Ally Financial Inc. v. Bosch et al

Filing 66

ORDER GRANTING IN PART and DENYING IN PART Plaintiff's 53 Motion for Summary Judgment; DENYING Plaintiff's 61 Objections to evidence submitted in response to 53 Motion. Signed by Chief Judge Robert C. Jones on 03/29/2013. (Copies have been distributed pursuant to the NEF - KR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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ALLY FINANCIAL INC., a Delaware
corporation,

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Plaintiff,
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v.
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BOSCH MOTORS, INC., et al.,
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Defendant.
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3:10-cv-00677-RCJ-VPC

ORDER

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Currently before the Court is Plaintiff Ally Financial Inc.’s (“Ally”) Motion for Summary
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Judgment (#53).
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BACKGROUND
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Bosch Motors, Inc. (“Bosch Motors”) operated a new and used car dealership on the
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property located at 1205 E. Winnemucca Blvd., Winnemucca, NV (the “Real Property”) until
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approximately April 2009. (Bosch Decl. Ex. 1 ¶ 4(#57-1).) In order to finance its new and
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used vehicle inventory, Bosch Motors entered into a financing agreement with Ally, which
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Herbert and Mary Lou Bosch guaranteed. (Wholesale Security Agreement, Ex.2 (#57-1).)
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The financing agreement was documented by a Wholesale Security Agreement (“WSA”)
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entered into on June 13, 1990, and thereafter amended several times. (Id.) Subsequent loan
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agreements include Real Estate Loan Agreements, Deeds of Trust, Security Agreements, and
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Promissory Notes (collectively, including the WSA, “Loan Agreements”). (See, e.g., Exs. 3,
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4, 5, 6 (#57-1).) The Bosch family members also executed Guaranties for Bosch Motor’s
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performance under the various Loan Agreements. (See, e.g., Exs. 7, 8 (##57-2, 57-3).)
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The WSA provides that Bosch Motors will pay Ally on demand that amount that Ally

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advances or is obligated to advance to the manufacturer or distribute for each vehicle

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acquired. (WSA, Ex. 2 (#57-1).) It provides that Bosch Motors will promptly remit payment

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to Ally for sums advanced by it to Bosch Motors on vehicles that Bosch Motors sells and

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leases as each vehicle is sold or leased and also provides for payment of interest on those

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vehicle loans at Ally’s designated rate. (Id.) Under the WSA, as collateral for the loans, Bosch

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Motors granted Ally a security interest in its inventory of then owned or after acquired new and

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used vehicles held for sale or lease, and all proceeds of such vehicles. (Id.) Bosch Motors

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agreed to pay Ally’s legal fees and expenses incurred in exercising its rights and remedies.

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(Id.) It further provides that in the event of repossession of the vehicles by Ally, the rights and

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remedies applicable under the Uniform Commercial Code (“UCC”) shall apply. (Id.)
On June 30, 2006, Bosch Motors entered into an Equipment Loan Promissory Note and

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Security Agreement in favor of Ally in the amount of $73,259.08 (the “Equipment Loan”).

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(Equipment Loan, Ex. 6 (#57-1).) Pursuant to the Equipment Loan, Ally extended financing

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to Bosch Motors which enabled it to acquire two lifts, and air and lube systems (collectively,

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the “Equipment”). (Id.) Under the Equipment Loan, Bosch Motors granted Ally a security

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interest in the Equipment and all proceeds. (Id.) The Equipment Loan included a cross-default

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provision by which a default under any other lending agreement between Ally and Bosch

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Motors is a default under the Equipment Loan. (Id.) Ally is permitted to repossess the

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Equipment upon default, and Bosch Motors is required to pay Ally’s legal fees and expenses

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incurred thereunder. (Id.)

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On July 31, 2006, Ally loaned Bosch Motors the principal sum of $226,125.00 under a

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Working Capital Loan. (Working Capital Loan, Ex. D (#49-4).) In the event of a default, Ally

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is entitled to accelerate the loan balance and demand all unpaid amounts, and Bosch Motors

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is required to pay Ally’s costs of collection, including attorney’s fees and expenses. (Id.)

