Friday, June 08, 2012

Carfax damage reports as unfair trade practice

Off Lease Only, Inc. v. Carfax, Inc., 2012 WL 1966372 (S.D. Fla.)

Off Lease sued over Carfax’s practice of preparing vehicle history reports and advertising them to people who want to buy used cars.  Off Lease alleged that Carfax reports “structural damage” inconsistently and inaccurately, damaging Off Lease in its business as an independent used car dealer by improperly listing some inventory as having suffered “structural damage” and rendering it unsaleable.

The complaint told the story of a 2009 Passat bought Sept. 7, 2011, at which time the Carfax report showed no structural damage.  The seller, Mannheim, provided “an independent condition report on the Passat that falsely described it as having structural damage on one hand but has specific findings and an overall grade that indicated no structural damage on the other.”  (The complaint’s allegations here were seemingly inconsistent.)  Afterwards, Carfax updated its report to include a claim that the Passat had “[s]tructural damage disclosed by seller at auction on 09/07/2011,” lowering the car’s value.   The complaint also described an Infinity that Off Lease sold at a time that its Carfax report showed no structural damage, but the report was later updated to show structural damage dating back to Off Lease’s initial purchase.  Based on that, the buyer returned and demanded recission, and Off Lease complied to avoid a lawsuit.  For both, Off Lease alleged that the cars had suffered no structural damage.

Off Lease sued for violations of the Lanham Act, state unfair trade practices law, and libel.  The court dismissed the Lanham Act claim because the reports weren’t advertising or promotion.  “Carfax does not publish its vehicle history reports for the purpose of influencing consumers to buy its goods or services. Rather, the reports are the goods themselves and are intended to aid prospective car purchasers in making an educated decision.”

First, the court rejected the argument that Virginia law governed the claim because of a pricing agreement between the parties over Carfax’s provision of data to Off Lease; the claim didn’t arise out of that agreement.

Carfax then contended that there couldn’t be a problem because it specifically says that its data “may contain errors and omissions” and that Carfax cannot guarantee that its information will be accurate.  But that was again in its agreement with Off Lease, and Carfax provides reports to other nonparties, who distribute them to individuals with no direct relationship with Carfax.  Those individuals might be deceived notwithstanding the disclaimers.  Also, Off Lease alleged that the reports were arbitrary and false and that Carfax refused to correct them even after being given knowledge of the falsity.  Even taking the disclaimers into account, Off Lease alleged deceptive/unfair acts. 

Finally, Carfax argued that because Off Lease itself provides the reports to its customers, it couldn’t show that Carfax’s acts caused its harm: Off Lease could stop using them.  But the reports are available from other sources traceable to Carfax, and Off Lease also alleged that Carfax’s ads induced customers to demand Carfax reports and have specifically suggested that “if a dealership refuses to provide the reports, the customer should assume the dealer has something to hide. Thus, even if Plaintiff takes Carfax's suggestion and stops using its services, it would still be harmed by the alleged deceptive practices.”

Carfax also argued that Off Lease failed to satisfy Rule 9(b), but the court disagreed: the allegations were sufficiently elaborate to “inject reasonable precision and substantiation into the pleadings.”

Carfax moved to dismiss the libel claim, arguing that an object can’t be the subject of defamation (as well as making other arguments that need not detain us).  Florida law was broad enough to encompass this claim; Florida courts have recognized claims for injurious falsehood, which covers the basic conduct (knowing/reckless false statements abut Off Lease’s inventory) even if the term libel is wrong.  “However the claim is presented, the Court concludes that it need not be dismissed simply because it is based on disparagement of a thing and not a person.”

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