Recently, 24 Champion Porsche customers were shocked to discover that the approximately $2.5 million they had given to Champion as deposits on 911 GT3RS cars and other highly-allocated Porsche supercars was stolen — and no cars were ordered.
Actually, the problem was that they didn’t give the money to Champion Porsche, which is located in Pompano Beach, FL, but to a fraudulent entity created by its Vice President of Marketing, Shiraaz Sookralli. Thus, they were not only out their deposit money, but they would not get their cars.
Sookralli worked for Champion for about 10 years, and had become very familiar with many of its best customers.
According to the complaint filed by Champion, Sookralli and his accomplice, Devika Budhram, surreptitiously formed a fictitious business entity named “Champion Autosport.”
Champion customers never noticed the difference when Sookralli took their orders for these hard-to-get cars using documents under the Champion Autosport name, so they wired their funds into a Bank of America account controlled by Sookralli and Budhram. Now, Sookralli and Budhram have flown the coop, and Champion has filed suit trying to freeze the bank account — just in case there are any funds left in it.
Champion alleges that Sookralli confirmed all of this by email. However, Champion states that it has no knowledge where he is.
Who is legally responsible?
The story generated a lot of activity on Internet chat boards, with posters freely dishing out responsibility to Champion, Porsche Cars North America, Porsche AG, and “the system” in general.
How far does this go?
American automobile dealers are independent businesses, free to do business as they please and charge as they please. They are not subject to the control of their manufacturers except in limited respects.
This was clearly a fraud perpetrated by a dealership employee. In fact, part of the fraud was that no car orders were actually placed with Porsche. As unfortunate as the situation is, there seems to be no way to claim that Porsche AG or Porsche Cars North America is legally responsible for these losses.
Champion is in a different circumstance. As Sookralli’s employer, it is generally liable for his improper conduct. There can sometimes be an exception for intentional acts outside his scope of employment, but Champion gave Sookralli a fair range of authority, and a customer could reasonably believe that he was authorized to take these orders.
A prior case involving Sookralli and Champion exacerbated the situation. Both were sued earlier this year for claimed fraudulent transactions constructed by Sookralli during 2016.
Although these transactions were not exactly the same, they are similar in some respects. The claims involved orders that were not fulfilled, strong-arm tactics to force customers to accept cars that were not as ordered, overpricing, and money going to and coming back from Sookralli rather than Champion.
These claims may suggest a disposition toward fraudulent behavior, which could be viewed as a warning to Champion to closely supervise Sookralli’s activities.
Champion wisely sidestepped the battle by recently agreeing to reimburse all customers for their deposits — in an admitted effort to salvage its goodwill. Champion will persist in its efforts to recover its losses from Sookralli and his accomplice.
The broader view
Is this just an example of a dealer employee gone rogue, or do the manufacturers deserve some of the blame for creating the situation?
“Legal Files” recently reported on the lawsuit filed by Ford Motor Company against pro wrestler and TV personality John Cena for flipping his new Ford GT (February 2018, p. 62, and August 2018, p. 54). Ford also sued New Autos Inc., a California automobile dealer, which had acquired and resold Cena’s GT. Ford believed it was being victimized by buyers’ greed. The company wanted to sell the cars to people who would use them and serve as Ford “brand ambassadors.” Ford stood to lose the brand publicity that would have helped sell more Mustangs.
Ford and Cena recently settled their litigation. The settlement terms are confidential, but Cena gave a public apology, warned other GT owners not to violate their contracts by flipping their GTs, and stated that he had made a significant payment to Ford, which was donated to charity by agreement. Ford also settled the claim against New Autos, also on confidential terms.
The buyer of the GT recently consigned it to Russo and Steele, which sold it at its 2018 Monterey auction at a reported sales price of $1,540,000.
Nonetheless, Ford’s “sue everybody” strategy may be having an impact. Talk has been that a number of GTs were available for sale but that they were withdrawn from the market as the lawsuits gained notoriety.
Porsche Director Andreas Preuninger, who leads Porsche’s GT program, has been very vocal about his displeasure with buyers flipping their scarce Porsche GT cars. He is highly critical of buyers who view his Porsches as investments, locking them away in their garages — never to see the light of day or touch pavement.
Preuninger is openly critical of 911R owners, who jumped on the model that was built in response to complaints that Porsche’s elimination of the manual transmission was a travesty. Values tripled and more after the limited-edition line was sold out. When Porsche announced plans to respond to demand and to once again offer manual transmissions in its new GT3 models, they caught a lot of flak from 911R owners who felt betrayed, as making manual transmissions available again was going to devalue their 911Rs.
That prompted Preuninger to say, “We are not a hedge fund. We are a company that produces cars.
“I don’t like this business of people buying our cars to make money on them,” Preuninger said. “That was never our intention. The purpose of limiting a car is not for it to gain value. We don’t want to be laying money on each car’s roof when they run out of the factory.”
Preuninger added: “We are monitoring very closely who is flipping cars. We do not build too many cars, and we know most of our customers well — we like to have a name for every car before we build it. If you’re flipping cars, then I think it’s understandable that you won’t get on the list for the next car if we have more demand than supply. It’s not a punishment but a strategy: to supply the cars to the customers who will really use them. I think that’s just fair.”
Seriously?
With all due respect, are these guys for real? If they don’t want people flipping their cars at a profit, they don’t need an army of lawyers to draft airtight contracts and sue violators. There is a much more simple answer — build more cars!
The rules of supply and demand still work just fine. The $1,540,000 Russo and Steele result demonstrates the market value of the Ford GT — but only in a market having a supply of just one car.
If Ford has offered the GTs at $1.5 million each, they would undoubtedly have a lot of unsold GTs in their pipeline. So either the $450,000 or so MSRP is too low, or Ford’s expected 1,000-car production number is way too low. Tell us all you’re going to build 5,000 of them, and let’s see how many sell for $1.5 million.
Or take the 911R. It was promoted as the ultimate 911 (having driven one, I can say that is pretty close to the truth) and it was built to the production number of 991 cars.
Porsche could probably have sold all 991 of them to just California. So Preuninger is surprised that buyers are flipping their 911Rs for big profits? That wouldn’t happen if Porsche had announced it would build 5,000 of them.
Market blame
But it isn’t fair to blame just the manufacturers — the market has created these “instant collectibles,” perhaps against all reason.
And in this market segment, usage is the enemy of collectibility. Low-mile cars are the Holy Grail, and a 30,000-mile Porsche Carrera GT is just another used production car. Funny how, in the rest of the collector car market, provenance is a huge value factor. Here, the complete lack of provenance maximizes value.
Compromise needed
Preuninger may be hinting at part of the problem — his suggestion that flippers might be cut off seems to be conditioned on “if we have more demand than supply.” Perhaps the manufacturers are insecure about the level of demand for these very expensive halo cars — recall Jaguar’s experience with the XJ220. It may be understandable that they want to hedge their bets on supply in some cases.
My ancestors invented the phrase “moderation in all things.” If the manufacturers hate it so much when their buyers park their cars and treat them as hedge funds, then fix that by building a moderately larger number of them. That won’t eliminate flipping, but it will certainly lessen the severity of it.
If manufacturers really can’t build more of them, and the market reactions still bug them, then lease the cars, like Ferrari did with the F50. That isn’t a perfect solution either, of course, but it eliminates or minimizes the flipping problem and it sure seems more appealing than the “sue everybody in sight” approach.
Plus, it puts guys like Sookralli out of business. ♦
JOHN DRANEAS is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.