A federal judge has imposed sanctions on lawyers for GMAC, the bank that acts as the financial-services arm of General Motors that is now called Ally Financial, as requested by a pair of now-defunct car dealerships that had won a $4 million jury verdict in 2009 against the bank.
GMAC had put the two Kutztown, Pa., dealerships out of business when it seized them after claiming that they had failed to immediately turn over funds for 11 vehicles, lawyers representing the dealerships owned by Donald Mente had told the court at trial. The jury found that the dealerships were not “out of trust” under the terms of their contract with the bank.
After the verdict, GMAC brought a new action making the same arguments that it had during the trial, claiming that the Mente dealerships had breached their contract by not paying immediately for vehicles, but, rather, waiting for third-party payments to be made.
U.S. District Judge Juan R. Sanchez of the Eastern District of Pennsylvania agreed with Mente’s lawyers that the action is barred by the doctrine of claim preclusion because the arguments had already been heard and decided on in federal court, and ordered GMAC and its lawyers to pay for Mente’s attorneys’ fees as a sanction.
“This court is intimately aware of the issues tried during the earlier federal action and the evidence submitted in conjunction therewith,” said Sanchez, who presided over the trial. “The record amply supports a finding that GMAC’s counsel was well aware of the blatant and knowing misrepresentations made to this court, and the lack of factual and evidentiary support for these allegations,” Sanchez said in Ally Financial f/k/a GMAC v. Mente Chevrolet Oldsmobile.
He found that the route taken by lawyers for GMAC met the standard for showing that they acted “willfully” and in “bad faith” when they brought the instant suit rehashing their earlier arguments made during trial. Section 1927 of 28 U.S.C. allows for the imposition of attorney fees on anyone who “unreasonably and vexatiously” submits filings in a case.
“Bad faith can be shown through ‘the intentional advancement of a baseless contention that is made for an ulterior purpose, e.g., harassment or delay,’” Sanchez said, quoting from the U.S. Court of Appeals for the Third Circuit’s 1986 opinion in Ford v. Temple Hospital.
Sanchez took GMAC’s lawyers to task, saying that they “effectively blindsided the Mente defendants” when they filed for a temporary restraining order from a temporary judge who was on call and unfamiliar with the ongoing dispute.
“During Christmas week in December 2011, on the eve of the issuance of the mandate by the Third Circuit and payment on the judgment, GMAC filed a frivolous new action and sought a TRO before the emergency judge knowing that Judge Sanchez was out of town,” Kenneth Jacobsen, who was the lead trial counsel for Mente, said in an email shortly after Sanchez issued his opinion last week. “That action was based on and included allegations which had been specifically litigated — and lost — by GMAC in the prior jury trial and on appeal,” Jacobsen said.
Sanchez concluded his opinion by saying, “This case and the previous federal lawsuit between these parties has prolonged since 2008 … and this second action has effectively tied up more than one-million dollars awarded to the Mente defendants in 2009, an award that was affirmed by the Third Circuit Court of Appeals on November 15, 2011.
“The court believes the sanctions it imposes here are reasonable and justified in light of GMAC’s conduct, and will achieve the deterrent effect for which sanctions are intended,” he said.
Addressing the similarity of the claims raised by GMAC during the trial and the current suit, Sanchez said, “It is clear that the material facts alleged in each suit are the same, the documents are the same, and the underlying events giving rise to GMAC’s claims are the same and are therefore indisputably connected to those adjudicated in the earlier federal lawsuit.”
The thrust of GMAC’s argument is that under the Wholesale Security Agreement between itself and the Mente dealerships, it could request immediate payment from the dealerships, requiring payment to be transferred on the day a vehicle was sold, according to the opinion. If the dealerships failed to send payment immediately, GMAC could find them in default, or “out of trust.”
In 2009, though, the jury “specifically found the dealerships were not out of trust,” Sanchez said.
Jacobsen of Jacobsen Law Offices in Wallingford, Pa., couldn’t be reached for comment about how much he expected the attorney fees to total.
Steven Seward of Hinshaw & Culbertson in Fort Lauderdale, Fla., represented GMAC and couldn’t immediately be reached for comment.
(Copies of the 23-page opinion in Ally Financial f/k/a GMAC v. Mente Chevrolet Oldsmobile, PICS No. 12-1867, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •