Seller Beware... of Punitive Damages

A jury awarded a Kansas woman $4 million dollars in punitive damages against a used-car dealership that allegedly misrepresented its prices in its advertising. It is the latest win in a series of suits alleging that the Chad Franklin Suzuki dealership in Kansas City promised buyers a fixed low monthly payment, only to dramatically raise prices several months after the purchase.

In a commercial that aired more than 9,000 times on TV and radio, the dealership promised a life-long monthly rate of $29-$89, which would remain fixed even after buyers traded in their cars. The plaintiff in this case alleged that she was guaranteed a fixed price of $49 a month on her used Lincoln Town Car, but that her monthly payment jumped to $387.45 shortly after she traded in her car. The jury awarded her $25,000 in actual damages and $1 million in punitive damages on each of four counts.

Her allegations echo those of the Kansas attorney general, who had sued the dealership in 2008 for airing advertisements that "concealed, omitted, or misrepresented a material fact of the advertised promotion, specifically that the promotion would last for a duration of time, when in truth, the terms of the promotion would end before that specified duration." In 2009, the state's suit settled for $350,000.

A year earlier, the South Carolina Department of Consumer Affairs issued a warning letter to a local Suzuki used-car dealership engaged in similar advertising, which the agency stated constituted bait advertising under FTC regulations. In the face of more than 100 lawsuits, that dealership went out of business and filed for Chapter 11 bankruptcy.

As we've previously blogged, state attorneys general and, more recently, the FTC have been cracking down on deceptive advertising by car dealers. Now, we are starting to see the fallout of the civil suits. What remains to be seen, however, is whether these tough punitive damages hold up on appeal. In a separate case against the Chad Franklin dealership, a Missouri court has already imposed a $500,000 cap to a $1 million dollar verdict, and even that is being appealed to the U.S. Supreme Court.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.