Commercial LItigation Alert - Indiana Court of Appeals: Jury to Decide Whether Generic Advertising Language Creates Liability for Fraud
In Kesling v. Hubler, decided on Sept. 4, 2012, the Indiana Court of Appeals ruled that an advertisement could be the basis for intentional fraud claims, creating the possibility for treble damages and punitive damages for conduct that has historically been limited to non-punitive breach of contract damages.
Defendant, a car dealership, advertised a 1996 Mitsubishi Eclipse on the Internet as a “Sporty Car at a Great Value Price.” The advertisement did not mention the performance or reliability of the car. Plaintiff test drove the car and noticed it was not idling properly. She asked the dealer’s salesperson if there was anything wrong with the car, and he replied that it probably just needed a tune up. The dealership had accepted the car as a trade-in and had inspected it at that time. Plaintiff purchased the car. Plaintiff had the car inspected by a mechanic over two years later. The mechanic discovered numerous mechanical problems with the car, which in his opinion, “would have been obvious to anyone who would have inspected or serviced the Eclipse at the dealership.”
The buyer sued the dealership for common law fraud, violation of the Deceptive Consumer Sales Act, criminal deception and recovery under the Crime Victim Relief Act for that deception, alleging the dealership made an intentionally false statement by advertising the car as a “Sporty Car at a Great Value Price.” Each claim required the buyer to prove the defendant was subjectively aware it had made a false statement of fact.
The buyer sought punitive damages under her fraud count, statutory damages of up to $1,000 for an allegedly willful violation of the Deceptive Consumer sales Act and for treble damages plus attorneys’ fees and costs under the Crime Victim Relief Act for the purported deception.
The trial court entered summary judgment for the dealership on all three of the fraud-based theories. The Indiana Court of Appeals reversed. The appellate court determined that the advertisement describing the car as a “Sporty Car at a Great Value Price” could be deemed false and fraudulent — and could give rise to liability under each of the buyer’s fraud-based theories — because it could be interpreted to mean that the car was safe to operate and that it did not have mechanical defects. The Court concluded that the jury should decide the meaning of the words in the advertisement. The Court also concluded that because the dealership had inspected the car, a jury could find that it knew of the defects.
Judge Friedlander dissented, noting that the advertisement made no representations about the car’s drivability or reliability. The dissent accordingly would have found that the advertisement did not violate the Deceptive Consumer Sales Act. The dissent did not address the buyer’s fraud claim or her claim under the Crime Victim Relief Act.
In 1993, in Miller Brewing v. Best Beers, the Indiana Supreme Court changed Indiana law by holding that punitive damages are not recoverable for a mere breach of contract, even an intentional breach. The Supreme Court held that, to recover punitive damages, the plaintiff had to prove all of the elements of a distinct fraud claim. The decision in Kesling, which appears to permit a jury to find fraud based on generic advertising language, may represent a move back toward allowing enhanced damages where the buyer is dissatisfied with the result of an ordinary consumer sale transaction. Thus, Kesling creates potentially greater risk for businesses engaged in consumer sales and creates a greater incentive to ensure that advertising language is 100% accurate.
It also remains to be seen whether fraud-based arguments like those in Kesling will be made by parties in commercial contract disputes. In a commercial transaction, the parties may have more of an opportunity to bar such claims through the contract language – for example, by including a provision that the buyer is not relying on any representations made by the seller except for certain specific items, such as specifications of a product. But even in that event, the risk would remain that, under Kesling, a jury could find that representations about product specifications were fraudulent, where the buyer contends that the seller knew the representations were false.
The dealership in Kesling has the right to seek a further appeal to the Indiana Supreme Court. However, there is no right to such an appeal, and the Supreme Court has the discretion to deny any further review of the appeal.