It’s never fun working for shady people. I realize “shady” could mean different things to different people, but in the end, when you work for someone you know lacks integrity or is unable to do the right thing, especially in highly regulated industries like the car business, it’s tough going to work everyday and wondering if you’ll have a job tomorrow.
Working in an ethically compromised environment takes a significant toll on one’s professional and personal well-being. This ethical misalignment not only challenges your own moral compass but also introduces a constant undercurrent of anxiety. You find yourself caught between your professional responsibilities and your personal values, all while grappling with the very real fear that your job security could be jeopardized at any moment – either by your employer’s actions or by your reluctance to participate in questionable practices.
The pressure is real and employees often succumb to the pressures of making car deals happen.
In a recent F&I Showroom article by Terry O’Loughlin, Director of Compliance for Reynolds and Reynolds, The State vs. Car Salespeople – Joint and Several Liability, he states that for decades, car dealerships have faced numerous legal actions, primarily targeting the businesses themselves. However, a significant shift is occurring in the legal landscape: dealership employees are increasingly being held personally liable for illegal practices at their workplaces.
O’Laughlin writes, “I prosecuted a case in the 1990s in which the dealer settled for almost $2 million, and the finance manager was incarcerated. Twenty years ago, a large Southern California dealer was prosecuted by the Los Angeles District Attorney’s office for $2.8 million, and various dealer personnel went to jail.”
For anyone in the car business in So Cal in 2000-2002, you may remember the story of Gunderson Chevrolet.
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Gunderson Chevrolet: background and charges
In May 2001, the Los Angeles County District Attorney’s Office filed a grand jury indictment against several employees of Gunderson Chevrolet in El Monte, California (owned by AutoNation). The charges stemmed from a major consumer fraud case involving over 1,500 customers between February 1999 and May 2000.
The dealership was accused of multiple fraudulent practices, including:
- “Price packing” of after-market products without customer consent
- Selling used vehicles as new
- Forgery
- Failing to disclose previous rental status of vehicles
- Odometer fraud
- Adding service contracts without buyer’s consent
- Misrepresenting loan payments and interest rates to customers
Investigation and legal actions
The investigation was initiated following information provided by KCBS-TV investigative reporter Joel Grover in May 2000. Grover’s team went undercover inside the dealership and the results were pretty shocking. The California Department of Motor Vehicles (DMV) filed an administrative accusation against Gunderson Chevrolet’s vehicle dealer’s license in October 2000.
Thanks to youtube, here’s the entire report from KCBS’ Joel Grover. It’s still very tough to watch:
Settlements and convictions
In April 2001, AutoNation’s Gunderson Chevrolet reached a settlement with the DMV and the Los Angeles District Attorney’s Office, agreeing to:
- Pay $1,100,000 in fines
- Provide an estimated $1 million-$1.5 million in consumer restitution
- Close its sales department for six consecutive days
- Have its dealer license placed on probation for four years
- Repay over $200,000 in investigative and legal costs
In April 2002, four former AutoNation/Gunderson employees pleaded to felony charges based on the grand jury indictment.
- The dealership’s general manager, James Michael Hoban, pleaded no contest to conspiring to make untrue or misleading statements in the sale of cars. Hoban was sentenced to six months in jail, placed on five years’ probation and ordered to pay a fine and perform community service.
- Former finance director Michele Davis pleaded no contest to the same felony charge and also received six months in jail and five years’ probation.
- Randolph Samuel Cooper, a former used car manager, pleaded no contest to a misdemeanor charge of making untrue or misleading statements in the sale of a car and was fined and sentenced to three years’ probation.
- Donald Poteete, a former finance manager, pleaded no contest to conspiracy to defraud and was sentenced to three years in prison, which was suspended, and six months in jail, McGrath said. Poteete also was fined and ordered to perform community service. He received the most serious sentence because he had the most direct contact with victims.
Three additional defendants cooperated with investigators and received sentences as well.
