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DALTON v. GENERAL MOTORS CORP.

October 14, 2005.

JAMES R. DALTON, et. al, Plaintiffs,
v.
GENERAL MOTORS CORP., et. al, Defendants.



The opinion of the court was delivered by: STANLEY CHESLER, District Judge

OPINION

This matter comes before the Court on a motion by the defendants, General Motors Corporation, and defendants Madaras, Romero, Doss, Chrzanowski, Powell, Wesley, and Gerosa (hereinafter "Defendants") for partial summary judgment against plaintiff Richard R. Dalton. [Docket Entry No. 5.] Defendants argue Mr. Dalton's claims against them are barred by a release agreement he signed in February of 2002.

By letter dated September 23, 2005, after the instant motion had been fully briefed and argued, plaintiffs' counsel requested leave (1) to withdraw the Affidavit of James R. Dalton submitted in connection with this motion; (2) to withdraw Mr. Dalton as proposed class representative without prejudice to any of his claims as a member of the putative class or otherwise; or, alternatively, (3) to file a motion to withdraw as counsel for Mr. Dalton. [Docket Entry No. 52.] As explained below, summary judgment is proper against Mr. Dalton whether or not Mr. Dalton's affidavit is considered. The Court, therefore, allows Mr. Dalton to withdraw his affidavit*fn1 but discusses below why summary judgment would be proper even if he did not. The withdrawal of Mr. Dalton's affidavit leaves no record evidence in opposition to the Defendants' motion and, therefore, the Court GRANTS summary judgment in favor of the Defendants and against Mr. Dalton. Moreover, the Court will allow the plaintiffs to withdraw Mr. Dalton as proposed class representative and allow Mr. Dalton to withdraw, without prejudice, his claims that are not subject to the Release Agreement on the condition that he remains amenable to discovery in this case as if he were a party. During a teleconference with the Court on October 12, 2005, plaintiffs' counsel sought to be relieved as counsel to Mr. Dalton the extent they might be obligated to continue to represent him in connection with ongoing discovery. The Court granted plaintiffs' counsel's request subject to certain conditions outlined in the Order issued on the date hereof. The Court now turns to its analysis of Defendants' motion for summary judgment, had Mr. Dalton's affidavit not been withdrawn.

  I. FACTS

  This case arises from commercial arrangements between a putative class of automobile dealers who entered into dealership agreements with defendant General Motors ("GM"). Mr. Dalton is a proposed representative of the putative class. The instant motion is limited to Mr. Dalton's claims.

  It appears from the record that GM approached Mr. Dalton in 1996 about entering into an agreement to form Trenton Chevrolet, Inc., d/b/a Princeton Chevrolet (the "Dealer Company"), to acquire the assets of Cahill Chevrolet, Inc. and operate a GM dealership at facilities located at 1100 Spruce Street, Lawrenceville. (Affidavit of Richard R. Dalton ("Dalton Aff") at para. 2; Complaint at para. 160-161.) GM represented that the new dealership had a potential earnings of $300,000 per year, a new dealership location would be forthcoming within a year of Cahill Chevrolet's closing, and construction of the new dealership would be finished within two to three years. (Dalton Aff. at para. 2.) Mr. Dalton stated he was not provided with financial data, GM assessments or studies, or environmental studies for Cahill Chevrolet before closing on the dealership. (Id. at para. 2.) To consummate the dealership agreement, Mr. Dalton signed a Buy-Sell Agreement, Shareholder's Agreement, Corporate By-laws, and Certificate of Incorporation, which Mr. Dalton stated were prepared by GM and not negotiable or negotiated in any way by Mr. Dalton. (Id. at para. 4.)

  According to the Dealer Company formation documents, GM invested a $750,000 in exchange for 7,500 shares of preferred stock, and donated an additional $500,000 in capital to the Dealer Company. (Mozingo Aff., para. 5 & Exh. A at I.1.2.) Mr. Dalton invested $200,000 in the dealership in exchange for 21% of the common stock, (Dalton Aff. at para. 5), and granted GM the right to buy his stock at book value if the Dealer Company suffered losses exceeding $190,000, (Mozingo Aff., Exh. A, para. III.3.1(e)).

