Former AutoCanada CEO says $250M suit against him issued 'in bad faith'

TORONTO — AutoCanada’s $250-million lawsuit against its former CEO Patrick Priestner was issued in “bad faith” in an attempt to acquire his dealerships at “below market value,” Priestner alleges in a defence statement filed Tuesday to the Ontario Superior Court of Justice.

AutoCanada Inc. in February alleged that Priestner acted against the interests of the company when he acquired dealerships through private companies, including Canada One Auto Group Ltd., of which he is CEO. Priestner denied those claims, saying AutoCanada’s board was aware of and authorized him to pursue those opportunities.

“As the founder and largest shareholder of AutoCanada, my focus and financial interest were always to grow the company and create value for all of its shareholders,” Priestner said in a press release issued Wednesday. “The record shows unequivocally that my team and I did so. In contrast, unable to otherwise grow and create shareholder value, AutoCanada’s current leadership team has resorted to a transparent attempt to misappropriate the dealerships I acquired with AutoCanada’s express permission.”

At issue are several stores Priestner privately acquired while at AutoCanada. Priestner, through Canada One and other holding companies, bought several dealerships that the publicly-held AutoCanada was prohibited from owning. Several automakers prohibit public ownership of their stores.

Priestner and his attorneys said he acted in the best interests of AutoCanada and did not mislead the company. For instance, the defence statement points to a policy change in 2011 that allowed senior management, including Priestner, to “privately purchase dealerships which the Company either cannot purchase, or which it chooses not to purchase.” 

In 2012, Priestner said he entered into an agreement with AutoCanada that allowed him to devote up to 20 per cent of his time to “purchasing and managing private dealership interests outside of AutoCanada.”

In its February statement of claim, AutoCanada said the 2011 policy change was implemented in part because Priestner said private acquisitions would benefit the company since it would receive an option to purchase those stores when the automakers allowed public ownership. In his statement of defence, Priestner denied that such agreements exist, saying “no such options… were ever disclosed by AutoCanada in any of its public filings.”

According to Priestner, AutoCanada approached him in July 2018 about the possibility of acquiring his dealerships. The defence statement says Priestner “was open to discussions” with AutoCanada, but the company “did not engage further.”

“There was no suggestion by anyone at AutoCanada that Priestner had acted improperly in acquiring his dealerships, or that AutoCanada had a right or option to acquire these dealerships,” the defence reads.

Instead, Priestner said he was threatened with a lawsuit in a cease-and-desist letter on Aug. 28 that alleged he made false “assurances” to AutoCanada’s board and that he held his stores “in trust for AutoCanada,” a claim Priestner denies.

“Rather than proceed with a sale at fair market value, as initially proposed by AutoCanada in July 2018, the Cease and Desist Letter, and this litigation more generally, is a transparent attempt by AutoCanada (directed by its new Board with no firsthand knowledge of the events at issue) to obtain Priestner’s dealerships below market value,” the defence statement reads. “To that end, the Statement of Claim was issued in bad faith. The Defendants will be seeking their costs on the appropriate scale.”

AutoCanada Executive Chairman Paul Antony declined to comment to Automotive News Canada. Automotive industry analyst Dennis DesRosiers, a member of AutoCanada’s board of directors, also declined to comment.

Priestner additionally denied allegations made by AutoCanada regarding several General Motors dealerships. After GM Canada in 2017 began to allow public companies to own its stores, a deal was reached in which nine GM dealerships that Priestner owned and that AutoCanada had a non-voting financial stake in would be split between the two parties. Priestner would assume control of some dealerships, while selling his stake in the others to AutoCanada.

AutoCanada alleges Priestner made “intentionally false or misleading and fraudulent” claims about the split, saying he told the company’s board and management that GM Canada required such a split to take place. Instead, AutoCanada alleges Priestner “engineered” the split, and that the transaction “would not have been approved as structured and AutoCanada would have received all of the [GM] dealerships or a more favourable decision” had it known that.

Priestner denies devising the split, instead alleging that AutoCanada “came up with the underlying methodology for valuing and dividing the assets.” As a result of that methodology, Priestner, through Canada One, paid AutoCanada $23 million “as an equalization payment in connection with the GM Split,” according to his defence statement.