How to Head Off Lawsuits

Dealers often complain that there should be a surefire way against getting sued.

In the American judicial system, where anyone can sue anyone, there's no absolute shield. But there are ways to reduce the exposure.

The dealership must have a solid legal compliance program. Know the applicable laws. Use paperwork and processes that comply with those laws. This will establish the basis for a dealer legal victory and discourage many plaintiffs' attorneys from pursuing lawsuits.

Even when it wins a lawsuit, the dealership loses something. There are direct legal costs of attorney fees and court costs. An increase in “frequency and severity” can lead to higher insurance rates if the dealership's carrier provides a defense.

Then there are the costs of having employees tied up responding to discovery demands and dedicating time to depositions and trial appearances. There is the reputation cost of a hostile plaintiff who loses in court but tells family and friends and a whole lot more anonymous folks over the Internet what a lousy dealer you are.

To answer the question of how to stop lawsuits from being filed, let's discuss how most originate.

A dealership generally becomes a defendant because a disappointed customer visits a lawyer as the last chance for obtaining relief. Once the customer's complaint is in the hands of a lawyer, the dealership loses control of events.

Too often, the lawyer is one who has been looking for a willing plaintiff to try out some theories of recovery that may or may not relate to the problem your customer thinks he or she has.

Then you face a customer with a series of previously unknown claims with a drastically increased set of settlement demands.

What is the lesson? Try to solve customers' problem before they seek legal help. Many dealers start out with an unyielding position vowing to make a point and stating a preference to pay their attorney rather than a plaintiff.

But that fever fades when the legal bills arrive monthly and personnel must divert their attention to a lawsuit. There seldom is a dealer defendant that didn't at some point wish the plaintiff's complaint had been resolved early on.

How do you maximize chances of keeping your customers from engaging attorneys? Have a complete complaint-handling system. Here's how.

Design the system with someone in charge

One executive or manager should oversee how complaints are handled.

The system must start with the complaint intake

Treat every complaint seriously. Make sure it is logged in for follow up.

Quickly contact customers who complain

Assure them you are looking into the problem. Develop the facts with them. Find out what they want.

Investigate

Find out the facts. Understand both the complainant's position and the dealership's staff.

Develop a Response

Can you meet and is it appropriate to meet the customer's demands? If not, should you offer a substitute remedy?

Include personnel involved in the original events when fashioning a response

Make sure that solving the problem with the customer does not lead to problems with your employees.

Follow up

The circle is only closed when the customer is contacted and the complaint is fully addressed.

Only with a complete complaint-handling system designed to respond and fashion a resolution to every complaint will the dealership have some confidence that it can head off problems before they become lawsuits.

Michael Charapp is a dealer attorney in McLean, VA, and co-author of a new book, “Auto Dealer Law: The Definitive Legal Guide to the Purchase, Sale and Operation of Vehicle Dealerships” available at www.autodealerlaw.com. He can be reached at (703) 564-0220 or at [email protected].