High Court to Rule on Dispute Over Car Advertising

Brian Donovan was hunting through the newspaper advertisements, looking for a 20th anniversary present for his wife. He was determined to find a 1995 Jaguar XJ6 Vanden Plas, preferably sapphire blue.

And there it was in a Lexus of Westminster ad. At $25,995, it seemed like a great deal. Donovan and his wife zipped over to the dealership to make sure it was not a junker. After test driving the vehicle, Donovan told the salesperson that he’d buy it--at the advertised price. No dickering.

The response he received--that the price was a misprint, an honest mistake--would set off a two-year court battle. As the case has evolved, the battle now pits the state’s motor car dealers and newspaper executives against Donovan and some consumer activists.

The dispute has raised some basic legal questions that judges of the California Supreme Court have agreed to resolve: Does a car dealer have to sell a vehicle at its advertised price? And would the dealer still be obligated even if the advertised price was a misprint?

The stakes are high for consumers, car dealers and newspapers.

“If the Supreme Court says, ‘Guess what, people, the dealer doesn’t have to honor those prices,’ then we’ll be back in the era of bait-and-switch that California car dealers have been famous for,” said Donovan, a 54-year-old Newport Beach attorney, in a recent interview.

Glen A. Smith, an attorney for Times Mirror, which publishes the Los Angeles Times and the Daily Pilot, the Newport Beach paper that printed the Lexus ad, says it appears that newspapers and Web sites that advertise cars or other items for sale could be held liable under a recent appellate court ruling that supports Donovan’s position.

“A misplaced decimal point or a missing zero could have disastrous results,” said Smith, an attorney with Baker & Hostedler in Los Angeles.

The case that began with a dispute over a number in a newspaper ad quickly turned into a battle of wills.

Donovan refused to pay the $37,016 price that Lexus of Westminster demanded for the 1995 Jaguar, and he bought a similar vehicle from another dealership--for $39,000. He filed a civil suit in Municipal Court in Newport Beach in 1997, demanding that the Lexus dealership pay him $13,000--the difference between the advertised price and the price he paid for the other vehicle.

At a trial lasting no more than two hours, Lexus of Westminster contended that the advertised price was a typographical error. Workers in the composing room of the newspaper pasted the $25,995 price tag under the 1995 Jaguar when that price was intended for a 1994 Jaguar. The dealership produced advertisements from other newspapers in which the 1995 car was advertised at the correct price. Further, the dealership’s attorney, James G. Lewis, contended that in any case, an advertisement was not a binding contract.

Judge Christopher W. Strople ruled for the dealership. The judge reasoned that the dealership was unaware of the misprint and that that therefore invalidated its “offer” to sell at the $25,995 price.

Municipal court cases--especially those with only $13,000 at stake--are seldom appealed. But Donovan, a lawyer who represents contractors in disputes with the federal government, intended to keep fighting. Strople also ruled that the advertisement resulted in a binding contract when Donovan offered to pay the advertised price for the vehicle.

But that contract became void, he said, because the newspaper had made “a good-faith unilateral mistake.”

Donovan, a former Air Force investigator--he keeps sketches of fighter planes in his law offices--said he was angry that the attorney for the dealership had filed several motions to dismiss or delay the case.

“I know the games attorneys play, and they were playing games with me,” Donovan said. “It became a principled fight. I thought how many times this happens to consumers who have no recourse because most lawyers won’t take a case like this because there’s not much money involved.”

Donovan later found a passage in the state’s vehicle code which he interpreted to mean that it is unlawful for a car dealer to “fail to sell a vehicle to any person at the advertised total price, exclusive of taxes” and fees.

A three-judge panel of the Orange County Superior Court agreed with Donovan’s argument and reversed the lower court’s decision. Donovan said he then called the dealership’s lawyer and offered to settle the case for $15,000 but that the dealership instead took the matter to the 4th District Court of Appeal in Santa Ana.

In a decision for a unanimous three-judge panel, Justice William Rylaarsdam wrote that the dealership should have reviewed the advertisement before it was published.

“A dealer has a heavy responsibility to ensure that the advertisements are error-free,” Rylaarsdam said.

The panel said that although “this is a close case,” the vehicle code “tips the scale in favor of our construing the advertisement as an offer which could be, and was, accepted by an attempted tender of the purchase price.”

The panel ordered that Donovan be paid damages.

Times Mirror, the California Newspaper Publishers Assn. and the California Motor Car Dealers Assn., all of which supported the Lexus dealership at the court of appeal, have since convinced the state’s high court to review Rylaarsdam’s decision.

Lewis contends that a newspaper ad for a vehicle at a specified price “is not an offer subject to acceptance. It is an invitation to negotiate.”

Furthermore, if the ruling remains on the books, Lewis says, advertisers would try to recoup their losses by suing the medium that made the mistake. “Do we want to create that many lawsuits?” he asks.

“People understand that advertisements regarding major purchases, such as of a house or car, are [generally] not contracts,” said Peter Welch, an attorney with the car dealers’ group.

Welch said the appeals court should not have based its decision on the vehicle code but rather on a well-settled principle that contracts can be rendered invalid when mistakes are made by third parties.

Smith, the attorney for Times Mirror, agrees.

“This new standard of care has been imposed without due regard for the practical realities of advertising given the volumes of these ads and short deadlines (sometimes instantaneous) that exist in old and new forms of communication,” he wrote in a court filing.

Jim Ewert, legal counsel for the newspaper group, said that if the decision is upheld, dealers could try to hold newspapers responsible if they’re forced to sell at advertised prices.

“It would be an unwarranted burden on the commercial speech of advertisers and newspapers,” Ewert said.

For his part, Donovan said he has never believed that the ad was indeed a mistake, an attitude that is shared by others.

Rosemary Shahan, executive director of Consumers for Auto Reliability and Safety, a consumer watchdog group in Sacramento, said her group receives frequent reports about dealers using advertisements to lure customers into their showrooms, then refusing to sell at those prices.

Lewis, the attorney for the Lexus dealership, said his client does not participate in such practices and that the company is determined to vindicate its name.

“Everybody understands that mistakes happen and there’s no reason why one party should be held liable for another party’s mistake,” he said.