Baker v. Auto. Fin. Corp.

• Decision Date: 28 June 2022
• Docket Number: C. A. 1:20-CV-00356-MSM-PAS
• Parties: H. JEFFREY BAKER and CT102 LLC d/b/a METRO MOTORS, Plaintiffs, v. AUTOMOTIVE FINANCE CORPORATION, NEXTGEAR CAPITAL, INC., MANHEIM, INC., and ADESA, INC., Defendants.
• Court: U.S. District Court — District of Rhode Island

H. JEFFREY BAKER and CT102 LLC d/b/a METRO MOTORS, Plaintiffs, v. AUTOMOTIVE FINANCE CORPORATION, NEXTGEAR CAPITAL, INC., MANHEIM, INC., and ADESA, INC., Defendants.

C. A. No. 1:20-CV-00356-MSM-PAS

United States District Court, D. Rhode Island

June 28, 2022

MEMORANDUM AND ORDER

Mary S. McElroy, United States District Judge.

Before the Court are four motions to dismiss filed by the defendants, Automotive Financing Corporation (“AFC”) (ECF No. 47), ADESA, Inc. (“ADESA”) (ECF No. 48), NextGear Capital, Inc. (“NextGear”) (ECF No. 49), and Manheim Marketing Inc. (“Manheim”) (ECF No. 51). Each seeks to dismiss in its entirety the Second Amended Complaint (“SAC”) (ECF No. 42) filed by the plaintiffs CT102 LLC d/b/a Metro Motors (“Metro Motors”), a Connecticut Limited Liability Company, and H. Jeffrey Baker a resident of East Greenwich, Rhode Island. Each Motion is brought pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted, and each relies in part on forum selection clauses which preclude litigation in Rhode Island. For the following reasons, the Court concludes that the plaintiffs are bound by valid and enforceable forum selection clauses provided in the plaintiffs' contracts with AFC, NextGear, Manheim. The Court also concludes there is no jurisdiction under Rule 12(b)(2) over ADESA. The Court therefore GRANTS the Motions to Dismiss (ECF Nos. 47, 48, 49, and 51) and the plaintiffs' Second Amended Complaint is DISMISSED without prejudice.^[1]

I. BACKGROUND

The plaintiffs' SAC puts forth seven counts: fraud by AFC; intentional tortious interference with contractual relations by all defendants; conspiracy to tortiously interfere with contractual relations by all defendants; negligence by AFC and NextGear; breach of the covenant of good faith and fair dealing by all defendants; unjust enrichment of AFC and NextGear; and, finally, a lender liability claim against AFC and NextGear. (ECF No. 42.) In essence, the plaintiffs claim that they were systematically excluded from the used car dealership industry and intentionally put out of business by the cooperative effort of the defendants.

The plaintiffs operated a car dealership, first as a J.D. Byrider franchise and later as Metro Motors, in Branford, Connecticut. (ECF No. 42 ¶ 1.) Metro Motors purchased and sold vehicles at auctions conducted by two of the defendants, Manheim and ADESA. Id. ¶14. Those purchases and sales were financed by loans from the remaining defendants, AFC and NextGear.^[2] Id. ¶ 15. These essential used car dealership functions-financing, purchasing, and selling inventory-form the basis of the various and interconnected relationships among the parties now before the Court.

To acquire inventory, the plaintiffs sought “used automobile dealer floor financing” from NextGear and AFC. In January 2014, the plaintiffs agreed to the terms of NextGear's Promissory Note and Security Agreement (together “NextGear Loan Agreement”) and Mr. Baker executed NextGear's Individual Guaranty (“NextGear Guaranty”), personally guaranteeing the NextGear Loan Agreement. Id. Then, in October 2017, the plaintiffs executed AFC's Promissory Note and Security Agreement (together “AFC Loan Agreement”) and Mr. Baker signed AFC's Unconditional and Continuing Guaranty (“AFC Guaranty”), again personally guaranteeing the AFC Loan Agreement. Id. ¶¶ 18-19.

These dealer floor financing agreements are central to the Court's ruling on NextGear and AFC's respective Motions to Dismiss. Both the NextGear Loan Agreement and Guaranty and the AFC Loan Agreement and Guaranty contained forum selection clauses specifying jurisdiction and venue in the state and federal courts of Indiana. It is Mr. Baker's preliminary contention, as it must be for this Court to have jurisdiction over his claims against NextGear and AFC, that the NextGear and AFC Guaranties were altered, and that the forum selection clauses were “modified to establish Rhode Island as the applicable jurisdiction and venue” instead of Indiana. Id. ¶¶ 8, 21. The plaintiffs submitted copies of the modified Guaranties (ECF No. 42-1, Exhibits A and B) with the SAC. These submissions show Mr. Baker's handwritten alterations. In response, AFC and NextGear submitted unaltered versions of the Guaranties executed by Mr. Baker (ECF No. 47-2 at 17-19).^[3]AFC's version reads as follows:

BY EXECUTION OF THIS GUARANTY, THE UNDERSIGNED SUBMITS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF INDIANA AND TO VENUE IN THE CIRCUIT AND SUPERIOR COURTS OF HAMILTON COUNTY, INDIANA AND MARION COUNTY, INDIANA AND IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF INDIANA. ANY ACTION INITIATED BY THE UNDERSIGNED AGAINST LENDER SHALL BE FILED AND CONDUCTED SOLELY IN SAID COURTS.

