A federal judge in New York has refused to block the former Chrysler Financial Corp. from cutting off floorplan financing for three dealerships in Westchester County. The judge said the company acted as a reasonable lender to protect itself from 'questionable financial practices.'
The practices included bounced checks, failure to account for unsold vehicles and erroneous financial statements, the court said.
The dealerships deny that they violated their floorplan agreements. They have found an alternative source of financing and will pursue claims for financial damages from Chrysler Financial and the former Chrysler Corp., their lawyer said. The companies are now known as DaimlerChrysler Financial Services North America and DaimlerChrysler.
Lazar's Auto Sales Inc., Lazar's Motor Car Corp. and Jimmy Lazar's GMC Truck Center Inc. in Westchester County had floorplan financing under security and master credit agreements. Lazar's Auto Sales is a Jeep-Eagle store; the other two dealerships sell BMW and General Motors vehicles.
The agreements authorized Chrysler Financial to terminate financing under specified circumstances. After it gave notice last fall that financing would end in January 1999, the dealerships sued in U.S. District Court to prevent the cutoff and to collect damages. The suit alleges breach of contract and violation of New York's dealer law.
U.S. District Judge Colleen McMahon did not issue a preliminary injunction against termination, but she did not rule on the ultimate merits of the dealerships' claims.
A spokesman for DaimlerChrysler said, 'We believe the judge properly ruled in Chrysler Financial's favor.'
In the suit, Charles Cartelemi, the president of the dealerships, contends that Chrysler Corp. and Chrysler Financial tried to pressure him to transfer his Jeep franchise to a nearby Chrysler-Plymouth dealership.
When negotiations failed and Cartelemi refused to give up the Jeep franchise, Chrysler Financial allegedly reacted with repeated and unjustified bank cutoffs, floorplan audits, finance holds, contract rejections based on technicalities and increased scrutiny of financial statements, the suit alleges.
Chrysler Financial told Cartelemi it would terminate the financing relationship. 'From our perspective, my client was not cooperating with Chrysler's intention to have it replaced as the Jeep dealer in that area,' said Cartelemi's lawyer, Leonard Bellavia of Mineola. 'They started floor-checking at least once a week and changed the rules, engineering hypertechnical defaults to beat him into submission.'
However, Chrysler sees the three dealerships as 'risky business,' according to Judge McMahon, and it had 'plenty of reasons to walk away from its relationship' with the dealerships. The judge pointed to evidence of 'financially irresponsible actions and financial warning signs,' such as bounced checks and poor financial records showing a negative net worth or low positive net worth at times in 1997 and 1998.
Chrysler Financial also contended that the dealerships failed to provide signed and audited financial statements, failed to submit accurate inventory purchase contracts, failed to pay for sold vehicles within five days after customers took title and improperly posted classic vehicles to inventory, thus overstating one dealership's net worth.
'Chrysler Financial does not deny it heightened its scrutiny beginning in the spring of 1997 or that it conducted more wholesale inventory audits than it otherwise might have,' the judge said. 'However, it attributes its actions entirely to the dealerships' precarious financial conditions and its own lender insecurity.'