Business

State sues Merced Midas dealer on fraud allegations

A Modesto businessman was sued Tuesday by the state attorney general's office, which claims he was running a "massive bait-and-switch scam" at his 22 Midas Auto Service franchises in the Central Valley and Bay Area, including a branch in Merced.

Attorney General Jerry Brown's office filed the lawsuit against Maurice Irving Glad in Alameda County Superior Court, seeking $222 million in civil penalties, costs and reimbursement to customers.

The lawsuit claims Glad, who goes by "Mike," and his shops used false and misleading advertising as well as unlawful, unfair and fraudulent business practices in violation of state business and professional codes. It also says he violated a 1989 Alameda County Superior Court injunction prohibiting these practices.

The lawsuit seeks a permanent injunction prohibiting Glad's shops from conducting such activities.

Glad's attorney, Bill Gagen of Danville, said in a statement that he will aggressively defend his client: "Midas franchisee Mike Glad and his 22 shops in Northern California are victims of an inconsistent and destructive enforcement process undertaken by the BAR (Bureau of Automotive Repair) to take advantage of hardworking mechanics in repair shops."

The bureau resorted to a "gotcha" enforcement technique designed to deceive mechanics, Gagen said. This pattern of deception, he said, included investigators lying to mechanics about symptoms consistent with excessive brake wear and cosmetically altering brake rotors as well as pads to "dangerously inadequate levels."

Gagen said the advertisements weren't misleading and the one in question was deemed in compliance with price-advertisement regulations when Glad submitted it to the bureau before the investigation.

Glad, reached by telephone Tuesday night, said the lawsuit is just a rehash of previous claims by the agency and that it ignores changes he's instituted at his shops.

Glad gained attention in 2007 after his documentary "Recycled Life" was nominated for, but did not win, an Oscar. A few months later, he was the subject of a state Department of Consumer Affairs report on business practices at his Midas shops after an undercover investigation that began in 2005.

Tuesday's lawsuit was a result of that investigation by the department's Bureau of Automotive Repair. It conducted 30 sting operations at Glad's Midas shops.

Brown's lawsuit claims the investigation found people were offered cheap brake specials and then charged hundreds more for unnecessary repairs and services.

"The undercover operations revealed that over four years Glad's Midas shops regularly advertised $79 to $99 brake specials to draw customers in and then charged another $110 to $130 for unnecessary brake rotor resurfacing services — and hundreds of dollars more for repairs that were not needed or never performed," said a statement from Brown's office.

Undercover agents posing as customers reported more than 35 incidents in which shop managers, mechanics and employees made false or misleading statements to pressure them into buying unnecessary parts and services, according to a news release from Brown's office. On average, according to Brown's office, the shops charged agents almost $300 for unnecessary work and parts.

Glad said he wasn't contacted by the bureau about any of the findings and wasn't given an opportunity to respond to them. He defended his staff and the quality of work at is shops. He said the $222 million penalty the state is seeking is excessive and threatens his business. Although the lawsuit likely will hurt him financially, Glad said, "the people who suffer the most are my employees."

Since the initial report came out, Glad said he has had to trim his work force from 150 to 130. The lawsuit, he said, may force him to look closely at whether to keep operating some shops.

"The 22 Glad shops serve a total of 100,000 customers yearly, averaging fewer than two customer complaints per store," Gagen said. "Mr. Glad and his representative will vigorously fight to maintain the reputation of the organization and its 130 loyal employees."

Bee business editor David W. Hill can be reached at dhill@modbee.com or 578-2336.

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