Ford Motor Credit Co. v. Fincannon Ford, Inc.
| Decision Date | 12 April 2021 |
| Docket Number | Cause No. 1:19-CV-502-HAB |
| Parties | FORD MOTOR CREDIT COMPANY LLC, Plaintiff, v. FINCANNON FORD, INC., f/k/a FINCANNON FORD-MERCURY, INC., and LINDA MUGHMAW, f/k/a LINDA FINCANNON, Defendants. |
| Court | U.S. District Court — Northern District of Indiana |
In November 2019, Plaintiff Ford Motor Credit Company LLC ("Ford") declared Defendant Fincannon Ford, Inc., f/k/a Finacannon Ford-Mercury, Inc. ("FFMI"), in breach of certain financing agreements and Defendant Linda Mughmaw, f/k/a Linda Fincannon ("Mughmaw"), in breach of a personal guaranty. The breaches are largely undisputed, but Ford's ability to recover for those breaches is not. FFMI and Mughmaw assert that Ford waived any rights under the financing agreements by failing to assert prior breaches of which Ford was, allegedly, aware. Separately, Mughmaw denies ever signing the personal guaranty. Now before the Court are competing motions for summary judgment by all parties. (ECF Nos. 68, 73, 76). The motions are now fully briefed (see ECF Nos. 69, 70, 74, 75, 77-83) and are ripe for determination.
The roots of this dispute stretch back to 1986 when FFMI executed and delivered to Ford an Automotive Wholesale Plan Application for Wholesale Financing and Security Agreement (the "Wholesale Agreement"). (ECF No. 68-8). Under the terms of the Wholesale Agreement, Ford would extend credit to FFMI to allow FFMI to purchase new and used vehicle inventory. In return, the Wholesale Agreement required FFMI to pay to Ford, "without demand, the unpaid balance of the Advance made by Ford Credit hereunder with respect to an item of the Merchandise at or before the date on which the same is sold, leased or placed in use by Dealer." (Id. at 2). Stated another way, when FFMI sold a vehicle, it had to pay Ford back for the money loaned to FFMI to purchase the vehicle at wholesale.
Within the Wholesale Agreement are several safeguards intended to ensure that Ford was repaid. FFMI was required to maintain insurance on its vehicle inventory. FFMI was required to provide periodic reports to Ford regarding its financial condition. FFMI could not encumber the inventory with any other indebtedness. Finally, Ford took a security interest in FFMI's vehicle inventory.
The Wholesale Agreement set forth four events of default: (1) failure by FFMI to make payments when due and owing; (2) failure by FFMI to comply with any other term of the Wholesale Agreement; (3) making false or misleading representations to Ford; and (4) bankruptcy by FFMI. Ford was given a myriad of rights in the event of a default, including acceleration of debt payments, seizure and sale of FFMI's vehicle inventory to satisfy outstanding debt, and collection of attorney fees incurred in enforcing its default rights.
On the same day the Wholesale Agreement was executed, Michael Fincannon (now deceased) and Mughmaw (allegedly) executed a Continuing Guaranty (ECF No. 82-3). The Continuing Guaranty made Michael Fincannon and Mughmaw personally responsible for all sums owed to Ford by FFMI in the event of FFMI's default on the Wholesale Agreement. The Continuing Guaranty bears the signature of a witness who was also the individual that notarized the signatures on the Wholesale Agreement.
In 1998, FFMI executed a Security Agreement (ECF No. 82-2). The Security Agreement gave Ford a security interest in essentially all FFMI's property. The Security Agreement further gave Ford the right to seize and sell the property in the event of a default by FFMI on any obligation to Ford.
According to Defendants, FFMI's monthly statements going back to 2012 showed that FFMI was suffering from considerable difficulties. Defendants claim that those statements showed that FFMI had a large negative balance on the value of the vehicles in its inventory and that FFMI was struggling financially. Thus, Defendants assert, "[n]o later than December 2012, Ford Credit knew or should have known that Fincannon Ford was operating 'out of trust' based on the monthly financial statements provided to Ford Credit." (ECF No. 75-8 at 3).
Years of poor financial statements apparently did not deter Ford from making additional loans to FFMI under the Wholesale Agreement. Ford continued to finance FFMI's vehicle inventory, and increased FFMI's line of credit in mid-2019. At no point from 2012 through late 2019 did Ford declare a default of the Wholesale Agreement or exercise any rights under that Agreement.
