United States District Court, S.D. New York
ACIM NY, LLC d/b/a NISSAN OF MANHATTAN, ALIM NY, LLC d/b/a INFINITI OF MANHATTAN, and BICOM NY, LLC d/b/a JAGUAR LAND ROVER MANHATTAN, Plaintiffs,
NISSAN NORTH AMERICA, INC. and NISSAN MOTOR ACCEPTANCE CORP., Defendants.
MEMORANDUM OPINION AND ORDER
TAYLOR SWAIN United States District Judge
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.
court has jurisdiction of this action pursuant to 28 U.S.C.
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.
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.
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, ¶
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.
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.
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
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.
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.
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 ...