20/20 casts eye on Kmart repair suit

Discount Store News, Nov 7, 1994 by Richard Halverson

NATIONWIDE DSN REPORT -- A national class action suit against Kmart alleging that it defrauded customers on auto repairs gained national exposure last month when the tabloid news program 20/20 broadcast an interview with the protagonist in the suit.

Kmart said it got no response from the ABC network broadcast on the 800-number it has long kept available for customers to call with any complaints. 20/20 tacked the one-minute interview with a former Kmart fleet auto service salesman onto the end of a report on its investigation into auto service problems with Goodyear and Firestone.

On the other hand, Larry Laughlin, the former Kmart auto service salesman who provided the impetus for the class action suit filed in Oklahoma district court, claims that his interview drew a number of responses from other former Kmart auto service employees and additional Kmart customers who felt they were cheated.

Despite Kmart's opposition, an Oklahoma judge granted national status to the class action suit in August, but the decision drew little national publicity. Kmart is appealing that ruling.

The named plaintiffs in the class action suit are two auto service customers, one of whom claimed that she was cheated because a Kmart auto service shop charged her $227.04 to replace a faulty water pump on her car and never did. The other claimed that a Kmart auto service center charged her $359.54 to replace the brakes on her car, only to have them fail the same day--leading to a question about whether they were replaced or only removed, cleaned and adjusted. Moreover, she claims the service center needlessly tried to sell her shocks and struts that Goodyear had recently replaced and that allegedly were still in good condition.

Laughlin isn't a party to the suit but is serving as an unpaid consultant to the attorneys representing the two named defendants. In addition, Laughlin, a Tulsa resident, said he has contacted the National Association of Attorneys General with the hopes of getting them to launch state investigations into allegations of fraud.

Laughlin, an acknowledged whistle blower, said he resigned in frustration from his Kmart sales job in 1992 after he failed to get his superiors to halt what he said were fraudulent overcharges, unnecessary repairs and charges for repairs never done for fleet customers. He then sued Kmart on grounds that he was forced to resign by pressures such as a poor job performance evaluation after he began complaining about fraud. Laughlin lost the case but has appealed.

Kmart declined to comment on Laughlin's allegations.

In court, Kmart argued that two cases were too few to warrant class action status, and the argument by the plaintiffs' attorneys that "hundreds of thousands" of customers were similarly defrauded was unsupported by evidence.

In court pleadings, Kmart lawyers had argued: "With a fragment of an unauthenticated document here, an isolated incident there, the liberal application of innuendo and invective and much out-right invective, Plaintiffs seek to create the specter of a deliberate plot by Kmart to defraud its customers on a massive scale.

"For Kmart to have set about doing what Plaintiffs allege--foisting pervasive fraud on its customers by bribing or terrorizing its thousands of employees--supposes that the company had decided to commit corporate suicide. This is sheer foolishness."

In a press statement following the decision to give the Oklahoma suit national class action status, Kmart had said, "Kmart believes the trial court's decision is an error and will immediately ask the Oklahoma Supreme Court to review it.

"Kmart has never had significant problems of the sort alleged in our auto service centers, although obviously mistakes are made from time to time. We have long-standing company policies that forbid dishonesty.

"Kmart takes every customer concern seriously. We work with our customers to ensure their satisfaction through various customer service venues. Auto service customers are given estimates of the charges for both labor and parts to review before authorizing repairs. We have one of the most liberal refund and adjustment policies in the automotive service industry. Customers who have complaints can resolve them at the store level or any level of management in the company to get satisfaction. They can also call a 1-800 telephone number at any time to get their complaint reviewed."

To support its suit, plaintiffs' lawyers submitted various documents, including two of Kmart's own internal audit reports. They stated that an audit of 78 [out of about 962] auto centers found that 26% had overcharged customers for parts purchased outside of Kmart's own inventory during May and June 1992. The second audit found that 21% of the service centers overcharged for outside parts in the first half of 1992.

Like other repair shops, Kmart buys most hard parts, such as brake rotors, as needed from jobbers. Kmart's stated policy is to charge customers only the manufacturer's or dealer's list price, without markups.