Washington state law requires that dealerships pay off consumer trade-ins by the end of the second business day after each transaction.
Three of the dealerships are operating under Chapter 11 bankruptcy protection: Gilbert Chrysler-Jeep-Dodge-Ram in Walla Walla, Wash.; Gilbert Auto Nissan in Moses Lake., Wash.; and Gilbert Auto Ford in Moscow, Idaho.
A fourth store, Gilbert Auto Honda in College Place, Wash., isn't in bankruptcy, and a company spokeswoman said settlement discussions concerning that store are under way.
She also said the Gilbert group and its owner are complying with the injunction.
The attorney general's case also accuses the defendants of dealer law violations related to separate lawsuits by American Honda Finance Corp., which claims it is owed more than $4.2 million for floorplan and construction loans, and by Nissan Motor Acceptance Corp., which claims a $1.3 million out-of-trust position.
"This is probably the worst I've seen, but I've only been doing this for 20 years," said Mary Lobdell, senior counsel in the attorney general's office. "Let it be a warning. What a mess."
The attorney general's lawsuit, filed in Walla Walla County Superior Court, details 42 transactions at the four stores between January 2011 and February 2013 in which trade-ins were not paid off in time.
Lobdell said owner Gilbert was named in the attorney general's lawsuit because the consumer protection law allows personal liability for anyone who "directs and controls unfair and deceptive" conduct.
In a statement about the bankruptcy, filed March 13, Gilbert said no stores will close and no employees will lose jobs. He said he expects the reorganization to take 90 to 120 days.
Lobdell said her agency didn't sue the group's Gilbert Chevrolet in Pendleton, Ore., because there was no evidence that Washington residents suffered injuries from any misconduct there. The dealership is in bankruptcy, and GM Financial is among its creditors, court documents show.
Bankruptcy law doesn't prevent Washington state from exercising its regulatory and enforcement powers and allows the state to calculate losses to consumers, Lobdell said, but the state can't collect damages while the dealerships are in bankruptcy protection.
"It's vigorously disputed how much is owed," she said, adding that her office is also receiving complaints about refunds on service contracts the dealerships sold.
Nissan Motor Acceptance lawyer Andrew Elliott of San Francisco declined to discuss details of the case but said the bankruptcy stay does not shield Gilbert, who personally guaranteed the loans, because he hasn't filed for bankruptcy protection.