Collision in Court

Some industry legal battles end. Others trudge on.

By John Yoswick

It’s been a year since Automotive Report offered a look into some of the legal battles being waged in the industry. Some of the lawsuits have continued, some have concluded, and some new ones have cropped up. Here’s our annual legal round-up to bring you up-to-date.

Suits reach their conclusions

First, some updates on lawsuits reported in last year’s feature on courtroom dramas within the industry.

The U.S. Supreme Court, by taking no action this past fall, put an end to a lawsuit by a non-OEM parts distributor challenging the legality of General Motor’s “Bump the Competition” parts price-matching program.

A federal appeals court in 2015 upheld a lower court’s dismissal of the suit, brought by Louisiana-based Felder’s Collision Parts, but Felder’s had hoped the Supreme Court would review the case. The nation’s high court last fall chose not to do so, marking the end of the lawsuit.

Another legal battle that came to an abrupt halt this past spring after almost four years was Tennessee-based Price’s Collision Centers lawsuit against Progressive for unpaid repair costs and tortious interference. As recently as this past January, the two sides told the U.S. District Court overseeing the case that a settlement was unlikely despite six months of settlement talks, and they asked that the trial date be pushed from this September to November to allow for what attorneys on both sides said would be “extensive discovery … and depositions of more than a dozen witnesses.”

But both sides agreed in late April to drop the suit, with neither side seeking legal fees from the other. Court documents offer no other information about the end of the dispute, and neither Price’s nor Progressive would comment.

But some settlement was apparently reached.

Parts patent battle slogs on

Another important lawsuit in process since 2013 is the challenge by the Auotmotive Body Parts Association (ABPA) filed against Ford, seeking to have the automaker’s design patents covering automotive crash parts — which limit the production and sale of non-OEM versions of those parts — ruled invalid and unenforceable

The ABPA, which represents non-OEM parts manufacturers and distributors,  argues the parts are “functional” rather than “ornamental,” and thus should not be protected by “design” patents. It cites cases in which design patents on items such as toner cartridges were ruled invalid because the design was found to be primarily functional.

“We feel very strongly that fenders and bumpers have been used for decades, and there’s nothing different about a fender or bumper today than there was back in the 1920s or 1930s,” outgoing ABPA board member Dan Morrissey said at the association’s convention this past spring. “The idea that you can now patent them is ridiculous. But they are getting away with it.”

The arguments in the case over the last year have continued to be procedural rather than related to the merits of the suit itself. The ABPA has been arguing the lawsuit should never have been moved from the U.S. District Court in Texas where it was filed to a similar court in Ford’s home state of Michigan. The ABPA has currently asked the U.S. Supreme Court to rule on whether that transfer, successfully won by Ford, was legally appropriate.

Morrissey was asked how long it will be before there is an outcome in the lawsuit.

“My estimation is it might take a couple more years,” he said.

One twist to the legal battle in the past year has been that Ford filed its own suit against Texas-based aftermarket parts distributor New World International and two affiliated companies, alleging they have sold non-OEM crash parts that infringe on design patents the automaker holds. That too has been the subject of arguments over which U.S. District Court is the appropriate venue for the suit.

New World had sought dismissal of the lawsuit, arguing in part that the Michigan court where the suit was filed was inappropriate because two of the three defendants do not sell parts in Michigan, and not all of the seven parts involved were sold in Michigan. But the court ruled in June that New World and the other two companies are so closely affiliated (in some cases working out of the same facility), and that there were sufficient sales of the parts into Michigan, to make it appropriate for the lawsuit to continue to be heard in that court.

Shops appeal dismissal of suits

Perhaps the best-known legal battle in the industry over the past two years are the two dozen lawsuits brought by shops in 18 states (including Alabama, Kentucky, Louisiana, Mississippi and Tennessee) alleging that multiple insurance companies have conspired to manipulate labor rates and other shop charges in order to reduce costs.

Most of the suits allege that State Farm is at the heart of an effort by the insurers to suppress labor rates, coerce shops into accepting less than actual or market costs for materials, refuse to pay for a list of required procedures, and punish non-compliant shops through steering.

The suits were all consolidated in a federal court in Florida in an effort to eliminate duplication of legal processes in the cases or result in contradictory rulings. That court has yet to make a ruling in the shops’ favor, in the last year dismissing suit after suit, in some cases multiple times after giving the shops’ attorneys an opportunity to refile after addressing some of the weaknesses the court has found in their initial suits.

In dismissing in May the lawsuit brought by Mississippi shops, for example, U.S. District Court Judge Gregory Presnell said that shops had argued that “steering” of consumers was done by the insurers to “punish” the shops that “complained about or refused to submit to the various oppressive and unilateral price setting” by the insurers. But Judge Presnell said the lawsuit had “no allegation that these [shops] had complained about the payment ceilings set by the [insurers], so punishment could not have been the driving force behind the steering.”

If the steering was also designed, as the shops alleged, “to direct potential customers of the Plaintiffs to other [shops] who would comply with the maximum price ceilings” set by the insurer, Judge Presnell ruled, that “shows the steering was being done to benefit an [insurer]…rather than it being done to cause damage and loss” to the shops suing.

Judge Presnell also found that the Mississippi state anti-steering law allows the state insurance commissioner to seek enforcement against alleged violations by insurers, but that he found no precedent or evidence that it can be used by others in lawsuits.

