Lithia faces $2.5 million tab for texting

In April, 57,800 consumers' cell phones received a brief text message: "0% financing on used vehicles during the biggest sale ever. Over 3000 used vehicles at Lithia Motors."

Lithia followed up with a second short text to 48,000 of those phones a week later.

Now Lithia Motors Inc. may have to pay $2.5 million to settle a lawsuit filed by a recipient of one of those messages.

The lawsuit, and a second one that has been stayed pending a resolution of the first, serves as a cautionary reminder to dealers who use a variety of new media for advertising and marketing: Don't assume you know the rules governing those new media.

Dealers must be careful when using "broadcast" text messages as a marketing tool, says Dennis Galbraith, head of research and intelligence for dealers at DrivingSales.com, an online training and social-networking site for dealers.

"When you send this mass advertising message to people's telephones, that's a completely different thing than sending a broadcast e-mail or a radio ad or television ad," Galbraith says. "The regulations are completely different when it comes to sending things to people's telephones."

One reason for the regulatory difference, as cited in the lawsuit, is who pays for the message.

Text messages, "and particularly wireless spam," the suit says, "can actually cost their recipients money, because cell phone users must frequently pay their respective wireless service providers either for each text message call they receive, or incur a usage allocation deduction to their text plan, regardless of whether or not the message is authorized."

Two federal lawsuits -- one filed in April in Seattle and another in July in Portland, Ore. -- argue that Lithia violated the Telephone Consumer Protection Act, which prohibits unsolicited voice calls and text messages to cell phones, and state consumer protection laws when it sent the text messages.

The proposed settlement covers the Seattle lawsuit filed by Kevin McClintic; the Oregon suit was stayed in October pending the outcome of McClintic's case.

The suits also allege that Lithia violated laws that require recipients be allowed to opt out of future messages, saying that 6,190 recipients of the first text tried to opt out of receiving subsequent texts but could not. The texts told recipients to reply "Stop" to opt out of receiving more texts, but for whatever reason recipients who did so still received the second round of texts.

Lithia denied wrongdoing in each case, according to court documents. But it agreed to a proposed settlement with McClintic after mediation in July.

Publicly held Lithia of Medford, Ore., ranks No. 9 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 33,790 new vehicles in 2010.

DMEautomotive, the marketing company that sent out the text messages on behalf of Lithia, has put its text program "on hold," says Mike Martinez, its chief marketing officer.

DMEautomotive, of Daytona Beach, Fla., is a joint venture owned by JM Family Enterprises Inc. and DME Holdings.

The proposed settlement, if approved by Judge Richard A. Jones of the U.S. District Court in the western district of Washington, would award $175 for each text received and $500 if a text was received after the recipient tried to opt out.

Under the proposed settlement, $10,000 would be paid to McClintic, $600,000 would cover attorney fees and litigation expenses and the rest would go to recipients of the texts. Payouts from the proposed $2.5 million settlement may be prorated depending on how many text recipients respond to an invitation to receive part of the settlement.

Lithia's attorney, Grant Degginger, said it was inappropriate to comment about the case because the "settlement is before the court for review and hopefully approval."

DMEautomotive is not named as a defendant in McClintic's suit but "is participating financially in the settlement without any admission of liability," court documents say. The company assisted with developing and carrying out the text campaign, according to those documents.

DMEautomotive's Martinez says Lithia "remains a very proud and very happy" customer, but would not comment on the lawsuit.

DMEautomotive is a defendant in the Oregon lawsuit filed by Dan McLaren.

McClintic's attorney, Rob Williamson, says the proposed settlement worked out by his client and Lithia was submitted to Jones first in August and again in November. The two sides now are waiting to see if Jones will approve the settlement.