Hyundai sues Napleton over alleged fraudulent engine warranty claims

Hyundai Motor America is suing Napleton Automotive Group and current and former employees of the dealership group in federal court over an alleged scheme by the retailer to fraudulently collect warranty payments for unnecessary engine repairs.

The automaker filed the lawsuit Tuesday in U.S. District Court in West Palm Beach, Fla. Hyundai said in a statement provided to Automotive News that it first learned of the alleged fraudulent engine warranty claims in April when it was provided with a complaint in another lawsuit filed by a former Napleton Automotive Group general manager against the dealership group and its owners.
Hyundai seeks more than $75,000 in damages. The lawsuit names as defendants the dealership group itself, plus Napleton’s West Palm Beach Hyundai store; Gene Khaytin, former general manager of that store; Ernie Revuelta, the store’s service director; and Ed Napleton Jr., director of operations for Napleton Automotive. A lawyer representing Napleton Automotive, in a statement to Automotive News, denied any wrongdoing by the retailer.

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 beyond the original owners of the vehicles.

In the lawsuit, Hyundai alleged that since at least 2016, the defendants bought certain Sonata and Santa Fe vehicles from auctions and would present fraudulent warranty claims about the vehicles to the automaker. Hyundai would then reimburse the dealership for the fraudulent repair. In some cases, Hyundai would repurchase the vehicles.

The automaker said many of the vehicles submitted for warranty claims for failed engines “never had an engine problem before they reached” Napleton Automotive. In 2017, the alleged scheme generated about $180,000 in profits for the retailer’s West Palm Beach dealership, which helped it show higher profits than other Napleton stores, according to Hyundai’s complaint.

“All of this was done as part of a pattern to deceive and defraud HMA and to profit from HMA’s goal of helping real consumers with legitimate engine problems covered by the recall campaign,” Hyundai claims in its 22-page lawsuit.

The lawsuit claims that top Napleton executives learned of the alleged scheme orchestrated by Khaytin and Revuelta in mid- to late 2017, when parts discrepancies became apparent at the store. It also claims that executives from the dealership group including CEO 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.”

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

Napleton denies the allegations.

“Napleton Automotive Group is a family-owned business that takes great pride in its reputation for representing its brands and providing exemplary customer service,” said Russell McRory, a lawyer and partner in the Arent Fox law firm in New York who represents the dealership group. “The claims against Napleton have no merit and Napleton denies any wrongdoing.”

Napleton of Oakbrook Terrace, Ill., ranks No. 17 on Automotive News‘ list of the top 150 dealership groups based in the U.S., with retail sales of 36,053 new vehicles in 2019.

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