A federal judge in Chicago has refused to dismiss or transfer a suit accusing a Homestead, Fla., dealership of defrauding GE Capital Auto Financial Services, which had provided lease-plan financing.
U.S. District Judge John Grady rejected arguments that GE Capital, which is based in Barrington, Ill., could sue Phil Smith Chrysler-Jeep-Mazda only in Florida, ruling that the claims are sufficiently related to Illinois, where allegedly fraudulent documents were sent.
The civil suit accuses the dealership of sending fraudulent documents to GE Capital in connection with the lease of about 200 vehicles over a three-month period in 1997. The value of the leases was about $3.5 million, the decision said.
This is how Grady described the purported scheme: 'Phil Smith created dummy invoices for the vehicles, in which it increased the manufacturer's suggested retail price. Phil Smith used the inflated MSRP to set an equally inflated residual value, which is a projection of the value of the vehicle at the lease end.
'By overstating the residual value, Phil Smith was able to decrease the depreciation component and thereby deflate the monthly lease payment. As a result, GE Capital, at lease term, would own a vehicle worth significantly less than its purported residual value.'
One result of such an arrangement might be lower lease payments to consumers, making it more attractive for them to do business with one dealership rather than with a competitor.
However, Cheryl Gidley, GE Capital's vice president of marketing, said she could not discuss details of the case since it remains in litigation and cannot speculate on the dealership's motives.
GE Capital sued in Illinois because the paperwork on 124 of the vehicles was processed at its Barrington headquarters.
Its outside lawyer, David Johnson of Chicago, said the company has not calculated the amount of the purported fraud yet.
Phil Smith denies any wrongdoing, according to its lawyer in Miami, Andres Rivero.
In seeking dismissal of the suit, the dealership argued that it cannot be sued in Illinois because it never conducted any business in that state, never owned property there and never solicited business there.
But in his decision, Grady said Illinois is an appropriate place to litigate the case because that is where purportedly falsified paperwork was mailed under the dealer lease agreement and that is where GE Capital sent out the checks.