Bmw Of North America Case Study

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Schurtz v. BMW of North America

Utah Supreme Court
814 P.2d 1108 (1991)


Hugh Schurtz (plaintiff) purchased a vehicle from BMW of North America (BMW) (defendant). The vehicle came with a limited warranty that gave BMW the sole discretion to repair or replace the vehicle. Additionally, the warranty disclaimed incidental and consequential damages for any breach of the warranty. Schurtz experienced problems with his vehicle and BWM refused to repair or replace the car. Schurtz filed suit for breach of the warranty seeking damages, including incidental and consequential damages. Schurtz argued that under Utah law, where a warranty fails its essential purpose then a provision excluding incidental and consequential damages is invalid. Conversely, BMW argued that a provision excluding incidental and consequential damages only fails when it is unconscionable. The trial court upheld the provision excluding incidental and consequential damages granting BMW’s partial motion for summary judgment. Schurtz appealed.

Rule of Law


Holding and Reasoning (Zimmerman, J.)

Concurrence/Dissent (Stewart, J.)

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Citation.517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996)

Brief Fact Summary. The Petitioner, BMW (Petitioner), sold slightly damaged, new cars for full value and never told the buyers about the damage. The Respondent, Gore (Respondent), purchased one these damaged vehicles and was awarded actual damages, plus $4 million punitive damages.

Synopsis of Rule of Law. Punitive damages may be imposed to further a state’s legitimate interest in punishing unlawful conduct and deterring its repetition as long as they are not “grossly excessive.”�

Facts. In 1990, the Respondent purchased a new BMW for $40,000 from an authorized dealer in Alabama. After 9 months he decided to take the car to a detailer to have it shined and cleaned. This specialist informed Respondent that his car had been painted to cover minor damage to the body.
At trial, the Petitioner admitted that it was company policy to repair any damage to vehicles during shipping. If the cost of the repair exceeded 3% of the car’s retail value, it was placed in company service and later sold as used. But, if the cost of repair was less than 3% the car was sold at full retail value.
Actual damages to Respondent were estimated at 10% of the car value based on expert testimony. Punitive damages were determined by estimating that Petitioner had sold approximately 1,000 cars in Alabama for more than they were worth.
On appeal, the Supreme Court of Alabama found Petitioner’s conduct reprehensible and that the punitive damage award would not have a substantial impact on the financial viability of the company. However, the Court found the computation of the amount was in error and reduced the award to $2 million accordingly.

Issue. Does an award of $2 million in punitive damages to the purchaser of one car exceed the constitutional limit?
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