Settlement of class-action advertising case is a reminder for dealers to stand tough – and Together

Tuesday, April 1, 2008 | Jerilyn Klein Bier, Dealer's Edge

It was a long battle. But for the approximately 40 auto dealers who sued Newsday back in mid-2004 on fraud and antitrust charges related to the Long Island (NY) newspaper’s advertising rates, it was worth it. At the end of February, the dealers – many of them small and family-owned businesses which collectively represented Newsday’s biggest advertisers – entered into a settlement agreement with the paper, putting the widely publicized class action case to rest.

Although the terms of the settlement are required to be kept confidential,“The dealers are happy that Newsday saw the wisdom of reaching a settlement instead of continuing to require its best customers to litigate against it. It also proves that when small business owners unite they can level the playing field with a corporate giant like Newsday,” says Leonard A. Bellavia, Esq., who led the four year, heavily-contested, mass-action lawsuit that reportedly sought $25 million in compensatory damages and $100 million in punitive damages.

So what should auto dealers nationwide learn from this case – and how can they help avoid a similar situation to the one that launched this battle? For some answers, Car Dealer Insider got in touch with Len, a nationally recognized authority in the field of automotive franchise law and a senior partner with Mineola, NY based law firm Bellavia Gentile & Associates, LLP.

Some Background
The litigation in this case, Len reiterates, was based on two claims. First, the plaintiffs asserted that they paid unjust advertising rates based on Newsday’s inflated circulation figures. Newsday’s auditors, as well as the Audit Bureau of Circulation, determined that the average circulation at Newsday, owned by the Tribune Co. of Chicago, had been overstated by approximately 40,000 copies on weekdays and 60,000 on Sundays. The dealers claimed that the fraud was much greater than that. Second, the dealers in the suit also alleged that they were charged for advertising rates much greater than those paid by some of the larger Long Island car dealers – a violation of anti-trust laws. “The antitrust aspect of the case was not based upon the notion that larger advertisers should not be entitled to a volume discount. That is generally an accepted right of any entity to accord its better customers,” explains Len. “The claim in our case was rather unique in that we alleged that a larger dealer group had set up a competing publication to place its own advertising and that Newsday snuffed out that competition by making an illegal deal to grant it advertising rates below cost if it agreed not to compete.”

Circulation suggestions
Overstating circulation figures is not uncommon. “In the wake of the Newsday/Tribune scandal several publications around the country came out publicly and conceded that they had also overstated circulation, presumably to avoid the ramifications of what Newsday faced for trying to obfuscate the problem,” says Len. Among them: the Chicago Sun-Times and the Dallas Morning News. Len tells us he recalls getting phone calls from other dealers in similar situations and that he urged them to work with their dealer associations – a practice he continues to recommend. “It is not practical for individual dealers to wage this kind of legal battle due to the cost prohibitions,” he says.

Local and national advertising agencies should be the best resource for dealers to find out if their local papers have admitted overstatement of circulation, says Len. Another approach, he says, is to contact the Audit Bureau of Circulation and ask what newspapers they have uncovered as being guilty of this practice. “State and regional dealer associations should undertake this measure to ensure that their dealer members are not overpaying based upon ad rates being tied to circulation figures.”

As more people flock to the Internet at the expense of newspaper subscriptions, “a publication that discloses anything other than a downward trend is suspect for circulation misstatements,” cautions Len. He also says that the practice of falsifying circulation
figures is more prone in markets where there is less or no competition from other publications and therefore no benchmark in those regions from competing papers as to what it costs to place a full-page ad, for example. Dealers are also better off seeking the assistance of trade associations to unite them in a mass action context because it is “extremely costly to extrapolate what the impact of the overstatement means in terms of damages to dealers,” says Len. “Experts in this area need to deal with each dealer’s historical advertising spending and then determine the extent to which they overpaid, or for how long a period of time it occurred.”

“In our case we spent almost a half million dollars establishing a damages model which we felt would pass the stringent test that a federal court would apply to its reliability for being admitted into evidence. That cost spread out over 40 or more dealers is a lot
easier to absorb,” he says. In addition, there is the detrimental reliance component of any fraud claim – which means that a dealer
would need to assert that if it knew that the newspaper was reaching 10,000 less households, for example, per day, it may have not advertised in that paper at the price being charged, he says. “A fraud claim, if established, carries the added risk to a newspaper of an award of punitive damages in addition to interest and attorneys fees and, thereby, puts a group of dealer plaintiffs in a good position to leverage a settlement as the dealers in my lawsuit were successful in doing,” says Len.

Antitrust considerations
As for the antitrust portion of the case, Len points out that Newsday had no competition in Long Island as it was the only daily paper for automotive advertising. Although there are state statutes that address anticompetitive practices, most claims are raised in Federal Court under the various antitrust Acts, so there is not a need to have these cases handled by local counsel, notes Len.

New developments
The Newsday case may be settled but Len’s work in this arena is far from over. He is working to develop an Internet newspaper in seven major markets across the country. Look for more on this in our next issue.




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