Consumers for Auto Reliability and Safety Chauffeurs for the Trial Bar?

Summary: You may not have heard of Consumers for Auto Reliability and Safety (CARS), or know about its connections with the trial lawyer lobby.  But once you hear how CARS’ efforts to influence public policy could one day slash the value of your car, you’ll understand why this nonprofit matters.

The alliance between trial lawyers (aka, “ambulance chasers”) and nonprofit consumer advocacy groups is powerful. The foundation for this coalition was summarized by Ralph Nader, the dean of consumer advocates, in an April 2016 Harper’s article subtitled, “Your lawsuits are good for America.” Unsurprisingly, Nader issues a call to arms against one of the main alternatives to lengthy, expensive, drawn-out litigation: arbitration. Nader even calls the attorneys who write arbitration clauses into standard consumer agreements “evil.” (For more on the ties between Nader, the consumer movement, and the trial bar, see “Association of Trial Lawyers of America: How It Works with Ralph Nader Against Tort Reform,” in Foundation Watch, January 2003).

As the economic costs of the U.S. civil justice system—estimated to total tens of billions of dollars annually—the trial lawyer/consumer group axis that feeds on those billions cannot sit still. It must constantly look for new ways to maintain the appearance of large constituencies that believe lawsuits are still “good for America,” whatever the economic costs. And it has to forcefully push back, in the court of public opinion and in legislatures, against any voices calling for tort reform, the wider use of arbitration, and other measures that reduce the financial burden associated with the civil justice system. This Organization Trends looks at how one particular consumer group, Consumers for Auto Reliability and Safety (CARS), plays a key role in these efforts. On the surface, CARS looks like any other garden-variety consumer rights organization. The truth, as we’ll see, is somewhat different.

Trial lawyers must constantly look for new ways to maintain the appearance of large-scale constituencies that believe lawsuits are still “good for America.”

An activist is born

“When I started protesting at a car dealership in Lemon Grove, California, I never dreamed of the impact it would have on my life and on the rights of millions of auto owners around the nation.” So begins Rosemary Shahan’s contribution to the book 50 Ways to Love Your Country: How to Find Your Political Voice (2004), published by the left-wing advocacy group MoveOn.

The year was 1979. Then a college student, Shahan’s personal automobile was damaged in an accident and needed repairs. Three months later, despite assurances from the dealer, her car was still not fixed. Outraged, Shahan began a five-month, one-person picket of the dealership. A local TV news crew covered her protest, which helped her find others unhappy with their car repair experiences.

“I started to research the laws consumers could use to get relief from sour deals,” Shahan recounted in 50 Ways. “I decided we needed a ‘lemon law’ to set a guideline for what is reasonable, so I started handing out flyers asking people to write to the chair of the [California State] Assembly Consumer Protection Committee, then Assemblyman Bill Lockyer, in Sacramento, California … my family encouraged me, and I kept at it. Consumer advocates with the California Public Interest Research Group (CALPIRG), founded by Ralph Nader, also offered encouragement and suggested creative ways to involve the community.”

The car dealer settled the complaint, providing Shahan with the funding to create a tax-exempt group in 1979 called “Motor Voters” (now known as the Consumers for Auto Reliability and Safety Foundation).

Motor Voters’ initial goal was to have California enact a “lemon law” to provide more formal recourse for consumers in situations like Shahan’s. After “three years of organizing, letter-writing campaigns, testifying, press conferences and keeping up the heat,” Shahan writes, she and her allies triumphed in 1982, when “Governor Jerry Brown signed California’s landmark Lemon Law.” That statute in turn “became a model for similar laws enacted in the other 49 states.” Shahan’s career as a consumer activist was launched.

From local activist to national figure

As a result of regular press conferences, news releases, TV appearances, and public testimony, by 1991 Shahan had achieved such prominence on auto issues that Ralph Nader himself publicly declared her “a real example of a citizen-activist. She is as tenacious as a bulldog, consistent as the Milky Way, and as humane in her own way as Mother Teresa.”

In 1997, she started a second tax-exempt organization, a 501(c)(4) lobbying arm called “Consumers for Auto Reliability and Safety” (CARS), which extended her influence and reach. The formal mission of CARS is “to save lives, prevent injuries, and protect consumers from auto-related fraud and abuse.”

