Clever Argument, But New Jersey Court Rejects It

Dodge dealer's defense in registration fee case is a non-starter

By Jon Hood
ConsumerAffairs.com

February 26, 2009

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The New Jersey Supreme Court recently examined a clever argument made on behalf of a car dealer in a class action lawsuit and came down decidedly in favor of consumers.

In Bosland v. Warnock Dodge, Inc., the Dodge dealer argued that lead plaintiff Rhonda Bosland was required to inform them that her registration fee was excessive before bringing a class action suit on the claim. The court rejected this argument, noting that requiring a pre-suit warning would preclude class actions in the vast majority of cases, thus denying relief to class members.

In 2003, Bosland bought a Jeep Grand Cherokee from Warnock. Her invoice listed a $117 “registration fee,” which Bosland later discovered was at least $20 more than it should have been, given what the dealer paid for the car’s registration and title.

Bosland immediately brought suit, alleging violations of the Consumer Fraud Act (CFA), among other claims. The trial court dismissed the suit, asserting that, under CFA, Bosland was required to demand a refund from the dealership before suing.

On review, the New Jersey Appellate Division reversed this part of the decision, specifically rejecting the reasoning of an earlier case, Feinberg v. Red Bank Volvo, Inc., in which the court said that a pre-suit demand was a “necessary element of proof.”

Requiring a pre-suit demand in a consumer class action is uncommon unless explicitly required by statute. Many jurisdictions require a demand in shareholder derivative cases, which are brought against a company’s executives on behalf of its shareholders. This stems from the corporate practice that, generally, decisions regarding litigation are made by the directors.

The rule is also designed to give the directors an opportunity to acknowledge the issues alleged by the suit and remedy them without resorting to costly and time-consuming litigation. One could attempt to justify a pre-suit warning in consumer cases on similar grounds of efficiency, but such a requirement would deprive putative class members of the opportunity for relief.

As the court pointed out, requiring a plaintiff in Bosland’s situation to demand a refund before bringing suit would mean that “merchants would be free to violate the CFA, providing refunds only to those consumers savvy enough to request them...” Anyone who was unaware of the artificially high registration fee would never be reimbursed for their loss.

Forcing a potential lead plaintiff to demand a refund would leave her without standing to bring a class action, depriving everyone else of a refund. By filing a class action on behalf of all affected customers, Bosland ensured that these individuals would have the opportunity to participate in any eventual settlement.

Textbook example

Class actions are also designed to address situations where individual suits would be a waste of time and money. Even if every affected consumer knew of Warnock’s practice, few if any would sue to recover between $20 and $40. This case is a textbook example of the appeal of class action.

As the court put it, “When confronted, as we are here, with a plaintiff who asserts that she was the victim of an overcharge which itself is small in amount, and who seeks recovery for herself and on behalf of numerous others with ‘nominal’ claims, we cannot overlook the reality that, without the remedy that the CFA affords, all of these wrongs might go unvindicated.”

While cases in other jurisdictions have dealt with demand letters in consumer cases, all of these involved a statute explicitly requiring the demand letter before an action is initiated. In Bosland, the defendants argued that the demand letter was implicitly included in the statute’s requirement that the plaintiff suffer an “ascertainable loss.” While the defendants’ argument was admittedly clever, given the court’s decision, it is unlikely to be used in any future actions.

The court also distinguished the case from Feinberg, the case cited by the defendants. In that case, the proof submitted by the plaintiff was inadequate to prove that the defendant’s alleged harm caused his problem. Bosland presented no such problem.

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