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ACIM NY, LLC v. Nissan North America, Inc.

United States District Court, S.D. New York

February 24, 2017


         UNDER SEAL[1]


          LAURA TAYLOR SWAIN United States District Judge

         On January 20, 2017, Plaintiffs ACIM NY, LLC d/b/a Nissan of Manhattan ("ACIM"), ALIM NY, LLC d/b/a Infiniti of Manhattan ("ALIM", and together, "Manhattan"), and BICOM NY, LLC d/b/a Jaguar Land Rover Manhattan ("BICOM") (collectively, "Plaintiffs") filed a Verified Complaint (the "Complaint") and Summons in New York State Supreme Court - New York County, as well as a Motion (the "Motion") by Order to Show Cause for a Temporary Restraining Order and Preliminary Injunction, against Defendants Nissan North America, Inc. ("NNA"), and Nissan Motor Acceptance Corp. ("NMAC") (collectively, "Defendants"). (Docket Entry Nos. 35, 43.) Defendants removed the case to this Court and Plaintiffs now seek a preliminary injunction and temporary restraining order: (1) enjoining NNA from taking any action to interfere with Plaintiffs' possession of premises located at 787 Eleventh Avenue, New York, NY, which Manhattan subleases from NNA; and 2) directing Defendant NNA, the prime tenant of the premises, to instruct Georgetown Eleventh Avenue Owners, LLC (“Georgetown”), the owner of the premises, to reimburse BICOM for Tenant Improvement ("TI") expenses incurred on behalf of Manhattan. (Memorandum of Law in Support of Plaintiffs' Motion by Order to Show Cause for a Temporary Restraining Order and Preliminary Injunction, and to File the Verified Complaint Under Seal (“Plaintiffs' Opening Br.”), Docket Entry No. 43, at 1.) The Motion is currently pending before the Court.

         This court has jurisdiction of this action pursuant to 28 U.S.C. § 1332.

         On February 16, 2017, the Court held oral argument on the Motion. The Court has carefully reviewed and considered all of the parties' submissions and arguments.

         For the reasons set forth below, Plaintiffs' Motion is denied. This Memorandum Opinion and Order sets forth the Court's findings of fact and conclusions of law in accordance with Federal Rules of Civil Procedure 52 and 65.

         Findings of Fact

         Manhattan is a Nissan/Infiniti dealership located in New York City. (Complaint ¶¶ 1, 15, 16.) BICOM is a licensed and authorized Jaguar Land Rover dealer and serves as the construction project manager for the construction project in premises, located at 787 Eleventh Avenue, which are leased from Georgetown by both BICOM and NNA. Id. ¶ 17. NNA sells Nissan and Infiniti vehicles to franchised Nissan and Infiniti dealers throughout the United States. Id. ¶ 18. NMAC operates as NNA's captive finance arm, providing both consumer and commercial financing to Nissan and Infiniti customers and dealers. Id. ¶ 19. NMAC also establishes wholesale credit lines and provides purchase money financing to enable participating dealers to acquire in-store inventory for retail sale to the public, a practice that is commonly referred to as “wholesale” or “floor plan” financing. (Decl. of Kevin Wagstaff in Opposition to Plaintiffs' Motion for Preliminary Injunction (“Wagstaff Decl.”), Docket Entry No. 25, ¶ 3.)

         In or around November 2015, Manhattan entered into a business relationship with Defendants to build a renovated Nissan/Infiniti dealership on “Auto Row” in the Midtown West area of Manhattan in New York City. (Compl. ¶ 2.) Pending the completion of the construction, Manhattan opened and continues to operate a temporary facility nearby. See id. ¶ 4. Plaintiffs and Defendants have entered into a series of interlocking franchise, financing, and real estate-related agreements, including Manhattan's sublease from NNA of the portion of the building at 787 Eleventh Avenue (the “Building”) that is the site of the planned Nissan/Infiniti dealership (the “Premises”). Manhattan and NMAC also entered into various working capital and mortgage loans and revolving lines of credit, in part to fund the construction of the Premises. (Decl. of Randy Brooks in Opposition to Plaintiffs' Motion for Preliminary Injunction (“Brooks Decl.”), Docket Entry No. 24, ¶ 5.) The Building is also the current and future site of BICOM's Jaguar Land Rover dealership, which is also undergoing renovation. BICOM has leased its portion of the Building directly from Georgetown. The financing, dealership, and real estate agreements among NNA, Manhattan, and NMAC include cross-default provisions under which defaults under financing and dealership standing covenants constitute defaults under other agreements, including the sublease.

         Manhattan breached its floor plan financing agreement with NMAC by failing to repay NMAC, for monies advanced in connection with the acquisition of cars for sale, proceeds of the retail sale of each financed vehicle. The failure to repay NMAC in connection with a given vehicle sale is referred to as a “sale out of trust” (“SOT”). Id. ¶ 4.