That law states that “the most an insurer shall be required to pay for the repair of the vehicle…is the lowest amount that such vehicle…could be properly and fairly repaired by a…repair shop within a reasonable geographical or trade area of the insured.” Judge Presnell said the shops’ argument that “the statute clearly states an insurer must pay for a proper and fair repair” is “not a fair reading” of the law. Rather, he said, “the statute imposes a ceiling on the price insurers may be required to pay for a repair. It does not set a floor, either as to price or quality.”

A number of the original cases have been dropped after being similarly dismissed. As of early this summer, any real hope for those that remain hangs with a federal appeals court. The shops’ attorneys have challenged the dismissal of several of the lawsuits.

In an appeal filed in June related to the dismissal of five of lawsuits (involving shops in New Jersey, Kentucky, Virginia and Missouri), for example, the shops’ attorneys argue that in assessing whether to dismiss a lawsuit in the early stages, a lower court “is required, in essence, to start off on the plaintiff’s side.” But the Florida court, the appeal argues, “started from the opposite position, assuming [the insurers’] motion arguments were true, looking to the [shops’ lawsuits] only to see if they defeated those arguments.” The result, the shops’ attorneys argue, was “a dismissal predicated not upon failure to adequately plead the claims asserted, but upon purported failure to negate the [insurers’] arguments.”

Similar appeals are expected in the lawsuits involving Indiana and Mississippi shops. The outcome of those appeals, expected this summer, will likely signal whether any of the lawsuits are pushed forward.

If they don’t, one legal battle remains: Insurers in several states have argued that the shops and attorneys should pay the legal fees the insurers have incurred in responding to the repeatedly dismissed lawsuits. Geico in June, for example, asked the court to award it more than $30,000 in legal fees in the suit involving Mississippi shops, arguing the shops and their attorneys were merely bringing the same allegations against Geico that they had brought in a previously dismissed suit.

The court in Florida has previously said it won’t rule on such legal fees until all the lawsuits have come to an end.

A similar suit with distinctions

One of the other ongoing lawsuits that has been transferred to the same U.S. District Court in Florida has some distinct differences from the other two dozen lawsuits.

Crawford’s Auto Center in Pennsylvania and K&M Collision in North Carolina have brought a national class-action racketeering lawsuit against State Farm, Allstate, Geico and four other insurers.

The lawsuit differs from the other lawsuits in the Florida court in several ways. First, it seeks class-action status to represent not just the shops named but potentially “tens of thousands” of other shops around the country that since 2006 did work paid for by one or more of the seven insurers but which were not part of that insurer’s direct repair program. Second, it is the only one of the lawsuits alleging racketeering (the others are antitrust lawsuits), arguing, for example, that the insurers work in concert with the Big Three information providers (who are not defendants in the lawsuit) to enforce “artificial prevailing rates” and other cost controls on shops. The shops are also represented by Pennsylvania attorneys, not the Mississippi law firm handling the other lawsuits.

Whether those differences will help the lawsuit move forward remains to be seen. State Farm has argued that the lawsuit should be dismissed in part because the shops’ “purported injury” was caused “not by their reliance on [insurers’] purported misrepresentations, but rather by [the shops’] own business decisions to accept the compensation offered” by the insurers.

But the shops’ attorneys fired back in a 69-page response, saying that overlooks that “repair transactions are a fluid, evolving process,” and that the full measure of what is required is not clear until well into the process, “sometimes not until completion.”

“It is inaccurate, then, to characterize the repair transaction as a static offer and acceptance, where both the repair professional and the insurer are aware of the required repairs and the cost with precision from inception,” the shops argue.

The judge’s decision as to whether to dismiss the case is expected this summer.

Discouraging outcome

Perhaps the most disappointing legal news for the industry in the past year came toward the end of last summer. More than a dozen years after the Auto Body Association of Connecticut (ABAC) and several shops in that state filed a class action lawsuit against The Hartford, that state’s Supreme Court last summer overturned a lower court’s $34.7 million judgment against the insurer.

In the 2009 decision in the case, a jury found that The Hartford violated the state’s unfair trade practices act by requiring its appraisers to enforce an artificially low labor rate determined by the insurer rather than approaching the appraisal “without prejudice against, or favoritism toward, any party involved to make fair and impartial appraisals.”

But The Hartford argued the “parties involved” were the insurer and insured, because an appraiser “could not possibly owe a duty of impartiality or reasonableness to the very shops with whom he is negotiating on behalf of an employer.”

The state Supreme Court agreed that the unfair trade practices act does not “regulate the conduct at issue” in the case.

“It would be patently unreasonable…for us to conclude that the [insurer] is lawfully permitted to determine the hourly labor rate that it is willing to pay for autobody repair [but] that [its] appraisers are ethically required to disregard that determination when negotiating on the [insurer’s] behalf,” the Court wrote in its unanimous decision.

Shops, the Court said, are capable of representing their own interests and “certainly are under no obligation to accept insurance-related work that is not sufficiently remunerative.”

Tony Ferraiolo of the ABAC said he was deeply disappointed with the state’s Supreme Court ruling

“They didn’t see it the way that the jury saw it, or the [appeals court] judge saw it, or even the way that the appraisers who wrote the letter to [The Hartford] saying they were being manipulated and couldn’t do their job saw it,” Ferraiolo said this past spring. “They saw it the way the insurance industry dictated to them how to see it.”  •

John Yoswick, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network (for a free 4-week trial subscription, visit www.CrashNetwork.com). He can be contacted by email at jyoswick@SpiritOne.com.