In re Am. Suzuki Motor Corp.

Decision Date04 June 2013
Docket NumberNo. 8:12–bk–22808–SC.,8:12–bk–22808–SC.
Citation494 B.R. 466
PartiesIn re AMERICAN SUZUKI MOTOR CORPORATION, Debtor(s).
CourtU.S. Bankruptcy Court — Central District of California

OPINION TEXT STARTS HERE

Preempted

West's F.S.A. §§ 320.64(36), 320.697Linda F. Cantor, Esq., Shirley Cho, Teddy M. Kapur, Jonathan J. Kim, James Stang, Dean A. Ziehl, Steven J. Kahn, Pachulski Stang Ziehl & Jones LLP, Los Angeles, CA, John W. Lucas, Debra I. Grassgreen, Pachulski Stang Ziehl & Jones LLP, San Francisco, CA, Jason H. Rosell, Pachulski Stang Ziehl & Jones LLP, New York, NY, George B. Cauthen, Nelson Mullins Riley & Scarborough, Columbia, SC, for Debtor.

Michael J. Bujold, U.S. Department of Justice, Riverside, CA, Frank Cadigan, Michael J. Hauser, Elizabeth A. Lossing, Santa Ana, CA, for U.S. Trustee.

Kerri A. Lyman, Michael P. McMahon, Jeffrey M. Reisner, Newport Beach, CA, for Official Committee of Unsecured Creditors.

ORDER AND MEMORANDUM OPINION ON OBJECTION TO PROOF OF CLAIM NO. 520–1 [DOCKET NO. 1383]

CLAIM OBJECTION FILED: MARCH 29, 2013 AS DK. NO. 1383.

SCOTT C. CLARKSON, Bankruptcy Judge.

Before the Court is an Objection to Claim of South Motors Suzuki, Inc. (Proof of Claim No. 520–1 the) (the “Claim Objection”) arising from damages resulting from the Debtor's rejection of an executory automobile dealership sales and service agreement.

The Court concludes as follows:

South Motors Suzuki, Inc. (“South Motors”) is entitled to compensation for rejection of the Agreement consisting of the lost profits from the sale of the automobile inventory, parts and accessories in stock at the time of South Motor's tender of the automobile inventory, parts and accessories. South Motors has already been paid the amounts of the contractual repurchase obligations, and thus nothing is owed further on that account. The lost profits for sales of automobile inventory, and parts and accessories in stock at the time of the tender are determined to be $21,461.00. South Motors is not entitled to any damages based on lost profits with respect to future sales or services for the reasons set forth within this decision. South Motors is not entitled to any common law breach of contract damages based on fair market value of its Suzuki business for the reasons set forth within this decision.

South Motors is not entitled to receive any damages arising under Florida state law, because (a) the asserted Florida statutes are preempted by the United States Bankruptcy Code (11 U.S.C. § 101 et seq.) (the Bankruptcy Code) and (b) even if the Florida statutes were not preempted by federal law, they are not applicable because (i) it would be constitutionally impermissible to retroactively apply Florida Law and (ii) the Agreement is controlled by its California choice of law provision.

The Agreement provides for recovery of attorney fees to prevailing parties. Analyzing the respective positions of the parties, the demands asserted, and payments initially made through the executory contract rejection process, and the results of this claim objection, the Court concludes that the Debtor is the prevailing party in this proceeding, and thus shall be awarded legal fees and costs in its favor and against South Motors in an amount to be determined by further evidentiary presentation.

FACTS

On November 5, 2012 (the “Petition Date”), American Suzuki Motor Corporation (“ASMC” or the “Debtor”) filed its petition under Chapter 11 of Title 11, United States Code (the Bankruptcy Code). The Debtor was a California corporation organized in 1986 and privately owned by Suzuki Motor Corporation, a Japanese corporation. At the time of the petition date, the Debtor was the sole distributor in the continental United States of Suzuki automobiles, motorcycles, ATVs, and marine outboard engines (collectively “Suzuki Products”). As of the Petition Date, the Debtor wholesaled the Suzuki Products through three primary business divisions: automotive (the Automotive Division), motorcycles and ATV (the Motorcycles/ATV Division), and outboard marine motors and related products (the Marine Division). During the pre-petition operation of its business, the Debtor purchased Suzuki Products from its non-debtor parent Suzuki Motor Corporation (“SMC”), Suzuki Manufacturing of America Corporation, an affiliate of the Debtor, and certain other non-debtor affiliates. In turn, the Debtor wholesaled most of its inventory through a network of independently owned and unaffiliated dealerships located throughout the continental United States. The dealers then marketed and sold the Suzuki Products to retail customers. As of the Petition Date, there were approximately 220 automotive remaining dealerships, over 900 motorcycle/ATV dealerships, and over 780 outboard marine dealerships.

According to the Debtor's approved Third Amended Disclosure Statement,

The Debtor commenced this chapter 11 case to restructure its Automotive Division. The Automotive Division has recently faced and will continue to face numerous adverse business issues including: (a) declining sales volume and market-share, (b) unfavorable foreign currency exchange rates for products manufactured outside the United States, (c) the high cost associated with growing and maintaining an automotive distribution system in the continental United States, (d) having a limited number of models in its line-up that are being offered to consumers in an already highly competitive automotive market, (e) disproportionally high and increasing compliance costs associated with stringent state and federal automotive regulatory requirements unique to the continental United States market, and (f) existing and potential litigation costs. In the face of these business challenges, the Debtor's efforts to reduce operating costs have proven to be insufficient to meet the rising cost of maintaining a competitive and profitable automobile distribution network in the continental United States.

