Dealer scores in suit against illegal exporters
Dealer principal Pete Shaver was the victim of a fraud. Over 100 Ram pickups sold by his dealership, Huntington Beach (Calif.) Chrysler-Dodge-Jeep-Ram, were exported to China, without his knowledge and in violation of his franchise agreement. The store subsequently had to reimburse the factory for incentive money it didn’t qualify for.
But then he took the culprits to court. And won more than the reimbursement.
At the center of the intricate export ring that defrauded the dealership was a man named Mark Lin. He had been exporting other new vehicles from the U.S. to China through his corporation AM Legend. When Rams became eligible for incentives, Lin was able to price the trucks attractively for his Chinese customers, court documents said.
But the store’s franchise agreement with Fiat Chrysler Automobiles prohibits selling vehicles for export to countries outside of the U.S. Any sales for export, therefore, should not have been eligible for the incentives.
Lin set up Quadrant Armored Sales and Leasing Inc. as the export ring’s buyer. The venture only purchased vehicles for Lin and AM Legend beginning in September 2013 and has not done any business since the fraud was uncovered, court filings said.
According to those court documents, here’s how Lin carried out the scheme.
Lin used a former business partner, Brian Van Cleave, an unlicensed automobile broker who had worked as a new-car salesman at various dealerships in Southern California, as a middleman.
To acquire the trucks, Van Cleave reached out to a former dealership colleague, Bryan Hopkins, a fleet manager with the Huntington Beach store, in 2012. Hopkins and Van Cleave had worked together at the dealership when it was under previous management. Hopkins agreed to help in exchange for a $200 kickback paid by Lin and Van Cleave on every Ram purchased.
Van Cleave and Hopkins were both aware of the franchise agreement’s ban on selling vehicles to customers for export. In fact, one of Van Cleave’s former corporations, BVC Motors, was already on FCA’s list of suspected exporters.
Heidi Corral, Van Cleave’s girlfriend, came in as Quadrant’s CEO. Her name appeared as the authorized signatory on documents turned in to the dealership’s business office. Those documents were then submitted to FCA in support of the incentives and rebates issued to Quadrant.
“I think this case showed a new level of complexity,” said Alton Burkhalter, a lawyer who represented the dealership. “This was a group that had been working together several years before.”
Store management required that Hopkins check FCA’s list of known exporters before selling vehicles to any customer. Van Cleave instructed Hopkins to assure Shaver that Quadrant was a legitimate fleet customer up-fitting the trucks with security features for lease to high-profile individuals in Nevada.
Additionally, Van Cleave forged over 120 different Arizona registration statements showing that Arizona’s department of motor vehicles had registered each of the vehicles sold to Quadrant. Fraudulent transport orders of deliveries to a Las Vegas address were also created for a real company known as Bob & Dave’s Trucking.
In reality, the trucks were picked up from the dealership by Bob & Dave’s but then taken to an export company called Edward Transit Express. The fraudulent orders showing that the trucks had been delivered to a Las Vegas address were then sent to the dealership.
The fraud relied on the Arizona registrations to ensure that the dealership issued manufacturer’s certificates of origin to Quadrant. Without the certificates, the trucks could not be shipped out of the U.S.
Shaver: “House of cards fell.”
The orders started coming in around September 2013, based on specifications a Chinese customer would give Lin. They weren’t orders for just any old Rams, either.
“They were Longhorn editions, a highly equipped truck that had about a $50,000 sticker,” said Shaver. “They were not what the market wants in Southern California.” Shaver said incentives being offered on those trucks at the time ranged between $3,000 and $3,500 each.
Funds would be wired from a Chinese bank into AM Legend’s account at East West Bank, in California. Lin would then transfer the money into an account labeled “I Auto Dealer’s,” which would then pay the dealership. Hopkins would place the order with the factory.
The scheme worked fine until around May 2014, when the dealership received notice of an audit by FCA looking at sales between September 2013 and May 2014.
During the audit, a problem popped up: The vehicles appeared not to be registered in Arizona. Shaver collected registration information from the trucks and called Arizona’s Secretary of State Office for confirmation that they were registered properly. He didn’t get it.
“Through the process of the investigation, we found out that every registration was fake and that the cars had indeed been exported to China,” Shaver said.
The audit revealed that 117 trucks had been sold to Quadrant and then exported.
“I went back to the salesperson and the house of cards fell apart,” Shaver said. Hopkins was fired. He later confessed and agreed to make restitution to the dealership, Burkhalter said.
“Getting duped is the biggest nightmare,” Shaver said. “With the number of incentives, it can get risky fast. It’s a big hit to dealerships.”
Once the scheme had been identified, the dealership cut off the broker and notified the local police and the Arizona Highway Patrol. Arizona authorities informed the dealership that the U.S. State Department was also involved.
The dealership had to pay FCA $405,717 in chargebacks for the incentives.
Making matters worse, Quadrant had placed an order for an additional 55 big-ticket Rams. They arrived at the dealership with no true buyers in sight.
“We had to price those proportionally,” Shaver said. “We liquidated them” at a loss of $106,132.
He then sued the players involved.
A jury trial began in September, at the Orange County Central Justice Center, part of the Superior Court of the State of California.
“The defendants were aggressive,” Burkhalter said. “They said, “There’s nothing illegal about exporting cars,’ but we pointed out that there were signed dealer agreements and contracts that didn’t allow for exporting. The jury understood that.”
Burkhalter argued for the Racketeer Influenced and Corrupt Organizations Act in the case and was successful. Burkhalter said, as far he knows, this is the first time RICO has been successfully used against an automotive export ring.
Jury reaches verdict
In October, the jury reached its verdict, ruling that all five players were liable for fraud. Quadrant and Van Cleave were found liable for breach of contract. Quadrant, Van Cleave, Corral, Lin and AM Legend were found liable for intentional misrepresentation or concealment and violation of the RICO act.
“I think RICO does fit in these export cases and can be a valuable tool for dealerships and manufacturers,” said Burkhalter, noting that RICO trebles the damages and awards the dealership its attorney fees.
The proposed judgment of trebled damages totaling $1,647,330 — representing the reimbursed incentive moneys, the losses on the 55 Rams the dealership was stuck with plus legal fees, all times three — was entered by a judge on Nov. 1. A motion for additional attorneys’ fees and costs will also be filed.
Throughout the process, FCA was there for the store, Shaver said. “They (FCA) were extremely supportive, fair in dealings,” he said. “They felt bad that it had happened to us.”
AM Legend and Mark Lin have filed one motion for a new trial and another which basically claims there was not enough evidence to support the jury’s verdict on RICO and fraud. The court will hear the motions on Nov. 17. Assuming the court denies those motions, the store then will try to collect from the culprits.
“Until it’s paid,” Shaver said, “it’s still ongoing.”
The math of export fraud
Here are the key numbers in the fraudulent export ring that struck Huntington Beach (Calif.) Chrysler-Dodge-Jeep-Ram.
• 117: Number of Ram pickups illegally
• About $50,000: Sticker price of the
Ram Longhorns favored by the
• $3,000-$3,500: Factory incentives
• $200 per truck: Kickback paid to
dealership insider for aiding the fraud
• $405,717: Chargebacks paid to FCA
to cover incentives
• 55: Additional Rams ordered but not
• $106,132: Dealership loss on those
• $1,647,330: Treble-damage judgment
awarded dealership, to be paid by
Source: Court documents