TAMPA, Fla.-Widespread fraud and a cover-up are at the root of allegations which have spawned another class-action lawsuit against Sears, Roebuck and Co., this time concerning a tire-balancing service that has since been discontinued. Attorneys in Tampa filed a lawsuit there Aug. 3 in federal district court asserting that between 1989 and 1994 Sears sold a $12.50 per-tire ``AccuBalance'' service with many of the estimated 9 million tires it sold annually, but approximately 30 percent of the time systematically failed to perform the service.
The litigation claims that while AccuBalance sales totaled nearly $400 million during those years, customers to the more than 800 Sears auto service centers nationwide were defrauded of some $100 million in tire matching and balancing services. It seeks to recover treble and punitive damages.
It was only three years ago that the giant Chicago-based retailer was the target of 19 class action lawsuits in several states after being cited for allegedly defrauding customers who paid for but did not receive various automotive services.
The company ended up paying more than $20 million to some 933,000 customers to quell that controversy, but admitted no intentional wrongdoing.
Bob McHenry, a Sears spokesman, told TIRE BUSINESS the latest allegations are ``totally unsubstantiated'' and without foundation.
The suit was filed on behalf of Kevin Twigg, 36, a Sarasota, Fla., resident who purchased four tires and the AccuBalance service from Sears on Sept. 26, 1991, but claims his tires were never balanced.
The estimated size of the class action group is between 7 million and 30 million customers.
Guy M. Burns, an attorney with the Tampa law firm Johnson, Blakely, Pope, Bokor, Ruppel & Burns, also charged in the complaint that Sears' actions violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO) by using ``interstate mail and wire communications to execute its scheme to obtain money from customers by false or fraudulent pretenses. . . .''
During the years in question, Sears leased from equipment manufacturer Assix International Inc. about 1,300 AccuBalance TM 6000 tire matching machines. The equipment tested a rim-mounted tire for balance, then, if necessary, shaved rubber from parts of the tire to make the tire/rim unit round-a process described as ``matching'' the tire to the rim.
According to the lawsuit, Sears paid Assix a monthly leasing fee of $300 per machine plus a 15-cent-per-tire royalty. Each machine had a mechanical counter to tally the number of balances performed.
But Mr. Burns claims an investigation showed that those numbers fell 30 percent below records kept by Sears' automated accounting system. He charged that the two companies knew customers were being sold AccuBalance services not being performed.
After Sears terminated its lease agreement with Assix, the companies traded lawsuits while trying to determine how much Assix was owed. Eventually, in a 1994 sealed agreement before a federal judge, Sears paid Assix $16 million and turned over to the firm a former Sears catalog distribution center in Jacksonville, Fla., assigned a value of $5 million.
The lawsuit alleges Sears then attempted to cover up evidence, instructing its employees to ``use sledge hammers or other similar devices'' to render the AccuBalance machines inoperable, destroy the parts and sell them for scrap.
Mr. McHenry said both firms knew that the balancing machines' counters were unreliable, so Sears paid royalties based on its own more accurate computerized cash register records of balancing services performed.
In 1993, Sears terminated the AccuBalance service ``because of improvements in tire quality and technology,'' he said, and instead began offering only the spin balancing method.
While the charge that employees destroyed the equipment with sledge hammers ``sounds very sinister,'' Mr. McHenry said Sears realized that cancelling its lease agreement-which represented 90 percent of Assix's business-would probably cause the Tampa-based firm to go out of business. Indeed, it folded shortly thereafter.
So, as part of a court settlement, Sears bought the balancers from Assix. Failing to find another use-or market-for the equipment, Mr. McHenry said employees were told to dismantle the machines-``which we owned.''
``We owed a $6 million payment to Assix. They came back with a figure of approximately $100 million. . . and we eventually settled for about $21 million,'' he said.
But the Twigg class action suit implies Sears ``paid off'' Assix to not disclose discrepencies in balancing charges, he said.
``We're very, very upset by these allegations-especially the insinuations that our customers have suffered from all of this,'' Mr. McHenry stated. ``We take that very seriously and expect to defend ourselves against them.''
Since the widely reported 1992 auto service scandal, Sears has ``changed our business so much that we're not as susceptible'' as before to fraud, he said. ``By focusing on tires, batteries and related services, a lot of those things that used to concern us don't anymore.
``But some people would like to see us suffer. We in fact are not going to let them do it to us, because we have a passion for our customers, and are looking out for (their) best interests.
``. . . Now that we've focused on them, we live and die by our customers-and we recognize that.''
Meanwhile, Mr. Burn's law firm has retained the services of Hill and Knowlton, one of the nation's largest public relations firms, to handle its publicity on the case.