As part of the Automotive Division restructuring, the Debtor will discontinue new automotive sales after its existing automotive inventory is sold. Certain of its existing automotive dealers will be extended an offer to transition their existing dealerships from new sales to provide only service and parts. Through the service and parts dealers, manufacturer's warranties relating to the Debtor's automobiles will be honored to the extent that has been authorized by the Court as discussed below, and the cost associated with such service will continue to be reimbursed to the participating dealers as part of the Continuing Business (as defined below).

Third Amended Disclosure Statement, Dk. No. 587, p. 45, lines 22–28, through p. 46, lines 1–12.

Immediately following the Petition Date, the Debtor contacted its approximately 220 remaining automotive dealers, offering to enter into letter agreements and service and parts agreements which would result in resolution of dealer claims. Less than thirty days later, the Debtor had entered into 213 agreements, culminating in the December 21, 2012, approved Auto Dealer Agreements Motion (the “Dealers Agreement Motion”). Since that December 2012 approval, the Court estimates that another six dealers have resolved their claims with the Debtor under the umbrella of the Dealers Agreement Motion or related settlements. That agreement provided, inter alia, that the approximate 220 dealers, including South Motors, could have maintained their parts and service dealer status for another eight (8) years, and maintained whatever financial benefits such status would have bestowed on the accepting dealers. South Motors was offered the option to continue as a Suzuki service and parts dealer with the successor owner of the business assets for another eight years, and chose not to participate in that arrangement.

SOUTH MOTORS' CLAIM AND DEBTOR'S OBJECTION
South Motor's Claim

South Motors was a Suzuki automobile dealer operating under the terms of a 1995 Three Year Dealer Sales and Service Agreement and its Standards Provisions (the “SMS Agreement”) with the Debtor.1 The Court finds that the SMS Agreement was extended by letter agreement for one year, through August 15, 1999.2 Finally, the parties agree that no other modifications or alterations were made to the SMS Agreement and that they have been operating under this agreement since that time.

By Order dated January 11, 2013, the Debtor rejected the SMS Agreement, effective as of December 20, 2012. South Motors filed its Claim on January 31, 2013, in the amount of $1,595,601, plus attorney fees and costs, based on certain post-termination obligations arising under the SMS Agreement and applicable state law (the “Claim”). The Claim is comprised of: (a) $531,867 under the repurchase categories articulated in the SMS Agreement and various provisions of the Florida Motor Vehicle Licenses Act (the “Act”), and (b) an additional $1,063,734, based on South Motors' argument that it is entitled to treble damages under the Act. South Motors asserts that [T]he Florida laws (in question), Fla. Stat. §§ 320.64(36) and 320.697, provide for the calculation of South Motors' base damages claim and, where those damages are not paid, a trebling of damages and the addition of reasonable attorney's fees.” South Motors Opposition, Dk. No. 1533, p. 4, lines 1–3. South Motors asserts that while certain of these applicable statutes were enacted after it entered into the 1995 SMS Agreement, they are retroactive in nature. South Motors also provides the Court with an extensive analysis of claims damages arising from the Act and its analysis that the Act should be retroactively applied.

South Motors alternatively argues that if the Act does not apply, it is entitled to a common law claim for breach of contract under Florida law. It states:

If, for any reason, the Act did not apply to the current circumstances, South Motors would hold a common law claim for breach of contract under Florida law. Pursuant to Section 365(g) of the Bankruptcy Code, “the...

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    • United States
    • U.S. Bankruptcy Court — Eastern District of Washington
    • June 2, 2022
    ...consequences from a chapter 11 debtor utilizing the federal tool of contract assumption. See, e.g. , In re Am. Suzuki Motor Corp. , 494 B.R. 466, 475-77 (Bankr. C.D. Cal. 2013) (highlighting how "[a] significant body of federal case law exists supporting the view that state laws are preempt......
  • In re Gretter Autoland, Inc.
    • United States
    • U.S. Bankruptcy Court — Southern District of Iowa
    • August 17, 2015
    ...those remedies run counter to the federal policy of bankruptcy reorganization and are therefore preempted." American Suzuki Motor Corp, 494 B.R. 466, 477 (Bankr. C.D. Cal. 2013). Gretter and Edwards were not prohibited from structuring the sale outside of bankruptcy if they believed there w......
  • Brewer v. Suzuki Motor of Am., Inc.
    • United States
    • U.S. District Court — Southern District of Texas
    • July 17, 2015
    ... ... 15, 1965, 20 U.S.T. 361Page 2("Hague Convention"), but only "if the method of serving process involves the transmittal of documents abroad." Sheets v. Yamaha Motors Corp., U.S.A., 891 F.2d 533, 537 (5th Cir. 1990) (citing Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694 (1988)). "In determining whether service involves the transmittal of documents abroad, courts are to look to the method of service prescribed by the internal law of the forum state." Id ... ...
1 books & journal articles
  • Fee-Shifting in Bankruptcy.
    • United States
    • American Bankruptcy Law Journal Vol. 95 No. 4, December 2021
    • December 22, 2021
    ...state law); Circle Star Center Assoc, v. Liberate Tech., 147 Cal.App.4th 1203, 1209 (2002) (same); see also In re Am. Suzuki Motor Corp., 494 B.R. 466, 492-93 (Bankr. C.D. Cal. 2013) (awarding reciprocal fees based on federal bankruptcy defense to rejection damages claim); Gens v. Wachovia ......

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