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BRONX CHRYSLER PLYMOUTH, INC. v. CHRYSLER CORP.

June 17, 2002

BRONX CHRYSLER PLYMOUTH, INC.; WESTCHESTER DODGE, INC.; JOHN PALADINO; AND DELORES PALADINO, PLAINTIFFS,
V.
CHRYSLER CORPORATION; CHRYSLER CREDIT CORPORATION, DONALD MILTZ; AND ROBERT DECLEMENTE, DEFENDANTS.



The opinion of the court was delivered by: Lynch, District Judge.

OPINION AND ORDER

This action arises from allegations that the defendants unlawfully coerced the plaintiffs into closing two car dealerships. While the plaintiffs originally asserted seven claims against the four defendants named in the complaint, a number of those claims were dismissed by this Court on September 20, 2000, and the parties have stipulated to the dismissal of several others. See Bronx Chrysler Plymouth, Inc. v. Chrysler Corp., No. 98 Civ. 6141(DAB) (JCF), Report & Recommendation, at 4-5, 19-20 (S.D.N.Y. Aug. 31, 2000) (adopted Sep. 26, 2000) ("R & R"); Chrysler Credit Aff. Ex. C (stipulation of dismissal with prejudice dated Oct. 9, 2001).

There remain in this action three claims asserted by the individual plaintiffs, John Paladino ("Paladino") and Delores Paladino ("Mrs. Paladino"), against defendants Chrysler Corporation ("Chrysler") and Chrysler Credit Corporation ("Chrysler Credit"),*fn1 and various counterclaims asserted by Chrysler and Chrysler Credit against the Paladinos. Chrysler and Chrysler Credit now move for summary judgment pursuant to Fed.R.Civ.P. 56 in their favor on all of the Paladinos' claims and Chrysler's counterclaims.*fn2 For the reasons that follow, the defendants' motions will be granted.

BACKGROUND

A. Factual Background

Chrysler is a motor vehicle manufacturer that sells new vehicles, parts, and accessories to independent, authorized dealers. Bronx Chrysler Plymouth, Inc. ("Bronx Chrysler") was once such a dealer. In December 1977, Chrysler and Bronx Chrysler entered into a Dealer Sales and Service Agreement (the "Bronx Franchise Agreement") that authorized Bronx Chrysler to operate a Chrysler-Plymouth dealership in the Bronx. John Paladino was an officer, a director, and the sole shareholder of Bronx Chrysler. (Chrysler 56.1 Stmt. ¶ 1; Chrysler Credit 56.1 Stmt. ¶ 13.) The sole source of financing for that dealership was provided by Chrysler Credit, a wholly-owned but independently-operated subsidiary of Chrysler. (John Paladino Aff. ¶ 5.)

According to Paladino, the defendants informed him sometime in 1991 that they wanted him to relocate his dealership from the Bronx to Westchester County. When Paladino expressed some reluctance, Chrysler and Chrysler Credit allegedly took a number of coercive steps that Paladino maintains were intended to force him to relocate the dealership. Chrysler, for example, allegedly refused to approve Paladino's requests for additional model lines and refused to provide Bronx Chrysler with a proper allocation of popular vehicle models, instead "dumping" less popular vehicles on the Bronx Chrysler dealership. (John Paladino Aff. ¶ 3.) At the same time, Chrysler allegedly provided some of Bronx Chrysler's closest competitors with extensive financial assistance, including preferred leases and real estate arrangements, advertising subsidies, relocation and renovation expenses, preferred financing arrangements, forgiveness or forbearance of monetary obligations owed to the defendants, preferred vehicle allocations, outright monetary grants, the approval of additional model lines for sale, and preferential rebates on vehicle sales. (John Paladino Aff. ¶ 4.)

