New York, NY – On October 19, 2017, Bellavia Blatt, P.C. (“Bellavia Blatt”) and co-counsel Milberg Tadler Phillips Grossman LLP (“Milberg Tadler”) launched a nationwide class action accusing CDK Global, LLC (“CDK”) and The Reynolds and Reynolds Company (“Reynolds”) of federal and state antitrust violations, seeking damages and injunctive relief for a class of automobile dealers. The class action alleges a conspiracy between CDK and Reynolds for the purpose of reducing competition and raising prices in two specific areas: (1) the market for the provision of data management system (“DMS”) software to franchised dealers; (2) the market for data integration services relating to utilizing the data housed on data management systems. Numerous dealership cases were subsequently filed nationwide. These cases, along with other cases brought by vendors serving dealerships, were consolidated in the U.S. District Court for the Northern District of Illinois (Chicago) by the United States Judicial Panel on Multidistrict Litigation.

The first action on behalf of auto dealerships was filed by Bellavia Blatt and Milberg Tadler and alleged that, as a result of their illegal agreements and anticompetitive conduct, CDK and Reynolds have been able to effectively control the data integration market. For example, it is alleged that they impose exorbitant charges on the previously mentioned third-party vendors who require access to information in order to provide services to dealers for everything from inventory and customer relationship management, to electronic vehicle registration and titling. It is alleged that, in the end, those charges are passed along to the dealers. Furthermore, the suit alleges that this anticompetitive conduct was designed to – and, in fact, did – artificially inflate the price of DMS services and the cost of engaging third-party data integrators. As a result, it is alleged that dealers have been forced to pay supra-competitive prices for both.

On April 16, 2018, after considering competing motions from various firms, the Honorable Amy J. St. Eve appointed Leonard A. Bellavia of Bellavia Blatt to the Plaintiffs’ Dealers Steering Committee and Peggy J. Wedgworth of the Bellavia Blatt and Milberg Tadler team as sole Interim Lead Class Counsel for the dealerships. Mr. Bellavia noted, “Having devoted my decades-long legal practice to representing dealerships, we will fight for dealers against oppressive pricing and business practices of these DMS providers in this litigation.”

Bellavia Blatt is a leading firm representing automobile dealerships nationwide in a variety of transactional matters and litigations.

If you wish to discuss this matter with us, please contact the following:

Kevin Timson
Bellavia Blatt, P.C.
200 Old Country Road – Suite 400
Mineola, New York 11501
Phone: 516-873-3000
Email: KTimson@DealerLaw.com

From the time a buy-sell agreement is executed until the time a transaction is closed, dealership buyers must be on guard against seller acts that can financially harm dealerships shortly after closing. The seller should be held accountable for any acts it takes prior to closing that erodes this goodwill. To address such acts, buyers and their counsel should include several provisions into their agreements to hold selling dealers accountable for these acts.

Every buyer wants to take over a dealership and feel on Day One that the seller and its managers and employees have continued to make best efforts to sell and service vehicles during the weeks or months prior to closing. The buyer has paid for the value of the prior owner’s sales, marketing and customer retention efforts through payment for “goodwill” – i.e., the intangible value of the dealership above and beyond its hard assets.

Consider the crucial issue of the relationship with the franchise’s manufacturer. While a buyer can get assurances from the seller during due diligence of how strong the seller’s relationship is with the dealership’s manufacturer, it is important to hold the seller accountable in the buy-sell agreement for any statements made regarding that relationship.

For instance, a buyer should get representations from the seller that it has not received any unabated written notice of any facility or other franchise deficiency from the manufacturer. The seller should also represent that it has not received notice requiring it to relocate the dealership operation or to improve or modify the dealership’s premises.

A buyer does not want to be told by the seller that the manufacturer has no issues with the dealership, then later have the manufacturer impose unanticipated requests to “improve” the facility or dealership operations based upon issues that arose prior to the buyer taking over the franchise.

There are important inventory items to consider, as well. A buyer needs safeguards in place in the buy-sell agreement when the seller has other same line-make dealerships and may want to move more popular new vehicles to those other dealerships.

Safeguards would include a warranty that the seller shall not sell or transfer any vehicle outright to these other dealerships. A buyer does not want a seller wholesaling its fast-moving inventory to a sister store of the seller’s when the buyer’s dealership could sell such inventory after the Buy-Sell is complete.

