A Calgary judge has certified a $5-million, class-action lawsuit against a defunct vehicle consignment company, Treadz Auto, whose owner defrauded clients out of more than $2 million.

As part of the decision, Court of Queen's Bench Justice Glenda Campbell dismissed the action against Service Alberta and the Alberta Motor Vehicle Industry Council (AMVIC), finding the two did not owe a duty of care to the plaintiffs.

Campbell's decision also offers new details about Treadz owner Sean O'Brien, including that he was granted a licence to sell cars despite AMVIC's knowledge that he had a criminal record for stealing cars 10 years earlier.

In 2018, O'Brien was sentenced to three years in prison after pleading guilty to criminal charges, admitting he defrauded Calgary car owners out of more than $2 million.

Campbell noted in her decision that the Treadz defendants, which include O'Brien, "failed to respond to the action and have been noted in default."

The lawsuit alleges Treadz did not pay owners whose vehicles were sold and did not remove liens from the vehicles.

The plaintiffs named AMVIC as part of the suit, accusing the watchdog of failing to properly investigate consumers' complaints against Treadz and not compensating them adequately.

The lawsuit also named Service Alberta as a defendant, accusing the province of failing to properly oversee AMVIC.

But Campbell dismissed the action against Service Alberta and AMVIC, finding there is no merit to allegations the two governing bodies are liable for regulatory negligence.

O'Brien initially faced 164 charges

Originally facing 164 fraud and theft charges, O'Brien pleaded guilty to two counts of fraud over $5,000.

Details of O'Brien's crimes come from an agreed statement of facts read aloud at his plea in September 2018.

Between 2011 and 2014, about 100 people signed contracts with Treadz Auto Group to sell their vehicles on consignment. Each paid $299.

But Treadz did not compensate the owners after the cars were sold to unsuspecting buyers. In many cases, those who consigned their cars did not own them outright, leaving victims who continued to pay for a vehicle they no longer owned.

The owner of the now-defunct company — which was located on Fairmount Drive S.E. — also re-registered dozens of vehicles in the company's name using fraudulent documents in order to secure a loan from a credit company for nearly $500,000, which was never repaid.

AMVIC grants licence despite criminal history

O'Brien's lawyer said his client operated successfully and honestly for six years until a number of investors backed out. After O'Brien remortgaged his home, "the house of cards came falling down," said defence lawyer Karanpal Aujla.

But O'Brien's criminal activity dates back to the 1990s.

In 2004, O'Brien was issued a licence to sell cars. The licence was issued by AMVIC, which can refuse to issue, suspend or cancel a licence if a person has a criminal record.

O'Brien, it turned out, had a criminal record dating back to 1993 for what he described as "car theft-related charges."

Ten years before he would begin his car consignment company, O'Brien was sentenced to 18 months in jail.

Complaints ramp up in 2014

AMVIC staff also noted O'Brien had filed for bankruptcy in the past. Still, the agency granted and continued to renew O'Brien's licence.

Complaints against Treadz began to roll into AMVIC the same year it granted O'Brien his licence, according to Campbell's ruling.

But the complaints at that time averaged only one a year, and those that involved failure to pay the proceeds of consignment sales were quickly resolved — until 2014.

That year, the complaints began rolling into AMVIC, prompting several investigations, which ended with O'Brien's licence cancellation in August 2014.

Payouts not received

In that same year, the lawsuit's two named plaintiffs — Andrea Scherle and Stacy Rachkewich — became involved with Treadz.

Scherle claims the consignment company sold her Dodge Ram but never gave her the money.

Treadz sold her Dodge Ram for $53,500, which should have paid off the financing owed to Scotiabank, but that never happened.

Scotiabank came after Scherle for $47,000. She was able to make a claim under AMVIC's compensation fund but that caps out at $25,000.

Rachkewich filed a complaint with AMVIC in 2014, alleging Treadz owed him nearly $20,000, the bulk of which was for a Scotiabank financing buyout.

Now that the class-action lawsuit has been certified, a date for the trial will have to be set.