NEW YORK — Dealer law firm Bellavia, Blatt, Andron & Crossett filed a $50 million lawsuit against Carfax Tuesday afternoon, bringing forward antitrust and anti-monopolization claims on behalf of 121 dealers.
The mass action suit claims that the vehicle history report (VHR) provider, founded in 1984, has a monopoly on the industry — holding a reported 90 percent of the market share through exclusive agreements with manufacturers as well as vehicle merchandising sites like Autotrader.com and Cars.com.
“Carfax has unlawfully acquired and maintained its market power in VHRs through exclusivity agreements with numerous major players in the auto industry,” the complaint reads, citing how AutoTrader.com and Cars.com include hyperlinks to Carfax reports but exclude reports from other VHR providers.
“Carfax has stigmatized any listing without such a link in the eyes of consumers who infer that the absence means that the car has a blemished history,” the complaint states.
Leonard Bellavia, the attorney leading the case, has been looking at Carfax’s practices for the past six months as a growing number of his dealer clients questioned the quality of Carfax’s reports. Through his research and conversations with dealers, he realized Carfax was in violation of antitrust laws.
“There’s nothing illegal about having a monopoly, but the law looks very critically at an entity that has a monopoly that abuses its monopoly power,” Bellavia said. “You cannot engage in anti-business or anti-competitive behavior to either maintain the monopoly or increase the monopoly.”
Bellavia sought to first address Carfax’s alleged antitrust violations so that competing VHR companies get a fair shot at dealer and manufacturer business as well. As a result, “there is more of an incentive [for Carfax] to improve the quality of service,” which, in turn, tackles his dealers’ main concern.
The complaint lists 50 dealers from New York, 29 from New Jersey, and a handful of operators from Connecticut, Arizona, Maryland, Washington, Wisconsin, Vermont, Delaware, Florida, Virginia, California, Massachusetts, Illinois, Montana, Texas and Pennsylvania. Since the suit was filed yesterday afternoon, Bellavia said 25 more dealers were added to the complaint.
Bellavia was the lead attorney in the successful mass action fight against the U.S. Treasury in 2009, when Chrysler ordered nearly 800 of the marque’s dealerships to be closed down following its bankruptcy. He gained support of close to 20 percent of total Chrysler dealers affected by the cuts, and Bellavia said he hopes to capture at least the same share of dealers in this lawsuit within the next 60 days.
Just as in the Chrysler suit, Bellavia decided to file a mass action suit. He said it was the best option because it allows the affected dealers to “level the playing field” with such a large entity like Carfax. And if successful in court, each dealer would be given an individual hearing to argue for personal damages incurred under the mass action.
Dealers spend anywhere from $10,000 to “multiple tens of thousands of dollars per year” in order to provide customers with free Carfax reports, which the complaint claims are “inflated prices” given what other VHR providers charge dealers.
“Auto dealers would have the unfettered opportunity to purchase VHRs of superior reliability from alternative suppliers at competitive prices,” the complaint reads.
The action brought against Carfax seeks injunctive relief and to recover a collective $50 million in damages incurred “by having to pay more to Carfax for VHRs than they would have paid in a free and competitive market.”
In addition to the monetary damages, Bellavia said he expects the mere filing of the suit to open up the playing field for other VHR providers. “Through this, Cars.com and AutoTrader.com should be more receptive to recognizing AutoCheck and the other companies,” he said.
AutoTrader.com did not immediately respond for comment. Erin Mays, spokesperson for Cars.com, e-mailed the following statement to F&I and Showroom magazine:
“While we can’t comment on pending litigation or the specific terms of our agreement with CARFAX, what I can tell you is that vehicle history reports are an important part of the shopping experience. Cars.com launched vehicle history reports on our site in 2005 in response to consumer demand. It is one of many data points we bring into our site to give shoppers access to as much information as possible about a vehicle in which they are interested, ultimately helping them make more informed buying decisions.”
The suit also calls out manufacturers for their exclusive agreements with Carfax, noting that 37 of the 40 major certified pre-owned (CPO) programs require dealers to purchase VHRs from the company. Volvo is among the latest of the manufacturers to solidify its relationship with Carfax. Earlier this month, the Swedish carmaker renewed its agreement established in 1999 that requires certified dealers to provide consumers with a free Carfax report for every CPO-Volvo sold.
“We put our customers in top-quality cars,” said Jon Holl, general manager at Don Beyer Volvo, in a press release issued with the announcement. “For more than 10 years, Carfax Reports have helped reinforce this fact to anyone considering a certified Volvo or any other pre-owned unit on our lot. Carfax is a must-have for our staff and is the name people trust.”
Carfax’s business model has come under fire in recent years. Dealers liken it to extortion because the company’s marketing efforts play up negative dealer stereotypes to urge consumers to ask for its reports.
The firm also was the focus of an article published in F&I and Showroom’s August 2010 issue after the release of its History Impact Tool, a value guideline that shows buyers how much more or less than the retail book value they should pay based on finding in the company’s VHRs. Dealers were critical of the company for not disclosing how its value guidelines worked, and questioned its accuracy.
Calls for an all-out boycott of the company seemed to dissipate until Jim Ziegler began leading a charge against the company late last year. In January, Ziegler was asked by Joseph Rhee, a producer for ABC’s “20/20,” to participate in an investigative report on Carfax after reading his blog postings on the firm. The report, which aired on March 17, raised several questions about the accuracy of the firm's VHRs.
Larry Gamache, a spokesman for Carfax, declined to comment on the pending litigation. But he did offer a comment regarding Ziegler, who noted Bellavia’s interest in Carfax in a March 2013 column in F&I and Showroom magazine.
“We have, in the past, tried to talk to Mr. Ziegler about his concerns,” Gamache said. “He has refused to talk with us.”
— Stephanie Forshee and Brittany Swanson