KANSAS CITY – A lawsuit involving a scheme to purchase wholesale used cars at auction and not pay for them was brought before Judge Nanette K. Laughrey of U.S. District Court for the Western District of Missouri.
On April 13, KCI Auto Auction, a wholesale motor vehicle auction dealer located in Kansas City was granted a summary judgment against Alonzo Anderson, owner of Lucky 7 Used Cars LLC and Lucky 7 Discount Auto Sales LLC.
In December, KCI informed the court that it had reached a settlement with other defendant, including Tom Ephrem, David Ephrem, Danny Ephrem, Barry Ristick and Angelo Jefferson, who worked for Anderson. In January, pursuant to the settlement agreement, the court entered a consent judgment against the settling defendants. This left the burden of payment on Anderson, who represented himself in court.
Judge Nanette K. Laughrey
As stated in the court’s discussion of the case, reasons for the lawsuit developed over a three-year period when In January of 2014, defendants Barry Ristick, Angelo Jefferson, and Tom Ephrem visited KCI on behalf of Lucky 7 Used Car LLC seeking to gain access to KCI’s weekly auctions.
To participate in these auctions, KCI would require proof that they were licensed vehicle salespersons and/or a licensed vehicle dealer, and that their used vehicle dealership was registered with Auction Access, a dealer credentialing system for the wholesale auto auction industry. They also were required to obtain a dealer card and salesperson badges, and agree to all of KCI’s auction policies and terms of sale.
In addition, these defendants provided KCI with an “auction guarantee,” signed and executed by Anderson, representing that he was the owner of Lucky 7 Used Cars, and that he would personally guarantee full payment of any debts. Upon receiving the defendants’ registration application, KCI permitted them to participate in the auctions.
KCI allowed defendants to purchase vehicles without full payment at the time of sale, but required that they pay the amount due within 60 days. Defendants were also permitted to take immediate possession of the vehicles, although KCI retained the original titles. Defendants agreed not to sell or transfer the vehicles until full payment was made and the titles were transferred.
Over the next three years, thedDefendants purchased 293 used vehicles on the Lucky 7 Account, for which the sales price and buyers fees totaled $1,156,205.62. Although there was an individual sales contract for each purchase, defendants often reportedly made generic payments on the Lucky 7 Account and did not reference any specific transaction.
Beginning in 2015, the Lucky 7 account became delinquent. However, over the course of 2015 and 2016, Barry Ristick and Tom Ephrem regularly called and personally visited KCI, and always made promises, assurances, and representations that they would get the account paid in full soon.
In reliance on these representations, KCI continued to allow the defendants to participate at the auctions. In early 2017, KCI finally prohibited the defendants from attending any more auctions, and demanded payment of the outstanding balance on the Lucky 7 Account, which in July 2017 was nearly $249,000.
Judge Laughrey said, “KCI has established the requisite causation between Anderson’s actions and the harm to KCI. Anderson’s siphoning of funds from the sale of KCI’s vehicles, and stripping the Lucky 7 LLCs of their assets rendered them insolvent, and caused them to become unable to repay their debts to KCI.”
As a result, Laughrey said, “All three elements of the test for piercing the corporate veil are satisfied. Anderson completely dominated and controlled the Lucky 7 LLCs, used his control for an improper purpose, and in doing so caused KCI’s injuries.”
"Piercing the corporate veil" refers to a situation in which courts put aside limited liability and hold a corporation's shareholders or directors personally liable for the corporation's actions or debts.