Case of Hungry Lawyers

The Florida Supreme Court will hear oral arguments this month in the case of Stewart Toyota of North Palm Bay, FL vs. Raymond Ingalsbe and Kent Brown. If the court rules against the dealership, dealers may no longer have the right to settle legal disputes with their customers out of court and without lawyers present. The lawsuit likely will reinforce the perception among car dealers that trial lawyers

Cliff Banks

November 1, 2004

7 Min Read
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The Florida Supreme Court will hear oral arguments this month in the case of Stewart Toyota of North Palm Bay, FL vs. Raymond Ingalsbe and Kent Brown.

If the court rules against the dealership, dealers may no longer have the right to settle legal disputes with their customers out of court and without lawyers present.

The lawsuit likely will reinforce the perception among car dealers that trial lawyers are sharks who see dealers as juicy targets.

Earl Stewart, the owner of the Florida dealership, says his case is a story he would enjoy reading were he not in it.

Attorneys Ingalsbe and Brown in 1997 sued Stewart on behalf of Jean Marie and Bernadette Lesueur, who had purchased a 1994 Mustang from Stewart's store.

Lesueur learned later the vehicle had been in an accident. Without first complaining to Stewart (who didn't know of the accident), she hired the attorneys to sue Stewart Toyota.

At some point during the legal process, Stewart called the Lesueurs and offered to settle.

“We made a mistake,” says Stewart. “We unknowingly sold her a car that had been in an accident, and I wanted to rectify it.”

So over coffee one morning in Lesueur's kitchen, with no attorneys present, both parties agreed to settle. Stewart even paid Lesueur's attorney fees, which amounted to 40% of the $35,000 settlement in addition to $10,000 in appellate expenses.

When Ingalsbe and Brown learned of the informal settlement, they said no thanks, sent the money back and then sued Stewart for civil theft and interference with the contingency fee contract.

Stewart won the first round. Then Ingaslbe and Brown won an appeal in Florida's district court. Now the Supreme Court will hear the case.

At stake, says Stewart, is a business's right to rectify situations with its customers.

“I'm not sure how this going to turn out,” says Stewart. “Am I going to be the villain or the hero?”

Tort reform has become a huge issue for dealers in recent years and many state association presidents say it is their No. 1 battle.

Dealers are prominent members of the community who have experienced several recent years of unprecedented growth in an industry where financing a purchase can be a complicated process, meaning there is room for error.

Moreover, regulations for dealers have become more stringent in recent years, increasing their legal risk.

What a great target — rich and vulnerable.

“Lawyers see us as a money printing machine,” says Karen Coffey, chief counsel for the Texas Automobile Dealers Assn.

Actual data reporting the number of lawsuits filed against dealers is not compiled. But according to data collected by the Public Citizen, no friend to dealers, contends the lawsuit proliferation problem is greatly exaggerated.

The Public Citizen is a non-profit watchdog group, whose president, Joan Claybrook, last year began a campaign against car dealers. She sent letters to all 50 state attorneys general, urging them to take action curbing the “unethical” behavior of dealers.

“But lawsuits that are settled before they reach court don't get reported,” argues Ted Smith, president of the Florida Automobile Dealers Assn. “Many of the lawsuits filed against car dealers never make it to court because the dealers' insurance companies don't want to pay the protracted legal fees. Settling is much cheaper.”

Smith estimates that 85%-90% of cases against car dealers in Florida are settled out of court.

Responds Carlton Carl, vice president and director-media relations for the Association of Trial Lawyers of America: “Go talk to the insurance companies. They'll tell you they don't settle frivolous lawsuits.”

Carl argues the system, although not perfect, works for everyone, including the dealers. “The system is filled with checks and balances. Every judge in America has the authority to throw out frivolous lawsuits,” he says. “Often, the court is the only remedy for the average person who has been wronged.”

Still, often the decision comes down to economics — is it cheaper to settle and pay a few thousand dollars in settlement costs or going to court and running the risk of paying exorbitant legal fees and punitive damages?

The lack of hard data notwithstanding, the anecdotal evidence would seem to support dealers' claims of frivolous lawsuits.

Each state association has its lawsuit stories, but dealers in some states operate in particularly harsh legal environments. States such as California, New Jersey, Florida and Hawaii are commonly considered the unfriendliest to dealers.

Almost 1,200 dealers were sued in California because of a minor advertising violation. Dealers there settled for approximately $10,000 each. In New Jersey, 600 dealers recently were sued for alleged consumer fraud.

Lawsuits can range from something as simple as not spelling out the words “annual percentage rate” in an ad to violations of the Deceptive and Unfair Trade Practices Act.

Bill Lehman, the president of the Mississippi Automobile Dealers Assn. describes the legal atmosphere in the state as being “tort hell.”

He says, “Go read John Grisham's novel, The King of Torts,” about a lawyer tempted by greed and the prospects of winning a big settlement in a civil case. “Grisham nails it with his description of the trial attorneys in the state.”

Last year, attorneys filed lawsuits against hundreds of Mississippi dealers and their captive finance providers.

Yet several dealers were sued by plaintiffs who had never been customers. Four dealerships were named in lawsuits with captive finance companies with which they had never done business.

“They were just shot-gunned, bogus lawsuits,” Lehman says.

The situation became so bad for the entire small-business community in the state that “the pendulum finally swung back in our direction,” says Lehman.

Mississippi car dealers and other small businesses joined forces and won a hard battle this year when the state legislature passed and Gov. Haley Barbour signed a bill limiting punitive damages along with other provisions making for a friendlier environment.

“We just equaled the playing field,” Lehman says.

He says the small business owners had been fighting for years to get something passed but were thwarted by an unfriendly legislature and judiciary committee chairman, who, himself, had made a lot of money as a trial lawyer.

“He and his wife liked to drive matching Bentleys — one white and the other black,” laughs Lehman.

But the battle has just started. “Alabama won a similar battle several years ago,” he says. “And then the bill got overturned by the state Supreme Court.”

Carl Hogan, a dealer in Columbus, MS, and the chairman for Mississippi's dealer association, says the challenge is getting the bill to survive through the court system.

“When one judge can overturn a law, that's a dangerous and scary thing,” he says.

Lehman hopes the state has learned from Alabama's mistake: “We're fighting hard to make sure the right Supreme Court justices get elected in this year's election. We need to protect what we've accomplished.”

He issues a warning to Oklahoma dealers: “We're already hearing rumors that lawyers are crossing the state line and are looking for dealers to go after there. The same thing happened to us when Alabama passed their law. The attorneys began pouring over the state line and targeting us.”

Ironically, attorneys filed lawsuits against 102 Mississippi dealers in the Northern District Court on Aug. 31, the day before the law took effect. “It's no surprise. They told us to be careful of what we wished for,” Lehman says.

Smith says he has been trying to get a dealer-specific bill passed in Florida but has not been able to get it through the state senate. “We'll just keep trying,” he says.

And that is the problem. For dealers, the only recourse appears to be long and pitched battles on the political front. That can take years. Of course, dealers need to make every effort to make sure the operations in their dealerships are legally compliant. But doing so does not provide foolproof protection.

For Stewart, his case is a matter of principle.

“My attorney told me, when I said I wanted to fight this case, that it could get expensive,” he says. “But there are some decisions you make from the heart, not with the pocketbook.”

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