Lawsuit: Kunes Ill. managers encouraged fraud, retaliated against staff who wouldn't deceive lenders

Supervisors encouraged deceiving auto lenders about the financial strength of borrowers at three Kunes Auto Group Illinois stores, according to a lawsuit by two former employees.

The March 30 complaint by former Kunes Hyundai and Kunes Chrysler-Dodge-Jeep-Ram sales manager Scott Grodeck and former Kunes Auto Mall general manager Edward Boliaux alleges that they experienced retaliation when they refused to commit fraud at the Sycamore, Ill., Kunes stores.

The lawsuit claims Grodeck's stores repeatedly engaged in "power-booking," a practice where dealers report nonexistent features to trick lenders into approving a loan amount disproportional to a vehicle's true value.

Kunes Hyundai and Kunes Chrysler-Dodge-Jeep-Ram also inflated down payments, misleading lenders about customers' ability to repay the loans, according to the lawsuit.

The lawsuit alleges one scheme found the stores artificially hiking vehicle prices, cutting them with a false "rebate" and applying the "rebate" to the down payment. Kunes Hyundai and Kunes Chrysler-Dodge-Jeep-Ram also allegedly encouraged consumers to apply for loans through DigniFi, the short-term automotive lending platform for car service and repairs, purchases and accessories, and then use the borrowed money for a down payment. Boliaux claims he was repeatedly invited to use the DigniFi strategy at Kunes Auto Mall.

The lawsuit claims Kunes Auto Group President Gregg Kunes and CEO Scott Kunes were aware of the fraud it alleges was encouraged by Kunes Hyundai general manager Martin Epstein, Kunes Chrysler-Dodge-Jeep-Ram general manager Phillip Lafata and Sycamore regional manager John Shaw. All five are among the defendants in the case.

"The complaint filed by Grodeck and Boliaux, former employees of individual dealerships within the Kunes Auto Group, who were employed for only six months, is without merit," Burke, Warren, MacKay & Serritella partner Alexander D. Marks of Chicago, who represents Gregg and Scott Kunes and the businesses in the case, said in a statement. "Kunes intends to vigorously fight the false allegations and has already filed a motion to dismiss a portion of the case."

"Kunes is dedicated to its customers, employees, and community and looks forward to proving that the allegations made by these individuals are false."

Epstein, whom a receptionist said no longer works at Kunes Hyundai, told Automotive News on Tuesday that his attorney instructed him not to comment.

Lafata is no longer with Kunes Chrysler-Dodge-Jeep-Ram, according to an employee there, and an employee at Kunes Hyundai said Shaw was no longer regional manager. Attempts to reach Lafata and Shaw via Facebook and phone for comment were unsuccessful.

"Epstein assured Grodeck that the Kunes family and Shaw were fine with him doing whatever he needed to do to get deals done," the lawsuit states at one point while recounting an instance of a customer unable to get financing for a new SUV. "Grodeck said he was working on the deal and Epstein demanded to know why he hadn't 'bumped' the income, 'bumped' the accessories, 'helped' on the down-payment with Dignifi and 'in-house rebates.' " Grodeck refused to do any of that and saw the deal taken away from him, the lawsuit claims.

Lenders might not universally oppose down payments generated from borrowed money. Dan Bucherer, spokesperson for auto lender trade association American Financial Services Association, said whether credit could be used for a down payment would depend on many factors.

Ken Rojc, managing partner of the Automotive Finance Group at the Nisen & Elliott law firm in Chicago, said lenders typically object to such a practice. However, what was permissible would ultimately come down to the text of a dealership's agreement with a particular lender, he said.

Rojc said a lender's distaste for borrowed down payments might be related to underwriting; how creditworthy is someone who needs a loan for a down payment? Lenders also might wish to avoid introducing another party with a claim on the customer's finances, he said.

Both Grodeck and Boliaux allege they saw defendant October Gamble, special finance manager at Kunes CDJR, "'coaching' consumers not to mention to the lenders the down-payment loan [was from DigniFi] on the welcome call with the lenders ... and to represent that it was actually the customer's own money for the down-payments."

