On May 17, 1999 the Sacramento Superior Court granted two motions for summary judgment in the same case. The Sacramento office of Pillsbury Madison & Sutro LLP represented the Bank of Stockton ("Bank") in the matter and prepared both motions. One motion was in favor of the Bank on its complaint and the other was in favor of the Bank and several of its officers in defense of the cross-complaint in the matter. The orders, thus, concluded the entire matter, which had been scheduled for trial on June 14, 1999.
The litigation arose from the following facts:
On April 1, 1994 the Bank and Automobile Dealers Acceptance Corporation ("ADAC") entered into a written Recourse Contract Purchase Agreement (the "Agreement") which set forth the terms under which the Bank would purchase sub-prime automobile financing contracts from ADAC. ADAC obtained the financing contracts by purchasing them from independent used car dealers with whom ADAC had relationships. As the Bank bought contracts, the total amount financed on each contract was advanced to ADAC by the Bank (less certain withholdings), and the advanced amount was treated as a loan from the Bank to ADAC. ADAC was obligated to service and collect on the contracts, and customer payments on the contracts were remitted to the Bank to reduce ADAC's outstanding loan balance.
Under the Agreement, if any of the financing contracts became delinquent for a certain period of time, ADAC was obliged to repurchase the financing contracts from the Bank. The Bank also obtained personal and continuing guaranties from Ray F. Glover, Karleen Glover, Leroy N. Wilhite, Robin C. Wilhite and Thomas J. Field to secure ADAC's obligations to the Bank under the Agreement. Ray Glover, Leroy Wilhite and Thomas Field were the primary shareholders of ADAC.
Through several years of operation, ADAC sold in excess of $4 million dollars worth of loans to the Bank under the Agreement and generated a corresponding loan obligation to the Bank. Initially, ADAC satisfied its repurchase obligations on delinquent contracts. However, as the portfolio matured, the delinquencies, for a variety of reasons, worsened. Ultimately, ADAC began to fail on its repurchase obligations to the Bank, and ADAC and the guarantors refused to honor their repurchase obligations.
The Bank was forced to file a complaint for recovery of the amounts due under the Agreement and the guaranties. ADAC and the guarantors answered the Bank's complaint and in addition cross-complained for damages in excess of $20 million. In short, the cross-complaint asserted that the Bank and several of its officers, William Cook, W.E. Farnam, Jr., Melvin Caldwell and Robert Fandrich, had failed to make good on alleged oral representations to modify the Agreement and release the guaranties and otherwise had harmed ADAC's relationships with its network of dealers and with its other lenders.
The first motion sought a judgment on the Bank's complaint against ADAC and the guarantors for recovery of the amount loaned to ADAC and unpaid (likely to be approximately $1 million once the entire portfolio is run off) plus accrued interest, attorneys' fees and costs. The second motion was filed on behalf of the Bank and its officers seeking judgment on the cross-complaint. The Court found the arguments and evidence submitted in support of the motions dispositive and granted both motions.
The victories represent substantial achievements for the Bank in light of the well-publicized and widespread difficulties that have plagued the sub-prime financing market in recent years and generated substantial legal controversies around the country.
Attorneys in the Sacramento office of Pillsbury Madison & Sutro LLP represented the Bank and the officers throughout the litigation. Partner Greg Johnson and associate Jennifer McQuarrie were primarily responsible for the representation from inception to conclusion. Associates Doug Woods, Warren Binford and John Poulos made invaluable contributions to the research and briefing efforts.