Article

When Customer Relations Become Lawsuits

April 2011, Auto Dealer Today - WebXclusive

by Thomas B. Hudson, Esq. - Also by this author

When I hear the term “customer relationship management,” I tend to think about how dealers “manage” customers by handling their complaints. In my experience, dealing with consumer complaints promptly and fairly is one of the best lawsuit deterrents a dealer can have.

What happens when the customer’s complaint isn’t satisfied? Let’s take a look.

Rachel and John Kominsky bought a Chevrolet pickup from Dave Smith Motors. Later, the Kominskys alleged that the truck's sunroof leaked, damaging the truck’s interior. Dave Smith Motors acknowledged that the truck was equipped with a sunroof manufactured by Inalfa Sun-roofs and installed by Dave Smith Motors. The Kominskys alleged that Dave Smith Motors intentionally misled Rachel by failing to disclose that the sunroof was an aftermarket installation.

The Kominskys sued Dave Smith Motors, asserting violations of the Montana Consumer Protection Act; fraud; negligent misrepresentation; breach of express warranty by affirmation, promise, description or sample; breach of the implied warranty of merchantability; breach of the implied warranty of fitness for a particular purpose; violations of Dave Smith Motors’ good faith obligation; and negligence. They also alleged that the dealer’s mama was ugly (just kidding).

Dave Smith Motors responded to the complaint by asking the court to send the matter to arbitration under the terms of an arbitration agreement contained in the documents the Kominskys signed when they bought the truck. The Kominskys argued that the arbitration agreement was not enforceable.

After determining that Idaho law applied to the transaction because the contract of sale was signed there and the truck was delivered there, the U.S. District Court for the District of Montana addressed the Kominskys’ arguments. The Kominskys contended that the arbitration agreement was not enforceable because the purchase agreement was a fully integrated contract that made no mention of arbitration, and that the parol evidence rule prohibited consideration of the arbitration agreement.

The terms “fully integrated document” and “parol evidence rule” are lawyer talk that need a bit of explaining. An agreement is “fully integrated” when it contains language saying that it represents the complete agreement of the parties. The parol evidence rule is one employed by courts to prohibit the admission of evidence that contradicts the terms of the documents signed by the parties to a contract.

The court rejected that argument, noting that the Idaho Supreme Court had held that the parol evidence rule "allows for the admission of evidence of agreements made prior to or contemporaneously with the contract as long as they are consistent with the terms of the contract and as long as the written contract was not intended as a complete and exclusive statement of the terms of the agreement."

The court likewise rejected the Kominskys’ arguments against enforceability based on their contentions that: (1) the arbitration agreement was a contract of adhesion; (2) the terms were not within the Kominskys' reasonable expectations; (3) it was not a valid contract because there was no consideration for the arbitration agreement; (4) the arbitration agreement was both procedurally and substantively unconscionable; and (5) they had an inferior bargaining position. Finally, the Kominskys argued that the execution of the arbitration agreement created an ambiguity in the sales contract that must be construed against Dave Smith Motors as the contract drafter. The court rejected that argument as well and granted Dave Smith Motors’ motion to compel arbitration.

So, in this case, the dealership was successful in having the complaint sent to arbitration. That sounds like a win, but now the dealership must go to the trouble and expense of presenting its case to an arbitrator.

I don’t know about you, but my reaction when I read opinions like this is often, “Was it worth it?” Here the dealer had to hire a lawyer to go to federal court and file a motion to dismiss the claim and send it to arbitration. The lawyer no doubt needed to research the law and prepare documents supporting the dealer’s motion. Having won the motion, the dealer still faces the cost of sending the lawyer to the arbitration proceedings, and the risk that the arbitrator will rule for the customer. Wouldn’t it have been a lot less expensive to have satisfied the customer’s gripe before the lawsuit stage?

Customers are not always right, reasonable or honest, and sometimes dealers have no choice but to dig in their heels and resist claims. You can’t tell from most court opinions what sort of customer a dealer is dealing with. I can tell you, though, that the first check the dealer has a chance to write will have the fewest zeroes, and sometimes writing that check is good customer relationship management.

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