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1

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

FORD MOTOR CREDIT COMPANY,

Plaintiff,

v. NO. CIV. S-04-2344 LKK/JFM

MICHAEL DAUGHERTY,

Defendant.

 /

AND RELATED COUNTER-CLAIM AND 

THIRD-PARTY COMPLAINT.

 /

Pending before the court are two motions for summary 

judgment, one filed by plaintiff and counter-defendant, Ford Motor

Credit Company (“Ford Credit”), and one filed third-party defendant

Ford Motor Company, Lincoln Mercury Division (“Lincoln Mercury”).

In the underlying suit, Ford Credit brings two breach of

guaranty claims against defendant Michael Daugherty (“Daugherty”)

regarding a wholesale agreement and a capital loan agreement and

promissory note. Ford Credit asserts that Daugherty induced it to

enter into these agreements by promising full payment, but that

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 The parties are well aware of the litigation history in 1

this case. Rather than provide a long and detailed account of the

litigation up to this point, the court incorporates by reference

pages 2-3 of the court’s February 23, 2006 order. 

 Facts are undisputed unless otherwise noted. Although 2

Daugherty and DLMI disputed some of the facts asserted by Ford

Credit and Lincoln Mercury, Daugherty and DLMI failed to offer any

evidence showing that there is a disputed fact. Instead, Daugherty

and DLMI cited to their Fourth Amended Answer, Counterclaim and

Third-Party Complaint. This pleading has not been verified. It

is well established that a party opposing a motion for summary

judgment may not rest upon allegations contained in a pleading.

Rather, the party must present admissible evidence showing that

there is a genuine issue for trial. See Fed. R. Civ. P. 56(e). 

Because Daugherty and DLMI present no such evidence, the court

accepts as true the facts set forth by Ford Credit and Lincoln

Mercury. 

2

Daugherty subsequently breached these guaranty agreements. 

Daugherty answered and filed a counterclaim against Ford Credit.

Daugherty and Daugherty Lincoln-Mercury Inc. (“DLMI”) also brought

a third-party suit against Lincoln Mercury.1

I.

FACTS2

In 1999, Daugherty acquired a Lincoln Mercury dealership to

be operated in Sacramento, California. Lincoln Mercury SUF 1. 

During the course of operations, DLMI entered into various

financing arrangements with Ford Credit including an agreement for

a capitalization loan and a separate agreement for wholesale

flooring for DLMI's new vehicle inventory. Ford Credit SUF 4. In

consideration of Ford Credit's agreement to finance DLMI's

acquisition of vehicles, and to secure DLMI's obligations under the

Wholesale Agreement owed to Ford Credit, DLMI granted Ford Credit

a security interest in all vehicles. Ford Credit SUF 5. In 2001,

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 Daugherty and DLMI object to Ford Credit’s SUF 11 and 12, 3

yet fail to offer any evidence that establishes that these specific

facts are in dispute. 

3

DLMI became unable to meet its contractual payment obligations

under the Wholesale Agreement and the Capital Loan Agreement to

Ford Credit. Ford Credit SUF 7. In December 2001, DLMI ceased to

conduct business and voluntarily surrendered the remaining nine

vehicles in its inventory to Ford Credit. Ford Credit SUF 8.

As of February 28, 2002, DLMI owed Ford Credit a deficiency

balance under the Wholesale Agreement of $108,093.25. Ford

Credit SUF 11. Interest accrued at a variable rate as set forth

in the Wholesale Agreement. Interest accrued on the principal

balance from February 28, 2002, through March 31, 2006, in the

aggregate sum of $43,925.84. Interest will continue to accrue at

the contract rate until entry of judgment. SUF 12. DLMI has paid 3

no amount of these deficiency balances. Ford Credit SUF 13. 

With respect to Lincoln Mercury, DLMI and Daugherty allege in

their counterclaim that representatives of Lincoln Mercury made

representations containing inflated estimates of potential sales

of new Lincoln Mercury vehicles that DLMI could expect in the

Sacramento market. Lincoln Mercury SUF 2. Daugherty claims that

he relied upon the representations of Lincoln Mercury in making his

decision to acquire the Lincoln Mercury dealership. Lincoln

Mercury SUF 3. 

