Described as a "house of cards" in court records, a once rapidly expanding dealership group with stores in Michigan, Pennsylvania and New Jersey is now facing lawsuits from Nissan and Hyundai's captive finance arms as the survival of its stores is in question.
Five of the group's dealerships — owned by auto retail veteran Michael Saporito and former NFL linebackers Jessie Armstead and Antonio Pierce — are alleged in the lawsuits filed last month to have sold nearly 500 vehicles worth more than $10.5 millionout of trust, with 98 other vehicles missing. It has led to vehicles being repossessed, an apparent closure of two stores and questions about the livelihood of the owners' other dealerships.
The turmoil represents a major fall for a group of dealers who just two and half years ago were touted by Nissan North America as a major part of the automaker's ambition to grow market share in metro Detroit. The ownership trio opened All Pro Nissan of Dearborn, in Michigan, in 2015 and All Pro Nissan of Macomb, in Clinton Township, Mich., in 2017. The multimillion-dollar Dearborn dealership is decorated with memorabilia from Armstead and Pierce's days on the football field. They also own Hazleton Nissan in Hazle Township, Pa.
Nissan's captive, Nissan Motor Acceptance Corp., in court documents now calls the group insolvent and accuses it of defaulting on its loan agreements.
Uncertainty about the stores' future has spurred employees to leave. Evan Baum, a mechanic at the trio's Hazleton Hyundai store, resigned three weeks ago and found another job after car carriers took vehicles away.
"When all your product disappears off the shelf, the writing's on the wall," Baum told Automotive News.
Lawyers for the defendants did not respond to multiple requests for comment. In court documents, they've denied the allegations.
Trouble surfaces
It appears legal trouble for the dealership group began July 30 in Pennsylvania when audits by Hyundai Capital America showed discrepancies at the Hazleton Hyundai and Hazleton Kia stores, according to court filings. A week later, the problems spread to Michigan when NMAC audited the trio's Nissan dealerships, identifying more than 400 vehicles financed by the captive that could not be located. In lawsuits filed in county courts in Michigan and Pennsylvania in August, NMAC said it is owed more than $9.5 million for vehicles it alleges were sold out of trust.
Nissan and NMAC both declined to comment other than to say the three Nissan stores remained open for business. But in three visits to the Michigan stores in the last two weeks, minimal staffing was apparent. A sign at the Macomb store at one point read, "Due to a computer outage, we are unable to sell vehicles at this time." Representatives at the Dearborn store told an Automotive News reporter that the dealership was open but "due to restructuring" was unable to sell or lease vehicles. On Thursday, Sept. 6, a service department employee at the Dearborn store said all the technicians had left to take jobs with other Nissan dealerships.
Customers have reported issues on Facebookover the past few weeks. One cited a three-week delay to get an oil change at the Dearborn store, while others complained of phones going unanswered. Another said he was told to go to a neighboring dealership for service on a certified pre-owned vehicle purchased from the Macomb store.
Stephen Dietrich, a dealer lawyer and partner at Holland & Knight in Denver, said Nissan likely doesn't want the stores to go dark and could be trying behind the scenes to find another operator for the stores or negotiating with the owners to have them sell the dealerships within a certain time frame. That makes sense given Nissan's play to boost its market share in the backyard of the Detroit 3.
Indeed, according to a court record filed Friday, Sept. 7, in the Michigan case, the defendants have been negotiating two real estate agreements and two asset purchase agreements with a potential buyer for real estate and collateral at the two All Pro Nissan locations.
Opened with fanfare
The problems are a contrast from three years ago, when Nissan and the dealer partners marched into Michigan with fanfare.
Saporito and Pro Bowler Armstead joined forces opening Hamilton Honda in 2009 in Hamilton Township, N.J. Super Bowl winner Pierce joined the auto-retailing team thereafter. Armstead and Pierce are onetime Washington Redskins teammates who each also played for the New York Giants.
The group also owns Hazleton Honda in Hazle Township, Pa., andEnglewood Cliffs Cadillac in Englewood Cliffs, N.J. Those stores, plus Hamilton Honda, are operating, according to Honda and General Motors.
Both Honda stores are past winners of the brand's President's Award. In 2014, GM CEO Mary Barra visited the group's Cadillac dealership, taking a picture with Saporito, Armstead and Pierce. "This team understands how to earn customers for life," Barra posted on Twitter.
With the All Pro expansion, Saporito moved one of his key associates from the New Jersey operations to be general manager of the Dearborn store.
"We're confident that it's possible to sell Nissans in a market where the common thinking says you can't," Saporito told Automotive News for a February 2016 story.
But in just a few years, their dreams could be sacked.
An employee at the Dearborn location told NMAC's auditor that vehicles from the store had been sent to B&Z Auto Enterprises in New York City with the intent of selling them, according to an affidavit of Hugh Johnson, NMAC's manager of special credit. Counsel for B&Z Auto confirmed that B&Z purchased "several vehicles from Mr. Saporito's entities," the affidavit said.
"In a subsequent telephone call between Saporito and me, Saporito confirmed the vehicles were sent to auction, that dealerships had received funds for the auction, but that Saporito did not know where the money went," according to Johnson's affidavit. "Also by telephone, Saporito informed me that the vehicles were sent to auction in part because the business of the Saporito Group entities was a 'house of cards.' "
NMAC demanded but did not receive payment of more than $9.3 million by Aug. 10. The two stores and Hazleton Nissan had 657 vehicles valued at more than $16.3 million located at the dealerships, according to court records.
