Court Opinion

ID: 3001493
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:17:15.825457+00
Date Added: 2024-06-11T08:43:00.291144
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 06-4140
RIDGE CHRYSLER JEEP, LLC, and SALES, INCORPORATED,

                                           Plaintiffs-Appellants,
                                v.

DAIMLERCHRYSLER FINANCIAL SERVICES AMERICAS LLC,
                                            Defendant-Appellee.
                         ____________
           Appeal from the United States District Court
      for the Northern District of Illinois, Eastern Division.
           No. 03 C 760—Virginia M. Kendall, Judge.
                         ____________
ARGUED SEPTEMBER 21, 2007—DECIDED FEBRUARY 20, 2008
                   ____________

 Before EASTERBROOK, Chief Judge, and KANNE and
ROVNER, Circuit Judges.
  EASTERBROOK, Chief Judge. Ridge Chrysler Jeep and
Dodge of Midlothian were dealers in Chrysler’s vehicles.
It provided floor-plan financing and was entitled by
contract to withdraw or limit financing if its position
became insecure. (We refer to “Chrysler,” which before
its spinoff into Chrysler LLC was a division of
DaimlerChrysler. Financing was by DaimlerChrysler
Financial Services, which survived the separation of
Chrysler from Mercedes Benz.)
  In 2002 Chrysler exercised its right to require the
dealerships to pay up front for their inventory. They
2                                            No. 06-4140

responded with this suit under the Automobile Dealers’
Day in Court Act, 15 U.S.C. §§ 1221–25, accusing Chrysler
of effectively ending the franchises without adequate
cause. Chrysler replied that it remained willing to fur-
nish whatever the dealerships could resell; if they could
not pay in advance they were free to obtain capital from
the many other firms that specialize in loans secured
by inventory.
  After Gerald Gorman, the CEO and principal owner
of the two dealerships, represented that he had been
unable to obtain third-party credit, District Judge
Andersen entered an interlocutory order compelling
Chrysler to continue to finance the inventory, provided
that Gorman raise new capital to improve Chrysler’s
position. Once Gorman filed an affidavit verifying that
he had secured $925,000, the district judge’s order took
effect. Despite Fed. R. Civ. P. 65(c), the judge did not
require the dealerships to give an injunction bond or
other security, and Chrysler neglected to take an appeal
from that omission. It has had cause to regret both the
district court’s oversight and its own inaction. See W.R.
Grace & Co. v. Rubber Workers, 461 U.S. 757, 770 n.14
(1983); Mead Johnson & Co. v. Abbott Laboratories, 201
F.3d 883, 887–88, amended, 209 F.3d 1032 (7th Cir. 2000).
  Discovery then got under way. The case was complex,
because the dealerships made claims under state law
and also argued that Chrysler had discriminated by
refusing to finance the purchases of non-suburban black
customers. For its part, Chrysler filed counterclaims
seeking repayment of outstanding loans. Discovery was
sidetracked once Chrysler learned that Gorman had lied
to Judge Andersen. The supposed $925,000 in new equity
was in fact a $750,000 loan from Edward Vrdolyak, then
the dealerships’ lawyer in this suit. The loan was secured
by some of Midlothian’s inventory and so did not provide
Chrysler with a cushion, as Gorman had represented.
No. 06-4140                                              3

The other $175,000 appeared to represent Gorman’s
sale of his shares in firms unrelated to the dealerships.
Changing some of Gorman’s existing assets from stock to
cash did nothing to improve Chrysler’s security.
   Chrysler sought to discover the dealerships’ business
records, many of which were on a computer. First plain-
tiffs denied having any such computer; then they said
that they could not access it after the dealerships closed
in late 2003; by the time Magistrate Judge Keys ordered
the dealerships to comply, the computer had been repos-
sessed and destroyed by its owner. Gorman had failed to
copy the data for disclosure to Chrysler. (The facts we are
reciting come from Magistrate Judge Keys’s findings,
which District Judge Kendall approved after the case
was transferred to her.)
   The magistrate judge also found that Gorman had lied
about his efforts to obtain loans from sources other than
Chrysler. Gorman assured Judge Andersen that he
had made personal inquiries and found banks unwilling
to lend because of the pending litigation; in a deposition,
however, Gorman conceded that he had not tried to obtain
floor-plan financing from anyone other than Chrysler until
after the district court entered its order. (Whether
Gorman’s representations should have led to any relief,
had they been true, is open to doubt. Suppose that no
one other than Chrysler was willing to finance the dealer-
ships’ inventory at any plausible interest rate. That
judgment of independent financiers would establish, not
that Chrysler should be compelled to loan more, but that
it had good business reasons for thinking itself insecure.)
   Plaintiffs’ verified complaint asserted that the allega-
tions of racial discrimination by Chrysler could be estab-
lished by contemporaneous notes that Gorman had main-
tained. During discovery plaintiffs were unable to pro-
duce these notes. Whether they never existed, or existed
4                                             No. 06-4140

