A federal judge in California has thrown out a suit by former owners of a Hyundai dealership stemming from their default on more than $5.6 million in floorplan financing and a construction loan.
Closely related litigation remains active in state court, however, with a scheduling conference expected in August.
U.S. District Judge Josephine Tucker found insufficient grounds for Estes Automotive Group Inc. and principals Jim Estes and Carl Schneider to pursue a claim against Hyundai Motor America and Hyundai Capital America under the Automobile Dealers' Day in Court Act. The federal act is designed to prevent coercion of dealers by automakers. It also allows dealers to take franchise disputes to court.
The dealers bought Merced Hyundai in 2002. In 2007, the dealership obtained a construction loan from Hyundai Capital for an image facility as well as floorplan financing.
When the store encountered financial problems and fell behind in payments, it unsuccessfully discussed financial assistance with Hyundai Capital, the decision said. In January 2010, the lender demanded full payment of the $5,638,935 balance.
The plaintiffs closed the store four days later. It later reopened under new ownership.
The federal suit also alleged fraud, misrepresentation and conversion under California law and asked for more than $30 million in compensatory and punitive damages.
In her decision, Tucker said that neither Hyundai entity violated the act and granted summary judgment on that claim. The defendants didn't terminate, cancel or fail to renew the franchise or engage in "coercive or intimidating conduct," she said.
The fact that Hyundai applied the dealership's warranty repair reimbursements, factory rebates and incentives toward the debt didn't wrongfully "bleed the plaintiffs' assets and operating capital" as the suit alleged, she held.
Tucker dismissed the state law claims because they're pending in the previously filed Merced County Superior Court suit. In that case, Hyundai Capital accused Estes of selling vehicles out of trust and demanded about $1.7 million for floorplan financing.
The dealership and its principals counterclaimed against Hyundai Capital and brought Hyundai Motor America into both the state and federal litigation.
Dealership lawyer A. Sasha Frid of Los Angeles said the actual amount still at issue "is very much disputed."
Hyundai Motor America attorney Anthony Sonnett said he expects to seek dismissal of all the state court counterclaims.