CADA Open Road

Class Action Lawsuits
(and other not so mythical characters)
By Emily Marlow Beck*

If you've been reading Spot Delivery long enough, you've heard that class action lawsuits are no joke. You've also heard that class action lawsuits can be crippling and sometimes deadly.

But, so are dragons, giants, and other mythological creatures, right? After all, aren't tales of class action lawsuits against car dealers just lawyerly folklore, embellished to sell books (sorry, Tom Hudson) and keep dealers up at night?

Well, how 'bout asking the Missouri dealer that may have to cough up over $3 million following a class action lawsuit involving the dealer's sale of service contracts.

According to a news report in the Kansas City Star, a Clay County jury awarded more than $3.4 million in actual damages against a Missouri Honda dealer following a class action lawsuit involving a "100 percent money-back guarantee" that the dealership offered as an inducement to buy one of its service contracts. The "class" was made up of 1,186 customers who bought contracts from Jan. 1, 1997, to December 22, 2003, and who got the money-back guarantees and made no claims under the contracts.

According to the news report, jurors initially awarded $8.4 million (gulp!), but Missouri law adjusted the amount given for punitive (or, "punishment") damages. They also returned two separate verdicts for punitive damages against the dealership in the amount of $5 million. That amount may be reduced when the judgment is entered by the court, and the news article reported that the plaintiffs' lawyers will ask for prejudgment interest, attorneys' fees and a separate amount for the class representatives who filed the lawsuit.

So, what did the dealership do to get into this predicament?

The Star reported that the customers who brought the suit bought a service contract from the dealership for $1,335 when buying a used Honda. The customers said that the dealership's representatives told them that if they did not use the service contract during the contract period, the full price of the service contract would be refunded. However, when the customers requested the refund after the contract expired, the dealership told them that the money-back guarantee applied only if the service contract owner bought an additional vehicle from the dealer.

Now, it's important to note that I'm getting the information about this case from a news report, so there's a whole lot I don't know about it. But, I do have a few thoughts and some things that I'm just plain curious about.

For one, I wonder if the dealer used an arbitration agreement containing a class action waiver. Maybe he did. Maybe he didn't. But, I'd bet dollars to donuts that this case would have had a much different outcome if the dealer had been able to rely on a class action waiver to keep the case as a "one versus one" and not a "one versus 1,186" situation.

I also wonder what the real story is here. Was this extended service contract "money-back guarantee" something marketed by the dealer? Or, was it a little something extra that the employees used to close the sale? Or, maybe this "guarantee" was something marketed by the third-party plan administrator (yes, there are some companies like that out there). I also wonder whether the "money-back guarantee" was in writing, and whether the customers received a copy of the terms before they bought the service contract.

But, regardless of the scenario, the lesson is the same - your dealership should honor any "guarantees," "return policies," or similar programs you offer. It seems simple enough, but you'd be surprised how often we read cases where the opposite happens. Some dealers never intend to honor these promises, others make these promises "gambling" that customers will forget to assert their rights, and other dealers simply forget they ever made these promises in the first place.

If you're offering any sort of return, guarantee, or similar program, consider putting it in writing, including any exclusions or restrictions, and have these materials reviewed by your lawyer (after all, some such programs are regulated under state law). Or, you may learn the hard way that class action lawsuits are all too real.

*Emily Marlow Beck is a lawyer in the Maryland office of Hudson Cook, LLP. Prior to starting her legal career, she spent years working in a family-owned dealership. Emily can be reached at 410.865.5438
or by e-mail at ebeck@hudco.com.

The above article is designed by its authors to provide accurate and authoritative information. This article is presented for informational purposes only and does not represent Reynolds' endorsement of viewpoints or organizations associated with the article.

Thomas B. Hudson, Esq. is the Publisher of Spot Delivery®, a bi-monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. Spot Delivery and CARLAW are produced by CounselorLibrary.com, LLC. For information call 410-865-5400 or visit www.counselorlibrary.com.

This publication is designed to provide accurate and authoritative information regarding the subject matter covered. It is provided with the understanding that the publisher and editor are not engaged in rendering legal counsel. If legal advice is required, the service of a competent professional should be sought.