Guardino v. Chrysler Corp.

SIXTH DIVISION
February 13, 1998

Nos. 1-96-3156 & 1-97-0123 Consolidated

MICHAEL GUARDINO and NORTH CICERO ) Appeal from the
DODGE, INC., ) Circuit Court of
) Cook County.
Plaintiffs-Appellants, )
)
v. ) 94 L 5536
)
CHRYSLER CORPORATION and ) The Honorable
CHRYSLER CREDIT CORPORATION ) David G. Lictenstein,
) Judge Presiding.
Defendants-Appellees. )

JUSTICE GREIMAN delivered the opinion of the court:

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 judgment 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 count IV without prejudice. The court
granted plaintiffs leave to replead the fraud claim.
On November 30, 1995, the circuit court denied plaintiffs'
request to file a third amended complaint with counts against
Chrysler Credit for breach of implied covenant and violation of the
Act. On January 26, 1996, the court granted plaintiffs leave to
file a one count third amended complaint against Chrysler for
alleged violations of the Act.
On February 23, 1996, plaintiffs filed their fourth amended
complaint, alleging that Chrysler Credit conspired to violate the
Act. The court granted Chrysler Credit's motion to dismiss that
claim with prejudice and plaintiffs appealed (case No. 1 96 3156).
Both the one count third amended complaint and the one count fourth
amended complaint contained footnotes stating that plaintiffs did
not "intend by filing this pleading to waive their objections to
previous dismissal orders of previous pleadings."
On December 18, 1996, the court granted summary judgment to
Chrysler. The court also determined that plaintiffs had no right
to a jury trial on the claims brought under the Act. Plaintiffs
appealed (case No. 1 97 0123) and this court consolidated the
appeals.
Plaintiffs first argue that the circuit court erred in
granting summary judgment to Chrysler. Summary judgment shall be
granted if the pleadings, depositions, and admissions on file,
together with the affidavits, if any, show there is no genuine
issue as to any material fact and the moving party is entitled to
judgment as a matter of law. 735 ILCS 5/2 1005 (West 1996). The
circuit court must construe all pleadings, depositions, admissions
and affidavits strictly against the moving party and liberally in
favor of the opponent. Dockery v. Ortiz, 185 Ill. App. 3d 296,
304-05 (1989). Our review of a summary judgment ruling is de novo.
McNamee v. State of Illinois, 173 Ill. 2d 433, 438 (1996).
Plaintiffs contend that summary judgment was improper because
several fact questions remain as to whether Chrysler violated
section 4(b) of the Act. That section makes it a violation
"for any manufacturer *** to engage in
any action with respect to a franchise which
is arbitrary, in bad faith or unconscionable
and which causes damage to any of the parties
or to the public." 815 ILCS 710/4(b) (West
1992).

Few cases have substantively addressed claims under this
section. See Kawasaki Shop of Aurora, Inc. v. Kawasaki Motors
Corp., U.S.A., 188 Ill. App. 3d 664 (1989) (verdict finding a
section 4(b) violation was not against the manifest weight of the
evidence); see also Olympic Chevrolet, Inc. v. General Motors
Corp., 959 F. Supp. 918, 927 (N.D. Ill. 1997) (granting summary
judgment to defendant on claims brought under sections 4(b) and
4(d)(1) of the Act because plaintiff failed to raise an issue of
material fact); Knauz Continental Autos, Inc. v. Land Rover North
America, Inc., 842 F. Supp. 1034 (N.D. Ill. 1993) (refusing to
dismiss a claim brought under section 4(b)).
Plaintiffs allege that Chrysler violated section 4(b) when it:
(1) approved the transfer of the sale of the dealership to
Guardino; (2) denied the Gillman loan; and (3) delayed approval of
the buy/sell to Christopolous. Chrysler asserts, however, that
legitimate business reasons led to its decisions on the contested
actions and argues that plaintiffs failed to present anything more
than conclusions to show that they could prevail at trial. We
agree.
Plaintiffs contend that Chrysler acted in violation of section
4(b) when it approved the sale of the dealership to Guardino
because it knew, or at least should have known, that the $150,000
paid to Chrysler Credit only partially paid down the floor plan and
the dealership was undercapitalized. Guardino admits, however,
that the prior owner was submitting false financial statements to
Chrysler and it was only after he purchased the dealership and
discovered the inaccuracies that this information came to light.
He asserts that Chrysler "should have known" of the poor financial
situation because it had the ability to check. He does not provide
anything to show that Chrysler in fact knew there were false
records or that Chrysler suspected this was an undercapitalized
situation and purposefully failed to examine it. Guardino and a
Chrysler representative prepared the financial report relied upon
for the approval and according to that information it appeared to
be sufficiently capitalized. Not only Chrysler, but Guardino
himself, relied on these reports when deciding to enter into the
transfer agreement. The burden of determining whether the
investment was appropriate falls upon Guardino's shoulders, not
Chrysler's. Plaintiffs have failed to provide facts showing that
Chrysler acted arbitrarily, in bad faith or unconscionably when it
approved the sale to Guardino.
Plaintiffs allege that when the dealership was losing money
and after it was discovered that the prior owner's bookkeeping was
inaccurate and Chrysler Credit required additional capital,
Chrysler acted arbitrarily, in bad faith and unconscionably when it
denied the dealership a loan. Plaintiffs do not assert that
Chrysler was required to approve the loan. The memo regarding the
denial asserts several reasons for Chrysler's action, including the
financial situation of the dealership as well as the fact that the
site was "nondesignated." While Chrysler may have decided it would
not be a sound business decision to grant a loan to a dealership
that was losing money and financially weak and in a location that
Chrysler did not believe was viable, this does not indicate that
Chrysler acted arbitrarily, in bad faith or unconscionably.
Plaintiffs allege that Chrysler acted in violation of section
4(b) when it delayed in approving the sale of NCD's assets to
Christopolous. Plaintiffs contend that the delay was to
purposefully ruin the deal for them, but they provide no facts to
support this contention. The record indicates that Chrysler was
reviewing the deal and obtaining information from Christopolous
during the month of December. Plaintiffs have not pointed to
anything that would indicate an intentional delay of the approval,
nor is there anything beyond speculation to suggest an intent to
harm plaintiffs during consideration of this proposal.
Plaintiffs also contend that Chrysler violated section 4(e)(6)
of the Act when it initially rejected the buy/sell proposal.
Section 4(e)(6) makes it a violation for a manufacturer
"to refuse to give effect to or prevent
or attempt to prevent *** any motor vehicle
dealer or any officer, partner or stockholder
of any motor vehicle dealer from selling or
transferring any part of the interest of any
of them to any other person *** unless such
sale or transfer is to a transferee who would
not otherwise qualify for a new motor vehicle
dealers license *** or unless the franchiser,
having the burden of proof, proves that such
sale or transfer is to a person or party who
is not of good moral character or does not
meet the franchiser's existing and reasonable
capital standards and, with consideration
given to the volume of sales and service of
the dealership, uniformly applied minimum
business experience standards in the market
area. However, where such a rejection of a
transfer is made the manufacturer shall give
written notice of his reasons to the dealer
within 30 days of notice to the manufacturer
by the dealer of the proposed transfer." 815
ILCS 710/4(e)(6) (West 1992).

