Time for an Advertising Legal Audit?

judge hammer sitting on money

In preparation for writing this article, I did a quick check of litigation involving advertising that we have reported in our monthly legal publication, which covers reported cases—ones in which the court’s opinion has been published—in federal and all state courts. My search was a bit imprecise, since I simply searched all the litigation that we had reported using the term “advertising,” but it was instructive: The search turned up 23 cases, most of which were class action lawsuits.

Here’s an example:

Kathleen Walker and others filed a class action complaint against Wenatchee Valley Truck and Auto Outlet, Inc. for false advertising under the Washington Consumer Protection Act. Wenatchee advertised soft top two-door Kia Sportages for $12,995, calculated by subtracting from the $15,995 “sale price” a $3,000 factory rebate, and advertised zero percent financing, no down payment, and no payments for three months.

The ads also provided that hardtop Sportages were for sale at similar savings. The trial court granted summary judgment in favor of Wenatchee. The court ruled that the plaintiffs had waited too long to file their suit, concluding that the one-year statute of limitations under the state Auto Dealer Practices Act, rather than the four-year statute of limitations for unfair or deceptive acts or practices in the conduct of any trade or commerce under the WCPA, applied and barred the complaint. The trial court also granted summary judgment on the grounds that there was insufficient evidence of a causal connection between the alleged deceptive representations by the dealer and the plaintiffs’ decision to buy their hardtop Sportages.
The Court of Appeals of Washington affirmed the trial court’s grant of summary judgment, but not on statute of limitations grounds. The appellate court first found that the Auto Dealer Practices Act did not supersede the Washington Consumer Protection Act and that the WCPA applied to vehicle advertising. Therefore, the plaintiffs’ claims were not barred by the ADPA’s one-year statute of limitations.

The appellate court, however, agreed with the trial court that the plaintiffs did not establish that their injuries were caused by the dealership’s alleged deceptive representations since the manner in which the soft-top Sportage was advertised did not deceive purchasers of hard-top Sportages like the plaintiffs.

Moreover, the appellate court found that the zero percent rate was advertised for 36 months on select models and was in lieu of a manufacturer’s rebate, yet the plaintiffs financed their vehicles over a longer period of time, did not prove that their vehicles were among the group of select models, and obtained the manufacturer’s rebate. The plaintiffs also argued that they were not offered a zero-down payment or three months of deferred payments, but the appellate court found that the plaintiffs were required to prove that they asked for and were denied the zero-down payment and three months of deferred payments options in order to support their claim.

So, the dealer here escaped liability, but what’s to be learned from this case? A couple of things:

  • First, class action lawsuits are a frequent tool of plaintiffs asserting advertising claims. That’s because at least some parts of advertising claims—the details of the advertisement itself—are very easy to prove. The plaintiffs’ lawyer produces the print ad he has clipped from the newspaper, or engages in discovery after the lawsuit starts and gets copies of TV, radio, or internet ads. As this case demonstrates, though, other parts of the plaintiffs’ case can be more difficult to prove.
  • Second, the fact that lawsuits like this are being filed should be a red flag to every dealer. What ads are you running? There are federal laws and regulations that apply to your ads, but what state laws apply, and have you made the effort to comply with them? Who conducts the legal review for the ads you run, and what does your documentation of those ads look like? If you don’t use a lawyer for those legal reviews (and you should), is the person you are using trained and knowledgeable about state and federal advertising laws? Does that person maintain current copies of federal and state advertising laws and regulations, and have a systematic way of updating them to be sure that he or she is working from the latest revisions of them? Does that person regularly check with the websites of the Federal Trade Commission, the state Attorney General and your state dealer association for information relating to dealer advertising?
  • In many of the lawsuits we see, the dealer’s response to the suit is “I relied on the ad company to keep it legal.” You won’t be surprised to learn that such a response is worthless in court. At the end of the day, it’s the dealer who ends up on the pointy end of the lawsuit stick.

Walker v. Wenatchee Valley Truck and Auto Outlet, Inc., 2010 Wash. App. LEXIS 581 (Wash. App. March 18, 2010)

Tom Hudson is the author of CARLAW® II, Street Legal, andCARLAW®, and is the editor/author of the CARLAW® F&I Legal Desk Book, the publisher of Spot Delivery®, a 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. In addition, he is a partner in the law firm of Hudson Cook, LLP. Clayton Swears is an associate in the firm of Hudson Cook, LLP. For information, call 410-865-5411, email tbhudson@hudco.com, or visit www.counselorlibrary.com.



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