Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—2ndCir: Individual Dealer Liable Under Personal Guaranties for His Two Defaulting Honda Dealerships, (May 13, 2013)

By Peter Reap, J.D., LL.M.

The owner of two upstate New York Honda dealerships was personally liable under personal guaranties for the dealership inventory financing agreements that the dealerships entered into with American Honda Finance Corporation (Honda Finance), the U.S. Court of Appeals in New York City has ruled (American Honda Finance Corp. v. Simao, May 10, 2013, per curiam). In addition, the counterclaims asserted by the owner, Philip J. Simao, and his dealerships against Honda Finance for violation of the Automobile Dealers’ Day in Court Act (ADDCA) were without merit. A ruling of a federal district court entering summary judgment in favor of Honda Finance against both Simao and the two dealerships, and dismissing the counterclaims was affirmed.

Additional discovery. Initially, the appellate court reviewed the lower court’s denial of Simao’s request for additional discovery. A party seeking additional discovery to oppose summary judgment must submit an affidavit that demonstrates: (1) what facts are sought and how they are to be obtained; (2) how those facts are reasonably expected to create a genuine issue of material fact; (3) what effort affiant has made to obtain them; and (4) why the affiant was unsuccessful in those efforts, the court noted.

Simao's affidavit, in this respect, consisted largely of conclusory allegations that additional discovery was needed. As the district court had broad discretion to limit discovery in a prudential and proportionate way, it did not abuse its discretion by denying discovery here, the court determined.

Summary judgment. It was undisputed that the two dealerships failed to satisfy their payment obligations under the financing arrangements. The defendants argued in conclusory fashion that they were not in "default," but it was clear that assertion was based on its waiver, estoppel, and oral modification defenses.

As the district court held, in light of the unambiguous provisions in the contracts, which defined an event of default to include "Failure of Dealer[ship] to make any payment under this Agreement . . . when due and payable," these defenses failed as a matter of law, according to the appellate court.

Once the Dealerships defaulted, Simao became liable by operation of the guaranty agreements, and his affirmative defenses were unavailing. The Continuing Personal Guaranty signed by Simao on behalf of each dealership waived any available defenses "expressly, unconditionally and irrevocably" and "until all indebtedness [would be] paid in full."

Likewise, Honda Finance never waived its right to enforce the agreement by participating in settlement negotiations, according to the court. Rather, by the express terms of the guaranties, its rights were preserved even if it declined to promptly exercise them in the hope that it could work things out with the dealerships.

Simao's argument that he only signed the guaranties in an official capacity had no merit. Although Simao signed certain guaranties as a "member" of the dealerships, he also signed, in an individual capacity, a "Continuing Personal Guaranty" on behalf of each dealership, which guarantied the sums owed to Honda Finance. Thus, the fact that he signed other guaranties in a non-individual capacity was irrelevant.

Although the defendants contended that the district court's damages award did not properly credit them for certain vehicles allegedly seized by Honda Finance, the defendants neither raised the issue of missing collateral nor objected to the evidence submitted by Honda Finance in support of damages. Thus, this issue was waived.

ADDCA. Assuming Honda Finance was an "automobile manufacturer" under the meaning of the ADDCA, there was no showing of bad faith on the part of Honda Finance, the court decided. Honda Finance provided the defendants with three notices of default, before making a demand for immediate payment in full. Further, it agreed to discuss a workout, and considered (albeit briefly) a workout proposal, which was ultimately rejected in favor of filing suit.

The evidence showed that Honda Finance provided the defendants with plenty of notice and opportunity to cure the dealerships' defaults. Therefore a reasonable jury could have only found that Honda Finance did not act in bad faith and thus, could not be liable under the ADDCA.

The case is Nos. 12-1738-cv (L), and 12-1745-cv (CON).

Attorneys: Julian B. Modesti (Menter, Rudin & Trivelpiece, P.C.) for American Honda Finance Corp. Brian J. Butler (Bond, Schoeneck & King, PLLC) for Philip J. Simao.

Companies: American Honda Finance Corp.

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