When dealers have other same line-make dealerships, buyer counsel should also anticipate that the seller may want to swap vehicles between the dealership being purchased and these other dealerships. Swapping of like models and similarly equipped vehicles may be reasonable. However, such swapping should be determined in advance of closing and with the mutual agreement of both the buyer and seller.

Another consideration for a prospective buyer would be to protect against a seller taking deposits for hard-to-get models for friends and relatives, and the buyer having to deliver these vehicles to the seller’s friends and relatives at cost. This may help the seller but does nothing to help the buyer’s profitability on its new vehicle sales. To address this concern, a seller should warrant to sell at the customary profit levels for the preceding six months.

Sellers should also warrant to not remove equipment or accesso­ries from vehicles to be purchased and represent that such vehicles are equipped as per the manufac­turer’s invoice. Each of these warranties is important – without the selection of models or features they want, customers cannot drive off the dealership’s lot with a purchased car and will probably go to another dealership, costing the buyer in lost sales revenue.

Furthermore, a buyer should not be obligated to purchase any unsold vehicle that has been reported as sold to the manufacturer, unless the seller can reverse any such reported sales prior to the closing. In an effort to achieve minimum sales responsibility targets imposed by the manufacturer, a seller may be tempted to falsely report unsold vehicles as sold to the manufacturer.

This can be a concern for the buyer, however, because the report to the manufacturer starts the warranty period running on these unsold vehicles, which will then have to be sold at reduced value to compensate for the loss of warranty coverage period once these vehicles are actually sold to customers.

A buyer should also consider asking a selling dealer for several warranties to enable a seamless transition on dealership operations. In particular, a seller should warrant to keep the dealership “open and operative in a regular and ordinary manner consistent with past practice and for not less than the hours customary for the business.” For instance, if the dealership has traditionally kept evening and weekend service and sales hours, that schedule should not have changed.

From a service standpoint, buyers need to protect themselves against undisclosed service obligations a seller has made to customers. While the buyer may not have a legal obligation to these customers, the buyer may feel compelled to honor seller obligations to keep customers satisfied.

These obligations can include “We Owes,” free oil changes or other services and any coupons, refunds, rebates or credits of any kind for the seller’s past or current sales and service customers. With the exception of any such offers disclosed to the buyer, a seller should warrant in the buy-sell agreement that it has not issued service warranties, other than those related to lemon laws and third-party or factory-sponsored warranties.

The seller should also represent that it does not, nor ever has, participated in any in-house warranty or maintenance program and state that such warranties and programs are expressly excluded from the buy-sell agreement.

The provisions highlighted above are not typical or boilerplate provisions in a buy sell. However, a buyer’s counsel should take care in foreseeing the problems that these provisions address. I have seen them occur frequently, and the buyer will want to know that he or she has been protected against them in the buy-sell agreement.

https://www.automotivebuysellreport.com/custom-tailored-buy-sell-provisions-to-beware-of-in-your-purchase-agreement/

General Motors dealers could face major penalties, even termination, if they fail to use a new disclosure form for customers who buy non-GM service contracts, a new or used vehicle with non-GM accessories or used vehicles with non-GM? parts, the automaker told dealers last month.

But by enforcing the new disclosure process and draconian penalties, GM itself may be violating its franchise agreement, said dealership lawyers and associations, pushing back against the automaker’s notice.

Under GM’s franchise agreement, dealers for several years? have been required to disclose when a service contract, part or accessory is a non-GM product. But now they must use the standardized form to make the disclosure, Alan Batey, president of GM North America, told dealers in a letter dated Aug.10.

GM says the move is intended, in part, to make clear to consumers the limits of its responsibility and liability for non-GM products. But opponents see it as an attempt to promote GM products at the expense of competitors’. Given the size of the accessories, parts and service contract markets, the stakes are huge.

Dealers whose stores ignore the new disclosure form could be? required to pay $500 per incident. They could become ineligible to buy other GM dealerships or to benefit from GM’s incentive programs, including the Essential Brand Elements program. Ultimately, the dealer could face possible franchise termination.

The disclosure form makes clear to customers that GM “has no obligations to the customer under a non-GM service contract” and that “GM is not responsible for the consequences of installing non-GM parts, equipment, or accessories on the vehicle,” the letter says.

