MINEOLA, N.Y. (Oct. 4, 2004) — Bridgestone/Firestone (BFS) is suing Hempstead Tire Service Inc. of West Hempstead, N.Y., for what it claims is the wrongful collection of profits and commissions on the sale of BFS tires and for allegedly evading federal excise taxes.
The lawsuit, filed Aug. 19 in the New York Supreme Court in Nassau County, charges Hempstead Tire owners Michael and Ivy Chazen with fraud and states that Hempstead Tire's total indebtedness to the tire company is “an amount believed to exceed $4.5 million.” BFS said the amount of damages suffered will be determined at trial, but it is seeking the balance on the dealership's open account—approximately $3.49 million—plus interest and attorney's fees.
The Nashville, Tenn.-based tire maker also is seeking reimbursement from Hempstead Tire for federal excise taxes (FET) it said the dealership kept from sales to non-government entities while reporting that the sales were to local governments, according to the suit.
BFS said it “has legal ownership and an immediate and superior possessory right to the funds stolen by Hempstead Tire. These funds consist of the wrongfully obtained commissions and rebates, and FET, taken for itself.” Losses from such funds are “believed to exceed $1 million,” according to the suit.
Hempstead Tire's authorized dealer agreement with BFS—a contract it had held for 10 years—was terminated Aug. 2 by the manufacturer. The suit said BFS's reputation and “good will engendered by years” of honest selling have been diminished by Hempstead Tire's alleged fraud. BFS also charged that Hempstead Tire's actions have hurt its relationships with other authorized dealers who were concerned because Hempstead Tire could undercut their prices by “fraudulently obtaining tires at a lower cost.”
Mr. Chazen also owns Capital Tire of New Jersey Inc., a commercial affiliate in Lynbrook, N.J., which is included as a defendant in the suit, as well as the Chazen Group Ltd. He has one commercial center in West Hempstead and one in Lynbrook. Neither he nor his attorney returned numerous phone calls from Tire Business seeking comment.
According to the suit, BFS dropped Hempstead Tire as an authorized dealer after it discovered the dealership had submitted numerous government delivery receipts “reflecting the purchase of thousands of tires” by local governments in Nassau and Suffolk counties on Long Island, N.Y. Hempstead Tire at first sent information on the purported purchases electronically, then sent original receipts via mail, the suit stated.
BFS alleges Hempstead Tire filed receipts of sales to the following New York municipalities: New Hyde Park, North Hempstead, Huntington, Garden City, Rockville Center, Manhasset, Stewart Manor, Oyster Bay, the Manhasset School Board and the Board of Cooperative Education for Nassau County. The suit claims that none of those entities in fact purchased tires from Hempstead Tire and that signatures of officials on the government delivery receipts mailed to BFS by Hempstead Tire were not by individuals authorized to sign on behalf of the buyers.
BFS said it believes the dealership sold the tires to others—meaning, non-governmental customers—without the tire maker's knowledge. As a result, BFS said it relied on the allegedly false information given on the receipts and credited Hempstead Tire's account for the difference between the original invoice price and the lower government contract price and credited the dealership for federal excise taxes charged.
Under its government sales program, BFS bids for contracts to various governments across the U.S. and sets fixed prices for the duration of those contracts, according to the suit. Dealers sell to those tax-exempt entities and deliver the tires, and BFS said it depends on its dealers to report governmental sales accurately to facilitate excise tax payments to the Internal Revenue Service. Dealers also receive commissions on tire sales to government entities, the suit said.
The suit states that through its security agreement with Hempstead Tire, BFS has “a continuing security interest in all of Hempstead inventory manufactured or sold by or bearing a brand, name or mark owned or registered to Bridgestone/Firestone Inc…wherever the inventory is located, whether now owned or hereafter acquired by Hempstead, and all of Hempstead's books of account and other records to secure the payment of all of Hempstead's indebtedness.” Under that agreement, BFS maintains the right “without demand or notice” to enter Hempstead Tire's premises and take possession of its collateral.
A BFS spokesman confirmed that the tire maker did exercise its option and seized products at Hempstead Tire and Capital Tire not yet paid for.
“Our lawyer said you can go and take back the product that is rightfully yours because it's on credit,” the spokesman said. He declined to comment further on the suit.
BFS also alleges that Mr. Chazen transferred Hempstead Tire's assets to other entities he owns, or holding companies, that include: defendants J.J. Holdings Ltd.; B.A.C. Holding Ltd.; Capital Tire of Lynbrook Inc.; Capital Tire of New Jersey Inc. and the Chazen Group. The suit states that BFS believes Hempstead Tire borrowed funds to buy real estate in Bridgehampton, N.Y., which is used as a personal residence by the Chazens. BFS also charged that the Chazens have co-mingled assets—including the “stolen funds” owed to BFS—and used those assets for their personal benefit, according to the suit.
The tire maker named, as examples of co-mingling assets, information that Hempstead Tire secured the loan on the property in Bridgehampton by giving a mortgage on that property and using its assets to repay the loan. “Upon information and belief,” BFS said the personal residence of Mike and Ivy Chazen is owned by Hempstead Tire.
No court date has been set to hear the lawsuit, though attorneys will meet for a preliminary conference Oct. 6, according to a court clerk.