. Dec. 17, 2012) (holding statements that concealed product
defects to understate reserves were actionable).
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Defendants cannot undermine their plain words with fact disputes. First, they
claim investors were not misled because Ford reported increased reserves in some
quarters. MD PageID.1277-78. This “truth-on-the-market” defense is “‘intensely
fact-specific and is rarely an appropriate basis for dismissing a §10(b) complaint.’”
Wilkof v. Caraco Pharm. Laby’s, Ltd., 2010 WL 4184465, at *4 (E.D. Mich. Oct. 21,
2010) (upholding statements that failed to “share complete information” about
company problems and rejecting argument that market knew of concealed facts).
Moreover, those relatively smaller quarter-over-quarter increases in Ford’s warranty
reserves in 2021-2023 represented a positive reversal from the drastically higher (up
to 10x larger) increases in 2018-2020 and do nothing to explain why warranty costs
and reserves increased by over $2 billion at the end of the Class Period (in 3Q23 and
2Q24) for old-car issues. See §§II.D.-E.; ¶¶8, 133-138; Shupe v. Rocket Cos., 660 F.
Supp. 3d 647, 670-71 (E.D. Mich. 2023) (upholding statements that concealed
negative cost exposure from rising interest rates and rejecting argument that investors
were “nitwits” if they were misled).5 Defendants attempt to demonstrate their honesty
5
As Defendants concede, Ford did not report the quarterly metrics in their chart.
MD PageID.1270 n.2. This is because Ford has admitted that seasonality impacts
reserves and, thus, quarter-over-quarter is not an accurate comparison. See Ford
Motor Company, Annual Report at 43 (Form 10-K) (Feb. 5, 2025). Rather, when
each quarter in 2021 and 2022 is properly compared to the same quarters in 2019 and
2020, it shows a dramatic decrease, falsely portraying positive warranty trends. See
¶¶77, 80, 84, 86, 88; see also ¶165 (comparing suppressed first half 2021-2023 reserve
increases with true increases revealed by the 2Q24 corrective disclosure).
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by pointing to the year-over-year reserve increase of “2000%” in Q3 2023 (MD
PageID.1271, 1277-78), but that increase is one of the corrective disclosures that came
during the NHTSA investigation and shocked investors, causing a 12% stock decline.
See ¶¶133-134; Roofers Loc. No. 149 Pen. Fund v. Amgen Inc., 751 F. Supp. 3d 330,
348-49 (S.D.N.Y. 2024) (holding omission of fact was not offset by disclosure of
other related facts where the “[c]ompany’s share price declined appreciably” after
omitted fact was revealed).
Second, Defendants continue their improper truth-on-the-market defense by
pointing to other statements that Ford was “number one in recalls” and had “more
work to do” on quality to suggest investors were fully informed of the concealed facts.
MD PageID.1279, 1288-89. But saying Ford has lots of recalls on disclosed defects
did not inform investors that Ford was facing massively higher costs on the
undisclosed defects and delaying even more required recalls to suppress reserves and
boost profits, or that OTA usage was not improving warranty costs. E.g., ¶¶91, 97,
105, 112, 114. If telling half the story were enough, Defendants could never be liable.
See Grae v. Corr. Corp. of Am., 2021 WL 1100799, at *23 (M.D. Tenn. Mar. 23,
2021) (rejecting truth-on-the market defense at summary judgment where “bits and
pieces” disclosed to public about “quality issues” failed to “paint[] the whole
picture”). That analysts interpreted Defendants’ statements to indicate quality and
warranty costs were improving refutes Defendants’ argument. See, e.g., ¶¶79, 83; In
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re Envision Healthcare Corp. Sec. Litig., 2022 WL 4551876, at *8 (M.D. Tenn. Sep.
29, 2022) (adopting interpretation of statement corroborated by analysts).
Third, Defendants claim Plaintiffs must back-cast the over $2 billion in belated
warranty costs and reserve increases to each quarter of the Class Period. MD
PageID.1281. But that level of detail, which also requires experts, is not required, as
the PSLRA would not serve its “purpose ‘to protect investors’” if it “bec[a]me a
choke-point for meritorious claims” at the pleading stage, particularly given the
“suspension of all discovery pending a motion to dismiss.” Helwig, 251 F.3d at 553.
Thus, those details can await fact and expert discovery. See id.; In re Upstart
Holdings, Inc. Sec. Litig., 2023 WL 6379810, at *14 (S.D. Ohio Sept. 29, 2023)
(“[C]ourts must be cautious when considering . . . hindsight arguments at the motion
to dismiss stage because there has been little if any discovery and the court has no
visibility into the evidence that was available to the corporate [defendants].”);
Pierrelouis v. Gogo, 2021 WL 1608342, at *6-*7, *11 (N.D. Ill. Apr. 26, 2021)
(assessing pleadings in light of “the limited information available to plaintiff
concerning . . . internal deliberations”); Bond, 587 F. Supp. 3d at 667.
Here, Plaintiffs sufficiently detail that the over $2 billion increases in warranty
costs and reserves at the end of the Class Period were attributed primarily to pre-
existing defects well-known and discussed within Ford and among its dealers and
customers, for which the touted OTAs were useless. See §§II.C., II.E., III.B.2. For
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example, Defendants admitted in 2Q24 the increased costs were driven by the
longstanding defects in older-model vehicles and dealers were not using OTAs,
contrary to their prior claims. ¶¶138-139. Fraud by hindsight is when unforeseeable
defects arise to make prior reserve and warranty statements inadequate, not when
known, old defects are concealed and recalls are delayed and suppressed.6
2. Defendants Reported Suppressed Reserves in
Violation of GAAP
Ford’s financial statements were false and misleading because they did not
comply with GAAP, including violating ASC 450, governing disclosure of a “loss
contingency.” ¶¶116-131. ASC 450 required that Ford accrue a charge to income
when: (i) the Company has information indicating a loss was probable (i.e., “likely” to
occur) before the financial statements were issued; and (ii) the amount of the loss can
be reasonably estimated. ¶122. Here, Defendants were required to book appropriate
reserves under ASC 450 for the defects plaguing Ford during the Class Period, which
6
See also Carpenters Pension Tr. Fund for N. Cal. v. Allstate Corp., 2018 WL
1071442, at *6 (N.D. Ill. Feb. 27, 2018) (rejecting “‘fraud by hindsight’” argument
because defendant’s admission “does not merely indicate” his statements “were
incorrect in retrospect; it suggests that they were incorrect when made”). The facts
here are distinct from those cited by Defendants. See, e.g., IBEW v. Ltd. Brands, Inc.,
788 F. Supp. 2d 609, 635 (S.D. Ohio 2011) (dismissing where defendants disclosed
company’s specific underlying problems and plaintiffs failed to plead facts
undermining defendants’ claims that they were working hard to fix them); In re
Humana, Inc. Sec. Litig., 2009 WL 1767193, at *16-*17 (W.D. Ky. June 23, 2009)
(finding statements regarding sales for one program were not rendered misleading for
failing to disclose pricing issues for a different program).