It would take too much space to summarize Shahan’s long career here. Perhaps her greatest assets as an activist have been the relentless energy and inventiveness she brings to finding new ways to promote her agenda. From providing reporters and editorial writers with hard-hitting quotations denouncing car manufacturers, car dealers, and insurance companies, to issuing public rebuttals of calls for alternatives to litigation such as arbitration, to putting TV producers in touch with fellow activists to help package news stories, Shahan is a public relations pro of proven ability. If the trial bar did not have an ally with her strengths it would have to invent Shahan.

And where Shahan has been unable to persuade the media to take up her angle on a story, she has found other ways to create news and get her messages on auto safety and tort reform out to the public. Her tactics include providing testimony to legislative committees during public hearings; organizing public demonstrations, as when she brought together consumer advocates and union members in 2005 to announce a public showdown with California Gov. Arnold Schwarzenegger over a “car buyer’s bill of rights”; loudly petitioning state and federal agencies to investigate alleged abuses; and building coalitions with other groups and issuing joint statements with them—especially those in the Naderite orbit such as Public Citizen or the Center for Auto Safety.

Shahan has also adeptly integrated new technologies into her repertoire. In 2010, for example, CARS co-produced a slick YouTube anti-arbitration video that mimicked a news broadcast and quickly accumulated more than one million views.

In her capacity as leader of CARS, Shahan has also guest-posted on the TakeBackJustice.com blog, an anti-arbitration/pro-class action lawsuit website created and overseen by the American Association for Justice (formerly known as the Association of Trial Lawyers of America).

And when the trial bar/consumer movement alliance needs to strategize against proponents of tort reform, Shahan’s colleagues eagerly seek her views and advice. In 2013, she participated in a panel discussion on “how to strengthen the campaign to ban mandatory arbitration clauses in consumer contracts” organized by the National Consumer Law Center (NCLC). NCLC’s mission is to “provide policy analysis, advocacy, litigation, expert witness services, and training for consumer advocates throughout the United States. NCLC also works with federal and state policymakers and participates in major litigation across the nation.”

Shahan was definitely among friends at this 2013 event. A speech by Sen. Al Franken (D-Minn.), who has sponsored anti-arbitration legislation, opened the panel. Franken’s own ties to the trial bar are warm enough that, in 2008, he headlined a reception in Philadelphia for top donors to the anti-tort reform American Association for Justice Political Action Committee’s high dollar “Platinum M Club.”

And then there’s the lobbying clout of CARS—another measure of its influence. As its 2015 IRS disclosures show, that year the organization worked with prominent Democrats such as Sens. Charles Schumer (D-N.Y.), Barbara Boxer (D-Calif.), Claire McCaskill (D-Mo.) to advance its consumer advocacy agenda. Pamela Gilbert, a former head of the U.S. Consumer Product Safety Commission who has also worked with Nader’s Public Citizen group, lobbies for CARS in D.C.

Back in California, per the same disclosures for 2015, CARS “drafted several versions of a ballot initiative” and “played an active role in opposing legislation” it believed to harm consumer interests. As part of its war on arbitration, CARS also “led efforts to seek an investigation” of “private arbitration companies operating in California” by then-Attorney General Kamala Harris.

The Shakespeare question

With her flair for the theatrical and strong communications skills, it’s no surprise that Shahan has a master’s degree in English and worked as a college English instructor for some years at La Verne University.

Shahan also appears to have considerable familiarity with the works of William Shakespeare. She is assistant treasurer of the Shakespeare Authorship Coalition (SAC). This 501(c)(3) organization is dedicated, according to its website, “to public education to increase awareness of long-standing doubts about the identity of William Shakespeare. The SAC does not advocate an alternative authorship candidate. We aim to establish reasonable doubt that Stratford’s William Shakspere [sic] was really Shakespeare. Since there are good reasons to doubt Mr. Shakspere’s authorship of the works, the issue should now be regarded as legitimate in academia, and should no longer be regarded as a taboo subject. This is the threshold issue in the authorship debate. The SAC was formed to focus on this issue.”

This explanation of the SAC’s work is worded very carefully, as the literary conspiracy theory community can be highly sectarian. At one time or another, dozens of individuals have been proposed as the “real” Shakespeare.

Mainstream, respected academic circles summarily dismiss these so-called “anti-Stratfordian” theories, which all hinge on the idea that “William Shakespeare” was a pseudonym selected by some other writer who needed to cloak his true identity. Despite this, the theories endure and their proponents continue to claim that the identity of the “real” Shakespeare is being covered up.

The mainstream media, of course, when giving a platform to Shahan, doesn’t identify her as part of this somewhat flaky, fringe academic group.

