Published September 18, 2011 | By Peter J. Lamont Esq
The combination of the current economic climate and stringent consumer fraud laws creates the perfect breeding ground for consumer lawsuits. In fact, in 2010, many jurisdictions around the country saw dramatic increases in consumer fraud and class action litigation. Consumer lawsuits can be severely detrimental to the kitchen and bath industry because many of the claims that arise are not covered by insurance. Moreover, most states have consumer fraud statutes that award a successful plaintiff double or triple damages and provide for the reimbursement of their legal fees. However, you can dramatically decrease the likelihood that your business will be sued by employing several key communication strategies.
Whether your business is large, small or in between, the key to avoiding litigation is to have a clear understanding of your customer’s desires, needs and expectations and to effectively communicate to him/her your company’s abilities, policies and procedures. This is accomplished by having a structured customer sales procedure and by utilizing properly constructed contracts.
STRUCTURED SALES PROCEDURES
As with anything in life, success is a product of preparation. In order to properly understand and document your customer’s desires, needs and expectations you should have in place a structured sales procedure that all employees follow. In general, when new customers enter the showroom most designers/sales consultants cheerfully greet them and ask how they can be of help. The customers explain what they are looking for, including, for example, the height of a kitchen island, and the enthusiastic designer pulls out product samples and specifications and jots down some notes to assist him in designing the customer’s kitchen. The customers like what they see, schedule a time for the measurement of their kitchen and await the completed design, which is to include the island at the height they originally requested. Being focused on the sale, the designer submits the design to the customers, obtains verbal approval, collects a deposit, and places the merchandise order. So far so good, right?
The merchandise arrives and the customers await installation of their new kitchen. The designer obtains payment of the remaining balance, delivers the cabinets and begins to install the cabinets. Unfortunately, the customer complains that the center island is two feet shorter than what they ordered. Being a careful and detail oriented designer, you know that you designed the island exactly as they requested. Despite your attempts to appease the customers your company is sued.
Your customers, now known to you as “the plaintiffs", claim that they told you the proper height and that you acknowledged it. Unfortunately for the designer, all he has to document his initial meeting with the customers is “chicken scratch" on a note pad. Since the designer has no competent evidence to prove what height the customers originally asked for, (note: the final drawings are not sufficient proof since they are not signed by the plaintiffs) the case becomes a “he said/she said" case which will ultimately result in the designer’s company settling with the plaintiffs.
Clearly, the litigation described above could have been prevented if the designer had employed a structured sales procedure that involved taking clear and concise notes and having the customers sign off on them as well as signing off on the drawings. For example, during the initial interview with the customers, the designer could have taken down notes as to the desired height of the island and asked the customers to initial the notes to verify that he had the correct information. Then after the final drawings were submitted the designer should have met with the customers and obtained written, not oral, approval of the drawings. By communicating in this manner with the customers the designer could have saved his company a significant amount of money. It is important to note that while obtaining written approval from a customer may not prevent a lawsuit it will give your company a good chance to dismiss the case on an early motion and save you from having to pay the customer any money.
Additional ways to prevent litigation during the design and ordering phases include: (1) making sure that the particular style or product (ex. particular color countertop) is still available before promising it to the customer; (2) keeping organized notes of all customer telephone calls; (3) insisting that all change orders be signed; and (4) making certain to advise the client in advance of the possibility of delivery delays.
The second communication strategy involves having a set of legally enforceable sales and installation contracts. A properly constructed contract can bind your customers to your terms, explain your procedures and protect you from litigation. Far too often companies rely upon purchase orders or other basic agreements that fail to address necessary issues such as indemnification, delays, curing a contract breach and basic information about the limits of the company’s responsibilities.
Proper sales and installation contracts are truly the backbone of any successful kitchen or bath company. Without a good contract, your company is exposed to a variety of claims including consumer fraud claims. While it is recommended that you obtain the advice of a competent contract attorney, there are many software products and form contracts (ex. AIA) that can help you construct a legally enforceable contract aimed at preventing or limiting litigation.
If you are preparing your own contracts you should, at the very least, include the following issues: (1) contract price; (2) payment schedule; (3) cancellation; (4) delivery; (5) warranty; (6) installation; (7) limitations of liability of seller; and (8) duties and responsibilities of the seller. It is critical that you give your contracts the time and attention needed to provide adequate protection for your company. Any up front expenditures of time and/or money involving the formation and preparation of your contracts are dwarfed by the amount of resources that litigation consumes. Thus, if you are truly interested in maintaining a profitable business, make certain that your contracts are clear, complete and legally enforceable.
Remember, any consumer litigation filed against you will involve the Court’s analysis of your contract. A strong contract could result in the early dismissal of a frivolous lawsuit, and in some states allow you to recover your costs and fees associated with your defense of the lawsuit. Conversely, the lack of a well written contract could result in protracted and costly litigation, which would ultimately be settled or submitted to a jury for trial.
There is no hiding the fact that we live in a highly litigious society and that the freedoms provided by our country allow a consumer to sue a business for just about anything. While you cannot stop that litigation train from riding the rails, proper communication with your customers through good note taking, customer sign offs and properly constructed contracts, you can limit or even eliminate the number of times the train stops at your station.