  Mr. Dalton claims that GM made misrepresentations to induce him to buy into the Dealer Company. First, Mr. Dalton claims that GM failed to advise him that Edward Cahill, the dealer principle of Cahill Chevrolet and owner of the property on which the Dealer Company operated, suffered a loss of a half million dollars per year. (Dalton Aff. at para. 6.) Second, Mr. Dalton claims he discovered that Mr. Cahill had filed for bankruptcy two days before he closed on the Dealer Company. (Id.) Third, Mr. Dalton claims he discovered that, before Mr. Dalton closed on the Dealer Company, Mr. Cahill sold many of the predecessor dealership's vehicles without remitting proceeds to GM, and filed a lawsuit against GM that settled for undisclosed terms. (Id. at para. 7.) Fourth, Mr. Dalton claims he discovered environmental problems with the property on which the Dealer Company operated. (Id. at para. 8.) Although Mr. Dalton advised the board of directors of the Dealer Company that the new entity did not cause the contamination, GM-appointed board members required Mr. Dalton to pay for remediation. (Id. at para. 9.) Mr. Dalton stated that GM representatives told him GM would advance the clean up cost, but then GM treated the advance as a capital advance, which he claims "water[ed] down" his interest and increased the buyout price of GM's preferred stock. (Id.)

  Mr. Dalton withheld rent from Mr. Cahill to offset the costs of the environmental cleanup. (Id. at para. 10.) Mr. Cahill sued the dealership to recover the rent and GM, through its agents on the board of directors of Trenton Chevrolet, Inc., settled for undisclosed terms. (Id.) The Dealer Company never received proceeds from the settlement and continued to bear the cost of the cleanup. (Id.) Mr. Dalton stated that after the settlement, GM told him to pay for the clean-up initially and that it would repay the Dealer Company. (Id. at para. 11.) He stated "I was then ordered to expense the clean-up costs as a capital expenditure," which he claims had the effect of decreasing his percentage of ownership in the Dealer Company, and thus his percentage of the profits. (Id.)

  Mr. Dalton also claims that GM engaged in misconduct after he closed on the Dealer Company. Mr. Dalton stated that Defendants had not begun the search for a proposed site for the new dealership until 1998, the search took two and a half years to complete, and they failed to complete construction for another two and a half years, "through inattention and incompetence." (Id. at para. 12-13.) Mr. Dalton claims that GM demanded that the Dealer Company pay for expenses associated with the delays, which he argues were attributable to GM's incompetent design and construction. (Id. at para. 14.) Plaintiff further claims that GM demanded that such expenses be accounted for as a capital expense, further watering down his profits, devaluing his stock, and prohibiting him from retiring preferred stock. (Id.) Further, Mr. Dalton claims the delay caused him to incur the further expense of carrying inventory he ordered in reliance on GM's projected opening of the new facility. (Id. at para. 17.) Moreover, Mr. Dalton claims GM's delay in finishing the new property, coupled with a notice of eviction by Mr. Cahill, forced him to move into the new facility in February 2001, a year before its completion. (Id. at para. 18.)

  As a result of these problems, which Mr. Dalton claims GM either caused or was aware of before closing, the Dealer Company operated at a loss. (Id. at para. 15.) Indeed, by June, 2001, the Dealer Company had suffered losses in excess of $3.2 million. (Mozingo Aff. at para. 7.) In light of the Dealer Company's economic problems, Mr. Dalton stated that GM made contributions that "started as a `donation' [and] became a loan" to the Dealer Company, (Dalton Aff. at para. 15; Mozingo Aff. at para. 7), which he claims further watered down the value of his stock, (Dalton Aff. at para. 16).

