CDK Global to pay $100 million to settle dealership antitrust suit
The proposed settlement, which requires a judge’s approval, avoids a planned September trial. It does not affect other pending litigation against CDK.
August 19, 2024 04:11 PM
Mark Hollmer
MICHAEL CERDEIROS

CDK Global has agreed to pay $100 million to settle a class-action antitrust lawsuit alleging it colluded with a rival to inflate dealership management system prices to stifle competition.

“It’s a good day for dealers,” said Leonard Bellavia of Bellavia Blatt in Mineola, N.Y., one of the attorneys representing the dealership plaintiffs in the lawsuit. “It shows how dealers can collaborate and collectively seek redress on a nationwide scale by joining forces and working together.”

The settlement, if approved by a judge, resolves the dealership class-action lawsuit filed against CDK and rival Reynolds and Reynolds Co. in 2017 accusing both companies of federal and state antitrust violations. It also cuts off an expected September trial in U.S. District Court for the Northern District of Illinois. DMS market leader CDK, which also is paying up to $250,000 for “notice and claims administration” costs, said it was glad to move ahead from the long legal dispute.

“We are pleased to bring the long-standing DMS antitrust dispute filed by dealers in 2017 to a conclusion and move forward,” a CDK spokesperson said in an Aug. 19 emailed statement. “As we’ve always done, we will continue to empower dealers with tools and capabilities that allow them to control their data access and the choice of which vendors to share data with.”

As part of the proposed settlement, which was filed Aug. 16, CDK, of Austin, Texas, did not admit any wrongdoing.

The class-action lawsuit alleged, in part, CDK and Reynolds essentially formed a duopoly to corner the market for data integration service programs that extract information from dealership management systems that is then used by application vendors.

The proposed class-action settlement motion listed 23 “representative” dealerships including Baystate Ford in Massachusetts, Cherry Hill Jaguar in New Jersey and Toyota of Ann Arbor in Michigan. Chief Judge Rebecca Pallmeyer of the U.S. District Court for the Northern District of Illinois must rule on it first.

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Because neither side opposes it at this point, the settlement and payment process should take about five months from start to finish, Bellavia said. He said Pallmeyer’s decision should happen in a matter of weeks, after which a procedural process for payments will be put in place — something that should play out through the end of 2024 and possibly into early 2025.

Dealerships will be notified via a website, mail, advertisements and informational releases that will list, in part, a toll-free number to call. Updates will be posted on the website dealershipclassdmssettlement.com, according to the proposed settlement.

All dealerships that purchased CDK’s DMS from September 2013 through 2024 will be eligible to apply for the settlement, according to co-lead plaintiffs’ attorney Peggy Wedgworth of Milberg Coleman Bryson Phillips Grossman in New York.

Reynolds and Reynolds was originally part of the proposed antitrust lawsuit, but the Dayton, Ohio, DMS provider previously agreed to pay $29.5 million to settle the class action in 2018 without admitting wrongdoing. The settlement funds paid by Reynolds were being held in escrow pending the outcome of the case against CDK. Now that a resolution is likely, the Reynolds’ settlement will be disbursed though a settlement administrator according to the same court schedule, Bellavia and Wedgworth said.

Settlement details
The proposed settlement is designed to resolve dealership claims and any counterclaims CDK filed through the course of the years long legal saga and the 81,000 plaintiff legal documents it produced, according to the settlement filing. It does not affect, release or alter any contracts between the settlement participants and CDK.

Any lawsuits stemming from the June 19 cyberattacks against CDK also are not affected. Asbury Automotive Group’s lawsuit against CDK over data control ahead of its pilot with rival Tekion also is proceeding, according to the settlement document.

The plaintiffs’ attorneys said in the settlement documents that they would pursue up to 33 percent of the combined CDK/Reynolds settlement funds, or about $34 million as attorneys fees. The money also will cover previously unreimbursed costs and expenses up to $7.5 million, subject to ruling on a separate motion.

In addition, the 23 dealership “class representatives” on the lawsuit itself are eligible for an award from the settlement of up to $10,000 for any fees and expenses they incurred.

Previous antitrust lawsuits against Reynolds and CDK were settled before trial.

Data integration service provider Authenticom also filed an antitrust lawsuit against Reynolds, but that case was settled in May 2022; CDK settled with Authenticom in November 2020.

Cox Automotive also sued CDK Global with its own antitrust claims, but the dealership software giant reached an undisclosed financial settlement with Cox in 2019. CDK in 2019 also settled with Motor Vehicle Software Corp., an electronic vehicle registration and titling services vendor that had sued it and Reynolds alleging antitrust behavior for alleged illegal blocking of a vendor from joining its data access programs. Reuters contributed to this report.

My full conversation with Leonard A. Bellavia – Sr. Partner at Bellavia Blatt, PC is now LIVE:

— Automotive franchise laws: why they exist and will they go away?
— Consumer-friendly auto brands
— Dealers’ top legal concerns
— Will Tesla ever franchise? (?!)

For years, dealers have been challenged with receiving fair compensation for retail warranty reimbursement. However, nowadays, franchised dealers in all states are protected. On today’s CBT Now, Lenord Bellavia, Founding Partner of Bellavia Blatt,  joins us to break down what this means for the industry.

According to Bellavia, “Dealers should pay attention to the reimbursement rates as it correlates to revenue streams.” But, dealers are front-end centric, meaning they always worry about sales. Therefore, based on how the industry continues to evolve, the fixed operations sector has driven the entire business overhead expeensives. Bellavia says, “This is what dealers call shop absorption, where the back end of the business drives the overhead.” Furthermore, Bellavia believes “Dealers get grossly underpaid for their parts and labor under warranty.”

Reasonable compensation

When sitting down with dealers to outline what they’re leaving on the table, most dealers believe they’re missing out on a few couple of dollars or percentages in labor rates. However, Bellavia asserts, “When translated into real dollars, it’s typically between $200,000 and $300,000 annually in revenue opportunities. However, manufacturers hold dealers to rigorous standards regarding supporting updates and working capital. According to Bellavia, manufacturers set up departments at the OEM level to analyze warranty claims to receive kickbacks, but “Those submissions must be strictly focused on.” He continues, “If dealers submit 100 consecutive repair orders and one isn’t appropriate for the batch, the OEM will reject it and postpone it by a month or two. Which leads to possible lost revenue of several thousand dollars.”

To properly create a submission, Bellavia’s highly skilled team takes 30 to 40 hours in the first step. Then, they have a quality control process that takes an additional ten hours to review possible mistakes that the manufacturers could see. Furthermore, according to Bellavia, “There are state statute exclusions that dealers are unaware of, which include batteries, maintenance, tires, and more that reduce the overall markup.”

All 50 states have legislation defining 150 qualifying repair orders, parts, and labor. Most dealers are aware of the legislation and are taking advantage of it. Still, those unaware of it need to learn they can resubmit a submission repeatedly for labor because retail labor increases annually.