Kia Sues One Of Its Dealers For Selling Its Dealership

Kia denied the sale of the dealership twice before the owner said "screw it" and sold it anyway

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Image: Rally Kia Palmdale (Other)

Issues between dealers and automakers will sometimes come to a head in the form of a suit against the automaker by the dealer. Rarely though does a suit go the other way, except in this case, where Kia is suing one of its dealers over what it says is a franchise sale that wasn’t supposed to happen, Automotive News reports.

The issue started with a dealership group located in Palmdale, California. Rally Auto Group was looking to sell the assets of its Kia dealership simply because there was an unfavorable ownership experience running the dealer. But Kia denied the sale, not once, but twice. Eventually, Rally found a buyer and went through with a sale anyway last December. From Auto News:

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.


As if trying to be slick to skirt by any potential problems that would arise from the sale, Rally entered into an agreement with Dalia: Rally’s owner William Penn would sign on as a consultant as support for management and operations while Khan hashed everything out between him and Kia.

All of this was apparently a breach of contract. Kia filed a lawsuit in federal court last month alleging that the dealer was improperly sold. Kia is claiming that Rally Auto selling its stake in the franchise was a violation of its dealer agreement. The agreement states that a franchisee can’t sell any dealer stake equaling five percent or more without Kia’s written consent. Rally entering into a consulting relationship with Dalia attempted to skirt that: Khan and his Rally group would still be the owner-operator and Dalia would put up the finances:

Although the consulting agreement provides that Penn is to remain dealer-operator, the reality is that the Dahlia defendants are responsible for providing all capital, paying all expenses, making personnel and business operations decisions and bearing all financial risk, and entitled to all financial benefit, from Rally Kia’s operation,” the suit alleges.

“As such, the responsibility of the dealer-operator have effectively been delegated to Dalia Auto and Khan” in what Kia labeled a “de facto transfer of ownership,” it said.

In effect, Khan sublicensed his franchise to Dalia. While neither Kia nor Dalia or Rally has commented on the case since it’s still open, Kia is suing for “injunction and damages for breach of contract, unfair competition, trademark infringement, and related claims.”