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Law360 (December 20, 2018, 4:59 PM EST) — Auto dealerships asked an Illinois federal judge on Wednesday to definitively sign off on their $29.5 million deal that would jettison Reynolds and Reynolds Co. from their class action alleging the auto software company conspired with another industry giant to monopolize the dealer data market.

After receiving the initial green light last month, the car dealers asked the judge Wednesday for his final seal of approval on the deal settling their claims that Reynolds and CDK Global LLCstruck an agreement three years ago to dominate the auto software data distribution chain, eliminating competitors and middlemen, and sending prices sky-high.

The deal came about after “hard-fought, arm’s-length negotiations,” including intensive talks and one 12-hour mediation, the dealers said, and allows them to focus on their claims against CDK, which has not yet settled.

“The settlement with Reynolds allows dealership plaintiffs to focus on litigating against — and potentially facilitating a future settlement with — remaining defendant CDK,” they said.

An attorney for the dealers, Peggy Wedgworth of Milberg Tadler Phillips Grossman LLP, said they don’t plan to let up on the other auto software giant.

“We continue to vigorously pursue claims against the remaining defendant, CDK,” Wedgworth told Law360 on Thursday.

Counsel and representatives for Reynolds and CDK did not immediately respond to requests for comment on Thursday.

Class counsel have yet to ask for fees within the nearly $30 million deal, including another quarter of a million Reynolds will pony up for class notice costs, but they have staked a claim for up to $3 million in expenses.

Wednesday’s motion comes amid multidistrict litigation that has seen other companies down the auto software distribution chain air their grievances, including software vendors and independent data integrators.

The focal point of the litigation is software platforms called data management systems that are developed by Reynolds and CDK and help run the everyday auto dealer operations, including accounting, payroll, inventory, sales, parts, service, finance and insurances. Auto dealers, competing software vendors and third-party data integrators all allege the two companies violated antitrust laws by agreeing to stop competing with each other and embarking on a mission to use their existing duopoly in that platform market to dominate the rest of the distribution chain.

The auto dealers are is represented by Peggy J. Wedgworth and Elizabeth McKenna of Milberg Tadler Phillips Grossman LLP, Leonard A. Bellavia and Steven Blatt of Bellavia Blatt PC, Daniel C. Hedlund, Michelle J. Looby, Daniel E. Gustafson, David A. Goodwin and Daniel J. Nordin of Gustafson Gluek PLLC, James E. Barz, Frank Richter, David W. Mitchell, Alexandra S. Bernay and Carmen A. Medici of Robbins Geller Rudman & Dowd LLP and Robert A. Clifford and Shannon M. McNulty of Clifford Law Offices PC.

Reynolds is represented by Aundrea K. Gulley, Kathy D. Patrick, Brian T. Ross, Brice A. Wilkinson and Ross M. MacDonald of Gibbs & Bruns LLP and Michael P.A. Cohen and Leo D. Caseria of Sheppard Mullin Richter & Hampton LLP.

CDK is represented by Britt M. Miller, Michael A. Scodro, Matthew D. Provance and Mark W. Ryan of Mayer Brown LLP.

The MDL is In re: Dealer Management Systems Antitrust Litigation, case number 18-cv-00864, in the U.S. District Court for the Eastern District of Illinois.

–Additional reporting by John Petrick. Editing by Connor Relyea.

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Join us at the 2nd Annual Cruisin’ for the Cure Classic Car Show on Sunday, June 24, 2018 (Rain date – Sunday, July 1, 2018) from 10 a.m. – 4 p.m. This event is open to the Public and takes place at Windham Mountain Resort. All proceeds benefit the Prostate Cancer Foundation. Produced by Bellavia Blatt, PC. Call 518-734-6600 or visit www.windhamclassiccarshow.com.

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/