DLMI and Daugherty allege that during several meetings,

representatives from Lincoln Mercury re-confirmed the earlier

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representations containing inflated estimates of potential sales

of new Lincoln Mercury vehicles that DLMI could expect to make in

the Sacramento market. Lincoln Mercury SUF 8. Daugherty claims

he relied upon those representations in ordering vehicles and DLMI

consequently became vastly overstocked with inventory. Lincoln

Mercury SUF 9. By June 2000, Daugherty and DLMI allege they had

over $7,600,000 in inventory, which they contend was

disproportionate to the normal inventory volume in the industry.

Lincoln Mercury SUF 10. 

It is undisputed that in December of 2001 DLMI closed its

business and in January of 2001, Lincoln Mercury sent a letter to

DLMI notifying DLMI of its intent to terminate the franchise

agreement for failure to conduct business. Lincoln Mercury SUF 11

and 12; Ford Credit SUF 8. DLMI filed a protest with the

California New Motor Vehicle Board (“NMVB”), protesting the

proposed termination of its franchises. Lincoln Mercury SUF 13.

A. THE DECISION OF THE NEW MOTOR VEHICLE BOARD

An evidentiary hearing on the protest was held January 7 and

January 9, 2003 before an administrative law judge. Lincoln

Mercury SUF 14. The NMVB adopted the decision of the

administrative law judge on April 24, 2003. Lincoln Mercury SUF

15. The ALJ made several findings of fact. First, the ALJ

determined that Daugherty did in fact order the additional cars to

sell (a fact DLMI contests in this litigation). Specifically, the

ALJ concluded that there was no doubt that Daugherty was aware that

the vehicles were being ordered to be built and delivered and that

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Daugherty not only desired them but required them in order to stay

operational. NMVB Decision at 24. Second, the ALJ concluded that

Lincoln Mercury had “established that Daugherty was not and is not

conducting an adequate amount of business as compared to the

business available to it.” Id. at 26. The ALJ explicitly stated

that “the cessation of business by Daugherty was not caused by

conduct of representatives of Lincoln Mercury.” Id at 27. 

II.

STANDARD FOR MOTIONS FOR SUMMARY JUDGMENT 

Summary judgment is appropriate when it is demonstrated that

there exists no genuine issue as to any material fact, and that the

moving party is entitled to judgment as a matter of law. Fed. R.

Civ. P. 56(c); See also Adickes v. S.H. Kress & Co., 398 U.S. 144,

157 (1970); Sicor Limited v. Cetus Corp., 51 F.3d 848, 853 (9th

Cir. 1995).

Under summary judgment practice, the moving party

[A]lways bears the initial responsibility of

informing the district court of the basis for

its motion, and identifying those portions of

"the pleadings, depositions, answers to

interrogatories, and admissions on file,

together with the affidavits, if any," which

it believes demonstrate the absence of a

genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the 'pleadings, depositions, answers to

interrogatories, and admissions on file.'" Id. Indeed, summary

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judgment should be entered, after adequate time for discovery and

upon motion, against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at

trial. See id. at 322. "[A] complete failure of proof concerning

an essential element of the nonmoving party's case necessarily

renders all other facts immaterial." Id. In such a circumstance,

summary judgment should be granted, "so long as whatever is before

the district court demonstrates that the standard for entry of

summary judgment, as set forth in Rule 56(c), is satisfied." Id.

at 323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986); See also First Nat'l Bank of Ariz. v. Cities Serv. Co.,

391 U.S. 253, 288-89 (1968); Sicor Limited, 51 F.3d at 853. 

In attempting to establish the existence of this factual

dispute, the opposing party may not rely upon the denials of its

pleadings, but is required to tender evidence of specific facts in

the form of affidavits, and/or admissible discovery material, in

support of its contention that the dispute exists. Fed. R. Civ.

