- Walter Novak
- The Motorcars suit asserts Case (inset) didn't build his empire on sweat equity alone.
In the 1980s and early '90s, every day felt like Halloween to Honda executives. Only instead of neighbors, they visited hundreds of Honda dealers. Instead of candy, they collected kickbacks. There were cash-stuffed suitcases, Rolls-Royces, Rolex watches, yachts -- at least $15 million in graft changed hands. "The dealers treated us like kings," one senior manager would later say.
In return, the executives delivered on lucrative promises. Bribe-paying dealers received bigger shipments of Preludes and Accords -- models that were selling faster than skinny ties -- and got first crack at new franchises. A well-stocked dealership was a virtual money press, netting $2 million to $3 million a year. Meanwhile, dealers richer in morals found themselves poorer in inventory and revenue. Some would go belly up.
The "clean" dealers, as they came to be known, struck back in court. So did the feds. Two dozen Honda officials, most of them sales managers, and a handful of "dirty" dealers were convicted of racketeering and fraud in the mid-'90s. Japan's second-largest automaker also shelled out $400 million to 1,800 dealers in a class-action settlement finalized earlier this year.
The agreement was widely expected to douse the decades-long scandal. But two Cleveland-area dealerships had other ideas -- in July, they sued Honda in Cuyahoga County Common Pleas Court. No one could have been more surprised than Rick Case.
The suit names Case, owner of three Honda and Acura dealerships in Northeast Ohio and South Florida, as a co-defendant, along with Honda Motor Company of Tokyo and its two largest U.S. subsidiaries. Motorcars Honda of Cleveland Heights and Motorcars Acura of Bedford, both owned by Lee Seidman, charge that the parent companies and Case took part in the kickback scheme.
Motorcars officials, who opted out of the class-action suit, claim they lost millions in potential sales by refusing to scratch the back of crooked executives. They've dragged Case into the suit because he was alleged to have provided graft -- and, just as critically, because he owns stores in Ohio.
The allegations against Case, an Akron native who now lives in Fort Lauderdale, rely on FBI interviews and testimony from the trials of Honda officials in the mid-'90s. Court files identify him as one of several dealers who bribed David Pedersen, a district sales manager in Georgia. Case purportedly gave him gifts ranging from a Civic and paid vacations to a grandfather clock and a case of gin, the suit says. In 1995, Pedersen received a two-year sentence and fines of almost $100,000 for accepting kickbacks.
With six franchises in Greater Cleveland and a half-dozen in Florida and Georgia, Case ranks among the country's biggest car dealers, and his Fort Lauderdale Acura dealership is the world's largest by sales volume. But the Motorcars suit asserts that he didn't build his empire on sweat equity alone, contending he bribed Honda to "wrongfully divert" more cars to his dealerships.
Compared to other dealers, Case doesn't come off as a main offender. According to court records, Rick Hendrick, the country's largest car dealer and a NASCAR team owner, bought one top Honda official a $525,000 house, furnished it, and threw in another $150,000 in cash. Angelo Falconi, who ran franchises in Nevada and California, put $1 million in the pockets of executives over a 10-year span. Tulsa dealer Don Carlton showered managers with $450,000 worth of gifts.
But neither they nor other dirty dealers operated in Ohio. That makes them useless to Motorcars. Enter Case.
Ohio law specifies that a civil suit can remain in state court only if at least one plaintiff and one defendant live or do business here. Without Motorcars naming Case as a co-defendant, Honda could seek to move the suit to federal court -- a switch that could torpedo the case, legal experts say.
If transferred, the suit likely would land on the federal docket of Frederick Motz, the same Baltimore judge who heard the class-action case. Two years ago, he told lawyers involved in that dispute, which began in 1998 and finally wrapped up last January, that it was "time for litigation to end. It's in the public interest." His reaction to another Honda suit "might be a little harsh toward whoever brought it," says a source familiar with the Motorcars case.
Staying in state court -- where a unanimous jury vote isn't needed for judgment -- could offer Motorcars another crucial benefit, one with many zeros. "Juries in Cuyahoga County tend to give larger awards than [juries] in federal court," says Cleveland State law professor Kathleen Engel. "They tend to be more sympathetic to plaintiffs."
Motorcars attorneys and Seidman declined to comment on the suit, as did Case and his lawyer. Honda officials and lawyers were equally tight-lipped.
Motorcars officials believe that Case's alleged favors, small as they appear, won him huge profits. Court documents indicate that similar bribes boosted the fortunes of Tom Roulette, a onetime Painesville dealer who eventually went public about his role in the scam.
Roulette sued Honda in 1988 over a breached contract, and his suit helped break open the kickback scandal. Roulette, who died in 1999, plied Honda executives with jewelry, stereos, and barbecue grills. Modest graft, perhaps, but enough to keep his lots full. In a 1993 New York Times interview, he described the gifts as the cost of survival. "These guys were so cocky, they'd come in, put their feet on my desk, and tell me what I had to give them . . . You couldn't get cars unless you paid."
Case acquired his first Ohio dealership in 1962 and soon earned a reputation for price-cutting -- an image that sucked in customers and hacked off fellow dealers. A decade later, he bought a failing Honda dealership in Cleveland and unloaded 103 cars his first month, then a U.S. sales record. He and his wife moved to Fort Lauderdale in 1985, when the carmaker awarded him the country's first Acura dealership. He opened a second Honda franchise there earlier this year, and his 12 dealerships -- which also hawk Daewoo, Hyundai, Mazda, and Mitsubishi vehicles -- rake in an estimated $300 million in annual sales.
"He's a hard-nosed businessman," says Mike Bowers, managing editor of the trade publication DealersEdge. "He's well respected and one of the savviest car dealers around."
Adds Richard Baker, executive director of the South Florida Auto-Truck Dealers Association: "He's upbeat, aggressive, and very good at what he does."
Honda dealers in this region and South Florida were less forthcoming, declining to comment about Case. Other insiders, who asked to remain anonymous, credit hard work for his rise from scrapper to kingpin -- but add that he also knows the game's unwritten rules.
"The bribes he gave seem almost comical -- a case of gin?" says an industry analyst. "But on the other hand, it seems pretty typical of what dealers were doing back then. They gave whatever they had to to get ahead."
Motorcars officials allege that Case siphoned away cars and customers by becoming "one of the guys," as Roulette called it. Yet according to an industry consultant, Case and Motorcars owner Seidman are friends. "Or were friends. I don't know if they still are after this."
The Honda fiasco, if it barely dented the company's gleaming image and go-go sales, nonetheless left automakers skittish. Baker says executives now worry so much about the faintest whiff of graft, they'll turn down a dealer's offer to pay for a round of golf.
Lindsay Chappell, who covered the scandal for Automotive News, says the fallout scared companies straight. "The kind of blatant exchange of gratuities that Honda was engaging in is rarer than you'd want to believe," he says. Which is why the Motorcars suit has caught the industry off-guard. "I think everyone thought the whole thing was dead and over with."
Everyone, presumably, including Case.