In re Monahan Ford Corp. of Flushing
| Decision Date | 20 March 2006 |
| Docket Number | Bankruptcy No. 02-23134-608.,Adversary No. 04-01500-608. |
| Citation | 340 B.R. 1 |
| Parties | In re MONAHAN FORD CORPORATION OF FLUSHING, Debtor. Alan Nisselson, Esq., as Chapter 7 Co-Trustee of Monahan Ford Corporation of Flushing, Plaintiffs, v. Ford Motor Company, Ford Motor Credit Company, George Papantoniou a/k/a/ George Pappas, Kay Papantoniou, Gadi Ben-Hamo, National Star Executive Sales, LLC, Jossef Kahlon, Samuel Goldstein & Co., P.C., Stuart Goldstein and Steve Leon, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Regina Griffin, Howard L. Simon, Brauner Baron Rosenzweig & Klein, LLP, New York City, for Plaintiff.
Michael J. Levin, Barger & Wolen, LLP, New York City, for Ford Motor Company.
Jennifer Rubin, Sutherland, Asbil & Brennan, LLP, Atlanta, GA, for Ford Motor Company.
Byron L. Friedman, Wilson Elser Moskowitz Edelman & Dicker, White Plains, NY, for Ford Motor Credit Company.
Ronald S. Herzog, Snow Becker Krauss, P.C., New York City, for Goldstein and Goldstein & Co.
DECISION
This matter comes before the court on the motions of defendants Ford Motor Company ("Ford"), Ford Motor Credit Company ("FMCC"), Samuel Goldstein & Co. and Stuart Goldstein to dismiss this adversary proceeding, which was commenced by Alan Nisselson, the co-trustee ("trustee") of Monahan Ford Corporation of Flushing ("Monahan Ford" or "debtor"). The moving defendants argue that the trustee does not have standing to bring this action and that the trustee has failed to (1) state claims upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6) and (2) plead fraud with particularity pursuant to Fed.R.Civ.P. 9(b).
For the reasons set forth herein: (1) the trustee has standing to bring this action; (2) Ford and FMCC's motions to dismiss the fraud, aiding and abetting fraud, conspiracy to commit fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and deepening insolvency claims against them are denied; (3) Goldstein and Goldstein & Co.'s motion to dismiss the fraud, deepening insolvency and breach of fiduciary duty claims against them are denied; (4) Goldstein and Goldstein & Co.'s motions to dismiss the aiding and abetting fraud, conspiracy to commit fraud and aiding and abetting breach of fiduciary duty claims against them are granted; (5) Ford's motion to dismiss the fraudulent conveyance claim against it pursuant to Bankruptcy Code § 544 and New York's Debtor & Creditor Law § 276 is granted; (6) FMCC, Goldstein and Goldstein & Co.'s motions to dismiss the punitive damages claim is granted; (7) FMCC's motion to dismiss the claims against it for an accounting, lender liability, violation of the Franchised Motor Vehicle Dealer Act ("Dealer Act"), conspiracy to violate the Dealer Act, promissory estoppel, and violation of the Federal Automobile Dealer's Day in Court Act ("ADDCA") is granted; and (8) FMCC's motion to dismiss the conspiracy to violate the ADDCA and equitable subordination claims against it is denied. The trustee is given leave to replead all of the dismissed claims, with the exception of the punitive damages claim.
The following is a summary of the allegations of the complaint which are relevant to this motion.
The debtor owned and operated a Ford franchise automobile dealership in Queens, New York. (Am. Complaint ("Complaint") ¶¶ 8, 23.) From October 1997 until May 2001, Micaela Monahan was the president and sole shareholder of the debtor. (Complaint ¶ 23.)
In 2000, the debtor started to experience financial difficulties and its bank terminated the floor plan line of credit that the debtor used to purchase its inventory of Ford automobiles. (Complaint ¶ 24.) At the same time, Ford was suffering from a 45% drop in profits and was under pressure to rid itself of excess vehicles that it was unable to sell by moving them from Ford's inventory to dealers. (Complaint ¶ 25.) Ford and FMCC viewed the debtor, in light of the debtor's financial troubles, as a dealership they could "take over and use for their own purposes" by selecting a dealer-principal over whom they could exercise complete dominion and control. Ford would then be able to appear to increase its sales by "dumping" excess vehicles on the debtor. (Complaint ¶ 26.)
