Carvana Ducks Used Car Dealer’s Unfair-Competition Suit

SACRAMENTO, Calif. (CN) — A small used car dealer’s fight to freeze retailer Carvana out of California stalled Tuesday after a federal judge dismissed an unfair-competition and false-advertising lawsuit against the online giant.

Upending the bid by a Sacramento man who claimed Carvana was operating as a “loss leader” due to its ability to skirt regulations placed on brick-and-mortar dealerships, U.S. District Judge Troy Nunley said he was not swayed by the underdog’s anticompetition claims.

Keith Schrenk, owner of The Car Barn in Sacramento, filed the class-action lawsuit in May 2019, alleging Carvana began toppling his dealership — along with the used car industry’s business model — when it began selling cars online to Californians over two years ago without proper licensing. Schrenk says after several consecutive years of growth, his sales suddenly dropped once Carvana started advertising and even opened a car vending machine towers down the street from his dealership.

With his business suffering, Schrenk complained to the Department of Motor Vehicles that Carvana was selling cars without proper certifications and playing by different rules than traditional dealerships. But Schrenk says he ran into a bureaucratic wall when the DMV responded it couldn’t investigate because the dealership had no physical address in California.

Schrenk’s attorneys at Cohelan Khoury & Singer in San Diego did not immediately respond to a request for comment on the ruling. 

The Arizona-based publicly traded company calls its service a “simple and seamless car buying experience” and touts its large inventory as a means to offer low prices. 

After the case was transferred from state court to the Eastern District of California, Carvana responded in briefs that Schrenk was attempting to stymie increasingly popular technology allowing people to buy cars on their cellphones and have them delivered just days later. It argued its contracts were finalized outside of the state via the internet and that Schrenk failed to adequately plead his various claims.

“Car Barn’s complaint rests on the fundamentally flawed premises that out-of-state online used-car sales are prohibited in California, and that offering consumers lower prices through an out-of-state internet sales alternative is by definition ‘anticompetitive’ and unlawful,” Carvana argued in its motion to dismiss.

Ruling without holding oral arguments, Nunley said Schrenk hadn’t tied Carvana to any clear predatory business actions; he dismissed the lawsuit but did give the plaintiffs 21 days to amend their case.

“To support a claim under the unfairness prong, plaintiff must allege defendants’ prices are predatory, such as — for example — that defendants sell their vehicles at a price below their own costs,” Nunley wrote. “Plaintiff has failed to do so and accordingly, has failed to sufficiently allege a violation of the unfair competition law under the unfair prong.”

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