UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW …

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -----------------------------------------------------------x DEPENDABLE SALES & SERVICE, INC., et al.,

Plaintiffs,

15-cv-1742 (PKC)

-against-

OPINION AND ORDER

TRUECAR, INC.,

Defendant. -----------------------------------------------------------x

CASTEL, U.S.D.J.

Plaintiffs are 108 new-car dealerships located throughout the United States. They

sell vehicles produced by manufacturers including Audi, Ford, Toyota and others, and are in

different geographic markets across approximately 23 states. They include a Porsche dealership

in East Hartford, Connecticut, a Dodge Chrysler Jeep Ram dealership in Pueblo, Colorado and a

Honda dealership in Florence, Alabama.

Defendant TrueCar, Inc. ("TrueCar") does not sell cars, and is described by the

parties as a "lead generator." It operates an online platform that places consumers in contact

with a car dealership that contracted with TrueCar. Plaintiffs contend that TrueCar violated the

Lanham Act's prohibition against false advertising by promising consumers a negotiation-free,

haggle-free buying experience through the TrueCar website. According to plaintiffs, instead of

the promised haggle-free experience, customers were channeled toward a TrueCar-affiliated

dealership with a pledge of "guaranteed savings" on vehicles that often were not available on the

dealership's lot. Plaintiffs asset that the consumer would then engage in the negotiation process

typically associated with buying a new car. Plaintiffs also contend that TrueCar's website

generated a graphic called the "TrueCar Curve," which they assert misled consumers about vehicles' pricing data, specifically as to the "factory invoice" price paid by dealers to manufacturers.

Each plaintiff brings a claim of false advertising under the Lanham Act, 15 U.S.C. ? 1125. To receive compensatory damages on a false advertising claim, a plaintiff must establish that the defendant's false advertisements injured the plaintiff. See generally Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmBH, 843 F.3d 48, 65 (2d Cir. 2016). As will be explained, the threshold for showing injury varies depending on the nature of the alleged falsehoods and whether the parties are direct competitors. In a two-player market, where an advertisement makes false comparative statements about a plaintiff's product, injury may be presumed. In a larger marketplace where no false comparisons have been made, the plaintiff must come forward with evidence that demonstrates a loss of sales or an injury to reputation that is attributable to the false statements.

Discovery in this case is now closed and TrueCar moves for summary judgment in its favor. (Docket # 103.) Integral to an understanding of this Court's decision on the summary judgment motion is its previous ruling on a Daubert motion after a two-day hearing. Dependable Sales & Serv., Inc. v. TrueCar, Inc., 311 F. Supp. 3d 653 (S.D.N.Y. 2018). TrueCar asserts that the plaintiffs do not have evidence that, if believed, would permit a reasonable trier of fact to find that any plaintiff was injured by TrueCar's advertisements. In opposition, plaintiffs rely principally on consumer-perception surveys and the deposition testimony of witnesses who testified on behalf of certain plaintiff dealerships. But the consumer-perception surveys go to the issue of the ads' falsity, which is accepted by TrueCar for the purpose of this motion, and the plaintiffs' deposition testimony describes only vague, general perceptions of

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injury. If credited, plaintiffs' evidence would not be sufficient for a reasonable trier of fact to find a link between TrueCar's advertisements and any injury to the plaintiffs.

However, plaintiffs separately urge that summary judgment should be denied because there is evidence that TrueCar's false advertisements were a willful violation of the Lanham Act, and that disgorgement of TrueCar's profits is warranted in the interest of deterrence. Under the law of the Second Circuit, even where a plaintiff has not demonstrated injury, the equitable disgorgement of a defendant's profits may be ordered in the interests of deterrence if the plaintiff can show that defendant willfully violated the Lanham Act. See George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1537 (2d Cir. 1992). Because plaintiffs have come forward with evidence that TrueCar acted against the advice of counsel and willfully ran false advertisements, the summary judgment motion is denied as to a disgorgement-based remedy.

TrueCar's motion for summary judgment is therefore granted in part and denied in part. BACKGROUND.

A. Overview of TrueCar's Website. 1. TrueCar's Role as a "Lead Generator."

TrueCar is a publicly traded company that, in its own words, "provides an online communications platform that allows potential customers to connect with local dealers affiliated with TrueCar." (Def. 56.1 ? 1; Pl. 56.1 Resp. ? 1.) Plaintiffs describe TrueCar as "a lead generator that provides new car sales leads to its TrueCar Certified Dealers and is paid a fee by its affiliated dealers for every new car sale made to a TrueCar generated lead." (Pl. 56.1 Resp. ? 3.)

