Recent News

TrueCar Responds to CNCDA Lawsuit

SANTA MONICA, Calif. — The California New Car Dealers Association filed a lawsuit on Wednesday against TrueCar, alleging that the shopping site is not in compliance with certain section of the California Vehicle Code pertaining to dealer licensing, brokering and disclosure — a claim the vehicle-shopping site denied.

The CNCDA’s complaint, filed in the Los Angeles Superior Court’s Santa Monica branch, charges TrueCar with acting as a dealer and a broker when it does not have a dealer’s license or an autobroker’s endorsement. The CNCDA said it believes this means TrueCar is in violation of state consumer protection laws.

“So-called technology advances do not permit ignoring the law,” said Patricia Glaser of Glaser Weil, the law firm that filed the litigation on behalf of the CNCDA. “Quite simply, it is only acceptable to offer new services to consumers if [they] meet the legal structure in place, which was created to protect consumers. TrueCar, like the rest of us, must follow the law.”

TrueCar responded in a press issued late Wednesday, saying that the California Legislative Counsel Bureau previously determined that the operation of a web-based service such as TrueCar does not constitute autobrokering or operating as a dealer.

The vehicle-shopping site also said it met with representatives of the California Department of Motor Vehicles, which is tasked with enforcing the statutes at issue in the CNCDA’s lawsuit, as recently as October 2014. “After analyzing TrueCar’s business operations in depth, including specifically those challenged by this lawsuit, the DMV did not request that TrueCar make any changes to its California business operations,” the release read, in part.

“These regulators understand our business model and obviously do not believe that we are in violation of these laws, as evidenced by the fact that they have taken no enforcement action against us since we began operating in California in 2005.”

This isn’t the first time TrueCar has come under fire for noncompliance with dealer licensing laws. In late 2011, dealer associations in California, Colorado, Indiana, Louisiana, Nebraska, Ohio, Oklahoma, Virginia and Wisconsin questioned the company’s compliance with such laws. The firm has maintained that those issues have since been resolved, a claim Monica Baumann, director of legal and regulatory affairs for the CNCDA, denied, at least in California.

“The CNCDA is not aware of the California DMV ever looking into the issue, which is part of the reason the CNCDA executive committee supported this lawsuit,” she said in an email exchange with F&I and Showroom.

“In 2012 and again in 2014, after receiving a large number of inquiries from dealer members, the CNCDA requested that outside legal counsel at Manning, Leaver, Brude & Berberich review TrueCar’s business and prepare legal memoranda regarding its occupation license status and advertising practices,” she added. “… MLBB concluded that TrueCar does not comply with the law and puts dealers as risk."

The CNCDA is not seeking monetary compensation with its lawsuit Instead, the trade group is asking for an injunction against the shopping site. TrueCar CEO Scott Paint has always maintained that his firm’s business model does not equate to a brokerage or buying service because TrueCar staffers do not engage in the selling of vehicles.

“We welcome the opportunity to demonstrate the compliance of our business model with California law,” TrueCar said in its press release. “We fail to understand how the CNCDA believes that it is serving the interests of its members by seeking a declaration that approximately half of those members are violating California law through their relationships with TrueCar.”

The vehicle-shopping site is also facing a mass action lawsuit filed by New York-based law firm Bellavia Blatt & Crossett. The complaint claims that dealers have been injured by its business practices. The firm planned to file two separate lawsuits, one representing non-TrueCar-subscribing dealers and a second on behalf of dealers currently signed up for the service. TrueCar has called the lawsuits “meritless.”

 

Follow @FI_Magazine on Twitter