AutoCanada says Patrick Priestner, who left his roles as chairman and chief executive in 2014, should have advocated for the company’s interests, not his own, when dealing with major manufacturers such as General Motors and Toyota.Ian Jackson
AutoCanada Inc., the country’s largest publicly traded car seller, has sued its founder and former CEO, alleging he breached his duties to the company as he engineered transactions that left him personally owning nearly two dozen dealerships.
The company says Patrick Priestner, who left his roles as chairman and chief executive in 2014, should have advocated for the company’s interests, not his own, when dealing with major manufacturers such as General Motors and Toyota. In a statement issued on Wednesday, Mr. Priestner called the specifics of AutoCanada’s claim “absurd,” and says he has a record of “consistently honest and fair dealings with the company from the day I founded it.”
Since AutoCanada went public in 2006, it had told investors that GM and Toyota would not allow a publicly traded company such as itself to have a direct ownership in its dealerships. So, companies owned or controlled by Mr. Priestner bought the dealerships, and AutoCanada entered into a series of deals with Mr. Priestner’s companies to get management fees or possibly purchase the dealerships if the manufacturers changed their minds. The details appeared in the company’s disclosures to investors.
Now, in a statement of claim filed in the Ontario Superior Court of Justice, AutoCanada says things were not as the company once believed.
AutoCanada says that once General Motors agreed to allow it to own GM dealerships, Mr. Priestner participated in negotiations in his role as AutoCanada’s chairman. AutoCanada says Mr. Priestner told its board that GM was dictating that Mr. Priestner’s GM dealerships should be split, with AutoCanada purchasing some, and others remaining with Mr. Priestner’s companies.
Mr. Priestner’s representations “were intentionally false or misleading when made. At no time did [GM’s] representatives dictate the division,” AutoCanada said in its statement of claim. The split was instead “engineered” by Mr. Priestner, with his companies getting dealerships with “favourable location[s], value and earnings potential.” The allegations have yet to be tested in a court of law.
AutoCanada says that it learned in August, 2017 – after Mr. Priestner had discontinued all roles at the company – that Toyota had never received a proposal from AutoCanada that it be allowed to own the manufacturer’s dealerships. “Instead of actively seeking [manufacturers] to change, Priestner used and misrepresented existing … policies or positions to the board so as to justify the expansion of his private dealership network for his own personal gain.”
The company is asking for a number of measures of relief, including damages of $250-million and a declaration that AutoCanada holds an option to purchase all dealerships acquired by Mr. Priestner during his time at the company.
AutoCanada chief financial officer Raj Juneja declined to comment beyond the lawsuit’s allegations.
In his public statement, Mr. Priestner noted his ownership of the dealerships “was repeatedly and thoroughly disclosed by AutoCanada to its shareholders" and the purchases “were specifically authorized by AutoCanada’s Board of Directors.”
Mr. Priestner said “the teams that have led AutoCanada since I stepped down have overseen dramatic value destruction, which has harmed AutoCanada shareholders immensely.”
He said the claims are “nothing more than a desperate attempt to distract from the board and management’s failure to create value by trying to misappropriate the dealerships that I was expressly permitted to purchase.”
AutoCanada was a growth-stock star early in this decade, rising from about $4 in September, 2011, to more than $90 in May, 2014. Mr. Priestner gave up the CEO job in late 2014, becoming executive chairman. He relinquished that title in May, 2016, and left entirely in 2017. His current venture is called Canada One Auto Group, an entity that predates AutoCanada.
As Mr. Priestner transitioned out, AutoCanada shares fell, buffeted by Alberta’s economic troubles. (The company’s dealerships have historically been concentrated in the West.) The growth story is broken: Third-quarter revenue increased just 3.9 per cent, and same-store sales, a measure of revenue at locations open at least one year, fell 3 per cent.
The stock closed on Wednesday at $10.77, down 88 per cent from its peak.
Editor’s note: (Feb. 8, 2019) A previous version of this story said same-store sales fell 3.9 per cent. They fell 3 per cent.