May 9th, 2017
Make What You Say, Say What You Make
Many glass companies are well aware of our litigious society. They understand claims for breach of contract, negligence, warranties and product defect claims are a risk of doing business. However, most of us don’t think about the vast sea of consumer-protection laws that exist in every state and often expose our companies to extreme liability. Every marketing brochure, warranty statement, website, commercial, advertisement and sales representation exposes fenestration companies to consumer-protection laws.
Can you be Criminally Prosecuted?
Last week, “John Q. Unaware” called me. He sounded worried and exhausted.
“How can I help you?” I asked.
“Well,” he said, “I own a window manufacturing company in Wisconsin, Glass Slipper Inc. Our windows were purchased by a Nevada distributor, and installed in a California project by an Arizona glazier.”
“Wow,” I said, “That’s great! Sounds like you manufacture high-quality windows with high demand across the country. So what’s the problem?”
“We’ve been sued in the Southwestern United States for claims our sales practices violate consumer protection laws! I wasn’t even aware of the statutes they claim we violated in marketing our products! Are we at risk to pay big dollars?”
Unfortunately, I had to deliver the bad news.
“That’s a possibility. You could be stuck picking up the other side’s attorney’s fees and costs, and the damages awarded could be tripled. Or worse, you could be criminally prosecuted.”
Every state has laws against fraud, false advertising and misleading consumers. The government wants to prevent deceptive trade practices (DTP), and to protect the public from dangerous products made by manufacturers and distributed by vendors. Virtually all DTP laws aim at deterring the same kind of conduct, but states vary widely in their penalties. States’ consumer protection laws can be categorized into three groups: relaxed, firm and hard core.
This category is the most forgiving. Consider this example: A company is sued relating to claims that their windows can withstand any amount of water pressure. Unfortunately, a hurricane hits a project with extreme air- and wind-loads, causing the windows to burst and water to penetrate the structure. Because the company advertised their product to withstand “any amount of water pressure,” they may be on the hook for the damage.
If these events occurred in a relaxed DTP state, the company may be forced to pay for the damage, but wouldn’t be on the hook for any further penalties. Better yet, several of these DTP-lenient states only allow for the state attorney general to bring claims on behalf of consumers, and don’t allow private causes of action for civil damages. Therefore, the company may be forced to pay a small penalty or fine to the state for any product performance claims that were not substantiated in advance of marketing efforts, but wouldn’t assume any further excess risk. If the company has a fine levied against it, the penalties are often capped based on whether the misrepresentation was intentional or unintentional. In the most severe circumstances, a court may issue an injunction, blocking the company’s ability to advertise or conduct business in the state for a specific timeframe.
Numerous states are less forgiving of DTP violations and quite firm in their penalties. Consider a case where a company is sued under allegations its windows failed to comply with argon gas and low-E glass standards represented in various marketing material. Although the company advertised that its windows had superior low-E performance due to argon gas placed between the insulating glass lites, no one validated the claims with independent testing in various geographic areas of the country. Although windows may have left the factory with argon gas, certain atmospheric conditions based on the area of the country and the altitude of the project may have caused the gas to dissipate.
The “firm” category of states provides triple damages, attorney’s fees and costs to the prevailing party. In the event a company’s marketing mistake resulted in $1 million in damages, the company could be forced to pay up to $3 million, which may or may not be covered by liability insurance. In addition, cases that are unable to settle and eventually reach the litigation stage often incur monumental legal fees, court costs and litigation expenses. It wouldn’t be unreasonable for the total costs of a violation such as this to exhaust insurance coverage available coupled with digging deep into company revenue.
A minority of states are hard core with extremely consumer-friendly and anti-business DTP laws that allow for criminal charges in the event a manufacturer misleads the public or makes false claims. Consider this example. A company is sued when its windows failed during an earthquake. The company markets its windows as earthquake-resistant, but, unfortunately, the San Andreas finally produced “the big one,” resulting in extensive property damage throughout the state and country. Due to marketing representations that the windows are “100 percent earthquake-resistant,” the company may be forced to compensate the injured party, incur excessive levies and fines, and management may even face jail time. Criminal prosecution could result in more extensive fines, or imprisonment ranging from 30 days to six months. These states aim to deter misleading or deceptive practices by manufacturers, and often disregard whether the violation was intentional or simply a mislabeled shipment or confusing advertisement. Companies that are prosecuted for criminal charges rarely stay afloat.
Chip Gentry is a founding member of Call & Gentry Law Group in Jefferson City, Mo. He can be reached at email@example.com.