Oklahoma Jury awards former auto dealership owner $65.4M for fraud New dealers began operating vehicle kiting scheme to get money from banks

By Correy Stephenson

The Daily Record Newswire

BOSTON, MA -- The former owner of an auto dealership has been awarded more than $65 million by an Oklahoma jury for fraud committed by the purchasers of the dealership as well as the bank that loaned the buyers money for the purchase.

Steve Rouse owned an auto dealership in Hugo, a small Oklahoma town. He sold his interest to two individuals, Mike Calhoun and Tommy Davis, explained his attorney, Donald E. Stall of the Stall Law Firm in Tulsa, Okla.

Calhoun and Davis then perpetrated a fraud involving stolen vehicle titles in order to increase their funding, according to the suit, and their lender, Texas Capital Bank, turned a blind eye toward their behavior despite a multitude of evidence.

Jurors deliberated roughly three hours before awarding Rouse $65.4 million in damages, $43.6 million of which is punitives.

David Pomeroy, a partner at Andrews Davis in Oklahoma City, who represented Texas Capital Bank, did not return a call requesting comment. A spokesperson for the bank also declined to comment.

The individual defendants, Calhoun and Davis, did not appear at trial in person or by counsel, Stall said.

Rouse sold his interest in the dealership in April 2007 and went to work with his brother at another dealership, Stall said. A few months later, Calhoun and Davis were approached by Texas Capital Bank to move their financing plan to the bank.

Because dealers can't go out and pay full price for the hundreds of cars that appear on their lots, they reach an agreement with a bank commonly known in the industry as "floor plan financing," Stall explained. The dealership uses that financing to purchase the cars it needs, but must reimburse the bank when the cars are sold.

Rouse hadn't been fully paid for his interest in the dealership, so when the two men asked him to sign a guarantee for the new financing agreement, he agreed, hoping to ensure that he would be paid in full.

"He had an interest in making sure the dealership was successful," Stall said.

But the new owners began to operate a vehicle kiting scheme, Stall said. One of the scheme's components was to obtain stolen titles for vehicles, which were faxed to the bank in order to receive an advance on their floor plan financing. The bank then loaned Calhoun and Davis money for those cars.

According to Stall, "it became apparent to the bank very early in this process that the new owners were doing this."

As part of the floor plan financing, the bank hired what is referred to as a "floor plan auditor," an independent party who visits the dealership to count the cars and verify what should be there for the bank's records. The floor plan auditor will go from car to car and match the VIN number against the list the bank has, Stall said. "That way, the bank is assured that the inventory it financed is actually there, as that inventory is their collateral."

But the floor plan auditor soon began reporting discrepancies, Stall said, with as many as 50 percent of the vehicles unaccounted for.

"This went on month after month, with the bank just ignoring this information," Stall claimed. After a year, Texas Capital Bank fired the floor plan auditor.

A few months later, as the fraud became known to Rouse and the scheme began to unravel, the bank filed suit against Rouse in Texas federal court seeking to enforce the guarantee on the floor plan financing agreement.

Rouse responded by filing suit in Oklahoma state court, alleging fraud by Calhoun, Davis and the bank.

The trial lasted about one and a half weeks, with the plaintiff's case-in-chief taking up most of the time.

Stall presented testimony from two floor plan auditors (the auditor who was fired and the auditor who replaced him) as well as several witnesses from the bank, including a corporate representative, the loan officers who handled the dealership's loan and an executive vice-president.

Rouse, his wife and his daughter also took the stand.

The fired auditor testified that his reports from June, July and August of 2009 "clearly revealed fraud occurring at the dealership," Stall said.

The plaintiff introduced evidence that the bank had destroyed those audits as well as the stolen vehicle titles.

Stall also showed jurors documents for a loan modification that contained Rouse's forged signature. The modification allowed the defendants' scheme to continue, Stall said.

"We weren't able to establish who forged those signatures, but the signatures looked clearly different than other signatures of my client," Stall said.

While the bank cross-examined witnesses during the plaintiff's case, they did not call any witnesses of their own, Stall said. Instead, it rested the morning after Stall finished putting on his case.

Both sides presented closing arguments, with the 12-person jury deliberating about two hours the first day and an additional hour the next day.

Stall declined to suggest a dollar amount or provide a formula for damages.

"I believed the evidence was clear and convincing and that we proved the allegations we made in the lawsuit," he said.

In a unanimous verdict, jurors awarded $21.8 million in compensatory damages and $43.6 million in punitives, for which the bank and the two individual defendants are jointly and severally liable.

Stall said he is not concerned about a possible appeal. "This was a clean trial from an evidentiary standpoint."

Published: Mon, Sep 12, 2011


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