An appeals court in Ohio has overturned the settlement of a class-action lawsuit against Carfax. Several groups had said the settlement was a poor deal for consumers, who were being offered coupons for free Carfax reports, while lawyers would get as much as $566,000.
The suit contended Carfax, which sells used vehicle histories to consumers, deceived customers by concealing the limits of the information it collects about crash damage. It was filed in 2004 by Edward B. West, of Niles, Ohio, in the Court of Common Pleas for Trumbull County, on behalf of Carfax customers nationwide.
The decision is good news for consumers, going well beyond the Carfax case, said Deepak Gupta, a lawyer for Public Citizen, one of the groups that opposed the settlement. “Class actions are a really important tool for delivering redress to consumers where somebody has done something that affects a large number of consumers,” he said. But, he added, poor settlements can set precedents, undermine public confidence in class actions and the chance that future suits can help consumers.
The appeals court decision also shows courts are less willing to continue “years of coupon abuse,” said Clarence Ditlow, the executive director of the Center for Auto Safety, which also opposed the deal. Basically the court is saying “if consumers don’t get money, neither will the lawyers,” he said.
The judge who originally approved the settlement, Andrew D. Logan, had found the settlement to be an equitable arrangement that benefited consumers.
Throughout the case Carfax insisted that it had done nothing wrong and said it has consistently told consumers that it cannot possibly have information about every accident. Carfax never admitted any wrongdoing, but in 2007 Carfax and Mr. West’s lawyers worked out a settlement.
In that settlement Mr. West’s lawyers stood to get about $566,000 while consumers would have a choice of either coupons for free Carfax reports or $20 to be used to offset the cost of a “comprehensive mechanical inspection” of a used vehicle. Carfax also agreed to add statements to its sales material making it clearer that “Carfax does not have the complete history of every vehicle.”
In 2008, Judge Logan approved the settlement, saying it helped consumers who otherwise would have little chance of winning in court “in light of the complexity of the legal issues, multiple venues and law and limited access to potential resources and the judicial system.”
Judge Logan said he found no evidence of collusion between the plaintiff’s lawyers and Carfax and that the coupons being offered consumers were “not the typical promotional gimmicks frowned upon by courts.” Instead, the coupons amounted to more than a refund of the original Carfax purchase price, he said.
But the consumer groups, joined by the Ohio attorney general at the time, Nancy H. Rogers, disagreed and appealed. They argued that the decision was made without the court having a rough idea of how much the settlement would cost Carfax, that the coupons were of little value and far too few consumers were being notified. The Ohio attorney general’s office estimated 70 percent of the consumers affected were not going to be notified of their rights.
On Dec. 24 the Court of Appeals for the 11th Appellate District of Ohio overruled the settlement. It said not enough consumers were notified and the judge should not have agreed to the settlement without knowing more about what it would cost Carfax.
The court is saying “you can’t waive away a consumer’s rights without letting them know you are trying to do it,” said Mr. Gupta.
The case is being returned to Judge Logan.
“Our hope is that there will be a fairer settlement,” said Mr. Gupta.
A spokesman for Carfax, lawyers for Carfax and Mr. West’s lawyers did not immediately return calls seeking comment.