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Ally and Bosch Motors entered into four security agreements dated April 6, 1994,

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December 14, 2000, August 18, 2006, and May 22, 2008, respectively (collectively, the

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“General Security Agreements” or “GSA”).

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Agreement, Bosch Motors granted Ally a security interest in collateral, including but not limited

Under the April 6, 1994 General Security

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to all of Bosch Motor’s vehicle inventory whether financed by Ally or not, Bosch Motors’ parts

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inventory, its furniture, fixtures and equipment collateral (the “FF&E”), its accounts, and all

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cash and non-cash proceeds (collectively, the “Personal Property Collateral”). (April 6, 1994

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GSA, Ex. E (#49-5).)

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repossession and sale of the Personal Property Collateral, Ally may apply the proceeds, less

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expenses, to the partial or complete satisfaction of any of Bosch Motor’s indebtedness or

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obligation to Ally. (Id.) Ally perfected its security interest in the Personal Property Collateral

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by filing a UCC-1 financing statement with the Office of the Secretary of State of Nevada.

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(Financing Statements, Ex. H (#49-8).)

The General Security Agreement provides that in the event of

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On or about May 22, 2008, the Bosch Trust entered into a Commercial Real Estate

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Loan and Security Agreement under which Ally loaned the total principal amount of

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$1,580,363.22 to the Bosch Trust so that the Bosch Trust could refinance the existing loans

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against the Real Property (“Commercial Real Estate Loan”). (Commercial Real Estate Loan,

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Ex. I (##49-9, 49-10, 49-11).) The Commercial Real Estate Loan entitles Ally to non-judicially

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foreclose upon the Real Property in the event of a default. (Id.)

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Herbert Bosch, Mary Lou Bosch, Lee Bosch, and Susan Bosch (also known as Susan

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Rice) personally guaranteed Bosch Motors’ obligations to Ally. (Guarantee Agreements, Ex.

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L (##49-14, 49-15, 49-16).) All Defendants entered into one or more cross-default and cross-

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collateralization agreements with Ally (the “Cross-Default Agreements”). (Exs. M, N (##49-17,

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49-18).)

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Whenever Bosch Motors acquired new vehicles from a manufacturer or other dealers,

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Ally advanced funds directly to the manufacturer or other dealers on Bosch Motors’ behalf, and

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each advance constitutes a loan from Ally to Bosch Motors under the WSA. (Wayne Aff. ¶ 41

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(#49); WSA, Ex. B (#49-2).) In order to obtain financing for used vehicles, Bosch Motors

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searched for, selected, and purchased used vehicles which met Ally’s criteria for financing

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from auctions and other sources. (Wayne Aff. ¶ 43 (#49).)

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In addition to the interest due each month, Bosch Motors was obligated to pay the

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unpaid balance of any loan with respect to a vehicle promptly upon sale or lease of the vehicle.
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(Id. ¶ 49) Failure to comply with this obligation constituted a breach of the WSA, and a vehicle

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that is sold without the outstanding balance paid off promptly after sale is referred to as being

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“sold out of trust” or “SOT.” (Id.) Ally conducted periodic audits to confirm that Bosch Motors

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was complying with its loan repayment requirements. (Id. ¶ 50.) If Ally discovered a sold

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vehicle for which loan repayment is due, Ally made demand for payment at the conclusion of

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the audit, and if payment is not made, the vehicle was deemed SOT. (Id.) An SOT is a

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breach of the WSA and causes the debt to become unsecured because the collateral is gone.

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(Id. ¶ 51.)

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On or about October 15, 2008, Bosch Motors defaulted under the WSA when payments

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for seven vehicles totaling $253,040.09 which it had initiated to Ally via ACH (the Automated

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Clearing House) transfer were subsequently, on or about October 20, 2008, returned for non-

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payment by the Automated Clearing House because of insufficient funds. (Id. ¶ 52.) This

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failure to pay Ally for a total of seven vehicles created an SOT condition. (Id.)