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were widespread and consistent (¶¶59-61, 65-66, 69, 74-75), expensive (¶¶53-54, 67,
69, 75(b), 75(e)-(h), 133, 138), closely monitored (¶¶43-54, 62-63, 68-69, 75(c), 169,
172), and under regulatory noncompliance review (¶¶64-66, 69, 176-177), making the
high costs to fix them clearly probable and estimable. But Defendants delayed recalls,
suppressing historic costs and the reported reserves based on those understated costs,
only to belatedly (as the NHTSA probe neared completion) issue recalls, requiring
them to pay increased warranty costs and book increased reserves at the end of the
Class Period. See §§II.C.-E.; ¶¶126-128; Godinez v. Alere Inc., 272 F. Supp. 3d 201,
217 (D. Mass. 2017) (rejecting that defendants would “not have known before July
2016” that a recall was sufficiently probable to require accrual of a loss under ASC
450 because later-disclosed “loss was attributed to circumstances in existence before
the end of 2015”); Smilovits v. First Solar, Inc., 119 F. Supp. 3d 978, 1005-06 (D.
Ariz. 2015) (upholding under-accrual claims on summary judgment), aff’d sub nom.
by Mineworkers’ Pension Scheme v. First Solar Inc., 881 F.3d 150 (9th Cir. 2018).
Defendants’ fact disputes and speculation (MD PageID.1280-85) have no place
in a motion to dismiss and do not conclusively refute the allegations (§III.B.1). First,
Defendants speculate that their external auditors approved the delayed recalls and
suppressed reserves. MD PageID.1269-71, 1284. But there are no allegations, and
Defendants do not even suggest, that the auditors were informed of the older-model
vehicle defects, delayed recalls, and inaccurate information provided to the NHTSA.
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See MD PageID.1284. Whether the auditors approved the scheme, as Defendants
suggest, or were provided inaccurate information like the regulators, must await trial.
See Helwig, 251 F.3d at 553 (holding inferences “‘must be construed in the plaintiff’s
favor’”); First Solar, 119 F. Supp. 3d at 1005-06 (rejecting reliance on auditor defense
on warranty reserve issue at summary judgment because of questions of fact over
whether company withheld or misstated facts to auditors).7
Second, Defendants again argue Plaintiffs must reconstruct the quarterly
reserves that “Ford should have accrued instead.” MD PageID.1277 (emphasis in
original). However, investors need not be CPAs to pursue recovery under the
securities laws and can rely on expert discovery to back-cast when the over $2 billion
in belated reserve increases and costs should have been reserved. See In re Flag
Telecom Holdings, Ltd. Sec. Litig., 352 F. Supp. 2d 429, 467 (S.D.N.Y. 2005)
(holding no requirement to plead specific dates or “precisely quantify” financial
7
See also N. Port Firefighters’ Pension-Loc. Option Plan v. Fushi Copperweld,
Inc., 929 F. Supp. 2d 740, 785 & n.7 (M.D. Tenn. 2013) (“Assertions that
[Defendants] employed an independent accounting firm’s assessment on these issues
does not confer immunity nor can such an issue be decided at pleading stage.”).
Unlike in Defendants’ cases, there is evidence here that Ford misled regulators,
supporting an inference the auditors were also misled, and the errors here did not arise
from mere “accounting deficiencies” (Malin v. XL Cap., 499 F. Supp. 2d 117, 127,
143, 148 (D. Conn. 2007), aff’d, 312 F. App’x 400 (2d Cir. 2009)), or valuation of
claims already subject to reserves (Woolgar v. Kingstone Cos., 477 F. Supp. 3d 193,
228-29 (S.D.N.Y. 2020)), but arose from Defendants failing to accurately bring
existing, significant defects into the reserve assessment, which an auditor would not
have known. See §§II.C.-E.; MD PageID.1348.
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misstatements).8 It is enough at this stage that billions clearly related, by Defendants’
admission, primarily to pre-existing defects and, by Ford’s reported reserve formula,
delaying recalls would suppress historical costs and reduce reported reserves.9
Finally, Defendants’ argument that they complied with GAAP by disclosing
“possible costs in excess of our accruals” (MD PageID.1283 (emphasis in original)) is
both subject to expert testimony and incorrect. GAAP does not permit below-the-line
reporting of “possible” costs as a substitute for above-the-line costs and reserves that
reduce profit (¶¶122-124), and Defendants cite no authority suggesting otherwise. If
anything, Defendants’ argument that they accounted for the concealed defects at issue
by adding “$700 million to $1.5 billion in the Class Period” for “possible costs” (MD
8
See also In re Perrigo Co. PLC Sec. Litig., 435 F. Supp. 3d 571, 582-87
(S.D.N.Y. 2020) (finding violation of ASC 450 sufficiently pled even though there
had been “no final determination” on precise amount of liability); In re Facebook, Inc.
Sec. Litig., 87 F.4th 934, 950 (9th Cir. 2023) (holding statements “could be misleading
even if the magnitude of the ensuing harm was still unknown”). In a parenthetical,
Defendants suggest their unilateral decision not to restate reserves negates Plaintiffs’
claimed GAAP violations (MD PageID.1284-85), but that is not true. See In re LDK
Solar Sec. Litig., 584 F. Supp. 2d 1230, 1245 (N.D. Cal. 2008) (“[T]he lack of a
restatement did not mean that [Defendants] only engaged in legitimate conduct.”);
Padilla, 2022 WL 3452318, at *38; Bond, 587 F. Supp. 3d at 674.
