Skip Miller’s Take on Carmakers’ Good Faith Responsibilities to Auto Dealers

Skip Miller’s Take on Carmakers’ Good Faith Responsibilities to Auto Dealers

Hyundai sued by former California dealership in U.S. court

Shawn Wright 

Automotive News | March 24, 2010 – 3:31 pm EST

DETROIT — California dealership Estes Automotive Group has filed a federal lawsuit seeking $30 million from Hyundai Motor America and Hyundai Capital America, claiming the automaker failed to keep its promise of helping out the struggling franchisee.

Estes, which owns a Hyundai dealership in Merced, Calif., filed the suit March 9 in U.S. District Court in Santa Ana, Calif. Estes Automotive is owned by Jim Estes and Carl Schneider.

The lawsuit, which is asking for a jury trial, claims that Hyundai “engaged in a calculated scheme to bleed assets and operating capital, and ultimately destroy business.” Merced Hyundai, which opened in 2002, closed in late January.

“The federal statute we sued under requires carmakers to treat dealers under good faith,” said attorney Skip Miller of Los Angeles law firm Miller Barondess. “And we think just the opposite occurred here.”

Hyundai has 20 days to respond to the lawsuit, Miller said.

Chris Hosford, spokesperson for Hyundai Motor America, said the company does not comment on matters dealing with litigation.

According to the lawsuit: “In 2008, as the global recession hit, auto sales began to plummet nationwide. … Merced Hyundai began to struggle. But [Hyundai] repeatedly assured its dealers, including Estes, that Hyundai was their partner and would help them weather this economic storm.”

Instead, the suit says, “For nearly a year, Hyundai strung [Estes] along, promising that help was on the way … and specifically instructed [Estes] to continue business as usual while they put together a forbearance agreement or other form of financial assistance.”

But Hyundai never came through and never lived up to its promises, the suit says.

“Hyundai offered the ‘help is on the way’ carrot for nearly a year so that [Estes] would continue to operate Merced Hyundai, at a loss, while Hyundai continued to profit,” the suit says.

In January, Hyundai told Merced it was in default and demanded immediate payment of the loan obligations. Hyundai also raised floorplan rates, the suit alleges.

“This was a far cry from their promises of help and assistance that [Hyundai] offered Estes for months,” the suit says.

Estes’ TAG Auto Center in central Fresno closed and filed for Chapter 7 bankruptcy in mid-January. He owns another California dealership, Sanger Ford Mercury.