Kia suit claims Calif. dealership was improperly sold

When Rally Auto Group sought to sell the assets of its Palmdale, Calif., Kia dealership last fall, Kia America said no — twice citing the omission from the prospective buyer’s application of his “previous unsatisfactory ownership” of another Kia store.

Nonetheless, Rally and the would-be purchasers, Alam Khan and his Dalia Auto Group, closed on the deal in December, according to Kia. Dalia also owns Diamond Chevrolet-Buick-GMC in Banning, Calif.

Then last month, Rally Kia’s co-owner and sole director, William Penn, signed a consulting agreement with Khan “to support Rally’s operation and management” of the store while Khan submits more material to Kia America.

Now, in a lawsuit filed Jan. 24 in federal court in California against Rally Auto Group, Khan and two of his companies, Kia alleges there was an improper “transfer and/or sale of an interest in, and management control” of the dealership. Kia wants an injunction and damages for breach of contract, unfair competition, trademark infringement and related claims.

Phone calls from Automotive News to the number on the Rally Kia website were answered “Diamond Auto.” The receptionist said the dealership had been “bought by another company in December.”

Khan and Rally Auto Group have not yet answered Kia’s complaint in court, and they didn’t return voicemails and emails seeking comment by press time. Their lawyers were not listed in the court file as of press time. The lawyer who handled the August 2021 registration of one of Khan’s companies with the California Secretary of State declined to comment on the case.

It’s highly unusual for an automaker to initiate a franchise-related suit against its dealers, said Irvine, Calif., franchise lawyer James Mulcahy, who has represented automakers and isn’t involved in the Kia case.

“Rarely is the manufacturer suing the dealer,” Mulcahy said. “It is most often, if not almost every time, that the dealer is seeking to sue the manufacturer for refusing to consent” to a change in ownership or management.

As an example in one such case, a federal judge ruled Jan. 26 that ex-shareholders in a Hollister, Calif., Ford store have a right to a trial on their claim that Ford Motor Co. wrongfully withheld consent to the sale of their interests in the dealership, then named Tiffany Ford.