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Following the October 20, 2008 default, Ally’s representatives conducted a collateral

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audit and discovered that Bosch Motors was in default of the WSA because it had sold twenty-

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eight vehicles and failed to pay Ally the proceeds of the sales of such vehicles. (Id. ¶ 53.) Ally

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then exercised its right to declare all obligations due to it from Defendants due and payable

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and to proceed with a non-judicial foreclosure sale of the Real Property. (Id. ¶ 54.)

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On October 23, 2008, Bosch Motors filed for bankruptcy protection under Chapter 11

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of the United States Bankruptcy Code. (Id. ¶ 55.) On February 23, 2009, the Bankruptcy

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Court ordered Bosch Motors, pursuant to a Stipulated Final Order (“Stipulated Order”)

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executed by both Bosch Motors and Ally, to take certain steps to dispose of Ally’s new vehicles

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and parts collateral and to repay Ally for the twenty-eight SOT vehicles. (Stipulated Order, Ex.

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R (#49-23).) Bosch Motors was required, inter alia, to return new vehicles in its inventory that

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were financed by Ally to GM for repurchase, return its inventory of parts, accessories and

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special tools to GM, and to apply the proceeds to its debt due to Ally. (Id.) The Bankruptcy

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Court also ordered that Bosch Motors deliver to Ally the used floored vehicles in its inventory

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that were financed by Ally for sale. (Id.) Bosch Motors was also required to make monthly
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payments of $15,000 to Ally. (Id.) In the event of a default, the Stipulated Order provided for

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Ally to seek a relief from stay order to foreclose on its collateral and pursue all of its rights and

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remedies under the agreements with Bosch Motors, and also provided that upon default, Ally

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could, without further notice, pursue all of its rights and remedies as to Bosch Motors’

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guarantors and non-debtor borrowers (the Bosch Trust). (Id.)

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Bosch Motors defaulted under the Stipulated Order by failing to make a payment due

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to Ally, and on April 6, 2009, an ex parte order terminating the bankruptcy automatic stay was

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entered, permitting Ally to foreclose on its collateral and pursue all of its rights and remedies.

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(Ex Parte Order, Ex. S (#49-24).) Ally took possession of and transported all the new vehicle

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collateral to secure storage pending repurchase by GM, took possession of the used vehicle

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collateral and transported it to auction, and also assisted Bosch Motors in its parts return to

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GM. (Wayne Aff. ¶ 62 (#49).) The bankruptcy case was dismissed on June 4, 2010.

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Ally disposed of the Personal Property Collateral by sale and applied the proceeds, less

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its costs and expenses, to the balance due from Defendants. (Id. ¶ 63.) Ally foreclosed on

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the Real Property on April 30, 2010 through a non-judicial foreclosure sale. (Id. ¶ 65.) The

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Real Property was sold at the Trustee’s sale for $465,000. (Trustee’s Deed, Ex. X (#49-29).)

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After an appraisal finding that $490,000 was the fair market value (“fmv”) of the Real Property,

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Ally credited $490,000 to the amounts due to it under the Commercial Real Estate Loan from

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Defendants. (Wayne Aff. ¶ 71-72 (#49).)

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Ally sold eighty-one of the new vehicles back to GM for $2,733,908.98, which is only

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$987.18 less than the amount the vehicles were financed for by Ally. (Id. ¶ 76.) Twenty new

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vehicles did not qualify for repurchase because of excess mileage, model year, or other

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condition affecting eligibility for repurchase. (Id. ¶ 82.) Nineteen of these vehicles were sold

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directly to other dealers via online or physical auctions. (Id.) The resulting shortfall from the

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sale of these nineteen new vehicles was $161,922.41 (Id.) One of these twenty new vehicles

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was sold directly to a third party, resulting in no shortfall. (Id. ¶ 78.) Sixty-six used vehicles

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were sold directly to other dealers via online or physical auction, and the resulting shortfall was

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$44,633.02. (Id. ¶ 79.)
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Of $227,044.17 worth of parts submitted to GM fro return, parts worth $219,837.44

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were accepted by GM. (Id. ¶ 80.) GM ultimately paid $206,293.29 for the parts, less than

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what it had agreed to pay due to the GM bankruptcy. (Id. ¶ 81.)