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Consumers interact with TrueCar through a website or a mobile app that allows them to search by vehicle, optional feature and zip code to see prices for new cars in their local geographic market. (Def. 56.1 ? 7; Pl. 56.1 Resp. ? 7.) After a consumer enters that search criteria, the TrueCar site lets prospective buyers release their information to the local TrueCaraffiliated dealer as a way to establish contact. (Def. 56.1 ? 11; Pl. 56.1 Resp. ? 11.) TrueCar does not sell cars directly to consumers and does not own brick-and-mortar dealerships. (Def. 56.1 ? 3; Pl. 56.1 Resp. ? 3.)

TrueCar-affiliated dealerships competed with plaintiffs, including for walk-in customers who were not influenced by the TrueCar website. Indeed, during the period of TrueCar's assertedly false advertising, 23 of the 108 plaintiffs were affiliated with TrueCar. (Pl. 56.1 Resp. ? 26.) Also, an unspecified number of plaintiffs have an affiliation with other leadgenerating platforms, including and Autotrader. (Def. 56.1 ?? 5-6; Pl. 56.1 Resp. ?? 5-6.)

2. Information Shown in the "TrueCar Curve." The TrueCar site also generated what the parties call the "TrueCar Curve." (Def. 56.1 ? 8; Pl. 56.1 Resp. ? 8.) The "Curve" displayed a "graphical distribution of what others paid for a similar make, model and trim of car." (Def. 56.1 ? 8; Pl. 56.1 Resp. ? 8.) The information displayed on the "Curve" includes data points reflecting the Manufacturer's Suggested Retail Price ("MSRP"), the factory invoice price and average price for a car's make, model and trim. (Def. 56.1 ? 9; Pl. 56.1 Resp. ? 9.) The "Curve" also showed a "proprietary calculation" based on the recent transactions of other TrueCar users, which purports to show what others have paid for similar vehicles. (Def. 56.1 ? 10; Pl. 56.1 Resp. ? 10.) A disclaimer on the website

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acknowledged that each dealer set its own prices, and that the "actual purchase price is negotiated between you and the dealer." (Pl. 56.1 ? 40; Def. 56.1 Resp. ? 40.)

3. The "Guaranteed Savings" Certificate. The TrueCar site also generated a certificate (the "Certificate") that shows a "guaranteed savings" off the MSRP, which the consumer could then take to a dealer and apply toward the purchase price of a specific make, model and trim of car from a specific dealership. (Def. 56.1 ? 12; Pl. 56.1 Resp. ? 12.) A sample certificate in the summary judgment record stated that Legacy Toyota in Tallahassee, Florida "guarantees that Customer will save at least $4,608 on ANY in-stock 2013 Toyota Camry L 4-Cyl." (Chudakoff Dec. Ex. 10B.) A "Preferences" column lists an ivory interior color and an exterior color of "Classic Silver Metallic." (Id.) According to plaintiffs, TrueCar-affiliated dealerships seldom honored the Certificate's terms, and the particular make and model of vehicles searched by consumers were rarely available on the dealerships' lots. (Pl. 56.1 Resp. ? 12.) In an internal TrueCar presentation, one of the Company officer's discussed findings that 80% of consumers reported that TrueCar-affiliated dealers did not honor the Certificate price. (Pl. 56.1 ? 69; Def. 56.1 Resp. ? 69.) When a TrueCar-affiliated dealership sold a vehicle based on the Certificate, that dealership payed TrueCar a fixed sum, commonly in the amount of $299. (Def. 56.1 ? 13; Pl. 56.1 Resp. ? 13.) A TrueCar co-founder and former officer has described the Certificate as highly successful in attracting consumer business. (Pl. 56.1 ? 39; Def. 56.1 Resp. ? 39.) That same individual also described the Certificates as going toward "bullshit virtual vehicle[s]" that

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were seldom available on dealer lots. (Pl. 56.1 ?? 42-43; Def. 56.1 Resp. ?? 42-43; Chudakoff Dec. Ex. 10A.)

B. TrueCar's Advertisements Touting a Negotiation-Free, Haggle-Free Buying Experience.

Plaintiffs contend that TrueCar violated the Lanham Act's prohibition against false advertising through advertisements that promised a negotiation-free, haggle-free purchasing experience. According to plaintiffs, these advertisements were literally false within the meaning of the Lanham Act because a consumer using TrueCar would be subject to a typical sales negotiation once they arrived at a TrueCar-affiliated dealership. For the purposes of this motion, TrueCar does not dispute the issue of literal falsity for these advertisements.