If dealerships have installed non-GM parts, say while reconditioning a used vehicle,? or accessories on a new or used vehicle, then dealership personnel must disclose that to customers with the form. Customers may receive a list of non-GM parts installed by the dealership on request. If a previous owner of a used vehicle has installed non-GM parts or accessories, GM does not require the dealership to make such a disclosure and customers will not receive a list of non-GM installed parts, a spokesman for the automaker said. Over-the-counter part sales are also exempt from the disclosure.

In a follow-up Aug. 24 letter to dealers, Steve Hill, vice president of U.S. sales, service and marketing, clarified that most dealers sell GM parts, accessories and service contracts or properly disclose when they sell non-GM products. The new, standardized disclosure form is meant to ensure that consumers understand the source of the product, he said.

“For the disclosure requirements to have any meaning, however, there must be a consequence for a dealer who ignores or refuses to make these very important disclosures,” he added. Automotive News obtained copies of both GM letters. The first letter was first reported in F&I and Showroom.

Dealers have 90 days from Sept. 1 to add the form to their sales and service process. After that, the GM zone and central office teams would consider the dealership’s disclosure practices and the severity of the violations before imposing penalties.

Pushback

Dealership associations and lawyers for dealers oppose the new form and penalties.

Jim Moors, senior counsel for the National Automobile Dealers Association, said in an Aug. 17 letter to NADA members that some states restrict manufacturers from requiring dealers to sell or favor the sale of the automaker’s service contract or parts.

“These laws may be applicable to GM in this situation,” he said. “While NADA cannot offer dealers legal advice, we strongly recommend that you not take any action that indicates agreement with the new requirements without consulting your legal counsel,” he added.

Robert Vancavage, president of the New York State Automobile Dealers Association, requested in an Aug. 29 letter to Batey that GM rescind the letters and refrain from enforcing the policies as they are currently written in the letters.

Vancavage, with guidance from legal counsel Bellavia Blatt & Crossett, said that the policies do not comply with GM’s own franchise agreement. In response to queries from Automotive News, the GM spokesman said: “The new form is designed to be simple” and to create a consistent process throughout GM’s dealer network.

Vancavage also said the policies violate the federal Dealer’s Day in Court Act and six sections of the New York Vehicle and Traffic Law. Other states have similar provisions to New York’s Vehicle and Traffic Law, said Len Bellavia, a partner at the law firm.

Vancavage added that the purpose of the disclosure form seems to be to “persuade GM dealers to sell, on an exclusive basis, among other things, GM parts, service contracts and accessories,” adding, “Such a requirement would be prejudicial to the monetary interests of a GM dealer and, in contrast, only benefit GM.”

‘Onerous’

Because there is a disclosure requirement in the franchise agreement, dealers are provoked by GM’s claim that the form was developed to boost transparency with customers, Bellavia said. “The only thing that’s being accomplished is to make the requirement more onerous so that the customer is reminded repeatedly that he’s not buying a GM product,” he said.

“You could take that two ways. It could be belts and suspenders or it could be a ruse to try to increase sales of GM products.”

Bellavia doubts that the new disclosure form and consequences for disregarding it will be implemented, but if they take effect, dealers are unlikely to change the way they do business, he predicted.

“It’s not that [dealers] don’t want to sell GM extended service contracts,” for example, he said. “But there are circumstances where third-party contracts offer the same coverage at a lesser price.”

Dealers aren’t “looking to defeat General Motors,” he said. “They’re looking to [abide by] policies that make sense for everyone, especially consumers. This seems to be counterproductive.”

But if dealers don’t address their concerns with the automaker, other automakers may follow GM’s lead, Bellavia said.

“It has far-reaching effects not only for GM sales but also for other manufacturers who might view this as an ability to apply the same pressure to their dealers.”

http://www.autonews.com/article/20170904/RETAIL07/170909922/new-gm-disclosure-form-riles-dealers

Join us at the 1st Annual Cruisin’ for the Cure Classic Car Show on Saturday, June 24, 2017 (Rain date – June 25) from 10 a.m. – 4 p.m. This event is open to the Public and takes place at Windham Mountain Resort. Get a hole-in-one and win a new 2017 Corvette. All proceeds benefit the Prostate Cancer Foundation. Produced by Bellavia Blatt & Crossett, PC. Call 516-873-3000 or visit www.windhamclassiccarshow.com.

A Grand Gorge car dealership in business for more than 80 years is at risk of losing its Ford franchise.

W.S. Hinkley & Sons, Inc., a Ford dealership created in 1930 by auto mogul Henry Ford himself, has sold nearly a century worth of Ford cars and trucks, but Ford – which claims the dealership is underperforming – has taken steps to sever ties with the dealership.

