A former Lincoln-Mercury dealer in Sacramento, Calif., is personally liable to Ford Motor Credit Co. for more than $500,000 owed under his floorplan financing and capital loan agreements, a federal judge has ruled.
The judge also rejected the dealer's assertion that Ford Credit and Ford Motor Co. had misled him by inflating the projected number of new vehicles that his dealership, Daugherty Lincoln-Mercury Inc., would be able to sell when he sought his franchises.
Michael Daugherty, the president and sole owner of the company, acquired the franchises in 1999 and signed personal guarantees for the loans, according to the court. Ford Credit received a security interest in all vehicles.
By June 2000, the dealership's new-vehicle inventory exceeded $7.6 million, almost four times its $2 million credit line.
Ford Credit had "accommodated Mr. Daugherty's request for additional financing," company spokeswoman Meredith Libbey said in a statement.
According to the court, in 2001 the dealership failed to make its contractual loan payments, stopped conducting business and voluntarily surrendered its remaining vehicles to Ford Credit.
Daugherty "closed his sales operations first, then a month later his service operations," says his lawyer, Michael Sieving, of Sacramento.
According to the court, Ford terminated the franchises, and the California New Motor Vehicle Board rejected the dealership's protest, finding that Ford had good cause to terminate because the dealership failed to conduct an adequate amount of business.
Ford Credit sued to enforce the personal guarantees, the court said. Daugherty and the dealership then filed their own claims against Ford Credit and Ford, including an allegation that Ford had delivered unwanted and unordered vehicles, an allegation the board's administrative law judge had rejected, finding that Daugherty had, in fact, ordered the additional cars.
In his decision, U.S. District Judge Lawrence Karlton said Daugherty offered no evidence to counter Ford Credit's assertion that the loan agreements were breached by nonpayment. He upheld Ford Credit's demand for payment under the guarantees.
As for claims against Ford and Ford Credit, the judge added, Daugherty and the dealership waited too long - almost five years - to pursue their claims of misrepresentation and fraud. If there had been fraud, they should have realized it by mid-2000, when the inventory was badly overstocked and exceeded the approved credit line, he said.
Similarly, the judge said, allegations of unfair business practices and breach of good faith weren't raised until after the statute of limitations ran out.
Ford Credit was awarded $505,218 in principal and interest - the deficiency, plus interest, on both the floorplan/wholesale and on the capital loan agreements, according to Ford Credit's Libbey. "Now we are pursuing attorneys' fees," she says.
Sieving, Daugherty's attorney, says his client may ask the judge to reconsider.
You may e-mail Eric Freedman at [email protected]