LEGAL FILE

Stores ordered to pay Capital One for 'non-genuine, invalid' loans

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Two Chicago-area dealerships with common ownership must pay Capital One Auto Finance $722,624 for failing to repurchase contracts for loans that had been approved based on falsified information or information obtained from identity theft, a federal judge in Illinois has ordered.

The award comprises $614,179 in compensatory damages, $98,605 in interest and $9,840 in attorney fees.

However, U.S. District Judge Ruben Castillo rejected Capital One's request for an additional $2,456,716 in punitive damages based on the dealerships' alleged fraud and misrepresentation. That would be four times the amount of compensatory damages.

Capital One sued Orland Motors Inc., which did business as Orland Park Mitsubishi and Downers Motors Inc., which did business as Bentley Downers Grove, for breach of contract, unjust enrichment, negligence, fraud and related claims.

The suit accused the dealerships, both in Downers Grove, Ill., of selling it "non-genuine, invalid and/or inaccurate receivables." Borrowers had defaulted on some of the loans, and Capital One said it had been unable to locate some of those debtors.

The suit also said of the dealerships that "the frequency with which problems occur does not appear to be coincidental, especially given their common ownership and management."

The lender claimed that the two dealerships sold it 22 contracts of borrowers "who were not bona fide debtors or who did not have full or legal capacity to execute contracts" and then refused to repurchase the contracts as the dealership agreements required.

Capital One argued that based on the number of loans involved, the dealerships knew their customers had supplied false information. For example, four of the 22 listed the same purported employer, New Nationwide Properties, according to the complaint.

In court filings, the dealerships acknowledged that they hadn't repurchased the contracts but denied having a legal duty to do so.

Partway during the litigation, the dealerships stopped participating in pretrial discovery and "began a pattern of silence," in Castillo's words. He then entered a default judgment against them for compensatory damages.

And although Castillo found that "the scale of the fraud and continuing pattern of deceit is indeed reprehensible," he found insufficient evidence that the dealerships' behavior "involved more than simple deceit or that it was malicious and willful," thus not justifying punitive damages.

Capital One spokesman Patrick Mendoza said the company has a policy against commenting on litigation. The dealerships' lawyer did not return phone calls.

A third dealership under related ownership and management, Great Western Motors Inc., doing business as Hyundai of North Aurora, settled earlier. A fourth, Luxury Motors O'Hare, was dismissed because of its bankruptcy filing, according to court papers.

You can reach Eric Freedman at freedma5@msu.edu.

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