U.S. judge backs Hyundai on terminating two Napleton dealerships in Fla.

A federal judge in Florida last week ruled that Hyundai Motor America was within its rights to terminate two Napleton Automotive Group dealerships.

Hyundai served the dealerships notices of termination because it alleged that reputational harm was suffered after Napleton executive Edward Napleton Jr. was charged with sexual battery of an employee. Napleton Jr. is the son of company president Ed Napleton. Napleton Jr. was sentenced to five years probation under a "best interest" plea that does not admit guilt.

The wrongful termination suit was brought against Hyundai by North Palm Hyundai and West Palm Beach Hyundai — both owned by Napleton Automotive Group — claiming that Hyundai violated Florida law when it tried to end their franchise agreements.

"The order issued by Judge Aileen Cannon of the U.S. District Court for the Southern District of Florida confirmed the propriety of Hyundai's decision to terminate these two dealerships," Mitch Widom, an attorney with Miami law firm Bilzin Sumberg, who represented Hyundai, said in a statement.

Widom said the state's dealer act under which the cases were litigated "typically favors dealerships," but the decision to allow termination based on sexual misconduct was "correctly determined."

Hyundai Chief Legal Officer Jason Erb said in a statement that the company "will not tolerate sexual misconduct by its employees or business partners."

Though a final judgment was set, the dealerships will remain operational and, in accordance with the Florida dealer act, have 30 days to file an appeal.

A Napleton representative told Automotive News that "the dealerships respectfully disagree with the Court's decision and will immediately appeal and expect that the decision will be reversed."

A person familiar with the case who asked not to be identified told Automotive News that once an appeal is filed, it could take up to a year for it to be heard. From there, a court will decide if the decision was right or if it will be reversed. In that case, it would go back to trial.

Under Florida law, the person said, a franchised dealership can continue to sell cars even if a termination is pending, and any termination cannot take effect until all appeals are exhausted.

This was the second time Hyundai tried to terminate its agreement with the Napleton dealerships in Florida. The retailer and the manufacturer have had a number of legal disputes in recent years.

The first letters of termination were sent in November 2020 following a lawsuit filed by Hyundai against Napleton Automotive and two of its employees alleging they fraudulently collected warranty payments for unnecessary engine repairs following a nationwide engine failure recall of vehicles equipped with Hyundai's Theta II engine.

During that recall, Hyundai extended its powertrain warranty coverage and allowed it to be used for secondary owners of the vehicles. Hyundai alleged that defendants purchased Sonata and Santa Fe vehicles from auctions and filed improper warranty claims for Hyundai to reimburse.

In that case, a judge dismissed Napleton Automotive Group as a defendant, but the two employees who participated in the alleged scheme, Gene Khaytin and Ernie Revuelta, were tried in front of a federal jury.

The jury found misconduct on the part of the defendants, but Hyundai was not awarded any damages, and the two employees were excused from liability because of evidence presented in the case. The jury decided Hyundai itself had "unclean hands" related to its handling of the recall.

According to NHTSA, the 2015-19 recall, which also included Kia vehicles, was conducted in an untimely manner, and the companies inaccurately reported certain information to the agency.

As a result, Hyundai and Kia agreed to a consent order with NHTSA in which Hyundai would pay penalties of $140 million and Kia $70 million.

Napleton Automotive Group ranked as No. 13 in Automotive News’ 2022 list of the top 150 dealership groups based in the U.S.