Thorn's sharp shock

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The Independent Online
A little after five o'clock on Friday evening, just over a week ago, Michael Metcalfe, chief executive of Thorn, the TV rentals group, took a conference call from the head of his US business, and Thorn's US in-house legal counsel.

As Mr Metcalfe listened in growing disbelief to what his colleague had to tell him, he knew the reaction from the market would be severe. It was a lengthy call, but at the end of it, there was little the directors could do, except prepare the market for the worst.

What had been revealed by Doug Anderson, head of the Rent-A-Center chain of 1,400 stores, and the lawyer, was that Thorn had just lost a $120m (pounds 84m) court ruling.

The timing was inauspicious, coming as it did after a profits warning in July, that sterling's strength would cut profits by pounds 11m, and following on months of decline in the share price.

The reaction, as the news filtered out to the board, was shock and dismay. Thorn had already had a partial judgment handed down against against it in January, by Judge Stevenson Fluharty, in the Camden County Superior Court. Thorn complained that Judge Fluharty had indicated the company had grounds to appeal - something it feels was overturned at the most recent hearing.

So the size of the summary judgment, say sources close to Thorn, was unexpected. Over the weekend, directors worked frantically to find out more and prepare a statement for Monday, ahead of the market opening.

When the details flashed up on stock market screens, the shares fell off a cliff, losing 14.5p, to 151.5p. They continued down for the rest of the week, ending at 136.5p. It is a long way away from the 410p the stock was demerged from EMI a little over a year ago, but a constant drip feed of bad news has seen investors sell out in droves.

The original New Jersey class action, filed in 1994, represented 78,000 New Jersey Rent-A-Center customers. They were represented by attorneys Tomar, Simonoff, who had been first contacted by a Dawn Robinson. She had explained she was unaware of the higher than expected costs she would have to pay for renting a TV, stereo centre, and cabinet from the store.

At a summary damages hearing requested by Tomar, Simonoff a week ago, Judge Fluharty was said not to have discussed any of the issues with Thorn's counsel, before ordering in favour of the plaintiffs. He ruled that Thorn must repay $40m for overcharging customers, and topped that up with $80m in punitive damages, a decision he based on the New Jersey Consumer Fraud statute.

Thorn has said it will appeal, although it will take at least six months before there is a hearing.

Ms Lisa Rodriguez, counsel for the plaintiffs, said Thorn has not changed the contract it has been using in New Jersey, since the Court decided in January that Thorn faced a liability. She warns that damages could continue to rise for consumers who have since taken out Rent-A-Center contracts.

"The service we are selling is completely different from normal retail, and it is definitely not a credit business," says Thorn. "We operate on completely different margins, because we have to refurbish goods, and customers have the right to return the goods whenever they want."

Even so, it will be a long time before Thorn can restore confidence among investors.