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Experian Information Solutions, Inc v. Carfax

July 5, 2012

EXPERIAN INFORMATION SOLUTIONS, INC., PLAINTIFF,
v.
CARFAX, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER

Plaintiff Experian Information Solutions, Inc. alleges that Defendant Carfax, Inc. made statements about Experian that are actionable, under Illinois law, as tortious interference, trade libel / false light / business disparagement, defamation per se, and defamation per quod. R. 1.*fn1 Carfax has moved to dismiss the defamation per se claim under Federal Rule of Civil Procedure 12(b)(6). R. 10. As explained below, the motion is granted in part and denied in part.

I.

At this stage of the litigation, the Court accepts Experian's allegations as true and draws reasonable inferences in its favor. Ashcroft v. al-Kidd, ------ U.S. --------, 131 S.Ct. 2074, 2079 (2011). Experian is an Ohio corporation with its principal place of business in Costa Mesa, California. R. 1 ¶ 1. Experian markets and sells vehicle history reporting products (e.g., whether a car has been in an accident) under the trademark "AutoCheck." Id.Carfax, a primary competitor to AutoCheck, offers a similar vehicle history reporting product and service, which generates "Carfax Reports." Id. ¶¶ 8, 9. Both AutoCheck and Carfax are used by car dealerships and prospective purchasers of used automobiles. Id. ¶¶ 7, 8. AutoCheck and Carfax directly compete to secure contracts with automotive manufacturers to generate vehicle history reports for those manufacturers' Certified Pre-Owned Programs. Id. ¶¶ 10, 12.

For a number of years, Carfax had a contract in place with Subaru that required Subaru's dealerships to use Carfax Reports when certifying a vehicle as part of its Certified Pre-Owned Program. Id. ¶ 10. The contract came up for renewal in February 2012. Id. ¶ 13. A few months before the renewal date, Experian began discussions with Subaru in an effort to win the contract, which would dislodge Carfax. Id. On October 13, 2011, Subaru formally notified Carfax that it would not be renewing its contract and would instead be using Experian. Id. ¶ 14. Carfax did not give up easily, and on October 17, Carfax officials visited Subaru and attempted (but failed) to persuade Subaru to renew their contract. Id. ¶¶ 15, 16. On October 19, Subaru reaffirmed its intent to contract with Experian. Id. ¶ 17. Still not giving up, on October 21, Carfax sent Subaru a letter intended to dissuade Subaru from contracting with Experian. Id. ¶ 18.

Experian alleges that several statements made by Carfax in the October letter were defamatory and false or misleading. Id. ¶ 19. Experian identified six of those statements*fn2 as defamatory per se: (1) "Undermining Subaru's contractual negotiations with Experian by implying that other dealers receive more favorable pricing terms than the terms to which Experian and Subaru agreed," id. ¶ 19(b);(2) "The VHR [vehicle history reporting] data used by CARFAX is 'vastly superior' and that using 'AutoCheck will allow a significant number of problem vehicles into [Subaru's] program,'" id. ¶ 19(c); (3) Experian "pursues DAB [Dealer Advisory Board] members 'to rabble rouse and stir up discontent in an attempt to undermine [CARFAX's] partnerships," id. ¶ 19(d); (4) "AutoCheck does not have strong brand characteristics.," id. ¶ 19(h); (5) "AutoCheck's 'auction frame data is highly flawed,'" id. ¶ 19 (n); and (6) "There is a good chance AutoCheck will miss a problem vehicle, if this happens, there is a significant probability the consumer will see the problem on CARFAX's report. This could cause problems (happened to Nissan this year)." Id. ¶ 19(p).

On October 24, Subaru notified Experian that it was "putting the brakes" on its switch to Experian. Id. ¶ 21.In November, after conducting a survey of its dealers, Subaru informed Experian that it had decided to renew its contract with Carfax. Id. ¶ 26. Experian then filed this suit against Carfax.

II.

Under the Federal Rules of Civil Procedure, a complaint generally need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). This short and plain statement must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. v. Twombly, 550 U.S. 544, 545 (2007). The Seventh Circuit has explained that this rule "reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).

"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89 (2007); McGowan v. Hulick, 612 F.3d 636, 637 (7th Cir. 2010) (courts accept factual allegations as true and draw all reasonable inferences in plaintiff's favor). A "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). These allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. And the allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 679-80.

III.

Carfax argues that the statements identified above-those in the October 2011 letter to Subaru-cannot serve as the basis for a defamation per se claim. Under Illinois law, "to state a defamation claim, a plaintiff must present facts showing that the defendant made a false statement about the plaintiff, the defendant made an unprivileged publication of that statement to a third party, and that this publication caused damages." Solaia Technology, LLC v. Specialty Pub. Co., 852 N.E.2d 825, 839 (Ill. 2006) (internal citation omitted). A statement is defamatory if it "tends to cause such harm to the reputation of another that it lowers that person in the eyes of the community or deters third persons from associating with him." Kolegas v. Heftel Broad. Corp., 607 N.E.2d 201, 206 (Ill. 1992) (citation omitted). A statement is defamatory per se if it is "so obviously and materially harmful to the plaintiff that injury to [the plaintiff's] reputation may be presumed." Bryson v. News America Publications, Inc., 672 N.E.2d 1207, 1214 (Ill. 1996). Illinois law recognizes five categories of defamation per se, two of which are relevant here: (1) words implying a party is unable to perform or lacks integrity in performing his or her employment duties; and (2) words imputing a party lacks ability or otherwise prejudices that party in his or her trade, profession or business. Solaia, 852 N.E.2d at 839.

But even a statement that is defamatory per se might not be actionable if it is unable to overcome the various protections built into the law of defamation. The statement must contain a false fact, not merely an opinion. Solaia, 852 N.E.2d at 840. Statements that do not contain factual assertions are protected under the First Amendment and may not form the basis of a defamation claim. Moore v. People for the Ethical Treatment of Animals, Inc., 932 N.E.2d 448, 455 (Ill. App. Ct. 2010) (internal citation omitted). What's more, if the statement is reasonably capable of an innocent, nondefamatory construction, then the claim fails. Solaia, 852 N.E.2d at 839. And the statement must be shown to concern the plaintiff; if the statement can be reasonably interpreted as referring to someone else, there is no liability. Id.

Moreover, even if a party is liable for presumed damages, juries and judges do not have free rein to impose presumed damages without limit. There are some established factors to take into account: the number of times the statement is published, the number of readers of the statement, the source of the statement (the more authoritative the deliverer, the greater the damage from the false statement because of the audience's receptiveness to the statement), the severity of the derogatory statement, and the medium by which the statement is delivered. Brown & Williamson Tobacco v. Jacobson, 827 F.2d ...


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