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Car dealerships lose suit against GMAC

Two Eastern Shore car dealerships that were driven out of business when General Motors Acceptance Corp. called in their loans in 2009 lost a second time last week, when a judge found the financing company had not breached the contract nor any implied obligation of good faith and fair dealing.

The dealerships claimed that GMAC breached the contract by demanding, on Jan. 9, 2009, full payment by Jan. 12.

Bob Smith Automotive Group Inc., of Easton, and Giant GMC Inc, of Federalsburg, closed their doors when they could not repay the outstanding debt — about $13 million — and then sued Ally Financial Inc., the successor to GMAC, on April 11, 2011, in Talbot County Circuit Court.

Visiting Judge Karen A. Murphy Jensen ruled against the dealerships, saying the loan agreements provided that GMAC could demand payment on money owed at “any time and without reason.” Good faith and fair dealing are not at issue when a party is abiding by the express terms of the contract, Jensen added.

Ally’s attorney, Benjamin Rosenberg, said the multimillion-dollar case came down to the interpretation of contracts between parties well-versed in business relationships: car dealerships and financial lenders.

“The contractual language was very, very clear,” Rosenberg said of Ally’s right to call in the loan.

Due to the clarity, Rosenberg said his litigation strategy was to keep “focusing on the contractual language, not getting distracted in extraneous issues” such as the dealerships’ argument that Ally was not dealing fairly or in good faith.

“A litigator can find a lot of things to litigate about,” he added.

But an attorney for the dealerships disputed the claim of clarity, noting that Jensen stated in her opinion that the circuit court had earlier found “ambiguity in the contract documents” with GMAC. The dealerships had argued that a demand for payment could not be made without a determination that they were in default.

“We are disappointed, particularly because this case was decided on GMAC’s right to make demand rather than whether the dealerships were in default,” said the attorney, Richard A. “Rad” DeTar, of Miles & Stockbridge P.C. in Easton. “We felt the evidence showed there was no default and that the court’s determination that the agreement was ambiguous would cause the case to be decided based on whether there was default.”

No decision has been made regarding an appeal, DeTar said.

Rosenberg defended the actions of Ally and GMAC, saying they had in prior years negotiated repayment schedules with the dealerships that were not met.

“GMAC didn’t just pull the rug out from under” these dealerships, said Rosenberg, chairman of Rosenberg Martin Greenberg LLP in Baltimore. “They really tried to work with these dealerships during a hard economic time. The dealerships hadn’t made any of the benchmarks.”

Knew the risks

Jensen, in her written decision, noted the hard economic times that preceded and accompanied GMAC’s January 2009 demand for payment — specifically, the Great Recession of 2008, in which the federal government loaned money to General Motors, saying the car giant was too big to fail.

“There is no doubt that the [dealerships] were early casualties of this economic earthquake that continues to reverberate today,” Jensen wrote.

However, the companies knew the risks when they entered the car-dealing business and signed the Wholesale Security Agreement with GMAC, she added.

“In executing the WSA, the dealerships acknowledged the demand nature of the note,” Jensen wrote. “They promised to GMAC that once the vehicles in which GMAC had a security interest were sold, they would ‘faithfully and promptly’ pay GMAC the money owed, thereby relieving GMAC of its security interest. To read that language as restricting GMAC’s rights under the demand note transforms the note into something altogether different.”

Jensen’s decision, which came after four weeks of testimony, was the second and final phase of the trial. In February, Jensen ruled against the dealerships on their claims of intentional and negligent misrepresentation by GMAC and Ally.

Jensen was sitting in place of Talbot County Circuit Judge Broughton M. Earnest, who recused himself. Jensen is the administrative  judge for Caroline County Circuit Court, which, like Talbot, is in Maryland’s 2nd Judicial Circuit.

The case is Bob Smith Automotive Group Inc. et al. v. Ally Financial Inc., 20-C-11-007570, Talbot County Circuit Court.