Gamble, who as of Monday remained a Kunes employee, did not return emails and phone messages seeking comment.

Bucherer said he couldn't speak to the topic of applying a rebate to a down payment. Rojc said it could be acceptable to a lender if the rebate was actually given as cash or a check to the customer. But lenders would generally object to crafting a down payment with a rebate taking the form of a credit against a vehicle's purchase price, he said.

Grodeck sued Kunes Hyundai, Kunes Chrysler-Dodge-Jeep-Ram, Epstein and Lafata, alleging retaliation for refusal to break the law, a violation of the Illinois Whistleblower Act. Boliaux sued Kunes Auto Mall and Shaw, accusing them of the same offense, and also sued Kunes Auto Mall , alleging retaliatory discharge under Illinois common law.

Both Grodeck and Boliaux each sued Gregg and Scott Kunes, the three dealerships, the group, Epstein, Shaw, Lafata and Gamble, alleging civil conspiracy to commit wire and bank fraud.

Lafata had been fired by Kunes Auto Group in spring 2022 "for deceptive and/or fraudulent practices," yet the group rehired him as Kunes Chrysler-Dodge-Jeep-Ram general manager in June 2022, the lawsuit said.

Boliaux once attended a compliance session during a general managers' retreat at a Wisconsin "Kunes family vacation villa" where the host "mentioned Lafata by name as the worst perpetrator of fraud he had seen," the lawsuit states. The speaker allegedly instructed Boliaux and the other general managers to start deleting email communications and destroy and shred documents that could be evidence of any "'alleged' fraud."

The general managers' retreat also featured a "'Best Idea' meeting" in which "the use of the [DigniFi] lending platform to secure down-payments for customers won the 'best idea' award, and the proponent of the idea won the cash prize," the lawsuit claims.

Boliaux later was told by a manager the practice was being rolled out across Kunes Auto Group, according to the lawsuit.

Following the retreat, Epstein allegedly invited Grodeck and other sales managers to use DigniFi loans for down payments and Grodeck refused, believing it to be illegal. After this, Epstein began harassing Grodeck and creating a hostile work environment, the lawsuit claims.

Grodeck obtained a transfer to Kunes Chrysler-Dodge-Jeep-Ram as a sales manager — only to see Lafata hired as its general manager, where he committed and encouraged fraud, the lawsuit alleges. Grodeck refused repeated inquiries from Lafata about "in-house rebates" and "bumping" customer information, according to the suit.

Illinois Community Credit Union allegedly caught Lafata power-booking and banned him in summer 2022 from submitting loan applications personally. Lafata allegedly then asked to use Grodeck's RouteOne login to send deals to the credit union, which Grodeck refused. Lafata retaliated by stripping him in July 2022 of "any duties related to sales or RouteOne" and rendering Grodeck a "glorified porter," according to the litigation.

Grodeck sought a promotion to an open Kunes regional used-car director post around this time, a job change supported by both Boliaux and Boliaux's manager but was denied by Epstein and Lafata "in retaliation for his refusal to engage in fraud during his employment under their direction at their respective Kunes dealerships," the lawsuit alleges. Grodeck quit the "objectively and subjectively intolerable retaliatory work environment" in August 2022.

Things came to a head for Boliaux shortly after in September, according to the litigation.

"Shaw told Boliaux that maybe if he used [DigniFi] loans for down-payments Boliaux's Kunes Auto Mall would sell more cars and that he was 'f—ing tired' of telling Boliaux to use [DigniFi] loans for down-payments and that there would be changes at the dealership if Boliaux did not get on board with [DigniFi]," the lawsuit said.

Shaw in October 2022 asked if Boliaux would switch to becoming a finance manager at Kunes Auto Mall, and Boliaux accepted.

Boliaux's replacement as general manager allegedly told him Oct. 12, 2022, to use DigniFi for a customer's down payment and "bump" the consumer's income on a loan application. Boliaux refused and called both moves illegal, the suit said.

Shaw met with Boliaux the next day and asked if he had done either of the actions. When Boliaux said no, Shaw fired him "in retaliation for Boliaux's protected activity herein on a false pretext," the lawsuit alleges.