At a private meeting in August 2018, the then-CEO of KAR Global’s key-manufacturing company asked employees whether they should “save” the business or “burn it down,” according to a federal lawsuit filed by the key company. KAR said Jay Wiener, who was fired in April, chose the latter route.
KAR’s High Tech Locksmiths and Automotive Key Controls, which Wiener founded, have sued Wiener and four other former employees, as well as a company called Steelers Keys, for breach of contract, trade violations and computer fraud.
The litigation shines some light on why KAR reported more than $5 million in losses at HTL, an ADESA subsidiary, in the second quarter.
The lawsuit, filed in the Southern District of Indiana, claims Wiener undermined his own companies from within, sowed discord with employees and recruited them for competing ventures — all after a falling out with KAR executives, including KAR Remarketing Services President David Vignes, to whom Wiener reported.
In a motion to dismiss the case, Wiener argued that the plaintiffs failed to state a valid cause of action, that the Indiana court was an improper venue and that the plaintiffs were “shotgun pleading.” He filed a countersuit Sept. 17 against Vignes, KAR and its subsidiaries in U.S. District Court in Miami. That lawsuit, which alleges Vignes “began destroying and dismantling everything that Mr. Wiener had built over the years” and that Vignes had personal issues with Wiener, seeks declaratory relief from KAR’s lawsuit and a jury trial.
“Their claims are meritless,” KAR said in a statement regarding the countersuit.
As of last week, both cases were active, with KAR Global seeking to have them consolidated to Indiana and Wiener’s team looking to do the same in Florida.
KAR has declined to comment in detail on the original lawsuit because it is ongoing.
“We stand by the allegations in our complaint and intend to pursue them vigorously,” the company said in an emailed statement.
Wiener has vehemently denied allegations of trying to undermine the company. “That’s far from the truth,” Wiener told Automotive News. “I ran the company as if it was my own.”
He agreed that a private meeting was held but said it was to discuss ways to save the business, not destroy it.
Wiener, a former paratrooper in the Israeli military, founded HTL as A-1 Lock & Key in Miami in 1992. KAR’s ADESA remarketing unit bought the HTL business through its Dent Demon subsidiary at the end of 2013, and ADESA Keys bought Automotive Key Controls. Both companies kept the names of their acquisitions.
At the time, KAR said HTL was the largest mobile automotive locksmith service in the world, servicing most of the U.S. It specializes in transponder, remote, high-security, smart-key and proximity-key services, with same-day, on-site service for auctions and dealers.
As part of the purchase agreement, Wiener was to stay on board as president and CEO of HTL and AKC. By February 2018, Wiener had been paid $8.45 million in several installments as part of the acquisition agreement, according to court documents.
Once those payments were made, KAR’s lawsuit alleges, Wiener became bolder with his actions. “As a result, Wiener began to escalate his rhetoric against KAR in the days, weeks, and months that followed, including direct confrontations with his boss and other KAR leadership members,” the company said in a court filing.
During Wiener’s tenure, up to $5.4 million in inventory went missing, KAR alleges.
It noted the loss when reporting its second-quarter results Aug. 6. “This loss was discovered as a result of an internal investigation, which is still ongoing,” KAR CEO Jim Hallett said on the company’s earnings call. “We are in litigation with certain former employees, and we are pursuing all avenues to recover this loss. If we are not able to recover this loss in the current year, we are likely to be at … the lower end of our range of our guidance.”
KAR says audits show some vendors were paid for inventory despite no record of inventory being received, and it alleges that those vendors “existed solely to siphon money from AKC, or the inventory was misappropriated after it was paid for by AKC.”
The suit says one of the vendors did not appear to be in the key-selling business at all, another had its corporate registration at a personal address and was incorporated a month before the transaction with AKC, and a third was registered to a residence of someone who owns a restaurant Wiener invested in.
“For several of the orders associated with these three vendors, the invoice date precedes the purchase order date, suggesting these orders may be fraudulent in nature,” KAR’s lawsuit said. “Moreover, AKC and HTL employees said they have never observed key inventory from any of these three vendors physically present in the AKC/HTL warehouse.”
Wiener blamed the missing inventory on shoddy accounting at KAR. “We did an inventory count, I think maybe a month before I was terminated,” he said. “They waited I think 12 weeks before they actually did an inventory once they got rid of me. So I don’t know how they can come up with those conclusions.”
As for the restaurant partner, Wiener said he was a supplier for HTL whom the company worked with for “quite a while.”
“When he heard I was thinking about opening a restaurant to run outside of HTL, he was interested in the idea of Sushi Burritos, so he and I partnered up on it,” Wiener said in a follow-up email.
KAR, in its complaint, said Wiener signed two noncompete and nonsolicitation agreements with HTL at the time of purchase and a noncompete, nondisclosure and nonsolicitation agreement in April 2015. It alleged that Wiener “has repeatedly violated these agreements in egregious fashion by being involved with competing companies and soliciting HTL and AKC employees to join him in competing ventures.”
In one example, KAR alleged that Wiener fraudulently leased five fully equipped HTL vehicles to Steelers Keys, a competitor owned by Juan Moore, who is a former HTL employee and now a defendant in the case. Steelers was incorporated in Delaware last February.
“HTL does not lease its vehicles, particularly fully equipped vehicles containing its inventory and proprietary equipment, to competitors such as Steelers because doing so would deprive HTL of the revenue that it is able to generate from the vehicles and also allow the competitors to use HTL equipment for their own directly competitive business,” KAR’s lawsuit said.
A message seeking comment was left with an attorney listed for Moore in court records. Wiener argued in his counterclaim and to Automotive News that the lease to Steelers was provided by HTL’s legal department.
“We had many trucks sitting around doing nothing,” he said. Moore “asked me if he can go back into the business. I said sure. We leased them the trucks with permission from KAR to do accounts that are not a part of the KAR accounts, or KAR couldn’t do those accounts, like auctions that were competitors of KAR.”
At least four former high-ranking HTL employees, including Moore, who worked closely with Wiener have since left to be part of competing businesses, KAR’s lawsuit says, naming the former personnel as defendants.
Wiener denied that he or the former employees have sought to undermine HTL and set up competing enterprises.
He said the lawsuit is an attempt to personally damage him after a falling out following the acquisition.
Wiener said that after HTL and AKC went under the KAR umbrella, its executives began to “meddle in all our affairs.” One turning point, by Wiener’s telling, was that HTL lost its largest account, a major used-vehicle company that represented 48 percent of its business.
When it came time to renew that account in 2016, Wiener’s suit says, “Vignes hijacked the business meeting and took the lead on what was historically Mr. Wiener’s sales pitch.” HTL lost the account after 10 years, and financial woes began mounting, as HTL’s revenue dropped from $84.7 million in 2016 to $54.8 million in 2017 and $48.6 million in 2018, according to Wiener’s lawsuit in Florida.
Wiener said he is being blamed for KAR executives’ mismanagement of the business he founded 27 years ago.
“And I think this was also a way to … get rid of me and tarnish my name because I do have a good name in the industry,” he said. “I helped build the whole locksmith industry from what it was 20 years ago.”