9
For example, Defendants had identified RVC defects in October 2020 (¶69),
and the oil pump defect was causing expensive damage in 2020 and 2021 (¶66), yet
they increased reserves only $44 million (versus $1.4 billion in prior year) (¶77). As
another example, as NHTSA pressed on Ford’s inadequate RVC recalls and the oil
pump defect wreaked havoc (¶¶66-68, 176-178), the expensive rear-axle defect on
Ford’s flagship F-150 was clear in 2021 and 2022, with NHTSA meeting twice with
Ford by June 2022. ¶¶59-64, 75(a)-(c), 75(g)-(h). Yet, in 1Q-3Q 2022, Defendants
reported only small reserve increases that did not match reality. ¶¶84-88.
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PageID.1283-84) concedes they knew they had an over $2 billion problem during the
Class Period but tried to minimize (and understate) it as possible, not probable. As
discussed, the allegations show those costs were in fact probable (i.e., likely) and
being delayed. §§II.C.-D. Thus, the costs were required to be booked in the financial
statements as a reserve that lowered profits. ¶¶126-128. Defendants’ words are again
undercut by their actions since, at the end of the Class Period, they were forced to
increase costs and reserves above the line and decrease profits to comply with GAAP,
rather than continue footnoting only “possible” costs. MD PageID.1642.10
3. Defendants’ Inflation Statements Were Misleading
Defendants misleadingly attributed certain warranty cost increases to temporary
“inflation” rather than the quality defects they needed to fix. In July 2023, Lawler
stated Ford was seeing increased warranty costs due to “some inflationary pressures”
and dealerships “increasing their costs” (¶95), but, in truth, as later admitted in
October 2023, 75% of the increased costs (i.e., $900 million) in 3Q 2023 was “driven
by recalls” and “warranties.” ¶¶133-134. It was misleading to publicly blame the
25% cause (inflation), while concealing the 75% cause (warranty problems).
Thereafter, the market understood the 3Q23 warranty problems would be non-
10
Defendants claim Plaintiffs did not include the “possible costs” disclosure in the
Complaint (id. 1284), as if to suggest it is Plaintiffs’ burden to refute every
conceivable weak argument Defendants might advance. That has never been a rule of
advocacy, but if it were, Defendants committed a far bigger violation by ignoring in
their Motion Plaintiffs’ most compelling allegations.
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recurring (¶134), and Defendants misleadingly affirmed that perception by again
citing only inflation as a source of increased warranty costs in 2024, with Defendants
claiming in February 2024 that “our warranty costs have increased, in part, due to
inflationary cost pressures” (¶115), and Lawler saying in June 2024 that Ford was
only “seeing . . . inflation in the warranty space, the cost per repairs going up”
(¶104). These statements concealed that 2024 costs were increasing because of the
massive warranty problems Defendants were failing to contain, as admitted in July
2024. ¶¶136-138. By choosing to speak about the supposed source of increased
warranty costs, Defendants were required to tell the whole truth. See Allstate, 2018
WL 1071442, at *4 (holding by “elect[ing]” to discuss one cause of increased claims
(weather), defendants had “to do so in a manner that was not misleading; that is, by
disclosing [the company’s] reduction in underwriting standards”).
4. Defendants Provided False and Misleading Risk
Disclosures that Failed to Warn Investors of Reality
Defendants’ claim that their “risk warnings” fully informed investors (MD
PageID.1290-92) fails because those were also false and misleading. For example,
they claimed only that vehicles “could be affected by defects that result in . . . recall
campaigns, or increased warranty costs” and such costs “could be substantial” and
“have an adverse effect on” Ford’s financial condition and reputation. ¶¶107-111.
Defendants did not warn that recalls on existing defects were being delayed, and costs
were being concealed, to suppress reserves and inflate profits. See Facebook, 87 F.4th
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at 949 (finding risk statements presented “as purely hypothetical when that exact risk
had already transpired” were inadequate).
Defendants’ citation to Bondali v. Yum! Brands, Inc., 620 F. App’x 483, 491
(6th Cir. 2015) (MD PageID.1291), is unavailing because the Yum! court recognized
that “there may be circumstances under which a risk disclosure might support [§]10(b)
liability.” Id. This is such a case. In Yum!, plaintiffs only alleged that eight batches
out of thousands of chicken tested positive for antibiotic residues, with no context to
show these “were so severe that they would have resulted in financial loss for Yum.”
Id. By contrast, here, the existing defects and delayed recalls caused over $2 billion of
reserve increases and costs. See §III.E.11 Similarly, Defendants’ statements that they
purportedly “assess our obligation for [FSAs] on a regular basis” to “update our
estimates as necessary” (¶113(b)) were clearly false and misleading because
Defendants were not doing that and instead were hiding defects and delaying recalls to
avoid updating their estimates. §II.C.; see also Underland v. Alter, 2011 WL
4017908, at *9 (E.D. Pa. Sept. 9, 2011) (“Because Plaintiffs have sufficiently alleged
11
Under these facts, “a reasonable investor would be []likely to infer” (Yum!, 620
F. App’x at 491) Ford was not delaying recalls or facing massive costs on concealed
defects. See also Silverman v. Motorola, Inc., 2008 WL 4360648, at *10 (N.D. Ill.
Sept. 23, 2008) (finding statements that product launches were “on track” were false
in light of “omissions regarding the problems plaguing the 3G rollout”). Notably,
Ford has conceded its risk warnings were inadequate during most of the Class Period
by changing them on October 26, 2023, the first corrective disclosure date. See MD
PageID.1291. Even this belated revision still did not inform investors that warranty
costs were not improving and continued to plague Ford’s financial results.
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that Defendants departed from their claimed methodology to calculate the loan loss
reserve, they have sufficiently alleged . . . loan loss reserves were misstated.”).
5. Defendants’ Remaining Arguments Lack Merit
a. The Statements Are Not Protected Under the
Safe Harbor
Defendants incorrectly suggest that warranty reserves are forward-looking
estimates protected by the PSLRA’s safe harbor. MD PageID.1285-87. However,
“‘reserves and their adequacy are not per se forward-looking’” under the PSLRA.
