Giles v. General Motors Acceptance Corp.

• Decision Date: 10 August 2007
• Docket Number: No. 05-15189.,No. 05-17251.,05-15189.,05-17251.
• Parties: Linda GILES; William Giles; Yerington Ford, Inc., Plaintiffs-Appellants, v. GENERAL MOTORS ACCEPTANCE CORPORATION, Defendant-Appellee. Bill Giles Motor Company, Inc.; Linda Giles; William Giles, Plaintiffs-Appellants, v. General Motors Acceptance Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

494 F.3d 865

Linda GILES; William Giles; Yerington Ford, Inc., Plaintiffs-Appellants, v. GENERAL MOTORS ACCEPTANCE CORPORATION, Defendant-Appellee.

Bill Giles Motor Company, Inc.; Linda Giles; William Giles, Plaintiffs-Appellants, v. General Motors Acceptance Corporation, Defendant-Appellee.

No. 05-15189.

No. 05-17251.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 9, 2007.

Filed August 10, 2007.

Joseph M. Terry, Williams & Connolly, Washington, D.C., for the appellants.

Rick R. Hsu, Reno, NV, Michael E. Malloy and Christopher Damian Jaime, Maupin Cox & LeGoy, Reno, NV, for the appellee.

Appeals from the United States District Court for the District of Nevada; Larry R. Hicks, District Judge, Presiding. D.C. Nos. CV-03-00147-LRH, CV-04-00567-LRH/VPC.

Before: ALFRED T. GOODWIN, A. WALLACE TASHIMA, and W. FLETCHER, Circuit Judges.

WILLIAM A. FLETCHER, Circuit Judge:

These are consolidated appeals in two diversity actions brought under Nevada law. In No. 05-15189, the "Yerington Ford case," Appellants Yerington Ford, Linda Giles, and William Giles sued General Motors Acceptance Corporation ("GMAC"). In No. 05-17251, the "Giles Chevrolet case," Appellants Bill Giles Motor Company ("Giles Chevrolet"), Linda Giles, and William Giles sued GMAC. In the discussion that follows, we sometimes use the term "Appellants" to refer to the appellants in one or the other of the cases and sometimes to refer to the appellants in both cases. Where the meaning is not clear from the context, we specify the appellants to whom we refer.

In the Yerington Ford case, the district court granted summary judgment to GMAC on the merits in a published opinion. Yerington Ford, Inc. v. Gen. Motors Acceptance Corp., 359 F.Supp.2d 1075 (D.Nev.2004). In the Giles Chevrolet case, the district court granted summary judgment to GMAC, based on preclusion stemming from its decision in the Yerington Ford case, in an unpublished order.

We reverse both decisions and remand for further proceedings. In the Yerington Ford case, we hold that the district court misapplied Nevada's economic loss doctrine. In the Giles Chevrolet case, we hold that the district court misapplied Nevada's preclusion law.

I. Background

William and Linda Giles ("the Gileses") owned and operated two car dealerships, Yerington Ford and Giles Chevrolet, located in Yerington, Nevada. Each dealership had a "floorplan financing" agreement with GMAC.

Under a floorplan financing agreement, GMAC finances a dealership's wholesale purchase of vehicles; the dealership displays the vehicles and makes monthly interest payments to GMAC; and the dealership repays GMAC the portion of the loan attributable to an individual vehicle when that vehicle is sold or leased. As part of a floorplan financing agreement, GMAC enters into a "wholesale security agreement" under which GMAC's loan is secured by the dealership's entire inventory of vehicles. GMAC has the right under the agreement to inspect the vehicles and the dealership's books and records at any time. If the dealership fails to pay off the portion of the loan attributable to an individual vehicle "faithfully and promptly" after the vehicle is sold or leased, GMAC has the right to take possession of all vehicles remaining in inventory "without demand or further notice and without legal process."

In 1992, shortly after its founding, Giles Chevrolet entered into a floorplan financing agreement with GMAC. In 1997, the Gileses purchased the dealership that became Yerington Ford. A year later, in 1998, Yerington Ford entered into a floorplan financing agreement with GMAC for the purchase of Ford vehicles. Under its prior owner, Yerington Ford had obtained its financing from the Ford Motor Credit Corporation. Yerington Ford switched to GMAC because William Giles had become friends with GMAC's representative, Doug Snyder, and because Giles thought that the terms of GMAC's financing arrangement were more favorable.