         By October 2016, Manhattan and other Nissan/Infiniti dealerships owned by Gary Flom “had sold hundreds of vehicles without paying off the liens to NMAC on those vehicles, including the sale of numerous vehicles to other Nissan and Infiniti dealers[, ]” and, as of February 10, 2017, the total SOTs for the group of dealerships was $7, 639, 891.57. Id. at ¶ 6. Plaintiffs represent, and Defendants do not dispute, that Manhattan's portion of the SOTs totals $6.5 or $7 million. (Hr'g Tr. at 10:25-11:3.) Defendants represent, and Plaintiffs do not dispute, that the financial transactions and arrangements among the parties and the other Flom-affiliated dealerships entail not only cross-defaults but also cross-collateralization, and the SOTs are therefore intertwined as a practical and legal matter with other outstanding indebtedness to NMAC. See id. at 22:4-25.

         As a result of the SOTs, NMAC suspended Manhattan's floor plan financing and construction loans extended. (Compl. ¶ ¶ 113, 114.) Following notification that the floor plan funding had been suspended, NNA sent ACIM and ALIM letters advising the dealerships that they were in breach of their dealership agreements. (See Wagstaff Decl. ¶ ¶ 14-15, Exs. 3, 4.) On December 22, 2016, NNA notified Plaintiffs that the lack of floor plan financing constituted default under an additional agreement between the parties and gave Manhattan thirty days, or until January 22, 2017, to cure the default. See id. ¶ 16, Ex. 5. The default under the additional agreement also constituted a default under Manhattan's sublease of the Premises. Plaintiffs, which have not cured the defaults, commenced this lawsuit on January 20, 2017. Plaintiffs are insolvent.

         Manhattan's Managing Partner, Gary Flom, represents that "Manhattan can cure the [sublease] default either by: 1) prevailing in the litigation more fully described in the verified complaint; or 2) recapitalizing Manhattan and replacing NMAC as the floorplan lender with a larger bank, such as Bank of America or Chase. Such negotiations are in progress and in [sic] committed to replacement financing to cure any alleged default should one be determined during the course of these proceedings.” (Declaration of Gary B. Flom in Further Support of Plaintiffs' Motion for Preliminary Injunction (“Flom Decl.”), Docket Entry No. 33, ¶ 32.) At oral argument, Plaintiffs' counsel confirmed that Flom's intent was to convey his personal commitment to securing replacement financing, rather than to represent that Manhattan had secured the commitment of a lender to provide such financing. (See Hr'g Tr. at 13:17-14:8.) Flom further represents that "[e]ven if it should take roughly 90-120 days to obtain financing for vehicle inventory (or a ‘floorplan'), [he] anticipate[s] a recapitalization of Manhattan shortly after construction is complete, but in no event later than July[] 2017." Flom Decl. ¶ 33. Manhattan was notified about the floor plan financing-related default in October 2016 (see Wagstaff Decl. ¶ ¶ 14-15, Exs. 3, 4), and has not yet secured a replacement lender, which calls into question the plausibility of Flom's implicit assertion that financing could be secured within a period of 90-120 days. Furthermore, Plaintiffs did not contest Defendants' assertions at oral argument that the financing agreements with NMAC for all of the dealerships in the area controlled by Flom have cross-default and cross-collateralization provisions, that Flom has outstanding SOTs with respect to multiple such dealerships and that, in light of the cross-default and cross-collateralization provisions, replacement of the floor plan financing for Manhattan would require the retirement of approximately $56 million in total outstanding Flom-related debt to NMAC as well as ongoing floor plan financing. (See Hr'g Tr. at 38:21-39:6, 39:17-40:9.) Thus, although the Manhattan-related SOTs total $7 million or less, the amount of new financing required to cure the defaults and prevent termination of the sublease is in the tens of millions of dollars. Plaintiffs' counsel was unable to represent that Plaintiffs have any prospect of recovering such an amount in this litigation or of securing alternative financing of that magnitude. See id. at 10:14-11:13, 39:17-40:9.

         BICOM, another Flom-affiliated business, currently occupies and operates its Jaguar Land Rover dealership in the Building and has been managing the renovation of space for its own and Manhattan's dealership spaces. (See Complaint ¶ 17.) BICOM has “secured alternate hard money financing at the exorbitant interest rate of 20%” to continue funding the construction project. Id. ¶ 115. The parties' contract with the Building's owner provides for TI reimbursement payments to BICOM and to Manhattan in connection with construction expenses. On or about July 20, 2016, Manhattan, NMAC, and NNA executed a Direct Payment Agreement (the “DPA”), providing for the payment of all TI reimbursements due and payable ...

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