CARS, used autos and recalls

In 2015, more than 51 million cars in the U.S. were subject to various recalls, as a result of ever-increasing government monitoring of auto safety issues. CARS has been at the forefront of recall-related public policy for many years, whether the issue involved car rentals or the sale of new and used cars. Over the years, Shahan has been particularly effective in the work for tighter regulation of recalls that she has conducted with Cally Houck, whose two daughters died in a rental car accident in 2004.

Because of media attention on recalls generally, along with congressional hearings and regulatory pressure via the National Highway Traffic Safety Administration (NHTSA), automakers are under increasing pressure to race to announce recalls, and then later figure out how to identify the affected vehicles and make the necessary replacement parts available. Similarly, auto dealers tied to specific manufacturers are also under the gun to react quickly to each new announcement of a recall, whether a car is new or used.

While it has oversight on recalls, NHTSA “has no direct regulatory authority regarding the sales of used cars with open recalls,” as a December 2016 item on Car & Driver’s blog pointed out.

The sale of used cars that are under a recall presents a complex question to which various remedies have been proposed. Legislators at the state level, as in Virginia in 2016, have tried to address the issue. Defying CARS and other consumer groups that criticized the state’s proposed law as too friendly to car dealers, Virginia enacted a statute that requires dealers first to inform buyers of used cars that are under open recalls and then advise to advise buyers how to have the repair performed.

Pressure from CARS and other consumer groups put the brakes on similar legislation in California in 2015. In a 2014 letter opposing the legislation, CARS demanded that any law require “the professionals in the business of selling cars—the dealers—to do their job and get the repairs done prior to handing the keys to a car.”

In other words, CARS insists only one solution will suffice: Forbid dealers to sell used cars under a recall order, no matter how minor, until the recall’s repair is completed.

But what happens when, for example, the recall involves older, previously owned cars for which replacement parts in sufficient quantity may not be available for many months? Shortages like that won’t just have consequences for car dealers. Families who routinely trade in their current car when purchasing a new one could find the value of their vehicle vastly reduced, as already-stung dealers lower trade-in values.  For these families, the simple-sounding solution by CARS could turn out to be quite costly.

The complex nature of recalls and the potential for wildly disparate impacts on various stakeholders calls for prudent, careful action—not glib answers. A major disruption in the used-car market shouldn’t be set off just to deal with recall issues that can be trivial indeed. For instance, Ferrari had to recall thousands of cars because if you locked yourself inside the trunk, you couldn’t get out. And Honda recalled thousands of its minivans because the read badge that says “Odyssey” was on the wrong side.

Financing CARS

How does Shahan sustain her crusade financially? There’s much more to the story than the $15 individual motorists pay to join CARS. The CARS IRS filings offer clues. CARS had $182,992 in revenue in 2015 versus expenses of $224,207, resulting in a $41,000 deficit that year. It closed 2015 with net assets of $81,588. Its only reported salary expense was $45,000 paid to Shahan in her role as president. CARS also paid nearly $180,000 in “professional fees and other payments to independent contractors.”

Filings for 2014 told a similar story: $188,718 in total revenue against $265,944 in total expenses, leaving a $77,226 deficit. CARS paid about $218,000 in professional fees to contractors. Detailed in the IRS form for 2014 is a reference to a “recalled, unrepaired, defective 2004 Chrysler PT Cruiser for public education/press campaign” that cost CARS $4,393 to purchase, register and store.

The 2013 filing is where things get more interesting. That year, the organization disclosed $342,558 in total revenue, and ended the year with just over $200,000 in net assets. Did CARS sell a lot of memberships in 2013? The truth is in plain type on page 9 of the filing. CARS received $333,368 in “court-awarded settlement funds” that year; these funds are described further on page 13 as flowing from “court-awarded settlements from defendants in consumer lawsuits where the courts determined that CARS was an appropriate recipient of funds unclaimed by individual consumers, in order to benefit consumers.”

CARS received $333,368 in “court-awarded settlement funds…where the courts determined that CARS was an appropriate recipient of funds unclaimed by consumers.”

Such funds are known as cy pres awards. A concise explanation of cy pres can be found on the website of Public Justice, an activist group that itself benefits from these awards:

The term cy pres is derived from a French phrase meaning “as near as.” When class actions are settled or tried, there are times that it’s not possible to distribute all of the money recovered to some or all of the class members. They may be difficult to identify or find or it may not be economically feasible to distribute the funds to them. (For example, the cost of distributing 50 cents to each of 6 million class members may preclude individual distribution, even though the defendant has been held accountable for cheating the class out of $3 million.) When that is so, the cy pres doctrine allows the funds to be distributed to a nonprofit charitable organization to support work that indirectly benefits the class and advances the public interest.

