A Scathing Judicial Rebuke
Hyundai Motor America has been ordered to pay nearly $10 million to a Pennsylvania used-vehicle dealership after a judge found the automaker engaged in rampant destruction of evidence, filed a baseless fraud lawsuit, and had its witnesses lie under oath. The harshly worded ruling by Judge Philip Ignelzi of the Allegheny County Court of Common Pleas represents one of the most severe sanctions imposed on a major automaker in recent memory.
The case centers on a dispute that began in 2019 when Hyundai sued two Pittsburgh-area used-car dealerships, Knight Motors and Doman Auto and Marine Sales, accusing them of fraud related to recalled 2011-2014 Hyundai Sonatas equipped with defective Theta II engines. The dealerships had purchased 628 of the recalled vehicles at auction and brought them to Hyundai's franchised dealers for engine replacement or buyback under the recall program.
Theta II Engine Recall Background
The Theta II engine recalls, which ultimately covered more than 1.6 million Hyundai and Kia vehicles, arose from manufacturing defects that could cause engine seizure and, in severe cases, engine fires. The recalls represented one of the largest quality crises in Hyundai's history and resulted in a $210 million civil penalty agreed upon with U.S. auto safety regulators.
Under the recall terms, Hyundai was obligated to inspect affected vehicles and either repair, replace the engine, or repurchase the vehicle. Knight Motors and Doman, which share the same owner, purchased qualifying vehicles from auctions and presented them for recall remediation, a practice the judge characterized as ordinary and lawful commercial activity.
During the recall inspection process, 16 Hyundai dealerships inspected and photographed hundreds of Knight's vehicles over a one-year period. The inspections found no evidence of tampering or manipulation. An independent appraisal firm hired by Hyundai to inspect additional vehicles also found no evidence of intentional tampering.
Evidence Destruction and Fraud Allegations
Despite the lack of evidence supporting fraud claims, Hyundai pursued litigation against the dealerships. The judge's 70-page opinion documented what he called one of the most egregious instances of discovery abuse and spoliation in his 16 years on the bench.
Hyundai crushed hundreds of vehicles that had been purchased by Knight Motors, destroying physical evidence relevant to the case. The automaker also deleted emails from a company case manager who was involved in handling Knight's claims. The judge found that Hyundai witnesses lied about the company's handling of the situation.
Internal Hyundai communications revealed that the company had identified 21 used-car stores, including Knight and Doman, that presented multiple Sonatas for recall remediation. The automaker internally labeled these businesses as the Frequent Buyback Club and repeat offenders, and took steps to reduce payments to them. In May 2019, Hyundai made what the judge called a stunning decision to deny all claims involving Knight Motors, contrary to all of its own internal protocols.
The $10 Million Sanction
As a sanction for the destruction of evidence, Judge Ignelzi ordered Hyundai to pay Knight Motors $9,784,075, representing storage costs the dealership incurred for 163 recalled vehicles still in its possession. The amount reflects a $25-per-day, per-vehicle charge over approximately seven years, during which time the vehicles remained at Knight's facility while the litigation dragged on.
The judge dismissed all of Hyundai's claims against both dealerships and ruled in favor of Knight and Doman on their counterclaims, which included fraud, breach of contract, intentional interference with prospective contracts, and abuse of legal process. A trial may be held on the counterclaims to determine whether additional damages should be awarded.
Hyundai's Response and Appeal
Hyundai has stated that it disagrees with the decision and has sought to appeal the ruling. The judge granted a stay of his order pending the appeal, though the dealerships maintain that Hyundai is still obligated to collect the 163 vehicles from Knight's premises.
The case parallels a similar lawsuit Hyundai filed against a Florida franchisee, Napleton's Hyundai in West Palm Beach, accusing it and three managers of fraud, racketeering, and conspiracy related to warranty claims. In that case, the magistrate judge wrote that Hyundai botched the Theta II recall with faulty tests, tardy replacement engines, and constant misinformation. A jury found no liability on either side at a January 2023 trial.
The Pennsylvania ruling adds to the legal consequences of the Theta II engine defect saga and raises questions about how Hyundai handled recall claims from independent dealers more broadly.
This article is based on reporting by Automotive News. Read the original article.