Winslow v. BancorpSouth, Inc., 2011 WL 7090820, at *18 (M.D. Tenn. Apr. 26,
2011) (denying motion to dismiss), R&R adopted, 2012 WL 214635 (M.D. Tenn. Jan.
24, 2012). Instead, reserve statements are not protected if they, for example: (i) “‘“are
directed to the then-present state of the Company’s financial condition”’” (id.); (ii) are
misleading “‘based upon omissions of existing facts or circumstances’” (Shulman v.
Weston, __ F. Supp. 3d __, 2025 WL 3754159, at *8 (D.N.J. Dec. 29, 2025)); (iii) lack
a reasonable basis (Blatt v. Corn Prods. Int’l, Inc., 2006 WL 1697013, at *4 (N.D. Ill.
June 14, 2006)); or (iv) are “mixed present/future” statements that are misleading as to
“the part of the statement that refers to the present” (Makor Issues & Rts., Ltd. v.
Tellabs Inc., 513 F.3d 702, 705 (7th Cir. 2008) (“Tellabs III”)).
Here, the reserves and quality statements were directed at the condition of
Ford’s present financial condition and were publicly stated to be based on historical
cost experience. But Defendants suppressed them by delaying recalls on existing
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defects, and OTA usage was low. §§II.C.-E. That is far different than claiming
Defendants failed to predict future events, as the concealed facts had nothing to do
with the future. See Winslow, 2011 WL 7090820, at *18 (upholding statements where
plaintiff claimed “the reserves were insufficient in light of the existing risks”).12
b. The Statements Are Not Inactionable Opinions
Defendants claim their reported warranty reserves and unspecified “related
statements about warranty costs” are inactionable opinions. MD PageID.1279-84.
However, Ford’s reserves are not alleged to be misleading opinions about the future,
but to have contained the false factual assertion that Ford’s reported positive trends
reflected improved historical information (e.g., ¶113) when, in reality, Defendants
were manipulating historical results by excluding the costs of recalling and fixing
then-existing costly defects impacting hundreds of thousands of vehicles. See §§II.C.-
E.; Shoals, 802 F. Supp. 3d at 1043-44 (finding warranty cost statements actionable
given concealment of existing liabilities); Underland, 2011 WL 4017908, at *9
12
See also In re Shoals Techs. Grp., Inc. Sec. Litig., 802 F. Supp. 3d 1024, 1043
(M.D. Tenn. 2025) (rejecting forward-looking argument that “ignores [p]laintiffs’
allegations that [defendants] shielded the market from learning about real, calculable
liabilities that had already accrued”); Padilla, 2022 WL 3452318, at *38 (holding
statements not forward-looking where “one could determine” when “the statements
were spoken, whether relevant evidence was excluded”); Upstart, 2023 WL 6379810,
at *15, *17 (upholding statements about “expectations” that were “inconsistent” with
existing omitted facts). Defendants’ cases are unavailing, as the reserves were not
verifiable until “liability claims were actually filed” (MD PageID.1285-86 (citing,
e.g., In re Kindred Healthcare, Inc. Sec. Litig., 299 F. Supp. 2d 724, 738 (W.D. Ky.
2004)), but here the defects existed and the high costs were clear. §§II.C.-E.
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(upholding reserve statements as misleading where company “refused to incorporate,
among other things, current losses into its calculations” (emphasis in original));
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175,
188-89 (2015) (misleading “embedded facts” within opinions are actionable).
Even if viewed as opinions, Defendants’ reserve statements are actionable
because Plaintiffs adequately allege: (i) Defendants did not believe the opinion; and
(ii) the statements omitted material facts that would “conflict with what a reasonable
investor would take from the statement itself.” Omnicare, 575 U.S. at 188-89.
First, Defendants could not believe the reserves were accurate because they
were delaying recalls and the resulting belated over $2 billion in increases were for
preexisting defects for older models monitored during the Class Period. §§III.C.-E.
Likewise, the NHTSA Consent Order concerned delayed RVC recalls as early as
September 2020 and the investigation, which they attempted to thwart with inaccurate
information, began in August 2021 – before the Class Period. ¶¶175-178. Moreover,
in 1Q21, Defendants began manipulating profits by putting over $1 billion below the
line in “possible costs in excess of” reserves (MD PageID.1283 (emphasis in
original)), while simultaneously reducing reported warranty reserves by nearly the
same figure, demonstrating scienter. See §III.B.2. Engaging in a scheme to suppress
reserves, delay recalls, and provide false information to a regulator, shows Defendants
did not believe reported warranty reserves were adequate. See Mayer v. Mylod, 988
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F.2d 635, 639-40 (6th Cir. 1993) (holding “statements of opinion, if not truly believed
and not supported by available facts, are actionable under [§]10(b)”).13
Second, Defendants’ statements omitted to disclose the costly existing defects
and that they delayed recalls to suppress the historical costs of repairing the defects,
which suppressed warranty reserves under their publicly stated accounting policy.
§§II.C.-E.; §§III.B.1.-2. Those omitted facts “‘conflict with what a reasonable
investor would take’” from Defendants’ positive warranty trends and were necessary
to make their statements not misleading. Padilla, 2022 WL 3452318, at *23-*24
(holding opinions about receivables actionable for “omitt[ing] that there were growing
problems with [the company’s] aged receivables”); In re Envision Healthcare Corp.
Sec. Litig., 2019 WL 6168254, at *12 (M.D. Tenn. Nov. 19, 2019) (holding
13
Kai Spande’s expert opinion adds further support because it was based on
objective data and industry experience and provided details regarding the timing,
widespread nature, and expense of the defects. See Hills v. BioXcel Therapeutics,
Inc., 2025 WL 2777129, at *9 (D. Conn. Sept. 29, 2025) (citing cases) (“‘[I]t is
permissible for a plaintiff to bolster a complaint by including a nonconclusory opinion
to which an expert may potentially testify.’”). Defendants’ cases rejecting expert
opinions are distinguishable because those opinions were “not based on any facts
whatsoever” (Roth v. OfficeMax, Inc., 527 F. Supp. 2d 791, 801-02 (N.D. Ill. 2007)),
but on “baseless” assumptions (King v. Whitmer, 71 F.4th 511, 523 (6th Cir. 2023)).