A January 18, 2016 letter issued under Shahan’s signature and posted to the website of the Hanson Law Firm, located in La Jolla, Calif., gives us another window into how cy pres works. The letter thanks the firm

“for recommending CARS as a recipient of $2,672.50 in cy pres from the settlement of your case, Barbosa v. Allstar Kia. The funds are deeply appreciated, and are being put to good use. With your help, we will be able to continue working to preserve California’s auto lemon law from attack, improve protections for the public from auto manufacturers who have produced millions of vehicles with life-threatening safety defects, stop dealers from selling unsafe, recalled used autos to consumers, and make progress in restoring precious Constitutional rights lost to the scourge of binding mandatory arbitration.”

The letter closed with Shahan expressing “all best wishes for many more sweet victories.” Printed on CARS stationery, the footer of the letter includes a note that “Contributions to CARS are not tax-deductible, due to CARS’ legislative activity.”

Cy pres fund distributions like this are a routine occurrence. And it’s no coincidence when one notices that cy pres funds happen to end up in the hands of organizations such as CARS, whose agendas align closely with the financial interests of the trial bar on major public policy issues.

“Cy pres payments can create bad incentives all around,” commented Theodore H. Frank, a senior attorney and the director of the Competitive Enterprise Institute’s Center for Class Action Fairness (CCAF).

“In class action situations, trial lawyers can have an incentive to ensure these payments go to third parties who happen to favor public policy that the trial lawyers also support. The money should instead go to benefit the people for whom the class action was brought. The distorting effects of these bad incentives are clear,” he added.

The benefits that cy pres brings to CARS may call to mind for some readers CRC’s past research into “sue and settle” lawsuits involving the Environmental Protection Agency and various environmentalist groups. (See Chris Prandoni’s July 2013 Green Watch.)

Another source of funding for CARS has been the California Consumer Protection Foundation. This so-called foundation is not at all a foundation in the way ordinary people recognize the term; that is, a charitable entity like the Ford or Guggeheim foundations that exist to give money to public charities. Those are, legally speaking, “private nonoperating foundations” chartered under 501(c)(3) of the tax code. The California Consumer Protection Foundation, by contrast, is a 501(c)(4) lobbying nonprofit created in 1991 by the Superior Court of the State of California “to administer and distribute approximately $4 million remaining from the settlement of a consumer class action lawsuit, State of California v. Levi Strauss and Company, and to administer other trust funds as deemed appropriate by the courts and/or the Foundation’s Board of Directors.” Its primary purpose “is to further the interest of consumer protection in the State of California.”

In 2003, CCPF approved a grant of $122,427 over two years to CARS to fund work described in IRS filings as “to expose auto-related scams that target military enlisted personnel.” These funds came from a 2003 settlement of a lawsuit against Bank of America used to set up a consumer trust under the foundation’s control, where the funds were “restricted to grants to non-profit organizations to support pro-consumer advocacy and lobbying in the State of California.”

We mentioned earlier the Consumers for Auto Reliability and Safety Foundation, a 501(c)(3) nonprofit. While the Foundation is focused more on public education efforts (compared to CARS’ extensive lobbying agenda), its activities incorporate anti-arbitration activities as well. In 2014 IRS disclosures, the CARS Foundation calls “mandatory pre-dispute arbitration in consumer contracts” an attack on the Seventh Amendment and an affront to “centuries of law and jurisprudence that promote fairness and safety in the marketplace.”

In 2015, the CARS Foundation disclosed a $195,000 grant, received from the 501(c)(3) Consumer Federation of America. In its own IRS filings for 2015, the Federation states this grant is to fund the CARS Foundation’s “regulatory advocacy related to recalled used cars, vehicle replacement and forced arbitration.” That is on top of a previous $195,000 grant made by the Federation to the CARS Foundation in 2014, for the identical purpose.

Founded in 1968, the Federation’s membership “is limited to non-profit organizations that promote the consumer interest.” CFA’s approximately 300 member organizations include about 100 state and local advocacy and education groups; about 100 consumer cooperative groups; and various national advocacy groups and state/local consumer protection agencies. Shahan is a longtime CFA director.

With a $3 million annual budget and nearly 30 full-time staff members, CFA is far removed from the small scale of CARS and the CARS Foundation. In one sense, however, they are not so different. As CFA’s website admits, the Federation also derives a portion of its funding from cy pres awards.