A temporary restraining order in Michigan on Aug. 14 prohibits the dealerships from disposing of or concealing vehicles.
A similar lawsuit was filed by NMAC in Luzerne County, Pa.
On Friday, the parties filed to extend the restraining order for the Nissan stores until Sept. 28.
More aggressive approach
Hyundai referred comment to Hyundai Capital, while Kia did not respond to a request for comment. A spokeswoman for Hyundai's captive arm declined to comment on its lawsuit or actions it has taken, while a lawyer representing Hyundai Capital in the Pennsylvania case also declined to comment.
But Hyundai Capital appears to have taken a more aggressive approach.
On July 30, an employee of Data Scan Technologies, hired by Hyundai's captive, performed an audit at the Hyundai and Kia stores, identifying 45 Hyundais and 41 Kias — many of which were titled to Hazleton Honda or Hazleton Nissan, according to a verification filing in Luzerne County by George Andresen, regional sales director of Hyundai Capital.
Titling the vehicles, with more than $1 million in balances due to Hyundai Capital, to other dealerships violated Hyundai Capital's loan agreements with Hazleton Hyundai and Hazleton Kia, court records allege.
Hyundai Capital said in filings that it believes Hazleton Honda and/or Hazleton Nissan granted American Honda Finance Corp. and/or NMAC a security interest in the vehicles, also violating loan agreements. It's possible the dealership group was attempting to double-dip on floorplan financing.
On July 31, Hyundai Capital asked and received manufacturer's certificates of origin on the new vehicles to prevent an unauthorized sale, but no titles were given for used vehicles, according to court records.
And in just a few days, more vehicles would end up missing.
Andresen said he visited Saporito, the dealer principal, a day later with other Hyundai Capital colleagues and another audit was performed. They couldn't find the 86 vehicles improperly titled, and even more vehicles were missing. Andresen said he asked Saporito where the vehicles went, and Saporito told him he would investigate but believed some were sent for auction. A lawyer for the dealerships later told Hyundai's captive that the 86 vehicles had been sold at wholesale to other dealers, the verification filing says.
On Aug. 2, Data Scan did another audit at the dealerships and discovered 98 vehicles had gone missing since the July 30 audit. In total, Hyundai's captive said it was owed nearly $2.7 million for those 184 vehicles. On Aug. 3, Andresen's calls and texts to Saporito went unanswered.
Vehicles removed
Baum, the former mechanic at Hazleton Hyundai, said about five weeks ago that multiple car carriers entered the dealership lots and took new and used Hyundai and Kia vehicles. Store management stressed to everyone that they still had their jobs, but they were in a rough patch, he said.
The dealerships also had missed other payments to Hyundai Capital on sales of vehicles and failed to make Aug. 1 business loan payments for each dealership that together totaled nearly $600,000. Hyundai Capital demanded payment of more than $710,000 by Aug. 3.
A judge granted Hyundai Capital an injunction soon after, and the dealerships were restrained from selling or disposing of vehicles that were Hyundai collateral, according to the lawsuit.
Patrick Hromisin, a Philadelphia lawyer representing the dealership group in the Pennsylvania case, said in a court filing that his clients deny the allegations. Hromisin, in the filing, asked for a ruling in favor of his clients and lifting of an Aug. 6 order.
But an Aug. 29 order allowed Hyundai Capital to remove its collateral on Aug. 31, including about 90 vehiclesvalued at more than $2 million, according to court records.
An area dealer who saw car carriers loading vehicles Aug. 31 described the Hyundai and Kia lots as empty as of the morning of Tuesday, Sept. 4, and said the two stores appear to be closed.
Angela Thomas, president of Prana Marketing and Media Relations in Englewood Cliffs, N.J., who is the publicist for the Hazleton dealerships and their co-owners, said the Hyundai and Kia stores remain open.
"The dealerships are open," she said Friday. "They're reorganizing."
Thomas said the dealerships had lost some employees and were restructuring.
Automall for sale?
It appears the four stores that make up the Hazleton Automall also may have been up for sale.
A Pennsylvania auto dealership group with Nissan, Honda, Hyundai and Kia stores is listed for sale on the National Business Brokers website. It says the four stores sold more than 3,400 vehicles in 2017, are part of a "successful auto mall location" and have new facilities and real estate available to purchase. The brokerage declined to comment.
It appears the owners' other stores in Hazleton remain open and operating.
A Honda spokeswoman told Automotive News that its credit arm, American Honda Finance Corp., has no lawsuits against the group's Honda dealerships in Pennsylvania and New Jersey, and they are open and operating. A GM spokesman also confirmed the group's Cadillac store was operating normally.
Marshall Sargeant worked as a technician at Hazleton Kia for about two and a half years. He left his job Aug. 27, days before Kia seized its remaining inventory. He said a lot of "shady things" happened at the dealership over the past month or so regarding moving vehicles off-site, selling inventory and letting people go.
"I feel that company should not be in business anymore, period," he said.
Sargeant said the ownership group was seeking to open a Honda store in Texas. Public records show a Grapevine Honda was incorporated in Texas in June 2017, with Saporito listed as the governing person. A Honda spokeswoman said the automaker doesn't discuss open dealer candidates, so it could not comment on a potential Texas store.
Jackie Charniga contributed to this report.