Chrysler admits it received the buy/sell proposal "no earlier
than" November 25, 1992. On December 23, 1992, it sent a letter to
Guardino stating that it was "still in the process of reviewing
this proposal," and it declined approval "for the time being."
This letter did not contain the permissible reasons for rejection
listed in the statute. The deal was not approved until mid-January
1993, over 30 days from the time of receipt.
Chrysler incorrectly argues that section 4 (e)(6) of the Act
does not apply to the proposal here because this was not a sale of
a "part" of the dealership. Rather, the proposal established a
successor franchise with a new franchise agreement, along with
NCD's voluntary termination, which is not within the purview of
section 4(e)(6). Chrysler contends that under section 4(e)(11) it
had 60 days to approve the proposal. That section makes it a
violation for a manufacturer
"to prevent or refuse to approve a
proposal to establish a successor franchise at
a location previously approved by the
franchiser when submitted with the voluntary
termination by the existing franchisee [unless
for several certain enumerated reasons].
However, when such a rejection of a proposal
is made, the manufacturer shall given written
notice of its reasons to the franchisee within
60 days of receipt by the manufacturer of the
proposal." 815 ILCS 710/4(e)(11) (West 1992).

By its terms, section 4(e)(11) is not applicable to the
instant case because this was not a proposal to establish a
successor franchise "at a location previously approved by the
franchiser." We also conclude, however, that section 4(e)(6) is
not applicable to the case at hand because the language of that
section applies only to a transfer of an equity interest, which
allows the original business entity who is the franchisee to
continue. The transfer contemplated by the Christopolous
transaction was not a sale of stock or a sale of a partnership
interest.
Section 4(e)(11) would have been the appropriate provision
governing this transaction except for the requirement that the
dealership location be modified. The transaction here involved the
sale of the dealership assets, a voluntary termination of the
dealership and transferring the dealership to a new location.
Neither section directly applies to the facts presented. We agree
with the circuit court that summary judgment must be entered for
Chrysler on these claims.
Plaintiffs next challenge the dismissal of their claims
against Chrysler Credit. A section 2 615 motion for dismissal
should not be granted unless it clearly appears that no set of
facts could be proved that would entitle plaintiffs to recovery.
Mt. Zion State Bank & Trust v. Consolidated Communications, Inc.,
169 Ill. 2d 110, 115 (1995). "In ruling on such a motion, only
those facts apparent from the face of the pleadings, matters of
which the court can take judicial notice, and judicial admissions
in the record may be considered." Mt. Zion, 169 Ill. 2d at 115.
We review such orders de novo (Estate of Strocchia v. City of
Chicago, 284 Ill. App. 3d 891, 898 (1996)), and all well-pleaded
facts and reasonable inferences are taken as true. Mt. Zion, 169 Ill. 2d at 115.
Chrysler Credit claims that plaintiffs waived their right to
object to the orders dismissing count II of the second amended
complaint (alleging that it breached the implied covenant of good
faith) and count II of the amended complaint (alleging that it
violated section 4(b) of the Act) because plaintiffs' subsequent
complaints did not incorporate those previous pleadings by
reference.
It is well established that a party who files an amended
pleading waives any objection to the circuit court's ruling on
former complaints. Foxcroft Townhome Owners Ass'n v. Hoffman
Rosner Corp., 96 Ill. 2d 150, 153 (1983); Du Page Aviation Corp. v.
Du Page Airport Authority, 229 Ill. App. 3d 793, 799 (1992). Where
an amended complaint is complete in itself and does not refer to or
adopt a prior pleading, the prior pleading ceases to be a part of
the record for most purposes, being in effect abandoned and
withdrawn. Foxcroft, 96 Ill. 2d at 154; Du Page, 229 Ill. App. 3d
at 799.
When plaintiffs filed their one count third amended complaint
against Chrysler for violations of the Act and their one count
fourth amended complaint against Chrysler Credit for conspiracy,
they included a footnote, stating that they did "not intend by
filing this pleading to waive their objections to previous