To obtain additional funding for FFMI, Mughmaw, on behalf of FFMI, executed two factoring agreements in the summer and fall of 2019. (See ECF Nos. 68-10 and 68-11). In essence, FFMI agreed to accept a lump sum payment from two financial companies in exchange for FFMI's pledge to pay those companies twenty-five percent of future revenues up to a specified amount. FFMI also gave the companies a security interest in roughly the same property covered by the Security Agreement; that is, essentially all FFMI's property. According to Defendants, these factoring agreements were entered into because Ford demanded that FFMI obtain additional capital to improve FFMI's financial condition. FFMI further claims that most of the moneyobtained from the factoring agreements was paid to Ford. Finally, FFMI asserts that Ford must have known that FFMI would be forced to resort to factoring agreements for funding, as those agreements would have been FFMI's only source of funding considering its financial condition.
Ford conducted an audit in November 2019 that identified several vehicles for which FFMI had failed to remit funds upon sale. FFMI agreed to make good on its obligations to Ford through an electronic funds transfer ("EFT") in the amount of $1,008,747.56. The EFT was returned for non-sufficient funds. Two subsequent audits identified vehicles for which FFMI had failed to remit funds upon sale, for a total balance of $1,296,056.56 owed to Ford.
It appears that Ford then subjected all FFMI's books to additional scrutiny. This analysis discovered that FFMI misrepresented sales dates for at least three vehicles to delay or avoid payments to Ford. Ford also discovered that FFMI had submitted false monthly financial reports that failed to disclose the factoring agreements and falsely reported cash-on-hand. Finally, Ford discovered that FFMI kept a second set of books that accurately reflected its financial situation. Viewing FFMI's conduct as breaches of the Wholesale Agreement, Ford sent two letters, on November 8, 2019, and November 12, 2019, demanding payment of the outstanding balance then owed to Ford, including the amounts for vehicles sold out of trust.
According to Mughmaw, the demand letters were the first time she had heard about the Continuing Guaranty; she states that she was never told about the Continuing Guaranty prior to receiving the letters. Nonetheless, after receiving the letters, Mughmaw began communicating with a Ford employee named Deborah Drabek. Drabek was a Financial Services Specialist, responsible for monitoring FFMI's operations to protect Ford's collateral. The two women provide different interpretations of their communications.
Mughmaw claims that "each conversation with Drabek left Mughmaw confused . . . because Mughmaw did not know about the operations of" FFMI. (ECF No. 77 at 6). Mughmaw states that she referred questions about the Continuing Guaranty to the current operators of FFMI, former Defendants Matthew Fincannon and Stan Bourff. Both of those men have submitted affidavits in which they state that they never heard Mughmaw admit to signing the Continuing Guaranty.
For her part, Drabek claims that Mughmaw never seemed confused or unsure about the topic of their conversations. Drabek asserts that Mughmaw "realized she was the only one who had signed 'on the dotted line,' and expressed concern that the Dealership's default would impact her financially." (ECF No. 81 at 7). Drabek further claims that Mughmaw spoke intelligently about the financial condition of FFMI, discussing with Drabek attempts to obtain a mortgage on the property and the signing of the factoring agreements. At no point, according to Drabek, did Mughmaw ever deny signing the Continuing Guaranty.
Having received no payment in response to its demand letters, Ford took over FFMI to secure the amounts it was owed under the Wholesale Agreement and the Security Agreement. Following the initiation of this lawsuit, FFMI turned over to Ford those items it had pledged as collateral under the parties' agreements. Ford claims that the collateral was sold at auction in a commercially reasonable manner, with the proceeds applied against FFMI's indebtedness. FFMI disputes this claim, noting that it was excluded from any information regarding the sale of the collateral and that Ford has failed to account for any amounts obtained from the sale of the collateral.
Summary judgment is warranted when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The non-moving party must marshal and present the Court with evidence on which a reasonable jury could rely to find in their favor. Goodman v. Nat'l Sec. Agency, Inc., 621 F.3d 651, 654 (7th Cir. 2010). A court must deny a motion for summary judgment when the nonmoving party presents admissible evidence that creates a genuine issue of material fact. Luster v. Ill. Dep't of Corrs., 652 F.3d 726, 731 (7th Cir. 2011) (citations omitted). A court's role in deciding a motion for summary judgment Waldridge v. Am. Heochst Corp., 24 F.3d 918, 920 (7th Cir. 1994).
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