Moreover, the totality of facts here, including Defendants’ admissions of monitoring
and the pervasiveness of the identified defects, negatively impacting financials and
thousands of vehicles (see §III.C.), are not like In re Omnicare, Inc. Sec. Litig., 769
F.3d 455, 482-83 (6th Cir. 2014), where the complaint failed to identify the “specific
irregularities” or “nature of the concerns” undermining defendants’ statements.
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“[w]hether stated as an opinion or fact,” a reasonable person could view statements as
misleading for omitting material information).
Defendants suggest no reasonable investor “would believe that Ford promised
that warranty accruals would not increase.” MD PageID.1282. But Plaintiffs do not
claim Defendants misrepresented the future, rather they misrepresented the present, as
reasonable investors did believe Defendants were succeeding in reversing the negative
trend of warranty costs, only to learn otherwise, shocking the market and causing
Ford’s stock to crash. See §III.B.1.; ¶¶79, 83, 103, 133, 143.14
c. The Statements Are Not Immaterial Puffery
Defendants fail in challenging four statements as immaterial puffery. MD
PageID.1290. “The Sixth Circuit has made clear that even superficially broad
14
Again, Defendants’ claim that the reserve increases were in the range of
“possible costs in excess of” reserves (MD PageID.1283 (emphasis in original)) only
supports that Defendants knew of the defects, which combined with the delayed
recalls, shows they knew they were probable, not just possible costs. These facts do
not exist in Defendants’ cases, where a new event or third-party act caused reserves to
increase. See, e.g., Police & Fire Ret. Sys. City of Detroit v. Argo Grp. Int’l Holdings,
2024 WL 5089970, at *6-*7 (S.D.N.Y. Dec. 12, 2024) (reserves increased due to
newly “tighten[ed] underwriting . . . and exposures going forward”); In re Hertz Glob.
Holdings, Sec. Litig., 2017 WL 1536223, at *7, *11-*12 (D.N.J. Apr. 27, 2017)
(errors arose from, in part, “challenges related to managing complex, inefficient
legacy systems”), aff’d, 905 F.3d 106 (3d Cir. 2018); In re Walmart Inc., Sec. Litig.,
151 F.4th 103, 120 (3d Cir. 2025) (no duty to predict potential outcome of ongoing
government investigation); In re Huntington Bancshares Inc. Sec. Litig., 674 F. Supp.
2d 951, 964-65 (S.D. Ohio 2009) (“[n]o information suggests” acquiring company
was aware of deteriorating portfolio of acquiree); Chapman v. Mueller Water Prods.,
466 F. Supp. 3d 382, 393 (S.D.N.Y. 2020) (reserves increased based on a “‘new
analysis of [company’s] warranty expense experience’”).
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statements of corporate self-praise must be evaluated in context to determine if they
convey more than just a generalized optimism.” Grae v. Corr. Corp. of Am., 2017
WL 6442145, at *14 (M.D. Tenn. Dec. 18, 2017). Here, all four statements were
material because they concerned Ford’s concrete efforts to improve quality and the
purported positive impact of those efforts (¶¶82(b), 87, 99, 102), which were critical
to Defendants funding their highly-touted Ford+ strategy (¶¶27-55). See also Constr.
Indus. & Lab. Joint Pension Tr. v. Carbonite, Inc., 22 F.4th 1, 8-9 (1st Cir. 2021)
(finding materiality where CFO stated product was “‘really important . . . for us’”).15
Materiality is also shown by the fact that two of the misstatements (¶¶82(b), 99)
were in direct response to analyst questions about Ford’s “warranty coming down”
and how Ford was “improv[ing] margins.” See In re Virtu Fin., Inc. Sec. Litig., 770 F.
Supp. 3d 482, 502 (E.D.N.Y. 2025) (finding statements responding to analyst
questions “materially misleading”); Hedick v. Kraft Heinz Co., 2021 WL 3566602, at
15
Defendants remove the statements from their context to suggest they are only
vague claims, like those in In re Ford Motor Corp. Sec. Litig., 381 F. 3d 563, 570 (6th
Cir. 2004) (dismissing isolated statements such as “‘quality comes first’” and “‘[w]e
aim to be the quality leader’”). MD PageID.1290. But in context, the statements were
both tied to their progress of lowering warranty costs (to fund Ford+) and quantified,
which made them material to investors assessing Ford’s success in achieving those
goals. For example, the statement, “we’re improving our quality” continues “[w]e
saw that come through this year . . . [with warranties] down roughly $1.4 billion.”
¶82(b); see also ¶87 (connecting Ford “takes actions quickly to resolve [issues]” with
“more frequent use of OTAs . . . [which have] worked for us”); ¶99 (claiming “green
shoots in the quality improvements” would result in “flat” warranty costs); ¶102
(tying “our quality is making real progress” to “quality is 10% better”).
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*10 (N.D. Ill. Aug. 11, 2021) (finding statements “in response to questions from
analysts” material). Further, the “fact that the price of the stock plummeted shortly
after disclosure demonstrates” materiality of the concealed information. In re Ulta
Salon, Cosms. & Fragrance, Inc. Sec. Litig., 604 F. Supp. 2d 1188, 1196 (N.D. Ill.
2009). And, materiality is a question of fact that should not be decided on a motion to
dismiss. See Helwig, 251 F.3d at 563 (citing cases).
The Totality of Allegations Sufficiently Plead a Strong
Inference of Scienter as to Each Defendant
Scienter may be alleged by: (i) “knowing and deliberate intent to manipulate,
deceive, or defraud”; or (ii) “recklessness,” meaning ““‘highly unreasonable conduct
which is an extreme departure from the standards of ordinary care.’”” Dana II, 646
F.3d at 958-59. In evaluating scienter, courts must consider “whether all of the facts
alleged, taken collectively, give rise to a strong inference of scienter.” Tellabs II, 551
U.S. at 322-23, 326 (emphasis in original). The inference must be “cogent and at least
as compelling as any opposing inference of nonfraudulent intent,” but “need not be . .
. the ‘most plausible of competing inferences.’” Id. at 314, 324; see also Frank v.
