A plaintiff's lawyer in Texas must pay sanctions to a Garland dealership for pursuing a baseless lawsuit that accused the store of illegally financing a buyer's negative equity as part of the purchase price of a new vehicle.
The Texas Court of Appeals found the original lawsuit filed by Athens, Texas, attorney James Owen against Rusty Wallis Volkswagen and the appeal to be "frivolous."
Dealership lawyer Kent Brooks of Dallas said the sanctions, now at $35,000, will be higher if Owen unsuccessfully seeks Texas Supreme Court review. The client, Rhonda Krisle, wasn't held liable for sanctions.
Owen's lawyer, Charles Baruch of Rowlett, Texas, declined to discuss the case.
In 2007, Krisle bought a VW Eos, and the dealership agreed to finance the negative equity on her trade-in as part of the purchase price. She financed $46,437, including the $14,500 balance on her trade-in.
Krisle later responded to a radio ad by Owen's former law firm seeking consumers who had been upside down on their trade-ins and may have been victims of auto-finance fraud. She checked the firm's Web site and then retained it to represent her.
Her lawsuit accused Rusty Wallis of fraud, violation of the Texas Finance Code, emotional distress, deceptive trade practices and related claims. A lower-court judge dismissed the case and granted the dealership's request for sanctions against Owen.
In upholding sanctions, appeals Justice David Bridges said Owen should have known about two appellate rulings that negative equity isn't a finance charge because the cases were decided in the same year the Krisle suit was filed -- one before the Krisle filing and one after. Bridges said Owen certainly knew of the second appellate ruling because he participated in that case. Yet he pursued Krisle's case anyway.
The unanimous decision also said Owen pursued the case even after the Texas legislature, a few months after the Krisle filing, eliminated civil suits against dealerships for cash-price violations.
Owen's appeals brief asserted that he had a good-faith argument for reversal of the two appellate rulings. It also said he didn't believe the legislative action could be applied retroactively to bar Krisle's claims. Owen's brief said the dealership "failed to adduce any evidence indicating that anyone acted in bad faith or for purposes of harassment."
However, the court rejected that defense and said Owen's bad faith was compounded because he "withheld a myriad of relevant information from Krisle that would likely have dissuaded her from initially filing or later maintaining her suit," as well as withholding information about a possible conflict of interest between himself and his client concerning sanctions.