Gunderson Chevrolet’s lasting impact and significance
This case was considered one of the largest dealer fraud cases in California at the time. The criminal activity unearthed at AutoNation’s Gunderson Chevrolet rocked the automotive retail world. The criminal convictions were seen as sending a strong message to car dealerships across the United States about the consequences of fraudulent practices.
The new legal reality for dealership employees
Historically, the Gunderson case was an outlier in dealership litigation. Most legal actions against car dealerships were resolved through settlements that shielded individual employees from personal liability. However, this landscape has dramatically shifted.
A New Era of Legal Liability
In recent years, a significant change has occurred:
- Expanded Scope: Lawsuits now frequently target not just the dealership as an entity, but also individual employees.
- Joint and Several Liability: This legal concept means that both the dealership and its employees can be held responsible for damages.
- Wide-Ranging Impact: This new approach affects all levels of dealership staff, from general managers to salespeople and finance managers.
- Growing Trend: The frequency of these cases is increasing, signaling a new norm in dealership litigation.
Key Takeaway: All dealership employees should be aware of this heightened personal legal risk. Understanding your potential liability is crucial in today’s automotive retail environment.
Understanding joint and several liability
- Definition: Defendants can be held fully liable for the entire judgment, regardless of their personal level of fault.
- Implication: An employee could potentially be responsible for paying large sums due to illegal acts committed by their employer or colleagues.
As O’Loughlin states, “The law is long, and life is short.”
The devastating part about joint and several liability for an employee is that a defendant bears the risk of insolvent co-defendants. In other words, a dealership employee could be forced to pay enormous sums of money for illegal acts of his or her employer, the dealership.
An innocent employee may avoid liability by convincing the judge they should be dismissed from the case, but that would still require them to pay expensive legal fees to do so.
What actions can I take if I’m honest and I witness shady tactics that could be illegal?
O’Loughlin has two suggestions:
- Honest employees should encourage their dealerships and team members to obey the law. If there is illicit behavior, honest employees should seek to cure that behavior or find other jobs.
- Honest employees may wish to obtain insurance coverage for personal protection, such as a personal liability policy. Insurance coverage, such as Errors and Omissions (E&O), Directors and Officers (D&O), umbrella, or addenda policies, may be possibilities. When doing so, ask management about the dealership’s insurance coverage so the policy you get covers what you need.
I have to admit, as I read and absorbed this information, it scared me a little. This fear stems from all the borderline (or worse) tactics I’ve witnessed in dealerships over the last several years. I’m in California, where our laws treat employees and vendors equally when it comes to witnessing and reporting unethical or illegal practices.
While Kruse Control carries the type of liability insurance suggested to protect against these legal risks, it’s highly unlikely that a typical rank-and-file dealership employee would have access to or be able to afford such coverage. This disparity in protection leaves average workers particularly vulnerable to potential legal consequences.
If you’re a dealership employee who observes potentially illegal or unethical practices, I suggest taking these steps:
- Document everything: Keep detailed, dated notes of what you witness. This documentation may protect you later if the situation escalates.
- Follow proper channels: Consult your employee handbook and follow the prescribed reporting procedures. This usually involves notifying your immediate supervisor or the HR department.
- Maintain professionalism: Continue performing your job duties to the best of your ability while the issue is being addressed.
- Assess the response: If your concerns are adequately addressed, continue to monitor the situation. If not, consider escalating to higher management or relevant regulatory bodies, depending on the severity of the issue.
- Protect yourself: If the unethical practices persist despite your efforts to report them, and you feel your professional integrity is at risk, it could be time to seek employment elsewhere. Your personal and professional well-being should be your priority.
The legal environment for car dealership employees is evolving rapidly.
Understanding these changes and taking proactive steps to protect yourself is crucial in this new landscape of risk and compliance.
Remember, protecting your integrity and career may sometimes require difficult decisions, including changing employers if necessary. While such a decision is never easy (I speak from experience), it’s often necessary to ensure your professional reputation remains intact and your career trajectory stays aligned with your principles.
Controlling expenses is the #1 concern for dealers. Get your FREE Dealer Self-Assessment to see how you measure up against manufacturer-specific benchmarks. Get it today!