In approximately 2010 or 2011, TrueCar began a nationwide advertising campaign that told consumers that TrueCar's services provided "guaranteed savings" without "negotiation" or "haggling." (Def. 56.1 ? 14; Pl. 56.1 Resp. ? 14; Pl. 56.1 ? 35; Def. 56.1 Resp. ? 35.) The ads ran on television, radio and online sites, including social media, and they directed consumers to TrueCar's website. (Def. 56.1 ? 15; Pl. 56.1 Resp. ? 15; Pl. 56.1 ? 38; Def. 56.1 Resp. ? 38.) The summary judgment record includes a screenshot from the TrueCar website with prominent text that states: "Car buying that shows you what others paid, so you never overpay. Upfront pricing info. Guaranteed savings.* No negotiation." (Chudakoff Dec. Ex. 12C.)1 TrueCar also points to a television commercial, which is publicly available online, called "Mike and Craig One Upped," in which a man expresses disdain for the car-buying process.2 (Weinberg Reply Dec. Ex. 1.) He states in part, "It's a lot of haggling and it takes so long." A

1 The footnoted text accompanying the asterisk states in part, "Guaranteed Savings currently not available in all states." (Chudakoff Dec. Ex. 12C.) 2 See (last visited March 26, 2019).

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second individual describes his more positive experience using TrueCar, and states: "Because I used TrueCar, there was no haggling about the price."

TrueCar's market research concluded that a promise of "no negotiation" was a "magic bullet for people" because negotiations were generally challenging to consumers. (Pl. 56.1 ?? 46, 51; Def. 56.1 Resp. ?? 46, 51.) On or about March 27, 2016, TrueCar stopped advertising a haggle-free buying experience. (Def. 56.1 ? 18; Pl. 56.1 Resp. ? 18.) As noted, during the period that TrueCar was running its allegedly false advertisements, 23 of the 108 plaintiffs in this case were affiliated with TrueCar for at least some period of time. (Def. 56.1 ? 26; Pl. 56.1 Resp. ? 26.)

TrueCar's outside counsel advised the Company against using the "No Negotiation" claim in its advertisements for reasons including lack of clarity, concerns with regulators and the likelihood that dealers and consumers would negotiate. (Pl. 56.1 ?? 68, 71, 73; Def. 56.1 ?? 68, 71, 73.) It is undisputed that TrueCar's CEO chose to proceed with the advertisements after receiving legal advice not to do so. (Pl. 56.1 ? 72; Def. 56.1 ? 72.)

C. Plaintiffs' Claim Concerning the "TrueCar Curve." Plaintiffs separately bring a false advertising claim directed to the "Curve" displayed on TrueCar's site, to the extent that it showed a "TrueCar Price" that is lower than a "factory invoice" price. (Def. 56.1 ? 19; Pl. 56.1 Resp. ? 19.) According to plaintiffs, the "Curve" implied that the dealer paid a factory invoice price and misled consumers into thinking that TrueCar allows them to pay "less than the dealer paid." (Def. 56.1 ? 19; Pl. 56.1 Resp. ? 19.) The "Curve" has been revised over time. For example, before August 2012, it displayed both a "factory invoice" price and a separate "dealer cost" data point. (Def. 56.1 ? 20;

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Pl. 56.1 Resp. ? 20.) The parties dispute how the term "factory invoice" is understood. TrueCar urges that within the auto industry, the term does not refer to a dealer's cost in buying a car, while plaintiffs argue that consumers understand the phrase "to mean just that." (Def. 56.1 ? 21; Pl. 56.1 Resp. ? 21.) TrueCar points out that a disclaimer on its web site and app defines the term "factory invoice" as the price a manufacturer initially charges a dealer, excluding discounts, dealer incentives and money allocated to the dealer upon a sale. (Def. 56.1 ? 22; Pl. 56.1 Resp. ? 22.) Plaintiffs assert that this definition was not conveniently displayed or easily accessible to consumers. (Def. 56.1 ? 22; Pl. 56.1 Resp. ? 22.)

D. Procedural History. This action was commenced on March 9, 2015. (Docket # 1.) The First Amended Complaint brings claims of false advertising under the Lanham Act, as well as state law claims alleging unfair competition under New York common law and "other comparable state common laws," and deceptive business practices under the New York General Business Law "and other comparable state laws." (Docket # 23.) Subject matter jurisdiction is premised on federal question jurisdiction, 28 U.S.C. ? 1331, and supplemental jurisdiction is invoked for the state law claims, 28 U.S.C. ? 1367. (Am. Compl't ? 170.) The Complaint does not invoke diversity jurisdiction. The Court granted in part and denied in part TrueCar's motion to dismiss the Complaint pursuant to Rule 12(b)(6), Fed. R. Civ. P. Dependable Sales & Serv., Inc. v. TrueCar, Inc., 2016 WL 79992 (S.D.N.Y. Jan. 6, 2016). The case proceeded to discovery. TrueCar notes that it took depositions of all plaintiff dealerships. (Def. 56.1 ? 27; Pl. 56.1 Resp. ? 27.) The parties have submitted excerpts

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