After a federal judge last month dismissed Napleton Automotive Group as a defendant in a lawsuit filed in 2020 by Hyundai Motor America Corp. alleging warranty fraud, the Napleton Hyundai dealership left still fighting the claims has countersued Hyundai and Jose Muñoz, the brand’s top U.S. executive.
Napleton’s West Palm Beach Hyundai dealership in Florida, in an Aug. 23 federal court filing in which it denied the fraud allegations, contends a “targeted assassination attempt” on the store by the automaker and made 11 counterclaims against Hyundai Motor America, Hyundai Motor Co. and Muñoz, global COO for Hyundai Motor and CEO of Hyundai Motor America.
The dealership claims that Hyundai sued Napleton Automotive to divert attention from its own engine failure “debacle” and “to harass West Palm, ruin its reputation, and damage its business. Hyundai is on a mission to take away all of the Napleton organization’s Hyundai stores affiliated with West Palm.” Hyundai calls the counterclaims “frivolous.”
In November, Hyundai Motor America sued Napleton, one of the largest dealership groups in the country, and certain individuals over allegations that they deliberately were “blowing” engines to fraudulently collect warranty payments.
Hyundai’s lawsuit, filed in federal court in West Palm Beach, accuses Napleton group executive Ed Napleton Jr.; Gene Khaytin, former dealership general manager; Ernie Revuelta, dealership service manager; Geovanny Pelayo, dealership service adviser; and Jorge Ruiz, dealership service technician.
The dispute is connected to Hyundai’s recalls from 2015 through 2019 on certain model years of the Sonata, Santa Fe Sport, Tucson and Veloster for possible engine failure.
Hyundai alleges defendants working at Napleton’s Hyundai store in West Palm Beach since at least 2016 bought certain Sonata and Santa Fe vehicles from auctions and made fraudulent warranty claims for them. Hyundai reimbursed the dealership for repairs and in some cases repurchased vehicles.
Customer vehicles in for service, plus trade-ins and vehicles returned at lease end, were used in the alleged scheme, Hyundai said in its complaint, which alleged that certain staff “deliberately damaged” engines to make it “falsely appear” engines had failed.
U.S. District Judge Donald Middlebrooks in an Aug. 6 opinion granted dismissing part of a second amended complaint filed by Hyundai on June 28, including all allegations against the Napleton group and against defendant Robb Minier. Minier was a former service manager at another Napleton Hyundai dealership in Florida and is described in court records as a fixed operations director for a collection of Napleton dealerships.
A mandatory settlement conference in the dispute was held last month, but court records indicate the parties remain at an impasse. A jury trial is scheduled to begin Nov. 8.
West Palm Beach Hyundai’s counterclaims allege fraud and violations of Florida dealership law by Hyundai and seek injunctions, plus damages, lawyer fees and costs. The countersuit says that Hyundai’s Accelerate dealership image program, incentive programs and Genesis vehicle distribution requirements violate Florida law and accuses Hyundai of price discrimination.
The dealership claims that Hyundai ties dealer margin to sales performance objectives and facility requirements and gives different per-vehicle incentives to Florida Hyundai dealers. That lowers wholesale vehicle prices by thousands of dollars for some Hyundai dealers in Florida, giving some an unfair advantage, according to the counterclaims. They also allege Hyundai gives extra co-op advertising funds to favored dealers, “which has the same effect and purpose of a secret discount.”
The dealership also claims that Hyundai paid it less than its “established statutory reimbursement rates” for warranty work.
Two counterclaims specifically accuse Muñoz of civil conspiracy and tortious interference with a contract.
“The recent countersuits from Napleton are frivolous,” a Hyundai spokesman said in a statement to Automotive News. “This case is about a massive engine warranty fraud scheme. We look forward to proving the case in front of a jury when the trial begins in early November.”
Napleton, in a statement to Automotive News, asserts Hyundai aims to put its West Palm Hyundai dealership out of business and that it “looks forward to its day in court.”
Hyundai began investigating Napleton for warranty fraud after Mark Eddleman, former general manager at Napleton’s Hyundai-Genesis store in Lake Park, Fla., filed a lawsuit in April 2020 in Palm Beach County, Fla., circuit court against Napleton President Ed Napleton Sr., Napleton Jr. and the dealership group. That lawsuit, which claims Eddleman was fired after refusing to participate in “unlawful conduct” including cooperating in a cover-up of an alleged sexual assault of a female employee by Napleton Jr., included allegations of warranty fraud with regard to the Hyundai engines.
The defendants named in the Eddleman case sought to dismiss it. A judge agreed to dismiss some but not all claims, and the case continues.
In February 2019, Napleton Jr. was arrested and charged in an alleged sexual assault of an unconscious woman who worked for the dealership group. Napleton Jr. pleaded not guilty and awaits a trial, scheduled to start Jan. 10. The woman who prosecutors say was assaulted sued Napleton Jr. in June 2019 in a civil case that also continues.
In its counterclaims to the Hyundai lawsuit, Napleton’s West Palm Beach Hyundai said that Robert Grafton, Hyundai Motor America executive director of dealer development and strategy, emailed Muñoz on July 14, 2020, and said he had “no doubt there is a HMC agenda in play and there is a race to judgment on the Napleton decision before all the investigative facts have been secured.” The email also said, “We have 1 shot at Napleton and if not managed correctly Napleton survives with all his stores,” according to the counterclaims.
Muñoz, in a response to Grafton, requested an “extraordinary meeting” and wrote, “They won’t be able to [e]scape,” according to counterclaims, which assert that “they” refers to Napleton.
The dealership, in counterclaims, said Grafton on Nov. 20, 2020, sent a notice of intention to terminate West Palm Beach Hyundai’s dealer agreement. The dealership claims Muñoz “acted maliciously and with conspiratorial motives against West Palm and the Napleton organization” and that he wanted to take away all of Napleton’s stores.
The counterclaims said that Brian Napleton, a former member of the Hyundai National Dealer Council, had expressed concerns with Hyundai’s image program and was “kicked off” the dealer council by Muñoz after Hyundai filed its lawsuit. Brian Napleton, son of Napleton Sr. and brother to Napleton Jr., is the group’s director of operations.
In a July 22 opinion, U.S. Magistrate Judge William Matthewman ordered partial sanctions against Hyundai related to spoliation of evidence alleged by the defendants, who claimed Hyundai failed to preserve hundreds of Theta II engines Napleton had returned to Hyundai as part of the recalls. The dealership returned more than 900 engines, including 144 after Hyundai’s lawyers directed they be preserved, according to the order.
Matthewman’s order called Hyundai’s failure to preserve engines “inexplicable,” saying they were “essential and crucial physical evidence.”
Matthewman rejected Napleton’s request to instruct jurors there was no physical evidence that defendants intentionally damaged “a single engine.”
“The jury is to be instructed to presume that the lost engines were relevant and favorable to defendants and unfavorable to plaintiff, but that plaintiff can attempt to rebut this presumption through its presentation of evidence, including expert testimony,” Matthewman wrote in his order.
A Hyundai spokesman, in a statement, said the order doesn’t apply to the majority of alleged fraudulent engine claims.
Napleton, in its statement, said Hyundai has no physical evidence to back up its allegations.
Napleton, of Oakbrook Terrace, Ill., ranks No. 13 on Automotive News‘ list of the top 150 dealership groups based in the U.S, with retail sales of 35,768 new vehicles in 2020.