Lyon Ford, Inc. v. Ford Motor Company, 71-C-347.

CourtUnited States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
Citation342 F. Supp. 1339
Docket NumberNo. 71-C-347.,71-C-347.
PartiesLYON FORD, INC., Plaintiff, v. FORD MOTOR COMPANY, Defendant.
Decision Date17 December 1971

Pollan, Zimmer, Fishbach & Hertan by Louis C. Fieland, New York City, of counsel, for plaintiff.

Hughes, Hubbard & Reed by Otis Pratt Pearsall, John A. Donovan, John A. Golden, Gerald B. Wald, New York City, of counsel, for defendant.


JUDD, District Judge.

Defendant has moved for summary judgment.

This action was begun in the New York Supreme Court, Suffolk County, by an order to show cause and temporary ex parte injunction issued March 17, 1971 to prevent defendant (Ford) from interfering with plaintiff's operation as a Ford dealer or from granting a franchise as a Ford dealer to anyone else in the Riverhead area of Suffolk County, New York. The complaint alleged that plaintiff had written agreements with Ford to maintain a dealership in automobiles and heavy duty trucks in Riverhead and certain other portions of Suffolk County dating from 1959, and that Ford terminated these agreements capriciously and in violation of their terms on March 15, 1971 and was about to issue a dealership to an unknown third party. The complaint asked both for injunctive relief and for a declaration that the sales agreements were in full force and could not be terminated.

Ford, a Delaware corporation with its principal place of business in Michigan, removed the case to this court and moved to dissolve the temporary injunction.1 Although plaintiff's own motion papers in the state court indicated that Ford's termination of the contract was far from capricious, this court continued the temporary injunction pending a hearing, and required a bond of $40,000, which was furnished. Ford filed an answer on April 8, 1971 including defenses of laches and unclean hands.

Evidentiary hearings on the motion for a preliminary injunction were held on April 13 and April 16. At the conclusion of the second day, an adjournment was taken to April 30th without completing the cross-examination of plaintiff's president, Charles L. Lyon. Mr. Lyon appeared in court on April 30th without his attorney and stated that he would have new counsel as of May 3rd. The new attorney appeared in court on May 5. The court offered him an opportunity to submit an offer of proof and directed that Charles Lyon attend for further cross-examination on May 7, 1971. No hearing was held on that date, however. Mr. Lyon was not submitted to cross-examination, and no offer of proof was submitted. The court issued a Memorandum on May 10, 1971 which summarized the evidence introduced at the hearings and stated:

From the facts thus far adduced, the court finds no reasonable probability of plaintiff showing that it has fulfilled its obligations under the contracts, particularly in that the record thus far indicates that (1) Lyon Ford due to financial difficulties lacked sufficient net working capital to carry out and perform its dealership duties; (2) Lyon Ford failed to receive Ford Motor Company's consent prior to relocation in 1970; and (3) at the time Ford proposed to terminate the franchise, Lyon Ford was in a state of insolvency as that term is employed in the agreements.

The court therefore dissolved the temporary injunction and denied the motion for a preliminary injunction.

Lyon Ford thereafter started another action in the Supreme Court, Suffolk County, against Ford Marketing Corporation, S. J. Obringer (a vice-president of Ford Marketing), Thomas Hart and J. J. Hart & Sons, Inc. The new action was begun on June 8, 1971 by an order to show cause and another ex parte injunction directing Ford Marketing2 to continue all agreements with plaintiff in effect. The papers were served on the defendants on June 17th, returnable June 21. The complaint was based on Sections 197 and 197-a of the New York General Business Law, McKinney's Consol.Laws, c. 20, alleging a conspiracy to substitute Hart and the Hart corporation as dealers in the Riverhead area, and sought damages of $1,500,000 for termination of the contracts in bad faith and without cause. This action was in turn removed to this court by defendants Ford Marketing and Obringer. A motion for remand was denied and the temporary injunction was dissolved by Memorandum and Order dated July 7, 1971, 337 F.Supp. 691 (71-C-738).

Motion for Summary Judgment

In response to defendant's detailed and documented motion for summary judgment, plaintiff filed a four-page affidavit of Charles Lyon which conceded that the sales agreements were terminated pursuant to their provisions, but asserted that issues existed as to whether the termination was "improperly motivated" and whether a reasonable opportunity had been given to cure certain defaults as provided by Section 17(c) of the agreements (both of which are identical in their substantive provisions). Mr. Lyon asserted that he had arranged for the satisfaction of all his obligations to all creditors, except disputed New York State taxes, and for the supply of additional capital. He also asserted that he secured an order from Long Island Railroad for 154 Ford trucks pursuant to a bid submitted prior to March 15, 1971, but that Ford Marketing would not honor this order even when it was submitted through another recognized Ford dealer, until all pending litigation was terminated. No copy was submitted of the bid made to Long Island Railroad or of the request for bids.

Reply affidavits indicate that the only document submitted to Ford in reference to the Long Island Railroad order was a letter from Lyon Ford to Ford in White Plains dated June 25, 1971, which stated:

As of this date we have received an order for the sale of 151 Ford trucks to the Long Island Railroad Division of the Metropolitan Transportation Authority.
We are hereby transmitting this order to you. We cannot use your order form because the railroad specifications require certain features which do not appear on your standard order form. These specifications should be discussed and determined by your Heavy Truck Engineer and an engineer from the Long Island Railroad.
. . . . . .
We would greatly appreciate being advised as to when your engineer will be available.

Mr. Obringer replied that he would not consider the offer because Lyon Ford was no longer an authorized Ford dealer. It also appeared from the reply affidavits that Long Island Railroad required that dump truck equipment and other types of special equipment be installed on the trucks by other contractors before delivery to the railroad and that no payment would be made until delivery.

The court is satisfied that the Long Island Railroad order, if ever given, would not have cured plaintiff's existing defaults, was not made while the sales agreements were in force, and constitutes no defense to the motion for summary judgment.

Even if plaintiff had corrected its defaults under the contract, this would not destroy the right to terminate. Paris v. Central Chiclera, 193 F. 2d 960, 964 (5th Cir. 1952); Belser v. Mutual Life Ins. Co., 77 F.Supp. 826, 829 (E.D.S.C.1948).

A copy of a settlement agreement with Associates Discount Corporation was attached to a supplementary affidavit of Charles Lyon filed September 1, 1971. The agreement, apparently executed by Associates Discount in April 1971, provides that an indebtedness of over $1,300,000 be settled in return for installment payments of $600,000, with the final payment of $450,000 to be made on March 26, 1975. The agreement provides, however, for entry of a judgment of $1,360,154 plus interest and attorneys' fees if any installment is not paid when due. This agreement does not show any present improvement in plaintiff's financial condition which would enable it to function as a Ford dealer.

Mr. Lyon also submitted a release, described as "limited and conditional," executed by Security National Bank on June 18, 1971. This document recites that it excludes from the release a judgment, certain mortgages, an assignment of a life insurance policy, and other security interests. Again, the release represents an effort by Mr. Lyon to escape from personal bankruptcy rather than any restoration of the solvency of the plaintiff corporation.

Finally, plaintiff submitted an affidavit of an attorney who stated that he had talked with an officer of Security National Bank who told him that discussions were held "in the Fall of 1970" with J. J. Hart, Inc. concerning the...

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