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Ally did not sell the FF&E, allegedly due to age, condition, and remote location of the
Bosch Motors dealership. (Id. ¶ 83.)

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Ally incurred expenses totaling $86,651.27 in connection with the disposition of the

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collateral. (Id. ¶ 89.) Ally collected a total of $480,818.21 in proceeds and credited the

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proceeds to Bosch Motors’ debt, along with the credit of $490,000.00 from the sale of the Real

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Property. (Id. ¶ ¶ 93, 94.) After applying all proceeds, Ally contends that Bosch Motors still

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owes $1,088,191.09 to Ally under the WSA, $244.20 in late charges under the Equipment

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Loan, $25,437.95 under the Working Capital Loan, and $1,065,662.33 under the Commercial

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Real Estate Loan as of May 31, 2012. Ally notes that it has ceased charging interest under

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the WSA since April 30, 2009, and ceased charging interest under the Equipment Loan and

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Working Capital Loan since November 19, 2009.
LEGAL STANDARD

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Summary judgment allows courts to avoid unnecessary trials where no material factual

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dispute exists. N.W. Motorcycle Ass’n v. U.S. Dep’t of Agric., 18 F.3d 1468, 1471 (9th Cir.

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1994). The court must view the evidence and the inferences arising therefrom in the light most

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favorable to the nonmoving party, Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir. 1996), and

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should award summary judgment where no genuine issues of material fact remain in dispute

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and the moving party is entitled to judgment as a matter of law. FED . R. CIV. P. 56(c).

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Judgment as a matter of law is appropriate where there is no legally sufficient evidentiary basis

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for a reasonable jury to find for the nonmoving party. FED . R. CIV. P. 50(a). Where reasonable

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minds could differ on the material facts at issue, however, summary judgment should not be

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granted. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995), cert. denied, 516 U.S.

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1171(1996).

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The moving party bears the burden of informing the court of the basis for its motion,
together with evidence demonstrating the absence of any genuine issue of material fact.
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Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden,

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the party opposing the motion may not rest upon mere allegations or denials in the pleadings,

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but must set forth specific facts showing that there exists a genuine issue for trial. Anderson

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v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Although the parties may submit evidence

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in an inadmissible form — namely, depositions, admissions, interrogatory answers, and

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affidavits — only evidence which might be admissible at trial may be considered by a trial court

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in ruling on a motion for summary judgment. FED . R. CIV. P. 56(c); Beyene v. Coleman Sec.

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Servs., Inc., 854 F.2d 1179, 1181 (9th Cir. 1988).

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In deciding whether to grant summary judgment, a court must take three necessary

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steps: (1) it must determine whether a fact is material; (2) it must determine whether there

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exists a genuine issue for the trier of fact, as determined by the documents submitted to the

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court; and (3) it must consider that evidence in light of the appropriate standard of proof.

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Anderson, 477 U.S. at 248. Summary judgment is not proper if material factual issues exist

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for trial. B.C. v. Plumas Unified Sch. Dist., 192 F.3d 1260, 1264 (9th Cir. 1999). “As to

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materiality, only disputes over facts that might affect the outcome of the suit under the

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governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at

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248. Disputes over irrelevant or unnecessary facts should not be considered. Id. Where

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there is a complete failure of proof on an essential element of the nonmoving party’s case, all

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other facts become immaterial, and the moving party is entitled to judgment as a matter of law.