Both CARS and the CARS Foundation also acknowledge on their respective websites that they receive support through court-ordered payments that are part of class action lawsuit settlements. It’s only when one digs into their IRS filings, however, that one sees how important to the groups’ operations are these cy pres funds—whether paid directly or via grants from foundations that receive cy pres payments.

CARS v. Goodyear

The links between CARS and the trial bar involve more than awards generated through class action lawsuits. In 2000, CARS joined forces with Trial Lawyers for Public Justice (TLPJ) as part of a lawsuit against the tire maker Goodyear to try to force it to make public documents linked to a light truck tire that’s allegedly responsible for dozens of deaths and injuries on highways.

In the January/February 2001 issue of CTLA Forum, the official journal of the Connecticut Trial Lawyers Association, Shahan was quoted saying,  “Goodyear has admitted that these light truck tires may have been a factor in at least 30 accidents, including 120 injuries and 15 deaths.… How many more drivers and passengers have to be maimed or die before Goodyear discloses its full knowledge of how and why these tires are failing?”

In response to CARS and TLPJ (now known simply as “Public Justice”), Goodyear counter-argued that the two groups were not in fact acting to protect the public interest by seeking access to internal corporate documents about the tires, and had not been transparent about their true objectives.

A 2000 court filing by TLPJ angrily rebuts this point. It says that Goodyear is making “false and utterly irrelevant” points and that the company has concocted a “fictitious conspiracy” when it claims that demands from CARS/TLPJ for the company’s internal records really aim at benefitting Plaintiffs represented by attorneys in the Association of Trial Lawyers of America suing Goodyear.

In the end, CARS/TLPJ succeeded in forcing the disclosure of some, but not all, of the Goodyear documents.

Shahan’s lobbying $$$

From afar, Rosemary Shahan appears to be genuinely committed to her cause and CARS work. The $45,000 salary she receives seems fairly meager compensation for her busy schedule as an activist.

But the $45,000 is not the entire story, as it turns out. Separate from the IRS filings of CARS, a review of lobbyist registration records with the California Secretary of State’s office gives us another view of the organization’s—and Shahan’s—finances.

State filings reveal that between 1999 and 2016, CARS paid just under $630,000 for lobbying services to Consumer Advocacy, whose owner is Rosemary Shahan.

While CARS relies for its DC lobbying on Pamela Gilbert as we noted earlier, its long-time main lobbyist in California has been Rosemary Shahan, doing business under the name “Consumer Advocacy.” Shahan is listed as Consumer Advocacy’s “owner” in state filings. Examining records going back to 1999, we find that the filings reveal that CARS paid nearly $630,000 to Consumer Advocacy for lobbying services between 1999 and 2016. That’s not a gigantic sum in a world of multi-billion-dollar lawsuits, perhaps, but neither is it chump change.

These filings also shed much light on other lobbyists used by CARS. In 2016, CARS disclosed $40,000 in payments to the Sacramento office of the law firm Greenberg Traurig, for example. The firm’s website describes the Sacramento team as offering “experienced advocacy in California’s Legislature, state agencies and courts. With these options, the Sacramento team can offer creative solutions to further a client’s business goals. We have ended litigation by going to the Legislature and defeated regulations by winning in the courts.”

Like Shahan, it seems the firm also understands how to win in the court of public opinion.

Conclusion

To the Naderites and their trial lawyer allies, Rosemary Shahan surely embodies the American tradition of independent citizens peacefully confronting out-of-touch authorities and powerful special interests that stand in the way of positive change. Thus, Shahan’s founding and nurturing of CARS shows the power of bottom-up movements led by citizen-activists who protect the people’s rights by channeling popular frustration and indignation into action.

But as we have seen, this view of Shahan does not hold up in light of key facts. The bulk of CARS’ funding links arises not from the purchase of individual memberships by average citizens seeking to uphold their rights. Rather, CARS lives off the bonanza that the U.S. civil justice system generates for trial lawyers—a portion of which, through cy pres awards, finds its way into the coffers of nonprofits—who in turn attack those who favor tort reform and reasonable limits on litigation.

Spread enough of this money around and, yes, you can simulate the appearance of an energized citizenry on the march, as expressed through groups such as CARS, demanding that elected officials protect the rights of the people from encroachment by private interests.

There’s a word for the simulation of citizen-led, bottom-up political ferment, but it has nothing to notions of latter-day Jeffersonian democracy. No, the word for this imitation is Astroturf.

---

Neil Maghami, a free-lance writer, is a regular contributor to CRC publications.