but were destroyed to prevent revelation of their con-
tents, is unknown.
  To top this off, Gorman used the time when Chrysler was
an involuntary creditor to pay himself $1 million of a loan
to the dealerships that was supposed to be subordinated
to Chrysler’s position. Thus the promised $925,000 in new
capital (which actually was no more than $750,000) was
offset by a loss of $1 million in old capital. Gorman’s
“explanation” for this is that he deemed the subordina-
tion agreement to be invalid. He didn’t tell Chrysler about
this view, or his action based on it, until he had been
caught. As far as we can see, Gorman has never at-
tempted to establish that the subordination agreement is
invalid; he treats his unilateral belief as sufficient to
justify going back on his word to both Chrysler and Judge
Andersen.
  When the dealerships closed, they owed Chrysler
$4 million, about $500,000 more than when this litigation
began. The district court ordered the dealerships to pay
that debt on Chrysler’s counterclaim, and it dismissed
the dealerships’ claims as a sanction for misconduct dur-
ing the course of the litigation. 2006 U.S. Dist. LEXIS
63664 (N.D. Ill. Sept. 6, 2006). Only the dismissal for
misconduct is at issue on this appeal. Whether Chrysler
will be able to recover much of the money that the district
court ordered it to loan the dealerships without the
security required by Rule 65(c) is uncertain.
  Findings of fact must stand unless clearly erroneous,
and a district judge’s decision that a party’s misconduct
is serious enough to justify dismissal with prejudice
is reviewed for abuse of discretion. National Hockey
League v. Metropolitan Hockey Club, Inc., 427 U.S. 639
(1976). The limited scope of appellate review puts the
dealerships behind the eight ball. They try to lighten
their load by arguing that there is a strong presump-
No. 06-4140                                             5

tion against dismissal as a sanction, and that only “clear
and convincing evidence” can support outright dismissal.
Although one recent opinion in this circuit uses a “clear
and convincing evidence” standard, see Maynard v.
Nygren, 332 F.3d 462, 468 (7th Cir. 2003), we have ob-
served more recently that Maynard failed to discuss
Grogan v. Garner, 498 U.S. 279 (1991), and Herman &
MacLean v. Huddleston, 459 U.S. 375 (1983), which hold
that heightened burdens of proof do not apply in civil
cases unless a statute or the Constitution so requires.
See Wade v. Soo Line R.R., 500 F.3d 559, 564 (7th Cir.
2007). Neither a statute nor the Constitution requires
an elevated burden for dismissal as a sanction, when
the burden in the underlying suit is the preponderance
of the evidence. But we need not decide today whether
the time has come to overrule Maynard, as the district
court’s findings suffice on any standard.
  The dealerships’ appellate arguments are uniformly
unconvincing. They lead with the contention that the loan
from Vrdolyak was to Gorman personally, not to
Midlothian. This is unhelpful if true, for Gorman assured
Judge Andersen that he had raised new equity capital. His
affidavit says, among other things, “The source of the
capital investment was not a loan from a third party
that would require payment from dealership assets.”
But that is false. The record contains a note showing
Midlothian as the borrower and grantor of security in
its inventory. Vrdolyak wrote his check to Midlothian,
and the money was deposited to a corporate account.
Gorman says that he and Vrdolyak later agreed orally that
the money would be treated as an unsecured loan to
Gorman, but Vrdolyak himself did not agree. In a deposi-
tion, Vrdolyak testified that Midlothian is the obligor on
the note and Gorman a guarantor. Faced with a conflict
between the written word and Gorman’s uncorroborated
assertion, it can’t be clearly erroneous for the judge to
6                                             No. 06-4140

prefer the writings. Especially when Gorman’s testi-
mony was undermined by the fact that Midlothian paid
Vrdolyak $10,000 a month after the loan was made.
Gorman has no explanation for these payments other
than the inference that the district judge drew—that they
are debt service on a loan.
  Now consider the question whether Gorman lied to
Judge Andersen about his efforts to obtain floor-plan
financing. Gorman conceded during his deposition that
he did not try to obtain such credit until after Judge
Andersen entered his interlocutory order. When the
consequences of this statement—it confesses to perjury
in the affidavit filed with Judge Andersen—became clear,
Gorman filed another affidavit taking another tack. The
district court didn’t have to buy the latest story. Nor
was the district court obliged to interpret a banker’s
equivocal statement that he “could have” met Gorman
before the court entered interlocutory relief as proof that
Gorman did ask for a loan then. The banker added that
his institution was too small to finance the dealerships’
inventory. Midlothian needed $10 million in credit, and
this bank’s lending limit was $1.85 million. Gorman did
not tell Judge Andersen that his requests for credit
had been turned down because he approached lenders
without the requisite capacity. Making a request that
is certain to be rejected, for reasons unrelated to the
probability of repayment, is not a good-faith effort to
replace Chrysler’s financing; Gorman might as well have
asked one of his children for a loan. So even by Gorman’s
latest version his affidavit at the outset of this suit
was misleading.
  It is unnecessary to discuss any of the other aspects
of Gorman’s chicanery, though they too are supported by
adequate findings.
  As for the sanction: we have held that the penalty must
be proportionate to the wrong, see Ball v. Chicago, 2 F.3d
No. 06-4140                                               7

752 (7th Cir. 1993), but this does not assist the dealer-
ships. The principal wrong identified by the district
court—deceiving Judge Andersen to obtain an order worth
at least $500,000 to the dealerships—show that this
suit entails an abuse of the federal court’s process. One
who misuses litigation to obtain money to which he is
not entitled is hardly in a position to insist that the
court now proceed to address his legitimate claims, if
any there are. Plaintiffs insist that the claims of racial
discrimination are legitimate, but that is dubious. The
complaint and appellate brief narrate repugnant events,
but when the time came in discovery to produce the
notes that supposedly recorded the discriminatory state-
ments by Chrysler’s employees, the notes were nowhere
to be found. Plaintiffs have behaved like a pack of
weasels and can’t expect any part of their tale be believed.
Anyway, discrimination against would-be purchasers of
cars is actionable by the persons discriminated against. A
suit by persons claiming to be the victims of discrimin-
atory failure to make loans has been filed and settled.
Coburn v. DaimlerChrysler Services North America, LLC,
No. 03 C 759 (N.D. Ill.). The dealerships are only inciden-
tal losers (if discrimination occurred at all), and this
suit need not be kept alive on that account.
                                                 AFFIRMED
A true Copy:
      Teste:

                       ________________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit

                   USCA-02-C-0072—2-20-08