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Celotex, 477 U.S. at 323. Summary judgment is not a disfavored procedural shortcut, but

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rather an integral part of the federal rules as a whole. Id.
DISCUSSION

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Plaintiff seeks summary judgment on its claims for breach of contract, breach of the

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covenant of good faith and fair dealing, and unjust enrichment. Defendants do not dispute that

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they breached loan agreements and guaranties with Plaintiff, they merely dispute the amount

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of money that is owed. Specifically, Defendants dispute the fair market value of the Real

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Property on the date of foreclosure, and the value of other collateral Plaintiff credited to

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Defendants’ debt.
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While the parties did not discuss the issue, the Court notes that under Nevada law, “[a]n

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action based on a theory of unjust enrichment is not available when there is an express,

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written contract.” Leasepartners Corps. v. Robert L. Brooks Trust Dated November 12, 1975,

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942 P.2d 182, 187 (Nev. 1997). For that reason, the Court shall dismiss the claim for unjust

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enrichment, as there are written contracts clearly setting forth the terms of the parties’

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agreement, and Plaintiff has shown no facts supporting unjust enrichment separate from the

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contracts.

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Nevada law provides that “an implied covenant of good faith and fair dealing exists in

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all contracts.” A.C. Shaw Constr. Inc. v. Washoe Cnty., 784 P.2d 9, 10 (Nev. 1989). The

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covenant “essentially forbids arbitrary, unfair acts by one party that disadvantage the other.”

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Frantz v. Johnson, 999 P.2d 351, 358 (Nev. 2000) (citations omitted). In some jurisdictions,

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claims for breach of the covenant of good faith and fair dealing are dismissed as redundant

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when the claim is based on the same allegations as a claim for breach of contract. See, e.g.,

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Serdarevic v. Centex Homes, LLC, 760 F.Supp.2d 322, 334 (S.D.N.Y. 2010). Plaintiff has

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failed to allege any facts supporting a claim for breach of the covenant of good faith and fair

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dealing separate from the breach of contract claim. The evidence shows that Defendants

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breached the express terms of their contract, and Plaintiff does not argue that Defendants

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acted in any way that was arbitrary and unfair and contrary to the spirit of the contracts other

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than by failing to make payments as required by the contracts.

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There is no dispute, however, that Defendants are liable under breach of contract. The

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only dispute is the amount of liability remaining. Plaintiffs applied a credit of $490,000 to

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Defendants’ debt after selling the Real Property. Defendants argue that the Real Property had

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a higher fair market value as of the date of the trustee’s sale. As an initial matter, Nevada law

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provides that “[b]efore awarding a deficiency judgment under NRS 40.455, the court shall hold

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a hearing and shall take evidence presented by either party concerning the fair market value

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of the property sold as o the date of foreclosure sale or trustee’s sale.” NEV. REV. STAT . §

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40.457. Therefore, Nevada law precludes the Court from establishing the Real Property’s fair

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market value through summary judgment. Furthermore, there is a large discrepancy between
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the value of the Real Property as appraised by Plaintiff’s experts and by Defendant’s expert.

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For that reason, the Court shall deny granting summary judgment on the issue of the fair

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market value of the Real Property, and shall hold a hearing on the matter.

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Defendants also argue that Plaintiff did not sell or otherwise dispose of the Personal

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Property Collateral or the vehicles at a reasonable market value.

Defendants do not

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specifically dispute the manner in which Plaintiff sold Bosch Motors’ new and used vehicle

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inventory, but argue that Plaintiff disposed of the vehicles for substantially less than the

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vehicles’ wholesale value, and that Bosch Motors should have been credited with the full, fair

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value of the vehicle inventory, as valued in the Kelley Blue Book.

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The Nevada UCC requires that the method, manner, time, place, and other terms of the

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disposition of collateral must be commercially reasonable. NEV. REV. STAT . § 104.9610. The

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disposition of collateral is made in a commercially reasonable manner if it is made “(a) [i]n the

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usual manner on any recognized market; (b) [a]t the price current in any recognized market

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at the time of the disposition; or (c) [o]therwise in conformity with reasonable commercial

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practices among dealers in the type of property that was the subject of the disposition.” NEV.

