A federal judge in California has issued a preliminary injunction in favor of Kia America Inc. and against the would-be seller and purported buyer of a dealership in Palmdale.
U.S. District Judge James Selna found a likelihood of consumer confusion if franchisee Rally Auto Group and would-be purchasers Alam Khan and his Dalia Auto Group continue to use Kia’s trademark and other intellectual property.
“The preliminary injunction means that the Dalia defendants are prohibited from continuing to operate the dealership,” said James Mulcahy, a franchise law expert in Irvine, Calif., who is not involved in the litigation.
Defense lawyer Victor Danhi said, “Despite the successful sale of its GMC, Cadillac, Buick, Hyundai and Genesis franchises to Dalia Auto Group, with the consent of those manufacturers — including Hyundai Motor Co., Kia’s parent company — Kia withheld its consent to the sale of Rally Kia to Dalia Auto Group, a successful dealership group owned and operated by Alam Khan.”
Danhi, of San Francisco, said: “Nothing in the court’s ruling requires Rally Auto Group to close or otherwise suspend its Rally Kia dealership operations. Rally Auto Group continues to operate the dealership under its Kia dealer sales and service agreement.”
As Automotive News reported Feb. 7, Kia America twice rejected Rally Auto Group’s request to sell the assets of its store to Khan and Dalia, saying their application failed to mention Khan’s “previous unsatisfactory ownership” of another Kia store.
In what Kia considered an attempted end-run against its refusal to approve the transfer, Rally Kia’s sole director, co-owner William Penn, then signed a “consulting agreement” with Khan “to support Rally’s operation and management” of the store.
In his May 18 opinion, Selna said, “Kia has demonstrated it is likely to succeed in showing that Rally Auto maintains ownership and management of the dealership in name only” in violation of Rally’s sales and service agreement.
Selna ruled Kia presented sufficient evidence that Rally Kia and the Dalia defendants had infringed on Kia’s intellectual property and diluted the value of its trademarks.
“Because consumers are likely to be confused as to whether the Kia dealership is an authorized dealership under the management of the Dalia defendants, the public interest is served by the preliminary injunction,” he said. “The use of Kia’s brand for the unauthorized dealership is likely to cause consumers to confuse Kia’s brand and associate it with Dalia’s services.”
Selna’s decision noted that Kia also presented evidence that the quality of service dropped since Khan and Dalia signed Penn’s consulting agreement with Rally.
Mulcahy said the preliminary injunction doesn’t prohibit Rally Kia from operating the store, and Selna will address that question in the next stage of the litigation.
“The dealership, in effect, now is in turmoil and the next step in the litigation is to try the case and recover damages in favor of Kia. Most likely, however, is a settlement in favor of Kia and at great expense to Dalia and Rally,” Mulcahy said.
He predicted that Selna will rule Rally Kia breached its dealership agreement and contributed to Dalia’s trademark infringement.
“In that fashion, Kia’s remedy is termination of the Rally Kia dealership agreement, resulting in both damages and a judgment prohibiting Rally Kia’s future operation of the dealership,” Mulcahy said. “Rally Kia may seek to settle the litigation with Kia, which definitely will include termination of the dealership agreement. The only issue will be how much Rally Kia has to pay to get out of the lawsuit.
“Rally Kia no longer has a winning hand and will seek to fold.”