Dealer Not Paying Off Trade-Ins, Suit Alleges : Civil complaint: A former Slemons car salesman claims notes on trade-ins were not being paid off or that checks bounced. The sixth-largest dealership in the country denies the allegation.
A former salesman for Jim Slemons Imports, one of the largest new-car dealers in the country, alleged in a suit filed Wednesday that the company has been selling customer trade-ins to other dealers without paying off the original lenders.
If true, that would violate the state vehicle code and could jeopardize the dealership’s license.
A spokesman for Jim Slemons Imports, which is ranked by Auto Age magazine as the nation’s sixth largest auto dealership and second-largest Mercedes-Benz dealer, with $109 million in gross sales for 1988, denied any wrongdoing.
The suit comes at a time when several Slemons customers, in recent interviews with The Times, have complained that cars they traded in earlier this year had not been paid off and that checks issued by the Slemons organization to the original lenders had bounced.
It also comes amid rumors that Slemons Enterprises, a holding company for seven dealerships and a leasing firm, is facing cash-flow problems stemming from failure of a small airline in which the company was a heavy investor.
In his wrongful termination suit filed in Superior Court here, Brooks J. Adams claims that he quit his job at Slemons Imports in April because he was required “to participate in and/or keep his silence as to their illegal activities.”
The suit names several defendants, including Jim Slemons Imports, Slemons Enterprises, dealership owner Jim Slemons and Malcolm McCassy, general manager of all of Slemons’ businesses.
Adams, who declined though his attorney to be interviewed, said in his complaint that he refused to go along with what he claims is the Slemons Imports practice of selling trade-ins without promptly paying them off.
“This resulted in numerous customers encountering multi-month late payment demands from their unpaid note holders as well as receiving credit blemishes,” the suit said.
Adams also alleges that Slemons Imports personnel have been instructed to sell hard-to-get Mercedes-Benz 500SL models to buyers who will pay premiums in excess of the $85,000 sticker price, allowing them to leapfrog over customers who have paid $1,000 deposits for places on a first-come, first-served waiting list. The suit alleges that such a practice violates state anti-fraud statutes.
In addition, Adams claims that payroll checks for some Slemons Imports employees have bounced in recent weeks, Adams’ attorney Joseph C. Rosenblit said. Adams’ final paycheck bounced several times and has not yet been made good, Rosenblit said .
McCassy said he had not seen Adams suit but was surprised by his allegations.
“Brooks was with the company for years and was always a good employee,” McCassy said. Adams quit, he said, to go to work for another dealership and did not raise objections about any of the company’s sales practices.
The civil complaint offers no reason for the alleged fraudulent activity. But Rosenblit said his client believes that the business empire of Slemons, a Newport Beach society figure, has run into financial difficulties because of its backing of a failed charter airline, Resort Commuter.
“My client has reason to believe that Slemons is having financial difficulties,” said Rosenblit, an attorney with the Santa Ana firm of Marc Vincent.
Slemons Enterprises is owed $14 million by Santa Ana-based Resort Commuter, a failed air carrier in which Slemons was a shareholder. The carrier, which flew vacationers to sports fishing resorts in Baja California, filed for Chapter 11 bankruptcy reorganization late last year and last month converted the proceeding to a Chapter 7 liquidation.
Slemons could not be reached for comment Wednesday. But McCassy confirmed that the enterprises have been caught in a cash crunch.
“Ever since the airline folded,” he said, “there have been rumors flying about us going bankrupt.”
Despite McCassy’s contention that none of the Slemons companies have been writing checks on accounts that have insufficient funds, several former customers, in separate interviews with The Times, insist that is exactly what has happened to them.
John Buck, a project manager at RD Olson Construction in Anaheim, said he traded in a Nissan 300ZX on Feb. 2 and leased a Honda Accord from Slemons Leasing in Mission Viejo.
“They claimed they would pay off the old car,” he said, “but they didn’t. It came back to me six weeks later when my credit union contacted me and said my payment was late.”
Buck said that he then called Slemons Leasing and that the company sent a payoff check for a little more than $8,000 to the credit union. He said his credit union called him a few days later to say payment on the check had been stopped.
As of Friday, Buck said, his credit union still had not been paid for a car he traded in more than three months earlier.
A second Slemons Leasing customer, Victoria Wendell, said she and her husband both traded in cars to Slemons Leasing in early March and have had similar problems.
In an interview last week, Wendell said that the bank that holds a $12,000 note on the Pontiac Firebird her husband traded in had not been paid off by Slemons Leasing as of May 8 and that at least one check written by Slemons Leasing had bounced.
Wendell said she also had been informed on May 8 by General Motors Acceptance Corp., which financed the car she traded in, that a $107 check Slemons Leasing wrote to cover a late payment charge had bounced and had not yet been made good.
McCassy said he is not aware of either customers’ complaints. He said part of the problems may stem from a mix-up last month with Citicorp Bank, which resulted in the bank’s freezing a Slemons account for 10 days. That action, McCassy said, resulted in about 200 checks being returned.
But McCassy denied that any of the Slemons companies’ checks have “bounced” for lack of funds.
While the Resort Commuter bankruptcy and the Citicorp mix-up have caused cash-flow problems, McCassy said, the Slemons organization is on sound financial footing. McCassy said the companies currently do about $16 million in sales each month--nearly $200 million a year.
Despite that cash flow, a review of real estate transactions filed in the county recorder’s office shows that Slemons Enterprises borrowed $10.7 million from Tokai Credit Corp. last month. Slemons pledged his newly built, $2-million-plus home in Newport Beach’s exclusive Harbor Ridge as partial security for the loan.
Shortly after the loan was made, records show, Slemons Enterprises paid off a $160,000 debt to clear a lien for nonpayment filed in March by the construction company that built a parking structure near the Mercedes-Benz dealership.