York Chrysler-Plymouth, Inc. v. Chrysler Credit Corp.

• Decision Date: 20 July 1971
• Docket Number: No. 29980.,29980.
• Citation: 447 F.2d 786
• Parties: YORK CHRYSLER-PLYMOUTH, INC., a corporation, C. C. York and Jerry A. York, Plaintiffs-Appellees-Cross Appellants, v. CHRYSLER CREDIT CORPORATION, a corporation, Defendant, Chrysler Motors Corporation, a corporation, and Chrysler Corporation, a corporation, Defendants-Appellants-Cross Appellees, and Chrysler Credit Corporation, a Delaware Corporation, Intervenor-Appellant-Cross Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

447 F.2d 786 (1971)

YORK CHRYSLER-PLYMOUTH, INC., a corporation, C. C. York and Jerry A. York, Plaintiffs-Appellees-Cross Appellants, v. CHRYSLER CREDIT CORPORATION, a corporation, Defendant Chrysler Motors Corporation, a corporation, and Chrysler Corporation, a corporation, Defendants-Appellants-Cross Appellees, and Chrysler Credit Corporation, a Delaware Corporation, Intervenor-Appellant-Cross Appellee.

No. 29980.

United States Court of Appeals, Fifth Circuit.

July 20, 1971.

COPYRIGHT MATERIAL OMITTED

C. B. Arendall, Jr., Edmond R. Cannon, Jr., W. Ramsey McKinney, Jr., Mobile, Ala., Walter B. Maher, Detroit, Mich., for defendants-appellants cross-appellees.

Sam W. Pipes, Norton W. Brooker, Jr., Mobile, Ala., for intervenor-appellant cross-appellee Chrysler Credit Corp., a Del. Corp., Lyons, Pipes & Cook, Mobile, Ala., of counsel.

R. F. Adams, Brock B. Gordon, Mobile, Ala., for plaintiffs-appellees-cross-appellants; Johnstone, Adams, May, Howard & Hill, Mobile, Ala., of counsel.

Before CLARK, Associate Justice^*, GEWIN and RONEY, Circuit Judges.

RONEY, Circuit Judge:

York Chrysler-Plymouth, Inc., C. C. York and Jerry A. York brought suit against Chrysler Corporation, Chrysler Motors Corporation and Chrysler Credit Corporation of Michigan on two counts of fraud and deceit, violation of the antitrust laws and violation of the Automobile Dealers Day in Court Act, 15 U.S.C. §§ 1221-1225. Chrysler Credit Corporation (Delaware) intervened and filed a claim against the plaintiffs for money due on a loan.¹

There was a jury verdict in favor of the defendants on three of the causes of action, but the jury returned a verdict in favor of the plaintiffs against Chrysler Corporation and Chrysler Motors Corporation for $107,000.00 on the action under the Dealers Day in Court Act. We affirm this judgment as to Chrysler Motors, but reverse and remand as to Chrysler Corporation.

The intervenor, Chrysler Credit Corporation (Delaware) obtained a verdict for $49,000.00 against C. C. York and Jerry A. York. Chrysler Credit seeks to have York Chrysler-Plymouth, Inc., added to the judgment and the Yorks seek to have the judgment set aside. We affirm.²

This case had its genesis in 1963, when C. C. York and his son, Jerry A. York, purchased 100% of the stock of Barnes Motors, Inc., a Chrysler-Plymouth dealership located in the downtown section of Mobile, Alabama. The purchase price was $75,000.00, of which $70,000 was borrowed from Commercial Credit Corporation and the remaining $5,000 was provided by Jerry A. York. C. C. York, who served as president of the dealership corporation, took title to two-thirds of the capital stock. Jerry A. York, who served as vice-president, owned the other third.

In 1964, a representative of Chrysler Motors Corporation approached the Yorks with the proposition that they move their business from its downtown location to the new "automobile row" being developed on the outskirts of Mobile. The Yorks agreed to this suggestion, and on October 21, 1964, they entered into a Dealer Relocation Agreement with Chrysler Motors. This agreement contemplated that Chrysler Motors would buy land and construct a new facility which would then be leased to the dealership corporation.

There were two other significant occurrences in 1964. First, the Yorks became short of working capital and had to obtain from Commercial Credit Corporation a three month moratorium on the $70,000 loan which had been taken out in connection with purchase of the dealership. Second, Chrysler Motors Corporation performed a "Dealership Survey," which pointed out that the cash flow position of the dealership was precarious. The survey recommended, among other things, that the capital loan with Commercial Credit be renegotiated. The Yorks declined, however, to take this step.

Chrysler Motors then suggested that the Yorks might obtain needed working capital by reorganizing the dealership under the "Dealer Enterprise Plan." In general terms, the Dealer Enterprise Plan works this way. Chrysler Motors Corporation provides as much as 75% of the dealership's required capital, taking preferred stock in the dealership corporation in exchange. The dealer contributes a minimum of 25% of the capital, taking common stock in exchange. The preferred stock is retired gradually, out of the profits of the business, so that the individual dealer eventually becomes sole owner of the business. Until the preferred stock is retired, however, Chrysler Motors controls the dealership's board of directors.

