THE BMW V. GORE "PAINT JOB" CASE

Why Did BMW Deliberately Rip Off Its Own Customers?

Dr. Ira Gore, who treats cancer patients in Birmingham, Alabama, bought a new BMW 535i automobile in January 1990. He paid $40,750 for the car, which BMW markets as the "ultimate driving machine," with "flawless body panels" that retain "their original luster" after many miles of wear.

Dr. Gore wrongly assumed that since the car was new, it had never been damaged. In fact, when Dr. Gore took his car to an auto detailing expert nine months after the purchase, he learned that virtually the entire car -- the top, hood, trunk and quarter panels -- had been repainted due to acid rain damage sustained in transit from BMW's factory in Germany. BMW kept computer records of repairs to all of its cars, but no one from the automaker ever told Dr. Gore that the car he bought had been repainted at a company facility in Georgia. BMW even failed to disclose to its own dealers that cars had been repainted.

Feeling cheated, Dr. Gore filed a fraud suit in Alabama state court against BMW and the dealer. During the trial, Dr. Gore showed that:

• the repainted car -- although it looked "new" -- would always be unavoidably inferior. This is because the super-heated painting process at the factory could not be duplicated once non-metal parts were installed in the assembled car.
  
  
• even if the repaint job was done as well as possible, the car still would be worth 10 percent less, a former BMW dealer testified. This is because the paint on the repainted car would begin to fade, reducing the value of the car. (In Dr. Gore's case, he was defrauded out of approximately $4,000, i.e., the $40,750 purchase price minus 10 percent.)
  
  
• BMW's Executive Board had adopted a policy in 1983 to deliberately and fraudulently conceal from customers -- and even its own dealers -- that vehicles had been repainted, regardless of the extent of the damage or cost of repairs. Notably, a BMW expert testified that he would want to know whether a car had been repainted if he was going to purchase it.
  
  
• a minimum of 983 other cars, each with at least $300 in damage, had been sold to unsuspecting American customers. BMW also sold more than 5,850 other repaired vehicles as "new" without disclosing repairs. These figures, though, vastly underestimate BMW's program of nationwide fraud. At a post-trial hearing, BMW filed a document indicating that repainting is required on 2 to 3 percent of all new BMW vehicles sold in the United States.

By selling damaged cars for more than they were worth, BMW reaped millions of dollars through this nationwide consumer fraud. The Alabama jury did not let BMW get away with it: The jury awarded Dr. Gore $4,000 for the diminished value of the car and $4 million in punitive damages to punish and deter BMW from engaging in fraud. Five days after the verdict, BMW dropped the policy and quit fleecing Americans. The manufacturer now discloses all damage to its cars.

In upholding the award, the trial court found that BMW had "deliberately engag[ed] in a scheme of fraud from which [it] derived monetary benefits," that the scheme "had gone on for several years," and that in light of the "monetary benefits accumulated by [BMW's] wrongful acts . . . the jury was justified in awarding sufficient damages to prevent similar wrongs in the future."

The Alabama Supreme Court agreed with the trial court that BMW's misconduct had been reprehensible and merited punishment. However, the state supreme court found that the jury -- which apparently arrived at the $4 million punitive award by multiplying the approximately 1,000 documented cases of fraud by the $4,000 diminution in value per car -- should not have considered the fraudulent acts occurring outside Alabama. The Alabama court then considered the fraudulent cases in that state and reduced the punitive award to $2 million. This case is about what it will take to punish and deter a multinational company that deliberately and intentionally defrauds its customers and reaps an unjustified windfall. Punitive damages are particularly appropriate where a defendant, such as BMW in this case, has fleeced unsuspecting consumers.