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Guardino v. Chrysler Corp.

February 13, 1998

MICHAEL GUARDINO AND NORTH CICERO DODGE, INC., PLAINTIFFS-APPELLANTS,
v.
CHRYSLER CORPORATION AND CHRYSLER CREDIT CORPORATION DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. 94 L 5536 The Honorable David G. Lictenstein, judge Presiding.

The opinion of the court was delivered by: Justice Greiman

Plaintiffs, Michael Guardino and North Cicero Dodge, Inc. (NCD) brought suit to recover damages from defendants, Chrysler Corporation (Chrysler) and Chrysler Credit Corporation (Chrysler Credit). Plaintiffs claimed violations of the Illinois Motor Vehicle Franchise Act (the Act) (815 ILCS 710/1 et seq. (West 1992)); conspiracy to violate the Act; and breach of the implied covenant of good faith and fair dealing. The circuit court granted Chrysler Credit's section 2-615 motions to dismiss the claims against it and granted summary Judgement to Chrysler on the claims against it. Plaintiffs now challenge those rulings as well as the circuit court's determination that they were not entitled to a jury trial on the claims brought under the Act.

For the reasons that follow, we affirm.

The facts, taken most favorably to plaintiffs, are as follows: In 1962, NCD, a franchised Dodge car and truck dealership, was established at 2662 North Cicero Avenue in Chicago. Robert Grim was the sole owner for several years. In November 1988, he sold 17% of his stock to Guardino. Guardino then became the new car manager.

In August 1991, Guardino sought approval from Chrysler to purchase the remaining shares of NCD and to take over as a Chrysler dealer. Guardino and a Chrysler representative prepared a working capital and operating investment guide and a proforma balance sheet as part of the application process. These documents indicated that a net working capital of $431,289 was required and, taking in account a $450,000 loan that Guardino had arranged, the dealership would have $448,495 in working capital under Guardino's proposal.

Guardino and Grim reached an agreement whereby Guardino would pay Grim $300,000 and $150,000 would go into the dealership as working capital. Before the deal was approved, however, Chrysler Credit informed Guardino that a "floor check" inspection revealed NCD was "out of trust" by about $150,000. (Chrysler Credit had a "wholesale floor plan" with NCD, which was the arrangement under which NCD purchased vehicles.) This meant that the dealership had sold about $150,000 in new vehicle inventory without remitting the proceeds to Chrysler Credit. Chrysler Credit advised Guardino that this shortfall would have to be remedied prior to the closing of the purchase.

Grim and Guardino then entered into an agreement whereby $150,000 of the proceeds of the purchase price for the dealership would be paid to Chrysler Credit rather than to Grim. The deal was approved and Chrysler and Guardino entered in to a sales and service agreement in January 1992.

Sometime after the transfer, Guardino discovered that the dealership's books were not accurate. Several other cars were sold prior to closing, without Chrysler Credit having been paid for the obligation relating to them. This was in excess of the prior discovery. It was also discovered that the value of the used car inventory had been inflated. Guardino's new bookkeeper prepared a statement, reporting that the actual working capital at 1991 year end was approximately $28,000.

According to Chrysler's marketing plan, NCD was "nondesignated," meaning that if the dealership were to close, Chrysler would not try to replace it with another dealership at the same location. Guardino was not told of the designation prior to the transfer. Guardino testified that within two months of his purchase, he was called to the office of the zone manager, Jerry Greeley, for a meeting. He alleges that Greeley told him that NCD's location was "not viable" and stated that Chrysler wanted him to move the dealership. Guardino believed the location was viable. He further alleges that in the first 10 months after he took over, NCD sold more cars and trucks than the dealership sold for the entire year in both 1990 and 1991. However, he admitted that the dealership continued to lose money and that there was a continuing cash flow problem.

About nine months after Chrysler approved the transfer, Chrysler Credit issued an "initial trouble report" for NCD. On October 23, 1992, Chrysler Credit sent a letter to NCD stating that "an additional unencumbered and permanent cash investment of $276,000" was needed to support NCD's credit line. Chrysler Credit threatened to cancel the credit line.

Guardino obtained a commitment for an additional $175,000 loan, contingent on Chrysler agreeing to a dealership loan of $100,000 from its "Gillman" loan program. A Gillman loan is a loan from Chrysler, not Chrysler Credit, apparently given to assist dealers. Chrysler is not required to grant such loans, although a majority of these requests are honored. Chrysler denied the request. A memo summarizing the reasons for the denial referred to financial problems and noted NCD's "nondesignated" status.

In December 1992, Guardino attempted to sell the dealership's assets to Michael A. Christopolous and voluntarily terminate the dealer agreement. Guardino forwarded the buy/sell proposal to Chrysler around November 25, 1992. The proposal involved a move of the dealership to a new location nine blocks away. On December 23, 1992, Chrysler sent a letter to Guardino stating that it was still in the process of reviewing the proposal and was not in a position to approve at that time. The proposal was approved in mid-January 1993 and the transaction was ultimately consummated. However, allegedly because of the delay, Christopolous would not buy NCD's used car inventory.

On December 9, 1994, plaintiffs filed an amended complaint alleging violations of section 4(b)of the Act (for arbitrary and bad-faith conduct) and fraud against both Chrysler and Chrysler Credit. The circuit court granted Chrysler Credit's motion to dismiss with prejudice the claim against it for violation of the Act. The court denied a motion to dismiss the claim against Chrysler for violation of the Act. The court struck the fraud claims without prejudice and allowed plaintiffs to replead.

On May 19, 1995, plaintiffs filed a second amended complaint. Count I alleged that Chrysler violated sections 4(b) and 4(e)(6) (for refusing approval of the transfer). Count II alleged that Chrysler Credit breached its implied covenant of good faith with plaintiffs. Counts III and IV alleged fraud. The court struck count II with prejudice and ...


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