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Calif. Dealer Group Scores Partial Victory in Lawsuit Against TrueCar

April 5, 2016

LOS ANGELES — A Los Angeles Superior Court judge has ruled in favor of the California New Car Dealers Association in its lawsuit against TrueCar, allowing the association’s case to proceed after the vehicle-information site sought an injunction against the trade group’s claims.

The ruling came three days after TrueCar CEO Chip Perry announced plans to overhaul the company’s business model in an attempt to win back dealers after a tumultuous 2015 — a year marked by the departure of its founder and several key executives, as well as the well-publicized loss of a major dealer client in AutoNation.

“We’re interested in whatever changes TrueCar makes to its business model, but our lawsuit is about compliance with California law. And so far, we have no indication that TrueCar has changed its behavior to bring itself within compliance of California law,” CNCDA President Brian Maas told F&I and Showroom. “We think TrueCar is a dealer and an auto broker, and they’re not licensed as such. We’re hoping that when we get the merits of the case, the court will agree with our position that they are a broker.”

Filed in May 2015, the CNCDA’s complaint alleged that TrueCar is not in compliance with certain sections of the California Vehicle Code pertaining to dealer licensing, brokering and disclosure. The association then amended its complaint this past January, charging the vehicle-shopping site with violating state and federal advertising laws, including the Lanham Act, with its “no surprise or hidden fees” promise included in its advertisements.

On March 30, Los Angeles Superior Court Judge Nancy Newman ruled that the CNCDA’s claims that TrueCar business model is not in compliance with California law on dealer licensing, brokering and disclosure was sufficient enough to allow the case to proceed. The court also overruled TrueCar’s procedural challenges seeking injunction against the association’s allegations.

Judge Newman, however, did dismiss the association’s claim that TrueCar’s advertisements violated Lanham Act.

TrueCar now has until May 4 to respond to the CNCDA’s complaint. Judge Newman also set a case management conference for June 30, where both parties will meet to discuss how to proceed with the case.

The association noted in its press release announcing the ruling that former TrueCar Chairman and CEO Scott Painter, who vacated his posts in December 2015, is on record saying that the firm’s competitors are dealers who do not participate in the TrueCar network. TrueCar’s executive vice president and chief risk officer, Johnny Stephenson, is also on record saying that TrueCar will obtain a broker’s license if the court requires it, according to the CNCDA.

On March 27, TrueCar announced major changes to its business model under its new Dealer Pledge initiative, promising to adopt a more dealer-friendly philosophy. Perry also appeared in a company video listing the steps that the company was going to take to improve dealer relations. The main message behind the announcement: “Dealers are our true customers.”

“We are gratified that the court has agreed with our position regarding the CNCDA’s federal Lanham Act claim, which has now been dismissed,” TrueCar’s Stephenson said in a statement issued to F&I and Showroom. “As to the remaining state law claims, the court has simply concluded that further information is necessary before they can be resolved.

“More fundamentally, we believe TrueCar’s new philosophical rudder, as outlined in our Dealer Pledge, aligns the company’s interests with those of car dealers across the [United States,” he added. “We look forward to continuing to serve dealers in California and elsewhere.”

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