Ford Motor Credit Co. v. Garner

• Decision Date: 03 June 1988
• Docket Number: Civ. No. F 87-248.
• Parties: FORD MOTOR CREDIT COMPANY, Plaintiff, v. Stanley J. GARNER and Virginia M. Garner, Defendants.
• Court: U.S. District Court — Northern District of Indiana

688 F. Supp. 435

FORD MOTOR CREDIT COMPANY, Plaintiff, v. Stanley J. GARNER and Virginia M. Garner, Defendants.

Civ. No. F 87-248.

United States District Court, N.D. Indiana, Fort Wayne Division.

June 3, 1988.

Thomas W. Yoder, Livingston, Dildine, Haynie & Yoder, Fort Wayne, Ind., for plaintiff.

Jay H. Ham, III and Jeffrey A. Ayers, Baker & Daniels & Shoaff, Fort Wayne, Ind., for defendant.

MEMORANDUM DECISION AND ORDER

WILLIAM C. LEE, District Judge.

A one day bench trial was held on April 21, 1988, and the court heard final arguments on May 2, 1988. The following Findings of Fact and Conclusions of Law are entered pursuant to Federal Rule of Civil Procedure 52(a), after having examined the entire record and after having determined the credibility of witnesses.

I.

Findings of Fact

A. The Parties and Their Financing Agreement

Defendants Stanley and Virginia Garner have been residents of Fort Wayne and citizens of Indiana since 1978. In May, 1978, Stanley Garner, through Garner Lincoln-Mercury, Inc., became a dealer for Ford Motor Company's Lincoln-Mercury Division of Fort Wayne. Before coming to Fort Wayne, Mr. Garner had a 25% interest in a Ford dealership near New Orleans, Louisiana. That dealership was profitable and when Mr. Garner moved to Fort Wayne he received $250,000 for his interest in the Louisiana dealership.

Plaintiff Ford Motor Credit Company (FMCC), a wholly owned subsidiary of Ford Motor Company, provided financing for Mr. Garner so that he could acquire and operate the Fort Wayne Lincoln-Mercury dealership. FMCC is the financial arm of Ford Motor Company and it provides financial services for Ford and Lincoln-Mercury dealers. FMCC made a "capital loan" to Garner Lincoln-Mercury, Inc. in the amount of $250,000. Mr. Garner invested the $250,000 he had received from the Louisiana dealership. FMCC also accepted Garner Lincoln-Mercury, Inc. for its "automotive wholesale plan." This included "floor plan" financing, whereby FMCC extended to the dealership a line of credit to finance its inventory of Lincoln-Mercury vehicles.

Mr. Garner was the President and sole shareholder of Garner Lincoln-Mercury, Inc., until late 1979, when one of his employees acquired a 20% interest. As a requirement of financing, FMCC obtained from Mr. Garner a life insurance policy. On May 1, 1978, the Garners executed a "continuing guaranty," in favor of FMCC.¹ Stanley and Virginia Garner are the guarantors under the continuing guaranty and Garner Lincoln-Mercury, Inc. is the dealer.

Mr. Garner is a sophisticated businessman with substantial experience with financial activities of automobile dealerships. He graduated from the University of Detroit with a Bachelor's of Business Administration. His education included training in economics, business administration, and accounting. He worked as an accounting clerk and an accounting supervisor for General Motors, where he had supervisory responsibilities for anywhere from 14 to 20 dealerships. He then worked as a consultant to automobile dealerships for Jack Williams & Associates, where he was a one-third owner.

B. The Garner Lincoln-Mercury Dealership

By the end of 1979, after having operated in Fort Wayne for approximately one and a half years, the Garner dealership was in trouble. Sales began to fall and interest rates rose. The high cost of gasoline diminished the demand for the rather inefficient Lincoln-Mercury automobiles. All of this coincided with the problems at Harvester and a poor economy in Fort Wayne, resulting in diminishing sales. These factors, over which Mr. Garner had no control, ultimately resulted in the financial failure of the Garner dealership.

In late 1979, the dealership requested and received an additional capital loan from FMCC. Mr. Garner worked through George Bjorling, a Branch Manager for FMCC, in getting the additional capital. But the additional capital was not enough and Mr. Garner sought help from "Dealer Development," toward the latter part of 1979. Dealer Development is a part of FMCC which finances dealerships. Ultimately, FMCC's Dealer Development division declined the request for additional financing.

Garner Lincoln-Mercury was experiencing a severe cash crunch while it was awaiting assistance from Dealer Development. Dealers, like Garner Lincoln-Mercury, hold cars in trust for FMCC. They are normally expected to pay Ford off within a short time after a car is sold, i.e., 24 to 48 hours. In the midst of the cash crunch, Garner Lincoln-Mercury found itself extending this time from 24, to 48, to 72 hours, until there was eventually no money to pay Ford off at all. A total of nine cars were sold out of the trust (SOT).