The Yorks initially expressed an interest in the Dealer Enterprise Plan (D. E.) and, in fact, submitted a D. E. application in December of 1964. By the time the application had been approved, however, they had become concerned over the fact that under the D. E. Plan they would have to give up control of the dealership, so they advised Chrysler that they were no longer interested in a Dealer Enterprise operation.

In the fall of 1965, the Yorks accomplished the relocation of their dealership. In conjunction with the move, a number of changes were made. The dealership's name was changed from Barnes Motors to York Chrysler-Plymouth, Inc. The Yorks also changed their financing, severing their relationship with Commercial Credit Corporation and placing their retail and wholesale financing with Chrysler Credit Corporation. In addition, Chrysler Credit made the dealership a $40,000 capital loan, which was used to pay off the balance of the outstanding loan with Commercial Credit and an outstanding bank loan.

Since the name and location of the dealership had changed, it was necessary for the Yorks to enter into a new franchise agreement with Chrysler Motors. Chrysler Motors was dissatisfied with the financial condition of the dealership, however, and refused to give the Yorks the same "Direct Dealer Agreement" under which they had previously operated. Instead the parties entered into a "Term Sales Agreement," which differed from the Direct Dealer Agreement in two respects.³ First, it ran for only a one year term. Second, it obligated the Yorks to increase their working capital. At the time the agreement was signed, however, Chrysler Motors informed the Yorks orally that it would not hold them to the strict requirements of the agreement, but would be satisfied with a good faith effort at increasing the working capital.

In January, 1967, Chrysler Credit performed an audit of the dealership's books in connection with renewal of the $40,000 capital loan. According to this audit, (the accuracy of which is not admitted by plaintiffs) the dealership's net worth was a deficit of $2,000 and its working capital was a deficit of some $34,000. Chrysler Credit then performed a physical inventory of the automobiles in possession of the dealership and discovered that 22 new and used cars had been "sold out of trust."⁴ The value of the cars sold out of trust amounted to slightly over $50,000.

On Monday, January 23, 1967, following the audit and discovery of the out of trust condition, representatives of Chrysler Motors Corporation met at the offices of York Chrysler-Plymouth with the regional manager of Chrysler Credit to discuss the future of the York dealership. The Yorks did not participate in this meeting, but were told that Chrysler Motors Corporation was trying to "work something out." The following day Chrysler Credit asked the Yorks to surrender the assets of the dealership corporation, in accordance with the security agreements held by Chrysler Credit. That evening, after the necessary papers had been reviewed by the Yorks' attorney, Chrysler Credit took over the assets of the dealership corporation. At the same time Chrylser Motors Corporation asked the Yorks to sign a mutual termination of the franchise. On advice of their attorney, they refused. Wednesday Chrysler Motors again asked the Yorks to resign from the dealership and the Yorks again refused.

This action was instituted on February 16, 1967. The Term Sales Agreement was allowed to expire by its own terms two months later.

I. Chryslers' Appeal of the $107,000 Judgment.

A. C. C. York and Jerry A. York as Parties Plaintiff.

Although not signing parties to the franchise agreement, C. C. York and Jerry A. York were so inextricably woven into it that we believe they could assert a claim against Chrysler Motors under the Dealers Day in Court Act. Section 1221(c) defines a dealer as any person or corporation "operating under the terms of a franchise." The individuals would not come within the scope of the Act merely because they were sole stockholders, officers and directors of the corporate franchise holder. Schaffer v. Universal Rundel Corp., 397 F. 2d 893 (5th Cir. 1968); Martens v. Barrett, 245 F.2d 844 (5th Cir. 1957). However, following the reasoning in Kavanaugh v. Ford Motor Company, 353 F.2d 710 (7th Cir. 1965), we believe that the Yorks were made essential to operation of the dealership by the agreement with Chrysler Motors. The Direct Dealer Agreement held by the Yorks at the old location recited that Chrysler Motors Corporation "has entered into this agreement relying on the active, substantial and continuing personal participation" of C. C. York and Jerry A. York, required them to maintain beneficial ownership and control of the stock in the dealership corporation, could be terminated if either of them died or failed to continue in the active management of the dealership or was convicted of certain crimes, and could even be terminated if Chrysler Motors thought that a disagreement between them might adversely affect the business.

Having thus visited upon the Yorks the personal responsibility for keeping the franchise viable, Chrysler Motors cannot now successfully maintain that they should be denied the benefits provided to dealers by the Dealers Day in Court Act. The trial court properly denied all moves to dismiss the individual Yorks as parties plaintiff.

B. Chrysler Corporation as Defendan...