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Auto firms steer clear of a trial: Automotive Finance Corp., Dealer Services settle suits, sidelining 12 employees

November 14, 2005

Vehicle auction giant Adesa Inc. and a firm founded by ex-employees have halted a demolition derby in which each alleged the other tried to wreck its competing vehicle finance business.

Prominent in the settlement reached last week in Hamilton Superior Court between Adesa's Automotive Finance Corp. and newcomer Dealer Services Corp.-both based in Carmel-is a requirement that a

dozen DSC employees take paid leaves of absence ranging from two to six months.

A u t o m o t ive Finance alleged in a lawsuit filed last July that several of its former employees took computer records and trade secrets to their new jobs at Dealer Services, founded by former AFC head John Fuller.

DSC filed a countersuit in September in which it denied that former AFC employees ran off with inside information, and argued that they were not bound by a confidentiality agreement.

Dealer Services also alleged the Adesa auto lending unit was making false claims as part of a campaign to drive it out of business. It sought $25 million in damages from AFC, which has more than 80 offices and a loan portfolio of $600 million.

Auto dealer financing represented $116.6 million of Adesa's $931.6 million in 2004 operating income. The rest came from its auction business.

But while the raging auto finance companies have put down their tire irons in court, the DSC employees who worked at AFC have not been released from Adesa's initial suit filed in July.

AFC said those employees have failed to comply with terms of the settlement that required each of them to provide an affidavit pertaining to what information they took from their former employer to their new jobs at DSC.

"What we received were statements all in the conditional-'It's possible I may have...', 'I could have...', 'I may have had in my possession...'. Simply put, we are not getting the responses required of the individuals that we are entitled to as outlined in the settlement agreement," said AFC/Adesa spokeswoman Julie Vincent.

Both AFC and DSC provide loans to car dealers to purchase vehicles at auctions, such as at Adesa's vehicle wholesale auctions around the United States.

AFC alleged in its initial suit that DSC employees were calling a number of its car dealer customers, citing confidential information AFC had in its records about the dealers.

"Based on our internal investigation, we have discovered evidence that leads us to believe that several of our former employees may have taken confidential and proprietary information with them to DSC and that DSC is improperly using that information to compete against AFC," stated a letter Automotive Finance sent to dealers.

DSC denied the allegation in its countersuit, saying it contacted dealers based on publicly available information and its own proprietary computer system.

"The only reason for AFC to have filed the instant action was its own fear of competition," it said in court.

DSC officials could not be reached for comment.

Under the settlement, DSC pledged to purge any confidential business information from AFC, although it denies possessing it to begin with.

The competing finance firms also are to negotiate an agreement in which Adesa auctions will accept DSC payments through automated clearinghouse transactions-as with other finance firms.

Both Carmel finance companies also agreed not to state or suggest that the other is going out of business or other such claims.

DSC also agreed to pay AFC $275,000, under the agreement.

While settlements between companies often involve a broad range of concessions, more unusual is the leave of absence required of some of DSC's employees, said Arlen Langvardt, chairman of the Department of Business Law at Indiana University's Kelley School of Business in Bloomington.

Whether the leave is effective in purging any knowledge former AFC-turned-DSC employees might have that could be used to hurt AFC is another matter.

"They can't wipe it out of their minds, I'd suspect," said Langvardt, likening it to an instance in which a witness says something in court that he wasn't asked to reveal "and then the judge tells the jury to 'disregard.'"

The suit by AFC and Adesa-the nation's largest publicly traded vehicle auction wholesaler-raised eyebrows because the state, only days before AFC's suit, had issued DSC up to $830,000 in tax breaks and worker training grants. Carmel officials also had offered local property tax relief.

In return, Dealer Services pledged to create up to 70 jobs by 2010, with salaries of $50,000 to $250,000.
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