Paladino maintains that as further inducement for him to relocate the dealership to Westchester, the defendants represented that they would forgive the indebtedness that Bronx Chrysler had accrued, a debt totaling approximately $500,000. (John Paladino Aff. ¶ 7; Pl. Resp. to Chrysler 56.1 Stmt. ¶¶ 6, 10.) Allegedly in reliance on that promise. Paladino decided to close Bronx Chrysler, whose financial situation had badly deteriorated. He terminated the Bronx Franchise Agreement in October 1992 and proceeded to negotiate the purchase of a Chrysler dealership located in New Rochelle, New York. (Chrysler 56.1 Stmt. ¶ 1; Chrysler Credit 56.1 Stmt. ¶ 1-3; John Paladino Aff. ¶ 7-8.) While Paladino claims that the defendants promised to finance the full purchase price of the Westchester dealership, Chrysler ultimately lent him only $250,000 (Ferrera Aff. Ex. 2 ("WDI Security/Capital Loan Agreement"); John Paladino Dep. at 110), leaving him to find additional funds by taking a home equity loan and borrowing more than $100,000 from his children. (John Paladino Aff. ¶ 8; Chrysler 56.1 Stmt. ¶¶ 5-6.)

In exchange for lending Paladino the money to purchase the Westchester dealership, Chrysler sought and obtained a personal guaranty from Paladino and his wife, Delores Paladino, for the loan and any future debts that Paladino's new dealership, Westchester Dodge, Inc. ("WDI"), might incur. Ferrera Aff. Ex. 4 ("Continuing Personal Guaranty"). Chrysler also agreed to forbear any immediate efforts to collect the outstanding Bronx Chrysler debts, for which Paladino acknowledged being personally liable, in order to permit Paladino to commence operation of the new dealership without the immediate burden of repaying those debts. In return, the Paladinos and WDI agreed to execute and deliver a promissory note to Chrysler in the principal amount of $352,934.98. (Ferrera Aff. Ex. 5 ("Chrysler Forbearance Agreement"); Ferrera Aff. Ex. 6 ("Chrysler Promissory Note").) The Paladinos and WDI agreed to enter into a similar forbearance agreement with Chrysler Credit and to execute and deliver to Chrysler Credit two promissory notes, one in the amount of $300,000 and one in the amount of $250,000. (Miltz Aff. Ex. A ("Chrysler Credit Forbearance Agreement" and "Chrysler Credit Promissory Note"); Chrysler 56.1 Stmt. ¶ 8.) These forbearance agreements and promissory notes were executed by the parties on June 2, 1993. (Chrysler 56.1 Stmt. ¶ 9.)

Nevertheless, upon the conclusion of these various agreements, Chrysler and WDI proceeded to execute a new Dealer Sales and Service Agreement (the "WDI Franchise Agreement"). (Ferrera Aff. Ex. 7-8.) Paladino was the sole shareholder of WDI, which commenced operations on June 7, 1993. (Chrysler 56.1 Stmt. ¶ 10; Chrysler Credit 56.1 Stmt. ¶¶ 7-9; John Paladino Dep. at 25.) Mrs. Paladino served as secretary and treasurer of WDI, but primary decision-making responsibility rested with her husband and the dealership's comptroller. (Maider Aff. Ex. F ("Delores Paladino Dep."), at 16-17.) Unfortunately, WDI too suffered from financial difficulties. (Chrysler 56.1 Stmt. ¶ 12.) As he acknowledges, Paladino contributed to those financial difficulties by causing the dealership to pay his personal debts and to pay a salary to Mrs. Paladino of approximately $150,000 per year when she performed no work. (Chrysler 56.1 Stmt. ¶ 49.)

