TrueCar’s Prospects Rising With Dismissed Lawsuits And Increasing Stock Price

TrueCar has certainly had a difficult year, but it appears that the tide may be turning for the company, with four of the five lawsuits that have been filed against it this year having been either dismissed or withdrawn.

Although one of the dismissed suits is likely to be amended and refiled, and the one unresolved suit may still gain strength in the future, the wins so far allow TrueCar to feel vindicated after a year of negative headlines, a declining stock price, and defections of dealers and executives. Last week, the company’s stock soared almost 15% during the holiday-shortened trading week, inching higher each day on a steady trickle of volume.

“At the end of the day, we invest a lot of time, money and effort into our regulatory compliance and compliance with all laws,” said Johnny Stephenson, TrueCar’s chief risk officer. “Obviously it is of great importance to us because we are deeply committed to operating lawfully. Winning these lawsuits is a reflection of that.”

The company issued a press release this week that was in line with the general consensus of a positive outlook for the auto industry, stating its expectations that total new vehicle sales will reach almost 1.7 million units this month, which is 12.8% ahead of the previous year.

The 2015 legal battles against TrueCar started in March and continued through the summer. One of the suits was a federal case filed in May on behalf of the company’s shareholders who lost money on TrueCar’s stock after its 2014 initial public offering. The lawsuit alleged that the company misled investors about how it conducts business, however, it was ultimately dismissed on December 9. A state suit in California that made similar allegations on behalf of shareholders was withdrawn only weeks after it was filed in August.

Another suit was filed in Los Angeles in July on behalf of dealers in TrueCar’s network, with claims of deceptive business practices because its advertising doesn’t disclose the fees that dealers pay the company for each transaction. However, once TrueCar terminated contracts with dealers that were suing, lawyers for the plaintiffs withdrew the suit.

However, while this is all good news for TrueCar, the company may still have two separate lawsuits to contend with in 2016. First of all, there is the suit filed by the California New Car Dealers Association in May, which accused TrueCar of acting as an unregulated and unlicensed broker. Although a judge dismissed the lawsuit on December 7, the association was given 20 days to amend its claim and refile the suit. Stephenson said that the judge’s ruling “fell on the side of TrueCar”, but, not surprisingly, the dealers association disagrees.

“On the merits of the case, we remain absolutely convinced that TrueCar is acting as a dealer and a broker,” said Brian Maas, president of the dealers association. He said that the judge dismissed the suit on “narrow” procedural grounds, and that the association will refile by the end of the year. “We’re going to press on,” said Maas.

The other unresolved suit was filed in New York in March on behalf of dealers outside of TrueCar’s network, claiming that they faced unfair competition because of the company’s advertising claims. The lawsuit seeks more than $250 million, based on allegations that TrueCar’s use of promotional terms such as “no negotiation”, “stress-free” and “haggle-free” constitute false advertising.

For its side, TrueCar says that while those terms apply to its service, even if they didn’t, they would amount to “puffery”, which is a legal term referring to allowable exaggerations that represent the seller’s opinion as opposed to fact.

Leonard Bellavia, an auto dealers’ lawyer who filed both the New York suit and the Los Angeles deceptive practices action, says that he will be able to add the California plaintiffs who were cut from the network to the New York case, thereby allowing them to sue for more in damages than they could have collected while under contract with TrueCar. Bellavia says that he’s adding approximately 90 dealers from California to the New York suit, for a total of 290, with others waiting to join pending the outcome of a motion to dismiss.

This decision is expected to be made in January, with both sides having stated their expectations to prevail.