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Dealership whacked $213K in sanctions

The owner of an Audi dealership in Arlington has been ordered to pay sanctions of $213,196.95 amid accusations of bad faith in its litigation against a former employee.

Fairfax County Circuit Judge Dontaè L. Bugg denied a motion to reconsider his ruling in a Dec. 20 order laying out the bases for his sanctions award. He said the penalty was for repeated misrepresentations of a key damages claim, designation of an expert without the expert’s knowledge and unexplained cancellations of depositions.

Bugg rejected the argument that – since defense costs were funded by a non-party – the opposing party had no costs to be reimbursed. But the judge rejected a call for sanctions based on the underlying lawsuit, which he said appeared to be well-founded factually.

Bugg’s six-page order is AV Automotive LLC v. Preske (VLW 021-8-001).

Fake customer surveys

The dispute involves allegations of dirty tricks in the retail auto business. AV claimed that a former sales person worked with others to manipulate customer surveys so the sales person could claim bonus money. The dealer also claimed that defendant created a false employee survey to get a manager fired.

The suit sought more than $5 million in damages, some of it attributed to a purported $700,000 penalty imposed by carmaker Audi USA. The defendant contended that penalty was never imposed by Audi and should not have been claimed as damages by AV.

The defendant also contended AV went to “great lengths” to avoid depositions of corporate officials. She said AV produced its comptroller as an expert witness, but the comptroller acknowledged he was unaware he had been designated as an expert. Several depositions were cancelled based on flimsy excuses, the defendant alleged.

Bugg imposed the sanctions award on May 14, but AV asked for reconsideration. Bugg held a WebEx hearing on Nov. 19. He followed with the Dec. 30 order denying AV’s bid for reconsideration.

Source of payment irrelevant

“It should be clarified that the Court granted the sanctions award based on the Plaintiff’s: (1) repeated misrepresentations of actual penalties from AUDI USA in the amount of approximately $700,000; (2) the designation of [the comptroller] as an expert without his knowledge; and (3) actions related to court ordered deposition dates,” Bugg wrote.

Bugg said he considered the total amount of attorneys’ fees incurred by the former sales person and “fashioned the award in an amount to sufficiently deter the sanctionable conduct at issue.”

AV argued the defendant did not suffer the cost of any legal fees because a non-party admitted to funding the defendant’s litigation costs. Bugg said cases cited by AV all involved pro se parties, in which no attorneys were actually involved.

“Here, we have a different case,” the judge said. “Defendant has retained counsel and has actually incurred attorney’s fees because of that representation.”

Colorable claims

Bugg declined to find that AV’s claims of fraud, breach of fiduciary duty, business conspiracy and conspiracy were frivolous or sanctionable. AV had presented evidence showing AV had a “reasonable belief that the Defendant submitted fraudulent surveys in violation of her agreements with Plaintiff.”

But the judge found that AV had wrongly claimed the $700,000 manufacturer’s penalty when Audi USA “never imposed a fine nor suggested that a fine would be imposed.”

AV argued it would be impossible to separate the time the defendant spent defending against the frivolous Audi penalty claim, but Bugg said it made no difference.

“While there is merit in Plaintiff’s claims of fraud and breach of fiduciary duty, the request for damages of these claims also include the Audi Penalty. To hold that sanctions cannot be awarded simply because the plaintiff is clever enough to mix its frivolous claims with its colorable claims, would practically eliminate this Court’s statutory power to grant sanctions in the form of attorney’s fees,” Bugg wrote.

The claim of $213,196.95 in legal fees was “proportional,” the judge said.

The defendant is represented by J.P. Sherry of Vienna. AV is represented by David D. Hudgins and Debra S. Stafford of Alexandria.

“For the reasons laid out in our submissions to Judge Bugg, as well as during oral argument, we disagree with his ruling. We are in the process of exploring all available options with our client,” Hudgins said.