Ford knew that George Pappas, a dealer-principal from another Ford dealership who did not have the capital to run his own dealership, was the perfect dealer-principal to place at the debtor, because he was someone whom Ford could control and coerce into accepting excess vehicle inventories. (Complaint ¶ 28-29.) Therefore, sometime in February or March, 2001, three Ford representatives, including Bill Clampett and Robert Smythe, and Ford Credit representatives, including Bruce Epstein, met with Pappas, Artie LoFrese (a co-manager with Pappas of another Ford dealership) and Gadi Ben-Hamo (who would provide funding to Pappas). (Complaint ¶ 30.) Ford made it clear at the meeting that Ford needed to dramatically increase the number of vehicles Ford moved to Monahan Ford, and that Pappas would have to acquire about 2,000 new vehicles from Ford per year if Pappas wanted to be awarded the franchise and dealership. Ford's representative, Clampett, demanded that Pappas agree to this "forecast" which would require the debtor to accept substantially more vehicles from Ford than the debtor had been selling and more than could have been expected of any reasonable dealership in the Northeast region, given the economic climate and Ford's product lines at the time. (Complaint ¶¶ 31, 33-34.) Ultimately, Pappas agreed to accept Ford's demand to increase the Monahan Ford inventory, although he and Ford were aware that the debtor could not sell or finance 2,000 new cars per year under the circumstances existing at the time. (Complaint ¶ 35.)
At the meeting, Pappas' lack of capital was discussed. The parties were aware that Pappas was so undercapitalized that he did not possess the funds necessary to acquire a controlling interest in Monahan Ford. Ben-Hamo agreed to loan Pappas the funds to enable him to buy the debtor's controlling shares, in exchange for an agreement that Ben-Hamo and his company, National Star Executive Sales ("National"), would become partners and/or joint venturers in all of the debtor's used car operations. (Complaint ¶ 36.) FMCC agreed to provide the debtor and/or Ben Hamo with a $1,000,000.00 used car credit line to further induce Ben-Hamo's loan to Pappas. Id.
At the meeting, the parties also discussed how, given Pappas's lack of financial wherewithal, they could make it appear that Monahan Ford, with Pappas as its dealer-principal, could meet Ford and FMCC's minimum working capital requirements for the award of the franchise and the multimillion dollar line of credit that FMCC was going to have to extend to the dealership to finance the excess inventories Ford intended to sell to it. (Complaint ¶ 37.) Smythe and Epstein outlined for Pappas what the financials of Pappas and Monahan Ford would have to look like in order to appear that they met Ford and FMCC's respective criteria. Among other things, they explained to Pappas that he and Ben Hamo would have to raise 30% of capital, approximately $1,000,000.00 in order to make it appear that Pappas and Monahan Ford met Ford and FMCC's criteria. (Complaint ¶ 38.) At the same time, Ford and FMCC knew that Pappas did not have adequate working capital to meet their requirements, and that he was already operating a different Ford dealership "SOT," or "out of trust," which means selling cars without paying the inventory financing on the vehicles. (Complaint ¶¶ 39, 78.)
In this way, an agreement was reached among representatives of Ford, FMCC, Pappas and Ben Hamo to exploit the debtor for their own purposes, and to artificially extend the existence of the financially troubled dealership. (Complaint ¶ 40.)
In order to accomplish this, Ford coerced Micaela Monahan, President and sole shareholder of Monahan Ford, into agreeing to sell her controlling shares in Monahan Ford to Pappas, although Ford knew that Micaela Monahan did not want to do business with Pappas based on previous dealings with him. (Complaint ¶ 42.) To accomplish this, Ford sent a franchise termination notice in early 2001 and presented the choice of either losing the dealership or selling the dealership or its controlling share to a dealer-principal whom Ford approved. (Complaint ¶ 27.) Ford then made it clear that Pappas was the only dealer-principal whom Ford would approve. In this way Ford coerced Micaela Monahan to sell her shares to Pappas and to accept him as a new dealer principal. (Complaint ¶¶ 42-43.) Micaela Monahan sold 51% of the debtor's shares to Pappas in May 2001. Pappas used funds loaned to him by Ben Hamo to pay the $400,000 purchase price. (Complaint ¶ 46.)
In furtherance of this scheme, Pappas employed Goldstein & Co. and Goldstein to assist him in falsifying the debtor's financial documents, as well as his own financial statements, multiple times to appear as though they met the working capital and other financial requirements of Ford and FMCC. (Complaint ¶ 48.) In early May 2001, with the guidance of representatives of Ford and FMCC, Goldstein and Goldstein & Co. falsified the financial statements of Pappas and Monahan Ford to be submitted to Ford and FMCC for the franchise application and the floor plan credit facility application. On or about May 3, 2001, Pappas, Goldstein, and Goldstein & Co. prepared and submitted to Ford and FMCC a forecasted balance sheet for Monahan Ford as of May 15,...
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