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Court Rules Against General Steel In Consumer Fraud Case

December 13, 2004
A Colorado company that sells fabricated steel buildings has lost a consumer fraud case. In a 41-page ruling, Jefferson County, Colo., Chief District Court Judge Brooke Jackson found that General Steel violated the state's Consumer Protection Act.

"Beyond any legitimate question, General Steel for years engaged in sales practices that were riddled with misrepresentations and omissions," the judge wrote.

"The Court's clear and decisive ruling in this case sends a strong message about the consequences of deceptive sales practices in Colorado," Colorado Attorney General Ken Salazar said. "These defendants disregarded good business ethics and notions of fair and truthful advertising to line their pockets at the expense of consumers throughout the country. These practices will not be tolerated."

The state alleged during an eight-day trial in October that General Steel carried out a deceptive marketing and sales program designed to create the false impression that it was a manufacturer of steel buildings that had an inventory of buildings available to consumers at factory-direct sale or "clearance" prices.

The state also alleged that consumers, responding to national radio, television and other advertising, were falsely led to believe that only a limited number of such clearance buildings were available and that they had to act quickly to submit a substantial deposit to claim a building.

In his ruling, Chief Judge Jackson found that General Steel engaged in numerous false and deceptive sales practices, including:

• Misrepresentations that General Steel was a manufacturer;
• Misrepresentations that General Steel was selling existing buildings, when in fact it merely ordered buildings from suppliers only after consumers placed an order;
• Misleading use of the term "clearance buildings;"
• Falsely implying that its buildings were available at 50 percent off the normal price;
• Failing to disclose that the building being sold were simply "shells" and did not include doors, windows, or even opening for the placement of doors and windows;
• Misrepresentations regarding the non-refundable nature of the deposits; and
• Misrepresentations in the process of selling windows, doors and other components.

In its ruling, the court imposed the maximum allowable fine of $200,000 against General Steel's president, Jeffrey Knight. Four additional company employees were also fined by the Court $20,000 each. General Steel was also ordered to pay restitution to consumer victims who testified at trial in amounts ranging from $3,000 to $10,000 per victim. The Court also ordered General Steel to pay the state's costs and attorney fees for its investigation and prosecution.

The court entered a permanent injunction against all of the defendants prohibiting a continuation of the deceptive practices. General Steel also will remain subject to third-party monitoring of its sales practices. Finally, the court directed the parties to establish a proposal for resolving the state's restitution claims for other General Steel consumers injured by the company's deceptive practices.

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