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REV. STAT . § 104.9627. “The fact that a greater amount could have been obtained by a

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[disposition] at a different time or in a different method from that selected by the secured party

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is not of itself sufficient to preclude the secured party from establishing that the [disposition]

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was made in a commercially reasonable manner.” NEV. REV. STAT . § 104.9627. However,

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price obtained at sale is relevant as “a wide discrepancy between the sale price and the value

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of the collateral compels close scrutiny into the commercial reasonableness of the sale.” Iama

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Corp. v. Wham, 669 P.2d 1076, 1079 (Nev. 1983).

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Defendants argue that the Kelley Blue Book wholesale value of sixty-four of the vehicles

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that Plaintiff seized and sold was $283,724. (Kelley Blue Book, Ex. 10 (#57-4).) Defendants

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make no other arguments concerning the commercial reasonableness of Plaintiff’s disposition

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of these vehicles. In their brief, Defendants repeatedly state that even if Plaintiff’s disposition

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was commercially reasonable, a genuine issue of material fact remains because of the

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discrepancy between the sale price and the Kelley Blue Book value. However, in cases where
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a discrepancy in price and value necessitated scrutiny into the commercial reasonableness

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of the disposition of collateral, courts focus on the manner of the sale that might have caused

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such a discrepancy–in Levers v. Rio King Land & Inv. Co., the Nevada Supreme Court found

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that the secured party failed to provide reasonable notice to the debtor and took no steps to

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publicize the sale in any manner, and therefore the debtor was entitled to a credit equal to the

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fair market value rather than the sale price. Levers v. Rio King Land & Inv. Co., 560 P.2d 917,

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920 (Nev. 1977).

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Defendants have raised no genuine issues of material fact concerning the commercial

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reasonableness of the disposition of the vehicles besides the alleged discrepancy between

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sale price and value. Plaintiff gave notice of the disposition of the vehicles, and sold or

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returned certain vehicles to GM, sold other vehicles at dealer-only auctions or through direct

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sale. Courts have found that dealers-only auctions may be commercially reasonable. See,

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e.g., Beard v. Ford Motor Credit Co., 850 S.W.2d 23, 29 (Ark. Ct. App. 1993). The UCC

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provides that as long as the disposition is done in a commercially reasonable manner, which

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Defendants do not dispute, the fact that a higher price might have been obtained does not

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change the determination that the disposition was commercially reasonable. NEV. REV. STAT .

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§ 104.9627. For those reasons, we find that summary judgment is appropriate with respect

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to the amount of indebtedness remaining after Plaintiff credited Defendants for the vehicles.

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Defendants also argue that they are entitled to credit for the FF&E collateral and for

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vehicle parts. Plaintiff did not dispose of the FF&E because of age, condition, and the

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remoteness of Bosch Motors’ dealership location. FF&E collateral consists of the furniture,

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fixtures, and equipment collateral from the Bosch Motors dealership. Plaintiff submitted parts

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to GM for return, and most of the parts were accepted. Defendants have submitted evidence

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showing that their expert appraiser valued the furniture at $23,000, parts thrown away at

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$160,314, and equipment at $204,000. Because there exists a genuine issue of material fact

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concerning the value of the parts and FF&E that were not credited to Defendants’

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indebtedness, the Court declines to grant summary judgment on this issue.

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CONCLUSION

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For the foregoing reasons, IT IS ORDERED that the Motion for Summary Judgment

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(#53) is GRANTED IN PART AND DENIED IN PART. Plaintiff is entitled to summary

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judgment on its breach of contract claim; however, Plaintiff’s claims for breach of the covenant

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of good faith and fair dealing and for unjust enrichment shall be dismissed as redundant.

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Plaintiff is entitled to summary judgment with respect to the commercial reasonableness of its

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disposition of the vehicle inventory. Summary judgment is denied on the issue of the fair

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market value of the Real Property and the commercial reasonableness of Plaintiff’s disposition

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of the FF&E and parts collateral. The exact value of the remaining indebtedness shall be

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determined at a deficiency hearing to be held by the Court.
Plaintiff’s objections (#61) to evidence submitted in response to the Motion for
Summary Judgment (#53) on the grounds of relevancy are DENIED.

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DATED: This _____ day of March, 2013.
29th

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_________________________________
United States District Judge

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