A former Brooklyn, N.Y., Fiat Chrysler Automobiles dealership that sued its floorplan lender to recoup alleged multimillion-dollar embezzlement losses may have to look elsewhere for payment.
Brooklyn Auto Group and its former owner, Robert Lee Jr., claimed a lender employee performed fraudulent audits to help the dealership's longtime office manager-controller cover up her embezzlement. But a New York appeals panel ruled that the dealership and Lee can't pursue fraud and other claims against lender Sovereign Bank N.A. and its parent company, Santander Holdings USA Inc., to cover the alleged embezzlement losses.
According to the plaintiffs' suit, the office manager "misappropriated for her own use" cash from deposits and payments for leases and sales for well over a decade after her 1998 hiring. During that time, the suit said, the office manager and the bank's male auditor were "very friendly" and had an "inappropriate" personal or financial relationship.
Dealership lawyer Seth Dobbs, of Pine Brook, N.J., said his clients lost more than $2 million, plus the owner was forced to use his personal property as collateral to retain floorplan financing. The dealership had no alternative but to close, Dobbs said.
No criminal charges were filed, according to bank lawyer James Kassis of Florham Park, N.J.
The Appellate Division of the New York State Supreme Court threw out the case against the bank, its auditor and a bank vice president.
The unanimous decision of the four-member panel said fraud requires proof of a "material misrepresentation" of fact, knowledge that it's false and an intent that the victim reasonably relied on that misrepresentation. Here, though, "the complaint fails to set forth any dates or details of the bank defendants' alleged misstatements or misrepresentations," a failure that torpedoes the fraud allegation.
Other claims against the lender also fell short for lack of evidence in the court's view, including breach of good faith and fair dealing, unjust enrichment and negligent misrepresentation.
The bank denied any wrongdoing and said the dealer and dealership were seeking "deeper pockets" than the former office manager's.
In court papers, the bank argued that "the plaintiffs were willfully blind to a prolonged embezzlement scheme allegedly carried out" during the owner's frequent out-of-state trips. "Plaintiffs have continued to avoid responsibility for their own neglect and have instead lashed out at their bank, their financiers and their accountants," the bank added.
Dobbs said claims against the store's former office manager and former accountant are still pending. He also said his clients are considering further legal steps against the lender.
This is the plaintiffs' second suit against the defendants to be dismissed. They filed a civil claim in federal court under the Racketeer Influenced and Corrupt Organizations Act in 2012. That case was tossed prior to the filing of the current case in 2014.
Since the time of the alleged wrongdoing, Sovereign Bank N.A. underwent a name change; it's now Santander Bank N.A.