CHICAGO – A Northwest Indiana car dealer will not be allowed, for now, to proceed with a lawsuit alleging a group, including former employees, an accountant and the former owners of a business purchased by the dealer, conspired to drive down the value of his business so they could purchase it.
On Sept. 14, U.S. District Judge John Z. Lee of the U.S. District Court for the Northern District of Illinois in Chicago issued a 25-page ruling on Sept. 14 dismissing the lawsuit filed by Robert Bobb and Bobb Auto Group against 15 former employees and an accounting firm, among others.
In his ruling, Lee dismissed allegations of violations of the Racketeer Influence and Corrupt Organizations Act (RICO), saying Bobb has not yet "plausibly pleaded that defendants shared a common purpose, as necessary for a RICO enterprise, they have failed to state a RICO claim." The lawsuit was dismissed without prejudice, for now. But should Bobb not file an amended complaint by Oct. 12, the judge said the bulk of the lawsuit would be dismissed with prejudice.
Bobb sued the group in 2017, alleging they teamed to run an illegal scheme to sell one of Bobb's dealerships and to steal from the company until business value is lost.
According to court documents, around Nov. 1, 2012, a defendant, identified as Bobb's former general manager Art Georgion "introduced Bobb to defendants Terry and John Schutz," who owned Center Garage, a dealership in Cedar Lake, Ind. Bobb allegedly purchased Center Garage at Georgion's urging.
The sales deal, per the ruling, stated that "Bobb paid the Schutzes $300,000 for covenants not to compete, and $200,000 for agreements providing that the Schutzes would remain as consultants for Bobb Auto," and "as a consultant, John Schutz advised Bobb to hire defendant William Logothetis, a certified public accountant, as Bobb Auto’s chief financial officer."
Georgion was named general manager, and then "hired defendant Shanda Taylor as office manager and bookkeeper," the ruling said.
According to court documents, Center Garage "was in debt" at the time of the purchase, "a fact that the Schutzes hid from" Bobb. One month after the sale, the dealership "declared bankruptcy, resulting in its creditors and investors losing $3.5 million."
Bobb alleged "the Schutzes, Logothetis, Georgion and Taylor were all part of the 'Enterprise,' an entity that sought to steal money from and take control of Bobb Auto, ultimately buying back the dealership once Bobb Auto’s business was ruined."
Defendants also included accounting firm Swartz-Reston P.C. and New Horizons Warranty Corporation.
Lee's decision laid out "four types of schemes" Bobb alleges the defendants ran, including "the 'New Horizons Scheme,' the 'Floorplan Scheme,' the 'Conversion Scheme,' and the 'Accounting Scheme.'”
In the first, described in Lee's decision, the dealership allegedly "would then sell its customers warranties provided by that company, pay approximately 20 percent of the warranty premiums to a secondary insurer, and keep the remainder."
In the second scheme, Logothetis and Georgion allegedly orchestrated "overpayments to customers for used car trade-ins," generating losses of approximately $259,467, and helping the two defendants "more easily sell cars and created the impression of profitability."
The third scheme, known as Conversion, allegedly consisted of writing fraudulent checks, in which "multiple people received unauthorized payments or benefits from Bobb Auto." Georgion issued many of those checks allegedly for his own benefit.
Known as the Accounting Scheme, the last of the four schemes allegedly consisted of preparing taxes with many inconsistencies, including "fake financial statements" to cover problematic transactions, the ruling states.
In response to the racketeering and conspiracy allegations, the defendants asked the court to dismiss the lawsuit, asserting Bobb's allegations weren't sufficient to allow the case to move forward.
Judge Lee agreed, saying Bobb's complaint has yet to demonstrate how the defendants' activities harmed Bobb and his business.
Bobb is represented in the case by attorneys with the firm of Cisar & Mrofka Ltd., of Oak Brook.
Defendants are represented by attorneys with the firms of Donohue, Brown, Mathewson & Smyth; Falkenberg Ives LLP; Hinshaw & Culbertson LLP; Pavich Law Group; and Weissberg & Associates, Ltd., all of Chicago, and attorney Rick Gikas, of Merrillville, Ind.
U.S. District Court for the Northern District of Illinois case number 1:17-cv-07694