For California dealer, a court victory and a lesson learned

In Mark Lin's world of auto exporting, there were two kinds of car dealerships.

One kind "would sell vehicles on the sly" to exporters and work "under a kind of code of don't-ask-don't-tell silence," said a court summary of Lin's testimony in a 2016 California civil trial.

"The other kind were those that were expressly open for export," the court decision said.

Huntington Beach Chrysler-Dodge-Jeep-Ram, according to the court's description of Lin's testimony, "was of the latter type."

The jury in the case, a civil racketeering and fraud lawsuit brought by the dealership, rejected Lin's assessment and ordered him to pay the dealership $1.8 million in damages for inducing it to sell 117 Ram pickups that would be exported to China -- in violation of its franchise agreement -- under the pretense that they were destined for a Nevada fleet operator.

The California Court of Appeal affirmed the verdict in July, dismissing Lin's protests that his role in the chain of transactions was legal.

The verdict could help the dealership recover the losses it sustained from the scheme, including chargebacks of factory rebates, if it can collect on the judgment. Nonetheless, the case -- involving a fictitious shell company, falsified documents and a rogue sales manager -- serves as a cautionary tale for dealerships on the need to monitor their employees and fully run down suspicions about potentially problematic transactions.

"We had a process in place, and we had a bad employee who misled us, so it was a conspiracy," dealership President Pete Shaver told Automotive News. "This was the first time I was exposed to such a bad act by an employee."

Here's how the fraud worked, according to the decision and other legal documents:

Lin received phone orders from his contacts in China, primarily two companies described in court papers as "wealthy customers willing to pay handsomely for new trucks exported from the U.S."

To secure the vehicles, Lin enlisted an unlicensed vehicle broker named Brian Van Cleave, who ordered the trucks from Huntington Beach Chrysler-Dodge-Jeep-Ram under the name of a shell company, Quadrant Armored Sales and Leasing.

"We check the export list regularly, and this particular company wasn't on it," Shaver said of Quadrant.

Some of the Rams were to be outfitted with bulletproof windows. Van Cleave's girlfriend signed the Quadrant Armored contracts, indicating that those trucks were for "security-conscious customers" in Nevada.

To execute the deals, Van Cleave recruited Bryan Hopkins, the fleet sales manager at Huntington Beach Chrysler, with whom he had once worked at a different store.

"Hopkins was indeed open to selling for export, but said -- out loud -- he would need a number of forged documents for the store's files," the court said.

"Hopkins wanted Van Cleave to put together those false documents," including bills of lading, insurance documents and Arizona vehicle registrations, the court said.

"You'd look at a deal jacket, and it looked fine," dealership lawyer Rosamund Lockwood said. "There was no reason to question it."

Hopkins' cut: $200 of the $500-per-truck rebate. "It was a terrible, terrible decision" on Hopkins' part, Lockwood observed.

The scheme unraveled in spring 2014, when Fiat Chrysler Automobiles did a routine sales incentive audit, the appellate court said. The audit confirmed Shaver's earlier suspicions, the ones that led him to check the list of exporters. He then phoned the Arizona motor vehicle department "only to discover the registration numbers did not have enough digits to be legitimate," court papers said. The trucks had all gone not to Nevada or Arizona but to China.

The dealership faced a potential FCA penalty of $3,100 per exported vehicle, chargebacks for incentives and, "in a worst case scenario, actual termination of the franchise itself," the court said.

FCA originally sought $844,967 in chargebacks. Shaver flew to Detroit to meet with FCA staff, and the automaker "whittled that figure down" to $405,717, the decision said.

"They were compassionate and accommodating," Shaver said.

Lin argued in his appeal that he shouldn't be held liable for misdeeds committed by the broker, the broker's girlfriend and the dealership employee, but the jury and appeals court concluded that it was Lin who directed the scheme to deceive the dealership.

The dealership was "duped into thinking it was selling to a domestic buyer and not an exporter" and wouldn't have extended the rebates and incentives "if the truth about the ultimate destination of the vehicles had been disclosed," the court said in upholding the jury verdict.

Lin wouldn't let his lawyer speak with Automotive News.

The store fired Hopkins, who invoked the Fifth Amendment when called to testify at trial, according to court documents. Hopkins settled the civil claims against him before trial by agreeing to repay the kickbacks in monthly increments.

No criminal charges were filed, said Lockwood, the store's lawyer. Civil judgments also were entered against Van Cleave and his girlfriend, but neither participated in the appeal nor paid their share of the award.

"The dealers are in a tough position," Lockwood said. "If they're dealers that do a high volume like [Huntington Beach], that's one reason they're targeted."

Shaver said it's essential to hire "honest, ethical people."

Beyond that, he said, dealerships should protect themselves from similar schemes by "looking for irregularities -- anything that's out of the ordinary, out-of-state sales, multiple sales without sales tax."

The store now requires his signature on any deal that doesn't require collecting sales tax.