Whenever I see a story in the paper about some dealership agreeing with the Attorney General, the Consumer Credit Commissioner or some class action plaintiffs’ lawyer for megabucks, my first reaction is that the dealer did bad stuff. The moment I have that thought, though, I haul myself up short, because although I don’t try cases for a living, I know a bit about how the litigation dance works.

Litigation is expensive, both in terms of money, the allocation of executive resources and reputational damage, including lost business. It’s possible to spend hundreds of thousands of dollars on legal fees litigating some of these cases even when you win!

So, be careful how you react to stories like this one.

The Record, a Hackensack, New Jersey newspaper, reported that the Ramsey Auto Group, Inc. and its 10 dealerships have agreed to pay up to $750,000 to settle charges it defrauded customers. The $750,000 will drop to $250,000 in a year if the company complies with the terms of its settlement with the state.

Ramsey Auto Group, which did not admit any wrongdoing, said Wednesday it settled the lawsuit to avoid the cost of protracted litigation. That’s a common statement made by defendants when large lawsuits settle. Civilians think it’s a bunch of baloney. People who have been through the buzzsaw of litigation are much more likely to nod sagely and say, “Yup.”

The company was accused of failing to honor advertised prices, forging customer signatures on documents, charging for after-sale items without consumers' knowledge, overcharging for repairs, failing to credit trade-in allowances accurately and misrepresenting the condition of used cars, among other things.

The settlement requires the group to pay $250,000 immediately, with $150,000 going for civil penalties and $100,000 going to reimburse the state for attorneys' fees and investigative costs. Customers will get $156,000 in restitution.

Evidently, the state thought it was going light on the dealerships, and announced that it was doing so because the dealerships cooperated in resolving the matter. Kimberly Ricketts, state director of Consumer Affairs, was quoted as saying the dealerships came "to the table with concrete proposals to change their business practices. Before the division had made any proposals, they had put changes into place," Ricketts told The Record.

The dealerships will implement a customer's bill of rights to be posted in all of the company's showrooms and service areas. The company also agreed to make a "good faith effort" to settle consumer complaints and to arbitrate the ones that couldn’t be settled.

The company says it didn’t violate any laws and that the complaints represented a small percentage of their deals. So why agree to pay?

Several things could be going on here. First, the dealerships may have done bad stuff, and the sheriff got the drop on them. Second, maybe bad stuff happened at the dealerships despite the group’s efforts to run shops that complied with the law, giving the dealerships some defenses against the charges. Third, maybe the dealerships are clean as a whistle, and the credit cops got a burr under their saddles anyway (it wouldn’t be the first time that’s happened). We’re unlikely to ever find out.

I can tell you, though, that after seeing what litigation can do to even the best dealerships, I no longer automatically dismiss the statement that “we settled to avoid the cost and expense of litigation.” Vol 3, Issue 9