Dana Corp., 547 F.3d 564, 571 (6th Cir. 2008) (“draw” goes to the plaintiffs). Direct
evidence is not required, as circumstantial allegations are sufficient. See Chow v.
Archer-Daniels-Midland, 2025 WL 790854, at *3 (N.D. Ill. Mar. 12, 2025).
Before Tellabs II, the Sixth Circuit set forth a “not exhaustive” list of factors to
consider in assessing scienter. See Helwig, 251 F.3d at 552 (listing factors). Post-
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Tellabs II, courts in this Circuit have found scienter adequately pled without the
Helwig factors or where only certain factors were present.16 Here, the totality of facts
alleged, “collectively,” establish the inference of scienter is at least as compelling as
the competing inference that Defendants were fed misinformation. See Tellabs III,
513 F.3d at 709-11 (finding inference that executives were fed misinformation on
critical matter “is conceivable,” but “exceedingly unlikely”).
1. Defendants’ Admitted Focus, Close Monitoring, and
Frequent Statements Support Scienter
Defendants’ admissions of monitoring, and detailed discussions of the relevant
issues, strongly support scienter. See §II.B.; Shupe, 660 F. Supp. 3d at 678 (holding
“self-admitted monitoring infers scienter”). Farley and Lawler specifically claimed
they would reduce warranty costs and improve quality. ¶¶3, 6, 38-44. They placed
“lower[ing] our warranty spending” at the top of “the four things that we need to fix”
at Ford and were “laser focused” with “a very concrete plan” on reducing warranty
costs, and had made quality “a key metric” for “our management team.” ¶¶43-45.
16
See, e.g., Dana II, 646 F.3d at 961-62 (eschewing Helwig factor approach for
“holistic” scienter analysis under Tellabs II). Defendants’ contention that the absence
of some Helwig factors “indicates the absence of scienter,” based on a narrow reading
of one case predating Tellabs II (MD PageID.1293-94), is clearly wrong. See Jonna v.
GIBF GP, Inc., 617 F. Supp. 3d 789, 807 (E.D. Mich. 2022) (not referencing factors
in finding scienter pled under Tellabs II); Bond, 587 F. Supp. 3d at 676 (Helwig
factors are not a “pleading requirement”); In re Heritage Glob. Network L.A., Inc. v.
Welch, 2024 WL 695772, at *13 (M.D. Tenn. Feb. 20, 2024) (noting most Helwig
factors “involve situational circumstances with little bearing on many types of fraud”).
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As such, Defendants closely monitored warranty cost and quality issues,
including through weekly “deep dive[]” cost meetings, frequent discussions with
Ford’s head of Quality, looking at the “root causes” of “hundreds” of warranty issues,
monitoring granular repair data from Ford’s GWMS, monitoring message boards and
social media to identify quality and warranty issues (including those at issue here),
and performing quarterly analyses on existing issues impacting reserves. See §II.B.
Farley and Lawler also signed certifications that the financial statements reporting
reserves were investigated and accurate (¶¶152-153), stated reserves were based on an
accounting policy that accounted for historical costs (¶¶33-34), and made repeated and
detailed statements demonstrating knowledge of these topics and their then-existing
status (¶¶53, 78, 82, 87, 90, 92, 94-95, 99, 102, 104). All these facts support a strong
inference of scienter. See Grae, 2017 WL 6442145, at *20 (holding defendant’s “own
public statements . . . go a long way toward” showing scienter); Kyrstek v. Ruby
Tuesday, Inc., 2016 WL 1274447, at *9 (M.D. Tenn. Mar. 31, 2016) (finding scienter
where defendants’ “statements allegedly confirm that the Company was monitoring
Lime Fresh’s performance”); Winslow, 2011 WL 7090820, at *23 (finding admissions
of monitoring supported scienter).17
17
See also Dana II, 646 F.3d at 962 (defendants’ roles and statements supported
scienter); Reese v. Malone, 747 F.3d 557, 572 (9th Cir. 2014) (finding it “unlikely that
[defendant] was not aware of” issue she discussed), overruled on other grounds by
City of Dearborn Heights Act 345 Police & Fire Ret Sys. v. Align Tech., 856 F.3d 605
(9th Cir. 2017); Upstart, 2023 WL 6379810, at *23 (defendants “voluntarily and
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2. The NHTSA Consent Order Supports Scienter
The NHTSA fine and Consent Order support that Defendants were engaged in a
scheme to delay recalls and suppress reserves, supporting scienter. See In re BioScrip,
Inc. Sec. Litig., 95 F. Supp. 3d 711, 733 (S.D.N.Y. 2015) (holding knowledge pled
where regulatory demand sent to company). After the NHTSA probe started in 2021,
Ford filed expanded recalls in 2022 and 2024 for RVCs and filed belated recalls for
the long-standing oil pump and rear axle defects in 2023, and NHTSA imposed a $165
million penalty on Ford. §II.C. NHTSA found Ford committed regulatory violations,
including providing inaccurate information to NHTSA, failing to publicly disclose
information about recalls, failing to timely recall vehicles and address defects, and
understating the scope of recalls. ¶¶175-179. Such pattern of delaying recalls and
misleading a regulator is not accidental, but shows Defendants were purposely
delaying recalls to suppress historical costs and, by their publicly stated accounting
policy, suppress reported reserves and inflated profits to support their EV pivot.18
repeatedly discussing” topics supported scienter); Hedick, 2021 WL 3566602, at *13
(similar); S. Ferry LP #2 v. Killinger, 687 F. Supp. 2d 1248, 1260 (W.D. Wash. 2009)
(“If [Defendants] did not in fact have such knowledge, it would be at least actionably
reckless to reassure the public about these matters at all.”); Wilkof, 2010 WL 4184465,
at *6 (certifications “indicating that the information in the [SEC filing] fairly presents
the financial conditions and results of operations” supported scienter).
18
These facts also support Helwig factors 5 (existence of pertinent lawsuit), 2
(divergence from internal reports), and 6 (disregard of “current information”).
