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Draining the Water From the Moat

Dealers are under fire for selling customers on the now-defunct Tires for Life program — despite ‘word moats’ built into the contract.

by Tom Hudson
January 1, 2010
4 min to read


In the Middle Ages, if you wanted to attack the castle, you had to deal with the moat. I occasionally think of moats when I see how lawyers try to protect their clients with various “word moats.”

When I saw reports on the recent “Tires for Life” fiasco, I came across a good example of one of these “word moats.” This particular tire-replacement program was offered by a company called Millennium Protection Group. Millennium offered the program to dealers to sell to their customers, and promised customers a new set of tires every 35,000 miles, plus some other bennies. There turned out to be nothing backing the program other than the resources of the company. When the company went bust, “millennium” turned out to be the time it took to get a claim honored.

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Customers who signed up for Tires for Life and whose claims against the defunct Millennium were worthless, turned their sights against — guess who — the dealers who sold them the contracts. But when they did, they encountered one of those “word moats.” It seems the contracts the customers signed stated that Millennium would be liable for claims, and that customers would “hold harmless” the dealers who sold them the Millennium product. That language didn’t deter the customers’ lawyers from filing a class action lawsuit against a number of dealers. Now we will get to see whether the moat will protect the castle.

Now there are several ways to deal with a real moat. You can toss a bridge across it, fill it with dirt or, perhaps, drain the water from it. I haven’t seen the plaintiffs’ complaint in the Tires for Life lawsuit, but I can guess at some of the ways the plaintiffs will try to drain the water from this particular moat. Let’s look at three possible attacks against the dealers.

  • Unconscionability: It wouldn’t surprise me to see the plaintiffs argue that the attempt to require customers to indemnify the dealers who sold them the Tires for Life program is unconscionable, and thus unenforceable. Unconscionability claims are more successful in consumer-business cases because of the difference in sophistication — and sometimes bargaining power — between the consumer and the business. The claim that the provision is unconscionable will be stronger if the contract the customer signed did not set the provision out in a way (big, bold type, separately signed, and the like) that would make it noticeable.

  • An Unfair and Deceptive Trade Practice: Most states have an “unfair and deceptive acts and practices,” or “UDAP” law that prohibits various sorts of overreaching in consumer transactions. Look for the plaintiffs to claim that the indemnification provision is at least unfair, and if the provision wasn’t conspicuous, perhaps deceptive, as well. Plaintiffs’ lawyers are particularly fond of UDAP laws because most provide that a successful plaintiff is entitled to damages that are some multiple (usually two- or threefold) of the plaintiff’s actual damages, plus (you guessed it) attorneys’ fees and the costs of suit.

  • Negligence: These plaintiffs might argue that the dealers who sold them these contracts had a duty to provide a legitimate program that would perform as advertised. They would say the dealers breached that duty by failing to investigate the bona fides of Millennium to determine whether the program had adequate backing to withstand claims. I’m not at all sure that the negligence count would fly, but plaintiffs’ lawyers have a habit of throwing as much as they can against the (castle) wall, hoping that some will stick.

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Dealers aren’t the only potential targets for these plaintiffs. The Federal Trade Commission’s Preservation of Consumer Claims and Defenses Trade Regulation Rule requires that retail installment sales contracts contain a provision that makes any holder of the contract subject to claims and defenses that the consumer could assert against the dealer. With so many dealerships out of business, and with plaintiffs’ lawyers always on the lookout for additional deep pockets, look for the plaintiffs to widen these claims to include those who bought contracts from dealers reflecting the Tires for Life program.

Will those moats hold back the attackers, or will the angry mob be successful in draining the water and scaling the castle walls? Stay tuned!

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