Buke, LLC v. Cross Country Auto Sales, LLC

• Decision Date: 25 June 2014
• Docket Number: No. 32,559.,32,559.
• Parties: BUKE, LLC, Plaintiff–Appellant, v. CROSS COUNTRY AUTO SALES, LLC, Cross Country Auto Sales Westside, LLC, Southwest Auto Wholesale, LLC, CAS, LLC, John Chiado, Joe Chiado, John T. Reilly, BEDO, LLC, John Perner, and Perner and Michnovicz, LLC, Defendants–Appellees.
• Court: Court of Appeals of New Mexico

331 P.3d 942

BUKE, LLC, Plaintiff–Appellant,

v.CROSS COUNTRY AUTO SALES, LLC, Cross Country Auto Sales Westside, LLC, Southwest Auto Wholesale, LLC, CAS, LLC, John Chiado, Joe Chiado, John T. Reilly, BEDO, LLC, John Perner, and Perner and Michnovicz, LLC, Defendants–Appellees.

No. 32,559.

Court of Appeals of New Mexico.

April 23, 2014.

Certiorari Denied, June 25, 2014, No. 34,761.

John J. Kelly, Michelle A. Hernandez, Kevin D. Pierce, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, for Appellant.

Jane B. Yohalem, Law Office of Jane B. Yohalem, Santa Fe, NM, Chris Key, Law Office of Chris Key, Albuquerque, NM, for Appellees Cross Country Auto Sales, LLC; Cross Country Auto Sales Westside, LLC; Southwest Auto Wholesale, LLC; CAS, LLC; John Chiado; John T. Reilly, and BEDO, LLC.

John M. Brant, Jeannie Hunt, Law Office of Jack Brant, P.C., Albuquerque, NM, for Appellees John Perner and Perner and Michnovicz, LLC.

OPINION

VANZI, Judge.

{1} This lawsuit arises from a dispute concerning the use of certain assets of Plaintiff–Appellant BUKE, LLC (BUKE), a limited liability company (LLC) car dealership, by BUKE's manager, Randall Eastburg, who was also a member of BUKE and of Defendant LLC car dealerships. Rounding out the named Defendants are other members of Defendant LLC car dealerships, along with a certified public accountant (CPA) and his accounting firm.

{2} The case involves many players, claims, and contentions, but resolution of the central issues raised in this appeal turns primarily on one disputed point—whether Eastburg had the requisite consent to use the assets in question. We conclude that the only reasonable conclusion to be drawn from the undisputed material facts is that he did, so we affirm the district court's summary judgment rulings in favor of Defendant LLC car dealerships and their members. We also affirm the district court's entry of summary judgment dismissing the accountant malpractice claim and its denial of BUKE's motion to amend the scheduling order.

I. BACKGROUNDA. The Parties

{3} BUKE was formed in 2005 with the following members: Brian Urlacher (32.5%), Turner and Margaret Branch (20%), Bryce Karger (15%), and Randall and Lisa Eastburg (32.5%).¹

{4} Defendants fall into three groups: (1) Albuquerque used car dealerships Cross Country Auto Sales Eastside, LLC and Cross Country Auto Sales Westside, LLC, along with Albuquerque wholesale dealership Southwest Auto Wholesale, LLC (collectively, Cross Country LLCs); (2) Cross Country LLCs' members: John T. Reilly and BEDO, LLC (BEDO), which consists of six members of the Chiado family, two of whom are also named Defendants (collectively, Cross Country Members) ²; (3) John Perner, a CPA who provided services to BUKE and the Cross Country LLCs, and his accounting firm, Perner and Michnovicz (collectively, the Accountants).

B. The Undisputed Material Facts1. Eastburg's Relationships With the Parties

{5} Eastburg was an experienced owner and operator of car dealerships, who operated the Cross Country LLCs since 1998. Eastburg continued to be a member of the Cross Country LLCs and to operate those dealerships after he became involved with BUKE in 2005. All of BUKE's members were aware of Eastburg's involvement with the Cross Country LLCs.

{6} Eastburg was also a member and manager of a used car dealership in Lovington, New Mexico called “Brian Urlacher Cross Country Auto Sales LLC” (Lovington Dealership), in which Urlacher and Karger had an ownership interest. Turner Branch was the only BUKE member who did not hold a membership interest in the Lovington Dealership.

2. Eastburg's Management and Use of Certain BUKE Assets

{7} BUKE selected Eastburg to be its sole manager at its inception in 2005, and Eastburg held that position until 2009. As discussed further below, BUKE's operating agreement (Operating Agreement) prohibited BUKE's members from participating in “the control, management, direction or operation” of BUKE's affairs and gave BUKE's manager (Eastburg) “the exclusive right to manage all of” BUKE's affairs, subject to certain limitations.

{8} In 2006, BUKE bought the assets of a General Motors (GM) new car dealership in Tucumcari, New Mexico (Tucumcari Dealership) and named it “Brian Urlacher Cross Country Autoplex.” As a GM franchisee (via the Tucumcari Dealership), BUKE had access to GM “credentials,” also known as a “badge,” which allowed BUKE to purchase low-mileage GM vehicles at closed GM auctions (GM Badge). BUKE also had a General Motors Acceptance Corporation (GMAC) credit line (also known as a “floor plan”), which allowed BUKE to finance the vehicles it purchased at low interest rates (Credit Line).