C. Garner Lincoln-Mercury's Liquidation and Bankruptcy

In February, 1980, Garner Lincoln-Mercury shut its doors and began to liquidate its assets. Stan Garner and the Garner dealership cooperated fully with FMCC in the liquidation. In early February, 1980, the Garner dealership gave FMCC complete control over its assets. At FMCC's request, it delayed the bankruptcy of the dealership so that the filing occurred more than 90 days after the Garners turned over the dealership's assets to FMCC. The Garner dealership assisted FMCC in eliminating all of its losses from the nine units which were sold out of trust by applying moneys from used cars and other assets to those SOT losses.²

Throughout the establishment of the Garner dealership and its liquidation Mr. Garner dealt almost exclusively with Branch Manager George Bjorling. In January of 1980, Mr. Bjorling advised Mr. Garner that he and Mrs. Garner could be held personally responsible under the guaranty for any losses sustained by FMCC. Mr. Bjorling knew in March of 1980 that the Garners were considering personal bankruptcy.³ And in March of 1980, Mr. Garner asked Mr. Bjorling if he could be released from the personal guaranty. Later, in May of 1980, Mr. Bjorling and Mr. Garner again talked about Garner's personal liability under the guaranty. In a casual conversation (see T.R., p. 193), Mr. Bjorling told Mr. Garner that FMCC would probably not pursue the personal guaranty because of the Garner's negligible net worth.⁴ At the time of this conversation, Mr. Garner knew that he had not been released from the guaranty, as a result of his March 1980 request.

The liquidation of the dealership was complete by January, 1981. By that time FMCC had recovered all but $171,942.66 on the dealership's inventory of Lincoln-Mercury vehicles. The wholesale prices for those vehicles, i.e., the dealer cost, totaled $1,575,738.87. FMCC had recovered all but $64,400.19 on the "capital loan," the principal balance of which was $224,998 on February 1, 1980. After January, 1981, FMCC accrued interest on the outstanding sums.

D. Ford's Policies and Procedures Relating to Collectibility

When a dealership's assets have been liquidated the dealer's account becomes a "closed status account." When the Garner Lincoln-Mercury dealership was liquidated in January, 1981, Branch Manager Bjorling contacted the dealer status coordinator and indicated, in accordance with Ford's guidelines (see defendants' Ex. V, p. 2), that the Garners were uncollectible and that he would submit a "recommendation to abandon." See defendants' Ex. T. But Mr. Bjorling never submitted a recommendation to abandon and in July of 1982 FMCC had decided to follow the Garners "annually or so until they become collectible." See defendants' Ex. T. This action was in accord with Ford's policy which provides for review of a guarantor's status. See defendants' Ex. V, p. 3.

Ford's policies also provide that a demand should be made on guarantors at the time Ford seeks recovery on dealership obligations and also when the dealership's liquidation is complete. See T.R., p. 87; defendants' Ex. V, p. 3. Based upon the response to a demand, Ford's policies provide for semi-annual review of the guarantors and contact with the guarantor to arrange for payment or a settlement. See defendants' Ex. V, p. 3. After the liquidation, Ford did not contact the Garners or make a demand on their guaranty until 1985. See section E, infra. FMCC's delay of over four years (from January of 1981 to the mid part of 1985) in making a demand upon the Garners was a departure from its policy and from the general way in which it pursued guarantors.⁵

E. Enforcement of the Personal Guaranty

Mr. Bjorling felt that FMCC should not pursue the Garners on their personal guaranty. In fact, Mr. Bjorling told dealer status coordinator Anatolius Viskantis in April of 1981 that he would do a final investigation on the Garners and submit a recommendation to abandon the guaranty. See T.R., pp. 63-64. FMCC does have a formal procedure for abandonment of personal guarantys but that procedure was never followed in this case.

As a dealer status coordinator, Mr. Viskantis was responsible for overseeing the status of dealers who had come into financial difficulty. Mr. Viskantis had received information from Branch Manager Bjorling that the Garners were apparently uncollectible after the liquidation. See T.R., pp. 148-49. FMCC does not pursue personal guaranty deficiencies when the guarantors are uncollectible. The Garners did in fact have income from their muffler business during the years following the dealership's liquidation, but Mr. Viskantis had no knowledge of this income. Had he known of the income, FMCC may well have pursued the Garners before 1985.⁶

In 1985 after Mr. Viskantis had discovered the income, he called Mr. Garner and demanded payment of the balance due under the guaranty. In response to Viskantis' demand, Mr. Garner indicated that he was unable to pay. Mr. Viskantis suggested that Mr. Garner contact Mr. Bjorling; Mr. Viskantis also requested that Mr. Garner provide financial information. Mr. Garner never provided FMCC with any financial information. Mr. Viskantis never followed up his phone call with a letter to Mr. Garner, making a written...