Closed Chevy store liable for fraud-tainted loan
A closed Chevrolet dealership in suburban Houston is liable for more than $57,000, plus about $20,000 in attorney fees, for refusing to repurchase a fraud-tainted contract it had assigned to AmeriCredit Financial Services Inc., the Texas Court of Appeals has ruled.
The court rebuffed an attempt by SLT Dealer Group Ltd., which did business as Alliance Chevrolet in La Porte, Texas, to reverse a $57,509 summary judgment in favor of the lender, now GM Financial. The dealership closed March 11, 2009, according to GM.
The dispute arose from Alliance's sale in 2008 of a used 2003 BMW 745i to Gladys Wallace and assignment of the contract to AmeriCredit.
After Wallace missed the first payment, AmeriCredit discovered irregularities in the transaction, including false information in her credit application and tax returns, according to court filings. The company also learned that Wallace never visited the store and had signed the contract at home in the belief that she was making an investment and that the car would be resold within 30 days. A dealership employee, Victor Holmes, had paid her $500 to sign the contract.
Wallace never took possession of the car, the court said, and Holmes was later fired for "a number of improprieties," including the Wallace deal.
AmeriCredit also wasn't aware that Alliance had secured financing for several other vehicles in Wallace's name, the court said.
AmeriCredit demanded that Alliance repurchase the Wallace contract under the dealer agreement. When Alliance refused, AmeriCredit offset the $57,509 due for repurchase of the Wallace contract against what AmeriCredit owed Alliance on three other dealership customers' auto loans.
Alliance never completed the paperwork necessary to add AmeriCredit to the vehicle titles of those three cars, leaving AmeriCredit without a lien on them, the decision said. In addition, Alliance executed new contracts with the cars' buyers and assigned them to other lenders, the decision said.
Meanwhile, an unrelated third party filed a $23,250 mechanic's lien for repairs on the BMW, court documents said. After the lien was foreclosed, the car was auctioned for $2,000.
AmeriCredit sued Alliance for breach of contract, and a Harris County District Court judge awarded AmeriCredit damages.
Appeals court ruling
The three-judge appellate panel upheld that decision.
On appeal, the dealership argued unsuccessfully that AmeriCredit did not dispose of the collateral — the BMW — in a commercially reasonable manner as the Texas version of the Uniform Commercial Code requires because the car sold for only $2,000. If Alliance had won that argument, its obligation to AmeriCredit could have been reduced, the court noted.
But the court rejected that claim because the lender never took possession of the car. Rather, the holder of the mechanic's lien sold it for less than full market value.
"The duty to prove commercial reasonableness never came into play because AmeriCredit did not repossess or dispose of the Wallace vehicle," Chief Justice Sherry Radack wrote for the panel.
In addition, Radack said the lender had no legal duty to be "more aggressive" in repossessing the car.
AmeriCredit lawyer Donald Turbyfill of Devlin, Naylor & Turbyfill in Houston said the lender would not authorize him to speak about the litigation, and GM spokeswoman Ryndee Carney said she couldn't comment on details of the case. Dealership lawyer Michael Fuerst of Cypress, Texas, did not respond to requests for comment.
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