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Ford Motor Credit Company v. Peter J. Maxwell; Sharon L. Maxwell; Thomas B. Smith; and E. Lori Smith

July 27, 2011

FORD MOTOR CREDIT COMPANY,
PLAINTIFF
v.
PETER J. MAXWELL; SHARON L. MAXWELL; THOMAS B. SMITH; AND E. LORI SMITH,
DEFENDANTS
THOMAS L. SMITH; AND E. LORI SMITH, THIRD-PARTY PLAINTIFFS
v.
CHESTER G. STEWART, THIRD-PARTY DEFENDANT



The opinion of the court was delivered by: Judge Munley

MEMORANDUM

Before the court is Third-Party Defendant Chester G. Stewart's motion to dismiss the third-party complaint of Thomas and E. Lori Smith. Having been briefed, the matter is ripe for disposition.

Background

Plaintiff Ford Motor Company ("Ford") initiated this action by filing a complaint in this court against Defendants Peter Maxwell, Sharon Maxwell, Lori Smith and Thomas L. Smith. (See Complaint (Doc. 1) (hereinafter "Complt.")). Ford alleged that defendants had breached their guaranty of payment on the indebtedness of Heritage Ford, Inc., a dealership in Orwigsburg, Pennsylvania, and sought damages based on that non-payment. (Id. at ¶¶ 1-2).

Ford filed a complaint in this court and served that complaint on the defendants. Defendants Sharon and Peter Maxwell did not answer the complaint, and the court granted Ford's motions for default judgment against these parties. (Docs. 19-20). Defendants Thomas and Lori Smith ("the Smiths") answered the complaint on December 20, 2010. On December 16, 2010, the Smiths filed a Third Party Complaint against Chester G. Stewart. (Doc. 24). That complaint alleges that the subject of the instant dispute between the Smiths and Ford is an Automotive Wholesale Plan Application for Wholesale Financing and Security Agreement ("Wholesale Agreement") entered into between Ford and Chester Stewart in February 1988. (Third-Party Complaint (Doc. 24) at ¶ 13-14). Stewart owned Heritage Ford when he made the agreement. (Id. at ¶ 15). The Smiths contend that Stewart remained the only approved dealer for Heritage Ford and the only signatory to the Wholesale Agreement when Ford terminated its sales and service agreement with Heritage in January 2008. (Id. at ¶ 16). The Smiths also allege that Stewart executed the security agreement at issue in this case. (Id. at ¶ 19).

The Smiths aver that they and the Maxwells began negotiations with Stewart for purchase of Stewart's interest in Heritage in March 2007. (Id. at ¶ 23). By April or May 2007 the parties had reached a tentative agreement, subject to proper documentation. (Id. at ¶ 24). The Smiths intended throughout the negotiations to operate Heritage as a Ford dealership. (Id. at ¶ 25). Stewart allegedly made material misrepresentations and omissions about Heritage's financial condition, Heritage's dealings with Ford Credit, and the process of obtaining Ford's approval for the transfer of ownership during the negotiations. (Id. at ¶ 26). The purpose of these misleading statements and omissions was to induce the Smiths to purchase Stewart's interest in Heritage Ford. (Id. at ¶ 27). The Smiths executed an agreement for Sale of Stock on July 6, 2007 with Stewart. (Id. at ¶ 28). Stewart purported to transfer all of his stock in Heritage to the Smiths for $500,000. (Id.). The Smiths would thus hold a majority share of the business. (Id.).

After July 6, 2007, the Smiths discovered that Heritage was "out of trust" with Ford and thus not in good financial standing with Ford Credit. (Id. at ¶ 29). This discovery was contrary to Stewart's representations. (Id.). The Smiths also discovered that, despite Stewart and Maxwell's promises, no arrangements had been made to transfer the franchise agreements for Heritage Ford to the Smiths. (Id. at ¶ 30). Neither Stewart nor Maxwell had made an effort to effect this transfer. (Id.). Because of Heritage Ford's financial problems and the failure of Stewart and Maxwell to seek approval of the transfer of ownership, Ford refused to approve the change of ownership in Heritage, and the Smiths were not allowed to operate the business as a Ford dealership. (Id. at ¶ 31). For the same reasons, Ford suspended Heritage's line of credit in August 2007. (Id. at ¶ 32).

In October 2007 the Smiths signed a continuing guaranty based on representations made by Maxwell. (Id. at ¶ 33). Maxwell led the Smiths to believe that signing the guaranty was necessary as part of the overall process for getting the Smiths approved as Ford dealers. (Id.). Ford cancelled Heritage's floor plan financing program in December 2007. (Id. at ¶ 34).

Ford alleged in its complaint that Heritage defaulted on obligations to Ford Credit under the Wholesale Agreement. (Id. at ¶ 35). Ford alleged that Heritage was "out of trust" and thus had defaulted on the agreement. (Id. at ¶ 36). Further, Ford contended that as soon as Ford Credit discovered Heritage was out of trust, the company took steps to protect its collateral under the Security Agreement. (Id. at ¶ 37). Ford Credit also claims Heritage owes a deficiency after sale of the collateral and application of the proceeds to Heritage's indebtedness. (Id. at ¶ 38). The Smiths contend that this alleged default came under the Wholesale Agreement executed by Stewart on February 1, 1988. (Id. at ¶ 39). Moreover, any material breech of the agreements between Heritage and Ford occurred prior to July 6, 2007, when the Smiths took ownership of Heritage Ford. (Id. at ¶ 40).

The Smiths allege that Heritage sold vehicles subject to Ford Credit's security interest without remitting payment to or holding the proceeds of the sales in trust for Ford Credit. (Id. at ¶ 41). They also allege that Stewart and/or Maxwell knowingly withheld form Ford payments received by Heritage for vehicles sold. (Id. at ¶ 42). These actions violated the agreements between Heritage and Ford Credit. (Id.). The actions also put Heritage "out of trust" with Ford. (Id.). The Smiths did not cause this situation, nor did they take any action which otherwise caused any default with Ford. (Id. at ¶ 43).

Thus, none of the actions taken by the Smiths led to a default on Heritage's Wholesale Agreement with Ford. (Id. at ¶ 44). No action taken by Heritage, the Smiths claim, could be their responsibility, since the transfer of ownership of Heritage was premised on material misrepresentations by Stewart and/or Maxwell. (Id. at ¶ 45). On January 15, 2008, the Smiths' counsel informed Ford Credit that the Smiths would not pay for the indebtedness allegedly run up by Smith and Maxwell. (Id. at ¶ 46).

The Smiths third-party complaint contains three counts. Count I alleges that liability to Ford Credit under the wholesale agreement resides with Stewart and not the Smiths and seeks a finding from the court that Stewart is solely liable to Ford Credit for all amounts related to the agreement. Count II alleges that the alleged default giving rise to Ford's claims is Stewart's fault, and contends that Stewart should indemnify the Smiths for any liabilty assigned to them in judgment. Count III seeks contribution from Stewart on Ford's claim under the continuing guarantee.

After the Smiths served this third-party complaint, Stewart filed the instant motion to dismiss. The parties then briefed the issues, ...


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