Indian automaker Mahindra & Mahindra Ltd.'s struggles to enter the U.S. market continued this week when five U.S. dealers filed suit against the company in federal court, alleging Mahindra misled them and swindled them out of millions of dollars.
The dealers claim Mahindra deceived them about its ambitious plans to start selling pickups and an SUV in the United States.
The automaker received more than $9.5 million in fees and more than $100 million in trade secrets to gain entry to the U.S. market, according to the lawsuit filed Monday in U.S. District Court in Atlanta.
Dealers paid initial dealership fees, launched marketing campaigns on Mahindra's behalf, constructed Mahindra showrooms, display platforms and showcases, and hired additional employees on behalf of the automaker, the lawsuit says.
"Our investigation has revealed that Mahindra has defrauded the dealers through a series of deceptions," said Carlos Gonzalez of Miami, one of the lawyers representing the dealers.
The suit was filed on behalf of five dealers: Holloway Buick GMC of New Hampshire; Crown Global LLC of Florida; Elk Grove Toyota of California; Mauro Motors Inc. of New Jersey; and One World Armada of Bellevue Inc. of Washington.
Gonzalez said he expects more dealers to join the suit.
In a statement, Mahindra said it "unequivocally denies all allegations of fraud, misrepresentation and conspiracy."
Mahindra pointed to a March ruling in Missouri, where a federal judge threw out a separate suit filed by dealers. But U.S. District Judge Rodney Sippel dismissed the case because the court didn't have jurisdiction over Mahindra in Missouri. The ruling didn't address any of the substantive issues of the case.
Mahindra's plans to build a U.S. dealer network began in 2004, according to the suit filed in Atlanta. Under an agreement with the automaker, Global Vehicles U.S.A Inc., an independent distributor, was selected to import and distribute the vehicles exclusively to nearly 350 American dealers.
But Mahindra's efforts to enter the U.S. market were repeatedly delayed.
Some dealers requested engineering and design changes to the trucks before they went on sale. The company also faced delays in obtaining U.S. certification of the trucks.
"Mahindra intentionally delayed certification of its vehicles after obtaining the dealership fees and trade secrets, and began pursuing other partners in the U.S. and elsewhere in clear violation of their commitments," Michael Diaz, managing partner of the law firm that represents the five dealers, said in a statement.
Dealers were scheduled to begin selling Mahindra trucks in late 2008, but by January 2010 the relationship between the companies was beginning to fray, the lawsuit alleges.
At one time, Mahindra told dealers it planned to introduce a four-door truck in the U.S. market at the end of 2008, followed by a two-door truck and SUV in the third quarter of 2009, the suit says.
Mahindra claims Global Vehicles derailed plans to begin selling pickups when it allowed a distribution contract to expire. The partnership between Mahindra and Global Vehicles eventually collapsed in June 2010.
In February, after Global Vehicles filed a similar suit against Mahindra, a British arbitration panel ruled that the contract between Mahindra and the distributor had expired.
Global Vehicles is not a party to the federal lawsuit filed in Atlanta.
Lindsay Chappell contributed to this report