According to representatives of law firm Bellavia Blatt & Crossett, a Long Island-based firm representing Hinkley & Sons owner Ed Hinkley, Hinkley has filed a law suit against Ford to prevent his dealership being disenfranchised.

In a written statement, the Bellavia Blatt & Crossett said Hinkley refused “to go down without a fight.”

The hundreds of frustrated Volkswagen dealers who turned up at the National Automobile Dealers Association convention in March in Las Vegas faced a difficult decision.

Charge ahead with a class-action lawsuit against the automaker for damages related to the diesel emissions scandal, or roll the dice on an out-of-court deal.

At the last minute, retailers decided to go for a settlement — wishing to avoid a contentious court battle that would further damage a franchise already under siege. But that choice may prove to be a costly miscalculation.

Bellavia Blatt & Crossett, P.C. (“Bellavia Blatt”), a law firm that represents thousands of franchised automobile dealerships, has announced that, on June 29, 2016, it commenced a class-action lawsuit against online motor vehicle advertiser Autotrader.com. The lawsuit was filed in United States District Court in Atlanta, Georgia, based upon a forum choice clause in Autotrader’s contracts.

The plaintiff in the case, B&Z Auto Enterprises-the owner and operator of an automobile dealership group located in Bronx, New York-alleges that, during a five-year period from June 2010 until June 2015, Autotrader greatly misrepresented the advertising reach being achieved by auto dealers who subscribed to Autotrader’s online advertising services. The complaint alleges that Autotrader over-reported the web page views received by dealers, and other performance metrics, for the purposes of inducing dealers to become Autotrader customers, to remain as customers, and with the goal of upselling premium services to existing customers. In addition, the complaint alleges that Autotrader was able to artificially inflate the rates paid by dealers based upon Autotrader’s misrepresented advertising performance metrics.

“Autotrader’s representatives advertise in sales presentations to dealer principals that their website provides a certain number of page views of a dealer’s vehicles offered for sale,” said Leonard Bellavia, founding partner of the law firm Bellavia Blatt & Crossett. “Every month thereafter, Autotrader provides each dealer a ‘scorecard’ and other reports that state the number of times the dealer’s vehicles were viewed … We assert that the number of page views that Autotrader claimed B&Z Auto and other dealers were receiving was inflated by 50{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} to 100{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} or more on an ongoing basis throughout the five-year class period.”

The class-action complaint alleges that Autotrader’s over-reporting of web page views occurred nationwide, and was based on an improperly programmed software counting system and an automated data reporting program, which Autotrader had knowledge of but nonetheless continued to misrepresent the dealers’ results.

MINEOLA, NY, September 3, 2014-Bellavia Blatt Andron & Crossett, P.C. now represents over 700 dealership plaintiffs in its $350 million antitrust case against CARFAX-up from just 124 when the suit was originally filed in May 2013.

The suit alleges that CARFAX has illegal alliances with key players in the auto industry, which freezes out competition, thereby resulting in increased prices and unreliable vehicle history reports. Automobile dealers are forced to do business with CARFAX at grossly inflated prices, only to have CARFAX spend these inflated revenues on ads that disparage dealers as dishonest, when it is the automotive shopper who is being misled into believing CARFAX ads that claim its vehicle history reports contain accurate data.

Automobile dealers would benefit by joining together to push back against the claimed oppressive business practices of CARFAX. Bellavia Blatt Senior Partner Leonard A. Bellavia said, “The number of participating dealers in this suit continues to grow on a weekly basis. This is a testament to just how important this case is to their future business dealings.”

Bellavia Blatt is seeking substantial money damages per dealership, along with an injunction against the alleged illegal conduct. Only dealers participating in the suit will benefit. Please call (516) 873-3000 or email KTimson@DealerLaw.com to obtain information about participation in this very important matter.

When Mercedes-Benz scuttled Jona-than Sobel’s $30 million deal to buy a New Jersey dealership last year by exercising its right of first refusal, Sobel sued. And he got a lot more cautious about where he’d buy more dealerships to add to his stores in New York.

Sobel declined to discuss specifics of his lawsuit. But in general “right of first refusal has a chilling effect on the buysell market,” he told Automotive News. “Why would I spend the time and the effort to structure a complex transaction only to find out a manufacturer is going to use their right of first refusal to cherry pick my best deals?”

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