There is something brewing at a Kia dealership out in California. Kia denied the sale of a California Kia Dealership twice; then, the owner sold it anyway. Now Kia is suing the dealership for breach of contract, unfair competition, trademark infringement, and more. What happened with Rally Auto Group, Dalia Auto Group, and the conglomerate that is Kia America?

Drama at the Rally Auto Group Kia Dealership in California

According to Automotive News, Rally Auto Group attempted to sell its Kia dealership in Palmdale, California, last fall. That’s when Kia America turned down the idea, citing that the prospective buyer already had “previous unsatisfactory ownership” with another Kia dealership elsewhere. But that didn’t stop Rally Auto Group and Dalia Auto Group, run by Alam Khan.

The two decided to move forward with the deal and closed in December. The co-owner and director of Rally Kia, William Penn, signed paperwork that said Khan would support the dealership’s operation and management.

Khan already owns another dealership called Diamond Chevrolet-Buick-GMC in Banning, California. In January, the two groups signed another agreement where Dalia Auto Group would help support Rally Auto Group as it owns and operates the dealership. Already this doesn’t make much sense.

In a lawsuit filed by Kia against Rally Auto Group, Khan, and Dalia Auto Group, Kia says there was an improper transfer of interest and/or management control of the Palmdale Kia. Kia wants revenge. The automaker also wants an injunction for damages for the breaches of contract, “unfair competition, trademark infringement, and related claims.”

It appears the Kia dealership is already oprating under new ownership, permission or not

“Diamond Auto” receptionists answered the phones when Automotive News reached out to the dealership. The receptionist noted another company had purchased the dealership in December. Neither Khan nor Rally Auto has answered Kia’s complaints yet. Similarly, neither company responded to Automotive News when requested for comment. The lawyer involved in the August 2021 registration of one of Khan’s companies declined to comment on this case.

James Mulcahy, who is a franchise lawyer that has represented automakers in franchise-related lawsuits in the past, says this kind of situation is highly unusual. Mulcahy offered his opinion based on past experiences, but isn’t involved in this case. “Rarely is the manufacturer suing the dealer. It is most often, if not almost every time that the dealer is seeking to sue the manufacturer for refusing to consent to a change in ownership or management,” he told Automotive News.

In this instance, Kia says that Rally Auto Group violated a provision in the dealership agreement it signed. Kia says that Rally was prohibited from making any “direct or indirect change in the identity of any owner” more than 5%.

Kia calls this “de facto transfer of ownership”

The lawsuit says that while the paperwork notes that Penn will stay on as the dealership operator, Dalia is responsible for the rest of it. That includes providing capital, paying expenses, and making business decisions for the dealership. “The responsibility of the dealer-operator has effectively been delegated to Dalia Auto and Khan,” according to Kia.

Mulcahy says that without approval from Kia, you can’t just sell a dealership to another entity. Kia has the right to choose and approve a general manager due to its agreement with Rally. Rally was not entitled to make these changes in this situation.

It sounds like Kia has a pretty straightforward case against these two. In another element, Kia says it didn’t authorize Rally to “sublicense its trademarks” and to charade as an authorized Kia dealership. In many cases like this, the larger company has the upper hand just due to its size. It isn’t clear what the repercussions will be yet, but it could take a while before there are more concrete answers. In any case, you might still be able to find the elusive Kia Telluride SUV on sale at Diamond Auto…for now.