  Mr. Dalton claims that, from September 2001 to February 2002, GM engaged in a "campaign to induce [him] to sign various documents" in connection with the new property. (Id. at para. 19.) Mr. Dalton discussed these documents with GM representatives, including Jeffrey Rochwanger and Gerard Calone. (Id.) Mr. Dalton questioned GM about the documents, and the parties discussed the prospect of him suing GM if he did not sign the documents. (Id.) Messrs. Rochwanger and Calone advised Mr. Dalton that if he did not sign them, he would be terminated. (Id. at para. 20.) Mr. Dalton stated the choice between walking away from the six years and $200,000 he had invested in the dealership or signing GM's documents placed him under tremendous pressure. (Id.) Mr. Dalton stated that he "was not permitted to obtain the advice of an attorney concerning the documents, and of course the terms and provisions of the documents were non-negotiable." (Id.) He claims he did not sign the reorganization documents voluntarily, but was "coerced and intimidated into signing them" and that he did not receive anything in exchange for signing them. (Id.) Ultimately, Mr. Dalton signed the reorganization documents on February 1, 2002.

  Among the documents was the February 1, 2002 Action by Board of Directors & Stockholders for Plan of Reorganization by Written Consent (the "Plan"). Pursuant to the Plan, defendant GM (1) forgave the Dealer Company six demand notes totaling $1,186,500 and converted that amount to donated capital; (2) made an additional donation to capital in the amount of $1,902,828; and (3) agreed that a previous subscription to the Dealer Company's capital in the amount of $551,800 would be converted to 2,268 shares of preferred stock for the price of $226,800 and that the remaining $325,000 would be converted into additional donated capital. (Mozingo Aff., Exh. D.)

  Also among the reorganization documents was the General Release and Arbitration Agreement (the "Release Agreement"), which forms that basis for Defendants' motion. The Release Agreement recites GM's financial obligations under the reorganization.*fn2 (Id., Exh. G, para. 1.) The Release Agreement further contains a paragraph entitled "Release of Claims," which provides in relevant part as follows:
In consideration of the promises contained in this Agreement, Dalton, on behalf of himself, his heirs, assigns, successors, agents and other legal representatives (hereinafter collectively referred to as the "Releasors"), does hereby release and forever discharge GM, the Dealer Company, and their predecessors, subsidiaries, officers, directors, employees, agents, representatives, successors and assigns (hereinafter collectively referred to as the "Released Parties"), from any and all actions, causes of actions, debts, expenses, claims, and demands of every kind, name and nature, both at law and in equity, which the Releasors now have, may have or ever had, arising from any events prior to the date of this Agreement, including, without limitations, any claims arising out of or in any way related to the obligations created by the Stockholders Agreements, the business relationship between GM and Dalton, any investment by Dalton in the Dealer Company, the sale of any land owned or occupied by the Dealer Company, any other matters related to the Dealer Company, Dalton's investment in the Dealer Company, or for personal injuries. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED FOR HEREIN, THE RELEASE IN THIS PARAGRAPH IS A GENERAL RELEASE AND THE SETTLING PARTIES INTEND AND AGREE THAT IT SHALL BE INTERPRETED, CONSTRUED AND ENFORCED AS SUCH.
(Id., Exh. G, para. 2(a).) Mr. Dalton further agreed not to sue GM or assist in any lawsuit against it that is covered by the release. (Id., Exh. G, para. 2(b).) Mr. Dalton signed the Release Agreement on behalf of himself individually and as president of the Dealer Company. (Id., Exh.G.) The record also reflects a document entitled "Agreement Regarding Documents and other Related Motors Holding Dealer Company Investment Issues" (hereinafter the "Investment Agreement"). (Id., Exh. H.) The Investment Agreement incorporates the Release Agreement by reference and states that Mr. Dalton (1) was advised by counsel in connection with the reorganization (id., Exh. H, para. 2(a)); (2) has such knowledge and experience in financial and business matters that he is capable of reading and interpreting the documents and evaluating the reorganization (id., Exh. H, para. 2(b)); (3) has been given access to documents and information related to the reorganization ...

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