Carfax Class-Action Settlement Rejected

by Deepak Gupta

Way back in May 2007, we posted here about objections by Public Citizen and the Center for Auto Safety to a nationwide-class action settlement involving Carfax. The underlying suit alleged that Carfax deceived customers by concealing the limits of the information contained in its popular vehicle history reports. Under the proposed settlement, Carfax would get a complete release of all claims, the plaintiffs' lawyers would get fees, and consumers nationwide would get the option to receive coupons for more free Carfax reports. The case was a poster-child for a bad coupon settlement. Nevertheless, a state trial court in Ohio approved the settlement over our objections.

In September 2009, I flew out to Ohio to argue the case before the state appeals court. We had three straightforward arguments for why the settlement was defective: (1) Carfax did not even attempt notice to the vast majority of the class, (2) the trial court approved the settlement without considering information concerning the actual value of the coupons to the class (as revealed by the number of claims made) and (3) the trial court inexplicably denied a request that Carfax turn over the relevant claims information. Although the state court does not get many class actions, let alone nationwide class-action settlement objections, the judges seemed surprisingly well prepared and had pointed questions for the settling parties' lawyers.

I'm pleased to report that the Ohio Court of Appeals handed us a victory over the holidays, ruling in our favor on all three grounds. Beyond the importance of this ruling for consumers in the vehicle history context, it's significant for several reasons. Ohio has a remarkably sparse class-action-fairness jurisprudence, and we're hopeful that this case will set some minimum standards, including an individual-notice requrement as a constitutional floor for notice. In addition, the insistence on the discovery of coupon-redemption information is also quite significant in its own right. When that kind information is revealed -- for example, when people find out that far less than 1% of the class is likely to claim the coupons -- it becomes really hard to defend a bad coupon settlement.

Good coverage of our Carfax victory appeared this week in the New York Times, the Cleveland Plain Dealer and Consumer Affairs.

In related vehicle-history-information news, the National Motor Vehicle Title Information System -- a long-overdue public alternative to Carfax that was launched in response to our successful lawsuit against the Justice Department -- continues to proceed toward full implementation. Here's an update on some of the latest.