Chrysler Credit Corp. v. Bert Cote's L/A Auto Sales, Inc.

• Decision Date: 11 March 1998
• Citation: 1998 ME 53,707 A.2d 1311
• Parties: CHRYSLER CREDIT CORPORATION v. BERT COTE'S L/A AUTO SALES, INC. and Auto Park Associates, et al.
• Court: Maine Supreme Court

Page 1311

707 A.2d 1311

1998 ME 53

CHRYSLER CREDIT CORPORATION v. BERT COTE'S L/A AUTO SALES, INC. and Auto Park Associates, et al.

Supreme Judicial Court of Maine.

Argued Dec. 3, 1997.

Decided March 11, 1998.

Timothy H. Norton (orally), U. Charles Remmel, Kelly, Remmel & Zimmerman, Portland, for plaintiff.

Jeffrey T. Edwards (orally), Bruce C. Gerrity, Carl W. Tourigny, Preti, Flaherty, Beliveau & Pachios, L.L.C., Portland, for defendants.

Before ROBERTS, CLIFFORD, RUDMAN, DANA, LIPEZ, and SAUFLEY, JJ.

RUDMAN, Justice.

¶1 Chrysler Credit Corporation (CCC) appeals from the judgments entered in the Superior Court (Androscoggin County, Cole, C.J.) finding that CCC had breached its commitment to provide financing to Bert Cote's L/A Auto Sales ("L/A Auto Sales") and to Bert's Subaru, Inc. ("Bert's Subaru"); that CCC's failure to provide financing to L/A Auto Sales was in violation of the Maine Dealers Act, 10 M.R.S.A. §§ 1171-1186 (1997 & Supp.1997); that CCC had intentionally interfered with L/A Auto Sales' and Bert's Subaru's contractual relations; and that L/A Auto Sales' guarantors were liable in the amount of $189,000 for L/A Auto Sales' breach of its loan agreements with CCC. ¹ CCC makes numerous arguments on appeal, including, inter alia, that the court exceeded the bounds of its discretion by granting L/A Auto Sales' motion to amend its complaint to add Bert's Subaru as a plaintiff after L/A Auto Sales had rested its case; that the court exceeded the bounds of its discretion by allowing a witness who had not been designated as an expert to testify regarding Bert's Subaru's estimated lost profits; and that the court erred by instructing the jury that CCC could be equitably estopped from enforcing its loan agreements. We agree with CCC's contentions and vacate the judgments in favor of L/A Auto Sales and Bert's Subaru and the judgment in favor of CCC against L/A Auto Sales' guarantors. ²

I.

¶2 L/A Auto Sales, ³ a Lewiston automobile dealership selling mainly Jeep/Eagle vehicles, was established in 1987 by Bertrand Cote and five minority stockholders. ⁴ It leased its place of business on Lisbon Street from Auto Park Associates, a real estate partnership whose partners were L/A Auto Sales' six stockholders and a seventh individual.

¶3 In order to finance its inventory of vehicles, L/A Auto Sales entered into a floorplan credit agreement with CCC in 1987. Pursuant to the floorplan credit agreement, CCC agreed to advance funds to L/A Auto Sales to finance the acquisition of vehicles, and L/A Auto Sales agreed to promptly remit the proceeds from each sold vehicle to CCC. The floorplan line of credit was secured by a first security interest in the financed vehicles and in L/A Auto Sales' business assets, and was personally guaranteed by L/A Auto Sales' six stockholders. In addition to providing the floorplan line of credit, CCC also loaned L/A Auto Sales approximately $161,000 for the purchase of various fixed assets.

¶4 Within a year after it commenced operations, L/A Auto Sales encountered financial difficulties. By late 1988 it began to report monthly operating losses and floorplan borrowings in excess of one million dollars, resulting in tightened cash flow, increased leverage, and a bloated inventory of vehicles. According to Bert Cote, L/A Auto Sales' majority shareholder, CCC contributed to the dealership's financial problems by allowing it to overborrow on the floorplan line. By late summer 1989 L/A Auto Sales had breached the CCC floorplan agreement by failing to remit to CCC vehicle sale proceeds totalling $189,000, keeping the funds instead to cover daily operating expenses. As a result of this "out-of-trust" situation, CCC put L/A Auto Sales on involuntary finance hold, meaning that no more vehicles would be shipped and no additional funds would be advanced. L/A Auto Sales' out-of-trust amount continued to grow during the ensuing months, eventually reaching $308,000 by October 1990.

¶5 As L/A Auto Sales continued to struggle financially, Bert Cote became interested in adding a Subaru franchise to the existing business. Hoping that the economic efficiencies of operating two franchises, Jeep/Eagle and Subaru, at the Lisbon Street location would improve profitability, in mid-1989 he applied for a Subaru franchise. Henry Burbank, a vice president of marketing for Subaru New England, reviewed Cote's application and in August 1989 approved the application, subject to several conditions, including the provision of adequate facilities and the acquisition of a one million dollar floorplan credit line. In anticipation of the Subaru dealership, Cote incorporated a new entity called "Bert's Subaru, Inc.," whose stock would be 100% owned by Cote.