dismissal orders of previous pleadings." Plaintiffs contend that
this language preserved their claims for the purposes of review.
In Saunders v. Michigan Avenue National Bank, 278 Ill. App. 3d
307, 311-12 (1996), the plaintiff's amended complaint contained a
footnote stating that the prior complaints were attached to
preserve the previously dismissed claims for appeal. The court
found this sufficient to preserve issues for review despite the
fact that Saunders failed to attach those documents. Saunders, 278
Ill. App. 3d at 312. Because plaintiffs in the instant case
referred to the prior orders for the express purpose of preserving
objections, we do not believe this constituted waiver.
Nevertheless, we affirm the dismissals.
Chrysler Credit argues that it is not subject to section 4(b)
of the Act, which only prohibits violative conduct by a
"manufacturer, factory branch, factory representative, distributor
or wholesaler, distributor branch, distributor representative or
motor vehicle dealer." 815 ILCS 710/4(b) (West 1992). Plaintiffs
contend that Chrysler Credit is subject to that section because it
is a factory representative. We agree.
A "factory representative," is defined as
"a representative employed by a
manufacturer or employed by a factory branch
for the purpose of making or promoting the
sale of motor vehicles or for contracting
with, supervising, servicing or instructing
motor vehicle dealers or prospective motor
vehicle dealers." 815 ILCS 710/2(e)(West
1992).

We believe Chrysler Credit falls within this definition,
particularly where, as in this case, it is able to stop Chrysler
from approving the initial sale from Grim because of a sum due to
Chrysler Credit. Regardless, plaintiffs have failed to plead facts
supporting a section 4(b) claim against Chrysler Credit. The
factual allegations against Chrysler Credit center on its
insistence that it be paid for vehicles that plaintiff admits in
his complaint were "out of trust." Plaintiffs do not assert that
Chrysler Credit was not entitled to be paid for these cars.
Requiring plaintiffs to pay sums due for out of trust cars and to
have a certain level of capital before continuing to provide a line
of credit does not support a claim of bad faith, arbitrary or
unconscionable conduct. Because the complaint fails to plead facts
regarding violative action by Chrysler Credit, we affirm the
dismissal.
Plaintiffs also contend the circuit court erred in dismissing
count II of the second amended complaint, involving a breach of the
implied covenant of good faith. While every contract in Illinois
contains an implied covenant of good faith, it is not an
independent source of duties for the parties to the contract.
Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785, 792
(7th Cir. 1995); see Anderson v. Burton Associates, Ltd, 218 Ill.
App. 3d 261, 267 (1991) (while the obligation of good faith exists
in every contract in Illinois, "it is essentially used as a
construction aid in determining parties' intent" and does not form
an independent tort).
Plaintiffs also assert a claim for conspiracy against Chrysler
Credit. Civil conspiracy is a "combination of two or more persons
for the purpose of accomplishing by some concerted action either an
unlawful purpose or a lawful purpose by unlawful means." Adcock v.
Brakegate, Ltd., 164 Ill. 2d 54, 62 (1994). A plaintiff must
allege not only that one of the conspirators committed an overt act
in furtherance of the conspiracy, but also that such act was
tortious or unlawful in character. Adcock, 164 Ill. 2d at 63.
Plaintiffs' fourth amended complaint alleges that Chrysler
Credit conspired with Chrysler to violate section 4(b) of the Act,
that is, they conspired to act arbitrarily, in bad faith, and
unconscionably with regard to plaintiffs. It does not, however,
plead facts to support such a claim. While the complaint states
that Chrysler Credit acted with Chrysler to put the dealership out
of business in bad faith, there are no facts to support that
assertion. As discussed, the complaint asserts that Chrysler
Credit required payment for "out of trust" vehicles for which
Chrysler Credit was entitled to receive payment. We affirm
dismissal of these claims.
For the foregoing reasons, we affirm the circuit court's grant
of summary judgment to Chrysler and its dismissal of the claims
against Chrysler Credit. Because this ruling disposes of the
matter, we need not address the jury trial issue.
Affirmed.

CAMPBELL, P.J., and QUINN, J., concur.