American Honda Finance Corp. v. GloMc, LR-C-91-398.

• Decision Date: 17 May 1993
• Docket Number: No. LR-C-91-398.,LR-C-91-398.
• Citation: 820 F. Supp. 1157
• Parties: AMERICAN HONDA FINANCE CORPORATION, Plaintiff, v. GLOMC, INC. and William D. McMahen, Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

820 F. Supp. 1157

AMERICAN HONDA FINANCE CORPORATION, Plaintiff, v. GLOMC, INC. and William D. McMahen, Defendants.

No. LR-C-91-398.

United States District Court, E.D. Arkansas, W.D.

May 17, 1993.

Richard D. Taylor, Little Rock, AR, for plaintiff.

Ike Allen Laws, Jr., Laws & Murdoch, P.A., Russellville, AR, for defendants.

MEMORANDUM OPINION

ROY, District Judge.

Plaintiff, American Honda Finance Corporation (hereinafter "Honda Finance"), is a California corporation licensed as a financial institution and as a personal property loan broker under the laws of that state. Defendant GloMc, Inc. ("GloMc") is an Arkansas corporation engaged in the business of buying and selling, among other things, Honda products. Defendant William D. McMahen owns all of the stock of GloMc.

In September 1989, GloMc entered into a security agreement with Honda Finance for the purpose of obtaining financing for its acquisition of certain Honda products to be used as inventory in GloMc's business. The agreement was signed by McMahen in his capacity as president of GloMc on September 18, 1989. As additional security for the financing, McMahen executed a continuing personal guaranty to the benefit of Honda Finance, also on September 18, 1989, obligating himself to pay any amounts due and unpaid under the agreement. Subsequent thereto, on September 27, 1989, the security agreement was signed by an officer of Honda Finance.

Not long after the execution of the agreement, GloMc began to experience financial difficulties and fell behind in its payments to Honda Finance. After attempts by Honda Finance to work with GloMc in bringing its account current proved unsuccessful, Honda Finance repossessed the inventory in GloMc's possession in December 1990. Honda Finance filed this action on June 28, 1991 after both GloMc and McMahen failed to pay Honda Finance the amount due under the agreement. Honda Finance seeks judgment for the amount of the indebtedness, costs and attorney's fees.

GloMc and McMahen have admitted defaulting on the payments, but have counter-claimed on the ground that the interest charged by Honda Finance is usurious and, thus, the agreement invalid. Defendants seek their own damages, costs and attorney's fees from Honda Finance.

The parties have stipulated that the amount due Honda Finance under the agreement is $361,000.00. The only real point of contention concerns defendants' argument that the interest charged by Honda Finance is usurious. To answer that question, the Court must first ascertain which state's law should govern the interpretation, or enforcement, of the security agreement. In making that determination, the Court must apply the choice-of-law rules of the State of Arkansas. See Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941).

Both sides have cited the Court to Cooper v. Cherokee Village Development Co., 236 Ark. 37, 364 S.W.2d 158 (1963), in support of their arguments as to which substantive law should be applied herein. In Cooper, a case involving a financing agreement between an Arkansas developer and a New York financing company, the Supreme Court of Arkansas noted that it previously had used the following three bases in determining what law should govern the validity of a multi-state contract:

(1) the law of the state in which the contract was made;

(2) the law of the state in which the contract is to be performed in its most essential elements; and

(3) the law of the state which the parties intended to govern the contract, provided that state has a substantial connection with the contract.

Id., 364 S.W.2d at 161. In affirming the decision of the trial court that New York law should govern and the agreement was valid and enforceable, the court stated in Cooper that "we are of the opinion that upon the application of any of the three traditional rules, recognized by this court, that the law of New York is controlling." Id. at 162. The court also pointed out in Cooper that "this court has consistently inclined toward applying the law of the state that will make the contract valid, rather than void." Id.

The United States Court of Appeals for the Eighth Circuit has utilized one or more of the three Cooper theories in multi-state contract cases on a number of occasions. See, e.g., Aetna Life Insurance Co. v. Great National Corp., 818 F.2d 19 (8th Cir.1987). Following the lead of the Supreme Court of Arkansas and the Court of Appeals for the Eighth Circuit, this Court shall apply Cooper in deciding the issues now before it.

In the instant case, the security agreement and the personal guaranty provide that all rights, duties and interests in those documents, and the validity and interpretation...