Hyundai Lawsuit: Automaker Sanctioned for Spoliation of Engines

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The recent Hyundai lawsuit has landed the South Korean automaker in hot water.

The past year has certainly been tough on Hyundai. In the spring of 2021, over 390,00 Hyundai and Kia vehicles with Theta II engines were recalled due to defects. Unfortunately, the current problems facing Hyundai could be even more detrimental to the brand.

In July of 2021, Hyundai was hit with spoliation sanctions by a Florida magistrate judge. These sanctions were due to the brand’s failure to preserve hundreds of engines, which would have been critical evidence in the automaker’s fraud suit against several dealerships.

How these events transpired has raised many eyebrows across the automobile industry – and consumers should take note.

What Happened?

Back in November of 2020, Hyundai filed a lawsuit against a couple of dealerships, including North American Automotive Services Inc. and EFN West Palm Motor Sales LLC. The suit claims that the dealerships were running a fraud scheme in the wake of the April 2020 whistleblower complaint.

Hyundai accused the dealerships of buying Hyundai Sonata and Santa Fe vehicles with the Theta II engine knowing they were subject to a recall. The manufacturer claimed the dealerships purchased the vehicles to intentionally “blow” the engines and cash in on warranty money when the engines were sent back for repairs.

Collectively, the dealerships sent 917 engines back to Hyundai due to the recall. The manufacturer received 281 more engines after claims were made of the dealerships’ alleged fraud – per court documents.

The defendants (dealerships) went on to argue that Hyundai only tested eight out of more than 900 engines they had sent. Hyundai’s expert – James W. Smith – found that only two engines “may have been” damaged intentionally. This is taking into consideration that the owners of those engines provided sworn testimony against the manufacturer’s allegations.

Unfortunately, Hyundai did not preserve the remaining engines, and they can no longer be used as evidence in the lawsuit as found in a 31-page order by U.S. Magistrate Judge William Matthewman. This could be the key to the defense constituting bad faith from Hyundai causing “substantial prejudice” to the dealerships.

The defendants argued that the remaining engines would have been critical evidence to prove the dealerships did not intentionally compromise them. Additionally, they claimed Hyundai had a duty to preserve the engines – and believed they didn’t in bad faith.

As a result, the defendants requested that Hyundai be sanctioned by issuing an adverse inference jury instruction claiming the remaining engines would not have displayed any intentional damage. This is in addition to a jury instruction claiming the automaker has no physical evidence of intentional tampering that led the engines to blow.

Judge Matthewman noted that the eight engines Hyundai was able to preserve/test did not adequately support the original fraud allegations. In turn, this may have provided a motive for Hyundai to not follow its own preservation policy “carefully and prudently”.

Matthewman also stated the jury is to be instructed to presume the lost engines were “relevant and favorable to defendants and unfavorable to the plaintiff”. Hyundai can attempt to rebut this presumption.

“Through this carefully tailored sanction, the playing field is leveled and the prejudice to defendants caused by the missing engines is sufficiently alleviated, while plaintiff’s ability to benefit from the evidentiary problem created by its actions is lessened,” said the order.

So, what does this all mean?

The judge called Hyundai’s spoliation of the engines “frankly shocking”.

Could Hyundai’s failure to preserve the engines have been intentional if it appeared they would not provide substantial evidence to support their allegations?

Possibly.

Hyundai has its own set of policies and protocols to preserve engines. Was this just a spell of bad luck? Seems unlikely, but it’s hard to say.

As the 31-page order states:

“The inexplicable failure by a large sophisticated corporation like plaintiff to ensure compliance with [in-house counsel’s] preservation email was not merely negligent. It is far worse. As the party with sole control over the engines, plaintiff is the culpable party in this scenario and by ‘shirking its legal duty to preserve the engines, plaintiff has caused substantial prejudice to defendants.”

As of August 2021, one of the dealerships escaped the Hyundai lawsuit.

We may never know the true story of what happened behind closed doors at Hyundai. But there are a few implications that can be made regarding the brand’s relationships with dealers and consumers.

Let’s discuss.

Hyundai’s Relationship with Dealerships

Hyundai vehicles are sold through more than 5,000 dealerships in 193 countries. Relationships with dealers are crucial to a manufacturer’s revenue.

Hyundai may have realized they made a mistake in claiming the two dealerships were attempting fraud. In turn, they decided that “mishandling” the evidence (for lack of a better term) would be the smarter move in the long run.

If it became common knowledge that the automaker had falsely accused dealerships of fraud, this could sour relationships with other dealers down the road.

To reiterate, auto manufacturers have strict policies in place to preserve engines in these situations. Looking at the brand image objectively, a lapse in protocol behind the scenes looks better publicly than falsely accusing a partner of committing fraud. And perhaps this debacle was a last-minute attempt to save face. Time will tell.

Hyundai’s Relationship with Consumers

A common thread throughout all the events of this Hyundai lawsuit is that the automaker failed to take responsibility for shoddy manufacturing. As a lemon law lawyer, this is the reality of nearly every case we handle.

When a consumer seeks justice for purchasing a defective vehicle, the manufacturer rarely has any intention of admitting fault. This Hyundai lawsuit is clear proof that this tactic is not just limited to consumer matters.

Attempting to shift blame on consumers and/or partners may tarnish the brand’s reputation. Regardless of how this case shakes out, it is possible that some consumers may shy away from Hyundai vehicles to avoid any potential headaches with the brand.

The Wrap

The Hyundai lawsuit is one we will be keeping an eye on at Cline APC.

Global brands like Hyundai have a duty to protect their brand image and their pocketbook. The events we’ve seen unfold so far are clear indications of this. More importantly, it sheds a bit of light on the lengths these companies are willing to go to avoid responsibility.

As a consumer, it’s important to realize that manufacturers make mistakes in their building process. They have no intention of compensating you if you fall victim to these mistakes and end up with a lemon. They have skilled legal teams with all sorts of tricks to get out of refunding your hard-earned money. In other words, you need help from a skilled lemon law attorney.

If you believe you have a lemon, get in touch with us ASAP. Our team specializes in helping consumers earn justice from manufacturers for selling defective vehicles.

Give us a call at 888-982-6915, send an email to info@clineapc.com, or fill out a free case evaluation.

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