Failed auto dealer sued over service contracts

The state of Idaho is suing the former Post Falls Mazda dealership, saying it sold third-party service contracts and pocketed the money, leaving at least 19 consumers without coverage.

In its lawsuit filed Aug. 8 in 1st District Court in Kootenai County, the Idaho Attorney General Consumer Protection Division said it believes that Shiloh Corp., doing business as Post Falls Mazda, and Mark Gibson, its president, “retained more than $50,000 of consumers’ money for goods or services that were never provided.”

However, Stephen McCrea, Gibson’s attorney, said the attorney general is making a “mountain out of a molehill.” Post Falls Mazda is a business that failed, he said. As with any business failure, many debts were not paid.

Gibson “didn’t take this money and stick it in his pocket and go, ‘Ha-ha, I’ve got your money,’ ” McCrea said, adding that his client “lost a whole bunch of money in this business.

McCrea said his client filed for Chapter 13 bankruptcy protection Wednesday in U.S. Bankruptcy Court.

Post Falls Mazda, visible for years on the north side of Interstate 90, has been cooperative in the investigation, said Bob Cooper, a spokesman for Attorney General Lawrence Wasden. Cooper said 19 people have filed written complaints, but the attorney general has reason to believe more consumers have been affected. He did not elaborate.

The lawsuit said that from Jan. 1, 2006, to Dec. 31, 2007 – the approximate date on which the dealership ceased operations – Post Falls Mazda sold dozens of third-party contracts for service or debt cancellation. The latter contracts are a form of insurance that help pay off car loans.

Auto dealerships market third-party contracts to consumers who pay for them as part of their vehicle purchase, the lawsuit said. The dealer keeps some of the money as profit and forwards the rest to the third party, along with contracts and other documentation. If full payment is not made or proper documentation is not provided, the “third-party company is under no obligation to provide the consumer with the coverage,” the lawsuit said.

Post Falls Mazda told consumers their money had been forwarded to the appropriate parties when it had not, the lawsuit said.

“Defendant Gibson personally directed, authorized, and had knowledge of Defendants’ misrepresentations to consumers,” the lawsuit says. “Defendants’ action caused these consumers thousand of dollars in monetary losses and prevented consumers from obtaining the purchased coverage for their motor vehicles.”

McCrea, however, said some of those third-party contracts are being honored, despite the Mazda dealership’s failure. In addition, he said, the fact that the third parties weren’t immediately paid doesn’t mean his client didn’t intend to pay them.

“It’s not like somebody gives you a payment and you turn around and you remit it (immediately),” McCrea said. “The money gets set aside, gets ready to be sent, and then the business fails.”

The attorney general is seeking restitution, civil penalties of as much as $5,000 per violation, attorneys’ fees and investigative costs, the lawsuit said.

Meanwhile, the city of Post Falls purchased for $2.9 million the six-acre parcel the dealership had previously leased, said Mayor Clay Larkin. The city plans to house its public works department on the property, Larkin said.