{9} Eastburg testified that access to the GM Badge and Credit Line was one of the reasons he wanted to become involved with the Tucumcari Dealership. The Tucumcari Dealership's former owner was aware that Eastburg was going to use the GM Badge during the management contract period. Eastburg told Karger that he was going to use the GM Badge to purchase vehicles for the Cross Country LLCs, although he does not recall discussing use of the GM Badge or Credit Line for this purpose with Urlacher or Branch. Karger did not object, although some details of that conversation are disputed: Karger testified that, during their conversation, Eastburg promised that the Cross Country LLCs would pay BUKE $500 for each vehicle it purchased using the GM Badge, while Eastburg said that he does not remember making this promise and that he never would have made it because that amount would be excessive. The Cross Country LLCs never paid BUKE a per-vehicle fee.

{10} Once BUKE began operating the Tucumcari Dealership in 2006, Eastburg arranged with one of BUKE's employees to obtain GM Badges for himself and others working for him to purchase vehicles at closed GM auctions. BUKE's employees understood that Eastburg was authorized to do so. Thereafter, Eastburg used the GM Badges to purchase and sell vehicles for BUKE, the Lovington Dealership, and the Cross Country LLCs. Eastburg also arranged with BUKE's employees for the Cross Country LLCs to reimburse BUKE for the vehicles that were purchased for them at GM auctions on the Credit Line. The Cross Country LLCs' lender, New Mexico Bank & Trust, was aware that Eastburg was purchasing vehicles for the Cross Country LLCs on BUKE's Credit Line.

{11} Eastburg publicized that he was using the GM Badge and Credit Line to purchase vehicles for all of the dealerships he operated. For instance, in March 2007, Eastburg gave an interview for an article published in the New Mexico Business Weekly. That article discussed all of the dealerships Eastburg operated, referring to them collectively as “Cross Country” notwithstanding their different ownerships. It also stated that “[t]he GM Tucumcari deal is huge because it will give Eastburg access to all GM auto auctions, as well as to GM financing for his inventory of cars, both new and used.” BUKE posted the article on its website. Eastburg also spoke openly to Albuquerque newspapers about “moving inventory between the various stores with which [he] was affiliated[.]”

3. Perner's Determinations Concerning the Credit Line

{12} Perner was not involved in BUKE's day-to-day bookkeeping. However, in May 2008, Eastburg, on behalf of BUKE, hired Perner to perform two discrete accounting services for BUKE: prepare tax returns for 2006, 2007, and 2008; and prepare a Reviewed Financial Statement (RFS) for 2007. Perner had previously prepared tax returns for two of the Cross Country LLCs. Shortly after BUKE hired him as an accountant, Perner also became a member of a newly created business, Cross Country Auto Parts, LLC, whose other members were Eastburg, two Cross Country Members, and three other individuals.

{13} While preparing the RFS in May 2008, Perner determined that the Credit Line was “out of trust,” meaning that the amount BUKE owed GMAC exceeded the value of BUKE's inventory on the car lot floor at the Tucumcari Dealership. Perner also determined that one of the Cross Country LLCs had six BUKE vehicles in its inventory for which it had not paid BUKE. The RFS disclosed this. Perner gave multiple copies of the RFS to Eastburg to distribute to BUKE's other members. Both the RFS and the tax returns were accurate and correct. BUKE never paid $15,796.75 of the balance it owed Perner for the preparation of the tax returns and RFS.

{14} Sometime in 2008, Branch began receiving notices from GMAC that payments were not being timely made on the Credit Line. Because Branch was not receiving monthly financial statements from BUKE's bookkeeper in Tucumcari and was unhappy to be receiving notices from GMAC, Branch requested a meeting with Perner, which occurredin August 2008. At that meeting, Perner said he would ensure that Branch started receiving the monthly statements from the Tucumcari Dealership, but he did not disclose anything else.

{15} In January 2009, GMAC wrote Eastburg and BUKE, advising that a recent audit showed untimely payments on the Credit Line for 66 out of 97(68%) of the vehicles audited and that GMAC would increase BUKE's interest rates on the Credit Line by 100 basis points (1%) until BUKE's wholesale performance complied with the requirements of the Wholesale Security Agreement.

{16} Branch, who is the only BUKE member who is not also an owner of the Lovington Dealership, is also the only BUKE member who testified that he was not aware of Eastburg's use of BUKE's GM Badge and Credit Line to benefit the Cross Country LLCs until 2009. There is no testimony from Urlacher in the record. None of BUKE's members ever objected to Eastburg's use of BUKE's GM Badge and Credit Line to purchase vehicles for the Cross Country LLCs until Branch started investigating the late payments on the Credit Line.

C. Procedural History

{17} BUKE filed its complaint in June 2009 and filed an amended complaint in February 2011. The first amended complaint...