¶6 On December 15, 1989, Fleet Bank issued a commitment letter to Auto Park Associates, the real estate partnership, promising to lend it $600,000. Pursuant to the commitment letter, $300,000 of the total loan was to be used to renovate the Lisbon Street building to house the proposed Subaru dealership, and $200,000 of the total loan was to be injected as capital into L/A Auto Sales and the proposed Subaru dealership. The loan would be due in three years, and would be secured by, inter alia, a second mortgage on Auto Park Associate's Lisbon Street property and a $350,000 cash collateral pledge.

¶7 According to Cote's testimony at trial, he called CCC representative Charles Fahey on December 15 to discuss the Fleet proposal. Fahey requested that Cote send him expense projections, which would enable Fahey to determine whether CCC was interested in making its own financing proposal. Cote sent Fahey the requested information. On January 23, 1990, Cote telephoned Fahey and asked whether he should accept Fleet's proposal. According to Cote, Fahey told him not to sign the commitment letter, and that CCC "would come up with a better finance package." There was no further discussion with respect to the amount or term of the loan, the borrowing entity, the collateral, or the interest rate. On the basis of this conversation, Cote testified he declined the Fleet proposal.

¶8 The already strained relationship between CCC and L/A Auto Sales deteriorated further after January 1990. According to Cote, a CCC representative repeatedly disrupted L/A Auto Sales' operations by entering the dealership several times a week to collect the proceeds from vehicles sold, harassing its customers, and treating its employees abusively. Despite frequent audits by CCC, L/A Auto Sales' out-of-trust amount continued to grow as the dealership used the proceeds from vehicles sold to fund payroll and daily operating expenses. Floorplan indebtedness approached one million dollars, and the business continued to report losses each month. Cote testified at trial that he asked Fahey numerous times about CCC's financing proposal; Fahey allegedly responded that he "was working on it."

¶9 In May 1990, Auto Park Associates executed a partnership guaranty secured by a second mortgage on the Lisbon Street property in favor of CCC to further collateralize L/A Auto Sales' outstanding indebtedness, allegedly in exchange for CCC's promise to provide financing for the proposed Subaru dealership and to refinance L/A Auto Sales' out-of-trust amount. ⁵ Shortly thereafter, Fahey notified Cote that CCC was unwilling to provide further financing for any purpose, and demanded that L/A Auto Sales cure its floorplan defaults. L/A Auto Sales remained out-of-trust, and in October 1990 ceased operations.

¶10 After liquidating its collateral, CCC filed suit against Auto Park Associates, pursuant to the May 1990 secured partnership guaranty, and the individual guarantors, pursuant to their 1987 guaranties, to recover approximately $1.15 million in remaining indebtedness owed by L/A Auto Sales (hereinafter referred to as "the guarantor action"). Auto Park Associates and the individual guarantors filed an answer and a counterclaim, alleging, inter alia, that CCC had breached its commitment to provide financing for the proposed Subaru dealership and to refinance L/A Auto Sales' out-of-trust amount; and that CCC had intentionally interfered with Auto Park Associates' rental relationship with L/A Auto Sales.

¶11 In January 1992, L/A Auto Sales filed its own complaint against CCC (hereinafter referred to as the "L/A Auto Sales action"), in which it alleged, inter alia, that CCC had breached its agreement to refinance its out-of-trust amount and to provide financing for the Subaru franchise (Count 1); that CCC had violated the Maine Dealers Act, 10 M.R.S.A. §§ 1171-1186 (Count 4); and that CCC had intentionally interfered with its car-selling business (Count 5). ⁶ CCC filed an answer and counterclaim, alleging that L/A Auto Sales had breached the conditions of its loan agreements. The court granted CCC's motion to consolidate the guarantor action and the L/A Auto Sales action. ⁷

¶12 At trial L/A Auto Sales was permitted, over CCC's repeated objections, to introduce evidence concerning the projected profitability of the proposed Subaru dealership. This evidence was introduced through the testimony of Henry Burbank, the Subaru New England marketing vice president who had reviewed and conditionally approved Cote's application for a Subaru franchise in August 1989. At the close of L/A Auto Sales' evidence at trial, it moved to amend its complaint to include Bert's Subaru as a plaintiff. The court granted L/A Auto Sales' motion over CCC's objection.

¶13 With respect to the L/A Auto Sales action, the jury returned a verdict finding that CCC was liable to L/A Auto Sales on all three counts in the amount of $250,000; and that CCC was liable to Bert's Subaru, Inc. on the contract and tort counts in the amount of $300,000. The court entered judgments accordingly. The jury also determined that L/A Auto Sales had breached its loan agreements with CCC. With respect to the guarantor action, the court adopted the damages determined by...