Car sales armada can proceed with disgorgement under Lanham Act
Catalog of (Dealer) Ships
A ginormous horde of car dealerships sued TrueCar Inc. in the Southern District of New York back in March 2015.
How many car dealerships, you ask? More than 100 from across the country; the list of plaintiffs takes up 28 pages of the original 65-page complaint, and if stretched end to end, would threaten to cover the ocean and to blot out the sun from the eyes of man.
Sorry.
What is TrueCar accused of, that would merit the arrival of such an array of enemies on its shores?
Referral Madness?
The defendant is a website that refers consumers (attracted by web, TV and print ads) to car dealerships and lists available cars and pricing information.
However, the dealers allege that TrueCar engaged in underhanded advertising, telling consumers that they could purchase vehicles at TrueCar-listed dealerships without negotiation at “guaranteed” low costs. Among other tactics, the suit claims, consumers were offered a printable “price certificate” to bring with them to dealerships.
Let’s just say this got the dealers a little bent out of shape. By their account, consumers were showing up expecting prices and a process that the dealers could not deliver. The dealers had never promised a no-haggle sales process or any sort of guaranteed price. In many cases, they claimed, consumers would arrive seeking TrueCar-listed vehicles that were out of stock or were being offered at prices or financing terms different from TrueCar’s “locked-in price.”
The dealers charged TrueCar with false advertising under the Lanham Act and unfair competition and deceptive practices under a plethora of state laws. In addition to accusing TrueCar of allegedly making false no-haggle claims, the dealers accused the website of bait-and-switch advertising as well as false factory invoice claims, false financing claims, false transparency claims and false rebate claims.
The dealers sought monetary relief to the tune of $250 million (!) as well as an injunction against the offending advertising.
Crashing
TrueCar pushed back with a motion for summary judgment in July 2018, claiming, among other things, that the dealers had failed to prove that they had suffered any injury. And in its recent opinion regarding the motion, the Southern District agreed. (State law claims were not challenged in the motion.)
“Plaintiffs’ deposition testimony describes only vague, general perceptions of injury,” the court held. “If credited, plaintiffs’ evidence would not be sufficient for a reasonable trier of fact to find a link between TrueCar’s advertisements and any injury to the plaintiffs.”
This argument was based on the court’s assertion that the dealers competed with other dealers – but not with TrueCar. “A sale made through TrueCar is not necessarily a sale lost by a plaintiff dealership, as opposed to some other competing dealership in the same market,” the court claimed. “At most, the testimony offered by plaintiffs describes witnesses’ perceptions of the ads’ falseness and why the false statements could be material to consumers’ buying choices, but they do not identify discernable injury to the dealerships linked to TrueCar’s advertisements.”
The Takeaway
Before shutting down the case altogether, though, the court left room for the dealers to continue the effort.
Based in part on communications between TrueCar executives and its corporate counsel, the dealers argued that the company willfully violated the Lanham Act – which merited disgorgement of TrueCar’s profits as a remedy.
Here’s one example: An alleged 2013 email from TrueCar’s counsel to the company’s CEO stated that he “strongly [advised] against using the phrase ‘negotiation-free’ in any form in our ads or other self-attributed public communications … In my view it is a much greater risk than we should bear at this point.” The CEO allegedly responded, “I am inclined to take some practical risk here.”
And so, while the bulk of the Lanham Act charges were left in the lot, the case will still be taken out for a spin. “Because plaintiffs have come forward with evidence that TrueCar acted against the advice of counsel and willfully ran false advertisements,” the court held, “the summary judgment motion is denied as to a disgorgement-based remedy.”
Listen to your counsel, folks!
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