Id. at 18 (emphasis in original). Similarly, the NextGear Guaranty provides that

As evidenced by the Guarantor's signature below, Guarantor submits to the personal jurisdiction of and venue of the state and federal courts of Marion County and Hamilton County, Indiana, and agrees that any and all claims or disputes pertaining to this Guaranty, or to any matter arising out of or related to this Guaranty, initiated by Guarantor against Lender, shall be brought in the state or federal courts of Marion County or Hamilton County, Indiana. Further, Guarantor expressly consents to the jurisdiction of and venue of the state and federal courts of Marion County or Hamilton County, Indiana, as to any legal or equitable action that may be brought in such court by Lender and waives any objection based on lack of personal jurisdiction, improper venue or forum non conveniens with respect to any such action. Guarantor acknowledges and agrees that Lender reserves the right to initiate and prosecute any action against Guarantor in any court of competent jurisdiction and Guarantor consents to such forum as Lender may elect.

(ECF No. 49-2 at 32). Despite the plaintiffs' protestations as to the validity of the AFC and NextGear forum selection clauses, the plaintiffs themselves readily acknowledge that they have already submitted to the jurisdiction of the state courts of Indiana in lawsuits initiated by AFC and NextGear. (ECF No. 42 ¶ 12.) That jurisdiction was exercised under these very same, unaltered clauses.

Indeed, AFC and NextGear seek dismissal of the claims against them based on previous litigation resulting in final judgments in the State of Indiana. (ECF No. 47 1 at 1; ECF No. 49 at 1.) Both AFC and NextGear have provided this Court with the decisions and judgments rendered in their favor by the courts of Marion County and Hamilton County, respectively, as well as by the Court of Appeals of Indiana. (ECF Nos. 35, 36, 37, 45, 47-3, 49-4, 49-5.)

The timeline of the parties' relationships is necessary for the Court's ultimate determination of AFC and NextGear's pending motions. The decisions rendered by the Indiana state courts supply the details omitted from the SAC.^[4]

A. AFC and NextGear - Prior Indiana Litigation

AFC filed a lawsuit against CT102, LLC d/b/a Metro Motors and Herman Jeffrey Baker on December 4, 2018 “alleging indebtedness due under the terms of the [Promissory] Note, the liability of Baker under the Guaranty, and treble damages as a result of Metro's conversion of proceeds of the sale of AFC's collateral.”^[5] (ECF No. 47-3 at 12.) The Marion Superior Court entered an Order on Bench Trial on February 24, 2021, and a corresponding Final Judgment on April 23, 2021, in favor of AFC after finding that Metro Motors and Mr. Baker had defaulted on the Note and that Metro Motors and Mr. Baker were jointly and severally indebted to AFC for $202,663.12 plus interest. (ECF No. 47-3 at 20.) In reaching its decision, the Marion Superior Court considered the AFC Loan Agreement and Guaranty, including the forum selection clause which the plaintiffs now contest. The court explained that Mr. Baker “submitted his Altered Guaranty at trial . . . but it was not part of the pleadings and the disputed alteration is not initialed by Plaintiff's witness” who “testified that he has no recollection of any alterations to the document” which he notarized. Id. at 12. Ultimately, the Marion County Court found the AFC Guaranty, as originally drafted, valid and enforceable and that it established jurisdiction in Indiana. Id. On November 2, 2021, the Court of Appeals of Indiana issued a decision affirming in part and reversing and remanding as to the damages calculations, with instructions to reduce by $78,996.46 the award amount which had been “double-counted” by the trial court. (ECF No. 45-1 at 5-6.) The trial court's findings and conclusions were otherwise undisturbed.

NextGear much like AFC, sued Metro Motors and Mr. Baker, alleging breach of contract in the Hamilton Circuit Court in Hamilton County, Indiana.^[6] The trajectory of the NextGear litigation followed a now familiar path. NextGear's Indiana lawsuit involved the same Loan Agreement and Guaranty between NextGear, Metro Motors, and Mr. Baker that are involved here. The plaintiffs do not dispute this fact, except to the extent that Mr. Baker suggests that he modified the NextGear Loan Agreement's forum selection clause, just as he had modified the AFC Loan Agreement. Like the Marion County Superior Court, the Hamilton Circuit Court reviewed the contractual language governing the relationship between NextGear, Metro Motors, and Mr. Baker. (ECF No. 49-4 at 3.) When confronted with competing versions of the “[t]he jurisdiction, venue, and choice of laws provisions of the Note and Guaranty,” the Hamilton Circuit Court concluded that the unmodified clause presented by NextGear was valid and enforceable. Id. at 4. Mr. Baker and Metro Motors...