Defendants’ claim that the Consent Order did not discuss warranty reserves or name
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3. Defendants’ Admissions They Were Aware of
Warranty Issues Shortly After Vehicle Launch
Support Scienter
Defendants’ admissions that they were made aware of warranty issues on older
vehicles in real-time also strongly support scienter. See Shupe, 660 F. Supp. 3d at
678-79 (admitted access to real-time data and its significance supported scienter);
Envision, 2022 WL 4551876, at *12 (alleged “divergence between external statements
and internal information” supported scienter). Here, Lawler admitted Defendants
“start to see the warranty issues coming in” for vehicles “12 to 18 months” after
launch. ¶53. Because Defendants later admitted the spike in warranty costs at the end
of the Class Period was from “older models” that were “in the field for quite a while”
– i.e., 2016-2020-launched models (¶¶138-139) – during their quarterly reviews of
“actual claims . . . incurred” to set reserves (¶152), there is a strong inference they
knew of the warranty issues before and during the Class Period. In re Vivendi
Universal, S.A. Sec. Litig., 765 F. Supp. 2d 512, 553-54 (S.D.N.Y. 2011) (finding
scienter pled where admissions of liquidity crisis supported inference it did not arise
overnight), aff’d, 838 F.3d 223 (2d Cir. 2016).
In fact, Farley admitted that Ford management had “internal data” on warranty
and reliability issues they tracked “for quite some time” and Lawler admitted that “if
Farley and Lawler (MD PageID.1298-99) is inapt, as it is a scathing indictment of
Ford’s conduct done in furtherance of Defendants’ stated goals. §II.A.
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[defects] come through at a higher time in service, we’re made aware of them.”
¶¶169, 172; see also ¶49 (Ford warranty manager stating Ford “‘always had data on
actual costs’”). Farley also knew axle repairs, such as those comprising the reserve
spike, were “super expensive” and “complicated.” ¶53.19
4. The Importance of Warranty Costs and Recalls
Support Scienter
The critical importance of warranty costs to Ford’s results, and intense focus of
Defendants and market analysts thereon, strongly supports scienter. See Envision,
2019 WL 6168254, at *22 (“‘Courts may presume that high-level executives are
aware of matter[s] related to their business’s operations where the misrepresentations
and omissions pertain to’” facts “‘critical to a business’s core management.’”); Bond,
587 F. Supp. 3d at 677 (similar).
As noted, warranty costs were a notorious “headwind” for Ford that directly
impacted profits, Farley and Lawler were promoted to reduce them, they claimed it
19
These facts also support Helwig factors 2 (divergence from internal reports) and
6 (disregard of “current information”). Defendants’ demand for more “smoking gun”
details is not required. Tellabs II, 551 U.S. at 324; Upstart, 2023 WL 6379810, at
*22-*23 (rejecting that scienter cannot be pled without “‘confidential witnesses, . . .
accounts of conversations or meetings, [or] internal documents or reports’” as such
details would “require[] a degree of omniscience that is unrealistic at the preliminary
stages of the litigation process”). Defendants’ citation to Teamsters Loc. 237 Welfare
Fund v. ServiceMaster Glob. Holdings, 83 F.4th 514, 520-21, 529-30 (6th Cir. 2023)
(MD PageID.1296), is inapposite because the defendants there promptly disclosed a
sudden termite crisis, unlike Defendants’ concealment and suppression of
longstanding defects and warranty costs in this case. §§II.C.-D.
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was a top priority, and Ford’s warranty reserves and quality issues were the topic of
frequent discussion by Defendants and analysts. See §II.A., §III.B.1.; ¶¶155-159.
Moreover, one of the main defects concerned the axle on Ford’s flagship F-150, which
Farley called the “most important vehicle at Ford globally” and “fundamental to the
Company.” ¶160. Given the Individual Defendants’ “laser focus” on warranty and
quality issues, and frequent detailed discussion and acknowledged critical importance
thereof, it would be “absurd to suggest” they were unaware of Ford’s true defects and
warranty costs being significantly deferred. See Berson v. Applied Signal Tech., Inc.,
527 F.3d 982, 987-89 (9th Cir. 2008) (finding scienter where “it would be ‘absurd to
suggest’ that top management was unaware” of omitted facts that would have
“devastating effect” on company’s revenue); In re Cardinal Health Inc. Sec. Litig.,
426 F. Supp. 2d 688, 726 (S.D. Ohio 2006) (finding scienter where statements and
omissions concerned “primary area of focus” and market scrutiny). 20
20
Pittman v. Unum Grp., 861 F. App’x 51, 55 (6th Cir. 2021) (MD PageID.1297),
is inapposite, as Plaintiffs here do not rely on Defendants’ alleged familiarity merely
with a business line in general (there, “long-term-care” policies), but on a specific
critical problem – defects and high warranty costs. §§II.A.; II.E. Courts after Pittman
have reiterated that “core operations” allegations are “relevant in the holistic Tellabs
scienter analysis.” Padilla, 2022 WL 3452318, at *28-*29; see also Franchi v.
Smiledirectclub, Inc., 633 F. Supp. 3d 1046, 1086 (M.D. Tenn. 2022) (same and
finding scienter adequately pled where it was “reasonably inferable” that the
defendants “would be aware of core financial metrics”).
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5. The Magnitude of the Reserve Increases Supports
Scienter
That the belated warranty increases were several billion dollars for defects from
“older [2016-2020-launched] models” (¶¶138-139, 167) and, severe, dangerous, and
costly to fix (¶¶75(a)-(h)), supports scienter. See Bond, 587 F. Supp. 3d at 677
(finding it “highly implausible” for defendants to be unaware of “widespread” issue).
Indeed, among other things, the defects rendered vehicles “undriveable,” caused
engine seizure, created unsafe and expensive “walk home” situations, and involved
issues management would typically easily “read across” other models and platforms
with similar parts to know they were widespread. ¶75; see also ¶¶58-74, 138-139.
