494 B.R. 466
Bankr. C.D. Cal.2013Background
- Bankruptcy debtor American Suzuki Motor Corp. filed Chapter 11 and operated as the sole U.S. distributor of Suzuki products.
- South Motors Suzuki, Inc. held a 1995 SMS Dealer Sales and Service Agreement, later extended by a 1999 letter, which governed its relationship with the Debtor.
- The Debtor rejected the SMS Agreement on December 20, 2012; South Motors filed Claim No. 520-1 for damages and fees totaling $1,595,601.
- The Court held that repurchase obligations were prepaid with $200,898 already paid, and that only on-hand inventory and parts/Accessories would yield lost profits of $21,461.
- The Court precluded Florida dealer statutes’ retroactive application, found preemption by the Bankruptcy Code, and awarded the Debtor prevailing-party attorney’s fees subject to further evidentiary proceedings.
- The Court concluded South Motors’ future profits and FMV of the dealership were not recoverable and granted limited breach-of-contract damages based on inventory on hand at tender.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Preemption of Florida dealer statutes by §365 of the Bankruptcy Code | South Motors argues Florida statutes provide remedies and treble damages | Debtor argues Florida statutes are preempted by §365 and are not retroactive | Florida dealer statutes are preempted by §365 |
| Measure of damages for contract rejection | South Motors seeks lost profits for future sales/services and FMV | Debtor contends damages limited to on-hand inventory at tender; no future profits | Lost profits for future sales/services not recoverable; damages limited to on-hand inventory |
| Retroactivity of Florida Act provisions (FMV buyback, etc.) | Act provisions apply retroactively to SMS Agreement | Provisions are retroactive or unconstitutional as applied to pre-existing contracts | Act provisions not applicable retroactively; unconstitutional as applied |
| Attorney fees and costs allocation | South Motors seeks fees under Act and SMS Agreement; statutory reciprocity arguments | Debtor seeks fees under SMS Agreement; Travelers v. PG&E guidance on fee shifting in bankruptcy | Prevailing party attorney fees awarded to Debtor; amount to be determined after evidentiary hearing |
Key Cases Cited
- Baker & Drake, Inc. v. Public Service Commission of Nevada, 35 F.3d 1348 (9th Cir. 1994) (preemption analysis under Supremacy Clause; express/implicit preemption, industry regulation balance)
- Hillsborough Cty. v. Automated Medical Labs., Inc., 471 U.S. 707 (S. Ct. 1985) (Supremacy Clause; preemption in regulatory conflicts)
- In re Old Carco LLC, 406 B.R. 180 (Bankr.S.D.N.Y. 2009) (dealer-rejection preemption context; preemption of state dealer statutes)
- In re Rega Properties, Ltd., 894 F.2d 1136 (9th Cir. 1990) (contract rejection damages; right to breach remedies under state law)
- Martin v. U-Haul Co. of Fresno, 204 Cal.App.3d 396 (Cal.App.5th Dist. 1988) (notice-period damages measure; termination damages under California law)
- Travelers Cas. & Sur. Co. v. PG&E Co., 549 U.S. 443 (S. Ct. 2007) (Fobian rule; bankruptcy-specific fees permissible under state law)
- Perez v. Campbell, 402 U.S. 637 (S. Ct. 1971) (preemption and public policy under bankruptcy context)
- Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494 (S. Ct. 1986) (public health/safety exception to preemption principle)
- Chan v. Society Expeditions, 123 F.3d 1287 (9th Cir. 1997) (renvoi and choice-of-law limitations in contract disputes)