P. 56(e); Matsushita, 475 U.S. at 586 n.11; See also First Nat'l

Bank, 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954 (9th Cir.

1998). The opposing party must demonstrate that the fact in

contention is material, i.e., a fact that might affect the outcome

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of the suit under the governing law, Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169, Assoc. of

Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1992)

(quoting T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n,

809 F.2d 626, 630 (9th Cir. 1987), and that the dispute is genuine,

i.e., the evidence is such that a reasonable jury could return a

verdict for the nonmoving party, Anderson, 477 U.S. 248-49; see

also Cline v. Industrial Maintenance Engineering & Contracting Co.,

200 F.3d 1223, 1228 (9th Cir. 1999).

In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue of

fact conclusively in its favor. It is sufficient that "the claimed

factual dispute be shown to require a jury or judge to , 04-

1993resolve the parties' differing versions of the truth at trial."

First Nat'l Bank, 391 U.S. at 290; See also T.W. Elec. Serv., 809

F.2d at 631. Thus, the "purpose of summary judgment is to 'pierce

the pleadings and to assess the proof in order to see whether there

is a genuine need for trial.'" Matsushita, 475 U.S. at 587

(quoting Fed. R. Civ. P. 56(e) advisory committee's note on 1963

amendments); see also International Union of Bricklayers & Allied

Craftsman Local Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401,

1405 (9th Cir. 1985).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56(c); See also In re Citric Acid Litigation, 191 F.3d 1090, 1093

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(9th Cir. 1999). The evidence of the opposing party is to be

believed, see Anderson, 477 U.S. at 255, and all reasonable

inferences that may be drawn from the facts placed before the court

must be drawn in favor of the opposing party, see Matsushita, 475

U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654,

655 (1962) (per curiam)). Nevertheless, inferences are not drawn

out of the air, and it is the opposing party's obligation to

produce a factual predicate from which the inference may be drawn.

See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45

(E.D. Cal. 1985), aff'd, 810 F.2d 898, 902 (9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party

"must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no 'genuine issue for trial.'"

Matsushita, 475 U.S. at 587 (citation omitted).

III.

ANALYSIS

Ford Credit and Lincoln Mercury move for summary judgment as

to all the remaining claims. Ford Credit and Lincoln Mercury argue

that the applicable statutes of limitations bar each of the claims

raised by Daugherty and DLMI. Ford Credit also argues that there

are no genuine issues of fact with respect to its breach of

guaranty claims against Daugherty. 

Daugherty and DLMI oppose both motions for summary judgment

and argue that the existence of disputed facts preclude summary

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judgment as to all the claims at issue. 

As a threshold matter, the court notes that Daugherty and DLMI

failed to tender any evidence of specific facts that would support

their contentions that factual disputes remain. Although Daugherty

and DLMI disputed several facts and factual conclusions alleged by

the moving parties, they did not submit any declarations,

depositions, or any other type of admissible evidence that would

establish a disputed fact. DLMI and Daugherty only cite to their

own Fourth Amended Answer and Counterclaim, and not to any

admissible evidence. This is improper.

It is well established that: 

In attempting to establish the existence of this factual

dispute, the opposing party may not rely upon the

denials of its pleadings, but is required to tender

evidence of specific facts in the form of affidavits,

and/or admissible discovery material, in support of its

contention that the dispute exists. 

Fed. R. Civ. P. 56(e). Here, DLMI and Daugherty have not tendered

any evidence of specific facts that support their contention that

factual disputes exist. For this reason and for the reasons

explained below, the court grants both motions for summary

judgment. 

A. CLAIMS PERTAINING TO FORD CREDIT 

1. Claims brought by Ford Credit Against Daugherty 

Ford Credit brings two claims for relief against DLMI: breach

of the wholesale agreement and breach of the capital loan

agreement. With respect to both claims, Ford Credit alleges that

DLMI and Ford Credit entered into two contracts, a wholesale

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agreement as well as a capital loan agreement. Ford Credit claims

it performed all of its obligations under these agreements and DLMI

breached the agreements by failing to pay Ford Credit according the

terms of the agreements. 