Ford ultimately booked a warranty reserve increase at June 30, 2024 that was
$2.7 billion higher than the prior year period, and a 60% increase to reserves related
to pre-existing warranties (older vehicles) from 2Q 2023 ($880 million) to 2Q 2024
($1.44 billion), causing Ford’s gas-powered business to suffer a near-50% decline in
year-over-year EBIT – for “older” 2016-2020 launched vehicles. ¶¶163-165. The
severe magnitude of Ford’s underlying defects and costs (and resulting impact on
Ford’s financials) are the “types of ‘in your face’ (alleged) circumstances that are so
extreme that they reasonably should have been obvious to Defendant.” Padilla, 2022
WL 3452318, at *29-*31; see also ¶¶166-174.21 The closeness in time of the sudden
21
Defendants’ citation to La. Sch. Emps.’ Ret. Sys. v. Ernst & Young, LLP, 622
F.3d 471, 484 (6th Cir. 2010) (MD PageID.1298), is misplaced because it addressed
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spike in reserves (¶¶133, 136-137), and Defendants’ prior reassurances (e.g., ¶¶93-95,
99, 101-102, 104, 115), further supports scienter. See Helwig, 251 F.3d at 552
(factors 3 and 6); Shupe, 660 F. Supp. 3d at 681.
6. Defendants’ Motive Supports Scienter
While motive is not required (Tellabs II, 551 U.S. at 325), where present, it
supports scienter (Envision, 2019 WL 6168254, at *22). Here, Farley and Lawler
were under tremendous pressure to reduce Ford’s reported warranty costs to increase
earnings to fund their “Ford+” strategy and avoid the fate of their predecessors. See
¶¶4-5, 14, 28-30, 40-45; Cardinal Health, 426 F. Supp. 2d at 725-26 (finding strategic
pressure to show growth may support scienter); Helwig, 251 F.3d at 552 (listing factor
9 as motivation to save salaries or jobs). In addition, “insider trading at a suspicious
time or in an unusual amount” supports scienter. Helwig, 251 F.3d at 552. Whereas
Farley sold no Ford stock in 2020 or 2021 and Lawler sold no Ford stock in 3 years
before the Class period, after they made false positive statements portraying reversal
of Ford’s negative warranty trends (¶¶77-78, 80-82), Farley sold approximately
265,000 shares for about $4.3 million and Lawler sold nearly 30,000 shares, for
almost $390,000 (¶181). Such insider sales out of line with prior patterns and while
adverse facts were concealed, are suspicious and unusual. City of Taylor Gen. Emps.
auditor defendants. In the Sixth Circuit, although the magnitude of errors does not
generally support scienter for outside auditors, the opposite is true for corporate
officers running the company. Padilla, 2022 WL 3452318 at *29-*31 (citing cases).
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Ret. Sys. v. Astec Indus., 29 F.4th 802, 814 (6th Cir. 2022) (finding CEO’s $3.1
million of class-period stock sales after years of no sales supported scienter).22
7. Defendants’ Competing Inference is Implausible
Defendants’ argued inference that they were playing “catch-up” on these
defects (MD PageID.1300) is not persuasive because: (i) the defects preceded the
Class Period; (ii) Defendants’ stated goal was to lower warranty costs, which they
assured investors they were monitoring at a granular level; (iii) Defendants quickly
flipped a negative warranty trend to a purportedly positive despite the omitted facts
(low OTA usage and costly defects on hundreds of thousands of vehicles)
demonstrating such a reversal was baseless; (iv) the NHTSA investigation preceded
the Class Period and found Ford had delayed recalls (on thousands of vehicles) and
provided inaccurate information; and (v) Defendants pushed costs below the line to
“possible,” but had to admit they belonged above the line as they massively increased
reserves and belatedly issued multiple recalls. See §§II.A.-E. It is “exceedingly
unlikely” Defendants were fed misinformation, and Plaintiffs’ inference that they
22
Unlike in Lim v. Hightower, 2025 WL 2965692, at *11-*12 (6th Cir. Oct. 21,
2025) (MD PageID.1295), Farley and Lawler profited from actual Ford stock sales.
That Farley and Lawler later “acquired” shares (MD PageID.1294) is irrelevant, as
they were granted as compensation “without payment” (e.g., MD PageID.1672, 1682),
not purchased at inflated market prices. Nor is it a defense at this stage that
Defendants did not sell more of their stock, which creates a factual dispute. Ross v.
Abercrombie & Fitch Co., 501 F. Supp. 2d 1102, 1117 (S.D. Ohio 2007) (stock sales
favored scienter even though “[d]efendants retained the majority of their holdings”).
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knew or recklessly disregarded the misleading nature of their statements is “at least as
compelling” as Defendants’ “catch-up” theory. See Tellabs III, 513 F. 3d at 707, 709-
11; Gogo, 2021 WL 1608342, at *11 (finding “it is hard to imagine” defendants were
unaware product defect “was serious enough to require a reassessment of their
expectations for the company’s financial performance on some level”).
Because Plaintiffs have alleged Farley and Lawler’s scienter, they have
established Ford’s scienter as well. See Bond, 587 F. Supp. at 675-76.23
The Control Person Claims Should Be Sustained
Because Plaintiffs have stated primary claims under §10(b), their control person
claims under §20(a) should be upheld as well. Cf. MD PageID.1300.
IV. CONCLUSION
For the foregoing reasons, Defendants’ Motion should be denied.
DATED: March 23, 2026 VANOVERBEKE, MICHAUD
& TIMMONY, P.C.
THOMAS C. MICHAUD (P46787)
s/ Thomas C. Michaud
THOMAS C. MICHAUD
23
Alternatively, Ford’s corporate scienter may be imputed from the Ford
employees (GWMS managers, Principal Accounting Officers) who supplied the
information regarding defects and warranty costs for inclusion in statements to
investors. See Knurr v. Orbital ATK Inc., 294 F. Supp. 3d 498, 514-15 (E.D. Va.
2018) (citing Omnicare, 769 F.3d, at 476-77).
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79 Alfred Street
Detroit, MI 48201
Telephone: 313/578-1200
[email protected]
Local Counsel
ROBBINS GELLER RUDMAN
& DOWD LLP
JAMES E. BARZ
FRANK A. RICHTER
MICHAEL J. STRAMAGLIA
200 South Wacker Drive, 31st Floor
Chicago, IL 60606
Telephone: 630/696-4107
[email protected]
[email protected]
[email protected]
Lead Counsel for Lead Plaintiff
LEVI & KORSINSKY, LLP
SHANNON L HOPKINS
GREGORY M. POTREPKA
1111 Summer Street, Suite 403
Stamford, CT 06905
Telephone: 203/992-4523
212/363-7171 (fax)
[email protected]
[email protected]
Counsel for Additional Named Plaintiff
Ronald A. Ferrante
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