When Yerington Ford and GMAC entered into their floorplan financing and wholesale security agreements in 1998, all Appellants entered into a "continuing cross-guarantee" with GMAC for both dealerships. Under this guarantee, the Gileses personally guaranteed each dealership's obligations to GMAC, and each dealership guaranteed the other's obligations to GMAC. The guarantors agreed to be responsible for all money owed to GMAC under the floorplan financing agreements. The guarantors further agreed to indemnify GMAC for losses incurred in litigation arising out of the financing agreements, unless the losses resulted from GMAC's gross negligence or willful misconduct.

In October 2001, GMAC performed its routine monthly audit of the Gileses' dealerships. GMAC performed the audit early in the month, at the Gileses' request, in order to accommodate their planned vacation. On October 11, 2001, GMAC informed the Gileses that the audit had revealed that Yerington Ford had sold or leased a number of vehicles without repaying GMAC the portion of the loan attributable to those vehicles. In the language used in the industry, these vehicles were "out of trust." Yerington Ford owed GMAC approximately $291,000 on out-of-trust vehicles. The discovery that the vehicles were out of trust precipitated the further discovery that the office manager employed by Yerington Ford had embezzled hundreds of thousands of dollars from the dealership.

It is undisputed that, within approximately two weeks of the audit, Yerington Ford paid GMAC the full amount owed on the vehicles out of trust. In the meantime, however, the Gileses had signed documents (collectively, "the October documents") that included assignments to GMAC of all of Yerington Ford's and Giles Chevrolet's proceeds from the sale or lease of vehicles by the two dealerships; a deed of trust placing a $4.3 million lien on property owned by the Gileses (the "Fernly property"); and a forbearance agreement. The forbearance agreement provided that in exchange for 10 days' forbearance on Yerington Ford's debt, a GMAC representative was authorized to be present on the premises of Yerington Ford during all hours of operation; the representative was authorized to take possession of vehicles' titles and keys; and GMAC had the right to be reimbursed for its expenses in monitoring the dealership.

The Gileses presented evidence in the Yerington Ford case in the form of affidavits and deposition testimony that GMAC employee Jeffrey Sanders threatened to padlock the door of Yerington Ford and to close down the business unless they signed the October documents. According to the Gileses' evidence, Sanders misrepresented the terms of the lien on the Fernly property by telling them that the lien was only for the amount due on the vehicles out of trust rather than for $4.3 million. According to their evidence, Sanders further represented that the lien would be released upon repayment of the debt on the vehicles out of trust.

Upon discovering the out-of-trust vehicles at Yerington Ford, GMAC placed a "hold" on both dealerships' "open account funds." Open account funds include amounts routinely paid to a dealership by car manufacturers, such as factory credits, reimbursement for warranty repairs, reimbursement for preparing vehicles for sale, and advances on retail customers' payment for vehicle purchases. According to the Gileses' evidence, Sanders promised that GMAC would release the holds on the dealerships' open account funds as soon as Yerington Ford paid the amount owing on the vehicles out of trust. However, according to the Gileses, GMAC did not do so. In the Yerington Ford case, according to the Gileses' evidence, GMAC received the dealership's open account funds from the Ford Motor Company until Yerington Ford went out of business in May 2003. In the Giles Chevrolet case, according to the Gileses' complaint, GMAC continued its hold on the dealership's open account funds from the General Motors Corporation until the complaint was filed in October 2004.

According to the Gileses' evidence in the Yerington Ford case, GMAC did not obtain assignments from Appellants authorizing GMAC to place holds on the dealerships' open account funds until several months after they placed such holds. According to the Gileses, GMAC tricked them into signing back-dated assignments of both dealerships' open account funds to make it appear that such assignments had been made about six months before the audit of Yerington Ford. William Giles testified in his deposition that at a meeting on March 12, 2002, GMAC representative Doug Snyder told the Gileses that the documents were a standard part of the wholesale floorplan agreement, that they were "just for our files," and that other dealerships had signed such an assignment the previous year. According to the Gileses' evidence, Linda Giles signed and back-dated the assignments on March 12 at Snyder's request without reading them or knowing their import. Her signature on Yerington Ford's assignment is dated April 25, 2001; her signature on Giles Chevrolet's assignment is dated May 15, 2001. Appellants also offered evidence to explain the holds' operation before the alleged back-dating of the assignments. According to the deposition testimony of a Ford Motor Company employee who processes assignments of open account funds, it is customary for Ford employees to read and rely on a cover letter describing a purported assignment without actually looking to see whether there is a properly executed assignment in the underlying documents.

Appellants filed suit in the Yerington Ford case on March 19, 2003, claiming that these and other actions by GMAC constituted fraudulent and negligent misrepresentation, conversion, breach of fiduciary and confidential relationship duty, constructive fraud, undue influence, intentional infliction of emotional distress, and breach of contract. They alleged that GMAC's tortious actions and breach of contract harmed Yerington...