Hyundai suit is latest challenge for retailer

A Hyundai Motor America lawsuit accusing Napleton Automotive Group of deliberately "blowing" engines to fraudulently collect warranty payments is the latest in a web of lawsuits and legal trouble facing the dealership group and its executives.

The automaker filed the lawsuit last week in federal court in West Palm Beach, Fla., seeking more than $75,000 in damages.

Hyundai alleged that since at least 2016, defendants working at Napleton's Hyundai store in West Palm Beach bought certain Sonata and Santa Fe vehicles from auctions and made fraudulent warranty claims for the vehicles to the automaker. Hyundai would then reimburse the dealership for the repair. In some cases, Hyundai would repurchase the vehicles.

Customer vehicles brought in for service, trade-ins and vehicles returned at the end of leases also were used in the alleged scheme, Hyundai said. The store's service director and current and former service techs "deliberately damaged" engines to make it "falsely appear" the engines had failed, Hyundai said in its complaint.

"Hyundai has always made quality and safety a priority," the automaker told Automotive News in a statement. "Hyundai has zero tolerance for warranty fraud and has taken aggressive action to stop this fraudulent activity."

Napleton Automotive Group, which ranks No. 17 on Automotive News' list of the top 150 dealership groups in the U.S., denied any wrongdoing. In a statement to Automotive News, it said it was "deeply disappointed in Hyundai's unfounded allegations."

The Hyundai lawsuit is one of several legal challenges with which the Oakbrook Terrace, Ill., dealership group is wrestling. Hyundai said it first learned in April of the alleged fraudulent warranty claims via another one of Napleton's legal tangles — a lawsuit filed by a former Napleton Automotive general manager against the dealership group and its owners in which the purported scheme was spelled out.

Seven months later Hyundai filed its own suit. Hyundai's complaint names as defendants the dealership group itself, plus the West Palm Beach Hyundai store; Gene Khaytin, former general manager of that store who now lives in North Carolina; Ernie Revuelta, the store's service director; and Ed Napleton Jr., director of operations for Napleton Automotive.

From 2015 through 2019, Hyundai issued recalls on certain model years of the Sonata, Santa Fe Sport, Tucson and Veloster for possible engine failure, and the automaker extended its powertrain warranty coverage and allowed it to be used for secondary owners of the vehicles.

The lawsuit claims that top Napleton executives learned of the alleged scheme led by Khaytin and Revuelta in mid- to late 2017, when parts discrepancies became apparent at the store. It also claims executives from the dealership group including President Ed Napleton Sr. met with Khaytin, Revuelta and Napleton Jr. and ordered them to stop the practice.

But Hyundai's complaint alleges that didn't happen, that the fraud continued and that by January 2019, defendants "were destroying as many as 22 engines in a month."

As an example, Hyundai's complaint details the dealership's 2019 purchase of a low-mileage 2015 Sonata at Manheim's auction in West Palm Beach.

The vehicle had been given a condition report rating by Manheim of 4.5 on a scale going up to 5. But 13 days after that purchase, a warranty claim for the Sonata was submitted to Hyundai seeking an engine replacement with just two additional miles on the odometer, the lawsuit claims.

"The warranty records indicated that a customer stated that the car shut off during a test drive," according to the complaint.

In another case, Napleton bought a 2014 Sonata, listed with low mileage and in excellent condition, from Manheim in 2017. Two days later, a warranty claim for engine replacement on the vehicle was submitted. The vehicle's mileage hadn't changed — even though warranty records also indicated the car shut off during a test drive, Hyundai's complaint said.

In 2017, the alleged scheme generated about $180,000 in profits for Napleton's West Palm Beach dealership, helping the store show higher profits than other Napleton dealerships, Hyundai said in its 22-page complaint.

Hyundai said in a statement that it learned of the alleged fraudulent engine warranty claims when it was provided a complaint filed against Napleton by Mark Eddleman, former general manager at Napleton's Hyundai-Genesis store in Lake Park, Fla.

Eddleman's lawsuit, filed in April in Palm Beach County, Fla., circuit court, referenced the Hyundai engine allegations. In his complaint, he claimed that Napleton Jr. "encouraged him to engage in a similar scheme" at his store to boost profitability, but that he refused.

Eddleman alleged that he was fired around February 2019 because he refused to participate in "unlawful conduct," including cooperating in the cover-up of an alleged sexual assault of a female employee by Napleton Jr.

Napleton Jr. was arrested by the West Palm Beach Police Department in February 2019 and charged with sexual battery on a helpless person after police said he had in August 2018 raped an unconscious woman. Napleton Jr. pleaded not guilty, and the case has not yet gone to trial.

Eddleman alleged in his lawsuit that Napleton Jr. confessed to him about the sexual assault of a dealership group trainer and "pressured Eddleman to lie to criminal investigators about Napleton Jr.'s interactions with the victim and to 'forget' about Napleton Jr.'s confession." The lawsuit claims that Napleton Jr. threatened to fire Eddleman if the general manager didn't "falsely testify."

At the time of Napleton Jr.'s arrest, Napleton Automotive issued a statement that said: "We fully support Eddie as he fights to clear his name in court and trust that justice will prevail."

Eddleman, who claimed more than $10 million in damages in his suit, likened the Hyundai scheme to a "multimillion-dollar fraud."

He alleged that the dealership group would blow engines by emptying their oil and running them at high rpm. Eddleman's lawsuit, cited in Hyundai's complaint, claimed that the retailer would receive about $7,000 per blown engine, including the value of a new engine and a service fee.

"Hyundai has now verified what Mark Eddleman has said in his complaint," Daniel Rashbaum, Eddleman's lawyer in Fort Lauderdale, told Automotive News. "We look forward to aggressively litigating our case."

A hearing on Napleton's motions to dismiss the Eddleman lawsuit is scheduled for Monday, Nov. 23.

In its statement to Automotive News, Napleton Automotive said it is a family business that prides itself on its reputation and serving customers.

"Napleton has been a good and faithful dealer-partner with Hyundai and gives back to the communities where it has the privilege to serve the public across the country in the eight states where it does business," the company's statement said.

"Napleton's West Palm Beach Hyundai is an outstanding dealer and is routinely ranked among the top five of all Hyundai Southern region dealers for service customer retention," the statement continued. "Hyundai's allegations are nothing more than a rehash of a frivolous lawsuit brought by a lone former employee who lacks firsthand knowledge of the store in question. The claims against Napleton in that case and in this one are wholly without merit, and Napleton denies any wrongdoing."