Buying Recalled Cars Was the Business Model

A Pittsburgh used-car dealer just landed a huge win against Hyundai Motor America. After years of fighting over recalled vehicles, a Pennsylvania judge has ordered Hyundai to pay almost $10 million.

Knight Motors and its sister company, Doman Auto & Marine Sales, both run by the same owner in Pittsburgh, spent most of 2018 and early 2019 snapping up used Hyundai Sonata sedans at auction. In total, they bought 628 cars from the 2011 to 2014 model years, Automotive News reports.

These weren’t just random Hyundai Sonatas – every car they bought was linked to Hyundai’s massive Theta II engine recall, which covered over 1.6 million Hyundai and Kia vehicles from several years.

Rather than fixing the cars themselves, the dealerships followed the recall program to the letter. They brought the Sonatas to Hyundai dealers for engine replacements or buybacks, just like any regular owner would if their engine failed – except that this would be done in bulk.

Hyundai Decided Something Was Off

At first, everything went smoothly. Hyundai bought back the cars and paid out claims, eventually spending over $5 million on Sonatas from Knight Motors alone. But as the claims piled up, Hyundai started to get suspicious.

Inside Hyundai, emails started calling out a group of dealers as the 'Frequent Buyback Club.' Knight Motors was one of about two dozen stores flagged for making repeat claims.

In May 2019, Hyundai made a move that would backfire. The company denied every open claim from Knight Motors in one shot. Not long after, Hyundai sued the dealerships for fraud, claiming they had tampered with the cars to trigger engine replacements or buybacks.

The Inspections Told a Different Story

But Hyundai’s fraud claims hit a wall almost immediately. Over the next year, Hyundai dealers inspected hundreds of Knight Motors’ cars, taking photos and checking for any signs of tampering. According to court records, 16 different dealers looked them over. None found any evidence of foul play.

Hyundai even brought in an outside appraisal firm for another round of inspections. The result was the same: no proof that the dealerships had messed with the cars to get recall repairs or buybacks.

Judge Philip Ignelzi later noted that other used-car dealers were doing essentially the same thing: buying recalled Sonatas at auction and bringing them in through official recall channels. The judge described the practice as neither illegal nor fraudulent, calling it simply “American capitalism.”

The Case Fell Apart Over Evidence

The real trouble for Hyundai came with how it handled the evidence. Judge Ignelzi ruled that Hyundai crushed hundreds of the recalled cars at the heart of the case. Those vehicles could have shown whether tampering occurred. On top of that, emails from a Hyundai case manager involved in the dispute were deleted.

The judge called it “rampant spoliation” – the legal speak for destroying evidence. In his opinion, Ignelzi said this was one of the worst cases of discovery abuse he’d seen in 16 years on the bench.

As a penalty, the judge ordered Hyundai to pay Knight Motors $9,784,075. That number covers almost seven years of storage fees for 163 recalled cars still sitting at the dealership – $25 per day for each vehicle.

Hyundai says it disagrees with the ruling and has already appealed. For now, the court has put the payment on hold while the appeal plays out. This legal battle might not be over anytime soon.

View the 5 images of this gallery on the original article