Daugherty and DLMI argue that “genuine issues of material

fact” still remain. Daugherty & DLMI Opp’n at 8:16. Despite this

statement, Daugherty and DLMI fail to tender any evidence that

establishes that there is a genuine issue for trial. To the extent

that Daugherty and DLMI dispute Ford Credit’s factual allegations,

they cite only to their Fourth Amended Answer, an unverified

pleading. As discussed previously, a nonmoving party may not rest

upon unverified allegations in its complaint as a grounds to defeat

summary judgment. See Fed. R. Civ. P. 56(e). 

Moreover, Daugherty and DLMI fail to tender any evidence as

to the affirmative defenses raised in their initial answer to Ford

Credit’s complaint. It is well settled that a motion for summary

judgment should be granted against a party who fails to make a

showing sufficient to establish the existence of an element

essential to that party's case and on which that party will bear

the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S.

317, 322 (1986). “There can be ‘no genuine issue as to any

material fact,’ since a complete failure of proof concerning an

essential element of the nonmoving party's case necessarily renders

all other facts immaterial.” Id. at 323. 

For these reasons, Ford Credit’s motion for summary judgment

as to its claims for breach of guaranty must be granted. 

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2. DLMI & Daugherty’s claim against Ford Credit

Following the court’s February 27, 2006 order, the only

remaining claim against Ford Credit is a claim for negligent

misrepresentation. Ford Credit argues that this claim is barred

by the applicable statute of limitations. Daugherty and DLMI

maintain that disputed facts remain. 

Negligent misrepresentation is a form of fraud. Balfour,

Guthrie & Co. v. Hansen, 227 Cal. App.2d 173, 192 (Cal. App. 1964).

The applicable statute of limitations for a claim of fraud is three

years. Cal. Civ. Proc. Code § 338. Under section 338, the cause

of the action is deemed to have accrued when the aggravated party

discovers the facts constituting the fraud or mistake. Id. 

Ford Credit alleges DLMI and Daugherty should have known of

the potential claim for fraud no later than June 2000. In June of

2000, the inventory of new vehicles at DLMI had risen to over

$7,600,000, which was in excess of the $2,000,000 credit line

amount from Ford Credit. See Decision of the NMVB at 15:24-28.

Ford Credit claims that this was when DLMI and Daugherty should

have discovered the facts constituting the fraud. 

DLMI and Daugherty fail to address the statute of limitations

issue in their opposition and instead argue that disputed facts

remain as to the claim of negligent misrepresentation. Once again,

however, Daugherty and DLMI fail to tender any evidence that

supports their contention that disputed facts remain. Instead,

Daugherty and DLMI cite to their Fourth Amended Answer and

Counterclaim. 

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 These were the second and third claims in DLMI and 4

Daugherty’s second amended answer and counterclaim. 

12

Since Daugherty and DLMI have failed to establish the

existence of a disputed fact, the court accepts as true the facts

tended by Ford Credit. Under the facts as presented by Ford

Credit, DLMI and Daugherty should have discovered the alleged

misrepresentation no later than June 2000. Therefor, DLMI and

Daugherty had three years from June 2000 to file a claim for

negligent misrepresentation. The claim for negligent

misrepresentation was not raised until March 21, 2005, when DLMI

and Daugherty filed their Second Amended Answer and Counterclaim.

The claim is therefore barred under the applicable statute of

limitations. 

For this reason, Ford Credit’s motion for summary judgment as

to DLMI and Daugherty’s claim for negligent misrepresentation must

be granted. 

B. CLAIMS PERTAINING TO LINCOLN MERCURY 

1. Breach of Implied Covenant of Good Faith & Unfair 

 Business Practices

Daugherty and DLMI allege that Lincoln Mercury violated the

covenant of good faith and fair dealing of the franchise agreements

and engaged in unfair business practices when Lincoln Mercury made

false representations as to the sales potential in the Sacramento

area. Lincoln Mercury argues that these claims are barred by the 4

applicable statute of limitations. Daugherty and DLMI assert that

the existence of disputed facts preclude summary judgement. 