However, Paladino alleges that the defendants played a substantial role in WDI's financial demise by engaging, once again, in punitive, discriminatory, and threatening practices. According to Paladino, Chrysler again denied his dealership the proper allocation of popular vehicles, causing WDI to lose business to competitors that were allocated those vehicles, and placed WDI at the lowest tier of its dealer customer satisfaction incentive program, which entitled WDI to receive an incentive of only $75.00 for each car sold, rather than the $300.00 received by dealers at the highest tier. (John Paladino Aff. ¶ 10-11.) While the defendants were contractually entitled to conduct periodic audits to determine the dealership's compliance with its contractual obligations, Paladino alleges that the defendants were selective and arbitrary in their auditing practices, requiring full compliance from WDI while tolerating substantial compliance from other dealers, and in one instance refusing to reschedule an audit on the day of the funeral of Paladino's stepson. (Chrysler 56.1 Stmt. ¶ 40; Chrysler Credit 56.1 Stmt. 1 24; John Paladino Aff. ¶ 12.) Paladino maintains that the defendants not only wrongfully denied WDI and its customers access to credit, but also provided considerable financial assistance to other unprofitable dealers in the area. (John Paladino Aff. ¶¶ 13-15.) Finally, Paladino asserts that Chrysler Credit personnel interfered with his operation of WDI, telling WDI employees that WDI soon would be out of business and, in a series of statements to Paladino, threatening to terminate WDI and even to foreclose on the Paladinos' home. (John Paladino Dep. at 561, 594-96, 687).

In February 1997, WDI filed a petition for bankruptcy protection under Chapter 11, voluntarily terminated the WDI Franchise Agreement, and ultimately sold the dealership's assets. (Chrysler 56.1 Stmt. ¶ 15.)

B. Procedural History

On July 22, 1998, the Paladinos filed this action in New York State Supreme Court, Bronx County; the defendants removed the case to federal court on August 21, 1998. The plaintiffs filed an Amended Complaint on October 13, 1998. On June 30, 1999, the bankruptcy trustee for WDI sold the debtor's right, title, and interest in all claims against the defendants to Chrysler Credit, which led to a stipulation dismissing with prejudice all of WDI's claims in this action. The plaintiffs accordingly filed a Second Amended Complaint on September 21, 1999.

The defendants then moved pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss all of the claims in the complaint. Adopting a Report and Recommendation ("R & R") prepared by Magistrate Judge James C. Francis IV, the Court (per Judge Deborah A. Batts) dismissed a number of the claims asserted in the Second Amended Complaint as time-barred and for failure to state a claim. The Court also held, however, that three of those claims were properly alleged and survived to the extent that they may have accrued within the applicable limitations periods — i.e., after July 22, 1995:(1) Chrysler's failure to act in good faith in performing or complying with written franchise agreements in violation of the Automobile Dealers' Day in Court Act, 15 U.S.C. § 1221-25 (Second Amend. Compl. ¶¶ 90-100); (2) the intentional infliction of emotional distress upon the Paladinos by both Chrysler and Chrysler Credit in violation of New York law (Second Amend. Compl. ¶¶ 77-81); and (3) the breach of a duty of good faith owed the Paladinos by both Chrysler and Chrysler Credit in violation of New York law (Second Amend. Compl. ¶¶ 82-85). (R & R at 8-10.)

The parties have completed discovery, and the defendants now move for summary judgment on the remaining three claims in the Second Amended Complaint and three counterclaims asserted by Chrysler seeking payment of the debts incurred by Bronx Chrysler and WDI for which the Paladinos allegedly are liable.

DISCUSSION

When adjudicating a motion for summary judgment, all ambiguities must be resolved in favor of the nonmoving party, although "the nonmoving party may not rely on conclusory allegations or unsubstantiated speculation." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998). The court "is not to weigh the evidence but is instead required to view the evidence in the light most favorable to the party opposing summary judgment, to draw all reasonable inferences in favor of that party, and to eschew credibility assessments." Weyant v. Okst, 101 F.3d 845, 854 (2d Cir. 1996). Summary judgment is then appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

To establish a genuine issue of material fact, the plaintiff "`must produce specific facts indicating' that a genuine factual issue exists." Scotto, 143 F.3d at 114 (quoting Wright v. Coughlin, 132 F.3d 133, 137 (2d Cir. 1998)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "If the evidence [produced by the nonmoving party] is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (internal citations omitted). "The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be ...


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