Ridge Chrysler Jeep v. Daimlerchrysler Financial

Citation516 F.3d 623
Decision Date20 February 2008
Docket NumberNo. 06-4140.,06-4140.
PartiesRIDGE CHRYSLER JEEP, LLC, and Sales, Incorporated, Plaintiffs-Appellants, v. DAIMLERCHRYSLER FINANCIAL SERVICES AMERICAS LLC, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Before EASTERBROOK, Chief Judge, and KANNE and ROVNER, Circuit. Judges.

EASTERBROOK, Chief Judge.

Ridge Chrysler Jeep and Dodge of Midlothian were dealers in Chrysler's vehicles. It provided floor-plan financing and was entitled by contract to withdraw or limit financing if its position became insecure. (We refer to "Chrysler," which before its spinoff into Chrysler LLC was a division of DaimlerChrysler. Financing was by DaimlerChrysler Financial Services, which survived the separation of Chrysler from Mercedes Benz.)

In 2002 Chrysler exercised its right to require the dealerships to pay up front for their inventory. They responded with this suit under the Automobile Dealers' Day in Court Act, 15 U.S.C. §§ 1221-25, accusing Chrysler of effectively ending the franchises without adequate cause. Chrysler replied that it remained willing to furnish whatever the dealerships could resell; if they could not pay in advance they were free to obtain capital from the many other firms that specialize in loans secured by inventory.

After Gerald Gorman, the CEO and principal owner of the two dealerships, represented that he had been unable to obtain third-party credit, District Judge Andersen entered an interlocutory order compelling Chrysler to continue to finance the inventory, provided that Gorman raise new capital to improve Chrysler's position. Once Gorman filed an affidavit verifying that he had secured $925,000, the district judge's order took effect. Despite Fed. R.Civ.P. 65(c), the judge did not require the dealerships to give an injunction bond or other security, and Chrysler neglected to take an appeal from that omission. It has had cause to regret both the district court's oversight and its own inaction. See W.R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 770 n. 14, 103 S.Ct. 2177, 76 L.Ed.2d 298 (1983); Mead Johnson & Co. v. Abbott Laboratories, 201 F.3d 883, 887-88, amended, 209 F.3d 1032 (7th Cir.2000).

Discovery then got under way. The case was complex, because the dealerships made claims under state law and also argued that Chrysler had discriminated by refusing to finance the purchases of non-suburban black customers. For its part, Chrysler filed counterclaims seeking repayment of outstanding loans. Discovery was sidetracked once Chrysler learned that Gorman had lied to Judge Andersen. The supposed $925;000 in new equity was in fact a $750,000 loan from Edward Vrdolyak, then the dealerships' lawyer in this suit. The loan was secured by some of Midlothian's inventory and so did not provide Chrysler with a cushion, as Gorman had represented. The other $175,000 appeared to represent Gorman's sale of his shares in firms unrelated to the dealerships. Changing some of Gorman's existing assets from stock to cash did nothing to improve Chrysler's security.

Chrysler sought to discover the dealerships' business records, many of which were on a computer. First plaintiffs denied having any such computer; then they said that they could not access it after the dealerships closed in late 2003; by the time Magistrate Judge Keys ordered the dealerships to comply, the computer had been repossessed and destroyed by its owner. Gorman had failed to copy the data for disclosure to Chrysler. (The facts we are reciting come from Magistrate Judge Keys's findings, which District Judge Kendall approved after the case was transferred to her.)

The magistrate judge also found that Gorman had lied about his efforts to obtain loans from sources other than Chrysler. Gorman assured Judge Andersen that he had made personal inquiries and found banks unwilling to lend because of the pending litigation; in a deposition, however, Gorman conceded that he had not tried to obtain floor-plan financing from anyone other than Chrysler until after the district court entered its order. (Whether Gorman's representations should have led to any relief, had they been true, is open to doubt. Suppose that no one other than Chrysler was willing to finance the dealerships' inventory at any plausible interest rate. That judgment of independent financiers would establish, not that Chrysler should be compelled to loan more, but that it had good business reasons for thinking itself insecure.)

Plaintiffs' verified complaint asserted that the allegations of racial discrimination by Chrysler could be established by contemporaneous notes that Gorman had maintained. During discovery plaintiffs were unable to produce these notes. Whether they never existed, or existed but were destroyed to prevent revelation of their contents, is unknown.

To top this off, Gorman used the time when Chrysler was an involuntary creditor to pay himself $1 million of a loan to the dealerships that was supposed to be subordinated to Chrysler's position. Thus the promised $925,000 in new capital (which actually was no more than $750,000) was offset by a loss of $1 million in old capital. Gorman's "explanation" for this is that he deemed the subordination agreement to be invalid. He didn't tell Chrysler about this view, or his action based on it, until he had been caught. As far as we can see, Gorman has never attempted to establish that the subordination agreement is invalid; he treats his unilateral belief as sufficient to justify going back on his word to both Chrysler and Judge Andersen.

When the dealerships closed, they owed Chrysler $4 million, about $500,000 more than when this litigation began. The district court ordered the dealerships to pay that debt on Chrysler's counterclaim, and it dismissed the dealerships' claims as a sanction for misconduct during the course of the...

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