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 The fact that DLMI was overstocked in June of 2000 and was 5

over the approved credit line is also verified in the decision of

the Motor Vehicle Board. 

13

The applicable statue of limitations for both actions is four

years. See Cal. Civ. Proc. Code § 337(1)(breach of implied

covenant of good faith and fair dealing) and Cal. Bus. & Prof. Code

§ 17208 (unfair business practices). Lincoln Mercury argues that

by DLMI’s own factual allegations contained in their complaint,

Daugherty and DLMI’s claim accrued by June 2000. In June of 2000,

DLMI was overstocked with an inventory of $7,600,000, far in excess

of their 2,000,000.00 credit line. At this point, Lincoln 5

Mercury contends, DLMI should have been aware of the alleged

misrepresentations made by Lincoln Mercury. 

DLMI and Daugherty maintain that “what DLMI knew, and when it

knew it, with regard to the instant claim has never been factually

determined or litigated.” Daugherty & DLMI Opp’n at 9:20-21. Once

again, however, Daugherty and DLMI fail to tender any evidence that

supports their contention that disputed facts remain. 

Since Daugherty and DLMI failed to establish the existence of

a disputed fact, the court accepts as true the facts tended by

Lincoln Mercury. Under the facts as presented by Lincoln Mercury,

DLMI and Daugherty should have discovered the alleged

misrepresentation no later than June 2000. Therefore, DLMI and

Daugherty had four years from June 2000 to file a claim for breach

of implied covenant of good faith and fair dealing as well as a

claim for unfair business practices. However, these claims were

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 These constituted claims six and seven of Daugherty and 6

DLMI’s third answer and amended complaint. 

14

not raised until January 6, 2005, when DLMI and Daugherty filed

their First Amended Answer and Counterclaim. The claims are

therefore barred under the applicable statute of limitations. 

For this reason, Lincoln Mercury’s motion for summary judgment

as to DLMI’s claim for breach of implied cotenant of good faith and

fair dealing as well as for the claim of unfair business practices

must be granted.

2. Misrepresentation-Deceit-Fraud & Negligent 

Misrepresentation

Daugherty and DLMI allege that Lincoln Mercury misled DLMI as

to the number of vehicles it could sell and that DLMI became a

Lincoln Mercury dealer because of these misrepresentations. 

6

As discussed in section A (2) of this order, these claims are

all a form of fraud. The applicable statute of limitations for a

claim of fraud is three years. Cal. Civ. Proc. Code § 338. Under

section 338, the cause of the action is deemed to have accrued when

the aggravated party discovers the facts constituting the fraud or

mistake. Id. 

Lincoln Mercury alleges DLMI and Daugherty should have known

of the potential claim for fraud no later than June 2000. In June

of 2000, the inventory of new vehicles at DLMI had risen to over

$7,600,000, which was in excess of the $2,000,000 credit line

amount from Ford Credit. See Decision of the NMVB at 15:24-28. 

////

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Lincoln Mercury claims that this was when DLMI and Daugherty should

have discovered the facts constituting the fraud. 

Daugherty and DLMI argue that there remain disputed issues of

fact as to the claims for fraud, and yet fail to tender any

evidence to support this contention. For the reasons already

discussed, the court accepts as true the facts as set forth by

Lincoln Mercury.

The claim for misrepresentation-deceit-fraud was filed on

January 6, 2005 and the claim for negligent misrepresentation was

filed on March 21, 2005. These claims are both, therefore, barred

under the applicable statute of limitations. For these reasons,

Lincoln Mercury’s motion for summary judgment with respect to the

claim for misrepresentation-deceit-fraud as well to the claim for

negligent misrepresentation must be granted. 

V.

ORDERS

Ford Credit and Lincoln Mercury’s motions for summary judgment

as to DLMI and Daugherty is GRANTED in full. The Clerk is directed

to ENTER judgment accordingly and CLOSE the case.

IT IS SO ORDERED. 

DATED: May 1, 2006.

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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