News: CIF Announces Support for Repairers Impacted by Hurricane Ian
James A. Castleman responds.
BSB: Does the Sherman Act prevent repairers from discussing compensation?
Castleman: “No. The Sherman Act does not prevent body shops from discussing compensation; it only prevents them from taking concerted actions as a result of those discussions. And, it’s a widely held misconception that insurers can freely discuss among themselves how they intend to compensate repair shops. While insurers do enjoy exemption from the anti-trust laws, the exemption is not universal and only applies to the extent that the business of the insurers is regulated by the states.
“The purpose of the federal insurance anti-trust exemption was to allow states to regulate and set premiums that insurers could charge. States may regulate claim payments to a limited degree because amounts paid for claims affect premium charges. But, insurers still cannot agree among themselves specifically how much they are going to pay for repairs or what operations they are going to pay for.”
BSB: Is it illegal to discuss prices and the miserable state of prices in this business?
Castleman: “It is not per se illegal for shops to discuss prices in the autobody business. And the reality is that everybody does discuss prices to some degree. On one hand, body shops are supposed to be competitors in the marketplace; on the other hand it may be difficult to set competitive prices unless you know what your competitors are charging. In fact, shops can legally discuss almost any aspect of the business that they want to, including prices, as long as no two shops agree that goods or services should be sold at a particular price, and as long as each shop truly makes its own independent decisions.
“The problem in addressing the legality of price discussions is that a resulting agreement between shops does not have to be explicit to be prohibited. If a group of shops discusses the prices they charge and on the heels of that discussion, several of them start charging the same amount, then an illegal agreement can be inferred, even in the absence of a formal arrangement. This can be a particular problem at trade association meetings where prices are discussed, as the association itself could be seen as participating in and fostering illegal price fixing, even if such participation is unwitting.
“The bottom line is that a balance must be reached, and it is often difficult to find that balance. It may be perfectly fine to discuss prices in the autobody repair business, but not so fine to discuss ‘the miserable state of prices’ in the business. That’s why association management and legal counsel often advise their members to err on the side of caution when discussing prices.
“Notably, there’s absolutely nothing wrong with broadly discussing and promoting legislation or other governmental actions that may affect compensation for services. Shops can gather together to develop and file almost any legislation they want that they feel will positively affect their bottom line, and they can ‘conspire’ and lobby as hard as they want to support passage of that legislation. Government may legally allow – and may even require – conduct that would be illegal if accomplished as the result of agreement between private parties.”
BSB: Is it against the law for shop owners to discuss what they’re getting paid?
Castleman: “Again, it’s not illegal for shops to discuss what they’re getting paid, as long as the shops do not take concerted actions as a result of those discussions. And, again be aware that a problem may arise when one looks at what the shops does as the result of such discussions, whether or not there is an explicit agreement to take any particular action.”
BSB: Is it against the law to discuss which insurers are paying for what?
Castleman: “Again, shops can legally discuss almost any aspect of the business that they want to, as long as the shops do not agree to take similar actions as a result of those discussions. The ‘who pays for what’ question may be a particular problem, though. Since shops are (at least theoretically) supposed to make their own independent business decisions and set their prices independently, why would a shop care what a particular insurer pays for, unless it was to set a price? I realize that the way things work in theory do not always match how they work in the real world, but shops should be particularly careful with this issue.”
BSB: If a shop owner attends an association meeting and discover that he’s not charging what’s “reasonable and customary” for his area, can get raise his prices without risking an allegation of price fixing?
Castleman: “In anything that one does, there is always a risk. The question becomes how big is that risk.
“If there are five agents from the anti-trust division of the Justice Department sitting in as invited guests at the meeting and the president of the autobody association gets up and says that every autobody shop in the county except Joe gets X dollars an hour for a labor rate and that Joe had better raise his rate to get in line or they’re going to kick him out of the association, and Joe jumps up and yells, ‘I’m listening to you and ”I’ve been making a good profit, but I’m going to raise my rate to X in solidarity with the rest of you guys,’ and Joe then goes back to his shop and raises his rate, then there is a huge risk.
“If two shop owners are at the bar before the meeting starts and one says in passing that he now gets X dollars an hour, and the other owner looks at his books over the next couple of weeks and realizes that his costs have skyrocketed so much that he needs to get X dollars an hour to stay in business, and he then does a marketing survey to find out how much the average vehicle owner in his area would be willing to pay for autobody repairs and it turns out to be X, and the shop owner then raises his rate to X then there’s a miniscule risk.
“There’s no black-and-white test to determine when the line is crossed. It’s a question of fact: Did Joe raise his rate to X because of an implicit agreement with a competitor (or competitors) to do so, or did he raise it to X as the result of his own independent business decision? If Joe were charged with violation of the anti-trust laws, which way would a jury find, based on all of the underlying facts and circumstances?
“By the way, I have a problem with the phrase ‘reasonable and customary’ in looking at body shop charges – especially from the perspective of the shops (as opposed to from the perspective of insurers).
“From the body shop’s perspective, there is no such thing as a ‘reasonable and customary’ rate; the shop’s rate is what IT determines IT needs to be able to make what IT considers to be a reasonable profit, based upon what IT perceives that the market will bear.
“Insurers can issue policies (in many, if not all, states) that will reimburse their insureds only for what each insurer determines to be the ‘reasonable and customary’ body shop rate, but that’s between the insurer and its insured.
“The body shop that the insured brings his car to can still charge whatever it wants as a rate and can contract with the insured for repairs at that rate (unless the shop has a referral shop contract with the insurer). In that circumstance, however, the insured may have to pay the difference between the insurer’s reimbursement and the shop’s charges out of his own pocket, and the shop risks losing the insured’s business if its rate is too high or the insured perceives no value in paying more than what competing shops will accept as a rate.”
BSB: What if a local shop faxed a labor rate survey to all local shops, asking them to fill out and fax back what they’re charging. Then, after he receives the responses, he faxes the survey results to all who participated. As a
result, one of these shop owners realizes he’s not charging as much as his competitors and raises his prices. Can an illegal agreement be inferred from this?
Castleman: “There is nothing per se illegal about this situation. Again, it is a question of fact: Would a jury infer that the survey was a sham utilized to encourage shops to get in line with each other, or did the shop owner make an independent business decision to raise his rate?
“There are already plenty of labor rate survey results that are easily accessed on-line. To the best of my knowledge, none of the people who have conducted or published the surveys have been charged with anti-trust violations.”
James A. Castleman is a partner in the law firm of Paster, Rice & Castleman in Quincy, Mass. He’s represented autobody interests for more than 25 years and can be reached at (617) 472-3424.